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Operator: Greetings, and welcome to the Aurora Cannabis Inc. Third Quarter 2026 Results Conference Call. All participants will be in a listen-only mode, and a question and answer session will follow the formal presentation. This conference call is being recorded today, Wednesday, February 4, 2026. I would now like to turn the conference over to your host, Kevin Niland, Director of Strategic Finance and Investor Relations. Please go ahead, sir. Hello, and thank you for joining us. Kevin Niland: With me is Miguel Martin, Executive Chairman and CEO, and Simona King, CFO. Earlier this morning, we filed our financials for the fiscal third quarter 2026 period ending December 31, 2025. Make sure our news release contains these results. This news release, with our financial statements and MD&A, is available on our IR website as well as via SEDAR Plus and EDGAR. We have also posted our investor presentation to our IR website for reference purposes. Our discussion today serves as a reminder that certain matters could constitute forward-looking statements that are subject to risks and uncertainties relating to our future financial or business performance. Actual results could differ materially from those anticipated in those forward-looking statements. Risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements. These documents may similarly be accessed via SEDAR Plus and EDGAR. Following our prepared remarks, we will conduct a question and answer session. With that, I'll turn the call over to Miguel. Please go ahead. Miguel Martin: Thanks, Kevin. Our quarterly performance reflects our strong competitive position in the rapidly expanding global medical cannabis market and continued commitment to profitable and sustainable growth. This success is supported by proven commercial execution and purposeful investments in science, technology, and talent. Additionally, our dedicated focus on improving patient and strengthening physician engagement has contributed significantly to these results. Let's begin with a brief review of the quarter. In fiscal Q3, first, net revenue increased 7%, driven by a record 12% growth in global medical cannabis revenue, including a 17% increase internationally. Notably, more than half of our total net revenue was generated outside of Canada. Second, adjusted gross margin rose 100 basis points to 62%, where we benefited from strong medical cannabis margins of 69%, which was the result of sustained growth in our higher-margin international markets. Third, profitability held strong, with adjusted EBITDA of $18.5 million and adjusted net income of $7.2 million. And finally, we generated positive free cash flow of $15.5 million and maintained our strong balance sheet with over $150 million in cash and the absence of cannabis business-related debt. Unlike most peers, we have focused on medical cannabis as the most promising industry segment for nearly a decade. We have therefore deployed considerable resources and investments, providing us with the following competitive advantages. We are one of Canada's largest global medical cannabis companies. We are Canada's leading exporter of medical cannabis. And finally, we are a market leader in the three biggest nationally legal medical cannabis markets outside of Canada. Notably, about 90% of our annual manufacturing capacity is produced within Aurora's European and TGA GMP-certified facilities and is subject to very stringent international standards. These standards are only increasing, significantly limiting the number of market participants. There is a limited number of cannabis companies like Aurora that have regulatory certifications for their manufacturing facilities that permit shipments directly to European and Australian markets. Aurora manufactures most of its own products and distributes them compliantly and profitably. This advantage helps to ensure consistency of supply around the world, critical to both prescribers and patients, and achieves lower manufacturing costs through higher yields, potency improvements, and other operational efficiencies. As this industry evolves, maintaining our momentum in global medical cannabis requires an even greater commitment. This entails dedicating our full attention to solidifying and growing our leadership position. Following a strategic review, we have identified the following actions. First, we will begin exiting select markets within the lower Canadian consumer cannabis segment, enabling us to further prioritize allocating products and resources to our higher-margin global medical cannabis business. Since consumer cannabis carries higher sales and marketing expenses than medical, this will benefit adjusted SG&A and consolidated adjusted gross margins in the coming quarters. While we expect some one-time costs that will impact cash flow in fiscal Q4, once the initiative is complete, we anticipate higher adjusted EBITDA contributions thereafter. Second, in relation to our plant propagation business, we are divesting our lower-margin plant propagation operations by selling our controlling stake in Bevo to its other principal shareholders. Combined, these actions will allow us to allocate capital more effectively, deliver enhanced profitability, streamline our operations, and improve execution quality. On a related note, today, we filed a prospectus supplement establishing a new at-the-market equity program. The ATM provides us the flexibility to issue and sell up to $100 million of common shares from time to time at our discretion. The company intends to use proceeds raised under the ATM program, if any, for strategic and accretive purposes only, including for increased cultivation capacity and potential M&A. With that, let's now dive into our individual medical cannabis markets. Germany is the largest individual medical cannabis market in Europe and remains closely watched across the region due to its outsized influence on neighboring countries. More than half of EU member countries have already integrated medical cannabis into healthcare, including reimbursement, which leads towards greater international alignment on regulatory approaches. This provides an obvious advantage for compliant EU GMP-certified companies like Aurora. The German market is still growing and was the primary driver of our double-digit growth in international revenue. According to German regulatory data, imports reached 72 metric tons in 2024 and are estimated to have more than doubled in 2025. Our successful commercial execution and strong reputation among wholesalers, distributors, and pharmacists have enabled us to continue to gain share in this rapidly growing market. We have consistently maintained a broad selection of core and premium products for the German market. However, more recently, we enhanced our offerings by introducing a new medical cannabis brand that prioritizes affordability and expands patient options without compromising quality standards. While increased competition in Germany has led to some price pressure, mainly affecting the value segment as new players enter and grow, our core and premium products, which represent most of our sales volume, have remained largely unaffected in terms of baseline pricing. The German government is considering modifications to the current telehealth framework related to cannabis descheduling, but it is still unclear how developments will unfold. We want to ensure that reasonable access to high-quality medical cannabis for the general public is maintained. But should changes be implemented within telehealth, we will adapt just as we did in Poland. We are currently doubling production at our manufacturing site in Germany. Increasing scale will facilitate yield improvements and operational efficiencies, allowing this facility to mirror the performance of our Canadian sites based upon the same industry-leading genetics and product consistency. In addition to the planned operational improvements, our German site joins our Canadian facilities that were recently GMP certified for another three years. This consistent supply of GMP-manufactured product is vital as we prepare for further growth in Germany and adjacent regulated markets. Australia remains our largest international medical cannabis market, where we currently hold the number two share in what could become a $1 billion opportunity, according to the Pennington Institute. Notably, most sales in Australia, both for MedRelief Australia, which we fully acquired two years ago, and for the market overall, are concentrated in value-priced products. This differs significantly from our other national medical cannabis markets, where our portfolio is anchored in core and premium offerings with stronger margins. We are actively working to shift our Australian sales mix towards the same world-class core and premium products we offer globally and expand patient access, including through additional distribution agreements. The Australian market is particularly attractive and positively impacting patient outcomes, as it offers one of the broadest product format ranges outside of North America, enabling us to fully leverage our diverse portfolio beyond flower and oils. While we are confident in our ability to successfully elevate the product mix, we are working through some anticipated near-term pressure on both sales and gross profit during the transition. In Poland, through continued collaboration and effective commercial execution, we gained market share and held the number one position in calendar year 2025. We are widely regarded as a key partner advancing medical cannabis in the country and are benefiting from increased annual import limits, which further supports our continued growth potential, including in fiscal Q3. The market has certainly evolved, but we have successfully navigated the shift in prescriptions from telehealth platforms to clinics while maintaining solid relationships with the regulatory authorities. In our view, we are well-positioned to maintain this leadership position in Poland thanks to our very skilled team engaging with all the key stakeholders and our broadening product portfolio of high-quality medical cannabis products. We recently expanded our product portfolio with the launch of a third proprietary cultivar in Poland, following market success in Canada, Germany, and Australia. These new cultivars are grown and manufactured in our GMP-certified facilities, using premium hang drying and curing techniques to ensure consistently high-quality standards. In the UK, we primarily operate in the premium and super-premium segments, where there is less competition. But an influx of value products in the market resulted in lower year-over-year sales during fiscal Q3. Our strategy is focused on expanding our distribution and clinic relationships through new partnerships, a critical step to onboarding and connecting with patients. Turning to Canada, we remain a strong leader in medical cannabis. Net revenue grew year over year during fiscal Q3 to a new record, and we gained market share, a key point of differentiation for us in a competitive market. Our priorities are enhancing our online marketplace, product innovation, and assortment, and ensuring a high-quality patient experience, especially for our valued veteran patients. In summary, we are reallocating and directing our resources to focus primarily on the global medical cannabis market, where we excel and see runway for growth. This involves gradually scaling back our Canadian consumer cannabis operations and selling our controlling interests in our plant propagation business. We believe this approach will improve our operational efficiency, unlock greater opportunities in both our existing markets and new countries, and drive sustainable revenue growth and profitability. Let me now turn the call over to Simona for a detailed financial review of fiscal Q3, followed by an outlook session. Simona King: Thank you, Miguel. We are encouraged by our fiscal Q3 results as reflected in our revenue growth, strong adjusted EBITDA, positive adjusted net income, and free cash flow. Time and again, we have demonstrated the soundness of a medical cannabis-first strategy, our consistent ability to deliver results aligned with our long-term objective. Let's review fiscal Q3 2026 compared to the prior year quarter and then discuss our outlook for the full year. First, net revenue of $94.2 million represented 7% growth, supported by record contributions from our global medical cannabis and plant propagation segment. Second, consolidated adjusted gross margin rose 100 basis points to 62%, while adjusted gross profit reached $55.6 million, a 6% increase. Global medical cannabis held its robust 69% adjusted gross margin. Third, adjusted EBITDA was strong at $18.5 million, combined with adjusted net income of $7.2 million. Fourth, we generated positive free cash flow of $15.5 million. And finally, we ended the quarter with $154 million in cash, cash equivalents, and short-term investments and no cannabis business debt. In medical cannabis, net revenue rose 12% to $76.2 million, inclusive of 17% growth internationally. We benefited from increased distribution in Germany and new product offerings in Poland, which combined with continued strong contributions from Canadian Medical. Medical cannabis comprised 81% of net revenue, compared to 77% in the prior year, and approximately 95% of adjusted gross profit. Adjusted gross margin for medical cannabis held strong at 69%, driven by high-margin international markets that benefited from sustainable cost reductions, high selling prices, and operational efficiencies, including sourcing for Europe from Canada. Consumer cannabis net revenue was $5.2 million, down 48% from $9.9 million. The year-over-year change was the expected result of the company's strategic shift to focus on portfolio optimization and the allocation of cannabis flower to the highest-margin business segments. Adjusted gross margins for consumer cannabis was 28%, compared to 26% due to sales of higher-margin products. People's plant propagation net revenue increased to $11.3 million, up 27% from $8.9 million in the prior year. Adjusted gross margin for plant propagation revenue fell to 16% compared to 40%. The decrease was due to increased contract labor and utilities costs, as well as inventory write-offs of $1.1 million in the current quarter related to surplus plants. Consolidated adjusted SG&A increased 14.5% to $35.8 million. The year-over-year change relates to higher professional fees, as well as additional headcount and contract labor costs in Europe and Australia, that are supporting these growing higher-margin markets. Adjusted EBITDA was $18.5 million compared to $19.4 million in the prior year, with the decrease primarily related to lower adjusted gross profit in the planned propagation segment and an increase in adjusted SG&A. Adjusted net income held relatively consistent at $7.2 million compared to $7.4 million in the prior year. Our balance sheet remains one of the strongest in the global cannabis industry, and our cannabis operations are completely debt-free. Free cash flow was $15.5 million compared to $27.4 million in the prior year quarter, reflecting a decrease in the working capital recovery of $9.2 million. Let me now provide some thoughts on what we expect for our fiscal year 2026 outlook, which ends on March 31. Annual global medical cannabis net revenue is expected to increase year over year to between $269 million and $281 million, driven primarily by 10% to 15% growth in the global medical cannabis segment. Plant propagation revenue is expected to perform in line with traditional seasonal trends, as 65% to 75% of revenues are normally earned in the first half of a calendar year. Consolidated adjusted gross margins are expected to remain strong as we have benefited from favorable sales mix due to higher global medical cannabis revenue, along with operational efficiencies in our manufacturing sites. And finally, annual consolidated adjusted EBITDA is anticipated to increase year over year with an expected range of $52 million to $57 million, representing 5% to 10% annual growth. This expected growth is driven primarily by net revenue increases and industry-leading margin in the global medical cannabis business. Thank you for your time. I'll now turn the call back to Miguel. Miguel Martin: Thanks, Simona. Our primary objective is to grow our business by capitalizing on the rapidly evolving global medical cannabis opportunity, which is projected to surpass $9 billion, thereby maximizing shareholder returns. We have established a strong competitive position by first building deep regulatory and world-class genetic capabilities supported by an extensive network of GMP manufacturing facilities and then demonstrating consistent commercial execution excellence. This approach has enabled us to be a market leader with both healthcare providers and patients. Through our focused commitment to global medical cannabis, we will reinforce our market-leading presence in Canada, Europe, Australia, and New Zealand and expand into additional markets as opportunities arise. We look forward to providing updates on our progress and strategic direction as we advance. Operator, we are now ready to take questions. Operator: Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Kenric Tighe with Canaccord Genuity. Please proceed with your question. Kenric Tighe: Thank you, and good morning. Congrats on the quarter. I just wanted to follow up on the Select Market Exit in Canada. Now if we looked at a number on the print, you're looking at roughly a $20 million in revenues business on a go-forward. Could you sort of speak to what the run rate would look like on a select on the exit from those markets? And perhaps also where there's a point in time whether you could or would essentially fully exit consumer cannabis in Canada. Miguel Martin: Yeah. Good morning, and thank you for the question. We are continuing to evaluate exactly what that looks like. I think what I can say, though, is that those decisions will be beneficial or accretive to our overall financial results. What we've seen is that the reallocation of our resources, particularly that finite high-quality flower, into the international market will make a significant difference in overall financials. And so, it's a bit of an evolution for us. The other point I guess I'd make is this isn't anything new. You've seen us continue to prioritize global medical cannabis over the last couple of years and done it very successfully as we've gone through. And so we'll continue to be a bit flexible. Now your point about would we ever get out completely? I think that's something we continue to evaluate. We've been in rec cannabis or consumer cannabis in Canada since day one, and so we still have that touchpoint. But again, our focus is profitability and growth. And if that is a decision that looks like it's best suited to be exclusively on the medical cannabis side, it's something we would do. Kenric Tighe: Great. Thank you, Miguel. And just a quick one with respect to Australia. The other premiumization strategy or sort of moving upmarket in Australia, how disruptive is that shift to your presence in the market? And what are your expectations around the timeline when we can sort of get a better handle on how this will play out and the benefits for that Australian business and what that Australian business will look like once you sort of high-graded your portfolio in the market? Miguel Martin: Yeah. I don't think it—well, thank you for the question. I don't think it's disruptive at all. I mean, Australia really started out under a model they call a concession model and a value model for those patients. And as we talked about, it's quite a large and diverse market, and there is an expansion and an interest by both prescribing physicians and patients for a variety of products on the premium side. And as you well know, it's not just flower and oil. So we run globally a premium and core model. So it's not disruptive for us at all, and it's very accretive in terms of margins. And so we know there's a lot of value flower available in Australia like other markets. Whether it's Germany, Poland, the UK, or Canada, our sweet spot is the genetics production and delivery of core premium medical cannabis products. And so, it sits right in the middle of all that. So I think it's consistent and not disruptive in any way. Kenric Tighe: Great. Thank you. I'll get back in queue. Miguel Martin: You got it. Thank you. Operator: Our next question comes from Derek Lessard with TD Cowen. Please proceed with your question. Derek Lessard: Probably past the acceptable time frame, but happy new year anyways, and a great start to it. Miguel Martin: Happy New Year, Derek. And I think the snow makes that timing and that point relevant, but go ahead. Derek Lessard: Yes. A couple of questions for me. Just maybe talk about the strategic decision to exit the plant propagation and sort of the timing around the expected close of the transaction. Miguel Martin: Sure. I mean, again, focus and execution on global medical cannabis is what we've proven we're best at and where the most profitability is. I think consistent with the announcement we made on the consumer business, when we look at our resources and we look at the best use of our time and energy and focus, it really is in that area. And the investment in plant propagation, while interesting for a period of time, continued to evolve in a way that wasn't that. And so we saw a great opportunity in divesting that majority share to the shareholders that already exist there. There are some economics that continue that allow us to participate in the success of that, including earnouts in the facilities that we've ended in. But when you look at investment and ROI of our time and resources, clearly, with high-growth markets such as Germany and Poland and the UK, it makes absolute sense for us to put all of our time and effort there. And I think if you look at the last quarter and you look at the last couple of years, when we focus on global medical cannabis, the results have always been positive. Derek Lessard: Absolutely. Makes sense, Miguel. And maybe just one for Simona. Appreciate the additional full guidance on the year. How should we think about the plant propagation contribution to EBITDA, I guess, for the full year and maybe for Q4? Simona King: Yeah. And as we continue to finalize the closing conditions and implications to our financials as a result of this divestiture, we will have a better sense of the pro forma in Q4. We will no longer be consolidating the financial results of the Bevo business, so it will be treated as discontinued operations. That will be the treatment going forward. And so I would say the focus really should be on thinking through the implications to the global medical cannabis business and continuing to model and think about Q4 and the future around the strength of that business. So it really is focusing on the global medical side. Derek Lessard: Okay. And then maybe one last one. I'll sneak one in, switching gears back to global medical. You pointed to Poland as one of the contributors to growth, which is great to see. Just maybe talk about how you've been navigating the pressure there or if anything has changed since last quarter. I think when you guys pointed to additional pressure given the changes in the regs there related to restrictions around the online consultations. Miguel Martin: Yeah. I mean, I think it's a great question. So, these regulatory frameworks are evolving, albeit with a pretty specific scientific underpinning. We saw the change in Poland, you mentioned, and what it required really was to lean back on a strong system. Product development, product registration, distribution, and specifically, having a way to be able to connect the patients through clinics. And we were very quickly able to do that. I think really built on the background of the strength of the medications and the reputation that we had, having physicians and patients want to get those products. And so we navigated quickly. Obviously, our results reflect that. That's why we're encouraged by what's happening in Germany with what may land there that we'll be able to do a similar execution. So these regs continue to evolve. You have to be agile, but I think having tremendous relationships with them, we have a very strong GR organization, a very strong regulatory team. And so we are able to work with the regulators as things evolve, and we think that's a strength of ours. Derek Lessard: Yeah. Great job, everybody, and congrats again on the quarter. Miguel Martin: Thank you so much, Derek. We appreciate it. Operator: Okay. Our next question comes from Bill Kirk with Roth Capital Partners. Please proceed with your question. Bill Kirk: A point of clarity first. I have year-to-date global medical cannabis at $211 million. The full-year guide is February to February. Are those numbers comparable? Because even the high ends would imply quarter-over-quarter deceleration in Q4. And the low end would imply a big deceleration. So I guess the clarity point, am I looking at those numbers comparably? Simona King: Yeah. So let me jump in on that one. So the guidance that we provided is the full revenue for the company, which is inclusive of Bevo in there. And so with this announcement today around the divestiture of our stake in Bevo, that's what we will be working through is the pro forma impact of that in Q4. So, it's continuing to focus on them as we think about the implications for Q4 with those results being removed and shown as discontinued operations. It's really focusing on the medical cannabis, global cannabis revenues, and trending those out. So keeping in mind that the full guidance was reflective of the total revenue. Bill Kirk: Okay. Okay. Because in the press release, it says annual global medical cannabis is expected to be $269 million to $281 million. Simona King: So yes. A policy. Yes. Global medical cannabis is $211 million. Right? Bill Kirk: Yes. Yes. Just to clarify that, that is correct. Global medical cannabis. And so, yes, we expect a strong quarter in Q4. Bill Kirk: Wouldn't that be implied $58 million to $70 million in global medical cannabis? And I think you just did over $75 million. So I think I'm looking at something wrong because that would imply a big deceleration in Q4 global medical cannabis from March, February, January. Simona King: Yeah. Yeah. Yes. We do expect the ranges that we've provided in the expectations in the release to be in line with where we're projecting the full year to come in at. Bill Kirk: Okay. And then the follow-up would be why do you expect the deceleration in April? Simona King: So at this point, we're really focusing on the full-year guidance and the ranges that we provided, which we believe will be in line with where we're trending. Taking into account, there could be some headwinds in some of the markets. So, again, highlighting that this is a record result for us on a full-year basis. Bill Kirk: Okay. Thank you. And then one last one for me. The adjusted gross margin in the wholesale business, I think it was 35% in the quarter. It's been higher than the consumer cannabis segment for a while. Why would the wholesale gross margin be higher than the consumer segment gross margin? Miguel Martin: Well, for a couple of reasons. One is that the consumer business, not only for us but for others, is tight. And when you look at fully loaded where you sort of end up in that market, you end up with those types of margins. I mean, I think you've seen it in the industry. It's not just us. The wholesale business is pretty good. I mean, it's obviously not as good as when you distribute and sell it yourself. And so I think it's just indicative of what it is. The other aspect of the wholesale business is those products that we sell are not readily available all over the world because of some of the regulatory requirements. So I think it's inherent to what you're seeing overall. And like I said, it's not just us on the consumer side. Bill Kirk: Thank you. Appreciate it. Miguel Martin: You got it. Thank you, Bill. Operator: Our next question comes from Brenner Cunnington with ATB Capital Markets. Please proceed with your question. Brenner Cunnington: Hey, good morning, and congrats on the results this quarter. Just looking at the ATM, so you mentioned the funds for this could go to M&A, and we're just kind of wondering, like, are there any potential assets that you might be interested in? Is it potentially, like, cultivation capacity expansion opportunities? Or any other top goals for the funds raised from this? Miguel Martin: Yeah. And thanks for the question and the comment. You know, the over $150 million in cash and then you add this, it really allows us to be opportunistic. Clearly, as you've seen from our announcement, our focus and really what we excel at is around that global medical cannabis point. And there are many aspects to it. Clearly, cultivation of GMP flower and products for the international market are always an area of interest for us. Beyond M&A, we've invested over $40 million internally in significant capacity and quality upgrades in our existing facilities, which has helped us receive that GMP certification for another three years at three of them. So cultivation, as you mentioned, is always of interest to us. But there are other aspects to global medical cannabis that have the potential as well, whether that's on the distribution side or the clinic side or other aspects. So it's really to be opportunistic, and we intend to use that clearly not for operations, but for accretive aspects, including M&A. And so, I would say it would be consistent with what we're focusing on, but the exact aspects of it and what it might be, we're not in a position to say yet, but we'll obviously update folks as that becomes more specific. Brenner Cunnington: Okay. Perfect. Fair enough. And then just looking at the exit from a lot of the consumer cannabis in Canada, what type of SG&A savings might we see from this? Miguel Martin: Yeah. I mean, we're continuing to evaluate that. I would say you'll see some of that reporting as you see the full year and then into Q4. We definitely think it's going to be a benefit. Though the other aspect, beyond the SG&A savings, is taking those inputs, as you heard from the previous question, and putting them into higher-margin markets. So the differential between the margins of, say, our consumer business and international markets is significant. And you've seen where the overall margin landed. So I think more to follow on what it is you heard from Simona's comments about the benefits that we believe financially that will provide us, and we look forward to sharing that with you once they sort of work their way through. Brenner Cunnington: Perfect. And then if I could just sneak in one little last one. So on the international market, just out of curiosity, are there any other international markets that you may be looking at? Miguel Martin: I mean, we look at all of them as they come online. We're in 12 countries today. We've got a regulatory team and a product registration process that has allowed us to enter every market that's come online. Typically, we like to have markets that have a science-based regulatory profile, which we're starting to see in Europe. So the latest new markets that are bringing medical cannabis on, places like Switzerland, Austria, France, and some others, we are working to bring our products into those markets. But we're very excited about potential developments in other new countries such as, say, Ukraine and Turkey. And again, we've been very successful because of our stringent regulatory requirements and GMP products to be able to enter them as they come online. So we continue to see global growth. I know there's a lot of interest in the US. But we've seen the growth in medical cannabis regulations and overall systems throughout Europe and in other parts of the world. And so we'll be there as they come online, and I think we've demonstrated we can be successful, not only launching but also sustaining our business in those markets. Brenner Cunnington: Understood. Thank you so much for the color. I'll jump back in the queue. Miguel Martin: Thank you very much. Operator: Our next question comes from Pablo Zuanic with Zuanic and Associates. Please proceed with your question. Pablo Zuanic: Thank you, and good morning, everyone. Miguel, I also want to discuss supply chain, but just first one question on the US. In your opinion, if we get rescheduling as it's been announced, would that allow you to enter the US market? Are we thinking we're going to have a federal legalization of medical cannabis? Will Aurora be able to participate given its expertise? Or the rescheduling doesn't necessarily mean federally legalizing medical cannabis. What's your opinion on that? Miguel Martin: It's early days, Pablo, and good morning. First and foremost, what the Trump administration announced is very consistent with what we've said is important. Medical cannabis first, a strong regulatory approach. And we think that lines up beautifully for a company like Aurora that operates in regulated markets all around the world. As it's been laid out, we haven't seen any of the final details of what a schedule one to schedule three would look like. It does not allow a Canadian company traded on the Nasdaq to directly go into that market. It does expand research. It does start to open the door for some variety of different things. But we'll have to see what the details look like. But it is a step in the right direction, and we're very encouraged by that. But again, it was a very strong medical message. That photo op in the White House with doctors and folks from the medical community really reinforces what we've always believed, which is this will be a medical-first opportunity, which is why we think Aurora is so well-positioned when we get there. Pablo Zuanic: Thank you. Look. And regarding supply chain, it's a bit of a two-part question in terms of understanding what you have right now and then how you're thinking about acquisitions. In terms of what you have right now, for example, you said in the call that most of the products that you sell are own or products, not in your facilities, but does that mean 51%, 90%? If you can give some color in terms of how much you're buying from third parties, that would help. A reminder of what you have in terms of your current facilities, and looking back, lessons from the Aurora Sky facility. So that part of the question is what you have now. In terms of buying cultivation capacity, are we talking about indoor versus greenhouse? Are we talking about small little craft growers? Are we talking about just Canadian or maybe other countries? Any color in that sense would help. Thank you. Miguel Martin: Sure. So the majority—I'm not going to give you a number, but it's closer to 100 than it is to 50—of the products that we sell internationally, we produce, distribute, and sell ourselves. A really important dynamic for everybody to understand is the GMP flower dynamic. That standard is getting more challenging. It is difficult. And once you get that certification, which you need to have, say, Germany, the fastest-growing market in Europe, you have it for three years. So we've got three of our largest facilities just received that certification, which is very exciting. And so GMP, premium flower, those prices continue to be solid and, in some cases, go up. And is our focus. In terms of facilities and potential acquisition, we have the benefit of having one of the largest genetic facilities in the world, a facility called Aurora Coast off the West Coast of Canada. Those genetics that are created there that we use ourselves and also sell to others have been successful both in indoor, which is our primary method of current growing, as well as with greenhouses, which many of our customers use those genetics. So both work, and you can get GMP certification in both. We obviously have a long history in indoor, but that doesn't mean that we are bound to it. I will say Canada continues to be the best place to grow high-quality premium GMP flower in the world. And we're proud of that. And we continue to see great opportunities to ship it. So it's a big competitive advantage for us to be able to grow that much flower, be one of Canada's, if not the largest, one of the largest exporters of GMP flower. And that's a core part of why we've been successful and will be successful going forward. Pablo Zuanic: Thank you. Miguel Martin: You're very welcome. Operator: We have reached the end of our question and answer session. There are no more further questions at this time. I would now like to turn the floor back over to Miguel Martin for closing comments. Miguel Martin: Thank you very much. We're very excited about this quarter and, more importantly, excited about the future of Aurora Cannabis, and we're thrilled to share some color with you here today. We'll continue to update you. We hope everyone is safe and well. All the best. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings. Welcome to Reynolds Consumer Products Inc. Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is now my pleasure to introduce your host, Jill Coval, Director of Investor Relations. Thank you, Jill. You may begin. Jill Coval: Thank you, operator, and good morning, everyone. Thank you for joining us for Reynolds Consumer Products Inc. fourth quarter earnings conference call. Today's call is being webcast, and a replay will be available on the Investor Relations section of our corporate site at reynoldsconsumerproducts.com. Our earnings press release and investor presentation are also available. Joining me on the call today are Scott Huckins, our President and Chief Executive Officer, and Nathan Lowe, our Chief Financial Officer. Following their prepared remarks, we will open the call for a brief question and answer session. Before we begin, I would like to remind you that this morning's discussion will include forward-looking statements which are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those described today. Please refer to the Risk Factors section of our SEC filings for more information. The company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after the call. In addition, we will reference certain non-GAAP or adjusted financial measures during today's call. Reconciliations of these GAAP to non-GAAP financial measures are available in our earnings press release, investor presentation deck, and Form 10-Ks, which can be found on the Investor Relations section of our website. With that, I'd like to turn the call over to Scott. Scott Huckins: Thank you, Jill, and thank you to everyone joining us this morning. We closed 2025 with solid fourth quarter execution in what remains a challenging operating environment. Our team stayed focused on the fundamentals, evolving our portfolio to meet consumer needs, serving our retail partners well with case fill rates in the high 90s, protecting profitability, and advancing the strategic growth and profit-generating priorities that underpin our long-term value creation. We delivered sequential quarterly improvement throughout the year, mitigating escalating commodity, tariff, and consumer headwinds. Driven by our solid execution, along with successful innovation in our expanding revenue growth management capabilities, our strong fourth quarter performance was underpinned by share gains across the overwhelming majority of our categories, including our six largest core categories. These year gains included hefty waste bags, hefty food bags, Reynolds Wrap, Reynolds parchment, Reynolds Bakeware, hefty party cups, as well as the strong performance across our store brand offerings. These gains reflect the consumer's affinity for innovative and differentiated solutions in waste bags and food bags, sustained preference for branded quality and foil, and growing interest in convenience across cooking and baking products. All of this reinforces that our innovation priorities are on target and help shape our go-to-market execution. As a point of reference, we outperformed our categories by over one point in 2025, and by two points in the fourth quarter. I'm also very pleased that we were able to deliver these share gains while increasing profitability in the quarter versus a year ago. On our fourth quarter call last year, we noted that 2025 would be a transition year as we aligned our team and began executing against and investing behind a number of strategic priorities. These priorities span growth and innovation, productivity initiatives across manufacturing and supply chain, and other cost savings programs. Let me walk through our progress during the first year of implementing our strategy. Our innovation engine began to deliver in 2025, driven by a focused strategy on fewer ideas, bigger ambition, and better consumer outcomes. We expanded our hefty waste bag lineup with new scents and colors, including our popular watermelon scent. We introduced Reynolds Kitchen's parchment cooking bags and air fryer cups, EcoSafe compostable cutlery, and additional seasonal offerings in Reynolds Wrap holiday fun foil and festive printed hefty party cups. The success of these launches highlights the demand for fun, convenience, value, and highly functional sustainable alternatives. Importantly, these new products meet real consumer needs and reinforce our leadership in everyday household essential categories. These new items are in part why we outperformed our categories in 2025. We advanced our revenue growth management capabilities, beginning to migrate trade dollars from lower return programs to higher return and mutually beneficial programs that deliver better outcomes for both our retail partners and Reynolds. We also delivered early wins through pricing and price pack architecture optimization, helping to offset inflation and minimize elasticity. This disciplined approach produced results as evidenced in the foil category, where price gaps with store brands narrowed throughout the year, even as we successfully covered commodity pressure with substantial price increases. And we pursued targeted customer-level opportunities, beginning to close share gaps through expanded distribution in categories where our brands have a right to win. Our manufacturing and operating performance improved significantly in the second half of the year, as we accelerated our implementation of productivity initiatives, investments against our automation pipeline, and other complementary programs. All of these work streams are aimed at positioning our plants for increased efficiency and throughput. Our US-centric supply chain remains a competitive advantage, enabling our high service levels and supply chain agility in a volatile environment. Nathan will elaborate more on these initiatives in a few minutes. Importantly, we added significant talent to our management team to support and execute our strategy. We added experienced leaders across all areas of our business, including new leaders in sales, operations, supply chain, and our hefty tableware segment. I'm very pleased with how the leadership team has come together to drive the business forward and build momentum on each of our priorities as we exited 2025. As we enter 2026, we will continue to drive each of our priorities forward, which remain consistent with what I outlined a year ago. At the same time, we anticipate another year of sustained headwinds in 2026, underscoring the need for continued nimbleness, adaptability, and focus across the organization. As we move forward, we remain mindful of the state of the consumer environment and the retailer's focus on inventory management and consumer value. Our insights teams are tracking consumer patterns closely, helping refine our promotional strategy, price pack architecture, and innovation priorities to stay nimble as the year unfolds. Regarding raw materials, while resin has been relatively stable, aluminum has continued to move significantly higher. We've made excellent progress in aligning pricing with increasing costs, demonstrated by roughly 11 points of pricing present in the fourth quarter with only a two-point decline in retail volumes as seen in scanner data. For 2026, we have already implemented a price increase in January and are anticipating further adjustments for the second quarter. We will continue to balance pricing, potential elasticities, and promotions during key holiday shopping periods carefully to support demand. In terms of the competitive landscape, the dynamics have intensified in the waste bag and food bag categories as we exited the fourth quarter. We are seeing increased promotional and pricing activity being offered by the other brands we compete against, seemingly taking dollars out of these categories and creating added pressure for our business. Given our strong brand equity, we remain committed to our performance brand positioning and plan to stay the course on our current price points and promotional strategy, noting that value is a function of the consumer's view of product attributes and function relative to price, and not purely a measure of pricing relative to competitors. However, some near-term volume headwinds are possible, and we have embedded our estimate of this headwind into our outlook. Regarding our private label food and waste bag businesses, they remain resilient, delivering strong value for consumers as we continue to build a more robust branded presence. As you may recall from our commentary last quarter, the current environment is driving more transactional dynamics with retailers, including a greater focus on dual sourcing for private label programs. As this trend continues into 2026, we are actively managing both the risks and the opportunities. While this will create near-term pressure in 2026, we believe this will be more than offset by incremental opportunities over time. We remain confident that our category leadership and insights, strong service levels, innovation, quality, and increasing manufacturing efficiencies position us to compete effectively and remain an essential supplier. Despite the headwinds, our 2025 progress and momentum position us to deliver stable results in 2026, with adjusted EBITDA roughly flat year over year. This outlook reflects the achievements made against the priorities we outlined a year ago and recapped earlier. Importantly, this progress is not a one-time benefit but a foundation for sustained improvement going forward. Turning now to our strategic priorities. On the top line, we continue to work across our three core pillars of revenue growth management, share gap selling, and innovation. We are committed to building on the strong foundation established last year in revenue growth management. Our 2026 focus remains on channeling trade investments into higher return programs that drive improved results for both our retail partners and RCP. We have invested in people, tools, and training in 2025 to bring this forward into 2026. Emphasis will continue to be on closing share gaps between our category share and our retail partners' market shares. These opportunities exist in both our branded and private label businesses, and we seek to expand distribution in our core categories where we have demonstrated success. Innovation and differentiation will remain central to our growth strategy in 2026, building on the momentum established in 2025. By strengthening our enterprise-wide focus on consumer insights, we are increasing strategic precision, prioritizing innovation and our resources around the highest impact opportunities, enhancing our total portfolio value proposition with customers, and building scalable growth platforms to deliver sustained and profitable growth. Importantly, we are pleased with the strength of our current pipeline for 2026 and beyond. On the margin priorities, Nathan will cover how we are advancing our operations and supply chain priorities in a few minutes. We are also evolving how we look at our business. Beginning in Q1 2026, we will realign category organization across the hefty waste and storage, and Presto segments. Consolidating waste bags in one business and food bags and storage in another to increase efficiencies, sharpen the focus on innovation, and establish a structure to better unlock growth opportunities. Finally, on talent, our success at RCP is built on the strength of our 6,000 employee team. In 2026, we expect to continue developing talent and redefining what success looks like across the organization. We believe a high-performing and engaged workforce drives sustainable growth. In summary, 2025 was a year of disciplined execution, operating with greater agility, outperforming our categories at retail, and delivering sequentially improved financial results. All while beginning to drive out manufacturing and supply chain costs. The progress we achieved strengthens our confidence in both our strategy and our ability to execute in 2026 and beyond. While the near term will continue to see some challenges, we remain focused on driving sustained progress. With that, I will turn the call over to Nathan to review our financials and provide guidance for 2026. Nathan Lowe: Thank you, Scott, and good morning, everyone. 2025 was a year of taking decisive action in response to macro headwinds and building both resilience and momentum as we position the company for future success. Across the business, we delivered results that reflect meaningful advancement against our strategic objectives. We accelerated growth through expanded distribution and innovation. We delivered cost savings through productivity initiatives, strategic sourcing, and disciplined cost management. And we invested in a number of high ROI initiatives across our business, including capital to support growth in our fastest-growing segments, as well as making solid progress against our automation pipeline. We are encouraged by the progress we made against these initiatives through 2025, with early returns beginning to materialize in the fourth quarter. For the quarter, we are very pleased with how we closed out 2025, outperforming all guided metrics and delivering a strong performance that underscores the effectiveness of our strategy and disciplined execution. Net revenues of $1.03 billion represented 1% growth compared to $1.02 billion in 2024. Our retail volumes exceeded overall category trends, outperforming our categories by two points, while low-margin non-retail net revenues increased $24 million versus the prior year period. In the foil category, the underlying dynamics remain constructive despite multiple price increases in the last twelve months. Having executed multiple price increases in 2025, we are encouraged that fourth-quarter volume takeaways were down only two points, demonstrating the pricing power of our brands. Our hefty waste and storage and Presto segments each delivered strong volume growth and share gains in the quarter. And Hefty Tableware delivered a slight sequential volume improvement and improved profitability in the business to deliver a flat EBITDA result. However, declines in foam and the discretionary nature of the category continued to weigh heavily on the segment's top-line results. Stepping back up to the company results, we saw improved profitability in Q4. The impact of pricing to recover commodities and tariffs and growth in our low-margin non-retail business had a dilutive impact on gross margin percentages to the tune of 190 basis points, masking the underlying improvement in profitability. SG&A was down 19% versus 2024, driven by some delayering in the organization, surgical focus on optimizing advertising ROIs, and tight management of controllable costs. Adjusted EBITDA of $220 million represented a 3% increase on adjusted EBITDA in the year-ago period and was the only quarter of EBITDA growth in 2025. Manufacturing efficiencies and other cost improvements more than offset retail sales volume declines in the quarter. And adjusted EPS was $0.59 compared to $0.58 in 2024. Overall, our fourth-quarter results were strong, and we are well-positioned as we enter 2026 with the resources and continued willingness to invest in driving earnings growth. Turning to the full year 2025, we saw net revenues of $3.7 billion, representing year-over-year growth of 1%. The slight decline in retail revenues, which exceeded overall category performance, was more than offset by strong growth in non-retail revenues. SG&A was down 11% versus 2024, for the reasons I mentioned in the context of the fourth quarter. Adjusted EBITDA of $670 million is compared to adjusted EBITDA of $678 million in 2024. The change from the prior year was driven by lower retail volume, due in part to Q1 retailer destocking and overall decline in our categories, partially offset by cost reductions. It's important to underscore the pace and magnitude of the pricing and cost reduction actions taken to minimize the impact of approximately $100 million in higher tariffs and commodity costs on our result. And adjusted earnings per share were $1.66 compared to $1.67 in 2024, remembering that we are lapping a one-time 5¢ tax benefit in '24. We finished 2025 with very strong cash flow performance, generating full-year free cash flow of $316 million. This result benefited from our ongoing commitment to tightly managing working capital and driving improvements that offset the impact of higher commodity costs on cash flows. During the year, we successfully refinanced our term loan facility, extending the maturity of our debt and made an additional $100 million in voluntary principal payments. We reduced our net debt leverage to 2.1 times, at the low end of our stated target leverage range, providing significant financial flexibility to continue investing in the business. Taken together, these results reflect a business that is executing with greater agility and focus while building a stronger foundation for future growth. Turning now to our priorities for 2026. We made meaningful progress executing our strategic agenda in 2025, but we are still early in the journey with significant work ahead. We see substantial opportunities to deepen our capabilities, scale our initiatives, and unlock the full value of our strategy. Starting with margin expansion, we are committed to unlocking additional efficiencies across manufacturing and supply chain. Our approach centers on three key levers. First, embedding lean principles across our operations to improve yields, reduce bottlenecks, and improve productivity through process redesign and cost discipline, none of which require capital investment. Second, advanced technology deployment to provide real-time visibility into production metrics, uptime, and scrap, and enable faster data-driven decision-making on the floor. And third, pulling through high ROI automation investments from our multiyear pipeline that enhance operational performance across costs, quality, and safety. Outside of our operations, we will continue to invest in incremental innovation and distribution opportunities to accelerate earnings growth. For the full year 2026, we expect net revenues to be minus 3% to plus 1% compared to 2025 net revenues of $3.7 billion. The key drivers of this outlook include retail branded sales expected at or above category performance of down 2%. The anticipated category headwinds are primarily attributed to declines in foam and foil, the latter a function of elasticities on aluminum cost increases, while performance across our remaining categories is expected to remain relatively stable. Consistent with Scott's comments on increasing store brand bid activity given the macro environment, we have contemplated pressure in 2026 as we navigate losses in a portion of our store brand business, with replacement business coming on as the year progresses. Non-retail revenue is expected to be flat for the year. We expect net income and adjusted net income to be in the range of $331 million to $343 million and full-year EPS and adjusted EPS to be between $1.57 to $1.63. Our assumption is that interest expenses and D&A will be broadly in line with 2025, and our effective tax rate will be approximately 24.5%, consistent with historical rates. Our full-year adjusted EBITDA is expected to be in the range of $660 million and $675 million. Some other considerations to keep in mind. Our guide contemplates some level of pricing, and as Scott mentioned, we will take additional pricing actions where appropriate to reduce the impact of higher input costs while closely managing our price pack architecture, leveraging the revenue growth management tools we implemented in 2025. You should expect continued discipline in all areas of controllable costs. But we do expect SG&A will be up compared to 2025 levels, as we step up support for innovation and other strategic initiatives. With tableware trends likely to remain under pressure in 2026 due to foam and the discretionary nature of the category, our focus is to stabilize the core business away from foam with accelerated R&D efforts on innovation, the advancement of our sustainable solutions, and further extension of the entire Hefty Tableware portfolio into channels outside of mass and club. Moving now to the first quarter. We expect net revenues to be down 3% to plus 1% compared to the first quarter 2025 net revenues of $818 million. Net income and adjusted net income are expected to be between $49 million and $53 million in the first quarter, with EPS and adjusted EPS expected to be $0.23 to $0.25 compared to $0.23 in 2025. The company expects first-quarter adjusted EBITDA to be $120 million to $125 million compared to the first quarter '25 adjusted EBITDA of $117 million. Now turning to cash flow and capital allocation. We continue to advance our capital pipeline for organic investment opportunities. And as we begin executing 2026 projects, we are simultaneously replenishing the back end of our automation pipeline. I'm encouraged by the number of additional opportunities that we've identified and their attractive return profile. As a result, capital expenditures are expected to remain elevated as these capital projects extend beyond 2026 and into 2027, with 2026 CapEx expected to be in the low 200s. Our approach to capital allocation considers both organic and inorganic opportunities and continues to be centered around allocating capital to its highest value uses. We maintain a bias for investments that drive growth, with the proven ROIs in our automation CapEx pipeline essentially establishing a hurdle rate for other potential uses of capital. While we are pleased with our robust pipeline of opportunities to invest in the business and drive organic growth, we continue to explore M&A opportunities with more rigor to identify additional growth platforms for RCP. In closing, we are proud of the strong foundation we have built in 2025. The strength of our balance sheet, strong cash flows, and capital allocation discipline position us well for value-creating reinvestment in growth and profitability, and we look forward to unlocking even more of our potential in 2026 and the years that follow. With that, let's turn to your questions. Operator? Operator: Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Kaumil Gajrawala with Jefferies. Please proceed. Kaumil Gajrawala: Hey, everybody. Good morning. I guess a couple of questions. I maybe want to understand more around the restructuring with Presto and Hefty. And so I see at a very high level some of your comments on what you're hoping to do. But if you could provide some more details or are people moving around? What does success look like in terms of what you'll be able to accomplish that you can't do already? And then maybe some of the logic path on making this decision. Is there something that you see in the market from a demand perspective? Is it something that you see in the market from a competitive dynamic that you think is likely to be ongoing? Because making a change like this usually means there's a bit of a different view on either the top line or the profitability of the categories in general. Scott Huckins: First of all, good morning, Kaumil. Thanks for the question. I think there's a couple of factors at work. If I walk through them, I think the first is clarity and focus. So rather than having two different business units have participation in shared categories, what we're after is having clarity of focus. Each of those business units has a core focus on a category, just to keep it simple. There are a couple of benefits we see with that. The first is end-to-end management, all the way from consumer insights to innovation to operations to supply chain, end-to-end across each of those businesses. So we think there's an efficiency gain to be had. The second is we think it adds clarity for growth. And that clarity for growth comes in two dimensions. One, we've got one dedicated team focused on category innovation in one business, another dedicated team focused on innovation in another business. And then finally, the opportunities to assess and execute against potential growth outside of those categories are even sharper. So that's the substance. I think you've also asked, is there a bunch of people movement? The answer is really no. No real change in org design of any substance. Again, more reorganizing so that these teams are dedicated to their categories. Kaumil Gajrawala: Okay. Got it. And then if I can ask about foam, I believe we're lapping, you know, sort of the beginning of when foam really started to turn and at least at that time, it felt like it was not a one-and-done, but that there were some, you know, maybe some states or some markets that were going to be particularly impacted, others that were a lot less. So it sounds like the situation continues to be challenging. So I'm just curious. Are we anywhere near sort of a stabilization point? I know you're offsetting factors with sustainable goods and such, but are we hitting a stabilization point, or is this a sort of thing where the pressure just continues to build? Scott Huckins: Thanks for that one. So maybe a little dimension. So if you look at the performance of that category in 2025, volumes were down about 14%, plus or minus for the category. So to your point, we expect to see about half that for memorability, being half that rate of decline in 2026. So certainly, the bigger shock to the system would have been '25 versus '26. I think what's happening is more consumer-driven, including things like the considerations of the cost of alternatives. Yes, you'll see if you study pulp and paper, you know, those costs have generally come down over the most recent years. So I think that's more what we're seeing in 2026 compared with a real structural change in the regulatory landscape in 2025. Kaumil Gajrawala: Okay. Got it. Thank you. Operator: Our next question is from Peter Grom with UBS. Please proceed. Peter Grom: Great. Thank you. Good morning, everybody. I was hoping to get some more color on the competitive dynamics that you alluded to around the hefty business. Maybe just more color in terms of what you're seeing and ultimately, the decision around maintaining price points in the current promotion strategy? You mentioned that volumes will potentially be impacted. So curious what's embedded in the guidance. And I guess whether you'll be willing to shift your strategy should the volume declines be worse than expected. Scott Huckins: Good morning, Peter. I'll start, Nathan may add, in terms of guide effects. So I think what we're seeing is two different dynamics. As we exited 2025, at least the waste category, we saw a pronounced increase in the promotion and pricing activities from another competitor in that space. And for context, we actually would have seen our hefty branded promotion actually looked a lot like our total company, and, importantly, even down in the fourth quarter versus last year. Just to sort of set the stage on what are we seeing. The comments about staying the course are really a fundamental and long-term view of maintaining the brand equity in the hefty brand. And the business has been built around that very principle in offering consumer value. So our view is the right long-term strategy for the business is to see the course, and I think we certainly take some comfort in performance. You know, as we think back about the year, by seven points, the hefty brand on retail track channel data outperformed the category, outperformed the category in the fourth quarter by three points. So we feel like we've got the winning approach to the marketplace, and we think staying the course is the right strategy. Nathan, anything on the guide we want to share? Nathan Lowe: I think you kind of hinted at this, Scott, because we saw seven points of growth in the hefty waste bag business in 2025 on a category that was roughly up one. So whilst we wouldn't expect that level of success in the category in 2026, we've certainly factored in some continued success, just not to that degree. Peter Grom: Great. And then maybe related on foil, elasticities have been favorable thus far. But as you think about the January price increase, more increases to come. How are you thinking about elasticity from here and maybe managing around that $5 price clip as we move forward? Scott Huckins: Yes. Again, thanks. Another good question. So I think I'd start with we are really pleased with our commercial team and what we've seen thus far because it has certainly been a dynamic raw material climate, and it's not as simple as just quote, executing price increases. I think as we've assessed the situation throughout the year, we've been taking measured, generally quarterly, price increases. A good example of our developing our GM capability because while we've been taking those price increases, we've actually seen the pricing gap to private label contract throughout the balance of the year, and I think that's a very, very important observation. Another piece is on consumer insights. So when we study consumer research, what we find is the consumer will tend to look at their most recent one or two purchase cycles in considering the effective price. So going back to my comment about taking measured quarterly increases, we think that's had a bit of a muting effect on elasticities. And then in closing, having said all of that, we certainly enjoyed some share gains in the year and the quarter, but we also want to be realistic about the fact that with each subsequent increase, of course, there's more elasticity risk. So that's how we're thinking about it. You know, so far so good, but we also want to be, you know, foreshadowing there, you know, with each increase, there's more elasticity risk. Peter Grom: Thank you so much. I'll pass it on. Operator: Our next question is from Andrea Teixeira with JPMorgan. Please proceed. Andrea Teixeira: Hi, everyone. Good morning. Thank you for the question. I was hoping to see, like, a good segue into Peter's question on promotional activity. You also alluded to private label, and that's something obviously that you are very active on the bag side. So I was curious to see if you are, number one, obviously seeing the down trade, and that impacting your hefty and your branded tableware, and how Presto and other private label brands that you have been commissioned to have been getting market share. So can you comment on that and how we should be thinking about the impact of mix within your guide? Scott Huckins: Sure. So as a general statement, I'd say we continue to see stability in the categories in terms of brand in-store brand mix. The categories have actually been remarkably stable. In terms of I think you specifically asked about Presto. We have seen pronounced growth in that business, particularly around food bags, probably more prominent in club than other channels. So I think that would be the commentary on this generally. Have we seen material trade down? We haven't been pretty stable. We've certainly seen some wins in the Presto business in food bags. In terms of brand store brand mix, my expectation would be we'd probably see more branded mix in 2026 in light of some of the offsets in private label that Nathan spoke about in the outlook. Andrea Teixeira: And then, but more specifically, so how can we think about, like, the, I mean, go looking ahead if there is any opportunity for you to actually gain more, you know, more private label share or like, how you see you just discussed Presto, but also, like, good value for your bags. Like, how is that performing relative to your brand? I mean, obviously, you want to continue to gain share, but if that's not the case, how should we be thinking of that mix impact? Scott Huckins: Sure. So we definitely see opportunities from a share standpoint, what we call share gap selling that was referenced in prepared remarks, to both gain business in branded and store brand formats. What I was trying to reference in the prepared comments was that we're seeing just a lot of bid activity commensurate with the state of the economy, which is not surprising. And so we have near-term headwinds, we also have wins that you'll start to see flow through the business, particularly in the back half of the year. So we definitely think that there's opportunities in both the branded and store brand part of the business. We'll start with some headwinds, and we'll start to offset those in the store brand business as we work our way through the year. Andrea Teixeira: Okay. Thank you, Scott. Appreciate it. Operator: Our next question is from Lauren Lieberman with Barclays. Please proceed. Lauren Lieberman: Great. Thanks. Good morning. Curious on the SG&A. So you mentioned some delayering, but then also the shorter-term dynamics on advertising. And you're going to kind of true up in '26. I just wanted to get a sense for that. I would have thought that the run rate of the first three quarters was kind of a sustainable level given the delayering work, and it's really about that April maybe had some more short-term adjustments on the SG&A spend just as we think about into '26. Is that reasonable? Nathan Lowe: Yeah. Look. I would say when we talk about the actions that we took on SG&A in 2025, there's the when we talk about advertising, let's start there, is that we really focused on getting to the point of optimizing ROIs on a marginal ROI basis. So it's not that we took too much SG&A out. It's that we got it to the right point where we're optimizing that. When we think about bringing some of the SG&A back in 2026, we're really talking about investing behind particular launches of innovation. And the delayering, as you pointed out, is more structural. So there's not a lot more to talk about on SG&A other than that. Those variable compensation, the other swing factor. Lauren Lieberman: Okay. And so was the variable compensation a big factor in the fourth quarter? Could $80 million just it's a, you know, $20 million lower than the kind of quarterly run rate. It's a big number. Nathan Lowe: In terms of Yes. It certainly contributed to the fourth quarter SG&A. Lauren Lieberman: Okay. And then as I look into this year, just curious for any perspective you can offer on commodity cost inflation and kind of what type of headwind do you think that's going to be to gross margin, not you know? And then on top of that, obviously, we'll think about how to flow through pricing. Nathan Lowe: Yes. Sure. So I think the way to think about it, as we talked about it all last year, it was two to four points of cost and a similar quantum of pricing to offset that. Say, that this year, we'll talk about it in two to three points of cost headwinds and a similar amount in terms of pricing to offset that through the year. Roughly half of that is carryover of costs that ramped in 2025. And similarly, the pricing that we took in 2025 wrapping around. In terms of margins, probably worth starting with a couple of the comments I made in my prepared remarks. Just to put some color to that. First, we are talking about retail sales volumes down, so that's the reason Scott talked about. At the same time, SG&A is expected to be up, which you mentioned, and then EBITDA flat. So that certainly implies that we're expecting some improvement in profitability. At the same time, when we're in a period of taking pricing to cover commodity cost increases, expect that to have a dilutive impact on margin percentages as was the case in 2025. Lauren Lieberman: Okay. Great. Alright. Thank you so much. Operator: Our next question is from Robert Ottenstein with Evercore ISI. Please proceed. Robert Ottenstein: Great. Thank you very much. Good morning. A couple of follow-up questions. So first, on the combination of Hefty and Presto, from what I can gather, that's more sort of strategic and efficiency-related rather than pure cost takeout? Is that the right way to look at it? Scott Huckins: Yeah. Good morning, Robert. That is accurate. It is not a cost-driven motive. It's an execution-driven motive or focus. And, again, just to restate part of my comment to the prior question, we think that unlocks and provides additional clarity for growth. So not a cost motive. It's execution and growth. Robert Ottenstein: I like Perfet. It's better outcomes with the same resources. Okay. Great. Great. Great. Second, can you talk a little bit about the market share gains that you got in Q4? You had been running at roughly 100 basis points. That went to 200. Maybe some of the drivers around that and was there any kind of one-offs or anything that makes it unusual? And would that kind of continue, driving share gains, you know, in the first three quarters of this year at least and how that ties into the spring shelf set. So you're getting, you know, increased shelf space due to those gains. Scott Huckins: Thanks for the follow-up. So I think what's interesting is that the share gains were really across the portfolio. So if you think about our six largest categories, we actually enjoyed share gain performance in each of those six. The only outlier candidly was foam. So the point of that is it was fairly broad. Certainly, I think there's two drivers of that. One would be innovation. Newer items are certainly winning in the marketplace. I also think it goes back to our performance brand-oriented philosophy. I think more and more as the retail consumer has even a more prominent focus on value, I think that's probably an assist complementing those first two pieces. And then, frankly, last for me would be service. You think about it's a pretty challenging dynamic year. Global tariffs shift and evolve. And we ran a high 90 case fill rate for the full year. I'm very proud of our supply chain team for that. But I think those would be the three drivers that allowed that performance. You asked about looks into '26. We certainly are seeing continuation of that generally in our January results in terms of our performance against the categories against those same dimensions. So I think as we see it, we see some continuation. Robert Ottenstein: And is it also reflected in increased shelf space in the March, April resets? Scott Huckins: I guess two things. So part of it is we picked up about five points of distribution total distribution points here in the fourth quarter. So by definition, that provides distribution growth. We'll see as we get into the May, June time frame, the final outcomes of distribution. But as we're going into it, we're fairly optimistic. Because, of course, that very shared performance certainly is a useful marketing discussion topic with our retail partners. Robert Ottenstein: Terrific. Thank you very much. Scott Huckins: Thank you. Operator: Our next question is from Brian McNamara with Canaccord Genuity. Please proceed. Brian McNamara: Hey. Good morning, guys. Thanks for taking the question. I wanted to drill down on elasticity as it relates to aluminum foil, which appears well-behaved thus far. I'm curious how you would compare the current environment to 2022, where 75 square foot foil at retail breached the $5 price point for a time, and then you lost a few points of branded share, then you gained it back once you promoted below that kind of $5 price point. We've recently observed that 75 foot the price is kind of across the country, kind of well north of that $5 price point, close to $6 in some places. So I'm curious, has that $5 price point goalpost moved? I'm curious how you should how we should think about that the elasticity threshold. Scott Huckins: Good morning, Brian. Another really good question. So I think there's a couple of factors at work, probably three. What's different about now versus 2022 that you referenced would be specifically price gaps to private label. Back in that era, those gaps were over a dollar between the brand and store brand. We are seeing significantly tighter gaps as we exited the year in 2025 and early days in 2026. That's the first point. I think the second point, and this factors into our thinking, is over those last several years, if you look at the average cost of an item in a consumer item, excuse me, in a store, it's up about 25, 30%. So it's not as though we have a proof statement, but we certainly observe that on a comparable basis, what was the $5 price point you referenced is conceptually, if you inflated that against the balance of the store, we certainly think that might be providing some insulation. And then third and finally, is our team has been taking pricing actions. We believe that the quarterly more gradual increases are more effective with the consumer than, say, a semiannual much larger increase back to the comment I think I shared earlier about consumer insights where the consumer will tend to look at the most one or two most recent purchases assessing price. So I think those are the dynamics. But, you know, we study the category you would guess. Every single day, and I think are going to benefit from RGM capabilities where we've got continued capability development in how we think about how, where, and when to promote against those key cells us. So I think those are the variables, but we certainly would expect to see elasticities. But we think that we've got the data would suggest they've been certainly more muted than they would have been in 2022. Brian McNamara: That's helpful. Thank you. Scott Huckins: You're welcome. Operator: This will conclude our question and answer session. I would like to turn the conference back over to Scott for closing remarks. Scott Huckins: Thank you, operator, and thank you to everyone who joined us today. Our analysts, our investors, and certainly our 6,000 teammates who make RCP the great company that it is. We're energized about the opportunities ahead of us, and we look forward to sharing our progress with you in the quarters to come. Wish everybody a great morning and a great day. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good morning, and welcome to The New York Times Company Fourth Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Anthony DiClemente, Senior Vice President, Investor Relations. Please go ahead. Thank you. Anthony DiClemente: And welcome to The New York Times Company's fourth quarter and full year 2025 Earnings Conference Call. On the call today, we have Meredith Kopit Levien, President and Chief Executive Officer, and Will Bardeen, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that management will make forward-looking statements during the course of this call. These statements are based on current expectations and assumptions, which may change over time. Our actual results could differ materially due to a number of risks and uncertainties that are described in the company's 2024 10-Ks and subsequent SEC filings. In addition, our presentation will include non-GAAP financial measures, and we have provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investors.nytco.com. In addition to our earnings press release, we've also posted a slide presentation relating to our results on our website at investors.nytco.com. And finally, please note that a copy of the prepared remarks from this morning's call will be posted to our investor website shortly after we conclude. With that, I will turn the call over to Meredith. Meredith Kopit Levien: Thanks, Anthony, and good morning, everyone. 2025 was a great year for The New York Times. Thanks to strong execution against a clear long-term strategy. We added 1,400,000 net new digital subscribers, bringing total subscribers to 12,800,000. This puts us further down the path to our next milestone of 15,000,000 subscribers and beyond. Engagement across the portfolio was strong, which contributed to significant growth in digital advertising. We generated more than $2 billion in total digital revenues for the first time. Also grew adjusted operating profit more than 20% and expanded margin to 19.5%. Our fourth quarter results were a fitting capstone to the year and reflect contributions from every part of our portfolio. We added 450,000 net new digital subscribers in the quarter and digital subscription revenues grew 14%. Advertising beat our expectations with digital advertising up 25% and total advertising increasing 16%. Licensing, affiliate, and other revenues also grew. We delivered this growth by engaging and monetizing audiences across multiple products and revenue streams, which is a clear example of our strategy in action. AOP grew and margins expanded in the quarter even as we continue to invest in our world-class journalism and premium product experience. Let me spend a few minutes putting these results in a broader strategic context as we begin the year. The information ecosystem is changing rapidly, and the challenges media companies face remain steep. We're operating in a polarized, low-trust environment shaped by a few powerful platforms whose actions create headwinds for publishers. We believe that The Times is well-positioned to navigate these trends. Given the differentiated value we have developed based on years of strategic investment, there are even bigger opportunities ahead, and we are confident that we can pursue them ambitiously and profitably thanks to the durability of our essential subscription strategy and a handful of unique advantages. Let me name them. First, our world-class news coverage and each of our lifestyle products addresses a big global market. Hundreds of millions of people around the world engage with news, sports, games, recipes, and shopping recommendations in their daily lives. We already reach many tens of millions of them every week across our portfolio and see the opportunity to engage directly and deeply with many millions more than we do today. Second, we built a unique engine for creating original, independent, and high-quality content at scale. Our core New York Times newsroom is one of the few that can go wherever the story does and report it from on the ground in more than 150 countries and every US state last year. The Athletic is the world's largest sports journalism operation. Our in-house games team has a track record of producing original puzzles that are cultural sensations and played by millions. Cooking has more than 25,000 vetted recipes and a growing video catalog that gets people excited for their next meal. And Wirecutter's experts rigorously review thousands of consumer products every year. Providing independent, human-made journalism and lifestyle products that resonate with huge audiences around the world is not easy. While others have been doing less of it, we continue to thoughtfully invest, making what we do more rare and more valuable to more people. Third, we are constantly innovating to express our journalism and content in all the ways and formats that audiences want to consume it. We're using AI to make our reporting more accessible, and we're rapidly growing our offering in video, which represents a major new audience opportunity for us. As linear TV continues to decline and viewing habits shift even more to digital platforms, we see a long-term opportunity to establish The Times as a preferred brand for watching news in addition to reading and listening. Finally, we've developed multiple digital revenue streams to monetize consistently high engagement. We're confident that our product portfolio will continue to fuel strong digital subscription revenue growth and that digital advertising and our other digital revenue streams are positioned for healthy growth as well. We plan to further capitalize on these advantages in 2026 in a few ways. We'll keep covering the most important stories with independence and rigor. We'll do that in more formats and places, especially with video. We'll add even more value in every part of our portfolio through new shows, coverage areas, games, and product features. And we'll thoughtfully navigate the changing technological landscape to make The Times even more valuable to more people. Executing well against these priorities is how we plan to get millions more people to have direct relationships and daily habits with The New York Times. And as we do that, we expect 2026 to be another year of subscriber growth, revenue growth, AOP growth, margin expansion, and strong free cash flow. I will close by reflecting briefly on history. 2026 is a year of milestones. The 200th birthday of America and the 175th anniversary of the founding of The New York Times. Trustworthy, independent journalism has been a crucial part of our country's success, and that's just as true today as it was in 1851. But it requires continued vigilance to ensure journalism can play its essential role in society. And it requires continued reinvention for a journalism business to succeed. Over the course of nearly two centuries, The Times has experienced the advent of radio, broadcast TV, cable TV, the Internet, smartphones, social media, and now AI. Local markets turned into national and then international ones. Daily habits accelerated into a need for near-instantaneous information. Amidst this relentless change, The Times has adapted, thrived, and played a crucial civic role. Today, we anchor the daily habits of millions who rely on our journalism and lifestyle products, making us more essential to more people than ever before. This track record strengthens the conviction we have in our ability to continue to deliver on our mission and to build a larger and more valuable company as we do. And with that, I'll hand it over to Will. Thanks, Meredith, and good morning, everyone. Will Bardeen: In 2025, we delivered strong results, including another year of healthy revenue growth, AOP growth, margin expansion, and strong free cash flow generation. As Meredith said, we continue to grow our subscriber base over the course of the year, adding 1,400,000 digital subscribers. We also grew total digital-only ARPU and drove strong subscriber engagement. This led to an increase of approximately 14% in digital subscription revenues and helped power our multiple revenue streams, including digital advertising, which increased 20%. We grew overall revenue in the full year by approximately 9% as increases in digital revenues were partially offset by ongoing declines in print. These healthy revenue results coupled with our disciplined approach to cost throughout the year drove operating leverage. AOP grew by approximately 21% year over year in 2025 to $550 million. AOP margin expanded by approximately 190 basis points to 19.5%. We delivered these results even as we continue to prioritize strategic investments aimed at further differentiating our high-quality journalism and digital products. We generated approximately $551 million of free cash flow in 2025. That strong free cash flow generation primarily reflected our robust AOP and our capital-efficient model. We also benefited during the year from lower cash taxes due to the change in tax law for R&D expenditure deductions, as well as from the net proceeds of the sale of excess land at our printing facility. Over the course of the year, we returned approximately $275 million to shareholders. This included approximately $165 million in share repurchases and approximately $110 million in dividends. Today, we announced an increase in the quarterly dividend from $0.18 to $0.23, consistent with our capital allocation strategy. I'll note that as of year-end, we had $350 million remaining on our share repurchase authorization. Now I'll discuss the fourth quarter's key results, followed by our financial outlook for 2026. Please note that all comparisons are to the prior year period unless otherwise specified. I'll start with our subscription revenues. We added approximately 450,000 net new digital subscribers in the quarter, bringing our total subscriber count to approximately 12,800,000. Subscriber growth came from multiple products across our portfolio. We also continue to be pleased with the rollout of our family plan subscription offering. Total digital-only ARPU grew year over year to $9.72 as we stepped up subscribers from promotional to higher prices and raised prices on certain tenured subscribers. We continue to be encouraged by the results we're seeing at pricing step-up points, which we believe reflect the value we continue to add into our product. As a result, we remain confident in our ARPU trajectory. I'll note here that following 2025, we plan to make a change to our subscriber disclosures. We will continue to report total digital-only subscribers and total digital-only ARPU. However, we will discontinue reporting digital-only subscribers and ARPU by the categories of bundle and multiproduct, news only, and other single product, as well as the percentages represented by group corporate group education and family subscriptions. We believe total digital-only subscribers and total digital-only ARPU best align with how we manage the business for long-term growth. With both higher digital subscribers and higher total digital-only ARPU in the fourth quarter, digital-only subscription revenues grew approximately 14% to $382 million. Total subscription revenues grew approximately 9% to $510 million, which was in line with the guidance we provided for the quarter. Digital advertising revenues also came in above the guidance we provided, increasing approximately 25% to $147 million. The growth in digital advertising was due mainly to strong marketer demand and new advertising supply. Affiliate licensing and other revenues increased 5.5% in the quarter to $100 million, primarily as a result of higher licensing revenues. This was in line with our guidance. Adjusted operating costs grew 9.7%. This was above the 6% to 7% guidance range that we provided last quarter. I'll note that the primary reason for costs coming in above the guidance range was higher expenses associated with incentive compensation programs related to our financial outperformance. AOP grew 13% in the quarter to approximately $192 million, and AOP margin expanded 50 basis points to approximately 24%. Adjusted diluted EPS in Q4 increased $0.09 to $0.89, primarily driven by higher operating profit. I'll now look ahead to Q1. Digital-only subscription revenues are expected to increase 14% to 17%, and total subscription revenues are expected to increase 9% to 11%. Digital advertising revenues are expected to increase high teens to low 20s, and total advertising revenues are expected to increase low double digits. Affiliate licensing and other revenues are expected to increase high single digits. Adjusted operating costs are expected to increase 8% to 9%. We intend to continue operating efficiently while making disciplined investments in our high-quality journalism and digital product experiences that add value for our audiences. As we've discussed, video in particular remains an important area of strategic investment being reflected in our guidance. We are confident in our ability to generate strong returns as we grow the amount and impact of video journalism in news and across our portfolio. In summary, our strategy is continuing to work as designed. The strategic priorities for the coming year that Meredith highlighted are all aimed at building a larger and more engaged audience over time, growing our subscriber base, and powering our multiple revenue streams. For the full year 2026, we expect another year of healthy growth in revenues and AOP margin expansion and strong free cash flow generation. In addition, we remain on the path to achieving our midterm targets for subscribers, AOP growth, and capital returns. With that, we're happy to take your questions. We will now begin the question and answer session. Operator: To ask a question, press * then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. The first question today comes from David Karnovsky with JPMorgan. Please go ahead. David Karnovsky: Thank you. Meredith, when we look at that 20% digital ad growth last year, just with hindsight, is it possible to kind of break that out between kind of new supply, new products, or just engagement? And then kind of how much opportunity you see on these fronts? And then for Will, the adjusted cost guide for Q1 is a bit above recent trends. So I wanted to see if you could unpack some of the drivers there. And you mentioned video specifically. I'm not sure if there's a way for you to kind of dimensionalize the impact there. Thank you. Meredith Kopit Levien: Yes. Good morning. I'll start on ads. I mean, the first thing to say is we were very happy with the performance last year, and I'd say we feel good about what we see as sort of all three elements of the ad business in terms of supply, which you asked about. We did add more ad supply in a number of places last year. And I would say as we have more opportunities to engage the audience, we should have more to add new and different kinds of supply. And I'll also say on supply, we have a really good track record of, and we did a lot of this last year, making the supply we already have more valuable, and that's with data and improvements to campuses and overall performance. In terms of demand, I would say that picture has improved. It's improved in a couple of ways. One, you know, we can do bigger deals with the marketers we already work with because there's more to offer. And two, and I've talked about this for a while now, I think we appeal to more marketers because we're now at scale in multiple spaces that are very appealing to them. And then the last thing to say, and I think I said a version of this for years, our ad products really work. They're performing. And so because of that, marketers come back and they buy more, and that's, I would say, thanks to the quality of both the canvases and the sort of way we apply those canvases and also to our targeting tools. And then lastly, I would just say we really believe in our leadership and the team, and execution has been kind of strong across the board. Will, I think the next part of the question. Will Bardeen: Yeah, to take the question, David, on the cost guide. So looking forward on cost and investments, I think the most important thing to say is that our overall approach isn't changing. So we don't guide beyond the quarter, but we remain focused over the long term on sustaining healthy revenue growth, AOP growth, and margin expansion. In other words, growing revenues faster than growing costs. And we do that by managing costs very closely while also making strategic investments that continue to differentiate us. And as Meredith and I both said in our remarks, as you mentioned in your question, that does include investment into video, which we're excited about. You know, we ramped that up, particularly in the back half of '25. The Q1 expense guide reflects year-over-year impact of that ramp of volume and video production at both The Times and The Athletic across the portfolio. Also, you know, just full cost, we also continue, as we've said in the past, to value the flexibility to lean into areas like sales and marketing when there are good returns in the market, where we see a good opportunity to run a brand campaign. But stepping back, with respect to cost investments, our overall resource allocation approach reflects ongoing cost efficiency combined with that thoughtful investment into the journalism and digital product experiences that we really think are going to add value to our audiences over time. And it's that disciplined approach that enables us to continue to target not just healthy revenue growth, but also year-over-year AOP growth and margin expansion for '26 and beyond. David Karnovsky: Great. Thanks a lot, David. Operator, we'll take our next question, please. Operator: The next question comes from Benjamin Soff with Deutsche Bank. Please go ahead. Benjamin Soff: Good morning. Thanks for the question. I wanted to ask first about capital allocation. You had another healthy year of free cash flow. Your balance sheet is obviously in a pretty strong position. So what are your latest thoughts on capital allocation as we head into 2026? How do you think about perhaps updating your shareholder return target as you continue to build up cash? And then I wanted to ask about password sharing. To date, you primarily focused on approaching that with a carrot, not a stick. Can you talk about how you think about password sharing on your platform broadly? And the different tools that might be available to help unlock that opportunity? Thank you. Will Bardeen: Sure. I'll take the capital allocation question, and Meredith can take the password sharing question. Definitely appreciate the question. We're clearly pleased with both the strong free cash flow generation and the strong balance sheet. At this time, what I'd say is no change to our strategy here. We believe our capital allocation strategy continues to serve us well. And recall, the top priority on that is continuing high-return organic investment into our essential subscription strategy. And I think you hear with some of our remarks today and as we've been narrating over the last call or two, video is an exciting opportunity for us there. And then after that, we intend to return at least 50% of our free cash flow to shareholders over the midterm. That's our stated target. And you've seen and continue to see a balance as we are on pace for that target between dividends and share repurchases. I note today in my remarks, the $0.05 increase to the dividend from $0.18 to $0.23 and this track record of repurchases with $350 million of the authorization remaining at the end of the year. And then we like having a strong balance sheet. It's a dynamic time in the media industry, so we're comfortable with that. Any M&A would have a very high bar. We're very pleased with the pace of our strategy and the spaces we're in. So that's sort of the specifics to say we're pleased with our capital-light allocation strategy and nothing to change at this time. Meredith Kopit Levien: Great. Why don't I take password sharing? I think there's two answers to that. The first one is to say, and I talked about this in my prepared remarks, we still regard ourselves as playing in these very big spaces, you know, news, coverage broadly defined, and then sports, games, recipes, shopping, bikes, all of which have a lot of running room in them. So we see a really big market opportunity and regard ourselves as, you know, still having lots of room to penetrate there. So that should give you a sense of how we think about password sharing as, like, potentially an opportunity down the line, but we're still in a phase of really wanting to bring more people into using and engaging with The Times. And the way we've done that, you know, so far, like, in the last six or nine months is with our family plan, which we are incredibly excited about. So that's almost like the carrot version of password sharing. The family plan is going very, very well. And I would say it's got three elements to it that really work for us. One, it is a sort of further penetration move, and it is helping us do that. People are bringing new people into an opportunity to engage with The Times, and we're very excited about that. That's our own subscribers getting other people in their lives to subscribe. And a lot of the things we do at The Times are sort of fundamentally shared or shareable experiences. The second thing to say with the family plan is it is priced at a premium, it's just, like, additive out of the gate to revenue and the same, you know, again, the carrot version of using password sharing crackdown as the stick. And then the third thing to say is, like, a broad point that a whole model runs on very strong engagement from people, and the family plan is yet another way to improve engagement of our subscribers and ultimately retention. We've long had the insight if we can get you. First, it was to read across more topics. You'd be more likely to stay longer, pay more over time. And then if we could get you to engage with more products, that was true. And now it's if we can get you to do it with the people you love and interact with, that is also true. So our version for now in a sort of moment where we still feel like we're relatively early in market penetration of dealing with what you're describing as password sharing is the family plan. But I don't rule out something else to offer it. Will Bardeen: Thanks, Ben. Operator, next question, please. Operator: The next question comes from Thomas Yeh with Morgan Stanley. Please go ahead. Thomas Yeh: Thanks so much. One more on the video journalism initiative, which sounds like an area you're really deciding to lean in on. I think to date, you've been adding more videos of reporters explaining their work as kind of a brand trust or social media marketing tool. Can you just talk about how you see the evolution of that product towards something you mentioned maybe closer to what we see on linear TV and how that fits into the investment needs that Will referred to? On the non-news single product growth, that was again a pretty big contributor to subscriber growth this quarter. I know you'll change the disclosure going forward, but maybe one last time, can you add color on what's been driving that strength across games or athletic and what you're seeing there? Thank you. Meredith Kopit Levien: Yeah. I'm good morning, Thomas. I'm happy to take both of those. The first thing to say about video, and I think you got in both of our prepared remarks, is we just see it as a really big long-term opportunity to establish The Times as the preferred brand for watching news in addition to reading and listening to that news. And there are sort of three parts to it, one of which you're asking about specifically: production, and then engagement and monetization. In terms of production, which is what I think you're pushing on, you can regard us as being in a phase where we're really beginning to scale it. And I think to your point, what we feel really good about from 2025 is we've arrived at sort of two things. One, scalable formats, and I'll name them, and also kind of video language for The Times that feels like it's really, really working. So what does that look like? You mentioned reporter videos. We are scaling that up. And one of the inherent advantages we have in the model is an enormous one of the world's most robust reporting forces. So you can imagine how that scales. In addition to reporter video, I think we've really distinguished ourselves in our still, you know, in early days of it with what we call visual investigations. You've seen a lot of that recently. That is something we're doing more and more of. I think that becomes even more important in sort of a low-trust environment. We're just showing more, so they're straightforwardly showing more of what is happening when a reporter is on the scene somewhere in news clips. And then we've made a really deliberate effort to turn our hit podcast, in most cases, into full-bore video shows, and that's going very, very well. And in terms of where all that is playing out, you're seeing us do that in our new watch tab, which we launched last year, in the core app of The Times, and that's, you know, early days, but we're very, very happy with what we're seeing there so far. And then also putting more of our video in all the places people engage with news off-platform, which we think is a really important part of our long-term engaged audience growth strategy. So we feel very good about all that. The most important thing to say is it's early days, and the phase we're in right now is really ramping up that production and building a wide engaged audience for it. So more engagement from the people we already have and then, you know, net new audience to engage with video. I think your second question was about single product growth in non-news. I'll just say, we're really pleased with the strong net ads growth in the quarter. I'd say it's our strategy working as designed. And as you've heard us say before, the great thing about the model is we have multiple levers for growth, and the different levers, the different products in the portfolio are going to play different roles at different times. And I would even say all of our products played some role in the quarter, and that is almost always true depending on the time of year. Some are driving subscriber growth, some are driving audience engagement, but it's all sort of a system that's working together. And we're, you know, super excited about what we saw in the quarter. Will Bardeen: Great. Thank you, Thomas. Operator, next question, please. Operator: The next question comes from Ketan Mamrall with Evercore. Please go ahead. Ketan Mamrall: Good morning and thanks for taking the questions. One on ARPU and a follow-up on costs. On the digital-only subscriber ARPU side, growth has historically been a highlight over the last few quarters, up in the 3% to 4% range. That growth decelerated a bit more than expected in the quarter. Based on your Q1 outlook, it certainly seems like overall digital-only subscription revenue growth will remain healthy. But any more color on ARPU specifically and the moving pieces for 2026 would be appreciated. And to follow-up with another question on costs, Will, I appreciate that you don't guide beyond the quarter, but I think despite the very attractive strength in net adds, advertising, free cash flow, and other parts of the story, there'll be some consternation on costs. So I just wanted to see if there's anything more you can share on the trajectory over there. Should the takeaway be that the high single-digit growth range exiting 2025 into 2026 is perhaps the new normal? Or should we expect a deceleration back to the mid-single-digit range in the back half of the year as you begin to lap some of these investments in video? Thanks. Will Bardeen: Yes, I'll take both of those. Why don't I just start with the second one? I think the key thing to say there is simply that we remain very focused on sustaining not just the healthy revenue growth, but also AOP growth and margin expansion. So very disciplined on costs and investments. And I described that in my remarks. I think that's the framework that I want to make sure to leave you with that we're very focused on. Move to ARPU. I totally appreciate the question. We sort of provide, as you noted, quarterly guidance on digital subscription revenue growth, which is the thing that we're trying to maximize over the long term. And that's a function of both our sub base and our ARPU. And as you've seen and expect to continue, ARPU growth in any given quarter can fluctuate for a variety of reasons. Those can be the volume and mix of sub additions, and where the, you know, what's the nature of the sub? Are they on a promotion? Are they tenured? Are they international, domestic? We have some different pricing. And then the timing of targeted price increases can play a role as well. So you noted in our guidance, we're expecting strong digital sub revenue growth in 2026. And I think it's maybe worth calling out as we begin '26 some of the color you asked for, we do expect in particular to see the benefit of an increase in the digital bundle price to $30 from $25. A ten-year cohort of bundled subscribers began paying those higher prices in Q1. And as we'd expected from some of our earlier testing, we tend to test all of our pricing. The results so far are very encouraging. So we don't guide to ARPU specifically. Overall, we continue, as I said, to be pleased with the health of the ARPU drivers. And we see multiple factors that are giving us confidence in our ARPU trajectory over time. At the basic level, we're continuing to add value to our products. They become more valuable. We're seeing strong audience and subscriber engagement. So an appreciation among our audience for that value. And then we remain pleased with the performance of our pricing step-up points, including when we raised prices on some groups of tenured subscribers. Ketan Mamrall: That's great. Thank you, Ketan. Operator, next question. Operator: The next question comes from Jason Bazinet with Citi. Please go ahead. Jason Bazinet: Sorry to do this, another one on costs. So you said in the fourth quarter, the expenses were a bit higher because of incentive comp. But going forward, it's more of the investments you're making. The incentive comp just sort of spread across all the cost items you disclosed? Or is it isolated in one? And same thing on the video investments. Are those across? Will Bardeen: Yeah. Appreciate the question. Yeah. So let me take the Q4 dynamic there. As I said, the primary reason for the difference between the guidance and what we came in at was higher expenses associated with incentive compensation programs and our financial outperformance. Now I'll note here that, for example, having such strong advertising revenue performance, meaningfully higher than our expectations in Q4, which is a very big ad quarter, has an impact on the full year and multiyear financials that are tied to our incentive plan. And that did impact, to your question, all four of our expense lines in the quarter. G&A was where that impact was the most obvious. But it might also be helpful for me in response to your question to note that it's also kind of its impact on the sales and marketing line in particular. As we disclosed in our earnings release, our marketing media expenses in the quarter were only 1.8%. So higher compensation expenses were also a factor in why that overall sales and marketing line was up over 11.5% in Q4, and it plays it's really in all those lines. So that's kind of that main story in Q4. Underlying that, you know, included we had started to ramp up our video investments and continue to make disciplined investments in those areas that are positioning us for sustainable growth for the long term. And I think that I've already talked about that in the context of the guide going forward. Jason Bazinet: Great. Yep. Thanks. Thanks so much, Jason. Operator, we'll take our next question, please. Operator: The next question comes from Kanan Venkatesh with Barclays. Please go ahead. Kanan Venkatesh: Thank you. Meredith, when we look at the growth in advertising, obviously, it looks like there's a lot of upside there. I mean, something that you could see as potentially a way to manage your ARPUs and the. In other words, instead of raising price, would you use some of the advertising to essentially make the product affordable for customers, you know, courier subscribers, a bit faster by leaning in on advertising? So it'd be great to get your thoughts on that. And then on the AI front, I mean, obviously, there's a lot of litigation expense building on that. But would you be able to get some sense of timelines around this as to when you expect resolution? And when we think about the puts and takes, obviously, there's some licensing fees you could get out of some of these models, but at the same time, how do you view the threats from AI? Longer term? Like, how do you weigh the opportunity versus cost in that front? Thank you. Meredith Kopit Levien: Yeah. Thanks, Kanan. Let me start on the AI question. And then I think I heard you on the advertising question. If not, you can try and answer it. You can redirect me if I didn't hear you quite right. I would say on AI, you know, we continue to see headwinds. We've been talking about that for a while now. But our strategy of building differentiated products at scale, which are worthy of seeking out and building habits with, make us really resilient to headwinds and are rapidly changing and pretty low-trust ecosystem. And over the long term, we believe what we do is going to be even more valuable to consumers and to business partners and ultimately even the LLMs themselves in an information ecosystem where it's harder and harder to find things that are true and valuable and worthwhile. So, you know, and we're already using, and we've talked about this in prior calls, we're using AI to make our work more accessible, do a number of things in the subscription model. We've got an AI-powered ad product that is really working. So we're already sort of harnessing AI in effective ways to make the business more productive and build our engaged audience. I think the question, do you want to try one more time on the ad question just to make sure I heard it right, and then I'm happy to answer it. Kanan Venkatesh: I mean, basically, the question is, you can get ARPU through advertising or through subscription fees. So is there a path where you, because your advertising revenues are growing faster, you grow prices lower and therefore, you know? Meredith Kopit Levien: I see what you're asking. Yeah. Yeah. Yeah. Let me just say broadly, one of the things that we are most excited about in terms of our strategy and our model, and I talked about this in my prepared remarks, one of the unique advantages that The Times has is we have this multi-revenue stream model, and you saw that really working. And so, you know, we particularly as we focus on building a larger and more valuable New York Times company, the sort of what powers that is building our engaged audience. And having an opportunity to monetize that audience, particularly as we're building in early chapters through advertising, is awesome. And you're really seeing that play out. And I could talk about that literally in every part of the portfolio, and every part of the portfolio contributed to the ad success in 2025, and we expect every part of the portfolio to play a role going forward. But in places like games, we've got, I think we have 11 games now, and six of them, maybe off by one, I think, are free games. And we, you know, monetize the enormous amount of engagement we get with our free games, first through advertising, and that's a great and exciting aspect of the business. And as we build The Athletic and really widen people's understanding of the power of The Athletic, if you're a sports fan and what it can do, it really makes the audience bigger. We've been very, very happy with what it can do as a commercial business, as an ad business. So I'd regard it as a whole system working together. And ultimately, what we're doing is also building funnels for future subscription growth, and it all kind of works together. It's all very deliberate. Kanan Venkatesh: Okay. Great. Will Bardeen: Thanks, Kanan. Operator, let's take one final question. Operator: The final question comes from Doug Arthur with Huber Research. Please go ahead. Doug Arthur: Last but not least. Just on that single product growth, which there's been quite a few questions on. I mean, I guess the question is, do you remain confident that it's sort of expanding the funnel, expanding the TAM, and you are getting or do have the potential to convert strongly engaged single product users to, you know, more valuable bundle type subscription? Is that working? And then I've got a follow-up. Meredith Kopit Levien: My short answer on that, Doug, is yes. We, you know, this is a whole system. All of the products beyond news broadly defined are playing a role in the funnel. We really like what we see in terms of how it's working in the subscription funnel and ultimately bringing people in, you know, into initial products and then being able to engage them more over time. And as we engage them more, they become more valuable to us in multiple ways. So yes, yes, yes, yes to what you're asking. And I'll just add on the back of that. Will Bardeen: Absolutely to the subscription business. And as Meredith said, the power of those multiple products from games to The Athletic in supporting the ad results we're seeing is also part of the encouraging story that we're telling. Meredith Kopit Levien: And cooking and Wirecutter too? Yep. Doug Arthur: So do you, you said you had one last follow-up? Doug Arthur: Yeah. There's been chatter in the press about the contract negotiations with the News Guild. I guess, focus on remote work guidelines. Is there anything to see there? Is there anything you can comment on? Meredith Kopit Levien: We have a long history of working with a number of unions at The Times and productive relationships with all of our unions, and we are, I think, well-prepared to move through this contract period as we have been in the past. And we're very confident that The Times will continue to be a great place for, in this case, journalists and ad people who are most of the folks represented in the current negotiation to work. Operator: This concludes our question and answer session. I would like to turn the conference back over to Anthony DiClemente for any closing remarks. Anthony DiClemente: Great. Well, thank you, everyone, for joining us for the call, and we'll see you next quarter. