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Ann-Sofi Jönsson: Welcome to the presentation of our fourth quarter results. I'm Ann-Sofi Jönsson, Head of Investor Relations and Sustainability Reporting here at the Electrolux Group. With me today, I have our CEO, Yannick Fierling; and our CFO, Therese Friberg. We will go through the presentation. And after that, we will open up for a Q&A session, both for those on the conference call as well as for you on the webcast. [Operator Instructions]. With that, I hand over to you, Yannick. Yannick Fierling: Thank you very much, Ann-Sofi, and good day to all of you. Very glad to be with you for the Q4 report. I will start, if you allow me, with some highlights about 2025. We are happy to report that the organic sales has been at the level of SEK 131 billion, which represents an organic sales growth of 3.9%, very close to the 4% we have been communicating about in the capital market update, I mean, midterm. The improvement in the operating income was at the level of SEK 3.7 billion, which represents 2.8% on net sales, which is again an improvement of 0.8 points versus last year. This SEK 3.7 billion were supported by a high cost reduction level of about SEK 4 billion, driven mainly by procurement and value engineering. We had one of the strongest quarter ever in Electrolux in the fourth quarter in terms of cash flow, delivering SEK 5.2 billion, bringing the entire year at the level of SEK 2 billion, which is taking our financial position in terms of leverage at the level of 3.0. With that, I would like to go into the fourth quarter. I'm sorry, the slide is not changing. Technical issue, which was working, of course, nicely, this morning. It's always like that. Okay, very good. Now it's working. Apologies for this technical issue. Very good. Let me deep dive into the fourth quarter here. First, we're glad to report out that, I mean, we have been gaining market share once again in Europe, Asia Pacific, Middle East and Africa and Brazil. We have been delivering a flat market share in North America, very high level of price pressure in the 3 regions. The operating income has been positively impacted by cost reduction at the level of SEK 1.2 billion. But we have been delivering on efficiency in engineering, in procurement and on the conversion side of the equation. On the headwind side of the equation, unfortunately, we had to face a high level of cost due to U.S. tariffs and the currency with dollar depreciation. Let's move now to Europe, Asia Pacific and Middle East and Africa. First, as I said, I mean, we are happy to say that once again, we have been growing market share with Electrolux and AEG. We have been gaining more market share with Electrolux and AEG than we have been losing by ramping down with Zanussi. Very high level of pressure in this region as well. I mean we have been going into Black Friday. We have more and more pressure from the Asian competitors, but we have been managing to grow organically by 3.6% in the quarter, which is pretty remarkable, especially when you think that the market has been going down by 1%. We had a positive mix effect, helped by significant volume increase here. And the region has been benefiting by a high level of cost efficiency as well. We have been introducing major innovations in Europe here, and we thought it was wise to fuel this innovation with a higher level of marketing spending. The negative news is certainly on the volume side of the equation. Can we change to the next slide, please? I mean, the negative news is, of course, about the market level. The market has been losing, once again, 1%. We have been down 1% in Western Europe, and we have been up 2% in Eastern Europe. With Western Europe representing more than 80% of the volume overall, the market has been once again down. We are now at the level of 2016. We're 10% below the fourth quarter of 2019. It is a 10 years low in terms of volume. And the market remains subdued. Of course, we have positive signals from interest rate and the construction side of the equation, but it will take time to have these positive signals materializing in additional volume for home appliances. Moving to North America. Now I mean, the quarter has been very challenging. Of course, we knew Black Friday was highly promotional. But certainly, I mean, we did not expect the level of competitive pressure we have seen in the market. And I think entering into the promotional season here, we had no choice but to reduce the price increases we had implemented throughout the year 2025. And that's explaining why we are delivering a negative EBIT in the fourth quarter. So a very high level of price pressure in North America, which has been forcing us to step down for the price increase we had implemented throughout the year. The good news is that after the promotional pressure here, prices have been bouncing back to last year level. But still significant negative external factors are driving our results down. And these factors are simply the U.S. tariff as well as the depreciation of the U.S. dollar. Tariffs are what they are, 15% to 20% for imported goods out of Southeast Asia, 55% to 60% out of China. So if the industry is reacting rationally here, and we will see price increase in the coming weeks, in the coming months, we should be benefiting from that being a North American producer. The market has been pretty resilient when you look at this picture here. The market has been going up in the fourth quarter by 1%, mainly driven by laundry. But still consumer sentiment is pretty low and price increase could have an impact moving forward on the demand. Moving now to Latin America, and I'm glad to say that, I mean, we had another strong quarter in Latin America, gaining value market share in Brazil. The entire region in terms of volume has been growing. We saw Brazil slightly slowing down in terms of increase, but still a good quarter in the region. We had a very strong Black Friday, which is a promotional pressure, but the team has been doing pretty well. And we were helped finally at the end of the quarter by a heat wave, which has been present in the region. Our position remains very strong in the region. I just want to underline one point, which is explaining part of the 11.5% in terms of EBIT. We were helped and supported by a onetime high level of supplier rebates at the end of the quarter in this region. This rebate has not been material for the group, but certainly has been relevant for LatAm. Let me show you a short video on how we have been communicating during Black Friday in the region. [Presentation] Yannick Fierling: So very strong results in LatAm during Black Friday. We're also glad to report that, I mean, we have been reaching SEK 4 billion in terms of cost reduction. And just as a reminder, SEK 4 billion was on the upper level of the fork we have been communicating about in the last months. We have been reaching this SEK 4 billion through value engineering, better sourcing and higher efficiency in our factories. So we have a very strong process in place internally to deliver these type of results. With that, I have the pleasure to hand it out to Therese, hoping that the pointer will be working, Therese, in your fingers. Therese Friberg: Thank you, Yannick. And then looking at the sales and the EBIT bridge. We had a 2% growth in the quarter, which was driven by volume growth and also positive mix in Europe, Middle East and Asia Pacific. And we also had a positive volume growth in Latin America. Unfortunately, if we look at then organic contribution to earnings, it was slightly negative. And this is a result of that the positive volume was then offset by negative pricing pressure, especially in Europe, Middle East -- in Europe, Asia Pacific, Middle East and Africa. And as Yannick mentioned, we also had to back off from the previously introduced price increases in North America in the quarter. This volume growth and positive mix was supported by increased investments in innovation and marketing. And we also had a quite strong quarter in the fourth quarter in terms of cost efficiency. And we can also mention here that group common cost was below the last year level, and this is a result of cost containment during the year, but also due to part of a timing effect where the cost in group common cost last year was at a high level in the quarter. When looking at external factors, we had another quarter with significant headwinds. Of course, the introduced tariffs in U.S. continues to be at a high level and a high impact in the fourth quarter. But also, we had a negative currency impact, both from a devaluation -- both from a strengthening of the Swedish krona, which is then contributing to a negative translation effect for the group, but also for North America, where the weakening of the U.S. dollar versus many or several of the important production currencies like the Mexican peso and the Thai baht and the Chinese renminbi is then giving a negative result on the group. And the negative effect in acquisitions and divestments is related to the divestment we did last year of the water heater business in South Africa in the fourth quarter. And then taking a look at the full year, we had a sales growth of 3.9%, where we had volume growth in all our business areas, and we also had a positive mix for the group. This also contributed to a positive organic contribution to earnings despite that during the year, we did see a price pressure, mainly in the European market that also was negative for the full year. We were boosting and supporting the volume growth and our strong product portfolio by increases in investments and marketing in the year. And as Yannick mentioned, we managed to hit the SEK 4 billion in cost efficiency. We had for the full year, heavy headwinds in external factors. Of course, the tariffs we have talked about a lot. And on top of the negative currency that we saw in the fourth quarter, also for the full year, we have negative currency mainly in the Latin American markets in Argentina and Brazil and also in the Australian dollar. And then looking at cash flow. As Yannick mentioned, we had a strong end to the year. So we had SEK 5.2 billion operating cash flow in the quarter, which took the full year then to SEK 2 billion, which was almost in line with the last year cash flow. The strong operating cash flow in the quarter was driven by positive working capital and mainly by a large reduction in inventory. As you know, our seasonality is like this that we always have a positive contribution from reduced inventory in the fourth quarter. But also as we have talked about during the year, we came from a position where we, specifically in certain categories and in certain business areas, were at a high level going into the fourth quarter. And specifically then mentioning air conditioners in Brazil, where we, at the end of the year, had the heat wave in Brazil, which also helped us to reduce inventory further. We're also keeping high containment of CapEx, and this has also been helping and CapEx is below the last year level. And then looking at the balance sheet and liquidity, we have a solid liquidity and a well-balanced maturity profile. In the fourth quarter, we were amortizing a long-term borrowing of around SEK 2 billion, and we also draw down on the previously announced loan with EIB of USD 230 million. If we look into 2026, we have a maturity upcoming in October of SEK 5.5 billion. And as at the end of December, we have a liquidity, including revolving credit facilities of SEK 32.7 billion. We have no financial covenants, and our target is to maintain a solid investment-grade rating and our leverage improved during the quarter and the year. So we ended the net debt to EBITDA by the end of the year at 3x. And with that, I hand back over to Yannick. Yannick Fierling: Thank you very much, Therese. See, it worked fine in your hands. So let's hope it will be like that as well for me. So moving now to sustainability. And as you all know, I mean, sustainability is in our DNA, and we are very proud to be one of the sustainability leaders in the industry. We do have very ambitious targets moving forward. We are planning to reduce, between 2021 and 2030, Scope 1 and 2 by 85%, Scope 3 by 42%. We're planning to have 35% of recycled material in our product. And in terms of incident rate, we have a very ambitious target to be at 0.3, which is best-in-class in the industry here. We made tremendous progress in 2025. And we're proud to say today that, I mean, we have been reaching, out of the 85% already in 2025, year-to-date, 45%, 33% for Scope 3, and we have 23% today of recycled material in our products. In terms of incident rate, we have been reaching the target of 0.33. Let me just come back. I mean, it's a little bit more than 1 year that I'm in this position today, and we have been defining very clearly these 5 strategic pillars when I started. First, it was about improving North America. And yes, we had a difficult quarter in Q4 in North America. However, let's take into consideration that we have been growing organically in this market by more than 6% in 2025. We have been gaining shop floor spaces. We have been entering into channels like the contract channels in a very significant manner. We have been ramping up Springfield in Q1 to cruising altitude today. Yes, this market is extremely difficult because of tariff, but producing in North America the vast majority of our products, we are well placed moving forward. In terms of profitable growth, we have been declaring the target of growing by about 4% mid- to long term during the capital market update. We have been growing in 2025 by 3.9% after a strong growth as well in 2024. So we are restarting to grow in Electrolux after having lost quite a lot of scale in the past years. We have been strengthening our market position. We have been launching a lot of great innovations in 2025. I would just mention some of them. I mean, we have been presenting the pizza features. I mean, we have been launching this feature in North America very successfully, in Europe. We had new kitchen lines in Europe as well under AEG and Electrolux. We have been launching our new dishwasher in 2025 as well. Lots of innovation here, innovations we have been fueling once again with marketing spending. Cost reduction, we're proud to say that, I mean, we have been reaching the SEK 4 billion. It was a challenging target we put in front of ourselves here. We communicated a fork between SEK 3.5 billion and SEK 4 billion in the last months. We have been reaching the upper spectrum here. But more importantly, we have a very solid [indiscernible] in place in the company to keep on delivering cost saving moving forward. Last but not least, it is about culture, it is about leadership. And I always said, my objective is to combine 120 years of history of Electrolux with all the changes we see in the market right now in order to drive more speed and agility. And that's the perfect bridge to the next slide. We have 4 very clearly defined strategical drivers, which are, first, our bread and butter customer preferences. The second one is about life value creation, sitting next to our customers along the consumer journey from the purchase to the disposal of the appliances. It is about cost leadership and certainly about cash. But all of that will only be possible if we have the key enablers on the right-hand side. And one of them is about culture. And that's why we're happy to announce today a second wave of organizational changes. And the aim of these organizational changes is to get us closer to the end consumers, in order to be able to listen to them and innovate more and more and bring progress in their homes. This new wave of organizational changes will clarify a role, reducing duplication of responsibilities moving forward. We will be faster, we will be more agile, having end-to-end clear accountability in the organization. I'm moving now to the market and business outlook. During the fourth quarter, market demand in Europe decreased with geopolitical and macroeconomic uncertainty weighing on consumer sentiment. Consumers continued postponing discretionary purchases, and demand for building kitchen products remained subdued. In a longer perspective, it is important to remember that the European market is on a 10-year low. Again, we have been losing 1% in the fourth quarter 2025. Looking at 2026, we expect market demand to be neutral. There are signs of recovery as a consequence of a low inflation and interest rates. However, market demand is expected to remain subdued due to continued geopolitical uncertainty. Now moving to North America. In North America, market demand remains resilient in the fourth quarter with a plus 1%. The industry market price adjustments did not reflect the implemented U.S. tariff structure, and competitive pressure and promotional activity remained high, and we decreased prices in the quarter. In 2026, we expect market demand to be neutral to neutral negative. Geoeconomic uncertainty is foreseen to remain in North America, and under the current tariff structure, general market pricing should adjust to reflect associated tariff costs. This may adversely impact consumer demand and market growth. Consumer demand is estimated to have increased in Latin America in the fourth quarter. Competitive pressure increased in the region, most notably in Argentina, where the strong growth was driven mainly by imported goods. Consumer demand grew in Brazil, although at a slower pace than in the fourth quarter 2024, mainly due to inflationary pressure and high interest rates affecting consumer spending. Brazil will have elections in 2026, which might elevate uncertainties, and we expect market demand to be neutral with a stabilizing consumer demand following growth in 2024 and in 2025. Let me turn to the business outlook 2026. Volume, price and mix is expected to be positive in 2026, driven by volume growth and growth in the focus categories. This is expected to be partly offset by a negative price development. We anticipate that the high degree of demand will continue to be driven by replacement purchases. We expect investments in innovation and marketing to increase in 2026, again, to fuel our new products. New product launches provide us with a great platform to continue driving growth in our focus categories. Our focus on cost savings and improved efficiency throughout the group is critical for our competitiveness, and we anticipate, again, SEK 3.5 billion to SEK 4 billion earning contributions from cost efficiency in 2026. External factors are expected to be significantly negative for the year, driven mainly by increased tariff costs. The impact from currency and raw material is expected to be relatively neutral. The full year capital expenditure is expected to increase to approximately SEK 4 billion. With that, I close, and I hand that to you, Ann-Sofi. Ann-Sofi Jönsson: Thank you. So we will open up for Q&A, and we will start by opening up for questions on the telephone conference. Operator: [Operator Instructions] We will now take our first question from the line of Fredrik Ivarsson from ABG Sundal Collier. Fredrik Ivarsson: First, on North America, if you could help us out a little bit with the bridge in Q4 as the losses increased by almost SEK 200 million in the quarter. I presume tariffs and FX played a significant role, as you alluded to. But if you could help us out with that, that would be helpful. And also, if you have any view on the inventory situation in the U.S. market today with some focus on the nondomestic players. Yannick Fierling: I can start with that, Fredrik. Thanks for your question. I think the main impact, as we said previously here is the fact that we have been reducing our prices. In all fairness, as we said, we were able to compensate for the vast majority of the tariff impact in Q2 and Q3. That was due to the competitive pressure we have been observing in Q4, unfortunately, not possible. And we had during the quarter, we had to take the difficult decision to reduce our prices. That's the first aspect. The second one, as you said, is certainly tariff, tariff and the devaluation of the U.S. dollar, which has been weighing pretty significantly in the negative external factors we had to face in the fourth quarter. So that's it. I mean, as I said previously, I mean, prices have been bouncing back pretty quickly post Black Friday in North America to last year level. Our last year level is not enough to compensate for tariff. Now I mean, it's very important to just repeat and remind everybody about the basics. Imported duty goods out of Southeast Asia are taxed today between 15% and 20%. Out of China, it's between 55% and 60%. We have competitors which are massively importing out of these regions here. So if the industry is reacting rationally, what we should be seeing, what we should be expecting in the coming quarters is certainly a price increase. Now to your last question about inventory. I mean, we have been mentioning it very clearly as well in the last report. I mean, we expect the last goods to be arrived without the full tariff impact to have arrived in North America beginning of October. I think it is wise to see or think that most of these goods have been consumed during the promotional season on Black Friday. So I think most probably what will be remaining today in the North American market are goods which are fully impacted by the tariff level I mentioned previously. Therese Friberg: And maybe we can just add that the vast majority of the headwinds we had for the group in external factors is related to North America. So let's say, that's the magnitude of the headwinds we saw that we were then again not able to offset with price increases. But the underlying performance then from the business was positive. Fredrik Ivarsson: Yes. That's very clear. I think I lost you a little bit in the end, but that's a super clear answer. And then second one on LatAm, quick, if you could just talk about that onetime high level of supplier rebates in the quarter. How much did that sort of add to the margin, which was obviously very high? Yannick Fierling: First of all, we are very proud about the earnings we do have in LatAm. I think, again, I mean, LatAm is delivering very strong results in 2025. And believe me, it is thanks to our strategy, and it's not a short-term strategy, a long-term strategy we have been putting in place in the region here in terms of product leadership, I mean, go-to-market. So that's the first point, and we should be underlining that. Certainly, we are stressing the fact that, I mean, we had a one-time supplier rebate at the end of the quarter. I mean, this supplier rebate is not material for the group. It is relevant for the region, and that's why we have been mentioning it, but I want to underline that it's not material for the group. Fredrik Ivarsson: Okay. And then just one last housekeeping before I jump back into the queue. If you have any guidance on the group costs for '26 since they were fairly low last year. I guess you mentioned a timing impact there, Therese. But if you could help us out with some expectations for '26, that would be helpful. Therese Friberg: Yes, I would say for the full year, I could say that it is a little bit on the low side. Of course, we will try to really keep a very high cost containment in the group common cost. But also for the full year, I would say it is a little bit on the low side, as an indication. Fredrik Ivarsson: You mean 2025 was on the low side? Therese Friberg: Yes, exactly, yes. Fredrik Ivarsson: High in '26. Okay, good. Operator: We will now take our next question from the line of Johan Eliason from SB1 Markets. Johan Eliason: Also sort of relating to the pricing component. You also mentioned pricing negative in Europe and rest of Asia. I guess, it's mainly Europe. Is that sort of -- you talked about the trade down, but I think it sounded like you have a lot of new products coming in, in AEG and the Electrolux brand. Is it so that you also sort of discounted out some of the older products still remaining, and then the pricing should somehow then be a little bit of a temporary issue? Or is that wrong of me to think like that? Yannick Fierling: Johan, thanks for the question. It's an important question here. First of all, I mean, mix and volume have been positive in Europe in the fourth quarter. And I think I don't know how familiar you are with the concept of price index, but price index being basically at 100 would be the average of the prices here. What is very important for us, and we have been fighting for that, is to keep the price index we had throughout the year for both Electrolux and AEG. So we absolutely have been very directive on keeping the brand positioning in the regions. And actually, our price index has been even going slightly up. So the decision we took now a couple of years ago to exit the entry price point and really focus on the core plus and premium segment has been the right decision. And we are occupying today and growing into these 2 segments, which are core plus and premium segments. Where the big price war is going on even in a more fierce manner is certainly in the entry price point segments, where we have more new entrants putting pressure on the price level. And that's taking a little bit down the entire European market. I think what is very important for us is, again, to leverage our brand, to leverage the strength of our brand, leverage the innovation we are putting here in the market and actually occupy and grow where we belong, which are the core plus and premium segment in the market. Johan Eliason: Good. Then just on your pricing outlook again. You say price/mix and volume to be positive in '26 and then you focus on volume and the mix, sounding like prices could be negative for full year on a group level. Then your comments on U.S. prices have to adapt to the tariff level leaves me with the thinking that pricing should then be negative in sort of Europe, Asia and Brazil. Apart from Europe, where we discussed the tough in the entry level, what about Brazil? It seems like you were more comfortable with the Q4 development than Whirlpool were in their outlook statement. Yannick Fierling: No, I think you're absolutely right, first of all, to divide this question per region, because the answer will be slightly different region by region. First, I think if you look at Europe and Asia, we're absolutely expecting the price pressure to continue moving forward. I mean, we will have more and more pressure, as I said, especially on the low-end segment and entry price point segment, and we need to defend basically the value on the core plus and premium segment. In Latin America as well, you're absolutely right. I mean, to mention Brazil and Latin America, we have price pressures in Latin America as well with new entrants coming out of Asia as well in Latin America and as well in Brazil. However, once again, I mean, our position is pretty clear. We are playing in Latin America as well in core plus and premium. And the new entrants are mainly playing in the low-end segments. And that's why we are gaining and we keep on gaining value market share in this region. And in all fairness, I mean, the biggest battle getting played is in the entry price points here. So we're redefining our go-to-market, we're redefining our innovation in Latin America, the strength of our brand. The brand is very strong in Latin America, and we're executing here. The last one is, of course, North America here. North America would very much depend if the industry would be reacting rationally now to the tariff structure. As we said many, many times, but I think it's worth repeating, the current tariff structure is benefiting the local producers, and we are only 3 major local producers in North America under the condition, of course, that, I mean, prices would be moving up. Otherwise, you just need to absorb the tariff structure in the negative external factors. So I think it will be very interesting to observe moving forward what the price evolution would be in North America. I would just finish by one point, which is extremely critical here is that, I mean, we certainly are expecting higher pressure moving forward on prices. And it's making cost reduction and cost efficiency even more important moving forward. And that's why we are putting as well so much emphasis on getting more efficient, preserving, of course, the quality of our products, preserving consumer preference for our products here, but getting more efficient as a company such that we can mitigate the price pressure we'll be encountering in the 3 markets. Operator: We will now take our next question from the line of Uma Samlin from Bank of America. Uma Samlin: My question is on the raw material front. I mean, given a lot of the raw mat that you use, steel, for example, the prices increased quite a lot over the past few months. I was wondering that how do you think about that going forward? It seems like you think it will be neutral when it comes to raw material impact in 2026 in your slides. Just wondering how does that work? And how should we think about that? That's my first question. Yannick Fierling: Absolutely. What we said, just to be very precise, is that, I mean, the impact from currency and raw material is expected to be relatively neutral. But let me put a little bit of flavor on that. As you know very well, we are hedging. We're hedging our plastic material, and we're hedging even on a longer time period, I mean, steel. So I think we have been hedging part of plastic, and we have been hedging part of steel. What we see right now, of course, is a potential increase in steel in North America because of tariff. So that's what we're expecting here. So I think we see pressure on the steel side of the equation on North America. However, if you balance, I mean, currency together with raw material, we see that to be relatively neutral moving forward. Therese, do you want to add anything on that? No? Very good. Uma Samlin: Okay. And just a follow-up on North America. I was wondering like what are the dynamics you're currently seeing in Q1 post the Black Friday period? I mean, obviously, I guess you understand that a lot of the inventory has been perhaps still there for the Black Friday promotion period. But after that, I guess, previously, you've said that you expect pricing to normalize, stabilize going forward, because it wouldn't make sense for especially the Asian competitors not to compensate for the tariffs. So just wondering, what are you seeing today on the market? Are you seeing similar dynamics so far in January as in Q4? Or are you seeing any improvement there? Yannick Fierling: I think -- of course, I mean, we will not be discussing in detail about Q1. What I can tell you is that, as I said, I mean, prices have been bouncing back in December to last year level post Black Friday, and they have been bouncing back quicker, I would say, compared to 2024 post Black Friday. I think I'm stating the obvious to all of you here, but I mean, there has been quite a lot of discussions around tariff as well with the Supreme Court. And I think this discussion probably has been inducing doubts on how sustainable tariff would be moving forward or if there will be changes. So I think now it's pretty clear that, I mean, the decision will not be -- has not been happening in the first weeks. So again, with the level of tariff we're having out of Southeast Asia and China, rationally, I mean, we should see movements at least in the market. Therese Friberg: Sequentially, we have seen prices then improving post Black Friday, but we're not really seeing price increases to offset the current tariff structure. Ann-Sofi Jönsson: We have a few questions from the web as well. And here is one that is a little bit repetitive to what we have been speaking about. But are 2026 savings enough to offset external headwinds? And any color on where external headwinds will have the main impact? Yannick Fierling: I think, again, it's very difficult to say. I mean, we don't know exactly how currency will be moving on. Very difficult to predict here on the matter. What we say is that, I mean, we're setting again very ambitious targets in terms of cost reduction, which is between SEK 3.5 billion and SEK 4 billion in 2026 here. And I think it will be of prime importance to deliver on this target to face any type of headwinds we will see in terms of price pressure, tariff and others moving forward. But again, as Therese said, I mean, tariff, we were not able to compensate, at least in Q4, the full tariff impact through our pricing strategy. Therese Friberg: And on external factors, of course, as we've talked about, we expect currency and raw material, with the current levels and the, let's say, current hedging, to be essentially flat right now. And then, of course, we have significant headwinds still year-over-year in tariffs. And then we are still having some inflation. So we're still having, of course, some high inflation countries that will also be a negative impact a little bit then, yes, broader across the regions. Ann-Sofi Jönsson: Now we go back to the conference call again. Operator: We will now take our next phone question from the line of Akash Gupta from JPMorgan. Akash Gupta: I have a couple of questions as well. The first one is on external factors. I think you said you're expecting significant, but I was wondering if you can help us quantify a bit. So if you look at, in second half last year, on average, you had SEK 700 million-ish external factor with SEK 1.5 billion in second half primarily coming from tariffs. So is it fair to say that when we look at 2026, probably we should expect similar SEK 1.5 billion external headwind in first half before it might go down a bit in second half, because you have the same base as year before. And therefore, overall external factors based on how it looks today could be somewhere below SEK 2 billion. Would that be a good estimate? Therese Friberg: Yes, of course, we are not that specific, but your overall rationale seems like a reasonable logic. Yannick Fierling: I would just remind everybody that in the fourth quarter, at least, I mean, the external factors were split between tariff and currency and the depreciation of the dollar. Akash Gupta: And my second question is on your cost efficiency. Again, the number you guided for 2026 coming in ahead of what people were expecting. But maybe can you tell us about where is it coming from, which geographies, which product lines? And will there be any cost to get this cost efficiency that might lead to some one-off below the line? And also, when we look at the phasing of this cost efficiency, I mean, can you give an indication? Last year, we had a very big Q4. How should we think about the spread between first half, second half this year? Yannick Fierling: Thanks a lot for the question. I think it's an important question. I mean, as mentioned previously, we have been putting in place -- end of 2023, actually, we started to put in place a cost excellence program in the company, which is a very well-structured program, a cross-functional program heavily focused on engineering for design changes, procurement in terms of sourcing and of course, conversion in our factory. I mean, we took some time to ramp up in 2024. And in 2025, I mean, this program has been delivering to the level we have been describing here on the SEK 4 billion. It is, again, very much process oriented. The program is the same across product categories. So I think there is no significant differences in terms of product categories here. And it is as well, I mean, very well distributed across the different regions. So no major differences from product line to product line or from region to region. I think the important matter is really the systematic approach we have to address cost reduction and efficiency. And I think, of course, we'll be leveraging that moving forward. Operator: We will now take our next question from the line of Timothy Lee from Barclays. Timothy Lee: So the first question, I would like to follow up a little bit on the Latin America, the supply rebate. What's the nature of this given it is onetime, why it is not recurring? And if you think about the margin going forward, what level of margin should we expect for the Latin American market if we are not considering this supplier rebate to continue? Yannick Fierling: I want to repeat what I said previously. First of all, I mean, it's not exceptional. I mean, we have year-end rebates on the supplier side of the equation. And Michelle, our procurement lead, with the entire team, I mean, globally and in Latin America, have been doing an outstanding job in 2025 here, which have been driving to a one-timer significant rebate at year-end. But I want to repeat, I mean, and I think it's very important in terms of verbiages. I mean, this one-timer is not material for the group. It's only relevant for LatAm, and that's why I think it was very fair to mention it. On the other hand, I mean, if you look at, I mean, the 3 first quarters, and the last quarter is always the strongest one in the year from a seasonality perspective, we have been delivering very well in Latin America for the 3 first quarters. And I think we had a great Black Friday, again, based on an outstanding work from the team, especially in Brazil, but as well in Latin America, which have been driving to these results. That's what I would be saying. For sure, I think it was worth mentioning this one-timer. I mean that's very fair here. But I mean, that should not be undermining really good ongoing results for Latin America. Therese Friberg: And while we wanted to mention it, it's not a one-timer, if you look at it in the full year perspective. It is a one-timer in the sense that the full effect is happening in the fourth quarter. So that is what is then boosting a bit additionally, let's say, the results, specifically in the fourth quarter for Latin America. Timothy Lee: It's fair to say that -- obviously, we have the seasonal factor, we have the seasonal stronger quarter in the fourth quarter, but this year is definitely much stronger. So can I assume, if we are not seeing this higher rebates than normal, it is probably the margin in the quarter is somewhat similar to what we had in the past quarters or in the previous year in terms of seasonality? Yannick Fierling: Again, I want to repeat. I mean, there is always a seasonal effect. I mean, in our industry here, fourth quarter being the strongest quarter here. I mean, we cannot go much more into detail here regarding that, but I think the explanation we gave is the one. It is a strong quarter in Latin America. I mean, these are onetime rebates not undermining the performance level in Latin America right now. And again, it is something which is not material for the group, but relevant for Latin America. Therese Friberg: And what we want to say is that Latin America has not reached a completely different profitability level. So I guess your conclusion of that, it is continuing to perform at a high underlying level, boosted by additional seasonality in the fourth quarter and by this additional supplier rebate. Timothy Lee: Okay. Understood. And my second question is on Europe. I think you also mentioned there was some positive effect on earnings due to the phasing of the innovation and marketing expenses between quarters. Can you elaborate a bit more on that? Does that mean there was some marketing expenses, which probably deferred from Q4 to, let's say, Q1? Therese Friberg: No, not related to Q1, I would say. But it's more the phasing as well during the year where, specifically for Europe, we have had some additional marketing earlier in the year compared to last year. So it's only a phasing, I would say, within the year of 2025. Timothy Lee: Understood. And my final question would be on your cash flow statement. I think there was a provision that you released in Q4 of SEK 476 million. Can you explain what's the item for this release? Therese Friberg: No, that we don't recognize a large provision that was released. The main impact that we mentioned is the reduction of inventory of SEK 3 billion in working capital. Yannick Fierling: Yes. And that's what we said. I mean, there was a very significant effort in the fourth quarter to reduce our inventory in the 3 regions, and that's what we have been delivering. Ann-Sofi Jönsson: Okay. Thank you. And we have more questions from the web. So the next question is, the leverage improved in the fourth quarter, but still the net debt remained rather high. So could you -- or do you have concerns about the net debt level? Could you elaborate around that? Yannick Fierling: Yes. Listen, I mean, we have been delivering SEK 3.7 billion in EBIT in 2025 here, 2.8%, which is 0.8% better than last year. We have been getting our leverage to 3.0. But I mean, it's a fact, I mean, our debt level is pretty high. And I would say that like any other companies in the same situation, we are constantly evaluating the capital structure we do have today in order to deliver the strategy, the profit and the growth we have in front of us. Ann-Sofi Jönsson: Okay. Great. Now we turn over to the telephone conference. Operator: We will now take our next question from James Moore from Rothschild & Co Redburn. James Moore: It's James from Rothschild. I've got a few. I'll go one at a time, if I could. Just on cost efficiency, great to see the SEK 3.5 billion, SEK 4 billion again in '26. And I know you're doing an ongoing best cost country procurement sourcing action, and you're trying to be more sustainable in the ability of savings to get every year. I'm just wondering, is this level for '26 indicative of the sustainable potential in the outer years of, say, 2027 to 2030? Or is the run rate this year still elevated? Is there any sort of way you can quantify what your new procurement savings machine looks like in the outer years? Yannick Fierling: I think, first of all, thank you very much for pointing that out. And good day to you. I mean, because, yes, best cost country sourcing is absolutely something we are focusing on in the procurement organization. Big focus in 2025 with the arrival of Michelle. Michelle is located in Asia today. And I think we have been focusing throughout the year to understand what best cost country sourcing was for the different regions, because as you can understand, maybe, I mean, China is not a best cost country sourcing region any longer for North America, at least for all the components we do have today. So we have been really doing, I think, a good job on the procurement side of the equation to expand the supply base. We have to be fast as well in releasing these components here without endangering the quality we do have. And that has been a source of the saving you see right now. But I mean, whatever we have been implementing in 2025, of course, will remain in our products in 2026 moving forward. And we have this clear process in taking additional actions in procurement in order to investigate what are the other components we may be going and source from better suppliers. James Moore: But you can't say whether the rate in '26 is elevated versus the outer years? Yannick Fierling: I think -- and again, in all fairness, I mean, we -- I don't want to -- I'm never somebody who is pleased to start with. So it's difficult to be fully satisfied about that. But in all fairness, I mean, the delivery we had in 2025 was a strong delivery. And that's why I think we were able -- I mean, procurement has been a major contributor in delivering part of the cost savings here. So I'm expecting them not to slow down in 2026. James Moore: Okay. And just on price, I hear everything you say net negative U.S. -- sorry, Europe, Asia more than offsetting positive U.S. I would have hoped for a sort of like a mid-single-digit price hike all in net after promotion in '25. And obviously, it depends on the behavior of rational or not rational agents. But is it fair to assume that you're assuming materially less than 5% behind your comment? And I'm trying to gauge your degree of conservatism. Do you think that it is possible to achieve that in the situation that the Chinese and Korean manufacturers hike their prices? And talking of that, tied to that, have you seen the Chinese or Korean manufacturers hike their prices in the first month of the year? I can't see any channel indications that they have yet. Yannick Fierling: First of all, I mean, I think we should not be forgetting about what has been achieved in the first quarters of 2025 in terms of price increase. And I need to recognize my North American team for the agility they have been showing, because the picture has been changing several times, I mean, throughout the months in 2025. And we have been taking and grabbing any opportunity we had to increase prices, and we have been leading price increase in Q2, Q3, and we have been compensating the vast majority of the tariff impact in Q2, Q3. I mean, this situation was simply not sustainable any longer in Q4, especially in the light of the promotional period we had. And we had to face reality, especially looking at, I mean, potential volume impact that we had to step down on prices. And let me tell you that promotional level in 2025 was at least at the same level as in 2024, which is pretty incredible when you think about the tariff level imported finished goods are facing today, 15% to 20%, 55% to 60%. So I cannot -- I mean, as Therese said, we have not seen -- we have seen basically prices bouncing back in December quicker than last year. But in all fairness, I mean, we have not seen tariff being reflected in the price level in North America. Now the big question is -- I mean, we are benefiting from producing in North America. The big question is, is this situation sustainable with 15% to 20%, 55% to 60% tariff for people and for competitors which are sourcing most of their products today for the North American market. James Moore: Great. I've got a couple of more technical ones, if I could. Just in terms of your external factors, I think, Therese, you mentioned the majority of the SEK 739 million group impact was in North America. There's obviously some dollar impact and there might be some stuff in Asia and Europe. But would it be fair to say roughly SEK 0.5 billion was the impact of pure tariff in the quarter? And would it be possible to say whether your FY '26 tariff assumption is closer to SEK 1 billion or SEK 2 billion, to gauge the tariff? Therese Friberg: Yes, we don't give that specifics. But yes, I would say a relevant portion of the external factors was related to currency in the fourth quarter and the rest was tariffs. So there was a significant impact of tariffs. Yannick Fierling: The majority was tariffs. Therese Friberg: Yes. And this is, of course, the level that we are expecting to continue for the first half. And then to your point, it will then -- for the second half with the current tariff structure still being in place, it will sort of even out from a year-over-year perspective. James Moore: Okay. So we comp out easier in the second half? Could you remind us, was the third quarter a similar magnitude to the fourth? Or was that sort of like half? Therese Friberg: It was similar, I would say. James Moore: Okay. So it's really a first half outstanding impact that we have yet to address? Therese Friberg: When it comes to the tariff impact, yes, the majority in the first half. James Moore: That's great. And just the final one, just going back to that other point. Has there been any indication of Asians rising price in the U.S. market in the last 30 days? Therese Friberg: No, not apart from what we mentioned, that sequentially, the heavy promotions from Black Friday has been, of course, lifted, so to say. So sequentially, we have seen pricing coming up, but we're not really seeing price increases to offset the tariff structure that is in place on top of that. Ann-Sofi Jönsson: Thank you very much. We are now running out of time. I know we have more questions. We will make sure that we will get back to you from the IR team. And I would like to thank everyone who has listened in, but I would also like to hand over to Yannick for a few closing words before we end this session. Yannick Fierling: Again, we have been making progress in 2025, and we have been delivering according to the strategic drivers we defined early on. I mean, we're very much looking to do the same in 2026 and delivering basically in the coming quarters. Thank you very much for attending today. Therese Friberg: Thank you very much.
Operator: My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2025 The Hartford Financial Services Group, Inc. Financial Results Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To ask a question, simply press star 1 on your telephone keypad. To withdraw your question, press star 1 again. It is now my pleasure to turn the call over to Kate Jorens, Senior Vice President, Treasurer, and Head of Relations. You may begin. Good morning. Kate Jorens: And thank you for joining us today for The Hartford Financial Services Group, Inc.'s fourth quarter and full year 2025 earnings call and webcast. Yesterday, we reported results and posted all earnings-related material on our website. Before we begin, please note that our presentation includes forward-looking statements which are not guarantees of future performance and may differ materially from actual results. We do not assume any obligation to update these statements. Investors should consider the risks and uncertainties detailed in our recent SEC filings, news release, and financial supplement, which are available on the Investor Relations section of thehartford.com. Our commentary includes non-GAAP financial measures, with explanations and GAAP reconciliations available in our recent SEC filings, news release, and financial supplement. Now I'd like to introduce our speakers: Christopher Swift, Chairman and Chief Executive Officer, and Beth Costello, Chief Financial Officer. After their remarks, we will take your questions, assisted by several members of our management team. And now I'll turn the call over to Chris. Good morning, and thank you for joining us today. The Hartford Financial Services Group, Inc. reported outstanding fourth quarter and full year 2025 earnings. Christopher Swift: As we look back on results, the enterprise performed at a high level. The effectiveness of our strategy and investments in innovation are strengthening our competitive position and ability to generate superior returns for shareholders. Among the year's highlights, Business Insurance delivered robust top-line growth of 8% with excellent underlying margins. In personal insurance, 2025 was a pivotal year as auto achieved targeted profitability, and home continued to produce outstanding results. Employee benefits reported an impressive core earnings margin of 8.2%, led by strong life and disability results. And the investment portfolio continues to generate solid performance. All these items contributed to outstanding core earnings of $3.8 billion with core earnings ROE of 19.4% in 2025. I want to thank our employees. Their commitment to excellence makes these achievements possible. We are united behind a customer-centric mindset and a commitment to working together to deliver exceptional results. We have a distinctive culture shaped by strong ethics and collaboration that drives decisions and turns innovation into impact. It is what makes The Hartford Financial Services Group, Inc., The Hartford Financial Services Group, Inc. Before we review business results, I want to briefly highlight our continued progress on technology and innovation. Over the past decade, we have modernized core platforms, strengthened data and analytics, and advanced digital tools across the enterprise. As we've discussed previously, this includes building out our data science capabilities, migrating applications and datasets to the cloud, and exiting data centers. With the foundational work across platforms, data, and cloud largely complete, we have moved to the next phase of our innovation agenda, reimagining our processes and workflows with an AI-first mindset. It is a multiyear journey, and we have allocated investment spend to accelerate our progress. The team is executing well, and we are already seeing early positive results. In claims, where AI is accelerating medical record summarization, in underwriting, where it is providing more consistent data-rich insights with greater precision, and in operations, where the deployment of Amazon's call center technology is enhancing customer interactions with multimodal capabilities. More recently, generative AI has expanded the way we think about value creation across our business, especially within claims, underwriting, and operations. Our approach remains focused on practical, high-impact applications that augment human talent and drive improved experience for customers, employees, and distribution partners. All this positions The Hartford Financial Services Group, Inc. to be well situated as the insurance industry continues to evolve. Let's turn to 2025 results. In business insurance, written premium growth was strong across all three units, driven by strong new business, stable retention, and pricing increases in most lines. The underlying margin of 88.5 for 2025 was excellent and reflected disciplined underwriting in a dynamic environment. The company's approach to operating as one unified team, known as One Hartford, enables us to collaborate across business insurance to meet a wide range of customer needs. This strategic alignment, combined with consistent execution, continues to resonate with agents and brokers. We are advancing underwriting capabilities to drive faster, better, and more consistent underwriting decisions while delivering superior agent, broker, and customer experiences. Moving into each business insurance unit, small business continues to be the industry leader with written premium of $6 billion and an underlying combined ratio of 88.9 in 2025. I am pleased to share that for the seventh consecutive year, Kinova Group has ranked The Hartford Financial Services Group, Inc. as the number one carrier for small business digital capabilities. Kinova reported that The Hartford Financial Services Group, Inc. holds a double-digit lead in all categories. This recognition reflects exceptional functionality, ease of use, and support for agents and customers. Building on another year of outstanding results and advancement of AI-driven capabilities, I am highly confident that we will capture additional market share while maintaining strong profitability in small business. Turning to middle and large, growth was excellent with solid underlying margins. The team remains focused on disciplined underwriting and selecting opportunities that deliver attractive risk-adjusted returns. Investments in middle and large are replicating our industry-leading small business capabilities. Whether you describe that as AI, automation, speed, accuracy, or leveraging rich data assets, these investments are enabling a more efficient underwriting process while delivering seamless agent, broker, and customer experiences. Global Specialty had an excellent year maintaining underlying margins in the low to mid-eighties. Our competitive position and breadth of products drove excellent growth, including in wholesale, international, and global REIT. We remain excited about the unique ability to combine Global Specialty's deep product expertise with the advanced technology and broad distribution of the small business platform. This allows agents and customers to quote and bind comprehensive products in a single unified experience, a key differentiator in the market. Moving to pricing, business insurance renewal written pricing excluding workers' compensation was 6.1% for the quarter. While property pricing continued to moderate this quarter, the line remains highly profitable and an attractive area for growth for the organization. Casualty, including commercial auto and general liability, remain firm and above loss trend supported by rate increases in proactive underwriting actions focused on segmentation, limits management, and geographic optimization. Excess and umbrella pricing increased further into the double digits. Commercial auto remained stable in the low double digits, and general liability primary lines remained in the high single-digit range. As we enter 2026, our priority is to sustain industry-leading ROEs through disciplined underwriting and risk selection. That approach, supported by the focus on the SME segment, enables us to execute through the next phase of the cycle. Turning to personal insurance, 2025 was a pivotal year with premium growth and strong underwriting profit. In addition to restoring targeted margins in auto, homeowners delivered strong underlying margins and policy count growth. Personal insurance continues to benefit from advanced underwriting capabilities in the modern platform of Prevail. Beginning in the third quarter, these next-generation capabilities were extended to the retail channel. Prevail agency is now live in 10 states with approximately 30 state launches planned by early 2027. We are excited by the momentum in the agency channel as we leverage the exceptional retail distribution relationships held across The Hartford Financial Services Group, Inc. Our position as a bundled provider resonates and is supporting account growth. In 2026, we expect to grow policy counts for both auto and home in the agency channel. Within the direct channel, given market competitiveness, policy count growth will remain challenged. The long-term objective is to expand market share while sustaining targeted profitability. Shifting to employee benefits, the outstanding core earnings margin in 2025 reflected focused execution, a resilient economy, favorable group life mortality trends, and continued strong disability performance. Our employee benefit strategy is supported by continued investments in technology and digital solutions to simplify the administration process and enhance the benefits experience for our customers. At the same time, expanding presence in the under 500 live segments remains a key strategic priority. This includes expanding product offerings, such as dental and vision, to small and mid-sized employers. So far in 2026, quote activity in known sales are trending meaningfully above prior year. We are confident that investments in technology and customer-facing tools position the business to extend its market leadership. In closing, across the enterprise, innovation and execution drove another year of profitable growth and leave us well prepared for the opportunities ahead. In business insurance, our diversified portfolio with a significant concentration in the SME market, along with excellent underlying margins and long-term distribution relationships, will enable us to differentiate and capture additional market share. In personal insurance, having achieved profitability levels, we are now targeting expansion across the direct and agency channels. Employee benefits continue to be a highly attractive and accretive business delivering strong core earnings margins, and we expect to sustain our industry-leading position. Investment income remains strong, supported by a diversified and durable portfolio. And our businesses continue to generate excess capital, which will be deployed to drive long-term shareholder value. Taken together, these advantages reinforce our competitive standing and ability to generate superior returns for our shareholders. Now I'd like to turn the call over to Beth to provide more detailed commentary on the quarter. Beth Costello: Thank you, Chris. Core earnings for the quarter were $1.1 billion or $4.6 per diluted share with full-year core earnings ROE of 19.4%. In business insurance, core earnings were $915 million, with written premium growth of 7% and an underlying combined of 88.1. Small business continues to deliver excellent results with written premium growth of 9% and an underlying combined ratio of 87.3. Renewal written pricing for the quarter was 4.3% all in or 7.7% excluding workers' compensation. This is down from the third quarter, primarily due to pricing within the property components of the packaged product and E and S. Those lines continue to be highly profitable, and we expect that as we move into 2026, property pricing and our packaged product will stabilize. The liability component of the package was in the high single digits and is expected to stay firm. Middle and large business had another strong quarter with written premium growth of 5% and an underlying combined ratio of 89.4. Renewal written pricing for the quarter was 4.5% all in or 6.2% excluding workers' compensation. Global Specialty's fourth quarter was solid with written premium growth of 5% and an underlying combined ratio of 87.6. Renewal written pricing for the quarter was 3.9% and remained flat to the third quarter. The business insurance expense ratio of 31 increased one point from the prior year quarter as the impact of earned premium leverage was more than offset by increases in technology costs and higher incentive compensation due to overall financial performance. In personal insurance, core earnings were $214 million with an underlying combined ratio of 84.3. The underlying combined ratio improved 5.9 points in the quarter primarily due to improvement in the underlying loss and loss adjustment expense ratio in auto and homeowners. Auto underlying results improved by 4.1 points and remain in line with expectations reflecting typical seasonality as the year progresses. The personal insurance fourth quarter expense ratio of 26.2 improved from 26.5 in fourth quarter 2024 as the impact of earned premium leverage offset increases in technology costs and higher incentive compensation. Written premium and personal insurance declined 2% though agency premium grew 15% over the prior year. We achieved written pricing increases of 10.4% in auto and 11.9% in homeowners. Total P and C net favorable prior year development excluding A and E was $106 million. Of the increase, $122 million was for asbestos and $43 million for environmental. The increase in asbestos reserves was primarily due to higher than expected frequency, an increase in claim settlement rates, and higher settlement values for a subset of accounts. The increase in environmental reserves was mainly due to higher environmental site cleanup and monitoring costs and higher legal expenses. With respect to catastrophes, PNC cats were a benefit of $1 million in the quarter and include $54 million of favorable prior quarter development, primarily from tornado, wind, and hail events across several regions. For the year, CATs came in under budget at 4.2. We continue to actively manage our catastrophe exposure through disciplined underwriting and aggregation control supported by a robust reinsurance program with both per occurrence and aggregate protection. At 01/01/2026, our per occurrence catastrophe cover was renewed with favorable terms and conditions delivering a reduction in cost on a risk-adjusted basis. In addition, we renewed our aggregate treaty at $200 million excess of $750 million, achieving a decrease in cost on a risk-adjusted basis. We continued our strategy of combining traditional with our catastrophe bond platform Foundation Re, and on January 1, a new catastrophe bond increasing the total per occurrence program for peak perils to $1.9 billion. This strategic addition enhances our capital strength, provides multiyear stability, and complements our traditional reinsurance place supporting growth in property underwriting. Moving to employee benefits. Core earnings of $138 million and a core earnings margin of 7.6% reflect excellent group life and strong disability performance. The group life loss ratio of 76.9 improved three points, reflecting lower mortality and term life products. The group disability loss ratio of 70.5 increased 3.6 points from the prior year driven by increases in the short-term and long-term disability loss trends. Partially offset by improvement in paid family and medical leave products. In short-term disability, we are seeing increased incidents, particularly among higher average wage earners. In long-term disability, incidence remains lower than longer-term expectations but has been increasing from the very levels experienced in recent years and claim recoveries remain strong but less favorable than in the prior year quarter. The employee benefits expense ratio of 27.5 increased 0.8 points compared with fourth quarter 2024, driven by higher staffing costs, including increased incentive compensation and benefits, as well as higher technology costs. Turning to investments. Our diversified portfolio continues to produce strong results. Net investment income of $832 million increased $118 million or 17% from fourth quarter 2024 driven by increased limited partnership yields, a higher level of invested assets, and reinvesting at higher interest rates, partially offset by a lower yield on variable rate securities. The total annualized portfolio yield, excluding limited partnerships, was 4.6% before tax consistent with the third quarter. Fourth quarter annualized LP returns were 11.4% before tax, up significantly from third quarter reflecting solid performance from our private equity portfolio and the improving M and A environment. Looking ahead to 2026, we expect net investment income to increase supported by higher invested assets from continued growth and improved LP returns. Turning to capital. As of December 31, holding company resources totaled $1.5 billion. For 2026, we expect net dividends from the operating companies of approximately $2.9 billion, a 16% increase over 2025. During the quarter, we repurchased approximately 3 million shares under our share repurchase program for $400 million. Given our strong capital generation, beginning with the first quarter, we expect to increase quarterly share repurchases to $450 million subject to market conditions and capacity remaining under our share repurchase authorization which as of year-end was $1.55 billion through 12/31/2026. To wrap up, 2025 business performance was outstanding. And we are well positioned to continue delivering industry-leading returns and enhancing value for all stakeholders. I will now turn the call back to Kate. Kate Jorens: Thank you, Beth. We will now take your questions. Operator, please repeat the instructions for asking a question. In order to ask a question, simply press 1 on your telephone keypad. We do respectfully request that you limit questions to one and one follow-up. Again, to ask a question, that is Our first question comes from the line of Andrew Kligerman with TD Cowen. Please go ahead. Good morning. The first question is around pricing in business insurance. Andrew Kligerman: The 6% ex workers' comp increase in rates is terrific, and I see you've gotten more in small business. So the question is, how long do you think you can sustain favorable renewal premium changes in small business? Is this something that you think would be resilient for a number of years? Or, you know, kind of it gets infected by the same pressures that you're seeing in large. And then Beth made a comment about property package pricing stabilizing. Would love a little more color on that. Christopher Swift: Andrew, let me start, and I'll ask Moe to add his color. I think the context of your question should be framed in terms of we have built a wonderful smooth-running machine that is differentiated in the marketplace. I mentioned the Kunnova accolades that we get for our digital capabilities. We have, obviously, a workers' comp, a world-class product. We have ENS capabilities that'll be embedded in our workflow. So I think the opportunity for us is really sky's the limit. I see this business continuing to grow at really healthy levels. You saw the performance this year. Because I think I know we have differentiated ourselves. We got long-standing agent and broker relationships. And I think the broad market is willing to do business with fewer carriers that meet all their needs. So I think this is a structural strategic shift in some of those activities that we're gonna be clear beneficiaries of. Maybe, Andrew, just to build on Chris's point on them from a pricing perspective, we've talked a lot about the starting point really matters. And we got a very sophisticated filing strategy. We watch competitor filings closely. We did feel some decelerating property to Beth's comments both E and S and in the package policy. We expect that to in the package portion to flatten out here relatively shortly. We're watching the ENS space