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Bunge Global S.A. Fourth Quarter 2025 Earnings Release and Conference Call. All participants will be in a listen-only mode. Should you need assistance, after today's presentation, there will be an opportunity to ask questions. To withdraw your question, please note this event is being recorded. I would now like to turn the conference over to Mark Haden. Please go ahead. Mark Haden: Thank you for joining us this morning for our fourth quarter earnings call. Before we get started, I want to let you know that we have slides to accompany our discussion. These can be found at the Investor Center on our website at bunge.com under Events and Presentations. Reconciliations of our non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well. I'd like to direct you to Slide two and remind you that today's presentation includes forward-looking statements that reflect Bunge's current view of respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties. LogMeNet provides additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in the press release. And we encourage you to review these factors. On the call this morning are Greg Heckman, Bunge Chief Executive Officer, and John Neppl, Chief Financial Officer. I'll now turn the call over to Greg. Gregory A. Heckman: Thank you, Mark. And good morning, everyone. I want to start this morning by thanking the team and recognizing their extraordinary work around the world, both throughout 2025 and as we move into 2026. This past year was one of execution, investment, and integration, all in a market environment that demanded agility and discipline. In 2025, we reached a major milestone with the completion of our Viterra combination. The integration work our teams accomplished has been exceptional, and we remain highly engaged and excited about the progress we're continuing to make together. Building on a foundation of culture that we're already aligned on doing what is right for customers, this combination brings both organizations together within our proven end-to-end value chain operating model. Removing complexity and strengthening shared goals. As a result, we've increased connectivity and the flow of information across our combined organization. A crucial component to how we operate. As I've said before, it's our competitive advantage to have great people across the organization having the same information at the same time and working toward unified objectives. This alignment is already delivering results. We are unlocking synergies in origination, merchandising, processing, and distribution. Optimizing flows between origin and destination and capturing margin through improved logistics and better coordination. For example, previously Viterra's origination activities in most regions would have been managed purely through a merchandising lens. Leveraging a nimble platform built to operate on short lead times, today, people managing the same network of elevators are now making decisions with a more complete picture of our global platform. Taking an integrated view that balances speed with longer-term considerations. This not only allows us to keep our processing and refining plants running at high capacities but also results in more profitable outcomes for both farmers and consumers. We have capabilities today that we didn't have before. And we're just getting started. These types of benefits are durable and will compound over time. We will provide more details on synergy capture, capital allocation priorities, and our combined long-term outlook at our Investor Day on March 10. And while we've been integrating Viterra, we've also been working to advance our large greenfield projects navigating trade flows, policy uncertainty, and geopolitical volatility. All while staying focused on connecting farmers to end-market demand across food, feed, and fuel. Shifting to our operating performance, our fourth quarter reflected higher results in all our segments. Driven by strong execution and our expanded footprint and capabilities. John will go into more details in a moment. Externally, the environment remains complex. With limited forward visibility. Geopolitical tensions, evolving trade flows, and uncertainty around biofuel policy, and that's particularly in the U.S., continue to influence farmer and consumer behavior. Based on what we can see today in the current environment, and forward curves, expect full-year 2026 adjusted EPS in the range of $7.5 to $8. And with that, I'll turn it over to John for more details on our financials and outlook. John W. Neppl: Thanks, Greg, and good morning, everyone. Let's turn to the earnings highlights on slide five. Our reported fourth quarter earnings per share was $0.49 compared to $4.36 in 2024. Our reported results included an unfavorable mark-to-market timing difference of $0.55 per share and an unfavorable impact of $0.95 primarily from notable items related to the settlement of our U.S. Defined benefit pension plan, Viterra transaction integration cost, and an impairment of a long-term investment. Prior year results included a net positive impact of $0.98 from notable items, primarily related to the gain on the sale of our Sugar and Bioenergy joint partially offset by Viterra transaction integration costs. Adjusted EPS was $1.99 in the fourth quarter, included approximately $50 million of net tax benefits. Versus $2.13 in the prior year. Adjusted segment earnings before interest and taxes or EBIT was $756 million in the quarter versus $546 million last year with all segments showing higher year-over-year results. In the Soybean Processing and Refining segment, slightly higher results were primarily driven by South America reflecting higher processing and refining results in Argentina and Brazil. In the destination value chain, lower processing results in Europe and origination in The Americas were partially offset by improved results in Asia. Results in North America were lower in both processing and refining. Higher process volumes were largely attributed to the company's expanded production capacity in Argentina. Higher merchandise volumes reflected the company's expanded soybean origination footprint. In the softseed processing and refining segment, higher results were primarily driven by better average processing margins and the addition of Viterra's softseed assets and capabilities. In North America, higher processing results were partially offset by lower results in refining. In Europe, results were higher in processing and biodiesel, but lower in refining. In Argentina, results were higher in processing and modestly higher in refining. The resulting Global South Seeds and Global Oils merchandising activities also increased reflecting strong execution. Higher softseed process volumes primarily reflected the company's increased production capacity in Argentina, Canada, and Europe. Higher merchandise volumes were driven by the company's expanded soft seeds origination footprint. For other oilseeds Processing and Refining segment, improved results reflected stronger specialty oils performance in Asia and North America. Along with higher global oils merchandising activity. Results in Europe were in line with the prior year. In the Grain Merchandising and Milling segment, higher results were primarily driven by global wheat and barley as well as wheat milling, partially offset by lower results in global corn and ocean freight. Higher volumes were primarily reflected in company's expanded grain handling footprint and capabilities along with large global green crops. Prior year results included corn milling, was divested in the second quarter of 2025. The increase in corporate expenses was primarily driven by the addition of Viterra. Higher other results primarily reflected our captive insurance program, partially offset by $10 million of prior year income, the Sugar and Bioenergy joint venture that was divested in 2024. Net interest expense of $176 million was up in the quarter compared to last year reflecting the addition of Viterra partially offset by lower average net interest rates. Let's turn to Slide six where you can see our adjusted EPS and EBIT trends over the past five years. The recent performance trends reflect less volatility due to a more balanced global supply and demand environment, particularly in grains, and the impact of ongoing trade and biofuel uncertainty that has created a very spot transactional market environment. Slide seven details our capital allocation. For the full year, we've generated just over $1.7 billion of adjusted funds from operations. After allocating $485 million to sustaining CapEx, includes maintenance, environmental health, and safety, we had approximately $1.25 billion of discretionary cash flow available. We paid $459 million in dividends and invested $1.2 billion in growth and productivity-related CapEx. We received approximately $1.2 billion of cash proceeds from the sale of a variety of assets in businesses. And we also repurchased 6.7 million Bunge shares for $551 million. This resulted in $173 million retained cash flow. Moving to Slide eight. Year-end net debt excluding readily marketable inventories or RMI was approximately $700 million. The recent change versus history reflects the impact of the acquisition debt assumed and issued related to Viterra. Our adjusted leverage ratio, which reflects our adjusted net debt to adjusted was 1.9 times at the end of the fourth quarter. Slide nine highlights our liquidity position, which remains strong. At year-end, we had committed credit facilities of approximately $9.7 billion of which approximately $9 billion was unused and available. Providing ample liquidity to manage the ongoing capital needs of our larger combined company. Please turn to Slide 10. For the trailing twelve months, adjusted ROIC was 8.1% and ROIC was 6.9%. Adjusting for construction and progress on our large multiyear projects and excess cash on our balance sheet, our adjusted ROIC would increase to 9.3% and ROIC to 7.5%. As a reminder from last quarter, we decreased both our weighted average cost of capital and adjusted weighted average cost of capital from 77.7% respectively, to 66.7% respectively reflecting the recent upgrade in our credit rating change in capital structure of the combined company and lower interest rate environment. Importantly, we're not lowering our long-term investment return expectations. Moving to slide 11. For the year, we produced discretionary cash flow approximately $1.25 billion similar to the prior year and cash flow yield or yield or cash return on equity of 9.4% compared to our cost of equity of 7.2%. Please turn to Slide 12 and our 2026 outlook. Taking into account the current margin and macro environment of forward curves, we forecast full-year 2026 adjusted EPS in the range of $7.5 to $8. As Greg mentioned in his remarks, the environment remains complex. With limited forward visibility, particularly related to U.S. Biofuel policy. As a result, we believe the curves do not properly reflect what opportunities should develop during the year once the policy is finalized. Additionally, we expect the following for 2026. Adjusted annual effective tax rate in the range of 23% to 27%, net interest expense in the range of $575 million to $620 million, capital expenditures in the range of $1.5 billion to $1.7 billion, depreciation and amortization of approximately $975 million. With that, I'll turn things back over to Greg for some closing comments. Gregory A. Heckman: Thanks, John. Before we go to Q&A, I wanted to just offer a few thoughts. Through our disciplined execution, portfolio optimization, and strategic investment, we've reshaped this company into a more agile, diversified, resilient Bunge. We've overcome multiple obstacles including geopolitical shifts that continue to reshape global trade flows. Yet through all of that, the team has executed, adapted, and delivered. Those experiences have only strengthened our confidence and our ability to succeed going forward. With the addition of Viterra, we now have greater reach across origins and destinations, deeper insight into global flows, more capability and optionality to serve customers, and manage risk. We're still on a transformation journey, and continuous improvement is part of who we are. At the same time, our Bunge team is operating from a position of greater strength than at any point in our history. We've never been in a better position. We've never been more needed and we've never been more prepared. Thanks to our people and the global infrastructure we operate. And we look forward to sharing more on the opportunities ahead of us at our Investor Day on March 10. In the meantime, I'll close by saying as we look ahead, I'm confident that capabilities that we've built will allow us to deliver value in any environment. While continuing to connect farmers to the markets to sustain communities and feed the world. With that, we'll turn to Q&A. Operator: Thank you. We will now begin the question and answer session. And you would like to withdraw your question, at this time, we will pause momentarily to assemble our roster. The first question comes from Tom Palmer with JPMorgan. Please go ahead. Tom Palmer: Thank you and good morning, Greg and John. I know your guidance does not take a view on how industry conditions might change, but I had a couple of questions here. One, I wonder to what extent you think the RVO might be reflected in the curve today? And then when we see board crush margins moving higher over the past month or so, has this had much impact on the margins that you are able to capture in your crush operations up to this point? Thanks. Gregory A. Heckman: Sure. I'll start on that, John. So yes, you're correct. Our outlook, we did not put any assumptions about what the RVO would do to the curves over the profitability. Beyond what the curves are already showing. Now as you called out, we've definitely seen The U.S. Curves, in the second half, right, improve a little bit. And we think those probably driven by RVO tailwind expectations. Now that being said, there's not much business done beyond Q1 right now. That we're still pretty open on the balance of the year. And then the other feature, I think you've got pretty high oil stocks in The U.S. Until we see that demand come on. Is a little different than the rest of the world where the oil S and Ds are pretty balanced. That could get cleaned up pretty quickly. Should we get the RVO enacted. But the actual details are important and the timing is important. So, you know, we all wait, but to stay consistent, we just gave the forecast on what we can see today and what the curves are today. Yes. And maybe just to add, Tom, that on top oil has certainly been up and down. Based on market expectations. But we're seeing good steady demand soybean meal. And I think that's a global phenomenon. But in The U.S. as well, soybean meal demand has been strong. So that's at least helping from a crush perspective. Tom Palmer: Understood. Thank you. I had a question just on cadence for the year. I think as historically earnings have been a bit more weighted to the second half of the year than the first half. But the composition of the business is obviously changed quite a bit here. So any thoughts on both kind of the earnings cadence as we think about this year and to what extent that might be reflective of what normal seasonality might look like in the business as we look forward? Thank you. Gregory A. Heckman: Yes, Tom, I think how we're looking at this year and I don't know that this is necessarily going to be indicative of the future, but just given where the forward curve sits today, we're looking at first half, second half weighted more like a 30-70 this year, which is a little lighter first half than maybe what we typically see. And then even on the Q1, Q2, we're looking at a 35-65 type split. So absent the impact of RVO change in Q1 we're going to be through the end of Q1 by the time that probably gets resolved. Pretty light Q1. So 35, 65 first half and 30.7 for the full year. Tom Palmer: Okay. Thank you. Operator: Our next question comes from Heather Jones with Heather Jones Research. Please go ahead. Heather Lynn Jones: Good morning. Thanks for the question. I just wanted to just clarify one thing on the guidance. So typically, you guys use the forward curve to set your guidance. And adjust that based on what you're seeing in the physical. Markets is that any different? Did you do anything different this time, like, just did you just take the curves and then make adjustments for what you're seeing as far as basis, etcetera, or just want to clarify that. Gregory A. Heckman: Yes, Heather. Thanks for the question. Yes, we were a little boring in our consistency. So yes, we use the exact same approach that we've been because we just think that makes it easier to understand how we come at this each quarter. But yes. And I would just say it's right now, obviously, we would expect once the RVO was finalized for the conditions to improve that the question of the dynamics we're waiting to hear are obviously finalization or reallocation, the compliance years are they going to have retroactive 2026 to the first of the year. When it's going to actually get finalized to start taking effect. So there's still some unknowns there until it actually gets codified. So rather than try to guess on all that, we just take the curves away they are and let the market do its work. And in a perfect world, we'd get some clarity ahead of our investor day on March 10, but fingers crossed. Heather Lynn Jones: Well, as Gary said, my fingers crossed too. Then a big picture question. So since 2022-2023, trade lanes have shifted, you don't have the disruption you had then, you've had quite a bit of crush capacity added in North America and South America. But you have more constructive biofuel policy in Indonesia, Brazil, Europe, and if this is anything if The U.S. has anything likes been telegraphed, it's gonna be much more constructive in The U.S. So putting all that together, increased capacity but much greater demand. Do you envision a scenario where crush margins, both soft and soy, could replicate what we saw on the 2022-2023 time frame? I know those are a lot of what ifs, but just would love to get your thoughts on a scenario like that. Gregory A. Heckman: Yes. No, you've called out a lot of the key things that we're seeing. There's no doubt as John said, the takeaway on meal globally has been better than everyone expected. Part of that, I think, to be the growth we're seeing in protein demand, especially in chicken and the growth there. On the biofuel policy, no, you're exactly right. There are things happening kind of everywhere, whether it's the B-fifteen in Brazil and eventually going to B-sixteen later this year we think. Indonesia does policy. They've shown the ability to continue to make changes there to adapt what we're seeing in Germany on the RED III and then of course our own biofuel policy here. But I think what you're seeing is that governments understand the biofuel policy it's good for the farming community. It's good for all those communities that value that starts at the farm gate then moves through the value chain. So, think we expect biofuel policy to continue to be constructive as far as comparing back to certain years I don't know that I can make that exact call today, but I think we feel it's definitely constructive. What we do like and you ask about soft, is we have a much more balanced footprint globally, not only in soy but in soft and we've added a larger percentage of soft crush now. And of course, that is definitely favorable with the oil demand and that will favor us soft crush going forward. So we think our more balanced footprint there will be helpful for sure. Yes. I might just add on, Heather. The other thing is we haven't really seen any global meaningful global disruption. Whether it's weather or geopolitical here for a bit. I mean, there's been obviously the trade trade issues with China, but when you really think about a big shock to the the global system, there really hasn't been one for a while. And a weather event could really have a big impact and given our global footprint going forward. I think we we feel like we're positioned is good or better than anyone to handle that. Heather Lynn Jones: Okay. Thank you. Operator: The next question comes from Andrew Strelzik with BMO. Please go ahead. Andrew Strelzik: Good morning. Thanks for taking the question. I had a couple of things. The first one, just from an operational perspective, I was hoping that you could maybe compare the Viterra operations kind of at the time of the acquisition to when you guys took over the Bunge business. And I and I guess where I'm coming from is I'm just curious if you see similar opportunities to kind of transform the earnings power of the Viterra piece separate of the synergies through internal operations as has been the case of Bunge, or if there are any meaningful differences that you've observed. Gregory A. Heckman: I'd say the answer is yes. It was one of the things I think both companies were excited about coming together and doing the deal where that best and better practice is. And as we're able to share that, it starts everywhere from the safety of our people as we brought the safety programs together and relaunched combined safety program on best and better practices. And definitely, there is a bit of a replay of what we did in 2019 when we joined Bunge. We're now looking at the combined portfolio and making sure that we're running the right assets and the right businesses where we have a right to win for the long term. All the capital allocation is done from the center. And that's healthy for the teams to compete for that capital. Aligning the rewards programs and staying focused externally on our customers at both ends of the value chain and being able to do that from global diversified balance that we now have across crops across geographies and across origination has as well as crushing distribution. We've got more capillarity and granularity at origination and destination than we've ever had. And ultimately, you wrap all that in a risk culture. And I do think Bunge when we joined had incredible capabilities as does Viterra. And it's been great. Our teams did a ton of work pre-close, and we hit the ground running on day one with one view of our global positions for the people to make decisions with. The teams have embraced the culture. They understand how the risk needs of commercial teams work together in order to help manage their earnings at risk. And run our assets at high capacity utilizations. Help our customers manage their risk. I'll tell you, in this environment, that is really needed now and that has real value. And that's the one that continues to pay benefits over and over. Look, we're getting started. We've got a lot to do, but we really like the way the teams are engaging and we're together here early on. And you're right. We've done a lot of this before, so it's just about doing the work. Andrew Strelzik: Okay. Great. That was super helpful. And I apologize if I missed this, but can you share what you're assuming in '26 in the guidance for synergies on the cost and commercial side and maybe how we should think about that phasing in within that the kind of split you gave for EPS through the year? Thank you. John W. Neppl: Yes, Andrew, this is John. So I would say on the cost side, which is what we've got baked into our forecast primarily, we're feeling very good about where we are. We're estimating about $190 million of realized synergies in 2026, which is actually ahead of schedule. When we look at what we laid out at the time we filed our proxy, laid out our expectation growth synergies, we expected a second-year full year about $175 million roughly. We're actually going to do better than that in six months earlier. So we've taken a lot we took some action ahead of close and actually started getting the organization structured and ready for the close of the transaction. So we had a bit of a head start coming into the close. And, you know, in 2025 and prior, we realized a little over $70 million of synergy already by the end of 2025. And so we're looking at $190 million for next year, for 2026 year we're in now. With a run rate by the end of the year somewhere around $220 million run rate by the end of the year. So feel very good about that. Of course, $190 million is baked into our forecast. On the commercial side, I think that's still developing. You know, we've got line of sight to a lot of good things. But like anything, those ones are you know, a little more difficult to quantify individually. But I would say a relatively modest amount of synergy baked into the forecast on the commercial side. Andrew Strelzik: Great. Thank you very much. Operator: Our next question is from Salvator Tiano with Bank of America. Please go ahead. Salvator Tiano: Yes, thank you very much. So I want to start a little bit with the question. If I heard correctly, you said this year we expect to realize $190 million or $1.90. So I guess this, by our estimates, is around 70 or 75¢ in EPS year on year growth. So how is the guidance, I guess, on the low end and frankly even adjusting for the dividend even on the high end. Lower year over year It seems a little bit counterintuitive since even without the RVOs, the operating environment seems to have been a little bit better. For commodities trading, for biofuels, So does this imply essentially a material decline year on year before the synergies and why would that be the case? John W. Neppl: Yes, had a little bit trouble hearing you, but I would look at it this way. We're going to have with the full year of Viterra obviously we have a full year impact of share outstanding shares. We have full year of interest cost full year of depreciation, some of those impacts obviously. And I would say parts of the business that are yet to be performing as well as I think they could. Around grains and merchandising business, I think going forward, we still have work to do there. But, you know, overall, I think know, again, we're using the four curves as they stand today. And I think that, you know, getting some clarity there and some upside, you know, will be some opportunity. But at this point, it's that's how we're seeing it. And of that 190, synergy, if you look versus 25, there's 120 incremental. We did about 70 in '25. So for your modeling, it's one twenty incremental. In '26. Salvator Tiano: Okay. Perfect. So that's extremely helpful. And the other thing I want to ask is a little bit about the cadence you provided earlier. It seems to us that this implying kind of $0.80 in Q1, 1 in Q2 and then around 2.7 in the second half. So my two questions are firstly, $0.80 in Q1 that will be probably, you know, the lowest EPS figure in a long time and theoretically, again, the idea is that the markets are a little bit better than they were at the trough of last year, getting paid much lower. So are there any specific items or segments that maybe affected by timing, something that is pushing earnings away from Q1? The second part of the question is, if we're not really assuming a major improvement in the forward curves, in the guidance. How are we getting to around $2.7 EPS in the second half in each of the quarters? And if the IPOs come, are we talking about $3.5 or even $4 at some point in quarterly EPS? John W. Neppl: Yes, I think if you look, you're really on, obviously, the first the first the first half kind of the breakdown there in terms of quarter. And then the second half, think we're looking at about a forty-sixty on the second half at this point, but it's still way early. So a little difficult to predict that. But I think, look, a lot can happen. A lot of Q1s baked already were a month more than a month into Q1. I think that we're off to an okay start, but again, when biofuel policy gets resolved, Q1 is going have largely been completed. And so we're hopeful that it's going to provide us some upside here as we look through the balance of the year. But yes, Q1 is a really light quarter. We're a much bigger company. And but a lot of uncertainty what we found, what we've seen really 2025 and especially into 2026 is, very spot customers on both ends. Farmers are spot, our customers are very spot and it just creates less opportunity for us. And if you look and I might say, you look kind of coming out of Q4, you've got on soy, you've got average margins are down in Q1 versus Q4. In soft, you've got crush margins down kind of seasonally versus Q4. And then you say, kind of how do you come out of Q4? One, you got thank the team for really executing very well in a quarter where you had really no market catalyst heavy stocks, you've got uncertainty around the bio and trade. Policy. So I think what we saw there is the team executed very well even though with ample supplies farmers don't want to sell at the lower prices and you're feeding food customers and fuel customers haven't needed to buy because they've been rewarded for waiting. So that environment is definitely carrying over into Q1. Now that being said, as in I think there's opportunities there that the team will execute well against it. The other kind of feature is the Australian harvest was delayed somewhat by weather That's now definitely an important feature of us. And that's sliding some of that from Q4 into Q1, but it also has brought margins down a little bit the way that that harvest is developing and the demand is developing. So those are kind of some of the features. Salvator Tiano: Thank you very much. Operator: Our next question is from Ben Theurer with Barclays. Please go ahead. Benjamin M. Theurer: Hi, good morning, Greg, John. Thanks for taking my question. One on grain handling, actually, just to help us understand because grain merchandising, used to be not as relevant, but now with Viterra, it starts to become a little more of a heavyweight as well. So how should we think about the current conditions, right? 2025 was a lot of uncertainty with trade that the conflict between US, China, etcetera. So as you look through the opportunities in the business, in the combined business, and we talk about the merchandising, maybe ocean freight, etcetera, how should we think about the 2026 setup here? And what's, like, kind of, like, a level of disruption or activity that you need in this business to really make the most out of the no larger footprint that you're having? Gregory A. Heckman: Yeah. You know, I start by reminding us, right, we've got six months under our belt running it together. So this we're looking forward to the first half as this is a very seasonal business. We'll get to see Q1 and Q2 with the combined platform and then we'll start lapping the time that we ran together in the second half of last year. So look, the teams are continuing to adjust and do the scenario analysis for a number of things that can happen. But there is that important baseload business, serving customers every day, We've got the geographical balance. We should have the absolute best cost position to be there with the right product, the right quantity, the right quality, at the right price. So we'll do that baseload business and then adjust to whatever disruptions. And we've already seen some of that where we've had to repair origins and destinations and where we've actually had to develop some new destinations because some of the trade disruptions. So I think that becomes standard part of the business. And as you called out as well, ocean freight, we've combined that group. We're a very large user of course of the ocean freight. We're starting to see the benefits of that larger platform and some of that lowering the cost between origin destination and being able to react faster to change. So I think part of it's just getting the reps getting to fewer systems and processes and having the teams you know, continue to make those improvements. So whatever the environment, we know it will improve eventually, but know, until it does, I know our team will get all of the benefit that we can out of it. And Ben, maybe I'd just add. I mean, for Q4, we only had a thirty million dollars increase year over year in the segment. And I think as you look into 2026, you should see a better year over year improvement especially in the first half, obviously, when we don't have the comps are against the prior Bunge only, even in the second half, we expect the comps to be better versus the combined company second half. So, it's moving in the right direction. It's just that's the biggest part of Viterra's business. And while we were really, really pleased with how well the crush was folded in, very quickly because we had a much larger crush footprint. So that folded in very nicely to network quickly. You have a lot more people, a lot more assets, a lot more locations involved on the merchandising and handling side and it's more work. Benjamin M. Theurer: But John W. Neppl: to Greg's point, we're doing the right things. We got the teams focused. It's going to take a little bit longer to get that humming. Benjamin M. Theurer: Okay. And then my second question real quick is CapEx, obviously, last year was give or take $1.7 billion of which a little more than $1.2 billion was for growth. The guidance you issued for this year is more or less the same level. If we take the midpoint here, just a little bit lower. I suspect sustaining CapEx goes a little bit up, but it's probably still going to be roughly a billion in growth investments. So how should we think about the return on investments here that $1 billion plus last year, probably another $1 billion this year, what's like the return you're expecting from that and especially the timing of those returns? John W. Neppl: Yes. Let me start with maybe talk about the mega projects. So our spend on mega projects, so the four large capital projects that we've the multiyear projects, that spend is going to drop about $350 million in 2026 as we finish kind of get to the completion dates on the projects. So that leaves that's about $600 to $650 million on the mega projects. That will be largely wrapped up by the end of the year. We really don't we have not modeled in really much if any contribution from those projects. So the Moorestown plant is in commissioning now and will be running this year. Obviously, a lot of the time this year is going to be spent on qualifying the plant for our food customers. We will get some volume through there, probably not high enough capacity utilization to have meaningful contribution in 2026. So we've not really added much in the forecast for that. And then our Destrehan barge unloading and crush plant expansion. Remember the crush plant in the joint venture with Chevron. And then the barge unloading, those will be up mid-year and of course, we're not we don't have a lot baked into the forecast a contribution in '26 for those either. I think they'll really be, you know, hit they'll really be contributing a lot more as we get into 2027. And then our the final project is the West Sun plant in Netherlands that will be up and running in for the most part early 2027. So not a lot of contribution from those in 2026, but we should see a bump up in '27 relative to that spend. We've got also we've earmarked a few 100 million for other growth projects in '26 to round out the billion-dollar rough number. Those haven't all been approved, and we'll review those as we go and may or may not decide to do those. But we've we've got that included in the forecast. That's why we have a range of one one point five to 1.7 If we did all of that, we'd be closer to 1.7. If we choose not to do some of those projects, we'll be closer to 1.5. And those, you know, obviously, anything we're constructing during '26 likely wouldn't have a meaningful impact on 2026 returns. Benjamin M. Theurer: Got it. Thank you very much. Operator: Thank you. The next question comes from Stephen Haynes with Morgan Stanley. Please go ahead. Steven Kyle Haynes: Hey, good morning. Thanks for taking my question. Lots been covered. Maybe just another way on the guidance. I think in the past, you've you've provided some directional I guess, guide by segment. I realize it's maybe a bit harder just given, you know, the first half of last year doesn't have, Viterra in it and and this year has a full contribution. But is there a way that maybe you could frame by segment know, working back from the midpoint of your guide, like, whatever adjusted EBIT is kind of assumed at that level. You know, how you see that splitting out between each of your businesses this year? Thank you. John W. Neppl: Yeah. So if you look Steven, this is John. If you look at kind of our core segment, eBay, so that's defined as a segment results before corporate. I'd I'd look at it this way about half that that EBIT is gonna be in our soy processing and refining. How we're looking at it for the year. So we call that 50%. About a quarter of it in our soft processing and refining segment. And then grain merchandising and milling, we're forecasting to be around 20% of it. And then the remainder of the remaining 5% would be in our other process of refining. That's kind of how we see the rough forecast for the year. And then of course offsetting that to some degree will be the corporate. The corporate and other we would expect to be, call it 120,000,000 $125,000,000 per quarter negative against against that. Steven Kyle Haynes: Okay. Thank you. Appreciate all the help detail. Operator: Thank you. The next question is from Derrick Whitfield with Texas Capital. Please go ahead. Derrick Whitfield: Good morning, all and thanks for taking my questions. John W. Neppl: Good morning. Derrick Whitfield: With regard to the RVO, the administration has been quite supportive of The US and farmers nearly at every turn. We have heard in recent weeks a range of 5.2 to 5,600,000,000 gallons per BPD volumes. I guess where is your view on where the administration will land on absolute volumes? And the half range generation concept for imported products and feedstocks? John W. Neppl: Derek, this is John. I think on the 5.2 to 5.6, I don't know that we see where it's going to end up. Obviously, we prefer the 5.6 obviously, but, we're hopeful they'll at least start at the midpoint. Of the range and maybe go up from there. Especially given that it appears and pretty likely that the half rent, the 50% rent is not gonna take effect in 2026. You know, They're going to kick that can down the road to 2027 and make a decision then. So hopefully, given that decision, they'll move to the high side of this range of 5.2 to 5.6. But we don't obviously, don't know yet yet and hoping hoping here over the next few weeks to get some clarity. Derrick Whitfield: Hey, Dale. Let's hope your crystal ball is right on the five six side. But maybe on a on a similar topic. So I read in a recent trade article that Bunge was recognized as the first company to certify soybeans for use in the production of SAF under the CORSIA plus protocol. To the degree that you can, could you speak to that market opportunity for Bunge from this development? Given the favorable price realization for SAF over RD and the tightness we're seeing in qualified feedstocks for SAF. John W. Neppl: Yeah. Look, I think we don't have anything baked into our forecast for that. So anything that develops during the year is going to be upside for us. I think it's still fairly nascent market, at least from the way we've participated up to this point. But certainly, it's going to be you know, incremental demand. It could be massive incremental demand it really gets rolling. But we work a lot with the in fuel. We've got relationships with all the large fuel producers. And those are produced jet fuel. So, we're optimistic that is that as that gain some traction, we'll be right there to participate. But would tell you in our 2026 numbers, we don't have anything meaningful baked in for that. So looking forward to seeing how it develops. So we are, you know, we are focused on and for the long term. And one of the things that you know, we've got with the partnership with Chevron and the partnership with Repsol and some of the other fuel customers, right? It's not only serving them, with the current origination that we have, but now having the touch we do globally with more farmers than anyone else as we're working to develop some of these new novel seeds and cover crops, we'll have the ability to meet what their needs are for the long term, it's SAF or or renewable diesel or traditional bio biodiesel. So really excited about the combined capabilities of the company and and definitely want to be the partner of choice for the fuel industry. Derrick Whitfield: Great. Thank you. Operator: Thank you. The next question comes from Matthew Blair with TPH. Please go ahead. Matthew Blair: Great. Thanks for taking my question. So for the $750 to $8 guide, you mentioned you're just taking the current futures curve. As as we think about the spread there, the low end versus the high end, what what determines that? Is that just based on Bunge's execution? You know, what what puts you at the low end of that guide and what puts you at the high end? Thank you. Gregory A. Heckman: Yes. I'll start, John. John W. Neppl: Sure. Gregory A. Heckman: I think how we see the market continue to develop from a demand standpoint. We talked about the soy stocks are definitely heavy, but we have seen that's only in The U.S. Merchant milling we'll see how as we have that first half of the year running the combined footprint. And as the crops come off here in Australia, as some of the trade disruption that we've had. We really expect it to be not as complicated as last year. That should be good for our merchandising segment. From a from an overall the other is just we continue to work not only on the cost synergies, as John said, kind of trying to deliver more and faster. And then the commercial synergies, as we're on the front end as the teams work together. As those plans continue to develop, those could continue to benefit us in the second half. So I think the combined we've just got more levers to pull on both the cost as well as the margin side than we've ever had. John W. Neppl: I would just add, Matthew, that when you look at our soy and soft we can use the forward curves for a majority of that business. And so, we feel like whether we agree with the curves or not, that's what we use. And that's got a fairly decent level of specificity to it. But when you get to the merchandising and milling side, there are no four curves. And so what the environment is going to be like, I think if we if we continue on with a global heavy stock spot customers, not a lot of opportunity in that market. It's going to be a little bit tougher. But again, volatility disruption, global demand shifts trade policy changes, all those things create opportunity on the merchandising side that it's really hard to model in. So we will obviously be able to be in a good position as Greg pointed take advantage of those things. Probably two other things worth mentioning right? We saw last year China drawing a lot of beans out of Brazil, particularly in South America overall that was created headwinds for crush there. And then, of course, as The US China issue got solved, then taking beans out of The US in the fall, which created some headwinds for crush margins there. We'd expect to see a more normal flow in the coming year. And then on the soft side, of course, we've had two years in a row of tough sunseed production in the Black Sea Europe area and that's been hard on margins. While we've got some more balance in Argentina on the sun crush side and we had good crops there, in the second half. I think if we can get a good sun crop that should be improvements in Black Sea in Europe for sun crushing. So those are some of the flags, I guess, of the bigger issues that we're watching develop. Matthew Blair: Sounds good. And for the follow-up, so renewable diesel margins in The U.S. Are already moving up quite a bit in the first quarter. Are there any signs in your system yet on a larger pole for soybean oil from from the renewable diesel space? You know, any signs that The U. Renewable diesel utilization is stepping up as these margins improve? John W. Neppl: We're seeing some modest pull, honestly, I mean, continue to build in oil. And I think until we get I think until we get clarity and the producers have certainty, we're still going to see stocks build. If we look at the model and we look at the demand, it could turn very quickly. And we could go from a surplus oil environment today where we're building stocks to to a very tight market very quickly. And our expectation would be if we get to the 5.2 or 5.6 depending on even under either of those scenarios, there's going to be substantial pull on soybean oil, canola oil, is favored feedstocks along with the domestic low CI and we'll see things tighten up fairly quickly. Obviously, everybody's kinda kinda waiting to see what's gonna happen. Yeah. There's starting to be some instances anticipation of that, but not anywhere near what we what we will expect once things are finalized. Matthew Blair: Great. Thanks for your comments. Operator: Thank you. The next question is from Manav Gupta with UBS. Please go ahead. Manav Gupta: Hi. So my first question is the buyback was pretty strong in 3Q and sorry, 3Q and it dropped off a cliff in 4Q. Like you went from $5.45 to 6,000,000. I'm just trying to understand why such a steep drop and how should we look at buybacks going ahead? John W. Neppl: Yeah. We we just you know, we we stepped in the market to get a majority of it done. We just we didn't complete it all at the end of Q3 and going into Q4. But we're absolutely committed to wrapping that up the remaining program. And we'll get that done, I think fairly soon. Relative to ongoing, I think as we look forward, we definitely see an opportunity to make share buyback a bigger part of our capital allocation process, and we're gonna discuss that more on Investor Day certainly as we find more of a forward outlook. But this this machine should generate a lot of cash going forward. And our view is that return to shareholders is going to be a more critical part of our ongoing capital as we move forward. We'll highlight more details on that in March. Manav Gupta: My second question is when you look at the street for 1Q, it's like 176. Your guidance is implying 80. Like, where do you think the street is getting it so wrong versus what you are guiding? Like, why are why is the street almost double where you are? Terms of your guidance? Gregory A. Heckman: Yeah. I I think it's difficult to say maybe at this point other than maybe understanding the velocity of what we're seeing. That maybe the RVO impact would start getting traction in Q1. And that obviously has been delayed And we're fairly locked for Q1. So even if we get as things improve, we have some open capacity to capture some of that. But by the time the RVO gets finalized and enacted, we're going to be through the quarter. And maybe there's just some a bit of disconnect in terms of the timing of that. I'd say also, you know what, I hope you I hope you heard is we kinda talk through that while this is fairly back half loaded, as we talk about the range It feels like there are a lot more things that could kind of turn to the favorable versus be challenging as we think about how markets develop policy develops, more normalized trade flows, versus what we saw in 2025 and where we've got a big global machine to run with a lot of long lead times, all those things are favorable. I think we had to look at the things that could kind of tip to negative or positive. I think we feel things are maybe more bent to the positive when you roll them all up. So I hope that was clear. Manav Gupta: Thank you. Operator: Thank you. The next question is from Puran Sharma with Stephens Inc. Please go ahead. Pohren Sharma: Good morning and thanks for the question. Just wanted to start off and get a little bit more granularity into the commercial synergy opportunity. I think you mentioned a few details on the call, but was just wondering you know, what what are the opportunities that that you've kind of uncovered and and and what are some of the things that that you're working on Any anything kinda higher level would be helpful. Thanks. Gregory A. Heckman: Sure. There's no doubt as a process the vertical nature of this combination with let's say, much stronger origination and Bunge having a bigger processing footprint as a processor, the more you can buy direct from the farm, better that is for controlling everything from your pipelines and capacity utilization and quality and yields and everything. And we've definitely got a lot of focus on increasing the percent we buy direct from farmers and providing the markets for them. And now we've got much more capability to do that. We're seeing that that gain continue to push forward a higher percent bought direct and that will continue then as we talked earlier, when you're optimizing the total footprint, you'll make different decisions than when you were competitors on the timing of understanding the needs of a processing plant and also understanding the needs of our origination and being able to keep the flows moving through the ports and to third party customers. So getting the reps with the team and getting an understanding of our combined capabilities has been great. And then even if you take something like and talk about our soft sea crushing platform, I talked about we're much more balanced not only on our seed origination and global merchandising, where we've seen a number of opportunities with some of the trade disruptions be able to continue to get the farmer seed to market and find the right demand but also on the meal, on the sun meal and the canola and rapeseed meal, where when we look at the combined footprint, we've been able to connect origins and destinations that weren't connected before. And then as some of those trade lanes were shut off and were not economical, we've even developed some new markets that didn't exist before, that weren't using some of these products. And so we've been able to grow those markets. And it's just the combined capabilities as we get the repetitions to continue to peel those opportunities back. And just the way the teams are working together, I just couldn't be more pleased. And I've had the opportunity to do a lot of travel around and visit plants and visit the offices visit ports. It's fantastic. You go into a room and nobody nobody says, I was by terror, was bungie. It's just everybody's bungee. The teams are excited about the capabilities that we've got in global platform and what we can do to serve our customers to work together. And there's no lack of challenges in the world right now, but I don't think anybody is better equipped than Bunge to deal with it. Pohren Sharma: Thank you. Operator: We have no further questions, ladies and gentlemen. This concludes our question and answer session. I would like to turn the conference back over to Greg Heckmann for any closing remarks. Gregory A. Heckman: I'd just like to thank everybody for joining us for today. We appreciate your interest in Bunge. We look forward to speaking to you again very soon hope everybody has a great day. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Shyamali: My name is Shyamali, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Ms. Christina Jones, Vice President of Investor Relations. Ms. Jones, you may begin your conference. Thank you. And thank you everyone for joining us on today's call. Christina Jones: I am joined today by Olumide Soroye, Fortive's President and CEO, and Mark D. Okerstrom, Fortive's CFO. During today's call, we present certain non-GAAP financial measures. Information required by Regulation G is available on the Investors section of our website at fortive.com. We will also make forward-looking statements, including statements regarding events or developments that we expect or anticipate will, or may occur in the future. These forward-looking statements are subject to a number of risks and actual results might differ materially from any forward-looking statements that we make today. Information regarding these risk factors is available in our SEC filings, including our annual report on Form 10-K and the subsequent quarterly reports on Form 10-Q. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements. Our statements on period-to-period increases or decreases refer to year-over-year comparisons unless otherwise specified. And our results and outlook discussed today are on a continuing operations basis. With that, I'll turn the call over to Olumide. Olumide Soroye: Thank you, Christina. Let me begin on slide three. Q4 was another quarter of solid execution by our new Fortive team. With the first February 2026 strategic and financial plans firmly in place, our strong conviction in the road ahead continues to build. In July, we began our journey as new Fortive, united by one mission, aligned around two segments serving attractive end markets with strong secular tailwinds, and guided by a clear strategy with three pillars: accelerate profitable organic growth, allocate capital with discipline, and build and maintain investor trust. All with the goal of delivering benchmark-beating shareholder returns in the years ahead. Our Q3 and Q4 results reinforce our conviction in this path. While we are still early in the journey, we are diligently executing the Fortive Accelerator strategy and sustaining the operational rigor that Fortive is known for. We enter 2026 with optimism, enthusiasm, and an unrelenting focus on execution. I have five key messages to cover today. First, our teams continue to execute well with the power of our Fortive business system driving solid Q4 results ahead of our expectations. In Q4, we delivered core growth of just over 3%, adjusted EBITDA growth of 8%, and adjusted EPS growth of about 13%. We were pleased to see another quarter of growth acceleration in the business, knowing that we have even more growth upside ahead of us. Second, our strong Q4 earnings performance resulted in full-year adjusted EPS of $2.71, exceeding the high end of our guidance range of $2.63 to $2.67. Olumide Soroye: Third, we continue to deploy capital in accordance with our disciplined approach, anchored in optimizing shareholder returns over the medium to long term. In the fourth quarter, we executed an additional $265 million of share repurchases, bringing total second-half repurchases to $1.3 billion. We are diligently progressing our Fortive Accelerator strategy to deliver benchmark-beating shareholder returns. I'll spend a few minutes on this in the next slide. Finally, as we turn our focus to 2026, we are initiating full-year 2026 adjusted EPS guidance of $2.90 to $3.00, representing approximately 9% year-over-year growth at the midpoint. Moving to Slide four. Before we turn to our Q4 results, I'd like to highlight the progress we've made on each of the three Fortive Accelerator pillars. Beginning with our focus on driving faster profitable organic growth. In terms of innovation acceleration, this quarter, we continue to accelerate new product introduction velocity, including offerings aimed at high-growth verticals. At Fluke, we launched a new data center testing solution, Certified Max, with the fastest time to report in the industry, helping customers test and validate complex fiber systems quickly and accurately. At ServiceChannel, our third major product release of the year went live in Q4. This release enhances maintenance professional onboarding, work order visibility, compliance, and payment efficiency. On the commercial front, we continue to intensify our focus on faster-growing end markets and regions, where we have been making deliberate targeted investments. This quarter, we saw early signs that our targeted actions are resonating in the areas we've prioritized. Fluke delivered another strong quarter in data center, Industrial Scientific's expanded commercial coverage drove acceleration in EMEA, and our investment in a broader sales team for Fluke and ASP in India directly contributed to strong growth in the region. We also made progress in advancing the recurring elements of our portfolio, enhancing customer engagement, and strengthening the durability of our revenue streams. In Q4, recurring revenue again grew faster than consolidated revenue, driven by continued strength in Fluke's maintenance software and deeply embedded data as well as AI-enhanced software capabilities across iOS and AHS segments. Moving to the second pillar, disciplined capital allocation is an integral component of our Fortive Accelerator strategy. Consistent with our priorities, in 2025, we repurchased about 26 million shares or roughly 8% of our diluted shares outstanding. We also continue to refine our M&A funnel and processes to reflect our go-forward strategy, prioritizing accretive bolt-on deals that meet our rigorous strategic and financial criteria. In the second half of the year, we closed two small transactions that met this high bar, enabling us to actively strengthen our M&A muscle. As we look to 2026 and beyond, our capital deployment priorities for new Fortive remain crystal clear: invest in organic growth, pursue bolt-on M&A where the risk-adjusted returns exceed other uses of capital, return capital through share repurchases, and maintain a modest growing dividend. All with a focus on best relative returns and maximizing medium to long-term shareholder value. Moving to our final pillar, building and maintaining investor trust. We were pleased to deliver performance ahead of expectations in Q3 and Q4, including adjusted EPS that surpassed the high end of our guidance range. We recognize there is more work to do here, and we remain confident and focused on delivering the 2026-2027 financial framework and further acceleration that we committed to at our Investor Day in June 2025. With that, I'll turn it over to Mark to walk through our financial results for the fourth quarter. Thanks, Olumide. I'll begin with slide five. Mark D. Okerstrom: In the fourth quarter, we delivered total revenue of $1.1 billion, up just over 4.5% year-over-year on a reported basis, up just over 3% on a core basis. We are pleased to see volume growth return and solid performance across all regions. We again delivered core growth in both iOS and AHS, with iOS outperforming our expectations and AHS performing broadly in line. In iOS, solid customer demand and strong commercial and operational execution drove acceleration from Q3, with better-than-expected results in professional instrumentation and in gas detection. In AHS, overall results were broadly similar to Q3, including continued strength in healthcare software. From a geographic perspective, all regions grew nicely, with North America delivering another quarter of solid growth, APAC growth remained steady, and Europe accelerated from Q3. An encouraging data point, but not yet a sustained trend. Latin American sales also picked up the pace of growth sequentially, driven by strong performance in professional instrumentation. Adjusted gross margin in the quarter was about 63%, down about 150 basis points from prior year driven largely by product mix, the net effect of tariffs and countermeasures, and targeted growth investments in our AHS segment. Q4 adjusted EBITDA was $358 million, up about 8% year-over-year. Adjusted EBITDA margin expanded approximately 100 basis points to nearly 32%. This strong operational performance was driven by operating leverage alongside continued progress on deliberate organizational streamlining across the portfolio and a sharpened focus on corporate cost discipline. We delivered adjusted EPS of 90¢ in Q4, up about 13% year-over-year, marking our second quarter of double-digit EPS growth. Strong adjusted EPS performance was driven by growth in adjusted EBITDA and the positive year-over-year impact of share repurchases, partially offset by modestly higher tax expense. Our full-year adjusted EPS of $2.71 represented year-over-year growth of just over 12%. We generated about $315 million of free cash flow in the fourth quarter and about $930 million of free cash flow for the full year. Our full-year 2025 free cash flow conversion on adjusted net income remains nicely north of 100%. Moving to our segment results, starting with Intelligent Operating on slide six. Revenue for the segment grew just over 5% on a reported basis with core revenue growth of about 4%, nicely ahead of our expectations. Growth was driven by both price and volume and reflected solid performance across professional instrumentation, facility and asset lifecycle software, and gas detection products. At Fluke, we saw strong FBS-driven commercial and operational execution and resilient customer demand, resulting in another quarter of modest sequential acceleration despite the challenging comp from prior year. North America continues to be the strongest growth driver, and we were encouraged by early signs of improvement in Europe and green shoots from commercial efforts in Latin America and Asia Pacific. Our facilities and asset lifecycle software business continued to deliver solid results, driven by strong demand for multisite facility maintenance and marketplace software in North America. Government demand for procurement and estimating solutions is beginning to stabilize but remains pressured compared to the strong growth we saw for several years post-COVID. Our gas detection business is growing nicely, buoyed by strong demand and share gains. We saw particular strength in our hardware-as-a-service product line and broad strength in North America. Adjusted gross margin in the segment was just under 67%, down about 130 basis points, primarily due to product mix and the net effect of tariffs and related countermeasures. Q4 adjusted EBITDA in the segment grew 8% to $288 million, driven by operating leverage and reduced costs associated with flattening and rationalizing segment-level organizational structures, partially offset by targeted growth investments to support innovation and commercial initiatives. Adjusted EBITDA margin expanded to just over 37% in iOS, which is up about 100 basis points from prior year. Moving to our advanced healthcare solutions segment on slide seven, delivered total revenue of $353 million. Revenue grew approximately 3% year-over-year and 1.6% on a core basis. As we noted throughout the year, we continue to see reimbursement and funding policy changes impact the AHS segment, specifically the deferral of US-based hospital capital expenditures. However, demand trends improved again in Q4, and we are encouraged by the health of the commercial pipeline and positive customer feedback regarding the superior technical performance of our low-temperature sterilization offer. Our software products in the segment continue to deliver solid growth, fueled by strong execution and structural advantages from resilient SaaS-based revenue models. Adjusted gross margin in the segment was 56% in Q4 versus roughly 58% in the prior year period, driven by strategic investments to drive growth. Q4 adjusted EBITDA in this segment was $92 million, and adjusted EBITDA margin was 26%, with year-over-year variance driven by our growth investments as we position ourselves for acceleration in the years ahead. Turning to Slide eight, as noted earlier, we deployed an incremental $265 million to share repurchases in the fourth quarter, reflecting continued confidence in our ability to deliver on our value creation plan. Additionally, we repurchased another roughly 2.5 million shares since the end of the quarter, bringing total fully diluted shares outstanding to approximately 315 million as of the date of this call. Our balance sheet remains strong. We finished the year at 2.6 times gross debt to adjusted EBITDA, and we have ample capacity to execute on our capital deployment priorities in 2026. As previously highlighted, our full-year 2025 free cash flow was about $930 million, with free cash flow conversion on adjusted net income nicely over 100%. We remain steadfast in our commitment to our capital allocation priorities and an overall approach that seeks best relative returns. Moving to slide nine, we are initiating our full-year adjusted EPS guidance of $2.90 to $3.00 per share. This outlook assumes a continuation of the market dynamics we experienced in Q4. It also reflects current tariff rates, with tariffs net of countermeasures not currently expected to be meaningful to the bottom line in 2026. Let me provide a few additional considerations to assist with modeling. Based on current foreign exchange rates, we are assuming reported revenue of nearly $4.3 billion and core revenue growth in the range of 2% to 3%. We are planning for a mid-teens adjusted effective tax rate on a full-year basis, with Q1 through Q3 in the high teens and Q4 in the high single digits to low double digits. We are currently modeling a full-year net interest expense just over $120 million. Our current diluted share count is roughly 315 million shares, taking into account the incremental share repurchases done since the end of the fourth quarter. In terms of the shape of the year, on a reported basis, we would expect top and bottom line to broadly follow recent historical patterns. At current rates, we would expect FX to be an approximately 300 basis point tailwind in the first quarter, a tailwind that should ease as we move through the year. As the year unfolds and we continue to execute on our Fortive Accelerator strategy, quarterly phasing may evolve. As a final note, before turning it back to Olumide for closing remarks and Q&A, we're off to a strong start at New Fortive, and we remain committed to unrelenting execution on the Fortive Accelerator three-pillar value creation strategy and financial framework that we outlined at our June 2025 Investor Day. We recognize there is much more to do, but momentum is building, and we're excited about what lies ahead. I'll now turn it back over to Olumide. Olumide Soroye: Thanks, Mark. I'll wrap up with a few reflections on where we are and where we are headed. We are now a stronger, more focused Fortive. Over the last six months, we've simplified our operating model, sharpened our strategic and capital allocation priorities, evolved our Fortive business system into an even more powerful engine for sustained growth, and elevated our team's focus on the source of all growth, our customers. That clarity is translating into stronger internal alignment and real excitement across our teams. Importantly, we are seeing signals that our Fortive Accelerator strategy is working. First, in 2025, we delivered accelerating growth, expanding margins, and double-digit EPS growth while investing deliberately in the initiatives that position us to deliver on a multiyear financial framework we outlined at Investor Day. Second, we are allocating capital with discipline to deliver the best rate of return over the medium to long term and executed $1.3 billion of share repurchases in the last two quarters. Finally, we are committed to building and maintaining investor trust, and we are pleased to have delivered results ahead of expectations in our first two quarters as New Fortive. We are encouraged with the progress we've made in these early innings. However, we have significant unfinished business and untapped potential, and we are driving with urgency, intensity, and accountability to unlock it. As we look ahead to 2026 and beyond, we are confident in the path we're on, energized by our momentum, and committed to delivering strong performance for our shareholders. I want to thank every one of our Fortive team members around the world who do extraordinary work every day and dedicate themselves to our shared purpose of innovating essential technologies to keep our world safe and productive. And every one of our 100,000 customers who entrust us with their mission-critical safety and productivity needs. Thank you all for your continued interest in Fortive. With that, I'll turn it to Christina for Q&A. Christina Jones: Thanks, Olumide. That concludes our prepared remarks. We are now ready for questions. Olumide Soroye: Thank you. Shyamali: We will now be conducting a question and answer session. Our first question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question. Thank you. Good day, everyone. Deane Dray: Hi, Olumide. Hey, maybe we can start with getting some color on Fluke. It's always helpful to get a sense of the sell-in and sell-out in terms of the short cycle demand there. But it looks like you're also getting good traction with the new products. But if we could start there, please. Olumide Soroye: Thanks for the question, Deane. So, I mean, we're very pleased with Fluke's performance and the durability of demand in that business. Just to give you a few data points, our POS trends were broadly consistent with what we've been saying in recent quarters, with North America remaining the strongest region. But we also saw encouraging improvements in EMEA and LatAm, and APAC was holding steady. So in terms of end demand, solid and strong signals overall. And then the other growth at Fluke continued in the fourth quarter. We're quite pleased to see that. Above one. And, you know, kind of the channel inventory outside the US continue to improve. We expect that to continue through 2026. So everything you look at in terms of market signal is very strong. You know, Fluke is also just a great example of the impact of our Fortive Accelerator strategy and how we're executing that. So the pace of new product innovation in Fluke is faster than ever. Targeted commercial investments in markets like data center and defense, the recurring revenue in Fluke, which we've talked about now a few times, that continued to grow double-digit ARR within Fluke. And it's just an exciting piece of the resiliency of that business. So really feel good about the momentum there. Was with the Fluke team last week, and the excitement level that they feel about the growth opportunities has never been higher. And for me, that's an important signal of what's to come. Great. And just as a follow-up, could you talk about price? What was price? How much of a contribution in the quarter? What are you assuming in your guidance? And any color on price cost or a couple of references on tariffs? Mark D. Okerstrom: Sure, Deane. I'll take that. So in the quarter, price was about 2%, volume about 1% roughly. I would say 2026 is roughly in line. We got a bit of a price tailwind in 2025 due to the tariff countermeasures we did. But I would think about it as broadly in line. Deane Dray: Great. And price cost? Mark D. Okerstrom: Yeah. We're not going to provide that level of detail. I would just say that, you know, generally, you know, we feel good about the gross margin scenarios going forward. And again, we're really committed to the 50 to 100 basis points of EBITDA margin expansion that we provided in our financial framework, and we're going to use all the levers down the P&L to drive growth. Deane Dray: Great. Thank you. Mark D. Okerstrom: Welcome. Thanks, Deane. Deane Dray: Thank you. Shyamali: Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question. Julian Mitchell: Hi, good afternoon. Maybe, and I realize you don't give sort of explicit quarterly guidance, but maybe if you could help us a little bit more with how the first quarter is starting out the year. I think the last couple of years with new Fortive about 20% of the year's EPS. I just wondered if there was anything this quarter that would make it a huge outlier versus that and sort of allied to that, are we expecting organic sales growth each quarter is in that 2% to 3% full-year range roughly? Mark D. Okerstrom: Yes. Thanks, Julian. You know, I think I've been just turning to our prepared remarks in terms of the quarterly phasing, and we do expect reported revenue as well as adjusted EBITDA to broadly, you know, follow the trends that we've seen in terms of distribution across each of the quarters. And that takes into account all factors. As you know, as always, there's, you know, a few things with days here and there. We've got a little bit of favorability in Q1 and a little bit of a negative in Q4, but that's all accounted for in the shaping color that we've given. And then just as a reminder, you know, we did call out that we thought there would be about 300 basis points of tailwind from FX in the first quarter, particularly. I would say that we feel good about how the year started. You know, January, you know, has come in, you know, very solid. And so, you know, all of the shaping guidance we've given has really taken that strength into consideration. Julian Mitchell: Thanks very much. And then just my second one, maybe on margins. AHS, you had some margin pressure in the fourth quarter, and you called out reinvestments. I think maybe give us some more color on is that something that's, I don't know, multiyear reinvestment need? Or it was just something very localized in late 2025, and we should see AHS margins pick up again in the year ahead? Olumide Soroye: Yes. Thanks, Julian. Short answer is it's very localized in Q4. I mean, that segment overall, as you know, has relatively strong gross margins. That's a result of the strength of our brands. And we'll keep getting better, frankly, with the innovation pace that we're driving that I generally imagine are accretive products. And the fact that our software and consumables component of that segment also raise the fleet average. And the, you know, Fortive business system value analysis, value engineering journey continues. So the path of margin improvement in the segment remains firmly intact. And for Q4 specifically, we deliberately made some strategic investments that really set us up well for top-line growth acceleration, and that's investment with customers, sales and marketing, R&D. But they're very localized in the quarter versus a long multiyear journey type of thing. The general trend should be margin improvement. Julian Mitchell: That's great. Thank you. Olumide Soroye: Thanks, Julian. Shyamali: Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question. Nigel Coe: Good afternoon, everyone. Maybe just a quick and same question, different flavor. Based on your comments, Mark, about normal seasonality, it feels like should be within the range in pretty much every quarter, 2% to 3%, including the first quarter with 2Q probably your best quarter given easy comp. Just want to make sure we're not too far off base. And then maybe on the framework, I think you said 50 basis points of margin expansion. I wasn't sure if that was the right number. And then the share count of 315, that's what's in the plan for the full year as well. Mark D. Okerstrom: Yeah. I'll take those in reverse order. 315 is, in fact, what we're modeling as well. 50 to 100 basis points is the financial framework for the 2026-2027 period. And I think I would model that for 2026 as well. And then in terms of core growth, I think you're in the ballpark, and I think you've got the comp right. I mean, Q2 is a particularly easy comp. Nigel Coe: Okay. It seems that you're being very conservative with your framework of the EPS, but understandably as well. And then my follow-on is really on the software side. You're aware of all the concerns around AI with the kind of software model. So just maybe just take that head-on and kind of what are seeing in the software businesses in a bit more detail? Are there any areas of pressure? And then given the sort of the pullback we've seen in software asset valuations, is this a good time to be buying software assets? Olumide Soroye: Yeah. Thanks. I'll take that one. So as it relates to kind of software and AI, we really see that as a meaningful acceleration for what we do in software. Because keep in mind, not all software is the same. What we do are mission-critical enterprise software kind of provisions for customers. And they have a number of characteristics, including deep workflow integration, proprietary data assets, high regulatory requirements. A lot of them have large two-sided networks with tens of thousands of participants. All of them make them really sticky and really systems of record for our customers. And so what we're seeing is a strong pull from customers for us to deploy AgenTeq and GenAI-powered enhancements, which drives even better customer experience and deep integration into our customer workflows. And frankly, that's part of what's contributing to the growth momentum we're seeing. So net-net for us, really AI is an opportunity, and we're actively seizing that across the portfolio where it makes sense. And to your question about, is it a good time to buy software assets? It hasn't escaped our attention that the bar is really high right now if you're looking at any software assets to make sure it can withstand the appropriate questioning on what AI means for it. So I think it just raised the hurdle, Nigel, in terms of the scrutiny that goes into any software asset. And like we've mentioned, our focus now is on really targeted bolt-on deals out of the small, and we're not specifically hunting for software assets at this point. Nigel Coe: Great color. Thank you. Olumide Soroye: Thanks. Thank you. Shyamali: Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question. Scott Davis: Hey, guys. And Christina, congrats on the timing of that buyback. It seemed pretty beneficial to you guys. So look, we're trying to get used to kind of a new management team here and kind of how you guys guide. The $2.90 to $3.00 is a pretty tight range versus what we're used to in industrials. There's a lot of variables in any given year. But is the $2.90 to $3.00 more a function of you feel like you've got that kind of visibility and the puts and takes are kind of all coming together, particularly given your share count and such? Or is this, again, just trying to get a sense of how you guys are planning on guiding going forward and maybe just give a little color there would be helpful. Mark D. Okerstrom: Yes. Thanks for the question, Scott. You know, I think it's a byproduct of, I think, the durability of the business. I think the improvements we've made in forecasting the business, and then I think some of the decisions we made in 2025. I think the share repurchases in total give us about a 600 basis point tailwind to EPS net of the interest expense on it. So that gives us a fair bit of comfort. We've got a good command on the cost structure of the business. We've taken costs out of the business in 2025. We started reinvesting that in the fourth quarter. And I think when the K comes out, you'll see G&A down, sales and marketing up, R&D up, you know, consistent with the investment priorities we've made. And we've got, you know, really clear views on how we're translating our strategic plans through, you know, PD into our operating plans, and we feel good about execution. So I think all of that combined, again, with the recurring revenue profile of the business, gives us comfort in the range that we provided. Scott Davis: Okay. That's good color. And guys, I know the term bolt-on is all in the eyes of the beholder, but what does, when you think about a five-year plan, and imagine, I think when Fortive was spun out, there was actually a ten-year plan that Jim talked about. But when you guys think about a, just talk about a five-year plan, what kind of a tailwind do you think bolt-ons are? Is it 1% on the top line? Is it 2%? Is it, or is it just too hard to say given, you know, just really the opportunistic nature? Olumide Soroye: Yeah. I think the last piece of your question there, Scott, is the answer. I think it's hard to call a number based on the opportunities to make sure of it. The thing we do know for a fact, Scott, is that the value creation pieces that we've laid out here, which we're quite pleased with how this is shaping up in our first couple of quarters here, it's really compelling and does not require us to do anything dramatic from an M&A point of view. We're really focused on this idea that we are going to get this set of businesses to grow much faster organically by deploying the power of the Fortive business system with the enhancements we're making to it and investing smartly from an organic point of view. So that's the primary channel in our strategy, and we're going to go full steam on that. And bolt-ons, again, are smaller deals, so I just kind of enhancements to the value creation story, but we're not going to call a number on what it has to have because it is very opportunistic and not required for our success. Scott Davis: Yeah. Makes sense. Okay. Thank you. Best of luck. Olumide Soroye: Appreciate it. Thank you. Thank you, Scott. Shyamali: Thank you. Our next question comes from the line of Joseph O'Dea with Wells Fargo. Please proceed with your question. Joseph O'Dea: Hi, thanks for taking my question. Can you just unpack the iOS 4% organic a little bit more, the degree to which that surprised internally, sources of that surprise? And I think there's some consideration right now to whether things in the '25 just broadly general industrial demand kind of pushed and the degree to which that could have benefited Q4, your January comments make it sound like not so much, just trying to understand that strength a little bit more and the equipment side versus the software side. Any color there would be helpful as well. Olumide Soroye: Yes. Thanks for the question. I mean, the short answer is this was really about our teams executing the Fortive Accelerator strategy much faster and much more in an impactful way than we anticipated. So if you just look at the key components of iOS, we've talked about Fluke quite a bit. That team just did a terrific job with the kind of end-of-year execution. And we saw stronger demand in some areas like our data center applications and defense. And the team just seized all of those opportunities and not just got the orders in, but also got the shipments out, and we ended up with very healthy backlog levels. So I will call it a story of just excellent execution. You know? And if you think about the kind of software businesses, the same thing, terrific job across the board by that team to execute on the strategy and get some things done faster than we anticipated. And the gas detection and environmental health and safety part of iOS, again, just strong execution to end the year. And just the energy that our teams are feeling. And as we go into the New Year, again, the outlook we've laid out here is not presuming a change in that that's significant either way from a macro point of view. What we're really banking on here is that we have confidence in our team's ability to execute the strategy and continue driving growth. Joseph O'Dea: And then just circling back to your answer to Nigel's question, kind of the AI debate and thinking you made a comment about how your customers are looking for AgenTeq AI enhancements? And maybe just a little bit of detail or color there on the types of enhancements that you're currently working on or that are in the market to expand on the offerings that you have? Olumide Soroye: Yes. And we've mentioned a couple of examples of those in the prepared remarks for today. We talked about ServiceChannel and the third main release they had in 2025 was launched in Q4. That included some AI-enabled enhancements. That's a business where we have a two-sided network and really the system of record for customers' repair and maintenance. So it's just a natural place for customers to activate a feature that's AI-enabled, and we rolled that out in Q4. We talked about some at Fluke on our call in Q3. So they're very kind of targeted enhancements that deliver real business value to customers. And these AI tools are really just an instrument to help unlock value that's AI-enabled but software-delivered. And that's the key because you have to land these things in the workflow software that customers can actually use. And this is enterprise customers we're talking about. So those are just a couple of examples. Joseph O'Dea: Got it. Thank you. Olumide Soroye: Thanks. Thank you. Shyamali: Next question comes from the line of Scott Graham with Seaport Research Partners. Please proceed with your question. Scott Graham: Hey, good afternoon. Very nice quarter. Congratulations. Olumide, I asked you a question at Investor Day last, I guess it was June, about the FAL business, and the business had been constantly kind of lowered, the growth outlook had been lowered by the former team and kind of landed in sort of that mid-single-digit area. Since then, we've had the government shutdown. But as that gets past us, I hope you don't mind if I ask you again, do you see FAL kind of sort of moving in steadying into sort of a mid-single-digit growth algorithm, let's say even beginning in the second half of this year? Olumide Soroye: Yeah. No. Thanks for that question. Short answer is we really like the FAL platform and the potential there. And all three of our operating brands there have continued to strengthen their performance. And so we feel really good about that outlook. A little bit like I mentioned at Investor Day, we don't have a ceiling on what's possible with this business. And the confidence we have is it certainly would deliver and help us attain the financial framework that we've laid out. And how high it can go, we intentionally don't put a cap on it. And we like what we're seeing across all the brands. We think it's going to be a strong year of continued acceleration for that platform. Scott Graham: That's great. Thank you. And then just quickly turning to ASP. I want to try to understand the dynamic here. I know that there has been consternation around CapEx from hospital customers, but that business is more a consumable business. So can you maybe help us understand a little bit the dynamic there, why that ASP has been weak for a couple of quarters now off of the concerns that the hospitals have. I understand that that's a spending thing, not just CapEx probably more broadly. But again, ASP is more of a consumables business. And I guess I thought it would not have been hurt as much by some of the pullbacks in CapEx. Could you walk us through that? Olumide Soroye: Yeah. No. Thanks for that. And it's important because I think from a consumables point of view, from a services point of view, and in the software components of our AHS segment overall, those continue to grow and really steady contribution in Q4 to our growth. The key is the capital equipment, while it's not a huge percentage, the revenue recognition happens in quarter when a transaction happens, while consumables and services, they're wonderful because they're consistent over the life cycle, but capital is more concentrated in revenue impact. So that's where that remains the place where we have the pressure in really in Q2, Q3, and Q4. Important thing is it got progressively better. Q2 was sort of the wash, and it got better in Q3 and better in Q4. And our clients and customers continue to be a little bit cautious given what's going on with healthcare policy. But it's getting better literally by the week. And we like that trend. We're staying close to our customers. I was with some of them just a couple of days ago, earlier this week, and they love our team, they love our products, and we're with them as they try to sort through the spending challenges they have. Scott Graham: Appreciate it. Thanks. Olumide Soroye: Thank you. Shyamali: Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question. Andy Kaplowitz: Hi, everyone. Hello, Andy. So you mentioned some green shoots in areas such as Europe and Asia within iOS, but you didn't want to get too excited about those areas, I get. But maybe give more color into what is inflecting in those areas within Fluke, for instance, and what do you assess as the durability of the turn as you see it? Olumide Soroye: Yeah. So, I mean, as you kind of get to read the approach we're trying to take, we're trying to be really clear-eyed and prudent before we call a single quarter a new trend. What I would say is for both EMEA and APAC and frankly LATAM, it was a story of our teams really settling into what the macro conditions were and executing much better. And that's really the primary thing that we saw in Q4. So I wouldn't call it a market inflection. We want to see a few more quarters of that before we make a call on that. But at this point, I'll describe it as we got better outcomes based on our team's execution, and, you know, we expect at some point the markets will get better, but that will be upside for us. Andy Kaplowitz: That's helpful. And maybe we could focus on gas a little. I mean, what's going on in industrial scientific? Because I think you mentioned growing market share. Your teams are doing really well. What kind of growth are you dialing in for '26 sort of in that kind of business? Olumide Soroye: Yes. So in terms of what's going on there, I think it's a great story. It's a great story of we've got a great market that delivers mission-critical safety solutions. We've got a great product that really leads the market in this hardware-as-a-service offering, which is kind of the exciting and fast-growing piece of that business for us. And we've got a great team that's excited about what they're doing and executing on innovation better than they've ever done, and we're investing in targeted markets. We mentioned the work they did in EMEA with investing in capacity, commercial capacity, sales capacity there, and that yielded results. And they also really just a new level of customer engagement in that business across the leadership team. And they have the support of our entire leadership team as they do that. So that's really what's going on. And as we look at 26, we've counted on that continued execution, and we've baked that into the outlook we laid out here. So we expect it to be a really strong year for that business. Andy Kaplowitz: Appreciate the color. Olumide Soroye: Thanks. Shyamali: Thank you. Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question. Chris Snyder: Thank you. I wanted to ask about iOS organic growth in Q4. I mean, I think you guys mentioned that Fluke was the growth leader in that segment for the quarter. But I was wondering if you could provide any color or numbers just on the respective growth rates for Fluke versus the software businesses within iOS. And then as we look into next year, I'm assuming the 2% to 3% organic growth guide underwrites something below 4% for iOS? So just kind of wondering, which of the categories is expected to decelerate from that Q4 number? Thank you. Olumide Soroye: Yeah. No. Thanks for the question. Overall, I'd say all the elements of iOS contributed to our performance in Q4. I'd say they all did, frankly, better than we expected. So I wouldn't call it a Fluke-only story in that sense. And then as we look into what we're expecting for 2026 and your question on is anyone decelerating to get us from four to what we've effectively included in the guide here, look, the way I'd describe it is we expect all the businesses to contribute to the growth story here. And we're really, really confident that our teams are set up to execute effectively the strategy we've laid out. So, you know, I wouldn't call anyone with the expectation to decelerate. What we've reflected, frankly, in our guide here is we're early in the year, and we want to make sure that we set up a guide that gives us a chance to actually rely on our execution without counting on macros. And if things improve macro, saw some of the PMI data that came out. If that plays out as a sustained expansion, that will be upside. If things get better and government spend, that will be upside for us. But we've tried to be prudent and open-eyed in our guide here, not expecting that we're lowering our aspiration for faster growth in any way. Chris Snyder: Thank you. I really appreciate that. And then obviously there's been a good amount of conversation already around, you know, what could AI mean for the software businesses. You know, there's market concerns on competition from that. I guess, is there anything metrics you could provide, whether it's around recontracting rates, new customer wins, that just give you confidence that these solutions are still have really strong traction in the market and are winning with customers? Thank you. Olumide Soroye: Yeah. No. Thanks for that. And look, I realize the curiosity on this question is at an all-time high right now. The thing I would say on that is, and I described the substance of why we're winning and why we see this as LARADA. But I'll just say all of this business is for us continue to contribute a growth rate that's higher than our fleet. ARR growth is really strong. Gross dollar retention, which is the renewal rates, remain really strong across all these businesses. Our net dollar retention continues to get better, which means some of these AI enhancements we're adding on are actually driving expansion of what customers are paying us. And the customer use rate of these products are actually getting better for us because of the innovation pace that our teams are driving. So everything we see in substance, and not every software business is the same, been around software now for decades. And you have to be designing and what the actual business is. And for this enterprise, system of record type of things that we do, it's really all the metrics are encouraging for us. Chris Snyder: Thank you. I appreciate that perspective. Olumide Soroye: Thank you. Chris Snyder: Thank you. Shyamali: And we have reached the end of the question and answer session. I would like to turn the floor back to Olumide Soroye for closing remarks. Olumide Soroye: Well, thank you very much for joining us. Thanks for your interest in Fortive. We are really excited about how the equity value creation story we're building is shaping up. First two quarters was new Fortive. We've accelerated top-line performance, reduced cost, repurchased 26 million shares, and we're pleased with how that set us up for 2026. But importantly, our focus here is really on accelerating our execution on the strategy we've laid out here. Teams are excited. Our customers are engaging. And we're just grateful for your interest and look forward to a terrific journey of value creation ahead of us. Thank you all. Shyamali: Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Welcome to the IAC Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Christopher Halpin, COO and CFO. Please go ahead. Christopher Halpin: Thank you. Good morning, everyone. Christopher Halpin here, and welcome to the IAC Fourth Quarter Earnings Call. Joining me today are Barry Diller, the Chairman and Senior Executive of IAC; and Neil Vogel, CEO of People Inc. IAC has published a presentation on the Investor Relations section of our website today entitled Q4 Earnings Presentation. On this call, Barry, Neil and I will provide some introductory remarks referencing that presentation and then open it up to Q&A. Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include statements related to our outlook, strategy and future performance and are based on current expectations and on information currently available to us. Actual outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent annual report on Form 10-K and in the subsequent reports we filed with the SEC. The information provided on this conference call should be considered in light of such risks. We'll also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our earnings releases, investor presentations, our public filings with the SEC and again, to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for material non-GAAP measures. And now I will hand it over to Barry. Barry Diller: Good morning, everyone. We had a solid fourth quarter at the company. It was a confident finish to a year that was defined by focus and execution. People grew digital revenue by 14%, defying the expectations of all the digital publishing doubters. People's financial performance amid increasing AI disruption speaks really loudly. AI overviews are now appearing on most of our queries, and we're delivering record results. As I've said before, People has prepared for this disruption for years and with brands able to travel where the audiences are, not just our sites and apps but across all social media, news platforms, video, events. We're expanding with the surge of new products and experiences wherever audiences engage. But at its core, our strategy at People is not to rely on the daily grind of conventional digital publishing to propel our future. As I talked about last time that I was on this call, we're in the process of inverting these iconic traditional content businesses into entirely new consumer businesses. Products that stand on their own and revenue streams with stronger immunity against disintermediation. This isn't hypothetical. We're on our way right now working through several concepts. At Southern Tea, this iconically wonderful magazine that is beloved by its audience and has a product -- not a product, but often describes the experience of Southern Tea, a particular kind of tea that you only get in the South, we're going to do introduce Southern Tea's Southern Tea as a product that we will own and then distribute. At Food & Wine, we're going to do a project with best chefs. We know the best chefs every place in the world. And we're going to organize those chefs in a way no one has done before and create a product line through that. At Travel & Leisure, we're going to do our own White Lotus. After all, we know every great destination in the world. We have the most beautiful pictures of everything that the White Lotus creators would have creamed over if they had access to that in creating different places. So we're going to do that. We're going to -- every single one of our books has opportunities for us to essentially invert the process and come up with products and services that we can brand and then we can promote through our -- how many books do we distribute, Neil, a year, like 350 million? Neil Vogel: Yes. In the neighborhood, yes. Barry Diller: In the neighborhood, why did I get this wrong? Neil Vogel: No, that's right. That's exactly right. Yes. Barry Diller: So we -- not only do we have that, so we have these books. Adding a page, 2 pages, 3 pages costs virtually nothing. So we can sell through in unique ways almost anything that no one else can do. And we've got -- that's just for -- we want to do stand-alone page ads but we also can do editorial about these products of ours. So if we get -- it seems inconceivable to me that we can't take these books that know more about their domains than anybody else anywhere until ChatGPT knows everything and if it does out of it long before, we will have figured out new business lines, which can't disintermediate by AI. But what I'm saying is we know so much about all these domains, and we can use that creatively to say, all right, what is possible for us to do out of that knowledge that we can create a new product or service. I think that is the gold mine of people in the ensuing years. The other pillar is MGM. And as we had said, we increased our ownership in MGM. We repurchased more IAC in the quarter. We bought about 1%, I think it is of MGM. So we could get to 25%, which is an important actual accounting milestone for us. We've bought stock back of $337 million in '26. We're going to continue to evaluate buybacks as we always do, opportunistically. And we are ever mindful of this huge discount in the value of IAC. We really do have a formative -- I really do believe -- deeply believe we have a real growth engine in People. We are outcompeting anyone else in digital publishing. And with all the headwinds and all the things that are going to happen to digital publishing and publishing in general that are downsides for us, every one of them seem to be upside. That's our different distinction. Anyway, if anything obvious, I am bullish on what '26 has in store. And with that, I'm anxious to get to your questions, and I hope Chris will be relatively brief in his remarks. Christopher Halpin: Thank you, BD. I'll start talking on Page 5 of the presentation about People's financial performance. It was a strong quarter across the board with the business delivering 14% Digital revenue growth, driven by solid execution across all 3 revenue categories: Advertising; Performance Marketing and Licensing. Advertising grew 9% in the quarter, returning to growth and doing so despite a 13% decline in core sessions. Neil will go in more depth on this front but this highlights the success of the off-platform strategy and the strength of People's brands amidst AI headwinds. Performance Marketing grew 17% in the quarter over the important holiday period, reflecting both excellent execution by Neil's team and the strength of the consumer. Finally, Licensing grew 36%, driven by robust engagement with our content across Apple News and content syndication partners and the new AI content partnership with Meta contributed a little bit to growth as well. The Print segment declined 23% as expected, due partly to $20 million of revenue in the prior period from political advertising, which we flagged previously, and partly to the continued sectoral decline in print. Adjusted EBITDA was solid in the quarter, growing 9% in Digital when you adjust for severance expense a year ago and with incremental Digital margins at 26%. Print produced $13 million of adjusted EBITDA in the quarter, down from a year ago for the reasons stated earlier but more than enough to offset $9 million of corporate expenses. So the fourth quarter capped a solid year, $1.8 billion of revenue, $1.1 billion of that Digital revenue growing 10%. Aggregate adjusted EBITDA was $331 million for the year, reflecting the exclusion of the $41 million in gains from lease buyouts and the $15 million in third quarter severance. And Digital full year EBITDA margins were essentially flat year-over-year at 28%. With that, I will hand it to Neil to go deeper into people, strategy and performance. Neil Vogel: Guys. Thanks, Chris. Thanks, Barry. I too will go against my nature and be as brief as I can and hit the highlights here. We had a really strong quarter. As you guys all know, the publishing and web ecosystem has been changing dramatically, and we've been working hard to change along with it. The strategies we've outlined to you and have been talking about, they're working. As Chris and Barry said, we had 14% digital revenue growth in the quarter. It's a testament to the strength of the brands, truly the strength of the brands and our team's execution. Key is the diversity of our revenue models and the breadth of the industry sectors in which we compete is also a real strength. And I think importantly, in Q4, alongside our growth, we continued to invest heavily in a raft of new products and services, some of which you can see here on this slide, which I believe is Page 6 in your deck. The new Food & Wine Classic in Charleston exceeded our expectations. We had our most successful media cycle in the history of the Rejuvenated Seepixus Manali franchise, a very important franchise for People. And InStyle popular, the Intern social video franchise has become a real blueprint for what we're able to do our platform. And we made solid progress, which I'm sure we'll get to in the Q&A on initiatives we discussed like D/Cipher and MyRecipes and the PEOPLE app, and there's a lot more to come, as BD said. We are energized. We feel really good about where we are. And we did all this in the face of a lot of disruption. Let's go to the next slide, and we can talk through that. We delivered this quarter in despite of a very challenging environment to core web sessions. Looking at the core sessions, we're down 13% year-over-year in the quarter. The biggest contributor to that is a 50% drop in Google search referrals over the last 2 years. This quarter, we also saw a little softness in non-search traffic sources, mainly driven by declines in Google Discover, which is their version of Apple News, which had been a contributor to non-search growth earlier in the year. However, offsetting the effects of core sessions decline is the continued rapid growth in our off-platform and distributed audiences. You can see off-platform views have nearly doubled in the last 2 years and grew 43% last quarter year-over-year. There's real momentum here. This is a continuation of a pronounced shift in our business. We are aligning our efforts and resources to connect with audiences where they are now. We are going where the people are. Our brands have great momentum across everything from Instagram to Apple News to TikTok to YouTube as well as real cultural cloud in our tentpole events and our operated properties. And the non-session-based growth is underpinning our financial story. And the next slide really gets some color on that. If you go to Slide 8 in the IAC deck, this slide clearly shows that our non-session-based revenue sources are now the fastest-growing part of our business. Again, non-session-based revenue, revenue not based on web sessions, now comprises about 38% of total digital revenue, and it grew 37% year-over-year in Q4. This growth is led by D/Cipher, our events businesses, creator and social models, including the Feedfeed acquisition, our deep partnership with Apple News and our AI licensing deals. At the same time, sessions-based revenue was 62% of total revenue and grew at 4% year-over-year. We absorbed the declines in Google referral traffic by delivering great premium sales quarter across our brands and showed continued strength in our Performance Marketing business. The brands are still super strong and advertisers and marketers are really interested in these brands, both in the new environments and the traditional environments. Look, this is the model for our future. Strong growth from non-session-based revenue streams led by our growth in off-platform audiences at D/Cipher and executing against our session-based businesses while absorbing continued declines in referral traffic from Google and other platforms. We're super proud of this quarter. We have a solid model, as BD talked about. We got a lot of seeds planted, and we're excited and we got a clear path in front of us. We've got a ton to do, but we got the teams, and we think we have a real strategy to succeed. So with that, I will kick it back to Chris. Christopher Halpin: Thanks, Neil. Moving to Page 10. Let's talk through performance at our other consolidated businesses. Care saw 9% revenue declines in the quarter, driven by softness in Enterprise, which we highlighted last quarter. Consumer revenue declined 4%, steady with last quarter, and we continue to see the benefits of Care's product improvements, marketing investment and add-on offerings bearing fruit. On the Enterprise side, as employers have tightened their benefit spend, many have adjusted their existing programs, leading to a 13% Enterprise revenue decline for the quarter. This decline is exacerbated by some particularly robust client usage and out-of-period client true-ups in Q4 '24. We believe both Consumer and total Care revenue in aggregate will return to growth by midyear. Care adjusted EBITDA was excellent at $19 million for the quarter, generating 22% EBITDA margins. Normalized on a year-over-year basis, profitability was essentially flat as Care incurred $9 million in legal charges and $2.5 million in severance in the fourth quarter last year. Emerging & Other revenue grew 18% and flipped to profitability with $3 million in adjusted EBITDA. The revenue growth was the output of strong performance at the Daily Beast, where revenues grew 50% and at Vivian, which grew in the fourth quarter for the first time since Q3 '24 and has regained its momentum. Both businesses were profitable in the quarter and the year-over-year picture further improved due to the resolution of the legacy legal matter we mentioned on our last earnings call. Finally, Corporate adjusted EBITDA was $23 million, down from a year ago and last quarter as we continue to reduce our overhead and get back into the mid-$80 million range on an annualized basis. Turning to the next page, we'll talk about guidance. IAC has always managed our businesses for the long term, not on a quarterly basis. At a high level, we will stop providing quarterly guidance as we do not believe it's productive for our businesses to focus on short-term results, particularly people as it navigates fundamental shifts in its industry. We want our businesses to remain focused on execution and long-term value creation, and this change also reflects proactive feedback from some investors. As in the past, we make changes to our guidance based on what we believe is best for the businesses and our shareholders. We will, however, continue to provide annual guidance as summarized on Page 11. For People Inc., we expect both digital revenue and digital adjusted EBITDA to grow mid- to high single digits for the year. We are forecasting approximately $15 million in litigation expenses this year related to our Google Ad tech litigation, which will result in corporate expense exceeding print adjusted EBITDA by that amount. Absent the litigation expense, we would expect them to offset. When rolled up, that produces our guidance range of $310 million to $340 million of total adjusted EBITDA for People Inc. I would note, this range implies digital adjusted EBITDA of $325 million to $355 million for the year compared to $315 million in 2025. We are expecting Care adjusted EBITDA of $45 million to $55 million with consumer returning to top line growth by the middle of the year. Our Search segment, which comprises Ask Media or AMG, a search monetization business, has innovated while navigating a complex and challenging search ecosystem for more than a decade. A reminder that our Search segment is managed for margin, not growth and has not been an area of strategic focus at IAC for a long time as it has steadily shrunk in size and materiality. As disclosed in our recent 8-K, we are in negotiations with Google, which supplies paid listings to AMG to extend our relationship and the outcome of those negotiations will likely determine the future of the business. At present, we are guiding to a range of negative $5 million to positive $10 million of adjusted EBITDA, and we expect to know a lot more over the next 90 days. Emerging & Other should continue to grow top line, thanks to Vivian and The Daily Beast, and we are expecting $0 million to $10 million of EBITDA there. And finally, Corporate expense is expected to be $80 million to $90 million, and we will continue to work to come in at the bottom of that range. Finally, Page 12 summarizes our continued buyback activities, as Barry mentioned. With our purchases since last earnings, we have bought back $337 million of our shares over the past 12 months and reduced our share count by 10%. With that, let's go to questions. Operator, first question. Operator: [Operator Instructions] Our first question comes from Ross Sandler with Barclays. Ross Sandler: Neil, could we go back to Slide 8 and the non-session-based revenue growing 37%. Could you just elaborate on like what are the key drivers of that line? And how do we feel about that in 2026 in the context of the mid- to high single growth rate for People overall? Barry Diller: Wait, wait, wait. Neil, before you do, I just want to say one thing about the growth in people for next year. Yes, we're conservative. And when we come out with guidance, a silly process that why all of us engage in it, I do not know. But nevertheless, there we are. I would be very disappointed if People did not exceed that number. People has momentum. It is getting -- these areas that we're developing are going to take time to develop but that machine is so well run, and I think it's going to produce more than you are saying in your guidance. So I know you'll all get mad at me but that is what life is for. Christopher Halpin: It's we. It's we. Neil Vogel: And look, the truth is we want expectations. Expectations are good. And Ross, to go back to your question, what is fueling that is from a high level, we're going where the audiences are. And if you look back like 5 years ago, this is going to be probably longer than you wanted, we were like 70% of our traffic from Google Search. Now it's like 30%, right? People would look at the Internet that we compete in and they would say, "Oh my God, you guys are too much Google. How can this say you're not diversified enough?" We would look at the market and say, 90% of the web started at Google, we're bad at this. Like we're not good enough at 70%, we should be better. And what that did was gave us a really tight and close view into Google, and we instrumented our business to work with Google, which at the time was the dominant source. Now that gave us 2 skills. One, we realized very, very quickly when Google started to change, and that wasn't going to be the best source. And two, we were very early on it. So what we were able to do 2, 2.5 years ago is we were jumping up and down and saying Google Zero internally. And what it gave us to do is we developed all of these new skills. And the payoff of these new skills is now. We developed all these new distribution channels for our content, for our audiences, whether it's social, whether it's reaching people through events, whether it's reaching people through things like D/Cipher, we had a sense of where the market was going and we're going with it. The audiences are going in that direction and the advertisers are going in that direction, and we're going in that direction. And we feel like we've put together a really, really interesting pool of assets. It's different for every brand to address this. And again, the proof is in the numbers, and we feel really good about what we've done. So that would be my answer. Operator: And the next question comes from Jason Helfstein with Oppenheimer. Jason Helfstein: Just 2 questions for Barry. First, on M&A, without being specific but maybe in generalities, what are the types of assets that IAC is interested in? And obviously, we've all read about speculation of your potential interest in CNN. And would that -- if that was something, would that be done through IAC or outside of IAC but just generally talk about M&A aspirations. And then just secondly, maybe, Barry, just review your investment thesis on MGM and why you felt that, that was a good deployment of capital right now as opposed to saving that capital for buybacks or M&A. Barry Diller: I'll start with MGM. It's kind of self-evident. We bought the stock at what dollar level, Chris? Christopher Halpin: $40 million. Barry Diller: No, no, no. Christopher Halpin: $40 million. Barry Diller: No, our total purchase of MGM stock. Our total equity in MGM how much. Christopher Halpin: We bought $1.3 billion. Barry Diller: And it's valued at what? Christopher Halpin: $2.2 billion. Barry Diller: So that's the answer to that. That's not the full answer. Yes, we've done very well. We bought it at the right time. We recognized it as something that we had interest in. But since we bought it, and we bought more since that initial purchase, I have become absolutely convinced that this collection of extraordinary properties, 40% of Las Vegas is owned by MGM. The infrastructure of Las Vegas can never be duplicated. Every piece of what they do is something that you can iterate on, that you can improve, that you can innovate without huge, huge amounts of capital and give people the experience that somewhat actually been hurt in the last couple of years but by its own hand, I think. Las Vegas always said to people, you come here and there is value here. We've all heard of inexpensive hotel rooms, et cetera. There are some inexpensive. But I think the town really overplay gouge in certain areas. And I'm pretty sure that pretty sure that that's going to turn. Value will come back at the value area of part of the business. We are very much in the luxury part of the business, and that has done well. And as we begin this period, I think, of innovation, I think we're going to turn the town on in a way it has not been turned on at least in the most exciting way other than the wonderful sphere that has been planted here. So my belief in Las Vegas in that no one is going to get between the excitement and entertainment of Las Vegas by any technical means of AI unless we are all in a simulation and nothing else matters. So that's Las Vegas. Then we are developing a resort in Osaka in Japan, only gaming resort of huge, huge $12 billion scale that it's long dated. It won't come into play until '29, '30. But when it does, it's going to be one of those golden assets. So I am -- I can't -- if I look around and you say, what would interest me in M&A would be to find another opportunity like this one. By the way, I haven't found it. I don't think it's on the horizon, by the way. I don't really think that right now is the time for us to be, I wouldn't -- we never squander around but putting like bets down on things that are not -- that do not have -- it's kind of a bromide, you never want to do it if you don't have potential. But right now, I really don't see anything at a price that would be rational to pay. And I don't see anything that's really particularly exciting. We've got a company that's got People, which I can only overdue, so I'll not do more than I did before in what I think of the potential of People. And we've got MGM, and we've got cash to continue to increase our ownership in both of those. And yes, an opportunity may come along. But I like the hand we have right now. So that's a long-winded answer. Did I answer the first part of your question? Oh, Well, you asked about CNN. I've been interested in CNN for years. I think it's less than 50-50. I'll get the opportunity but the hand could play that way. We'll know in the next months as the Paramount Skydance, Warner Discovery, Netflix diorama plays out. I suspect that if it happened, it would be on the personal side, not through IAC but that's really unpredictable at the moment. I think that's the rather fulsome answer to your question. Christopher Halpin: Thank you, BD. Yes, just one point I'd add for investors, great results released by BetMGM today, reflecting the performance there and solidity. So another leg to the MGM. Barry Diller: What I don't get is how you all people -- I'm not all God here. I sound like that person God forbid. What I don't understand of the entire investment community is here you have a situation where we invested -- not a huge amount but we invested hundreds of millions of dollars in BetMGM. BetMGM lost and people were critical of it for several years. And it took us -- of course, it took us some time to get it together. We go from like $170 million -- or you can correct me with the exact figures or loss or a $200 million loss in 1 year to $170 million profit the next year. Why hasn't everybody say, "Oh my f**** God, that is a turn." And this year's projections, are much higher than that. Nobody pays attention to it. I truly don't get it. But eventually, truth speaks. What I am assuming nationally. Operator: The next question comes from Justin Patterson with KeyBanc. Justin Patterson: You're clearly excited about a lot of these transformations going on at People. How scalable are some of these new curated experiences? How do you think that changes your relationships with audiences and monetization opportunities? And how should we think about just the investment levels to support this transformation in the AI era? And then separately, just one on Vivian. Bill Kong was recently named CEO. Could you talk about some of his top priorities in that role? Neil Vogel: Yes, I'll go first and Chris will go second. So what I would say is the key to our business is we need direct relationships with our audiences and direct relationships with our advertisers. And the things we are most excited about in the business are the things that you highlight, the new things that we've launched. And look, we're -- the roots of our company are 100 years old. So it was not a given we would be great at these things and launching new things. But so far, so good. We feel very good about the momentum we have and some of the headline things we've talked to you about. So first, let's just go through a couple of them. MyRecipes, which we launched a little bit less than a year ago, which is a recipe locker or place to store recipes. I think most of you guys know we are by far the largest player in food and recipes on the Internet. We have in under a year with very little to no outside marketing, we've got 3 million registered users who've saved 24 million recipes. And we're perfecting that experience. This is an audience that advertisers love. It's a service that people love, and there is no Google between us and these audiences. It's really, really effective, and it's teaching us a skill set, and this has an incredibly bright future. It's got a great team running it also. We've talked a little bit about the PEOPLE app with you guys. The PEOPLE app for us, I think, and I'm not sure if BD has ever brought this up before, the PEOPLE app can eventually be the hub of the entire People brand. And what we have really focused on with our investment dollars is getting that experience right. So we're -- we launched it again a little less than a year ago. We've got about 300,000 downloads. Our expenditure has not been on getting downloads made but 300,000 is a pretty good number. What we're really focused on is engagement and how can we change people's relationship lower case P with upper case P People. And here's the key stat that's interesting. And the thing that gets us so enthusiastic about this. On the web, when someone goes to people's -- sort of people.com, People's website, the average visit is 2 minutes long. If you are in the app and you open the app and you start playing around the web experience, which is not anywhere near as good as it's going to get with the plans we have, that's a 6-minute duration. So we are 3x the amount of time spent in the app than on the site for typical visit. Then we launched a bit ago a suite of games. We launched something called the People puzzler, which was historically in the magazine, a crossword puzzle, and we launched 2 new games since. These games have been a huge hit. People who are in the app and play a game have a 20-minute duration in the app. So you can see real traction. And you can see maybe subscriptions go out of this thing, maybe a big ad business goes out of this thing, maybe sponsorships do. I'm not sure but delighting an audience with a great product is great. And what I would say is with 2 of these things, building new products is not a skill every company has. We've worked very, very hard at this. We've pivoted a ton of resources away from what we've done traditionally into these 2 projects. And I'll just -- I'll highlight one more while we're at it because it's something we're really proud of. At InStyle, we've got kind of a hit on our hands. We do a lot of social-first video. And we did a social-first video series we're currently doing called the Intern. And it's almost -- it's very like the Office E. Every one that appears in the intern actually works for us and works on the team with the exception of 2 people who play interns at InStyle. And it has captured a zeitgeist of sort of like the Gen Z experience in an incredible way. Barry Diller: Neo, when we started doing the Intern, and we do, I don't know, 6 a season and we do how many seasons -- how many of these do we do a year? Neil Vogel: Yes. So there's -- so far last year, we've done 7 seasons, but a season is just 3-minute episodes. Barry Diller: Fine. What I'm trying to do is just educate people. So the first few, they -- first, they cost nothing but you'd made 50,000 or 80,000 or whatever. Now for -- I think it's for a given season, you're up to sponsorships at the 500,000, 700,000 level? Neil Vogel: That's correct, yes. Barry Diller: I mean when you think about that, again, out of nothing at no real cost. This is done in-house basically on an iPhone or it has been done on an iPhone. And they are genuinely funny, and they have reached a genuine audience. That is that we now have, as what Neil has done is redeploying his forces into these new and productive areas. With the brands that we have, when you are doing that and you're dealing with ideation, you create new things that have nothing to do with search, with the issues of digital advertising or the problems of digital advertising, they're their own products, and we are producing them at real scale now. That's really exciting. Neil Vogel: Yes. Barry Diller: It's quite enough for now. Next question. Christopher Halpin: Yes. Let me -- and I'll just cover Vivian. Vivian is an exciting business within emerging and other. We announced last week that Vivian Founder and CEO, Parth Bhakta, has moved to Chairman and Bill Kong, our COO, is taking over as CEO. Parth has done a great job building this business. It is a clinician marketplace. Operator: I am not seeing [indiscernible] right now. Can you... Christopher Halpin: Excuse me, operator. Operator: And the next question comes from... Christopher Halpin: Operator, please stop. Operator, I'm answering a question quickly. Vivian is a marketplace that sits between 2.7 million nurses on the one side and health care staffing agencies and providers on the other. It is really a great moment. It is -- the business has returned to growth last quarter after facing some major sectoral headwinds. It is driving forward in taking share and its AI products, we think, are industry changing. So Bill is the ideal leader. He's grown -- he's developed across product, marketing and other channels and has really performed extremely well. Parth is excited for him to take over as CEO, and it's really about driving our AI products deeper into our customers. Operator, next question please. Operator: The next question comes from John Blackledge with TD Cowen. John Blackledge: Great. Maybe 2 for Chris. One on the People 2026 EBITDA outlook. At the midpoint of the range, it looks like kind of flattish EBITDA. Can you unpack the guide a little bit, Chris, and how we should think about drivers of EBITDA at People this year? And then second question, just on IAC's free cash flow conversion. So you guys guided to '26 EBITDA range of $260 million to $335 million. How should we think about free cash flow conversion of EBITDA this year? Christopher Halpin: Yes. Thanks, John. On EBITDA guidance, we definitely want to explain this in detail to investors at People. So when you compare 2025 adjusted EBITDA for People to our '26 guidance, there are 2 key countervailing trends you need to understand. As background, '25 adjusted EBITDA, when you remove the $41 million in lease gains and the $15 million in severance expense was $331 million. That comprises $315 million of digital adjusted EBITDA and then an incremental $16 million deriving from the excess of print EBITDA over corporate expense. So $315 million and then a $16 million incremental. In our 2026 guidance, we are guiding to mid- to high single-digit EBITDA growth off of the $315 million generated in 2025. On the other hand, our guidance assumes $15 million in Google litigation expense hitting corporate. Without that litigation cost, we expect print EBITDA to equal corporate expense. So with the litigation, what you're seeing is a $31 million net swing from '25 actuals to '26 guidance in the relationship between Print and Corporate. It's that swing that leads the guidance to be in the $310 million to $340 million range and to look flattish year-over-year. Our most important line item in our mind is Digital revenue and EBITDA, and that is growing solidly. And as we said before, if you adjust for the Google litigation expense, we are guiding to $325 million to $355 million on Digital EBITDA. Going to IAC adjusted free cash flow. Simply, there are 4 line items between EBITDA and free cash flow that you should think about in your models. CapEx, change in working capital, net interest expense, taxes. CapEx for IAC is minor. It was $20 million last year, probably $20 million to $30 million in the '26 range. Net cash interest expense is the difference between the interest expense on the People debt and the interest income we make on our cash balances. Last year, it was $64 million of net interest expense. We would expect net interest expense to be around that same number, assuming flat yields on cash. Cash taxes are minimal due to our NOLs. So that leaves working capital. That was a major use of cash last year due to 2 items. One were the lease buyouts that we talked about, north of $40 million as well as some unfavorable timing this past year of vendor payments and receivables. Looking ahead, we don't expect any similar large outflows like the lease buyouts and then working capital should normalize. So when you roll that up, we'd guide to 50% plus EBITDA to free cash flow conversion across IAC in 2026. Thanks, John. Operator, next question. Operator: Next question comes from Cory Carpenter with JPMorgan. Cory Carpenter: I had 2. I wanted to ask, you called out the $15 million spend on the Google litigation. Maybe just update us on where you're at with that and kind of how you're thinking about the range of outcomes. And then, Barry, I think last quarter, you talked a lot about also the simplification of IAC. So maybe if you could just give us an update on how you're thinking about that and any progress you've made. Neil Vogel: I'll do the litigation thing quickly, and then I'll kick to BD. So again, just to refresh everybody, the lawsuit builds on the government's antitrust case against Google, where Google was found to monopolize the ad server and ad exchange markets, right? Two major publishers, Gannett and Daily Mail already sued. And in their cases, the court ruled that they don't need to again prove what the government approved. We expect to rely on that ruling. Again, the costs are about $50 million. Chris has gone in great detail about that. Damages will be proved in this litigation in this phase. We seek to recover hundreds of millions of dollars in damages. Again, it all depends on where this lands. But we look at this as an investment. They've already been found to be sort of, again, I don't know the legal term in violation of these laws. So we'll see where it lands. Christopher Halpin: BD, you want... Barry Diller: It has the potential to land very big. So as far as simplification, we've been doing this for really the last couple of years as we've cleaned up many, many things inside IAC, closed, transferred, et cetera. We're going to continue to do it. We're bringing down our overhead, which we should. Our overhead was large because we had so many businesses that we were responsible for and so much infrastructure. We're now really down to a couple of key businesses. So you're going to see simplification throughout the year. Christopher Halpin: Thank you, Cory. Operator, next question. Operator: The next question comes from Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe 2, if I could. First, with respect to the Ad business, any mark-to-market views in terms of the overall macro environment, either verticals or the way in which advertisers are spending their money, brand versus direct response in terms of how that's impacting the business right now? And then I wanted to revisit the comments you made about the forward guidance in your prepared remarks in terms of maybe going a little bit deeper on what you think it might do to impact the operations, freeing people up to think a little more medium to longer term and whether the investment community could also expect some sort of at least qualitative commentary mark-to-market on a quarter-to-quarter basis. Neil Vogel: Sure. I'll do the ad market first, and I'll kick to Chris. So I think we do this a lot around here. I think we put the market at a 6 out of 10 where it is now. It's healthy, remained generally favorable in Q4. It's pretty solid for us. I think particular to us, we have some real advantages, right? Brands matter and in an AI world where everything is uncertain and everything is a platform and everything is UGC. The strength of brands really resonate. We're in a lot of markets. That helps. Our programs really perform, both the traditional on-platform and off-platform. Our ad relationships are good. And we're very much with some of the new things we're doing, we're in the ad side guest. Not only do we have like the real nuts and bolts to deliver but we've got the cool stuff, too. And it's really helped us. And I think the strongest sectors -- and again, I can only really speak to us but some of this does trickle out to the broader market. Health and pharma has been good for us, travel, tech. Some of the weaker sections for us or some of the stuff you're seeing macro exposed like food and beverage, CPG, in a large way has been very challenged. I'm sure you guys have heard about that. That's really our take. Look, we -- the market right now is good enough for us to execute, and that's our main concern. Christopher Halpin: And then on guidance, look, the -- it's a few things. One, there are a lot of -- especially in People Inc., which is our biggest business, there is a lot of volatility in the underlying market. Neil has talked about everything they're doing to guide the ship successfully through the choppy waters and they're proving that out in the data but stressing about quarter-to-quarter metrics on sessions, individual revenue line items, et cetera, we thought -- we came to the conclusion it's a long walk for a short drink. And that doesn't necessarily mean downside. We surprised to the upside last quarter with very strong revenue. It's really around head down execution to drive the strongest, best digital businesses. And we'll do that on with an annual basis and tell you what we're working towards. And then to your point, we will talk -- or to your second question, we will give guidance qualitatively -- not guidance, we'll give views qualitatively of what's happening in the markets, what's happening in the dynamics and our strategy. Thank, Eric. Operator, next question. Operator: And the next question comes from Dan Kurnos with StoneX. Daniel Kurnos: Maybe first for Neil, any directional way to think about sizing or helping us think about D/Cipher+ this year? And should we think of any announcements coming the way that Roku used Nielsen ACR as a data and conversion layer with Amazon DSP? Are there any ways that we could think about major partnerships? And then I guess for Chris, just on Care, maybe just unpack the growth a little bit, how you think it could trend over the course of the year and then more longer -- and then longer term, just what are the aspirations for growth at Care? Neil Vogel: I'll go first with Decipher. So we're obviously very excited about Decipher. It's our fastest-growing off-platform business in terms of headcount, in terms of revenue. It's going to be a big driver for us. Again, it opens up a lot of TAM for us, right? We can do CTV. We can basically target using our data, which is fantastic. the Open Web. I think to dimension it for you guys, I think we'd say of the growth, the mid- to high single-digits growth, 2 to 3 points of that this year will be D/Cipher+. It's got real momentum. And I think we're at a place now where Jim Lawson, who I believe who I know that you know, has really found its footing. We have a real team behind this, and this is a -- it's go time on this business. And I think you're going to see real results in it this year. We're very, very excited about it. Again, it's all about our strategy. We're going where the people are there, and we're bringing advertisers with us, we're bringing our content with us, and this is a really big part of it. And Jim is doing a great job. There's a lot of energy around this. And I'll pump to Chris for the rest of it. Christopher Halpin: Yes. And on Care, the consumer business really was in a multiyear slowdown post -- partly driven by post-pandemic dynamics and then also driven by challenges or underperformance on the product and in our marketing. We've taken steps and Brad Wilson and team have taken steps on a number of those in the consumer -- this consumer platform starting second quarter last year that we've talked before about. We're seeing the stability in sign-ups. We know our comps, we start to get back to more normalized levels and lap some easier comps starting in Q2. So as we've talked about, we expect to get back to consumer growth midyear revenue and then drive on from there. And then Enterprise, we're working through some macro challenges as employers cut back. But there's also opportunities to grow employers and new entrant -- new customers that can come in. So our goal is to get back to revenue growth next -- this coming year. We believe we're going to get there and have line of sight. Margins, we feel good about and the underlying profitability. On an ongoing basis, care should be growing 15% to 20% given its market position, given the opportunities in both its segments and just the ever-increasing need for care, both for consumers who are really struggling with it across child, senior, adult, pet and also employers who are increasingly view it as a base benefit. Barry Diller: Let's do the last question, please. Operator: And the last question comes from James Heaney with Jefferies. James Heaney: Yes. Great. I think a lot of them have been addressed. But just on -- maybe just on the slowdown in digital revenue growth into the mid- to high singles next year. Curious like any conservatism in that guide? Any comping dynamics that you'd call out driving that? Or is that more of an organic slowdown? Just anything on that? And if you can talk about phasing, I know you're not thinking of it on a quarterly basis but anything we should think about for the year? Christopher Halpin: Certainly. If you look broadly across '25, Digital revenue grew 10%. Our guidance of mid- to high single digits reflects some conservatism as we continue to navigate broader search disruptions. As Barry and Neil have said, we feel good about our positioning. We feel great about the robustness of our monetization and the off-platform strategy and the scale and freshness of our content. But we always want to be thoughtful at the beginning of the year on our outlook. So that would be the background. Thank you, James. Thank you, everyone. Barry Diller: Thank you all. Nice to be with you. Christopher Halpin: Thank you, operator. We can conclude the call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome, everyone, to this webcast with a presentation of the Annual Report 2025 from Norden that was published this morning. [Operator Instructions] With that, I'll hand over to CEO, Jan Rindbo; and CFO, Martin Badsted from Norden. Please go ahead. Jan Rindbo: Thank you very much, and a warm welcome to this annual report presentation. And also welcome to the Center of Global Trade, where Norden plays a major role as one of the largest operators of dry bulk ships and product tankers, moving just under 130 million tonnes of essential raw materials across the globe. But let's dive into the financial figures for 2025. And we delivered a full year profit of $120 million, which was right in the middle of our latest announced guidance for the year, but significantly better than our guidance at the beginning of 2025. We have delivered a return on invested capital of 8.9% and the underlying net asset values in the portfolio were as of the 31st of December, DKK 379 per share. We are returning a significant part of the annual profit back to the shareholders through a combination of a dividend of DKK 2 per share and a share buyback program that will run until the end of April. This year was busy on the asset transaction front. We had 48 transactions for the full year. And an important part of our profit in 2025 was generated from vessel sales, where we sold 23 ships, of which 15 were from our purchase option portfolio, but we are not just selling vessels, we actually added even more ships. 25 came in through new leases and also the purchase of one vessel. And when you look at the purchase option portfolio, we actually finished the year with 90 vessels in the portfolio, which was a growth of 14% in the number of purchase options that we control. And of the 90 purchase options, 40 of them are in the money that can be acquired in the next 2 years at values that are 18% below broker values. So still significant value in the portfolio despite the fact that we have realized some of that during the year. With that, I'll hand over to you, Martin, to dive a little bit more into our NAV. Martin Badsted: Thank you very much. As Jan said, our NAV at the end of the year was DKK 379 per share. That was actually a decline of about 11% since the beginning of the year, but all of that was driven by a weaker U.S. dollar. So if you actually adjust for the FX change and the fact that we paid out dividends and share buybacks, there's actually a positive underlying development in U.S. dollars per share. The current NAV, as you will see from the table here, is about 2/3 exposed to dry cargo with $917 million of portfolio value and 1/3 is tankers, $428 million. And when you look at the numbers just below there, you will see that there's actually very little leverage on the balance sheet. So a very, very strong financial position is baked into these numbers. On the right-hand side, we show you the sensitivity of the NAV compared to changes -- potential changes in the market. So for instance, if both the dry and tanker market change plus 10%, then the NAV increases about 16% to DKK 441 per share. So a good exposure against rising markets. Now if you have had time to look into the recently published annual report, you will see that we have now decided to show some of our numbers a little bit differently. We have 6 segments in Norden: that is the Dry Owner, Tanker Owner; and then the Dry Operator, large and small tanker operator; and Logistics. And up until now, we have allocated or we have made subtotals for these segments into asset management and into FST. That changes now. And instead, we will group these segments by Dry Cargo and Tankers, which we feel actually is probably more intuitive for most investors thinking about which exposure they are buying when they're buying a Norden share. So going forward, we will be reporting the Dry Cargo business unit and the Tanker business unit. But of course, nothing changes in the group figures and all the segment data will still be there. Looking then into Dry Cargo in this case, let's start with the market development. It's clear from this graph where the dark line shows the spot rates for Supramax during 2025, but it was a year in 2 halves. So the first part of the year was actually fairly weak, whereas in the middle of the summer, the market suddenly actually took off and the second half was much stronger. That was to start with mainly a Capesize thing, but it actually impacted all the segments. I will say, though, that Norden had a fairly high coverage during the second half. So most of this has been impacting asset values and deferred periods. Looking then into the numbers for Dry Cargo, you will see the 4 segments in the middle here. And it's clear that the Dry Owner part really delivers the bulk of earnings with $67.7 million for 2025. The other 3 combined, of course, produces a loss as is quite evident. And I think the important thing to notice here is that they are actually all improving quite a lot compared to 2024. So the trajectory is good, but the actual levels are, of course, not satisfactory. You are seeing that trajectory on the graph on the right-hand side, where the red line indicates the total for 2024 and 2025 for the Dry Cargo business unit, which has then increased from minus $56 million to plus $29 million for the full year 2025. So of course, we hope to continue those improvements. On the Tanker side, it was a little bit the same. The market in MR spot actually increased during the year and actually ended the second half of the year stronger than 2024, I think, against many people's expectations. That, of course, impacts our Tanker business unit because a lot of the exposure there is directly linked to the spot market. And looking into the Tanker numbers, you will see that we made $116 million total between Tanker Owner and Tanker Operator. It is clearly Tanker Owner that delivers the bulk of these earnings. And the decline in Tanker Operator was very much expected because that is part of the business model. You can say that when the market is strong for a long period of time, the cost of tonnage goes up and it becomes harder and harder to make a good margin. But I will actually emphasize that we have been able to grow the Pool part of our Tanker Operator business, delivering good management fees for a very low risk, which actually helps a lot in the measurement of return on invested capital. So with that, I will hand you back to Jan for a look at our guidance. Jan Rindbo: Thank you, Martin. So looking ahead now to this year, 2026, we have an expected full year net profit for 2026 in the range of between $30 million to $100 million. And there are 3 key drivers in the guidance numbers. The first I'd like to highlight is the new activity that we bring in during the year. So there's, of course, some uncertainty both in the terms of the volume of the new activity, but also the margins that we can generate from this new activity. Then the second point is that we have a significant open position of days that are not yet covered and exposed to the spot market. We have 5,700 open days in tankers and just over 7,000 days in dry cargo for the balance of 2026. And then the third point is just a reminder that the guidance here only includes known vessel sales. So we have already concluded sales for -- with profits of $20 million, but it's only the known transactions that are included in our guidance for the year. If we move on to the business model of Norden, we have 4 main engines in the business, so to say. We have both Dry Cargo and Tankers. And as Martin just showed, we have actually made a profit in both of these 2 segments. And then we have the asset-light, the operator part of the business and the asset heavy, which is the asset management part of the business. And here, clearly, the results in 2025 has been driven mostly by the asset management or the asset heavy, the ship-owning part of the business. What we can see if we zoom out and look at this over a longer period of time is that having multiple legs to stand on having different types of activities actually helps generate superior returns over time because usually, if not all 4 engines are running, then at least some of them are. And in some years, it can be the dry cargo. Other years, it can be tankers or asset-light or asset-heavy. But over time, we have generated in the last 5 years, a return around 25% on the invested capital, which is significantly higher than our industry peers. What we also see in this graph is where you have the absolute returns on the graph to the left. Then at the bottom, you see the volatility in the earnings. And here, you can also see that the earnings in Norden have been more volatile than our industry peers. And this is something that we are -- that we would like to address in our strategy. And this is clearly where the operating part of the business has had larger fluctuations. But if we look towards the strategy and the direction for us towards 2030, then one objective for us is to reduce this earnings volatility, obviously, maintain the high returns. We like that, but we like to bring that with a higher degree of stability in the earnings so that we don't have such a large volatility in our earnings. And the way we will do this is, first of all, we will look at the engine room of the operating business, become even more customer focused, really look at our cargo network, how we build a more efficient cargo network, reducing ballast time, capture more margins, optimize cargo flows, the voyage efficiencies that we see. We are also expanding into areas where -- that are less volatile. One of the significant points in 2025 has been our expansion into MPP and Project Cargo. We have, in the last 3 years, made 3 M&A acquisitions all within this area. And we have now also built a core fleet of leased vessels, so in the typical Norden style with purchase options and extension options. And those ships are actually starting to deliver already this year in 2026. So Project Cargo, minor bulk, port logistics, are all areas where with our expertise, we can bring more stable returns as it's more capability-driven and less exposed just to market fluctuations. But I think the third point in our strategy towards 2030 is that we are maintaining the core elements in our business model, the 4 main engines that I showed you because we think that really brings a lot of value as we have seen also in the past. And that brings me to the last slide, where we're just looking at summarizing as an investor, what are the main drivers for Norden that you should have as part of your thinking when you look at Norden. And I think the first point to highlight is that we are actually in an industry with good fundamentals. We see an aging global fleet. Especially when we look longer term, so towards 2030 or even beyond 2030, there is a significant aging of the fleet, both in Dry Bulk and in Tankers. And we have a relatively low order book and especially in the smaller segments of dry, but actually a low order book compared to the fleet age profile. And all these geopolitical tensions that we are seeing are creating dislocations that is also supporting tonne-mile demand. And that reduces the risk of prolonged periods of oversupply, which traditionally has hit the shipping industry in -- after periods of good markets. The second point is this business model that I just highlighted. So I don't need to say too much more about that, but we think that's a very strong model to generate value from. And then the third element is that we are within that business model, really focusing now on more the -- what we call the capability-driven earnings that are less market exposed. So our operating capabilities and building these more sort of complex cargo flows, essentially building higher barriers to entry in what is traditionally very commoditized segments. And then the last point is continuing this disciplined capital allocation, which has really driven our ROIC outperformance. So the benefit of running a large business with an asset-light platform is that we have the freedom, so to speak, to also buy and sell vessels. We are still servicing our customers because we are able to do that through the charter fleet that we do. And this sort of strict capital discipline allows us to return a lot of our profits to our shareholders. Over the last 5 years, we have actually returned through dividend and share buybacks, $1.2 billion, which is about the same level as our market cap today. And that has also driven over time, a strong shareholder value creation. And then overall, our target for Norden remains to generate ROIC above 12%, so well above the capital cost, but also continuing to generate returns that are better than the peers that we compare ourselves with. So with that, that concludes our presentation, and we're now ready to go to the Q&A part of the presentation. Operator: Yes, we are now ready for the Q&A session. [Operator Instructions]. But let's go ahead with the first question here. To what extent are the involving U.S. sanctions framework reshaping investment decision by shipowners and operators when it comes to ordering new tonnage, especially considering exposure to secondary sanctions, financing constraints and future trading flexibility? Jan Rindbo: Thank you. That's a great question because this was a big topic in 2025 with the USTR, the U.S. sanctions against Chinese shipbuilding and then the retaliation from China against the U.S. So there was a lot of noise in the markets, and I think everyone was scrambling to prepare for that. I think it's fair to say that when we look at the investment part of this and what has happened since then is that there is no clear pattern showing that people or the industry is shying away from ordering in, for example, China. If you look at dry bulk and tankers, I think now close to 70% of new orders are coming to Chinese shipyards. So you can argue whether there is actually a choice that shipowners can make. Order books are also pretty full until at least 2029 now. So I would say there's no clear pattern that the industry has shied away from investing in Chinese shipbuilding or in Chinese ships from Chinese yards. So I would say that it hasn't really changed the dynamics. Operator: And according to the Q4 financial report, the company had around 70 leased vessels and 12 owned vessels. Furthermore, it appears that 24 new leasing agreements has been made in 2025. Can the company explain the interest rate risk associated with the leasing agreements? Martin Badsted: Yes. Thank you for that question. So the structure really works in the way that instead of buying the ship, we take it on lease, which is typically a 5-year period with a firm lease payment during the period. And since that is a firm and constant lease payment during the period, that actually implies that we have sort of fixed the interest cost that is baked into that project. It's the same with the OpEx for running the ships that is all taken care of within that fixed time charter hire. So in essence, I would say the leases that we do have a fixed interest rate component, meaning that we have very low interest rate risk from that part at least. Operator: And the next question goes, why do you expect a weaker second half for tankers? Martin Badsted: Yes. So if I can answer that. So the current strength in the tanker market is, to a large extent, based on strong crude market where OPEC is pushing out a lot of products to the global markets. Of course, still the Russia sanctions and the Suez Canal issues, but also a low supply growth. But when we look into the second half of the year, we think actually that supply growth will accelerate a little bit. So that will keep or add more pressure to the market. And it's probably also likely that OPEC at some point will need to adjust because the way that we view it at least is that there's simply too much oil coming to the market at the moment. And at some point, this will hit inventories and that will hit prices. So we think there's reason to believe that the second half of the year will be somewhat weaker than what we have seen recently. Operator: Thank you. And the next question here. If dry bulk continues its positive momentum and tankers also does so partly in the first half, at least of 2026, I'm left with the impression that your guidance may be somewhat on the low side. Is your guidance set low and conservatively partly to be able to counteract geopolitical surprises? Jan Rindbo: So our guidance is based on the market expectations that we see now. Of course, if the market expectations or the markets continue to go up and improve, there is further value. We have the open days that we mentioned during the presentation, both actually in dry bulk and in tankers. And of course, if asset values also continue to go up, then that will support the NAV value of Norden. So of course, there is uncertainties as we look into a year. Again, we are just at the beginning of the year. We also have a significant part of our business, which is the new activity that is coming in that will generate a margin. And here, there are some uncertainties around both how big that activity will be and what margins we can lock in there. So it is the reason or one of the reasons why we have a larger span in the full year guidance. And again, just to repeat, the guidance only includes the asset sales that are already agreed. And therefore, if we choose to sell more ships during the year, and here, we are very optimistic looking at the opportunities in the market, looking at the market developments. But if there are further sales that we can do at profits, then that could add to the expectations during the year. And as I think we've shown you during the presentation, there's a lot of underlying value in Norden, both on the purchase options and on the owned vessels that we have in the fleet. But it will be opportunity driven as we go through the year. Operator: And the next question here. What is Norden's strategy for MPP/Project segment for the next 5 years? Jan Rindbo: Thank you. That's a great question because it ties right into the heart of our strategy. So we have done 3 M&A transactions that are all supporting our development in this part of the business. A big change for us in 2025 was that the sort of natural evolution was to then start building a core fleet, and we have done 16 transactions on MPP vessels alone during the year. So building a core fleet of the most fuel-efficient vessels. So a great fleet that we have very high expectations for and already are seeing significant customer demand for. So the strategy in the next 5 years towards 2030 is to keep growing this part of the business. It will help us to generate more stable earnings because this part of our asset portfolio is where we typically see the least volatility. And it's driven by capabilities from our teams across the world. And we, by the way, also see strong synergies between what we do in the MPP and Project Cargo space across our other vessel sizes. So we are now regularly carrying Project Cargo, not just on MPP vessels, but actually across our entire range of Dry Bulk vessels. Operator: And the next question here. How do we plan to restore a stable and competitive earnings in Dry Operator, especially large vessels, which is once again delivering a large negative EBIT? Jan Rindbo: Yes. So again, it ties in with the strategy that we presented earlier. And what -- the component in our business that we are looking to grow here is what we call the Base Margin business. So all the margins that we generate, not from market fluctuations, but simply from having good cargo combinations, efficient voyage executions where we're able to match a vessel and a cargo in the market without taking much market risk. Pool Management, as Martin mentioned during the presentation, is also a great generator of these base margins. So that's where we have our strategic focus. We still want to retain the ability to also position ourselves for the ups and downs in the market because that has done us very well over time. But building a more solid foundation of these base margin earnings is a key component in our strategy, and that will help us to both stabilize and hopefully also generate positive and better margins in the Dry Operator part of the business. Operator: And a question here. Can you please explain the strategy behind the coverage in Dry Cargo for 2026? Jan Rindbo: Yes. So we have a high level of cover, which has taken -- which was taken during 2025. So we had a more cautious view of the market. That was one driver. But it is also part of our business model to actually have a relatively high level of cover so that we don't like to be totally exposed to the markets, which, of course, when markets go up, means that we're not getting the maximum out of the markets, but also during downturns, it means that we protect the downside. And again, looking at this over a 5-year horizon, we have generated great returns by having that kind of approach to the markets. So we are more covered for 2026. But when you look at the numbers and our position, you will also see that we have a fairly large open position in dry bulk for 2027 onwards. We have over 30 newbuildings coming in. We have invested in Capesize, also new buildings that are coming in, where we have seen prices actually go up significantly from the time we made those investments. But it was always with a view that 2027 would be the time where we would see those benefits. It has come -- it's fair to say that, that has come a little bit earlier than also what we had expected. But our portfolio as such is actually well positioned to capture those upsides. But as things stand right now, it's mainly from 2027 onwards. Operator: And the next question here. You achieved a net profit of $120 million in 2025, but you're only guiding for $30 million to $100 million for 2026. What specific factors are causing earnings to expect it to fall so significantly? And what will it take for you to reach the upper end of guidance? Martin Badsted: Maybe I can at least start with this. So as Jan said before, the guidance, $30 million to $100 million is only based on the known vessel sales that we have agreed to already, whereas the $120 million for '25, of course, includes all the vessel gains that were made during the year. And that was actually $17 million, leaving the $50 million residual as the operating earnings. And that, of course, indicates that the new guidance is more on par with actually the operating earnings from 2025. And new gains if we make new agreements on profitable sales, will come on top of that. So that is a big part of it comparing sort of the vessel gains and the operating earnings in 2 different ways. Operator: And the next question here. What are your expectations regarding the recent agreement between U.S. and India, where India has pledged to stop buying Russian oil? Could that have a positive spillover effect on your business? And how are you positioned in relation to India? Is this agreement factored into the guidance for 2026? Martin Badsted: I would say, overall, it is factored in to the extent that we base our guidance also on forward rates that are prevailing in the market. So if the market sort of has priced this in, which typically happens very fast, then it's also baked into our guidance. It's clear that if this were to have a very positive effect, that would be positive for our spot earnings during the year. And you can say, in principle, all the disruptions that we are seeing, including the fact that India now may not buy Russian oil is net positive typically. But we have also seen over the last couple of years with new sanctions and disruptions that the market is really fast in actually adapting to new situations and it often ends up not having a big impact because people will find ways around these disruptions. So it's both yes and no, I would say. Some positive effect it's baked in, but it's not something that will, I think, change fundamentally the market outlook. Operator: And then the last question here. How do you access the impact of a potential Hafnia acquisition of TORM on your competitive position and the markets? Jan Rindbo: That's a good question. Of course, there's no direct impact on Norden, but I think consolidation in the industry is a good thing. So we, in a way, welcome that, but it's not something that really concerns us that much. We are focusing on our own business, servicing our own customers, running an efficient Pool Management business towards the third-party owners that are part of our pool, I think that is what is top of our mind. Operator: Thank you. There seems to be no further questions, and I'll leave the word to management for a final remark. Jan Rindbo: All right. Well, first of all, just the usual caution about forward-looking statements. But having said that, thank you very much for tuning in to this annual report presentation. Thank you very much for the many great questions. I think that gives us an opportunity to put a little bit more color to some of the highlights that we've shared with you in the presentation. So thank you very much for that. Thank you for engaging. And we look forward to seeing you again next time when we report on the Q1 results later this year.
Magnus Ahlqvist: Good morning, and welcome, everyone. Andreas and I are proud to report strong results for Q4 and for the full year 2025. So let us go straight to some of the performance highlights. The organic growth in the quarter was 3%, and this was supported by 6% growth in Technology & Solutions. We had a good finish to the year in Technology & Solutions with 2% improvement sequentially. And the adjusted organic growth of the group -- and that means when you exclude the closedown of the SCIS business was 4%. And now to something important. The operating margin was 8% and 8.2% adjusted in the quarter, thanks to the strong delivery across the entire business. North America achieved a 10% operating margin in the quarter, and Europe delivered another quarter with more than 8%. And we have improved the operating margin now 20 quarters in a row and are delivering on the 8% target that we communicated 3.5 years ago. EPS real change, excluding IAC was also strong at 18% and we had continued strong delivery in terms of cash flow with operating cash flow of 88% for the full year and net debt to EBITDA ratio improved further to 2.1. And based on the stronger underlying performance, the dividend proposal is SEK 5.30, which represents an 18% increase. And looking at the future, we announced a very important milestone for our journey with the acquisition of Liferaft yesterday evening. And this is the leading provider of threat intelligence and I will provide more details regarding the strategic importance of Liferaft at the end of this presentation. So let's then shift to the performance in the business lines and segments. We delivered strong margin development in both business lines with 12.7% for Technology & Solutions, 6.6% of Services in the quarter. And there is growth, as I stated, in Technology & Solutions for 6%, so 2% improvement compared to the previous quarter. And the growth in Security Services was 1% and this growth is obviously negatively impacted by the SCIS business where we're closing down the government part of that business. So with that, let's move to the segment, and we are starting, as always, with North America where we're delivering a very strong set of results and a record 10% operating margin in the quarter. And if we start with a growth of 5%, this was driven by good portfolio development and price increases in the Guarding business and by good development in technology. The real sales growth in Technology & Solutions improved to 4% compared to lower growth in the previous quarter. And when looking at the profitability, strong leverage and cost control in Guarding, together with solid profitability in Technology and a recovery in the Pinkerton business all contributed to the record level operating margin. So all in all, a very strong performance, a record-breaking 10%, so well done by our North America team. We then move to Europe, where we are also very pleased with the development. The organic growth was 4% in the quarter, and the growth was supported by price increases including impact from the hyperinflation environment in Turkey and also by solid growth of Technology & Solutions, while active portfolio management in the Services business had a negative impact on growth. Sales growth in Technology & Solutions was 7%. But it's the profitability development that stands out with 110 basis points improvement to 8.1%. And the margin improvement was driven by both business lines, including positive impact from the business optimization program. The Security Services business was positively impacted by higher margin on new sales, active portfolio management and also the divestiture of the Airport Security business in France. We also recorded a solid improvement in the operating margin in the Technology & Solutions business line driven by good portfolio development and solid cost control. And as commented earlier, we expect the work we're addressing low-margin Guarding contracts to be completed during the first half of 2026. So all in all, solid development by our European team and also here an operating margin at a record level. Shifting then to be Ibero-America, where we are pleased to report good organic growth and decent margin improvement. The growth was 5%, and this was driven by high single digital growth in Technology & Solutions and prices increases in the Services business. But similar to Europe, there is a negative impact on the growth from active portfolio management, but we're making good progress here and driving good conversions to Technology & Solutions. And the real sales growth in Technology & Solutions was 7% in the quarter. The operating margin improved 20 basis points in the quarter, and the improvement was primarily driven by positive impact from active portfolio management in the Security Services business line. So to conclude, strong delivery in 2025 by our Ibero-America team. And looking then at the performance across the group, we are driving disciplined execution of our strategy, and I'm really pleased to see strong execution across all segments. And the client retention is solid at 90%. So with that, turn to the finance update and handing over to you, Andreas. Andreas Lindback: Thank you, Magnus. And first of all, if I sound different to normal, it is because I'm about to lose my voice, I apologize for that. We start with the income statement, where we had organic sales growth of 3% and improved the operating margin with 70 basis points to 8%. It is a strong quarter where we improved our operating income with 15% adjusted for currency. As we communicated in Q2, we have introduced 2 new KPIs, which are adjusting our organic growth and our operating margin for the government business to be closed down within SCIS. In the quarter, the adjusted organic growth was 4% and the adjusted operating margin was 8.2%. Looking below operating results, there are no material developments in amortization of acquisition-related intangibles nor in the acquisition-related costs. The items affecting comparability was SEK 78 million, and this was related to the ongoing European transformation and business optimization programs. And the full year cost for these programs was SEK 382 million, approximately in line with our previous guidance. We have executed the business optimization program in a good way where the annualized savings in Q4 are in line with the targeted SEK 200 million savings. The business optimization program is now closed. And in 2026, the only remaining program is related to the European transformation. And here, we estimate to have a full year 2026 program cost of SEK 225 million to SEK 250 million, a material reduction compared to the SEK 382 million related to the programs in 2025. In Q3, we took a SEK 1.5 billion cost in items affecting comparability related to the close-down of the government business within SCIS. The close-down is progressing according to plan and had limited impact on our operating result in Q4. We continue to expect the vast majority of the business to be closed down by the end of 2026, and we will also start to see an accelerated execution of the close-down during the first half year. Our finance net came in at SEK 383 million, a reduction of SEK 146 million compared to last year. And here, we continue to see a positive trend of reduced financing costs as interest rates and our debt levels are going down. For the full year 2026, we estimate the finance net to continue to reduce and land around SEK 1.6 billion to be compared to the SEK 1.8 billion for the full year 2025. Moving to tax. Here, we had a tax rate of 29.5% for the full year, slightly higher than our Q3 forecast of 29.2%. The full year tax rate was impacted by the SCIS close-down cost in Q3, where we estimate around half of the cost to be tax deductible over time. Adjusted for the close-down impact, the full year tax rate was 27.2%, and we expect the 2026 tax rate to be in the approximately same area. All in all, we have a strong quarter where we grow our FX adjusted EPS with 18%. And as we summarize 2025, we have improved our adjusted operating margin with 60 basis points to 7.7%, grown our operating result with 11% and grown our EPS with 18%. And at the same time, we also achieved our financial target of an operating margin of 8% in the second half year of 2025. The adjusted operating margin in the second half was 8.2%. We then move to cash flow, where our operating cash flow was solid at SEK 3.9 billion or 128% of operating income. The cash flow was supported by lower growth rates and the continued improved DSO, but also negatively impacted by the additional USD 44 million payroll in our U.S. Guarding business as we communicated in the third quarter. This negative impact is a timing impact only, which occurs every fifth to sixth year. The free cash flow landed at SEK 3 billion, supported then by the solid operating cash flow, reduced interest payments due to the lower interest rates and debt levels and positive tax timing impacts. Looking at the full year 2025, we delivered another year of record cash flow. The operating cash flow was more than SEK 10 billion or 88% of the result, supported by good working capital focus and lower growth rates. And we have now delivered operating cash flows above our financial targets of 70% to 80% over the last 2 years, a result of our strong focus to build a more qualitative business and also structurally improve our working capital over time. And this has, of course, also translated into stronger free cash flows, which creates increased flexibility and opportunity for us as we move into a new phase of our strategic journey. Our cash generation will also be positively impacted as our items affecting comparability continues to reduce as we go into 2026 and beyond. We then have a look at our net debt, which was SEK 31.3 billion at the end of the quarter. This is a reduction of SEK 2.1 billion compared to Q3, mainly supported by the strong free cash flow, but also by the strength in Swedish krona. In the quarter, we paid the second tranche of our dividend, and we had SEK 321 million of total IAC payments, whereof approximately SEK 160 million was related to the final payment for the U.S. government and Paragon settlement. We have now made all 3 payments related to this settlement and expect no further cash flow out related to the case. Looking at the right-hand side, our net debt to EBITDA reduced to 2.1. This is an 0.4x improvement compared to Q4 last year, where positive EBITDA development, good cash generation and the strength in Swedish krona have supported positively and we are well below our target net debt-to-EBITDA of less than 3x. Moving on to have a look at our financing and financial position, where we continue to have a strong balance sheet, remain with strong liquidity, and we have no financial covenants in our debt facilities. After a period of important refinancing focus, our main focus during the second half of 2025 has been to amortize debt, supported by the strong free cash flow generation. In the quarter, we repaid SEK 1.9 billion of debt and throughout 2025, we have amortized a total of SEK 3.3 billion. This continues to support our cost of financing going forward. And looking at the maturity chart, we have very limited refinancing needs throughout 2026. And as always, we remain committed to our investment-grade rating. So with that, I hand over back to you, Magnus. Magnus Ahlqvist: Many thanks, Andreas. So I'd like to share a few perspectives regarding our strategic development and the Liferaft acquisition before we open up the Q&A. First, we are proud of the fact that we are reaching our 8% target in the second half of 2025. Back in 2022, when we did the Stanley acquisition, we accelerated the work to change the profile of Securitas security company with the strongest technology and digital offering to our clients in combination with high-quality guarding services. And when looking back at last 4 years, we have been executing well. We are a sharper, more focused company today and operating at a different margin level. And as we're entering 2026, this also means that we can then start to retire this bridge that we have kept coming back to every quarter and over the last 3.5 years. Looking at the future, we're very excited about the acquisition of Liferaft. So when I look at the transformation of Securitas during the last 6, 7 years, we have kept a clear focus on investing in the core capabilities that we consider critical to winning in this industry and those are focused on presence, technology and data. In this context, we strengthened our guarding value proposition. We have improved the profitability of guarding. We've built a globally leading technology position and a more modern and digitally capable business. So we have strong pillars in our business today. But we've also worked to meet the increasing client demans for better understanding the risks and the threats facing their business. And over the past 5 years, we have developed in-house risk intelligence capabilities that we are providing to more and more customers. So all this is good, you might say, but what is then the importance of the Liferaft acquisition? Well, Liferaft is one of the leading SaaS-based threat intelligence providers focused on OSINT and that's open source intelligence. This is a very strong team with deep expertise in threat intelligence and they have been a partner and provider to Securitas for many years. And with Liferaft, we will be able to scale and leverage their capabilities across our client base and in the process strengthen our clients value proposition. When looking at the financials, the company is currently prioritizing rapid expansion and growing organically around 30% on an annual basis, but also then reinvesting very strong gross margins to accelerate organic growth. And given the increase in demand in this market, I fully support this approach. The acquisition is fully in line with our strategy to create a more scalable business model and becomes an important addition to accelerate growth in high-margin recurring monthly revenue. And as previously stated, the recurring monthly revenue for the group exceeds more than SEK 1 billion. So we are thrilled to welcome the Liferaft team when we are closing the transaction, joining forces to shape the future with more intelligence-led security. And the future is promising. With the transformation of Securitas, we're well positioned with a clearly differentiated client offering, well positioned for profitable growth. And we are operating in an attractive market, but also a growing market where we see steady increase in the demand for quality security. We have transformed and repositioned our client portfolio with a clear focus on segments with more sophisticated security needs and higher growth profile. And we partner with our clients for the long term and we see that our deeper engagement model, where we leverage our technology and digital capabilities, is generating high value for our clients and also for us. And the approach is working. So like Andreas and I have commented, we're executing well on our plans, 20 consecutive quarters of operating margin improvement and solid cash flow generation. We've had a clear focus on enhancing the quality of our business and margin improvement in recent years. But as more and more units reach the required profitability thresholds -- so from my perspective, that means for a good sustainable business, they also gained the right to shift focus to profitable growth. And with the business now in much better shape, we can shift emphasis towards commercial synergies and driving growth. And as stated many times, we do this with a clear focus on building a more scalable business. So we are confident and excited about our longer-term opportunities and we're looking forward to sharing more in the Capital Markets Day in June. So in conclusion, we are on the right path, well positioned for the next phase. So with that, we conclude the Q4 presentation and happy to open up the Q&A. Operator: [Operator Instructions] The next question comes from Francesco Nardinocchi from Goldman Sachs. Suhasini Varanasi: This is Suhasini from Goldman Sachs, actually. I just had a couple of questions please. So the -- if we think about your growth and margin expectations for the first half versus second half of this year, would it be fair to say that because of the impact of your underperforming contract exits that's going to be completed by first half this year, maybe the growth is a little more weighted to second half and similarly on margins. And I'm not sure I read but how much are you expecting to pay for the acquisition of Liferaft? And how is your M&A pipeline looking at this point in time? Magnus Ahlqvist: Yes. Thank you. So when you're looking at that, I think it's the right assumption that finalizing that work will have a negative impact in the near term from the active portfolio management. But that's why it's also so important and so positive that we are soon done with that work. And as I commented in the last couple of years, we were more quick in North America in terms of finalizing that work. So I think that is obviously something that we're looking forward to also in Europe. Then when you look at the growth in Q4, we had 6% growth in Technology & Solutions, and that's a clear improvement compared to the previous quarters. We have a strong offering. Solutions is more of a portfolio business. Technology part, there's also some variability with installations, but we see that we are on a good path. So I think that is the other part that I would just highlight because that part of the business, there is no impact from active portfolio management. Andreas Lindback: We have not disclosed the purchase price related to Liferaft simply due to commercial reasons that we're not doing that. But we have paid a fair market price for this type of business overall. So -- and there will be some details coming as we have closed the transaction as well. On the M&A pipeline side, as we have said, we are ramping up our focus on continued bolt-on acquisitions within Technology & Solutions and some targeted also acquisitions in the intelligence area. We made a few minor ones outside Liferaft, but we are still in ramp-up mode, I would say. So the pipeline is not -- there's not a huge pipeline at this point in time, but it's something that we are working towards improving. Operator: The next question comes Remi Grenu from Morgan Stanley. Remi Grenu: First, a quick question on the 2026 outlook. I guess, given you have achieved the 8% and the CMD is not before June, we are left a little bit in dark in term of margin development. So just trying to have your overview on 2026 margin development if we exclude any -- excluding the positive impact that the closure of SCIS is going to generate. But on an underlying basis with the portfolio of the company, do you believe that there is still potential for margin improvement from the current run rate at the end of 2025. So that would be the first question. The second one is on North America. The organic growth very suddenly accelerated in Q2 and it's been normalizing a little bit over the last 2 quarters. Just trying to understand the drivers of that sudden acceleration and what's happening since then? Why it is coming back down? Is it about like volume normalizing, lower pricing and also taking a step back on that market, what do you think is the structural level of organic growth in North America? And then the last one, you have come to the end of that strategic plan in 2025. Have you started to have a think about the new KPIs for management remuneration, variable remuneration and going into the next phase of the company, what do you think would be most relevant in terms of aligning the interest of shareholders with management? Magnus Ahlqvist: Very good. Thank you, Remi. So we don't provide guidance. But first of all, I think it's been really important for all of us internally and also externally that we are delivering on the 8% because it represents a very significant shift. When you're looking at 2026, driving good growth in Technology & Solutions will have a positive impact on margin. I could also expect some positive impact from active portfolio management work that we still have some of that work yet to be done. Business optimization program, we've commented as well. We successfully completed that in 2025, should also help and support. So generally speaking, I mean, we are -- and I spelled that out, I think back in 2022 is that 8% is important to achieve. We believe that now we have a really good opportunity to also be related to your third question, calibrate more precisely as well how we maximize the value creation because we've had very hard focus on improving the quality and the margin. But it's quite obvious to us as well that we get done with some of the structural work and the heavy lifting and cleaning. We're largely done with that now and that also means that we can then also start to shift focus on more profitable growth going forward. And I think that is something that we -- that is clearly on our minds. And it's also clearly something that we're also reflecting also in how we're calibrating some of the incentive programs as well so that we really gear those towards maximizing value for our shareholders. So I think those are the key points. North America, maybe briefly on your side, Andreas? Andreas Lindback: I can just follow up on the KPIs because there's also misunderstanding related to that up until now. We have both long-term incentive programs, and we have short-term incentive programs. It's right, as you say, that operating the margin has been a focus for the long-term incentive programs. But in the short-term incentive programs, which is a material part of total compensation, it is also about driving growth in the earnings as well. So I just want to highlight that. And then if you want to take the... Magnus Ahlqvist: Yes. No, that's an important point because if you look also at the operating result growth, really solid double-digit levels in 2025 in constant currency. And we are here, obviously, to drive that for change, but it's always going to be a balance as well. And we should also remember that operating margin improvement is also helping and accelerating also the operating result growth. So I think that's an important clarification about the programs that we've had up until now. When you look at North America, we feel good about our position. We feel good about the market in general. So I wouldn't -- and it's a little bit difficult to call out the specific growth numbers. This is something that in our industry, it is a little bit difficult to get a very clear understanding of how the total market is developing. But I would say that we are well positioned in terms of the segments where we are and also segments where there is, generally speaking, a higher emphasis on the quality, security is important, but there is also very healthy underlying growth. So I would say that we are well positioned, but it's difficult, Remi, to call out a very specific overall growth number. But I believe with the offering that we have, we should be able to grow at least with the market and preferably above market rate. And that is very much based on the strength of the offering but also that we are well positioned in terms of the segments that we serve. Operator: The next question comes from Andy Grobler from BNPP. Andrew Grobler: Just a couple from me, if I may. Firstly, just in Q4, in terms of the European growth, can you talk through the tailwinds from Turkey and also the headwinds from portfolio management, so sort of to get to the underlying numbers there? And then secondly on the longer-term perspective, Technology keeps evolving at pace as we can see from the stock market. I just wondered what you're seeing in your end markets? And if at this stage, there's any signs or you expect to see over time, price deflation within your monitoring activities and the extent to which that's possible. That would be really helpful. Andreas Lindback: Thank you. When it comes to the European growth rates in the fourth quarter, you can say more or less all the positive growth is coming from Turkey in essence. That's the first statement. So Turkey had an impact for sure. If you're then looking at the -- where we have volume growth was in Technology & Solutions in Europe and then there was a negative impact that we have not quantified related to the [ APM ] that is impacting the Security Services portfolio. So I think those are 3 pillars to bear in mind when looking at the European organic growth. Magnus Ahlqvist: And then, Andy, on the technology, I mean, what we call the technology business is essentially business where we drive or we design, we install systems and then we operate and serve those systems for our customers. So there's a couple of different components. But a big part of the value, I would say, when I look at the kind of 3 main areas of activity, installation, service maintenance and also monitoring is that, that work is quite tightly connected. So when we are doing a good integration and installation work, we're very well positioned to also provide the best type of service and maintenance. But more and more of what we are doing and what we're also interested in building is more the recurring revenue. And there, obviously, connected services, those are usually not just simple kind of monitoring lines, for example, it's usually part of a broader value proposition and there, I believe that we are in a good position based on the great strengths that we have built. And where also the deep integration of Stanley has really helped us because we have built genuinely good service capability and levels and also [ rich ] service offering to our clients as well. So I think that we are in good shape in that sense from a market perspective and also the offering that we bring. Andrew Grobler: Okay. And then just lastly, Andreas, thank you for all your help over the years and best of luck with whatever the future may bring. Andreas Lindback: Thank you. And likewise, Andy. Magnus Ahlqvist: I remember to say a special thank you to Andreas at the end of the call today as well. But I'm glad you comment that, Andy. Andreas has been a great partner all along here. Operator: The next question comes from Allen Wells from Jefferies. Allen Wells: A couple from me, please. Firstly, just following up from Remi's question on North America. Obviously, very mindful that active portfolio management has been a headwind to growth. And as that starts to end, you flagged in Europe in the first half, that should be a positive as you switch to that growth focus. But as Remi flagged, as we look at North America, the portfolio management has ended and growth has slowed sequentially from 2Q through to 4Q, the 5% we saw in 4Q. To what extent is that slowing in North America? Are you guys maybe holding back to focus on margin rather than kind of fully pushing the commercial engine in the business? And to what extent maybe is it just that it's a continued tough market that is still hard to drive growth? That would be the first question. Secondly, just like a bit of an update on the technology side. Obviously, growth improved sequentially 6% in the quarter, but it's still well below the 8% to 10% target. So I'd be keen just to understand of that 6%, how much is pricing, how much is volume and how you think about the outlook towards that 8% to 10%? And then third question, just on free cash flow. Just in the full year, obviously, a positive outcome overall, but there was a positive impact from working capital for the full year. Like I don't typically think of you guys as a positive net working capital business. So to what extent is that net working capital number sustainable and how should we think about potential unwind as we move through 2026 as well? Magnus Ahlqvist: Thank you, Allen. I think on the first question, we don't see any change in the trend in North America. I mean some variation there will be between the different quarters. We are well positioned. Like you highlighted, we've done with the active portfolio management, and it's obviously a dynamic market. But when you look at what we are winning and what we are losing, yes, we feel good. So no major issue or anything specific to read into that from my perspective. Andreas Lindback: When it comes to the Technology and Solutions growth, when we set the target of 8% to 10%, it's important to remember that was also including acquisitions. And there, we have done limited. We've been focusing on integrating and then also taking down our balance sheet, although it's something that we are looking at ramping up. So in that context, the 6% is a decent number. When you look into that 6% on the Technology side, it is definitely volumes mainly from that growth. If you're looking at the Solutions side, it's a combination of both volumes and price. So all in all, more volume than price when it comes to the 6%. So -- and it's also a decent number, we should say. When it comes to free cash flow, a couple of lenses here. I mean, we said in the last Capital Markets Day, yes, there will be a mix shift in the working capital with the technology business coming in. But we also said clearly that we are working on structurally improving our working capital, and that's really what we have been doing over the last couple of years, which is giving a positive result. So we have definitely structurally improved on the working capital side. And we also show that in the 88% cash flow this year, 84% last year. So it's also not just a temporary change. Then as you all know, we have seasonality in our cash flow, where our Q4 cash flow is stronger. And now the number is coming in somewhat below Q4 last year, but still at a very strong level. So going into Q1, yes, it will definitely be weaker from that standard seasonality that we're having. But the underlying trend, I think, is most important when it looks at the cash flow given we have volatility. And there, I hope you all see that we have elevated the cash flow, and we are now delivering above our financial targets 2 years in a row. Operator: The next question comes from Viktor Lindeberg from DNB Carnegie. Viktor Lindeberg: Two initially, if I may. And looking at the mounting down of CIS in 2026, if you could share some more details on the run rate and how it's sort of expected to progress and where we may be end of 2026 in terms of revenue? Are we all the way down to 0? Or is it only maybe halfway there? And second question is associated also to this, trying to trickle out the underlying cost base for the, call it, group other item or overhead line items here. So if you could share any guidance or thoughts on the underlying costs for the Securitas business, excluding CIS, that would be very much helpful. Andreas Lindback: Thank you. If we start then with the government business within SCIS closed down, as I mentioned here earlier as well, we have started to see some impact in the fourth quarter from the close-down on the top line, but it's not much. But you should expect to see an accelerated impact in the first 6 months from the close-down activities. And then if you're looking at your question there, where will it be at the end of 2026, we expect that most of it will for sure be done. The vast majority will be done by the end of 2026. So I hope that helps a little bit by understanding how we expect this to progress throughout the year. When it comes to other in our segment reporting, 3 components, as you know, our Africa, Middle East and Asia business. We have our SCIS business, and we have the group cost. The Africa, Middle East and Asia business continued to deliver strongly in the quarter comparing them to last year. The SCIS business was fairly stable when you look at the bottom line. And then on the group cost, it was higher than last year. And here, we have been running tight cost control throughout the year. But in the fourth quarter, we released some more project investments in the quarter. And that's the main reason and then some year-end reconciliation, but that's the main reason compared to last year. To understand the trend there, I would also very much look at the full year number. Viktor Lindeberg: Okay. That's very clear. And another question on the topic you have brought up Magnus in the CEO letter this quarter, you mentioned the run rate is about -- or at least USD 1 billion or looking at the [ SAS ] and recurring revenues. And I recall you mentioned 18 months ago a run rate of [ USD 1.25 billion ] per month. So just to understand, are we talking apples-to-apples here or what -- why dimensioning or maybe confusion from my side here? Magnus Ahlqvist: Thanks, Viktor. No, we're just keen also on highlighting that we have quite a significant number. I mean, we are clearly above that [ USD 1 billion ], but we will share a lot more detail in the Capital Markets Day in June because this is an important focus area also in terms of building a more scalable business. Viktor Lindeberg: Okay. So it has not deteriorated over the past 18 months. That's what you're saying? Andreas Lindback: No, no. We have seen growth in the business since then. Operator: [Operator Instructions] The next question comes from Johan Eliason from SB1 Markets. Johan Eliason: I just had a bit of a detailed follow-up on to Andreas. You mentioned that in 2026, you expect some SEK 225 million to SEK 250 million in items affecting comparability. Is that sort of including this 1% of revenue you are sort of reviewing right now? Or could there be some one-offs on top of this from this review? Andreas Lindback: Relevant question. The number that I mentioned is excluding any impact from strategic assessments, which obviously then could be both a positive or negative number, so to say. So excluding that, just for clarity. Operator: The next question comes from Nicole Manion from UBS. Nicole Manion: Just one quick follow-up question from me, please, on the Security Services margin. Obviously, that's now up more than 100 bps over the past couple of years. Just wondering if you can give us a sense of how much of the improvement there you've seen this year over the last year is portfolio management versus what's coming from price increases or any other drivers? Are we pretty close to peak margins in this side of the business as you get to the end of the portfolio pruning? Or are there other levers you think you can look at as you move into next year? Magnus Ahlqvist: Thank you. A couple of different drivers, Nicole. When you're looking at that margin improvement, new sales margins have been consistently very healthy, and that's a good indication that we have a good offering. Clients see the value in that offering. Active portfolio management is also there contributed. But I would also say that we've also been working to also run the business, leveraging the new platforms that we've invested in a more efficient way. So automation and also AI has also been helping us to also optimize how we run the operation. If you're looking at the services margin on a group level, I think that there is further opportunity to continuously improve that in the next couple of years. So I would not agree with the comment that this is kind of peak margin. We believe that driving the things that we have been driving, but also continuously strengthening the value proposition, we are in a good position to enhance the value essentially. Operator: There are no more questions at this time. So I hand the conference back to the President and CEO, Magnus Ahlqvist, for any closing comments. Magnus Ahlqvist: Thanks a lot, everyone, for your interest and a special thank you to you, Andreas. Highly respected and appreciated colleague. I also think with -- in the dialogue also with many of you have also been a really good asset. So just to say thank you. But obviously, then looking ahead as well, we are now at full speed in terms of the assessment and also seeing really good interest also for this position. So we will come back on that matter. But most important today, I think, is just to -- yes, for me to also express our appreciation from the entire team. Andreas Lindback: Thank you very much, Magnus. And thank you, everyone, on the call as well for really good collaboration in the last couple of years, highly appreciated. Magnus Ahlqvist: So I think with that, we wrap up the Q4 and 2025 presentation. Thanks a lot, everyone.
Magnus Ahlqvist: Good morning, and welcome, everyone. Andreas and I are proud to report strong results for Q4 and for the full year 2025. So let us go straight to some of the performance highlights. The organic growth in the quarter was 3%, and this was supported by 6% growth in Technology & Solutions. We had a good finish to the year in Technology & Solutions with 2% improvement sequentially. And the adjusted organic growth of the group -- and that means when you exclude the closedown of the SCIS business was 4%. And now to something important. The operating margin was 8% and 8.2% adjusted in the quarter, thanks to the strong delivery across the entire business. North America achieved a 10% operating margin in the quarter, and Europe delivered another quarter with more than 8%. And we have improved the operating margin now 20 quarters in a row and are delivering on the 8% target that we communicated 3.5 years ago. EPS real change, excluding IAC was also strong at 18% and we had continued strong delivery in terms of cash flow with operating cash flow of 88% for the full year and net debt to EBITDA ratio improved further to 2.1. And based on the stronger underlying performance, the dividend proposal is SEK 5.30, which represents an 18% increase. And looking at the future, we announced a very important milestone for our journey with the acquisition of Liferaft yesterday evening. And this is the leading provider of threat intelligence and I will provide more details regarding the strategic importance of Liferaft at the end of this presentation. So let's then shift to the performance in the business lines and segments. We delivered strong margin development in both business lines with 12.7% for Technology & Solutions, 6.6% of Services in the quarter. And there is growth, as I stated, in Technology & Solutions for 6%, so 2% improvement compared to the previous quarter. And the growth in Security Services was 1% and this growth is obviously negatively impacted by the SCIS business where we're closing down the government part of that business. So with that, let's move to the segment, and we are starting, as always, with North America where we're delivering a very strong set of results and a record 10% operating margin in the quarter. And if we start with a growth of 5%, this was driven by good portfolio development and price increases in the Guarding business and by good development in technology. The real sales growth in Technology & Solutions improved to 4% compared to lower growth in the previous quarter. And when looking at the profitability, strong leverage and cost control in Guarding, together with solid profitability in Technology and a recovery in the Pinkerton business all contributed to the record level operating margin. So all in all, a very strong performance, a record-breaking 10%, so well done by our North America team. We then move to Europe, where we are also very pleased with the development. The organic growth was 4% in the quarter, and the growth was supported by price increases including impact from the hyperinflation environment in Turkey and also by solid growth of Technology & Solutions, while active portfolio management in the Services business had a negative impact on growth. Sales growth in Technology & Solutions was 7%. But it's the profitability development that stands out with 110 basis points improvement to 8.1%. And the margin improvement was driven by both business lines, including positive impact from the business optimization program. The Security Services business was positively impacted by higher margin on new sales, active portfolio management and also the divestiture of the Airport Security business in France. We also recorded a solid improvement in the operating margin in the Technology & Solutions business line driven by good portfolio development and solid cost control. And as commented earlier, we expect the work we're addressing low-margin Guarding contracts to be completed during the first half of 2026. So all in all, solid development by our European team and also here an operating margin at a record level. Shifting then to be Ibero-America, where we are pleased to report good organic growth and decent margin improvement. The growth was 5%, and this was driven by high single digital growth in Technology & Solutions and prices increases in the Services business. But similar to Europe, there is a negative impact on the growth from active portfolio management, but we're making good progress here and driving good conversions to Technology & Solutions. And the real sales growth in Technology & Solutions was 7% in the quarter. The operating margin improved 20 basis points in the quarter, and the improvement was primarily driven by positive impact from active portfolio management in the Security Services business line. So to conclude, strong delivery in 2025 by our Ibero-America team. And looking then at the performance across the group, we are driving disciplined execution of our strategy, and I'm really pleased to see strong execution across all segments. And the client retention is solid at 90%. So with that, turn to the finance update and handing over to you, Andreas. Andreas Lindback: Thank you, Magnus. And first of all, if I sound different to normal, it is because I'm about to lose my voice, I apologize for that. We start with the income statement, where we had organic sales growth of 3% and improved the operating margin with 70 basis points to 8%. It is a strong quarter where we improved our operating income with 15% adjusted for currency. As we communicated in Q2, we have introduced 2 new KPIs, which are adjusting our organic growth and our operating margin for the government business to be closed down within SCIS. In the quarter, the adjusted organic growth was 4% and the adjusted operating margin was 8.2%. Looking below operating results, there are no material developments in amortization of acquisition-related intangibles nor in the acquisition-related costs. The items affecting comparability was SEK 78 million, and this was related to the ongoing European transformation and business optimization programs. And the full year cost for these programs was SEK 382 million, approximately in line with our previous guidance. We have executed the business optimization program in a good way where the annualized savings in Q4 are in line with the targeted SEK 200 million savings. The business optimization program is now closed. And in 2026, the only remaining program is related to the European transformation. And here, we estimate to have a full year 2026 program cost of SEK 225 million to SEK 250 million, a material reduction compared to the SEK 382 million related to the programs in 2025. In Q3, we took a SEK 1.5 billion cost in items affecting comparability related to the close-down of the government business within SCIS. The close-down is progressing according to plan and had limited impact on our operating result in Q4. We continue to expect the vast majority of the business to be closed down by the end of 2026, and we will also start to see an accelerated execution of the close-down during the first half year. Our finance net came in at SEK 383 million, a reduction of SEK 146 million compared to last year. And here, we continue to see a positive trend of reduced financing costs as interest rates and our debt levels are going down. For the full year 2026, we estimate the finance net to continue to reduce and land around SEK 1.6 billion to be compared to the SEK 1.8 billion for the full year 2025. Moving to tax. Here, we had a tax rate of 29.5% for the full year, slightly higher than our Q3 forecast of 29.2%. The full year tax rate was impacted by the SCIS close-down cost in Q3, where we estimate around half of the cost to be tax deductible over time. Adjusted for the close-down impact, the full year tax rate was 27.2%, and we expect the 2026 tax rate to be in the approximately same area. All in all, we have a strong quarter where we grow our FX adjusted EPS with 18%. And as we summarize 2025, we have improved our adjusted operating margin with 60 basis points to 7.7%, grown our operating result with 11% and grown our EPS with 18%. And at the same time, we also achieved our financial target of an operating margin of 8% in the second half year of 2025. The adjusted operating margin in the second half was 8.2%. We then move to cash flow, where our operating cash flow was solid at SEK 3.9 billion or 128% of operating income. The cash flow was supported by lower growth rates and the continued improved DSO, but also negatively impacted by the additional USD 44 million payroll in our U.S. Guarding business as we communicated in the third quarter. This negative impact is a timing impact only, which occurs every fifth to sixth year. The free cash flow landed at SEK 3 billion, supported then by the solid operating cash flow, reduced interest payments due to the lower interest rates and debt levels and positive tax timing impacts. Looking at the full year 2025, we delivered another year of record cash flow. The operating cash flow was more than SEK 10 billion or 88% of the result, supported by good working capital focus and lower growth rates. And we have now delivered operating cash flows above our financial targets of 70% to 80% over the last 2 years, a result of our strong focus to build a more qualitative business and also structurally improve our working capital over time. And this has, of course, also translated into stronger free cash flows, which creates increased flexibility and opportunity for us as we move into a new phase of our strategic journey. Our cash generation will also be positively impacted as our items affecting comparability continues to reduce as we go into 2026 and beyond. We then have a look at our net debt, which was SEK 31.3 billion at the end of the quarter. This is a reduction of SEK 2.1 billion compared to Q3, mainly supported by the strong free cash flow, but also by the strength in Swedish krona. In the quarter, we paid the second tranche of our dividend, and we had SEK 321 million of total IAC payments, whereof approximately SEK 160 million was related to the final payment for the U.S. government and Paragon settlement. We have now made all 3 payments related to this settlement and expect no further cash flow out related to the case. Looking at the right-hand side, our net debt to EBITDA reduced to 2.1. This is an 0.4x improvement compared to Q4 last year, where positive EBITDA development, good cash generation and the strength in Swedish krona have supported positively and we are well below our target net debt-to-EBITDA of less than 3x. Moving on to have a look at our financing and financial position, where we continue to have a strong balance sheet, remain with strong liquidity, and we have no financial covenants in our debt facilities. After a period of important refinancing focus, our main focus during the second half of 2025 has been to amortize debt, supported by the strong free cash flow generation. In the quarter, we repaid SEK 1.9 billion of debt and throughout 2025, we have amortized a total of SEK 3.3 billion. This continues to support our cost of financing going forward. And looking at the maturity chart, we have very limited refinancing needs throughout 2026. And as always, we remain committed to our investment-grade rating. So with that, I hand over back to you, Magnus. Magnus Ahlqvist: Many thanks, Andreas. So I'd like to share a few perspectives regarding our strategic development and the Liferaft acquisition before we open up the Q&A. First, we are proud of the fact that we are reaching our 8% target in the second half of 2025. Back in 2022, when we did the Stanley acquisition, we accelerated the work to change the profile of Securitas security company with the strongest technology and digital offering to our clients in combination with high-quality guarding services. And when looking back at last 4 years, we have been executing well. We are a sharper, more focused company today and operating at a different margin level. And as we're entering 2026, this also means that we can then start to retire this bridge that we have kept coming back to every quarter and over the last 3.5 years. Looking at the future, we're very excited about the acquisition of Liferaft. So when I look at the transformation of Securitas during the last 6, 7 years, we have kept a clear focus on investing in the core capabilities that we consider critical to winning in this industry and those are focused on presence, technology and data. In this context, we strengthened our guarding value proposition. We have improved the profitability of guarding. We've built a globally leading technology position and a more modern and digitally capable business. So we have strong pillars in our business today. But we've also worked to meet the increasing client demans for better understanding the risks and the threats facing their business. And over the past 5 years, we have developed in-house risk intelligence capabilities that we are providing to more and more customers. So all this is good, you might say, but what is then the importance of the Liferaft acquisition? Well, Liferaft is one of the leading SaaS-based threat intelligence providers focused on OSINT and that's open source intelligence. This is a very strong team with deep expertise in threat intelligence and they have been a partner and provider to Securitas for many years. And with Liferaft, we will be able to scale and leverage their capabilities across our client base and in the process strengthen our clients value proposition. When looking at the financials, the company is currently prioritizing rapid expansion and growing organically around 30% on an annual basis, but also then reinvesting very strong gross margins to accelerate organic growth. And given the increase in demand in this market, I fully support this approach. The acquisition is fully in line with our strategy to create a more scalable business model and becomes an important addition to accelerate growth in high-margin recurring monthly revenue. And as previously stated, the recurring monthly revenue for the group exceeds more than SEK 1 billion. So we are thrilled to welcome the Liferaft team when we are closing the transaction, joining forces to shape the future with more intelligence-led security. And the future is promising. With the transformation of Securitas, we're well positioned with a clearly differentiated client offering, well positioned for profitable growth. And we are operating in an attractive market, but also a growing market where we see steady increase in the demand for quality security. We have transformed and repositioned our client portfolio with a clear focus on segments with more sophisticated security needs and higher growth profile. And we partner with our clients for the long term and we see that our deeper engagement model, where we leverage our technology and digital capabilities, is generating high value for our clients and also for us. And the approach is working. So like Andreas and I have commented, we're executing well on our plans, 20 consecutive quarters of operating margin improvement and solid cash flow generation. We've had a clear focus on enhancing the quality of our business and margin improvement in recent years. But as more and more units reach the required profitability thresholds -- so from my perspective, that means for a good sustainable business, they also gained the right to shift focus to profitable growth. And with the business now in much better shape, we can shift emphasis towards commercial synergies and driving growth. And as stated many times, we do this with a clear focus on building a more scalable business. So we are confident and excited about our longer-term opportunities and we're looking forward to sharing more in the Capital Markets Day in June. So in conclusion, we are on the right path, well positioned for the next phase. So with that, we conclude the Q4 presentation and happy to open up the Q&A. Operator: [Operator Instructions] The next question comes from Francesco Nardinocchi from Goldman Sachs. Suhasini Varanasi: This is Suhasini from Goldman Sachs, actually. I just had a couple of questions please. So the -- if we think about your growth and margin expectations for the first half versus second half of this year, would it be fair to say that because of the impact of your underperforming contract exits that's going to be completed by first half this year, maybe the growth is a little more weighted to second half and similarly on margins. And I'm not sure I read but how much are you expecting to pay for the acquisition of Liferaft? And how is your M&A pipeline looking at this point in time? Magnus Ahlqvist: Yes. Thank you. So when you're looking at that, I think it's the right assumption that finalizing that work will have a negative impact in the near term from the active portfolio management. But that's why it's also so important and so positive that we are soon done with that work. And as I commented in the last couple of years, we were more quick in North America in terms of finalizing that work. So I think that is obviously something that we're looking forward to also in Europe. Then when you look at the growth in Q4, we had 6% growth in Technology & Solutions, and that's a clear improvement compared to the previous quarters. We have a strong offering. Solutions is more of a portfolio business. Technology part, there's also some variability with installations, but we see that we are on a good path. So I think that is the other part that I would just highlight because that part of the business, there is no impact from active portfolio management. Andreas Lindback: We have not disclosed the purchase price related to Liferaft simply due to commercial reasons that we're not doing that. But we have paid a fair market price for this type of business overall. So -- and there will be some details coming as we have closed the transaction as well. On the M&A pipeline side, as we have said, we are ramping up our focus on continued bolt-on acquisitions within Technology & Solutions and some targeted also acquisitions in the intelligence area. We made a few minor ones outside Liferaft, but we are still in ramp-up mode, I would say. So the pipeline is not -- there's not a huge pipeline at this point in time, but it's something that we are working towards improving. Operator: The next question comes Remi Grenu from Morgan Stanley. Remi Grenu: First, a quick question on the 2026 outlook. I guess, given you have achieved the 8% and the CMD is not before June, we are left a little bit in dark in term of margin development. So just trying to have your overview on 2026 margin development if we exclude any -- excluding the positive impact that the closure of SCIS is going to generate. But on an underlying basis with the portfolio of the company, do you believe that there is still potential for margin improvement from the current run rate at the end of 2025. So that would be the first question. The second one is on North America. The organic growth very suddenly accelerated in Q2 and it's been normalizing a little bit over the last 2 quarters. Just trying to understand the drivers of that sudden acceleration and what's happening since then? Why it is coming back down? Is it about like volume normalizing, lower pricing and also taking a step back on that market, what do you think is the structural level of organic growth in North America? And then the last one, you have come to the end of that strategic plan in 2025. Have you started to have a think about the new KPIs for management remuneration, variable remuneration and going into the next phase of the company, what do you think would be most relevant in terms of aligning the interest of shareholders with management? Magnus Ahlqvist: Very good. Thank you, Remi. So we don't provide guidance. But first of all, I think it's been really important for all of us internally and also externally that we are delivering on the 8% because it represents a very significant shift. When you're looking at 2026, driving good growth in Technology & Solutions will have a positive impact on margin. I could also expect some positive impact from active portfolio management work that we still have some of that work yet to be done. Business optimization program, we've commented as well. We successfully completed that in 2025, should also help and support. So generally speaking, I mean, we are -- and I spelled that out, I think back in 2022 is that 8% is important to achieve. We believe that now we have a really good opportunity to also be related to your third question, calibrate more precisely as well how we maximize the value creation because we've had very hard focus on improving the quality and the margin. But it's quite obvious to us as well that we get done with some of the structural work and the heavy lifting and cleaning. We're largely done with that now and that also means that we can then also start to shift focus on more profitable growth going forward. And I think that is something that we -- that is clearly on our minds. And it's also clearly something that we're also reflecting also in how we're calibrating some of the incentive programs as well so that we really gear those towards maximizing value for our shareholders. So I think those are the key points. North America, maybe briefly on your side, Andreas? Andreas Lindback: I can just follow up on the KPIs because there's also misunderstanding related to that up until now. We have both long-term incentive programs, and we have short-term incentive programs. It's right, as you say, that operating the margin has been a focus for the long-term incentive programs. But in the short-term incentive programs, which is a material part of total compensation, it is also about driving growth in the earnings as well. So I just want to highlight that. And then if you want to take the... Magnus Ahlqvist: Yes. No, that's an important point because if you look also at the operating result growth, really solid double-digit levels in 2025 in constant currency. And we are here, obviously, to drive that for change, but it's always going to be a balance as well. And we should also remember that operating margin improvement is also helping and accelerating also the operating result growth. So I think that's an important clarification about the programs that we've had up until now. When you look at North America, we feel good about our position. We feel good about the market in general. So I wouldn't -- and it's a little bit difficult to call out the specific growth numbers. This is something that in our industry, it is a little bit difficult to get a very clear understanding of how the total market is developing. But I would say that we are well positioned in terms of the segments where we are and also segments where there is, generally speaking, a higher emphasis on the quality, security is important, but there is also very healthy underlying growth. So I would say that we are well positioned, but it's difficult, Remi, to call out a very specific overall growth number. But I believe with the offering that we have, we should be able to grow at least with the market and preferably above market rate. And that is very much based on the strength of the offering but also that we are well positioned in terms of the segments that we serve. Operator: The next question comes from Andy Grobler from BNPP. Andrew Grobler: Just a couple from me, if I may. Firstly, just in Q4, in terms of the European growth, can you talk through the tailwinds from Turkey and also the headwinds from portfolio management, so sort of to get to the underlying numbers there? And then secondly on the longer-term perspective, Technology keeps evolving at pace as we can see from the stock market. I just wondered what you're seeing in your end markets? And if at this stage, there's any signs or you expect to see over time, price deflation within your monitoring activities and the extent to which that's possible. That would be really helpful. Andreas Lindback: Thank you. When it comes to the European growth rates in the fourth quarter, you can say more or less all the positive growth is coming from Turkey in essence. That's the first statement. So Turkey had an impact for sure. If you're then looking at the -- where we have volume growth was in Technology & Solutions in Europe and then there was a negative impact that we have not quantified related to the [ APM ] that is impacting the Security Services portfolio. So I think those are 3 pillars to bear in mind when looking at the European organic growth. Magnus Ahlqvist: And then, Andy, on the technology, I mean, what we call the technology business is essentially business where we drive or we design, we install systems and then we operate and serve those systems for our customers. So there's a couple of different components. But a big part of the value, I would say, when I look at the kind of 3 main areas of activity, installation, service maintenance and also monitoring is that, that work is quite tightly connected. So when we are doing a good integration and installation work, we're very well positioned to also provide the best type of service and maintenance. But more and more of what we are doing and what we're also interested in building is more the recurring revenue. And there, obviously, connected services, those are usually not just simple kind of monitoring lines, for example, it's usually part of a broader value proposition and there, I believe that we are in a good position based on the great strengths that we have built. And where also the deep integration of Stanley has really helped us because we have built genuinely good service capability and levels and also [ rich ] service offering to our clients as well. So I think that we are in good shape in that sense from a market perspective and also the offering that we bring. Andrew Grobler: Okay. And then just lastly, Andreas, thank you for all your help over the years and best of luck with whatever the future may bring. Andreas Lindback: Thank you. And likewise, Andy. Magnus Ahlqvist: I remember to say a special thank you to Andreas at the end of the call today as well. But I'm glad you comment that, Andy. Andreas has been a great partner all along here. Operator: The next question comes from Allen Wells from Jefferies. Allen Wells: A couple from me, please. Firstly, just following up from Remi's question on North America. Obviously, very mindful that active portfolio management has been a headwind to growth. And as that starts to end, you flagged in Europe in the first half, that should be a positive as you switch to that growth focus. But as Remi flagged, as we look at North America, the portfolio management has ended and growth has slowed sequentially from 2Q through to 4Q, the 5% we saw in 4Q. To what extent is that slowing in North America? Are you guys maybe holding back to focus on margin rather than kind of fully pushing the commercial engine in the business? And to what extent maybe is it just that it's a continued tough market that is still hard to drive growth? That would be the first question. Secondly, just like a bit of an update on the technology side. Obviously, growth improved sequentially 6% in the quarter, but it's still well below the 8% to 10% target. So I'd be keen just to understand of that 6%, how much is pricing, how much is volume and how you think about the outlook towards that 8% to 10%? And then third question, just on free cash flow. Just in the full year, obviously, a positive outcome overall, but there was a positive impact from working capital for the full year. Like I don't typically think of you guys as a positive net working capital business. So to what extent is that net working capital number sustainable and how should we think about potential unwind as we move through 2026 as well? Magnus Ahlqvist: Thank you, Allen. I think on the first question, we don't see any change in the trend in North America. I mean some variation there will be between the different quarters. We are well positioned. Like you highlighted, we've done with the active portfolio management, and it's obviously a dynamic market. But when you look at what we are winning and what we are losing, yes, we feel good. So no major issue or anything specific to read into that from my perspective. Andreas Lindback: When it comes to the Technology and Solutions growth, when we set the target of 8% to 10%, it's important to remember that was also including acquisitions. And there, we have done limited. We've been focusing on integrating and then also taking down our balance sheet, although it's something that we are looking at ramping up. So in that context, the 6% is a decent number. When you look into that 6% on the Technology side, it is definitely volumes mainly from that growth. If you're looking at the Solutions side, it's a combination of both volumes and price. So all in all, more volume than price when it comes to the 6%. So -- and it's also a decent number, we should say. When it comes to free cash flow, a couple of lenses here. I mean, we said in the last Capital Markets Day, yes, there will be a mix shift in the working capital with the technology business coming in. But we also said clearly that we are working on structurally improving our working capital, and that's really what we have been doing over the last couple of years, which is giving a positive result. So we have definitely structurally improved on the working capital side. And we also show that in the 88% cash flow this year, 84% last year. So it's also not just a temporary change. Then as you all know, we have seasonality in our cash flow, where our Q4 cash flow is stronger. And now the number is coming in somewhat below Q4 last year, but still at a very strong level. So going into Q1, yes, it will definitely be weaker from that standard seasonality that we're having. But the underlying trend, I think, is most important when it looks at the cash flow given we have volatility. And there, I hope you all see that we have elevated the cash flow, and we are now delivering above our financial targets 2 years in a row. Operator: The next question comes from Viktor Lindeberg from DNB Carnegie. Viktor Lindeberg: Two initially, if I may. And looking at the mounting down of CIS in 2026, if you could share some more details on the run rate and how it's sort of expected to progress and where we may be end of 2026 in terms of revenue? Are we all the way down to 0? Or is it only maybe halfway there? And second question is associated also to this, trying to trickle out the underlying cost base for the, call it, group other item or overhead line items here. So if you could share any guidance or thoughts on the underlying costs for the Securitas business, excluding CIS, that would be very much helpful. Andreas Lindback: Thank you. If we start then with the government business within SCIS closed down, as I mentioned here earlier as well, we have started to see some impact in the fourth quarter from the close-down on the top line, but it's not much. But you should expect to see an accelerated impact in the first 6 months from the close-down activities. And then if you're looking at your question there, where will it be at the end of 2026, we expect that most of it will for sure be done. The vast majority will be done by the end of 2026. So I hope that helps a little bit by understanding how we expect this to progress throughout the year. When it comes to other in our segment reporting, 3 components, as you know, our Africa, Middle East and Asia business. We have our SCIS business, and we have the group cost. The Africa, Middle East and Asia business continued to deliver strongly in the quarter comparing them to last year. The SCIS business was fairly stable when you look at the bottom line. And then on the group cost, it was higher than last year. And here, we have been running tight cost control throughout the year. But in the fourth quarter, we released some more project investments in the quarter. And that's the main reason and then some year-end reconciliation, but that's the main reason compared to last year. To understand the trend there, I would also very much look at the full year number. Viktor Lindeberg: Okay. That's very clear. And another question on the topic you have brought up Magnus in the CEO letter this quarter, you mentioned the run rate is about -- or at least USD 1 billion or looking at the [ SAS ] and recurring revenues. And I recall you mentioned 18 months ago a run rate of [ USD 1.25 billion ] per month. So just to understand, are we talking apples-to-apples here or what -- why dimensioning or maybe confusion from my side here? Magnus Ahlqvist: Thanks, Viktor. No, we're just keen also on highlighting that we have quite a significant number. I mean, we are clearly above that [ USD 1 billion ], but we will share a lot more detail in the Capital Markets Day in June because this is an important focus area also in terms of building a more scalable business. Viktor Lindeberg: Okay. So it has not deteriorated over the past 18 months. That's what you're saying? Andreas Lindback: No, no. We have seen growth in the business since then. Operator: [Operator Instructions] The next question comes from Johan Eliason from SB1 Markets. Johan Eliason: I just had a bit of a detailed follow-up on to Andreas. You mentioned that in 2026, you expect some SEK 225 million to SEK 250 million in items affecting comparability. Is that sort of including this 1% of revenue you are sort of reviewing right now? Or could there be some one-offs on top of this from this review? Andreas Lindback: Relevant question. The number that I mentioned is excluding any impact from strategic assessments, which obviously then could be both a positive or negative number, so to say. So excluding that, just for clarity. Operator: The next question comes from Nicole Manion from UBS. Nicole Manion: Just one quick follow-up question from me, please, on the Security Services margin. Obviously, that's now up more than 100 bps over the past couple of years. Just wondering if you can give us a sense of how much of the improvement there you've seen this year over the last year is portfolio management versus what's coming from price increases or any other drivers? Are we pretty close to peak margins in this side of the business as you get to the end of the portfolio pruning? Or are there other levers you think you can look at as you move into next year? Magnus Ahlqvist: Thank you. A couple of different drivers, Nicole. When you're looking at that margin improvement, new sales margins have been consistently very healthy, and that's a good indication that we have a good offering. Clients see the value in that offering. Active portfolio management is also there contributed. But I would also say that we've also been working to also run the business, leveraging the new platforms that we've invested in a more efficient way. So automation and also AI has also been helping us to also optimize how we run the operation. If you're looking at the services margin on a group level, I think that there is further opportunity to continuously improve that in the next couple of years. So I would not agree with the comment that this is kind of peak margin. We believe that driving the things that we have been driving, but also continuously strengthening the value proposition, we are in a good position to enhance the value essentially. Operator: There are no more questions at this time. So I hand the conference back to the President and CEO, Magnus Ahlqvist, for any closing comments. Magnus Ahlqvist: Thanks a lot, everyone, for your interest and a special thank you to you, Andreas. Highly respected and appreciated colleague. I also think with -- in the dialogue also with many of you have also been a really good asset. So just to say thank you. But obviously, then looking ahead as well, we are now at full speed in terms of the assessment and also seeing really good interest also for this position. So we will come back on that matter. But most important today, I think, is just to -- yes, for me to also express our appreciation from the entire team. Andreas Lindback: Thank you very much, Magnus. And thank you, everyone, on the call as well for really good collaboration in the last couple of years, highly appreciated. Magnus Ahlqvist: So I think with that, we wrap up the Q4 and 2025 presentation. Thanks a lot, everyone.
Bård Pedersen: Good morning to all, both here in the room in Oslo and to all our participants online. Welcome to the presentation of Equinor's Fourth Quarter and Full Year Results for 2025. My name is B�rd Glad Pedersen. I'm Head of Investor Relations in Equinor. To those of you who are in the room, I want to inform you that there are no emergency drills planned for today. So if there is an alarm, we will evacuate and follow instructions. Today, we will have a presentation first from our CEO, Anders Opedal, followed by a presentation from our CFO, Torgrim Reitan, before we start the Q&A. [Operator Instructions] So with that, I hand it to Anders for your presentation. Anders Opedal: And thank you all for joining here in the room, and thank you for participating on digital. So for Equinor, 2025 was a year of strong deliveries, but it was also a year of increased geopolitical tension and market uncertainty. Our job is to ensure we allocate our resources in a way that maintain a competitive business, creating value at all times. Today, Torgrim and I will show how we take the necessary measures to further strengthen our competitiveness, cash flow and robustness. This makes sure that we can navigate through and leverage market volatility and the current macro environment. So we have 3 key messages for you today. First, we are well positioned for maximizing long-term shareholder value. Today, we will share how clear strategic priorities guide capital allocation for 2026 and '27, and we will revert at our Capital Market Day in June to present our strategy towards 2030. Second, we take firm actions to strengthen free cash flow. We reduced our CapEx outlook with $4 billion and maintain strong cost discipline. This makes us more robust towards lower prices and ensure that we can maintain a solid balance sheet through the cycles. And third, we continue to develop an attractive portfolio, delivering oil and gas production growth. With this, we are prepared for volatility ahead. The energy transition is shifting gears in many markets with governments and companies changing priorities. Current oil prices are supported by geopolitical risk, but we are prepared for strong supply combined with moderate demand growth, putting pressure on the oil price in the near-term. For gas, the European market has seen cold weather and high draw on storage in late December and in January. Storage levels are now around 40%, significantly below average for the last 5 years and also lower than last year. We expect continued volatility ahead and more LNG coming into the market. In the U.S., low temperatures have driven up local demand and reduced exports of LNG. But before I progress any further, I will always start with safety. Despite fewer people being hurt and our safety numbers moving in the right direction, we still have serious incidents and need to improve. In September, our colleague was fatally injured during a lifting operation at Mongstad. A stark reminder that we cannot rest until everyone returns safely home from work every day. Our safety trend reflects years of good work from the people in our organization and our suppliers. Safety remains our first priority. Throughout 2025, we have delivered strong performance despite geopolitical uncertainty, high inflation in the supply chain and lower commodity prices. This results in all-time high record production, thanks to good operational performance and new fields on stream. We have matured a competitive project portfolio across the Norwegian continental shelf and internationally. With Johan Castberg on stream, we opened a new region in the Barents Sea. In Brazil, we started production from Bacalhau, the first pre-salt operator ship awarded to an international company. We continue high-grading our portfolio, and we maintained cost and capital discipline. All this has enabled us to deliver industry-leading return on average capital employed of 14.5% and $18 billion in cash flow from operations after tax. We have delivered $9 billion in capital distribution to our shareholders, as we said at the start of the year. Last year, we received 2 stop-work orders for Empire Wind. In our view, both are unlawful. The first one was lifted by the UN administration in May. The second stop-work order came just before Christmas. This cited national security reasons, already a central part of an extensive approval process where we have complied with all requirements. In January, we were granted a preliminary injunction allowing us to resume construction. There will be a continued legal process, and we remain in dialogue with U.S. authorities to resolve any issues. Despite the significant challenges caused by the stop-work orders, the project execution is according to plan. The project is now over 60% complete. We have successfully installed all monopiles, the offshore substation and almost 300 kilometers of subsea cables. The total CapEx for Empire Wind is now expected to be around $7.5 billion. Around $3 billion is remaining, and we, like other companies, remain exposed to uncertainty when it comes to possible future tariffs. The project qualifies for tax credits as decided by the U.S. Congress. The cash effect of these is expected to be around $2.5 billion. So far, we have drawn $2.7 billion from project financing. We expect to draw the remaining $400 million this year. For 2027 and '28 combined, we expect around $600 million in cash flow from operations. Combined with the ITC, this covers the remaining CapEx in the period. We have continued high-grading our portfolio. We announced the latest move earlier this week, divesting onshore assets in Argentina for a total consideration of $1.1 billion, unlocking capital for high value creation opportunities. The establishment of Adura was a major milestone last year. Our joint venture with Shell has created a leading operator on the U.K. continental shelf, fully self-funded, covering all Rosebank CapEx and well positioned for growth. The JV company expects to distribute more than 50% of cash flow from operation to its shareholders, starting from the first half of 2026. Based on Adura's plans, we expect total dividends of more than $1 billion for 2026 and '27 combined with growth from '26 to '27. This moves our U.K. portfolio from being cash negative due to CapEx to cash positive from dividends. These 2 transactions build on previous high-grading of the portfolio, divesting mature assets and invest more in long-term gas production onshore U.S. Through this, we have created a more future-proof international portfolio, focusing on prospective core areas, increasing free cash flow, strong production, lowering cost and a portfolio with low carbon intensity. Now on to our strategic priorities for 2026 and '27 and how they guide our capital allocation. The world is changing, but one thing remains firm. Energy demand continues to grow. We are well positioned to contribute to energy security, affordability and sustainability. So first, after more than 50 years of developing the Norwegian continental shelf, we are uniquely positioned for value creation here, and we continue to invest. The Norwegian continental shelf remain the backbone of the company. In 2026, the NCS will contribute to our production growth, and we work to maintain strong production well into the next decade. In the future, as you know, we expect to make more but smaller discoveries. To ensure commerciality, we will work with partners, suppliers, authorities and unions to change the way we operate on the Norwegian continental shelf. We will develop future discoveries faster, become more efficient and increase return while improving safety further. Next, we are set to deliver strong production and cash flow growth from our high-graded internationally -- international oil and gas portfolio. We are progressing project execution and exploration across key geographies, adding new volumes and opportunities for longevity in the portfolio. On power, we combine our renewable portfolio with flexible power to build an integrated power business and strengthen our competitiveness. We are value-driven in all we do and disciplined in execution and capital allocation. The main focus for '26 and '27 deliver safe operations and strong project execution of already sanctioned portfolio. All this, Norwegian oil and gas, international oil and gas, power are tied together by our marketing and trading capabilities, creating value uplift across our business. We are positioned to create value within low carbon solutions like carbon capture and storage, but markets are developing at a slower pace than anticipated. In addition to the execution of Northern Lights and Northern Endurance, we will continue to mature a few selected options and markets at low cost. We will be positioned to invest as markets develops, customers are in place and returns are robust. We grow our production to even higher levels in 2026 from a record high production level in 2025. For the year, we expect a production growth of around 3%. We are ramping up new fields, which more than offset divestment and natural decline. We are replenishing our portfolio and have 3-year average reserve replacement ratio of 100%. On the NCS, we made 14 commercial discoveries last year, mainly close to existing infrastructure, adding to longevity. And we continue to explore. We have added attractive acreage in Norway, Brazil and Angola, where we expect to drill around 30 exploration wells in 2026. We expect to reduce our unit production cost to $6 per barrel. We continue to focus on delivering a carbon-efficient portfolio with a CO2 upstream intensity of 6.3 kilo per barrel. We take firm actions to strengthen our cash flow and further increase resilience facing higher market uncertainty. In 2026, we expect around $16 billion in cash flow from operations after tax. This reflects a lower price outlook and is also impacted by the tax lag effect in Norway. A flat price assumptions is growing to around $18 billion in 2027. We have strengthened our investment program for 2026 and '27, reflecting market realities. We have reduced our CapEx outlook for these 2 years with around $4 billion, mainly within power and low carbon. This also influenced our net carbon intensity reduction for 2030 and 2035, no change to 5% to 15% and 15% to 30%, respectively. We maintain a stable investments of around $10 billion annually to oil and gas. Our CapEx guiding for 2026 is around $13 billion. This includes Empire Wind, where we, in 2027, expect to monetize investment tax credits for around $2 billion. With this, we indicate CapEx of $9 billion for 2027. In the current situation for the offshore wind industry, we are focusing on projects in execution and have a high bar for committing capital towards new offshore wind projects. This includes our ownership in �rsted. We will continue driving cost improvements, including the portfolio high-grading we have done. We aim for 10% OpEx reduction in 2026, even while growing production. We continue with strategic portfolio optimization to strengthen future cash flow. Proceeds from the divestment of Peregrino and onshore Argentina assets is expected to contribute more than $1.1 billion this year. The action we take to strengthen our cash flow and robustness support sustainable, competitive capital distribution. This is important to me and a priority for the Board of Directors. The starting point is the cash dividend. We have set an ambition to grow the quarterly cash dividend with $0.02 per share on an annual basis. We continue to deliver on this. It represents an industry-leading increase of more than 5%. We also continue to use share buybacks to deliver competitive total distribution. For 2026, we announced a share buyback program of $1.5 billion, including the state share. The first tranche of $375 million starts tomorrow. As previously communicated, we see true timing effects like the tax lag in Norway and the phasing of Empire Wind and lean on the balance sheet to deliver competitive capital distribution in 2026. In 2027, we have taken action to deliver stronger free cash flow. This is important to ensure that we can deliver competitive capital distribution in a long-term sustainable manner. So with our guiding in the background, I will give the floor to Torgrim that will take you through -- further through the details. And then I look forward to questions together with Torgrim when he is finished. So Torgrim, please. Torgrim Reitan: So thank you, Anders, and good morning and good afternoon, and thank you for joining us here today. So 2025 was a good year for Equinor. We delivered strong performance and record high production. But before we dive into the financial results, I want to expand on how we will manage through a period of volatility. So we are prepared for lower prices with a strong balance sheet, lower cost and CapEx and an attractive project portfolio. Our financial framework sets the boundary conditions for how capital allocation -- for our capital allocation and how we manage our company. So to start, our highest priority will be to deliver a robust and a growing cash dividend, in line with our dividend policy, and this reflects growth in our long-term underlying earnings. Then we will continue to invest in an attractive and high-graded investment portfolio with low breakevens and strong returns in line with the following priorities. First, our unique position on the Norwegian continental shelf gives us competitive advantages. And this is why we will continue to prioritize developing this area and allocating almost 60% of our investments to an area we know better than anyone. In '26, we have 16 projects in execution in Norway. Many of these are tie-ins to existing infrastructure with low cost and very low breakevens. Then we will allocate 30% of our capital to our international oil and gas business. This is mainly to sanctioned projects, and we expect to increase production to more than 900,000 barrels per day in 2030. And then around 10% of our capital will be allocated to building an integrated power business where the main focus is on delivering our offshore wind projects in execution safely, on time and on cost. Outside these 3 areas, we expect limited investments over the next 2 years. As you know, we will prioritize having a strong balance sheet and liquidity necessary at all times. And this is important to manage risk and to continue to deliver value. Over the next 2 years, we will see through the timing effects such as the NCS tax lag and the tax credit on Empire Wind impacting our cash flow from operations, and we will lean on the balance sheet. We will lean on the balance sheet in 2026 to cover CapEx and distribution. Next year, in 2027, cash flow from operation is stronger, and we have lowered CapEx, significantly improving the free cash flow. So we will manage the balance sheet through this period and continue to deliver competitive capital distribution, including share buybacks. For more than a decade, we have consistently delivered an industry-leading return on capital employed. And if you ask me, that is a premium KPI that we hold very high in our company. And with this financial framework, we expect to deliver around 13% over the next 2 years, now using a lower price deck than what we have used earlier as such. So that is comparable to what we have said earlier. We are used to managing volatility and deliver value through cycles. First, to manage cycles, we have to run with a strong balance sheet and a robust credit rating, and we have that. We have that. And having liquidity available is key. We have close to $20 billion for the time being. Second, a low cost base is important to ensure that we make money at low prices, and we continue to reduce our costs. We have a low unit production cost. And in 2026, we will further reduce it by around 10% to $6 per barrel. We are the lowest cost supplier of pipe gas to Europe with our all-in costs of less than $2 per MBtu, and we are sure that we will create significant value in any price scenario in Europe. Through strong cost performance and portfolio high-grading, we aim to reduce OpEx and SG&A by 10% in 2026. This corresponds to a flat underlying cost development, overcoming inflation while growing production. We are addressing costs in all parts of the organization. And I want to highlight that in 2025, we brought down OpEx and SG&A in renewables by 27%, mainly due to reductions in early phase costs. And then thirdly, it is key to have a competitive project portfolio that makes sense at lower prices. And we operate a majority of our projects, giving us the flexibility needed to adjust when we want to do that. Through portfolio flexibility and high-grading, we have reduced CapEx over the next 2 years by $4 billion, made divestments totaling more than $6 billion since 2024 and strengthened the quality of our portfolio. Our average breakeven is around $40, and we see an internal rate of return of 25% in the portfolio at $65 oil. We remain a leader on CO2 efficiency and an average payback of 2.5 years. So I will call this a robust, low-risk and high-value project portfolio that will create value also at low prices. In periods of volatility, our NCS position and our international portfolio complement each other. In Norway, we are more robust to lower prices, while internationally and particularly in the U.S., where we have strengthened our gas position, we have a large exposure to upside in prices. So Norway first. We have immediate deductions for CapEx against the special petroleum tax. And with full consolidation between fields and no asset ring-fencing, our pretax CapEx of around $6 billion translates into an after-tax investments of less than $1.5 billion. And when prices change, 78% of the effect on the revenue is absorbed by reduced taxes. So this makes the NCS less exposed to lower prices than other basins. So what happens if prices change? With a $10 move in oil prices, the cash flow is only impacted by $1.2 billion, and this is across the global portfolio and adjusted for tax lag. For European gas, a $2 change equals $800 million. What is particularly interesting is the U.S. gas, where the production is now 1/3 of our Norwegian gas position. But still, a $2 movement in gas price has a similar effect on cash flow after tax as in Norway. So let me elaborate more on the U.S. gas as that has become even more important to us. So in 2025, we delivered around $1 billion in cash flow from operations out of that asset. Production increased by 45% on back of well-timed acquisitions to around 300,000 barrels per day, capturing gas prices that were more than 50% higher than in 2024. We have a low unit production cost for U.S. gas around $1 per barrel, and we are well positioned to benefit from robust power load growth and increased demand in the Northeast. We are marketing our gas ourselves, and we are able to add value through trading, pipeline capacity and access to premium markets such as New York City and Toronto. So in January this year, gas prices in the Northeast reached very high levels driven by the winter storms, and we used our infrastructure and trading to capture quite a bit of value out of that volatility. Okay. So now to our fourth quarter and full year results. These slides sums up the key numbers you heard from Anders. Safety is our first priority. We see strong safety results, but we need to continue improving with force. Return on average capital employed in '25 was 14.5%. Cash flow from operations after tax came in at $18 billion, and earnings per share was strong at $0.81. For the year, we produced 2,137,000 barrels per day. This is record high and up 3.4% from last year, driven by ramp-up on Johan Castberg and Halten East on the NCS, U.S. onshore gas and new wells coming on stream. In the quarter, production was up 6% despite some operational issues in Norway and in Brazil. On the NCS, Johan Sverdrup had another strong year. For power, we produced 5.65 terawatt hours and renewables power generation was up by 25%. So then to financials. Adjusted operating income from E&P Norway totaled $5 billion, driven by increased production at lower prices. Depreciation was up compared to last year due to new fields on stream. Our E&P International results were impacted by portfolio changes and an underlift situation in the quarter. In the U.S., results were driven by significantly higher gas production, capturing higher prices. And in our MMP segment, results were driven by gas trading and optimization and a favorable price review result in January. So the result of this price review explains the difference from the MMP guidance. So this is a one-off. However, important enough, and the cash flow impact will be somewhat higher than the accounting effect, and it will come in 2026. On a group level, we had net impairments of $626 million and losses on sale of assets of $282 million. These do not impact adjusted numbers. A significant part of this relates to the Peregrino and the Adura transactions, and they are mainly driven by accounting treatment of these transactions, more of a technical nature. Adjusted OpEx and SG&A was up 7% compared to the same quarter last year and up 9% for the year. These are driven by transportation costs, insurance claims and currency. For the year, underlying OpEx and SG&A was up 1%. And if you adjust for currency headwinds, it was actually slightly down. For the year, our cash flow from operations came in at $18 billion after tax, in line with our guidance when we adjust for changes in prices. Organic CapEx for the year was $13.1 billion, also in line with what we said. Our net debt to capital employed ended at 17.8%. This increase from last quarter is mainly driven by NCS tax payments and �rsted rights issue participation and somewhat increasing working capital. So let me conclude with our guiding. For 2026, we expect $13 billion in organic CapEx and a 3% growth in oil and gas production. We have increased our quarterly cash dividend by more than 5% now at $0.39 per share and announced a share buyback of up to $1.5 billion for the year, starting with the first tranche tomorrow. So thank you very much for the attention. And now I will leave the word back to you, B�rd, for the Q&A session. So thanks. Bård Pedersen: Thank you, both Anders and Torgrim. We will now start the Q&A. [Operator Instructions] So then we'll start. And the first hand I saw was Teodor Sveen-Nilsen from Sparebank. Teodor Nilsen: Congrats on strong results. So 2 questions. First on CapEx. You obviously reduced the guidance for 2027. I just wonder how we should interpret the run rate into 2028. Should we also assume that 2028 CapEx will be well below the $13 billion you previously announced? Or is that too early to say anything about? And second question, that is on MMP. Could you just explain what's behind the price review that boosted the results? Anders Opedal: Thank you very much. So you can think about the price review, Torgrim, while I'm talking about the CapEx. Yes, you're right. We have reduced the CapEx. We have -- when we are looking into the CapEx profile over the last years, we have had consistency. You have seen that we have consistency investing into Norwegian oil and gas and in international oil and gas. And last year and this year, we are reducing the CapEx outlook for our renewables and low carbon solutions. And this is due to that 2, 3 years ago, we had a different market view than we have today. We don't expect that this market will change dramatically over the next years. We intend to continue focusing, investing consistently into our attractive oil and gas portfolio that Torgrim demonstrated and be market-driven and invest in low-carbon solution and power when the time is right, the profitability is right and the market comes. So I cannot give you the guiding for '28 already. But with this consistency investments in oil and gas and this change we have done in the CapEx for renewables and low carbon solutions and the market will probably not change very much over the next years, I think you will see somewhat consistency in our CapEx guiding going forward, and we will come back to more details about this in June. Torgrim Reitan: And thanks, Teodor. On the price review, that is a normal mechanism in many of the gas contracts where sort of if the price in the contract dislocates from what the market should have been and the price should have been, we have a mechanism to renegotiate or open up that. We often disagree with customers in processes like this. And often, we take such things into arbitration as we have done in this case. So that has gone on for a while, and we won in that arbitration. Over the year, we have accrued revenue related to that because we consider that we had a strong case. We had an even better outcome than what we accrued as such. So this will be a one-off payment during the year. And from now on, there is a new mechanism in place on that contract as such. Bård Pedersen: Sorry, Teodor, I need to stick to the 2 questions because we want to cover as many as possible. And the next one is on my list is John Olaisen, ABG Sundal Collier. John Olaisen: First question is regarding Johan Sverdrup... Bård Pedersen: John, please use the microphone so people can hear you online. John Olaisen: Okay. Sorry. It's John Olaisen from ABG. My first question is regarding Johan Sverdrup. Anders, you quoted in the media today saying that you expect it to decline by more than 10% this year. I wanted to elaborate a little bit more on that. How much more? And do we expect the same for the next few years? So that's my first question on Johan Sverdrup production profile. The second question is regarding M&A. You've sold a lot of assets internationally. So I wonder, do you still have assets on the sales list internationally? And also secondly, it's a long time since you bought assets internationally. Do you have -- are you looking at potential acquisitions internationally? Those are the 2 questions, Sverdrup and M&A. Anders Opedal: Thank you. First of all, when it comes to Sverdrup, I think we have demonstrated over many, many years how we've been able to keep up the production, even increase it due to the fantastic work that is done by the people working with Johan Sverdrup. Then a field like this is like all other fields, eventually, it will come into decline, and we see that now. So we see a decline in Johan Sverdrup for 2026, which is more than 10%, but well below 20% and that is what we put into our numbers. Still, we will have a growth in Equinor of 3% for 2026 and actually also a growth both on the Norwegian continental shelf and internationally. And of course, based on all the good work, drilling new wells, placing the wells better, retrofitting the wells, high production efficiency, have a high water cut and flow through the separators. The team is working to make sure that this decline is as low as possible. But above 10, well below 20 is what we see and kind of planning for in 2026. Well, we don't have a specific list of M&A sales candidates and targets that we disclose. But I think what you have seen, what we have done in the past, we have been active both in divestment where we think the timing is right to create value and where we see that future investment can be used better elsewhere that we have monetized those assets. And when we have seen opportunistic opportunities to invest, we have done it like twice in the U.S. gas in the Marcellus. You can expect us to be active going forward. And we have had a strategy of optimizing the international business, and we have optimized it now and set it clear for growth. And now is the focus to deliver on that growth finding more attractive exploration opportunities within those selected areas and at the same time, be open for value-accretive opportunities in the market. Bård Pedersen: Thank you. Next on my list is Henri Patricot from UBS. Henri Patricot: Two questions from me. The first one on the cash flow guidance for '26, '27, you do show this meaningful improvement in '27 to $18 billion. Could you give us a bit more of a breakdown behind this improvement? I think you mentioned Empire Wind starting up, some tax lag effect. What else is contributing to this sharp increase? And then secondly, I was wondering, there's uncertainty still around Empire Wind 1. What would be the impact to the financial framework you presented today if the project does not complete or implications for the broader CapEx and shareholder returns? Anders Opedal: So if you, Torgrim start with Empire Wind, then I can take on the CapEx reduction for '27 afterwards. Torgrim Reitan: Okay. So thanks, Henri. On the Empire Wind, clearly, we are steered by sort of forward-looking economics and forward-looking cash flows when we make up our mind. So from now on, the remainder of investments will be covered by the ITC and cash flow from operations over the next 2 years in a way. So the threshold for not moving forward with it is extremely high in a way. I mean the total economics of that project life cycle is something else. But clearly, the decision that we have to make is actually how it look going forward. And going forward, it's actually pretty solid. So the threshold for stopping it is very high. Our job is to deliver this on time and schedule. And I must say, I am extremely proud of what that project organization has been able to do through all of this volatility this year to keep it steady on the track. So we are on track to deliver, and we have no other plans than that. Anders Opedal: Yes. And then the cash flow from operation that is increasing from $16 billion to $18 billion towards '27. This is based on flat price assumption, $65 on the oil price and $9 and $3.5 for Europe and U.S., respectively. And the answer here is that this is the tax lag. We are this year paying a higher tax based on higher prices last year on the Norwegian continental shelf. And it's also a 3% production increase in 2026 that will also contribute to a higher cash flow. Bård Pedersen: Good. I have a long list also online. So let's take a few from there. The first one to raise his hand was Biraj Borkhataria from RBC. Biraj Borkhataria: Just the first one is a follow-up on Johan Sverdrup. You mentioned the decline for 2026. What is in your base case for 2027 and beyond? Because obviously, it's quite a big part of your portfolio. It'd be good to get some clarity there on the decline rates. And then the second question is just on the Empire Wind budget has obviously gone up a little bit. How should we think about how much contingency you have in that new $7.5 billion budget? Anders Opedal: Well, when it comes to -- we are guiding now on Johan Sverdrup for 2026. And to say what it will be in '27 is too early. As I said, we have a fantastic team there that will do everything they can to reduce this decline. We will drill new wells. And I also remind you that in the end of '27, we will have Johan Sverdrup Phase 3 coming on stream as well. We have ramp-up of other fields on the Norwegian continental shelf, meaning that despite this reduction in '26 decline in Johan Sverdrup, we will still have a production growth. And then we will see now how Johan Sverdrup behave during the first part of the decline and how we are mitigated and then we will come back to it. So it's too early to say. When the increases on the Empire Wind, it's very much related to 2 elements, is tariffs that has been imposed to the project and is also an effect of the first stop-work order that we had. The second stop-work order, we were able to execute part of the project, most of the project in the beginning of the stop-work order. And the most important parts of the progress, we were able to do after the preliminary injunction. So very little effect of the project. So it's the execution part of it -- it's going well in terms of CapEx -- use of CapEx in this project, but there is a remaining uncertainty on tariffs. You might remember a couple of weeks ago, a 10% tariff due to Greenland that was removed a little bit a few days later, and that is some of the uncertainty that we are facing with this project. Bård Pedersen: The next one on the list is Alastair Syme from Citi. Alastair Syme: Just one question really to Anders. I just wanted to reflect on the journey that Equinor has been on in recent years with respect to the transition because you are signaling today a further scaling back in ambitions with a lower CapEx and look, I know you're not alone in doing this in the industry. But if I go back a few years ago, you had outlined a competitive position where Equinor could be differentiated in the transition space. So I guess my question is, what are your reflections on this journey? And what do you think has happened that is different to what you anticipated several years ago? Anders Opedal: Thank you. It's a really good question. And I think kind of this is where we were saying today that we are signaling a consistency. We have over the last 5 years, been extremely consistent in our communication around oil and gas and how we will develop the oil and gas portfolio, optimize it, and we have delivered on that. But we also had a different market view on offshore wind and the transportation and storage of CO2 in particular. This is where we were -- had experience. We saw a market growing for transportation and storage of CO2 going faster than we actually have seen. We -- for instance, also for hydrogen, a couple of years ago, we actually had head of terms contracts with customers. Those has been canceled, meaning that we have not been able to progress a lot of these projects within that area. But keeping in mind, we were able to -- been able to do Northern Lights -- Northern Lights Phase 2, Northern Endurance. So we see now that the licensing for or support regimes and applications for capturing CO2 goes slower despite that the framework and the laws are much more in favor of CO2 now than it was before. So to summarize very quickly, we had a different market view some years ago based on real discussions with governments and potential customers than we have today. 3, 4 years ago, customers called us to buy natural gas and was also asking for potential hydrogen and transportation and storage of CO2. Today, they continue to buy natural gas, but they have postponed their own targets for reducing emissions beyond 2030. Some years ago when everyone had a 2030 target, much more focus from customers to have this market up and running very fast. Now with different targets beyond 2030 to collect enough CO2 to have long-term contracts we have found it very difficult. That's why we are allocating no more CapEx into that area due to the market conditions. So that is what had happened. And we have focused on business-to-business with hard-to-abate industry that has postponed the targets. Bård Pedersen: Next question is from Irene Himona from Bernstein. Irene Himona: My first question is one of clarification really. You referred to your objective to build an integrated power portfolio. Typically, when your peers refer to integrated power, they mean essentially adding gas-fired power generation to renewables. So I wanted to ask what does integrated power mean for you? And how does �rsted fit in that? My second question, just going back to the share buyback. Previously, in the past, you had guided to a long-term sustainable through-the-cycle share buyback of around about $2 billion. Today, you lowered that to $1.5 billion. I'm just trying to understand what has changed between then and now essentially. Anders Opedal: You can start with that, Torgrim, and I'll do the integrated power. Torgrim Reitan: Okay. Thanks, Irene. So well, we have said at earlier years, $1.2 billion as sort of the sustainable level in a way. So $1.5 billion is actually above that. We retired the $1.2 billion a bit back. To give a little bit more context, Irene, it's the concept of having a stable share buyback through a cycle, comes a little bit theoretical. We're just coming out of a super cycle, and we have returned $54 billion over the last 3 years based on that in a way. So where we are now, we are actually the first year where the balance sheet is normalized, and we aim to manage within our means. So the number that we put forward today is $1.5 billion. We are leaning on the balance sheet this year, but you have seen in 2027. So we want to sort of give you an outlook for -- over a couple of years here. So the way you should think about share buyback is that it is a natural part of the capital distribution. It is something that is regular and is on top of the cash dividend. And the cash dividend, you should see -- consider as bankable. Share buyback clearly will be more dependent on macro environment as we move forward. Anders Opedal: When it comes to integrated power, for us, that means both intermittent power like offshore wind, onshore wind, solar, in addition to flexible power, batteries and CCGTs. We do have exposure in all of this. We have gas to power in U.K. We have battery in Poland and onshore and offshore and solar. This was divided in different business area. Now everything is integrated into one business area power. And then we have Danske Commodities that are able to integrate this totality and add additional value to this. Having said that, the priority within Integrated Power over the next year is to deliver on the already sanctioned projects. And from that, we are able to potentially if we have the right investment opportunity to expand further on the integrated power. But of course, with our gas position in Europe and U.S., we are, of course, well positioned also for gas to power if we see the right opportunities in the future. �rsted and working together with �rsted and collaboration with �rsted, as we have said, fits into this type of integrated power. We can be exposed in offshore wind in different ways and working together with �rsted, collaborating with �rsted will fit into an integrated power in different types of potential structures. Bård Pedersen: Thank you, Irene, for that. I'll take one more on the phone and then return to the room here. The next one is Paul Redman from BNP Paribas. Paul Redman: My first question is just how do you think about growth at Equinor? The reason I asked that question is at the Capital Markets Day last year, you highlighted a flat to decline in production 2026 plus. And I'm assuming that included some Vaca Muerta production as well. You're heavily cutting the renewable portfolio spend. So just how do we think about growth going forward from here? And then secondly, when I look at MMP, I guess the long-term -- well, the annual guidance was $1.6 billion, $400 million a quarter. You generated about $1.25 billion to $1.3 billion for the quarter if I take out the long-term gas contract review from this quarter. Is there any reason the guidance isn't updated? And how should we think about MMP going forward? Anders Opedal: I'll start with the growth, and we divide it so you can take the MMP. Well, let's start with the renewables. We have said that we don't want to invest more than what we have already sanctioned, but that will create a growth. We had a 45% growth quarter-to-quarter on the renewable business this year, 25% on the annual -- in 2025. So still growth in Integrated Power over the next year. And then as I said, we will have to think how we can create further profitable and disciplined growth into that area. When it comes to the international business, we have repositioned that portfolio. And you can expect from today's level towards 2030, growing this production towards 900 million barrels a day. So it's clearly a growth in there, growth in production, growth in free cash flow. On the Norwegian continental shelf, we will continue to explore. We -- it will be difficult to create further growth in -- on the Norwegian continental shelf, but we have received attractive acreage. We will drill 26 exploration wells on the Norwegian continental shelf next year. We're working on reducing the time from exploration to production from 5 to 7 years to 2 to 3 years, enabling more efficiency to be able to keep the production at the highest possible level on the Norwegian continental shelf and growing free cash flow from that portfolio. And that is what we're aiming for, for Norwegian continental shelf internationally and integrated power. Torgrim Reitan: Thanks, Paul. On MMP. So if you strip away the price review, you get to around $400 million in the fourth quarter, which is very much around sort of what we guide at. So that's sort of -- that's what you should, in a way, expect on a quarterly basis. However, there will be fluctuations as you very well know. What typically drives results are volatility in commodity markets and also contango versus backwardation. I can give you one example actually from January, where there has been a lot of volatility in the gas market. And in Europe, we have a 70% day ahead exposure and a 30% month ahead exposure. So you can rest assure that sort of the spikes you have seen in January, it finds its way to our P&L in Europe. In the U.S., we don't have -- we don't sort of have a firm exposure that we want, but clearly, the traders keep a certain part open. So when going into January, in the U.S., our traders left 30% exposed to the prompt or cash prices as such. So at the most extreme, for instance, the in-basin price for Marcellus gas was $60 per MBtu, and we took that. And then we have a transportation capacity into New York, actually coming up at Penn Station. And we achieved more than $100 per MBtu in that weekend as such. So just examples of when you see volatility, you should expect us to be able to get it in a way. So that's why these results typically fluctuates. Bård Pedersen: Thank you, Paul. Vidar Lyngv�r from Danske Bank. Vidar Lyngvær: First, just another clarification on the renewable spending in 2027. You're reducing CapEx by $4 billion. I get the tax credit part. Could you add some more color on where the remaining cut comes from? Second, Johan Sverdrup, you mentioned the decline rates there. Are those exit to exit, so exit '25 to exit '26? Or is it average production decline in '26 versus average in '25? Torgrim Reitan: Johan Sverdrup exit to exit or -- let's come back to the specifics on that. But I do think it is when you compare sort of the last year production with next year production as such. And just -- yes, and team is nodding there. So that is the way it works, yes. Anders Opedal: Yes. Yes, a little bit more color to this. As I answered earlier, we had a different market view. So we had, for instance, potential hydrogen project, transportation of CCS project in the CapEx outlook that we showed last year, those projects are not materializing. In addition, we have reduced our onshore renewable CapEx as well. And in total, this adds up to those $4 billion and together also with the ITC as you have seen. Bård Pedersen: Good. Steffen Evjen from DNB Carnegie. Steffen Evjen: On the ITC, just could you please remind me on the milestones they are required for that payment to come in, in terms of first power and any other things that has to be fulfilled? My second question is just a clarification on Adura. I think you said $1 billion in dividends. Is that your share? Or is that the total share to both shareholders? Torgrim Reitan: It's our share and then the ITC. ITC, yes. So the way it works is that you can recognize it when you start production and sort of that is sort of scale as you continue to start up the various turbines. So what we have assumed is that we recognize all of this in 2027 because that's sort of the plan. There is an upside that there is some ITCs recognized in 2026. We haven't based our analysis on it. So that is sort of the recognition part. And then there is -- so what is the cash flow impact of it. And it will take some time from we recognize it to the cash flow is in our account. So what you see on the slide is that we have assumed $2 billion impact of the ITC in '27, while the total number, the absolute number is $2.5 billion. So that sort of give you a little bit of a perspective around this. It is a significant financial operations to manage all of this, as you would know, but there is a large and growing market for ITC in a well-functioning market in the U.S. for this. Bård Pedersen: Next one is Martijn Rats from Morgan Stanley. Martijn Rats: I've got 2, if I may. I wanted to ask you again about the CapEx reductions. I know there have been a few questions about it already. But when Equinor took the initial 10% stake in �rsted, very soon thereafter, we also had a reduction in the CapEx outlook for offshore wind, renewables in general. And in many ways, that had the character, therefore, when you put these 2 things together, it's like, well, we do less organically and we do more inorganically. It was sort of not a total reduction, but it had an element of we're swapping one type of spending for another type of spending. And I was wondering how we should interpret this reduction in CapEx on this occasion. If power and low carbon CapEx goes down, is that -- should we interpret that as well, the company is just going to do less of that stuff? Or should we anticipate that in the fullness of time, this also turns out to be a swap, less organic, but more inorganic. I was hoping you could say a few things about that. And then the other question I wanted to ask is about the 10% OpEx and SG&A reduction target. Like 10% in a single year is quite a significant amount and also because Ecuador has already been very focused on that for some time. I was positively surprised that there's still sort of that type of opportunity available. Could you talk a little bit about the key levers, where that spending can be reduced? And also just for the avoidance of 10%, how does that translate into absolute sort of absolute dollar amounts, that would be helpful? Anders Opedal: Let's start with that question first, and Torgrim. Torgrim Reitan: Okay. Thanks, Martijn. So on the 10% reduction. So over the last years, we have been able to maintain OpEx and SG&A flat even if we have grown our production and despite the inflation as such. So our people and organization has done a good job. Next year, we expect that number to come down by 10%. That is a very big number. However, it is a significant impact of divestment of Peregrino and the establishment of Adura that will be equity accounted as such. So the reported numbers will be down 10%. But when you adjust for structural changes, we expect to maintain OpEx and SG&A flat, growing by 3% and still inflation as such. So this comes from many sources. First of all, activity level. Clearly, we have taken down and prioritized that very hard. That has a direct impact on it. We have taken down early phase costs significantly in the portfolio, also a significant contributor. Staff are continue to high grade and take out efficiencies. And then the business areas are clearly working on this. So -- but on your question, is there more to come? And the answer is yes, we are never satisfied with where we are on this. And I can give you 2 examples of what to come. One is the work around NCS 2035. We do see a significant cost impact of that. So we hope to show more on that in June. The other one is actually artificial intelligence. So we have already see that in our numbers, NOK 1 billion or so, which is good. However, this is early days. And we do believe that with our large operations and our ability to take out effect across assets that AI can really be a significant contributor to further cost improvements. So we'll continue to fight and work this -- but the 10% is clearly colored by the inorganic moves we have done. Anders Opedal: Yes. So -- and thank you for that CapEx question, Martijn. And let me elaborate a little bit how I think around this because you probably see now that several times, we have taken down the renewables and low-carbon solution CapEx. And it's not necessarily because we have done any inorganic moves. It's also because we have not been successful in some of the bidding because we have raised the bar for winning future CFDs. And a couple of years ago, we had several projects inside our CapEx outlook that is now not inside the CapEx outlook due to deliberately not being successful in those auctions. So a more positive view some years ago, as we said during the �rsted acquisition of 10%, we found it more value creating at that point in time, do an inorganic move than do organic move. This -- we have further taken down the CapEx for offshore wind, but also on onshore renewables. A couple of years ago and last year, we had a much more positive market view and direct discussions with customers for CO2 highway and the hydrogen project in Eemshaven, which are now pushed further out in time. And actually, the hydrogen projects in Eemshaven is stopped before FEED, and we will not move forward. And in these areas, I don't think there are many inorganic moves to be done that will create value. So you should not expect us to work much on this. We will continue to work on being a leading company in terms of transportation and storage of CO2, building on Northern Lights 1, 2 and Endurance, but we will not make investments before we see -- we have long-term contracts, we have seen costs coming down and we see profitable projects. And that means that there needs to be a better market than we see today. Bård Pedersen: Thank you, Martijn. Next one is Nash Cui from Barclays. Naisheng Cui: Two questions, please. The first one is on your upstream reserve life. I wonder how do you think about a reasonable level of upstream reserve life in the medium to long run, please could better technologies like AI to help extend base? Then my second question is on �rsted. I think earlier, you mentioned that you could collaborate more with �rsted in kind of different types of potential structures. And I wonder if you could elaborate what you mean by the potential structures? Anders Opedal: Well, you have seen what we have done, just an example with Shell in U.K. There's always way to work together to create value for both shareholders. But there is no discussion at the moment, but we see that a further collaboration with �rsted could benefit both companies, but nothing new to elaborate today. When it comes to reserve life, I think this will also -- the ROP will be affected in the years to come that we have many more exploration wells, smaller discoveries and faster time from discoveries to production, meaning that the ROP will be lower than traditionally when we had the big elephants on the Norwegian continental shelf. At the same time, we are comfortable with our ROP where we see it today around 7 because we have so many exploration wells, we have discoveries. And last year, we had 14 discoveries, adding in total 125 million barrels in new resources. Lofn and Langemann, which is in Sleipner area is in an area where we thought there was nothing more to be found, but new technology, new seismic, use of AI has enabled us to make more discoveries. We have seen the same in the Ringvei Vest area. So we will continue to implement AI in exploration to ensure that we are able to discover new resources that was overseen in the past that we now can drill and bring to market in a quicker way. And by using AI, not only on exploration, but also in operations, and so on. We saved $130 million last year, and this is accelerating. So as Torgrim said earlier, we are really focusing on implementing AI to create value in the company. And this is something that you will hear more about in the future. Bård Pedersen: Next is Jason Gabelman from TD Cowen. Jason Gabelman: I wanted to first go back to the Empire Wind guidance. And I'm wondering if the $600 million of cash flow, is that what Equinor expects to receive? Or are there going to be some repayments on the project financing that are going to minimize that in the earlier years? And I wonder if you have a similar number for the Dogger projects. And then my follow-up is just on kind of broader exploration opportunities beyond what you've discussed. And we've seen companies kind of going back into regions where fiscal terms have improved like the Middle East and West Africa. I wonder if you look at those regions as potential opportunities for the company to exploit or given kind of the lack of footprint in those regions, is it not a core focus? Anders Opedal: Yes. I'll start with that question, and you can do the $600 million and the synergy effects there. So basically, what you have seen, what we have done in the international oil and gas portfolio is to focus it. We were in 30 to 40 countries, high cost, high exploration cost. And we have concluded that we were not successful with that strategy, adding too much cost and too little of progress in putting new resources into the inventory. So we have worked very hard to focus and building an attractive exploration portfolio in those focused areas like in Angola, in Brazil and in U.S. offshore. And of course, Bidenor East Canada, we're working on the Bidenor field, where this will also have attractive exploration opportunities around it, similar to what we see on Castberg and other new fields. Then, of course, we will, of course, always be open for ideas and value-adding exploration activity outside this core, but the bar is high. We will not have a global exploration strategy moving around in all parts of the world. We have areas where we see now we have learned the basin. We have experience, and we think we can expand quite a lot on that one. Brazil, for one instance, by Bacalhau, the Raya, we have an attractive exploration opportunities there now, the neighbor block to the Bumerangue discoveries for BP. We have a block close to Raya, and we're maturing up to see what kind of exploration program we can have in that area. And next -- and in this year, we will actually also drill exploration wells in Angola. So we are curious about other areas, but we'll have most of our focus in the focused area. Torgrim Reitan: And then Jason, on the $600 million in cash flow related to Empire Wind, that is related to our equity as such. There's no sort of money of that, that goes to the lenders. A couple of things. There is a portfolio effect in addition to the cash flow within the project. And that is related to that the depreciation that we have in Empire Wind goes into the IFRS results and the minimum tax in the U.S. is based on IFRS results. So it sort of reduces the minimum tax payments in the states as such. So there's a portfolio effect coming on top of the direct cash flow in the project as such. Bård Pedersen: Just to clarify in the CFFO, the interest payment is included, but not the payment to the lenders, as you said. Thank you, Jason. Kim Fustier from HSBC is next on my list. Kim Fustier: I had a couple on the NCS, please. Firstly, I believe that back in November, you announced a reorganization of your NCS business along centralized functional lines like subsea drilling, et cetera. Could you give a bit more color on this? And how does that move help to set you up for a future on the NCS with fewer big developments, but more small developments? And then secondly, could you give an update on a couple of pre-FID projects, Wisting and then Bay du Nord in Canada, where there seems to have been some technical progress lately? Anders Opedal: Yes. Thank you. So the Norwegian continental shelf is changing. With after Johan Sverdrup and Bacalhau, we have, as I said, much more smaller discoveries, smaller fields. Most of the developments will be now subsea tie-in projects. We actually have 75 of those in our portfolio over the next 10 years. So it's about making sure that we're able to execute on these projects faster. We are going -- that we can drill more exploration well faster, and we can create more value. So then we have actually started with looking into how we work. how is our work processes, all the way from working together with partners, internal approval processes, field development processes for subsea tie-in and so on. We have looked at 70 work processes, how to -- for drilling to development and so on. We have simplified those work processes, and we have looked at them together such that all these processes are streamlined end to end. And just to say a change that I will do, instead of making 7, 8 individual decisions on these projects one by one, we will group the decision. And twice a year, I will make a lump decision of several projects, enabling faster decision-making processes and ensure that we're able to move this project faster. Based on changing the way we work, we are also reorganizing both the project organization, the drilling organization and the operation units on the Norwegian continental shelf, not offshore, but all the onshore function, enabling to work according to the new simplified work processes. So this is actually one of the largest changes we have done developing the Norwegian continental shelf since we established the StatoilHydro company and merged StatoilHydro back in 2007, 2008. So it's actually changing the way we work because the geology and the reserves on the Norwegian continental shelf changes. And what do we want to achieve? Well, we want to move time from discovery to production from 5 to 7 years to 2 to 3 years, and we need to increase the volumes that we are able to find during exploration, meaning that we need a 200 to 300 efficiency gains on the Norwegian continental shelf. When it comes to Wisting, this is far in the north in the Barents Sea, challenging projects. We're working hard to simplify it. We have made a lot of progress in that respect. We will work on concluding on the concept during first half of 2026 or in 2026 and then move towards hopefully a DG3 during 2027. But let me underline this. We are not schedule driven. This is a project where we have to make sure that this is the right project, right financial, right breakeven, NPV, and we have everything in place because this is a very, very challenging project. On the Bay du Nord, we are approaching also a concept selection at what we call Decision Gate 2. We have a good engagement with local authorities and the government of Canada to -- so we can work together. This is a very good project. We have worked well together with suppliers for a long time to take down the cost and the breakeven as much as possible. And if we are successful now over the next months, then we can bring it towards an investment decisions over the next -- over the next years. And both these projects, if we are successful, will contribute to high production beyond 2030. Bård Pedersen: Thank you, Kim. I have a few left on my list, and I want to cover as many as possible. So I ask that you limit yourself to one question to give as many as possible the opportunity. Next one is Chris Kuplent from Bank of America. Christopher Kuplent: I'll keep it to one question for Torgrim, and please forgive me for some quick mental math. But when you set your $1.5 billion buyback, are you effectively arguing over the course of '26 and '27, considering the lumps and bumps in your CFFO as well as CapEx, you're targeting to be free cash flow neutral after dividends and buybacks. Am I putting too many words in your mouth? Or is that a fair characterization of what you're trying to do over the next 2 years? Torgrim Reitan: Well, Chris, I think I need to be very precise here. So I mean, you're on to it. So clearly, you should look across those 2 years when you think about sort of our free cash flow generation that we have available to cash dividend and share buyback. We aim to run with a solid balance sheet. However, we are going to lean on the balance sheet in '26, well aware that next year is a larger free cash flow. So it makes sense to look across those 2 years. And we have done that when we have set the share buyback level for '26 as such, we have. Bård Pedersen: Thank you, Chris. Matt Lofting, JPMorgan. Matthew Lofting: Just one on Empire Wind and read-throughs from it. I mean it seems Equinor has done a good job keeping the project execution on track amid the past hold orders. But I just wonder how the company reflects on implications from this and having retained 100% equity stake through it for best assessing risk management and risk-adjusted returns, let's say, on future capital allocations. Are there learnings that are emerging from Empire Wind for optimal sizing, taking into account perhaps above as well as belowground factors? Anders Opedal: Thank you. That's a really good question. And yes, this is definitely something to reflect on. And we normally don't take 100% in any license, not on oil and gas and not in offshore wind. But due to a deal with BP, they took some and we took this. We derisked it somewhat with higher strike prices with a financing package. And then as you have seen, the political risk with the new administration was higher than anticipated. This is a trend we see now in several countries that energy investments are more and more politicalized and polarized. And we see it in Norway. We see it in U.K., we see it in U.S. And definitely, for us, this brings some reflections about what is the above-ground risk you can take. And for myself, I reflected quite a lot about to see bipartisan support for future projects. If there is a kind of a strong division for potential projects, then we need to think twice and really understand the political risk. And this is something new. It's not only in U.S. This is something new that we have seen lately in several countries. And kind of we need to adapt the learning, and we need to bring into future decision processes definitely. Very important question you raised there. And with the political changes we have seen, which were kind of outweighted all the other factors that was reducing the risk, we would have probably thought differently about Empire Wind in the past. Bård Pedersen: Thank you. We are on the hour, but let's take one more and hope is short and then we'll round it off, and that is you, James Carmichael from Berenberg. James Carmichael: Just one last quick one, I think. Just again on Empire Wind. I was just wondering if you could clarify your sort of best case estimate on the timing of the underlying court case and when we might be able to sort of put any uncertainty to be around sort of future hold orders, et cetera. Anders Opedal: Yes. This is a little bit early to say kind of because it's a judge in U.S. to decide that timing when this -- the merits of the case will come up for the court. There's been indication that will happen fairly quick with some couple of months, and that gives us opportunity to elaborate on the case in a good way. I just want to also remind you that all the 4 other operators we're doing exactly the same thing, challenging this in court and all of them were granted a preliminary injunction. We mean that this stop-work order was unlawful. And at least with so consistent preliminary injunction, I think also we have a strong case moving forward. But I'm an engineer and not a lawyer. So -- but yes, we are moving forward with a strong belief that we will have a good case in the court, strong case. Bård Pedersen: Thank you. I would like to thank you all for participating and for asking your questions. We didn't manage all the way through the list, but I want to be respectful for everybody's time. And as always, the Investor Relations team remain available for any follow-up questions during today or later in the week. Have a good afternoon, everybody, and thank you for joining.
Operator: Good day, ladies and gentlemen, and welcome to TomTom's Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn over to your host for today's conference, Claudia Janssen from Investor Relations. You may begin. Claudia Janssen: Thank you. Good afternoon, everyone, and welcome to our conference call. In today's call, we will discuss the fourth quarter and full year 2025 operational highlights and financial results with CEO, Harold Goddijn; and CFO, Taco Titulaer. Harold will begin with an update on strategic developments. Taco will then provide further insight into our financial results, our Automotive backlog and our outlook. After their prepared remarks, we will open the line for your questions. As always, please note that safe harbor applies. And with that, Harold, let me hand it over to you. Harold Goddijn: Yes. Thank you very much, Claudia, and good morning, good afternoon, everybody. 2025 was an important year for TomTom as our product strategy clearly matured and we gained commercial traction. We introduced several new products with our Lane Model Maps standing out as a major milestone. Orbis Lane Model Maps provide lane-level intelligence, including geometry and lane markings, but at a true urban scale. And by leveraging our AI-powered map factory, we can now produce lane accurate maps with exceptional efficiency and freshness, and this has been proven to be a differentiating capability. A strong validation is that we secured a record amount of new business, and that includes a collaboration with CARIAD where TomTom Orbis Lane Model Maps were selected as a core component of the automated driving system supporting the Volkswagen Group brands. In Enterprise, Orbis Maps broadened and diversified our customer base. In the beginning of 2025, we announced a new cooperation with Esri, through which we provide maps, traffic data to support businesses and governments with location intelligence, addressing various use cases from maintaining critical infrastructure to analyzing traffic flows. And more recently, we deepened our global partnership with Uber, expanding our collaboration to enhance on-demand travel experiences worldwide. Looking ahead to 2026, I'm confident that continued advancements in our product portfolio will further strengthen our commercial traction across both our Automotive and Enterprise business, supporting top line growth over time. We will continue to expand and enhance our product offering, and we will make it easier for developers and for businesses to access our data, which will support future growth. We see meaningful commercial opportunities emerging in automated driving and infotainment as well as in high potential verticals such as insurtech and state and local government. Thank you very much. This is my part of the presentation. I'm handing over to Taco. Taco Titulaer: Thank you, Harold. I will cover our financial performance, the key trends we're seeing, an update on our Automotive backlog and our outlook. After which, we will take your questions. Automotive IFRS revenue for the fourth quarter amounted to EUR 77 million, down 3% year-on-year. Automotive operational revenue was 12% lower compared to Q4 last year. The Enterprise business delivered EUR 39 million, a 10% decline versus the same quarter last year. Approximately half of this decline is explained by a weaker U.S. dollar versus the euro year-on-year as around 3/4 of our Enterprise revenue are U.S. dollar-denominated. The remainder of the decline reflects a continued phase out of a large customer, partly offset by a broadening of our customer base over the course of the year. Gross margin was 89% in the fourth quarter, a 2 percentage point improvement compared with Q4 2024, mainly driven by a lower proportion of hardware in our revenue mix. Operating expenses were EUR 110 million, a reduction of EUR 21 million compared with the same period last year, reflecting the combined effect of capitalizing development costs associated with our Lane Model Maps and disciplined cost management. For the full year 2025, we recorded group revenue of EUR 555 million, 3% lower than in 2024. Automotive IFRS revenue was EUR 323 million, down 2% from last year due to lower car volumes at some customers and the phaseout of certain car lines, partly balanced by new model starting production. Operational revenue in Automotive dropped 1%, staying largely stable versus 2024. Our Enterprise revenue for the year was EUR 159 million, 2% lower year-on-year. For the full year, the picture is similar as in the quarter, normalized for the currency fluctuations. Enterprise revenue showed a marginal increase compared with last year. For the full year, gross margin was 88%, an improvement compared with 2024. This continued shift away from consumer hardware structurally strengthened our gross margin from 85% in 2024 to 88% in 2025, and we expect it to move north of 90% in 2026. Operating expenses decreased to EUR 489 million, a EUR 19 million reduction, same as for the Q4 trend. This reduction was due to capitalization of our map investment, lower amortization charges and reduced personnel costs from the second half of 2025, partly offset by the reorganization charge booked in Q2 2025. Looking ahead, the quarterly OpEx run rate entering in 2026 will likely be a few minutes -- a few million euros higher than what we saw in Q4. But for the year as a whole, we expect the total operating expenses to remain below 2025 in 2026. Free cash flow, excluding the cost for the reorganization we announced halfway in the year, EUR 19 million. This was an inflow of EUR 32 million compared with EUR 4 million outflow last year. Having covered our results, let's move on to the Automotive backlog. Our Automotive backlog at the end of the year reached EUR 2.4 billion, a net increase of EUR 300 million compared with the end of 2024. Our Automotive backlog represents the expected IFRS revenue from all awarded deals. Accordingly, the backlog decreases as revenue is recognized and increases when new deals are won. Its value can also fluctuate when customers revise their vehicle production forecast and with ForEx revaluations. The increase in backlog this year was driven by a record level of new deals. Our book-to-bill ratio was well above 2 last year, partly offset by negative impact from ForEx revaluations, which has a more pronounced than usual effect on the backlog valuation. A large portion of the Automotive revenue we expect to report in 2026 and '27 is already covered by the backlog generated from prior year's order intake. The majority of the value from the 2025 order intake is expected to start being recognized from 2028 onwards. From a product perspective, we see Automotive RFQs increasingly gravitating towards Lane Model Maps, the maps that enable autonomous driving functionality and support a growing range of advanced safety features. The products accounted for approximately half of last year's order intake, and we expect this [ should ] continue to grow. OEMs are clearly increasing their product and engineering focus in this area as Lane Model Maps enable both improved vehicle performance and meaningful differentiation. Our strong positioning in this area reflects a decade of sustained investment in these capabilities, and we're now seeing those investments translate into tangible commercial results. An additional benefit is that securing Lane Model Maps deals opens the door to road model map awards for the navigation use cases, supporting further market share gains. Now let's move to the 2026 outlook. Looking ahead to 2026, our revenue will reflect the transition of some customers. However, this impact is temporary. 2026 group revenue is projected to be between EUR 495 million and EUR 555 million, with Location Technology contributing EUR 435 million to EUR 485 million. We expect our operating result to improve year-on-year, while free cash flow is expected to turn temporarily negative due to the sustained investment in our Lane Model Maps. Operating margin is expected to be around 3% of group revenue. A return to top line growth is foreseen in 2027. Higher revenues combined with disciplined cost control are set to drive a further step-up in operating margin as well. To conclude, let me summarize our prepared remarks. We closed 2025 with a strong strategic momentum, marked by a record Automotive order intake and an expansion into automated driving. Despite modest top line declines driven by market conditions and customer transitions, EBIT and cash generation improved meaningfully. With an expanded EUR 2.4 billion Automotive backlog, new product launches and strengthening commercial partnerships, TomTom enters 2026 well positioned for a return to growth in 2027. And with that, we are ready to take your questions. Please, operator, please start the Q&A session. Operator: [Operator Instructions] And our question come from the line from Marc Hesselink from ING. Marc Hesselink: Yes. I have a couple of questions on the lane model. I think this is the new product versus the HD Maps that you previously had. But I think under the hood, a lot changed in the way you build your process, you build your map, how you can integrate with the client. Just if you can explain how this product currently looks like? And also how are your clients going to integrate it? And if you can also talk about what is your competitive position there? Is this now something that is really unique for TomTom that none of the competition has something like this? And if you then compare it, there's always sometimes still the debate between for this kind of functionality, do you need a map, yes or no? What's the status there also with things like the redundancy of the safety features? Harold Goddijn: Yes, Marc, thank you. Yes. So the lane model is fundamentally different from a road model map because it is a representation of the actual road and all the lines on that road and the dividers and whatnot. So you get a replica encoded of what is the road surface, what the road surface looks like. And the problem with building that map is that it's always been very expensive and not -- didn't scale very well. But with new advances in technology and new data that are becoming available, we can now produce those maps to a high degree of automation, not completely automated, but there's a high degree of automation is possible now. And that means that it's becoming economically viable to do this on all roads, not just the motorways. And it also means that you have a process for upgrading and change detection. So you can build maps that are fresher. All those capabilities are critical for self-driving and automated driving. We see that those maps are used in those systems as not only as backup, but also as a sensor. The challenge for self-driving technologies is to reduce the number of interventions of the driver of the vehicle and maps data play a very critical role in reaching that objective. Marc Hesselink: Yes. And the competition at this stage? Harold Goddijn: Well, so we don't have full visibility, but we believe that the method that we are deploying is novel, differentiating, leads to better results, scales better than what our competitors are capable of producing. Marc Hesselink: Okay. And if we look at the client side, you obviously have a big success with the CARIAD. But what about the discussions with other OEMs? Is this something that you -- I'm sorry. Harold Goddijn: Yes, go on, Marc. Marc Hesselink: Yes, I said -- and I wanted to add to -- do you speak to many other clients, including also the Chinese OEMs? Harold Goddijn: Yes. So the interest is coming from a broad range of car brands. People of carmakers want this. They can see the value of having that dataset available for the self-driving function, and that is broadly shared amongst all our customers and also potentially new customers. So we see a profound deep interest in understanding what's going on and how this technology can help them to make those cars and bring the level of automation to the next level. And next to that, we also see interest from software developers who are developing the self-driving software stack. There are a number of independent software developers who are doing this, but some based in -- mostly based in China. And they also show strong interest in understanding what this technology can bring and how it can help them to mature their own technology stack. Operator: [Operator Instructions]. Claudia Janssen: Let me -- if there's no -- I see -- if there's no further questions, let me give the opportunity to some of the analysts if they want to take the questions. If not -- no. If there's no additional questions, I want to thank you all for joining us today. And operator, you may now close the call. Unknown Executive: There is... Claudia Janssen: Oh, sorry. Andrew, sorry. Operator: I have a question that's come through now. So we are now going to take the next question from Andrew Hayman from Independent Minds. Andrew Hayman: Yes. Could you maybe give some guidance to how negative you think the free cash flow will be in 2026? Taco Titulaer: Yes. Thank you, Andrew. So 2 things I want to say about that. One is -- the second thing is to answer your question. But the first thing is that we introduced new guidance metrics in 2020. So we gave guidance on the top line and the bottom line. The top line was the group revenue and the Location Technology revenue. And the bottom line, we chose free cash flow because free cash flow at that time was the best tracker of our profitability. That had to do with the disparity -- the difference between operating and reported revenue in Automotive and the big delta between amortization and CapEx that we saw in the OpEx line resulting from the acquisition of Tele Atlas. Now both effects are kind of gone. So you also saw last year that reported revenue and operational revenue in Automotive is at parity. They're kind of almost the same. And also, we have -- we don't have any amortization left that's related to the Tele Atlas acquisition. So we want to normalize our guidance towards a revenue and an EBIT forecast. And that said, as we also have -- and then coming into your second or your primary question, the fact that Automotive is declining next year temporarily and we sustain our investment at the same level as we had last year, we will see free cash flow being negative in this year. How large it will be, I don't know exactly, but I expect it will be above EUR 10 million, but not much more than that. And then if our revenue, our top line is recovering in 2027, I expect that free cash flow will be positive again as of 2027 onwards. But an official guidance will follow in 12 months from now about that. So we'll continue to provide direction about free cash flow, but the primary guider or primary KPI for profitability will be EBIT. Andrew Hayman: Okay. And then in terms of the bookings that came in, how much of that is new customers? And how much is just more business from existing customers? And then maybe just tied in with that, how does the funnel of business look for 2026? Is there going to be -- is it a bit quieter after so much activity in 2025? Taco Titulaer: Well, yes, so if you look at order intake, you can make a 2x2 matrix. In the horizontal, you say existing customers and new customers. On the vertical, you say lane model or road model, where lane model is the automated driving and safety use cases and where road model is more for the driver itself to navigate from A to B. What I already mentioned in my prepared remarks is that what we've seen is that if you break down the order intake of last year that roughly half of that order intake is related to lane model. And that percentage will only grow further. So also for 2026, we think that the proportion of lane model RFQs and potential wins will be tilted towards lane and not so much road. Road models can be a tag-along deal. Increasingly, OEMs want to focus on securing the right quality and the right vendor of lane models. And also that gives us opportunities to also secure extra deals in road modeling. The majority -- yes, CARIAD is an existing customer, of course, because we already do software with them. So in that sense, the majority of the order intake was with existing customers. Harold Goddijn: But I want to add to [Audio Gap] first time that we deliver map data at scale to the VW Group. Taco Titulaer: Yes, that's different. But before it was navigation software and traffic, et cetera, but now it is also including map data. Andrew Hayman: Okay. And how does the funnel of potential sales look for this year? Because it looks like -- I mean... Harold Goddijn: There's a broad and deep book of opportunities out there, not dissimilar from 2025. So the activity is really -- is there from what we can see now. But what we also have seen in 2025 is that timing is very difficult to predict also because of ambiguity in product planning in all sorts of market conditions. But I think the way we look at it now, there is substantial opportunity available again in 2026 for further building of the backlog. And there are also opportunities available to us for extending and growing our market share. Operator: And the questions come from the line of Marc Hesselink from ING. Marc Hesselink: A follow-up. One on the Enterprise segment. I think in previous calls, we've discussed a lot about the momentum for the small clients being quite good. But then for the bigger, longer sales cycles, is that still ongoing? Are you still talking to these bigger potential clients? And would we expect something beyond '26 in the '27 period? Is that likely? Harold Goddijn: I don't think there's -- we don't anticipate a big shift in market opportunities in 2026. No extraordinary, but we think that the momentum we have to an extent in the long tail opportunities, that will continue throughout 2026. The composition -- yes, so there's a lot to go after in -- also in the Enterprise sector. Marc Hesselink: Okay. And -- but the big clients, they sort of stick to their own products or... Harold Goddijn: Well, we have a good market share with the big tech companies already. There are not that many of them, but our market share there and our representation with big tech is significant. So the growth and the expansion need to come from companies below that tier. There's a lot of them in the EUR 10 million kind of category. There are a lot of them in the -- between EUR 1 million and EUR 10 million category that are available to us to win. Marc Hesselink: Okay. Okay. That's clear. And then the second follow-up was on -- you mentioned also for next [ year, so '27 ] to be cautious on the cost side. And I just want to understand that a bit because I think that you say you're moving towards the more automated process. It's almost now already almost fully automated. Is that something that you can still take a bit of steps there to further automate it and at that stage, decrease the cost a bit? Harold Goddijn: Yes. Well, we -- so there's a number of things that we can achieve through -- on the cost side. I think the most important one is that our product portfolio is maturing and coming together. And we're more product-driven than in the past. And that means that we can do things more effectively, better at higher quality and we can leverage that software much better than we've ever been able to do in the past. We see also opportunities to further leverage the power of AI, especially in the engineering side. We're making some meaningful progress in that area. So the combination of a simpler product portfolio at a higher quality that is reaching completeness now after a long period of transition, those are all indicators that we can do things more faster at higher quality, but also with -- allow us also to keep a lid on the cost and not let that grow. There will be additional costs in maturing lane level product, as Taco already indicated. But all in all, I think we are in a good position not to let the cost and the OpEx run away from us, but rather contain it and manage it carefully without that giving strong limitation on our ability to get things done. Claudia Janssen: Okay. With that, I want to thank you all for joining us today. And operator, now you can really close the call. Thank you. Operator: Thank you. This concludes today's presentation. Thank you for participating. You may now disconnect.