closely. But the GL portion of the BOP is still accelerating. So an important piece of it. And then when we look at just, again, to full circle, all of the products in the small business space are meeting target margins and highly profitable. So we really feel good about the starting point. Andrew Kligerman: And just know, more from a long-term perspective, though, do you think that the small business area is resilient enough to kind of continue to sustain rate increases? Or do you think that the competitive pressures will ultimately come after that segment of the business? Christopher Swift: Well, I think the important thing, Andrew, is, you don't shock a small business customer. Right? So if you have sort of steady bites at the apple as one of our competitors would say in the personal lines area, I think small businesses can manage it from a budget side. But if you fall behind in your rate plans and your rate filings and you need 30 points of rate, that shock to a small business customer would not be helpful and I think we're keeping up with trend very, very well, Moe. I don't know if you would Yeah. There's an agency angle. I think in a small business space, our brokers and agents can't afford to touch the small business very much. So they want to put it in a home that's predictable, consistent, and that's what we're finding is we are that predictable consistent home right now. And, in fact, by putting business with us, we're proving to agents and brokers they can save a penny or two on every dollar they put with us relative to competitors. Andrew Kligerman: Got it. And then just lastly, on Prevail. So you mentioned you're in 10 states now and likely to be in 30 by 2027. I know Prevail is kind of a small component right now of your overall premium. Do you envision that being, you know, as big as the AARP direct to consumer the not too distant future? Or will it be very gradual and over a long period of time? Christopher Swift: Yeah. I would say, you know, Andrew, just to remind everyone is that, I mean, Prevail, the product and the platform is used in new business in the direct channel, and now in the agency channel. And you referred to it. We're in 10 agency states right now. We're on track to be in 30 by, you know, early 2027. So, I mean, the Prevail platform is the chassis. For all new business going forward in all its modern segmentation, its digital capabilities, six-month auto policies. And I think we've said this before. We on the back book, we're not converting it to Prevail. We're gonna let the back book run off over time. It's highly profitable. We don't want to create disruption. So all new business activities both direct and agency, are focused with Prevail. Then the back book will run off over time. Melinda, would you add any color? Melinda Thompson: Thank you, Chris. I think I would just reiterate agency prevail does present a meaningful growth opportunity, and our reputation with agents is exceptional as an enterprise. And it's ensuring us the opportunity to compete more broadly with our agency partners, we do see upside with our agency partners to grow the book. Today, it's you can see in the premiums about 20% of the total. It would take time to grow it to be the size of AARP's. Book, but we do feel optimistic about the opportunity. Andrew Kligerman: Thank you. Operator: Next question comes from the line of Elyse Greenspan with Wells Fargo. Please go ahead. Elyse Greenspan: Hi. Thanks. Good morning. My first question is on capital. Beth, you upped, you know, the buyback pace by $50 million a quarter. Right? So that's $200 million for the full year. Yet, like, the dividends out of PNC, right, are going up by $500 million. So is it just to have extra whole co flexibility? Or when you finish the authorization, maybe then the PACE could go higher. I'm just trying to understand why you wouldn't just, you know, up the buyback by the full, you know, $500 million that's going up to parent. Beth Costello: Yeah. So a couple of things. First, the overall dividend increase between years is about $400 million, $2.5 million last year to $2.9 billion this year. I'll also remind you that we did just increase our dividend back in October and that obviously factors in as well. And I think as you would expect, you know, we're thoughtful when we think about increasing our share buyback levels with a goal of being consistent. So I think it's a pretty balanced approach to what we're seeing in the, you know, overall increase in capital coming to the holding company. Elyse Greenspan: Thanks. And then my second question is on business insurance. Just you know, given overall, you know, pricing as well as, you know, loss trend, I would, you know, assume you might see, you know, some, you know, deterioration within the Get a sense of just you know, how you see, you know, BI underlying margins transpiring in twenty six. Christopher Swift: Yeah. I think what I would share with you, Elyse, is that we're gonna refrain from any specific numbers or ranges. And then maybe just talk qualitatively with you and give you a couple of data points that will help you make those judgments. But as Moe said, our starting position I think, is very strong. You know, we had an 88.5 underlying combined ratio, you know, this year. Up slightly from the prior year. I think we're still growth and innovative mind as I said in my commentary. But we're also a disciplined underwriting company, and we just don't want to chase growth for growth's sake. It needs to, obviously, contribute to the overall enterprise. So know, we've instructed our underwriters to try to hold on to margins to the extent possible. You know, be disciplined, and, you know, try to grow if it makes sense. And then, if it doesn't, you know, we'll accept, you know, the outcome of a slower top line. But I think relative to the top line this year, I still see and very optimistic about our ability to grow at or above rate you know, from a market perspective given everything we've invested in over a longer period of time. And then I would say, you know, it's obvious, you know, property is will continue to soften. Workers' comp is sort of in the same position of, you know, sort of slightly a slight, you know, headwind. Think where we're most disciplined and most firm with is anything that has liability associated association with it. Whether it be commercial, whether it be GL, And then I would just give you a last data point I think our six one renewal written, you know, pricing x comp is, you know, within a couple tenths of lost cost trends. So I think we're keeping up with trend decently. We might be, again, just a little short in the two to three tenths, you know, range. And we'll have to see how, you know, the market plays out in, you know, 2026, but we want to be disciplined, you know, but we also have built, you know, great long-term relationships with our agency partners and brokers that they want to do more business with us just given our capabilities and our customer centricity. So that's what I would say. I don't know. Moe, if you would add anything else. Morris Tooker: No. I mean, I think there's a little bit of a nuance when we get down below into the three business units within business insurance. I think small business again, we've talked a lot about the tailwind we have, the capabilities we've built support we have from the agency base. So we're very confident about our ability to grow in the margins to maintain there. Think in global and middle, it's a little bit more dependent on the market Again, I think that's where we're really gonna go to margin drive the decisions. I think our underwriters 2025 did a superb job making those choices, holding margins and getting reasonable growth. I think the growth in middle and global will be much more dependent on market conditions, and we're watching that very closely. Operator: Thank you. Your next question is from the line of Brian Meredith with UBS. Please go ahead. Brian Meredith: Yes. Thanks. Good morning, everybody. One, I want to dig into the expense ratio a little bit. It's remained relatively stable the last couple of years, and I know you've been making a lot of investments in technology and data and analytics, you know, really to enhance your businesses. I'm just curious, as I look forward, heading into a soft market, your expense ratio is a couple of 100 basis points higher than your big peers. When are we gonna start seeing some of that technology stuff manifest itself and maybe a better expense ratio that could be helpful in a softening market? Christopher Swift: Brian, thanks for joining in the question. You know, I would say you know, when I think about, you know, sort of expense ratio, I still feel like we're in a good place. And I'll say it for, you know, two different reasons. You know, one, I think we are gonna continue to capture more market share. So our growth rate will continue to be benefited or the expense ratio will be benefited by, I think, our higher growth rate. So we'll, you know, earn into that And we have high conviction in the, you know, sort of technology and the AI era that we face that we want to lead there and create something unique, differentiated, and durable, you know, for the future. And so those two things sort of drive, our calculus. But when I would put it all together, you know, I would say in the business insurance, I mean, I could see it getting below, you know, 30% over the next two years, or by the end of '27. I think our personal insurance expense ratio can get to, you know, below twenty five. And, again, that same, you know, time period. And we're making continued investments in our group benefit chassis, particularly on the 500 and lives down. So we're investing capabilities there. We've taken a lot of data sets and applications in employee benefits to the cloud. So know, I could see them getting into the 25, you know, point range and in two years. So again, we're gonna live into what we believe we still need to build and create to differentiate the compete over a longer period of time while managing, I think, an expense ratio that is competitive. It allows us to do the preceding investments that I just said. Brian Meredith: Great. Really helpful. Thanks, Chris. And a follow-up question here on group benefits, particularly on disability here. Thinking about the massive layoffs that we're hearing about, some of these large corporations driven by, you know, AI and stuff, What impact do you think that could potentially have as this unemployment picture looks a little bit more challenging here going forward on group disability loss ratios as we look forward in the next couple of years? Christopher Swift: Yeah. I'm going let Mike add his commentary. But I would say right now, we see the headlines, but when you really look at the data, unemployment is still decent, you know, and it's actually projected to come down. So more jobs, you know, could be created. Know, we got a big national book that is comprised of all different types of industries. Industries like health care that are growing rapidly, You know, it's workforce and technology. We have a good presence there. So Asked. And we'll do that going forward if things were to change. Again, we also are renewing this year, we're renewing about 40% of our book of business. So as we take a look at the experience and what we think prospectively, what could change in the future, we'll reflect that in our pricing. But, again, I've got real confidence in the team, and I think we're gonna manage through any cycle should it present itself. Brian Meredith: Great. Thank you. Operator: Our next question comes from the line of Gregory Peters with Raymond James. Please go ahead. Gregory Peters: Morning, everyone. I think I'm I'd like to focus my first question just going back to the benefits business. The margins are quite strong for your company. And I'm just curious about how you think about the margin outlook considering some of the pressures you talked about, especially the short and long-term disability loss trends that you highlighted during your comments? Christopher Swift: Craig, you know, I would say we remain very bullish on this business. Been a consistent performer. As I said in my opening comments, it's got strong ROEs. If you look at it on a tangible basis, it's probably 16% tangible ROEs. It's been steady, you know, predictable. I think the opportunity we've had is maybe to grow and capture more market share. I think we've improved some of the things that we needed to, particularly our capabilities in the 500 in lives, you know, below market. You know, with a build-out of a capability there that just really coming online one one twenty six. I alluded to in my commentary I'll give you a little more insights of what we call it as known sales right now through January, which is a big, you know, national account, you know, renewal basis. Yeah. But our known sales are up meaningfully. And if I look at, you know, the numbers, I think they're up almost, you know, 45, 50% compared to last year. So that tells me people still want to do business with us. They still like our products, our capabilities, particularly bundling more, you know, supplemental products into it. To with our core products. So really confident that the team is gonna be able to grow. Thoughtfully with good margins. So that's what I would put altogether, Mike, and I don't know if you would add anything else. Michael Fish: Chris, I think you covered that well. I guess I would just add maybe one thing on top of that. You know, as I said earlier in terms of how we think about pricing and underwriting and the discipline that we've managed through. And again, we'll continue to do that going forward. You know, sales were certainly soft in '25. So coming into 2026, as Chris said, feel really good about how the pipeline is looking right now, and I'd say that's a couple of things, in that one. We've talked about the investments we've made in the business, and so those investments are coming through our customers, really appreciating the new capabilities we're bringing to market. So that's giving us really an added hook in terms of getting those customers online. And second, there are three new state programs for paid family leave that are going into effect this year. And so we'll benefit with some meaningful premium, as those states go live in twenty six. Gregory Peters: Great. Thanks for that detail. I guess the other question I'm going to ask is know, I recognize it's just an investment for you, but it's producing good results for your company. And I'm talking about the Hartford Funds. Do you have any updated perspective on how that business outlook for that business this year and how you're viewing your investments? And just any comments on the performance of that business? Because continuing to generate nice returns for your company? Christopher Swift: Yeah. I think you hit it perfectly. I don't even need to respond. I was just gonna say exactly what you said, Greg. Yeah. I mean, it's a good investment. You know, it's grown nicely. You know, it's got after a period of sluggish, you know, growth. I think we're getting back to the ability to have positive net flows. Markets are robust. We still got great sub-advisors, world-class sub-advisors with Wellington and Schroders. So yeah, Beth, I you know, it's a good business. It gives you a healthy dividend. Strong ROEs in the 40%. It's just a lot to like. Gregory Peters: Got it. Okay. Thanks. Operator: Our next question comes from the line of David Motemaden with Evercore ISI. Please go ahead. David Motemaden: Hey. Thanks. Good morning. I just wanted to you know, ask a question on BI. So the mix to property there has been a great story. I think you guys are calling out $3.3 billion for 2025. Sounds like you guys hit that So that's been a good story with the mix shift there being able to offset the workers' comp pricing pressure over the last few years. I guess, how are you thinking about that ability to sort of shift your mix in 2026, just given you know, a softening property environment? Christopher Swift: Yeah, I would say, David, maybe just slight nuance. You know, workers' comp is still highly profitable for us both on an accident year basis a calendar year basis. So I mean, it is contributing meaningfully to our ROEs. That said, I'd like what we did with property this year. Add any color. Yeah. Just we'd say that we're watching and I said this last call too, but they were watching the ENS and the shared and layered space. That's the only place we're really concerned about the rate levels and we're watching that closely. And I think we said it before, but 60% of the BI property book is in the middle and spa space, which we feel like we can compete to recycle. We've built think, market-leading tools, and we're pretty confident about our ability to grow in the small and middle space, and we'll just have to see what happens in the E and S and the shared layer. David Motemaden: Got it. Thanks. And then, just a follow-up. So I know, just looking at the 4.3% all in price I know that includes both pure rate and exposure that acts like rate. So I'm wondering if you could just talk about the moving pieces there. How much of that was exposure that acts like rate how much was pure rate, And then, I guess, just as we think about you know, employment, which is solid, like, I guess, employment growth is slowing a little bit. Just how does that impact your outlook for that exposure piece in 2026? Great. Thanks for the question. 4.3% is all in. I think we quoted in my commentary ex comp that 6.1%. And I would say the exposure, the exit rate compared to that six one is one point eight. Or roughly 70, you know, thirty. Generally, that's been pretty consistent. It could bounce around maybe just a little bit, you know, from quarter to quarter. But again, I'm still optimistic David, on just where, you know, the economic forecasts are, conditions, You know, I think, you know, internally, you know, we talk about maybe a 2.75% to 3%, you know, growth rate employment you know, maybe, actually even, you know, coming down. Or unemployment, you know, coming down. So, yeah, I think '26, I think we feel is still a wonderful year, great year being the PNC business, the employee benefits, you know, business. So, yeah, we're optimistic, you know, we could, you know, manage to different outcomes, you know, depending on what happens with tariffs, depending on what happens with you know, weather or inflation, you know, broadly defined. So that's what I would say. David Motemaden: Great. Thank you. Operator: Your next question comes from the line of Yaron Kinar with Mizuho. Please go ahead. Yaron Kinar: Thank you. Good morning. My first question circles back to the potential impact of AI on the workforce. And here's one possible counterpoint that I've heard is that maybe we actually see some increase in start-up activity in small businesses emerging to support AI capabilities. And I realized I had maybe asking you to plot a crystal ball here, but would that counterpoint kind of resonate with you? Do you think that with larger weighting to the small account space, Hartford could actually be a net winner here. Christopher Swift: Yeah. I believe so. You know, I think we have the brand, the capabilities, the reputation, sort of a tech-forward mindset, obviously, a significant presence in Silicon Valley. So know, tech is an important part of our book today. It's an important part of, you know, middle. It's an important part of employee benefits. So I think the real question you might be asking is just what is the pace? Of new business, you know, formation and development. Is another probably discussion. You know, we should have at a different time. But yeah. I think we can take advantage of tech broadly defined in our SME orientation today. Yaron Kinar: Thank you. And then my follow-up wanna get your initial thoughts on Winter Storm Fern and the potential impact to the industry and then The Hartford Financial Services Group, Inc. specifically. Christopher Swift: I would say, Vasco, I'll give you more details, but a relatively minor event at this point. Beth Costello: Yeah. I mean, obviously, it's very early. And as we, you know, compare what we're seeing for claim activity to some other recent storms over the last several years, the activity is less I know, obviously, we'll continue to watch it. I mean, you know, one thing to keep in mind is when we think about what really impacts claim activity, it's not so much the snow. It's the ice and power outages. So know, that's obviously what we're watching. But as Chris said, overall, feel that it's a, you know, very manageable event for us. Yaron Kinar: So not really comparable to Yuri back in 2021? Beth Costello: Not from what we're seeing to date in the claims activity that we've had. Yaron Kinar: Thank you. Operator: Your next question comes from the line of Michael Zaremski with BMO Capital Markets. Please go ahead. Michael Zaremski: The favorable non-cat property experience. Just curious, like, directionally if you'd be willing to kind of size up, you know, more than a less than a point maybe this quarter and for the full year? Christopher Swift: Yeah. Would say, yeah, for the full year, because quarter, you know, it could be a little bouncy, but we were probably one point ahead of expectations, Beth. But know if she would add any color. Beth Costello: Yeah. I would say that that's, you know, probably in line. I mean, from the prior year, maybe a little less than that in a year-over-year compare because we saw favorable non-cat property in '24 as well. But, obviously, been very pleased with, you know, how the property book has been performing overall. Michael Zaremski: That's helpful. And my follow-up, just kind of getting going along with the technology theme. This morning and, you know, for many quarters now. Kinda curious seeing you Hartford has clearly been on the front foot of adoption. And we can see it in your growth. So just curious, bigger picture, stepping back, do you think technology, like the AI revolution, you know, you said the AI-first mindset. Will this cause technology to be a much bigger differentiator than the past? And if yes, you know, could it cause, you know, M&A or just more differentiation, over time? Or, you know, is it too soon to tell? Thanks. Christopher Swift: Yes and yes. And really what I mean is think it is a game changer. And I think scale matters then to invest overall a multi-year period of time to sort of reinvent your workflows and your customer experiences and have that digital-first meant It's easy to say, but I can tell you, two years into sort of our journey here and there's been a lot of learnings. On a change management, you know, that needs to occur. And yeah, if I think you could see maybe the analogy I would give you, Mike, is you know, the life insurance industry really didn't go through an M&A consolidation, but the top 20 yeah, really control 80%, 90% of the flows. Could see something similar in the PNC business. The benefits business are already there with the top 10, but I definitely can see a have and a have not, you know, type of opportunity. Moe, what would you add? Morris Tooker: I just said, Mike, where we compete in the business insurance space on the small and middle end, and that speed, ease, accuracy we talk a lot about, we think this is game changer and actually going to set the bar in a different place as we think about serving agents and brokers in space. Michael Zaremski: Thank you. Operator: Our next question comes from the line of Robert Cox with Goldman Sachs. Please go ahead. Robert Cox: Hey, good morning. Yeah. I just wanted to ask about the ENS binding growth this quarter and how that fits into plans for next year. Do you still think that taking share in finding can help you out? Continue to have strong growth in small commercial? Christopher Swift: Rob, yeah, thanks for joining us in the question. Yeah. ENS binding and small is a strong business for us with great growth. I would tell you sort of fourth quarter over fourth quarter growth plus 30%. I think for the year, you get closer to 35% You know, that could be a 300 plus million dollar business premium, you know, in 2026 for us. Margins are strong. Yeah. Pricing softening, but as Moe said in his commentary, the starting point matters. Right? So just because pricing are is softening, you know, the ROEs are still strong of what we hold ourselves accountable to. But, Moe, what would you add? Morris Tooker: I just said that the flow to us, submission flow, remains really strong in the ENS finding space. And we don't see that changing. And I think the reason why the flow continues to be so good is we are bringing all the tools from a retail agency experience into the wholesale space. We're finding that it is changing the experience, and we're helping our wholesale brokers make a bit more money on each transaction relative to our peers. Robert Cox: Thanks for the color. And I just wanted to follow-up on casualty. You know, it seems like there's been a little bit of a divergence in views amongst carriers. Some are highlighting greater stability and trend in recent quarters, but then some are talking about, you know, increasing trend and taking charges. So I don't know if you have a views any views on what could be driving the difference in opinion. And, you know, within that, is there any chance we could get some, you know, broadly reemerging casualty caution in 2026 similar to what happened in 2024? Or is there just too much capital chasing risk at that point? Christopher Swift: Yeah. I'm not gonna comment upon others what they say or what they think or how they operate. I could tell you Rob, is that for us, this is the highest focus of execution we have. You know, we know trends are elevated We don't see them, you know, retreating. Know, so that elevation, you know, will require discipline with rate in the primary side, the umbrella side, the excess side. Particularly the, you know, the commercial auto side. So it's probably the biggest main event, you know, that we have here that we watch Moe, from month to month, but that's what I would say. anything? Morris Tooker: Yeah. I just I think this is a place where we think the market's holding up pretty well. It feels stable. I know there's a little bit of movement here and there, but whether it's the GL, the umbrella, the excess, or the auto space, we feel like the market's fairly disciplined, and we don't expect that to change in 2026. Robert Cox: Okay. Thank you. Operator: We have time for one final question. Our final question comes from the line of Katie Sakis with Autonomous Research. Please go ahead. Katie Sakis: Hi. Thanks. Good morning. Thanks for squeezing me in here. I just wanted to shift to the other side of the house with personal lines. Yeah. I think you guys have previously talked about sort of rightsizing profitability there and really getting that book to a point where you're comfortable with the margins. Thinking about, you know, how competitive the broader marketplace has become over the last several quarters, how are you guys thinking about growth efforts going into 2026 and you know, how that might translate to your margin profile on both the personal auto and homeowners business. Christopher Swift: Katie, thank you for the question joining us. I would say we are growth-focused. I mean, we've pivoted to growth probably in third quarter, fourth quarter last year. Everyone else has too. So everyone, I think, has their margins has have been restored as ours. Ours probably took a little longer just given we had twelve-month policies. But I would say, you know, homes performed well for the last five years. But we needed to improve our auto capability. I think you saw, you know, roughly an 11% or 10.5% price increase this quarter. I think for '26, you probably see that sort of harmonize or average out into the six, 7% range. So I think, you know, consumers will feel less need, you know, for rate, which should help new business growth and ultimately, you know, retention. But growth is the focus. But just because it's the focus, doesn't mean it's gonna happen. But as I said in my prepared remarks, and I'll ask Melinda to add her commentary, I think we see good growth opportunities in agency. You know, where in the direct channel, it just might be a little tougher. But, Belinda, what would you add? Melinda Thompson: Yeah. I think, you know, you hit on it the drivers of growth certainly. We're retention and new business are required to, to change the trajectory there. And as auto rate continues to moderate, we do expect less downward pressure on our retention. We've also implemented a number of initiatives to stimulate new business inclusive of marketing, rate, non-rate levers. It is a competitive environment, though. The other thing I would maybe add is we are growing today in age We are growing at home on a year-over-year basis. We are oriented on it, but are doing so, you know, judiciously and appropriately so smart growth, bundled growth, willing to spend a little bit more to get it, but also manage within our expense overall. Katie Sakis: Certainly. And I can appreciate the strategic approach here. I guess, you know, delving a little bit further into the retention discussion. Think we've started to see that improve in auto in late 2025. Do you guys think you've seen the bottom of retention in the homeowners business? With improvement possible in 2026? Melinda Thompson: Yeah. Again, as, you know, as we think about the bundled dynamic, I think that auto and home are definitely linked but we do feel good about the upward trajectory on retention overall. Katie Sakis: Thank you. Operator: I will now hand the call back over to Kate for closing remarks. Kate Jorens: Thanks for joining us today. As always, feel free to follow-up with any additional questions, and have a great day.
Operator: Good day, and thank you for standing by. Welcome to the Brookfield Renewable Partners Fourth Quarter and Full Year 2025 Results. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll 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'd now like to hand the conference over to your speaker today, Connor Teskey, Chief Executive Officer. Please go ahead. Connor Teskey: Thank you, operator. Good morning, everyone, and thank you for joining us for our fourth quarter 2025 conference call. Before we begin, we would like to remind you that a copy of our news release and investor supplement can be found on our website. We also want to remind you that we may make forward-looking statements on this call. These statements are subject to known and unknown risks, and our future results may differ materially. For more information, you are encouraged to review our regulatory filings available on SEDAR plus EDGAR and on our website. On today's call, we will provide a review of our 2025 performance, share our perspectives on the energy market today, and provide an update on the growth outlook for our business. We will then turn the call over to Patrick who will discuss our operating results and strong financial position as well as outline how our increasingly differentiated access to capital is providing a clear advantage for our franchise today. He will then conclude our remarks with an update on our growing asset recycling program. Following our comments, look forward to taking your questions. 2025 was another excellent year for our business. We delivered strong financial results, strengthened our balance sheet and most importantly, further positioned the business to continue delivering strong growth and value creation for our unitholders going forward. This past year, we delivered $2.01 of FFO per unit. Up 10% year over year and in line with our long-term growth target. On the back of solid operating performance, expanded development activities, accretive acquisitions, and growing capital recycling. We deployed or committed a record $8.9 billion or $1.9 billion in growth net to BEP. Highlighted by the privatization of NioN, our carve-out of Geronimo Power in The United States, and our increased investment in Isahan one of our strongest performing businesses over the last decade. We were successful in advancing our various commercial priorities, signing contracts on over nine gigawatts of generation capacity. We also continue to scale our development activities bringing online over eight gigawatts of new capacity globally a record for our business. We delivered on our asset recycling targets, reaching agreements to sell assets generating $4.5 billion of pro proceeds. Or $1.3 billion net to BEP, at returns above the high end of our targets. And we accomplished this all while strengthening our balance sheet, ending the year with $4.6 billion in available liquidity. Stepping back and looking at the broader market today, it is now clear that power is a strategic priority around the world and is the bottleneck to growth for both governments and corporates. Investment in new generation capacity over the past several years was largely about replacing carbon-intensive generation in a world of modest, or even flat electricity demand growth. Today, that backdrop has fundamentally shifted. Energy demand is rising at a pace not seen in decades, driven by the multi-decade trends of electrification and renewed industrial activity. This demand growth is being further amplified by AI, and the unprecedented investment in energy consumption from some of the largest companies in the world. As a result, we are not only transitioning the grid, but adding substantial net new generation for the first time in decades. Said another way, we have shifted from a period focused on energy transition to a period focused on energy addition. This shift is driving a move from incremental grid upgrades to large-scale expansion prioritizing fast to deploy renewables, scale baseload generation, and capacity to ensure reliability. Meeting this demand will require a mix of all the scale and efficient technologies. Over time. Solar and onshore wind will play a critical role given their speed to market and low cost. Hydro and nuclear are important for their baseload and scale, natural gas for its flexibility, and battery solutions will be critical for ensuring the reliability of grids going forward. In this evolving environment, we have deliberately positioned our business at the epicenter of many of these technologies. Allowing us to capitalize on the rapidly expanding opportunity set given our operating and development capabilities, strong partnerships and significant access to capital. First, we are scaling our development of low-cost fast to market solar and onshore wind to meet the accelerating demand for power in the near term. Over the past year, we commissioned a record amount of new solar and onshore wind capacity and are on track to reach a run rate of delivering roughly 10 gigawatts of new capacity per year. By 2027 all while maintaining our disciplined approach to development. Second, against the backdrop of growing demand for reliable base load power, we are well positioned in the current market through our operating hydro assets our ownership of Westinghouse. As power systems require more scale baseload generation, flexibility, and enhanced reliability. The value of hydro is being recognized more than ever before. This has been highlighted by the execution of three twenty-year power purchase agreements at strong pricing with hyperscalers. A first for our business. As well as the signing of the framework agreement with Google to deliver up to three gigawatts of hydro generation in The United States. With respect to nuclear, only slightly more than two years ago, we invested in Westinghouse. Gaining exposure to this critical technology for current and future electricity grids given its scale and baseload characteristics. Our investment was underpinned by Westinghouse's highly contracted infrastructure like cash flows from its fuel and maintenance business, its strong market share, and its leading and proven technology for large-scale nuclear power reactors. The current energy demand environment has reinvigorated the nuclear sector with increasing recognition of the role nuclear can play to enable economic growth and provide energy security. Perhaps the most impactful development for the sector is the recently announced landmark agreement with the US government to deliver new nuclear reactors utilizing Westinghouse technology in The United States. This agreement delivers significant economic value to Westinghouse and BEP via the development of multiple reactors, and then through the long-term provision of fuel and maintenance services over the eighty-plus year life of those reactors. A commitment of this scale provides long-term demand helping unlock supply chain investment, and positions Westinghouse to expand deployment well beyond this initial program. To both corporates and governments in The US and internationally. Since signing this agreement, all parties have been working to progress the sites to construction as quickly as possible largely focusing on-site selection, and the ordering of long lead time items. Against this backdrop, and the known development timeline for nuclear, the limited new hydro capacity available, and the growing backlog for natural gas plants we are seeing batteries play an increasingly important role in the near term. With their importance set to grow over time as additional low-cost renewables come online. Battery costs have declined by an astonishing 95% since 2010. Following a trajectory similar to solar panels a decade ago. And we see a growing opportunity to deploy this technology on a contracted basis at strong risk-adjusted return. Our recent acquisition of NaoN significantly expanded our operating footprint capabilities, and development pipeline in battery technology. And we expect to quadruple our battery storage capacity over the next three years to over 10 gigawatts. This growth is highlighted by one of the largest stand-alone battery storage projects globally, totaling over one gigawatt which we are currently advancing through NaoN in partnership with a sovereign wealth fund. Taken together, rising energy demand across global markets is driving the need for rapid additions of renewable capacity large-scale baseload power, and battery storage. Backed by long-term partnerships with the world's largest corporate buyers of power and governments, we are delivering more generation than ever before. By being positioned in markets with accelerating demand, combined with our global scale, significant access to capital, and our operating and development capabilities across key technologies, we are best positioned to deliver comprehensive energy solutions across all markets at scale and are entering into a period of outsized earnings growth generating significant value for our unitholders over the long term. And with that, I'll pass it on to Patrick to discuss our operating results our diverse sources of scale capital our balance sheet as well as our recent capital recycling initiatives. Patrick Taylor: Thanks, Connor. And good morning to everyone on the call. As Connor noted at the outset of his remarks, 2025 was a strong year across almost every metric. With the business delivering 10% FFO per unit growth. Achieving our target while maintaining our best-in-class balance sheet and further positioning ourselves to generate significant growth and value going forward. In the fourth quarter, we delivered FFO of $346 million up 14% year over year. Or 51¢ per unit. On a full-year basis, delivered FFO of $1.334 billion or $2.01 per unit. Up 10% year on year. Results were driven by the strength of our contracted inflation-linked cash flows across our diversified global operating fleet. Growth from development activities, accretive acquisitions, and scaling capital recycling. Looking across our segments, our hydroelectric segment delivered strong results this year. With FFO of $607 million up 19% from the prior year. Benefiting from solid generation across our Canadian and Colombian fleets higher revenues from commercial initiatives, and gains from the sale of a noncore hydro portfolio. All of which offset weaker hydrology in the in The US. Our wind and solar segments generated a combined $648 million of FFO supported by contributions from the acquisitions of Nayeon, and Geronimo Power, as well as our investment in a portfolio of contracted offshore wind assets in The UK. This growth was offset by gains on sales recorded in last year's results. Which included the sale of Scieta, and the partial disposition of Shepherd's Flat. In our distributed energy storage and sustainable solutions segments, we generated record results of $614 million. Up almost 90% from the prior year. Driven by growth through development the acquisition of Nail and and strong performance at Westinghouse. On the back of continued momentum in the nuclear sector. In addition to the strong results, a continued focus of ours has and will always be to maintain balance sheet strength, financial flexibility. This enables us to be opportunistic when it comes to deploying capital into growth and protecting us against downside risks. We ended 2025 with $4.6 billion of liquidity, And over the past year, we reaffirmed our BBB plus investment credit investment grade credit rating which we remain firmly committed to maintaining going forward. Our rating, significant liquidity, and strong financial position enable us to be very opportunistic with respect to our financing activities. Which further strengthens our balance sheet. In 2025, we executed over $37 billion in financings. A record for our franchise. These financings were highlighted by the completion of $2.2 billion in investment-grade financings. Primarily at our hydro assets. Where we are seeing strong lender demand for these assets and are leveraging the benefits of newly signed long-term contracts at strong pricing. In March past year, we issued CAD450 million of ten-year notes at what was our lowest spread in almost twenty years at the time. We then more recently topped this. Issuing $500 million Canadian of thirty-year notes this January at our lowest spread ever. Reflecting the strong demand for our credit and our ability to be nimble and take advantage of a favorable spread environment. In November this past year, we also executed a 650 million bought deal equity raise in concurrent private placement. We were successful deploying capital ahead of our targets in the twelve months prior to the equity raise, and this financing provides capital to invest even further in the expanding opportunity set in areas where we have a differentiated ability to deploy capital. Such as hydro, nuclear, and battery storage. Our strong balance sheet is further enhanced by the fact that we deploy our capital alongside a large pool of third-party funds raised by Brookfield Asset Management. In 2025, Brookfield successfully completed fundraising of over $20 billion for its second vintage of its global transition fund. This capital will support large-scale investments alongside BEP that few others can make. Further enhancing our access to large, high-quality M&A opportunities that help us achieve strong, and consistent growth. In addition to our financing activities across the business, we are continuing to scale our capital recycling program which is increasingly providing significant liquidity to support our growth and crystallize value creation within our business. We continue to see robust demand from private investors for derisked infrastructure like cash flowing operating assets. At the same time, with our scaling development activities, we have a growing portfolio of assets and platforms that we are selling on an annual basis. The size of our portfolio our flexibility to sell whole platforms standalone assets or minority stakes. Is enabling us to be active in the market. Consistently selling at prices that deliver on our target returns. This past year, we generated record proceeds of $4.5 billion or $1.3 billion net to BEP from asset recycling alone. This year, our asset rotation activities were highlighted by the sale of a North American distributed energy platform. A 50% interest in a portfolio of noncore hydro assets in The U. S, and the establishment of an asset rotation program at Nayeon. That was successful in executing the sale of $1 billion of enterprise value of assets in our first year of ownership alone. Looking ahead, we are focusing on continuing to scale our capital recycling program and generating proceeds from sales in a more recurring manner. In January, we agreed to sell a two-third stake in a large portfolio of recently built operating and solar asset wind and solar assets in North America. Meet certain criteria to the same buyers. This framework Our progress. Throughout the year. We also wanted to note that after the quarter end, we announced a fully discretionary $400 million at the market equity issuance program for our BEPC shares. We expect to use the proceeds to repurchase BEP LP units on a one-for-one basis under our existing NCIB. The purpose of the program is to increase BEPC's float and liquidity in a nondilutive manner. While also allowing us to capture value from the persistent premium at which those shares trade. Providing incremental cash to deploy into growth, or buy back even more shares. Lastly, with our record results, in conjunction with our strong liquidity and robust outlook for our business, we are pleased to announce an over 5% increase to our annual distribution to $1.468 per unit. Since Brookfield Renewable was listed in 2011, we have now delivered fifteen consecutive years of annual distribution growth of at least 5%. Each year. In closing, we remain focused on delivering 12% to 15% long-term total returns for our investors. While remaining disciplined allocators of capital, leveraging our scale and operational capabilities to enhance and derisk our business. On behalf of the board and management, we thank all of our unitholders and shareholders for their ongoing support. That concludes our formal remarks for today's call. Thank you for joining us this morning. And with that, I'll pass it back to our operator for questions. Operator: Star one one on your telephone. And wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from Sean Steuart with TD Cowen. Sean Steuart: Thanks. Good morning, everyone. A couple of questions. To start with. Connor, 2026 would be the first year where you start to, to feed projects into the Microsoft framework agreement. Can you give us an update on progress there and the expected cadence of of capacity into that deal through 2030? How is that advancing at this point? Connor Teskey: Good morning, Sean. I would make this comment more broadly on a wholesale basis beyond very simply our strong relationship with Microsoft. The demand we are seeing from corporates and, in particular, the large hyperscalers is at an all-time high. And I recognize that we've been saying that for a number of years, but that demand just continues to accelerate and continues to grow. And we're seeing that in terms of the projects and the execution that we are doing with counterparties such as Microsoft on an ongoing basis. When we launched that program, we had a defined set of projects in our pipeline that we thought would fill the 10 and a half gigawatts. That was initially outlined. I would say since we announced that agreement in 2025, we are seeing counter parties such as Microsoft look for power in a broader spectrum of regions and markets, particularly across The United States. And even a broader spectrum of technologies to meet their power demand. So we will see growth in 2026 and we expect to see that growth do nothing but accelerate from 2026 through the rest of the decade. Sean Steuart: Okay. Thanks for that perspective. And then Patrick, a question on the balance sheet. You guys were busy with financing initiatives in the fourth quarter, asset recycling. When I look at the ratio of available liquidity versus the scale of the secure development pipeline or versus the installed asset base. Those ratios have moderated a little bit the last 1.5 I I guess any commentary on broader comfort with the the the liquidity position. I appreciate you're gonna be busy recycling assets. Are there ratios you're focused on to sort of sustain a comfort level with available liquidity relative to expanding growth opportunity set? Patrick Taylor: Yeah. Absolutely, Sean. And and I would I would say we're very comfortable. First of all. And and when we think about our available liquidity and and the business obviously having grown over the last several years, we're very focused on sort of maintaining a minimum level in and around that $4 billion mark. We're pretty fairly focused on it. It's not a hard line by any means, but we have been at or around that or above that, I should say, for the last several years at this point. It's a level given the scope of our business today that we feel quite comfortable being at. And to your point, as the development pipeline continues to grow, we're complementing that by scaling our capital recycling as well. So that allows us to be in and around that $4 billion mark and be very comfortable with our funding availability of of our liquidity, I should say. Sean Steuart: Okay. But when you think about 4 billion, I mean, you've you've been there for a while now. You're Your organic growth pipeline expanded really rapidly. You know, is that is is I would imagine there's sort of, like, a dynamic element to this the velocity of capital deployment changes for you guys. You know, as as the organic pipeline grows, is there other thoughts to that? Patrick Taylor: No. I I I think it's fair that as the organic pipeline continues to grow, there'll be an element where we'll we may look to increase that over time. But we're at a level right now where as we look out over the next several years, we're we're quite comfortable at these levels. And part of it is just because of that visibility we see on on accelerating, recycling. Sean Steuart: Okay. Okay. That's all I have for now. Thanks very much. Our next question comes from Nelson Ng with RBC Capital Markets. Nelson Ng: Great. Thanks and good morning everyone. So quick question In terms of the eight gigawatts commission this year, I think about two and a half. Were in North America. But obviously, there's a lot in The US. So when you look at developing projects in The US, are you still seeing any like, headwinds or bottlenecks from from the federal government from a permitting perspective for for onshore wind solar. Like, obviously, it's a different story for offshore wind, but but you're you're doing onshore. But are are you seeing any headwinds there? Connor Teskey: Hi, Nelson. Thank you for the question. Really put this in two buckets. What we would say is, when it comes to solar, which is the the broadest component of our pipeline, solar and batteries in The US, we are seeing no slowdown. We are seeing an acceleration. And this is driven by solar is quick to deploy. It's cheap. It's the lowest cost form of production. And quite frankly, the the corporate need the the power as quick as possible. So on solar, we are seeing no change, if anything, in acceleration. And we're trying to pull projects forward as as fast as possible. On wind, onshore wind, there has been some slowdown in permitting from the federal government, but projects are still getting done. And we've taken that into account into our development and execution process. That's reflected in in the pipeline that we prep we present. I would say that that wind is progressing slower than onshore solar in The U. S. Market, but both are still getting done. Nelson Ng: Got it. Thanks for the color. Then just switching topics a bit. So, obviously, we're hearing a lot a lot about the elevated power prices in The US. And the fact that you are signing more long-term hydro contracts But when I look at your realized power prices for The US hydro segment in the supplemental document. I I think the realized hydro price has been flat year over year at about $83. I'm just wondering whether that's just due to the generation mix given that it was below average in the past year And should we be seeing an increase going forward? Connor Teskey: You you should see an increase going forward. And there there's a lot of different dynamics that flow through those numbers, but the overarching point to be made is the scarcity value of hydroelectric power is at an all-time high right now. And it perhaps gets glossed over in the breadth of our broader business But the three contracts, three twenty-year take or pay PPAs inflation-linked with some of the largest corporates around the world from our perpetual hydro assets. We have never seen demand of that scale at the prices we have seen in, I'd say, the last year, but in particular in the last six months. And as those contracts get layered in, some of those contracts don't start immediately. They start in a couple years when the existing contracts roll off. You will begin to see higher achieved contracted power prices across our hydro portfolio. Nelson Ng: Great. Thanks. And I'll try to squeeze in one more question. In terms of capital recycling, you guys mentioned that you have a I guess, a potential framework to to sell an additional 1 and a half billion to to some buyers to some existing buyers. Like, so when when you look at recycling assets, are, like, how much of your customers are or how much of the buyers are essentially repeat customers? And should that streamline your asset recycling process going forward? Connor Teskey: Short answer, yes. But let me provide a little bit more color. Since we started to grow our development business I would say in 2019 or 2020, our capital recycling activities have understandably grown on a similar trajectory but probably on a three-ish year laggard basis. The the time it takes to to pull a project out of the ground. As a result, over the past two or three years, our asset recycling proceeds have become a very consistent, recurring, predictable source of both funding and earnings for our business. And given the trajectory of our development activities and the visibility of our pipeline today, we would expect this activity to continue going forward with 2026 being no different. Then when it comes to the the recent we will call them frameworks we've set up, in terms of asset recycling, similar to in the past how we have raised capital to facilitate a greater level of deployment into growth. We think about this as raising capital to facilitate a greater amount of capital recycling in the business. And we're we're pretty excited about what we've designed and executed here because what these frameworks and we've executed one and we're pursuing others in different regions around the world that we would hope to execute in the near term. What we have done is we would say we have created almost a a framework or a program to recycle newly built assets at scale quickly on a recurring basis. And the impact to our business is it significantly derisks our development platforms around the world and the business plans we're seeking to execute. And it significantly derisk our capital recycling and funding plans for our business for the next several years. I I will go out on a limb and say, I think this is going to be a huge differentiator for our franchise. Yes. We've signed one, since the end of the year. Focused on North America, but we expect to sign others in the near term here. And these are are very significant in terms of scale. And not only are they going to provide an accretive source of funding for our business, they significantly derisk our development activities that continue to grow. Nelson Ng: Great news. Thanks for the color. I'll leave it there. Our next question comes from Robert Hope with Scotiabank. Robert Hope: Good morning, everyone. So at the recent Investor Day, you spoke quite bullishly about the battery outlook, and I believe you commented that it could be seven gigs in a couple of years. And today, you're saying it could be 10 gigs. Is the accelerating development pipeline here or an increasingly bullish outlook here in part due to the fact that you're seeing larger opportunities? The one gigawatt battery project for the sovereign wealth fund, is this indicative of where you think is going, larger projects to ensure reliability for the grid? Connor Teskey: Yes. And hi, Rob. The the short answer is yes. Make no mistake. Batteries are the fastest growing part of our platform today. And we expect that to continue. This dynamic continues Costs continue to go down. Technology advances continue to be made. And, therefore, we are seeing batteries as a potential solution in more and more of our projects and in more and more of our markets. The other thing we would highlight is we do all think of at Brookfield Renewable, think about battery development probably a little bit different than generation development. Because it can be executed faster. Much of the the equipment shows up prebuilt on-site. And because batteries and energy storage reduce grid, congestion as opposed to add to it, there is significant incentive from grids to bring batteries online faster. Therefore, yes, we have accelerated or increased our outlook for batteries, but it's very simply just a reflection of what we're seeing across our business and what we're doing with our sovereign wealth fund partner, we would expect to do other similar projects, like that going forward. Robert Hope: Alright. Appreciate that. And then maybe turning over to the M and A environment, You've been very successful monetizing assets. But on the other side, acquiring assets, what does that environment look like in a rising price environment as well as the power addition environment. Connor Teskey: So perhaps I'll I'll almost tie this back to Patrick's answer on funding a little bit. We We've always been very opportunistic in terms of funding our business. And right now, we see scale capital as an increasing competitive advantage in today's market. And we see a very constructive market for deployment into growth. This is why we took the decision earlier this year to strengthen our already very strong capital and balance sheet position. Because we do believe we are at the start of a period of very attractive deployment into growth in m and a. And very simply a broader consolidation of our space where we think we can play a very significant role. Thank you. Next question comes from the line of Baltej Sidhu National Bank of Canada. Baltej Sidhu: You, and, good morning, everyone. So, Connor, just given that renewable infrastructure evaluations remain compressed and and you've noted the large largely US based development pipeline Where are you seeing the most attractive risk adjusted opportunities today that operating assets late stage development, or or easy to teach platforms? And do you think that mix will evolve, looking into 2026? Connor Teskey: The the the opportunities we are seeing, are pretty broad based around the world, but perhaps to focus on a few themes that we we are seeing right now. I I would perhaps highlight three where we're seeing the greatest volume of opportunities that we we view as attractive. Absolutely, yes. Public companies. That would be number one. In the current environment. The second point we would highlight would be carve outs. From broader utilities or energy businesses. Because there are such significant capital needs across the the industry, market participants participants are needing to choose where they will allocate their capital budgets. And to put it bluntly, some market participants can't fund a 100% of the opportunities they have at their disposal, and therefore, they may look to sell divisions, that they don't expect to fund all the growth opportunities in, and that could be an opportunity with us given our robust capital position. The the the last point we would make is we are seeing a unique dynamic in the developer market. Where we are seeing a bifurcation between what we would call high quality developers and maybe less high quality developers. High quality developers price at an absolute premium, in today's environment given the growth trajectory of electric demand and the value of projects that can be pulled out of the ground. However, developers that maybe don't have scale capabilities, to navigate the current environment, but do have large pipelines of projects. We we are seeing more attractive pricing at at that end of the market and and would expect to be active there in order to add projects to our pipeline. That we can then contract the demand we're seeing from our customers. Baltej Sidhu: Just wanna work for me. On the case via title that you had had alluded to and speaking towards the Google HSA, which could see you potentially acquiring an hydro to facilitate the entirety of the three gigawatt. What are you seeing in the market, and and how are you thinking about it just looking forward in that regard? Connor Teskey: Sure. What we would say when it when it comes to hydros is it very much, depends on location. As mentioned, we've seen really strong demand for our hydros and and premium valuations both in contracts and in assets in markets in The US like PGM and MISO. And our activities in 2025 reflect that. However, what I would say is what we are seeing is the offtakers of these hydro assets, increasingly looking now beyond those two markets which have really been their focus, I would say, for the last two years. Therefore, when when we look, to potentially acquire assets, we're probably looking for assets in these markets that have been viewed as non noncore in the past where we can acquire assets execute operational improvement programs, and re Question. You mentioned the better storage opportunity. I'm curious couple of things is is is applying mostly greenfield development So you picked up a couple meg actually, quite a number of megawatts from from Neon. Or are there opportunities to to also do do M and A And then I'm also secondly curious the revenue model will storage for for you specifically, is that do you expect to be mostly contract, or is there a fair element of of merchant arbitrage? And there? Good morning, Ben. Great question. So in terms of batteries, we we view ourselves to be in quite a a a fortune position because we do have a very large organic development pipeline. A lot of that did come through the acquisition of Nailwind. Candidly, Nayawen was the largest acquisition in the history of Brookfield Renewable. We recognize that perhaps a lot of people knew Nayeon as a leading global renewable power developer. We we obviously saw that and the value of that. But we thought what was underappreciated in their business is the fact that they're the leading global energy storage developer as well. And what you've seen in our first year of ownership is us really accelerating the growth in the business, but particularly on the energy storage side. We are also looking at m and a opportunities in the battery space, but we've positioned ourselves that we can be, quite discerning and balance the the return we're seeing in m and a versus the returns we're seeing in, organic development. To your question about contracting, we're very excited about the evolution of what we've seen in the energy storage space where only perhaps two, maybe three years ago, a lot of the revenue models were arbitrage or or merchant related. Increasingly, what we are seeing is long-term tolling or almost take or pay capacity contracts on newly built battery assets. And very simply, as an example of the large project that Nayeon is is pursuing. That would be on a 100% contracted basis for the entire life of those assets. So a a development in revenue profile very much in line with or potentially even stronger than what we do all day every day on the wind and solar side. Baltej Sidhu: Okay. Understood. Thanks for that. And then can I also ask him offshore wind side? You previous comments, you you didn't like it for a while. Maybe seven, ten years, you got maybe more open to it. They did a deal for that. Where does Brookfield stand today then on offshore wind? Understandably, it would be very, market specific. But we are seeing some markets We we won't bury the lead here. Europe, in particular, increasingly more constructive from an offshore wind perspective. And we are evaluating opportunities in the space there. That being said, as with everything, we we will compare the investment profile and the risk return we see in those opportunities versus what we see elsewhere in the portfolio and only pursue them if we we think we're being appropriately compensated. Baltej Sidhu: Okay. If I may it's a follow-up on on that There there's been maybe a trend of offshore wind assets in any year as they reach end of contract life, they become more merchant like? Is that something that maybe Brookfield could opportunistic take advantage of? Certainly. And in particular, if we could bring our our contracting to bear, such that we could acquire those assets based on a merchant profile, but bring our power marketing capabilities to to quickly derisk them through a new long-term contract, yes, that's absolutely something we would look at. We would be clear that we've seen a couple of those opportunities, but it's it's not the largest opportunity set in the world today. Baltej Sidhu: Okay. Understood. Okay. Thanks, Connor. Our next question comes from Anthony Crowdell with Mizuho. Anthony Crowdell: Good morning, Connor. Just a quick one. A follow-up maybe on the previous question or two questions on PJM. Just several weeks ago, the Trump administration created that backstop auction. Which is a very light on details. I'm just curious if you think that plays maybe or pushes hyperscalers to focus more on Brookfield Renewable's development side where you bring a new generation in or the company could be opportunistic with some repricing, some existing generation? Connor Teskey: Good morning. So the the activity in the announcements around PJM, we very much see this as simply a reflection of the demand for energy and, quite frankly, how tight the the system has become in particular, in markets with the highest levels of energy demand growth. We we've been saying for years that the supply demand imbalance has been growing materially. And this inevitable evolution leads to the immediate need for for large-scale capacity to be added to to grids around the the world and in different markets in The United States. So from our perspective, one of the most constructive outcomes of this discussion is that it should create a dialogue to facilitate an acceleration of new capacity coming online over the long term. That's obviously incredible for the market, and it's incredible Growing in incremental demand. We view this as a step towards addressing the underlying supply demand imbalance for our business sorry, addressing the underlying supply demand imbalance in that market. Great. Well, you everyone for joining our Q4 conference call. We appreciate your continued support and interest in Brookfield Renewable, and we look forward to providing an update after Q1. You, and have a great day. Operator: This concludes today's conference call. You for participating. You may now disconnect.