Bård Pedersen: Good morning to all, both here in the room in Oslo and to all our participants online. Welcome to the presentation of Equinor's Fourth Quarter and Full Year Results for 2025. My name is B�rd Glad Pedersen. I'm Head of Investor Relations in Equinor. To those of you who are in the room, I want to inform you that there are no emergency drills planned for today. So if there is an alarm, we will evacuate and follow instructions. Today, we will have a presentation first from our CEO, Anders Opedal, followed by a presentation from our CFO, Torgrim Reitan, before we start the Q&A. [Operator Instructions] So with that, I hand it to Anders for your presentation. Anders Opedal: And thank you all for joining here in the room, and thank you for participating on digital. So for Equinor, 2025 was a year of strong deliveries, but it was also a year of increased geopolitical tension and market uncertainty. Our job is to ensure we allocate our resources in a way that maintain a competitive business, creating value at all times. Today, Torgrim and I will show how we take the necessary measures to further strengthen our competitiveness, cash flow and robustness. This makes sure that we can navigate through and leverage market volatility and the current macro environment. So we have 3 key messages for you today. First, we are well positioned for maximizing long-term shareholder value. Today, we will share how clear strategic priorities guide capital allocation for 2026 and '27, and we will revert at our Capital Market Day in June to present our strategy towards 2030. Second, we take firm actions to strengthen free cash flow. We reduced our CapEx outlook with $4 billion and maintain strong cost discipline. This makes us more robust towards lower prices and ensure that we can maintain a solid balance sheet through the cycles. And third, we continue to develop an attractive portfolio, delivering oil and gas production growth. With this, we are prepared for volatility ahead. The energy transition is shifting gears in many markets with governments and companies changing priorities. Current oil prices are supported by geopolitical risk, but we are prepared for strong supply combined with moderate demand growth, putting pressure on the oil price in the near-term. For gas, the European market has seen cold weather and high draw on storage in late December and in January. Storage levels are now around 40%, significantly below average for the last 5 years and also lower than last year. We expect continued volatility ahead and more LNG coming into the market. In the U.S., low temperatures have driven up local demand and reduced exports of LNG. But before I progress any further, I will always start with safety. Despite fewer people being hurt and our safety numbers moving in the right direction, we still have serious incidents and need to improve. In September, our colleague was fatally injured during a lifting operation at Mongstad. A stark reminder that we cannot rest until everyone returns safely home from work every day. Our safety trend reflects years of good work from the people in our organization and our suppliers. Safety remains our first priority. Throughout 2025, we have delivered strong performance despite geopolitical uncertainty, high inflation in the supply chain and lower commodity prices. This results in all-time high record production, thanks to good operational performance and new fields on stream. We have matured a competitive project portfolio across the Norwegian continental shelf and internationally. With Johan Castberg on stream, we opened a new region in the Barents Sea. In Brazil, we started production from Bacalhau, the first pre-salt operator ship awarded to an international company. We continue high-grading our portfolio, and we maintained cost and capital discipline. All this has enabled us to deliver industry-leading return on average capital employed of 14.5% and $18 billion in cash flow from operations after tax. We have delivered $9 billion in capital distribution to our shareholders, as we said at the start of the year. Last year, we received 2 stop-work orders for Empire Wind. In our view, both are unlawful. The first one was lifted by the UN administration in May. The second stop-work order came just before Christmas. This cited national security reasons, already a central part of an extensive approval process where we have complied with all requirements. In January, we were granted a preliminary injunction allowing us to resume construction. There will be a continued legal process, and we remain in dialogue with U.S. authorities to resolve any issues. Despite the significant challenges caused by the stop-work orders, the project execution is according to plan. The project is now over 60% complete. We have successfully installed all monopiles, the offshore substation and almost 300 kilometers of subsea cables. The total CapEx for Empire Wind is now expected to be around $7.5 billion. Around $3 billion is remaining, and we, like other companies, remain exposed to uncertainty when it comes to possible future tariffs. The project qualifies for tax credits as decided by the U.S. Congress. The cash effect of these is expected to be around $2.5 billion. So far, we have drawn $2.7 billion from project financing. We expect to draw the remaining $400 million this year. For 2027 and '28 combined, we expect around $600 million in cash flow from operations. Combined with the ITC, this covers the remaining CapEx in the period. We have continued high-grading our portfolio. We announced the latest move earlier this week, divesting onshore assets in Argentina for a total consideration of $1.1 billion, unlocking capital for high value creation opportunities. The establishment of Adura was a major milestone last year. Our joint venture with Shell has created a leading operator on the U.K. continental shelf, fully self-funded, covering all Rosebank CapEx and well positioned for growth. The JV company expects to distribute more than 50% of cash flow from operation to its shareholders, starting from the first half of 2026. Based on Adura's plans, we expect total dividends of more than $1 billion for 2026 and '27 combined with growth from '26 to '27. This moves our U.K. portfolio from being cash negative due to CapEx to cash positive from dividends. These 2 transactions build on previous high-grading of the portfolio, divesting mature assets and invest more in long-term gas production onshore U.S. Through this, we have created a more future-proof international portfolio, focusing on prospective core areas, increasing free cash flow, strong production, lowering cost and a portfolio with low carbon intensity. Now on to our strategic priorities for 2026 and '27 and how they guide our capital allocation. The world is changing, but one thing remains firm. Energy demand continues to grow. We are well positioned to contribute to energy security, affordability and sustainability. So first, after more than 50 years of developing the Norwegian continental shelf, we are uniquely positioned for value creation here, and we continue to invest. The Norwegian continental shelf remain the backbone of the company. In 2026, the NCS will contribute to our production growth, and we work to maintain strong production well into the next decade. In the future, as you know, we expect to make more but smaller discoveries. To ensure commerciality, we will work with partners, suppliers, authorities and unions to change the way we operate on the Norwegian continental shelf. We will develop future discoveries faster, become more efficient and increase return while improving safety further. Next, we are set to deliver strong production and cash flow growth from our high-graded internationally -- international oil and gas portfolio. We are progressing project execution and exploration across key geographies, adding new volumes and opportunities for longevity in the portfolio. On power, we combine our renewable portfolio with flexible power to build an integrated power business and strengthen our competitiveness. We are value-driven in all we do and disciplined in execution and capital allocation. The main focus for '26 and '27 deliver safe operations and strong project execution of already sanctioned portfolio. All this, Norwegian oil and gas, international oil and gas, power are tied together by our marketing and trading capabilities, creating value uplift across our business. We are positioned to create value within low carbon solutions like carbon capture and storage, but markets are developing at a slower pace than anticipated. In addition to the execution of Northern Lights and Northern Endurance, we will continue to mature a few selected options and markets at low cost. We will be positioned to invest as markets develops, customers are in place and returns are robust. We grow our production to even higher levels in 2026 from a record high production level in 2025. For the year, we expect a production growth of around 3%. We are ramping up new fields, which more than offset divestment and natural decline. We are replenishing our portfolio and have 3-year average reserve replacement ratio of 100%. On the NCS, we made 14 commercial discoveries last year, mainly close to existing infrastructure, adding to longevity. And we continue to explore. We have added attractive acreage in Norway, Brazil and Angola, where we expect to drill around 30 exploration wells in 2026. We expect to reduce our unit production cost to $6 per barrel. We continue to focus on delivering a carbon-efficient portfolio with a CO2 upstream intensity of 6.3 kilo per barrel. We take firm actions to strengthen our cash flow and further increase resilience facing higher market uncertainty. In 2026, we expect around $16 billion in cash flow from operations after tax. This reflects a lower price outlook and is also impacted by the tax lag effect in Norway. A flat price assumptions is growing to around $18 billion in 2027. We have strengthened our investment program for 2026 and '27, reflecting market realities. We have reduced our CapEx outlook for these 2 years with around $4 billion, mainly within power and low carbon. This also influenced our net carbon intensity reduction for 2030 and 2035, no change to 5% to 15% and 15% to 30%, respectively. We maintain a stable investments of around $10 billion annually to oil and gas. Our CapEx guiding for 2026 is around $13 billion. This includes Empire Wind, where we, in 2027, expect to monetize investment tax credits for around $2 billion. With this, we indicate CapEx of $9 billion for 2027. In the current situation for the offshore wind industry, we are focusing on projects in execution and have a high bar for committing capital towards new offshore wind projects. This includes our ownership in �rsted. We will continue driving cost improvements, including the portfolio high-grading we have done. We aim for 10% OpEx reduction in 2026, even while growing production. We continue with strategic portfolio optimization to strengthen future cash flow. Proceeds from the divestment of Peregrino and onshore Argentina assets is expected to contribute more than $1.1 billion this year. The action we take to strengthen our cash flow and robustness support sustainable, competitive capital distribution. This is important to me and a priority for the Board of Directors. The starting point is the cash dividend. We have set an ambition to grow the quarterly cash dividend with $0.02 per share on an annual basis. We continue to deliver on this. It represents an industry-leading increase of more than 5%. We also continue to use share buybacks to deliver competitive total distribution. For 2026, we announced a share buyback program of $1.5 billion, including the state share. The first tranche of $375 million starts tomorrow. As previously communicated, we see true timing effects like the tax lag in Norway and the phasing of Empire Wind and lean on the balance sheet to deliver competitive capital distribution in 2026. In 2027, we have taken action to deliver stronger free cash flow. This is important to ensure that we can deliver competitive capital distribution in a long-term sustainable manner. So with our guiding in the background, I will give the floor to Torgrim that will take you through -- further through the details. And then I look forward to questions together with Torgrim when he is finished. So Torgrim, please. Torgrim Reitan: So thank you, Anders, and good morning and good afternoon, and thank you for joining us here today. So 2025 was a good year for Equinor. We delivered strong performance and record high production. But before we dive into the financial results, I want to expand on how we will manage through a period of volatility. So we are prepared for lower prices with a strong balance sheet, lower cost and CapEx and an attractive project portfolio. Our financial framework sets the boundary conditions for how capital allocation -- for our capital allocation and how we manage our company. So to start, our highest priority will be to deliver a robust and a growing cash dividend, in line with our dividend policy, and this reflects growth in our long-term underlying earnings. Then we will continue to invest in an attractive and high-graded investment portfolio with low breakevens and strong returns in line with the following priorities. First, our unique position on the Norwegian continental shelf gives us competitive advantages. And this is why we will continue to prioritize developing this area and allocating almost 60% of our investments to an area we know better than anyone. In '26, we have 16 projects in execution in Norway. Many of these are tie-ins to existing infrastructure with low cost and very low breakevens. Then we will allocate 30% of our capital to our international oil and gas business. This is mainly to sanctioned projects, and we expect to increase production to more than 900,000 barrels per day in 2030. And then around 10% of our capital will be allocated to building an integrated power business where the main focus is on delivering our offshore wind projects in execution safely, on time and on cost. Outside these 3 areas, we expect limited investments over the next 2 years. As you know, we will prioritize having a strong balance sheet and liquidity necessary at all times. And this is important to manage risk and to continue to deliver value. Over the next 2 years, we will see through the timing effects such as the NCS tax lag and the tax credit on Empire Wind impacting our cash flow from operations, and we will lean on the balance sheet. We will lean on the balance sheet in 2026 to cover CapEx and distribution. Next year, in 2027, cash flow from operation is stronger, and we have lowered CapEx, significantly improving the free cash flow. So we will manage the balance sheet through this period and continue to deliver competitive capital distribution, including share buybacks. For more than a decade, we have consistently delivered an industry-leading return on capital employed. And if you ask me, that is a premium KPI that we hold very high in our company. And with this financial framework, we expect to deliver around 13% over the next 2 years, now using a lower price deck than what we have used earlier as such. So that is comparable to what we have said earlier. We are used to managing volatility and deliver value through cycles. First, to manage cycles, we have to run with a strong balance sheet and a robust credit rating, and we have that. We have that. And having liquidity available is key. We have close to $20 billion for the time being. Second, a low cost base is important to ensure that we make money at low prices, and we continue to reduce our costs. We have a low unit production cost. And in 2026, we will further reduce it by around 10% to $6 per barrel. We are the lowest cost supplier of pipe gas to Europe with our all-in costs of less than $2 per MBtu, and we are sure that we will create significant value in any price scenario in Europe. Through strong cost performance and portfolio high-grading, we aim to reduce OpEx and SG&A by 10% in 2026. This corresponds to a flat underlying cost development, overcoming inflation while growing production. We are addressing costs in all parts of the organization. And I want to highlight that in 2025, we brought down OpEx and SG&A in renewables by 27%, mainly due to reductions in early phase costs. And then thirdly, it is key to have a competitive project portfolio that makes sense at lower prices. And we operate a majority of our projects, giving us the flexibility needed to adjust when we want to do that. Through portfolio flexibility and high-grading, we have reduced CapEx over the next 2 years by $4 billion, made divestments totaling more than $6 billion since 2024 and strengthened the quality of our portfolio. Our average breakeven is around $40, and we see an internal rate of return of 25% in the portfolio at $65 oil. We remain a leader on CO2 efficiency and an average payback of 2.5 years. So I will call this a robust, low-risk and high-value project portfolio that will create value also at low prices. In periods of volatility, our NCS position and our international portfolio complement each other. In Norway, we are more robust to lower prices, while internationally and particularly in the U.S., where we have strengthened our gas position, we have a large exposure to upside in prices. So Norway first. We have immediate deductions for CapEx against the special petroleum tax. And with full consolidation between fields and no asset ring-fencing, our pretax CapEx of around $6 billion translates into an after-tax investments of less than $1.5 billion. And when prices change, 78% of the effect on the revenue is absorbed by reduced taxes. So this makes the NCS less exposed to lower prices than other basins. So what happens if prices change? With a $10 move in oil prices, the cash flow is only impacted by $1.2 billion, and this is across the global portfolio and adjusted for tax lag. For European gas, a $2 change equals $800 million. What is particularly interesting is the U.S. gas, where the production is now 1/3 of our Norwegian gas position. But still, a $2 movement in gas price has a similar effect on cash flow after tax as in Norway. So let me elaborate more on the U.S. gas as that has become even more important to us. So in 2025, we delivered around $1 billion in cash flow from operations out of that asset. Production increased by 45% on back of well-timed acquisitions to around 300,000 barrels per day, capturing gas prices that were more than 50% higher than in 2024. We have a low unit production cost for U.S. gas around $1 per barrel, and we are well positioned to benefit from robust power load growth and increased demand in the Northeast. We are marketing our gas ourselves, and we are able to add value through trading, pipeline capacity and access to premium markets such as New York City and Toronto. So in January this year, gas prices in the Northeast reached very high levels driven by the winter storms, and we used our infrastructure and trading to capture quite a bit of value out of that volatility. Okay. So now to our fourth quarter and full year results. These slides sums up the key numbers you heard from Anders. Safety is our first priority. We see strong safety results, but we need to continue improving with force. Return on average capital employed in '25 was 14.5%. Cash flow from operations after tax came in at $18 billion, and earnings per share was strong at $0.81. For the year, we produced 2,137,000 barrels per day. This is record high and up 3.4% from last year, driven by ramp-up on Johan Castberg and Halten East on the NCS, U.S. onshore gas and new wells coming on stream. In the quarter, production was up 6% despite some operational issues in Norway and in Brazil. On the NCS, Johan Sverdrup had another strong year. For power, we produced 5.65 terawatt hours and renewables power generation was up by 25%. So then to financials. Adjusted operating income from E&P Norway totaled $5 billion, driven by increased production at lower prices. Depreciation was up compared to last year due to new fields on stream. Our E&P International results were impacted by portfolio changes and an underlift situation in the quarter. In the U.S., results were driven by significantly higher gas production, capturing higher prices. And in our MMP segment, results were driven by gas trading and optimization and a favorable price review result in January. So the result of this price review explains the difference from the MMP guidance. So this is a one-off. However, important enough, and the cash flow impact will be somewhat higher than the accounting effect, and it will come in 2026. On a group level, we had net impairments of $626 million and losses on sale of assets of $282 million. These do not impact adjusted numbers. A significant part of this relates to the Peregrino and the Adura transactions, and they are mainly driven by accounting treatment of these transactions, more of a technical nature. Adjusted OpEx and SG&A was up 7% compared to the same quarter last year and up 9% for the year. These are driven by transportation costs, insurance claims and currency. For the year, underlying OpEx and SG&A was up 1%. And if you adjust for currency headwinds, it was actually slightly down. For the year, our cash flow from operations came in at $18 billion after tax, in line with our guidance when we adjust for changes in prices. Organic CapEx for the year was $13.1 billion, also in line with what we said. Our net debt to capital employed ended at 17.8%. This increase from last quarter is mainly driven by NCS tax payments and �rsted rights issue participation and somewhat increasing working capital. So let me conclude with our guiding. For 2026, we expect $13 billion in organic CapEx and a 3% growth in oil and gas production. We have increased our quarterly cash dividend by more than 5% now at $0.39 per share and announced a share buyback of up to $1.5 billion for the year, starting with the first tranche tomorrow. So thank you very much for the attention. And now I will leave the word back to you, B�rd, for the Q&A session. So thanks. Bård Pedersen: Thank you, both Anders and Torgrim. We will now start the Q&A. [Operator Instructions] So then we'll start. And the first hand I saw was Teodor Sveen-Nilsen from Sparebank. Teodor Nilsen: Congrats on strong results. So 2 questions. First on CapEx. You obviously reduced the guidance for 2027. I just wonder how we should interpret the run rate into 2028. Should we also assume that 2028 CapEx will be well below the $13 billion you previously announced? Or is that too early to say anything about? And second question, that is on MMP. Could you just explain what's behind the price review that boosted the results? Anders Opedal: Thank you very much. So you can think about the price review, Torgrim, while I'm talking about the CapEx. Yes, you're right. We have reduced the CapEx. We have -- when we are looking into the CapEx profile over the last years, we have had consistency. You have seen that we have consistency investing into Norwegian oil and gas and in international oil and gas. And last year and this year, we are reducing the CapEx outlook for our renewables and low carbon solutions. And this is due to that 2, 3 years ago, we had a different market view than we have today. We don't expect that this market will change dramatically over the next years. We intend to continue focusing, investing consistently into our attractive oil and gas portfolio that Torgrim demonstrated and be market-driven and invest in low-carbon solution and power when the time is right, the profitability is right and the market comes. So I cannot give you the guiding for '28 already. But with this consistency investments in oil and gas and this change we have done in the CapEx for renewables and low carbon solutions and the market will probably not change very much over the next years, I think you will see somewhat consistency in our CapEx guiding going forward, and we will come back to more details about this in June. Torgrim Reitan: And thanks, Teodor. On the price review, that is a normal mechanism in many of the gas contracts where sort of if the price in the contract dislocates from what the market should have been and the price should have been, we have a mechanism to renegotiate or open up that. We often disagree with customers in processes like this. And often, we take such things into arbitration as we have done in this case. So that has gone on for a while, and we won in that arbitration. Over the year, we have accrued revenue related to that because we consider that we had a strong case. We had an even better outcome than what we accrued as such. So this will be a one-off payment during the year. And from now on, there is a new mechanism in place on that contract as such. Bård Pedersen: Sorry, Teodor, I need to stick to the 2 questions because we want to cover as many as possible. And the next one is on my list is John Olaisen, ABG Sundal Collier. John Olaisen: First question is regarding Johan Sverdrup... Bård Pedersen: John, please use the microphone so people can hear you online. John Olaisen: Okay. Sorry. It's John Olaisen from ABG. My first question is regarding Johan Sverdrup. Anders, you quoted in the media today saying that you expect it to decline by more than 10% this year. I wanted to elaborate a little bit more on that. How much more? And do we expect the same for the next few years? So that's my first question on Johan Sverdrup production profile. The second question is regarding M&A. You've sold a lot of assets internationally. So I wonder, do you still have assets on the sales list internationally? And also secondly, it's a long time since you bought assets internationally. Do you have -- are you looking at potential acquisitions internationally? Those are the 2 questions, Sverdrup and M&A. Anders Opedal: Thank you. First of all, when it comes to Sverdrup, I think we have demonstrated over many, many years how we've been able to keep up the production, even increase it due to the fantastic work that is done by the people working with Johan Sverdrup. Then a field like this is like all other fields, eventually, it will come into decline, and we see that now. So we see a decline in Johan Sverdrup for 2026, which is more than 10%, but well below 20% and that is what we put into our numbers. Still, we will have a growth in Equinor of 3% for 2026 and actually also a growth both on the Norwegian continental shelf and internationally. And of course, based on all the good work, drilling new wells, placing the wells better, retrofitting the wells, high production efficiency, have a high water cut and flow through the separators. The team is working to make sure that this decline is as low as possible. But above 10, well below 20 is what we see and kind of planning for in 2026. Well, we don't have a specific list of M&A sales candidates and targets that we disclose. But I think what you have seen, what we have done in the past, we have been active both in divestment where we think the timing is right to create value and where we see that future investment can be used better elsewhere that we have monetized those assets. And when we have seen opportunistic opportunities to invest, we have done it like twice in the U.S. gas in the Marcellus. You can expect us to be active going forward. And we have had a strategy of optimizing the international business, and we have optimized it now and set it clear for growth. And now is the focus to deliver on that growth finding more attractive exploration opportunities within those selected areas and at the same time, be open for value-accretive opportunities in the market. Bård Pedersen: Thank you. Next on my list is Henri Patricot from UBS. Henri Patricot: Two questions from me. The first one on the cash flow guidance for '26, '27, you do show this meaningful improvement in '27 to $18 billion. Could you give us a bit more of a breakdown behind this improvement? I think you mentioned Empire Wind starting up, some tax lag effect. What else is contributing to this sharp increase? And then secondly, I was wondering, there's uncertainty still around Empire Wind 1. What would be the impact to the financial framework you presented today if the project does not complete or implications for the broader CapEx and shareholder returns? Anders Opedal: So if you, Torgrim start with Empire Wind, then I can take on the CapEx reduction for '27 afterwards. Torgrim Reitan: Okay. So thanks, Henri. On the Empire Wind, clearly, we are steered by sort of forward-looking economics and forward-looking cash flows when we make up our mind. So from now on, the remainder of investments will be covered by the ITC and cash flow from operations over the next 2 years in a way. So the threshold for not moving forward with it is extremely high in a way. I mean the total economics of that project life cycle is something else. But clearly, the decision that we have to make is actually how it look going forward. And going forward, it's actually pretty solid. So the threshold for stopping it is very high. Our job is to deliver this on time and schedule. And I must say, I am extremely proud of what that project organization has been able to do through all of this volatility this year to keep it steady on the track. So we are on track to deliver, and we have no other plans than that. Anders Opedal: Yes. And then the cash flow from operation that is increasing from $16 billion to $18 billion towards '27. This is based on flat price assumption, $65 on the oil price and $9 and $3.5 for Europe and U.S., respectively. And the answer here is that this is the tax lag. We are this year paying a higher tax based on higher prices last year on the Norwegian continental shelf. And it's also a 3% production increase in 2026 that will also contribute to a higher cash flow. Bård Pedersen: Good. I have a long list also online. So let's take a few from there. The first one to raise his hand was Biraj Borkhataria from RBC. Biraj Borkhataria: Just the first one is a follow-up on Johan Sverdrup. You mentioned the decline for 2026. What is in your base case for 2027 and beyond? Because obviously, it's quite a big part of your portfolio. It'd be good to get some clarity there on the decline rates. And then the second question is just on the Empire Wind budget has obviously gone up a little bit. How should we think about how much contingency you have in that new $7.5 billion budget? Anders Opedal: Well, when it comes to -- we are guiding now on Johan Sverdrup for 2026. And to say what it will be in '27 is too early. As I said, we have a fantastic team there that will do everything they can to reduce this decline. We will drill new wells. And I also remind you that in the end of '27, we will have Johan Sverdrup Phase 3 coming on stream as well. We have ramp-up of other fields on the Norwegian continental shelf, meaning that despite this reduction in '26 decline in Johan Sverdrup, we will still have a production growth. And then we will see now how Johan Sverdrup behave during the first part of the decline and how we are mitigated and then we will come back to it. So it's too early to say. When the increases on the Empire Wind, it's very much related to 2 elements, is tariffs that has been imposed to the project and is also an effect of the first stop-work order that we had. The second stop-work order, we were able to execute part of the project, most of the project in the beginning of the stop-work order. And the most important parts of the progress, we were able to do after the preliminary injunction. So very little effect of the project. So it's the execution part of it -- it's going well in terms of CapEx -- use of CapEx in this project, but there is a remaining uncertainty on tariffs. You might remember a couple of weeks ago, a 10% tariff due to Greenland that was removed a little bit a few days later, and that is some of the uncertainty that we are facing with this project. Bård Pedersen: The next one on the list is Alastair Syme from Citi. Alastair Syme: Just one question really to Anders. I just wanted to reflect on the journey that Equinor has been on in recent years with respect to the transition because you are signaling today a further scaling back in ambitions with a lower CapEx and look, I know you're not alone in doing this in the industry. But if I go back a few years ago, you had outlined a competitive position where Equinor could be differentiated in the transition space. So I guess my question is, what are your reflections on this journey? And what do you think has happened that is different to what you anticipated several years ago? Anders Opedal: Thank you. It's a really good question. And I think kind of this is where we were saying today that we are signaling a consistency. We have over the last 5 years, been extremely consistent in our communication around oil and gas and how we will develop the oil and gas portfolio, optimize it, and we have delivered on that. But we also had a different market view on offshore wind and the transportation and storage of CO2 in particular. This is where we were -- had experience. We saw a market growing for transportation and storage of CO2 going faster than we actually have seen. We -- for instance, also for hydrogen, a couple of years ago, we actually had head of terms contracts with customers. Those has been canceled, meaning that we have not been able to progress a lot of these projects within that area. But keeping in mind, we were able to -- been able to do Northern Lights -- Northern Lights Phase 2, Northern Endurance. So we see now that the licensing for or support regimes and applications for capturing CO2 goes slower despite that the framework and the laws are much more in favor of CO2 now than it was before. So to summarize very quickly, we had a different market view some years ago based on real discussions with governments and potential customers than we have today. 3, 4 years ago, customers called us to buy natural gas and was also asking for potential hydrogen and transportation and storage of CO2. Today, they continue to buy natural gas, but they have postponed their own targets for reducing emissions beyond 2030. Some years ago when everyone had a 2030 target, much more focus from customers to have this market up and running very fast. Now with different targets beyond 2030 to collect enough CO2 to have long-term contracts we have found it very difficult. That's why we are allocating no more CapEx into that area due to the market conditions. So that is what had happened. And we have focused on business-to-business with hard-to-abate industry that has postponed the targets. Bård Pedersen: Next question is from Irene Himona from Bernstein. Irene Himona: My first question is one of clarification really. You referred to your objective to build an integrated power portfolio. Typically, when your peers refer to integrated power, they mean essentially adding gas-fired power generation to renewables. So I wanted to ask what does integrated power mean for you? And how does �rsted fit in that? My second question, just going back to the share buyback. Previously, in the past, you had guided to a long-term sustainable through-the-cycle share buyback of around about $2 billion. Today, you lowered that to $1.5 billion. I'm just trying to understand what has changed between then and now essentially. Anders Opedal: You can start with that, Torgrim, and I'll do the integrated power. Torgrim Reitan: Okay. Thanks, Irene. So well, we have said at earlier years, $1.2 billion as sort of the sustainable level in a way. So $1.5 billion is actually above that. We retired the $1.2 billion a bit back. To give a little bit more context, Irene, it's the concept of having a stable share buyback through a cycle, comes a little bit theoretical. We're just coming out of a super cycle, and we have returned $54 billion over the last 3 years based on that in a way. So where we are now, we are actually the first year where the balance sheet is normalized, and we aim to manage within our means. So the number that we put forward today is $1.5 billion. We are leaning on the balance sheet this year, but you have seen in 2027. So we want to sort of give you an outlook for -- over a couple of years here. So the way you should think about share buyback is that it is a natural part of the capital distribution. It is something that is regular and is on top of the cash dividend. And the cash dividend, you should see -- consider as bankable. Share buyback clearly will be more dependent on macro environment as we move forward. Anders Opedal: When it comes to integrated power, for us, that means both intermittent power like offshore wind, onshore wind, solar, in addition to flexible power, batteries and CCGTs. We do have exposure in all of this. We have gas to power in U.K. We have battery in Poland and onshore and offshore and solar. This was divided in different business area. Now everything is integrated into one business area power. And then we have Danske Commodities that are able to integrate this totality and add additional value to this. Having said that, the priority within Integrated Power over the next year is to deliver on the already sanctioned projects. And from that, we are able to potentially if we have the right investment opportunity to expand further on the integrated power. But of course, with our gas position in Europe and U.S., we are, of course, well positioned also for gas to power if we see the right opportunities in the future. �rsted and working together with �rsted and collaboration with �rsted, as we have said, fits into this type of integrated power. We can be exposed in offshore wind in different ways and working together with �rsted, collaborating with �rsted will fit into an integrated power in different types of potential structures. Bård Pedersen: Thank you, Irene, for that. I'll take one more on the phone and then return to the room here. The next one is Paul Redman from BNP Paribas. Paul Redman: My first question is just how do you think about growth at Equinor? The reason I asked that question is at the Capital Markets Day last year, you highlighted a flat to decline in production 2026 plus. And I'm assuming that included some Vaca Muerta production as well. You're heavily cutting the renewable portfolio spend. So just how do we think about growth going forward from here? And then secondly, when I look at MMP, I guess the long-term -- well, the annual guidance was $1.6 billion, $400 million a quarter. You generated about $1.25 billion to $1.3 billion for the quarter if I take out the long-term gas contract review from this quarter. Is there any reason the guidance isn't updated? And how should we think about MMP going forward? Anders Opedal: I'll start with the growth, and we divide it so you can take the MMP. Well, let's start with the renewables. We have said that we don't want to invest more than what we have already sanctioned, but that will create a growth. We had a 45% growth quarter-to-quarter on the renewable business this year, 25% on the annual -- in 2025. So still growth in Integrated Power over the next year. And then as I said, we will have to think how we can create further profitable and disciplined growth into that area. When it comes to the international business, we have repositioned that portfolio. And you can expect from today's level towards 2030, growing this production towards 900 million barrels a day. So it's clearly a growth in there, growth in production, growth in free cash flow. On the Norwegian continental shelf, we will continue to explore. We -- it will be difficult to create further growth in -- on the Norwegian continental shelf, but we have received attractive acreage. We will drill 26 exploration wells on the Norwegian continental shelf next year. We're working on reducing the time from exploration to production from 5 to 7 years to 2 to 3 years, enabling more efficiency to be able to keep the production at the highest possible level on the Norwegian continental shelf and growing free cash flow from that portfolio. And that is what we're aiming for, for Norwegian continental shelf internationally and integrated power. Torgrim Reitan: Thanks, Paul. On MMP. So if you strip away the price review, you get to around $400 million in the fourth quarter, which is very much around sort of what we guide at. So that's sort of -- that's what you should, in a way, expect on a quarterly basis. However, there will be fluctuations as you very well know. What typically drives results are volatility in commodity markets and also contango versus backwardation. I can give you one example actually from January, where there has been a lot of volatility in the gas market. And in Europe, we have a 70% day ahead exposure and a 30% month ahead exposure. So you can rest assure that sort of the spikes you have seen in January, it finds its way to our P&L in Europe. In the U.S., we don't have -- we don't sort of have a firm exposure that we want, but clearly, the traders keep a certain part open. So when going into January, in the U.S., our traders left 30% exposed to the prompt or cash prices as such. So at the most extreme, for instance, the in-basin price for Marcellus gas was $60 per MBtu, and we took that. And then we have a transportation capacity into New York, actually coming up at Penn Station. And we achieved more than $100 per MBtu in that weekend as such. So just examples of when you see volatility, you should expect us to be able to get it in a way. So that's why these results typically fluctuates. Bård Pedersen: Thank you, Paul. Vidar Lyngv�r from Danske Bank. Vidar Lyngvær: First, just another clarification on the renewable spending in 2027. You're reducing CapEx by $4 billion. I get the tax credit part. Could you add some more color on where the remaining cut comes from? Second, Johan Sverdrup, you mentioned the decline rates there. Are those exit to exit, so exit '25 to exit '26? Or is it average production decline in '26 versus average in '25? Torgrim Reitan: Johan Sverdrup exit to exit or -- let's come back to the specifics on that. But I do think it is when you compare sort of the last year production with next year production as such. And just -- yes, and team is nodding there. So that is the way it works, yes. Anders Opedal: Yes. Yes, a little bit more color to this. As I answered earlier, we had a different market view. So we had, for instance, potential hydrogen project, transportation of CCS project in the CapEx outlook that we showed last year, those projects are not materializing. In addition, we have reduced our onshore renewable CapEx as well. And in total, this adds up to those $4 billion and together also with the ITC as you have seen. Bård Pedersen: Good. Steffen Evjen from DNB Carnegie. Steffen Evjen: On the ITC, just could you please remind me on the milestones they are required for that payment to come in, in terms of first power and any other things that has to be fulfilled? My second question is just a clarification on Adura. I think you said $1 billion in dividends. Is that your share? Or is that the total share to both shareholders? Torgrim Reitan: It's our share and then the ITC. ITC, yes. So the way it works is that you can recognize it when you start production and sort of that is sort of scale as you continue to start up the various turbines. So what we have assumed is that we recognize all of this in 2027 because that's sort of the plan. There is an upside that there is some ITCs recognized in 2026. We haven't based our analysis on it. So that is sort of the recognition part. And then there is -- so what is the cash flow impact of it. And it will take some time from we recognize it to the cash flow is in our account. So what you see on the slide is that we have assumed $2 billion impact of the ITC in '27, while the total number, the absolute number is $2.5 billion. So that sort of give you a little bit of a perspective around this. It is a significant financial operations to manage all of this, as you would know, but there is a large and growing market for ITC in a well-functioning market in the U.S. for this. Bård Pedersen: Next one is Martijn Rats from Morgan Stanley. Martijn Rats: I've got 2, if I may. I wanted to ask you again about the CapEx reductions. I know there have been a few questions about it already. But when Equinor took the initial 10% stake in �rsted, very soon thereafter, we also had a reduction in the CapEx outlook for offshore wind, renewables in general. And in many ways, that had the character, therefore, when you put these 2 things together, it's like, well, we do less organically and we do more inorganically. It was sort of not a total reduction, but it had an element of we're swapping one type of spending for another type of spending. And I was wondering how we should interpret this reduction in CapEx on this occasion. If power and low carbon CapEx goes down, is that -- should we interpret that as well, the company is just going to do less of that stuff? Or should we anticipate that in the fullness of time, this also turns out to be a swap, less organic, but more inorganic. I was hoping you could say a few things about that. And then the other question I wanted to ask is about the 10% OpEx and SG&A reduction target. Like 10% in a single year is quite a significant amount and also because Ecuador has already been very focused on that for some time. I was positively surprised that there's still sort of that type of opportunity available. Could you talk a little bit about the key levers, where that spending can be reduced? And also just for the avoidance of 10%, how does that translate into absolute sort of absolute dollar amounts, that would be helpful? Anders Opedal: Let's start with that question first, and Torgrim. Torgrim Reitan: Okay. Thanks, Martijn. So on the 10% reduction. So over the last years, we have been able to maintain OpEx and SG&A flat even if we have grown our production and despite the inflation as such. So our people and organization has done a good job. Next year, we expect that number to come down by 10%. That is a very big number. However, it is a significant impact of divestment of Peregrino and the establishment of Adura that will be equity accounted as such. So the reported numbers will be down 10%. But when you adjust for structural changes, we expect to maintain OpEx and SG&A flat, growing by 3% and still inflation as such. So this comes from many sources. First of all, activity level. Clearly, we have taken down and prioritized that very hard. That has a direct impact on it. We have taken down early phase costs significantly in the portfolio, also a significant contributor. Staff are continue to high grade and take out efficiencies. And then the business areas are clearly working on this. So -- but on your question, is there more to come? And the answer is yes, we are never satisfied with where we are on this. And I can give you 2 examples of what to come. One is the work around NCS 2035. We do see a significant cost impact of that. So we hope to show more on that in June. The other one is actually artificial intelligence. So we have already see that in our numbers, NOK 1 billion or so, which is good. However, this is early days. And we do believe that with our large operations and our ability to take out effect across assets that AI can really be a significant contributor to further cost improvements. So we'll continue to fight and work this -- but the 10% is clearly colored by the inorganic moves we have done. Anders Opedal: Yes. So -- and thank you for that CapEx question, Martijn. And let me elaborate a little bit how I think around this because you probably see now that several times, we have taken down the renewables and low-carbon solution CapEx. And it's not necessarily because we have done any inorganic moves. It's also because we have not been successful in some of the bidding because we have raised the bar for winning future CFDs. And a couple of years ago, we had several projects inside our CapEx outlook that is now not inside the CapEx outlook due to deliberately not being successful in those auctions. So a more positive view some years ago, as we said during the �rsted acquisition of 10%, we found it more value creating at that point in time, do an inorganic move than do organic move. This -- we have further taken down the CapEx for offshore wind, but also on onshore renewables. A couple of years ago and last year, we had a much more positive market view and direct discussions with customers for CO2 highway and the hydrogen project in Eemshaven, which are now pushed further out in time. And actually, the hydrogen projects in Eemshaven is stopped before FEED, and we will not move forward. And in these areas, I don't think there are many inorganic moves to be done that will create value. So you should not expect us to work much on this. We will continue to work on being a leading company in terms of transportation and storage of CO2, building on Northern Lights 1, 2 and Endurance, but we will not make investments before we see -- we have long-term contracts, we have seen costs coming down and we see profitable projects. And that means that there needs to be a better market than we see today. Bård Pedersen: Thank you, Martijn. Next one is Nash Cui from Barclays. Naisheng Cui: Two questions, please. The first one is on your upstream reserve life. I wonder how do you think about a reasonable level of upstream reserve life in the medium to long run, please could better technologies like AI to help extend base? Then my second question is on �rsted. I think earlier, you mentioned that you could collaborate more with �rsted in kind of different types of potential structures. And I wonder if you could elaborate what you mean by the potential structures? Anders Opedal: Well, you have seen what we have done, just an example with Shell in U.K. There's always way to work together to create value for both shareholders. But there is no discussion at the moment, but we see that a further collaboration with �rsted could benefit both companies, but nothing new to elaborate today. When it comes to reserve life, I think this will also -- the ROP will be affected in the years to come that we have many more exploration wells, smaller discoveries and faster time from discoveries to production, meaning that the ROP will be lower than traditionally when we had the big elephants on the Norwegian continental shelf. At the same time, we are comfortable with our ROP where we see it today around 7 because we have so many exploration wells, we have discoveries. And last year, we had 14 discoveries, adding in total 125 million barrels in new resources. Lofn and Langemann, which is in Sleipner area is in an area where we thought there was nothing more to be found, but new technology, new seismic, use of AI has enabled us to make more discoveries. We have seen the same in the Ringvei Vest area. So we will continue to implement AI in exploration to ensure that we are able to discover new resources that was overseen in the past that we now can drill and bring to market in a quicker way. And by using AI, not only on exploration, but also in operations, and so on. We saved $130 million last year, and this is accelerating. So as Torgrim said earlier, we are really focusing on implementing AI to create value in the company. And this is something that you will hear more about in the future. Bård Pedersen: Next is Jason Gabelman from TD Cowen. Jason Gabelman: I wanted to first go back to the Empire Wind guidance. And I'm wondering if the $600 million of cash flow, is that what Equinor expects to receive? Or are there going to be some repayments on the project financing that are going to minimize that in the earlier years? And I wonder if you have a similar number for the Dogger projects. And then my follow-up is just on kind of broader exploration opportunities beyond what you've discussed. And we've seen companies kind of going back into regions where fiscal terms have improved like the Middle East and West Africa. I wonder if you look at those regions as potential opportunities for the company to exploit or given kind of the lack of footprint in those regions, is it not a core focus? Anders Opedal: Yes. I'll start with that question, and you can do the $600 million and the synergy effects there. So basically, what you have seen, what we have done in the international oil and gas portfolio is to focus it. We were in 30 to 40 countries, high cost, high exploration cost. And we have concluded that we were not successful with that strategy, adding too much cost and too little of progress in putting new resources into the inventory. So we have worked very hard to focus and building an attractive exploration portfolio in those focused areas like in Angola, in Brazil and in U.S. offshore. And of course, Bidenor East Canada, we're working on the Bidenor field, where this will also have attractive exploration opportunities around it, similar to what we see on Castberg and other new fields. Then, of course, we will, of course, always be open for ideas and value-adding exploration activity outside this core, but the bar is high. We will not have a global exploration strategy moving around in all parts of the world. We have areas where we see now we have learned the basin. We have experience, and we think we can expand quite a lot on that one. Brazil, for one instance, by Bacalhau, the Raya, we have an attractive exploration opportunities there now, the neighbor block to the Bumerangue discoveries for BP. We have a block close to Raya, and we're maturing up to see what kind of exploration program we can have in that area. And next -- and in this year, we will actually also drill exploration wells in Angola. So we are curious about other areas, but we'll have most of our focus in the focused area. Torgrim Reitan: And then Jason, on the $600 million in cash flow related to Empire Wind, that is related to our equity as such. There's no sort of money of that, that goes to the lenders. A couple of things. There is a portfolio effect in addition to the cash flow within the project. And that is related to that the depreciation that we have in Empire Wind goes into the IFRS results and the minimum tax in the U.S. is based on IFRS results. So it sort of reduces the minimum tax payments in the states as such. So there's a portfolio effect coming on top of the direct cash flow in the project as such. Bård Pedersen: Just to clarify in the CFFO, the interest payment is included, but not the payment to the lenders, as you said. Thank you, Jason. Kim Fustier from HSBC is next on my list. Kim Fustier: I had a couple on the NCS, please. Firstly, I believe that back in November, you announced a reorganization of your NCS business along centralized functional lines like subsea drilling, et cetera. Could you give a bit more color on this? And how does that move help to set you up for a future on the NCS with fewer big developments, but more small developments? And then secondly, could you give an update on a couple of pre-FID projects, Wisting and then Bay du Nord in Canada, where there seems to have been some technical progress lately? Anders Opedal: Yes. Thank you. So the Norwegian continental shelf is changing. With after Johan Sverdrup and Bacalhau, we have, as I said, much more smaller discoveries, smaller fields. Most of the developments will be now subsea tie-in projects. We actually have 75 of those in our portfolio over the next 10 years. So it's about making sure that we're able to execute on these projects faster. We are going -- that we can drill more exploration well faster, and we can create more value. So then we have actually started with looking into how we work. how is our work processes, all the way from working together with partners, internal approval processes, field development processes for subsea tie-in and so on. We have looked at 70 work processes, how to -- for drilling to development and so on. We have simplified those work processes, and we have looked at them together such that all these processes are streamlined end to end. And just to say a change that I will do, instead of making 7, 8 individual decisions on these projects one by one, we will group the decision. And twice a year, I will make a lump decision of several projects, enabling faster decision-making processes and ensure that we're able to move this project faster. Based on changing the way we work, we are also reorganizing both the project organization, the drilling organization and the operation units on the Norwegian continental shelf, not offshore, but all the onshore function, enabling to work according to the new simplified work processes. So this is actually one of the largest changes we have done developing the Norwegian continental shelf since we established the StatoilHydro company and merged StatoilHydro back in 2007, 2008. So it's actually changing the way we work because the geology and the reserves on the Norwegian continental shelf changes. And what do we want to achieve? Well, we want to move time from discovery to production from 5 to 7 years to 2 to 3 years, and we need to increase the volumes that we are able to find during exploration, meaning that we need a 200 to 300 efficiency gains on the Norwegian continental shelf. When it comes to Wisting, this is far in the north in the Barents Sea, challenging projects. We're working hard to simplify it. We have made a lot of progress in that respect. We will work on concluding on the concept during first half of 2026 or in 2026 and then move towards hopefully a DG3 during 2027. But let me underline this. We are not schedule driven. This is a project where we have to make sure that this is the right project, right financial, right breakeven, NPV, and we have everything in place because this is a very, very challenging project. On the Bay du Nord, we are approaching also a concept selection at what we call Decision Gate 2. We have a good engagement with local authorities and the government of Canada to -- so we can work together. This is a very good project. We have worked well together with suppliers for a long time to take down the cost and the breakeven as much as possible. And if we are successful now over the next months, then we can bring it towards an investment decisions over the next -- over the next years. And both these projects, if we are successful, will contribute to high production beyond 2030. Bård Pedersen: Thank you, Kim. I have a few left on my list, and I want to cover as many as possible. So I ask that you limit yourself to one question to give as many as possible the opportunity. Next one is Chris Kuplent from Bank of America. Christopher Kuplent: I'll keep it to one question for Torgrim, and please forgive me for some quick mental math. But when you set your $1.5 billion buyback, are you effectively arguing over the course of '26 and '27, considering the lumps and bumps in your CFFO as well as CapEx, you're targeting to be free cash flow neutral after dividends and buybacks. Am I putting too many words in your mouth? Or is that a fair characterization of what you're trying to do over the next 2 years? Torgrim Reitan: Well, Chris, I think I need to be very precise here. So I mean, you're on to it. So clearly, you should look across those 2 years when you think about sort of our free cash flow generation that we have available to cash dividend and share buyback. We aim to run with a solid balance sheet. However, we are going to lean on the balance sheet in '26, well aware that next year is a larger free cash flow. So it makes sense to look across those 2 years. And we have done that when we have set the share buyback level for '26 as such, we have. Bård Pedersen: Thank you, Chris. Matt Lofting, JPMorgan. Matthew Lofting: Just one on Empire Wind and read-throughs from it. I mean it seems Equinor has done a good job keeping the project execution on track amid the past hold orders. But I just wonder how the company reflects on implications from this and having retained 100% equity stake through it for best assessing risk management and risk-adjusted returns, let's say, on future capital allocations. Are there learnings that are emerging from Empire Wind for optimal sizing, taking into account perhaps above as well as belowground factors? Anders Opedal: Thank you. That's a really good question. And yes, this is definitely something to reflect on. And we normally don't take 100% in any license, not on oil and gas and not in offshore wind. But due to a deal with BP, they took some and we took this. We derisked it somewhat with higher strike prices with a financing package. And then as you have seen, the political risk with the new administration was higher than anticipated. This is a trend we see now in several countries that energy investments are more and more politicalized and polarized. And we see it in Norway. We see it in U.K., we see it in U.S. And definitely, for us, this brings some reflections about what is the above-ground risk you can take. And for myself, I reflected quite a lot about to see bipartisan support for future projects. If there is a kind of a strong division for potential projects, then we need to think twice and really understand the political risk. And this is something new. It's not only in U.S. This is something new that we have seen lately in several countries. And kind of we need to adapt the learning, and we need to bring into future decision processes definitely. Very important question you raised there. And with the political changes we have seen, which were kind of outweighted all the other factors that was reducing the risk, we would have probably thought differently about Empire Wind in the past. Bård Pedersen: Thank you. We are on the hour, but let's take one more and hope is short and then we'll round it off, and that is you, James Carmichael from Berenberg. James Carmichael: Just one last quick one, I think. Just again on Empire Wind. I was just wondering if you could clarify your sort of best case estimate on the timing of the underlying court case and when we might be able to sort of put any uncertainty to be around sort of future hold orders, et cetera. Anders Opedal: Yes. This is a little bit early to say kind of because it's a judge in U.S. to decide that timing when this -- the merits of the case will come up for the court. There's been indication that will happen fairly quick with some couple of months, and that gives us opportunity to elaborate on the case in a good way. I just want to also remind you that all the 4 other operators we're doing exactly the same thing, challenging this in court and all of them were granted a preliminary injunction. We mean that this stop-work order was unlawful. And at least with so consistent preliminary injunction, I think also we have a strong case moving forward. But I'm an engineer and not a lawyer. So -- but yes, we are moving forward with a strong belief that we will have a good case in the court, strong case. Bård Pedersen: Thank you. I would like to thank you all for participating and for asking your questions. We didn't manage all the way through the list, but I want to be respectful for everybody's time. And as always, the Investor Relations team remain available for any follow-up questions during today or later in the week. Have a good afternoon, everybody, and thank you for joining.
Operator: Good day, ladies and gentlemen, and welcome to TomTom's Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn over to your host for today's conference, Claudia Janssen from Investor Relations. You may begin. Claudia Janssen: Thank you. Good afternoon, everyone, and welcome to our conference call. In today's call, we will discuss the fourth quarter and full year 2025 operational highlights and financial results with CEO, Harold Goddijn; and CFO, Taco Titulaer. Harold will begin with an update on strategic developments. Taco will then provide further insight into our financial results, our Automotive backlog and our outlook. After their prepared remarks, we will open the line for your questions. As always, please note that safe harbor applies. And with that, Harold, let me hand it over to you. Harold Goddijn: Yes. Thank you very much, Claudia, and good morning, good afternoon, everybody. 2025 was an important year for TomTom as our product strategy clearly matured and we gained commercial traction. We introduced several new products with our Lane Model Maps standing out as a major milestone. Orbis Lane Model Maps provide lane-level intelligence, including geometry and lane markings, but at a true urban scale. And by leveraging our AI-powered map factory, we can now produce lane accurate maps with exceptional efficiency and freshness, and this has been proven to be a differentiating capability. A strong validation is that we secured a record amount of new business, and that includes a collaboration with CARIAD where TomTom Orbis Lane Model Maps were selected as a core component of the automated driving system supporting the Volkswagen Group brands. In Enterprise, Orbis Maps broadened and diversified our customer base. In the beginning of 2025, we announced a new cooperation with Esri, through which we provide maps, traffic data to support businesses and governments with location intelligence, addressing various use cases from maintaining critical infrastructure to analyzing traffic flows. And more recently, we deepened our global partnership with Uber, expanding our collaboration to enhance on-demand travel experiences worldwide. Looking ahead to 2026, I'm confident that continued advancements in our product portfolio will further strengthen our commercial traction across both our Automotive and Enterprise business, supporting top line growth over time. We will continue to expand and enhance our product offering, and we will make it easier for developers and for businesses to access our data, which will support future growth. We see meaningful commercial opportunities emerging in automated driving and infotainment as well as in high potential verticals such as insurtech and state and local government. Thank you very much. This is my part of the presentation. I'm handing over to Taco. Taco Titulaer: Thank you, Harold. I will cover our financial performance, the key trends we're seeing, an update on our Automotive backlog and our outlook. After which, we will take your questions. Automotive IFRS revenue for the fourth quarter amounted to EUR 77 million, down 3% year-on-year. Automotive operational revenue was 12% lower compared to Q4 last year. The Enterprise business delivered EUR 39 million, a 10% decline versus the same quarter last year. Approximately half of this decline is explained by a weaker U.S. dollar versus the euro year-on-year as around 3/4 of our Enterprise revenue are U.S. dollar-denominated. The remainder of the decline reflects a continued phase out of a large customer, partly offset by a broadening of our customer base over the course of the year. Gross margin was 89% in the fourth quarter, a 2 percentage point improvement compared with Q4 2024, mainly driven by a lower proportion of hardware in our revenue mix. Operating expenses were EUR 110 million, a reduction of EUR 21 million compared with the same period last year, reflecting the combined effect of capitalizing development costs associated with our Lane Model Maps and disciplined cost management. For the full year 2025, we recorded group revenue of EUR 555 million, 3% lower than in 2024. Automotive IFRS revenue was EUR 323 million, down 2% from last year due to lower car volumes at some customers and the phaseout of certain car lines, partly balanced by new model starting production. Operational revenue in Automotive dropped 1%, staying largely stable versus 2024. Our Enterprise revenue for the year was EUR 159 million, 2% lower year-on-year. For the full year, the picture is similar as in the quarter, normalized for the currency fluctuations. Enterprise revenue showed a marginal increase compared with last year. For the full year, gross margin was 88%, an improvement compared with 2024. This continued shift away from consumer hardware structurally strengthened our gross margin from 85% in 2024 to 88% in 2025, and we expect it to move north of 90% in 2026. Operating expenses decreased to EUR 489 million, a EUR 19 million reduction, same as for the Q4 trend. This reduction was due to capitalization of our map investment, lower amortization charges and reduced personnel costs from the second half of 2025, partly offset by the reorganization charge booked in Q2 2025. Looking ahead, the quarterly OpEx run rate entering in 2026 will likely be a few minutes -- a few million euros higher than what we saw in Q4. But for the year as a whole, we expect the total operating expenses to remain below 2025 in 2026. Free cash flow, excluding the cost for the reorganization we announced halfway in the year, EUR 19 million. This was an inflow of EUR 32 million compared with EUR 4 million outflow last year. Having covered our results, let's move on to the Automotive backlog. Our Automotive backlog at the end of the year reached EUR 2.4 billion, a net increase of EUR 300 million compared with the end of 2024. Our Automotive backlog represents the expected IFRS revenue from all awarded deals. Accordingly, the backlog decreases as revenue is recognized and increases when new deals are won. Its value can also fluctuate when customers revise their vehicle production forecast and with ForEx revaluations. The increase in backlog this year was driven by a record level of new deals. Our book-to-bill ratio was well above 2 last year, partly offset by negative impact from ForEx revaluations, which has a more pronounced than usual effect on the backlog valuation. A large portion of the Automotive revenue we expect to report in 2026 and '27 is already covered by the backlog generated from prior year's order intake. The majority of the value from the 2025 order intake is expected to start being recognized from 2028 onwards. From a product perspective, we see Automotive RFQs increasingly gravitating towards Lane Model Maps, the maps that enable autonomous driving functionality and support a growing range of advanced safety features. The products accounted for approximately half of last year's order intake, and we expect this [ should ] continue to grow. OEMs are clearly increasing their product and engineering focus in this area as Lane Model Maps enable both improved vehicle performance and meaningful differentiation. Our strong positioning in this area reflects a decade of sustained investment in these capabilities, and we're now seeing those investments translate into tangible commercial results. An additional benefit is that securing Lane Model Maps deals opens the door to road model map awards for the navigation use cases, supporting further market share gains. Now let's move to the 2026 outlook. Looking ahead to 2026, our revenue will reflect the transition of some customers. However, this impact is temporary. 2026 group revenue is projected to be between EUR 495 million and EUR 555 million, with Location Technology contributing EUR 435 million to EUR 485 million. We expect our operating result to improve year-on-year, while free cash flow is expected to turn temporarily negative due to the sustained investment in our Lane Model Maps. Operating margin is expected to be around 3% of group revenue. A return to top line growth is foreseen in 2027. Higher revenues combined with disciplined cost control are set to drive a further step-up in operating margin as well. To conclude, let me summarize our prepared remarks. We closed 2025 with a strong strategic momentum, marked by a record Automotive order intake and an expansion into automated driving. Despite modest top line declines driven by market conditions and customer transitions, EBIT and cash generation improved meaningfully. With an expanded EUR 2.4 billion Automotive backlog, new product launches and strengthening commercial partnerships, TomTom enters 2026 well positioned for a return to growth in 2027. And with that, we are ready to take your questions. Please, operator, please start the Q&A session. Operator: [Operator Instructions] And our question come from the line from Marc Hesselink from ING. Marc Hesselink: Yes. I have a couple of questions on the lane model. I think this is the new product versus the HD Maps that you previously had. But I think under the hood, a lot changed in the way you build your process, you build your map, how you can integrate with the client. Just if you can explain how this product currently looks like? And also how are your clients going to integrate it? And if you can also talk about what is your competitive position there? Is this now something that is really unique for TomTom that none of the competition has something like this? And if you then compare it, there's always sometimes still the debate between for this kind of functionality, do you need a map, yes or no? What's the status there also with things like the redundancy of the safety features? Harold Goddijn: Yes, Marc, thank you. Yes. So the lane model is fundamentally different from a road model map because it is a representation of the actual road and all the lines on that road and the dividers and whatnot. So you get a replica encoded of what is the road surface, what the road surface looks like. And the problem with building that map is that it's always been very expensive and not -- didn't scale very well. But with new advances in technology and new data that are becoming available, we can now produce those maps to a high degree of automation, not completely automated, but there's a high degree of automation is possible now. And that means that it's becoming economically viable to do this on all roads, not just the motorways. And it also means that you have a process for upgrading and change detection. So you can build maps that are fresher. All those capabilities are critical for self-driving and automated driving. We see that those maps are used in those systems as not only as backup, but also as a sensor. The challenge for self-driving technologies is to reduce the number of interventions of the driver of the vehicle and maps data play a very critical role in reaching that objective. Marc Hesselink: Yes. And the competition at this stage? Harold Goddijn: Well, so we don't have full visibility, but we believe that the method that we are deploying is novel, differentiating, leads to better results, scales better than what our competitors are capable of producing. Marc Hesselink: Okay. And if we look at the client side, you obviously have a big success with the CARIAD. But what about the discussions with other OEMs? Is this something that you -- I'm sorry. Harold Goddijn: Yes, go on, Marc. Marc Hesselink: Yes, I said -- and I wanted to add to -- do you speak to many other clients, including also the Chinese OEMs? Harold Goddijn: Yes. So the interest is coming from a broad range of car brands. People of carmakers want this. They can see the value of having that dataset available for the self-driving function, and that is broadly shared amongst all our customers and also potentially new customers. So we see a profound deep interest in understanding what's going on and how this technology can help them to make those cars and bring the level of automation to the next level. And next to that, we also see interest from software developers who are developing the self-driving software stack. There are a number of independent software developers who are doing this, but some based in -- mostly based in China. And they also show strong interest in understanding what this technology can bring and how it can help them to mature their own technology stack. Operator: [Operator Instructions]. Claudia Janssen: Let me -- if there's no -- I see -- if there's no further questions, let me give the opportunity to some of the analysts if they want to take the questions. If not -- no. If there's no additional questions, I want to thank you all for joining us today. And operator, you may now close the call. Unknown Executive: There is... Claudia Janssen: Oh, sorry. Andrew, sorry. Operator: I have a question that's come through now. So we are now going to take the next question from Andrew Hayman from Independent Minds. Andrew Hayman: Yes. Could you maybe give some guidance to how negative you think the free cash flow will be in 2026? Taco Titulaer: Yes. Thank you, Andrew. So 2 things I want to say about that. One is -- the second thing is to answer your question. But the first thing is that we introduced new guidance metrics in 2020. So we gave guidance on the top line and the bottom line. The top line was the group revenue and the Location Technology revenue. And the bottom line, we chose free cash flow because free cash flow at that time was the best tracker of our profitability. That had to do with the disparity -- the difference between operating and reported revenue in Automotive and the big delta between amortization and CapEx that we saw in the OpEx line resulting from the acquisition of Tele Atlas. Now both effects are kind of gone. So you also saw last year that reported revenue and operational revenue in Automotive is at parity. They're kind of almost the same. And also, we have -- we don't have any amortization left that's related to the Tele Atlas acquisition. So we want to normalize our guidance towards a revenue and an EBIT forecast. And that said, as we also have -- and then coming into your second or your primary question, the fact that Automotive is declining next year temporarily and we sustain our investment at the same level as we had last year, we will see free cash flow being negative in this year. How large it will be, I don't know exactly, but I expect it will be above EUR 10 million, but not much more than that. And then if our revenue, our top line is recovering in 2027, I expect that free cash flow will be positive again as of 2027 onwards. But an official guidance will follow in 12 months from now about that. So we'll continue to provide direction about free cash flow, but the primary guider or primary KPI for profitability will be EBIT. Andrew Hayman: Okay. And then in terms of the bookings that came in, how much of that is new customers? And how much is just more business from existing customers? And then maybe just tied in with that, how does the funnel of business look for 2026? Is there going to be -- is it a bit quieter after so much activity in 2025? Taco Titulaer: Well, yes, so if you look at order intake, you can make a 2x2 matrix. In the horizontal, you say existing customers and new customers. On the vertical, you say lane model or road model, where lane model is the automated driving and safety use cases and where road model is more for the driver itself to navigate from A to B. What I already mentioned in my prepared remarks is that what we've seen is that if you break down the order intake of last year that roughly half of that order intake is related to lane model. And that percentage will only grow further. So also for 2026, we think that the proportion of lane model RFQs and potential wins will be tilted towards lane and not so much road. Road models can be a tag-along deal. Increasingly, OEMs want to focus on securing the right quality and the right vendor of lane models. And also that gives us opportunities to also secure extra deals in road modeling. The majority -- yes, CARIAD is an existing customer, of course, because we already do software with them. So in that sense, the majority of the order intake was with existing customers. Harold Goddijn: But I want to add to [Audio Gap] first time that we deliver map data at scale to the VW Group. Taco Titulaer: Yes, that's different. But before it was navigation software and traffic, et cetera, but now it is also including map data. Andrew Hayman: Okay. And how does the funnel of potential sales look for this year? Because it looks like -- I mean... Harold Goddijn: There's a broad and deep book of opportunities out there, not dissimilar from 2025. So the activity is really -- is there from what we can see now. But what we also have seen in 2025 is that timing is very difficult to predict also because of ambiguity in product planning in all sorts of market conditions. But I think the way we look at it now, there is substantial opportunity available again in 2026 for further building of the backlog. And there are also opportunities available to us for extending and growing our market share. Operator: And the questions come from the line of Marc Hesselink from ING. Marc Hesselink: A follow-up. One on the Enterprise segment. I think in previous calls, we've discussed a lot about the momentum for the small clients being quite good. But then for the bigger, longer sales cycles, is that still ongoing? Are you still talking to these bigger potential clients? And would we expect something beyond '26 in the '27 period? Is that likely? Harold Goddijn: I don't think there's -- we don't anticipate a big shift in market opportunities in 2026. No extraordinary, but we think that the momentum we have to an extent in the long tail opportunities, that will continue throughout 2026. The composition -- yes, so there's a lot to go after in -- also in the Enterprise sector. Marc Hesselink: Okay. And -- but the big clients, they sort of stick to their own products or... Harold Goddijn: Well, we have a good market share with the big tech companies already. There are not that many of them, but our market share there and our representation with big tech is significant. So the growth and the expansion need to come from companies below that tier. There's a lot of them in the EUR 10 million kind of category. There are a lot of them in the -- between EUR 1 million and EUR 10 million category that are available to us to win. Marc Hesselink: Okay. Okay. That's clear. And then the second follow-up was on -- you mentioned also for next [ year, so '27 ] to be cautious on the cost side. And I just want to understand that a bit because I think that you say you're moving towards the more automated process. It's almost now already almost fully automated. Is that something that you can still take a bit of steps there to further automate it and at that stage, decrease the cost a bit? Harold Goddijn: Yes. Well, we -- so there's a number of things that we can achieve through -- on the cost side. I think the most important one is that our product portfolio is maturing and coming together. And we're more product-driven than in the past. And that means that we can do things more effectively, better at higher quality and we can leverage that software much better than we've ever been able to do in the past. We see also opportunities to further leverage the power of AI, especially in the engineering side. We're making some meaningful progress in that area. So the combination of a simpler product portfolio at a higher quality that is reaching completeness now after a long period of transition, those are all indicators that we can do things more faster at higher quality, but also with -- allow us also to keep a lid on the cost and not let that grow. There will be additional costs in maturing lane level product, as Taco already indicated. But all in all, I think we are in a good position not to let the cost and the OpEx run away from us, but rather contain it and manage it carefully without that giving strong limitation on our ability to get things done. Claudia Janssen: Okay. With that, I want to thank you all for joining us today. And operator, now you can really close the call. Thank you. Operator: Thank you. This concludes today's presentation. Thank you for participating. You may now disconnect.
Operator: Good morning. My name is Nikki and I will be your conference operator today. At this time, I would like to welcome everyone to the RenaissanceRe Fourth Quarter and Year-End 2025 Earnings Conference Call and Webcast. [Operator Instructions] I will now turn the call over to Keith McCue, Senior Vice President of Finance and Investor Relations. Please go ahead. Keith McCue: Thank you, Nikki. Good morning, and welcome to RenaissanceRe's Fourth Quarter and Year-End 2025 Earnings Conference Call. Joining me today to discuss our results are Kevin O'Donnell, President and Chief Executive Officer; Bob Qutub, Executive Vice President and Chief Financial Officer, and David Marra, Executive Vice President and Group Chief Underwriting Officer. To begin some housekeeping matters. Our discussion today will include forward-looking statements, including new and updated expectations for our business and results of operations. It's important to note that actual results may differ materially from the expectations shared today. Additional information regarding the factors shaping these outcomes can be found in our SEC filings and in our earnings release. During today's call, we will also present non-GAAP financial measures. Reconciliations to GAAP metrics and other information concerning non-GAAP measures may be found in our earnings release and financial supplement, which are available on our website at renre.com. And now I'd like to turn the call over to Kevin. Kevin? Kevin O'Donnell: Thanks, Keith. Good morning, everyone, and thank you for joining today's call. The company we have built is fundamentally different from what it was just a few years ago. We are larger and significantly more diversified, geographically by line of business and by source of income, with much larger contributions from investment and fees. I begin with this context because this time last year, a few would have predicted the strong financial performance we delivered in 2025. Our industry faced multiple headwinds, including the California wildfires, a softening reinsurance market and lower interest rates. In the face of these headwinds, our larger size and greater diversification allowed us to deliver strong financial results. Bob will, of course, walk through the financials. But first, I would like to highlight some of the most notable achievements. Operating income was $1.9 billion. Operating ROE was 18% and tangible book value per share plus accumulated dividends, our primary metric grew by 30%. This is the third year in a row where we have grown this metric by over 25%. As a result, over the last 3 years, we have more than doubled tangible book value per share. Capital management was also notable. We repurchased $650 million of our shares during the fourth quarter, 13% of our shares over the course of 2025 and 17% of our shares since the first quarter of 2024 when we began repurchasing post Validus. I am pleased to report that we have now repurchased more shares than we issued in connection with the Validus acquisition. The cumulative return on our share since then a little over 2 years ago has been around 30%. This demonstrates our ability to raise capital and we have an attractive opportunity, reward investors by returning capital as we realize its benefits and execute transactions with minimal long-term dilution. Bob will speak to you in greater depth regarding our financial results, but overall, I am proud of our performance. Moving now to address strategic results in 2025. Strategically, if 2024 was about retaining the Validus portfolio and successfully integrating the company, 2025 was about maintaining our underwriting book and optimizing our larger and more dispersed operations. We undertook a number of internal initiatives to improve efficiency and effectiveness and better manage our increased scale. We are upgrading our underwriting system to be more customer-centric and enhancing the architecture to be more efficiently organized to benefit from the growing influence of artificial intelligence. Moving now to some remarks on our Casualty & Specialty segment. Aggregate underwriting profits on the portfolio have been almost $500 million over the last 5 years without the impact of purchase accounting. As we have discussed, however, earnings from this business emanate from 3 separate income streams, underwriting fees and investments. It's harder to see the full benefit of Casualty because fees are offset in our NCI and investments are not split by segment. This year alone, Casualty & Specialty contributed about 1/3 of our operating income across our 3 drivers of profit. The goal of any line of business is to grow tangible book value per share over time. In Casualty, there is a trade-off between underwriting results and investment results. Typically, when one is high, the other is lower and vice versa. Over a 10-year cycle, this balance of profit shifts back and forth, but nevertheless contributes to growth in tangible book value per share. Currently, the balance within the officially portfolio is heavily skewed toward investment returns. As a result, the market has tolerated rising technical ratios. This reduces underwriting margins available to compensate for inherent volatility. My belief is that technical ratios will fall, but is difficult to predict when. For now, we will continue to monitor this class closely and make appropriate adjustments. That said, while margins are tight, Investment in fee income from Casualty are currently a substantial driver of book value growth. So we are not recognizing much underwriting profit today, which we think is the right approach in the current environment and are still making a strong overall return. I want to briefly touch on the January 1 renewal and our outlook for 2026. David will address this in more detail. Property CAT rates for us were down low teen percentages. We found some opportunities to grow, which should keep top line premium in Property CAT down only mid-single digits, excluding the impact of reinstatement premiums. Terms and conditions mostly held solid including retentions. As I previously mentioned, we are a larger and more diversified company. Two drivers of these changes occurred in 2023. The step change in Property CAT and our acquisition of Validus. So I think a comparison of our present opportunity set to the pre- '22 to 2023 period is constructive. To begin, rates in Property CAT remain attractive and well above return levels realized in the years before 2023. Equally important, most of the structural changes made in 2023 are still in place. As a result, our reinsurance portfolio in 2026 is still one of our best, a few other favorable comparisons to 2022. Our underwriting portfolio is roughly 1/3 larger. Our retained net investment income has tripled and our fee income has more than doubled. In aggregate, when we look at our current state versus where we were before 2023, all points of comparison are favorable. Our increased scale and diversified sources of income mean we are more resilient to loss. This gives us great confidence in our reinsurance portfolio and our continued ability to deliver consistent, superior returns to our shareholders. I'd like to finish my comments with a discussion about how we plan to continue growing tangible book value per share this year at an attractive pace by employing a similar strategy to last year. This strategy was something I discussed last quarter and was composed of the following factors: first, to maintain or grow our property business; second, focus on preserving underwriting margin; third, prioritize Casualty cedents who focus on claims handle practicing over those who solely focus on rate; fourth, continue to grow fees in our capital partners business; fifth, continue to grow invested assets; and finally, continue returning capital to our shareholders by repurchasing shares at attractive valuations. I should add one more point to this list, which is continue to execute our gross-to-net strategy to arbitrage competitive cap on market and retro markets. As you can see, we have quite a few strategic levers to keep returns attractive. This is the playbook we successfully ran in 2025 and is the one we will run 2026. That concludes my initial comments. I'll turn it over to Bob to discuss our financial performance for the quarter and for the year before Dave provides a more detailed update on renewal in our segments. Thank you. Robert Qutub: Thanks, Kevin, and good morning, everyone. In 2025, we demonstrated the efficacy of our strategy and the persistence of our earnings profile, delivering operating income of $1.9 billion, even with a $786 million net negative impact from margin. My comments today will focus primarily on the drivers and sustainability of these annual results. I also want to touch on some highlights from the fourth quarter, where we delivered operating earnings per share of $13.34 and an operating return on equity of 22%. In the quarter, all 3 drivers of profit produced strong results, specifically, underwriting income was $669 million with a combined ratio of 71%, fee income was $102 million and retained investment income was $314 million. Both fees and retained net investment income are among the highest we have ever reported and demonstrate that we have continued to optimize these drivers as our underwriting portfolio has grown. Building on this, there are 4 numbers I have consistently highlighted that demonstrate the strength of our earnings profile and our ability to absorb volatility. The first number is 15 points which is the annual aggregate contribution to our overall return on average common equity from our investment and fee income in 2025. This is consistent with 2024 and creates a stable base of earnings each quarter, which we then build upon. The second number is $1.3 billion, which is the underwriting income we generated in 2025 including a $1.1 billion underwriting loss from the California wildfires. Underwriting is the core of our business and provide significant upside to the earnings base from fees and investments. The third number is $1.6 billion which is the amount of capital we return to shareholders in 2025. Throughout the year, we purchased over 6.4 million shares. The average price of these share repurchases was near book value, essentially returning all of our operating income with minimal dilution. We believe that our stock represents excellent value at current levels and expect share repurchases to continue in 2026, in line with our long history of being good stewards of our shareholders' capital. And finally, the fourth number is 31%, which is the amount we grew tangible book value per share plus change in accumulated dividends in 2025. As Kevin highlighted, we have more than doubled this metric over the last 3 years through a combination of strong retained earnings and disciplined capital management. Now I'd like to turn to a detailed view of our three drivers of profit, starting with underwriting where we delivered excellent results with an adjusted combined ratio of 85% for the year. This performance is particularly strong, given that we absorbed several large losses across both segments. For Property Catastrophe specifically, we reported a current accident year loss ratio of 64% for the year and an adjusted combined ratio of 60%. This current accident year loss ratio included 50 percentage points of losses from the California wildfires and 3 percentage points of losses from Hurricane Melissa. Property catastrophe also benefited from 24 percentage points of prior year favorable development primarily from large events in 2022 through 2024 and changes to attritional loss estimates. Note that in the fourth quarter, in Property Catastrophe, we reduced our total estimate of net negative impact from the California wildfires by $42 million driven by lower case reserves reported by our cedents during the renewal process. In Other Property, we delivered exceptional results in 2025 with a current accident year loss ratio of 62% and an adjusted combined ratio of 60%. This is the lowest annual combined ratio we have delivered since we started reporting the Other Property class of business. The Other Property current accident loss year ratio for the year included 8 percentage points from the California wildfires and 2 percentage points of losses from Hurricane Melissa. Other Property had 33 points of favorable development from prior years, primarily related to attritional losses. In Casualty & Specialty, we reported an adjusted combined ratio of 102% for the year. This includes 4 percentage points from large loss events in 2025. In the fourth quarter specifically, we reported losses on two recent events, the UPS aircraft crash and the Grasberg mine landslide in Indonesia. These 2 events impacted our quarterly adjusted combined ratio by 4 percentage points, pushing it to 102%. Prior year development and Casualty & Specialty on a cash basis was slightly favorable for both year and the fourth quarter, before the impact of 50 basis points of purchase accounting adjustments. Across our underwriting portfolio, gross premiums written for the year were $11.7 billion and net premiums written were $9.9 billion. Both roughly flat compared to 2024. In Property Catastrophe, we leaned into opportunities in the U.S. and grew gross premiums written by 5% this year and by $17 million in the fourth quarter in both instances without the impact of reinstatement premiums. Gross premiums written in Other Property declined by 11% in the year. We have been holding exposure flat in this class while managing a declining rate environment. This book continues to produce strong results. In Casualty & Specialty, gross premiums written in 2025 were roughly flat compared to last year. We found opportunities to grow our credit book, primarily through seasoned mortgage deals. This offset declines in Casualty, where we have been optimizing the book and negative premium adjustments in Specialty, largely from rate deceleration in cyber. Looking ahead to the first quarter, we expect other property net premiums earned to be approximately $360 million and attritional loss ratio in the mid-50s. In Casualty & Specialty, net premiums earned of around $1.4 billion and adjusted combined ratio in the high 90s, absent the impact of large losses. Moving now to our second driver of profit, fee income in our Capital Partners business. Fees were $329 million for the year, up from 2024. Within this management fees were $207 million and performance fees were $121 million. This performance is particularly impressive given that the California wildfires suppressed fees in the first quarter. We fully recovered from this event in the first half of the year and performance fees have surpassed our expectations for the last 3 quarters due to strong underwriting results and favorable prior year development. Capital Partners produced excellent results throughout 2025 and continued strong engagement from our third-party investors and fees should remain a key driver of our financial success. Looking ahead to the first quarter, we expect management fees to be around $50 million and performance fees to return to around $30 million, absent the impact of large catastrophe losses or favorable development. Moving now to our third driver of profit, Investments where our retained net investment income for the year was $1.2 billion, up 4%. We increased retained net investment income every quarter starting at $279 million in the first quarter and rising to $314 million in the fourth quarter. This outcome is primarily the result of net growth in underlying assets as well as proactive actions to selectively add credit throughout the year. This included increasing exposure to investment-grade credit, agency mortgage-backed securities and high yield. Additionally, we have retained mark-to-market gains of $1.1 billion, driven by gains from equities, interest rate movements in our fixed maturity portfolio, and commodities, mainly gold. As we have previously discussed, we took a position in gold at the end of '23, which we added over the last 2 years as an inflationary and geopolitical hedge. Since we made the investment, gold has doubled in price and led to over $400 million in retained mark-to-market gains this year. Our retained yield to maturity of 4.8% reduced from 5.3% in December of 2024 due to falling short-term yields. And our retained duration decreased from 3.4 years to 3 years. This was primarily related to our decision to reduce duration at the long end of the curve, while increasing exposure to securities with a 3- to 5-year duration. Looking ahead, we expect investment income to remain a persistent and meaningful contributor to our results and anticipate retained net investment income around similar levels in the first quarter. Now moving to some comments on tax. 2025 was the first year we incurred a 15% corporate income tax in Bermuda, and we demonstrated our ability to continue producing excellent returns in a higher tax environment. As a reminder, our overall effective tax rate on our GAAP net income is often lower than this 15%. This is related to noncontrolling interest, which is subject to a minimal amount of income tax. You'll see this in the rate reconciliation in our 10-K when it's filed. In the fourth quarter, the Bermuda government introduced substance-based tax credits designed to encourage investment in Bermuda. There are two main components of the credit. Compensation-related and expense-related. The credits will be phased over time, scaling from 50% of the benefit in 2025, increasing to 100% in 2027. We have a significant presence on the island and the credits provide a positive tailwind to our results, acting as an offset to certain operating and corporate expenses. Due to the timing of the legislation, we recognize all the 2025 credits in the fourth quarter, that were applied at the phase-in rate of 50%, and you can see the benefit to our expense ratios. Specifically, the credits reduced our annual operating expense ratio by about 60 basis points and our annual corporate expenses by about 15%. Starting in 2026, we will recognize the credits on a quarterly basis at 75% of their value and then their full value in 2027. We also recognized about $70 million in cash benefit from our Bermuda deferred tax asset in 2025. This is in addition to the tax credits I outlined above. Next, moving to expenses, where our operating expense ratio for the year was 4.7%, down slightly from last year. This reduction is largely driven by the substance-based tax credits I just discussed and partially offset by continued investment in our business and the year-end bonus accruals. Looking ahead, we expect our operating expense ratio to average between 5% and 5.5% as we continue to invest in the business. In conclusion, we delivered strong results in the fourth quarter and throughout 2025, driven by meaningful contributions from all three drivers of profit and disciplined capital management. As we look forward, our three drivers are positioned to produce similarly strong results in 2026 for the benefit of our shareholders. And with that, I'll turn the call over to David. David Marra: Thanks, Bob, and good morning, everyone. As Kevin and Bob both explained, we have maintained profitability throughout a wide range of market conditions because of the diversification across our 3 drivers of profit. Strong underwriting underpins the stability of our earnings because each of our 3 drivers of profit are ultimately fueled by our portfolio. I'm proud of the underwriting portfolio's contribution to our financial results in 2025 and equally proud of our execution at the recent renewals, which will support sustainability of strong returns going forward. I will expand on both topics, beginning with our 2025 performance and how superior underwriting supported strong results across each driver. Starting with underwriting income. During 2025, we shaped our already attractive portfolio to make it even better, growing Property CAT, holding our profitable positions in other Property, Specialty and credit and reducing in the Casualty lines that were most exposed to high levels of claims inflation. As a result, in 2025, our underwriting portfolio generated $1.3 billion in income with solid current year performance despite several large Property and Specialty events. Prior year performance was highly favorable, reflecting the strength of our historical underwriting decisions and a disciplined reserving approach. With respect to fee income, we deployed efficient partner capital in both Property and Casualty & Specialty. This enabled us to trade broadly across programs with large capacity while also resulting in $329 million of fee income for the year. With respect to investment income, our underwriting portfolio has generated a $22 billion diversified pool of reserves. These reserves are our primary source of float, which gives us meaningful investment leverage and result in substantial sustainable net investment income for our shareholders. Both segments contributed significantly to our overall return on equity through these 3 drivers of profit. Property contributed primarily to underwriting and fee income and Casualty & Specialty contributed primarily to investment and fee income. This was by design. And as our results demonstrate, it was a highly profitable to construct our portfolio in this market. Moving on to the January 1, 2026, renewal. As an underwriting team, we have 2 primary goals at each renewal. First, deliver our market-leading value proposition to clients and brokers. This ensures a sustainable pipeline of renewable business, first call status and favorable signings, which are resilient to competition. Second, construct the optimal underwriting portfolio across business segments to feed each of our drivers of profit and generate capital-efficient risk-adjusted returns in any given year and over the cycle. I believe we achieved both objectives at January 1. Competition follows favorable reinsurance results, and we saw increased supply of reinsurance capacity with pressure on rates and margins. We were starting from a strong position, however, and remain confident in rate adequacy across the portfolio. As I mentioned last quarter, this is not a market where all risks are equally attractive or equally accessible. We succeeded in building a differentiated portfolio by deploying our underwriting expertise to select the most attractive risks and our broad client relationships to achieve the most attractive signings. We took a deal-by-deal and client-by-client approach, trading our participation on programs holistically across lines and geographies. This resulted in us securing our desired lines when many others were signed down due to competition. It also facilitated targeted reductions in some cases without impacting the lines we wanted to maintain. I'll now walk through our actions at the January 1 renewal in more detail by segment, starting with Property. Our goal in Property Catastrophe was to maintain our existing portfolio and deploy additional capacity into attractive opportunities. Reinsurance supply was up following several years of strong results. This additional supply resulted in increased rate pressure globally with rates down on average in the low teens for our portfolio. Retentions and terms and conditions remain consistent with recent strong levels. We successfully renewed our existing line and deployed new limits selectively across our owned and managed balance sheets. Overall, we expect to see a reduction in gross premiums written in Q1 due to rate decreases, which will be partially offset by growth from new demand. Modeled margin in the Property Catastrophe book remains well above the cost of capital. And as we described last quarter, there are several mitigants to the effect of rate decreases on our net retained business. First, we shape our portfolio with ceded reinsurance, which improves our net result. Ceded rates were down high teens across our portfolio. In addition, we renewed a series of our Mona Lisa CAT bond at a larger size with spread tightening by more than 50% on a risk-adjusted basis. And finally, we share a significant part of our portfolio with capital partner vehicles, which produces fee income, which is less sensitive to rate movement. This strategy has resulted in an average underwriting margin of over 50% over the last 3 years, and we remain confident in our ability to continue producing strong returns in our Property CAT book. In other Property, our goal was to optimize the book to reduce peak exposure and maintain attractive margins. Following several years of profitable results and favorable claims trends, we are experiencing rate pressure. Terms and conditions such as deductibles and policy supplements remain strong. At the January 1 renewal, we maintained our positions across other property but reduced exposure in areas with the most rate pressure and managed net profitability through improved ceded purchases. Shifting now to our Casualty & Specialty book. In Casualty, we aimed to fine-tune our positions to continue to manage exposure to areas most at risk of continued loss inflation. After reducing exposure significantly in 2025, our approach at the January 1 renewal was lighter time. We trimmed back on programs where we saw below average results while continuing to benefit from rate increases across the book. Over the last 18 months, clients have been keeping up with trend in general liability by increasing rates. Many clients are further differentiating themselves through investments in claims handling. These improvements will take time to be reflected in results, but we like the progress that is being made. We measure the success of our Casualty business over a 10-year period and believe we have made the right underwriting decisions for this point in the cycle. Maintaining our Casualty positions on the best panels gives us options to benefit from improved underwriting margins as the market strengthens, while still allowing us to earn a strong return from the float in the interim. For every dollar of Casualty business we write, we benefit from more than $0.20 of investment income. This is the best way to construct our portfolio in this market and makes our casualty portfolio highly accretive to book value over both the short and long term. And finally, in Specialty and Credit, our goal was to hold our positions in profitable lines and shift the balance towards the highest margin classes. In Specialty, we have a strong leadership position across lines, and we're successful in achieving positive differential terms on several placements. Our ability to trade with clients across classes of Property, Casualty & Specialty enabled us to successfully maintain lines despite competition, and we increased diversification by geography and line of business. In Credit at this renewal, we maintained our shares in profitable business and selectively grew into opportunities across the portfolio. We expect profitability to remain strong. We purchased a significant amount of ceded reinsurance in the Casualty & Specialty business and found attractive opportunities at 1/1 to increase our protection. Putting this all together, gross premiums in our Casualty & Specialty portfolio are likely to be down in 2026 compared to 2025. Net premiums will be down more than gross given increased ceded purchases. Underwriting margins remain tight in the segment. We continue to expect an adjusted combined ratio in the high 90s. As I described earlier, however, we are confident that we have effectively balanced trade-offs between underwriting margin and investment income, driving healthy returns for shareholders. In closing, we enter 2026 with deep client relationships and an underwriting portfolio built to optimally support our 3 drivers of profit, all of which position us to continue delivering superior shareholder returns this year and over the long term. And with that, I'll turn it back to Kevin. Kevin O'Donnell: Thanks, David. To close our prepared comments, our performance in 2025 gives me great confidence in the future. We anticipate that each of our 3 drivers of profit will remain robust sources of income in 2026. More importantly, we have the strongest team in the industry, and I couldn't imagine a company better positioned to succeed in any and all market environments. As a result, we expect to continue to deliver outstanding shareholder value over the course of the year. Thanks. And with that, I'll turn it back to you to take the questions. Operator: [Operator Instructions] We will now take our first question from Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question is on Property CAT. You guys said that you expected, I think, premiums to be down mid-single digits, right? Because due to some changes, right, that's obviously better than the price decline you saw. I just want to confirm, is that -- that's a view for all of '26? And then if that is the case, I guess, what are you assuming within that guide happens for pricing during the other renewal seasons of the year? Kevin O'Donnell: Thanks, Elyse. Yes, that is our expectation for the year. If you look at the supply-demand dynamics at 1/1, we expect them to persist. So we anticipate that there'll be continued rate reductions going into the midyear renewals. That said, if we look at -- I think there's a lot of focus on rate change. If we look at rate adequacy, it's a bit of a different story. There's very strong rate adequacy in the midyear renewals. A lot of those are U.S. focused and many were affected by the wildfires. So we go into that renewal at the same risk-adjusted reduction. So if top line reductions are a little less, I think the rating environment -- a little bit more, excuse me, the robustness of the rate adequacy should serve to produce results similar to what we got at 1/1. Elyse Greenspan: And then I guess my second question, I guess, is just, I guess, a number question for Bob. You guided to an expense ratio, I think, in the range of 5% to 5.5%, right? I think it was 4.7% in '25. Is that including the benefit of the Bermuda tax credits, which I know go up, right, you'll see the 75% in '26? Because I know you said your investments in the business? Or is it before or after? I just want to make sure I'm understanding the numbers correctly. Robert Qutub: That would be after. That would be after giving effect to all things that we understand in 2026 that we'll be investing in and other dynamics. But again, I'll point out, it's still an incredibly low expense ratio. Elyse Greenspan: But then what are, I guess, is it just like talent and underwriting? I guess, what are the things that you guys are investing in that, I guess, that is taking that ratio up a little bit even with the tax credit benefit? Robert Qutub: Sure. That's a good question. We bought Validus. We brought them on Board in 2024. And as we talked about the integration of it. Each year, we layer on another $11 billion to $12 billion of premium. Each year brings more operational complexity, and we continue to invest in that. We have the scale. We've gone through a lot of work internally to be able to process that, but that takes people as we get to scale. But again, we are managing that as efficiently as we can. It comes in through new systems, better efficiency on technology, but we'll continue to manage that. I give you a range. We'll probably be at the low end of that range. Operator: Our next question comes from Josh Shanker with Bank of America. Joshua Shanker: Yes. I'm going to ask 2 questions. I start with the odd ball because it's so interesting. Let's talk about gold. Can you talk about how that appears on your balance sheet, whether the $400 million gain is in the book value? And two, let's just say the political situation on Planet Earth doesn't change. Do you care whether gold is $5,000 an ounce or $10,000 an ounce, you're going to hold it until political circumstances change? Kevin O'Donnell: Let me -- I'll take the second part of your question first, and Bob can answer the accounting question. We looked at -- we put the gold position on in '24 -- '23, sorry, in '23 as we looked at the world and saw different risks emerging, and we think about the enterprise risk that we have to manage. And we thought it was a good hedge against the underwriting portfolio and a good hedge against some of the interest rate risk in the investment portfolio. It continues to serve as a hedge in the portfolio. So whether it's at $4,000 or $5,000, it's something that we're constantly looking at, but we don't have a price target to say that it's an investment and we're exiting at this point. We continue to monitor it actively against the enterprise risk we're managing. Robert Qutub: Josh, on the second question, it represents because these are futures contracts, it's the unrealized gain on the mark-to-market. And we have a modest margin up against it. It doesn't really draw a lot of capital. Joshua Shanker: Okay. And then on the question of capital, there's a lot of companies give us PMLs and things and RenRe does not. It's part of the secret sauce. But can you talk about in any way that we can think how much more aggregate you want to put to work in property risk in 2026 or whether it's going to be a similar year 2025 and the money you make basically can be returned to shareholders? Kevin O'Donnell: Yes. We normally talk more about this at the next call. But our plan as we put together the pro forma for where we're going to structure the business, on a net basis, I would say we'll probably hold risk relatively flat for the hurricane -- Southeast hurricane, which is still our dominant peak. That could change if we see more opportunities or better-than-expected pricing going into the summer renewals. But at this point, I would say our risk will be on a net basis, relatively stable as far as our plan at this point, but that could change. Operator: Our next question comes from Yaron Kinar with Mizuho. Yaron Kinar: Just want to go back to the Property CAT market. Given the declines that we saw in rates in 1/1 renewals, and I think there's some expectation of further declines in 4/1 and 6/1. How are you thinking of expected returns and rate adequacy in that book in 2026? And how are you looking to deploy capacity into that market? What areas would be more or less interesting compared to '25? David Marra: Yes. This is David. I can take that one. I think, first of all, like we said, we did see pressure, but we were starting from a very good spot. So rate adequacy is still strong. I can break that down a little bit more for you and the low teens that we saw in the overall CAT book, that is a bit separate. The U.S. CAT book that renews in Q1 at 1/1, it's about 1/3 of the U.S. CAT book. That was down about 10%, whereas the International and Global portfolio was down about 15%. So part of what we're faced with is not all risks are the same. Both of those risks are attractive in their own ways. But rating level is still high. We also see really strong terms and conditions consistent with the last 3 years. So it's not as much about how will we react to rate decreases. We have a strong level of adequacy, access to all the business and a lot of options to construct the portfolio. We do see growing demand on the U.S. side that we saw at 1/1, and we expect more in Q2 that will present opportunities. But our approach is to select the best opportunities, make sure we get the best signings and construct an attractive portfolio. Yaron Kinar: Okay. And then my second question, on recent calls, we've heard brokers talk a lot about the large opportunity for data centers in the insurance market. And I'd imagine that while a lot of that would fall into the reinsurance market as underwriters in an attempt to be prudent would look to manage their exposures. I guess I'd be curious to hear how you as a reinsurer that has both a traditional balance sheet and a large JV business, how you think about that opportunity and how you go about managing that risk? David Marra: Yes. This is David again. I'll continue to take that. So first of all, data centers are something that we currently reinsure. What's the new opportunity is the fact that there are more mega projects, which do require reinsurance capacity or third-party capacity. So it is early stages of a positive opportunity, and we're working with our clients and brokers to understand the risk as well as we can and how we deploy capacity. Our focus first is to get the underwriting and pricing right and get terms and conditions and coverage and also get the aggregation right. So we're well along the path there, and we think it will continue to be an opportunity as it grows as a market. Operator: We will move next with Meyer Shields with KBW. Meyer Shields: So I'm inferring from the high 90s expected combined ratio in Casualty & Specialty that you're not anticipating much of a change in reserve philosophy for Casualty lines. And I'm wondering if you look at the older accident years that are close to being settled, I was hoping you could talk about how reserves for those accident years have played out where conservative reserving is just less relevant? Kevin O'Donnell: Yes. I think overall, I think we're trying to be as transparent as we can on kind of the Casualty & Specialty segment and specifically GL. The book -- the Casualty & Specialty looks great. We've had favorable development last year. But the overall reserve pool for Casualty & Specialty, I think of it as the old story of a duck. It's relatively stable on top, but there's a lot of pieces moving around down below. It's moving by year and it's moving by line of business. And we continue to be extremely cautious in thinking about how to reflect and particularly in GL, the increased pricing that's coming through where pricing actuaries are putting it through on the pricing. But from a reserving perspective, we're being cautious and continuing to not reflect that at this point. So from the overall portfolio, it's behaving well with regard to the years. Most of the years that are older seem to be settling down. And much of those older years still have the protections with regard to the protections that were part of the acquisitions of both Validus and Platinum. So they're less relevant for us than they are for some others. Meyer Shields: Okay. That makes perfect sense. And so going in a slightly different direction. One of the, I guess, chatter points for the 1/1 renewals was the increased inclusion of riot and civil commotion coverage. I was hoping you could talk about whether your exposure to that specific risk is materially different than in 2025? David Marra: Meyer, this is David. There's no real change in our exposure there. It's apparel, which was -- is covered in a very specific way with tight terms and conditions. So while the risk is in there at the levels we attach at, the retentions keep us insulated from a lot of attritional loss, and there's really no change into 2026. Operator: We will move next with Mike Zaremski with BMO. Michael Zaremski: Bob, back to the tax credits and all the tax legislation. I think clear about '26 the expense ratio net of the credits. I guess we'll just have to see how the tax credits go up in '27. So I guess we'll have to decide if we want to also kind of re-spend some of that -- the credits as an investment unless you want to comment. And the DTA, is there clarity on how that's going to play out? Or is there going to be a write-down? I know it was a benefit this quarter. Robert Qutub: That's a good question. I'll tackle them both. The DTA, I'll start with that one. That's a legislation here by Bermuda. So it's a matter of law, we used it this year to defer our tax liability, and we fully intend to use it in 2026 to defer the liability. The only way that changes is if the law changes, and I don't control that. I haven't been any conversation about it. So we're still moving forward on it. With respect to the credit, I kind of led in my prepared comments that it was 60 basis points on the annualized operating expense. It goes up to 75% next quarter. So it means it goes up to around 90, all things constant as my economics feature used to say, and then it goes to the full impact of 2027. We don't intend to spend that specifically as a part that comes in on the back of our spend. It does reduce our net spend. But I stick by what I was talking about with Elyse was the -- we're investing in our infrastructure, technology to be able to operate at scale. Michael Zaremski: Okay. Great. And maybe pivoting back to the Casualty & Specialty segment and specifically on Casualty, I know you've given us some good commentary so far. But if we -- let's say, if we use the Marsh pricing gauge, excess Casualty rates, which Bermuda writes a lot of, you're seeing pricing kind of accelerate up into the close to 20% range. I know Ren is taking -- you guys have taken a lot of positive reserving actions to put in conservatism. But curious, is there something brewing for the industry that is causing rate to accelerate so much in excess Casualty? David Marra: This is David. So you're right to point out that the excess Casualty, the high layers that are written by the Bermuda insurance market, some of which are our clients, although we service the global casualty portfolio, that is accelerating more than the lower layers. And that's just the effect of what the market has been doing for the last 18 months or so, where Casualty rates for all excess Casualty has accelerated as a response to accelerating loss trend. At the higher layers, it's -- the market is taking more rate than at the lower and the mid-layers. But that's what's going on there. There's nothing unique about those layers. What we're seeing overall is it's not just the rate acceleration, but it's also the investment in the claims handling. That helps all open claims, not just the new underwriting years. So really encouraged by the signs, but it's going to take time for that to come through the numbers. Operator: Our next question comes from Ryan Tunis with Cantor Fitzgerald. Ryan Tunis: First question, just looking at the trajectory of fee income, in particular, management fee income, I would think that, that would move with the growth in the partner capital, but that was down in 2025. And it sounds like Bob's guidance was for that to kind of be flat in '26. Could you just kind of walk us through, I guess, why we're not seeing growth on that line? Robert Qutub: Ryan, specifically, my guidance was in the first quarter. It was at 59% based on what we had. Ryan Tunis: First quarter? Robert Qutub: Right. Yes. Ryan Tunis: That was down from the fourth quarter... Robert Qutub: It's around the same. There was some -- a lot of noise in 2025. But the guidance what I was trying to give you was it 59% in the first quarter. And you're right, if we grow the asset significantly, the fees will follow. Performance fees are a different measure based on the volatility that can happen in the earnings stream in each of the JVs. Kevin O'Donnell: If it's helpful, the joint ventures are all -- none of them are smaller going into '26 than where they were in '25, and we haven't changed the fee structure on our -- on any of the vehicles that we're managing. So just as a starting point, there will be ups and downs as new capital comes on Board or there will be changes in the existing capital, but it's relatively stable from last year to this year. Ryan Tunis: Helpful. And a follow-up probably for David and Bob, but on the other property side, curious at 1/1, what you're seeing from a demand perspective? Clearly, a lot of cedings have had really strong accident years in '24, '25. Are you seeing them buy down? Or what are the trends there? And then I guess, separately, just given the competitive environment in Property, I was a little bit surprised that the other property margin guidance is still for mid-50s. I guess just walk me through your confidence in that. David Marra: Ryan, this is David. I'll start with your question on retentions in terms of conditions. So terms and conditions across other Property and CAT remain strong and a big piece of that is retention. So the other Property CAT exposed structures or risks have had a step change after 2022. Those remain at strong levels. There's competition on price, and we're able to move around that portfolio to make sure that we're getting the best return on the risk that we put out. But we're really comfortable with the way the terms and conditions have held strong there. And on the CAT side also, clients elected generally not to buy down their retentions as they save money on their CAT towers, they didn't spend it on cover below. Robert Qutub: Ryan, on the mid-50s, that was our guidance for the other property book. And that's kind of a mix issue that you have between the attritional versus the CAT exposed, non-CAT exposed. But we view that as a strong current accident year loss ratio. It's a little elevated this year, obviously, because of the events that came through, but that's what we're steering is the mid-50s. Operator: We will move next with Matthew Heimermann with Citi. Matthew Heimermann: I guess just a couple -- one, Kevin, following up on your comment on Casualty with technical ratios eventually decreasing. I'm curious if you think that will have more to do with a change in loss trend turning out to be better than you think or rates going up? Kevin O'Donnell: Yes. I think right now, our pricing actuaries are reflecting the benefit of the price change. So if all works out well, I would hope our reserving will ratios trend to the pricing ratios. So I would say it's more of a reflection of the benefit of price having persistence and us increasing our confidence in that. I would love to say that I see the trend decreasing over time. I think if we'll certainly monitor that. Any change in trend will reflect over time, whether it's going up or going down. But I would say more likely price. Matthew Heimermann: And I guess I was curious, I mean, happy to listen if there are more details you want to share on some of the investments you're making around the platform and embedding that in underwriting systems. But I also am curious whether or not from a talent perspective, being in Bermuda, there's any limitations in terms of the speed or with which you can execute your technology road map? Kevin O'Donnell: Yes. So with regard to our thinking about how to manage our risk, this isn't the first time we've used the capital markets to think about hedging risk in our underwriting portfolio or in our investment portfolio, obviously. With regard to talent, we have a global platform. Our investment team is split between New York, Bermuda and Dublin. So we've got kind of good coverage there, good access to talent. And almost all of the groups that we have within the company are split across multiple platforms. So I don't see any constraint with our ability to access talent. And with the technology that we have for collaboration, we can easily link teams in any location. So we have access to the best talent, I believe, anywhere in the world. Matthew Heimermann: And just any color on the types of add-ons that you're -- or enhancements you're making to the underwriting side. And I wasn't sure if you meant REMS specifically or other platforms. Kevin O'Donnell: Yes. We are enhancing our REMS program, which is the underwriting platform. We're probably 1 year, 1.5 years into the actual technology rebuild. And that really is a shift in a couple of kind of material ways. As we've diversified, we want to make sure that our system is not as much of a deal system, but more of a client system. So it's easier for us to look at profitability per client and understand how to engage with the client to best bring our capacity to their problems. And then secondly, we're updating our architecture so that as AI becomes more meaningful in either automation or augmentation of our processes, we will have the infrastructure to plug it in much seamlessly than what we currently have. So we think these investments put us in a very strong competitive position to continue to adopt the best technology as it becomes proven. Operator: Our next question comes from Dean Criscitiello with Wolfe Research. Dean Criscitiello: I was hoping if you could talk about how ceding commissions in your Casualty book trended during January 1 renewals. Robert Qutub: Yes, absolutely. So ceding commissions and Casualty were pretty flat overall. Most of the improvements that are coming in the market are on the insurance side with insurance rate going up and insurers investing in claims handling to better be able to fight the plaintiffs bar. But the transfer to reinsurance and the reinsurance supply/demand was pretty stable. The best accounts might have gotten the tick up. The worst accounts got a tick down, but that's pretty much the case across Casualty and professional lines. Dean Criscitiello: Got it. And then within the Casualty & Specialty segment, you guys have been growing a lot within like the credit line. So I was wondering what kind of impact that would have on like the underlying losses and maybe the expense ratio going forward? Kevin O'Donnell: Yes, we did see some good opportunities in credit. Credit is one of the 3 main pillars of the book. We have Casualty, Specialty and Credit with Casualty being split into the general liability and professional liability. Credit has been a really profitable class. The pillars of the credit book are the mortgage business and the standard credit bond and political risk and then some structured credit business. All of those are performing well. What we found in the last quarter and the last year was we found opportunities in the structured credit business and in the mortgage business. Both of those are high profit margin and good opportunities for us to add to the portfolio. Operator: We will move next with Peter Knudsen with Evercore. Peter Knudsen: In the prepared remarks, you noted prioritizing Casualty cedents who focus on claims handling practices. I think going back to 2024, you had made a couple of comments around making a larger effort to work more closely with Casualty cedents to sort of ramp up information flow at renewals. So now at 1/1/26, can you maybe talk a little bit about how this renewal period was different and how it's evolved in that regard, if at all? Would you say there's a material difference in what's being collected now versus 1/1/23 before you guys were calling that out, for example? Kevin O'Donnell: Yes. It's been 2 strong renewals since we started that, and we're working collaboratively with clients. We get materially better information than we got previously. And that information is not only geared towards understanding claims trends, but also geared towards how do we then understand our overall business approach and has led a lot into claims conversations. So where we can then use that in our underwriting to make sure we're picking the best risks and avoiding those that are worse. It's been a very positive process and collaborative with the clients. One of the things on the -- that we've noticed overall on the claims side is there is -- the trend is not -- the plaintiff's bar has not let up in how they're approaching trying to get big settlements. But the insurance carriers have gotten much more proactive from the top down. There's a lot of awareness of how they can invest, how they can use data, how they can collaborate across the tower -- and so it's not always the quantitative things we get from that process, but it's those qualitative things, which we're confident will have a strong impact over time. Peter Knudsen: Okay. Great. And then just a quick one for me on the Casualty favorable ex the GAAP adjustment. I know it was minor, but I was just wondering if -- and maybe I missed it, I'm sorry, but if you could talk about the drivers, the puts and takes on that? Robert Qutub: On the Casualty, I talked about the favorable -- favorable development on a cash basis. The purchase accounting layers in around -- somewhere around $8 million on top of it. So that kind of pushes it around. That's what I was trying to point out that we have been favorable at the top of the house for that segment this year. Operator: We will move next with Rob Cox with Goldman Sachs. Robert Cox: I just wanted to follow up on the artificial intelligence technology discussion from earlier. I think a lot of the programs that we hear in insurance, there's an automation efficiency component that often results in lower employee costs. And the reinsurance businesses tend to have lower employee costs and noncompensation operating costs relative to other insurance businesses. So I'm just hoping for some color on how that dynamic informs your plans to use AI and how we should be thinking about potential benefits. Kevin O'Donnell: Yes. I think it's -- your observation is consistent with ours. I'd say from the top of the house, many companies are looking at trying to measure ROI, the way to measure that is with automation and efficiency. And then I think a lot of the improvements, certainly what we're seeing in how we're thinking about our processes and our analysis augmentation coming from the bottom up. So our focus really is becoming a stronger, better underwriter if we become -- and those 2 co-mingle at a point where if we -- like one example with -- we have some work that we've done with AI in some of our investment analysis where we're taking what -- I'll make the numbers up 10 hours of analysis and doing it in 1. Well, that allows for better judgment to be applied to stronger data. So one could argue that, yes, we've increased efficiency, but it really is to augment our decision-making process. So I would say I don't anticipate that AI is going to materially improve us as a company through efficiency and automation as much as it will over time through augmentation of our judgment. Robert Cox: Okay. That's very helpful. And I just wanted to follow up on Property CAT pricing. You guys laid out the supply-demand dynamic that's out there right now. I'm curious if we model forward sort of a normal year of weather Catastrophe losses in 2026, how would you expect Property CAT pricing to change next year in 1/1 renewals in 2027? I realize that's pretty far out there, but curious your thoughts. Kevin O'Donnell: Yes. I would -- markets tend to move in curves. So if it's going one direction, I think our planning will be that the direction will continue, but it's way too early for us to think about building our '27 pro forma. Our portfolios have been constructed with our best judgment and reflect where we think we'll be on October 1, so sort of the heat of wind season. Where it goes from there, I think there's a lot of things that can shift. Interest rates can change, geopolitical situations can change materially and then certainly, losses can change. So I think of it as in curve. So it's going a direction. I generally think it will continue, but it's not something that we have a strong view on at this point. Operator: I will now turn the floor back over to Kevin O'Donnell for any additional or closing remarks. Kevin O'Donnell: So we're proud of the performance we achieved in '25 and eagerly working to build the best portfolio and maximize returns in 2026. I want to thank you for your attention and your questions today. Operator: Thank you. This concludes the RenaissanceRe Fourth Quarter and Full Year-end 2025 Earnings Call and Webcast. Please disconnect your line at this time, and have a wonderful day.
Operator: Good morning and good afternoon, and welcome to the Novartis Q4 Full Year 2025 Results Release Conference Call and Live Webcast. [Operator Instructions] The conference is being recorded. A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. With that, I would like to hand over to Ms. Sloan Simpson, Head of Investor Relations. Please go ahead, madam. Sloan Simpson: Thank you, Sarah. Good morning and good afternoon, everyone, and welcome to our Q4 2025 Earnings Call. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Please refer to the company's Form 20-F on file with the U.S. Securities and Exchange Commission for a description of some of these factors. The discussion today is not a solicitation of a proxy nor an offer of any kind with respect to the securities of Avidity Biosciences or SpinCo. The parties have filed relevant documents with the U.S. SEC, including a proxy statement for the transactions and a registration statement for the spinoff. We urge you to read these materials that contain important information when they become available. Before we get started, I also want to remind our analysts to please limit yourselves to one question at a time, and we'll cycle through the queue as needed. And with that, I will hand over to Vas. Vasant Narasimhan: Terrific. Thank you, Sloan, and great to be with everyone today. With me in the room are Harry Kirsch, our Chief Financial Officer; and Mukul Mehta, our Chief Financial Officer, Designate, who will be taking over for Harry in mid-March. So let's dive into the results. And when we start on Slide 5, Novartis delivered high single-digit growth, as you saw earlier this morning. And importantly, we achieved our 40% core margin goal 2 years ahead of plan. And I think that demonstrates the strong operational performance of the company. On the full year, our sales were up 8%. Core OpInc was up 14%, as I mentioned, the 40.1% core margin, $21.9 billion now on Core OpInc. I think significant growth over the years. On quarter 4, sales did decline impacted by both the gross to net, which we'll talk about a bit more as well as the Entresto LOE and Core OpInc is up 1%. We did have some important pipeline highlights, which we'll cover over the course of the call, but I think a few I wanted to highlight upfront. First, remibrutinib, we achieved the submission in the most common type of CIndU that was based on positive Phase III results as well as interactions with the FDA. And we'll have the remaining readouts for the 2 other subtypes of chronic inducible urticaria over the first half of this year. And with pelabresib, we now have a path forward for both the EU and the U.S. I'll go through that data and the path forward on a future slide. So overall, we met our upgraded full year 2025 guidance. We expect to grow in 2026 through the largest patent expiry in Novartis' history, which I think demonstrates the strong performance we have on our key growth brands as well as our pipeline replacement power. Now moving to Slide 6. The growth drivers in the quarter continued their strong trajectory as well as on the full year. Here, you see the full year numbers. You can see Kisqali was up 57% on the full year. Kesimpta was up 36%. Scemblix up 85%; Pluvicto on the PSMAfore launch, having dynamic growth as well. We'll talk about each of these brands in turn. Overall, a 35% growth in this portfolio, and this is a portfolio that will carry us through the end of the decade as well with many of these brands taking us into the mid-2030s. Now moving to Slide 7. On Kisqali, we grew 57% in the quarter -- on the year to $4.8 billion, outpacing the market for CDK4/6. Now when you look at the chart on the lower left, our growth was 44% in Q4. When you remove the U.S. RD adjustments, our global sales grew at 54% and our U.S. sales growth was at 62%. So in our view versus the consensus, the entire miss really came from these onetime RD adjustments. We remain fully confident on the $10 billion peak sales outlook for the brand. And what's underpinning that confidence is the very strong volume growth we're seeing across geographies. When you look at the middle panel, U.S. eBC NBRx is now above 60% and holding steady. I think that really demonstrates the strong preference providers have for Kisqali, particularly in settings where we are uniquely positioned. And in Germany, we have over 80% NBRx share in the early breast cancer setting, which I think shows again this early strong performance for the launch in Germany, which we hope to carry over now to other ex U.S. markets. So going to the last panel, I already went through many of the key elements, but I think I wanted to also note that eBC NBRx share is leading in both the overlapping and the exclusive population. Outside of the U.S., we have important launches in Italy and Spain coming up in 2026. And finally, we continue to bolster the data profile for Kisqali, both with data that we recently presented at San Antonio and ESMO. We'll continue to follow up these patients over the long run, and that should allow us to continue to have mature OS data over time, which we think will continue to bolster the portfolio. So very excited. Kisqali continues to be -- have the outlook to be the largest brand in Novartis' history. Now moving to Slide 8. Kesimpta grew 36% to $4.4 billion on the year. You can see the continued steady performance of this brand, driven by the continued expansion of the B-cell class within MS. In the U.S., we had 27% growth in quarter 4. Importantly, we see increasing adoption in naive patients, which are now 50% of our NBRx is now in first line. Outside of the U.S., we are leading now with NBRx share in 9 out of the 10 of the major markets that we track. And the core opportunity we see ex U.S. going forward is to continue to expand B-cell therapies in the 67% of patients who are not on B-cell therapies and receiving disease-modifying therapies in MS. So we continue to generate additional value for Kesimpta. We continue to progress also our every 2-month formulation for Kesimpta. So I think we're on a solid track with this brand to fully achieve our peak sales guidance of $6 billion plus. Now moving to the next slide. Pluvicto now really showing dynamic performance with the PSMAfore launch, 42% constant currency growth. We reached $2 billion in sales now overall globally. And that strong performance was driven primarily in the U.S., where we continue to see strong uptake in the pre-taxane setting. Sales grew 75%. We saw a 4x increase in our PSMA share since approval, now reaching 16% in that setting. We also see continued growth on provider set, across provider settings, including the highest growth in community, where we now have over 790 treatment sites. Outside of the U.S., importantly, we've secured approvals in Japan and China, which also allowed us to continue to drive that ex U.S. strong growth. And we expect that growth to accelerate now with the Japan and China launches upcoming. Now the next phase for Pluvicto as we expect to kind of get to the peak of the PSMAfore population over the course of this year will be the launch in the hormone-sensitive setting, which adds about 75% additional patients to the patients we already have from the VISION and PSMAfore population. That sNDA has been submitted to the FDA as well as the NMPA in China and PMDA in Japan. We have the right foundation for that launch to be, we think, a rapid uptake with 2/3 of eligible hormone-sensitive patients already with existing treaters or providers. So the capacity is well established. I did want to flag as well that we have new manufacturing sites that are coming online in California, in Florida as well as in Japan and China. We have over 440 treatment sites now outside of the U.S. as well. So we've really taken this to scale, which positions us well for the Pluvicto launches, ongoing Lutathera business as well as our future RLT portfolio. Now moving to Slide 10. Leqvio reached blockbuster status in the quarter, an important milestone for this brand as we continue that steady trajectory that we often see for cardiovascular launches, 57% growth on the full year, 46% on the quarter. In the U.S., we continue to outpace the overall advanced lipid lowering market. And our real focus is increasing depth in the health systems we prioritize where there's strong capabilities within the buy-and-bill setting, strong interest in getting patients to goal, also focusing more on specialty areas as we've guided in the past. We saw a 33% growth in the setting versus the prior year. Now a key milestone for us outside of the U.S. will be the NRDL listing, which we achieved in China and is now already now started in the first part of January. As you have heard on previous calls, we have had very strong uptake in China in the private setting. And now with the NRDL listing, the early signals are very strong for a rapid uptake in the China market for Leqvio. So we're quite excited about that, and it's a key focus area for us in 2026. We continue to build the evidence base for Leqvio, important publications in various journals, mostly focused on adherence rates as well as our ability to drive LDL-C down to goal regardless of which background therapy patients are on. Now moving to Slide 11. Scemblix had another strong quarter. We've reached again blockbuster status with this brand, and we have NBRx leadership in the U.S. and Japan. 87% growth in Q4. Now if I could focus your attention on the middle panel in the U.S., we've reached 41% NBRx share now across all lines of therapy, and we plan to continue to grow that. But the most important thing for us now is to drive the growth in the first-line setting where we're trending ahead of our plan. We're already now in the mid-20% range in the frontline setting. We want to drive that up. And I think as we get -- as we've now secured broad access, we have the opportunity now to continue to make Scemblix the medicine of choice on the front line for patients with TML. And now outside of the U.S., we also continue to have our leadership in the third-line setting with 72% share across the major markets that we track. The early line indication is now approved in 60 countries, and we've already just launched in Germany, and we expect to get other EU markets online in the front line with launches expected in 2027. I think one ex U.S. market to note, which I think shows the ability we have to drive Scemblix outside of the U.S. is in Japan, where we already have 45% frontline market share -- NBRx share and 74% second-line NBRx share. So really strong outlook, confident in the $4 billion-plus outlook for this medicine. Now moving to Slide 12. Cosentyx grew 8% overall in the year, getting to $6.7 billion on the steady march up to our $8 billion peak sales guidance. You can see the 11% growth on the quarter. In the U.S., we had 9% growth. That was driven by higher demand we saw both in hidradenitis and in IV. Right now, we're the #1 prescribed IL-17 across indications, and that's really because of the strong access that we have frontline access. In HS now, we are the NBRx leader in naive patients with 51% share and 47% overall. And the naive market is 2.5x the switch market. Certainly, we've seen our competitor get traction in the switch market, but we're very much focused on that naive market where we have a really strong position. And the IV is also steadily advancing 8% a steady growth, 200 new accounts, and we expect that to continue over the coming years. Outside of the U.S., no major changes, continued very strong growth, leading originator biologics in the EU and China. And overall, we would forecast Cosentyx to have, on average, mid-single-digit growth over the coming years as we get to that $8 billion peak sales potential. I did want to also flag that we have completed the submission with the U.S. FDA for polymyalgia rheumatica. And so we're excited about that as an additional launch now for Cosentyx. And we've also are on track. We're also on track to file in the EU and Japan in the first half. So moving to Slide 13. Our renal portfolio has continued its rollout, I think, with steady progress. And separate from that, we also have amended our zigakibart Phase III protocol, which I wanted to talk about in a bit more detail. Starting with our renal portfolio, our IgAN portfolio contributed 50% of the NBRx market growth versus prior year, driven equally by Vanrafia and Fabhalta. So I think we see steady uptake across these 2 brands. Also in C3G, also continued steady adoption across the top accounts. So we hope to see that accelerate now over the course of 2026. And outside of the U.S., Fabhalta is now approved in C3G in 45 countries. Vanrafia had its EU submission. So I think across these 3 brands, we have the opportunity to continue to build out a strong position. We do expect to be able to provide the full data set on the Fabhalta eGFR readout in IgAN soon and also move forward with the filing for a full approval in IgAN for Fabhalta. Now on -- and we also expect, I should also note the Vanrafia full eGFR data set in the first half. On zigakibart, we have made the decision in order to optimize the overall label positioning and the competitive positioning to align our UPCR readout with the interim eGFR readout, which we expect in the first half of 2027. And we expect that to support our BLA for a full approval. This was a decision based on our analysis of the Phase I and II data. We think we have the opportunity to be second to market with both proteinuria and the eGFR benefit. And so that, I think, is going to hopefully position us well to have a fourth renal agent in our portfolio. We also have combination trials underway because we certainly see the opportunity in having a hemodynamic agent, having a Fabhalta and having zigakibart, the opportunity to use combination to optimize care for these patients. Now moving to Slide 14. Rhapsido's U.S. launch, which is obviously something we're very closely tracking is delivering encouraging results. We are optimistic with already what we're seeing in the early days for this launch. We see strong demand with an encouraging mix of patients, both patients who are post antihistamines as well as post a biologic failure. We have a strong and positive response from allergists and dermatologists. The sampling and bridge program has over 2,000 HCP starts. And I think that when we benchmark that versus other highly successful dermatology launches, it's right in line with some of the most successful dermatology launches. We're also seeing early access wins. I think access will be now the gating factor. Every few months, we expect to bring on additional access on board. That will allow a steady pickup in sales over the course of the year with more of a steady pickup in the second half of the year. And I think for that second half, I would encourage everyone to watch as we get that access together. And as a reminder, I think you all know well, clean safety, no box warnings, no contraindication, no required routine lab monitoring, no liver safety issues in the label, fast relief across a broad population as fast as 2 weeks. Anecdotally, we hear reports as fast as a day or 2 days, patients are starting to see benefit. And it's the only oral therapy approved by FDA who remain symptomatic despite antihistamine therapy. Now moving to Slide 15. Now Rhapsido is one of these brands that we hope over time could become one of the largest brands in Novartis' history. This is an opportunity over multiple indications. I mentioned CSU launch, the CIndU now positive data that we have in hand for type, 2 more types coming, an HS readout in 2028. We have positive food allergy data, which we'll be presenting in Q1 of this year, and that's leading us to now initiate a broad Phase III program in food allergy. We are on track for the RMS readout second half of this year, but really mid of this year is the opportunity that we have to read out the RMS -- 2 RMS studies, SPMS and myasthenia gravis ongoing. So when you take that together, you clearly have an opportunity with a medicine with a clean safety profile. and strong efficacy with an oral -- as an oral option to have a significant long-term sales potential. Now moving to Slide 16. Now Itvisma, which we haven't had as much attention, but it's something we continue to believe has a significant overall sales potential, total potential for this brand across the IV and IT of $3 billion plus. This is a U.S. approval that brings the onetime gene therapy in children 2 years and older. It's a broad label across patients who are non-sitters, sitters and walkers, no AAV9 antibody titer limit for this treatment. There's a strong value proposition, single administration, durable efficacy, solid safety profile. So we see a multi-blockbuster opportunity for this brand. 7,500 children, teens and adults have not been treated yet with Zolgensma IV. We also have an extensive experience in the U.S. and ex U.S. with this medicine. Outside of the U.S., we've already been approved in the UAE 1 day after the FDA approval and Europe and Japan submissions are completed. And as a reminder, for Zolgensma, actually, our sales are larger outside of the U.S. than in the U.S. So there's certainly a significant opportunity ex U.S. for Itvisma. Now moving to Slide 17. As I mentioned on the first slide, for pelabresib, we read out in the quarter 4, the 96-week data from the Phase III MANIFEST program, which both on safety and efficacy has now given us a path forward to, we believe, get this medicine registered, assuming successful regulatory and clinical trial Phase III trials. In that study, we showed deep and durable responses and a comparable safety profile to ruxolitinib in myelofibrosis. You can see the data here on the left in terms of the spleen response. When you look at the data that we presented, we had a deep and durable spleen volume reduction for the spleen volume, 35% reduction landmark, 91.5% versus 57.6%. We also saw sustained improvements in symptom scores and anemia. We had 2x as many patients reaching goal with the spleen volume reduction and the TSS50. So we believe this medicine has disease-modifying potential. We saw improvements in bone marrow pathology on the anemia. There was importantly now from a mortality standpoint, fewer deaths and progressions observed with pelabresib and ruxolitinib versus ruxolitinib alone. And the overall safety now has proven comparable with ruxolitinib, including comparable leukemic transformation rates, which was one of the topics that was holding this program back. So with this data set, we have now an agreement with the EU to file in 2026 based on this data. And in the U.S., China and Japan, we'll be starting a new Phase III study focused on patients who have high TSS50 at baseline, where we believe we have the data set now to show we can achieve the regulatory milestone to ultimately get approval. Now moving to Slide 18. I did want to also take a moment to mention our impact on global health. As I think many of you know, Novartis has been in global health for nearly 100 years, working on malaria and other neglected tropical diseases. With our Coartem medicine 25 years ago, we started a real sea change in the treatment of malaria, reaching now well over 1 billion patients with Coartem. And now with the recent data we presented in November, we have the opportunity to bring the first new malaria medicine, novel medicines so in 25 years. This is KLU156, ganaplacide plus lumefantrine. It disrupts the parasites internal protein system, very positive data here. You see on the adjusted basis, 99.2% cure rates versus 96.4% versus a 5-day course, a 3-day course, opportunity to block transmission, very solid safety profile. So we're quite excited to bring this forward as part of our mission in global health. So moving to Slide 19. Now taken together, a very good year for us from a pipeline standpoint in 2025. You can see we met the vast majority of our milestones and trial starts. And I think that really shows the strong execution machinery we have now in R&D at the company, very aligned across research and development and strong execution across our global development organization. And turning to Slide 20. For 2026, we're on track for 7 pivotal readouts with the potential to strengthen the midterm outlook that we're guiding to, including the mid-single-digit sales growth we expect in the 2030s. A few particular readouts, which I haven't mentioned, which I'll call out. And on the left side, you can see pelacarsen for CVRR. We do expect to read out middle of this year. It will be second half, but it will be middle of this year, which, if positive, would allow us for a U.S. submission this year. We also are on track for our submissions for Ianalumab in Sjogren's disease. and as well as the Del-zota DMD U.S. submission, which assuming the closure of the Avidity deal would also happen in the first half of this year. Number of pivotal readouts. I mentioned pelacarsen. There will be the Ianalumab readouts in hematology, which could have significant potential to drive that brand to very large long-term potential. Of course, remibrutinib as well as the Del-desiran DM1 Phase III readout, again, assuming the closure of the Avidity. We also have the additional readout of the DUX4 interim data readout as well, which could support accelerated launch in FSHD. However, that we would characterize as an upside case. And then a number of key study initiations you can see on the right-hand side of the chart. So another exciting pipeline year to continue to bolster our long-term growth profile. Now moving to Slide 21. I will hand it over now to Harry. Harry Kirsch: Yes. Thank you, Vas. Good morning, good afternoon, everybody. I now walk you through our financial results for the fourth quarter and the full year of 2025, which, as Vas mentioned, was very strong despite midyear significant U.S. generic entries. And as always, my comments refer to growth rates in constant currencies, unless otherwise noted. So on Slide 22, 2025 marked another year of excellent execution. So over the last 5 years, as you can see here, we delivered an 8% sales average growth rate and a 15% core operating income average growth rate, driven by strong commercial execution, a great late-stage readout and disciplined productivity programs. This translated on the right side into more than 1,000 basis points of core margin expansion in constant currencies. And as you can see, in reported currencies, allowed us to reach our midterm core margin target of 40% 2 years earlier than planned. As you may recall, we initially planned for 2027. Now we have achieved it in 2025. With these results, I hope you agree, but I believe we have really elevated the company to a new level of sales performance, margin profile and as I'll discuss later, free cash flow generation. On Slide 23, just a quick summary. You see that we have delivered our full year guidance in 2025 after upgrading twice throughout the year, and we guided to high single-digit sales growth, and we delivered 8%. For core operating income, we guided to low teens. and achieved 14%. And this is a strong result in the year, as I mentioned, where U.S. generic entries for Entresto, Promacta and Tasigna happened, and it speaks really for the momentum of our priority brands, as Vas already laid out, as well as disciplined cost management. Turning to Slide 24. So here, a few more details. For the full year, we delivered the described solid top and bottom line growth, record core margin and record free cash flow, almost $18 billion. The core margin in the year improved by 210 basis points to 40.1% and core EPS rose 17% to $8.98. Free cash flow grew 8% to $17.6 billion. Now for the quarter, on the right side here, as expected, the U.S. generics had an impact, which we see in quarter 4, and then Mukul will lay it out first half of next year or 2026, but then again, back to growth. Anyway, sales declined 1%, whilst core operating income increased by 1%. And the results were a little bit noisy due to some U.S. R&D adjustments, a positive impact in quarter 4 of 2024, so last year financially and a negative impact this year in quarter 4, 2025, mostly on generic -- so excluding this adjustment, underlying quarter 4 sales growth would have been positive 3%. As said, the vast majority of the gross net adjustments were Entresto and other generic brands like Promacta and U.S. Core EPS in the quarter, $2.03, up 2%. Now on Slide 25, you can see our continued progress on free cash flow generation, which reached $17.6 billion, all-time high for the company in 2025. I think it shows you also besides the financial, the power of being a pure-play pharma company. As you know, many years back with even 6 businesses or even before the Alcon and Sandoz spin, these numbers were usually in the $10 billion to $12 billion range. And now this is the earnings power of a focused and very successful pharma business. We remain, of course, focused on ensuring that the growth in core operating income translates into high-quality earnings and strong cash flow generation. This robust cash flow allows us to reinvest in the business, pursue bolt-on acquisitions and continue to return attractive capital to the shareholders through growing dividend and share buybacks. On 2026 -- on Page 26, a quick reminder on our unchanged capital allocation strategy. And as you see, we continue to execute our balanced shareholder-friendly capital allocation in 2025. We invested more than $10 billion in R&D, an 8% increase versus prior year, announced 4 acquisitions, 10 licensing deals, strengthening our key platforms and pipeline across all of our 4 therapeutic areas. On returning capital to our shareholders, we completed our $15 billion share buyback program in early July, and we launched a new up to $10 billion program targeted to be completed by the end of 2027. Approximately $7.7 billion of that remains to be executed. In addition, we distributed $7.8 billion in dividends during the first half of 2025. Now speaking of dividends. Turning to Slide 27. We are proposing a dividend of CHF 3.70 per share, a 6% increase in Swiss francs and even double digit in dollars. And it's our 29th consecutive dividend increase in Swiss francs since company creation '96 and including years following the Sandoz and Alcon spins when we did not rebase the dividend at all. This reflects our long-term and long-standing commitment to a growing dividend in Swiss francs per share. That concludes my remarks. Before handing over, I'd like to briefly acknowledge that this will be my final earnings call as CFO of Novartis. It has been a privilege to serve in this role in the last 13 years and to work alongside Vas and so many other great colleagues to help guide the company through a period of significant transformation and performance improvement. I'm very pleased to hand over to Mukul, a long-time colleague. In fact, we both started maybe at different stages of our career in 2003 at Novartis and very intensively worked together, especially in the last 10 years. So with that, I turn it over to Mukul to take you through 2026 guidance. Mukul Mehta: Yes. A big thank you to you, Harry, for everything. It's been -- it is an honor to step into the role that you're leaving me with, and I look forward to getting to know everybody on the line in the months to come. So if you can go on Slide #29, please. For 2026, we expect sales to grow low single digit and core operating income to decline low single digits. And this reflects the 1 to 2 percent points of core margin dilution related to the Avidity deal that we had previously indicated. Importantly, in 2026, we will be growing top line through a period of highest GX impact in our company's history. At the same time, we will make sure that we continue to invest in R&D. We fund our launches appropriately while driving forward with the productivity improvement plans that the company has. As previously noted, we expect to close the Avidity deal in the first half of 2026. Looking ahead, we remain very confident in our 5% to 6% sales CAGR in the '25, '30 period, and we expect to return to 40% plus core margin in 2029 as laid out in our Capital Markets Day. For 2026, we expect core net financial income expenses to be around $1.7 billion. This is higher than the '25 levels, and this is largely due to the anticipated funding costs related to the Avidity deal, which we have previously indicated is primarily going to be debt funded. We also expect core tax rate to remain around 16.5%. Moving to Slide 30, please. As we have previously indicated as well, 2026 is going to be a year of 2 halves. We expect -- we continue to expect strong volume growth from our priority brands throughout 2026. But we have to understand that for the first half of the year, we will have a tough prior year base with Entresto, Promacta and Tasigna generics having entered the U.S. market mid-2025. With that, we expect the first half of the year sales to decline low single digit and core operating income to decline low double digit. Additionally, Q1 will be impacted by the 2% positive gross to net impact that we had in the base Q1 '25, which will weigh on the quarter-on-quarter growth rate in Q1. That said, in the second half of the year, we expect a clear improvement with sales growing mid-single digit and core operating income growing mid- to high single digit. This takes us to our full year guidance of low single digit on top line. So moving to Slide 31, please. If exchange rates remain as at their late January levels, we expect a positive 2 to 3 percentage point impact on our full year sales and a positive 1% point impact on core operating income. And as a reminder, which Harry has conveyed previously, we published updated FX estimates monthly on our website. So that concludes my remarks, and I hand it over back to Vas. Vasant Narasimhan: Yes. Thank you, Mukul. I want to take a moment as well to acknowledge Harry Kirsch's incredible contributions to Novartis over 23 years. Over my tenure as CEO, now entering my ninth year, Harry has been by my side as we've transformed the company into a pure play and I think unlocked really outstanding shareholder returns, outstanding financial performance. But probably less visible is the strength of the finance organization Harry has built as well as the culture he's created in the company around productivity, financial discipline and operational excellence. He'll surely be missed, but will continue his legacy in the years to come. And a big welcome to Mukul, who I've known for many, many years. It will be a great addition to the team and continue the strong track record of Novartis finance and delivering strong operational execution. Now moving to the next slide. I do want to take a moment to build on Mukul's comments on our confidence in the -- our 5% to 6% sales CAGR to 25% to 30%. That includes the impact of Entresto in 2026 as well as the U.S. MFN agreement impact. You can see in the chart, we do expect some generic impact. So a lot of that is front-loaded in the first -- early part of the 5-year trajectory here. A number of brands where we believe we can drive dynamic growth in the middle column. And then lastly, a strong set of assets that we probabilized in our pipeline. This ranges from lanalumab, our various Pluvicto and actinium PSMA, pelacarsen as well as the Avidity assets, amongst others, that give us the opportunity to not only hopefully deliver the 5% to 6%, but if we're successful on those pipeline assets, we could even drive higher growth in the period. So moving to Slide 34. and in closing, strong performance in 2025. We delivered the guidance that we outlooked and got to our 40% core margin early. Our priority brands continue to outperform, and that's what's going to drive our growth through the second half of '26 and then through the 5 years to come. We're advancing the pipeline meaningfully in 2020 -- we advanced meaningfully in 2025 with 7 pivotal readouts this year. And we're confident in that mid- to long-term growth guidance. So move -- so with that, we can close this section and move to questions. So operator, we could open the line. Thank you. Operator: [Operator Instructions] We'll start with our first question, and this is from Sachin Jain from Bank of America. Sachin Jain: Perhaps I'll just kick off with thanking Harry for support and insight over the years. The question, I guess, for that on remi. You talked about avoiding liver monitoring in MS given no high law. Competition recently has been vocal avoiding monitoring in the label when monitoring has been involved in the studies could be difficult. So I wonder if you could just give us any color on FDA conversations around this topic and whether monitoring in the studies picked up events that required dose changes? And then a quick follow-on on efficacy. Any color on what you're targeting on relapse or progression given we have no Phase II to go here. Vasant Narasimhan: Yes. Thanks, Sachin. So I think first on liver, I think we should first take a step back and note that we already have an approval and an approved label without any liver safety discussion in the label, which just points to the fact that remibrutinib structurally does not have the off-target toxicities we believe that the structures of some of the other molecules do. And so that we didn't have any of that in the existing TSU label. I think I have an abundance of caution given the findings of the other competitors, FDA asked us for a limited liver monitoring to our understanding that's more limited than the liver monitoring that our competitors have had to add to their programs. And our full plan is assuming that we -- and as we've seen to date, no liver signals in our study, we fully plan to advocate to FDA that we should stick to the current label in the absence of any information to really -- any data to really change the current label with respect to that. I'd also note that for -- in general, for competitors, when there is a Hy's law case, at least to our understanding, whether it's 1, 2, 3 cases, that generally leads to REMS programs, leads to monitoring, does lead to warnings and precautions, just given the safety risk that these -- that creates for patients who have alternative therapies. And in RRMS, there's numerous alternative therapies. So safety is absolutely paramount. So I think that's our overall perspective on the safety. We're very confident in overall remi's safety and assuming 2 positive Phase III trials this summer, the potential for this to be a very significant medicine. Now with respect to efficacy, I think it's very fair to point out, we don't have Phase II data. We went to Phase III based on the findings that we saw from competitors. So -- but I think given that we know that we hit the target very well at 25 milligrams BID and we move up to 100 milligrams BID in the study, we think we'll definitely have strong target saturation. We think the molecule is very well designed when we look at the PK and the PD of the molecule. So that gives us confidence that assuming the class is effective against RRMS, we will have a compelling profile from an efficacy standpoint and with the safety profile and with the fact that we're established now in the market having already launched should give us a strong value proposition. Operator: We'll take our next question today, and this is from Simon Baker, Rothschild & Co Redburn. Simon Baker: Two, if I may, please. Firstly, on -- just continuing on remibrutinib. -- going on from Sachin's question. I just wonder if you could give us your updated thoughts on the commercial opportunities here in MS because it kind of feels like that your enthusiasm for remi in MS has increased over time. A couple of years ago, there was talk of almost MS being playing second fiddle to CSU. So just updated perspectives on your thoughts on the commercial opportunity. And then moving on to pelacarsen. You've now guided to a 2H '26 readout. Given this is an event-based study, could you just give us any thoughts on potential risks and risk mitigation for this what appears to be significantly lower event rate, does this run the risk of creating additional noise in the study? Or is that more than offset by the powering assumptions and the design that you've built in there? Any thoughts on that would be very helpful. Vasant Narasimhan: Yes. Thanks, Simon. So first on the commercial opportunity, I think it's really going to be data-driven. I think our base case assumption is that an oral drug will struggle to have the same level of efficacy as monoclonal antibodies in hitting the B-cell pathways in MS. And because of that, that still B-cell monoclonal antibodies will be the dominant class, but there will be a number -- large number of patients that would want an oral option and who don't want to go through injectable therapy. I mean, as I noted in my slide, still 25% of patients in the U.S. and 65% outside of the U.S. are on DMTs and are not on B-cell injectable B-cell therapy. So there's a large market there on its own. And then I think it will depend if the efficacy and safety profile overall, particularly the efficacy profile in the case of remi in our hand is compelling enough to have a broader market. So I think we'll certainly see based on the data. But even if we take it as a given that there is a large B-cell monoclonal class out there, there is a large market opportunity beyond that, which we think is important. And then, of course, the question is with the brain penetrant properties of our molecule, does that lead to other opportunities either in SPMS or in the control of RRMS that provides another dimension, and that will all be data driven as well. So in this case, I'll exceptionally take the second question, but if everyone could limit themselves to one question. Pelacarsen, so we expect a midyear readout. The study is going to completion in terms of the number of events that we had originally outlined. We had powered up the study, you'll recall, during the process of the Phase III. So we feel like we're adequately powered to demonstrate both at the 70-milligram per DL cutoff and the 90-milligram per DL cutoff, the CVRR that we're targeting. And so I don't think there's necessarily any risk associated with going in full. I think what it does indicate is that the event rates are lower than what we had modeled from the published literature. And I think that's just something that is just the reality now that we found. We suspect it has to do with the fact that we've really optimally managed these patients for all other risk factors, particularly LDL lowering. And I think that, of course, has an impact on event rates as well. So we'll see, and we're excited to see this data and hopefully creating an entire new class of medicines that can help a whole group of patients that have no other option. And so I think with a positive study, we have the opportunity to give these patients a hopeful solution against sudden cardiac death and some of the other things that can happen for patients with elevated Lp(a). Operator: And the next question today is from Matthew Weston, UBS. Matthew Weston: Can I also add my thanks to Harry for all his support and best of luck for the future, Harry. Vas, Kisqali is building into a fantastic and highly profitable medicine for Novartis. And I guess the only challenge is it has an LOE just after your 2030 time window. What are the options in-house to extend the franchise further in breast cancer? And given the SERD data that we've seen from a competitor, what other options are there from BD that could potentially -- or is oncology, I should say, a category where BD looks like somewhere you should supplement the Novartis pipeline? Vasant Narasimhan: Yes. So I think there's actually 2 questions in there, but I'll also take both of these, Matthew, because it's you, Matthew. With respect to Kisqali, I think right now, we guide to a mid-2031 with the pediatric exclusivity that we would expect for this brand in the U.S. I think it's longer outside of the U.S. depending on the market. Our core goal at the moment is our CDK2, CDK2/4 and CDK4 programs, all of which now are in the clinic, and we're advancing as fast as we can to see which of these medicines can provide either additional benefit in the post- Kisqali setting or either in combination and we'll see what we ultimately learn. Of course, we also are advancing our radioligand therapy portfolio. We have HER2 RLTs now in the clinic. Those will be important to watch as well as the [ neobombesin ] RLT as well in breast cancer. So a number of shots on goal. And I think those will all be very important for us to continue to life cycle manage Kisqali, as you rightfully point out, beyond the mid-2030s. I always think about it as a full year 2032 effect for this brand. Now I think with respect to BD and M&A, I think absolutely, I mean, we see amongst our therapeutic areas, clearly, oncology is one we'll have to focus on. So we'll continue to focus there as we have. I would say we've had just more opportunities and traction in the last years in cardiovascular, immunology and neuroscience. You've seen us do a large number of deals in those spaces. We'll continue to see, and of course, it's a high priority to continue to build oncology now that we have the scale we're building from Scemblix, Pluvicto, Kisqali. And so if we find good opportunities, good assets, we'll certainly go after them. Operator: Next question is from Peter Verdult, BNP Paribas. Peter Verdult: Peter, BNP Paribas. Just on Rhapsido and ianalumab. Given we're now in an MFM world, how should we be thinking about ex U.S. launch plans for what are clearly mostly significant assets. I'm basically just pushing my life to see how specifically you're comfortable being about changing in rest of world launch strategies for important assets like ianalumab. Vasant Narasimhan: Yes. So I think this is high in our minds. We're working through strategies here on Rhapsido, given that it's already launched, of course, we would be exposed on the first pillar of the MFN approach, which is on the Medicaid rebate it's more limited. And I think there we can manage. We think we have good options to manage the ability to launch Rhapsido globally. Of course, we'll have tighter pricing corridors, but that's something we think we can manage. Ianalumab is more complex as we get to launches in 2027 in the G7 countries. There, of course, it's on the entire market of U.S. net price, not just Medicaid. And so we're working through strategies. Absolutely, it's our aspiration to get these medicines launched in all of these markets given the patients that need them. But we certainly can't adversely affect the U.S. market. And so we're just going to have to be thoughtful about looking at where are there opportunities to price appropriately for the value that ianalumab brings. Given the PPP adjustments and some of the other elements of how pricing is looked at, are there things we can do to manage this. It's all in the works. I think we'll have a better sense over the course of this year on ianalumab. But on Rhapsido, we feel confident we have a way forward to get a global launch moving ahead. Operator: Next question is from Steve Scala from TD Cowen. Steve Scala: On pelacarsen, Novartis has said previously, that a delay in the HORIZON trial readout would stem either from overestimating the baseline risk or underestimating the treatment effect. Do you have a sense of what is at work here I would think the baseline risk, if it were overestimated would question the value of lowering LPA in the first place. And I would think that Novartis should have a better handle on treatment effect based on early studies. So any color of Novartis' view at this point would be helpful. Vasant Narasimhan: I wish we knew, Steve. Honestly, obviously, I can only give you an opinion. I can't actually give you a fact because we're completely blinded, and we have no database insights. We believe that we have appropriately estimated the baseline risk. And that's not so many rounds of looking at it. So it might be that baseline risk is more prominent at higher Lp(a) threshold. I think in my mind, it really comes on to what Lp(a) threshold that we appropriately thinking about the baseline risk and how -- and this is, again, I think not in our -- no way to know if this is correct, but my assumption is that at lower Lp(a) levels, there could be more interactions with LDL and other risk factors. And that Lp(a) becomes more dominant as you get to higher Lp(a) levels and because the risk goes up almost linearly at a higher Lp(a), that becomes the dominant risk factor. And so the studies obviously have some portion of patients at the 70 to 90 to 100. We've, I think, announced in our papers that overall, our median is 108. So that's kind of our best guess in terms of the risk profile and how we've estimated. Obviously, we would love for this to be that our treatment effect is larger than we expect, and that would be the reason for this, but there's just no way to know that at this time. Operator: Next question comes from Richard Vosser, JPMorgan. Richard Vosser: Just a question on Itvisma. Just how should we think about the ramp of that product in the U.S. and ex U.S. could imagine that there are some patients that are potentially waiting for the therapy. So have you seen warehouse patients? And how should we think about the launch? Vasant Narasimhan: Yes. Thanks, Richard. In general, for gene therapies, we see often a pretty fast ramp as we get through the kind of prevalent pool of patients. And then it kind of comes down to a more steady state. And I think over the next 2 to 3 years, we would expect really Itvisma to penetrate the majority of the kind of relevant patient pool that it has. And then come back down as we saw with Zolgensma more to a steady state because of the nature of the onetime therapy. So I think relative to other brands, the ramp will be on the faster side. It won't be in 6 months, but I think over the first few years, will get to peak relatively quickly and then come down from there. And we do have, I think, warehouse patients, we do have patients that we really understand. We also have strong access, we think, in many markets. And as we build that access forward, I think that will really allow us to maximize the medicine. Operator: Next question is from Graham Parry from Citi. Graham Glyn Parry: So I reiterate the best wishes for Harry, of course. And then a question on Kisqali and the outlook for the year. So how much of the gross to net impact that was impacting fourth quarter carries through into the next year because of a different channel mix versus how much is one-off? And so to what extent does that give you an easy base for comparison in 2025 into 2026? And then any thoughts you have on the risk that oral SERDs might pose to encroaching on CDK4/6 combinations in the adjuvant setting? Vasant Narasimhan: Thanks, Graham, and great to have you back. On Kisqali, I think the higher gross to net, we believe, is a onetime effect where we saw higher Medicare utilization than we had forecast in 2025. We do expect as the early breast cancer launch continues to accelerate and our mix shift to younger and younger patients that this will net out back towards where we had historically expected. And I think we should be fine from that point forward. And Harry wants to add something. Harry Kirsch: Yes, Graham, thank you very much. And by the way, everybody, for your nice words. So on Kisqali, I mean, one thing to note is that actually in quarter 1 of '25, with a positive gross to net as Mukul pointed out. So in quarter 1, that's a higher base due to one-timers. As Vas mentioned, the quarter 4, what we have noted here out-of-period adjustments. So if you take that out, it's really the true quarter 4 performance. And then quarter 4 of '26, there should be a bit of a lower base because of this negative this year. But overall, the -- basically, these gross to net adjustments are all out of period, so one-timers and the underlying is what you see. Vasant Narasimhan: And then with respect to the oral SERDs, we've had a lot of discussion, and we feel confident that when we look at the profile of Kisqali and what we hear from physicians that physicians want a CDK4/6 inhibitor for patients who can benefit. And they, of course, need to look for an endocrine therapy option. Certainly, the oral SERDs now have the opportunity over time to become the standard of care endocrine therapy option. We already know that roughly half of patients in the early breast cancer setting in the U.S. are already now on a CDK4/6, and as we continue to penetrate that base of patients, we think that the opportunity will be CDK4/6 plus the choice of historical endocrine therapy or the oral SERDs, and that's how this market will play out. At the margin, could there be some physicians who choose an older endocrine therapy plus a CDK4/6 or an oral SERD and not a CDK4/6. Certainly, that dynamic will happen, but we don't expect that to be the predominant approach in the U.S. or in any of the other core markets. That's what gives us confidence in the $10 billion-plus guidance that we have and are sticking to. Operator: Next question today is from Seamus Fernandez of Guggenheim Securities. Seamus Fernandez: And just would echo, Harry, we'll miss you, for sure. Vas, hoping you could maybe give us your thoughts on the overall food allergy opportunity within your overall portfolio, obviously, Xolair has done extraordinarily well in this space with excellent growth opportunity. Just hoping to get your perspective on that as well as the opportunity that you see potentially within your broader portfolio, not just for the BTK, but beyond. Vasant Narasimhan: Yes. Thanks, Seamus. We've had a long history looking at food allergy. It goes back to medicine. Some of you will remember called QGE031, which was a high affinity IgE. There was supposed to be a follow-on for Xolair. In the end, we weren't able to show a stronger effect than Xolair has ultimately shown in food allergy. So we know the space well. once we saw the Phase II data for remibrutinib and food allergy, I think it changed our perspective to really think now how could we build this out to be a significant market opportunity. So we'll be sharing that data, as I mentioned, in the coming month or two. And with that data set and now the agreement with FDA on how to advance into Phase III studies, we see the option for a safe oral medicine to be able to hopefully be given broadly to patients. And you know that a lot of the patients in food allergy that are most interested or at risk to be treated are children. And so versus ongoing injections, having an oral high efficacy safe option, we think would be pretty compelling. So I think overall, we see food allergy is a multibillion-dollar opportunity. I certainly with the potential to make something major out of this. We're going to obviously run through the phase Phase III program. We're excited to share the Phase II data as well. And then beyond that, now we are evaluating are there other opportunities within the pipeline earlier at Novartis. And, of course, externally as always, to see can we further bolster our food allergy portfolio. So I think it's definitely a shift, but something we're getting quite excited about. Operator: Next question is from James Gordon at Barclays. James Gordon: The question was on pelacarsen and what a win now looks like. So you talked about a potentially lower event rate. Where is the latest magnitude of efficacy? I think the original design was a 20% benefit in the broader population, a 25% benefit in a narrow population with a longer study and maybe some other tweaks. Is that sort of the minimum? Is there a possibility that you could actually have a benefit for either of those groups that were statistically significant, but didn't quite hit the her? And if so, would that still be a product with strong commercial prospects? Vasant Narasimhan: Yes. Thanks, James. So you are correct. It is a 20% powered for 20% in the 70 mg per DL group and 25% for the 90 mg per DL group. We can win on the study with a relative reduction that's lower than that. And so certainly, there is the opportunity to win with CVRR in the mid-teens. I think we have to evaluate, I think, for patients who have no other option. And if we were to win at that lower level, what would be the right approach to bring it to market. And that's something we'll have to see based on the data. But that's certainly something we'd have to look at. Of course, we hope for a much higher CVRR impact either at the lower cutoff or the higher cutoff, but we're going to ultimately have this to be data driven. There have been no other changes, though, from a protocol standpoint, from a study design standpoint, everything is as it was when we originally started the study with respect to powering, et cetera. Operator: Next question is from Michael Leuchten from Jefferies. Michael Leuchten: A question for Harry, please, given it's your last time with us. Harry, the SG&A expenses in the fourth quarter were extremely tight. Very good performance there, helped you to gear the margin in underlying terms. As I think about the margin for 2026, obviously, you do have the Avidity dilution. But if that SG&A control continues, I struggle to see how you're going to get as much dilution, especially if avidity doesn't quite close as quickly as maybe it could. So can you just talk about the repeatability of that SG&A performance in the fourth quarter into 2026? Harry Kirsch: Yes. Thank you, Michael. Actually, any 2026 question is kind of for Mukul, so I will hand over in a second. But Historically, we always had quite an increase in quarter 4. So we took this year to say, look, this is inefficient to have such a peak in a quarter where you have 1 to 2 weeks of Christmas and you have also the U.S. Thanksgiving and so on. It shouldn't be actually a big peak here. So we took that in order to even a bit out. And overall, we will continue and Mukul, of course, will drive productivity programs, right? But Avidity, just one thing. I mean, when we -- a day before quarter 3 earnings, when we took you all through the Avidity deal, we said it would be a 1% to 2% margin point dilution effect given the unusual high development cost burden in the next 2 to 3 years of a late-stage development product with a very expensive medicine from a COGS, especially when it is under contract manufacturing. So not everybody has figured this into the consensus. It's okay when people don't follow everything we say, but we have mentioned it to you. And 1 to 2 points, if you take 1.5, it's pretty much what you get when you have a low single-digit increase on sales and a low single-digit decrease in core operating income. So we feel we have implemented exactly that without Avidity would have been unchanged margin basically. But Mukul, what do you think? Mukul Mehta: Harry said it all. I think it's -- the short answer -- the short add-ons to the answer that Harry gave was, the SG&A cost control, productivity plans within the organization is something that we, as a company, feel very proud of on what has been achieved in the last 4, 5 years. And as we go into our next 5-year journey, this will absolutely continue going forward. There is a certain bit of margin dilution that we had predicted. And if we -- and that's the reason that we gave clarity on H1, H2 because if you look at how once the GX for this year are going to come off the base, we actually see core operating income starting to grow. And that kind of sets the base or sets the expectations for what to expect of our P&L in the next 4 years to come. Operator: We'll take the next question, and this is from Thibault Boutherin from Morgan Stanley. Thibault Boutherin: Just a question on Cosentyx and the dynamic in the HS market. It looks like shares have been stabilizing for some time between Cosentyx and the main competitor in terms of NBRx and total script. So from here, is it fair to assume that both drugs should grow in line with the market. And I think the last is to say the HS market should expect a growth around 15%. So I just want to know if it's the type of growth that just you're seeing today? Vasant Narasimhan: Yes. Thanks for the question, Thibault. So you rightfully point out, we've seen stabilization in the overall NBRx share in the market. As I noted, we're kind of in this 48% to 50% range. And then we see the two other medicines splitting the remainder. We're doing very well in the naive population. And then in the switch segment, we see our competitor performing very well. So I think that's kind of the dynamic. We've seen that dynamic kind of stabilize now. So we would expect that dynamic to continue going forward. So I think both -- all brands will grow based on the market. Now clearly, the market potential here is quite large. It's just a matter of how effective we are at getting patients to come in to get to get treatment. So we continue to see this kind of $3 billion to $5 billion market opportunity, but could it be larger if we were able to mobilize with two competitors and potentially more future competitors coming in, the market growing faster certainly. And we, of course, want to capitalize on that. And that's part of the reason why we studied Rhapsido in HS because we see the opportunity here to build this market hopefully, with a high efficacy safe oral to then go make the market even larger. So something we'll continue to work to build and hopefully get more of these patients are kind of lost to treatment, probably we're on a TNF ultimately not successful get those patients back into the medical home and backlog therapy. Operator: [Operator Instructions] We will now take the next question, this is from James Quigley from Goldman Sachs. James Quigley: My thanks and congrats to Harry as well for the next chapter. My question is on the Lp(a) portfolio. So as you showed in the slide, you started a new trial Phase II trial for DII235. Firstly, what are the dosing intervals by testing for that drug? And secondly, at the media management event, as you were saying that if HORIZON were positive, that could then lead a decision to move some of the longer-acting Lp(a) straight into Phase III. So are there other assets in the portfolio that you're holding back, waiting for HORIZON to move into Phase III. Is this Phase II a function of a pushout in HORIZON? Or is it just you want to see more data beforehand before making a final decision here on which assets to take forward? Vasant Narasimhan: Yes. Thanks, James. So for DII235, our partner, Argo Biosensors, I think, publicly released that this is has had already strong data in the early Phase II study and has a potential for an annual dosing interval. And we are prepared to move that study -- that program directly into Phase III based on the HORIZON data set. So there's no change in our plan. I don't know if there might be different things happening between the studies and their studies and et cetera. But our strategy very much is based on the HORIZON readout, to then based on the data we've seen with DII235 on an annual dosing interval to move that forward then into late-stage studies. We do have, of course, a range of other programs earlier stage as well on the range of cardiovascular assets. We've talked about that in the past. HMG coA Reductase, annual PCSK9, of course, the angiotensin 2 siRNA and then combination programs as well that we're working on, both at the 6-month interval and at the 1-year interval. And so both because we life cycle manage Leqvio but also be prepared that pelacarsen is positive. So the HORIZON is positive to seem to be ready to come with what we think will be the preferred market option we want to be ready for all these eventualities. Operator: And the next question is from Peter Verdult, BNP Paribas. Peter Verdult: Just a follow-up for you, Vas, on the pipeline. Just on this basket of cell therapy programs in autoimmune, I think some of them do read out next year. Just wondered if you've got it in the top of your head in terms of which ones and which indications and perhaps a general temperature check on your behalf in terms of your level of enthusiasm for these programs. Vasant Narasimhan: Yes. Thanks, Peter. We remain enthusiastic. We have a huge effort internally on YTB as a first instance, currently in pivotal studies, aligned with FDA over 4 indications and then with follow-on programs that are now in proof-of-concept studies in 3 -- 4 additional indications as well. and then additional exploratory work that's ongoing. And then behind that, trispecific and bispecific monoclonals also to explore can there be alternative options for certain patient groups in the immune reset. I think the first readouts we'll have will be in SLE lupus nephritis. That's building off of the data we presented last year on 20, 23 or 24 patients where we showed, I think, pretty spectacular results for those patients in terms of winding the progress of their disease other than the permanent damage that has happened to the kidneys. And so quite exciting data. That's allowed us, I think, to move forward on that study quite quickly. But we also are advancing all the other programs. And some of them, if we're fortunate, might even be able also to read out next year depending on enrollment patterns and enrollment time lines. So we're advancing these as fast as possible. Depending on the program, many of them have alignment with FDA that we can file off of a single arm and then continue on to provide data on randomized data sets. Others need the randomized upfront. So that all varies based on indication. But I think a lot of the enthusiasm and focus inside the company. Operator: Now take the next question, and this is from Michael Leuchten from Jefferies. Michael Leuchten: Vas, just on Scemblix, you helpfully provide the share data across lines of therapy for the product. It looks like it's plateauing in first line in the U.S. a little bit over the last few quarters. What's stopping the momentum to continue? Vasant Narasimhan: Yes. Thanks, Michael. So we have looked into that. One thing to note is that data is very noisy because with CML, it's a rare disease, most physicians only see 1 or 2 patients. And so the data here always is getting restated. Overall, our view based on our internal assessments is we continue to see steady share growth on the frontline setting. Actually, I would say our frontline share growth is ahead of our plan and our original planning assumptions. And so we see the opportunity here to really continue to grow. We have really strong broad access. One of the biggest things we're trying to overcome is the perception that we don't have strong access to get that access perception to where we want it to be. And then, of course, as we've outlined in the past, you do have Gleevec loyalists out there who want to stay with a product that they've used for a long period of time. That will be more of a refractory group. But to get from the mid-20s up to the 40% to 50% share range is absolutely what our ambition is, and we see a path to get there. Next question I think this might be the last question, operator. Operator: So the last question today is from James Quigley from Goldman Sachs. James Quigley: I've got one quick one on Zigakibart. The data has been pushed out a little bit in order to have the eGFR data on the label at launch. But as you think about sort of the strategy here with your other assets, whether you had the UPCR data first and then adding the eGFR data. Is this a case that the data were quite close together so it is worth having a delay, just trying to understand the rationale here versus the mechanism? Or is there something around the Zigakibart mechanism that could lead to a stronger benefit on eGFR relative to UPCR. Vasant Narasimhan: It's a great question, James. I think when we looked at the number of competitors entering in the [ anti-APRIL ] space. We asked ourselves, given we already have a strong portfolio in the nephrologist office, what would give us the most compelling data package to kind of cut through all of the various launches that are ongoing. And we felt coming right away with hopefully the second medicine with a full approval, clear proneuria reduction and eGFR benefit would give us a very compelling proposition. I mean theoretically, assuming everything goes as we hope, we would have three medicines in IgAN with eGFR outcomes benefit across Fabhalta, Vanrafia, Zigakibart, and that will give us a very compelling proposition. So we thought that was prudent given that the time that passes here is three quarters, it's not the end of the world, and then we would have a much more compelling data set to provide to FDA. All right. Well, thank you all very much for joining the conference call. We look forward to keeping you up to speed, and we wish you all a great 2026. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may...