Operator: Good morning, and welcome to the Olin Corporation's Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw the question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Steve Keenan, Olin's Director of Investor Relations. Please go ahead, Steve. Steve Keenan: Thank you, operator. Good morning, everyone. We appreciate you joining us today to review Olin's fourth quarter 2025 results. Please keep in mind that today's discussion together with the associated slides, as well as the question and answer session that follows, will include statements regarding estimates or expectations of future performance. Please note these are forward-looking statements and that Olin's actual results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections are described without limitations in the risk factors section of our most recent Form 10-K and in yesterday's fourth quarter earnings press release. A copy of today's transcript slides will be available on our website in the Investors section under Past Events. Our earnings press release and related financial data and information are available under Press Releases. With me this morning are Ken Lane, Olin's President and CEO, and Todd Slater, Olin's CFO. We'll start with some prepared remarks, and then we'll look forward to taking your questions. In order to give everyone an opportunity, we will limit participants to one question with no follow-ups. I'll now turn the call over to Olin's President and CEO, Ken Lane. Ken Lane: Thanks, Steve, and thank you to everyone for joining us today. Let's start with Slide three and review our fourth quarter highlights. As we previously announced, our fourth quarter came in significantly below our expectations. In December, we experienced operational issues related to an extended turnaround of our Freeport, Texas chlorinated organics assets and third-party raw material supply constraints, both of which impacted our core alkali assets. At the same time, we also experienced a sharp decline in chlorine pipeline demand in an already seasonally weaker quarter. During the quarter, we were able to preserve our ECU values by staying disciplined with our value-first commercial approach, and we also announced the long-term EDC supply agreement with BroadsChem, which provides a higher value to both parties by integrating the low-cost producer of EDC with the leader in PVC in Brazil. In addition, we've expanded our infrastructure footprint in Brazil, which enables us to grow our caustic sales there in 2026. In our epoxy business, we were able to contract for significant growth in our European business, which we'll begin to benefit from in 2026. This is a result of our commercial team's successful strategy to position Olin as the last integrated supplier of epoxy in Europe, providing reliable, secure supply to local customers in the face of continued headwinds from subsidized Asian producers. In our Winchester business, we took aggressive action to accelerate inventory reductions across our system and began efforts to rightsize our cost structure in response to lower commercial ammunition demand. Cash generation is a high priority for Olin, especially in the trough environment that we're in. I'm very proud of how our team has responded, and through actions that we took, we were able to generate $321 million of operating cash flow and hold net debt flat versus year-end 2024. Let's turn to Slide four for a closer look at our chlor alkali product and vinyls results. Macro conditions remain challenging. Merchant chlorine demand remains under pressure through this extended trough as subsidized Asian chlorine derivatives flood export markets. Since 2019, China exports of titanium dioxide, urethanes, epoxies, crop protection chemicals, and PVC have grown 300 to 600%, placing significant pressure on US chlorine derivative customers. As you would expect in a trough environment, we are already seeing chlor alkali capacity rationalization in Europe, Latin America, and the US, which should accelerate operating rates as demand recovers. Olin has done a great job of preserving our ECU values and remains committed to our value-first approach. We are well-positioned when markets recover from the trough. As we look ahead to the first quarter, we'll continue to face headwinds related to power and raw materials. As a result of winter storm Fern, we proactively shut down several of our Gulf Coast assets, which will increase our first quarter costs. In addition, we'll see higher turnaround costs as we begin our VCM turnaround at our Freeport, Texas site. This is the single largest turnaround that Olin executes and occurs every three years. Global caustic soda demand remains healthy, led by alumina, water treatment, and pulp and paper. Olin ended 2025 with very low inventories, and we're seeing good momentum on our caustic soda price increase. As seasonal demand returns this spring, already low inventories and planned industry turnarounds are expected to further tighten caustic supply. Our full-year 2026 chlor alkali outlook remains challenging. We expect global vinyls pricing will remain under pressure. Rising US natural gas power and feedstock costs will present a headwind in contrast to falling global oil prices serving to erode the US cost advantage. In the near term, Olin faces stranded costs of approximately $70 million resulting from Dow's recent closure of their Freeport propylene oxide plant. This cost burden will be offset by our beyond $250 structural cost reductions, which I'll discuss shortly. Now let's turn to slide five for a look at our epoxy results. Our fourth quarter epoxy results sequentially increased due to improved product mix, allelix, and aromatics margins, partially offset by higher turnaround and seasonally lower demand. As we look ahead to the first quarter, we do expect our epoxy business to return to profitability, although at a low level. This will be realized through actions we have taken by growing our participation in the European market, realizing lower costs at our Stade, Germany site, and lower turnaround costs. As we look out further, structural changes in our cost position, recent European epoxy chain plant closures, and continued growth in our formulated solutions portfolio will support a return to profitability for 2026 as well. Over the past three years, Olin's epoxy business has remained focused on cost reduction. In that time, we've reduced our global cash cost by about 19%. Our most recent action was this month's closure of our Guaruga, Brazil epoxy plants. This shutdown is expected to deliver $10 million of annual structural savings. Also, in 2025, we continue to deliver on our formulated solution sales growth. These solutions enable AI chips to better manage heat and conductivity, allow lightweight wind blades to exceed 500 feet in length, and serve as adhesives in some of the most challenging environments and applications. We will continue to benefit from that growth in 2026. Now please turn to Slide six for an update on our Winchester business. During the fourth quarter, Winchester took aggressive action to adjust its operating model to reflect lower commercial ammunition demand and significantly reduce inventory. As expected, we realized higher military and military project sales, which was offset by these lower commercial sales and higher metals and operating costs. Winchester's first quarter priority will be the implementation of our commercial ammunition price increase. Our new pricing is expected to offset the majority of 2025 cost escalation. As we begin 2026, commercial shipments will continue to be made to order and subject to our increased pricing. As we look back at 2025, we've seen a significant decline in demand for commercial ammunition back to pre-COVID levels. In response, our Winchester team has taken the necessary actions to align our production capacity with today's reduced demand. We've eliminated shifts, reduced headcount, and restricted overtime across all Winchester plants. At the same time, ammunition imports have slowed dramatically in the face of US tariffs as high as 50%. Last year, imported ammunition satisfied approximately 12% of US demand. In the most recent September import data, imports from Brazil, which typically is the largest importer, have disappeared completely. Domestic and international military sales continue to grow as NATO countries expand their defense budgets and the US increases its own defense spending. Our next-generation squad weapon project remains on schedule and will be the most modern and sophisticated small-caliber ammunition plant in the world. Winchester's 2026 outlook still faces significant cost headwinds from higher copper, brass, and propellant costs. Winchester 2026 tailwinds include expected sales growth across domestic military, international military, and military projects. Commercial volumes and pricing are also expected to improve during 2026. Retail sales have begun to show year-over-year improvement, albeit over a low baseline, and retailer inventories have come down significantly. Let's turn to slide seven for a high-level view of our BEYOND $250 structural cost savings program. Olin's Beyond $250 structural cost reduction program focuses on the identification and removal of inefficiencies. During our 2024 Investor Day, each Olin business made a cost savings commitment, and we are focused on delivering these savings as quickly and efficiently as possible while maintaining safe and reliable performance of our assets. In 2025, we delivered $44 million in structural cost savings, and we expect to add an incremental $100 to $120 million of annual Beyond $250 savings during 2026, spread across our three businesses. As I discussed last year, we've enlisted outside expertise to help review our organization and processes against industry best practices. We've begun to improve efficiency at our largest site in Freeport, Texas. By streamlining our work processes, we've already been able to achieve a meaningful reduction in staffing. Through this exercise, we've identified many key performance metrics and gaps to close. For example, our contractor time on tools was well below industry best practice, and our overall reliance on contractors was excessive. With our new organization, work processes, and performance tracking, we have a clear line of sight to deliver these additional cost savings in 2026. Our Freeport plant is the pilot for this improvement program, which we're now rolling out across our other global sites. At the same time, Winchester has been rightsizing their staffing and operations to reflect lower levels of commercial ammunition demand. Both of these efforts combined have resulted in a reduction of more than 300 employee and contractor positions during 2025. We expect to realize a similar level in 2026 as we implement the same efficiency measures at our other sites. In 2026, we'll begin to see the benefits of our new supply agreement at our Stade, Germany site. We expect to realize $40 to $50 million of savings related to that in our epoxy business through the year. As mentioned earlier, Dow's closure of its Freeport propylene oxide plant has created a $70 million stranded cost headwind for Olin. By optimizing our power supply, we've already managed to offset approximately $20 million of that stranded cost. Earlier this month, we announced the closure of our production plant in Brazil. We'll be able to more cost-effectively serve our customers there with supply from either Freeport or Stade, both of which are vertically integrated with better cost structures. As a result of this action, we expect to realize a $10 million annual benefit. With the progress we made in 2025 and visibility of savings in 2026, we're confident we can exceed the $250 million savings commitment we've made during our 2024 investor day. Now I'll turn the call over to Todd for a look at our financial highlights. Todd Slater: Thanks, Ken. Let's review our cash flow, liquidity, and financial foundation. Despite the challenges we encountered that impacted our adjusted EBITDA during the fourth quarter and throughout 2025, I'm pleased to report that we successfully achieved our 2025 cash flow and working capital objectives. In the fourth quarter, we generated approximately $321 million in operating cash flow, which enabled us to keep our year-end net debt at a level comparable to where it stood at the end of 2024. Throughout 2025, our team's proactive working capital reductions contributed $248 million in cash, excluding the timing of tax payments. As we closed out the year, our available liquidity stood at $1 billion. Preserving and enhancing liquidity continues to be a top priority for us, particularly as we navigate this extended period of lower demand in our businesses. We continually review all sources and uses of cash with the goal of cost-effectively maintaining adequate liquidity to support our business. Our debt profile remains managed. Early last year, our team executed a well-timed bond issuance and debt refinancing, which provided a leverage-neutral extension to 2033 of our nearest bond maturities as well as an extension of our senior bank credit agreement from 2027 to 2030. Importantly, we have no bonds maturing until mid-year 2029. Our debt structure consists of manageable tranches with staggered maturities in the years ahead. We remain firmly committed to managing our balance sheet in a way that maximizes our financial flexibility in the future. Now let me take a moment to discuss our outlook for expected sources and uses of cash in 2026. First, regarding cash taxes, we anticipate receiving refunds from prior years related to the clean hydrogen production tax credits under section 45B as part of the Inflation Reduction Act of 2022. Factoring in these refunds, we expect 2026 to essentially be a cash-free tax year, plus or minus $20 million. We are proactively managing our capital spending. As we further strengthen our financial resilience, any remaining excess cash flow after the preceding capital allocation priorities will be used to reduce our outstanding debt. As a reminder, due to our normal seasonality of working capital, we expect net debt to increase during 2026. We remain focused on minimizing our typical seasonal inventory build. Our teams remain dedicated to generating cash, maintaining strict cost discipline, and supporting our Beyond $250 cost savings. We are committed to maintaining a prudent capital structure with a strong balance sheet and robust cash flows. Ken, I'll hand the call back to you. Ken Lane: Thanks, Todd. Let's finish up with slide nine and our outlook for the fourth quarter. We expect to deliver first-quarter earnings lower than the fourth quarter of 2025. The main drivers behind that are continued seasonally weaker demand and higher costs in our CAPV business, as we previously discussed. We're seeing positive momentum with caustic pricing and expect to see more benefit from that as we move through the year. Epoxy results will be sequentially higher, driven by higher volumes and lower costs in Europe from the new Stade contract taking effect, partially offset by a less favorable product mix. Winchester results are expected to modestly improve from the fourth quarter with higher commercial ammunition volume and pricing to offset rising copper and brass costs as well as lower operating costs from our new operating model. While we're not satisfied with our results, everyone at Olin is focused on executing our value-first commercial approach, delivering our Beyond $250 cost reductions, and controlling what we can control to drive better business outcomes going forward. Across our businesses, our team is committed to maintaining leading positions, and I'm confident that we are well-positioned for the future. Operator, we're now ready to take questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. Our first question comes from Aleksey Yefremov from KeyBanc. Please go ahead. Aleksey Yefremov: Thanks. Good morning, everyone. You described a sharp decline in chlorine pipeline demand in Q4 as one of the biggest headwinds, and I'm curious if it remains a large headwind in the first quarter, and if so, when do you expect that chlorine demand to recover? Obviously, consultants are describing a more competitive merchant chlorine market. Is this part of the story here, or is this something idiosyncratic to your customers, and do you still have those customers and have the same market share or not? Ken Lane: Hi. Good morning, Aleksey. Thank you for your question. So, yeah, listen. We saw the decline that we were referring to for the chlorine pipeline demand. That really happened in December, late in December. As you can imagine, it's pretty easy to reduce that off-take when you're on a pipeline. So we saw that happen. We think it was primarily related to destocking. We were already seeing the seasonally lower demand. It just right at the end of the year, it went down even further. Now that was a contributor to the lower earnings, but also the costs were a larger contributor to the earnings decline that we had talked about for the quarter. You know, we are going to still see seasonally low demand in the first quarter of 2026. I don't expect to see what we saw in December happen again in the first quarter, but you know, we're not going to see a large bounce back in demand. You start to see a recovery until we get into the warmer weather months, water treatment demand, and that sort of thing, that won't happen before the second quarter. So we're still going to be very aggressive on maintaining our costs and making sure that we're being disciplined around our operating rates because that's what we can control. And the other thing that I want to mention is just related to caustic. There's no issue with demand on caustic. What we see happening on caustic is we don't have the volume to sell. The market is tighter than what people think, and we actually are going to see a little bit lower volumes in the first quarter on caustic. That's an availability issue, not a demand issue. Operator: Alright. Next question comes from David Begleiter with Deutsche Bank. Please go ahead. David Begleiter: Good morning, Ken. One of your competitors has announced some capacity closures in North America. Can you discuss how you think the impact of those closures will be felt and how beneficial it could be to Olin in 2026? Thank you. Ken Lane: Good morning, Dave. Thanks for joining us. So listen, like I had said in the prepared comments, we have been seeing rationalization of capacity occurring over the last twelve to eighteen months in pretty much all regions of the world. So it's not surprising when you're at the trough that you're seeing less cost-competitive assets being shut down. And our view has been that operating rates will improve, supply-demand balances will improve quicker than what you may be seeing in a lot of the because of that. That's what happens in every trough. And this is just another example of that. So again, while we're in a situation of this longer trough that's been exasperated by the additional capacity that's been added in Asia, you are starting to see those rationalizations occur. Demand has not come back. And when demand does recover, and it will one day, I know sitting here today, it may feel like it won't. But we're ready when it does. We're doing the right things to prepare our assets. We made a step change in our performance in 2025 in terms of safety, and that goes hand in hand with reliability. Those are very big focuses of our organization. And so what we've got to do is be really good at having the most cost-competitive assets, the most reliable, and the safest assets to be able to supply the markets that we serve. Operator: Our next question comes from Kevin McCarthy with Vertical Research. Please go ahead. Kevin McCarthy: Yes. Thank you, and good morning. Ken, can you comment on how military demand trended at Winchester in 2025, how much that might have been up versus the pressure that you discussed on the commercial side? And looking ahead, I think you made a comment that maybe commercial demand is starting to trend positively on a year-over-year basis. So what is your outlook in that regard for 2026, please? Ken Lane: Good morning, Kevin. Yeah. So listen. What we saw in 2025 was significant growth in revenue related to military, both domestic and international. Now a lot of that gets skewed by the project revenue that you see related to the next-generation squad weapon facility at Lake City. That project is going very well. I do expect, you know, we're even sitting here today, we're a little bit ahead of schedule. And so we feel really good about that project being on track to continue to realize growth related to that even in 2026. If you just think about the ammunition sales, yes, we did see growth even in the ammunition sales. The highest growth would have been in the international military space. That's growing off of a small base. So as a percentage of our total military sales, you know, it is a smaller percent of military sales, military than the domestic military. But we expect to see that continue to grow in 2026. All of that gets diluted by that project revenue, though, that you see coming through related to the Lake City project. We are seeing the fruits of some of the actions that we have taken in the second half of last year by being more disciplined in what we're producing and shifting our model to more of a make-to-order. You know, if we don't see the orders, we're not making the rounds. We've got to have visibility to that demand, and so that has helped us pull our inventories down. We've seen in the value chains, you know, at the retailers, their inventories have come down. And now we've got to start the process to be able to rebuild our margins. We've got to start passing through a lot of these cost increases that we saw in 2025 that are continuing into 2026. You know, brass and copper are real headwinds for us. And so that has got to get absorbed in the market. And so we're being, again, we're being very disciplined about the implementation of these price increases. And, you know, where we're not seeing that, then we're not going to be making the rounds. So we're going to continue with that. The green shoot that I'll comment on, though, is that we are seeing since December, and it has been continuing, you know, we are seeing weekly improvements in out-the-door sales at retailers. And so that is a very positive sign. I think that you are starting to see things get more balanced in that market. And with Chester being the leading brand, you know, we're going to be very disciplined because we're going to leverage that brand value. We're the leading brand in the industry, and we've got to make sure that we get the margins that reflect that. Operator: Our next question comes from Patrick Cunningham with Citi. Please go ahead. Patrick Cunningham: Just in terms, you know, last year, you started the PVC tolling arrangement. Now you have the Braskem ADC. Any updated thinking on additional downstream participation in chlorovinyls, whether it be expanded tolling arrangements or, you know, perhaps investing in your own PVC assets? Ken Lane: Good morning, Patrick. Listen. Vinyls, obviously, is a very important market for us. As you know, we've talked a lot about that. You know, we continue to participate in the PVC market at a low level of volume. But it is giving us the ability to see and learn a lot of things around the customers, around the product portfolio, and really educate ourselves on that decision. We haven't taken anything off of the table in terms of our options that we are considering and that we're looking at. We continue to make very good progress on looking at potential expansion into PVC, which would include joint ventures, some sort of a joint investment or partnership. You know, we're looking at technology providers and, you know, potential locations to be able to execute that. That all is underway, and that all is in flight, but we're not taking any option off the table, including continuing the relationship that we have today with our fence line customer at Freeport, Texas. So all of that is still in play. Long term, we are very optimistic around what we see in the PVC market. Yes, today, there's been too much capacity added. The demand has not come back, particularly in China. But that is going to get corrected over time. And so we're talking about a 2030, 2031 sort of timing for doing anything here. Today, there is not anything more definitive that we could say about that. Operator: Our next question comes from Hassan Ahmed with Olympic Global Advisors. Please go ahead. Hassan Ahmed: Morning, Ken and Todd. You know, just wanted to dig a bit deeper into the Q1 guidance you guys have given. Maybe you guys could sort of talk it through in terms of a sequential bridge. What I'm just trying to understand is that back in the day, you guys would talk about $1 a million BTU swing in nat gas prices being around $45 to $55 million worth of an annualized EBITDA swing. And this is, you know, obviously, before you guys down some capacity and the like. So would love to hear where that figure sits. And if, you know, Q1 had relatively normal nat gas prices, you know, what your guidance would have looked like and what your guidance would have looked like in the absence of maybe some of the weather-related capacity shutdowns you guys have done. And, you know, if I could also add on what that guidance would have looked like in a relatively normal sort of copper pricing environment? Ken Lane: Good morning, Hassan. Thank you for joining us. Listen. I know that some of that is what we've done in the past, but I would just tell you that I think when you start giving out those kinds of metrics, there tends to be too much with other data that they don't have. People lean on those too much, and they start trying to reconcile things. It ended up creating more questions and confusion than it's worth. So let me give you a little bit of a bridge on a year-over-year basis because that's probably a cleaner way to think about this than sequentially just because what we had in Q4 is not necessarily the same thing that we see in Q1. But if you think about it year over year, one of the biggest headwinds that we've got in our chlor alkali business is a significant increase in turnaround spend year over year. That's 40-ish million year over year. '24, '25 versus '26. The other thing is we are seeing significantly higher costs for power and natural gas. You can go look at that, and you can see what the numbers are, but both are going to be higher this year. Including now the impact of this winter storm Fern, we did proactively shut down some assets, but at the same time, we were still running some assets. So the power that we were consuming was at a higher price. But there are also costs associated with not running assets during that time when we were shutting those assets down. Now just to give you an idea, we're still completing the restart of those assets. So not everything is back online. But we should be by the weekend is my expectation. The other thing related to that winter storm Fern is our Oxford, Mississippi facility with Winchester is still down. You've probably seen some of the news coverage around Mississippi. They were sort of the direct hit of that ice storm. Employees are still not able to get to work. In some cases, you know, we're not seeing many people being able to get into that facility. So that's going to continue probably into next week, realistically. So, you know, those headwinds, obviously, we did not have year over year. Epoxy is going to be an improvement. Winchester is down. You know, net-net, those are probably about a wash. If you think about the '25 versus '26. So that's how I would, you know, kind of steer you on that without trying to give you numbers that you're going to screw yourself in the ground around because there are just going to be other variables that you're not going to be able to figure out. So hopefully, that helps. Operator: Our next question comes from Frank Mitsch with Fermium Research. Please go ahead. Frank Mitsch: Thank you, and good morning. I may have missed this in the past, but I wanted to ask about this $70 million stranded costs for the PO-related closure. You know, Dow announced this back in May 2023. And so, you know, obviously, you've known about it for a long time. And, you know, could plan for it, etcetera. That $70 million sounds like a very large number. Can you help explain that to us? To me in particular? Ken Lane: Yeah. Good morning, Frank. For your question. Listen. Yeah. We have known about this for a long time, and we've been planning it. And we talked about this at our investor day. You know, we knew that this was coming, but you don't take the costs out until you shut the asset. And so those assets are being closed and wound down as we speak. So as we go through the year, we're going to have to find ways to be able to offset that, and that was the basis for us creating Beyond $250. We've got to find ways to be able to take those costs out. The way that we were talking about this, I think, previously as well is that asset and the sales from that asset didn't generate any margin for us. It was a sort of a net-zero effect for us in terms of the P&L. That doesn't mean that there would not be stranded costs with that. We were aware of that. We've got to get after that. That is a very clear focus for us to be able to do that as we wind those assets down. But that is going to be something that happens over time. It doesn't happen like flipping a switch. Operator: Our next question comes from Josh Spector with UBS. Yeah. Hi. Good morning. Josh Spector: I just wanted to ask, if you look at the fourth quarter and first quarter in chlor alkali, and you just look at the things which are related with extended downtime, third-party outages, your own inventory actions, what was the impact in the fourth quarter? And what's your baked-in impact in the first quarter? Ken Lane: Good morning, Josh. Well, you know, like I said, there are a lot of things. There are a lot of variables that are going into that, including unplanned outages in our system. And present a little bit of a volume issue for us in the first quarter related to being able to meet the demand that we see, and that's why we're so confident in the momentum that we see around caustic pricing. But you're really, it's really difficult to give you any more details than that. I think there's a lot of misconception out there about the marketplace. And what we see in terms of supply and demand. Things are tighter than what people believe. And I think that's one of the things that we are going to continue to realize as we go through the first quarter and into the second quarter, we're going to start to see that movement in pricing that reflects the situation in the market. Operator: Our next question comes from Matthew DeYoe with Bank of America. Please go ahead. Matthew DeYoe: Morning. Like the prior kind of commentary for 2026 epoxies, I think we were expecting something around $80 million in cost savings, of which, you know, over half was supposed to come from just the Dow contract, Lapchada. Clearly, you're talking about modest profitability. Now this wouldn't be the first case. Productivity is lost to the cycle, but I'm just trying to clarify if that's what's happening here or if we should expect those savings to be more ratable in 2027. Yeah. I'll let you expand from there. Ken Lane: Good morning, Matt. Hey. Listen. So what we had said back at Day, that $80 million, remember that that was our cost-out target for 2028. You know? So that you're going to realize a very big chunk of that. You know, $40 to $50 million is going to be realized in 2026. So, you know, you are going to see, you know, epoxy last year, $50-ish million EBITDA negative. We're going to be positive this year. I mean, I do expect that that's going to be the result. And in 2026. So you're going to see a meaningful improvement in our earnings. Most of that are things that we're doing to help ourselves in cost reduction and efficiency improvements. Just to be clear, we're not seeing any significant improvement in the epoxy market. Demand is still subdued. Margins are still weak. You know, that environment has not changed. So all of this improvement that you're seeing is a result of what we've done. And so it's not getting lost anywhere. You're going to see that positive impact coming through in 2026. Operator: Our next question comes from Mike Sison with Wells Fargo. Please go ahead. Mike Sison: Hey, guys. Just curious when you think about improving EBITDA sequentially throughout the year, what do you think needs to happen? Obviously, would be great, but you have a lot of cost savings. Can you maybe just give us a feel of, you know, what could happen heading into 2Q, 3Q that could really maybe improve the EBITDA levels from where we're at now? Thank you. Ken Lane: Good morning, Mike. Well, listen. Like I have said, we are going to be really focused on everything that we can do to ensure that we're becoming a more efficient company, reducing our costs, in the face of a very difficult market that we're in today. I am more bullish on what we expect to see around caustic pricing. The cost reductions, you're going to start to see that come through here in the first quarter, particularly around the epoxy business. We've talked a lot about that. And then, frankly, we've got to execute on this turnaround in Freeport. You know, it's starting here in the first quarter, at the end of the quarter, and it's going to go into the second quarter. So that headwind is going to stay there in Q2 related to the VCM turnaround. So we have to execute that very well. And the team has done a great job preparing for that, planning for that. I've reviewed where they are in terms of being prepared, and, you know, we've got to make that a reality now. So execution, running the assets reliably and safely, and executing this turnaround, those are the things that we can control, and that's what we're going to be really focused on to deliver those cost reductions. And then as we see demand recover in Q2 and pricing improve in Q2, that's going to give us some momentum, but we're not going to quantify that at this point. Operator: Our next question comes from Matthew Blair with TPH. Please go ahead. Matthew Blair: Thank you, and good morning. Could we circle back to this mention of higher energy costs? I think it was on Slide nine. We normally think of Olin as fairly hedged on a quarter-over-quarter basis. So is this just a function of rolling to a new year, or has anything changed on your overall hedging strategy? Ken Lane: Good morning, Matthew. Todd, do you want to take that one? Todd Slater: Yeah. No. Great. Thanks for the question. Yes. You're right. We continue to be a hedger. One quarter out, we're very heavily hedged, generally on a rolling four-quarter basis. And so, you know, without the spike in natural gas that you saw associated with the winter storm and cold weather here in January, we would have expected, you know, based on our hedges, that natural gas and our power costs would have been higher. Candidly, that will be exacerbated by the unhedged component, you know, here in January. Associated with that. And for Todd, for 2026 for the full year, do you have any cash flow or free cash flow or working capital objectives? So listen, won't get specific on the broad chem arrangement. Again, that is one where it's a great partnership that we've created there. Like I said, we brought together us, Olin, as the low-cost producer of EDC, together with the PVC leader in Brazil, and this is going to create value for both of us. So, you know, it's going to allow us to get a higher value for our ADC versus, you know, selling it on the spot market and the export spot market. It's going to allow them to have a better cost position to be able to compete with their PVC in Brazil. The other component of this, though, is around caustic. So we do have a larger footprint now on infrastructure with caustic infrastructure in Brazil. So we've also inherited a lot of that infrastructure in terms of tanks and ports and access to be able to move caustic into the region. And so that's going to help us, probably even more so than the EDC side of this. You know? EDC prices have come down so much through the year. You know, if you just think about if you go back to the first quarter of last year and that bridge that we were building earlier, you know, vinyl's pricing has come down significantly from the first quarter of 2025. And so, you know, as prices recover, that's going to be more of a tailwind. But, you know, we're not projecting any significant improvement in vinyl pricing in the near term. So I would say let's not get over our skis on that at this point. It's probably more of a caustic story, and we will know, we'll see a meaningful increase in our caustic sales into Latin America in 2026. We're not going to quantify what that looks like, but that's going to be a growth market for us. Yeah. And Jeff, you know, talking about cash flow and working capital, as we move to 2026 compared to 2025, you know, we will see a real tailwind associated with cash taxes. I'd say roughly in 2025, we spent $167 million in cash taxes. And so we would expect 2026, I said, to be a relatively cash-free tax year, you know, plus or minus $20 million. So, you know, that's a nice tailwind as we move into 2026. However, you know, we did reduce working capital excluding taxes by, you know, $248 million. We would expect that you will see some normal seasonal build in working capital in 2026. But we will be very disciplined, as you've heard, around inventory and our seasonal inventory build. And we will be very focused on continuing that working capital discipline that you saw, you know, in 2025. And so, you know, that is going to be something that, you know, we think we can maintain the levels of inventory that we have achieved in 2025 and 2026. If not improve upon that. Operator: Our next question comes from Peter Osterland with Truist Securities. Please go ahead. Peter Osterland: Hey, good morning. Thanks for taking the question. I just wanted to follow up on the Winchester discussion. Just given the plans you've laid out on pricing and cost actions and acquisition synergies, how much visibility do you have for margin improvement in the business during 2020? I mean, I guess if you assume commercial demand and raw material prices don't meaningfully improve, can you drive segment margins higher for the full year 2026 just through self-help? Thank you. Ken Lane: Good morning, Peter. Thanks for the questions. There are a couple of ways I want to answer that question. One is we have taken costs out of Winchester, you know. So if you go back to December or the fourth quarter, we did take out shifts. We have reduced staffing levels to be able to reflect that lower demand that we had talked about. Demand has gone back to kind of the pre-COVID levels. So there's a big decline in the earnings of Winchester that is related to volume. The margin side of it is certainly related to a big part of that are cost increases. Yes. There were some concessions around pricing as retailers had high inventories, and there was promotional pricing that was done to move that inventory. So we've got to recover both of those things. The price increases that we have put out there in the first quarter for Winchester really just get us to recover those increased costs that we've seen. So, you know, unfortunately, I don't right now see that there's going to be a lot of improvements in the margin for Winchester. This is really going to be more about getting the costs passed through to hold the margins where they're at, which is not at a satisfactory level. So we, sorry. Candidly, we need more pricing to offset if copper stays at, I don't know, 06:10 this morning. There needs to be more. Right. There's got to be more coming just to hold margins where they are. So even with that kind of green shoot that we're seeing around some improvement in commercial demand, we have got to stay focused on getting prices up to get margins recovered. They're still significantly below where we expect them to be, and our commercial teams are extremely focused on doing that. Operator: Our next question comes from Arun Viswanathan with RBC. Please go ahead. Arun Viswanathan: Great. Thanks for taking my question. I hope you guys are well. I guess, understanding that visibility is somewhat limited, just wanted to understand, you know, kind of the earnings trajectory from here. So, obviously, Q4 and Q1 were impacted by some one-time impacts. You guys have rolled out some more aggressive cost management actions. But you're still seeing some significant headwinds there that you just discussed in Winchester. And epoxy is still in negative EBITDA territory. So if I look at Q1, it looks like that's going to be in the $60 million range or so. You know? And then, you know, obviously, you'll have seasonal uplift in Q2 and Q3, but then Q4 will also be back down. So, you know, I struggle to kind of get above maybe $4.50 or so on the year. Am I kind of being a little bit too punitive there, or what of one-time costs would you call out to, you know, kind of maybe increase from that base? Any kind of comments would be helpful. Thanks. Ken Lane: Good morning, Arun. Thank you for your question. So listen. I think there are obviously a lot of puts and takes. This is a very heavy year for us in terms of turnaround. This is probably the peak year that we've ever seen. You know, we had a high year last year. We've had a higher year this year, and then we'll see some relief in 2027. So, you know, turnarounds are a real headwind for us in 2026. As we go through the year, you know, yes, you will see the seasonal improvement in Q2, Q3, especially around water treatment as those markets come back. That is going to happen. We are going to see momentum around caustic pricing. We don't expect to see any improvement in vinyls. I mean, I've already said that. I think that's just one where we've got to stay focused on being disciplined. But I do want to go back to the cost comments and the question. We are not rolling out anything new or more aggressive on our cost reductions. What we are talking about in terms of our cost reductions, we were talking about at our Investor Day in 2024. We are delivering on what we had talked about back then. And what we see now is we actually have visibility. We believe by 2028, we can exceed that $250 million of savings that we had talked about. So this isn't something new. This is something that our organization is completely committed to. We have changed our performance metrics in terms of how we're rewarding our executives, our site leaders. So now our sites each have part of their stip, their short-term incentive, is driven off of their specific performance around safety, reliability, cost performance, and yields. We are driving that discipline through the organization and that accountability and that ownership. And what I love to see is the organization is responding to that and delivering that. That's not something that's new. That's something that we've been talking about for the last year. And what you're seeing is the fruits of that are going to be borne out here in 2026. Operator: Our next question comes from Vincent Andrews with Morgan Stanley. Please go ahead. Vincent Andrews: Thank you very much, but my questions have been answered, so I'll pass it along. Ken Lane: Thanks, Vincent. Operator: Our next question comes from John Roberts with Mizzou. Please go ahead. John Roberts: Thank you. So slide 16 shows that caustic soda prices declined sequentially in the December quarter. So I assume you ended the quarter lower than you began. And I think slide 15 says the price increases don't really start until the second quarter. So the March caustic price will be down sequentially. I just wanted to confirm that because you were talking earlier about rock-bottom inventories and tightness in the market, but it kind of doesn't seem to be consistent. Ken Lane: Hi. Good morning, John. So listen. Yeah. We've got, you know, some of that is mix in terms of what you're seeing. We are seeing caustic pricing moving higher in the quarter, and, you know, that's in our system. And that's all that I can really comment on. There is a lag that we see, you know, that you've got monthly pricing, you've got quarterly pricing, and some pricing that's on a lag. And so you're going to start to see that really pick up in the second quarter compared to what you saw in the fourth quarter. John Roberts: It was only down 3%. Ken Lane: Sorry, John. What was that? John Roberts: The ECU PCI encompasses both price and power cost. Right? So that's already in that 3% decline in the ECU PCI. So the difference between the 3% decline in the ECU PCI and the percent decline in EBITDA was all volume and the Dow stranded costs. Ken Lane: No. That's more reflective of mix that you see in that PCI. So, I mean, that's frankly, that's noise more than anything. John Roberts: So the ECU PCI doesn't encompass mix effect. It's a constant mix. Todd Slater: John, I think this is Todd. No. I think Ken said mix, you know, it is all chlorine derivatives. Not just the ECU comment. It is all chlorine derivatives, including all the epoxy chlorine derivatives as well as all the chlor alkali chlorine derivatives. And as well as caustic soda. So it is all-encompassing. And so you can see changes in mix. And as you heard in our commentary, we did have some more favorable mix in our epoxy business. Operator: This concludes our question and answer session. I would now like to turn the conference back over to Ken Lane for closing statements. Ken Lane: Thank you, Bailey, and thank you, everyone, for joining us today. We appreciate your interest in Olin, and we look forward to speaking to you at our first quarter 2026 earnings call. Thank you very much. Operator: Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings. Raymond Hanley: Welcome to the FHI Q4 2025 Analyst Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note this conference is being recorded. I will now turn the conference over to your host, Raymond J. Hanley, President of Federated Investors Management Company. You may begin. Raymond J. Hanley: Good morning. Thanks for joining us. We will have brief remarks followed by Q&A. Leading today's call will be John Christopher Donahue, CEO and President of Federated Hermes, Inc., and Thomas Robert Donahue, Chief Financial Officer. Joining us for the Q&A are Saker Nusseibeh, the CEO of Federated Hermes Limited, and Deborah Ann Cunningham, Chief Investment Officer for Money Markets. During today's call, we will make forward-looking statements, and we want to note that Federated Hermes, Inc.'s actual results may be materially different than the results implied by such statements. Please review the risk disclosures in our SEC filings. No assurance can be given as to future results, and Federated Hermes, Inc. assumes no duty to update any of these forward-looking statements. Chris? John Christopher Donahue: Good morning. I will review Federated Hermes, Inc.'s business performance, and Thomas Robert Donahue will comment on the financial results. We ended the year with a record assets under management of $903 billion, led by gains in money market and equity strategies. During Q4, equity assets increased by $3.2 billion or 3% from the prior quarter, with about half of that increase coming from net sales. 2025 saw record gross equity sales of $31 billion, including $9 billion in the fourth quarter. Fourth quarter net equity sales were $1.5 billion. Our full-year 2025 net equity sales of $4.6 billion showed substantial improvement from net redemptions of $10.7 billion in 2024. Equity sales results were driven by MDT fundamental strategies. MDT equity and market-neutral strategies had a record $4 billion of gross sales and over $2 billion in net sales in the fourth quarter. For 2025, MBE gross sales of $19.1 billion and net sales of $13 billion were both record highs. For Q1 through January 23, these strategies had net sales in combined funds and SMAs of just under $700 million. Looking at MDT fund performance rankings, as of December 31, six of nine MDT strategies are in the top performance quartile of their Morningstar categories for the trailing three years. Four strategies are in the top decile of their Morningstar category for the trailing three years. We had 24 equity and SMA strategies during the fourth quarter, including a variety of the MDT offerings, the Asia ex-Japan Fund, and September 2025 has seen strong demand from clients outside the US, with over $500 million in net sales from inception through year-end. Looking at our equity fund performance, at the end of the year and using Morningstar data for the trailing three years, 49% of our equity funds were beating peers, and 27% were in the top quartile of their category. For Q1 through January 23, combined equity funds and SMAs had net sales of $432 million. Turning now to fixed income, assets ended the year at $100 billion, down $1.7 billion from the prior quarter. Fixed income had Q4 net redemptions of $2.8 billion, including about $1.7 billion from two large public entities that have regular sizable inflows and outflows. These fixed income net redemptions included the $1 billion high yield fund net redemption included in Q3's pipeline numbers. We had 28 fixed income funds and SMAs with net sales in Q4, led by the ultra-short funds of $624 million, total return bond of about $200 million, short-term income of over $100 million, and core plus SMA of almost $100 million. Regarding performance at the end of 2025, and using Morningstar data for trailing three years, 42% of our fixed income funds were beating peers, and 18% were in the top quartile of their category. For Q1 through January 23, combined fixed income and SMAs had net sales of $139 million. Turning to the alternative and private markets category, assets increased slightly, and net sales were positive. The MDT market-neutral fund and recently launched ETF combined for $149 million of net sales. Positive net sales were also achieved in our European direct lending funds, private equity funds, and the project and trade finance tender fund, partially offset by net redemptions in real estate strategies. We held the final close of our European direct lending III, the third vintage of our European direct lending fund this month. We raised $780 million. EDL One raised $330 million, and EDL Two raised about $700 million. We are currently in the market with a global private equity co-invest fund, the sixth vintage of the PEC series. To date, we have closed on approximately $300 million. The PEC series, PEC One to Five, raised approximately $400 to $600 million in each fund, and PEC Five raised about $500 million. We are also in the market with a European real estate debt fund, a new pooled European debt fund. We are progressing towards the FCP acquisition to closing the FCP acquisition during 2026. The acquisition will add standing UK-based US multifamily housing expertise to our long real estate capabilities. The UK real estate team was recently selected as the exclusive developer on a significant mixed-use development opportunity in Manchester in the UK. This week, at the Asia Financial Forum, we announced plans to open a Hong Kong office to capitalize on the region's rapidly growing wealth market. Subject to regulatory and other necessary approvals, the planned Hong Kong office represents a strategic expansion as we deepen relationships across the Asia Pacific region. The planned office will complement our existing regional offices in Singapore, Tokyo, and Sydney. Across our long-term investment platform, we began 2026 with about $2.7 billion in net institutional mandates yet to fund into both funds and separate accounts. Approximately $1.2 billion on a net basis is expected to come into private market strategies, including direct lending, private equity, and trade finance. Equities expected additions totaled $1.4 billion, with about $1.3 billion into MDT strategies and $100 million into international and global equity strategies. Fixed income is expected to have net sales of about $100 million into a low-duration strategy. Moving on to money markets, we reached another record high at the end of 2025 for total money market assets, which increased by $30 billion to reach $683 billion. Money market fund assets increased by $6 billion or 3% in Q4 to reach a record high of $508 billion. Money market separate accounts increased by $14 billion in the fourth quarter, reflecting seasonal patterns. Market conditions remain favorable for cash as an asset class. In addition to the appeal of relative safety in periods of volatility, money market strategies present opportunities to earn attractive yields compared to alternatives such as bank deposits and direct investments in T-bills and commercial paper. Our estimate of money market fund market share, including sub-advised funds, was about 7% at the end of 2025, down from 7.1% at the end of Q3. Regarding digital asset efforts, we are advancing a series of strategic initiatives that bring together the strength of money market investment and operational expertise with the efficiency and transparency of blockchain technology. Our partnership with Archax, the first FCA-regulated digital securities exchange to offer tokenized usage money market funds, marks its first major non-US digital asset initiative. The platform enables professional investors to hold beneficial ownership tokens across multiple blockchains and access money market liquidity directly on-chain. The Archax relationship complements our US digital efforts, where we are a sub-adviser for the Superstate Short Duration US Government Securities Fund, a private tokenized fund. We are also participating in the launch of a collaborative initiative between BNY and Goldman Sachs that will utilize mirrored tokenization of money market fund shares to improve transferability, collateral utility, and real-time ownership tracking of money market fund shares. We have a robust pipeline of tokenization projects in the US and abroad, including the development of efforts for a Genius-compliant money market fund and ongoing integration discussions with several leading firms developing digital technology for fully on-chain trading and settlement of tokenized share classes. We believe these efforts position the firm well for the digital transition as we work collaboratively with service providers and stakeholders on developing new standards for combining liquidity, investor protections, and blockchain-enabled capabilities for modern financial markets. Looking now at recent asset totals as of a few days ago, managed assets were approximately $909 billion, including $684 billion in money markets, $101 billion in equities, $101 billion in fixed income, $19.5 billion in alternative private markets, and $3 billion in multi-asset. Money market mutual fund assets were at $500 billion. Tom? Thomas Robert Donahue: Thanks, Chris. For Q4 compared to the prior quarter, total revenue increased $13.4 million or 3%. Revenue from higher money market assets provided $8 million of this increase, while higher equity assets added $5.5 million. Q4 revenue included $8.2 million of real estate development fees for projects that did not advance into construction and is recorded in the other service fee line item. Total Q4 carried interest and performance fees were $1.6 million compared to $3.6 million in the prior quarter. Approximately $570,000 of the Q4 fees were offset by nearly the same amount of compensation expense. Q4 operating expenses increased by $7.3 million or 2% from the prior quarter due mainly to higher distribution expense of $8.8 million from higher fund assets. Transaction costs from the FCP acquisition were about $1.3 million in Q4, nearly all in professional service fees. Additional transaction costs in 2026 are estimated to be approximately $9.2 million. The timing of most of these costs is based on the transaction closing date, which is expected to be in Q2 of this year. Most of these costs will be lending consent fees in the professional service fee line item. In the other expense line item, FX and related expense decreased by $3.1 million in Q4 compared to the prior quarter. The effective tax rate was 24.4%. We estimate the tax rate to be in the 25 to 28% range for 2026. At the end of 2025, cash and investments were $724 million. Cash and investments, excluding the portion attributable to non-controlling interest, were $680 million. We expect to use $215.8 million in cash and $23.2 million in FHI Class B stock for the initial purchase price of the FCP controlling interest acquisition. Looking ahead to Q1, certain seasonal factors will impact results. Based on Q4 average asset levels, the impact of fewer days is expected to result in about $10.2 million in lower revenues and about $2.6 million in lower distribution expenses. In addition, based on an early assessment, compensation and related expenses are expected to be higher than Q4, primarily due to about $8 million of seasonally higher expenses for stock compensation and payroll taxes. Of course, these line items and others, including incentive comp, will vary based on multiple factors. Operator: You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to lift your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Kenneth Brooks Worthington with JPMorgan. Kenneth Brooks Worthington: Hi, good morning. Thanks for taking the question. First on distribution costs, if we look at distribution costs in the fourth quarter of this year compared to the fourth quarter of last year, they have jumped almost 25%, and essentially, all of that is coming from money market funds. But if we look at money market funds, the assets grew just 10%. So what is going on, and to what extent is there any sort of offset to these higher costs on the revenue side? Thanks. Raymond J. Hanley: Hey, Kenneth. It's Ray. We had, last quarter, a significant amount of assets came into a share class where there are higher than average distribution expenses, and so that jumped by about $10 million last quarter in terms of both the distribution revenue and the related distribution expense. I think that's the majority of the attribution for the delta that you are speaking about. As you know, we have a lot of different share classes with different distribution fee arrangements, and so those kinds of changes in mix can impact that. As far as offsets, we do not really think of it that way. That is essentially the distribution expense that comes with distributing through the intermediaries, and we manage that the best we can. But there is no real direct way to offset that. Kenneth Brooks Worthington: Got it. Thank you. And then this year, I believe there are five higher-profile PMs that are scheduled to retire. Can you talk about the transition of those PMs to the new leadership of those funds? And any impact you think it will have with your clients? John Christopher Donahue: Yes, Ken. This is Chris. The succession planning that is going on here has gone on for many, many years. And in every one of those cases, on average, it is like you take someone who has been here thirty-five to forty years and replace them with someone who has been here from twenty-five to thirty years. And so we do not look for any disruption in the investment management techniques or performance, and we look for some great enthusiasm and opportunities by the new people coming in who get to call the shots now, whereas for a quarter of a century, they have been learning how it is done. And this is part of the methodology that we have used. We bring in people at the lower levels, train them, and it is part of the guts of our franchise for all seasons for keeping this ship estate moving along through the stalking waters. Kenneth Brooks Worthington: Great. Thank you. Operator: Your next question is from William Raymond Katz with TD Cowen. William Raymond Katz: Great. Thanks very much. Just want to refocus on the tokenization opportunity. Sort of wondering if you could talk a little about what you are hearing from end demand from clients, if you can maybe break down your commentary between more of the institutional kind of investor versus the retail? And what milestones would you anticipate either regulatory or legislative that we need to see to sort of see a faster uptake in the opportunity set? John Christopher Donahue: So I will comment a little bit, Bill, and then Deborah will comment. So on the end demand from clients, it is not as robust as what you might suspect from all the press media and, in fact, all the work we are doing on it. It is getting ready for tomorrow. And we expect this will be the way things go down the road. But the end clients are perfectly sanguine about using the current products in the current way. And when you ask about milestones, you have got to get lots of money moving into these things in addition to lots of work being done on how they are structured. Almost every week, there is another new structure and a new idea that is very intriguing. And this is what we are keeping our eyes on, and basically, we are working on all of them. And a milestone would be when you start to see real money moving into them. There could also be some regulatory things, and that is really hard to predict because you do not know what structures you are going to obtain. And this is true both in the US and globally. Maybe Deborah can talk to this, but when I was in Singapore and Hong Kong last year for the same event Deborah was, both of those and government entities, Singapore and Hong Kong, were most anxious to be the tokenized headquarters for trading money funds, and they were well down the road of organizing their government entities. But how much is in it and how much money is actually flowing there is another question. Deborah Ann Cunningham: Thanks, Chris. So what we have identified in the US so far from a case perspective is generally on a distribution basis, diversification, and on a use case basis, for collateral purposes and for margining purposes. Both of which, the instantaneous settlement that is provided from a tokenized product impacts ultimately the ability to flow pretty quickly on a real-time settlement basis. In the context of the geographic diversification that Chris was talking about, certainly, when we look at what is more institutional use case that we have seen so far in the US, when we are in other parts of the world from our Archax partnership to the work that we have been doing from an Asian perspective, there is much more interest from what I would call sort of the multifamily offices. And so that is where the retail side of it comes in. Our product outlook has many additional use cases, many additional benefits that accrue to the end user. We feel like this is just the tip of the iceberg and that it will serve more purposes and more ultimate end user clients. It is just, as Chris said, a lot of work and dissection of markets and underlying strengths and everything that needs to be put into place to keep these high-quality products that we have in money market funds liquid and serving the purpose of all the end users. William Raymond Katz: Alright. Thank you. And just as a follow-up, MDT has done very well for you for quite a while now. And it seems like it is off to a good start into the New Year as well. Maybe just a two-part question. What is the underlying driver of the demand? And then secondly, are there any capacity constraints as you look across that portfolio? John Christopher Donahue: Well, let us deal with the second one first. Capacity implies a number, and we do not look at it exactly like that. It is a very complex question as to how to look at what you have raised. And as we have done in other cases, this is rigorously analyzed by PM CIOs and everybody on the basis that how can we continue to offer the product with the kind of alpha that it is being offered in the environment. We do not see any so-called capacity constraints at this time or in the foreseeable future. Now on the other question about the demand, the demand is across the board. So far, our enlivened Salesforce has been able to consult with a lot of people showing how the MDT various offerings and their pure style box discipline has caught on very well in the intermediary space. And as you have heard in my comments about big institutions also coming into this, it is also on the big separate accounts as well. And so the demand in short terms is both retail and institutional. Thomas Robert Donahue: Yeah. Both, if you look at the Q4 net sales into MDT strategies, about two-thirds of it would be into the mutual funds and the newer ETFs. And the rest of it is institutional and separately managed smaller SMAs, separately managed accounts. So weighted toward retail. But even within that fund mix, there would be institutional applications. William Raymond Katz: Great. Thank you for taking the questions. Operator: Your next question for today is from Patrick Davitt with Autonomous Research. Patrick Davitt: Hey. Good morning, everyone. First, maybe one for Deborah. We are much further along in the Fed cutting cycle now. So curious to get your updated thoughts on what you are seeing in terms of the potential rotation from institutions into money funds and to what extent you think there is still a lot of room to run on that theme with the curve potentially steepening here this year? Thank you. Deborah Ann Cunningham: Sure. No problem, Patrick. You know, our outlook from an official perspective, from a firm standpoint, for 2026 is one rate cut by 25 basis points taking the rate three and a quarter to three and a half from a Fed funds target range. You know, we feel like if we are wrong, we are wrong by having maybe two cuts instead of zero, so wrong on that side of the equation. But in either case, you are looking at an end terminal rate that is north of 3%. With a positively sloped curve that probably allows you to generate something in the order of 20 to 30 basis points on a government product basis above where the bottom of that range is. So, you know, middle 3% type of numbers for money market funds. And you know, when you look at the low-risk products, the high quality, the instantaneous settlement that you get, especially if you are looking at the tokenized product aspect of it, you find that it is still very compelling from a use case perspective by both institutions whose general other comparison outside of the fund industry is direct market securities, so repo, treasury bills, commercial paper, where the positively charged yield curve should give the fund the advantage. And then on the retail side of the equation, if you have got a Fed cutting cycle or even a pause cycle, generally speaking, there are other common types of products to use for liquidity purposes, such as bank deposits, and those are well below where a fund can generate a yield, especially in a three-plus percent environment. So, you know, we saw a lot of retail growth driving the 2024 double-digit gains in the market from an AUM standpoint. The institutional side kicked in in 2025 to help generate those double-digit gains again. Maybe we only get single-digit gains from an AUM standpoint in 2026, but our expectation is it is still pretty positive from an environment standpoint. Patrick Davitt: Thank you. Helpful. And then on the expense side, it looks like you are seeing a lot of positive operating leverage on the compensation ratio in particular, which I assume is a function of the large scale of money fund inflows. To kind of frame how you think that contracts in '26, do you think that operating leverage can continue? Assuming flat markets? Thank you. Thomas Robert Donahue: Yeah, Patrick. It's Tom. Yeah. We had the comp numbers. As I mentioned in my remarks, because of the seasonally high stuff that happens in Q1, we certainly will have an increase in the expected increase in the comp number. And if we get the same kind of flows that we had in '25, we get that in '26 as we are trending in the MDT. Operator: Your next question is from Dan Fannon with Jefferies. Dan Fannon: Your next question is from Dan into this year and beyond. As you see on the footprint of what we have done on MDT, the first thing really is to expand the buckets or the wrappers that it is used for. They began as an SMA shop overwhelmingly and had a few hundred million back in the acquisition of funds. So it grew from just SMAs, and now it has a lot of funds. So then you saw us go into this the ETF then the CIT format, and then we brought out the market neutral which is as a fund and now as an ETF. So you will continue to see us seeing if there are more buckets or wrappers that we can use for MDT. And I k. And oh, one I did mention in the remarks is offering it where? format. And a usage is basically overseas through a usage format. And, of Irish registered for available for sale UK, Europe, and other places. And that is one where, you know, we raised $500 million over a short year last year. So it is new wrappers, it is new markets. And it is repeat the sounding joy of their investment expertise. Understood. And then Tom, just as a follow-up in terms of what you mentioned for the first quarter. So we have got from a fewer days, 10.2 lower management fees. And then given the real estate fees in the fourth quarter, and other in other revenues, we should assume that is also not recurring kind of going into '26? Thomas Robert Donahue: Yeah. I call those unusual items. And because they really cover, we may get another couple million in Q1. It is, you know, we are still working on that. But, you know, to that level, I do not see that happening. Dan Fannon: Understood. Okay. Thank you. Operator: Your next question is from Brian Bertram Bedell with Deutsche Bank. Brian Bertram Bedell: Great. Good morning, folks. Thanks for taking the question. Maybe two questions, both on money markets. Maybe just a first, Deborah, could you remind us just the seasonality trends that we might see for flows in money market funds in the first half? I think started with outflows early, a little bit of outflows early