Operator: Good day, everyone, and welcome to the Matthews International First Quarter Fiscal 2026 Financial Results. [Operator Instructions] Please note this call may be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Dan Stopar. Please go ahead. Daniel Stopar: Good morning. I'm Dan Stopar, Chief Financial Officer of Matthews. And with me today is Joe Bartolacci, our company's President and Chief Executive Officer. Before we start, I would like to remind you that our earnings release was posted on the Investors section of the company's website, www.matw.com last night. The presentation for our call can also be accessed in the Investors section of the website under Presentations. Any forward-looking statements in connection with this discussion are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Factors that could cause the company's results to differ from those discussed today are set forth in the company's annual report on Form 10-K and other public filings with the SEC. In addition, we will be discussing non-GAAP financial metrics. I encourage you to read our disclosures and reconciliation tables carefully as you consider those metrics. In connection with any forward-looking statements and non-GAAP financial information, please read the disclaimer included in today's presentation materials located on our website. Now I will turn the call over to Joe. Joseph Bartolacci: Thank you, Dan. Good morning. Thanks for joining us today to discuss the financial results for Matthews fiscal 2026 first quarter. Today, we aren't just reporting on a quarter. We are reporting on the successful execution of a strategic pivot. Over the last 12 months, we set a target to bring our leverage ratio below 3x. I am pleased to announce that following a series of actions, we've achieved our goal. During our first quarter, we closed on the sale of our warehouse automation business for $225 million, representing a very accretive 15x adjusted EBITDA and a very accretive after-tax multiple of 11x for an asset that was highly underappreciated by the market. In addition, we recently closed on the sale of Saueressig, our European Packaging and Surfaces business for a total consideration of $41 million, including cash, the assumption of pension and other liabilities and promissory notes. Selling the Saueressig assets enabled us to avoid significant restructuring costs and shed pension liabilities from our books. Saueressig represented the remaining assets of the packaging business that was not sold or transferred in our transaction with SGS. Saueressig was held back from the SGS transaction because we would not have received much value for the business. Instead, we converted the business to a highly favorable transaction for the company. Since last year, Saueressig EBITDA was only $1.5 million. Also, as a result of the Saueressig transaction and actions taken over the past few years, our remaining pension liabilities stand well below $10 million from well over $300 million just a few years ago, of which $125 million was unfunded. As a result of these transactions, our net debt is down to roughly $500 million. We now sit below 3x, a balance sheet-driven target that we had set for ourselves 12 months ago. Beyond just reducing the debt balance, we have fundamentally improved our balance sheet and our cash flow profile. In January, we executed the early redemption of our -- of all $300 million of our 8.625% senior secured notes. By replacing high-cost debt with lower cost capital, we expect to increase our annual cash flow and reduce our annual interest expense by $12 million. This move reclaims capital can now be deployed toward our dividend, internal innovation and high-margin opportunities in memorialization. A key pillar of our future cash realization is our 40% interest in Propelis. The merger of SGK and SGS is already outperforming expectations. Propelis is now operating at an EBITDA run rate significantly higher than the $100 million that was assumed at the time the deal was closed. In a move that should further enhance inbound cash flow, the Propelis team is currently migrating onto their own version of SAP. This move alone will activate $20 million in potential synergies, part of a total synergy target that exceeds $60 million, much of which is yet to be achieved. We expect to reap the full benefit of this investment when we exit the business, which we anticipate in an 18- to 24-month window. However, assuming a successful conversion to the new operating system in the coming months, we hope to begin to receive some repayment of our preferred equity possibly as soon as our third quarter. Between the rising equity value and our $50 million preferred, including PIK interest of 10%, we view Propelis as a significant cash and waiting event. Given all that transpired in fiscal '25, we're happy with our first quarter results for fiscal '26. Total revenues were down on a year-over-year basis to $284 million, primarily reflecting the divestiture of our interest in SGK. Additionally, after adjusting for the 3-month lag in reporting and including our 40% interest in Propelis, adjusted EBITDA for the 2026 first quarter was $35 million compared to $40 million in the prior year's first quarter, which included 100% of SGK, a pretty compelling indication of how well we performed in the quarter. Turning to our businesses. Memorialization continues to serve as the engine that drives our asset portfolio. Our Cornerstone segment had a solid quarter, buoyed by inflationary pricing and higher casket volumes driven by an active flu season and a strong performance in several other product lines. The segment reported a 7% year-over-year increase in sales, thanks to a positive contribution from the Dodge acquisition. Our team has done an exemplary job integrating Dodge, and they are capturing cost synergies ahead of plan. We've also taken significant steps to reduce the initial outlay to acquire Dodge, including expected asset sales and working capital reductions. The outcome of these transactions will bring the adjusted purchase price of Dodge closer to $50 million with anticipated EBITDA contributions of over $12 million, another highly accretive acquisition. We believe there are more M&A opportunities like Dodge available to us, though it is difficult to ascertain when business owners might be ready to contemplate a sale. However, our deep relationships in this space should enable us to be ahead of the market when the time is right. We're also seeing strong demand for Mausoleum Construction, which bodes well for our Gibraltar Construction business. Mausoleum projects provide good margins and more importantly, pull through additional opportunities for other products such as bronze lettering and vases. Moving on to Industrial Technologies. Revenues were down 14% year-over-year in the first quarter, primarily reflecting lower sales by our Energy Solutions business and the impact of the Saueressig Surfaces divestiture. Let's first focus on our Product Identification business, where sales grew modestly during the first quarter, driven by favorable currency shifts and tariff impact. Axian, our new printhead chip product, made its public debut at a PACK EXPO, where the market response was exceptionally strong. We were not surprised by the high interest, which resulted in a strong list of customers entering into our early pipeline directly from meetings at that event. Since the PACK EXPO event, global interest in Axian has continued to build. Our distributors in the EMEA region are showing strong pull, and we're now engaging targeted customers across the region, broadening visibility and accelerating early adoption. We're also seeing Axian being a clear entry point into the CPG space, where we have expanded what we believe to be our total available market to over $3 billion. Through our introduction and initial discussion with customers, we are seeing interest not only from continuous inkjet users, which is still the largest part of the market, but also from thermal inkjet customers seeking high-quality print at substantially lower cost than thermal inkjet. This new interest further validates the high value of our intellectual property. We have been running our Axian systems in real-world production environments and delivering stable uptime, consistent print quality, reduced cost of ownership and ease of use, essentially all of our value propositions. One final note on Axian. Based on customer feedback, we recently made a deliberate decision to pause shipments and incorporate a small set of production refinements to the equipment. Specifically, we added more electronic shielding to the product to protect it from electrical noise, nothing of significance in a normal part of initial product launches as we can never fully evaluate all of the operating environments in which the equipment is used. That work is now complete, and we are positioned to place production units this quarter with these additional improvements. Overall, the strong market reception, the larger TAM, expanding global pipeline and a solid beta performance gives us confidence as we move towards volume production. As mentioned in previous quarters, we are seeking partnerships in this business to accelerate the adoption of this technology and offset some of the costs associated with further development. We hope to have further news on this initiative as the product gains market acceptance and we are able to ramp up our production. Moving on to our Energy Solutions business unit. It was a challenging quarter as we expected. But while the European market and U.S. battery space face near-term headwinds, our IP remains a global benchmark. We firmly believe in the value of our IP, while interest in our solution remains strong and steady as reflected in over $100 million in our lead pipeline. Included in the pipeline are several opportunities on the calendaring side where we expect decisions to be made in the second half of this fiscal year. We're also discussing opportunities on the ultracapacitor front and hope to have some clarity on order decisions later this fiscal year. Additionally, as we discussed last quarter, we are awaiting a decision from a domestic energy solutions provider for a $50 million U.S.-based opportunity for a battery separator line. The technical team for the client has approved our equipment's efficacy and the significant value that it provides. We expect this opportunity will convert to an order later this fiscal year as the customer works towards securing supply agreements. Our near-term expectations for the dry battery electrode market has decreased. However, DBE is still viewed by market participants as highly valuable and an enabler of next generation of chemistries, including solid state. We continue to see industry announcements on R&D and patents around the dry process. For example, LG recently stated its intent to actively pursue strategic patents relating to DBE as they view it as a critical for large-scale production. The company also confirmed its goal to begin full-scale commercial production by 2028. Samsung recently identified the 2026, 2027 time frame as a pivotal period. Their CEO also spoke of a battery super cycle where a period of demand growth will enable their next-generation technology platform, including solid-state batteries to reach full-scale mass production. Samsung's mention of a super cycle also augurs well for the energy storage systems market, which is expected to double globally by 2030. Analysts expect this market's growth to be driven by several factors, including U.S. tariffs on Chinese-made batteries, enabling Korean manufacturers to expand the North American market share and Korean firms converting their underutilized EV battery lines to energy storage production. These activities speak of a market that is pivoting towards the type of battery chemistries and regional supply chains where DVE technology provides the greatest competitive advantage. To protect cash, while we wait for the battery super cycle, we are exploring strategic partnerships and direct investment to expand adoption without heavy capital expenditure. This continues to be an area of focus for our bankers supporting our strategic alternatives efforts. With regard to our outlook for 2026, we believe a full year contribution from the Dodge acquisition will enable memorialization to grow in fiscal 2026. Additional cost reduction actions at the engineering business are planned for later this fiscal year to mitigate any further declines in the business as we work towards converting several opportunities into orders. Based on these factors and inclusive of our 40% interest in Propelis, we expect our adjusted EBITDA guidance to be at least $180 million for fiscal 2026. Please note that several events may have impact on our full year results. First, we have been accruing the PIK interest related to the preferred that we received from the SGK transaction. That interest is reflected as a reduction in our corporate and other operating costs. Obviously, to the extent that we receive principal as a reduction of our preferred, PIK interest will decline, but then we will have also received cash, which will further reduce our debt. Second, the timing of orders in our energy business is somewhat out of our control. Although we are confident in the value that we have demonstrated to our customers, demand in North America and Europe for additional battery capacity has slowed. We believe that we have anticipated this in our guidance, but we remain cautious on our timing. While our current transition services agreements from recent sales temporarily limit our ability to slash overhead, these agreements have expiration dates. Once they have rolled off, we expect to focus on our corporate cost structure, which we expect will be materially lower. We have demonstrated that we know the true value of our assets, and we will be patient in taking actions that do not reflect the best interest of our shareholders. We have fixed our balance sheet, and we are now focused on accelerating the returns to our shareholders. Finally, our evaluation of strategic alternatives is continuing. As discussed above, we are principally focused on finding partnerships, which will benefit our shareholders by capturing the full value of our intellectual property. However, we will be prudent, like we have demonstrated by the sale of our warehouse automation business and the merger of SGK, we know what the true values of our businesses are, and we'll be patient in our process. Now I'll turn it over to Dan for a deeper dive into our financial performance. Daniel Stopar: Thank you, Joe. Before starting the financial review, I want to give a reminder on the financial reporting with respect to the SGK business. As you are aware, the divestiture of this business closed on May 1, 2025. As part of the transaction, the company received a 40% ownership interest in the newly formed entity, the Propelis Group. Please note that as a result of the integration process of Propelis Group and the transition to its own stand-alone reporting systems, our 40% portion of the financial results of Propelis will be reported on a 1-quarter lag. As a result, the consolidated financial information for the fiscal first quarter of 2026 discussed today includes our 40% interest in the financial results of Propelis for the months of July through September of 2025. In contrast, the prior year first quarter consolidated financial information reflects the complete financial results of the SGK business. Our financial statements will be included in the quarterly report on Form 10-Q and will also reflect our portion of the results of Propelis for July through September 2025. Now let's begin the financial review with Slide 7. For the fiscal 2026 first quarter, the company reported net income of $43.6 million or $1.39 per share compared to a net loss of $3.5 million or $0.11 a share a year ago. The change primarily reflected a significant gain recorded this year on the divestiture of the warehouse automation business, partially offset by losses recorded on the divestitures of the European packaging and tooling businesses, higher litigation and other strategic initiative costs and lower operating performance in the Industrial Technologies segment for the current quarter. Consolidated sales for fiscal 2026 first quarter were $285 million, compared to $402 million a year ago. The decrease primarily reflected the divestitures of the SGK business on May 1, 2025, and the European packaging and tooling businesses on December 1, 2025. The consolidated sales impact of these divestitures was approximately $120 million for the current quarter. Sales for the Industrial Technologies segment were lower for the quarter, offset partially by higher sales for the Memorialization segment. Consolidated adjusted EBITDA for the fiscal 2026 first quarter was $35.2 million compared to $40 million a year ago. The decline primarily reflected lower operating performance by the engineering business. The Memorialization segment reported higher adjusted EBITDA for the quarter, while corporate and other nonoperating costs were higher in the current year. On a non-GAAP adjusted basis, net loss attributable to the company for the current quarter was $6 million or $0.19 per share compared to net income of $4.3 million or $0.14 per share last year. The decline primarily reflected the impact of lower operating profits and the unfavorable impact of losses in foreign jurisdictions for which we were unable to record tax benefits. Please see the reconciliations of adjusted EBITDA and non-GAAP adjusted earnings per share provided in our earnings release. Please move to Slide 8 to review our segment results. Sales for the Memorialization segment for the first quarter of fiscal 2026 were $204.2 million compared to $190.5 million for the same quarter a year ago. The Dodge acquisition contributed sales of approximately $10.4 million to the current quarter. Higher sales volumes for caskets, bronze and granite cemetery memorials, combined with inflationary price increases also contributed to the improvement in the segment's results. Mausoleum sales declined, primarily resulting from timing of construction projects and cremation equipment and related sales were also lower than a year ago. Memorialization segment adjusted EBITDA for the current quarter was $38.9 million compared to $36.6 million for the same quarter last year. The increase primarily resulted from the benefits of higher sales volume, inflationary price realization and cost savings initiatives, partially offset by the impact of higher labor and material costs. The Dodge acquisition and the disposition of the unprofitable European cremation equipment business also contributed to the increase in the segment's adjusted EBITDA. Please move to Slide 9. Sales for the Industrial Technologies segment for the first quarter of fiscal 2026 were $69 million compared to $80.5 million a year ago. The decline mainly resulted from lower sales for the segment's engineering business and the divestiture of the segment's tooling business on December 1, 2025. The decline was offset partially by higher sales for the warehouse automation business. Changes in foreign currency rates also had a favorable impact of $2.9 million on the segment's current quarter sales compared to a year ago. Adjusted EBITDA for the Industrial Technologies segment for the current quarter was a loss of $4.5 million compared to a profit of $1.8 million for the same quarter a year ago. The decrease primarily resulted from the impact of lower engineering sales, offset partially by the segment's cost reduction actions in its engineering business and the impact of lower compensation expense. Please move to Slide 10. Sales for the Brand Solutions segment were $11.6 million for the quarter ended December 31, 2025, compared to $130.8 million a year ago. Sales for the current quarter were comprised of the months of October and November for the segment's European packaging operations, which were divested on December 1, 2025. The impact of this divestiture was a decrease of $3 million compared to the same quarter in the prior year. The remaining decrease resulted from the divestiture of the SGK business on May 1, 2025, which had an impact of approximately $115 million for the quarter. Adjusted EBITDA for the Brand Solutions segment was $12.7 million for the current quarter compared to $12.3 million a year ago. The current quarter mainly reflects the company's 40% interest in Propelis as our European packaging business reported relatively breakeven results, and this was generally consistent with the same quarter a year ago. To reiterate the earlier comments about Propelis, our 40% portion of the financial results of Propelis is reported on a 1-quarter lag. And as a result, the consolidated financial information discussed today includes our 40% interest in the results of Propelis for the months of July through September. Please move to Slide 11. Cash flow used in operating activities for the fiscal 2026 first quarter was $52 million compared to $25 million a year ago. The first fiscal quarter is typically our slowest, generally reflecting a net operating cash outflow, and this is due primarily to seasonally lower earnings and the payment of year-end accruals, taxes, insurance and other annual payments. The quarter also reflected payments in connection with divestitures, litigation and other strategic initiatives. Outstanding debt at December 31, 2025, was $537 million and net debt, which represents debt less cash, was $506 million. Net debt declined by $173 million in the first quarter of fiscal 2026, driven by receipt of $240 million of cash proceeds from the divestitures of the warehouse automation business and the European packaging and tooling businesses. Total cash proceeds from the warehouse automation sale, including $40 million of estimated future income tax payments in addition to other costs are projected to be $170 million. This business has a relatively low tax basis and is predominantly a U.S.-based business. Net proceeds from the sale of the European packaging and tooling businesses are approximately $30 million, including $14 million received at closing, $8 million to be received within 90 days of closing and the balance in the form of interest-bearing seller notes due in future years. The buyers also assumed pension and certain obligations with the transaction. For the first quarter of fiscal 2026, the company purchased 206,123 shares under its stock repurchase program at an average cost of $25.04 per share. These repurchases were solely related to withholding tax obligations for vested equity compensation. And finally, the Board declared last week a quarterly dividend of $0.255 per share on the company's common stock. The dividend is payable February 23, 2026, to stockholders of record February 9, 2026. This concludes the financial review, and we will now open the call for questions. Operator: [Operator Instructions] We'll take our first question from Colin Rusch with Oppenheimer. Colin Rusch: Guys, as you look at the landscape around ultracapacitors, batteries and a pretty significant investment in domestic manufacturing that's in the planning stages right now. Can you talk about the breadth and depth of potential customers that you're looking at here domestically? And then would also love to hear about something similar in Asia outside of China in terms of how much of those conversations are at this point? I know you gave a little bit of color, but would love some additional detail. Joseph Bartolacci: Yes, I mean, with respect to the North American markets and the European markets, the customers, all those players that you might expect it to be, whether it be OEMs or whether it be battery manufacturers, we're having conversations with all of them. As you said, it's still in the planning stages, but more and more you're hearing about the desire to move towards DBE, and that's coming from the battery manufacturers. The OEMs are kind of now awakening to the idea that this is where they need to go. And the idea that tariffs on Chinese products could continue for a long time to come, only makes it more important that we are a Western world. So we think we're well positioned to continue to deliver into the future. We're just having a difficult time right now as we go through this cycle. Colin Rusch: Excellent. And then as you look at the ecosystem of technologies that could augment the DBE, is there anything of interest or bubbling up that we could think about you guys pursuing as a tuck-in acquisition? Obviously, you don't want to signal too hard, but just curious about the pipeline of potential M&A opportunities for you guys. Joseph Bartolacci: When we speak of energy, it's less about acquisition capacity than it is joint development opportunities with different players, whether it be the mixing side, on the material handling side or on the chemistry side, it's the joint development between partnerships that allow us to bring to fruition the opportunities. I don't need to acquire them. Oftentimes, they're much bigger companies than we are. There may be possibility for them to invest in us or for them to carry the weight of the capital investments that we expect will be necessary for this. So I don't see significant opportunities for acquisition right now. It doesn't mean that something couldn't arise. We own everything we need for the pieces of the equipment that we produce. Colin Rusch: Excellent. And then just a final one on the balance sheet. Obviously, you guys have optimized the business, streamlined it and now are sitting in a much different position from a debt-to-EBITDA ratio perspective. Are there other things that the company is contemplating now to optimize the capital structure? Or should we think about the current capitalization as the path forward and just generating cash from operations here on an ongoing basis? Joseph Bartolacci: As a practical matter, you heard me mention what we call the cash and waiting event that comes from Propelis. Two elements of that, whether it be the repayment of the preferred, which is more likely to occur before the exit from the equity. But those 2 events themselves, you can put your own multiple on those numbers. I mean, with a business that's running well over $100 million worth of EBITDA already and relatively low debt in that business, we think debt equity is pretty valuable, whatever multiple you put on that EBITDA. As we start approaching that time when that becomes realization, there'll be more discussions about what we do from a capital structure standpoint. Operator: Our next question comes from Daniel Moore with CJS Securities. Dan Moore: Start with memorialization. Solid quarter, obviously. How do we think about just what are your expectations for the market looking at, obviously, caskets, memorials, cremation? When I kind of think about calendar year '26 versus '25, what are the puts and takes there? And then in the very short term, some extreme weather here that can sometimes cause delays in that business. Just wondering what you're seeing early in fiscal Q2. Joseph Bartolacci: Dan, I'll let Dan Stopar give you the numbers, but let me give you a little bit of color on what the current environment is happening to us. As you've been around for this business for quite a while, you understand the month of January was a difficult month for us. Hopefully, that's just a time step as people still need to be buried, still need to be celebrated and so forth. So we expect that to pick up here in February and March and maybe come back to even a greater number than we had expected. But -- so I would expect we are firing pretty well on a number of cylinders in that business right now. We've just begun the integration from a commercial standpoint of the opportunities on the Dodge side. We think that there's an opportunity to expand both market shares on both sides of the equation, whether it be on the Dodge product side or whether it be on our memorial side. And that team is excited about that opportunity. Those efforts are just beginning as we speak. When we look at the balance of the year, I'll let Dan speak to you about the numbers. He'll give you a better perspective. He's got it in front of him. Go ahead, Dan. Daniel Stopar: Yes. Dan, I think Joe kind of gave you the overview of the market expectations. Obviously, we're going to continue to add in our year-on-year comps as we pick up more of the Dodge business. And we have synergies that will layer on throughout the year going into the following year, 1.5 years after that. So we continue to follow the same expectation around death rates in the 1.5% to 2% cremation rates that will continue to grow, but at a declining rate. And then obviously, we are taking advantage of our ability to grow in the market and build market share. But also top line will continue to grow as we increase our prices to offset inflationary costs. Dan Moore: Very helpful. And as you touched on, obviously, synergized down the Dodge acquisitions looking maybe 4x-ish on a kind of adjusted multiple, so certainly very attractive. Talk about just the opportunity set there from an inorganic perspective. Is it that specific end market where you see room for additional opportunity? Or is it more sort of ancillary products around the memorialization business? Joseph Bartolacci: I think it's both, Dan. At the end of the day, I mean, whether we look to find opportunities to sell our caskets to customers of Dodge that are overseas or in other parts of the North American market where we don't serve today or whether it is to introduce a new product into a market that we currently don't serve. I think that when we look at acquisitions, we think we have a pretty good structure to be able to run through every door in the United States when it comes to sales. So if I can add a product line that we currently don't have and expand it over 100 and some odd salespeople across the United States that currently just put that into their portfolio and begin to sell, we'll add that. And then when we look at our structure, and be able to take the kind of synergies that we took out of the Dodge acquisition in a relatively short period of time, we think we can make some highly accretive transactions. Now to be fair, there's nothing on the horizon right now. I do not want to walk away from this and say we're on a tirade to ramp up our debt levels and continue to go through the acquisition trail. What I am conveying is that there's a significant opportunity across the United States and elsewhere in the world to continue to add pieces to the puzzle to this portfolio that we currently don't have. Dan Moore: Really helpful. Again, back to energy storage, just pulling on the string a little bit. It sounds like your expectation is that the cadence of orders is likely to pick up in H2 at least based on your current conversations. So we think about more of a kind of a fiscal '27 ramp in revenue? And any kind of sense for the range or scope or size of these opportunities? I know you mentioned one was a $50 million potential revenue opportunity. What are we looking at here just in terms of how we think about the backlog and order book could grow as we look out a couple of quarters? Joseph Bartolacci: Yes. I mean the interesting thing that comes, you should take from my comments is now the large Korean manufacturers whose names we gave to you earlier, battery manufacturers and others, by the way, are speaking very freely about dry battery electrode. That it is in their development plan, and they expect to be in market with the dates they've kind of committed publicly. I don't expect them to be coming in and launching with $0.5 billion worth of orders. It is a ramp process for them. We have some equipment that we're working on as we speak. Our new production piece of equipment, they -- our people are beginning to schedule time on here to be able to run their samples on our equipment, and that should facilitate the acceleration of the production process for them. As they see a -- rather than going -- as we've said before, rather than going from a lab machine and scaling up to a pilot machine, selling up, scaling up to a production machine, we have a production level piece of equipment that we manufactured that's sitting in our facility in Vreden right now, where we're going to begin selling time to some of our battery manufacturers and OEMs to be able to run their chemistries through to see how it handles it. So we'll be able to speak more to that probably second half, but I do not want to create an expectation of significant orders. We've kind of given you the $50 million order, which we expect. It has passed technical efficacy tests. We have several other smaller orders that make up the other $50 million in our pipeline. Hopefully, those come to fruition over the second half of the year. Then the ramp thereafter is going to be dependent on when they begin to scale out their gigafactories. We don't control that. We're a critical piece of those gigafactories, but we are not the major spend. Dan Moore: Understood. Really helpful. And just a reminder what is in the -- from a revenue perspective and the projections for fiscal '26, just for energy storage in ballpark terms? Daniel Stopar: $30 million to $35 million, Dan. Dan Moore: Perfect. Okay. Last one, obviously, great to see the leverage back down. Congrats on execution of those transactions. Expectations, Dan, for sort of CapEx and free cash flow in fiscal '26, just thinking about the organic delevering capability, whether that's going to be closer to breakeven or if we can kind of start to tick that even lower on an organic basis here in the near term? Daniel Stopar: Yes. Dan, CapEx should be around $25 million for the year. From this point forward, this is Q1, we typically build working capital. And from this point forward, for the rest of the year, we should get some small benefits, $5 million to $10 million on working capital. So with an EBITDA -- cash EBITDA that should be when you start with our $180 million and you back off the Propelis piece that may or may not monetize this year, you're going to be left with about $130 million of cash EBITDA. We should be in pretty good shape after interest expense and dividends, treasury stock to generate some cash for the last 3 quarters. Dan Moore: Really helpful. I’'ll circle back with any follow-ups. Joseph Bartolacci: Dan, I'd be remiss if I didn't at least highlight the commentary with respect to the pension. I remember conversations with this group a few years back when we were $125 million underfunded, and we're now down to virtually 0 underfunded. We think that we're pretty proud of what we've had to get done there. And some of that sat in that -- we had to put into our revolver and help the, what created some of the debt situation we were in. Operator: Our next question comes from Liam Burke with B. Riley Securities. Liam Burke: Joe, you quantified a few quarters back the quote activity that you've been having as the Tesla overhang has been eased. Off that number, and I'm not asking for a number, but directionally, is that quote activity increasing? And is it concentrated on larger systems? Joseph Bartolacci: I would not say it's concentrated on the larger systems. It's concentrated on customers that can order larger systems, I would say. The $50 million item is the big ticket item in that portfolio. The rest of them are made up of multiple customers that have the potential to place large orders thereafter. Liam Burke: Okay. Dan, copper pricing has been increasing. Obviously, that affects bronze pricing. Have you been able to get the increases passed through? Daniel Stopar: Yes. So far, Liam, I think you know we buy out for about 6 months. So that's -- we're working through that now. But certainly, we've been buying at higher rates all along. We've passed through price increases that should help us offset that to a large degree. Joseph Bartolacci: Unfortunately, Liam, it's moving faster than our price increases sometimes. So it's a moving target lately. Daniel Stopar: And our buying is opportunistic, right, to try to time the market when the prices do dip down. Liam Burke: Great. And just a little color on cremation. There wasn't any mention in the prepared comments. I presume it's just moving along just fine. Joseph Bartolacci: Yes. After some restructuring, we shut down a facility on the West Coast, concentrated that back into our Florida facility. We're expecting a strong year from them after -- if you recall, last year, we divested of our European operations. That was a comparable that's going to have a year-over-year full year impact on us, but should trail off. I think it's this quarter, right, Dan. So we lose it this quarter, and we're expecting a pretty strong year for them going forward. We're seeing great interest in a couple of new products, in particular, in new services. We've invested pretty significantly in our service portfolio. And that is really what is bringing more and more opportunities for us as our competitors just don't have that scale. Operator: Our next question comes from Justin Bergner with Gabelli Funds. Justin Bergner: I have a handful of questions. Most are kind of just clarifying in nature. Maybe to start, the Propelis EBITDA, I think in prior quarters, you provided an estimate for the EBITDA in the quarter, even though the adjusted EBITDA number was speaking to the contribution from the prior quarter. Are you able to do that this quarter as well? Daniel Stopar: Yes. Justin, we -- last quarter, we were able to provide that because that was year-end. It was much later in the quarter. As we mentioned, they're delayed in developing their financial statements. What I can tell you is this is seasonally their lightest quarter. So we would not expect the profit that we pick up next quarter to be as high as what it was this quarter. Justin Bergner: Got you. Second, the tax liability on the warehouse automation sale, has that been paid yet or mostly been paid yet? Or is that yet to come out of your cash balance effectively? Daniel Stopar: No, that will be paid for our normal quarterly payments over the remainder of the year. Justin Bergner: So it's essentially all remaining the tax liability? Daniel Stopar: That's correct. Justin Bergner: Okay. And then just trying to clarify the sale of European packaging and industrial tooling. I think you mentioned December 1, but then I saw the January 7 press release. So how much in sales is coming out of Industrial Technologies for the tooling business? And what closed in December versus in January? Daniel Stopar: Yes, it all closed in December. And Packaging was about $60 million that came out of SGK, the Brand Solutions segment and $40 million came out of Industrial Technologies. Justin Bergner: Okay. Got you. That's helpful. So then the portion out of Industrial -- okay, so you said there was a few million, I guess, for the quarter that wasn't in there for SGK and a few million that wasn't in there because of Industrial Technologies because of the December 1 close. Daniel Stopar: Yes, that's right. It was about $3 million, I believe, on the SGK side and yes, a couple. Joseph Bartolacci: Yes, on the industrial side. Daniel Stopar: On the Industrial side. Justin Bergner: Okay. Got you. And then maybe bigger picture, what remains active in the electric vehicle kind of pipeline as it relates to your energy storage business? I mean it seems like most of what you're talking about is outside of EVs now, but where do you continue to engage on the EV side? Joseph Bartolacci: No, no. In fact, actively, all of them are on the EV side, whether it be the battery separator line, whether it be the calendar lines that we've quoted, the $100 million is pretty much all located in the EV sector. They also could be for energy storage, which would be more for freestanding facilities. But I mean it's all related to that. Justin Bergner: Okay. Got you. And then the chip had delay because of some of the customer requests on electrical security, how many months did that back the program? Joseph Bartolacci: 30 days. 30, 45 days, Dan. Excuse me, Justin. It was a minor tweak basically. Operator: It appears we have no further questions. I'll turn the program back to the speakers for any additional or closing remarks. Joseph Bartolacci: We have no further comments. We appreciate your time today, and we look forward to speaking to you in several months.
Operator: Good morning, and welcome to the Jack Henry Second Quarter Fiscal 2026 Earnings Conference Call [Operator Instructions] Please note that today's event is being recorded. At this time, I would like to turn the conference over to Vance Sherard, Vice President, Investor Relations. Please go ahead, sir. Vance Sherard: Thank you, Chris. Good morning, and thank you for joining the Jack Henry Second Quarter Fiscal 2026 Earnings Call. Joining me today are Greg Adelson, President and CEO; and Mimi Carsley, CFO and Treasurer. Following my opening remarks, Greg will provide an overview of our quarterly results and key performance metrics, along with updates on our strategic initiatives. Mimi will then discuss the financial results and updated fiscal 2026 guidance provided in yesterday's press release, which is available in the Investor Relations section of the Jack Henry website. Afterwards, we will open the lines for a Q&A session. Please note that this call includes forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from our expectations. The company is not obligated to update or revise these statements. For a summary of risk factors and additional information that could cause actual results to differ materially from such forward-looking statements, refer to yesterday's press release and the risk factors and forward-looking statements sections in our 10-K. During this call, we will discuss non-GAAP financial measures such as non-GAAP revenue and non-GAAP operating income. Reconciliations for these measures are included in yesterday's press release. Now I will hand the call over to Greg. Gregory Adelson: Thank you, Vance. Good morning, and I appreciate each of you joining today's call. As always, I'd like to begin by thanking our associates for their hard work and commitment to our success by doing whatever it takes and doing the right thing for each other and our clients. Our focus on people-first culture, service excellence, technology innovation and well-defined strategy supported by consistent execution continues to set us apart in the market and is reflected throughout my remarks. I will share 3 key takeaways from the quarter, then provide additional detail about our overall business. First, our financial performance. We produced record second quarter results with non-GAAP revenue of $611 million, up 6.7% over last year's second quarter. Our non-GAAP operating margin was 25.1%, representing a robust 355 basis points of margin expansion over last year's Q2. Second, our sales performance. Our core sales team delivered an outstanding quarter with 22 competitive core wins. Of the 22 wins, 4 were financial institutions with over $1 billion in assets and 15 included core digital banking and card solutions. We have continued to see an increase in trifecta wins over the past 12 months. 68% of new core wins this quarter included digital and card processing as compared to 45% in Q2 fiscal year '25. The recent announcement of core consolidation by one of our competitors has positively impacted our core payment and complementary solutions sales pipelines. We expect our historical success rates within this base of clients to continue and most likely accelerate based on what we know today. It's worth noting that given the timing of their core consolidation announcement, our sales success in Q2 was minimally impacted by the news. It had much more to do with our ability to continue demonstrating innovation and service differentiation in the market, not just relative to that competitor, but across the competitive landscape. Third, we continue to win in a consolidating market. We have outpaced our competitors for many years in core market share growth even as the overall number of financial institutions has declined. Over the past 8 years, our core market share among banks has increased by 17%, while our credit union market share has expanded by 40%. And among institutions with more than $1 billion in assets, our market share has risen by 32% for banks and 12% for credit unions over that same time period. This growth occurred despite an average overall market contraction of 3% for both banks and credit unions over the past 8 years. Our market share and asset size growth can be attributed in part to our bank and credit union clients continuing -- continued growth through M&A, acquiring both Jack Henry and non-Jack Henry institutions as well as our success in the past few years in winning mergers, winning the core merger business when a Jack Henry institution is acquired. Additionally, we have relationships with more than 80% of the financial institutions in the U.S. across our core complementary and payment segments. So in most consolidation events, we are already doing business with the acquiring institution, giving us a strong advantage in increasing the likelihood that the combined entity remains on some or most Jack Henry technology. Now for more detail on the overall business, starting with some recognition for the team. We are very proud -- I'm sorry. We placed -- the Jack Henry was recently named one of America's Most Loved Workplaces, ranking 12 out of 100 companies. We also earned spots on the Forbes list of Best Companies in America, Computer World's ranking of Best Places to Work in IT and Newsweek's list of most Responsible Companies. These honors reaffirm our unwavering people-first commitment to our associates. Turning to the significant progress we are making on key innovative solutions. We are extremely pleased with the strong reaction to our new cloud-native Tap2Local merchant acquiring solution. Tap2Local is offered exclusively through banks and credit unions, giving the FI a powerful way to win back deposits from small- and medium-sized businesses that have shifted their card acceptance activities to other providers. Built in partnership with Moov, Tap2Local delivers differentiated capabilities for SMBs, including easy enrollment, tap to pay on both iOS and Android devices without additional hardware and continuous account reconciliation to the accounting platform of their choice. We are currently rolling the solution out in waves to all of our Banno clients. We took 300 clients live in November and December and just rolled out another 100 clients last week. We will continue to add 100 to 150 per month and expect to have some nice data points to share on the May earnings call. We're also seeing strong early success with Jack Henry Rapid Transfers, which allows both SMBs and consumers to quickly move funds between external accounts, eligible cards and digital wallets to manage day-to-day transactions and personal finances. We are the first provider to bring this unique capability to community banks and credit unions. This offering will help our clients grow deposits and attract younger digital native generations like Gen Z. Rapid Transfers is now live with 75 clients with another 180 in various stages of onboarding. We will also share more data on Rapid Transfers on the May earnings call. We are very excited about the development and execution of our stablecoin strategy. As I mentioned on our last earnings call, we leveraged the Jack Henry platform to complete our proof of concept in 2 weeks. We are now in beta testing with multiple financial institutions to send and receive USDC. In addition, we are evaluating over 20 stablecoin infrastructure, compliance and payment fintechs to ensure we have best-of-breed partners for this critical initiative. Another important strategy I want to highlight is our focus on embedded payments and Banking-as-a-Service capabilities. Our integration of Victor Technologies, which we acquired on September 30, is progressing extremely well. As a reminder, Victor's modern innovative platform with direct-to-core connectivity enables financial institutions to embed payment capabilities into third-party nonbank brands such as fintechs and commercial customers. Victor was already integrated with our SilverLake core banking system and Jack Henry PayCenter prior to the acquisition. We are now extending its capabilities to serve our Symitar credit union clients and integrate directly with the Jack Henry platform. We also plan to leverage Victor's modern APIs to complement our treasury management offering. Many corporations are seeking no-touch processing and virtual accounts to streamline accounting and reconciliation. This creates an opportunity for financial institutions to deliver in embedded payments to their corporate customers, giving them more options for seamlessly integrating payments into their business processes. We already had a sales team in place focused on selling embedded payments to financial institutions. To build upon that momentum, we have added a team that will work directly with fintechs to bring new opportunities to our clients. This expansion supports our broader strategy to help financial institutions compete and grow revenue. All of these innovative solutions are made possible by our technology modernization strategy and public cloud-native API-first Jack Henry platform. We have developed 22 components on the platform and we'll have multiple clients testing our new cloud-native deposit-only core functionality in the second quarter of this calendar year. I will now provide a few updates on specific products. In our core segment, I talked earlier about our 22 competitive wins in Q2. We also secured 10 on-premise to private cloud contracts and 5 of those were with institutions that had more than $1 billion in assets. In the first 6 months of this fiscal year, 7 of our private cloud contracts were with clients holding over $1 billion in assets compared with just 2 at this time last year. This is important because we earn an average of approximately 2x more revenue from clients in the private cloud than those operating on-premise. Today, 78% of our core clients are operating in the private cloud. In our Payments segment, we continue to experience outstanding growth in our faster payment solutions. Over the past year, the number of financial institutions using Zelle has grown by 22%, The Clearing House's RTP network by 26% and FedNow by 32%. In Q2, payment transaction volume through these channels increased by 49% over the prior year same quarter. In our Complementary segment, we signed a total of 48 new Financial Crimes Defender and Faster Payment module contracts in the quarter. As of December 31, we had 164 financial crimes installations completed and another 64 in various stages of implementation. We also have 141 faster payment modules installed and 227 in various stages of implementation. We had a very strong sales quarter with our Banno digital platform. For the quarter, we signed 84 clients to our Banno platform with several large competitive takeaways. We currently have 1,037 Banno retail clients and 435 live with Banno Business. We now serve 15.2 million registered users on the Banno platform, up 15% from a year ago. A couple of additional items before I wrap up. Some of you may have seen Cornerstone's annual survey of bank and credit union executives published last week. According to the study, 84% of banks and 83% of credit unions expect to increase their technology spending in 2026. That's up from 73% of banks and 79% of credit unions a year ago. We are currently conducting our annual Jack Henry strategy benchmark study with our clients, and we'll share those results on our May earnings call. We were honored to celebrate the 40th anniversary of our IPO by ringing the NASDAQ opening bell on November 21. To put that milestone into perspective, Jack Henry is one of approximately 200 companies out of the 3,400 on NASDAQ that has remained public for 4 decades. This long-standing stability is the perfect lead into another major milestone this year as we celebrate the 50th anniversary of Jack Henry's founding with associates, clients and investors. In closing, we are extremely pleased with our first half performance and remain very optimistic about the rest of our fiscal year based on the strong demand environment, our robust sales pipeline and our exceptional competitive win rate. We will continue to focus on our key differentiators of success, culture, service, innovation, strategy and execution. All of these position us extremely well for the future. With that, I'll turn it over to Mimi for more detail on our financials. Mimi Carsley: Thank you, Greg, and good morning, everyone. I would like to begin by thanking our associates who remain focused on serving our financial institution clients. The result is another quarter of solid revenue and earnings growth and continued momentum for a healthy fiscal year. I'll begin with our robust second quarter results, then conclude with our updated fiscal '26 guidance. Second quarter and fiscal year-to-date GAAP revenue increased 8%. Non-GAAP revenue increased 7% for the quarter and 8% for the year, a continuation of consistently solid performance. Quarterly non-GAAP revenue growth was negatively impacted by the shift of our Connect client conference into Q1 from Q2. Without this timing shift, quarterly non-GAAP revenue growth would have been a more pronounced 8%. Second quarter deconversion revenue of approximately $6 million, which we previously announced, was up approximately $6 million for the quarter, reflecting a steady pace of M&A activity among financial institutions. It should be noted that the dollar amount of deconversion revenue has little correlation with the number of transactions or annual revenue impact. We continue to see industry consolidation as largely neutral to slightly positive for our business. Now let's look more closely at the details. GAAP services and support revenue increased 7% for the quarter, while non-GAAP increased 6%. Services and support growth during the quarter was primarily driven by strength in data processing and hosting revenue for both private and public cloud. Private and public cloud offerings continue to drive strong growth. Cloud revenue increased 8% in the quarter. This reoccurring revenue contributor is 33% of our total revenue. Shifting to processing revenue, which is 44% of total revenue and another strategic component of our long-term growth model. We saw robust performance with 9% GAAP and 8% non-GAAP growth for the quarter. Consistent with recent results, quarterly drivers include increased digital, card and faster payment processing revenue. Completing commentary on revenue, I would highlight total reoccurring revenue exceeded 92%. Next, moving to expenses, beginning with cost of revenue, which increased a modest 5% on a GAAP and non-GAAP basis for the quarter. Drivers for the quarter included higher direct costs consistent with growth in lines of revenue, higher personnel costs, partly offset by lower benefits costs and increased amortization of intangible assets, which have been consistent throughout the first half of the year. For modeling purposes, amortization of acquisition-related intangibles was $6 million for the quarter. Next, R&D expense increased 3% on a GAAP and 2% on a non-GAAP basis for the quarter. The quarter of minimal increase was primarily due to tempered net personnel costs, which has also been consistent year-to-date. Ending with SG&A expense for the quarter on a GAAP basis, it decreased 13% and a decrease of 10% on a non-GAAP basis. Results reflect the timing of our client conference moving into Q1 in conjunction with our continued focus on managing costs. Aided by our consistent revenue growth, we remain focused on generating annual compounding margin expansion. Q2 delivered 355 basis point increase in non-GAAP margin to 25%. This contributed to year-to-date non-GAAP margin improvement of 291 basis points and a non-GAAP margin of 26%. Non-GAAP margin benefited in the quarter and year-to-date from inherent leverage in our business model, strategic cost management and leveraging existing workforce as we continue to focus on enterprise process improvement and AI utilization and further aided by lower self-insured medical costs, which we anticipate to be nonsustainable. We are focusing on a normalized benefit growth trajectory in the second half of the year, which is expected to noticeably impact results. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.72, up 29%. For the first half of the fiscal year, GAAP earnings per share was $3.70, an increase of 24%. Reviewing the 3 operating segments, we see positive performance across the board. Core segment non-GAAP revenue increased 7% for the quarter with operating margin increasing 5 basis points. Payments segment quarterly non-GAAP revenue increased 6%. The segment again had outstanding non-GAAP operating margin growth with quarterly results of 200 basis points. Revenue growth was due to the resilience in our card-related services, consistent growth in the EPS business and continuing a large percent growth from faster payments, albeit on a smaller dollar base. Finally, Complementary segment quarterly non-GAAP revenue growth increased an impressive 9% with healthy 58 basis points of non-GAAP margin expansion. Quarterly revenue growth continued to reflect digital solution demand and beneficial product mix and sales sourced from both new core wins, existing core customers and noncore financial institutions. Now a review of cash flow and capital allocation. Q2 operating cash flow was $153 million, a $63 million increase over the prior fiscal year Q2. Quarterly free cash flow of $103 million delivered a $74 million increase over the prior fiscal year second quarter. Our consistent dedication to value creation resulted in a trailing 12-month non-GAAP return on invested capital of 23% compared to 19% in the second quarter of prior year. We're very proud of the durability of this metric and how it reflects our high-quality allocation of capital for our shareholders. Additionally, I would highlight the following significant capital decision, $125 million in share repurchases, $84 million in dividends paid through the end of the calendar year 2025 plus the asset acquisition of Victor's Technology. The average purchase price of shares repurchased was $157. We ended the quarter with minimal amount of debt, consistent with our normal course revolver line usage, but expect to exit the year debt-free, barring acquisitions or other opportunities. I will now discuss our second consecutive increase to full year guidance. As you're aware, yesterday's press release included updated increases to fiscal 2026 full year GAAP guidance. Deconversion guidance will continue to follow the conservative methodology introduced in fiscal '24. Fiscal '26 deconversion revenue guidance has been increased to $28 million. Aligned with our guidance methodology, we will update the outlook as we confirm more activity throughout the year. Full year GAAP revenue growth guidance increased to a range of 5.6% to 6.3%. For emphasis, GAAP revenue remains understated due to the conservative deconversion revenue guidance. Based on our strong year-to-date results, we have increased and tightened the range of non-GAAP annual revenue growth guidance, resulting in a new outlook of 6.4% to 7.1%. The second half of the fiscal year will see relatively lower non-GAAP revenue growth compared to the first half. Drivers include projected cloud revenue showing continued strength, offset by anticipated slower momentum in onetime revenue and card. Expenses during the second half are expected to reflect the relatively higher pressure from medical cost benefits returning to historical levels, cloud migration infrastructure expense and commissions. Our expectations on the second half revenue are consistent with our current analyst consensus. As a reminder, fiscal '26 and the first quarter of fiscal '27, Victor acquisition-related financial impacts will be excluded as part of non-GAAP reporting. Based on the above revenue growth and our resilient financial model, we expect to gain -- again, generate sustainable accretive sources of margin. We're increasing full year guidance for non-GAAP margin expansion to a range of 50 to 75 basis points. Margins are projected to contract in the back half of the year due to the benefits cost returning to normalized levels and the timing of workforce expense increases. As a reminder, we see fluctuations in quarterly results relating to software usage license components along with the timing of implementation. Therefore, the correct performance indicator of our business is consistently strong fiscal year financial results. All of the presented results and guidance metrics are indicative that our business operations remains healthy and sound with near-term growth [ process ] opportunities across all 3 operating segments. The full year GAAP tax rate estimate for fiscal '26 is 23.25%. The above increased guidance metrics results in a stronger full year outlook for GAAP EPS of $6.61 to $6.72 per share, growth of 6% to 8%. As a reminder, even updated conservative deconversion revenue guidance likely understates GAAP EPS growth. Full year free cash flow conversion outlook is for 90% to 100% for fiscal '26, matching our expected range target, but with a bias to the higher end of the range. Concluding, Q2 results reflect another outstanding performance from our associates, leading to increased guidance. We're pleased by the continued performance momentum and remain positive on the financial year outlook. Demand for our solutions aligned with continued technology spend by our clients and prospects will drive superior shareholder value. We appreciate the contributions of our dedicated associates that have produced these superior results and our investors for their ongoing confidence. Chris, will you please open the line for questions? Operator: [Operator Instructions] And today's first question comes from Rayna Kumar with Oppenheimer. Rayna Kumar: Good results here. It sounds like the second quarter sales results were very strong. And I'm just wondering, based off of what you're seeing, do you expect 3Q sales results to come in better? And are you starting to see the impact from the core consolidation news from one of your competitors at this point? Gregory Adelson: Yes, Rayna, thanks for the comments. Yes, a couple of things. So I can't comment on whether Q3 will be better. Q3 is starting off very well. I don't know where we're going to end up at this point in time. As I mentioned, the Q2 results, which were significant, really had very little impact on the announcement just because all those deals were kind of in the timing of expectation to be done and we're already in motion. As you know, a lot of these core deals can take up to a year or longer to actually secure. I will tell you the pipeline is growing, not just in core opportunities, but across all of our complementary and payment products as well. So we're continuing to see some nice uptick there. And so I'll be able to report more definitively, obviously, at the end of the quarter, but we are seeing some nice uptick in the pipelines and in the opportunities with some larger opportunities as well. Rayna Kumar: That's helpful. And just staying on the competitive environment, can you talk a little bit about what you're seeing out there in terms of pricing for core systems and ancillary services? Any changes you're seeing in pricing? Gregory Adelson: No, not really. I think it's been very consistent to what it's been over the last couple of years. So I wouldn't say anything has been significantly changed as a byproduct of the announcement or what we have been seeing within the rest of the competition over the last couple of years, pretty consistent. And the fact that we won 22 of them in the quarter is a pretty good indication because we're never the lowest cost provider. So I think that's a pretty strong statement as well. Operator: And the next question is from Vasu Govil with KBW. Vasundhara Govil: Congratulations on a really solid print here. Greg, maybe just the first one. There's been a lot of investor focus on how AI could reshape software economics across industries. And we've seen that concern reflected in pretty meaningful stock moves in the last few days and weeks. So maybe you could talk about how you think about AI's impact on your business model over the long term and where you see it as an opportunity versus a risk. Gregory Adelson: Yes. I'm really glad you asked that question because of what happened yesterday. So yes, so a couple of things. One, from a standpoint of affecting companies, not just Jack Henry, but others in our space, I think it's really a misinformation because when you think about what AI does in the development of technology and the development of building whether that be a core system or other very complex solutions that we support in this industry, it's not just as simple as doing things faster. It's way more complicated than that. It creates some concerns for maybe some of the other areas where people are doing seat licenses and other stuff, so some of the other larger enterprise-wide solution sets. But as you know, we don't do seat licenses here, so we don't have that challenge. Building the technology and restructuring technology is use cases that we can, whether that's taking code and moving it or things along that line. But it's not as straightforward as it might be in some other industries. The other component that I'll say is that we at Jack Henry have been spending a lot of time in using AI, both in the back office and in our product set, all of our new platform products do contain some form of AI. And then a lot of the things that we're doing to control our headcount costs to do improvements and things along that line are all byproducts of AI. So from our standpoint, and I think, honestly, from an industry standpoint, it's a much different perspective than what I believe that is being kind of played out there in the space, specifically with some other enterprise-wide solution sets. Vasundhara Govil: Great. And then I know you touched on this a little bit before, but just bank M&A, that's continuing at an accelerated pace, including some deal announcements involving some of your larger clients recently. So just curious if you're still feeling good that bank M&A will still be a net neutral to maybe even a positive as we move forward from here? And that -- the convert/merger activity will sort of increase and will offset any deconversion revenue. Just curious on your latest thoughts there. Gregory Adelson: Yes, absolutely. I mean we've already seen it. So as I kind of mentioned a little bit in my opening remarks, I mean, not only have we seen significant market share growth during this last 8 years where there's been 3% decline overall. We're seeing it across opportunities today, even in one very large one that was announced a year ago or close to a year ago, then we're having opportunities for other products within that set. And in some cases, these other products can be even more valuable than the core itself. So we are very bullish on what we're doing, how we're doing it and the opportunities that continue to come our way even when an acquisition of one of our accounts has taken place. We're right in there, in some cases, winning the overall core deal prior to the conversion, in other cases, having conversations post as we talk about complementary payment and potentially our digital core products as part of their long-term strategy. Operator: The next question is from Jason Kupferberg with Wells Fargo. Jason Kupferberg: I wanted to start on the revenue side. I was curious which segments exceeded expectations perhaps in the quarter, I mean, versus our model, there was some nice upside on the complementary side. So would love to hear about product drivers there. And then if you can just comment on how we should think about second half growth rates by segment and maybe hone in on the payments piece a little bit. I think that's maybe tracking a little bit below the medium-term guide halfway through the year. So should we expect any acceleration there? Mimi Carsley: Jason, I would say, first off, we continue to be pleased by across-the-board performance across all 3 segments, both quarter and year-to-date. Let's roll through each one of them. I would say most of the performance that we've seen above and beyond our expectations in the first half, you saw a decent card performance relative to the more modest expectations we had going into the year. We do think that the back half will be a little bit more challenging relative to the first half in payments. So even though that is a touch below historical, our growth algorithm expectations, that segment is doing really well. And we have some strong resuscitation of like our bill payments business. We've talked about the contribution from our faster payments even on a smaller dollar revenue, but great growth rates and healthiness in card. But we do expect that to slow a little bit in the back half just as a bit of -- you have both weather at the beginning of the calendar year, but then just it's the natural seasonality of as you climb into the back half, it's just getting a little bit higher and you have some comps from a grow-over perspective. Complementary is doing great. We continue to see success in the newer products, things like Financial Crimes Defender, our treasury management products, our digital products, all being continued strong drivers, and we would expect that to continue. And then in core, core has been great the last couple of years, in fact, even stronger growing than the growth algorithm. Part of that is based on the success that Greg talked about, the multiyear success from new core wins and the organic growth of our clients and just that continued shift from on-premise to private cloud. This quarter, we also saw a little bit of the convert merge benefit and other onetime that I would say drove up some of the core revenue that we don't necessarily to expect in the same pace in the back half. Jason Kupferberg: Okay. That's all good color. And maybe I just want to ask a follow-up on margins. I know you guys called out the lower medical insurance claims costs. Can you just quantify that piece? I mean the margin beat was huge, for lack of a better word, versus consensus. I know you guys don't guide it for the quarter, but just trying to get a sense of how big that benefit was? And is that something that reverses out in the second half? Or is that a full year -- how much of a full year tailwind is that? Mimi Carsley: Well, Jason, I appreciate you acknowledging the importance of full year versus quarterly guide. I continue to encourage everyone to look at our performance on the consistent annual basis, not the quarterly. Sometimes you just have kind of quarters that either from a year-over-year perspective or a cohort perspective or conference timing perspective just may create a picture that is less than consistent with kind of the full year. But if we look at margins on the full year, increasing our full year guide from the 30% to 50% to now the 50% to 70% is indicative of our belief of just delivering in totality. It was very front-end heavy. Part of that is some cost savings. Part of that is some cost timing. So some of the lower-than-expected benefits costs related to our self-insured medical plan is a savings, but the savings that we don't necessarily expect to continue in the second half. Other things, we just naturally, as part of our plan, we expect higher to be in the second half than the first half. So if I think about just the pace of some of the commissions, as I think about some of the infrastructure costs as we move more migration loads and planning for our data center longer-term initiatives, some of that spend is higher in the second half than the first half. So yes, we're pleased by the incredible performance and margin in the first half. But more so, we're really proud of the 3-year compounding margins that we've been able to deliver and our ability to increase the guide for the full year. Operator: Our next question is from Will Nance with Goldman Sachs. William Nance: Nice results. I wanted to circle back to the question on AI. And I was wondering if you could put more of a positive spin on the AI theme for this space. I think the core processing space is kind of known for having fairly outdated code bases, a lot of COBOL around, not a lot of programmers who can actually maintain it. And AI is one of those things that could actually accelerate the modernization of the code bases, which has been a process that you guys have been on for a long time now. So maybe can you talk about that in the context of your next-gen platform and the journey that you've been on for the last couple of years? And how do you see AI as an accelerant to that strategy and something that could perhaps even improve the competitive positioning of what historically has been thought of as a good industry with low switching costs, but a lot of software that may be in need of modernization. Gregory Adelson: Yes. So good question. I appreciate the follow-up. So I mean, obviously, Will, we've been involved with AI for many years as part of this, not only what we're building with our new platform, but what we've been doing on the back end to move some of our foundational cores and foundational code over to other ways of doing things. And we've been able to do it faster, but also with less people. When you look at the number of initiatives that we have going on with some significant technology innovation and still look at our headcount growing at less than 1% over the last several years during that time frame, that's all apparent because it's being done with -- with utilization of AI and other tools. So that's been a big part of our strategy for a long time and continues to be. We have some of the top-notch talent in this industry that we brought in that are helping push that across the entire organization, not just in certain aspects of our business. The other thing is what I was referring to earlier from the question from -- I believe it was either Rayna or Vasu, but around the complexity of building out cores, it's not just the ability to move foundational core stuff to something else. And by the way, it's taken us almost 5 years to get where we are. So if you haven't started, you're a little behind. But from where we are today and the work that we've done, when you look at a lot of the international cores that have tried to come into the United States and haven't been very successful, it's because of the level of complexity that you need to build and not just the core itself because, again, you can build some core -- headless core that has components on it, but it's the full integration and it's a full suite of connections to the payment networks and everything else that goes with that, that really makes it complex. And that isn't just done with AI. Some of that's done with a lot of hard work and people. And like our team likes to say, it's dirt digging. And so that stuff is where the complexity really makes it more difficult. So I think what we have done, where we have gone and been able to utilize AI as part of our overall strategy is what differentiates us not just from innovation, but from speed of innovation. Mimi Carsley: And if I could add on to that, Greg, I would say that because of the investment we've made and started making over 5 years ago of moving our infrastructure to the public cloud allows us to take advantage of the DevOps environment. So if we think about something like Banno and the number of new feature releases we're able to do on that and now similarly, with the Jack Henry platform being API-first digital cloud native, we'll be able to increase that velocity of solution enhancements for our clients that others cannot because they're still on that journey to public cloud. Gregory Adelson: Yes. And just one other point just because I know this is a big topic for probably everybody is that, as they say, no data, no AI, right? So the things that we have been doing and focused on, so not just what Mimi is referring to with various product sets, but what we've been focused on with our data has allowed us to take more advantage of AI as well. And again, in our industry, there's a lot of complexity and a lot of differentiation on how pricing and everything else is orchestrated versus what I think is being thrown in to these other enterprise providers where they're selling seat licenses, and we're pricing by transaction or active user or asset size or whatever it is. It's a whole different model. William Nance: That's great. I appreciate the really thorough answer. And just if I could switch gears and ask about the payment side. I was wondering if you could talk around competitive dynamics on payments and card. There's just been, I think, a resurgence in chatter on new entrants in that space and the community bank space maybe evaluating beyond the kind of traditional competitive set. Just wondering if you could talk about anything that you've seen recently. Gregory Adelson: Yes. I don't -- I know -- I mean, I mean, there's a couple of them. I'll call out -- there's a couple of names that have presented themselves in the space, but they're really -- they're more, I would say, compartmentalized offerings. They're not full suite debit and credit offers, most of the ones that I think you're referring to are more on the commercial card side and I think have limited availability on the debit side as of today. And so as you know, that is the stronger part of our particular card processing today, even though we've had a lot more success on credit deals lately than in years past because of some changes we've made. But I will tell you that one of the reasons why I wanted to call out the number of what we call trifecta wins around here is because we are seeing more and more opportunities in this space for -- because of the solution set that we've built to allow us to sell digital and card as part of a core deal or sell digital and card individually outside of a core deal. And that's been a big part of our strategy and will continue to be. But I haven't seen anybody that's come into the market that I would say has disrupted the market. There's a lot of names that are saying they're doing things, but the level of success into our space, we just haven't seen it yet. Operator: The next question is from Darrin Peller with Wolfe Research. Darrin Peller: Nice quarter. I just wanted to touch again on the core wins. You highlighted another strong quarter at 22. I know you had about 11, I think it was this time last year's quarter. So just that includes some of the larger institutions. Maybe just help us understand how we should think about the near-term versus long-term revenue cadence around some of those. And I know it takes time to really come into the run rate. But just as importantly, I mean, what are you seeing that's giving you the right to win in these banks maybe in a slightly accelerated rate as well as the larger as you move upmarket and you've been having more and more success. So maybe just help us understand what's going well there. And if this is a better run rate that we can see in terms of cores, maybe given industry dynamics? Gregory Adelson: Yes. Thanks for the comments. Yes, I mean, you were right. We did 11 last second quarter. As we like to say, same thing with everything else, it's fiscal year results, right? So some quarters are bigger than normal. Q2 and Q4 are typically our largest quarters, our fiscal quarters. That's just the end of the year for the customer, the end of the year for us, just tends to have a lot more activity even though we try to spread it more evenly than that. As I mentioned before, the pipelines are growing fast with a lot of the news that's happened in the space, not just core, but across all of our channels. We're pretty excited about some things that we can't announce yet just because of the timing. But the reality is we're continuing to move the needle in all of those products at a pretty fast pace. What I would say from a core standpoint, though, to answer your question, we're winning really -- and even on some of these deals that were referenced earlier that our customer was purchased, we're in there already talking to them about a variety of products. We're hearing some really positive news on what we are doing differently than our competition. And it really starts with our ability to what I say all the time on these calls. Our culture comes through on those meetings very fast and people that are -- there's a lot of people that want a partner that has a similar culture. I just met with a bank this week that, that was their comment. They said, the first thing we noticed was your culture and alignment in culture. Obviously, our service reputation is 50 years of doing the right thing and doing whatever it takes. The level of innovation that we've built over the last 5 years is not matched by anybody in the industry, and we've said that multiple times. And when people are able to see what we are able to already compete and do with a lot of these innovative things, not just tap to local and rapid transfers, but stablecoin, things that we've done with the platform, things along that line, it just shows that level if you want to grow your institution and you want to make sure that you've got deposits and lending capabilities or building efficiency, which are the 3 most talked about things that they want to do. Jack Henry has been the provider and is the provider that can make that happen. And then we don't change our strategy. We've been very focused on our strategy, and our execution is second to none. So when you take those 5 words that I say all the time, honestly, those are the reasons why we win, and it comes through with the products and the level of innovation we've shown. Darrin Peller: That's helpful. And then I just want to follow up one more time on the way we think about guidance for this year and even an early thought in terms of what's trending for next year, this fiscal year, just given you've been inching up your guide now. You're obviously having success with the SMB initiatives that's starting to early, but show now, show results in numbers. And I think that's a key factor to getting back to that 7% to 8% range. So I mean, is your confidence growing into fiscal '27 even that we can get back to that 7% to 8% again based on everything you're seeing in the run rate and some of your results from investments? Mimi Carsley: Darrin, I love your long-term view there. Just a little too premature from our perspective. We are heads down focused on executing in '26. We're starting to have budgetary conversations and strategy conversations about '27. But I think it's sticking to the fundamentals, really. It's about the execution. It's about every day coming in and hitting the singles and just continuing to execute. So yes, we're super excited about the onboarding progress from our SMB offerings. We're super excited about the feedback we're getting from customers that are validating the direction that we've talked about. But I would say for this year, it's about continuing to drive on the implementations from the sales pipeline of closures, and it's about card and payments and it's about continuing traction on the complementary side on some of our newer products. As we look into '27, I think certainly, we will be past some of those potholes that we've talked about previously that the deconversion created and our growth rate on some of these new wins of sizable institutions that Greg mentioned will be coming into the fold from an implementation perspective, and that is super exciting. Gregory Adelson: One other point. We -- I mentioned earlier on that we had made a lot of strides in changing how we go about our renewal processes and things along that line. And that -- those changes are starting to pay significant dividends for us. And so it's been a big part of the strategy and focal point, but also another reason why we're very bullish on where we're going. Operator: Our next question is from Madison Suhr with Raymond James. Madison Suhr: I also wanted to start on the SMB strategy with Rapid Transfer and Tap2Local. I guess more broadly, what are you seeing in terms of adoption for those products? What's the longer-term opportunity look like? And maybe any color on how the competitive set may differ from a traditional Jack Henry competitor? Gregory Adelson: Yes, Madison, thanks for the question. I have some data, but I would -- as I said, I'd prefer to really talk more about it in May when I have more data months because it's still very early. As I said, we rolled out 300 customers in 2 months, and we just rolled out another 100. So as people are starting to ramp up. I'll give you one anecdote, though, there was a -- we had a client that wasn't sure they wanted to keep it on, and they called us as soon as it was turned on. And 2 hours later, they asked us to turn it off. And we said, did you know that you already had 30 people sign up for it? And they said, no. And they said, okay, keep it on. So my point is, is that there's that type of opportunity that's forming. And we're just now really working with them on the marketing. So there's a whole aspect of this that we think will have a lot better data points. To answer your question on the level of differentiation, though, it's significant to what a Stripe or Square is doing in the space, and I'll make it very short. First of all, Stripe and Square are taking deposits away from our institutions, and they're not getting them back because then they're lending to them or they're doing other things. And so once those deposits go, they're gone. The other part is that the level of sophistication that we're able to give these sole proprietors or very small SMBs with not only instant account approval where we're approving about 75% of everybody instantaneously in the market. That's a 2- to 3-day process, if not longer. And then we're able to do both iOS and Android devices for Tap2Pay. Very few people in the United States are doing that today. Stripe and Square are, but very few others. And then -- but the biggest one is our patent pending account reconciliation component where the actual SMB can upload all their transactions onto their device and hit a button and upload it into QuickBooks or Xero or any of their accounting package choices instantaneously. Those are all things that can happen today in the market. Mimi Carsley: I would add on to that, the knowledge we have from the core systems really enable us to have a frictionless experience from the get-go of sign-on all the way to the account reconciliation that Greg mentioned. So we really believe in this case, it's a fragmented industry, and we believe that small businesses should be multi-acquirer the same way a sophisticated treasury customer has more than one bank account. It's just smart business. We think that small and sole entrepreneurs will be multi-acquiring. Madison Suhr: Okay, that's very helpful... Gregory Adelson: Yes, Madison, one other point, we have a very long road map for SMB. This is not just a one-hit wonder with Tap2Local and Rapid Transfers. We have a lot of things we're going to be rolling out over the next 18 months, and some of them are already done. We're just waiting to put them into play. Madison Suhr: Certainly. It seems like an interesting opportunity for you guys. Just a brief follow-up here on capital allocation. I mean maybe just talk to the priorities right now, appetite for buybacks and just anything to call out in terms of M&A pipeline. Mimi Carsley: Of course. First and foremost, we're super excited to get back to the very strong free cash flow and a very high free cash flow conversion of 90% to 100% to be on the other side of the tax legislation and have certainty and to have a year where a pretty significant contribution of roughly, call it, $100 million from clearing up that tax uncertainty and kind of clarifying from a go-forward perspective. From a capital allocation, our priorities remain consistent. We have a long-standing dividend policy that we are committed to. We are always looking at M&A prospects and opportunities, although we have less gaps strategically, we're always looking for things that may be an accelerant or enhancement to solutions and our ways of meeting customer needs. We continue to invest significantly in internal development and moving our strategies and innovations forward. And then share repurchases. We were excited by the $125 million of shares we purchased thus far year-to-date. And we said previously, we feel comfortable if that went to [ $200 million ] or more this year. So it sort of depends on purchase price and what M&A opportunities come into the marketplace, but we will be dynamic capital allocators, but continue with our conservative balance sheet. Operator: And the next question today comes from Kartik Mehta with Northcoast Research. Kartik Mehta: Greg, one of the strategies you implemented was going about pricing renewals differently. And I'm wondering if that's gained traction? And are you seeing it manifest in the financial results yet? Or will that take a little bit more time? Gregory Adelson: Yes. Great question. I appreciate you bringing that up. Yes, we are starting to see it in our financial results and on our approach for the percentages of new versus renewals in our wins and our overall numbers for the team. So congrats to the entire sales team for embracing what we've put in place because it was a change, and it's working very well. So we are really -- the percentage of new versus renewals is significant as compared to last year, which is obviously great for a lot of reasons. But the other part is that it's allowing us to hold much more steady in the market. One of the questions early on was pricing pressures. And we've been negotiating more at a position of strength than I think we have in years past. Kartik Mehta: And then just a follow-up, Greg. Early on, you talked about bank spending and maybe a couple of the reports that have come out that say bank spending should continue or is expected to continue in 2026. Is there a difference, at least as you're talking to clients from an asset size and what they want to spend? And the reason I'm asking is there's so much talk about consolidation and maybe consolidation happening with smaller banks, smaller asset size banks. So I'm wondering if there's any hesitation for those banks to spend money or if you're seeing any kind of bifurcation? Gregory Adelson: Yes. Just to be candid, you do see it sometimes, but I think you can also probably see them on the market the next week or the next quarter or whatever because you really can, Kartik, determine when technology isn't being bought, [ Dave ] coined this line a long time ago, and we like to use it, which is everything that needs to happen in this space, if you want to grow, technology can do for you. And so from our standpoint, we are very focused on making sure that's why the level of innovation. And so the short answer is yes. There are some institutions that are going to spend way more than the 10% or 6% to 10% that's been forecasted based on whatever their needs are or their desires. And there's others that don't. And sometimes they'll take a better financial deal and less impressive technology, and you tend to see those are the ones that are on the market down the road. Operator: The next question is from Cris Kennedy with William Blair. Cristopher Kennedy: Greg, just wanted to follow up on the trifecta wins that you talked about. What's driving that? Are financial institutions consolidating vendors? Is it from changes in your go-to-market strategy? Are you moving upmarket? Any more color would be great. Gregory Adelson: Yes, it's a great question. It's a combination of a few things. One is, as we've been mentioning, we have done a much better job of building out the Banno solution set to be much more competitive on the business side. We've always had what we think is the best retail application, but the team has done a great job of building that out. So as that has gotten more sophisticated and improved, it's allowed us to not only win more deals, but win larger deals, as you referenced and it has happened as well. Same thing on the card side. We've really improved the commercial aspects of our card platform with some other things that we're working on. And so those 2 things combined have allowed us to get involved in each of those deals. And as I mentioned, 15 of the 22 deals included all 3. But it is by design, and it will continue to be by design as we continue to not only go upmarket, but also as we go after some of these new opportunities in the consolidating base. Cristopher Kennedy: Great. And then just as a follow-up separately, I think you launched a new enterprise account opening platform. Can you just talk about the opportunity with that new solution? Gregory Adelson: Yes, Cris, I will say that we're still in what I would call closed beta or what we call closed beta, still pretty early. There are some feature gaps that I want to get closed before I want to release it out into what we would call generally available. I'll talk more about that in coming months as it becomes more relevant. But it will be a very unique platform where you'll have a single platform for both consumer and commercial with account opening embedded. So it will be something that's very unique in the market, but it still needs a few more things completed before we're ready to talk too broadly about it. Operator: Our next question comes from Dave Koning with Baird. David Koning: Great job. And I guess my question is really on complementary. You've done a really good job. And I think Greg called out that some of the platform consolidation in the space is creating more wins in complementary. And we often think of it driving core. But if it's driving complementary, too, is that faster? Those are a little smaller products. Are those faster to implement? And then secondly, you've had really good growth. You hit a tougher comp. Is that new kind of win rate or the additional complementary work going to allow you to keep growing as fast even though you hit a tougher comp? Gregory Adelson: Well, yes, it's a good insight. I think it depends on a couple of things, Dave. I mean if -- some of these are sold with core deals, some of these are tied to the timing there. There are -- actually, we had several nice independent wins outside of core in digital and financial crimes for this particular quarter. So those typically are 6 to 9 months, maybe less, depending on their sense of urgency and timing in their contracts. But they're definitely sooner than what would be tied to a core deal. One of the things that we are doing and it's starting to be, I won't say, successful, but being interesting to some folks is we're really going to them and talking to them about integrating the digital offering even before the core. And this could also be part of -- or is part of our outside the base strategy to drive some opportunities sooner than waiting on core. So we're working through some of the logistical parts of that. But as that starts to take hold, I think that will create even more of an opportunity for us to do what we've really envisioned even on our core platform, right, doing things in a more modular componentized approach and doing it incrementally than doing it all at once. And so we'll kind of give you more context on that as it happens. But absolutely by design, absolutely by continued improvements in those products. Operator: The next question is from James Faucette with Morgan Stanley. James Faucette: A couple of questions for me. First, obviously, I think everybody understands and very excited about the tailwinds your business is likely to see from some competitors' core platform consolidation. How do you think about like what your execution requirements are? Kind of what keeps you up at night in terms of things that could trip you up, whether it be timing or magnitude? Or I'm just trying to get from you the checklist of things you need to do to potentially take advantage of the opportunity. Gregory Adelson: Yes. So James, I mean, it's candidly #1 priority here right now based on kind of, I won't say once in a lifetime, but a very few times in a lifetime opportunity where you see this. And so between the sales team, the operations teams, the finance teams, the marketing teams, they're all very much aligned, working regularly in conjunction with our go-to-market stuff that we've done. I don't want to share openly the opportunities that we have in front of us at this point. But as I mentioned, there are significant numbers that are already in the pipeline, not just ones that are "out there," but already in our current pipeline for all products, not just core. And then there's, again, work that we've done on the operational side to ensure that we're ready. As you can imagine, I mean, especially on a core deal, even if we sell the core deal like we did this quarter, it's still going to be another 15, 18 months. So our ability to get ready on the operational side is honestly the easier part. It's more about what we needed to do to gear up on the marketing, sales and finance side. And the teams have done a great job of that. We are humming right now. It's absolutely an awful gear. And so I'm very proud of the team on how fast they reacted in what they did. James Faucette: That's great color there, Greg. And then I wanted to ask about the attach rate and bundling strategy. As you win more competitive core deals, how are complementary attach rates trending at signing and maybe at 12 months post conversion? Just looking for any quantified examples of bundles you're seeing more frequently. Gregory Adelson: Well, the most frequent one is what I called out, which was, again, to us, is the trifecta of card and digital. So that is as frequent. There's always some products that get thrown in that some variation of account opening or the lending platform or whatever. But those 3 in particular, we're still averaging about what we have been. And again, remembering that we're doing some small levels of end of lifing or product rationalization as part of our initiatives. But we're still seeing anywhere from 35 to 50 products typically in a deal as we have in years past. The key is that the more lucrative ones, candidly, are card, digital, financial crimes, things along that line. Operator: The next question comes from Charles Nabhan with Stephens. Charles Nabhan: I noticed that you tightened the outlook for free cash flow conversion from 90% to 100% from 85% to 100%. And I know your bias was towards the higher end of that range last quarter, but curious what led to that increased visibility? And as a follow-up to that, it sounds like there's no shortage of opportunity that you're investing in to pursue. Love any comments on capital expenditure and the level of investment level necessary to pursue that opportunity that you're seeing across your markets. Mimi Carsley: All good questions, Chuck. So yes, we continue to see positive progress on the free cash flow and free cash flow conversion. I think now just having a crisper outlook of understanding all of the puts and takes of the legislative changes. We did have a number of just small asset sales as well, having clarity on those just makes us more confident on the projections for the full year and to have a bias towards the higher end of that range from a free cash flow. In terms of an allocation or an investment, we continue to be hovering around that 14% to 15% of R&D. As Greg mentioned earlier, we've -- in the last 5 years, ex M&A has kept headcount growth less than 1%. So we feel like we're able to make the strategic bets and solution progress while still maintaining a very tight workforce. So that's through our continuous improvement efforts. That's through the deployment of AI. That's through being very strategic on where those headcounts are going and are they fueling strategic initiatives. So we feel pretty good on our ability to continue to accelerate our growth, our progress against our strategic initiatives without needing to step up and increase our spending. Charles Nabhan: Got it. And as a follow-up, I wanted to get your specific comments on the credit union market. And if you're seeing anything different in terms of competitive dynamics, demand trends and just generally how you see that opportunity? Gregory Adelson: Yes. So we're getting a little bit of the -- still residual from the core consolidation from one of the competitors. We've done a lot to increase our solution set on our Symitar platform over the last couple of years. That's starting to pay some dividends. We're winning a good number of the mergers that are happening. So that continues to be a positive. And then the bigger thing that's happening is our ability to penetrate the complementary and payments market with our core solution set. So we are driving a higher penetration rate than we have in years past in the credit union business, both with existing clients and with wins, new competitive wins with, again, taking digital or payments as a -- for instance. Operator: The next question comes from Ken Suchoski with Autonomous Research. Kenneth Suchoski: I'll ask one since it's getting late. But Greg, you talked about not seeing a benefit on the core competitive takeaway side this quarter, but obviously, lots of work happening behind the scenes by Jack Henry. But you mentioned that service differentiation is really driving your success. And one of the competitors has talked about increasing its service levels and reinvesting on the support side. So I'm curious how you think about maintaining your differentiation relative to other providers when it comes to that support and service. Gregory Adelson: Yes. Thank you. I'll kind of say it this way. we have a 50-year head start on how we've been handling service at this company. And it's been in our DNA all the way back to Jack and Jerry and every other leader that's come before me. And I will tell you, we're actually at all-time highs right now as far as how our survey results are and things along that line. And I know there's a motion at really both of our 2 largest competitors to improve service. And I applaud them for that from a standpoint of the industry perspective, but it's hard to move a big ship when you don't have that mindset built in as we do at this company. And so could they have some improvements? Sure. I don't know what that will take. And is that bodies? It's not always bodies. It's usually a mindset. And so when you do whatever it takes and do the right thing like we do here, it just gets embodied into our everyday offering. So I just think it's going to be really difficult to "catch us" and we're sure not going to take off the gas here. So we'll continue to keep that as part of what we think is a huge differentiator and hear it from people that come over to us. Mimi Carsley: Yes. The only point I would add on that is, well, Greg aptly said, we have not seen a tremendous meaningful impact from the consolidation yet in the pipeline because deals take quite some time to walk through and to hammer out. But our track record over the last several years and our increase in market share and our gains against both competitors are indicative of that service that Greg just talked about and of our innovation. So we have a track record. So it's not -- we feel very strongly in this opportunity and our ability to continue to win. And that's backed up by the wins we've been doing from the last number of years. So it's not new that people have wanted to leave competitors, and it's not new that they're coming to Jack Henry. Gregory Adelson: Yes. And I think one just last point since you're on, Ken, is that the 50-plus wins that we've had for multiple years kind of emphasize what Mimi just said. The last part that I want to emphasize is, though it didn't have a significant impact in Q2, as I mentioned before, our pipelines are growing faster because of that news. And so I anticipate that not just this year, but over the next several years, which a lot of these contracts will have several years still remaining, but conversations could be taking place now, where you're going to see not only just the number of opportunities increase, the size of the opportunities increase much to what we've been focused on, as we said, of going upmarket. Operator: And this does conclude today's question-and-answer session. I would now like to turn the conference back over to Vance Sherard for any closing remarks. Vance Sherard: Thank you, Chris. Management will be participating in 8 investor events over the next 2 months, and we look forward to continuing our engagement with the investor community. We also extend our appreciation to all Jack Henry associates for their exceptional commitment and execution, which delivered a strong first half of fiscal 2026. Thank you for joining us today. Chris, please provide the replay number. Operator: Thank you. As a reminder, the replay number for today's call is (855) 669-9658. Again, that is (855) 669-9658 and the access code is 4206506. Today's conference has now concluded. I would like to thank everyone for attending today's presentation, and you may now disconnect your lines.