in January, if I am not mistaken. And then, of course, we have got, like, tax season coming up. So, maybe if you can just remind us of what you are expecting for the cadence of money fund flows for the first half of this year or just on a seasonal basis? Deborah Ann Cunningham: Sure. On a seasonal basis, we generally January is usually our worst month of the year from an inflow basis. It is usually actually an outflow. First quarter said similarly, the corporate tax date, in March and then individual tax date flowing into the second quarter in April. Are generally big hits from a money fund AUM standpoint. And then the second half of the year is generally where the growth really picks up with December, you know, generally, again, being the highest quarter from a year-end, a year-end, you know, window dressing to some degree that is then reversed in January. What is interesting from a fund standpoint versus another type of product standpoint, so you know, generally, our separate accounts are state pools are in fact gathering money starting in the first quarter and going strong into the third core or the second the beginning of the third quarter and then they have large outflows that occur later in the third quarter and at the end of the fourth quarter. So the two kind of nicely offset each other from our own AUM standpoint, you know, which is a good thing. But from a strictly money market fund standpoint, it gets better as the year goes on. Brian Bertram Bedell: Yep. Perfect. Thanks for that. And then the second one, a follow-up on the tokenization of money market funds. And thanks for all the comments on that. A bit of a multipart question here, but can you just describe in a little more detail the collaboration with Bank of New York and Goldman in terms of that mirroring process of tokenized money funds, how that is different from how you are talking with your other potential clients on tokenization opportunities. And then also on this on, you know, on being a stable coin reserve manager as opposed to a tokenized money fund manager, how do you see the opportunity for that role versus tokenized funds? And I guess over the long term, do you see the tokenization opportunity as incrementally additive to your money fund franchise? Or you know, might or might you know, for the industry that that cannibalize existing money market funds? John Christopher Donahue: That sounded like three questions and a comment at the end. We will do our best to try and catalog them. For the comment at the end, you look at our charts, if you get them on page 14, you will see that we have over decades upon decades upon decades had higher highs and higher lows. And we would look at this effort along with other efforts like zero interest rates, and like all of the competition that has come in over the decades, we will continue to have higher highs and higher lows. Because the fundamental business is people have cash, or have money that they want daily liquidity at par. And so that is the engine. Now on the first of your questions, which was BNY and Goldman, I am reluctant to get too close into the details of it, but I will say this. The way that is structured creates tokens and they treat the money fund just like a good old-fashioned regular money market fund. So from our point of view, it is tokenizing the process. The client sees a tokenized vehicle, but from the point of view of the fund, it is almost like business as usual. And I will let Deborah comment on some of the others because maybe she remembers them. Deborah Ann Cunningham: Well, what I would say in addition to what Chris just mentioned with the BNY Goldman collaboration is BNY is not only keeping its traditional books and letters on its books and records on a standardized ledger, but they are dual processing on the digital ledger. So it is a way of tiptoeing in the market and having, you know, both belts and suspenders attached to give underlying clients comfort that this process is, in fact, airtight and working what it should be. So that is kind of the unique aspect of the BNY Goldman collaboration at this point. At some point, there will be, you know, the belt or the suspender will go away, and it would just be the digital ledger where the books and records are maintained. But for this particular product, it is being doubly addressed. The part that you asked about stablecoins versus a tokenized money market fund, because of the Genius Act and some of the other regulatory changes that occurred or elaborations that occurred in 2025, we have learned that stablecoins have to be backed 100% by some form of what is a defined type of collateral. That is where our Genius Act funds come into play. And what stablecoins are not allowed to do from a competition standpoint with those funds is pay an interest rate or pay a dividend. And so the stablecoins for us represent an additional client base for which the tokenized money market funds that are managed under the rules and regs of the Genius Act can be the collateral that backs those stable coins to get the 100%. Brian Bertram Bedell: Mhmm. Right. Right. Without that, can get better. Without being. Yep. Yep. Okay. Any just any sense of the number of entities that you are talking with now on the tokenization effort? I do not know if you can disclose that or not. Is it, you know, in the dozen? John Christopher Donahue: I can pass on that one. Brian Bertram Bedell: Okay. Yep. No worries at all. Thank you so much for the color. Operator: Next question for today is a follow-up question from Patrick Davitt. Your line is live. Patrick Davitt: Hey. Thanks for the follow-up. I just wanted to clarify the AUM numbers you gave are all as of January 23. Is that correct? Thomas Robert Donahue: The AUM numbers are actually as of the 28th. The net sales numbers that we gave were as of the 23rd. Patrick Davitt: Okay. And then so I guess that would suggest then that the money funds have net inflows through the 28th, but against the fund data showing like, $9 billion of outflow. So I guess fair to assume that there is a big amount of separate account inflow? Thomas Robert Donahue: Yes. Yes. That is correct. Yep. And it really is bucking the trend. It did it last year. It did it this year. Yeah. And I think a lot of that has been influenced because of where the Fed has been and where we think they will be in 2026. Patrick Davitt: Great. Thanks. And then one quick one. The $10.2 million fee decline, that is just management fees, not including the real estate? Thomas Robert Donahue: That yeah. That is management fees, advisory fees, and distribution fees. Essentially, fees that are daily based. So it Patrick Davitt: Got it. Okay. And there was and you and go ahead. Thomas Robert Donahue: Yeah. I was gonna say, Patrick, it may be worthwhile for Saker to comment further on the, you know, $8.2 million where we got the development fees. And Chris made a comment in his remarks about we won, you know, a new project over there. And, you know, it may be worthwhile for Saker to make a comment on that. Saker Nusseibeh: Thank you. So the fees are by our development company, MEPC, in the UK. MEPC in our view is the leader in the things we call place development. We basically develop for clients who invest with us, estates, manage the buildings, rent them out, and when the time is right, sell them for them. And we have got a successful long-term track record of that throughout the United Kingdom. The two estates that we are talking about are in the North Of England. One is called NoMa, and the other one is called Wellington Place. One is in Manchester. The other one is in Leeds. One is 500,000 square feet. The other is 1,400,000. Now the skill of MEPC comes in two sides. The first one is the preparation for the development, and that is with close cooperation with the local government and the community. That is partly why we have such strong development potential and why we managed to let it. And the second one is the way we develop them in a way that makes them attractive spaces. So far, these have been office-based spaces, and they have seen great success, particularly with the move of companies who moved their offices, including some major US companies from London up north. And the government actually, which has done the same. Participants in it because it is ready to go, which is an important phase that is half the difficulty of developing. At the same time, as Chris mentioned, we won a very major bid to do a development project also in the North Of England, this one with much more mixed, but towards living, in fact. It is not offices say it is much more mixed, but towards living. And that is very exciting because that is part of the pivot towards living and developing living space. And, again, there is a huge demand in that part of the world. And the same skills apply. The ability of every PCR developer to work with the local government, the ability to get the permits, and then the ability to develop something which is actually attractive to the market both for people to come into it, and, of course, for the investors to get very strong returns out of it. Patrick Davitt: Thank you. Yeah. Thank you. I just want to go back to the $10 million. I just want to make sure I heard what you said exactly correctly. It is based on average AUM in the fourth quarter, Thomas Robert Donahue: Yes. So if end of period is 3% higher, it is something lower than that. If we use end of period. Patrick Davitt: Yeah. I think that is correct. Okay. Okay. Cool. Thank you. Operator: Your next question is from John Dunn with Evercore. John Dunn: Thank you. Wanted to ask just given where we are in the cycle, kind of your appetite and also the potential and outlook for money market roll-ups. John Christopher Donahue: The potential for money market roll-ups is almost entirely a function of the owner-operator of those other money funds. Over time, with increased regulation and increased oligopolization of this business, we have shaken out a lot of those money fund rollouts. Where they occur is when people are deciding to move a family of funds they happen to have some money markets in them. Then those are opportunities. But as we have said before, if you are running an even a smaller-sized money fund operation and you control the right to redeem, then you are not as worried about what you need to do for the future even if they are not as economic as they may otherwise be. We have also seen it occur where in some of our bank trust clients, where over the years maybe a family of funds or a family of money funds in the trust world does not make a lot of sense even though they do control the right to redeem. Then they have new leadership and then all of a sudden, we are back being looked at as a warm and loving home. And many of these deals we started in the eighties and nineties and sometimes it takes them that long to mature. But there is no direct pipeline. You cannot just put chapter and verse on it. But periodically, they show up. John Dunn: Got it. And then just maybe on the outlook for the strategic value dividend fund. Where do you think it goes from here? From a flow perspective? John Christopher Donahue: Well, the flows in all, if you add the whole thing of strategic value dividend, they are positive flows even though the fund is down. And notice that the ETF is up. And what you ought to learn from that is that people are actually understanding exactly what that fund is. It is a dividend-oriented fund. With a four and four approach. You have 4% dividend growth and 4% dividend. And they have been doing it for twenty-five years. And this is a good situation. So even though its Morningstar category rating is one side or the other, it is a very good steady long-term product. And we have I think we are up to $36 billion in it overall. And we expect it to continue to grow. Thomas Robert Donahue: And it is off to a very solid start so far in January through yes. It is up about 5.3%. John Dunn: Great. Thank you very much. Operator: We have reached the end of the question and answer session, and I will now turn the call over to Ray for closing remarks. Raymond J. Hanley: Well, that concludes our call, and we thank you for joining us today. Operator: This concludes today's conference. And you may disconnect your phone lines at this time. Thank you for your participation.
Operator: Thank you for standing by, and welcome to the Primis Financial Corp. Fourth Quarter 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. On your telephone keypad, if you would like to withdraw your question, again, press 1. Thank you. I'd now like to turn the call over to Matthew Alan Switzer, Chief Financial Officer. You may begin. Matthew Alan Switzer: Good morning, and thank you for joining us for Primis Financial Corp's 2025 Fourth Quarter Webcast and Conference Call. Before we begin, please note that many of our comments during this call will be forward-looking statements, which involve risk and uncertainty. There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Further discussion of the company's risk factors and other important information regarding our forward-looking statements are part of our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has also been posted to the Investor Relations section of our corporate site, primisbank.com. We undertake no obligation to update or revise forward-looking statements to reflect changes, assumptions, the occurrence of unanticipated events, or changes to future operating results over time. In addition, some of the financial measures that we may discuss this morning are non-GAAP financial measures. How a non-GAAP measure relates to the most comparable GAAP measure will be discussed when the non-GAAP measure is used, if not readily apparent. I will now turn the call over to our President and Chief Executive Officer, Dennis Zember. Dennis J. Zember: Thank you, Matt. And thank you to all of you that have joined our fourth quarter 2025 conference call. We're very pleased to be reporting our 2025 results today and really excited about what 2026 is going to look like. For the quarter, we're reporting earnings of $29.5 million or $1.2 per share, which works out to almost a 3% ROA. I tell people all the time that your best result ever isn't good enough tomorrow. And that you have to strive to keep reaching higher, which may have trashed me. But, obviously, in the quarter, we had just this gain from the sale leaseback and quite a bit of related noise from the restructure and some other items that we were afforded because of the outside gain. The most important thing you can take away from this call is this. In 2025, Matt and I are showing our run rate earnings at about $8 million, which works out to about an 80 basis point ROA on about $4 billion of average assets. That reflects virtually no improvement from the restructure that we announced. And it includes a seasonally slow quarter mortgage. So taken together, going into 2026, we see substantial momentum and a lot of opportunity to hit our goals. I want to talk about some of the real notable improvements this year. When you look at the fourth quarter or you look at December 31 of any year versus the prior year, you know, what do you notice? For us, we noticed that our margin increased from 2.90% in the fourth quarter of last year to 3.28% in the fourth quarter of this year. Excuse me. The restructure had virtually no impact on fourth quarter margins. And our press release showed that when it's fully implemented, it went at about 28 basis points. Pushing this kind of margin in our company to a place where 3.5% margins are in range is very impressive against our peer group and our region. And our core bank has led the drive. Next, we grew checking accounts, which has been a big focus of the bank. We grew checking accounts by over 23% during the year. Talk a little more about this. But from a percentage basis, we have to be in the top 10 banks nationwide on checking account growth. We achieved this by leveraging our proprietary delivery app in our market and abroad. We grew our C&I portfolio substantially and saw the normal deposit balances you would expect from this effort show up. We benefited from our warehouse division's effort selling our treasury services to their clients. We improved our noninterest-bearing deposits to total deposits from 12%, 13% in mid-2024 to 16.3% at 12/31/25. We've been even higher than that early this year. Most importantly, we continue to fund nearly every dollar of earning asset growth with transaction accounts, not retail or bankruptcy need or wholesale borrowings. Lastly, we rebuilt our earning assets just like we said we would after the life premium sale. With balances from the core bank and our lending divisions, and we did it with much more yield and scale than we had in life premium. For the year, we grew earning assets by $325 million with a larger growth in the loan side. We held our yield steady compared to 2024 with loans only dropping 10 basis points despite the fall in short-term rates during the year. Where are all these successes coming from? And, you know, why are we confident that there's more to come here? Our core bank has led the way this year in almost all of the areas, particularly on deposit growth and driving success with cost of funds. For the year, I'm showing that we grew checking accounts by about $116 million. This is about 23%, as I stated earlier. On the loan side, our focus has been on C&I, and under occupied as it you know, for as long as we can remember. And as we finished the year, we saw a real flurry of closed loan closings and sales success that are gonna carry over into 2026. In December alone, the core bank closed about $75 million of new commercial loans with about $90 million of related deposits. Importantly, the incremental margins on this business are almost 4% with no incremental operating resources or new staff. So we achieved the operating leverage that Matt and I have been talking about and that has been the drive of our 2025 improvement. In the fourth quarter, we rolled the digital up under the core bank's reporting arm. So now everything, basically, the bank customer reports to Rick. We finished 2025 with $903 million in digital deposits, which is down maybe less than 10% from where we were a year ago. Despite the fact that the range is down 115 basis points. We have over 20,000 customers on this platform, about 15% of those in our core footprint. Because of the success of this platform, there is not a single ounce of pressure on our core bank deposit goals, production efforts, or pricing, which is reflected in their remarkably low cost of deposits. Through the year, and the changes in rates, we've maintained 90% of the balances, which is unquestionably a testament to our style of surprising the customer with a personal banker, 24/7 access to the bank, rapid turnaround with any question or concern, and near zero fraud. In short, we engineered a community-style banking approach for these customers. And when rates started falling, they rewarded us with their loyalty. Think a key success or something that's all those are important items, but the thing that's really driving the bottom line improvement or the ROA improvement is operating leverage. As for maybe two years, we have controlled and reworked our operating expense base. We've invested only in production and revenue per and we've leveraged our back office resources on the growth. Every moment of turnover or attrition on our administrative functions has been an opportunity to improve talent and drive more leverage, and we've not really missed any opportunity. Matt provides the table in the press release that shows our operating expense burden, and it obviously includes some of the noise from the restructure and some other items. But on a go-forward basis, we reconcile right back around $22 million or so. So we believe we can hold this. I think maybe we've been saying this for four, five quarters, but we think we can hold this line for several more quarters and allow a reliable trend on revenue to keep improving results. Another success, another area where we believe the success is gonna continue is on the mortgage side. Or where we face the mortgage industry with warehouse and retail. They're obviously separate lines of business, but in our company, they both work together and drive results in a markedly different fashion than what you see in most community banks. It's all quite a bit about warehouse this year and about those results are impacting our results. But the fact is warehouse only averaged $175 million of outstandings for the year. That's not even half of the assets we sold with Life Premium Finance. And only about 35% of what we think 2026 could average. Our margins in the business are accretive to our overall levels, and our run rate efficiency ratio here is in the mid-twenty. Which is going to be noticeable on our consolidated ratios when we rescale. At Primis Mortgage, we saw closed loans increase to approximately $1.2 billion, a 50% increase over 2024. But more importantly, we closed $143 million with great profitability. And on a pretax basis, Primis Mortgage earned $1.4 million in the fourth quarter. Which is about $1.8 million higher than 2024. Before I give it back to Matt, let me say what is special about Primis. Know, about what we're managing in. Obviously, I could soak up a lot on this call, on this topic. But I think the important thing for our investors to know is that we've rebuilt a core bank into one that is leading on deposit successes and growing. We're not just milking a branch infrastructure from two decades ago. We're growing the core bank with good deposits, good core deposits, and improving our mix. We've built integrated lines of businesses that have substantial scale. Every single one of our lines of business, Phil, that's pumping the brakes, every month. To not outrun our resources or our capital or become our whole story. The growth part of our story is baked. It's fully built, requires very limited resources to continue growing. When you combine that with a strong and leading community bank, we have strategic options that many banks in our region do not have. We've had a lot of noise in our past. I'm not gonna pretend that we did. But there's no doubt in my mind that every quarter of reliable ROA growth intangible book value that we can post, that noise subsides and our multiples, I believe, will return and reward the shareholders for our hard work. Matthew Alan Switzer: Thirty to December thirty-first. Including the Panacea loans sold in the fourth quarter, gross loans would have increased approximately 17% annualized, led by growth in Panacea and Mortgage Warehouse. Importantly, average earning assets increased 13% annualized in the fourth quarter with a slightly slower growth rate versus period-end growth adjusted for the loan sale due to substantial loan closing activity that took place at the end of the quarter. Deposits were up 10% annualized in the quarter also due to strong production late in the fourth quarter. Even more impressive, as Dennis mentioned, noninterest-bearing deposits ended the year at $554 million or 16% of total deposits versus $439 million or 14% at the end of 2024. Net interest income was approximately $31 million, a substantial improvement from $26 million in the year-ago period. Our net interest margin in the fourth quarter was 3.28%, up from a reported 3.18% last quarter and 2.9% in the year-ago period. We have expectations for further margin expansion as we progress through 2026. Our previously announced investment portfolio restructuring only benefited half of December, and we will complete the redemption of $27 million of subordinated debt at the end of this month. If both those transactions had been in place for all fourth quarter, the net interest margin would have been approximately 11 basis points higher. Earning asset growth rate in the fourth quarter was accretive to margin, as is our current loan pipeline. We also have approximately $331 million of loans repricing predominantly in 2026, with a weighted average yield just under 5% that will add to loan yields. Lastly, we have $40 million of deposits with a contractual rate leaving in January with a cost almost 80 basis points higher than wholesale funding. The core bank cost of deposits remains very attractive, at 159 basis points for the quarter, down 14 basis points from the third quarter. Cost of total deposits was 226 basis points in the fourth quarter, down 20 basis points linked quarter. Our focus on growing NIB deposits is a key part of our strategy to continue driving funding costs lower from here. Our provision this quarter was $2.4 million, partially driven by growth in the loan portfolio described above. Approximately $1 million of the provision was due to specific reserving at year-end for impaired loans, while another $600,000 was tied to activity in the consumer portfolio. Noninterest income, excluding the gains and losses from the sale leaseback transaction and investment portfolio restructuring, was $14.2 million for the quarter versus $12 million in the third quarter. Mortgage revenue was solid in Q4 at $10 million versus $8.9 million in Q3, with Q4 seasonal slowness offset by the production from new hires. Year-over-year retail mortgage production was 84% higher in 2025 versus 2024, showing momentum for a strong 2026. Including net production was $32 million of attractive construction to permanent loan production in the quarter, up from $26 million last quarter and an immaterial amount in 2024. On the expense side, when you exclude mortgage and Panacea division volatility and nonrecurring items, our core expenses were $28 million versus $22 million in the third quarter. The strong performance in the year resulted in higher compensation accruals, particularly restricted stock expense, which totaled $4.5 million in the fourth quarter. There are a handful of other items described in the earnings release that are one-time in nature but don't rise to the definition of nonrecurring for reporting purposes and totaled another approximately $1.8 million, including one month of lease expense. Not highlighted in the press release because of the small nature, there's roughly another $3 to $400,000 of cleanup expenses in the quarter that will moderate next quarter. Normalizing for all of these items, core noninterest expense on a comparable basis was approximately $21 million, putting us only slightly higher than our run rate for the past year. Our conservative estimate for our quarterly core expense range next year, adjusted for mortgage and Panacea, is $23 to $24 million in 2026, inclusive of the $1.5 million of quarterly lease expense that we've incurred with the sale leaseback transaction, and we're pushing hard to be at the bottom up or below that range. In summary, the sale leaseback transaction in the fourth quarter was timely and allowed us to reposition a number of areas to enter 2026 with a lot of momentum. We have the capital to achieve our goals and fundamentals in place to hit our 1% ROA goal this year, and we are confident we will do so. With that, operator, we can open the line for Q&A. Operator: Thank you. We will now begin the question and answer session. Russell Elliott Gunther: If you would like to ask a question, please press 1 on your telephone keypad. If you would like to withdraw your question, simply press 1 again. Your first question comes from the line of Russell Gunther from Stephens. Your line is open. Nicholas Thomas Lorenzoni: Hey, good morning, guys. This is Nick stepping in for Russell. Matthew Alan Switzer: Hi, Nick. Nicholas Thomas Lorenzoni: Hey. So starting on the loan side, you saw average warehouse balance is showing a nice growth of 812% year over year, and given that $1.23 billion in existing commitments plus the seasonality of the business, where do you see those balances ending in 2026? Matthew Alan Switzer: I think we're anticipating mortgage warehouse to average $500 million across the year. Now it's seasonal, so that might be an average of $400 million or so in the first quarter. But we'll probably peak well over $600 million over the summer and then come back down in the fourth quarter. So the fourth quarter may be, call it, $100 million higher or so than the fourth quarter of this year. Maybe a little bit more. But for the whole year, it'll be, call it, $200 to $250 million higher than the fourth quarter because of the seasonality. That makes sense? Nicholas Thomas Lorenzoni: Okay. Yeah. Yeah. And you're relating to the last one. What I think what's important is, I mean, that business for us is doing comfortably over a 2% ROA. Let's just say that number, I mean, for this year, it was a $175 million average. Business, I'll call it $3.5 million, you know, net income. I mean, I don't think scaling getting to $500 million is only gonna improve that number. And so you sorta can see the pickup bottom line wise from scaling this from $175 million average for the year to $500 million next year. Or, excuse me, this year. Nicholas Thomas Lorenzoni: Okay. That makes sense. And related to all of that, how should we think about overall loan growth in '26? Matthew Alan Switzer: We're shooting for in the core bank, the core bank probably somewhere in the $100 million or so. That'd, you know, call it 5, 6, 7%. Again, we're not going to be doing investor CRE. That's just not our focus. So we're looking for C&I and under occupied. Panacea, again, Panacea and Warehouse, I mean, if we let them out of the ring fence, it would get away from us. But I think Panacea, I think Matt's modeling about $150 million for them. And, you know, if you look at, again, really more on an average basis, I think, warehouse is probably, call it, $250 million more. Maybe $200 million more from where we finished the year. Nicholas Thomas Lorenzoni: Okay. And just switching to expenses real quick. You guided 2026 quarterly to a range of $23 to $24 million, it looks like. How should we think about expense sensitivity as mortgage banking and the fee income side improves? Or, I mean, better said, what impact on expenses should we anticipate in relation to mortgage banking? Matthew Alan Switzer: Yeah. So that $23 to $24 million is excluding mortgage. Right? Because the mortgage is gonna be volatile and scale with the revenue side. So it's just easier to think of mortgage on a pretax contribution basis. Okay. And assume they're gonna please. This assume whatever your revenue assumption is for mortgage, assume that they're gonna earn, call it, 50 to 60 basis points pretax, and then you get back into the expense from there. This year, we did about a billion 2 of loan closings. We probably, I mean, fully loaded, we were probably high thirties basis points on pretax bottom line there on loan closings. We say next year, we're gonna see 40, 50% improvement in loan closings. And even a better improvement in the bottom line. I think we're modeling somewhere between fifty and sixty basis points of pretax on those loan closings. Nicholas Thomas Lorenzoni: To your point, Nick, it does scale tremendously as you get sort of above a billion 5 because, really, we're still recruiting, call it, $50, $60, $70 million a year producers. But when you're bringing those on and it's a 10% growth in production, you can sort of feel it. When you're already at $2 billion, it's just not noticeable. Nicholas Thomas Lorenzoni: Okay. That's good to know. And last thing, talking about the ROA, what is your target sustainable ROA for the full year 2026? Matthew Alan Switzer: Mean, our bogey is still, for the full year, a 1% ROA. And we may be below that in the first quarter because the first quarter is seasonally slower, particularly for mortgage and mortgage warehouse. But we'll be above that in the second half of the year. Would put us in that range for the full year. Nicholas Thomas Lorenzoni: Got it. That's it on my end. Thanks for taking my questions. Matthew Alan Switzer: Thanks, Nick. Operator: Your next question comes from the line of Christopher William Marinac from Janney Montgomery Scott. Your line is open. Christopher William Marinac: Hey, good morning, and thanks for all the detail both on the call as well as on the disclosures yesterday. Just wanted to go back to the noise that may be on top of the $23, $24 million quarterly expense, is some of that noise still going to be with us this first half of the year? Or think a lot of it's behind us? Matthew Alan Switzer: I think the best majority of it is behind us. We may have a little bit in the first quarter, but should not be anywhere near as significant as the fourth quarter. Christopher William Marinac: Got it. And then part of getting back to the 1% ROA is gonna be a higher margin, right? I mean, expenses make a big difference to get you from the core 80 to 100. But how big of a piece is the margin? Matthew Alan Switzer: No. You got a question. I mean, that's part of it, but, I mean, there's we got margin expansion on the existing balance sheet plus healthy margins on the growth agenda. Dennis just outlined that we're expecting for the year. And the incremental some significant portions of that growth come with much higher incremental ROAs. For example, Orange Warehouse, which is gonna be a big portion of the growth and have very wide ROAs relative to the consolidated. On the existing balance sheet, we, you know, we had a 3.28% margin in the fourth quarter. Call it high threes if you adjust for paying off debt. Which will have two quarters of that in the run rate in the first quarter plus the full quarter of the securities portfolio restructuring. I mean, we should be hopefully in the mid-three fours in the first quarter. If not a little bit better than that. And call it, push it three and a half as we get through the year. So some of that is margin-related, but a lot of it's just holding expenses. Dennis J. Zember: Okay. And, Chris, I'd say sort of adding to what Matt said. I mean, there's I'll start on the bottom side. There's virtually no pressure anywhere in our company for OpEx growth. And, you know, to the degree there is, it's a new producer or a new revenue or revenue-related opportunity. But outside of that, there's just no pressure for that. There's also virtually nothing that we're doing on the earning asset side or the growth side that's dilutive to our current margin. So when you look at where we were a year ago at $2.90, versus where we probably are gonna be somewhere closer to three and a half, you know, midyear. The math there is just very accretive to getting us to the 1% ROA. And over the 1% ROA. We're not trying to be conservative. We definitely see a pathway into getting to 1% and it being sustainable. And a lot of it is a much more improved margin absolutely sort of set in stone operating expense discipline. Matthew Alan Switzer: So the other thing I would add, Chris, mortgage will be a much for the full year much higher contributor in '26 than '25. Partly because of the growth we're expecting in production. Which does not assume, like, some big refi boom or whatnot. It's that's driven by teams that we hired in '25. And recall in the first half of the year, mortgage was not a contributor, particularly in the second quarter because of expenses related to those hires, and that was about, call it, a million and a half. Of impact at least. That don't have any of that in our expectations for 2026. So mortgage, retail activity, contributed maybe a couple million dollars pretax in '25. Because of expenses and build-out and whatnot. It's gonna be multiples of that in '26, which is also accretive to ROA. Christopher William Marinac: Got it. Thanks for all that. And I guess just to follow-up on it, on deposits is, Dennis, talked about the deposit account growth that's been in place for a while. Do you see those same accounts funding more? Or do you see deposit growth coming because you continue to build accounts, just that? Just curious kind of how you look at balances versus accounts. Dennis J. Zember: We look at both. It's interesting you'd ask that. We do measure one of the things we measure around here is new customers. So that's not new accounts. So new accounts to existing customers, we don't count. We look only at new customers, new people to the bank, whether it's EINs or Social Security. And last year, it was almost 6,000 new customers to the bank. The first year I got here, we barely cracked a thousand. So the sales efforts are definitely attracting new customers. And interestingly, what you said, the balance is three years after you acquire the customer are almost double what they were in the first year. So I mean, I can't scientifically guarantee that what we did this year on checking account growth is going to be double in three years. But I can tell you if you go back two or three years, four years, five years, and you look at what those customers have done here, unquestionably, the balance has grown to about double. Now just like every bank, we have attrition. So you do have to grow $100 million of new customers to be able to come on the call, Chris, and tell you that we grew $50 million. Just that happens. But new customer acquisition is key. What I will tell you is, I mean, every investor and analyst on the call knows this. When you're growing the bank, when you're not focused on investors, CRE, you're growing the bank with C&I or owner-occupied or treasury-related sales when you're focused only on deposit. Those are absolutely relationship core. And after you've got them on the books, they 100% turn into a center of influence. And most everything we did, and I was talking about the fourth quarter, December, really, and the growth. Almost every one of those were a referral from an existing customer. And so, I mean, again, I wish I could, you know, I wish I had the foresight to say or the I wish I was a prophet could say all of this is gonna turn into that. I can't. But I do know that what we did in the fourth quarter is, number one, a good sign that the sales culture is working. And number two, it gives us a big platform springboard to drive more results in the coming year. Christopher William Marinac: Got it. That's great. Thanks for that, Dennis. And just another question on the mortgage business. Do you think you'll still have more production hires there? Or do you have a team in place that you want at this in terms of headcount? Dennis J. Zember: We're definitely going to have more hires. But it won't come with the large upfront expenses. It'll be more incremental than the two large teams we had last year. Yeah. We hired $2.2 billion a year producers last year. There was some cost for onboarding them. No question about it. The folks we're recruiting now, Chris, back to what I said, they're probably $30 to $50 million to $70 million producers recruiting them smart. We're not trying to do all of them in one order. But you know, recruiting those two big teams really just keeps paying dividends, and people, you know, the more success we have here, honestly, the more our phone is ringing. I will tell you, we're a $4 billion bank. We probably need mortgage to be, call it, $2.5 to $3 billion. I think at $2.5 billion, we're not too concentrated in mortgage. At that point, we probably sort of need to marry growth in mortgage along with growth in the core bank so that we're not a mortgage company. We're still a bank with a mortgage company. Christopher William Marinac: Got it. Okay. And then last question, on the one loan or loans that had an increase on special mention, do you see any of those graduating to substandard, or would you see that those go back to pass at some point? Dennis J. Zember: The specific impairment that you're referring to? Christopher William Marinac: Yeah. Just the $40 million that went up from September to December. Dennis J. Zember: Special. Oh, the special mention. I'm sorry. Think there's a list. I'm I don't what Probably, I think one of them is an office CRE deal that's got very strong cash flows. Got very strong cash flows. An investor that investing in the property. We downgraded it because we did a modification. So I think we're probably gonna leave it special mention. There's we got good LTVs. Very strong debt coverage. It's probably gonna sit in special mention. We've not had a payment problem. But because of that modification, we're probably gonna leave it there. The other one's got extraordinarily strong guarantor with a lot of liquidity, a piece of collateral that we're not very delighted with maybe. It's probably gonna be there for a little while too. But given the strength of the borrower and his liquidity position, I don't think it's going to substandard. Is that a with one piece as an assisted living that they had an issue with their tenant, but they're working through that, and the guarantor is supporting it. So assuming they get the tenant sorted out, they can be fine. They're probably be in a position to upgrade that back in the next couple of quarters. One of them is in the process of being recapped. And at that point, we would actually be paid off, which would be a nice chunk of that. Yeah. But it also has a very strong pullover behind it. So we don't see substandard on these, and we definitely don't see big impairments or losses. Christopher William Marinac: Okay. Great. That's good color. Thank you for sharing all that, and thanks for taking all of our questions. Dennis J. Zember: You bet. Operator: And that concludes our question and answer session. I will now turn the call back over to Dennis Zember for closing remarks. Dennis J. Zember: Thank you again for joining our call. Thank you for your interest in our company and staying with us through 2025. We look forward to what 2026 will bring, and Matt and I are available for any questions or comments after this if you want to give us a ring. Thanks, and have a safe weekend. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning. Welcome to today's Colgate-Palmolive 2025 Fourth Quarter and Year-End Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer and Executive Vice President, M&A, John Faucher. John Faucher: Thanks, Betsy. Good morning, and welcome to our fourth quarter and full year 2025 earnings release conference call. This is John Faucher. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Forward-looking statements inherently involve risks and uncertainties and are made on the basis of our views and assumptions at this time. Please refer to the earnings press release and our most recent filings with the SEC, including our 2024 annual report on Form 10-K and subsequent SEC filings, all available on our website for a discussion of the factors that could cause actual results to differ materially from these statements. These remarks also include a discussion of non-GAAP financial measures which excludes certain items from reported results, including those identified in tables 4, 6, 7, 8 and 9 of the fourth quarter earnings press release. Full reconciliation to the corresponding GAAP financial measures and related definitions are included in the earnings press release, which is available on our website. Joining me on the call this morning are Noel Wallace, Chairman, President and Chief Executive Officer; and Stan Sutula, Chief Financial Officer. Noel will provide you with his thoughts on our results and our 2026 outlook. We will then open it up for Q&A. Noel? Noel Wallace: Thanks, and good morning, everyone, and thanks for joining us today as we discuss our stronger-than-expected Q4 results, and more importantly, our outlook for 2026, which marks the beginning of our new 2030 strategy. I'll give some brief thoughts on 2025 before heading into why I'm excited for what 2026 could bring despite a very volatile environment as we enter the year. We delivered organic sales, net sales, gross profit, base business earnings per share and free cash flow growth in 2025 despite lower-than-expected category growth higher-than-anticipated raw material inflation and the impact of higher tariffs. I believe our ability to deliver dollar-based earnings per share growth in a year with that much volatility is a sign that the flexibility and resilience we have built into our operating model is working effectively to drive value for our shareholders. Encouragingly, we are exiting the year with improved momentum with organic sales growth in all 4 categories in the fourth quarter and sequential improvement in organic sales growth versus the third quarter in every division, except North America. And we delivered modest volume growth in Q4, excluding the impact of both the Prime 100 acquisition and the planned exit of the private label business. Last year, we completed our 2025 strategy as we added $5 billion in sales, and this year marks the transition to our new 23 strategy, which we believe provides the building blocks to accelerate change at our company to continue to drive top-tier growth and total shareholder return. The 5 key areas where we're focused on are: First, we have strong brands with global reach. We believe this provides a competitive advantage. For example, the Colgate brand is the most penetrated brand in the world and this helps us drive distribution for our portfolio, particularly in emerging markets. Second, we are accelerating our investment in new innovation models with additional resources focused on delivering more impactful science-based innovation across all price tiers with greater investment in key strategic growth markets. Next, we're harnessing the power of best-in-class omnichannel demand generation by adapting how the right products with content and messages are delivered to the right people at the moments that matter in order to drive purchase behavior. The goal is to deliver consistency of this consumer-centric model around the world to build brand strength and penetration. Fourth, we're continuing to double down on and accelerate investments in scale capabilities, digital, data, analytics and AI including our efforts in revenue growth management and AI-driven innovation to generate faster growth, higher return on investment, efficiency and productivity and to integrate new ways of working across the company. We are also executing on our plans to optimize our supply chain through predictive analytics and automation to handle customization and personalization in a new dynamic environment. This is intended to deliver personalization at scale, drive optimal asset utilization, minimize downtime, improve service levels and enhance quality systems. Finally, anyone who has worked for me knows how much I believe in culture is a competitive advantage. We are laser-focused on continuing to develop a high-impact culture by aligning key performance indicators in our training and development programs. We also announced our strategic growth and productivity program which should unlock the organizational changes and funding necessary to help us deliver on our new strategy. Combined with our fund growth initiatives, which delivered another strong year in 2025 and we believe we are well positioned to invest to grow our brands, build our capabilities and deliver productivity to help offset cost inflation and drive margin expansion. We have several reasons for optimism in 2026. Our new strategy and the resilience and strength of our operating model gives us the ability to adapt to this volatile environment. Emerging markets where we have significant exposure continued to perform ahead of developed markets. We delivered improved momentum on our business in Q4 in terms of organic sales growth and market share, and we have seen stabilization of category growth rates as we exit 2025, but we still face significant uncertainty. While category growth may have stabilized, growth rates remain low. This is difficult in and of itself, but also could lead to higher levels of promotion and other competitive activity. Foreign exchange is favorable right now but has been a negative impact for 8 of the past 10 years. The geopolitical environment, including tariffs, is volatile, particularly in Latin America, and the U.S. market remains sluggish, while we think trends will improve, we're not building in a big rebound. Because of this uncertainty, we're giving a wider range than normal in our net sales and organic sales growth guidance to incorporate various levels of category growth. So to finish up, I'm confident in our ability to navigate through this uncertain environment. I believe we have the correct long-term strategy, very well-designed 2026 plans and, of course, the best people and culture so that we can continue to deliver value to all of our stakeholders through achieving our long-term ambitions. And with that, I'll take your questions. Operator: [Operator Instructions] The first question today comes from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: So nice sequential progress on organic sales growth in Q4. 1% to 4% guidance for '26 is a wide range, understandable in this environment. But Noel, I'd just love to get your perspective on category growth within that guidance as you look at key regions around the world, where we sort of stand here at the beginning of the year. Obviously, a difficult '25, but you talked about improvement in Q4, where we saw that clear sequential improvement. So just does that give you more confidence here? How do you see Colgate as positioned also within that industry framework just from a market share standpoint and as you look to drive greater marketing effectiveness? I think the point blunter is really just trying to understand how you think about landing within that OSG range in '26, an improvement versus '25 with the points you made around optimism versus the uncertainty. And then if I can slip the second one in, Stan, it's just been so long since we've seen favorable FX. Can you just talk about the flex on the earnings line relative to the top line dynamics I just asked about and how you manage the business in terms of spend and the way you manage that business relative to that FX benefit? Noel Wallace: Yes. Thanks, Dara. Clearly, we're pleased with the -- as you said, the momentum exiting the year. On an underlying basis, excluding private label, organic in excess of 3%. So a good number that we think sets us up well, but the environment continues to be very challenging and very volatile. Overall, it seems like the categories have stabilized at the lower rate than our historical assumptions, as you well know, probably in that 1.5% to 2.5% as we showed in the prepared commentary. We're seeing a lot of month-to-month swings in the U.S., which you can see in the candidate, obviously, plus we continue to see some downward pressure on inventories as category slow. The volume is the particularly more acute issue in the U.S. where we've seen on our core categories some of the volumes go negative in the categories. Our anticipation is that will get a little better. But as I mentioned, we're not assuming the U.S. will get significantly better, at least in the next couple of quarters. On an underlying basis, though, we think North America was actually a little better for us this quarter, but still not where we need it to be, as I've discussed before. We do things with a better -- with a little better thinking in 2026 versus our strategy in '25, we've got easier comps, we've got a much stronger innovation pipeline and the execution is improving, and we certainly saw that improve as we went through the back half of the year. If I go on to some of the other regions, as expected, Europe is seeing less pricing than before. Volume is maybe slightly better than we were expecting. Western Europe better, which was good to see, but some continued weakness, particularly in Eastern Europe and specifically calling out Poland in that regard. Latin America was very encouraging with Mexico and Brazil very strong in the quarter. The Andina region and Central America regions improved, although still very challenging from a category standpoint in those areas of the world. Asia improved sequentially, which is terrific to see with India returning to growth Hawley & Hazel not out of the woods yet, but improving on an underlying basis, and we particularly saw some encouraging shares as we exited the quarter in e-commerce on Hawley & Hazel driven largely by a very successful new product entry. The Chinese New Year moves into the first quarter this year, so we should see a little bit of improvement there. But solid growth across Asia, across the rest of the division, particularly on our premiumization strategy. Hill's is a terrific quarter, while the category remained soft and dogged down with the CAT continuing to grow. We think the U.S. bounced back quite nicely. On an underlying basis, you saw obviously the strong growth on Hill's ex private label in excess of 5% and volume being positive on Hill's. So we're very pleased with the continued progress, but the category continues to remain quite sluggish. And we've seen some of the issues in up in Canada with the Buy Canadian on the business. But overall, on a broad basis, we're very pleased with the continued growth on that and particularly the share growth we're seeing on the prescription diet side. So overall, we think we were exiting where we want to. We're very pleased that we've set up our 2030 strategy in 2025 that we think addresses a lot of the shortcomings in the market right now. And I think you saw some of that resilience come through and the flexibility we had in the quarter as well as setting up our SGPP, as we announced in the third quarter, that we think will give us the flexibility and the funding to continue to execute around building our brands and capabilities for the long term. So let me turn it over to Stan for the FX question. Stanley Sutula: Thanks, Noel. So we saw in Q4 that FX was slightly favorable versus our expectations. As Noel highlighted, FX has only been favorable on an annual basis, 2 of the last 10 years, and we know it can change quickly. As we look at 2026, we see it as a low single-digit benefit to revenue in 2026, focused on primarily the first half of the year. On the bottom line, we use that as part of our flexibility in our business model, using it to invest back into the business as well as contribute to the bottom line. At current rates, Europe is the biggest marginal benefit, but most currencies have moved favorably and Latin currencies have been stronger most recently, which is also good for us. I guess I'd close with FX, our -- we have very experienced teams. They're really good at dealing with currency in a volatile environment. So they'll deal with it through RGM, through pricing and make sure that we don't try to take too much advantage of it and use it as a flexibility in the business model. So I think our teams will execute this well. Noel Wallace: Dara, you asked a question on guidance in terms of the wide range. Let me provide a little specificity in terms of what went into that thinking. So it's pretty simple. If categories get worse, we're at the low end of that guidance range, if categories stay where they are, that we're in the middle of that 1% to 4% range, more than likely if category strengthen, we hope to obviously achieve more towards the higher end of that range. But as we've outlined and as you've seen, significant uncertainty all around the world, categories have stabilized but remain at lower levels. Operator: The next question comes from Peter Grom with UBS. Peter Grom: So I wanted to follow up on Hill's. I wanted to ask about Hill's, and you kind of alluded to this now a strong quarter on the volume front despite a pretty tough category backdrop. But can you maybe just speak to the performance in the quarter relative to your expectations? Where were things stronger than expected? Were there any pockets of weakness? And then I guess, as you noted, the category remains challenging. But as you look ahead, I'd be curious what you expect from a category standpoint and just your ability to continue to deliver this level of outperformance? Noel Wallace: Yes. Thanks, Peter. Again, as you mentioned, strong quarter for the business on a backdrop of pretty tough category. Private label was a 360 basis points negative impact to volume. And despite that, if you take that out, obviously, on an underlying basis, we grew volume 2%, which is terrific. And that growth was pretty broad-based with the exception of the softness we continue to see in the category behind dry but we grew across all of our core strategic segments. So that's terrific to see. And the volume improved on a 2-year stack basis, which is also encouraging. Therapeutic continues to be a big growth driver for us. The Prescription Diet business growing very, very nicely with improved obviously, market shares, and that clearly helps the mix in the operating margins and gross profits. We're gaining share across all channels as our strategy of science-based innovation clearly continues to deliver growth for the category and our retailers. So we're pleased with that. But clearly, a little bit of softness on pet adoptions is driving some of the sluggishness we're seeing in the categories. But science is winning, and we clearly continue to see upside in terms of our opportunities to grow the category for some of the premiumization and innovation that we're bringing into the category. We've also gained a [ shelf ] space as we exited 2025, which we think will help us as we move into 2026 in a more challenged environment. We've got a real benefit in the supply chain as we ramped up a lot more innovation going into 2026. Our [indiscernible] plant that we've talked about has greater flexibility now to deliver more wet product around the world. and we continue to see across all of the key retail environments, growth of the Hill's brand. Very competitive categories we saw exiting the back half of the year, but the good news is we continue to drive incremental growth, and we continue to fund that business with increased brand advertising. Operator: The next question comes from Rob Ottenstein with Evercore. Robert Ottenstein: Great. You had a tremendous amount of success turning around and then growing the Colgate brand in China. I'm wondering if you could kind of reflect on the learnings from that, to what extent you can transfer those learnings to Hawley & Hazel. And I think you had mentioned that, that brand is starting to do a little bit better. And are there really learnings that are transferable outside of China to the rest of Asia and even in the U.S.? Noel Wallace: Yes, Rob, thank you. It's interesting you asked about the transferability. And in fact, we've seen so much interesting learnings coming out of our China team, our Colgate China team that we've sent all of our key leaders and marketing directors over to China for immersions into the commercial strategies that they've deployed over the last couple of years, which have clearly are at the center of our omni demand generation. And they've really learned how to deliver in an omni demand world with very strong brick-and-mortar, but equally important is a very strong e-commerce and online business, and that learning is clearly getting transferred around the world as we speak. But the underlying objective of that business has been to transfer a lot of our success over the years in brick-and-mortar over to a rapidly growing online business. And we've seen a significant amount of competition online. But despite that, we've been able to bring a lot of nation into the category, and we've learned how to personalize the message on a much more fluid basis, which we're getting at the right time and the right place to drive a lot of that share growth we're seeing on the Colgate side. And your specific question, that's exactly what Hawley & Hazel now is trying to replicate. Now they have a significant widespread, downscale distribution business that we want to continue to leverage, but we realize the category continues to evolve to e-commerce and our ability to exploit the learnings that we've had on Colgate onto the Hawley & Hazel business will ultimately prove the long-term success of that. As you mentioned and as I mentioned, we had a great new product entry on the super premium side online with Hawley & Hazel, a dual chamber technology that's quite unique for that market. and we're seeing great uptake on that as we exit the quarter. And that will clearly be the business model that we need to continue to execute on the Hawley & Hazel business moving forward. We've also made some pretty significant structural changes on that business. to better set us up for where the environment is going and where we anticipate the go-to-market should end up in the next couple of years. Operator: The next question comes from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I had a question on your ad spend. Consumer backdrop remains challenged and your ad spend was slightly down last year following increases in the prior couple of years. So I guess with category growth still below historical levels, curious if the decision to spend more on A&P this year is because you want to improve your market share in certain categories. If you could touch on that, that would be helpful. And I'm wondering how much flex you ultimately have to maybe pull back on A&P spend, I guess, if necessary, to deliver on your EPS guidance? Noel Wallace: Thanks, Bonnie. Clearly, a lot of the success we've had over the couple of years has been behind building our brands and our advertising acceleration has been a key driver of that. That being said, with the sluggishness that we saw in the back half in the categories, it was prudent for us to scale back a little bit of the advertising given some of the headwinds that we saw in the categories. That being said, we spent a lot of time in the last 6 to 9 months really deploying the omni demand generation capabilities that I talked about as part of our 2030 strategy, which is allowing us to get much more focused on driving efficiency through our spend. And while the advertising on the percent of sales was down a little bit in the fourth quarter, it was still up 5% on a dollar basis year-on-year, which is good in terms of the number of impressions and the impact we're getting in the market. So moving forward, a real focus on optimization and efficiency, but we have areas of the world and brands that we believe will continue to benefit immensely from improved advertising and increased levels of advertising in the market in order to drive not only our market share and penetration but to drive the categories as well. Operator: The next question comes from Peter Galbo with Bank of America. Peter Galbo: Noel, I wanted to dig into your comments a little bit on North America specifically. As I look at the holistic portfolio, right, you've got pretty much every region moving in the right direction. And North America seems to be kind of the last ship to turn around here, particularly, I think you called out Personal Care as maybe one of the weaker points within that bucket. So would just love some comments from you around kind of the planning whether it be innovation and market execution for North America specifically as we get into '26 to kind of write that ship so that, hey, maybe organic sales can come in even a little bit more accelerated than you saw in Q4. Noel Wallace: Yes. Thanks for the question, Peter. Tough quarter for North America, but certainly an improvement of where we saw things in the third quarter. And you've heard from other companies, the category growth continues to lag in North America and that's been a challenge for most. October and November specifically impacted by the government shutdown, likely Snap and other factors December was a little better, but let's not get too excited about December. We'll see where the first quarter ends up. It's clearly what we're seeing now is continued softness in the category growth numbers across the board. Nine of our categories were down in volume in the U.S. in October and 10 in November. That's category numbers. It was only 6 in December. So as I mentioned, improved a little bit. Home Care category is interesting seem to be particularly impacted. This category took a pretty significant hit in the fourth quarter as did fabric softeners showing both mid-single-digit decline -- volume decline. So again, like you've heard from others, we're all plagued by the fact that there's a lot of headwinds in the category. And I think what's really driving that right now is just a lot of uncertainty at the consumer level in terms of where things are headed in the marketplace. And as a result, they're holding back on filling their pantries, buying a lot more on promotion as perhaps they've done in the past. They're taking their penetration of the category down to a certain extent. Still, we see a lot of growth in the super premium side of the business, which is -- that's terrific and some trade down into value. But overall, as we've talked about, we have real opportunity in the North American business, particularly in Oral Care, to drive a lot more of our mix towards the super premium part of the category. There's a gap in organic versus consumption, as you may have seen from some of the standard data. This is probably possibly due to some of the coupon activity that we've seen in the category, some downward pressures on inventories, as I mentioned upfront due to the slower category growth and also some softness in the non-Nielsen category. So a very uncertain environment in North America, what are we doing about it? We're obviously really gearing up with a much stronger innovation pipeline as we move into 2026, and you'll see that unfold as we go through the balance of this quarter. And we'll obviously be much more focused on making sure our revenue growth management strategies are well in place. Clearly, there's going to be a chase of volume. We're going to have to watch the competitive activity. So far, the competitive activity has been rather constructive. We are seeing some of our competitors do more on couponing. So we'll have to watch that carefully as we move through the balance of the year. But our belief is that the right value is to drive -- in the categories is to drive more premium innovation, and that's what we'll be focused on across our categories. Skin was soft in the category. That's our premium skin health business, particularly as we consolidate that all into the North America business. Some of the decisions we've taken on China obviously slowed the skin health business, specifically as it rolls up to North America. We have strong strategies. We've done a significant restructuring on that business moving forward, and we're quite confident that the innovation and the focus that we have on some of the growing markets around the world, will yield better results for the business moving forward. Operator: The next question comes from Filippo Falorni with Citi. Filippo Falorni: I want to touch on the emerging market business that saw a pretty significant improvement in Q4, especially Latin America and Africa, Eurasia. Maybe can you first talk a bit about what you're seeing from a macro standpoint, especially in big countries like Brazil, Mexico? And then longer term, still a lot of contribution from pricing. How should we think about the balance of pricing and volumes in emerging markets as the FX turns potentially more favorable going forward, as you mentioned before? Noel Wallace: Yes. Thanks, Filippo. As you probably saw emerging markets across the board, broadly, we're quite strong. If taking aggregate, emerging grew at about 4.5% organic growth in the quarter with a good balance between price and volume, which is encouraging. You specifically called out Latin America, which had a very, very strong quarter. We were up in both Mexico and Brazil, high single digits and we had strong growth across all 3 of our categories. We also had solid growth, as I mentioned in my comments, in the Andina region in Central America, but those regions continue to be challenged by heightened competition. But overall, we continue to execute our strategy and grow the business. We're seeing a similar movement in terms of Latin America, a little bit of sluggishness, but they are growing faster than the developed markets across the world, both in Latin America as well as Asia and Africa, which we think bodes well for us, given our strategic exposure to those categories worldwide. And FX has certainly helped us a little bit in the short term. We'll see where that goes ultimately longer term, but the volatility is clearly there. The good news on our emerging markets is we're very focused on executing against very strategic growth markets in our 2030 strategy and we'll see up investment in those markets where we were able to obviously go capitalize on the stronger category growth rates we're seeing overseas, and that will be a clear focus as we move through the balance of 2026. Operator: The next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: Hoping you guys could talk a little bit about India, just with the GST change and just some volatility there have been in that market overall, not just for you guys on demand, consumer and so on. Would love an update there. Noel Wallace: As you saw in India company results, which we recently announced, organic was up in the quarter and certainly importantly, sequentially up versus the third quarter and better than, quite frankly, expected. But underlying demand in India, mostly in the low-income urban, consumer continues to be rather soft. Our focus and our strategy as -- and our innovation is supporting that is really to grow the premium side of the business in the urban market. And we have some pretty aggressive new product introductions, Colgate Total, we've launched Colgate PerioGard through the profession and our Optic White purple brands are all moving through distribution as we speak, and we will continue to focus on the premiumization of the urban market while we continue to defend some of the implications from the GST changes that were made. We're mostly through those, by and large, and we think the execution will improve as we move through 2026. Overall, we are still quite bold on India longer term, a very important market for us where we've had great success. The team has a strong plan for 2026 with a lot of the changes in interventions we made in 2025 that we think will play out in '26 for a much stronger year. Operator: The next question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: I guess digging into maybe even a little bit more on what's behind the slowdown in the category. You mentioned a bit of pantry destocking, but for how long can that continue? Maybe there's a little promotional activity. But I'm sure we will dug into sort of what's maybe going on more specifically on the category that historically has been very consistent, seem to be slowing down. And then on FX, just to confirm, I think, Stan, you had mentioned the benefit on the top line. Is it fully intended to be reinvested? Or was the comment more related to -- not to expect any leverage from the benefit on top line down the P&L? Noel Wallace: So on the U.S. and the categories, by and large, I think your question is more germane for the U.S., it is unusual for everyday use categories to see the sluggish mish, obviously. And clearly, I think as consumers get more certain around where their futures are headed and where the economy is headed, we're going to see those categories come back. And it's incumbent upon us to ensure that we're bringing the right innovation across multiple price points with the real value orientation associated to it. We know consumers react to great new product ideas. So we have to accelerate our innovation in order to drive a little bit more vibrant in the category. Clearly, we've got some pricing opportunities as I laid out earlier on whether it's revenue growth management or going after the premiumization segment. But right now, I think it's largely driven by uncertainty. And as a result of that, we've seen obviously some softness in Hispanic cluster markets as we've talked about and you've heard others talk about. But the anticipation is that we think the category has bottomed out but it will be a slow return over the balance of this year. And I think as we put more innovation in the market, we should see the North American market come back nicely. And as we deploy our premiumization strategy, we believe there's a lot of upside growth for us still there. Stanley Sutula: And on FX, we said in 2026, we see a low single-digit benefit to top line focused largely in the first half of the year. And on the bottom line, what I said was that this would be part of our flexibility in the business model. We use it to invest back in the business as well as a combination of contributing to bottom line, which is all of what we put into our overall guidance on top and bottom. We'll have to use this and see. The other thing we know is it's going to be volatile as we go through the year. It's been volatile through January, and we expect that, that will continue. So that's why we look at it through a flexibility model, which is how we've designed our guidance. Operator: The next comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: So I was hoping if you can elaborate a little bit more on the outlook for LatAm. Clearly, you reaccelerated in the quarter, even strong volume growth. I was hoping to see if you can parse out -- I think you got impacted in Brazil for the reformulation of [indiscernible]. I was trying to see if there is any reload in the inventory at this point and what are you embedding within that category growth global for LATAM, you have some tailwinds with potential elections in Brazil and how Mexico has been recovering? Because you called out Mexico being the biggest driver for volume. So it's curious if Brazil was driven by volumes as well. Noel Wallace: Yes. Thanks, Andrea. Yes, a good quarter for Latin America coming off a slightly softer quarter in the third quarter, which is somewhat unusual given their long-term success. Clearly, some of the strategies we're executing are now starting to see prove out in terms of the growth and the volume which was terrific to see in the quarter. As we look forward, obviously, the total issue that we had in 2025, we'll lap some of that moving into 2026 and the execution of our strategy will hopefully drive some incrementality to what we've seen, given some of the softness we experienced in 2025. But overall, the category seems to be behaving okay. Yes, they're down versus historical levels. We're still able to get pricing given the strength of the brand and some of the inflationary aspects we've seen, particularly on fats and oils in the region, we've been able to take some pricing in that market and we'll continue to do that moving forward. Our focus is on a strong innovation pipeline across multiple price points, and we believe we can continue to drive volume executing against the clear price points. We are seeing some of the middle gets squeezed in Latin America as well, where the super premium continues to grow quite nicely. The value segment is growing where the middle is getting squeezed. So we need to up our innovation across all price points in order to ensure we're securing better volume growth across the board. And both Brazil and Mexico are contributing very nicely to the growth and we anticipate that will be the case as we move through the balance of 2026. Operator: The next question comes from Robert Moskow with TD Cowen. Robert Moskow: Noel, in response to the plans for driving growth in the U.S., you're really focused on the premiumization strategy. But you also said that economic uncertainty is a problem, especially among Hispanics who just tend to have less purchasing power. So can you talk a little bit more about the U.S. And how does your strategy take into account improving performance, I guess, for lower and middle tier priced products? That seems to be where your competitors are increasingly focused as well. Noel Wallace: Yes. Thanks for the question. Listen, it's a combination of many things in terms of strategically how we deploy our go-to-market. If you take just the lower end of the market, obviously, more prochly sensitive. We need to get our couponing strategy in the right place. We need to get our price pack architecture in the right place. We have very, very strong core base businesses in the U.S. and around the world. And so our ability to innovate against those and bring some new news will create some excitement in the category, executing the planogram successfully as we move through '26, making sure we're bringing growth stories to our trade in terms of the ability to drive some of the value end of the business in the middle price segments as well and the trade up necessary to do that. But it really comes down to executing a well-thought through promotional strategy, combined with a very aggressive innovation strategy. If we can get those 2 right, I realize I'm oversimplifying, but that's critically important to drive growth in the U.S. across all price points. And we clearly will match any competitive activity that happens, but we're very focused on driving the category much more through innovation and I hope that the constructiveness of the category that we've seen over 2025 will play out that way in 2026 as well. Operator: The next question comes from Nik Modi with RBC. Nik Modi: So just if I could just follow up on Rob's question. Just how do you think about portfolio construction in this kind of K-shape world we're living in? I'm not talking about kind of what's going on here and now. I mean, income bifurcation globally has been going on for 40 years, right? So I would assume that it's going to continue. So when you think about portfolio construction or just product construction, low end versus high end, how do you think about that over the next couple of years? That's just a quick follow-up on the K shape. And the real question is just some of your larger competitors have announced and probably will announce soon organizational design changes that are less category-centric and more solutions-centric. And I'm just, again, thinking about just kind of the world we're living in right now and how you think about the Project 2030 or your business plan going through them? Like how do you think about organizational structure? And do you think that may be making any changes might make sense just given the way the world is evolving? Noel Wallace: Yes. Thanks, Nik. Let me take a lot about our portfolio composition. And something we talked along about relative to our 2025 strategy was the importance of our core business. And it's interesting, you're hearing quite a few staples talk about revitalizing their core. We've been on that journey for 3 to 4 years, really elevating our core businesses, relaunching them with science-driven innovation and driving a lot more value in our big core businesses, which is the bulk of our business. And that strategy will absolutely continue as we move through 2030. We've learned that making sure that our big core businesses are not forgotten and then we get too focused on line extensions and super premium innovations, and we forget what got us to where we are today. That's a dangerous place to go. And so our core business and the strategy that we've been deploying, we think, has played out very nicely through 2025 and we have some exciting relaunches against our core business as we move into 2030. So that will continue to be very important around shaping our portfolio. But you've heard me consistently talk about where we under-indexed the most globally is on the super premium side. And that will be a very focused effort going through 2030. For us to get more of our fair share in the super premium side of the business, we now have been spending years developing great science-based innovation that we think can exploit the super premium and drives real value and premiumization opportunities. You've seen that obviously on the Hill's business. We need to replicate that across our other categories more successfully. So you'll see that executed as we move through the 2030 plan. On organizational structure, I think the strategic growth and productivity plan is doing exactly what you, in general, laid out, which is laying out our organization for where we think the world is going. And at the core of that is structuring our organization against what we call omni demand generation. So we will desilo the organization from an e-commerce business in a brick-and-mortar business and indirect trade distribution business and now have a much more holistic commercial, one commercial organization, that's deploying strategies to win the omni demand consumer. And that is a big focus for us in terms of how we're organizing ourselves, the SGPP plan is enabling us to look at the structure that we have today and find ways to optimize that, to drive faster decision-making and to organize ourselves against a very challenging and changing consumer environment around the world that requires us to be very fluid and dynamic in terms of our content and how we advertise and how we execute digitally and personalize our messaging at the same time at the right time and the right place. So it encompasses all of what you said. It's a pretty substantial change for us, but a really exciting change and a journey that we've been on for a couple of years to get to where we're ready to really embark on more substantive stages as we move through 2030. Operator: The next question comes from Michael Lavery with Piper Sandler. Michael Lavery: I just wanted to come back to North America pricing. You've gained some steam there and it was positive again. You've touched on just the need for flexibility and the consumer uncertainty. But maybe can you give a sense at a high level what your expectations are in 2026? And you touched on some of the RGM capabilities. But maybe I just want to clarify if you meant more that to manage price realization? Or if you meant that more as driving value for the consumer? I'm sure it'd be a bit of both, but should we expect a little bit more pricing momentum to continue? Or any watch-outs there? Noel Wallace: Yes. Thanks for the question. Clearly, we've always suggested that we need to have a balance between pricing and volume. And a lot of the efforts and capabilities that we've built over the last 5 years in revenue growth management, where we now have AI helping to deliver better, more prudent decisions around price pack architecture, promotional environment, how we think about our premiumization is a key vehicle for us to continue to execute against to drive pricing in the category. So we need to get some pricing in that category. And clearly, the teams are very focused on that. We'll be looking at our promotional strategies much more diligently on how we get pricing out of those. We'll be looking at our price pack architecture, how we get those. And importantly, as I laid out the innovation becomes critically important to ensure that we're getting premium innovation to drive pricing for the category, while we continue to execute core renovation to make sure that we're bringing value to that consumer as well. We're looking at the portfolio in terms of getting the price points right, as I mentioned, and making sure that we're competing against the growing price points, and we have innovation there. So in essence, it's a little bit of everything there. The U.S., I think, will continue to be a challenging environment for the next couple of quarters. But as we move through the back half, I think our expectation is, is most of our competitors continue to bring more innovation in the category. We see the U.S. market start to settle down post the elections. We think we'll see the categories come back, and we are ready to make sure that we drive penetration and brand share in that environment. Operator: The next question comes from Olivia Tong with Raymond James. Olivia Tong Cheang: I know you mentioned FX has only been a tailwind in 2 of the last 10 years. But can you remind us what happened to pricing promo in the past in emerging markets, whether price push back? Is there any risk that price pushbacks led -- could happen led by consumers or whether competition? Also uses the flex provided but at a greater magnitude to try and chip away at your shares in international markets? And then are there -- assuming that there is that flex, right, that you can spend back, are there programs that you have on tap that you plan to unleash if possible? Or is it more -- or should we think about this more as evenly spread across incremental advertising, investment and promotion? And then just lastly, you briefly touched on sort of a nationalistic view in Canada that impacted results. Are you seeing that anywhere else globally? Or how do you think about the risk of that potentially increasing? Noel Wallace: Let me take the last one. Currently, it's mostly Canadian -- Canada issue, we haven't seen it necessarily travel in other parts of the world but you never say never in this environment, anything can happen, and we'll have to watch that carefully. I'll let Stan get into some of the specifics around foreign exchange. We don't have a lot of experience. And to answer your question, quite frankly, it's only happened 2 out of 10 years. But clearly, we don't plan nor do we build our plans based on foreign exchange being a benefit for us. And so we clearly have our funding to growth programs. We clearly have our productivity and we clearly challenged our teams to get the pricing in the category to drive the value and return on the investment we put in to delivering science-driven innovation. So all of those will continue to happen. We don't necessarily -- I think someone [ pressing ] your question, take our foot off the gas on taking pricing because of foreign exchange. If we need to take pricing because our products require it and the cost of the formulations require it we will take what the market can bear. And we've always done that quite successfully as you've seen through the years. And I think a lot of the capabilities we've built on revenue growth management have helped that. So let me give Stan a sense to answer a couple of more questions around foreign exchange and how we're thinking about it moving through the P&L. Stanley Sutula: Yes. On the FX here, even if you go back and look at those 2 years where FX was favorable, we actually executed pricing in those 2 years as well. So as I said in my comments before, we have very experienced teams on the ground around the world. They know how to navigate this market. Yes, some local players will on occasion try to use that for short-term advantage, but I come back to the flexibility in the P&L. We'll work that flexibility, whether it's investments in advertising, investments in product placement, et cetera, to optimize that for whatever currency environment we're operating in. So I would expect that we'd still be able to execute pricing. It may not be in every single geography around the world, but I think history is a good indicator of our ability to execute that. Operator: The next question comes from Kevin Grundy with BNP Paribas. Kevin Grundy: Congrats on the results. Noel, I wanted to pivot back to the Fat food business, but thoughts specifically around fresh, really from a couple of angles. One, you're learning so far from the prime business, comment on how the brand is performing versus expectations, your ability to further expand that. But then two, and perhaps more broadly, just kind of taking a step back, your updated thoughts on the attractiveness of that subsegment within pet food and whether Hill's will play a role. Noel Wallace: Yes. Thanks, Kevin. Let me address Prime 100, which is the acquisition we made in [indiscernible] those that aren't familiar with it. Our results continue to come in ahead of plan. And I think we're very pleased with one, how that team is executing against the plan and quite frankly, exceeding our expectations. As you may recall, it's a science-driven, [ Bett ] endorse brand. So it really fits our narrative in terms of how we think about businesses and how we think about sustaining long-term growth in businesses, particularly through the profession. The formulas obviously bring more science to fresh, which we think is an interesting play. They're more positioned in the derm space there, which we like. But we're learning. And we have a lot to learn on that. We don't take that innovation lightly. We're making sure that we think about what -- where it may apply for us around the world. The good news is that's a profitable business. So we're not obviously chasing our tail to get gross margins up, but we're finding ways to drive more efficiency and more science through the formulations and improving their supply chain. But right now, it's basically just watch and learn and continue to learn from the team and figure out whether we can apply that to other areas of the world in the long term. But right now, we're focused on making sure we have a successful business in Australia. Operator: The last question today comes from Chris Carey with Wells Fargo. Christopher Carey: Can segue actually into the question that I wanted to ask. So the balance sheet is in very good shape. Leverage is reasonably low or very low. And I guess I just wanted to ask, what is the kind of the state of the union on how Colgate is thinking about using the balance sheet, perhaps more specifically with M&A? Does the impairment today change your views on the sorts of categories that you'd like to play in? And so I guess just taking a step back, what is the desire for M&A? And perhaps just give us a bit of flavor on whether your thought process is evolving on the sorts of assets or categories that you might be interested in? Stanley Sutula: Yes. Chris, it's Stan. So why don't I start, Noel can add in any additional commentary. So as part of our work over the last several years on kind of rebuilding our business model, one of the areas that I think has really benefited is the balance sheet and cash flow. If you look at '25, we had a strong finish to the year. We delivered record operating cash flow of $4.2 billion. Free cash flow is also up. That came both from generating cash profit, but also really good performance on net working capital. That has resulted in a really strong operational ROIC and good improvement on our cash conversion cycle. So when you take a look at our balance sheet and cash flow, I think it has really improved, which gives us flexibility. We often talk about flexibility in the income statement, but we also have flexibility in the balance sheet. We have really nice debt towers looking out over time. We've got really strong cash flow. We have low leverage here, which gives us dry powder. Now as we look at capital allocation as a result of that, our first priority is going to be investing in the business. And you've seen us do that through investing in new facilities, investing in R&D, investing in capabilities. And we think that we demonstrate really good discipline in that area. The second primary area is return to shareholders. So dividends, 63 years of dividend increases, share buyback. And then, of course, M&A. And around M&A, we always look at our options to improve our portfolio of businesses. The impairment that we announced today is part of running the business. The market conditions changed. We still believe in the long-term health of that business and where it can fit into our portfolio. As we look at that M&A, we're going to demonstrate discipline there. We're going to look for the right market opportunities. And if you look over the last few years, we saw those opportunities predominantly in Hill's. We've made those investments and Red Collar and in Prime 100. We're very happy with the Prime 100. We'll continue to look for where that complements our portfolio in total, and then we have the wherewithal to go execute it in the environment due to all the hard work from the team. Noel Wallace: Yes. Well, said, there's not a lot to add to that. And clearly, our teams on the ground and around the world are looking for opportunities to optimize their portfolio. These are discussions we have all the way at the Board level. And rest assured that if we found the right opportunity to utilize our balance sheet, we would. But we are, as you well know, cautious and we want to manage through this uncertain environment in the right way to ensure that we come out of this stronger than we went into it. And clearly, investing back behind the business, where we see continued growth opportunities will be our priority, but it's good to be in a position where your leverage is so low, your cash generation is strong, and it gives us, I guess, the keys to kind of address the market as we see it unfold and deliver portfolio optimization at the right time in the right place. So with that, let me say thank you to everyone in terms of the questions you had this morning. I want to specifically thank all the Colgate people around the world for their tireless efforts and the results that they delivered through 2025 in a tough environment. And I look forward to seeing everyone at CAGNY in a couple of weeks. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to Verizon's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Brady Connor, Senior Vice President, Investor Relations. Brady Connor: Thanks, Brad. Good morning, and welcome to our fourth quarter 2025 earnings call. I'm Brady Connor, and on the call with me this morning is our Chief Executive Officer, Dan Schulman; and Tony Skiadas, our CFO. Additionally, I'd like to introduce our new Head of Investor Relations, Colleen Ostrowski. She will be assuming the role on a go-forward basis. Before we begin, I'd like to point you to our safe harbor statement, which can be found in the earnings presentation and on our Investor Relations website. Our comments this morning may include forward-looking statements, which are subject to risks and uncertainties. Factors that may affect future results are discussed in our SEC filings. This presentation also contains non-GAAP financial measures, and you can find reconciliations of these measures in the materials on our website. With that, I'll turn it over to Dan. Daniel Schulman: Thanks, Brady, and thanks for all of your service to Verizon over the years and to me personally over these past 100 days. I'll miss working with you. And Colleen, welcome to the Verizon team. We are so lucky to have you. And thanks to everyone on the call for joining us this morning. We have a tremendous amount of information to share with you from our fourth quarter results, our Frontier acquisition, our renewed MVNO relationship with Comcast and Charter, and of course, our 2026 guidance, including an update on our capital allocation plans. I'm eager to dive into each of those topics, but first, I want to acknowledge the network outage that impacted our customers earlier this month. We did not meet the standard of excellence our customers expect and that we expect of ourselves. We let our customers down. The Verizon brand was built on superior network quality and reliability, and I'm committed to relentlessly working to deliver the service that our customers expect and deserve each and every day. We saw that resilience in action this past week under difficult circumstances. In response to the winter storm, I want to thank our technicians, fiber crews and retail teams who have battled the ice and snow to serve our customers and keep them connected. We maintained seamless connectivity across the most heavily impacted regions. Last quarter, I said that we would transform our company in a fiscally responsible manner with a clear focus on driving shareholder value. Net volume growth and profitability growth can and will go hand in hand and that they can happen simultaneously. And as I talk to you today, I am more convinced of that than ever. Our transformation will be driven by bold and meaningful actions to affect what is essentially a turnaround story. We are already a leaner, more efficient and intense organization. We are bringing in talent with new skill sets to complement our workforce. Every single year, we will become more efficient, more agile, more outcomes-oriented and our speed of decision-making and product deployment will meaningfully increase. We are creating a new Verizon, one that does not settle for anything less than being the best. So far, I am very impressed with the reaction of our workforce as they begin to truly embrace, feel and drive the level of commitment that is needed to transform our culture. That attitude is fully required from every single member of the Verizon team. There's no question that Verizon is at a critical inflection point, and there is no doubt that we must radically shift our culture towards the goal of delighting our customers and building a brand that stands for trust so that we can deliver for our shareholders. The prevailing attitude inside Verizon is that we are now going to play to win, and we will never again be content to be the hunting ground where our competitors take our share and our customers. These last 100 days have been full of change and a renewed sense of excitement about our future. And I expect that intensity to continue and grow. We moved quickly to rightsize our organization by aggressively removing pockets of underperformance, eliminating redundant organizational structures, reducing layers of hierarchy and cutting resources not focused on our priorities with both our full-time employees and contractors. We are building an in-year war chest of $5 billion in OpEx savings, with a substantial portion realized by headcount reductions, alongside marketing efficiencies, real estate rationalization, contract renegotiations and more. This will allow us to be more agile and reinvest in our business for growth and loyalty, and this is just the beginning of the efficiencies we are uncovering in both our OpEx and CapEx. We aim to be the most efficient telecom company in our industry. As we continue to reduce complexity, eliminate structural inefficiencies, divest noncore assets and deploy automation at scale, we will enable a growing stream of cost savings, providing us with ever more operational flexibility to invest for growth and provide meaningful and increasing returns for our shareholders. Make no mistake, our #1 priority is to invest in our business to drive our future growth. No company ever cost cut its way to greatness. We are examining every dollar of OpEx and CapEx to ensure it is being spent on initiatives that will drive customer loyalty and brand trust. However, when we invest, the bar will be high. We will only do so when we know it drives growth, delights our customers and delivers for shareholders. There is nothing more important than that. Our financial success will rely on subscriber growth, driven by convergence, a value-based pricing strategy, superior value-added services and a fully revamped end-to-end customer experience. We will not rely on empty price increases to drive short-term revenue and earnings. That is not a sustainable financial model nor an engine of long-term growth. I strongly believe that Verizon, and possibly our industry, is only scratching the surface of meaningful increases in bottom line performance. We began to see initial glimmers of our actions play out in our fourth quarter results. We were disciplined and we performed well in the market, achieving more than one million mobility and broadband net adds, our highest reported quarterly net adds since 2019, while simultaneously writing better business than we did in the fourth quarter of last year. Importantly, we added 616,000 postpaid phone net adds with 551,000 from consumer, our highest postpaid phone net adds in the last 5 years, all while delivering on our 2025 financial guidance. I think by now it's clear, we are not satisfied with ceding market share to our competitors. Our fourth quarter results show that we can compete effectively and win when we move with speed and consistency. While we are still in the very early stages of our transformation, and we are still predominantly competing with many of our existing and blunt tools, our execution in the fourth quarter was critical to establishing a strong baseline and momentum as we enter 2026. Before Tony reviews our fourth quarter results and our 2026 guidance, there are a few topics I want to briefly cover. First, and obviously crucial to our converged future is the closing of our Frontier acquisition. We now have over 30 million fiber passings with a huge cross-sell opportunity as we are significantly underpenetrated with our wireless services in Frontier markets. I want to thank the entire Frontier team for their focus and execution over the past 18 months. We intend to continue our fiber build-out, adding at least 2 million fiber passings this year, with our goal to reach 40 million to 50 million fiber passings over the medium term. At the same time, we are aggressively driving efficiency through our integration. We now expect to realize over $1 billion of run rate operating cost synergies by 2028, double our initial estimate. These savings will be derived from network integration, third-party contract efficiencies and go-to-market savings across marketing and advertising. The combination of our assets creates a powerful force in the market, and we intend to aggressively seize incremental net adds and share of both mobility and broadband services within Frontier markets. I'm also very pleased to announce that we have completed a comprehensive long-term agreement with Comcast and Charter to continue our partnership. We obviously can't reveal any of the details, but each of us agrees the partnership is on very solid footing financially, operationally and strategically. It is an accretive deal that ensures their customers remain on the best network. Finally, we are targeting the launch of our new value proposition in the first half of this year. We are in deep market research with a very sophisticated conjoint analysis that is providing us with detailed customer feedback, projected market dynamics and associated financial and operational metrics. I'm encouraged to say that the feedback is quite positive. Obviously, all of you and our competitors want the details. The good news is we have them, and we are now in the fine-tuning stage of our value proposition work. We are not going to show our hand until the day we launch, but our guidance incorporates our view of how the new value proposition will impact our volumes and financials based on significant market input and data analytics. We are driving a customer-obsessed culture deep into the organization. We are reducing complexity, eliminating the things customers hate and removing pain points to make it easier to do business with us. To do this successfully and efficiently, we are determined to be an AI-first company, deploying AI at scale. We will use AI to optimize our operations and fundamentally reshape the customer experience. We are leveraging it to simplify offers, personalized interactions and reduce churn through smart, consistent marketing. By using predictive models, we can anticipate customer pain points before they happen, allowing us to solve problems proactively. We will use our data and AI capabilities to not just massively improve our efficiency and customer satisfaction, but to redefine our value propositions and deliver hyper-personalized experiences. Eventually, every individual customer will have a tailored proposition. Beyond these internal efforts, we are unlocking new revenue streams by reimagining our existing assets, leveraging our deep fiber footprint and distributed network facilities to enable AI at scale for our enterprise customers, including hyperscalers. I'm proud of what we have accomplished in the last 100 days. We have a financial and operational plan that is truly transformative and appropriately conservative. Our 2026 guidance is significantly more robust than our recent performance, and it reflects the beginning of our turnaround. With that, let me turn it over to Tony, who will cover our fourth quarter and full year 2025 results and outline our 2026 financial guidance. Anthony Skiadas: Thanks, Dan, and good morning. We finished 2025 with strong operational momentum while also achieving our full year financial guidance. This includes our previously raised guidance for adjusted EBITDA, adjusted EPS and free cash flow. In the fourth quarter, we added over 1 million net adds across mobility and broadband, our highest reported quarterly volumes in 6 years. We ended the year funding growth delivering high-quality net adds across mobility and broadband with healthy customer lifetime values. We accomplished this while taking decisive steps to transform our cost structure, ensuring that we have the necessary flexibility to invest in our customers and business going forward. Fourth quarter postpaid phone net adds were 616,000. This was our best net add quarter in 6 years as our offers resonated in the market. Our consumer team executed exceptionally well across the holiday season, especially with new to Verizon sales. Consumer postpaid phone net adds of 551,000 were driven by strong demand as we leveraged our financial strength and flexibility to fund growth opportunities. In our business segment, we continue to see growth in the small and medium business and enterprise sectors. Public sector results were impacted by residual disconnects from government efficiency efforts as well as the federal government shutdown. However, public sector performance improved from the prior quarter. With the vast majority of these related disconnects behind us, we expect to see further improvements in public sector wireless volumes across the first half of 2026. Postpaid phone churn remained elevated in the quarter, largely from prior pricing actions as well as competition. Churn remains a pivotal opportunity in 2026, and we expect our investment in the customer as well as increased convergence opportunities to benefit retention over the next few quarters. In core prepaid, we continue to take share. Fourth quarter net adds were 109,000, our sixth consecutive quarter of positive customer growth. Our visible and total wireless brands continued their strong performance. We finished the year with over 2,000 total wireless stores across the country, and we have good momentum with our key brands going into 2026. Moving to broadband, we also continued to take meaningful share. Fourth quarter net adds were 372,000, our highest of the year, reflecting strong customer demand across both fixed wireless access and fiber. Fixed wireless access net adds were 319,000. The quarter-over-quarter improvement was driven by our Consumer segment and reflects the innovation and expansion around the product offering. Fios Internet delivered 67,000 net adds, our highest fourth quarter net additions since 2020. Fios continues to be the gold standard for broadband connectivity. We are excited to grow our fiber footprint through the Frontier acquisition and the Tillman partnership. Frontier delivered an exceptional performance in the fourth quarter, generating 125,000 fiber net additions, representing a 29% increase over the prior year. This momentum was supported by strong operational pace. Frontier deployed approximately 1.3 million new fiber passings in 2025, bringing their footprint to more than 9 million fiber passings. We are incredibly pleased to have Frontier in our portfolio, and we're excited about the long-term growth potential these assets provide. When we combine Frontier, FWA and fiber, net adds were almost 1.9 million for 2025, resulting in over 16.3 million connections. While we are in the initial stages of our strategic transformation, our execution is already yielding significant progress across both mobility and broadband platforms. Turning to our financial results. We delivered on all of our 2025 financial guidance even as we undertook a change in strategy in the fourth quarter. This reflects the strength and resiliency of our business and provides a good jumping off point for 2026. Wireless service revenue for the full year grew 2%. The fourth quarter performance reflects an increased emphasis on disciplined volume-based growth. As the revenue benefits of a volume-based growth model scale across 2026, we will continue to rely on growth from areas such as FWA, perks, premium mix and prepaid to help offset continued promo amortization pressures as well as lapping last year's price increases. I'm proud of our team's efforts to meaningfully reduce our cost structure. Our goal is to create flexibility to invest in the customer while also delivering strong financial results. Consolidated adjusted EBITDA was $11.9 billion for the quarter. Full year adjusted EBITDA, which we expect to be industry-leading, was $50 billion. This was an increase of $1.2 billion or 2.5% from the prior year and within our guided range. Adjusted EPS for the fourth quarter was $1.09, bringing the full year number to $4.71. The 2025 growth of 2.6% from the prior year was driven primarily by the strength in adjusted EBITDA. Our cash generation remains a key strength for Verizon. Cash flow from operating activities was $37.1 billion for the full year, up year-over-year even with stronger volume growth. CapEx for the full year totaled $17 billion. We delivered on all of our growth initiatives across C-Band and Fios builds. The team has done a great job finding efficiencies across mobility and broadband with more to come in 2026. As of today, our C-Band build-out is about 90% complete and covers approximately 300 million POPs. Additionally, we exceeded our Fios build targets for the year. For the full year 2025, we generated $20.1 billion in free cash flow, which we anticipate will once again be industry-leading. Net unsecured debt at the end of 2025 was $110.1 billion, a $3.6 billion improvement year-over-year. We continue to make meaningful reductions to our debt throughout the year, resulting in our net unsecured debt to consolidated adjusted EBITDA ratio ending at 2.2x as of the end of 2025. This represents our second quarter in a row that we were inside of our leverage target prior to the Frontier closing. Additionally, we had $1.3 billion in discretionary pension contributions during 2025, which resulted in the pension being fully funded as of the end of the fourth quarter. Funding for the Frontier transaction was completed in the fourth quarter. Both the amount we needed to raise for Frontier and the rates we achieved came in favorable to our original expectations. By the end of January, we will have paid down approximately $5.7 billion of Frontier's debt since closing on the 20th, moving quickly to realize benefits from the strength of our balance sheet. As we indicated before, we expect our unsecured leverage ratio to increase by approximately 0.25x once Frontier's EBITDA contributions are factored in. Looking ahead, 2026 represents an exciting opportunity for Verizon. Our guidance reflects the impact of the bold actions we have taken recently. We expect to deliver performance that is a step function improvement from our recent historical trends across our key metrics. We're taking actions to ensure we have the financial flexibility to invest in the customer, drive improvements in postpaid phone net adds and expand our broadband base. Our guidance reflects the beginning of our transformation. For the first time, we're guiding to our consolidated postpaid phone net adds. We expect to deliver approximately 2 to 3x of 2025 total, targeting a range of 750,000 to 1 million postpaid phone net adds in 2026. Our 2026 financial guidance includes Frontier from January 20, the closing date of the acquisition. As we work towards driving sustainable and disciplined volume-based revenue growth, we anticipate that 2026 will be a transitional year for revenue as we lap prior year price increases, absorb promotional amortization and await the benefits from churn reduction and increased volumes. We are guiding to 2% to 3% mobility and broadband service revenue growth, which equates to approximately $93 billion. We expect wireless service revenue growth to be approximately flat in 2026. Having broadband in our service revenue guidance reflects the importance of both mobility and broadband as key growth drivers in the future. We have streamlined our organizational structure and are conducting a rigorous bottoms-up review of our entire cost base. Over the last 100 days, we have implemented several actions that would deliver multibillion-dollar benefits in 2026, including a reduction in workforce as well as asset and business rationalization efforts. The work on our cost structure will continue in 2026 as we simplify operations, deliver Frontier synergies and exit low-margin businesses. As Dan mentioned, we have line of sight to delivering $5 billion of operating expense savings in 2026. We are reinvesting a portion of these savings to drive a higher quality revenue profile, which in turn creates a more profitable and stable foundation for sustainable long-term growth. Based on our anticipated revenue performance, combined with the strength of our cost efficiencies, we expect adjusted EPS to be in the range of $4.90 to $4.95 for the full year, or year-over-year growth of 4% to 5%. This represents a significant acceleration compared to our recent historical performance. While we were not guiding on adjusted EBITDA, we do expect adjusted EBITDA to grow at a faster rate than adjusted EPS. Our 2026 CapEx spending is expected to be in the range of $16 billion to $16.5 billion, a combined improvement of $4 billion from Verizon and Frontier's capital expenditures from 2025. We are bringing the same rigor to our capital expenditures as we are to our P&L, while not sacrificing any of our network excellence for mobility and broadband. The efficiency work that helped us come in below our 2025 CapEx range has only just begun. In addition, our C-Band build will be substantially complete in 2026 and any initiatives outside of mobility and broadband are being aggressively rationalized. We expect free cash flow to be $21.5 billion or more, growing approximately 7% or more, which will mark our highest free cash flow generated since 2020. As we communicated at the announcement of the Frontier acquisition, we anticipated the inclusion of Frontier's results to be cash flow dilutive in 2026 given the investments being made to expand the fiber footprint. However, because of the work being done to streamline our cost structure, grow adjusted EPS and drive CapEx efficiencies, we are now in a position to grow our free cash flow in 2026 even with the inclusion of Frontier and our investments in the customer. Our strong free cash flow generation enables us to execute on our capital allocation priorities, including strategic investments and paying down debt. We expect to return to our target leverage range of 2.0 to 2.25x in the 2027 time frame. To summarize, we delivered strong volumes in the fourth quarter, delivered on our 2025 financial guidance, and we have a plan for 2026 that accelerates our trajectory. I will now hand the call over to Dan to discuss more on our 2026 capital allocation priorities. Daniel Schulman: Thanks, Tony. Our 2026 guidance reflects our conviction that this year is not just the time of transition, but a measurable and improved performance that will only accelerate as we go into 2027 and 2028. Our guidance for our adjusted EPS growth, our free cash flow growth and our postpaid phone net add targets are all significantly above historic trends for Verizon. For instance, our guidance for adjusted EPS growth of 4% to 5% represents a meaningful acceleration, increasing our growth rate by more than 70% at the midpoint of our guide compared to 2025. It is also significantly better than our 5-year historical average adjusted EPS growth rate of approximately negative 1%. Also, our guidance for free cash flow of $21.5 billion or more is expected to be our highest performance since 2020. The guided growth rate of approximately 7% or more eclipses our average free cash flow growth rate of approximately negative 1% over the last 5 years. We are targeting a range of 750,000 to 1 million postpaid phone net adds, approximately 2 to 3x our 2025 total and the highest since 2021. With Frontier, we expect our mobility and broadband service revenues to grow 2% to 3%, even as we lap billions of dollars of price increases from last year that we will not repeat. I want to close by discussing our capital allocation strategy. Our framework remains unchanged. However, we are also making meaningful improvements in our capital allocation to shareholders, while maintaining significant flexibility. We will be much more deliberate in how we allocate our capital spend across 4 key priorities. Our first priority is to invest in our business. We simply won't be satisfied without delighting our customers, investing in our employees and delivering for our shareholders. We will continue to invest to maintain and improve the network excellence our customers expect. Importantly, we are applying the same rigor towards CapEx as we are on OpEx efficiencies. As Tony mentioned earlier, we expect CapEx to be in the range of $16 billion to $16.5 billion for 2026. Our investment is focused squarely on our growth areas. In mobility, we are focused on the completion of our C-Band build-out, and increasing our investments to assure our track record of unparalleled reliability. In broadband, we are focused on achieving our goal to reach 40 million to 50 million fiber passings over the medium term. Second is our commitment to our dividend. That commitment is ironclad. We are pleased to announce that we are pulling forward our annual dividend increase to the first dividend declaration of the year. Today, the Board declared a dividend payable in May, which represents an annualized increase of $0.07, a 2.5% per share increase from our prior annual dividend rate. This marks our 20th consecutive year of dividend increases, and our goal is to put the Board in a position to continue to increase our dividend per our track record. Third is maintaining a strong balance sheet. We remain committed to paying down debt and achieving our long-term net unsecured leverage target of 2.0 to 2.25x within the 2027 time frame. We have a strong balance sheet with significant financial capacity and flexibility for strategic investments. Fourth is returning cash to shareholders. I am pleased to announce that our Board has authorized up to $25 billion of share repurchases, which we expect to complete over the next 3 years with at least $3 billion of repurchases in 2026. This plan underscores our confidence in the strength of our business, our cash flow generation and our dedication to driving meaningful shareholder returns. Consistent with our growth profile and cash flow generation, we expect to significantly increase our total return of capital to shareholders over the next 3 years. This is a defining time for Verizon. We have lots of hard work ahead of us. We know we are only at the beginning of our transformation, and it will take time, and it will always be a straight line. But we have a clear and doable plan for 2026, a value proposition that we believe will resonate with customers, momentum from the fourth quarter with volumes that we haven't seen in 5-plus years and a financial plan that is significantly more robust than any in recent history, with room for us to continue to improve as we go through the year and into 2027. Our targets reflect a step function change in our performance trajectory. The Board has been clear that my mandate is to not only deliver for our customers, but also for our shareholders. We are heads down focused and ready to show the world that a fiscally responsible Verizon is playing to win. We look forward to your questions. Unknown Executive: Yes, Brad, we are ready for questions. Operator: [Operator Instructions] The first question will come from Michael Ng of Goldman Sachs. Michael Ng: I just have 2, if I could. First, it was really encouraging to see this strong outlook for postpaid phones in 2026. Would you talk a little bit about the investments needed to drive that subscriber growth? Will we see the improvements more on the churn rates? Or will it be more marketing and promotions to drive gross adds? And then I have a quick follow-up. Daniel Schulman: I think maybe I'll start and then Tony can come in if he's got any additional color to add. If I just take a step back, we delivered 616,000 postpaid phone net adds in Q4. And we did that in what I thought was a very fiscally responsible manner, took no actions on our core base pricing. We went into the ring, we offered a set of promotions. We are consistent in that and the market reaction was excellent to that. We met every single day. We looked at what was happening in the market. We made changes where we needed to. And I felt really good about how the team executed against that. As I look to next year, we're targeting 750,000 to 1 million postpaid phone net adds. That is 2 to 3x what we did last year, but that's only about 10% to 15% of the net new to the industry. So I think it's a very doable target for us in year 1 of our transition. We don't need to overutilize promotions or pricing to achieve those targets. There's absolutely no need, in my mind, for that to happen. If we reduce churn by 5 bps, we are already halfway to our target. And think about some of the things that we're doing, like our churn is driven by price increases without corresponding value. And we've already said in our remarks that we're not going to do that. By the way, that is exactly the right thing for us to go and do. Although that puts about 180 basis points of pressure on our revenues for this year, what happens is when we raise rates without corresponding value, our churn rate goes up. And right now, our churn over the last 3 years has gone up by 25 basis points, every single basis point is 90,000 net adds. 25 basis points times 90,000 is about 2.25 million net adds that we've lost. Obviously, not all of it because the price increases, but that would generate $3 billion-plus revenues a year for us. And so we're not going to go do that going forward, and that should help churn. Second, we're going to be investing in our overall customer experience. We have a large amount of flexibility with the $5 billion of OpEx savings that we have. We're going to be able to be to compete in the market, invest in improving our end-to-end customer experience. And the third thing they have is we're going to leverage strongly all the convergence opportunities we have. We did 1.2 million of fixed wireless net adds last year, and we entered 2026 with more capacity in our network to do fixed wireless access than we did when we started 2025. Obviously, Frontier is a huge opportunity for us in net adds as well. We're significantly underpenetrated in Frontier markets on wireless. And when we bundle together, we see a 40% reduction in churn versus stand-alone mobility. And so our goal over time is to win our share of new to market net adds, win responsibly in a manner that sustainably grows our top line and allows us to drive shareholder value. And so I think you're going to see a combination of us spending a lot to improve our overall value proposition, leveraging convergence, seeing churn go down and then being appropriately aggressive where we need to in the market. But this is not going to be anything on price where a lot of promotional expenses is about investing in our customers. Michael Ng: Great. Dan, that was all very clear and comprehensive. I appreciate that. And then just on the follow-up, I think you guys raised the fiber passings outlook to 40 million to 50 million over the medium term. I think the old target was 35 million to 40 million. So could you just talk a little bit about whether you saw more opportunities in footprint, opportunities to go out of footprint? Any thoughts there would be great. Daniel Schulman: Yes. Well, first of all, we're really pleased with the closing of the Frontier acquisition. Our partnership with Tillman, we acquired Starry, which is going to help us with MDUs as we pass those passing as well. And the more I look at convergence, the more optimistic I am that that's going to be a major part of our future. So we want to double down on that. We want to get to at least 40 million or 50 million fiber passings. We said in our CapEx guidance that we'll do at least 2 million organically. Obviously, we'll look at a possibility of both inorganic and partnerships. That is something we're always looking at. We have plenty of capacity and flexibility on our balance sheet to do any one of those acquisitions and other things that we might consider. And so the combination of what we're seeing at Frontier and what we can do internally here at Verizon, leads me to be comfortable with that 40 million to 50 million. Operator: The next question will come from Ben Swinburne of Morgan Stanley. Benjamin Swinburne: Again, you talked through some of the strategies around go-to-market. But I guess I'm just wondering how -- if you could talk about how you're thinking about customer lifetime values as you move forward relative to the past. There's probably some concern out there that CLVs will be lower for Verizon, if not the industry in '26 and '27 versus the last several years. So what does Verizon doing to make sure it's bringing on high-value customers and it takes this more aggressive posture? And I just wanted to ask, maybe for Tony on CapEx. You mentioned CapEx efficiencies. Looks like you're taking a couple of billion roughly out of kind of the previous run rate. You said no impact to revenue. Just could you talk a little bit about where you found all this CapEx opportunity that's not going to impact the business, if anything, might help the business grow faster? Daniel Schulman: Yes. I guess, I'll start and then turn it over to you to Tony. I can add on the CapEx side, too. So I have some thoughts on that. So on LTV, I was really pleased not only with the number of net adds that we added in Q4, but the quality of the business. We had a lot of new to Verizon. As you know, new to Verizon is our highest LTV value. And LTV is driven by a number of things. One of the biggest things is churn. And to me, we have a large opportunity to address churn. I think it's one of the biggest opportunity sets we have. As I mentioned on the pricing side, there are 4 reasons why people leave us. It's price increases without corresponding value. That just irritates some customers, and we've seen the churn rise as a result of that, and we've stopped doing that, and we're going to start adding value to it. Second is friction in the process, whether it's onboarding, the billing, when they call our customer service, that needs to be flawless. And we need to reduce complexity, and we need to address that. And we already have initiatives underway to address each and every one of those things. And then there's price perception and competitive intensity. And we want to be very rational and very fiscally responsible when it comes to promotional activity. Again, I think we are targeting a very reasonable number given our momentum and given the percentage of the net new to the market. And so I think we're going to be able to move after our targets in a fiscally responsible way without stepping up on the promotional side. I think we're going to be able to lower churn. I think we have a lot of opportunity there. And then as I look at convergence, that combination of having an ARPU associated with your broadband service and an ARPU with your mobility at much lower churn rate is a higher LTV for us as well. And when we sell broadband, the majority of our customers have our mobility solution with that, too. We're really pleased with the attach rate on that as well. And so I'm hopeful that LTVs go up this year as we act responsibly, and we reduce churn. Churn will be a key lever for that. Anthony Skiadas: And Ben, on your question on CapEx, as we said in the prepared remarks, our first priority is to invest in the business, that hasn't changed. And the guidance that we gave at $16 billion to $16.5 billion is all in and sufficient to address all of the growth initiatives that we have in the business. And we're going to continue to invest in the RAM, the wireless RAM. We talked about 90% of our planned sites have C-Band, and we expect to be substantially complete with our C-Band build here in 2026. And the remaining C-Band additions, just for some color, are mostly on small cells, where lower CapEx is required. And then from a fiber perspective, we're not slowing down. Dan touched on this. We'll continue the fiber build pace at least 2 million prems passed, which is at least the combined pace of both Verizon and Frontier from last year and 40 million to 50 million passings over time. We have the Tillman partnership as well that can -- we can scale and build to our standards at very good economics. And then in terms of our CapEx spend relative to history here, we really have narrowed our focus to mobility and broadband. And as we said earlier, we're applying the same rigor to CapEx as we are to OpEx. And noncore areas that are not aligned to growth, including legacy areas are being significantly reduced and/or eliminated and that includes areas such as business wireline, nondirectional products, technology as well, wholesale, legacy copper and voice platforms and even projects with too long of a payback. So the team has done a great job in finding unit cost efficiency as we build both in wireless and in fiber, cost for prem pass, et cetera. So there's a lot of good work being there, and that helps us get to a lower CapEx envelope, but we're very focused on being very efficient with our capital deployment this year. Daniel Schulman: Yes. Maybe just a little bit. I thought this was a pretty comprehensive answer. Look, network excellence across mobility and broadband is foundational for us, and we will not compromise on that one iota. Look, $16 billion to $16.5 billion, I may be old fashioned, but that's a lot of money. When I think of $1 billion, I think it's a lot of money. When I think of $16 billion to $16.5 billion, it's a tremendous amount of money. Honestly, I don't know if we need all $16 billion to $16.5 billion for our CapEx projects, but I think it's a responsible number to have there. As Tony said, there are a lot of things that we spent pretty heavily on in the last couple of years. They're predominantly complete. We're almost done with all of our nationwide 5G advanced stand-alone features as well. And so I feel really good about this CapEx envelope. We'll be able to do all the things we need to go do. And as Tony said, we're not going to invest in places where we're losing money right now. As I mentioned, I think last quarter, we have a number of places where you add it all up, and we're losing $1 billion to $1.5 billion a year in margin. Like we are either going to sunset those, retire those or divest those things, and there's no need for us to continually invest in places where we're just going to lose money forever on that. And so I think the team did a great job here, frankly. This is one of the easier places where we were able to look aggressively at our CapEx, and I think we'll feel really comfortable at these levels. Operator: The next question will come from John Hodulik of UBS. John Hodulik: Great. Maybe 2 questions, if I could. Maybe first for Tony. Any piece parts or components you can give us on the flat service revenue growth in mobility or the organic EBITDA growth on a consolidated basis? On the service revenue side, there's a lot of moving parts, you got better subscriber growth, probably a nice wholesale growth, but there's probably a higher promo amort than we saw last year. But so any color there on that or the organic EBITDA growth would be great. And then for Dan, you gave us the volumes on the postpaid phone side. What about the broadband side? Any color you can give us on sort of what you expect in volumes this year, certainly as it relates to both fiber and fixed wireless would be great? Anthony Skiadas: Okay. John, so I'll start on the revenue and EBITDA. So we -- on the revenue side, we guided to 2% to 3% mobility and broadband service revenue growth. And right after we closed Frontier, we were in market with competitive offers there to attract the Frontier customers to the Verizon network and experience. As Dan mentioned, we see strong convergence opportunities, particularly where we under-index in those Frontier markets, and we do see convergence improving our churn profile. As we said, in terms of revenue composition, we expect to have flat wireless service revenue in 2026 as we lap prior year price increases, as Dan mentioned, about 180 basis points or so of headwind, absorb the ongoing promo amortization so that's continuing, and work towards driving sustainable volume-based revenues and doing that in a very disciplined way. To give additional context, maybe some assumptions in the revenue guide. In terms of tailwinds, obviously, on the mobility side, we said we expect volume growth of 750,000 to 1 million postpaid phone net adds, and we're writing good business, and that's the focus there. We also have areas like perks and step-ups. We continue to see growth in customers taking perks as well as step-ups to premium plans. And then on broadband, continued volume growth in both FWA and fiber, including Frontier. Frontier put on almost 500,000 net adds this past year. So we have now combined 16 million, over 16 million broadband subs in the base, and that includes a little over 10.5 million fiber customers. And then also prepaid, our prepaid business continues to perform well. Six straight quarters of volume growth has translated also into revenue growth. In terms of headwinds, I mentioned promo amortization, and that pressure will continue and be a headwind in 2026. And we're still lapping, as Dan mentioned, pricing actions from 2025, and we'll work our way through it. But as we said, 2026 is going to be a transitional year for revenue as we push on volume-based growth across both mobility and broadband and setting up for a stronger revenue profile exiting 2026 and doing it in a very fiscally responsible way. So that's on the revenue. On the EBITDA, while we didn't guide on the EBITDA, I can certainly share some additional context for you. Obviously, it starts with the revenue growth that I just described. Frontier brings a substantial EBITDA contribution with it as well. And in the prepared remarks, we said we expect EBITDA to grow at a faster rate than adjusted EPS. When you factor in the Frontier acquisition-related interest expense, that's about $1 billion, and the depreciation and amortization from the asset base that we acquired, which is about $1.5 billion. So when you look at the EBITDA, it's an acceleration in the EBITDA growth rate and great operating leverage. And then when you look underneath that, from a cost transformation perspective, we mentioned that we're carefully examining all areas of our cost structure to run leaner and be more agile. And we have $5 billion of cost transformation in our plans for 2026, and that work is already well underway, whether it's the continued decommission of legacy elements in the network, including copper, and you think about the legacy areas as well in Frontier, whether it's customer experience and addressing customer pain points and reducing call volumes, or on the IT side in terms of rationalizing platforms and including AI enablement. On the workforce side, we reduced our workforce by 13,000 in the fourth quarter, 80% of which were off payroll in Q4, with the remainder coming off payroll in the first quarter. And then we mentioned the Frontier integration, and we said we expect 2x the operating expense run rate synergies so at least $1 billion of synergies by 2028, and those synergies will ramp as we execute on our integration work. And when you think about the EBITDA and the cost reduction actions that we have in place, it allows us to do a number of things. First, run more efficiently. The second thing it allows us to absorb the transitional year for revenue. It also allows us to invest in the customer experience and return a significant amount of capital to shareholders. So we see great path for both EBITDA and EPS growth. And I'll hand it to Dan. Daniel Schulman: It's hard to expand on that. A comprehensive answer. I'll just say this. I think all of this kind of hangs together and integrated all in my view. One of the reasons why we have such high churn rate, one of the reasons why we've been losing share over the last several years is because we keep raising our pricing without corresponding value. And that is the primary reason why our customers churn. And the #1 rule of getting out of a hole is stop digging. And we're just not going to do that again. And if we did just do what we were doing in previous years, we would have guided to 4% to 5% revenue instead of 2% to 3%. But then at the end of the year, we would have had another couple of billion of things we have to lap and higher churn rate and would be deeper in the hole. And so our view is, as we go into 2027, that 180 basis points of headwind goes away for us. We start now to have volumes based revenues coming in. Now we do 750,000 to 1 million net postpaid as well as continue to aggressively move in our broadband and convergence place. You only have several billion dollars of revenues coming in there. And so that's how you create sustainable long-term revenue growth. And then when you combine that on top of us being ever more efficient every year, and we're looking at $5 billion this year and we see billions more as we look forward into 2027 and 2028. We're just at the beginning of our efficiency journey. And then we're buying back shares, and you can really see that you have both top line and adjusted EPS growth that it sets us up for having a delighted customer base because we're doing the right thing. And hopefully, a delighted shareholder base because we're creating a model that can create sustainable long-term growth, both on the top line and the bottom line. Operator: Your last question will come from Michael Rollins of Citigroup. Michael Rollins: I also want to express my thanks to Brady, and welcome Colleen. Dan, you've been very clear about the problems that come from the empty price increases. And I'm curious if you could discuss the opportunity for the alternative. Just given the maturation of industry penetration rates, do you see opportunities for Verizon and/or the industry to inject more value into these services to capture better ARPUs over time? And is there a sense if that is an opportunity when Verizon can go after that? And then just secondly, on the cost side, Tony, I think you were just talking about the different layers of getting savings. Can you discuss what Verizon has identified for savings after 2026, specifically for '27 and '28 as you're looking to continue to fund the top line strategy as well as the new capital allocation targets that were set today? Daniel Schulman: Well, because I love cost as much as I do revenues, I'm going to jump on that. Look, I see kind of 3 waves of efficiency. The first wave is basically what we talked about today on the call, take out pockets of underperformance, structural inefficiencies, unnecessary layering of management structures, take people off of the places where we are no longer focused going forward. That was the first, but the second wave is take complexity out of our business. And that's about looking at the customer promise that we have, the value proposition that we have. And complexity adds a ton of cost internally to us. And so we're going to go heavy at this end-to-end customer experience at our value proposition and it's going to be around simplicity and reducing complexity because that's really important. And then the third thing is when you take out your complexity, then you automate your processes that are left. And so there are 3 ways that we have identified that we understand quite well and that we're very comfortable with. On the values-based kind of I call it pricing, and can you add more value into it? I think the answer to that, Mike is yes. I think that is the answer, but it comes with brand trust. And so everything we are trying to do this year, we have a 3-year plan. We've got very concrete metrics for the 12 months. And I know what we want to do and then I actually have a vision for where we want to be in 3 years from now as well. But the first thing is stop doing things customers hate. It is not rocket science on that. Fix the end-to-end experience, again, not rocket science, but hard to do on that. And then you start to regain trust. And when you start to regain trust and you can start to put either promises or incremental value in it, then like I'm not saying that we don't do price increases, I'm saying we will not do price increases without value. But I do think that there are lots of places where we can add value. Honestly, I think some of the broadband stuff that we're doing, where you're putting gig plus out there, that's real value to customers. And so I think there are areas where there is value that we should be able to capture through the appropriate pricing, but we're not going to capture temporary value short term value at the risk of upsetting our customers and increasing our churn. Again, that defeats the purpose of long-term sustainable growth. And that is what this transformation is all about. Unknown Executive: Perfect. Great way to end. Brad, that's all the time we have today, and thanks, everybody, for being on the call. Operator: This concludes the conference call for today. Thank you for your participation and for using Verizon Conferencing Services. You may now disconnect.