Gregory McNiff: Good afternoon, everyone, and welcome to the Clearfield Fiscal First Quarter 2026 Conference Call. A brief question and answer session will follow the formal presentation. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Gregory McNiff, Investor Relations. Please go ahead, sir. Thank you. Joining me on today's call are Cheryl P. Beranek, Clearfield's President and CEO, and Daniel R. Herzog, Clearfield's CFO. As a reminder, Clearfield publishes a quarterly shareholder letter which provides an overview of the company's financial results, operational highlights, and future outlook. You can find both the shareholder letter and the earnings release on Clearfield's Investor Relations website. After brief prepared remarks, we will open the floor for a question and answer session. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking. It is important to also note that the company undertakes no obligation to update such statements except as required by law. The company cautions you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in today's press release, shareholder letter, and on this conference call. The Risk Factors section in Clearfield's most recent Form 10-K filing with the Securities and Exchange Commission and its subsequent filings on Form 10-Q provide a description of these risks. Additionally, as announced on November 12, 2025, Clearfield sold its Nestor cables business. Following the divestiture of Nestor, we are reporting only on the Clearfield segment. Clearfield is reflected as continuing operations with Nestor classified as discontinued operations and assets and liabilities held for sale for 2026 and all prior periods on our financials. With that, I would like to turn the call over to Clearfield's President and CEO, Cheryl P. Beranek. Cheryl? Cheryl P. Beranek: Good afternoon, everyone. Thank you for joining us to discuss Clearfield's results for 2026. I'll begin with an overview of the quarter and our strategic priorities, and then I'll turn the call over to Daniel R. Herzog to review the financial details and outlook. During the quarter, we saw signs of stabilization and an early rebound in community broadband demand, reinforcing confidence in our long-term outlook. Clearfield continues to operate as the leading provider of fiber management solutions for the community broadband market, guided by a disciplined strategy anchored in our three-pillar framework to deliver better broadband and beyond. This framework remains focused on protecting and strengthening our core business, expanding market share, and selectively extending our technology into adjacent markets. Turning to results, first-quarter net sales from continuing operations were $34.3 million, exceeding our guidance range of $30 million to $33 million. That outperformance reflected a favorable seasonal product mix and solid demand across key customer segments. Net loss per share from continuing operations was 2¢. As a reminder, in November, we completed the sale of our Nestor cables business. With this transaction behind us, our focus and portfolio are now fully centered on the Clearfield business and the execution of our core strategy. Following the end of the quarter, we introduced the Nova platform, a modular, high-density fiber system designed to make building and expanding modern networks simpler. The Nova platform takes the cassette-based modular design approach that has long defined our success in broadband, and it extends it into new environments, including AI, data center, and edge compute networks in which we expect our broadband service provider customers to play a key role in future build-out. This product launch represents an important step in the evolution of our Better Broadband and Beyond strategy. As networks continue to grow in size and complexity, customers are looking for solutions that reduce installation time and cost, improve day-to-day operations, and scale efficiently as capacity needs increase. While we expect near-term revenue contribution from Nova to be modest, the platform is strategically important as we focus on early customer adoption and validation. Over time, we expect the Nova platform to support new applications and customer opportunities, particularly as demand for higher-density fiber solutions expands across regional data centers, edge facilities, and enterprise environments. Alongside this product momentum, execution across our core business, our core broadband markets remained steady. Community broadband remains a foundational element of our business, supported by long-standing customer relationships and a portfolio-based approach that emphasizes selling multiple Clearfield solutions for customer deployment. Large regional service providers and MSOs also remain important growth drivers and reflect the flexibility of our platform. In addition, recent acquisition approvals involving large regional customers create a favorable backdrop for continued opportunity. As broadband providers look ahead to their next phase of investment, the BEAD program remains a major area of focus across the industry. We are encouraged by the progress that the NTIA has made in advancing the BEAD program and are pleased with the level of planning and network design activity we are seeing from both current and prospective customers. While we continue to expect BEAD-related revenue contribution in fiscal 2026 to be modest, service providers are actively preparing for deployment. Customers are working through planning, network design, and vendor decisions, and Clearfield is staying closely engaged to ensure we are ready when funding is released. To support this effort, we are taking a structured and proactive approach with expected BEAD recipients, focusing on where customers are in their planning process and how we can best support them as these projects take shape. This allows us to allocate resources thoughtfully and to remain aligned with customers as programs move forward. We believe community broadband providers are likely to move more quickly than tier-one operators once funding approvals occur, which aligns well with Clearfield's focus and customer mix. However, supply chain constraints of US-made optical fiber that is required under the BABA, the Build America, Buy American Act, could restrain near-term deployment. We are working alongside others in the industry to address the issue. Beyond fiscal 2026, we expect BEAD to become a positive contributor, with timing dependent entirely on federal funding releases and supply chain constraints. And with that, I'll turn the call over to Daniel R. Herzog to review our financials and our outlook in more detail. Daniel R. Herzog: Thank you, Cheryl, and good afternoon, everyone. I will now review our first-quarter results beginning with sales. As noted earlier, all financial results for fiscal 2026 and prior periods are presented on a Clearfield continuing operations-only basis. First-quarter net sales from continuing operations were $34.3 million, exceeding our guidance range of $30 million to $33 million and up 16% from $29.7 million in the prior year period. Gross margin was 33.2%, compared to 29.2% in the prior year quarter, driven primarily by improved overhead absorption and better inventory utilization. Operating expenses from continuing operations increased to $13.2 million from $10.7 million year-over-year, reflecting continued investment in technology and customer expansion initiatives. We had an income tax benefit from continuing operations of $1,000 for 2026 compared to an income tax expense from continuing operations of $53,000 for the year-ago quarter. The income tax rate for 2026 was lower than the statutory rate due to the impact of discrete items and a lower level of pretax book loss. Net loss per share from continuing operations was $0.02 in 2026 compared to a loss of $0.02 per share in the comparable period last year. Net loss from discontinued operations for 2026 was $340,000 or $0.02 per basic and diluted share compared to a net loss from discontinued operations for 2025 of $1.6 million or $0.11 per basic and diluted share. We ended the quarter with approximately $157 million in cash, short-term and long-term investments, and no debt, reflecting continued balance sheet strength and disciplined capital management. During the quarter, the company invested $5.2 million to repurchase 179,000 shares. In November 2025, our board of directors increased our share repurchase authorization from $65 million to $85 million, leaving $23.1 million available for additional repurchases as of December 31, 2025. For 2026, we anticipate net sales from continuing operations to be in the range of $32 million to $35 million, operating expenses to be up slightly relative to the first quarter, and net loss per diluted share in the range of $0.02 to $0.10. The earnings per share ranges are based on the number of shares outstanding at the end of the first quarter and do not reflect potential additional share repurchases completed. For the full year fiscal 2026, we are reiterating our guidance for net sales from continuing operations in the range of $160 million to $170 million. We expect growth to be driven by steady demand for fiber connectivity across our community broadband, large regional, and MSO customers, with BEAD-related revenue contribution expected to remain modest during fiscal 2026. We expect operating expenses as a percentage of revenue to remain consistent with fiscal 2025 and earnings per share from continuing operations to be in the range of $0.48 to $0.62. And with that, we will open the call to your questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question will come from Ryan Koontz with Needham and Company. Please go ahead. Matt Cavanagh: Hi, this is Matt Cavanagh on for Ryan Koontz. Thank you for the question. On the Nova product line, it would be great to better understand who the target customer type is for these products and maybe how you're thinking about the revenue opportunity from Nova over the medium to longer term? Thank you. Cheryl P. Beranek: Great. Yeah. Nice to talk to you, Matt. The initial target customer, I think, we'll see is existing community broadband customers who are opening data centers for their enhanced revenue base. So this would be customers like South Dakota Networks or CoLogic, who understand the requirements associated with high density, and they're looking at how they're going to be able to do that. Additionally, as we move into adjacent markets, the products are designed in a different way with the concept of modularity, being able to do the same type of thing that we do with today's cassettes so that every rack unit is optimized for the type of connector or service offering, single mode, multimode, whatever the high speed, ultra-small form factor connector might be. So I think we'll see customers there of a traditional database type environment, but not the big superscale hyperscale markets that will require innovation and an additional product offering that you'll see from us probably in about a year. From a revenue perspective, we don't see a significant revenue contribution in '26. So we do see the Nova platform becoming, over the next two to three years, really the kind of the dominant product offering of the company, and then a lot of what we're doing with Nova will be brought back into community broadband so that we'll have a single cassette and a single platform for optimization of all density requirements throughout our customer base. Matt Cavanagh: Great. Thank you. That sounds really exciting. Cheryl P. Beranek: It is. Thank you. Matt Cavanagh: As a follow-up, you had also mentioned earlier on BEAD, community broadband customers maybe being more likely to move quickly on their projects than their larger counterparts. Could you expand on why this might be the case and how it's affecting Clearfield's outlook for the program over the next several years? Cheryl P. Beranek: Alright. Let's see. We've seen over the years that community broadband, by definition of being smaller, are more nimble players, and they'll be able to optimize their deployments and can switch easier from one opportunity to the other or can pounce onto the money availability and move forward. The larger providers absolutely are going to deliver their BEAD initiatives, but they already have their build plans for the year, and we don't see them moving the application from one point to the next. So we're optimistic that even with some supply chain challenges, our small providers are going to be in a position to be able to get a little bit of a head start. We're tracking there are 319 different broadband service providers who are slated based upon the early tentative awards to be part of the BEAD program. And we are systematically tracking each of those customers based upon our penetration as a customer, where we are at in regard to the sales cycle, and really trying to apply the same type of high sales and customer support that we've done for the last fifteen years to now really put the sauce on thick within BEAD. So we're excited about it, more to come in coming quarters. Matt Cavanagh: Great. Thank you. And just one more, if I may. Is there any way, as you're talking about the potential fiber shortage, to maybe quantify the revenue impact and how that's affecting your fiscal 2026 outlook? Cheryl P. Beranek: Yeah. I think it could vary. It's really difficult to quantify specifically what's going to happen with fiber supply, especially as it relates from a BABA perspective. The current suppliers of BABA-compliant fiber, it's hard there with the bare extruded fiber. They are on lead times of over a year. And that is not consistent with being able to have a good aggressive BEAD program, and I'm sure it is not what the NTIA intended when they said there was enough fiber to go around under the BABA program. And so we, as an industry, are looking at ways by which we can offer waivers or alternative types of means to ensure that we can get a head start. And because of the uncertainty of all of that, it's one of the reasons why there is really no guidance in fiscal year 2026 associated with BEAD revenue. Matt Cavanagh: Great. Thank you, Cheryl. Cheryl P. Beranek: You're welcome. Operator: The next question will come from Timothy Paul Savageaux with Northland Capital Markets. Please go ahead. Timothy Paul Savageaux: Hey. Good afternoon. Got a couple of, I guess, merger-related questions, not so much you, but customers and competitors. So I'd be interested if you had any observations or thoughts on the early impact of both Verizon's combination with Frontier. Clearly, they're guiding CapEx way down as a combined entity, but seeming to keep the fiber build steady. It's not increasing. And, also, anything out of the CommScope, Amphenol merger that might be driving any opportunities for Clearfield? Cheryl P. Beranek: Well, yeah, we're looking at the Frontier merger as a significant opportunity for Clearfield. We have been a key supplier to Frontier. I've been pretty open about that over the years, and Frontier is, as you said, full speed ahead on their program for fiscal year 2026 and not looking to make any changes that are going to interfere with the build season. Verizon has been in strong support of being very visible in saying the reason they acquired Frontier is because of the strength of their fiber network. So as we move forward and have an opportunity to learn more about the procurement process inside of Verizon, which is one of our large tier-one customers, we're looking to just really be able to optimize that. So, we see it as an opportunity and have invested in a broader sales organization by which to support it. In addition to what we've done in the past to do traditional regional sales managers who live and work in the communities in which fiber is deployed, we've added not only a national sales team calling on corporate but a national turf team that calls on the field offices of those national offices to introduce their product line and to continue to help support it. For an existing customer in a new market or for new customers as they get introduced to the modularity of our platform. So if you look at our SG&A investment, and you see the $3 million investment for this quarter, higher than a year-ago quarter, that's where those dollars are going. We're not going to get that new business in our core business until in pillar one or in some of those adjacent without those investments and strategies, but it's really a replication of the strategy that has worked for the last fifteen years just for new customers. As it relates to CommScope and Amphenol, it's really too early. There's still a lot of people figuring out who's going to sign their check and is their job going to change, and who am I reporting to? So from that perspective, I think it's an opportunity for Clearfield as we continue to be full focused and in supporting our customer base. We also have seen CommScope continue to be open for all markets, of course, but they really have done a nice job in the hyperscale space, and we see them focusing on that under the Amphenol umbrella, which, again, I think could provide an opportunity for Clearfield. Timothy Paul Savageaux: Right. And less focused on carrier and perhaps even more so rural carrier markets. Cheryl P. Beranek: Correct. In terms of the results, you saw cable come down pretty sharply. I wondered whether what you expect throughout the balance of the year there maybe in Q2? Looks like you're looking at flattish overall revenue. Any notable trends in terms of the segments driving the Q2 outlook and what do you expect for cable beyond that? Cheryl P. Beranek: Alright. Yeah. Well, I mean, community broadband was significantly up, and it was the driver across the company. And I think everyone will find that to be very refreshing because we saw last year that community broadband was the one that's most severely affected by the delay in the BEAD deployments, not only for the dollars themselves but for the inability to fund and have the time by which to engineer other projects. So I think community broadband will continue to lead our growth into future quarters. Cable was really down from the fourth quarter but consistent with the first quarter of last year. And what we see in the MSO markets because those orders tend to be at a little bit larger scale, is a little bit of lumpiness on a quarter-to-quarter basis. So I'm comfortable that the regional MSO, as I've talked about before, the mid-continents and the Blue Ridges, the cable ones, are committed to their fiber builds, they're seeing that fiber does not have the risk that you're going to see from a DOCSIS standpoint. It's a better long-term play. And especially as the telcos get aggressive in the deployment of fiber, as Verizon and AT&T continue to build out, the MSO market, especially the regionals, is ready to respond. So I am confident that you're going to see growth in that space as well. Timothy Paul Savageaux: Great. Thanks very much. Cheryl P. Beranek: You're very welcome. Operator: This concludes our question and answer session. I would like to turn the conference back over to Cheryl P. Beranek for any closing remarks. Cheryl P. Beranek: Thank you all. I hope everyone that is listening stays warm and is finding ways to enjoy this winter weather. Clearfield has, of course, been a Minnesota company from the beginning, and it has been a struggle for our winter for a variety of different ways. But I want to commend everyone in the US who is working to be each other's neighbor and look out for each other. We are looking out for you and all of broadband. And, we do not take your support for granted and we'll continue to be able to earn it as we move forward. I look forward to seeing you next 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 Crown Castle Inc. Quarter Four 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kris Hinson, Vice President of Corporate Finance and Treasurer. Please go ahead. Kris Hinson: Thank you, Bailey, and good afternoon, everyone. Thank you for joining us today as we discuss our fourth quarter 2025 results. With me on the call this afternoon are Chris Hillebrandt, Crown Castle's president and chief executive officer, and Sunit Patel, Crown Castle's chief financial officer. To aid the discussion, we have posted supplemental materials in the Investor section of our website at crowncastle.com that will be referenced throughout the call. This conference call will contain forward-looking statements, which are subject to certain risks, uncertainties, and assumptions, and actual results may vary materially from those expected. Information about potential factors which could affect our results is available in the press release and the Risk Factors section of the company's SEC filings. Our statements are made as of today, 02/04/2026, and we assume no obligation to update any forward-looking statements. In addition, today's call includes a discussion of certain non-GAAP financial measures. Tables reconciling these non-GAAP financial measures are available in the supplemental information package in the Investors section of the company's website at crowncastle.com. I would like to remind everyone that having an agreement to sell our fiber segment means that the fiber segment results are required to be reported within Crown Castle financial statements as discontinued operations. Consistent with last quarter, the company's full-year 2026 outlook and fourth quarter results do not include contributions from what we previously reported under the fiber segment except as otherwise noted. With that, let me turn the call over to Chris Hillebrandt. Chris Hillebrandt: Thank you, Kris, and good afternoon, everyone. We delivered the full year 2025 guidance exceeding the midpoint across all key metrics as we focused on operational execution across our portfolio. As we turn to 2026, we are in the middle of major changes across our business as we take several actions to position Crown Castle Inc. to maximize shareholder value. First, we remain on track to close the sale of our small cell and fiber businesses, which we anticipate will occur in 2026. We are completing the operational separation of our three businesses, and executing on our transition plans. Upon the close of our small cell and fiber businesses, approximately 60% of our consolidated workforce will move with the sale as we transition to a simpler US-only tower business. We have been notified that the Department of Justice has closed its Hart-Scott-Rodino review and is not requiring any action related to the transaction. We only have a handful of approvals remaining at the state and federal levels. Second, we continue to enforce our rights under the terms of our agreement with DISH. After DISH defaulted on its payment obligations back in January, Crown Castle exercised its right to terminate the agreement. As a result, we are seeking to recover in excess of $3.5 billion from DISH, in remaining payments owed under the agreement. Crown Castle is supportive of AT&T and SpaceX obtaining the announced 3.45 gigahertz, 600 megahertz, AWS-4, H block, and unpaired AWS-3 spectrum bands, which would put this valuable public resource into active use for the wireless industry and the American people. That said, we will continue to do everything possible to enforce our rights under our contract with DISH. Third, we are taking decisive action to maximize value for our shareholders in response to DISH's actions. Announcing a restructuring plan to enhance the efficiency and effectiveness of our standalone US tower business following the anticipated close of our small cell and fiber business sale. Due to DISH's contractual default, we have accelerated and expanded our restructuring plan to realign staffing levels consistent with the removal of all future DISH activity. In total, we are reducing our tower and corporate workforce and continuing operations by approximately 20%, ending at about 1,250 full-time employees. In combination with other cost reductions, we expect to deliver a $65 million reduction in annualized run rate operating costs. The majority of staffing reductions will take effect in the first quarter while the non-labor reductions will be phased in throughout the year following the anticipated close of the small cell and fiber business sale. Finally, I would like to reaffirm our capital allocation framework and update our expected use of proceeds from the small cell and fiber business sale. First, when we reset our dividend last year, we considered the composition and risk profile of our cash flows as a result, we expect to maintain our dividend per share at $4.25 on an annualized basis until reaching our targeted payout ratio of 75% to 80% of AFFO, excluding the impact of amortization of prepaid rent. Thereafter, we intend to grow the dividend in line with AFFO excluding the impact of amortization of prepaid rent. Second, we plan to invest between $150 million to $250 million of annual net capital expenditures to add and modify our towers, to purchase land under our towers, and to invest in technology to enhance and automate our systems and processes. Third, we plan to utilize the cash flow we generate to repurchase shares while maintaining our investment-grade credit rating. Fourth and finally, we plan to remain at a target leverage range between six and six and a half times using the proceeds from the small cell and fiber business sale. As a result, we plan to allocate approximately $1 billion to share repurchases and approximately $7 billion to repay debt. As I look forward to a full year 2026 and beyond, I am excited by Crown Castle Inc.'s opportunity as the only large publicly-traded tower operator with an exclusive focus on the US. The US tower model continues to benefit from attractive business characteristics including long-term revenues from investment-grade customers contracted escalators, and high incremental margins. I believe that these characteristics will be supported by continued mobile data demand growth and a significant volume of spectrum being made available to motivated mobile network operators. To maximize revenue growth and profitability, we are focusing on becoming the best operator of US towers with the following strategic priorities. One, we are empowering the Crown Castle Inc. team to make the best and timely business decisions by investing in our systems to improve the quality and accessibility of asset information. Improving customer experience on cycle time and their interactions with us. Two, we are strengthening our ability to meet the business's needs by streamlining and automating processes to enhance operational effectiveness, and three, we will continue to drive efficiencies across the business. We believe that these strategic priorities combined with our disciplined capital allocation framework and investment-grade balance sheet will drive attractive risk-adjusted returns. With that, I'll turn it over to Sunit to walk us through the details of the quarter and our full-year 2026 outlook. Sunit Patel: Thanks, Chris, and good afternoon, everyone. Our full-year 2025 results were highlighted by 4.9% organic growth, excluding the impact of Sprint churn, as our customers continue to augment their 5G networks. Due to our outperformance in organic growth, we ended the year near the high end of the guidance range for 2025 site rental revenues. Outperformance at revenues combined with higher than expected services contribution ongoing efficiency initiatives, and lower interest expense allowed us to exceed the high end of the guidance range for 2025 adjusted EBITDA and FFO. Turning to our 2026 outlook. At the midpoint, we are projecting site rental revenues adjusted EBITDA, and AFFO of $3.9 billion, $2.7 billion, and $1.9 billion which are meaningfully impacted by the following three items. First, due to the termination of our contract with Dish Wireless announced in January, our 2026 full-year guidance does not include any contribution from DISH, resulting in $220 million of churn in full-year 2026. Second, for the purposes of building our full-year 2026 outlook, we have assumed the small cell and fiber business sale transaction will close on June 30. Third, as Chris mentioned, we're reducing our run rate operating cost by $65 million on an annualized basis, resulting in a $55 million impact to full-year 2026 and a $10 million incremental impact to 2027 due to timing. Moving to Page 5, our full-year 2026 outlook includes organic growth at the midpoint of 3.3% or $130 million excluding the impact of Sprint cancellations and DISH terminations in 2026. Full-year 2026 organic growth is expected to be 3.5% at the midpoint if DISH revenues are excluded from prior-year site rental billings. This compares to 3.8% for full-year 2025, on a comparable basis excluding DISH revenues from the prior year. We expect our 2026 organic growth guide of 3.5% growth to mark the low point. This expected growth is more than offset at site rental revenues due to the $20 million impact of Sprint cancellations, $120 million of DISH churn, and a $90 million decrease in noncash straight-line revenues and amortization of prepaid rent. Turning to Slide 6, the expected $110 million decrease to site rental billings is more than offset by the following items resulting in an anticipated $15 million increase in 2026 AFFO compared to 2025. A $25 million reduction in expenses as the staffing and other cost reductions drive $50 million of expense savings in full-year 2026 partially offset by standard increases on the remaining cost base. A $5 million increase in service contribution as service activity levels similar to 2025 are complemented by $5 million of expense savings from the workforce reduction. A $120 million decrease in interest expense primarily from the repayment of approximately $7 billion of about 4% interest rate debt following the anticipated close of the small cell and fiber business sale partially offset by refinancing. A $25 million decrease in other items driven primarily by a decrease in amortization of prepaid rent. Turning to Page 7, we decreased our guidance for AFFO in the twelve months following close by $240 million to $2.1 billion at the midpoint. Our original guidance of $2.34 billion at the midpoint included a $280 million contribution from DISH, in 2026 and 2027 which we have removed. This is partially offset by a $40 million reduction in interest expense from increasing the assumed debt repayment following the anticipated close of the small cell and fiber business sale by approximately $1 billion to approximately $7 billion. Turning to Page 9, the revised guide for AFFO for the twelve months following the close of the small cell and fiber business, which includes a half year of growth compared to full-year 2026, is $180 million higher and consists of $120 million of interest expense savings related to the anticipated debt repayments made with the small cell and fiber business sale proceeds, $50 million of growth in the underlying business, and $10 million of cost savings related to the 2026 reduction in force. Turning to the balance sheet. We ended the quarter with significant liquidity and flexibility, positioning us to efficiently maintain and effectively maintain our investment-grade rating after the sale of the small cell and fiber business based on the target capital structure and capital allocation framework that Chris mentioned earlier. In conclusion, we're pleased with our full-year 2025 results and believe we are well-positioned to deliver our outlook for full-year 2026 and our updated range for estimated AFFO for the twelve months following the small cell and fiber business sale closing of $2.1 billion at the midpoint. Longer-term, we're excited by the opportunity for Crown Castle Inc., and we believe we are taking the necessary actions to become a best-in-class US tower operator. We believe our focus on operational execution combined with our capital allocation framework and investment-grade balance sheet will deliver attractive long-term risk-adjusted returns for shareholders. With that, operator, I'd like to open the line for questions. Operator: We will now begin the question and answer session. To ask a question, If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ric Prentiss with Raymond James. Please go ahead. Ric Prentiss: Thanks. Good afternoon, everybody. Focus my questions wrapped around, obviously, DISH. But then also the fiber small cell sale. Couple of quick ones, maybe you can elaborate a little bit further on. Any update on the status of working with DISH? Why terminate the agreement and what do you get out of terminating the agreement? And I have a couple other quick ones. Sunit Patel: Yeah. I think simply spoken why do we terminate DISH stop performing under the contract. Our contract was very clear with DISH, and we're enforcing it to best protect the value of the contract. Ric Prentiss: And so, terminate, you feel it gets the best kind of protective value. Obviously, we appreciate knowing what the number was. Over $3.5 billion owed. Sunit Patel: Yeah. I mean, in the end of the day, Ric, you know, we had a contract with Dish. Dish has chosen not to honor it. With DISH in default, we exercise the termination rights for the agreement and can accelerate the entire obligations now. And this termination was because this is the remedy that was called for when a party defaults. And so in the end, we're vigorously enforcing our rights and trying to protect our shareholders for the terms of the agreement. Ric Prentiss: Okay. And, obviously, we had taken the DISH out of our model. Guidance looks pretty close to what we had laid out there. Appreciate all those details. One piece I'm wondering on is there any change to the purchase price of $8.5 billion for the fiber small cell transaction because you're noting approximately $7 billion of debt pay down, which makes sense given where you wanna keep leverage, cut interest costs. And then stock buyback at just a billion. So is there any change to the fiber small cell proceeds how you think about using what was originally $8.5 billion or might still be? Sunit Patel: Yeah. So, Ric, there's no change to the purchase price. Obviously, you have normal transaction costs and closing adjustments, those sorts of things. But so we just kept it at approximately $7 billion and $1 billion pending the close of the transaction. So no other reason other than that. There's no change to the $8.5 billion purchase price that we announced. Ric Prentiss: Okay. And then as far as the timing of the buyback, obviously, this deal to close fiber small cell has been going on a long time. You really couldn't say much until you got closer to the deal closing. We're into February. Half isn't that far away. Sounds like, quote, a handful of state and federal rules are left. How should we think about the execution then of a billion-dollar buyback? How fast could or should that be put to work? Sunit Patel: I think at this point, not knowing exactly when the transaction will close, we are thinking about that and we'll have more specifics to share about that, you know, as we get through closing. So not much detail at this point, but we're clearly committed to making that happen. Ric Prentiss: And last one for me, wrapping it all together. You mentioned a handful of state and federal level approvals left. Any lessons learned from, like, Frontier Verizon through California or other processes or where you think the long pull and the tent might be as far as getting those final handful over the finish line? Chris Hillebrandt: Yeah. So I think our team together with the teams at Zayo and EQT have made pretty solid progress. As you point out, California is always a sensitive one. I think we're adequately focused on all of those, but you know, pleased with the DOJ thing happening. But I think that we hope to get all of these worked through and still stick with the original timeline we have of closing in the first half. But in terms of lessons learned, I don't know of any specific lessons learned, but we do keep up with what's going on with the other transactions. Kris Hinson: I would just say more broadly, Ric, is, you know, I've been here four and a half months, and what I've seen is a steady pace of progress along that time period. Nothing has jumped out as unexpected. I think our teams working collectively are doing a great job of threading the needle and getting all the approvals in place. Ric Prentiss: Great. Thanks. Appreciate it, guys. Have a good day. Operator: Our next question comes from Michael Rollins with Citi. Please go ahead. Michael Rollins: I'm just curious if you could provide more characterization of the leasing environment and over the last few months, as carriers have been working their budgets, you know, some have access to more spectrum that's readily deployable in their networks. Have you seen a shift or change in how they're approaching whether it's densification and colo, whether it's the amendment strategy and activity, and can you maybe give a little bit more characterization of you mentioned that think in the prepared comments that 3.5% you're expecting to be kind of a low. Maybe a little bit more detail as to what can drive that higher over the next few years. Chris Hillebrandt: I'll start and maybe hand it over to Sunit. So thanks, Michael. I think if you think back at where we are at this point, there's a couple headwinds, if you will, around it's a cyclical 5G coverage in the deployment cycle of a say, ten-year decade-long deployment cycle and there's been great progress made by the operators in getting initial coverage out. You have a couple new CEOs and the MNOs in place. Which are obviously coming on strong, finding their ways, and talking about overall cost reductions and focus within their businesses. As they revise their strategy. I think that's counterweighed by tailwinds which were mentioned, which are all around the frequency bands that are becoming available both in the last year as well as the plan for the FCC to auction off at least another 800 megahertz of spectrum, beginning in 2027 and the nature of the spectrum, although we don't know the exact frequencies, we see them as higher band frequencies. Will naturally drive a higher densification of cell site deployment. And so we do expect that that becomes a tailwind both for the industry and for Crown as those plans come to fruition. So these are kind of the market dynamics that are shaping the industry right now. And Sunit, if you wanna talk specifically about 2026. Sunit Patel: Yeah. I think what I would say is just for the supporting work Chris said. I mean, we think the mobile data demand continues at pretty healthy growth rates as we talked about last quarter. All the three major MNOs acquired Spectrum in the last year. The FCC's auctioning 800 megahertz of Spectrum beginning next year. And then when we look at our leasing activity from a current leasing activity gives us you know, gives us some visibility into future activity. So when you put all that together, yeah, we think that the 3.5% is a low point for us, and we should do better. Michael Rollins: Thank you. Operator: Our next question comes from Jim Schneider with Goldman Sachs. Please go ahead. Joshua Matthew Frantz: Hi. This is Josh on for Jim. Thanks for taking the questions. Can you help us bridge the 2026 leasing outlook versus what you reported in 2025? We know DISH was zero revenue a few years ago and has stepped up what's the best way to think about how much they've been contributing on an annual basis so we can see what's happening kind underlying with the carriers? And then similar to that, if we look at 2019 and 2020 before 5G deployments and before Dish and before Sprint T-Mobile integration work, your activity your new leasing was about $100 to $125 million. Can you help us think about what's changed or or the moving parts to get from from then to now? Thanks. Sunit Patel: Yeah. Let me handle the DISH contribution. So, I mean, you can see last year, organic growth was 4.9% on a comparable growth excluding DISH in both periods is 3.8%. When you look at that difference, I think what it says is that DISH contributed about $50 million roughly to organic growth in 2025. And as we've said previously, this was all contractual, not really activity driven, including what was expected for this year. And then on your other comment, I mean, when you look back at the 5G cycle, I think that T-Mobile upon while they were concluding the Sprint T-Mobile merger, which was closed in April 2020, there was a pretty aggressive deployment of 5G. So when you look beyond that late in the cycle, you know, we always see people whether it's densification, amendments, that activity. Continues. So I don't have the exact numbers back then, but I think it's comparable to what we were seeing back then. Joshua Matthew Frantz: Understand. Thank you. Operator: Our next question comes from Michael Funk with Bank of America. Michael J. Funk: Thank you for taking the question. So you have a multi-pronged approach with DISH. Obviously, you've sued under your rights for the termination. Presumably lobbying the FCC and then also through the court. So you update us on the process and expected timing around the different approaches you're pursuing? Chris Hillebrandt: I mean, I don't think we wanna go into the specifics about our legal strategy and the timing of that. I think, you know, if we kind of take a step back and say, recap, we've taken steps. We've filed suit against DISH. We have as an industry under the auspice of WIA, gone in to meet with the FCC commissioner to kind of make our case of why we believe that DISH should be obligated to pay for its bills. And we continue to take a number of steps, which I won't list here in details, but include all manner of activities, as Crown specifically to be aggressive in defending our shareholder interests. You know, this unfortunately with the courts working its way through, you know, this could be anywhere from a year or longer until we start to see things back from the courts. And therefore, it won't be something that we'll be updating you in the short term. But we will continue to drive and defend our position against the actions that DISH has taken. Michael J. Funk: Great. Thank you for that. Operator: Our next question comes from Eric Luebchow with Wells Fargo. Please go ahead. Eric Luebchow: Great. I just wanted to follow-up on one of the questions earlier. I think, Sunit, you talked about how we're going to can it grow this year? You expect it to improve somewhat in '27 and beyond. And maybe you could just talk through what gives you confidence there, whether that's anything you're seeing from a densification standpoint on new billings, whether there's ways to drive steady-state churn down particularly now that you'll just have three, well-capitalized large carriers comprising the majority of revenue. Anything you could offer there would be helpful. Sunit Patel: Well, with respect to churn, I don't think we see much change in the churn outlook we've provided previously. But I think in terms of specific as we said earlier, we did have, we do have some visibility into leasing activity. So that's helpful as we look at next year. But I think if you look at comments made by our clients so far, I mean, they bought more spectrum. They got to deploy most. They want to deploy most spectrum. The data demand growth cycles continue. So, you know, we think we'll do better than where we are here. If you look at our performance last couple of years, it's been a little better on the margin. So why we think this is a low point for us. Chris Hillebrandt: And specifically, I think we have a good view into our contract and leasing activity from our MLAs. Gives us pretty good visibility into future activity levels, which is why we're able to say that. Eric Luebchow: Great. Appreciate that. And then just one follow-up. I know you talked about reducing, I believe, 20% of your operating expenses. Maybe you could just talk about the flow through between SG&A and gross margin kinda where we're gonna see the biggest impact there. And any kind of indication on, you know, where you can get cash SG&A down to the next couple years to go through this cost restructuring? Sunit Patel: Yeah. So, I mean, we talked about $65 million of run rate operating cost savings. So in year, we'll see $55 million. Most of that is through the SG&A line. So, you know, of that $55, about $45 million roughly will hit the SG&A line. And then $5 million will come in site rental cost of sales and about $5 million on the services side. And then from a run rate perspective, for those same items, which adds to $65 million, it's about $50 million from the SG&A side, $5 million from the site rental cost of sales, and $10 million from the services cost of sales. That's why I said it would be the $65 million, we'll see $55 million in year and then incremental $10 million next year. So those are the components. Chris Hillebrandt: I think the reality is we've started to size up the opportunity longer term. But want to remind everybody, this is a year of transition for our company. You know, we're executing the sale agreement. We're managing through DISH. Putting a reorganization of the go-forward team in place. And so while we're focused on working to become a best-in-class operator, and updating systems and improving operational effectiveness, by streamlining and automating processes and tools, it's going to take a while. So we accelerated our activity now as a response to the current situation with DISH. And we have good ideas of where we're gonna go. But I think we'll have to guide in the future as we make progress as we really need to focus in on execution given all that's coming at us this year. This is really a plan of execution for Crown as we become a standalone US focused tower company. Eric Luebchow: Alright. Thanks, guys. Operator: Our next question comes from Richard Choe with JPMorgan. Please go ahead. Richard Choe: Hi. I wanted to follow-up on the discretionary CapEx and augmentation. The $150 million to $250 million, how will that contribute to, I guess, new leasing revenue? Do you expect to see some of that this year, or is it more for future years? And where could that go over time? Sunit Patel: Yeah. So I think some of that we have the opportunity to do ground lease buyouts, I think benefits our cash flows going forward. Some of it is for new tower builds. We see opportunities for that. So those and then the third component would be investments in systems and platforms, which should drive better operating effectiveness and efficiency going forward. Richard Choe: And as we look forward, what's the willingness for Crown to do more MLAs? And is it something that carriers still want, or are we moving more to a pay-as-you-go type of method over the next few years? Sunit Patel: I don't think we've seen any change there. We've generally operated with the MLAs with our clients. You know, we go through various phases here and there, but that's been a general approach. Chris Hillebrandt: In general, I would say that operators prefer having the certainty of understanding an operating agreement and being able to anticipate cost. And, therefore, it's something that I think the industry as a whole prefers along with the customers. Richard Choe: Got it. Thank you. Operator: Our next question comes from Nick Del Deo with MoffettNathanson. Please go ahead. Nick Del Deo: Hey, thanks for taking my questions. Or, Sunit, just a moment ago, you alluded to new tower builds. You know, the use of CapEx and seeing opportunities. I know that Crown has done a lot from a new build perspective, at least in a material way, for a number of years. Are you able to dimension the number of new builds you're targeting, or at least how it's changed versus recent years or any attributes of the towers you're looking at, like initial yield? Sunit Patel: Yeah. Hard to quantify it at this point. I mean, the key criteria is having the capital and being willing to do it if it makes economic sense. We do know that as data demands are growing, people need coverage in various areas. One example of this, I think, is the recent Verizon closed the Frontier deal, AT&T closed the Lumen deal. There's a big move towards convergence. So when you think about the geographies of where Frontier operates, so where the Lumen properties are, we think there'll be opportunities as they look to provide a converged offering, which means they'll need both wireless coverage including fiber to the home. So, you know, that's just one example of an area where there might be opportunities and others. So tough to quantify at this point, Nick, but I think it's just saying, we're willing to look at that when it makes sense. Chris Hillebrandt: Yeah. Maybe to build on that, one is we've said we're gonna be very selective and really only pursue opportunities that have those attractive economics that Sunit mentioned. But more importantly, if you look at the dynamics of the industry, one of the things that's happened since COVID is the price to build a new tower has gone up considerably. And so it has been a headwind for the industry in terms of build overall. In terms of the business case that you have to have. And oftentimes, in the past, we would build a single carrier tower and hope to get additional colocators, become increasingly difficult. And so for us, although our volume is not high, it's typically we will focus in on those towers where we have a minimum of two customers committed. So that we know that the economics make sense and the return profiles are correct. And it's something that, you know, if you look back historically over the last ten years, and I know because I've worked both in the disruptive part of the tower industry and now here as a leader of the big three. Is that traditionally MNOs haven't always looked for the big three tower companies to provide those new tower builds. But that's starting to change and the conversations we're having with customers are that they would like a one-stop-shop based on ease of doing business with and strategic partnerships with tower companies like Crown. And so we think there's an opportunity there. We're sizing that up. We're exploring it. We will be incredibly disciplined in the go-forward because that CapEx spend has to be with the right return before we move forward in any kind of scale in this part of the industry. Nick Del Deo: Okay. That's great color. Thanks for sharing all that. Can I ask one about the '26 leasing forecast? I guess, can you share anything about the degree to which the amount you're budgeting for is locked in you know, whether due to MLA commitments or because you have leases that are already signed versus activity that you've estimated? Sunit Patel: Yeah. I think at this point, about 80% of our organic growth is contracted. Nick Del Deo: Okay. Great. Thank you both. Operator: Our next question comes from Brandon Nispel with KeyBanc Capital Markets. Please go ahead. Brandon Nispel: Hey, guys. Two questions pretty similar on the leasing core leasing number, the $65 million is that weighted more first half, second half this year? And really, is it concentrated in any one of the big three customers or more evenly split? And then I'm not sure I heard it, but post the fiber transaction, have your thoughts around what you want your financial leverage to be changed just given the leasing levels are quite a bit lower than when you initially announced the transaction. Thanks. Sunit Patel: Yeah. I mean, as we said, our framework hasn't changed in terms of our capital allocation. We still look to keep our leverage in that six to six and a half range that we've announced last March, I think. So no change there per se. And in terms of leasing activity, I think it'll be a little more weighted towards the back half. Brandon Nispel: Thank you. Operator: Our next question comes from Brendan Lynch with Barclays. Please go ahead. Brendan Lynch: Great. Thanks for taking my questions. Maybe just to start on the longer-term outlook. Appreciate that the 3.5% is kind of the trough here in 2026, but you've previously guided to a 4-5% growth through 2027. Obviously, with DISH, that doesn't seem achievable at this point. But maybe you could give some color on what the longer-term growth rate might be either out through 2027 or if you could give even further comment here, that would be helpful. Sunit Patel: Yeah. I mean, I don't think, at least from my recollection the years, we've provided any outlook beyond the current year. So no specifics to provide there other than I would just mention that the combination, the backdrop of sort of constant demand growth on mobile data traffic continues to grow. Combined with our clients, you know, buying more spectrum and having plans to deploy more spectrum and more spectrum being available, we feel pretty good about the long-term outlook, but I don't think we've provided the outlook beyond the current year, at least the last few years to date. Brendan Lynch: Okay. Thank you for that. And maybe just on software upgrades, obviously, has been a consideration more recently. Your customers are clamoring for more spectrum. Nobody denies that. But maybe the potential for them to deploy more of it via software upgrade instead of new leasing might be a headwind all else equal. Can you just give some commentary on how you think that's going to affect the industry going forward? Chris Hillebrandt: Maybe I start and you can jump in. So if you're referencing as an example, AT&T's deployment of the 3.45 spectrum, specifically where they had already deployed radios and antennas that could utilize that band on a portion of their portfolio. And we're able to very rapidly roll out that spectrum basically with just a software to unlock those channels. That certainly does exist in some cases. But as an example, the other spectrum that AT&T purchased, the 600 megahertz, these are typically new radios and new antennas. Because the physics are such that, you know, you have these massive MIMO antennas for the low bands that provide the so-called beachfront property spectrum in terms of spectrum goes further. It penetrates in buildings for urban and suburban type scenarios. This is something that they don't currently have deployed and would potentially involve having new antennas and new radios deployed out at sites. In order to take advantage of that spectrum. So it really depends on the exact frequencies and whether those frequencies that have been purchased already been pre-deployed on a certain number of sites, whether they're able to do that. In the case of AT&T, as I just said a second ago, it's a portion of the sites that they had the equipment on. There's still a number of additional sites that would have to deploy in order to take advantage of deploying frequency. So that's a good case study, I think. Hopefully in answering your question. Sunit Patel: Yeah. And also software upgrades are very helpful, but at the same time, remember there are limits to how much data rates can be pushed through and the power required to do that. So ultimately, like any of these things, if you look at the rate of bit growth, you know, that's why radios and antennas have to keep getting replaced over time. Brendan Lynch: Thank you very much. Operator: Our next question comes from David Barden with New Street Research. Please go ahead. David Barden: Hey, guys. Thank you so much for taking the question. It's nice to talk to you again. So my first question is, I don't want to throw Ric under the bus, but Ric and I are probably the two oldest guys on this call. And I don't remember the last time there was a time when a carrier decided we're not gonna pay our bills. So could you walk us through exactly what happens when the carrier doesn't pay their bills? Are you gonna send a team of guys out there and snip wires or are you gonna, like, rip this stuff down and sell it to China for scrap metal? Like, what does that look like, and how do you account for that? Like, I just don't know. So that's question number one. Then the second question would be, just your guys' understanding. So you know, we've been talking a lot to governments, to carriers about the C band, upper C band auction, its proximity to the radio altimeter band up at the 4.2 to 4.4, and, you know, how that could slow down deployments and I'm wondering if you guys have a view on kind of how the next big massive spectrum auction that's gonna happen in the United States could ultimately affect the tower industry. Thank you. Chris Hillebrandt: Yeah. Well, maybe just start with the first one. I mean, we don't really want to go into disclosure of our specific commercial agreements with a specific customer as a practice. But at the end of the day, if a customer doesn't pay and they're in default, and you serve them and you terminate the contract, then there's an obligation for them to remove their equipment in a timely basis as per the terms of the contract. Right? So it's on them. It's not you. It's them. David Barden: It's on them. It's them. So and ultimately way DISH is gonna do that. Chris Hillebrandt: Yeah. So, well, we'll see. We'll see what happens there as they approach their cure period. The contract has been terminated, and it's their obligation to remove the equipment. You know, more broadly speaking, I've been in the industry a long time as well, almost thirty years or thirty years, half of it as an operator. And I've also can't remember times since maybe before the consolidation of those regional carriers that ultimately became T-Mobile or part of AT&T or Verizon where we had somebody just turn out the lights and walk away from obligations like they have. It's pretty amazing, actually, to witness this in my lifetime. On your second question to try to answer it. So if you recall when the initial C band auctions had occurred and they started to deploy, was a number of concerns about potential interference with the altimeters and the avionics. And it caused a bunch of headaches working with the FAA and the industry in order to come up with a plan on how they would deploy that, which has subsequently been fixed. There were some good lessons learned there of how the MNOs can work alongside with government to come up with solutions to be able to deploy it. And so it's not as if this will be the first time that they had to navigate through these types of challenges. And again, while there was an initial hiccup in the deployment, they very rapidly solved it and I think earna better position now overall as a result of a solution that worked for all parties. So these will consistently be challenges as you start to auction off spectrum that has uses in use by others, including government entities. Figuring out how to best clear the bands and provide the use of that spectrum putting it to work. There's clearly a huge demand by operators to have access to additional spectrum. And from what the FCC has signaled, they're in a position with that 800 megahertz that they've indicated that they intend to auction in '27 is to take rapid action to put it to use. And more importantly, that rises the tide for all boats and all tower companies as a result of that spectrum being deployed. So we support it. We believe it's the right thing to do for public resource. Which is again why we support ultimately DISH's sale of the spectrum to AT&T and SpaceX. David Barden: So thank you, Chris, and I really appreciate that. And if I could ask one follow-up, Sunit, when Charlie fails to follow through on his obligation, to remove the equipment, how long does it take before we find out? And then what happens? Sunit Patel: Again, I hesitate to answer specifics on that because you can imagine these are fairly large contracts with all kinds of provisions. So, I mean, I just leave it at that. But what I will say is we are doing everything we can within the contract in Washington as Chris was talking about to make sure we are enforcing our rights and being aggressive about it. David Barden: Understand. Thank you guys so much. I appreciate it. Chris Hillebrandt: You bet. Operator: Our next question comes from Batya Levi with UBS. Please go ahead. Batya Levi: Great. Thank you. One more follow-up on the leasing question. The slowdown that you that we're potentially seeing excluding DISH, is that across the board or maybe specific to a player? And can you help us understand the amendment versus densification mix? Is the back half weighted more related to potentially densification efforts flowing through? And another one on the cost side, how does the $65 million lower cost outlook compare to your prior expectations given the progress you've made last year? Thank you. Sunit Patel: Yeah. Thanks. I think, first of all, on the slowdown point, as I was saying, if you look at the 2025 numbers in the 2026 guide, if you were to adjust for the change in other billings, the growth this year is about what it was last year in the same ZIP code. So, not much change there, I would say, compared to last year. Most of it's accounted for change in other billings. And then in terms of the proportion on call over versus amendment, we haven't seen anything. It's about the same ratio as we've seen last year. And then the yeah. I mean, the leasing activity, as I said, is in line with what we are seeing last year, excluding the impact of DISH in both periods. Batya Levi: And on the cost side? Sunit Patel: On the cost side, I think that we did say upon the announcement of the transaction, we provided the guide, post the close of the transaction that we are, you know, taking some costs out. So I think you're seeing here is in line, but I think the bigger point that we've talked about in previous calls is we think there is continued opportunity for us to make some investment in platforms and systems in the next couple of years drive better customer experience, whether it's cycle times or interactions with customers, more efficiency, higher productivity levels. I think as Chris Hillebrandt mentioned, we are on a pathway to pursue a series of initiatives that we think both in terms of investment and automation that we think including some AI efforts that we think will continue driving improvement on the cost side over the next couple of years. Batya Levi: Got it. Thank you. Operator: Our final question comes from Ari Klein with BMO Capital Markets. Please go ahead. Ari Klein: Thanks. I imagine there are some legal costs associated with DISH. Is that in G&A? Is it of any significance? And then the composition of share repurchase and debt repayment is a little different than previously discussed. With flash repurchases, is that largely to maintain leverage ex DISH? Sunit Patel: Yeah. So let me cover the legal cost. So I mean, we thought about it as we provided our guidance. There can always be something extreme, but I think it's factored into the guidance that we provided on your second question. Sorry. Give me a sec. Yeah. I mean, on your second question, I think the capital allocation framework we'd outlined was for leverage of six to six and a half. So if you look through that, with the change in the DISH outlook and you look at our EBITDA and AFFO, outlook, we thought it made sense to pay down more debt than stay within the range because as we said previously, the key for us is to be investment grade. So this keeps us in the leverage ratio with outline and continues to preserve financial flexibility and also provide good risk-adjusted returns for our shareholders. Operator: At this time, there are no more questions. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Arm Holdings plc American Depositary Shares third quarter fiscal year 2026 Webcast and Conference Call. At this time, all participants to ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jessica Vall, Head of Investor Relations. Please go ahead. Jessica Vall: Thank you very much, and welcome to our third quarter fiscal 2026 earnings call. On the call are Rene Haas, Arm Holdings plc American Depositary Shares' Chief Executive, and Jason Child, Arm Holdings plc American Depositary Shares' Chief Financial Officer. During the call, Arm Holdings plc American Depositary Shares will discuss forecasts, targets, and other forward-looking information about the company and its financial results. While these statements represent our best current judgment about future results, our business is subject to many risks and uncertainties that could cause actual results to differ materially. In addition to any risks that we highlight during this call, important risk factors that may affect our future results and performance are described in a registration statement on Form 20-F filed with the SEC. Arm Holdings plc American Depositary Shares assumes no obligation to update any forward-looking statements. We will refer to non-GAAP financial measures during this discussion. Reconciliations of certain of these non-GAAP financial measures to their most directly comparable GAAP measures can be found in our shareholder letter, as can a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable effort and supplemental financial information. Our earnings materials are available at investors.on.com, and with that, I'll turn the call over to Rene. Rene Haas: Thank you, Jessica, and welcome, everyone. Arm Holdings plc American Depositary Shares delivered a record third quarter. Revenue grew 26% year on year to $1.24 billion, our fourth consecutive billion-dollar quarter. Royalties increased 27% to a record $737 million, driven by record units with strength across AI and general-purpose data center. Our data center royalty revenue has grown more than 100% year on year, and we expect in a few years our data center business to be our largest business, larger than mobile. License revenue was $505 million, up 25% year on year, as more leading companies signed high-value licenses for next-generation technologies. That performance lifted our non-GAAP EPS to 43¢, even as we continue to increase R&D investment. Our performance this quarter reinforces the strength of the Arm Holdings plc American Depositary Shares platform and our continued commitment to investing in innovation across a broad spectrum of compute technologies. The fundamentals of the Arm Holdings plc American Depositary Shares business have never been stronger. AI is changing how compute is built and where it runs across cloud infrastructure, edge devices, and physical systems. The industry requires platforms to deliver high performance, energy efficiency, and flexibility across a broad range of power envelopes and use cases. Only Arm Holdings plc American Depositary Shares' compute platform can address these demands, supporting AI workloads ranging from milliwatts to gigawatts. To align with how our customers deploy AI, we've organized ourselves around three business units: Edge AI, Physical AI, and Cloud AI. Edge AI comprises the smartphone and IoT businesses. Physical AI includes automotive and robotics, and Cloud AI encompasses data center and networking. A key driver of our royalty momentum is the compute subsystem or CSS. We launched CSS nearly two and a half years ago, and demand continues to exceed expectations. This quarter, we signed two additional CSS licenses for Edge AI tablets and smartphones, bringing us to 21 CSS licenses across 12 companies. Five customers are now shipping CSS-based chips, including two shipping a second-generation platform. And the top four Android smartphone vendors are shipping CSS-powered devices. CSS helps customers get to market faster by lowering integration risk and complexity. As demand scales, it increases the value that Arm Holdings plc American Depositary Shares delivers per chip, creating a significant tailwind to royalties. In Cloud AI, the shift towards inference is reshaping data center design, and increasingly, that inference is agent-based. These workloads are persistent, always on, and power constrained. This is a fundamental change in how AI systems operate. This is because agent-based AI requires coordination across many agents running continuously, and that the CPU can only do coordination. As this model scales, customers need CPU chips with higher core counts and better power efficiency to operate continuously within tight power and cost constraints. This trend directly benefits 1 billion cores deployed, and Arm Holdings plc American Depositary Shares' share amongst the top hyperscalers is expected to reach 50%. Leading hyperscalers are launching new products with increased core counts to address this opportunity. AWS launched its fifth-generation Graviton processor with 192 cores, doubling the core count from Graviton four and delivering 25% higher performance and up to 33% lower latency versus Graviton four. NVIDIA's next-generation Vera CPU features 88 Arm Holdings plc American Depositary Shares-based cores, up from 72 cores in the gray CPU generation. Microsoft introduced Cobalt 200, built on the higher performance Arm Holdings plc American Depositary Shares Neoverse CSS v3 with 132 cores, up from 128 cores in Cobalt 100, which was based on the prior Neoverse n2 platform. And Google previewed its second Arm Holdings plc American Depositary Shares-based server processor with Axion-powered m4a instances delivering up to 2x better price performance and 80% better performance per watt in the comparable x86 offerings. Google has now migrated over 30,000 applications to the Arm Holdings plc American Depositary Shares instruction set. We are also seeing more integrated platform designs to improve system efficiency, often translating to more AI output or more tokens per watt within the same power envelope. AWS integrates Graviton with Arm Holdings plc American Depositary Shares-based Nitro DPUs and training accelerators, and NVIDIA pairs GPUs with Arm Holdings plc American Depositary Shares-based gray CPUs and Arm Holdings plc American Depositary Shares-based blue field GPUs, which has transitioned to Vera, delivering a 6x increase in GPU compute capability over the prior generation. Together, these trends make clear that as AI inference becomes more agent-based, the importance of CPUs is only increasing. And as a result, Arm Holdings plc American Depositary Shares' role at the center of the modern data center architecture continues to grow rapidly. Outside the data center, AI is now moving to everyday devices. The edge and physical AI markets are opening up new growth opportunities. These systems operate in real-time under strict power and safety, and reliability constraints. Where efficient and predictable general-purpose compute is essential. Arm Holdings plc American Depositary Shares' strengths, power efficiency, perceivable latency, and always-on operation are best suited to on-device agents that continually monitor inputs, prioritize tests, and invoice models when needed to preserve battery life. Our common software foundation across devices, vehicles, and robotics customers scale deployments without rebuilding software stacks. We now see that momentum in customer innovation. Rivian announced its third-generation autonomy computer based on the Arm Holdings plc American Depositary Shares-based Rivian autonomy processor. The first production vehicle based on a custom Arm Holdings plc American Depositary Shares chip and the first to deploy Arm Holdings plc American Depositary Shares v9 in a production car. Tesla's upcoming Optimus humanoid robot is also powered by a custom Arm Holdings plc American Depositary Shares-based AI processor and platform from leading silicon providers like NVIDIA's Jets and Thor, and Qualcomm's Dragon Wing platforms are scaling Arm Holdings plc American Depositary Shares-based solutions across robotics and autonomous systems. To close, AI is moving to every environment and every power envelope. Arm Holdings plc American Depositary Shares provides the foundation for that shift. A platform that spans milliwatts to gigawatts, a developer ecosystem over 22 million developers, more than 80% of the global total. We are now seeing the results of strategies we put in place years ago, focusing on the data center, power efficiency, and compute subsystems. As a result, as more and more applications move to AgenTic AI, Arm Holdings plc American Depositary Shares will be the compute platform connecting cloud, edge, and physical AI use cases. And with that, I'll now hand it over to Jason. Jason Child: Thank you, Rene. We have delivered another strong quarter. Total revenue grew 26% year on year to a record $1.24 billion, marking our fourth consecutive quarter above $1 billion. Royalty revenue exceeded our expectations, growing 27% year on year to a record $737 million. The biggest growth contributors were smartphones with higher royalty rates per chip, and in the data center where our revenues continue to grow triple digits year on year as we see ongoing share gains from custom hyperscaler chips. Royalty revenue from edge AI devices such as smartphones continues to grow much faster than the market. All the major Android OEMs are now ramping smartphones with chips based on both Arm Holdings plc American Depositary Shares v9 and CSS. In Cloud AI, data center royalty revenue continues to double year on year, with the ramp of Arm Holdings plc American Depositary Shares-based chips by all major hyperscaler companies. We are getting a further benefit as the build-out of these new AI data centers is driving increased deployment of networking chips, particularly DPUs and smart NICs, where Arm Holdings plc American Depositary Shares has a very high market share. In physical AI, the automotive market grew double digits year on year and contributed to our strong royalty performance. Overall, royalty revenue growth continues to reflect Arm Holdings plc American Depositary Shares' royalty per chip and rising market share. Turning now to licensing. License and other revenue was $505 million, up 25% year on year. Growth was driven by strong demand for next-generation architectures and deeper strategic engagements with key customers. We signed two new Arm Holdings plc American Depositary Shares ATA or Arm Holdings plc American Depositary Shares Total Access Agreements during the quarter and two new CSS licenses, both with leading smartphone handset OEMs. These agreements reflect the continued investment by our customers in our next-generation Arm Holdings plc American Depositary Shares technology. Of the $505 million of license revenue, our agreement with SoftBank for Technology Licensing and Design Services contributed $200 million. SoftBank has become an increasingly important customer as they build out their AI compute strategy, including their recent acquisitions such as Ampere and Graphcore. We believe that the revenues we are receiving from SoftBank are durable as they relate to current generations that will continue as SoftBank executes on its roadmap. As always, licensing revenue varies quarter to quarter due to the timing and size of high-value deals. So we will continue to focus on annualized contract value, or ACV, as a key indicator of the underlying licensing trend. ACV grew 28% year on year, maintaining strong momentum following the 28% year on year growth we reported in Q2 and Q1. This continues to be above our long-term expectation of mid to high single-digit growth for license revenue. Turning to operating expenses and profits. Non-GAAP operating expenses were $716 million, up 37% year on year due to strong R&D investment. These investments in R&D reflect ongoing engineering headcount expansion to support customer demand for more Arm Holdings plc American Depositary Shares technology, including innovation in next-generation architectures, compute subsystems, and into our exploration into chiplets and complete SoCs. Non-GAAP operating income was $505 million, up 14% year on year. This resulted in a non-GAAP operating margin of about 41%. Non-GAAP EPS was $0.43, close to the high end of our guidance range, driven by both higher revenue and slightly lower OpEx than expected. Turning now to guidance. Our guidance reflects our current view of our end markets and our licensing pipeline. For Q4, we expect revenue of $1.47 billion, plus or minus $50 million. At the midpoint, this represents revenue growth of about 18% year on year. We expect royalties to be up low teens year on year and licensing to be up high teens year on year. We expect our non-GAAP operating expense to be approximately $745 million and our non-GAAP EPS to be $0.58, plus or minus $0.04. The strength of customer demand we are seeing today, combined with a growing base of long-duration contracts at structurally higher royalty rates, provides increasing confidence in our future revenue profile. This confidence allows us today to invest in next-generation architectures, compute subsystems, and silicon that are needed to enable higher performance, greater efficiency, and more AI use cases. We believe this virtuous cycle of customer demand and ambitious investment positions Arm Holdings plc American Depositary Shares for sustained growth over the long term. Just before we get into the Q&A portion of the call, as you will have seen, Arm Holdings plc American Depositary Shares is hosting an event on March 24, and I'm sure there will be interest about what we are planning to announce. There'll be a million ways of asking what we may or may not be announcing. Please be patient as we won't be providing any details ahead of the event. With that, I'll turn the call back to the operator for the Q&A portion of the call. Operator: Thank you. And one on your telephone and wait for your name to be announced. To withdraw your question, please press 1 and 1 again. We will now take the first question. One moment, please. And your first question today comes from the line of Joe Quatrochi from Wells Fargo. Please go ahead. Joe Quatrochi: Rene, you touched upon in the prepared remarks, so I was kind of curious if you could just maybe give us a little more detail on just how you view Arm Holdings plc American Depositary Shares' role and the role of the CPU in AI and cloud data centers and just how does that change as we start to see more proliferation of AI agents? Rene Haas: Yeah. Thank you for the question. There are a number of shifts taking place in the data center, as I mentioned in opening remarks. You know, first off, as the shift moves away from exclusively training to predominantly inference, that is a workload that launches a number of different solution paths. One of them that we're seeing is around AgenTeq AI. And the agents that are actually talking to other agents or having to control workflows such as service tickets or other work streams, those are very, very well suited for CPUs. Because CPUs are very, very power efficient, always on, very, very fast latency. And what we are seeing is already an increased deployment of CPUs to address that problem. Now it's just not CPUs that are good for that problem. It's the number of CPUs you have and, obviously, given the power constraints inside the data center, the efficiency of those CPUs. So for all those reasons, that's a very positive tailwind for Arm Holdings plc American Depositary Shares. And in particular, we're seeing those proof points now, as I mentioned, where the latest generation of CPU chips from the hyperscaler providers and also NVIDIA have increased the number of cores. And we think that only continues. Joe Quatrochi: Thanks for that. And just as a follow-up, one for Jason. I know you're not giving fiscal '27 commentary today, but just how do we think about the puts and takes of this royalty revenue growth and the risks that are associated with the potential like demand destruction that we're seeing, you know, in consumer electronics potentially from memory? Jason Child: Yeah. Yeah. That's a it's a great question and something we spend a lot of time looking at. So in particular, you know, I think MediaTek last night talked about something like around a 15% reduction in unit volume for next year. And that's pretty consistent with what we've heard from other smart and handset providers around what they think the memory supply chain constraints could provide. So we've done our own kind of analysis of it. What's interesting is we're hearing from our various partners that they're really trying to make sure that they protect the high end of the market, so the premium and flagship portion of the market. Which is great for us because that's where all of our CSS and v9 royalties are. So the highest, by a significant margin. And then on the very bottom end of the segment, that's where most of the supply chain constraints will probably be felt. For us, that's V8 and even older generations that are dramatically smaller royalties. So I think, if you were to say, what if there's a 20% reduction in volumes next year? For us, that would translate to probably somewhere around a 2% or 4% at worst. Impact on smartphone royalties. If you then project that across the whole business, it'd be a 1%, maybe 2% negative impact on total royalties. The good news is because, as Rene mentioned, the cloud AI or infrastructure business has been continuing to grow ahead of our expectations. It's actually growing at a level that's more than compensating for those kind of risks on the memory and mobile side. So I think we have a very good setup for next year and not too concerned about at least the royalty revenue impacts that we might see from these unit volume and supply chain constraints. Joe Quatrochi: Helpful. Thank you. Operator: Your next question today comes from the line of Simon Leopold from Raymond James. Please go ahead. Simon Leopold: Great. Thank you. Appreciate you taking the question. First one is, I'm hoping you're able to shed some light on this. But wondering what your thoughts on are whether or not SoftBank will potentially need to sell some of the Arm Holdings plc American Depositary Shares stock that it holds to finance some of the investment you've talked about making and how we should think about the implications for your shares? Then I've got a quick follow-up. Rene Haas: Sure. Yeah. Thanks for the question. You know, that's one that we read a lot about, and there's a lot of speculation on chat boards and whatnot about that. I can tell you from talking to Masa about this, and I would quote him directly, he is not interested in selling one share of Arm Holdings plc American Depositary Shares stock. And that doesn't mean two shares or three shares. That means any shares. He's very long on the company. He's very, very bullish. As am I, about our long-term prospects. And he has no interest in selling. There's been a lot of writing about it. But I can tell you from a direct conversation and direct conversations plural, that I've had with them. That's just not the case. Simon Leopold: Okay. And then just as a follow-up, you've provided a forecast for some deceleration in the royalty revenue growth. I'm just wondering if you could elaborate on the trend. Is it more difficult comps? Or is there something else shifting that we should be considering? Jason Child: Yeah. This is Jason. I'll take that. I would say the royalty trends for next year are pretty consistent now. Absolute dollars, maybe a little bit lighter just because of what you're now seeing on the memory shortage side. Like maybe one or 2% impact largely due to that. The growth percentage is down a bit because of the overperformance that we saw last quarter and expected to see again this quarter. So we are coming off of a stronger comp. Now the obvious question then is because you've had stronger growth both in Q3, you know, we thought we'd grow about 20%. We grew 27%. So, you know, $30 million beat or more. And now seeing some of that flow through into Q4, will that flow into next year as well? Right now, too I'd say too hard to say. You know, there's a lot of talk about memory and even away shortages. And so, you know, that stuff doesn't affect us as much as many of the full fab of semiconductor companies. But I'd say right now, we'll give you updates as we learn more. But overall, the absolute magnitude of royalties for next year, expect to be pretty close to what we were thinking what we said earlier this year. But, you know, we'll see if this recent strength continues and allows us to take things up as we proceed into next year. Simon Leopold: Very helpful. Thank you. Operator: Thank you. In the interest of time, please limit yourself to one question only, and rejoin the queue for any follow-up questions. You'll now go to the next question. And your next question today comes from the line of Vivek Arya from Bank of America. Please go ahead. Vivek Arya: Thanks for taking my question. I actually just had two clarifications. One is I was hoping you could quantify the exact amount of data center revenue. I know you said that it doubled, but how much is it so we can get a sense for, like, what the magnitude is versus the overall company sales. And then the clarification the other clarification I had was, I think you mentioned software contributed $200 million. I somehow recall the original expectation was about $178, $180 million. And if you could clarify that and what what are you embedding for March and onwards, from that contribution? Thank you. Jason Child: Yeah. The well, the $178 last quarter, it was it was so no new deals were signed. It's just the deals from last quarter. It was $178 for the quarter. The full quarter has the impact now is about $200. So nothing new. It's just a full quarter impact. I would expect that $200 going forward is the right run rate going forward. Vivek Arya: And the data center revenue? Jason Child: Yeah. Data center revenue we provide the details on that once a year. I think at the beginning of this year, we said it had hit double digit. And because it's growing so much faster than the rest, assume it's gonna be, you know, somewhere in kind of the teens to probably getting closer to 20%. As Rene said, over the next, yeah, two to three years, you should expect to see it get similar or maybe even larger than smartphone business, which is in the, you know, kind of 40 to 45% of total business. Vivek Arya: Thank you. Operator: Thank you. Your next question comes from the line of Mehdi Husseini from Susquehanna Financials. Please go ahead. Mehdi Husseini: Yes. Just thank you. Thank you for taking the question. Just as a follow-up to the smartphone topic, to how should I think about the migration to the v9 higher royalty? Is going to help offset lower smartphone units. Rene Haas: Yeah. So I'll let Jason provide the detail, but again, as a reminder, with the way that we handle v9 for smartphones, particularly v9 CSSs, every smartphone cycle, we deliver a brand new CSS. Each time we deliver the brand new CSS, the royalty rates are generally increased year on year. So when we think about v9 in smartphones, the appropriate way to think about it is it's all CSS it's all moving to CSS now. And as a result of that, we get priced every year with the royalty increase year on year. Jason Child: Yeah. And in terms of the guidance that I just gave in terms of if there's a minus 20 degree unit impact, there's at most a kind of four to 6% revenue impact just specifically within smartphones. That would that would be incorporating the higher royalty rate per unit that's already been contractually agreed to and that we assume will be shipping later in the year. Mehdi Husseini: Okay. Thank you. Bye. Operator: Thank you. Your next question comes from the line of Vijay Rakesh from Mizuho. Please go ahead. Vijay Rakesh: Yeah. Hi, Rene and Jason. Just a quick question on the on your partnerships. As your partner SoftBank executes on its AI roadmap, will we be expecting, like, an Arm Holdings plc American Depositary Shares custom ASIC down the road given the substantial partnership that you have with them? With the $200 million a quarter NRE that you're getting? How should we look at that, the timing, and how that'll impact the fiscal 2027, let's say. Jason Child: Yeah. Not nothing yeah. Hi, Vijay. Nothing we can say specific about any products that you're you're asking about. So, unfortunately, not much more we can say there. Vijay Rakesh: Got it. Thank you. Operator: Thank you. Your next question today comes from the line of Krish Sankar from TD Cowen. Please go ahead. Krish Sankar: Hi, thanks for taking the question. Rene, I just wanted to find a little bit about how to think about Arm Holdings plc American Depositary Shares' IP penetration rates or percentage rate in AI data center semis today, and where do you think that evolves over the next three to five years? Rene Haas: Hey. It's a it's a wonderful question. I think what we're gonna see over the next three years is an evolving of how these data center chips are built out. And what do I mean by that? You know, today, you've got a classic architecture where you've got a CPU which connects into an accelerator. The CPU does some work. The GPU does some work. I think we're gonna start to see over time is a morphing of the workloads that the CPU takes that the GPU used to do. And as I mentioned, you go to a GenTeC inference, that's gonna mean more CPUs, which could be more different custom chips that are CPU based. In addition, the inference workloads, which are dominated by two pieces of area of work, specifically prefill and decode, you could see some specific solutions around that, that continue to extend. Things like what a Grok has done, for example, you could still see more kind of innovation across that area. I also think, you know, you asked about the data center, but I think we're gonna start to see a lot of that migrate to the smaller form factors. Where different combinations of IP and solutions are gonna be needed. To address areas where power is much more constrained, particularly around physical AI. And then the lower edge devices. So I think there's a lot of innovation to come in solving the AI problems because one thing that's clear is that these AI workloads are going to be running on every single piece of hardware. That has compute. And because the vast majority of the compute platforms out there today are already Arm Holdings plc American Depositary Shares-based, gives us a gigantic opportunity to mold where that goes. Krish Sankar: Got it. Thanks, Rene. Operator: Thank you. Your next question comes from the line of Harlan Sur from JPMorgan. Please go ahead. Harlan Sur: Good afternoon. Thanks for taking my question. On compute subsystems, obviously, you continue to drive solid momentum with two more licenses added in the quarter. The value out of CSS that we hear from your customers is resonating extremely well. Right? It improves their productivity. It improves their overall system performance. They're willing to pay a higher licensing fee and higher royalty fee for that value added you mentioned. I'm curious to know what percentage of the royalty mix is CSS today, and what proportion of the royalty revenue could it become over the next two to three years? Rene Haas: Yeah. Thank you, Harlan. I'll let Jason take that. Jason Child: Yeah. So, Harlan, yeah, a lot of progress on CSS with the, you know, the five CSSs that have actually already been turned into silicon and actually something we're receiving royalties on. It's it's had a material impact. Think of CSS last year. I think it was just kind of approaching double digit. And this year, it well into double digit. Think of it as being into the teens. And then I would say, you know, over the next couple of years, I expect it to probably it could be upwards of 50%. But, you know, we'll have to see. I think, you know, the primary drivers for acceleration of CSS has really been mostly around our customers needing to shorten the cycle time and CSS, you know, tip that's that cycle time about in a half. And so, you know, stay tuned, but I would expect to continue to see that acceleration occur and to continue to see I think right now, every CSS customer that's had a chance to, you know, sign up for the next version or kind of renew for the next generation, has all done that. So that's certainly a really key indicator of the value that, as you said, customers are seeing from it. Harlan Sur: Yeah. Absolutely. Thank you. Operator: Thank you. Your next question comes from the line of Charles Shi from Needham and Company. Please go ahead. Charles Shi: Yes. Thanks for taking my question. I think going back, maybe it was one year, you guys kind of soft and guided, FYE '26 and FYE '27 growth, should be around 20%. You are definitely delivering that the FY '26. We definitely will see how you think about FY '27, you know, about the quarter. But any early view you guys can provide on FY '28? I know I'm asking and plus two year here, but you guys did do that. Going back about a year. And I was hoping if you can provide any early view into the outer year. Thank you. Jason Child: Yeah. I would say for '26, as you said, we said at least 20%, and I think now we're guiding to '22 at the midpoint. So as you said, exceeding that target. For '27, not guiding on full year, in terms of kind of at a high level, the 20% growth rate I think, certainly is very reasonable. And not anything that we back away from. In terms of '28, we haven't thrown anything out there yet. I'd say maybe stay tuned. You know, there are opportunities as we contemplate, you know, other possible offerings and what that could do to our numbers is still something we're working through. So we'll give you an update on '28 sometime down the road. Charles Shi: Thank you. Appreciate that. Operator: Thank you. Your next question today comes from the line of Srini Pajjuri from RBC. Please go ahead. Srini Pajjuri: A couple of clarifications, guys. On the memory impact, I guess, talked about you quantified that impact. But, Jason, the outlook for the next quarter on the royalties, being up low teens, do you think memory is already having an impact on the smartphone volumes? Is that why it's on the upload teams? And then to add to that, you talked about CSS accelerating. I'm just curious, given the pressure on the bill of materials do you anticipate or are you seeing any impact in terms of the adoption of CSS and V9 I guess, look into the next few quarters given the bill of materials challenges? Thank you. Rene Haas: Yes. Thanks for the question. I'll take the second part first, and then Jason will take the first part on memory. Question was regarding CSS pricing impacting bill of materials. No. We're not seeing any of that at all. What we are seeing is that the value gained by accelerating time to market outweighs anything that customers are considering. Given the complexity of building these chips. The increased cycle times, through the fabs going from five nanometer three nanometer to two nanometer means that the design windows are really short and missing the first few months of shipment or having any kind of delay would be critical to profits. So based on that, we've really not had many discussions with anyone regarding the bomb impact, the value that we create relative to profits gained by the customer is what really drives the decision point. And then regarding the memory, impact on the next quarter, I'll let Jason address that. Jason Child: Yeah. The memory impact, very minimal, I would say. And that's not really the driver of the guidance on the growth. Absolute growth in royalties has much more to do with typically seasonality, our Q4 or calendar Q1 is always one of the slower quarters. And the one thing that happened a year ago is we did have Mediatek chip come out in Q4 of a year ago or Q yeah. Our Q4 calendar Q1 of a year ago. Which was unusual timing. So we are lapping that. So it's much more about kind of what we're comping and to some extent seasonality. But overall, you know, full year royalties, I would expect to be in that north of you know, 20% range, which is kind of what we were expecting early in the year. And still expect Q4 or calendar Q1 to be stronger than what we previously expected. So it's really the year on year growth piece is really more of a seasonality slash seasonality comping kind of an unusual one-time release from a year ago. Srini Pajjuri: Thank you. Operator: We will now go to the next question. And your next question comes from the line of Andrew Gardiner from Citi. Please go ahead. Andrew Gardiner: Good afternoon. Thanks for taking my question as well. Jason, perhaps one for you on the OpEx side. We've clearly seen significant investments in the business particularly in R&D, given everything that you guys are doing. You've given us a bit of a steer on fiscal '27 revenue growth. Utility R&D has been growing at a faster rate than revenue in the current period. Is that something we can expect to continue into fiscal '27 given everything that you guys have got in front of you, or will we actually start to see R&D growth slow relative to the revenue? Thank you. Jason Child: Sure. So a little early to talk full year. I can tell you right now, our expectation is that the Q4 to Q1 step up will be similar to last year. Think last year, it was you know, low double-digit sequential growth, and you should see the same kind of sequential growth as a year ago. I right now, I would say the growth after Q1 is probably gonna to moderate more so than it did this year. We did see pretty significant step-ups throughout the year. I don't expect there to be quite significant step-ups for next year. But as we progress more into next year, we'll give you a little more color, but that's the high-level I'd say, modeling approach I would take right now. Andrew Gardiner: Thank you. Operator: Thank you. We will now take the next question. And the question comes from the line of John DiFucci from Guggenheim Securities. Please go ahead. John DiFucci: Thank you. Rene, you've seen a lot in technologies in technology over the years. So I'm gonna ask a question that's kind of a little bit self-serving here. I'm curious how you'd characterize what's happening in the stock market recently as it pertains to the software sector. And if you might, since you're at least partially a software company, how does AI affect your business other than driving demand? In other words, how should we think of how you'll leverage AI? In the design of chips and systems? Rene Haas: Yeah. Well, regarding the stock market's reaction to software company, I had a great answer to that. I'd probably be in a difficult position than the one that I have. I'm not sure I can I'm in a great position to discuss what the near-term impacts are to the stock market, but what I can say after, you know, watching and being in technology my entire career, we do see these kinds of things time to time where investors or the market gets jittery around what the broad impacts are when in the midst of fairly significant technology disruptions. I can say for our business, you know, given the fact that we are an intellectual property provider that goes into physical things chips, AI is not gonna replace a physical chip anytime soon. They're kind of linked at the hip, if you will, relative to you need the hardware to run the software. I think there's just enormous opportunity, however, still for growth in the overall sector. Because when I think about where AI actually is operating truly inside the enterprise, it's very When I think about our own company and things like our payroll systems or purchase order systems or our SAP systems. There's some AI going on there, but not nearly enough to be massively transformative yet. And I think part of that is just the complexity of integrating these large systems and changing software workloads. So I think we're in super early days, to be quite frank, and having, you know, been in technology again my entire career and have seen lots of technology disruptions this one feels a little bit like the final frontier in terms of the amount of productivity and change that AI can benefit. We're still all trying to get our arms around it. If you just even look at the numbers of spend, I heard earlier today, Google or Alphabet announcing a $180 billion CapEx spend. That used to be what semiconductor companies just spent a year on fabs. Times times a few. So we're in uncharted waters. And maybe that's why you're seeing some jittery numbers relative to how the market reacts. But where we sit there's just huge demand for compute. And that's what Arm Holdings plc American Depositary Shares does. And, so I think in the long game, I'm super excited about the opportunity for us. John DiFucci: Really appreciate your thoughts, Rene. Thank you. Operator: Thank you. We will now take our final question for today. And the final question comes from the line of Timm Schulze-Melander from Rothschild and Co. Please go ahead. Timm Schulze-Melander: Yes. Hi, there. Thanks for taking my question. It's a two-parter for Rene, please. You've talked a lot about inference in the AI future. You just referenced the Grok architecture. And I really wanted to ask you, what are your thoughts or how should we think about SRAM SRAM at the edge, some of these different memory and what they could mean for your business. And then the second part is just the cadence of power efficiency for Arm Holdings plc American Depositary Shares. Is there something that we should think about in terms of the average annual or per v8 to v9 energy for compute efficiency, that you see going forward? Thank you so much. Rene Haas: Yeah. So I'll take the latter part first because it kind of bridges into the first. We look at how to address power efficiency twenty-four seven. And the reason for that is increasingly as you get into these smaller form factors, the one thing that you don't get much liberty on is battery life and space. So as a result, we have to always think about operating a constrained environment where you're adding more and more demand of compute. When you add AI onto something that already has to drive a display or open an app or recognize the voice, it's a constant thing that we think about and worry about. I think we're very well positioned to address it because we are the incumbent in many of these platforms. So it is something we spend a lot of time and energy on. To your first part of the question on SRAM, and different memory technologies, absolutely, that's something we're highly involved in. To oversimplify a computer, a CPU needs memory, and memory needs a CPU. Period, and stop. So when you're designing a piece of hardware, the two go very much hand in hand. And there is a lot of work and research being done about not just SRAM, but alternative memory technologies and solutions that can address these increasing demands on AI. So again, it's a just question prior to yours in terms of the overall broad opportunity. You know, what people in our space tend to worry about is that there isn't hard problems to go think and work on and develop new technologies for. We don't have that problem. Every single end application is gonna be impacted by AI. We believe every end application will run AI through Arm Holdings plc American Depositary Shares. So we're spending a lot of time and energy, and you can see by our investments, come up with innovative ways to address that. Timm Schulze-Melander: Great. Thank you so much. Operator: Thank you. I will now hand the call back to Rene for closing remarks. Rene Haas: Yeah. Thank you, and thanks for all the thoughtful questions and we could tell by the range of the questions we were talking about memory prices inside the quarter. And then, what alternative memory technologies could look like years from now. I think that's a very good way to sort of describe the current quarter, but how we're very, very bullish about Arm Holdings plc American Depositary Shares long term. We delivered the best quarter in our history. We delivered the best quarter in our history on royalties, which is really an indicator for the strategies we have going forward. And we have a huge amount of customers shifting to Arm Holdings plc American Depositary Shares in a big way with more CPU counts. That being said, the quarters that we're most excited about are the ones ahead of us. We think we have huge opportunity, as I mentioned, in the new areas of physical AI, cloud AI, and edge AI. And we intend to do everything we can to make Arm Holdings plc American Depositary Shares the compute platform of choice. For all AI workloads. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.