Operator: Good morning, and welcome to Air Products' First Quarter Earnings Release Conference Call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Megan Britt. Megan Britt: Hello, and welcome to the First Quarter Fiscal 2026 Earnings Conference Call for Air Products. Our prepared remarks today will be led by Eduardo Menezes, Chief Executive Officer; and Melissa Schaeffer, Chief Financial Officer. We have prepared presentation slides to supplement our remarks during the call, which are posted on the Investor Relations section of the Air Products website. During this call, we will make forward-looking statements, which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including, but not limited to, those discussed on this call and in the forward-looking statements and Risk Factors sections of our reports filed with or furnished to the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today's presentation, we'll refer to various financial measures, including earnings per share, capital expenditures, operating income, operating margin, the effective tax rate, ROC and net debt to EBITDA either on a total company or segment basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our investor website in the relevant earnings release section. It's now my pleasure to turn the call over to Eduardo. Eduardo Menezes: Thank you, Megan. Hello, and thank you for joining our call today. Please turn to Slide 3. Earlier today, we reported results for the first quarter of fiscal 2026. We delivered 12% improvement in adjusted operating income that was broad-based across our reporting segments. Earnings per share were $3.16, up 10% relative to the prior year on stronger productivity despite weak economic conditions. . Our operating margin of 24.4% was also up, while return on capital of 11% was slightly lower than last year but remained stable sequentially. I'm pleased with the progress that our global team is making to improve our bottom line results, and the first quarter represents a solid start to our fiscal year. I have now been at Air Products for full year. In that time, we have taken significant actions to refocus on the core industrial gas business, including project cancellations, head count optimization and asset rationalization that are showing up in our results. Moving to Slide 4. We are focused on 3 key priorities for 2026 consistent with the longer-term strategy that we shared last year: one, unlock earnings growth; two, optimize large projects; and three, maintain capital discipline. On unlocking earnings growth, we are affirming our full year earnings guidance, which implies an improvement of 7% to 9% at the midpoint for the full fiscal year. EPS growth is expected to be achieved primarily through continued focus on pricing actions and productivity and new assets contribution. We are on track to deliver in line with these expectations despite continued healing headwinds in a sluggish macroeconomic environment that will limit volume growth for the fiscal year. Despite these headwinds, we see pockets of resilience from key sectors, including refining, electronics and aerospace. For example, earlier this week, we announced our latest supply contracts with NASA to provide liquid hydrogen to multiple U.S. facilities. On our second priority, we continue to make strides to optimize our large project portfolio. Coming into our products that prioritize descoping and derisking our clean energy project portfolio. Along this path, in December, we announced that we are in advanced negotiations with Yara International on the low-emission ammonia projects in Saudi Arabia and the U.S. I will share more detail about our next steps in a minute. Finally, on our third priority, we continue to take actions to drive discipline in our capital allocation to improve our balance sheet position while at the same time, investing in a strong base business growth and returning cash to shareholders. As we have previously indicated, we expect to reduce our capital expenditures by approximately $1 billion in fiscal 2026 and remain on track on that objective. Fiscal 2026 in the first part of 2027, our heavy CapEx period for the clean energy products in Canada and the Netherlands, and we expect CapEx to decline significantly after these products go on stream. On return of cash to shareholders, we announced earlier this week that our Board has authorized an increase in our dividend, marking our 44th consecutive year of dividend increases. We remain committed to disciplined capital allocation that ensures that we are well positioned to continue our strong track record of returning cash to our shareholders. Please turn to Slide 5. In December, Air Products issued a joint press release with Fara International announcing that we are in advanced negotiations for the low-emission ammonia projects in the U.S. and South Arabia. We believe that the potential collaboration provides a strong strategic fee based on complementary capabilities. The collaboration would connect the global industrial gas expertise of Air Products with the global money supply network and world-leading crop nutrition and ammonia expertise of Yara. In Saudi Arabia, we are in advanced negotiations on a marketing and distribution agreement where Yara would distribute and commercialize all the renewable ammonia that is not used by our products to produce green hydrogen in Europe. We expect to have that agreement finalized in the first half of 2026. For the U.S. product in Louisiana, our goal is to have a traditional industrial gas project is scope and return for our products. To that end, we are in negotiations for Yara to acquire the ammonia production and distribution assets from our Louisiana project and execute a 25-year hydrogen and nitrogen supply agreement for an industrial gas facility that we would build and own and operate by our products. Moving to Slide 6. I want to be very clear that we have set a high bar for moving forward with the Louisiana project, which aligns with our disciplined capital allocation strategy. Already, we have taken action to find a world-class partner for the ammonia production. In this way, we would have traditional industrial gas company scope with a long-term offtake agreement to supply hydrogen and nitrogen to Yara. We also required a partner for the carbon capture and sequestration scope prior to taking a final investment decision. We have already launched an RFP process for the CO2 transport in storage scope and are in active discussions with several key sequestration service providers. More importantly, we must have a highly reliable capital cost estimate based on agreements with reputable EPCs that meet our return requirements. [indiscernible] requirement for Air Products is having a project return on the go-forward capital significantly higher than our traditional hurdle rates. We expect to have full clarity on the project costs in the next few months. Overall, the project has many positive economic aspects, including location and the ability to receive tax credits, which drives significantly higher returns per share for the project during the first 12 years of operation. We are monitoring recent reports related to fertilizer C-band tariffs in Europe. C-band came into effect in January 1, 2026, and proposes to modify the current scheme would need to be discussed and approved by the EU. Any change in the CBN rules would have an indirect effect on our potential Louisiana project as only gray ammonia imports as subject to significant CPM tariffs. Overall, Yara bears the regulatory risk related to C-band changes if the project goes forward. We are following this subject closely with Yara and continue to work on the cost asset. Please be afraid that the Air Products management team and Board will take the time needed and drive a very high level of diligence on the capital cost before we reach our own FIT. Now I will turn the call over to Melissa to discuss our financial results in great depth and review our 2026 outlook. Alisa? Melissa Schaeffer: Thank you, Eduardo. Hello, and welcome to those joining our call today. Please move to Slide 7 for a high-level summary of our first quarter financial results. With respect to sales, volume was flat as favorable on-site volume was offset by lower helium, which included a sizable nonrecurring helium sales in the Americas in the prior year. providing for tough comparisons in the first quarter. Price improved on non-Helium merchant products, particularly in the Americas and Europe. Operating income was up 12%, and margin was up 140 basis points on business mix and non helium price, offset a tough year-on-year comparison. Margin also improved despite a 50 basis point headwind from higher energy cost pass-through driven by the Americas. Lower costs also improved results primarily driven by productivity net of fixed cost inflation and lower maintenance. Earnings per share of $3.16, which grew 10% from prior year, exceeded the top end of our guidance range. Return on capital of 11% was lower versus prior year, but stale sequentially as we continue to execute on our project backlog. Moving now to Slide 8. Our first quarter earnings per share of $3.16 increased $0.30 or 10% from prior year. Despite continued helium headwinds and which include the prior year nonrecurring helium sale in Americas of approximately $0.10, the base business continued to demonstrate strong resilience in an uncertain macroeconomic environment. Favorable on-site volume, non-Helium pricing actions and ongoing productivity improvements drove results this quarter. Moving now to Slide 9. I will provide an overview of our results by segment. You can find additional details of the quarterly segment results in the appendix. For the quarter, Americas sales were up 4%. The driven by higher energy pass-through, operating income improved on price, onset volume and lower maintenance, partially offset by prior year nonrecurring items and fixed cost inflation. Sales in our Asia segment were up 2%, while operating income was up 7%. This improvement was driven by productivity and reduced depreciation from certain gasification assets held for sale, partially offset by lower [indiscernible]. We saw a modest contribution from our new assets as they continue to ramp up, contributing further in the second half of the fiscal year. Europe sales and operating income both increased due to volume and price as well as favorable currency. Higher volumes were driven by on-site including a prior year turnaround and non-Helium merchants. Operating income was also impacted by higher costs associated with depreciation and fixed cost inflation despite productivity improvements. In our Middle East and India segment, operating income improved on lower cost, while equity affiliate income remained flat. Lastly, the Corporate and Other segment results improved from lower costs, including productivity actions. Moving now to Slide 10. We continue to generate strong cash flows from our base business. Our investments in both energy transition and traditional industrial gas projects remain on track with our expected capital spend for the fiscal year. Additionally, we returned nearly $400 million in cash to our shareholders and increased the quarterly dividend, marking the 44th consecutive year of dividend increases. As it relates to our leverage, our net debt-to-EBITDA ratio is 2.2x. As a reminder, we are currently consolidating the joint venture investment in the neo green hydrogen project on our balance sheet during the construction phase. And as previously communicated, we plan to deconsolidate once the project is on stream and being operated by the joint venture. Therefore, we have adjusted our leverage ratio to better represent Air Products investments. Please turn to Slide 11, where we will review our outlook. We are maintaining our fiscal full year guidance of $12.85 to $13.15 given uncertainty around the macroeconomic environment. We remain focused on delivering these results through pricing actions and productivity while bringing new [indiscernible] assets on stream from which we expect increased contributions in the second half. For the second quarter of 2026, we expect to deliver earnings per share in the range of $2.95 to $3.10, representing a 10% to 15% improvement from the prior year. Our outlook assumes growth from pricing actions and productivity, partially offset by lower Helium. As a reminder, we expect our second quarter earnings per share to be lower sequentially due to the normal seasonality. Particularly related to the Lunar New Year and higher planned mine. We are also maintaining our guidance for capital expenditures at approximately $4 billion in fiscal 2026. as we work to derisk our Louisiana project and optimize our portfolio. Now we'll open up the call for questions. Operator? Operator: [Operator Instructions] We'll take our first caller from David Begleiter with Deutsche Bank. Unknown Analyst: This is Emily Fusco on for Dave Begleiter for -- you're targeting double-digit return on the go-forward CapEx, how should we think about the returns on the $2 billion of capital already invested in the project? And is the 45Q credit included in the double-digit return on a go-forward CapEx? Unknown Executive: I imagine this question is related to the project in Bero,right? So Yes, the 45Q credit is going to be taken by Air Products, and it's included on the return. And it's an overall return for the project in the go-forward basis, and that's all we're going to disclose at this point. . Operator: We'll take our next question from Duffy Fisher with Goldman Sachs. Duffy Fischer: First question is just on helium. Obviously, this quarter, you had to eat the onetime sale a year ago in your year-over-year comps. But could you just talk about how much the kind of continuing business is still down? And how much of a headwind do you think that will be kind of in Q2 and throughout the rest of the year? Kevin McCarthy: Duff. Yes, we -- I would say that in general, we had better-than-expected quarter. I think the volume from the Aerospace segment in the Americas was very strong for helium for us in the last quarter. Other than that, we continue to see the same trends we've seen before. As we said, we've continued to try to increase our volumes for new accounts. And we're working very hard to increase our sales with new customers and new deals, especially on the electronics side. But I would say, overall, the information that we gave you in the beginning of the year that we would be down for the year around 4% EPS effect is still our best forecast at this point. Patrick Fischer: And then on the gasification plants in China, what was the benefit from moving them to for sale -- and then what's the expectation for kind of timing? And should we expect any meaningful proceeds coming from those? Michael Leithead: It was about 1%, David, from the overall results for the quarter. I would say that the -- we're still working on the process to sell the assets. We received some offers, we proceed with the negotiations. It's always difficult to forecast these things, but we still expect to get this done on this fiscal year. Hopefully, sooner than later. Operator: We'll take our next question from Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: Is Air Products receiving income from -- or full income from Gulf Coast ammonia? And how much did you invest in that project? And what are the assets that you actually own? Samir Serhan: Thank you for the question, Jeff. Yes, we are in the process of starting the plant. So the plant is making product it was running at up to 80%, 90% capacity for the last few months. In fact that this week, we are taking a turnaround that we were expecting to do that to finalize the less components, and we hope to be up and running at 100% and finalize all the commitments from that side in the next few weeks. So that's the overall picture of the project. . I think when Air Products announced this project 5, 6 years ago, I think we made clear what the investments were on the numbers I can go offline and get to the numbers that we published at that time. Air Products in this case, we own the SMR. So the hydrogen production. We own the assertion plan. and the customer owns the ammonia production and the [indiscernible]. So this is basically the setup that we have there. The plant is connected to our hydrogen pipeline system, and, in fact, import some hydrogen. So we have a reformer data that I think is around 175 million cubic feet a day, which is probably 70% of the total volume required by by the ammonia [indiscernible] when running at 100% and the balance of the hydrogen is imported through the pipeline. Jeffrey Zekauskas: In your corporate line, it looks like there was some kind of sale of equipment cost overrun. How much was that? And -- how much was that versus last year? Melissa Schaeffer: Jeff, this is Melissa. We did see some increase in our sale of equipment this quarter. In the Q, you will see that we had an impact to our results of about $30 million this quarter. That is comparable to what we saw last year in this quarter. And we -- obviously, as we bring this on stream, we will stop seeing that headwind in our results. But again, it was about $32 million this quarter. And as you know, that is a percent of completion accounting and so that is our best estimate of future cost as well. So we recognize the full future cost. . Operator: We'll take our next question from John McNulty with BMO Capital Markets. John McNulty: Maybe on the first one, can we unpack a little bit the margin improvement seen in the Americas. Certainly, it looks like price may have helped, but the volume drop of, I think it was 4% is pretty meaty. So I guess, can you help us to unpack where that 150 basis points of improvement came from? Samir Serhan: Yes, I'll let Melissa answer the question, but that onetime helium impact that we have is reflected in the volumes in the Americas. Melissa? Melissa Schaeffer: Yes, absolutely. Thanks for the question, John. So we did see strong on-site volumes in the Americas. This is specific to our HEICO and non-Helium merchants. So positive in the volumes. Price was also strong in the Americas this quarter across products outside of Helium. And then costs, unfortunately, costs were slightly negative, driven versus prior year. But obviously, we're continuing to look for cost productivity. So the margins were better this quarter, but we're continuing to see improvement there as we continue to focus on productivity. John McNulty: Okay. Fair enough. I appreciate the color. And then can you give us an update on Alberta at this point in terms of the potential for project offtakes, how that's progressing as well as any updates on the construction timing and costs. Michael Leithead: Yes. The construction time and cost is still the same, John. We did the same estimate that we provided probably a year ago, so around $3.3 billion and start up in the first part of 2018. So we continue to work in that direction. I think we have much high level -- higher level of certainty in this project than we had before in terms of scope and costs. The negotiations with other potential offtakers continues. It's not something that we will be able to talk about until we have something more definitive to share with you. Operator: Our next question comes from Vincent Andrews with Morgan Stanley. Vincent Andrews: Eduardo, I wanted to ask you on the fiscal fourth quarter call, you were asked about you spent $2 billion on Daro so far. And how much of that could you recover? And I think you said you could recover about half of it through sales of equipment and so forth. But I wanted to make sure that, that was not interpreted entirely is the answer to this question. Maybe it is, please tell us. if you decide for whatever reason not to move forward with Daro, is it just that you sell the equipment and whatever else, and you recover $1 billion to $2 billion spent -- or would there be other cost to Air Products, small or large to not move forward with the project? And then I have a follow-up. Robert Koort: Yes. I think where we we try to say that we -- nobody really can answer that question, right? So that 50% is -- at that point for us a gas, the number can be higher, it can be lower. It's impossible to determine what the the value will be to recover the -- if you don't go forward until you get that negotiation because at the end of the day, it's the value that equipment has to a potential buyer, right? So of course, we are looking at that in parallel. I would say that the assets that we are -- that we built already in some cases, for this project, we are very specific for this project, probably for the exception of the ammonia loop, which is quite standard and similar to through other projects. So that asset will have a better chance of getting a high market value. As operation plans are also common, but this is a very high pressure in the plant that was designed and built for for the U.S. under U.S. [indiscernible] and so has a limited market. So at the end of the day, we cannot -- no one can tell you exactly how much that will be recoverable if we don't go forward. I would say that this is really the exposure that we have is the capital that was spent before we decided to stop new purchases in a project, which we did one month after I joined the company. So the only money we are spending in this project is really the equipment that is arriving that we purchased before that time. Vincent Andrews: Okay. And just as a follow-up, I know you're intending to make a go/no-go decision on this by the middle of the year, but is that firm date or now with this CBA uncertainty, which let's just assume, is very important to Yara's economics, if there's a need to push that out while the EU finalizes whatever it is that they're going to do or not to -- is it possible that the timing of final investment decision could move later into the year? Samir Serhan: No, there is no 100% or anything in [indiscernible] right? But I would say that our goal is around the mid of the year. The main issue for us continues to be the -- to make sure that we have a capital cost that we feel we have high certainty of execution. So that is what we are working on. The issue of the CBM as we tried to explain that in our slides. It's a very indirect -- if something happens, it's an indirect impact it is an indirect impact to Yara to be honest, by the way this agreement would work, we would produce hydrogen and nitrogen sell that to them, they would make ammonia and from there, it becomes their accountability. They can take ammonia, sell them on in the U.S., ammonia in Asia or in Europe. If it goes to Europe, it still is subject to a very low CBM tariff. The impact is really indirect if something happened with the [indiscernible] what happens with the gray sales. So all -- this is a decision that [indiscernible] has to make. Verbally, we understand from them that they believe is a low probability, but it's something that they need to take into account in their decision, and we'll wait for that. But at the end of the day, I would say that 99% of the decision is related to the construction cost more than anything else. Operator: Our next question comes from James Hooper with Bernstein. James Hooper: Thanks for the question. First question is about the space opportunity. Clearly, you've just signed some contracts with NASA this week. Can you talk a little bit about the kind of the opportunity there, your opportunity with commercial space providers, how that business is performing and where you see the growth in the outlook is? And then I've got a follow-up to that. . Unknown Executive: Yes. It's a very hot segment. It's a segment that products participate since the 60s since we started supplying liquid hydrogen for NASA and continues to this date. I would say that probably over 2% of our total sales is in this segment in aerospace, when you add all the products, hydrogen, helium and oxygen and nitrogen. So it continues to be a very important segment for us. Of course, the market is changing. There is more commercial launches. Some of them use hydrogen, some of them do not use hydrogen. So we are working on these opportunities, and we are trying to grow our market share, but it's a very important market for us. But I think Melissa, you will have more [indiscernible]. Melissa Schaeffer: Yes. Yes. Thanks, Eduardo. So having many conversations because this has gotten a lot of attention lately. So based on the customers we serve, it's our estimate that Air Products is about 40% to 50% of the total space market share in the U.S. And from a growth trajectory, I think our expectations is that for projected sales, we see about a 6% to 7% growth per year. So obviously, a market where we have been focused on for many decades and something that we're going to continue to focus on. . James Hooper: And then just on your volumes. It was interesting at the European volumes are up 5% year-on-year. is Europe back? Are we looking at some recovery here? Or are we remaining cautious about European volumes? Michael Leithead: We remain cautious. A lot of things go in this calculation. So we have some turnarounds last year. So that we are lapping these turnarounds this year. So that created a good tailwind for us on the volume side. But things in Europe, as reported, they are I'd say, complicated at this point. But I would remind that our business in Europe is different from our business in other areas of the globe because it's really fully integrated into packaged gases and other areas. And I like the other industrial gas companies, we see much more pressure in the large customers in [indiscernible] than we see in the retail in the package gas and so forth. So it's still an important business for us, very profitable. We have a very experienced management team that is doing the blocking and tackling and being able to extract good results despite the economic environment we have there. Operator: We'll take our next question from Chris Parkinson with Wolfe Research. Christopher Parkinson: Now that you're a year in, and you've had a time to evaluate prior pricing strategies as well as the cost fund. How do you see these things progressing throughout the year? I imagine you have a good handle on cost now. But also it seems like there's this divergence between kind of cost pricing improvements versus obviously some helium headwinds. And I'm just kind of curious on what the cadence of that narrowing is as we progress through the fiscal year. So any color on those 2 topics would be greatly appreciated. Eduardo Menezes: Thank you, Chris. You're breaking a little bit. But if I understand correctly, it's about the pricing opportunity. As you can see in the results in the first quarter, a lot of our gain coming from and productivity. I think this is -- again, this is the normal block and tackling of the business. When you operate in 40 countries and you have over 20,000 employees. That's what you do. I think Air Products has a good management system and good management talent to continue to make progress in both price and productivity. . I would say that we expect that going forward for the balance of the fiscal year, then the results will be from those 2 aspects to be similar to what we had in the first quarter. The situation hearing is an exception that we are also working on to do the best we can in a long market. But I would say, outside of Helion, we have the right tools and we keep pushing and we expect the same results we had in the first quarter. Christopher Parkinson: Got it. And just as a quick follow-up. There's obviously a lot going on in the tech world right now. And just given the scale that you have in Asia has rolled some of those customers a broad -- can you just perhaps just give us a little bit of insight in terms of how the investment community should be thinking about content when we're looking at things like N2, HBM, et cetera, et cetera. In terms of purify nitrogen, Neon, all specialty rare gases, -- how should we be thinking about the growth in your customers relative [indiscernible] when we should be seeing that show up in your results presumably throughout this year and obviously, for many years to come. Eduardo Menezes: Yes, Electronics is the star segment of the market nowadays. Of course, with AI, you can see in the results of the chip manufacturers, results of ASML and so forth. We see a lot of RFPs, a lot of inquiries. It is a market that traditionally the products are getting -- the products increasing size, getting bigger and bigger. And we used to have the products coming every 2, 3 years and what I think we've seen in the last 24 months, and we'll continue to see in the next 24 months is an acceleration of this investment decisions by the large chip manufacturers. And we have very strong positions, as you know, in Asia. We continue to push hard on signing new business over there. We are executing projects that combined in one side can go up in CapEx to close to $1 billion, and we see an opportunity for new projects in the same range of CapEx being decided in the next 12 months. Melissa Schaeffer: Yes. And one additional comment to your question, Chris. And you did mention that new assets. We absolutely are having new assets come on stream as we talked about when we set our guidance. And additionally, as we talked about, this is a ramp, as you know, with the electronics business. So we will see the majority of those contributions towards the back half of this year. Operator: We'll take our next question from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: I wanted to unpack if I could, the upcoming deconsolidation of Neom, can you comment on the expected timing of that event and the specific trigger. And then with regard to the financial impact, I appreciate the color that you provided on Slide 10 with regard to your net debt balance and leverage ratio, I wanted to ask whether there would be any appreciable impact on your income statement as well moving through that event? Melissa Schaeffer: Yes. Thanks, Kevin. So we've been talking about the deconsolidation for quite a while now, but I think we need to unpack it a little bit more for our investor community. So because we are the EPC or the engineering procurement and construction group, Air Products to the joint venture, we do consolidate that because we do make the key decisions during that period of time. So at this point in time, with that control aspect, we do consolidate. Once the joint venture is operational, however, the decisions are even amongst the 3 shareholders. So during operations, which as we've talked about, is in the mid '27, we will then deconsolidate that joint venture. As you rightly mentioned, that means that the debt would come off of the full balance sheet and would be within the equity affiliate line, so you will see the reduction in our debt profile at that point in time. As we lead up to the deconsolidation in '27. Obviously, the operating company will be adding resources. So we will see additional costs being run through the O&M as we lead up to the onstream. And once that is deconsolidated, obviously, you'll see that come off, and we will only see the impact of 1/3 of that operating cost. So there will be a slight increase in operating cost as we ramp up, getting closer to onstream in '27, and that would then be deconsolidated, and you'd only see the 33% through the equity affiliate line. Kevin McCarthy: Understood. Very helpful. And then secondly, if I may, can you comment on the sequential price change for helium and whether or not your Asia price of negative 1 would have been flat or possibly positive if we were to carve out Helium? Melissa Schaeffer: Yes. Thanks for the question. So yes, we continue to see Helium as a headwind, both to volume and price. For this quarter, on a global perspective, price was a 1% decrease from helium specifically. In Asia, Asia is an interesting market right now because of the macroeconomic headwinds. We would have seen price up slightly. However, because of the helium impact, we did see that negative in Asia. However, in Americas and Europe, the price would have been up quite more significantly, but the helium headwind did bring that down a bit. But Asia, without a doubt, is the largest impacted region. Operator: Our next question comes from Mike Harrison with Seaport Research Partners. Michael Harrison: I wanted to ask about Europe operating margin. It looks like you saw about 150 basis points of sequential decline from Q4 into Q1. And I think the energy pass-through maybe should have been a little bit favorable sequentially. The top line was pretty similar. Depreciation was lower, is this maintenance costs that we're seeing there? Or maybe help us understand what was causing that sequential margin headwind? And how should we think about margin trajectory in Europe in the rest of the year? Melissa Schaeffer: Yes. Thanks for the question, Mike. So the specific margin for Europe actually is being affected by cost. And so we have some significant productivity in that region. However, we did have sizable depreciation. So the depreciation year-over-year is, in fact, I believe, up a bit. That is largely some in-sourcing and some purchases of our supply chain assets that we are seeing a hit of depreciation and some fixed cost inflation. They are largely wage inflation that we're seeing in Europe that is shrinking the margin. Eduardo Menezes: And there is also some seasonality in the quarter, which is normal for this last quarter of the calendar year. Michael Harrison: All right. And then my other question is if you can comment on what portion of your customers are running below take-or-pay minimums in terms of their volume consumption right now. And I'm just curious, is that most pronounced in Europe? Or maybe if you could comment on what you're seeing region by region in terms of take-or-pay minimums. Eduardo Menezes: Yes. We don't normally disclose that, Mike. We have some cases in Europe and -- but I would say that is not a very large percentage of our business, but Melissa. Melissa Schaeffer: So one of the things that we do track is really utilization. So if I think about utilization across the Americas, Europe and Asia, it's pretty similar in the mid- to high 70s. So that's pretty similar to what we saw in fiscal '25 as well. So we're not seeing a significant change in utilization, but they're. Eduardo Menezes: [indiscernible] it's case by case and -- of course, the steel industry, the chemical industry in Europe is being affected, but it's not a it's not affect every customer in every location in the same way, right? So it's a question of where your assets are and what customers you have. I think if you want to put this way, we -- I don't think it's a question of [indiscernible]. It's a question of the work that was done 20, 30 years ago. selecting the right customers. But so far, we're not having a lot of impact in Europe and with the caveat that we our on-site business in Europe is not as big as it is in Asia and in the U.S. Operator: We'll take our next question from John Roberts with Mizuho. John Roberts: Back to CBAM, for ammonia. Is Section 27 a key issue to watch here? And do you know what the next step is on Section 27. I don't think it's approved yet. Eduardo Menezes: Yes. I'm not an expert on you regulations, John. I don't know anyone is. But from what I understand, this is a proposal that has to be approved and there are several levels of legislation in Europe, one of the directives, which is like suggestions that the countries have to implement. CBM is more like a tariff. So it's a legislation also has to be approved by the entire EU and any changes have to be approved as well. And as you probably know, the CBM is connected to the CO2 ETS scheme. So it's really a compensation for European producers for the CO2 tax that they have to pay. And this CO2 ETS scheme is in place for probably 15 years now. And I would say that to make a change there, you will need to make a change in the entire CO2 ETS scheme. So that's why I think people are telling us that the probability is very, very low. But again, it's -- our job is to run the business and make our decisions and the regulatory is just a signal that we need to use to make those decisions. John Roberts: Okay. And then in the U.S., is contracting for new electric power an issue at all in bidding for new ASU business with all the data center competition and so forth. Eduardo Menezes: Yes, no question. We are seeing increases in power costs for new contracts. We have a very sophisticated power procurement process in the products, as you can imagine, is the main input that we have in our Separation business. So it's an ongoing relationship with suppliers. I would say that if you have something new today, you would need you to go and negotiate the tariffs. But -- at the end of the day, when we have like an on-site contract, as you know, this is a pass-through in the formulas that we have. So [indiscernible] the customer side and for the merchant product, any energy that we use in the energy in the to make liquid oxygen, liquid nitrates and so forth. We we work very hard also to pass those costs to our customers. So it's not that we are completely immune to power, but we work very hard to make sure that we pass this cost to the market. And and try to be ready for any cost increase. But there is no question that the data centers, they are creating demand and they are creating distortions in the power market today. Operator: Our next question comes from Patrick Cunningham with Citi. Patrick Cunningham: Just a few follow-ups related to prior questions on Neon. Is there any dependency on the relationship with Yara at Darrow. And are these go, no go decisions being viewed separately? And do you foresee the same [indiscernible] related risks for Yara's appetite for the [indiscernible] offtake? . Unknown Executive: No, there are no dependence between the true project or the 2 potential contracts. And again, is the same answer from the other one, right? The the product from Neon is will be green. So that's going to be absolutely 0 CBM effect on that product. The effect on other products coming to Europe would be an indirect effect on the overall market, and we need to see if that happens, what the effect is. But again, going back to my previous answer, it's very, very uncertain that there will be any impact on the CBM scheme today. But -- and if there is, it's going to be an indirect impact on this project. Patrick Cunningham: Got it. That's very helpful. And what do you anticipate the run rate contribution of the Neon JV will be from an equity affiliates perspective? And should we expect that to be at a loss when the asset first ramps up given the debt profile and initial fixed cost burden? Jeffrey Zekauskas: No, it's not going to be at a loss and -- but we cannot disclose results from our joint ventures that we own 33% or expected results in this case. But it's not going to be [indiscernible]. . Operator: We'll take our next question from Josh Spector with UBS. Joshua Spector: I guess, I'll follow up on Darrow and CBAM, and see if maybe you'll answer it a little bit differently at all or not. But when you think about like the decision here that Yara would need to make. I understand CBAM doesn't impact Air Products directly, but it does impact the economics for Yara, assuming they're intending to bring that into Europe. And if they say that we don't know what the regulation is going to be, and we need another year to think about it. We want to see if anything is going to change. Is that time value something that you're willing to accept or does that then trigger we need to look at a plan B or some of these other options because we're not going to sit around for a year. How do you game theory that yourself? Eduardo Menezes: Yes, it's a theoretical question at this point, -- so we didn't, let's say, think about that, and I need to see when that happens. I would just say that the way we look at this project, when I came on board here, -- now our products was building a full ammonia project and doing the CO2 sequestration itself and was going to be an ammonia producer and [indiscernible]. We stopped the project as it is, right? So today, the the base case is that we stopped the project. But we -- at the same time, we said the project has positive attributes and has a chance of being a good project. So let's try to find let's try to see if there is a solution to generate some value from this project. And I think we did the most difficult step at this point, which is to find a credible really world-class partner that would be willing to take the commercial risk on the ammonia, which is what they say [indiscernible] buying the hydrogen and the nitrogen and making the ammonia. So we are taking that commercial in operational risk of the ammonia. So this is the most difficult piece of the puzzle here. we need to make sure that the capital cost is -- that the product is feasible for both parties. So the project -- the capital cost will be within the numbers that we assume to be with them. But I would say that at this point, this is more like which one is the plan A, which one is a plan B. It depends on how you see it. But where we are today, if nothing happens, we're going to go back to where we were 11 months ago, which is we're not going to go forward with the project as proposed. So that is the situation. And I would say that -- the way I look at this is that we have only 2 possibilities, right? We're not going to go forward or we're going to go forward with a good project, right? And those are the only 2 cases I'm working with -- of course, there's a lot of work to make sure that when you go forward that you are certain on your capital cost and the project is good, but those are the true outcome. So I hope our shareholders are looking at this is a free option for a good project on top of the current base case, which is not going forward. Operator: Our next question comes from Matthew DeYoe with Bank of America. Matthew DeYoe: I have 2. But so Uniper from Germany announced an agreement to offtake 500 kt of green ammonia from the new Amgen green hydrogen project in India, which looks to be commissioning 2028. Can I ask if you bid on this project? And if you did, why you don't think you won or if you didn't bid on it, why you didn't considering kind of the profile at [indiscernible]. And then last -- sorry to ask another one on there, I guess. But from what I understand, the company is kind of bidding the construction across a few different EPCs to try to lock in fixed economics. Is there any reason to believe the strategy would be more successful than just choosing like one? Eduardo Menezes: Okay, 2 different questions, right? So on the green mode, right, I -- it's a complicated subject here. I would the way I like to think about this is if you want to make ammonia starting from the [indiscernible] like, for every metric ton of ammonia, you need about 10 megawatts of power, right? So when I see people saying, we're going to develop this project in a place like India, and we're going to have a price of ammonia and I read the same articles you probably read. So people talk about $600, $700, something like that. You need to -- when you see a number like that, you need to realize that it's like exporting power from India. Investing a lot of capital to at the end of the day, export power from India at $60 a megawatt or $70 a megawatt, right so which is lower than the local price. So it's very difficult to understand the economics when people talk about doing green hydrogen and green ammonia in this type of jurisdiction. When our project in Saudi Arabia, it's public information, you can look around. Saudi Arabia has a very active renewable power market and they sign agreements with power prices below $0.02 or $20 per megawatt. So we are within that system. We are building our own renewable power. And our -- let's say, if you want to calculate our internal power cost for our project is also below $0.02 per kilowatt or 20 per megawatt. So our project is under construction. We can show you the videos, we can take you there. The power economics makes sense. And I'm not going to make comments about what other people are doing in MOUs and that kind of stuff. There are a lot of activities like that in Europe, a lot of announcements. But the only real project being built at this point is ours. I understand in India, it's a little different because they're trying to use an existing facility and I'm not doubting that they will, at the end, build something. But I would say that the regulatory risk, the -- if something looks too good to be true, normally this right now to have this kind of exporting power at this low price from a country like India, it's a question mark for me. So that's the green ammonia piece on the on the [indiscernible] side, your question about the EPCs. We're not going to make a comment on what we're doing in our activities. I would say that in general, this project is a very large block plant with very well-defined blocks. So you have an asset duration plant, you have a hydrogen plant, we have an ammonia plant. So you can go in different directions, and it is a question of to determine what makes sense. You need to go through a process. And you need to understand the local market, know how what is the appetite of the APCs and what alternatives they have. So -- we are looking at every case here, and we are trying to make sure that we do the best for our shareholders, for our customers, in this case, for Yara and in fact, they will participate in the process with us. and we are not ready to say exactly how we're going to execute this project at this point. Operator: We'll take our last question from Lorex Alexander with Jefferies. Laurence Alexander: A question around sort of AI-related productivity. If it comes in better than expected or compared to expectations a few years ago, do the benefits accrue to your on-site business? Or do your contracts mean that you pass some or all of that benefit through to the customers? And then similarly, I guess, for merchants, it would be more just sort of competitive dynamics in the local market. Is that fair? Eduardo Menezes: Yes. It's -- AI is -- can be used everywhere, right? So when you talk about how you're using it and where the benefit will accrue it depends on what the usage is, right? So you say I'm using AI to lower my power costs in the negotiations with my power suppliers. If I have an agreement with the customer that is really pass-through on the cost that will be somehow share. If we use AI to reduce our power consumption, normally, we will capture that to our products because at the end of the day, what we do, we give the customer a guarantee of a maximum power consumption. So it's case by case. But that's a very specific application of AI. We're using a lot of AI to look at our, let's say, administration, our SG&A activities, our engineering activities, and those are internal costs, and those are not contractually past to customers, although like any other company, we try to be more efficient in order to be more competitive in the marketplace. So you can make the the conclusion as well that in the long run, somehow these benefits will go to our customers. But it's very difficult to determine what share that will represent at the end. I hope that was clear. I'm not sure if that's exactly what you're asking. Operator: This concludes our question-and-answer session. I'd like to turn the conference back over to Eduardo for any additional or closing remarks. Eduardo Menezes: Thank you. I would like to, again, thank everyone for joining our call today. We appreciate your interest in Air Products, and we look forward to discussing our results with you again next quarter. Have a good and safe day. Thank you. Bye. Operator: This concludes today's call. Thank you again for your participation. You may now disconnect, and have a great day.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Flagstar Bank Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Sal DiMartino, Director of Investor Relations. Please go ahead. Salvatore DiMartino: Thank you, Regina, and good morning, everyone. Welcome to Flagstar Bank's Fourth Quarter 2025 Earnings Call. This morning, our Chairman, President and CEO, Joseph Otting, along with the company's Senior Executive Vice President and Chief Financial Officer, Lee Smith will discuss our results for the quarter and the full year ended December 31, 2025. During this call, we will be referring to a presentation, which provides additional detail on our quarterly results and operating performance. Both the earnings presentation and the press release can be found on the Investor Relations section of our company website, ir.flagstar.com. Also, before we begin, I'd like to remind everyone that certain comments made today by the management team of Flagstar Bank may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in today's press release and presentation for more information about risks and uncertainties which may affect us. Additionally, when discussing our results, we will reference certain non-GAAP measures which excludes certain items from reported results. Please refer to today's earnings release for reconciliations of these non-GAAP measures. With that, now I would like to turn the call over to Mr. Otting. Joseph, please go ahead. Joseph Otting: Thank you, Sal. Good morning, everyone, and welcome to our fourth quarter 2025 earnings conference call. We are pleased with the bank's performance throughout 2025, and especially during the fourth quarter. As all of you know, after 2 challenging years, I'm proud to share that we returned to profitability in the fourth quarter reporting adjusted net income of $30 million or $0.06 per diluted share compared to a net loss of $0.07 per diluted share in the previous quarter. 2025 was a year of significant momentum for the bank, which accelerated during the fourth quarter. We continue to successfully execute on our strategic plan to transform Flagstar Bank into one of the best-performing regional banks in the country. One with a diversified balance sheet and revenue streams and strong capital, liquidity and credit quality. While returning to profitability is a significant milestone, but it is only one of several positives during the quarter. Turning to Slide 3 of the investor presentation, we'll highlight those. First, our return to profitability during the quarter was driven by several factors including growth in our net interest income, coupled with NIM expansion and disciplined expense management. This resulted in a $45 million increase in pre-provision net revenue and positive operating leverage of approximately 900 basis points. Second, we had another strong quarter of net C&I loan growth up a 2% on a linked quarter basis or about 9% on an annualized basis. Third, we continue to reduce our overall CRE exposure, mostly through par payoffs resulting in an overall $2.3 billion reduction in multifamily and CRE loans and a CRE concentration ratio now falling below 400% and fourth, our credit quality profile continued to improve as nonaccrual loans declined, while we also had a decrease in net charge-offs and the provision for loan losses. Moving to Slide 4. After 2 years of building a solid foundation for growth, we expect that in 2026, our earning power will continue to strengthen with a full year of profitability driven by continued growth in net interest income and margin expansion, along with a continued focus on managing our expenses lower, leading to a positive operating leverage in 2026. We remain focused on further improving the bank's credit profile as we proactively manage our CRE exposure lower through par payoffs and opportunistic loan sales, reducing nonaccruals and a lower level of charge-offs. We will continue to diversify the loan portfolio through growth in non-CRE loans, especially through our C&I lending platform. And lastly, we will generate deposit growth across various business lines while keeping our discipline on pricing. On the next slide, we highlight the road map we employed to solidify the balance sheet and reposition the bank for growth. We built a strong capital position as our CET1 capital ratio has increased by almost 400 basis points, now ranking us amongst the highest, best capitalized regional banks amongst our peers. We have also fortified our ACL through a rigorous credit review process and have increased the ACL up to 1.79%, also amongst the tops of the regional banks. We significantly enhanced our liquidity position as cash and securities have increased to 25% of total assets, and we reduced our reliance on wholesale funding, lowering the cost of funds and boosting our net interest margin. And during the year, we reduced our brokered deposits almost by $8 billion. We believe that our strategic initiatives over the past couple of years have provided us with the opportunity to drive sustainable growth and profitability going forward. The next 2 slides highlight the continued momentum and tremendous progress in our C&I business. Under Rich Raffetto's leadership we've built in a relatively short period of time of about 15 months, a very powerful origination team across America. As you see on Slide 6, you can see that the C&I lending had another strong quarter in commitments and originations. As total commitments increased 28% to $3 billion, while originations increased 22% to $2.1 billion. This is led by the bank's 2 primary strategic focus areas, our specialized industries and corporate and regional banking group. On Slide 7, you'll see the overall C&I growth was $343 million or 2% compared to the third quarter, our second consecutive quarter of net C&I loan growth. This was driven by $1.5 billion in combined growth in these 2 businesses. One of the things that you also can observe on this slide is that we derisked a number of the businesses, as we've talked about in the past, where either because of hold size or credit quality, we've decided to reduce those exposures or exit those credits. Alone in 2025, it was roughly about $4 billion of actions that we took and we do see the businesses of like asset base and equipment finance and mortgage starting to be accretive to our loan growth going forward. Turning now to Slide 8. You can clearly see the protective of our adjusted EPS as we successfully executed on all our strategic initiatives, resulting in the first profitable quarter since the third quarter of 2023. With that, I now will turn it over to Lee to review our financials and credit quality. Lee Smith: Thank you, Joseph, and good morning, everyone. We're obviously very pleased with our performance in the fourth quarter and for the full year in 2025. We're executing on our strategic vision and have returned the bank to profitability as we said we would do. we feel we're very much on track to make Flagstar one of the best-performing regional banks in the country over the next 2 years. Our unadjusted pre-provision pretax net revenue improved $51 million quarter-over-quarter, while our adjusted pre-provision pretax net revenue improved $45 million versus Q3. We achieved NIM expansion of 14 basis points quarter-over-quarter after adjusting for a onetime hedge gain of approximately $20 million. We paid off another $1.7 billion of high-cost brokered deposits and $1 billion of club advances as we further reduced our funding cost and continue to demonstrate excellent cost control. On the credit side, quarter-over-quarter, we saw a reduction in criticized and classified loans of $330 million, including a reduction in nonaccruals of $267 million, while net charge-offs declined $26 million, and the provision decreased $35 million. CRE par payoffs were again elevated at $1.8 billion, of which 50% was substandard, and we ended the year with 12.83% CET1 capital. almost $2.1 billion pretax above the bottom of our targeted operating range of 10.5%. We're thrilled with the quarter and fiscal 2025, and are excited about what we will accomplish in 2026 and beyond. Now turning to Slide 9. This morning, we reported net income attributable to common stockholders of $0.05 per diluted share. There were only a couple of notable items in the fourth quarter. First, our investment in Figure Technologies was revalued $9 million higher than the value on September 30. Second, we accrued $4 million in severance costs for FTE reductions that occurred in January 2026. Therefore, on an adjusted basis, after also excluding merger expenses, we reported net income of $0.06 per diluted share, significantly better than last quarter and above consensus. On Slide 10, we provide our updated forecast through 2027. We slightly adjusted our net interest income guidance for both 26 and 27 as a result of higher payoffs and a smaller balance sheet for 2026 is now forecast to be in the $0.65 to $0.70 range and EPS for 2027 is forecast to be in the $1.90 to $2 range. On Slide 11, we provide an overview of the expected balance sheet growth in 2026 when compared to year-end 2025-point to point. Another highlight this quarter was the double-digit increase in net interest margin. Slide 12 shows the trends in our NIM over the past several quarters. Net interest margin improved 23 basis points quarter-over-quarter to 2.14% when including a gain of $20 million for the hedges tied to long-term flip advances that we restructured at the end of the quarter. Excluding this onetime benefit, NIM was 2.05%, still a 14 basis point increase from the third quarter. Turning to Slide 13. Costs remain well controlled as core operating expenses declined approximately $700 million when comparing full year $25 million to full year 2024. The modest linked quarter increase was mainly the result of higher short-term incentive compensation and associated taxes. Slide 14 shows the growth in our capital over the past 5 quarters and the strength of our CET1 ratio up 12.83%, our CET1 ratio ranks among the best relative to our regional bank peers. And at this level, we have over $2 billion in excess capital pretax or $1.4 billion after tax relative to the low end of our target operating CET1 range of 10.5%. Slide 15 is our deposit overview. Like last quarter, we further deleveraged the balance sheet by paying down over $1.7 billion of brokered deposits, which had a weighted average cost of 4.4%. We also paid down $1 billion of advances with a weighted average cost of 4.3% and saw our mortgage escrow balances declined $1.4 billion, which was typical seasonality as taxes and insurance balances are paid out at the end of the year. In addition, approximately $5.4 billion of retail CDs matured with a weighted average cost of 4.29%. We retained approximately 86% of these CDs and they moved into other CD products that were approximately 45 to 50 basis points lower than the maturing product. In Q1 2026, we have another $5.3 billion of retail CDs maturing with a weighted average cost of 4.13%. The deleveraging actions, CD maturities and other deposit management strategies have allowed us to reduce interest-bearing deposit costs 26 basis points quarter-over-quarter. We continue to actively manage the cost of our deposits and are performing in line with the 55% to 60% target beta on all interest-bearing deposits with the Fed cuts. Slide 16 shows our multifamily and CRE payoffs for the quarter and the full year. We continue to experience significant par payoffs of approximately $1.8 billion, in the fourth quarter, of which 50% were rated substandard, including the disposition of the previously disclosed $253 million sale in October. -- approximately $244 million of this quarter's payoffs were multifamily greater than 50% rent regulated. We continue to see strong market interest for multifamily loans from other banks and the GSEs. The par payoffs are also leading to a substantial reduction in overall CRE balances and in our CRE concentration ratio total CRE balances have declined $12.1 billion or 25% since year-end 2023 to about $36 billion, aiding our strategy to diversify the loan portfolio to a mix of 1/3 CRE, 1/3 C&I and 1/3 consumer. In addition, the payoffs have led to a 120 percentage point decline in the CRE concentration ratio to 381%. The next slide is an overview of our multifamily portfolio which has declined 13% or $4.3 billion on a year-over-year basis. Our reserve coverage on the overall multifamily portfolio of 1.83% remains strong and is the highest relative to other multifamily focused lenders in the Northeast. Furthermore, the reserve coverage on those multifamily loans where 50% or more of the units are regulated is 3.44%. Currently, we have about $12.9 billion of multifamily loans that are either resetting or contractually maturing between now and the end of 2027. And with a weighted average coupon of less than 3.7%. If these loans pay off, we can reinvest the proceeds in C&I or other loan growth at market rates or choose to pay down wholesale borrowings. And the borrowers stay with Flagstar, the reset rate is significantly higher than the existing rate, which provides a NIM benefit. On Slides 18 and 19, we have once again provided significant additional information on our New York City multifamily loans, where 50% or more units are regulated. This tranche of the multifamily portfolio totals $9.2 billion as an occupancy rate of 98% and a current LTV ratio of 70%. The approximately 53% or $4.8 billion of the $9.2 billion are pass rated and the remaining 47% of $4.3 billion are criticized or classified, meaning they are either special mention, substandard or nonaccrual. Of the $4.3 billion, $1.9 billion in nonaccrual and have already been charged off to 90% of appraisal value, meaning $355 million or 16% has been charged off against these nonaccrual loans. Furthermore, we have also added an additional $91 million or 5% of ACL reserves against this nonaccrual population, meaning we have taken 21% of either charge-offs or reserves against this population. Of the remaining $2.4 billion that is special mention and substandard loans between reserves and charge-offs, we have 6% or $150 million of loan loss coverage we believe we're adequately reserved or have charged these loans off to the appropriate levels and with excess capital of $2.1 billion before tax we think we're more than covered were there to be any further degradation in this portion of the portfolio. Slide 20 details our ACL coverage by category. The $43 million reduction in the ACL was largely driven by lower health reinvestment balances, a better economic forecast and higher recoveries. Our coverage ratio, including unfunded commitments remained flat at 1.79% quarter-over-quarter. Our ACL reserve at 12/31 also includes adjustments for the 1 borrower in bankruptcy, where the auction process was recently finalized and confirmed by the bankruptcy court. We expect to close the sale of these properties before the end of the first quarter. On Slide 21, we provide additional details around our asset quality trends. All of our credit quality metrics trended positively during the fourth quarter. Criticized and classified loans decreased $330 million or 2% on a quarter-over-quarter basis and were down $2.9 billion or 19% since the beginning of the year. Our net charge-offs decreased $27 million or 37% to $46 million compared to the previous quarter. and net charge-offs to average loans improved 16 basis points to 30 basis points. Nonaccrual loans were $3 billion, down $267 million or 8% compared to the prior quarter. Included in this $3 billion nonaccrual amount are the loans tied to the bankruptcy I referenced earlier, which we expect to close the sale on before the end of the first quarter. At the end of the quarter, 30- to 89-day delinquencies were approximately $988 million, an increase of $453 million from the previous quarter. I will point out that the biggest driver of this increase is the additional day or 31st day of December versus 30 days in September. This accounted for $410 million of the increase and as of January 26, approximately $690 million or 70% of these delinquent loans have been brought current. Furthermore, $298 million of these delinquent loans at 12/31 were driven by 1 borrower who pay subsequent to the month end and has done so once again. bringing his account current as of Jan '26. As we reported last quarter, in the month of October, we sold approximately $253 million of these borrowers' loans, reducing our exposure in this 1 name. We're finalizing the review of the 2024 annual financial statements for all CRE borrowers. And today, we've completed the review on approximately 93% of loans of the 93% reviewed 80% are stable, 7% have improved and 13% have declined. So almost 90% are stable or improving. All of this has been considered as part of our ACL analysis. Concluding on Slide 22. Since the beginning of 2024, and we have proactively managed our CRE exposure lower by over $12 billion or 24% through par payoffs, net charge-offs, amortization and other dispositions. We have also increased our ACL coverage against the remaining CRE portfolio during this time. This significant derisking, along with our solid capital position, strong liquidity and an expense optimization program has created the solid foundation for us to grow and be successful. We continue to deliver on our strategic plan and are excited about the journey we're on and the value we will create for our shareholders over the next 2 years. With that, I will now turn the call back to Joseph. Joseph Otting: Okay. Lee. And before moving to Q&A, as I stated at the beginning of the call, we are extremely proud of our performance in 2025 and returning to profitability during the fourth quarter. This milestone reflects discipline and hard work of our entire team. We made a difficult but necessary decisions that strengthened our balance sheet, diversified the loan portfolio, lowered our cost we thoughtfully invested in our C&I and private banking businesses along with our IT and risk management infrastructure. I'd like to thank our executive leadership team and all the teammates for their dedication and commitment to the organization and our customers. I'd also like to thank our Board of Directors for their invaluable advice and support. As I said, I think we probably set a record for Board meetings last year. And now I'd be happy to turn it over to the operator to open up for questions. Thank you. Operator: [Operator Instructions] Our first question will come from the line of David Chiaverini with Jefferies. David Chiaverini: So I wanted to start on NII. I saw that you lowered it by $100 million. Can you talk about the drivers behind that? I'm assuming it's the higher payoff activity, but any detail there would be helpful. Lee Smith: Yes, you're exactly right, David. It's the higher payoff activity. particularly as it relates to multifamily and CRE loans. And we use that excess cash to further delever the balance sheet. And as I mentioned, we paid down $1 billion of flow $1.7 billion of brokered deposits. And then we saw $1.4 billion of mortgage escrows exit in Q4, which is seasonality because they would see escrow deposits, which is when they usually go out and then they build throughout the rest of the year pay out in the fourth quarter. And so that reduction -- the other thing that we -- I will point out is you've heard us talk about tall trees as it relates to that legacy C&I book. And what we mean by that is we have some large oversized exposures in individual names. We're talking $250 million, $300 million. and we've rightsized a lot of those in order to bring them in line with our sort of risk tolerance levels and how we think about things today. And so you've seen run off, particularly in the ABL and dealer floor plan space and also the MSR space. I would say that we are mostly through that and so I think what you're going to see is higher net C&I growth starting in the first quarter here because we are mostly through that rightsizing of those to trees. But coming back to your initial question, it's those additional par payoffs that have effectively reduced the assets. We used the excess cash to sort of reducing NIM, and that's rolled through into '26 and '27. David Chiaverini: Great. And sticking with the payoff activity, you're guiding $3.5 billion to $5 billion for 2026. How much of that -- to the extent you have line of sight on it, how much of that do you expect to be substandard? Lee Smith: Well, I commented on the $1.8 billion this quarter, which was 50% substandard. And we have been throughout 2025, we've seen 40% to 50% of those par payoffs be substandard loans. So we don't see any reason for that to change as we move through. Joseph Otting: Yes. David, in that regard, I mean, as you have followed us, we originally were projecting those payoffs to be in the $700 to $800 million. But as those loans come up, our pricing rollover is higher -- significantly higher than market and so it motivates to align with our goal to reduce our real estate but it motivates people to take those loans to other institutions or to the agencies. Our next question will come from the line of Dave Rochester with Cantor. David Chiaverini: Just looking at, I think, Slide 11 here, you've got some great loan growth planned for this year. I just wanted to hear about how comfortable you are on the funding side of things with funding this with core deposit growth. Joseph Otting: Yes. Let me -- yes, go ahead, Lee. Lee Smith: Yes, I was going to say let me go and then Joseph can jump in. Yes, we feel pretty good. As we think about core deposit growth, I think there are a number of avenues that we're pursuing. Obviously, we think we can grow deposits from our 350 bank brand shares, we're in good geographies across the country, as you know. But we also are going to leverage these new C&I relationships. So as you've seen us grow the C&I business very successfully under Rich Raffetto, as Joseph mentioned, we believe that we will be able to leverage those relationships, not just to bring in deposits, but bringing more fee income as well. And then the final piece is the private client bank, and we feel that we can leverage deposits from our private client bankers as well going forward. And so that's how we're going to drive core deposit growth. as we move forward through '26 and into 2027 as well. David Chiaverini: Great. Appreciate that. And then just on the capital, you mentioned $1.2 billion after tax -- of excess capital. You guys are still obviously trading at a discount to your adjusted tangible book value per share adjusted for the warrants. It sounds like you're making faster progress than maybe you expected even just a few months ago. You mentioned all the all trees that you had then it sounds like you're pretty much at the end of that process of trimming, meaning C&I growth ramps up earlier, faster you're making a lot of progress on the credit front, which is great to see and profitability is only going to follow from that. It seems like you're going to be in a great position to buy back your stock with all the fundamentals going the way you need and you've got a ton of excess capital. I know you talked about a potential Board meeting coming up in April. What are the prospects of you guys coming out strong on that and taking advantage of the opportunity here which I would think is probably not going to be here for very long to buy back your stock. Joseph Otting: Yes. What we've kind of communicated is that the variables really are, as you described, how much balance sheet growth can we get in the targeted areas how quickly we see the nonperforming cure, which we are forecasting in total that in 2026, we'll be down $1 billion. And I think what the Board will look for with management's recommendation, as we look at those numbers coming together in 2026, how do we deploy that excess capital. And I would tell you, it's definitely discussion point amongst the board. And I would say, as we move forward through the year, it would be something we would look favorably if we're not deploying the capital. Operator: Our next question will come from the line of Casey Haire with Autonomous. Casey Haire: Yes. Following up on Slide 11, another follow-up on the funding strategy. So Lee, I heard you sound pretty confident on the deposit growth. Just wondering where do the wholesale borrowings as a percentage of assets at 13%. Where does that go in your budget? Lee Smith: Yes. So we -- as I mentioned, we paid another $1.7 billion of brokered deposits of -- we only have $2.3 billion of brokered deposits remaining as of 12/31. So I mean we are writing probably better than other banks. And we've done a nice job over the last 18 months of reducing our exposure there. As it relates to -- and I talked a little bit about the flood restructuring in my prepared remarks. The reason we did that was we swapped out long-term flood for short-term flub and use some excess cash to pay off that or change out that $2 billion of long term. So we are now mostly sitting on short-term flub. And that is the opportunity for us in 2026 and beyond to further deleverage wholesale borrowings by paying down the club advances because we also get an FDIC benefit from that. So we think and we expect to continue to pay down the flub advances as we move through 2026 with any excess cash. Casey Haire: Got you. Okay. And then just switching to expenses. The expense guide of $1.5 billion to $1.8 billion, your current run rate, you're about $1.85 billion. So there's more expense rationalization coming in 2016? And just any color around that? Lee Smith: Yes. So there's a couple of things that I'd point out. And again, I mentioned this in my prepared remarks, we had additional incentive compensation and associated taxes in Q4. We also had severance of $4 million in the fourth quarter as well. And we -- the severance was related to some reductions. These are tough decisions that we executed on earlier this month. And so as I think about our sort of Q1 I we're probably more like , and this is excluding the amortization in the $4.55 to $4.65 range. And then you will see continue to decline after Q1 because remember in Q1, expenses are typically elevated because of FICA costs that are sort of front-end loaded in the year. But we continue to work through a number of other cost optimization initiatives. And we think you'll see further reductions in our FDIC expenses. We've got technology projects that are coming on stream that will allow us to get more efficient as we move forward. as well. And then there's still some real estate optimization as it relates to a couple of operating centers that we have. So I feel very comfortable, Casey, that we will be within the range that we've guided to, and you will continue to see a reduction in expenses as we move through the year. Operator: Our next question will come from the line of Manan Gosalia with Morgan Stanley. Manan Gosalia: Joseph, maybe a follow-up to the capital question. I know you noted that the priority for capital return or the priority for capital is to deploy for organic growth but I guess you also noted that the balance sheet will be lower given the CRE paydowns. Is there anything that could cause you to hold on to the excess capital for a little bit longer? Like are you maybe -- is it the rating agencies? Is it rent freezes and NYC? Is it maybe the C&I loans are coming on at a high RWA. Can you just help us think through what scenarios you would hold on to that excess capital? Joseph Otting: Well, I think the -- first of all, on the balance sheet, we do feel this quarter will be the low point in the quarter for the size of the balance sheet and that should grow going forward from here. The other thing, I think, limbs that we've been looking at, and I think this quarter, we saw improvement was we've taken on an initiative to move the nonperforming loans out of the bank. And we want to see that, that initiative continues to be successful and we get the nonperforming loans down. The other element that we do in '18, 1 of the reasons we think we have a very conservative view on our credit quality as we do this 18-month look forward on the loans to make sure what would the underwriting look like, both at the current coupon and what it would look like if they reset to market -- and that has historically, for us, drove a lot of loans into the special mention and to the substandard area. So I think as we can get some visibility around reducing all of that and as Lee commented, we have $9 billion of maturing in 2027. And we're about halfway through that because think about the 18 months. So we're -- this quarter, we're into the third quarter of 2027 looking at those loans that we're in a position to really understand what does that bubble look like coming through? And does it have any impact to the credit quality for the company. We haven't seen a major shift, but that's one area that we're keeping our eye on. Manan Gosalia: Got it. Very helpful. And then just maybe on the New York multifamily portfolio. So given that we could get rent freezes in New York in the near term, any updates on what you're hearing from your multifamily borrowers in the city? Joseph Otting: There's just a lot of dialogue going on about like how can we I think, collectively come to resolution between the new city government and owners of properties and banks that finance those about resolution. We are we look what would be the impact if this year, it seems like the rent board will be former Mayor Adams tilted and they have a history of looking at kind of the overall expenses and making adjustments to revenue accordingly. We've started to spend a lot of time looking out like forward thinking is if those rents were flat for 2 or 3 years and expenses went up a couple of percent, the impact on the portfolio. And so that's kind of where we're spending most of our time. But as Lee commented on, we have not seen a decline in liquidity. In fact, we saw acceleration of liquidity, taking us out of those loans in multifamily and regulated in the fourth quarter. So -- but we -- obviously, we spend a lot of time looking at various aspects of that portfolio to make sure that we understand our risk. And we were kind of early on in our process of effectively underwriting with that window out 18 months, both kind of what credit marks and interest rate marks would look like as those loans start to come up for maturity or repricing. Lee Smith: And Manan, I would just add to what Joseph said, I think the 2 key points that we made first of all was we haven't seen any slowdown in liquidity. Looking at the par payoffs we experienced in Q4, so that's number one. Number two, obviously, the work we did in 2024, where we re-underwrote that book and took both Ray and credit marks and we had the $900 million of charge-offs. But the other thing as well as sort of as we look forward, we have started looking at what sort of exposure might we have to the fines, violations, lens. We're just not -- we're not seeing much as it relates to that tie to app, but we don't have much exposure there was a landlord list that came out recently that we took a look at. And again, we don't have significant exposure there either. And we have the annual financial statements that we collect. And as I mentioned, we're 93% of the way through the '24 financials and 80% of stable, 7% have improved, 13% had deteriorated. So the vast majority are stable or improving. So there's a lot of different things we're doing to triangulate everything as it relates to that portfolio. Operator: Our next question will come from the line of Bernard Von Gizycki with Deutsche Bank. Bernard Von Gizycki: Just on a borrower that went through the bankruptcy process, Lee, can you just update us on some main takeaways like on the economics? How much of the loan you have left? I think you mentioned some of the sales you had on there it seems like it's mostly reserved for already from your prepared remarks, the new yields and you thought from improved credit profile. Any additional provided? Just any color you can share on that process on that loan position? Joseph Otting: Yes. So first of all, as we've said before, we do not get into the specifics as it relates to customer loans and deals, transactions. We just don't do that in a public forum. I think what I would say and sort of just reemphasize is the auction was completed. It was confirmed, and we expect that to close before the end of the first quarter. what we've got in all of those loans today are in our nonaccrual balance and there's probably about $450-plus million of nonaccruals as it relates to that particular bankruptcy case. And anything that we do going forward would be an accruing loan. So I think that's how we would look at it. And as I said in my prepared remarks, everything related to that bankruptcy. So any additional charge-offs or that when they did we took in the fourth quarter, so there is nothing that is going to be taken in Q1 as it relates to that because we took what we needed to do in the fourth quarter and previous quarters. Lee Smith: Yes. In addition to lease, I would just add, there were very -- we were almost on top of the mark for where we knew the bid was. So there wasn't a material add to reserves for that particular transaction. But you can you can also run the math of like you have a nonperforming loan of that dollar amount, and you're going to turn that into a performing loan. It obviously is -- will be positive from a net interest income perspective. Bernard Von Gizycki: Great. And then just on re-regulated portfolio on Slide 19, the $4.3 billion of criticized and classified I'm just wondering, of the $1.9 billion, how much of that has repriced as of today? And what percentage does that go through by the end of 2026. And I'm just wondering, similar repricing for that $2.4 billion of the special mention loans. Lee Smith: Yes. So I'm looking at the $4.3 billion in total, 54% of it is already repriced. And then another 36% of that will reprice within the next 18 months. So 90% of it has already repriced or will have repriced in the next 18 months. Operator: Our next question will come from the line of Jared Shaw with Barclays. Jonathan Rau: This is Jon Rau on for Jared. just thinking about the new loans being added to the balance sheet in C&I and then with CRE originations starting back up again, what the new like roll-on yield is for those? And the floating versus fixed mix on those loans? Lee Smith: Yes, yes. So the C&I loans we've obviously got a number of C&I verticals. And the loans are coming on at a spread to sofa of anywhere from $175 million to $300 million on a blended basis, you're probably in that 230 basis point range. As we're looking at the new CRE growth, I would say that the spread to sofa on those loans is more like $200 million to $225 million. basis points. So that's how we would think about the spreads for the new originations. Jonathan Rau: Okay. Great. And then just thinking ahead, to the governor election later this year in New York. Any -- I guess, first, do you expect any potential action on the 2019 law change related to rent regulated in advance of that? And I guess, just broader thoughts on what the election could mean for that? Joseph Otting: Yes. I think that's something that will take its ordinary course. On the 2019 legislation, I think there's -- now that we've had a number of years to kind of look back on that. I think there are certain parts of that, that I think there could be common ground on how do we fix the issue. And 1 of the areas is these go units where the legislation effectively made it uneconomic to remodel units that are vacated. And so what you've had is a number of instances where landlords just keep them vacant. Those are estimated 50,000 or 60,000 units and so I think there's a lot of talk about, is there an economic model that could revise that rule the way it was written to make those available to come back on the market and reimburse the owners. But the rest of that, I think we're going to have to see ultimately what direction that takes and how much discussion? I do know there's a lot of dialogue now occurring between property managers, owners of properties in the city. And hopefully, we all feel that we want people to live in safe and sound environments are supportive of continued correction of any violations amongst our portfolio. We're now watching that very closely. And we do expect borrowers when they have violations to cure those. Operator: Our next question will come from the line of Chris McGratty with KBW. Christopher McGratty: Maybe for you, the $1.1 billion of par payoffs I think it was $1.2 billion or so last quarter. I guess my question is a degree of confidence in the updated balance sheet, especially if the forward curve comes through and you get a couple of cuts and maybe prepays pick up a bit. Lee Smith: Yes. I mean I think we feel good about the PAR Pay of sort of continuing as we move forward. Now, as Joseph mentioned, when we came in to '25, we thought that the par payoffs would be around sort of maybe $800 million on average a quarter. And we've seen in excess of $1 billion a quarter in 2025. There's a lot of demand out there from other financial institutions and the -- and we think that, that will continue in 2016. What I would say, Q1, seasonality-wise, is typically the lowest quarter for par payoffs as we saw in 2025 and then it sort of picks up Q2, Q3, Q4. And we expect to sort of see a similar thing in 2026. And look, I think the forecast we have put forward in the guidance, we were using the rate curve as of the middle of December, it had 2 cuts June and September. And a declining rate environment is only going to help those borrowers refinance. So yes, I mean, look, I think we feel that we should be in that $1 billion ZIP code on a quarter on an average basis plus as we move through 2026. Joseph Otting: Okay. And then Chris, I would just add that we've declared that we're going to begin to originate some CR. And this isn't a big dollar amount. We're talking about a couple of billion in originations in a year. Just as if we've seen the acceleration in the paydowns and obviously, that will be New York City multifamily. But as we look across our franchise in Michigan, California, Florida, markets sourcing opportunities in the commercial real estate will help to offset some of that outflow. Christopher McGratty: Great. And my follow-up, I guess, 2 parts, Lee, on the model. the risk-weighted assets, given the par payoffs and the nonaccrual resolution plus the growth, how do we think about just the cadence of RWA growth over the year -- and then also a help on the first quarter share count with the warrants and everything. Lee Smith: Let me start with the share count. So in Q4, the share count was [ 459 million ]. And then if you're looking at the sort of [ 26 million and 27 million ] you should be using around 473 million and then 479 million shares. So that's how we would think about the share count. In terms of the risk-weighted assets. So you've got to remember that as it relates to the multifamily and CRE book, first of all, the nonaccruals are 150% risk weighted anything that is sort of substandard special mention is 100% risk-weighted and so C&I loans coming on are typically 100% risk-weighted but it's not as if you are really losing 2 we've got obviously the 50% risk weight in our multifamily for the performers. But as we've mentioned, we've seen a lot of those standard loans pay off at 100%. We're looking to reduce our nonaccruals, which are 150%. So while we use capital as we grow the balance sheet, it's actually not as punitive as you may think for those reasons. Operator: Our next question will come from the line of Janet Lee with TD Cowen. Sun Young Lee: I appreciate the Slide 11, where you indicated an average deal size for C&I being around $25 million, which is on a larger side for a typical regional bank, but probably not for you guys. Are some of these syndications? And are you able to share any other metrics on underwriting just given that as a newer segment for Flagstar? Joseph Otting: So Janet, I think that we -- if you go back and look at Slide, -- and the top 2 businesses is where we're seeing most of the growth now in the specialized industries and the corporate regional commercial bank. And so each of these businesses have a little bit different characteristics. But the commercial, corporate and regional we target kind of mid- to upper middle market and lower corporate and in those particular categories, we shoot in a lot of instances that we are the primary bank of those relationships that we're generating. So it is really kind of a 1, 2 or 3 bank where we would look to lead that. In the Specialized Industries group, those are 12 industry verticals and as we've come into those, we've hired highly experienced people that have been in a lot of these industries for 25 or 35 years, we're getting into bilateral and some participations, but our goal in those instances also is to be in smaller bank groups where it's like oil and gas or health care, very few of those where you would have 20 banks, and we're just one of banks making a $30 million commitment to the transaction. That is where our focus has been where we've entered into transactions like that, our people have direct relationships with the management. And it's obviously our goal to swim up the fish ladder, so to speak, in the importance to those companies. So we -- it's highly diversified the originations. And then when you get into the equipment finance, those are usually multibank transactions, but we may be the only bank financing their equipment finance. And then in the asset base, we also look to be the primary bank in those transactions. So it's a really -- it's business by business is the way I would describe that. Lee Smith: Yes. The other thing, Janet, that I would -- first of all, on the credit side, as Joseph has mentioned, we're not we've seen really good growth on the C&I side, but it's not because we're taking outsized positions in single names Far from it. The average loan size is sort of $25 million, $30 million. And so we're kind of managing the risk just in terms of the deal size Credit has final say on all loans that come on to the balance sheet. We have a first line review within the business as it relates to all credits that come on. Then you have the second line credit and then we have loan review in the third line. So we have a very, very robust process in place as it relates to assessing the quality of these loans before we bring them on. And then a couple of other things that I would say. We've talked about the spreads that we're typically seeing. So we're not giving the business away. We're sort of averaging a spread to sofa of $225 million, $230 million and so I think that's a good indication that again, we're not giving it away or doing sort of cheap deals. And we've typically seen a 70% utilization on these facilities as well. And I think that's another important metric that is worth emphasizing. Sun Young Lee: And just lastly, for a NIM guide of [ 240 to 260 ], which is a pretty wide range, I think you said also balance sheet is at a low point this quarter and you're assuming 2 rate cuts. It's sort of the midpoint of that range where your baseline expectation is what would put you at the higher ed versus lower end? Lee Smith: Yes. Well, Janet, it's a good question. As you know, we have a lot of moving parts as it relates to the NIM improvements. And what I mean by that is on the asset side, you do have that multifamily and CRE runoff. And I mentioned that if you look at what is running off in -- what is resetting, I should say, or maturing in 2 and there's about $5 billion, it has a weighted average coupon of less than 3.7%. So you've obviously got how much of that is going to reset and stay how much will ultimately pay off. You've got the C&I growth at the spreads that I mentioned. We're going to be originating new CRE loans as Joseph mentioned. And then we also expect to continue to grow that consumer book, particularly by adding residential 1 to 4 mortgages to the balance sheet. And then on the funding side, we've done a really nice job of reducing core funding or core deposit costs in Q4 and 2025, and we will continue to do that. Even outside of the Fed cuts by leveraging some of the opportunities we have as retail CDs, mature, and we can roll them into lower-cost CDs. And then obviously, continuing to pay down wholesale borrowings, particularly the flood advances. I think that's the focus for us in 2016, given the good work we've done, bringing our broker deposits down to a level that is pretty consistent with other banks. So you've got all of those sort of contribute to the NIM. And the final thing I should have added is obviously reducing our nonaccrual loans which we're intending on doing as well. So you've got all of those sort of moving pieces. They all contribute to the improving NIM. But that's why we've got that range because you've got all those variables. Operator: Our next question will come from the line of David Smith with Truist Securities. David Smith: On the C&I growth, just a clarifying question. You pointed to 125 relationship bankers doing 4 deals a year. So that will be 500 deals at an average deal size of $25 million or what are the offsets bringing C&I growth down this year to $6 billion to $7.5 billion, if you're mostly done rightsizing legacy loans I guess maybe is that like originations as opposed to like actual loans coming on the balance sheet, but it seems still not quite to the 6.75% ramp. Lee Smith: Yes, David, you have to realize that, that's the model we have with the people, but not everybody is going to achieve that 100%. David Smith: Okay. So that's not an average, that's like the target or so -- it's our target. Lee Smith: Yes. Okay. Is what I said. That's the target. But again, that's if everything goes perfectly, number one. Number two, while we're mostly done, I think in '26, the one portfolio where you will see some additional runoff will be the ABL and dealer floor plan. I think there's still some additional sort of runoff there. And then with C&I loans, you're just going to have the normal course sort of pay downs and people using the line, not using the line in amortization so you've kind of got that movement as well. And so I think all we're trying to -- what we're trying to provide people with here is a lot of people have questioned our ability to grow C&I at the numbers that we've indicated -- and I think when you break it down like we have -- when we're showing $3 billion of new commitments in Q4, $2 billion funded and when we're showing the number of customer-facing bankers that we have and what our expectation is, I think what we're just indicating is, look, this isn't as big a stretch as I think some people thought a few months ago. David Smith: Okay. And then just there's a lot of uncertainty, obviously, in the rate backdrop right now. We just got a new Fed share-denominated can you talk about what you see as the ideal rate backdrop for Flagstar when you think about the bank's asset sensitivity today and how that evolves if you plan over the next year or. Joseph Otting: Yes. I would say we're pretty neutral from an interest rate sensitivity point of view, there is no doubt about it, though, a declining rate environment, it helps our multifamily borrowers and so we think that, that is beneficial. It will also -- we believe you'll see more mortgage activity as well and so we have an active and very good mortgage business that we feel will benefit from in a declining rate environment. So we sort of call it this belies model hedge that even though from a balance sheet point of view, we're pretty neutral. The business model, there are benefits that we will enjoy in a declining rate environment. David Smith: And is that a steeper curve still being better or just overall flatter given CRE has been a. Joseph Otting: Yes. I think if the short end because the way we think about multifamily, it's sort of the 5-year and then obviously, mortgages at the 10-year so we'd be looking to sort of see an impact with a 5- and 10-year in particular, that would really benefit the multifamily and mortgage borrowers. Operator: Our next question will come from the line of Anthony Elian with JPMorgan. Anthony Elian: Lee, how are you thinking about NIM and NII specifically for 1Q after we back out the 9 basis points and $20 million benefit you saw from the hedge gains. Lee Smith: Yes. Well, I'm not sort of -- I haven't -- and we haven't deliberately given sort of quarterly guidance. But I think what I would say is as I mentioned, in Q4, when you back out that onetime gain, we were at 2.05% and you've seen a steady increase quarter-over-quarter. So we were up 14 basis points versus Q3. And our expectation is you will continue to see that NIM improvement quarter-over-quarter as we move through the year. So we're not getting sort of specific by quarter. We're giving that overall guidance for the year. But I mean, just looking at that guidance, I think you can expect us to continue on that positive trajectory quarter-over-quarter. Anthony Elian: Okay. And then on Slide 11, so you're calling for year-end assets in the range of $93.5 million to $95.5 billion. But if I stretch this out, how are you thinking about assets for 27 just relative to the range that you gave last quarter, I think it was $108 billion to $109 billion. Lee Smith: Yes, yes. So we think that the balance sheet at the end of [ 27 million ] will be sort of more around $103 billion. Operator: Our next question will come from the line of Matthew Breese with Stephens. Matthew Breese: Popular slide, Slide 11. I was focused on cash and securities. So cash balances are still a bit elevated at 6.7% of assets down this quarter. maybe first, what drove lower cash balances? And then as we look ahead, what is the breakdown between cash growth and securities growth to get kind of that $2.5 billion midpoint of total growth there for the year? Joseph Otting: Yes. So the reduction in cash was the deleveraging and, as I mentioned, we paid down the $1.7 billion of broker deposits, $1 billion of flub. We did actually buy another $1 billion of securities in the fourth quarter. We haven't spoken about that, but we did buy another $1 billion of securities. So we used some of the cash to further build that securities book. And the way we think about it is sort of the cash in the securities is somewhat fungible. And we'll just kind of look on really a real-time basis what are we better doing with any excess cash we have, should we buy more securities? Or can we use that to lever and so that's the relationship between sort of securities and the cash, somewhat fungible. And that's how to think about it when you're looking at the numbers, Matt. Matthew Breese: Okay. And then Lee, I don't know if you have it at your fingertips, but do you have the cost of deposits at year-end or more recently. And as we think about some of the higher cost categories, maybe time deposits what is kind of the blended rate that CDs are going to, as they mature and come back on? And is that a decent proxy for where you think CD cost could go over the next year? Lee Smith: Yes, yes. So the spot rate as of the end of the year, and this is for all interest bearing for all deposits. So it does include our noninterest-bearing DDAs are in here as well, was [ 2.56 ]. And then as I mentioned in my prepared remarks, we had $5.4 billion of CDs that matured in Q4 with a weighted average cost of 4.9%. And we've retained 86% of those move them into products sort of 40 to 50 basis points lower. In Q1, we have $5.3 billion of CDs maturing with a weighted average cost of 4.13%. So I think the way I would think about it is the CDs that are maturing in the first quarter, while we won't sort of probably realize the same 40 to 50 basis point benefit I do think that we can realize a sort of 25, 35 basis point benefit at least as those CDs mature -- and then just looking out further, right now, we have another $4.2 billion maturing in Q2 at a weighted average cost of 4%. Matthew Breese: Very helpful. And then just last quick one, if I can sneak it in, is you provided some updated share counts for the years ahead. Is that both average diluted and common shares outstanding? And that's all I have. Lee Smith: Basically, the share count, it includes the warrants are included in there. So it's fully diluted. Operator: Our next question will come from the line of Jon Arfstrom with RBC. Jon Arfstrom: Curious on the multifamily loans maturing over the next 2 years. Curious on the health of those credits in general. And then any chance that nonperforming balances could have a larger step down at some point over the next couple of years, just based on what's maturing. Lee Smith: So we -- what we said previously, let me start sort of with the last part of the question. As it relates to the -- so we ended the year at about $3 billion. Our expectation is we can reduce those by $1 billion in 2026. Now Again, remember, included in that $1 billion is the bankruptcy loans that we've talked about earlier on this call, which is sort of $450 million. So we do believe that we can reduce the nonaccrual fairly substantially in 2016 when you include the resolution of the bankruptcy. In terms of the loans that are hitting their reset and maturity dates. There is nothing different about the overall quality or characteristics of those loans than any loans that have reset or matured prior, so in '25 or before. And what we do, as Joseph has mentioned, is any loan that is resetting or maturing in the next 18 months. That is the trigger for us to do a deep dive analysis on that loan and run a pro forma SCR based on the interest rate that would be in effect today. And so we are constantly looking out and running those analyses on those loans that are coming to -- up to their reset or maturity day. And obviously, that's all considered as part of our process. So it's all included in everything that we've taken and disclosed in the fourth quarter. But the reason anything unique about the characteristics of the Multifamily and CRE loans that are hitting their maturity and reset dates over the course of the next 18 months, 2 years that we haven't seen in resets of maturities up to this point. Joseph Otting: And one thing Jon, the one thing I would add, we track the payoffs and determining whether we're getting negative selection by keeping the back crafts and good credits are paying off. And it's held almost consistent really since we've been here. the percentage of substandard and then what's in the rent regulated. So it's amazingly consistent how that has continued to b, as those payoffs come in. And that, I think, is just reflective of what we think is a good assessment of the risk in that portfolio. Jon Arfstrom: Okay. Good. And then, Lee, maybe just wrapping this up on the guidance. I get the adjustments in refinements. It's kind of like a mixed blessing, I guess, with the payoffs. But what do you think are the biggest risks on your '26 guidance. It doesn't seem like it's credit. Are we just talking about subtle nuances at this point? Lee Smith: Yes. I think it is certainly one. Obviously, I think we're sort of can we execute. I think that's really what it boils down to as I've mentioned, there's a lot of moving parts, which is -- it's a good thing, and it's a bad thing because obviously, you're having to kind of estimate what that all means -- but I think we're now pivoting to the growth side of the story. And so it's really all about can we execute on that growth side of the story. And look, I think everything we said we would do in '25 we've delivered on. And so I think this management team and this Flagstar team has proven that they are up for the challenge. Operator: Our final question will come from the line of Christopher Marinac with Janney. Christopher Marinac: Just wanted to ask about the mix of deposits as C&I grows. When we see the C&I and the treasury a much different component, 12 and 24 months from now lead? Do you have any sort of guidepost just in general for how that mix is going to shift. Joseph Otting: No, I think, again, we expect to leverage those relationships to bring in deposits. And I think it's going to be a mix, obviously, in an ideal situation you're bringing in noninterest-bearing the operating accounts. But I think as we sort of leg into that you'll see us sort of bring in interest-bearing DDAs and money market deposits. So I think it will be sort of a combination. But ultimately, as our strategy and our business model is about a full relationship business. It's not just giving the balance sheet away. So we would expect to start bringing in, in time, more operating accounts, which would be noninterest-bearing DDAs. And and further leveraging those relationships, not just for deposits, but the fee income as well. Christopher Marinac: Got it. So we'll see movement on those ratios and that mix during this year? Joseph Otting: Yes, I think that's fair. Christopher Marinac: Okay. Joseph Otting: The one comment I'd have for you, if you think about it, we've been effectively in this business about 15 months now. The credit opens up the license for us to be able to move more of the fee income and deposits into the company. And so it's a transitional period. But yes, I do think we will gain momentum on that, especially as we've not only in the C&I side, but we've also geared up some specialized industries on the deposit side. that are focusing on -- these are like some title and some escrow and some insurance companies that generally don't use the debt vehicles from banks as much, but they do use the depository treasury management, cash management services. from a bank. And so we're highly focused on growing that segment of our deposit business as well. Christopher Marinac: Got it. Operator: I will now turn the call back over to Joseph Otting for closing remarks. Joseph Otting: Okay. Thank you very much for joining us this morning. We really appreciate following the company and the questions that we get and both today and the follow-up meetings. We obviously remain extremely focused on executing on our strategic plan. including the transformation of Flagstar into a top-performing regional bank really focused on creating a customer-centric relationship-based culture and effectively to manage risk to drive long-term value. So thank you again for taking the time to join us this morning and for your interest in Flagstar Bank. Operator: This concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning and thank you for standing by. Welcome to the ArcBest Fourth Quarter 2025 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. As a reminder, this call is being recorded. I will now turn it over to Amy Mendenhall, Vice President Treasury and Investor Relations. Please go ahead. Amy Mendenhall: Good morning. I'm here today with Seth Runser, our President and CEO, and Matt Beasley, our Chief Financial Officer. Other members of our executive leadership team will also be available during the Q&A session. Before we begin, please note that some of the comments we make today may be forward-looking statements. These statements are subject to risks and uncertainties which are detailed in the forward-looking statements section of our earnings release and SEC filings. To provide meaningful comparisons, we will also discuss certain non-GAAP financial measures that are outlined and described in the tables of our earnings release. Reconciliations of GAAP to non-GAAP measures are provided in the additional information section of the presentation slide. You can access the conference call slide deck on our website at arcb.com in our 8-K filed earlier this morning or follow along on the webcast. And now I will turn the call over to Seth. Seth Runser: Thank you, Amy, and good morning, everyone. ArcBest delivered solid fourth quarter and full-year results, and I want to begin by recognizing the outstanding execution of our entire team. Over the past year, we navigated a prolonged freight recession and ongoing market volatility. Through it all, our people stayed focused and committed to our long-term strategy built around our three pillars: growth, efficiency, and innovation. Throughout the year, we leaned into our strengths, made disciplined decisions, and continued investing in initiatives that set ArcBest apart. As a result, we delivered premium service to our customers, grew daily LTL shipment volumes, restored asset-light profitability, achieved record revenue and shipments in our managed solution, and advanced strategic priorities through technology and optimization projects. These accomplishments demonstrate the resilience and dedication of our team. And we're confident that the strong foundation we've built positions us for continued success. We are also advancing the initiatives we outlined at our Investor Day in September, which are designed to help us achieve our long-term targets and deliver greater value to shareholders. As always, our customer-first mindset remains core to our strategy. We will continue listening to our customers' evolving needs and delivering flexible, efficient, and fully integrated solutions that keep them coming back to ArcBest. With our unique focus on innovation and operational excellence, ArcBest remains a trusted partner ready to help customers navigate whatever comes next. We're excited to officially welcome Mac Pinkerton as Chief Operating Officer of our Asset Light business. Mac brings deep industry expertise and proven leadership. He will help us build on our momentum, drive value for our customers and shareholders, and further strengthen our competitive position in this important part of our business. And as part of our ongoing assessment of board size and composition in the skills and capabilities needed for effective oversight, we're also pleased to welcome Anne Bordelon and Bobby George as independent directors. They bring financial expertise and proven leadership in digital transformation that will further strengthen our board. We also want to thank Kathy McGelligat and Fredrik Eliason for their many years of dedicated service. Their guidance and contributions have been invaluable to ArcBest. Now let's review our results for the quarter. In the fourth quarter, asset-based LTL shipments increased 2% year over year, averaging about 20,000 shipments per day. While seasonal softness and an unusually weak October across the industry impacted volumes, this year-over-year improvement demonstrates the effectiveness of our refined go-to-market strategy and our intentional focus on expanding our core LTL business. By sharpening our approach, we're capturing new opportunities while continuing to deliver strong service and greater value to customers. Maintaining solid yield performance remains central to our approach. In the fourth quarter, deferred price increases averaged 5%, up from 4.5% in the third quarter. This improvement reflects the strength of our disciplined pricing approach. We take a rigorous data-driven look at every account lane, making adjustments to ensure we're fairly compensated for the service and value we deliver. This discipline supports our long-term financial health and mutually beneficial customer relationships. Shifting to managed solutions, demand remains high, and we delivered double-digit growth in shipment per day again this quarter. The sustained momentum highlights the value our managed offering brings to customers navigating today's complex logistics landscape. Truckload performance was another bright spot. Throughout the quarter, we demonstrated strong pricing discipline. Revenue per shipment increased 11% year over year, and gross margins on a per shipment basis improved by 17% over the same period. In addition, we grew our business from SMB customers, which diversifies our portfolio and positions ArcBest for additional growth and profitability. Throughout 2025, we made meaningful progress on efficiency and innovation, two pillars of our long-term strategy. Our continuous improvement training program has now been successfully implemented across approximately 60% of the network. Our dedicated team trains employees on process and safety best practices, deploys new technologies, and ensures adoption of new tools. These efforts have delivered $24 million in annual cost savings. In addition, we are actively rolling out phases two and three of city route optimization, which uses AI to reduce manual tasks, improve route planning, and maximize asset utilization. Phase two and three delivered $2 million in savings last year, bringing the total savings from the project to $15 million in 2025. These initiatives reflect our commitment to building a more efficient, innovative ArcBest and help offset cost inflation. 2025 was also a pivotal year for accelerating AI across our organization and advancing on our technology roadmap. Here are just a few highlights. In truckload, AI-powered process improvements are helping us make better decisions when covering freight and improving buy rates, delivering $2.5 million in operating income benefit last year. Our truckload carrier portal adoption has reached 32%, and more than half of our truckload shipments are digitally augmented. Over 30 AI agents now support document processing, automated quoting, and shipment booking across multiple channels. Ava, our AI-powered virtual agent, is transforming customer service by routing inquiries, resolving common issues instantly, and freeing our people to focus on more complex, value-added support. Our quote augmentation project streamlines load building and automated 120,000 email quotes in 2025, enabling faster and more efficient customer responses. Automated phone options for carriers have cut abandonment rates in half and boosted productivity. Last year, more than 23,000 carriers used our AI phone agent to cover over 7,000 shipments. Through targeted training, 15% to 20% of our employees now consistently use AI tools in their daily work. And through AI-driven automations, we've eliminated millions of unnecessary emails, giving teams more time to focus on what matters most. These efficiency and innovation efforts are delivering tangible results, elevating performance across the organization, and helping us counter inflationary pressures. Prioritizing these projects will allow us to grow when the market turns, without adding the same level of incremental cost. And while technology is unlocking new levels of productivity, it's our talented people who make these advancements real. Their expertise, creativity, and commitment continue to drive our success. As I step into the CEO role, my priorities are clear: sharpen our customer focus, raise the bar on operational excellence, leverage technology to amplify productivity, and maintain cost discipline that drives profitable growth. I'm excited about the opportunities ahead and honored to lead our team as we continue creating lasting value for our customers, our shareholders, and our employees. Before closing, I want to acknowledge the recent severe winter weather that affected much of the country. These conditions disrupted transportation networks across the industry and created challenging circumstances for many of our teams. I'm extremely proud of our people. They acted quickly and continue to work tirelessly to restore full network operations. Safety is our highest priority, and the team has responded. Their dedication ensured we continued serving customers with the reliability they expect from ArcBest, even in difficult conditions. I want to extend my sincere thanks to every team member involved in that effort. I'll now turn it over to Matt to walk through the financial results for the quarter. Matt Beasley: Thank you, Seth, and good morning, everyone. Despite continued softness across the freight market, ArcBest delivered solid fourth-quarter financial results. Our disciplined approach, operational excellence, and strong execution helped us navigate a challenging environment while continuing to create long-term value for our shareholders. Let's take a closer look at our fourth-quarter performance. Consolidated revenue was $973 million, down 3% year over year. Non-GAAP operating income from continuing operations was $14 million compared to $41 million last year. In our asset-based segment, non-GAAP operating income decreased $28 million, while Asset Light achieved breakeven non-GAAP operating results, an improvement of $6 million over last year. Adjusted or non-GAAP earnings per share were 36¢, down from $1.33 in 2024. Turning to our asset-based segment, fourth-quarter revenue was $649 million, which was flat on a per-day basis. ABS operating ratio was 96.2%, a year-over-year increase of 420 basis points. Sequentially, the non-GAAP operating ratio increased 370 basis points due in part to three fewer revenue days. Daily shipments increased by 2% year over year, and weight per shipment increased slightly, resulting in nearly a 3% increase in tons per day. This growth was driven in part by onboarding new core LTL business through the commercial efforts Seth mentioned earlier. Revenue per hundredweight declined approximately 3% year over year, both including and excluding fuel surcharges. This decline was primarily driven by reduced shipment activity in the manufacturing vertical, which continues to experience softness. On the expense side, additional labor to support shipment growth, annual increases in contracted union labor rates, and higher equipment depreciation contributed to increased operating costs. Operator: In January, daily shipments increased 3% year over year. Matt Beasley: Weight per shipment increased 5%, and daily tonnage increased 8%. Both the current year and prior year periods were affected by winter weather. January 2025 saw lower weight per shipment due in part to a reduced mix of truckload-rated shipments. This mix shift contributed to the year-over-year increase in tonnage and the associated decline in revenue per hundredweight. Sequentially, from December to January, weight per shipment remained consistent, while shipments per day declined 3% and tonnage per day decreased 4%, largely due to winter weather impacts. Historically, ABF's non-GAAP operating ratio increases by about 260 basis points from the fourth quarter to the first quarter. We currently expect our first-quarter operating ratio to increase by approximately 100 to 200 basis points sequentially, an improvement relative to typical seasonality, due in part to a softer than normal fourth quarter, though still reflective of the current industry environment. Now turning to the asset light segment, fourth-quarter revenue was $354 million, a daily decrease of 5% year over year. Shipments per day were up slightly as growth in managed solutions offset a strategic reduction in less profitable truckload volumes. Revenue per shipment decreased 6%, reflecting both the soft freight market and the higher mix of managed business, which typically has smaller shipment sizes and lower revenue per shipment. On the cost side, SG&A cost per shipment decreased 15%, driven by productivity initiatives and the higher mix of managed business, which carries a lower cost to serve. Employee productivity also improved significantly, with shipments per person per day up 19%. And non-GAAP operating results were breakeven for the quarter. For the full year, Asset Light delivered over $1 million in non-GAAP operating profit, achieved record-high employee productivity, and reached a historic low in SG&A cost per shipment, marking a strong turnaround from 2024's $17 million loss. Operator: In January, Asset Light daily revenue. Matt Beasley: Increased 6% year over year. Shipment growth of 13% was led by our managed business. However, its smaller average shipment size resulted in a lower overall revenue per shipment. For the first quarter, we expect an operating loss of up to $1 million, reflecting typical seasonality in current market conditions. Despite these near-term pressures, we remain committed to maintaining yield discipline, managing costs, and positioning the segment for sustainable long-term profitability. Looking ahead, we remain confident in our strategic direction and our ability to deliver on the long-term 2028 targets we shared at Investor Day. We set those targets, we did not anticipate a significant freight market recovery in 2026. Our focus remains on what we can control: driving productivity, maintaining cost discipline, and positioning ArcBest for sustainable success regardless of external market conditions. Turning to capital allocation, we continue to take a balanced long-term approach that supports both growth and operational efficiency. From 2022 through 2025, ArcBest made targeted real estate investments as part of our network facility roadmap, strengthening the foundation for profitable growth. These investments improve productivity, enhance service quality, and expand our capacity to meet evolving customer needs. We closed 2025 with $198 million in net capital expenditures, which included $25 million in property sales. Looking ahead, we expect capital expenditures to be below 5% of revenue, with 2026 net CapEx anticipated in the range of $150 to $170 million. This reduced spend level reflects fewer real estate purchases and remodels following several years of targeted investments and optimization projects that have made our network more efficient. We also anticipate lower spending on revenue equipment in 2026. Our equipment purchases continue to be guided by a robust total cost of ownership model that evaluates equipment pricing and life cycle economics to determine optimal replacement cycles. With equipment costs trending higher, our analysis points to adjusting the timing of certain replacements as the most cost-effective use of capital while still ensuring reliability. Importantly, our younger fleet and proactive maintenance program support performance over an extended horizon even as we optimize investment levels. Returning capital to shareholders remains an important priority. In 2025, we returned more than $86 million through share repurchases and dividends. We'll remain opportunistic with repurchases based on share price, while continuing to prioritize high-return organic investments and maintaining prudent leverage. ArcBest's balance sheet remains strong, with approximately $400 million in available liquidity and a net debt to EBITDA ratio well below the S&P 500 average. This financial strength allows us to navigate uncertainty and capitalize on opportunities as they arise. As our industry continues to evolve, ArcBest is well-positioned to lead. Our disciplined execution, strong financial foundation, and focus on innovation give us confidence in our ability to achieve the long-term targets we set. And our people are at the heart of our success. Their expertise, resilience, and dedication to our customers consistently set ArcBest apart. With that, operator, we're ready to open the call for questions. Operator: Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone. In the interest of time, we ask that you please limit yourself to one and rejoin the queue for any additional questions. Thank you. Our first question comes from Ken Hoexter from Bank of America. Please go ahead. Your line is open. Ken Hoexter: Maybe just a follow-up on some of the outlook that you set there or maybe even the January guide or targets you set this morning, tonnage up 8%, revenue per hundredweight down 8%. Maybe talk about what's going on in the mix change there. You mentioned some of the truckload shipments are disappearing, but yet weight was staying the same. That was a little surprise. So maybe just thoughts on how that's adjusting and the impact to first-quarter OR that you said? Seth Runser: Ken, this is Seth. So obviously, this past week was impacted by the strong winter storms throughout the country. And when you think sequentially from December to January, we normally see a step down sequentially. But on a year-over-year basis, we are trending slightly ahead of the historical seasonality. So last year, we had a lower mix of the truckload shipments, which really contributed to the year-over-year increase in tonnage and then the associated changes in revenue per hundredweight. Last January, we had kind of rough weather as well if you remember, but it was more spaced out for us throughout the month versus one big storm like we just experienced earlier this week. So our dynamic shipments have been trending a little bit heavier, which has contributed to that stronger tonnage level. We're not targeting any more dynamic than we did in the fourth quarter, but they've just continued to trend heavier with that mix there. So that kind of aligns with what we talked about at Investor Day. As that quote pool grows, we expected the mix to change. So our OR normally increases about 260 basis points sequentially from 4Q to 1Q. We're expecting in that 100 to 200 range that we outlined in our prepared comments. That's better than history, but also reflective of just the weakness that we see in the macro. So we continue to look at our costs and take action to adjust where we can. We want to improve efficiency without inhibiting growth when the market does turn. That's something we've done throughout our entire history. We've invested in labor planning tools that allow us to be very agile. And we're focused on the longer term and believe in the strategy and initiatives we outlined in Investor Day. Our pipeline has continued to strengthen. We gotta make sure that the business we bring on is profitable. So we're working through those opportunities where we provide the value at the right price and really, when I think about our company, we're built for any environment because we stay close to our customers, and that's the way we've built this company is to be responsive and say yes regardless of the market condition. So our customers continue to come with us, come to us with challenges. And, we're really focused on what's in our control. And we have good momentum with our initiatives pipeline, and we're ensuring we're positioned for growth now and in the future. Operator: Our next question comes from Jason Seidl from TD Cowen. Please go ahead. Your line is open. Jason Seidl: Hey, thanks, operator. Good morning, appreciate the time. Talk a little bit about the mix that you guys always seem to have going on. When can we expect that to sort of normalize so it's more of an apples-to-apples comparison? Or is this the new norm for you guys where you move around more than the typical LTL carrier in terms of your mix? Eddie Sorg: Yeah. Hey, Jason. This is Eddie. You know, mix has really been something, and you pointed it out, it's been something that's been driving our business for several quarters. Now really, it started, when you think about the freight recession, we're in our fourth year of that recession, and you know, our business is predominantly manufacturing, production, tied to the housing markets. And those three verticals have really been impacted. So, you know, what we're seeing from, you know, an opportunity set is that you know, does have some softness to it. And that trade out of that business for new business is really what's driving our mix. You know, we have a very disciplined price approach. It comes to really any opportunity. We look at each account one at a time, make the best decision we can for each account. We try to manage mix to the best we can to produce the most profit for our company, but some of it is really just back to the macro and what we're experiencing in that macro environment. So it's hard to predict when that will stabilize. But, you know, we're very committed to get the most out of every piece of business that we have to produce the profit that we want that supports our long-term targets. Yeah. Jason, I would add to that that our retention has been in a great place, but our customers are just simply producing less because of what Eddie mentioned there. So we feel great about our retention staff. We don't want to lose any customers. So we invested in an onboarding team and a retention team who's focused on keeping these customers on board. Because the longer-term relationships we have with customers generally the better pricing we achieve with those customers. And also, the housing market continues to be challenged with our UPAC business, and that impacts weight per shipment. No changes there on a year-over-year basis, but just something we're gonna continue to watch if housing improves. Operator: Our next question comes from Ravi Shanker from Morgan Stanley. Please go ahead. Your line is open. Ravi Shanker: Great. Thanks. Maybe just a clarification up top, kind of when you talk about the Jan trends, are you saying that they're relatively idiosyncratic to you guys just given your comps? Or do you think they're fairly industry-wide? And also maybe kind of broadly for the industry, have you noticed any change in the competitive dynamic, especially with kind of speculation that Amazon is gonna potentially open up as a third-party LTL carrier later this year? Thank you. Matt Beasley: Ravi, hey, Matt. So on the January dynamic, you know, what I would say certainly we're feeling the weather impacts that the rest of the industry is feeling. Maybe something that's maybe a little bit more specific to us is just that comp for January 2025 where as Seth mentioned, we had a little bit less of a mix of truckload-rated business in that month. Those tend to be heavier shipments that carry a lower revenue per hundredweight, but obviously a higher revenue per shipment. And that was really just specific to some dynamics that were in play in January 2025, and we're at a more normalized level in January 2026, don't really expect any changes on a go-forward basis. But it does influence the year-over-year comp. And then Seth already, I don't know if you wanna comment. Seth Runser: Yeah. On the competitor side of things, we're keeping an eye on what's going on. But, really, we focus on what's in our control. And, what we continue to hear from customers is they're still facing that general uncertainty around the impacts with tariffs and interest rates and just everything that's going on so the sentiment out there kind of remains cautious. But what we focus on is what we can control, as I've said, and that's our go-to-market approach as an integrated logistics company aligns well with what customers are talking to us about now. And that's why we've seen that double-digit growth in managed solutions. So we have a lot of opportunities because of the markets we operate in. We have a great potential to expand with our current loyal customer base. So we're paying attention to what's going on in the market. But we have a lot of opportunity within our control that we're focused on. Operator: Our next question comes from Reed Cielly from Stephens. Please go ahead. Your line is open. Reed Cielly: Hey, guys. Thanks for taking my question this morning. Hey, Rick. Know Mac has only been in there for about twenty-five days at this point, but I'm sure they've been busy twenty-five days. I wasn't sure if he shared any insights and maybe some priorities for him coming into Asset Light, given this is a big part of your guidance that you gave at the Investor Day. So just any insights that early insights he has there. Seth Runser: Yeah. Mac officially started a few weeks ago, as you mentioned, and he set the ground running. And he's actually in the room with us today, so I'll let him turn it over to him and give his thoughts on his first few weeks here at the company. Mac Pinkerton: Hey. Thanks, Seth, and thanks for the question, Reed. Only a few weeks here in here, and I would tell you right now, I'm more excited today than I was three weeks ago. I've had the great pleasure to work for a couple of companies. It's been around over a hundred years, and I think we all know how special that is. And what it takes is a company grounded in a fantastic culture focused on our customers, our employees, founded in innovation and creativity, and that's something that has been absolutely reaffirmed over the last few weeks. The urgency that this team has relative to improving our TSR is palpable. So excited to be a part of that. We've got competitive services and a really strong team. I think we all believe the market's gonna improve. Regardless of that, we gotta continue to perform and grow our business. I'm more confident after the three weeks I've been here that we'll meet our Investor Day target. And I'm looking forward to making the asset light business more meaningful in these discussions. Operator: Our next question comes from Jordan Alliger from Goldman Sachs. Please go ahead. Your line is open. Jordan Alliger: Yes. Hi. So I understand that things are still soft in the manufacturing economy. But, you know, as you think ahead for this year, do you see any signposts, whether it be from customers or your own internal thoughts that know, perhaps we could be at least on a stable and maybe a footing from an inventory standpoint, etcetera, that, you know, could lead to a little bit of freight movement on an industry level, not an idiosyncratic or best issue what you're doing, but just a broader improved health in the demand environment as we move through the year? Thanks. Seth Runser: Thanks, Jordan. This is Seth. I'll get us started and let Eddie chime in with any additional thoughts. But I've met with a lot of customers on the back half of last year, and then also I'll be meeting with quite a bit next week as well. So in the conversations I've had, our customers still are focused on cost reduction, operational efficiency, process improvement, and many customers are taking proactive steps to manage the uncertainty, including inventory repositioning, supplier renegotiations, moving their supply chain around, so some of the bright spots that we've seen in the LTL space there's been some discretionary retail sectors, food and beverage, recreational equipment. We've seen some bright spots there in truckload. We've seen that SMB growth that we talked about and we continue to see some promise there. Expedite life science continues to be strong for us and a growth opportunity. And then when you think about just information technology and everything that's going on around data centers, that's been another part of strength. So we haven't heard much from a demand standpoint in, in Matt's prepared remarks, he mentioned how our 2026 Investor Day targets didn't expect a great macro standpoint, but that's why we go to market the way we do as an integrated logistics company. Is so we can say yes to our customers. And that's what's allowed our pipeline to be in a great spot. That allows us to be selective about the freight we bring into the network. Our core business is growing. Managed solutions is up double digits. And, really, the opportunities are right in front of us until to somewhat what Max said in his previous comments, customers trust us. They look to us to navigate these uncertainties and that's why we've continued to see that growth that we've talked about. Eddie, I don't know if you have anything to add. Eddie Sorg: No. Seth, you covered this really well. I would probably just emphasize that you know, I don't know if it's really an industrial signpost that's out there, but our success with managed solutions just gives us a lot of confidence that we're gonna be able to continue to navigate through whatever the market ends up being this year. We're having great conversations. Our opportunity set is robust. And we're being successful helping our customers meet the demands of their supply chains. Operator: Our next question comes from Chris Wetherbee from Wells Fargo. Please go ahead. Your line is open. Chris Wetherbee: Maybe a two-part question here. So I guess, first, maybe broader comments on the competitive pricing environment and how you guys are seeing things shaping out here as we're moving early 2026. Obviously, industry volumes have been under pressure for a period of time. And then maybe specifically to kind of what you guys are doing from a strategy perspective around mix and volume growth. So 8% increase on the in January in terms of volume. I think the guide for the OR in LTL is probably about 200 basis points or so worse on a year-over-year basis. So I guess is there a level of volume at this mix that starts to become more accretive from a margin perspective? I guess, do you think about kind of refilling up the network after a couple of years of volume declines to get to the point where actually seeing positive incremental margins on that business? Seth Runser: Chris, this is Seth. I'll start on the pricing comment and then have Eddie chime in on the volume side of things. But when I look at our deferred contract renewals in the fourth quarter being up five. When you think about the third quarter, were 4.5%. In the second quarter, we were 4%. We've continued to strengthen our yield metrics. So as we continue to see success in growing core business, from those new customers that we talked about all last year, we see how it reacts operationally in our network, and then we make adjustments. So our strengthening has our pricing has continued to strengthen. As we've made those adjustments, and that's why you've seen the deferred numbers continue to improve throughout the quarter, and we expect that to continue throughout this year. So we remain disciplined and focused on profitable growth and making sure that we're getting paid for the value that we deliver to our customers. So we're gonna continue to stay focused on disciplined pricing. That's what we're seeing in the market right now as well as discipline among our competitors. But I want to point you back to the longer-term goals. And that is that we want to achieve our revenue per shipment growth outpacing cost per growth by 80 basis points per year and that's what we're striving to do. So we're making strategic investments. To improve the value that we deliver to customers to be able to command those increases. And I'm really excited about ArcBestView launching in the middle of the year. Because I think that's gonna be industry-leading in terms of visibility and ways to navigate your supply chain from that new customer platform. So we're very focused on it and make sure that we want to continue to get that value that we provide. And then, Eddie, on the growth side. Eddie Sorg: Yeah. Really, on the mix, again, we actively manage our business mix and profile to achieve the best results. You know, we haven't really changed our strategy on the amount of larger LTL shipments. Or transactional shipments. In fact, it's been very con you know, very from fourth quarter into the January. You know, we did have the issue or really the lower volume shipments in January 2025. I think that's really what you're seeing when you do a comparison to this January why that really jumps out. But no strategy change, and really, it's our jobs and yield to get the most out of whatever profile business mix that we have. And, we're seeing improvements in that as we go early this year and into 2026. Operator: Next question comes from Bruce Chan from Stifel. Bruce Chan: Thanks, operator, and good morning, everyone. Lot of conversation here about mix and, you know, especially the core business the dynamic now. Maybe just wondering if you can give us a sense for you know, what the mix or what the balance looks like between those two products in the network right now. And then maybe just a bit more generally, I don't think we've ever seen the transactional pricing tool or the dynamic pricing tool at work. In an upcycle, you know, just thinking through that scenario, maybe in a hotter market, is there an opportunity to see a pricing tailwind for business or even prioritize it over core? Seth Runser: Hey, Bruce. This is Seth. So our business is primarily core. We don't disclose the specific mix, between transactional and core. It fluctuates from time to time. But as Eddie said, there's no strategy change especially when we look at our sequential numbers there. So transactional business really helps us maintain consistency in the network and allows us to be positioned when the market turns. So our core business continues to increase. We feel great about our pipeline, and we have multiple wins throughout the business. So we're gonna continue to focus on that profitable growth and mix management. But what Eddie said, we optimize our mix on a daily basis and it's based on profit maximization based on the market prices and what available capacity is. So since launching Dynamic, our price per shipment has increased by 50%. We outlined that at Investor Day. So as that quote pool grows and you need the same amount of shipments in your network, generally, what happens is the price improves. Now to your point, we have not had dynamic pricing in a good market environment, but what we expect is our core business that we have good retention on the price will continue to improve on that business as customers just ship more and then we're able to have the dynamic actually because the market is better improve the pricing on that on that side as well. So the majority of our shipments are published. The dynamic mix has been consistent. And we think as the market improves, both sides are gonna benefit us. Eddie Sorg: Yeah. The only thing I would add, this is Eddie. You know, in an upcycle, we do believe that our core business you know, we would see growth in it, and that growth could come, you know, a little choppy at times. It could be big in certain markets. Especially driven by certain customers who are experiencing an upcycle, faster or harder than others. But you know, the great thing about dynamic is that's gonna allow us to really fill in our network where we need, smooth out that choppiness, and allow it to really optimize our profit even more. So we would love to have an upcycle with the amount of dynamic quotes that we have today. It would really lead to a more profitable situation for us. Operator: Our next question comes from Brian Ossenbeck from JPMorgan. Brian Ossenbeck: Hey, good morning. Thanks for taking the question. Just wanted to see, I guess, Seth, maybe how the operations are right now after the big storm up, and I guess maybe another one coming. But how has the recoverability been just operationally, and do you feel like there's some volume that's lost that's not coming back, or have you seen that start to come through after the disruptions? And then just maybe as well just to comment for the full year and maybe the next couple of years, what do you think about the footprint you have now? Obviously, the CapEx is coming down. It seemed like that's more or less equipment, but wanted to see how you're feeling about the door count. The positions you have in different markets, and how that might change for this year. Thanks. Seth Runser: Yeah. Thanks, Brian. I'll start with the weather question, then I'll turn it over to Matt to talk about door count and where we're at from a real estate standpoint. But we always have weather every year or natural disasters and our focus is on our people and making sure that they're safe. We communicate with our customers. We work through any potential disruption that we have. We did see more weather events in December than historically and that challenged productivity a little bit, but we navigated those events well. And serviced our customers with excellence. So the first three weeks of January, we were trending actually much better than last year because of the weather events last year. But the storm we saw this week was a very large one. In terms of service center impact, we think it's gonna be one of our worst Januaries in terms of service center closures. And the FMCSA actually issued a 40-state waiver that waived hours of service regulations, which speaks to just the size of the storm. So we dynamically adjust our network to optimize freight movement as part of just regular operations and we lean into those abilities during this time of disruption. We talked a lot about the tools we've invested in, and the past two winters, we've been able to use those tools to navigate it and better than any point in our history. So the investments we've made in recent years in expanding capacity in the network, optimizing our equipment and our fleet, that allows us to navigate these storms much more better. So we continue to communicate with customers to make sure that they know where we stand, as terms of restoring full network operations. The OR impact, it's baked into our guidance that we provided. The cost from that, we still have some potential costs as we're still kind of early stages on the cleanup. But we get winter weather every year. It's in our historical numbers, and we feel like we can outperform it with the tools we've invested in. I'll turn it over to Matt to talk about the real estate investments and where we sit from a capacity standpoint. Matt Beasley: Thanks, Seth. And just before I talk about on the real estate side, I want to echo Seth's comments from earlier and really thank our people for their dedication and efforts during these significant times of disruption. As Seth said, we really prioritize safety and our teams have done a tremendous job over the last week at keeping our people safe, communicating with our customers, and working to restore normal operations so we can deliver a premium and efficient service for our customers. So as we've talked about over the last year, we've added nearly 800 doors to our real estate network, and we feel really good about where we're at from a capacity standpoint. I'm excited that we have a couple of projects that are wrapping up here as we move throughout the first quarter. Specifically in Denver, that will add significant capacity in that market for growth. And provide us a better operational standpoint to operate within that market. So we've been able to be very strategic over the last few years with our investments, and those have been a mix of organic builds and new builds in our network and also taking advantage of real estate opportunities in the market. And so just to kind of come back to that, we feel really good about the capacity. We feel really good about what that's done to provide opportunities for growth with our customers. Allow us to be more efficient. And we'll continue to evaluate opportunities as they arise and be strategic with the investment that we make so that we can put ourselves in position for further growth. Operator: Our next question comes from Stephanie Moore from Jefferies. Stephanie Moore: It may be touching a little bit on the AI initiative and other productivity investments that you've made over the last several years. Just wanted to think about it on both an asset-based and asset-light side. If you know, how you're thinking about leveraging those investments in a recovery, and are you approaching an upcycle differently based on those actions? Thanks. Seth Runser: Thanks, Stephanie. This is Seth here. I want to start with mentioning how we have a very talented internal tech team spend dedicated time researching innovations, testing them, to see what's gonna have the biggest impact on our business. And customers need us to run our business efficiently, and we see AI as an option to make that happen. So we see tremendous potential around automating processes, with human-assisted interactions. And although technology is important, and we're gonna talk about it quite a bit, we've always been a tech-forward company. People are who make it happen. So having our people at the center of everything is really important to me. I mentioned a lot of examples in my prepared remarks of projects that we're working on and potential benefits. We're early stage in a lot of that. I view 2025 more of a as a foundational year from an AI perspective. We're gonna continue to evaluate where AI makes the most sense, as well as any technology. Ultimately, first, you have to understand the processes. And then if the processes are right, you use AI to improve them, and you also have to make sure your data's in a good spot. So we invested in our data team back in 2018. And having good data is a strategic advantage for us. And that's why we outlined what we did on our technology roadmap at Investor Day. So and all of our AI initiatives aren't managed separately. They're part of every single initiative that we have. So you think about everything that we've done, for asset light, asset-based from an AI perspective, I think that's only gonna accelerate. Ultimately, what that does is it allows us to scale without adding the incremental cost. When the market does come back. So I feel like we continue to make progress there, but we're still early stages on a lot of this. Many of the examples I gave in my prepared remarks were in the pilot stage. And we're looking forward to a full rollout as we move into 2026. Operator: Our next question comes from Tom Wadewitz from UBS. Please go ahead. Your line is open. Tom Wadewitz: Yes. Good morning. So I guess I'll maybe just give you two questions. So one would just be on pricing dynamic in the market. I think you talked about that pricing that you're realizing that's gotten a bit better the last couple of quarters, which is great. But you think the competitive environment in LTL is pretty stable, maybe similar to where it was a year ago, or you think it's getting a little bit tougher as you're later into a downturn? And then maybe just I'd if it's okay, I'll maybe ask another one of Max just whether he has any kind of high-level thoughts on how asset light competes, you fit in the market, how you know, what might be good leverage for growth. Thank you. Eddie Sorg: Hey, Tom. This is Eddie. Yeah. I mean, from a comparison standpoint, I wouldn't characterize really what we're seeing right now really any different over the last year. I mean, pricing discipline remains rational within the market. We actually have seen a little less bid activity from customers which actually, to me, is a good sign. You know, I think last year, that was pretty robust. And every time a customer went to bid, it did kind of create an open market, which allowed new carriers to come in to go after some business which usually they're more aggressive than incumbents who are looking to improve price, to cover, you know, cost increases. But recent bid data tells us that it's actually slowing down. So that's an encouraging part to me. You know, obviously, you know, what we're what we're what we try to do from our perspective is you know, really be disciplined with all of our decisions. We evaluate every opportunity on its own merits. And we're looking to get the right price for the value that we're offering our customers. So from a market standpoint, feel good like the market's still rational, and nothing's really changed there. And I'll let Mac talk about the asset light side. Mac Pinkerton: Hey. Good morning, John. What I would say just from the outside looking in in three-week perspective of being here is that you know, one of the things I've recognized is that when you think about our asset light business, specifically our managed solutions, is on a growth trend that's far outpacing the marketplace. And I think this team has done a really nice job over the last number of years to build a strong foundation in this space. So when I think about our managed solutions that has really a fully integrated approach to third-party services in the marketplace. We're outpacing a lot of our competitors. I feel really good about that. From a services perspective, when I think about LTL brokerage, truckload brokerage, our intermodal business, our global forwarding business, we're at different points of journey within each one of those services. Each one of them approaches the market a little bit differently, so it's hard for me to say we're gonna have a singular approach to that. But I feel really good about how we're positioned in the market. Over the last year, this team has invested fairly significantly within the SMB space. And year to date, we're exceeding our expectations from a per person perspective, from a productivity standpoint. And certainly across the team. So when I think about our managed business outpacing in that mid-market area and then the investment of SMB and how that's facing. You know, to achieve breakeven in 2025. Gives us a really strong foundation to build upon as we move forward. Operator: For any additional questions, please press star followed by 1. Our next question comes from Ari Rosa from Citigroup. Please go ahead. Your line is open. Ari Rosa: Yes. Hi. Good morning. So I'm curious about the longer-term outlook. In the slide deck, you mentioned reaffirming the 2028 financial targets. Specifically the EPS of $12 to $15. You mentioned also that 2026 doesn't really anticipate much improvement in the market. So I'm just hoping, obviously, as we look to the back end of 2026, we're gonna be closer to 2028, right, only two years out. Help us understand, like, where that inflection comes and where that real acceleration in EPS growth kind of hits and how you see that playing out. Like, what is it that inflection? How much of that is dependent on the macro? Much of it can be achieved kind of through self-help initiatives, and kind of what's the timeline for us to start to see that flow through to EPS? Thank you. Seth Runser: Yeah. Thanks, Ari. This is Seth. We have confidence in our long-term view and the targets we outlined at Investor Day. As we mentioned in 2026, we don't see a lot of improvement from a macro standpoint. But we didn't expect that in our targets that we set out. So now lower interest rates could potentially help us clarity over tariffs, the tax bill. There's a lot of different things going on. From the demand standpoint. But also on the supply side, we could see some changes there as well. So we saw sequential increases in PT during the fourth quarter. You've seen all the stories about enforcement actions around ELP and also this what's going on with nondomiciled drivers. But I would say despite the environment, we're gonna continue to focus on what we can control in the initiatives we outlined in Investor Day around our three strategic pillars of growth, efficiency, innovation, but we expect to continue to accelerate on those initiatives as we move through. In Investor Day, we outlined some potential upside if the macro does improve. And Matt can chime in on those next after me. But we see a lot of areas of opportunity ahead of us. Growth, we can continue to see our pipeline improve and we think that's going to translate. Mac just mentioned the double-digit increase in managed. If you remember what we talked about, managed feeds our other service lines as well. So as managed grows, we grow LTL. We grow our truckload offering. We grow expedite. And then as we improve the value we deliver to our customers, that generally allows us to improve price, which speaks to that. Revenue per shipment outpacing cost per shipment by 80 basis points. Then the productivity initiatives that we've mentioned throughout this call and in our prepared remarks we continue to see benefits asset light at an all-time high in productivity, and a low in SG&A cost per shipment. So expect to continue to make advancements on our strategy, and we believe in the long term where we're gonna ultimately end up to achieve these targets. Matt Beasley: Yeah. Ari, this is Matt. I think Seth covered it well. As we laid out at Investor Day, a lot of our targets were built on things that were in our control. Cost, productivity, yield. Certainly, you see the results in 2025 on all of those fronts. You know, like we talked about when we were contemplating our 2028 targets, we weren't really looking at a significant macro improvement in 2026 as we were building those models, and, you know, we continue to feel good about how we're positioned for 2028. Certainly, a lot of momentum across the business. I'm excited about how we're leveraging technology. Exciting about continuing to accelerate on the asset light side. Certainly very pleased with the result that we saw in the year-over-year improvement in the asset light business in 2025. Lot of projects ongoing around the asset-based business that are continuing to show great results. And so again, really feel good about executing on everything that's within our control, which was the biggest driver of 2028. And know, we do expect some macro improvement as we exit 2026 and move forward towards 2028. Operator: Our last question comes from Cole Kuzins from Wolfe Research. Please go ahead. Your line is open. Cole Kuzins: Hey, guys. Thanks for taking my questions. Just to hit on 1Q guidance, given the comp dynamic through the quarter, what are the embedded tonnage and yield assumptions in the 100 to 200 basis points of OR deterioration? And maybe just remind us what your typical OR seasonality is into 2Q? And given the storm dynamic, is it fair to think that we might be able to outperform that this year? Matt Beasley: Hey, Cole. It's Matt. So as we look at the first quarter and just where we see the projection going, certainly, like we talked about, there's some dynamics that have been in play in January. And so overall, we would expect the tonnage the tonnage was up eight percent in January, I think, you're going to see that moderate as we look at the full quarter. Still up and still up relative to history. But something lower than the 8%, probably more in the 4% to 5% range. Overall, we expect to continue to see shipment per day growth on a year-over-year basis as we continue to move through the quarter. Again, just some of the comps back to the fourth quarter are helpful as we're thinking about, you know, being able to achieve the one to two hundred basis points guide of OR increase versus the historical around two fifty, two sixty basis points. As we look forward from the first quarter to the second quarter, we feel good about how we're positioned, all the yield and productivity initiatives continuing to come to bear across the business. But probably too early to be specific about what we're expecting at this point in time. Operator: We have no further questions. I would like to turn the call back over to Amy Mendenhall for closing remarks. Amy Mendenhall: Thanks to everyone for joining us today. We certainly appreciate your interest in ArcBest. Hope everyone has a great day. Thanks. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to the Brookfield Business Partners Fourth Quarter 2025 Results Conference Call and Webcast. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, simply press 11 on your touch-tone phone. Now, I'd like to turn the conference over to Alan Fleming, Head of Investor Relations. Please go ahead, Mr. Fleming. Alan Fleming: Thank you, operator, and good morning. Before we begin, I'd like to remind you that in responding to questions and talking about our growth initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, I encourage you to review our filings with the securities regulators in Canada and the US, which are available on our website. We'll begin the call today with Anuj Ranjan, our Chief Executive Officer, who will provide an overview of the year and an update on our strategy. Anuj will then turn the call over to Adrian Letts, Head of our Global Business Operations team, to share some observations on the global operating environment and progress we've made on our value creation plans. Jaspreet Dehl, our Chief Financial Officer, will then discuss our financial results for the year. After we finish our prepared remarks, the team will be available to take your questions. I'd now like to pass the call over to Anuj. Anuj Ranjan: Thanks, Alan, and good morning, everyone. Thank you for joining us on the call today. 2025 was an excellent year for Brookfield Business Partners L.P. and the execution of our strategy to continue compounding value for our shareholders. Over the past year, we generated more than $2 billion of proceeds from capital recycling, repaid roughly $1 billion of our corporate borrowings, invested $700 million in four growth acquisitions, and we purchased about $235 million of stock at a significant discount to intrinsic value. We also delivered strong underlying financial performance, driven by the continued execution of our value creation plans, which Adrian will get into more later. In addition, we're close to completing our corporate reorganization, which will result in us being a single newly listed corporation. This is a big change, and we think that it will improve our trading liquidity, double the index-driven demand for our shares, and make it easier for investors globally to invest in our business. We received the required unit and shareholder approvals earlier this month, and we're on track to complete the conversion over the coming weeks, pending final regulatory approval. Stepping back, we created our business about a decade ago with a simple purpose: to provide public market investors with access to Brookfield's global private equity capabilities, which has compounded value at exceptional rates for over twenty-five years. The strategy is straightforward. We find great businesses, we buy them for a reasonable value, and we execute on our operational plans to improve performance. More than half of the value we have historically realized has come from improving the businesses we own. In a world where returns can no longer depend on falling rates, cheap financing, or multiple expansion, our approach to operational excellence matters more than ever. This is the environment that our business was built for, and two forces are accelerating demand for that strategy. First, deglobalization is reshaping supply chains, causing businesses to rethink sourcing, manufacturing, and distribution strategies, which require both capital and significant change management expertise. Just to illustrate this, CapEx in US manufacturing has grown from $50 billion in 2020 to nearly $250 billion in 2025. At the same time, AI is reshaping industrial and essential services businesses, not just technology platforms behind the models. The beneficiaries will be those who can implement tools to automate processes, reduce costs, address labor shortages, and transform analog systems to digital operations. The opportunity is massive. The constraint is not technology; it's experienced operators who can implement real change and properly transform. That is where we stand apart. Our integrated operating model, combining investment capabilities with decades of operating expertise and leveraging the power of the $1 trillion Brookfield ecosystem, has underpinned our returns for decades and will continue to differentiate our approach to value creation. It's an exciting time for Brookfield Business Partners L.P. The market backdrop for what we do is as attractive as it has been in years, and the value proposition for our investors is as strong as ever. First, our trading price is 50% higher than it was a year ago, but still at a material discount to NAV, which continues to grow. Second, we own market-leading providers of vital products and services, which underpin the durability of our cash flows. And lastly, every dollar that is recycled is reinvested by the same Brookfield team, which has compounded capital at exceptional rates for decades. We made great progress over the past year and are well-positioned with the capital and capabilities to continue building value in 2026. With that, I'll turn it over to Adrian for an update on the operating environment and the progress we're making on our value creation plans. Adrian Letts: Thank you, Anuj, and good morning, everyone. Starting with some observations on the operating environment, while select regions and sectors continue to have challenges, the overall backdrop remains relatively stable. In North America, conditions are benefiting from easing rates, steady consumer spending, and resilient labor markets. Demand is holding up, although near-term growth is still hard to come by in certain end markets where sentiment and the pace of capital spending remain more measured. Longer-term structural trends around reshoring, automation, and the repositioning of critical supply chains are taking hold as businesses respond to evolving trade policy and geopolitical uncertainty. In Europe, conditions are more challenging. Activity has been slower in some cyclical and industrial end markets, including construction and certain more CapEx-sensitive manufacturing segments where customer decision-making remains slow. That said, we're seeing some early signs of improvement supported by increases in fiscal spending in countries like Germany, stabilizing energy prices, and more accommodative monetary policy across most parts of the region to promote growth. As you know, we have teams on the ground across all the regions we operate, deeply embedded within our businesses, focused on implementing our operating playbook, working closely with our management teams to advance our core value creation plans. One of the best examples of our approach in action is Clarios, which is coming off another record calendar year of performance. Since our acquisition, underlying annual EBITDA has increased 40% or almost $700 million, and we see a path to a similar level of growth over the next five years as the team continues to execute. We're working closely with management on initiatives to strengthen operational efficiency, enhance Clarios' pricing and commercial strategy, and push forward the innovation of new product technologies. At the same time, to meet the growing demand for high-performance advanced batteries, the business is investing to expand its enhanced recycling and critical mineral recovery capabilities and accelerate its state-of-the-art manufacturing capabilities, all supported by strong cash generation and US manufacturing tax credits. We've also made excellent progress over the past year at Nielsen, our audience measurement operation. Since our acquisition, the business has executed about $800 million of cost savings, including over $250 million achieved in the past year, increasing EBITDA margins by more than 350 basis points. Most of the improvements have been driven by organizational simplification, automation, and reduction of third-party spend. On the back of the strong performance, the business recently completed two refinancings, which combined with the debt paydown will result in about $90 million of annual interest savings. The team at Dexco has done great work to manage through weak end market conditions. While overall volumes are down for the year, full-year EBITDA was up low single digits, and margins have held up in line with levels at acquisition, driven by our continued focus on cost optimization, commercial execution, and productivity improvements. It's still early days, but we're cautiously optimistic that volumes are stabilizing with new business wins, positioning Dexco well for a broader market recovery when it comes. Outside of North America, performance at Network, our Middle East payment processor, is tracking in line with our expectations. Over the past year, the team has driven meaningful operational improvements, upgrading the core technology platform, optimizing the cost base, improving Network's e-commerce offering, and expanding value-added services, particularly around data analytics, fraud, and loyalty solutions. We've also strengthened the leadership team, made significant progress on combining the business with our legacy payments processing operation in the region, and closed an add-on acquisition driving both operational and scale efficiencies to position the business for its next phase of growth. We've been busy over the past year and are encouraged by the momentum we're seeing across our businesses. Execution has been strong, and our value creation plans are progressing well. Where we are seeing weaker end market conditions, our teams have leaned in to protect margins and strengthen cash generation to ensure we're best positioned for when conditions improve. With that, I'll hand it over to Jaspreet for a review of our financial results, and I'll be available for questions. Jaspreet Dehl: Thanks, Adrian, and good morning, everyone. We generated full-year adjusted EBITDA of $2.4 billion compared to $2.6 billion in 2024. Current year results reflect the impact of lower ownership in three businesses following the partial sale of our interest and include $297 million of tax credits compared to $271 million in the prior year. Excluding the tax credits and the impact of acquisitions and dispositions, adjusted EBITDA in our Industrial segment generated full-year adjusted EBITDA of $1.3 billion compared to $1.2 billion last year. Excluding the impact of acquisitions, dispositions, and tax benefits, segment performance increased by 10% compared to the prior year. Results benefited from strong performance at our advanced energy operations driven by the favorable mix of higher-margin batteries and strong commercial execution. Performance of our engineered components manufacturer increased over the prior year, supported by margin improvement initiatives and commercial actions, despite weak end market conditions. Moving to our Business Services segment, we generated full-year adjusted EBITDA of $823 million compared to $832 million last year. On a same-store basis, adjusted EBITDA increased by approximately 5% over the prior year. Results at our residential mortgage insurer during the year reflect the timing impact of slower revenue recognition under the IFRS 17 accounting standard given uncertain Canadian economic forecasts. Volumes of new insurance premiums increased during the year, reflecting the benefit of new mortgage insurance products which have expanded the market and helped improve affordability in an otherwise soft Canadian housing market. At our dealer software and technology services operation, stable renewal activity and commercial initiatives year. Results reflect the sale of our offshore oil services shuttle tanker operation and a $14 million impact related to the sale of a partial interest in our work access services operation earlier this year. Improved margins and the ongoing ramp-up of recent commercial wins at our lottery services operation were offset by the impact of lower terminal deliveries and hardware sales during the year. The business continues to execute on a strong pipeline of new commercial opportunities, including the recent full rollout of its UK digital service offering. Our modular building leasing services operation was impacted by lower activity levels and fleet utilization, which was partially offset by continued growth of value-added products and services. Turning to our balance sheet and capital allocation priorities, we ended the year with approximately $2.6 billion of pro forma liquidity at the corporate level, including the fair value of units we received in exchange for the sale of a partial interest in three businesses to a new Brookfield Evergreen Fund last year. During the quarter, $87 million of the units we received were redeemed. We came into 2026 with a strong liquidity position and significant flexibility to support our growth and balanced capital allocation priorities. Credit markets remain quite constructive, and we completed more than $20 billion of financings over the past year across our operations, extending maturities, improving term, and reducing the cost of refinanced borrowings by over 50 basis points. Finally, to date, we've repurchased approximately $235 million of our units and shares at an average price of approximately $26 per unit and share. We remain committed to completing our $250 million buyback program, and beyond that, we will be opportunistic with respect to further repurchase activity. With that, I'd like to close our prepared remarks and turn the call back to the operator for questions. Operator: Please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment, please. And our first question comes from the line of Devin Dodge with BMO Capital Markets. Devin Dodge: Yes, thank you. Good morning. I wanted to start with a question on 45x tax credits. As they start to come in, should we look at that as being a bit of a tipping point for when Brookfield could get more front-footed on monetizing that business? Or are there other factors that we should be thinking about? Jaspreet Dehl: Hi, Devin. It's Jaspreet. Look, Clarios is an incredible business. It's a global champion industrial business that doesn't come around very often. The business is generating a lot of free cash flow today, and the 45x credits just add to that cash and kind of reinvestment into further growth for the business. So we've got a lot of optionality around the business. And, you know, getting proceeds up to shareholders, whether that's doing distributions, doing some kind of monetization event, there's a lot of optionality when you've got such an incredible business. So, you know, we're constantly thinking about that, whether it's Clarios or any of our mature businesses. Like, how do we get cash and distributions back up to shareholders, and you know, that'll be a focus for us. Devin Dodge: Okay. Makes sense. Jaspreet, do you have line of sight for when those production tax credits should start to be received? And would you ever consider selling these credits to third parties to pull forward the timing? I think we've seen that from some others, or are the discounts for that too steep right now? Jaspreet Dehl: So, look, we've filed a return. It's being processed. We feel really good about the qualifying. You know, we had third-party independent advisers verify everything, and we feel very good about qualifying and getting these credits. The timing is hard for us to predict, but we do know that it's being processed. And, in due course, we should receive it. So I'd say from that perspective, you know, we feel good. When we applied for the credit, we had a choice between getting cash back or getting it in a form that's transferable. And for the 2024 credits, we did choose to get cash back. So at this point, we're not looking to sell the credits, and, you know, we should, in due time, get the cash from the IRS. Devin Dodge: Okay. Good color there. Thank you. Maybe just switching over to Scientific Games. I thought it was actually encouraging to see the sequential pickup in earnings this quarter. Just wondering if you feel the business has passed an inflection point where it's on an earnings growth trajectory from here, or were there developments in Q4 at least versus Q2 or Q3 that were more of a one-time benefit that should temper the enthusiasm. Adrian Letts: So, look, I think the first thing to say is we're very pleased that the market launch in the UK has gone successfully last week. You are starting to see the benefit of crystallization in earnings of the pipeline. We still continue to see a relatively strong pipeline for this business. But, you know, to manage expectations, it takes anywhere between six to twelve months for earnings to come through. We remain very positive about the business. We think there's a strong market. The business has a very strong market position. But the outlook, we're cautiously optimistic. Devin Dodge: Okay. And then maybe just one last one. On Scientific Games, we saw that there was a credit rating downgrade this month. Just for you, how do you think about the balance between the need to reduce leverage and pursuing growth in that business? Jaspreet Dehl: Look, if you can grow EBITDA, that reduces your overall leverage levels. And, you know, our thesis when we bought this business was twofold. We thought, as Adrian said, the business has an incredible market position. They've got a good team that could go after contracts, win these great contracts, and we saw the ability to really grow this business both in the US and globally. Both in kind of the instant gaming, but more importantly, the digital side. So that continued growth and focus on the growth and increasing EBITDA should naturally kind of delever the business. And then in addition to that, you know, as we move forward, with free cash flow and as we start thinking about monetization and what that path looks like, we can decide where we use free cash flow, whether it's to pay down debt or other purposes. But growth is a really important lever to hit our original underwriting and the investment thesis on this business. So we are focused on that. And maybe the other thing I'd say is that this is a fairly stable business, you know, contracted revenues. It generates a stable level of free cash flow and is more than equipped to service the debt that's in place. So we don't have any issues around that. And in the fullness of time, the business will naturally delever. Devin Dodge: Okay. Great comments. I'll turn it over. Thank you. Operator: And our next question comes from the line of Gary Ho with Desjardins Capital Markets. Gary Ho: Thanks. Good morning. Maybe just going back to Clarios for a sec here. I recall there was an insurance contract arranged. Just wondering if you can remind me how that works. If the check payment is a bit delayed, is it by a certain time that Clarios would get a payment? Just curious if you can provide a bit more detail on that. Jaspreet Dehl: Sure, Gary. It's Jaspreet. So like I said, you know, we feel really good that we qualify under the regulations, and we will receive the 45x credits. We got third-party advisers involved to verify and support our claim. So we do believe in due course, we will get paid through kind of the normal channels. When we filed the return, just given some of the overall changes that were taking place in the government, we had insured a substantial amount of the credit. And, look, if we don't end up getting paid through the IRS, then, you know, we'll have to go through the insurance claim channel. But, at this point, we feel really good that we will get paid out. But there is kind of the backup of the insurance if we don't receive payment from the IRS. But we have to kind of wait to see what they come back with before we do anything on the claim. Gary Ho: Okay. Got it. And then my second question, maybe moving on to the discussion on the monetization environment and outlook. So outside of the Evergreen Fund, maybe can you talk about some of the mature assets like BRK and Latrobe? Yeah. I think public market multiples are pretty healthy today. Just wondering if you can comment on the IPO environment as well. Anuj Ranjan: Yeah. It's Anuj here. I'll take that one. So look, the environment is strong generally around the world, and capital is available for monetizations or realizations. For us, we review our portfolio on a regular basis, and we try to prioritize businesses where we've completed our value creation plans and we can realize the full and right value for the business, derisking it. And so you hit on two that are definitely in that category. BRK, I'd say in Brazil, the IPO markets kind of open up every so often. They seem to be opening up again right now. Interest rates feel like they have peaked, and the BRK business has been performing exceptionally well, with double-digit growth and actually winning even some new concessions very recently. So, it feels like the right time for a listing of BRK, and it's something that we're, you know, very strongly evaluating and continuing to make progress on. Separately, on Latrobe, again, an amazing business that has done extremely well in our ownership. We really pivoted the business from more of a nonbank model to a fixed income asset manager, which gets more of a premium in terms of valuations. As you know, there was a regulatory notice that was dealt with and resolved. The business has had inflows come back very strongly. So we're sort of reengaging now with parties that could lead to some sort of return of capital in the future, and I'd say all options are on the table. Gary Ho: Okay. Anuj, thanks for those comments. Appreciate it. And then maybe I can sneak one more in. Just on the buyback, Jaspreet, I think you mentioned you're $235 million into your $250 million NCIB program. Stock still trades below your $54 NAV. How should we think about your commitment to renew this buyback this year? Jaspreet Dehl: So the stock's done incredibly well this year, as Anuj mentioned in his opening comments. And we're happy about that. But it still continues to trade below our view of intrinsic value. You know, we're committed to completing our $250 million buyback program. And, you know, we did renew the NCIB in August, and we've got quite a bit of capacity under the NCIB. So beyond the $250 million program, you know, we'll continue to be opportunistic as we always are. And where we see opportunities to buy back at a material discount to intrinsic value, we'll continue to be active. We're also balancing our capital allocation priorities between buybacks and continuing to pay down corporate lines and in kind of further growth of the business. Gary Ho: Okay. Great. Thanks for taking my questions. Over to you. Operator: Thank you. And our next question comes from the line of Bart Dziarski with RBC Capital Markets. Bart Dziarski: Hi, good morning. Thanks for taking the questions. I wanted to ask around CDK, if you could just kind of give us an update. I think you talked about some retentions and new bookings. So any additional color you can provide on just how operations are going there? Adrian Letts: Thank you, Bart. It's Adrian. I'll talk to that. So as you know, we're continuing to invest in modernizing the tech stack and the product proposition, and some of that cost will continue to come through as we go through 2026. The focus of the business is very much adoption and increasing the adoption of the new technology that we're rolling out, which is helping to stabilize churn. Renewal activity has been strong, including, we won a large multisite dealership extension. And the focus of the team has really been on solidifying customer relationships and extending contract duration. Another half of the contracts now have a duration of three years plus. The business has a very strong market position, a very strong product, and we remain very positive on the business and its longer-term outlook. Bart Dziarski: Okay. Great. And then just following up on the attractive kind of market backdrop. So we talked about monetization, but any thoughts you can provide in terms of deployment? It's a pretty healthy year last year, I think, $700 million or so. Like, how should we think about the pacing of deployment this year as you try and take advantage of the environment? Anuj Ranjan: Yeah. Look. I'd say, if I look back, it's Anuj here. Sorry, Bart, and look back on 2025, it was quite a strong year. And we were able to make several acquisitions of the kinds of businesses that we want to own at the values at which we want to acquire them. And the performance, while early, is quite strong. So I'd say going into '26, it feels like we'll continue with that momentum. And, you know, the team is working on many different opportunities, things that we consider right down the fairway similar to what you've seen us do in the past. And there are some exciting opportunities that I think are coming up ahead. I think it'll be a very active year. Bart Dziarski: Great. Thanks, Anuj. That's it for me. Operator: Thank you. And I'm showing no further questions. So with that, I'll hand the call back over to management for any closing remarks. Anuj Ranjan: Thank you all for joining us, and we look forward to speaking with you again next quarter. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Gentex Reports Fourth Quarter and Year End 2025 Financial Results. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. To ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11. I would now like to hand the conference over to your speaker today, Josh O'Berski, Vice President of Investor Relations. Thank you. Good morning, and thank you for joining us today for our Josh O'Berski: fourth quarter and year-end 2025 earnings conference call. I'm Josh O'Berski, Gentex Vice President of Investor Relations. And with me today are Steve Downing, President and CEO; Neil Boehm, COO and CTO; and Kevin Nash, Vice President of Finance and CFO. Note that a replay of this conference call webcast along with edited transcripts will be available following the call in the Investors section of our website at ir.gentex.com. As a reminder, many of the statements made during today's call are forward-looking statements that reflect our current expectations. These statements are subject to a number of risks and uncertainties, both known and unknown, including those detailed in our press release from this morning, and our annual report on Form 10-Ks for the year ended 12/31/2024, as well as general economic conditions. If one or more of these risks or uncertainties materialize, or if our underlying assumptions or estimates prove to be incorrect, actual results could differ materially from those expressed or implied in our forward-looking statements. I will now hand the call over to Steve Downing for our prepared remarks. Thank you, Josh. For 2025, the company reported Steve Downing: consolidated net sales of $644.4 million, an increase of 19% compared to net sales of $541.6 million for the fourth quarter of last year. VOXX contributed $103.4 million of revenue during the fourth quarter, and the core Gentex revenue was $541 million. While core Gentex revenue was essentially flat compared to the fourth quarter of last year, our performance within our primary markets was notably stronger. Revenue in these regions grew approximately 3% compared to a 2% decline in light vehicle production, representing a five-point outperformance relative to the underlying market. Sales into China totaled $34.5 million for the quarter, down 33% from last year due to the impact of tariffs. The consolidated gross margin in 2025 was 34.8% compared with a gross margin of 32.5% in the fourth quarter of last year, which did not include VOXX. The core Gentex gross margin was 35.5%, representing a 300 basis point increase compared to last year, and is the highest gross margin since 2021. The increase in gross margin was the result of favorable product mix, operational efficiencies, and purchasing cost reductions partially offset by tariff-related costs. The steady improvement in gross margin reflects the company's disciplined focus on cost control, productivity, and execution. Over the last two years, we established and announced a target of getting back to the 35% to 36% gross margin range, and the team has accomplished this goal through unbelievable grit and determination despite the external headwinds. It is also interesting to note that the gross margin improvement was partially offset by incremental tariff-related costs, which reduced gross margin by approximately 150 basis points versus last year. Consolidated operating expenses during the fourth quarter were $104.4 million compared to operating expenses of $86.5 million in the fourth quarter of last year. The increase was primarily due to the VOXX acquisition, which accounted for $24.6 million of the increase. The core Gentex operating expenses included $800,000 in Gentex-specific severance expenses. Over the last year and a half, the company has been focused on expanding the gross margin as well as improving our operating cost structure. This effort included early retirement programs aimed at decreasing headcount and reduced third-party spend to lower ongoing operating expenses while making sure our key technology and product initiatives continue to move forward. Consolidated income from operations for the fourth quarter was $120.1 million compared to income from operations of $89.8 million last year, which did not include VOXX. Core Gentex income from operations was $112.5 million, a 25.3% increase versus the fourth quarter of last year. Total other loss was $8.7 million during the fourth quarter compared to other income of $8 million last year. Last year's gain was from a fair value adjustment of our original investment in VOXX. During the fourth quarter, the company had an effective tax rate of 16.3% compared to an effective tax rate of 10.3% last year. The increase was driven by lower tax benefits related to stock-based compensation, as well as a reduced benefit from the foreign-derived intangible income deduction. Consolidated net income was $93 million, compared to $87.7 million in the fourth quarter of last year. Earnings per diluted share in the fourth quarter were $0.43 compared with earnings per diluted share of $0.39 last year, which did not include VOXX. For calendar year 2025, the company's consolidated net sales were $2.53 billion, an increase of 10% compared to net sales of $2.31 billion in calendar year 2024. The consolidated revenue includes nine months of VOXX-related revenue. Core Gentex sales were $2.27 billion for the year, a 2% decline versus last year, primarily driven by lower demand for the company's exports into the China market due to tariffs. In the company's primary regions, revenue increased by approximately 1% despite a 1% decline in light vehicle production. For calendar year 2025, the consolidated gross margin was 34.2% compared to a gross margin of 33.3% last year, which did not include VOXX. The core Gentex gross margin was 34.7%, a 140 basis point increase compared to last year. Gross margin improvements were the result of purchasing cost reductions, operational efficiencies, and favorable product mix, which were partially offset by tariff costs that were not reimbursed during the year. The gross margin expansion was exceptional, especially when considering that the 140 basis point gain was achieved despite lower sales and new tariff-related headwinds that were not fully offset during the year. For the year, consolidated operating expenses were $392.8 million. Core Gentex operating expenses were $318.5 million in comparison to $311.4 million last year. Core Gentex's operating expenses this year also included $10.4 million in Gentex-specific severance expenses. VOXX operating expenses were $74.3 million from April through year-end. Total other loss was $12.9 million for 2025, compared to other income of $12.5 million last year. For calendar year 2025, the company's effective tax rate was 16.6% compared to an effective tax rate of 14.3% last year. The rate increase was driven by reduced tax benefits related to stock-based compensation as well as a lower benefit from the FDII deduction. Consolidated net income for calendar year 2025 was $384.8 million compared to income of $404.5 million last year. Earnings per diluted share this year was $1.74, compared to earnings per diluted share of $1.76 last year. I will now hand the call over to Kevin for further financial details. Thanks, Steve. Kevin Nash: Gentex Automotive generated $527 million in net sales during 2025, compared to $531.3 million in 2024. Despite a 3% quarter-over-quarter decline in auto-dimming mirror shipments. For the full year 2025, Gentex Automotive delivered $2.22 billion in net sales, compared with $2.26 billion in 2024, even as auto-dimming mirror shipments declined 6% year-over-year. This performance highlights the company's ability to sustain strong revenue levels driven by ongoing content expansion. In our other category, which includes dimmable aircraft windows, fire protection products, medical products, and biometrics, fourth-quarter net sales were $13.3 million, up from $10.3 million in the prior year. And for the full year, other net sales were $51.1 million compared to $48.6 million in 2024. VOXX contributed $103.4 million in net sales during 2025, $267.2 million for the nine-month period from April 1 through December 31. The fourth quarter reflected expected seasonal and sequential increase tied to holiday period demand. And post-acquisition integration remains on track. Steve Downing: With product strategies aligning Kevin Nash: customer engagement strengthening, and operational synergy efforts progressing across the combined businesses. Turning to capital allocation. We repurchased 3.8 million shares in the fourth quarter at an average price of $23.43. And for the full year, we repurchased 13.6 million shares at an average price of $23.48. Steve Downing: Totaling $319 million. We entered the year ended Kevin Nash: ended the year with 35.9 million shares remaining under our repurchase authorization. Turning to the balance sheet. Our comparisons today are based on 12/31/2025, versus 12/31/2024. Starting with liquidity, cash and cash equivalents were $145.6 million, down from $233.3 million at year-end 2024. This decline was primarily driven by the acquisition and share repurchases partially offset by operating cash flow. Short-term and long-term investments totaled $278.3 million compared to $361.9 million at the end of 2024. Accounts receivable, at $368.5 million compared to $295.3 million at year-end 2024. Of that, $390.6 million was Operator: attributable to Gentex. Steve Downing: And $77.9 million to Kevin Nash: Inventories totaled $516.3 million, which $392.2 million represented core Gentex inventory. Down from $436.5 million at year-end 2024. Largely due to reductions in raw material inventory. The remaining $124 million reflects VOXX inventory. Consolidated accounts payable was $249 million compared to $168.3 million at year-end 2024. Including $159.3 million for Gentex and $89.6 million for VOXX. Preliminary cash flow from operations for the fourth quarter was $125.7 million compared to $154.4 million in the same period last year, primarily due to changes in working capital. And operating cash flow for the calendar year 2025 reached $587.3 million, up from $498.2 million in 2024. Also driven by changes in working capital. In the fourth quarter, net capital expenditures were $17.5 million compared to $38 million in the fourth quarter of last year. And for the full year, net capital expenditures were $126 million compared to $141.4 million in the prior year. And lastly, depreciation and amortization expense for the fourth quarter was $25.2 million, compared to $23.8 million in Q4 last year. And on a year-to-date basis, depreciation and amortization totaled $104 million, up from $94.7 million in the prior year. I'll now hand the call over to Neil for a product update. Thank you, Kevin. Neil Boehm: 2025 was another strong launch quarter. In the quarter, over 85% of the launches were advanced interior and exterior auto-dimming mirrors and electronic features. Driver monitoring, HomeLink, and full display mirror were the products driving the greatest growth of the advanced feature launches for the quarter. We're excited to announce that in 2025, we began shipping driver monitoring systems to both Volvo and Polestar. It's an exceptional accomplishment for the Gentex team in that these driver monitoring mirrors contain the full system of cameras, LED emitters, processing, and Gentex-developed software to perform the required features. This was a great achievement, and the team did an outstanding job getting the product to market. At the start of 2026, we once again exhibited at the Consumer Electronics Show in Las Vegas. The show floor provides an excellent format for meeting with our customers, suppliers, investors, and consumers, all while demonstrating our latest technologies and capabilities. This was our eleventh year at the show and by far our biggest. With four distinct booths, we were able to showcase our eSight medical product, our connected smoke detection system, Place, the new technologies and audio from Klipsch and Onkyo, and the evolution of our technologies and strategies of our core automotive business. At our combined VOXX and Premium Audio Company booth, Klipsch celebrated its eightieth anniversary by debuting the next generation of its iconic fives, sevens, and nines powered speakers. Its new Atlas series of Hi-Fi headphones, the newest frontier in Hi-Fi speakers in its reference signature and Apollo series, as well as a preview of the Element outdoor soundbar. Additionally, the team showcased its vision for premium Onkyo AV receivers with a wide assortment of new products on display. Launching this many new products was a heavy lift, but the team did a great job, and these new products received 26 awards from the show. In the main Gentex booth, the primary products were our next-generation full display mirror, dimmable sun visors, sunroofs, HomeLink six, our Place smart home safety system, and our driver and in-cabin monitoring systems. This year at CES, the product that drove the greatest interest from all groups visiting the main booth was the dimmable visor. Utilizing our core electrochromic technology, our visors reduce sun glare while allowing drivers to still see what's ahead. We showcased multiple integrations of the vanity mirror, including a mirror surface covering the entirety of the visor that could be turned on or off. OEM interest in our dimmable visor technology has never been higher, and we're pleased to announce that we have our first customer in launch with a target to begin shipping in 2027. We believe this is the first of many customers who will incorporate this technology into their vehicles. Full display mirrors continue to develop with the market. It's the auto industry's leading digital rearview mirror, having shipped on more than 140 different vehicles around the world. At this year's CES, we demonstrated our next-generation full display mirror, which incorporates the company's dynamic view assist. A series of dynamic viewing modes that can enhance driving safety and make using the digital mirror feel more natural. By utilizing a higher resolution imager, full display mirror can automatically expand the mirror's digital view when the vehicle is moving slowly. It can digitally tilt downwards when the vehicle is in reverse, it can display picture-in-picture functions like showing what's in your blind spots or what's in the cargo bed of your truck. There was a lot of excitement and interest in the next phase of full display mirror, and we're excited to get the launches moving. In 2025, Full Display Mirror continued to expand as a share of our overall business as we shipped 3.19 million units, representing approximately an 8% increase compared to the 2.96 million units shipped in 2024. Looking ahead to this year, we expect full display mirror to grow by an additional 200,000 to 400,000 units. To help showcase our driver and in-cabin sensing technologies at CES this year, we developed an all-new demonstrator. That was able to show the primary DMS features while also demonstrating our 2D and structured light-based 3D cabin monitoring for detecting passengers, objects, and even the presence of life. Additionally, we demonstrated our latest software suite containing emergent features like cognitive state recognition, impairment detection, vital signs monitoring, and post-crash communications. Our driver monitoring and in-cabin monitoring systems continue to gain traction as they provide a scalable, easy-to-deploy, mirror-integrated platform. In 2025, we announced we were shipping to Rivian. And we began shipping to Volvo and Polestar in 2025. By 2026, we expect to be in production with two additional OEMs. As we look forward into 2026, it's clear that light vehicle production in our primary markets will remain mostly flat. With this prospect, the Gentex teams will continue to focus on how we can drive greater efficiencies in our processes, improve our pricing with suppliers, and mitigate tariff impacts while we continue to ramp up for the launch and production of complex technologies like large array devices and visors. We have an outstanding team here at Gentex, and I'm confident in our ability to continue to drive improvements while we advance the technology as well. I'll now hand the call back over to Steve for guidance and closing remarks. Thanks, Neil. Steve Downing: The company's 2026 and 2027 light vehicle production assumptions reflect the S&P Global Mobility mid-January 2026 forecast for North America, Europe, Japan, Korea, and China and was included in our press release from earlier this morning. Based on the S&P Global Mobility forecast, market conditions in our primary markets, the continued impacts on the China market from tariffs, the expected incremental sales contribution from the VOXX acquisition, the company is providing detailed annual guidance for 2026 and revenue guidance for 2027. Consolidated revenue for 2026, including VOXX, is expected to be between $2.6 billion and $2.7 billion. Consolidated gross margin is anticipated to be between 34% and 35%. Consolidated operating expenses, excluding severance, are forecasted at $410 million to $420 million. The effective tax rate is expected to be between 16% and 18%. Capital expenditures are projected at $125 million to $140 million, and depreciation and amortization is expected to total $100 million to $110 million. Additionally, based on the current S&P Global Mobility light vehicle production outlook and the company's estimates for VOXX, premium audio, aerospace, medical, fire protection, and consumer electronic products, the company currently expects calendar year 2027 revenue to be between $2.75 billion and $2.85 billion. We came into 2025 with a focus on growth and improving profitability and hoping for a stable end market. Instead, we were confronted with a dynamic marketplace, including headwinds created by the volatility of tariffs, counter tariffs, weakening production in our primary markets, and cost inflation. Despite these challenges, our team delivered impressive results. In April, we completed the VOXX acquisition and have addressed most of the integration challenges. We are also well on our way to accomplishing our planned cost improvement initiatives that we believe will ultimately yield approximately $40 million per year in positive cash flow from the VOXX business. In our core business, our teams reduced costs, improved efficiency, and expanded profitability resulting in gross margins at the highest level in several years, and accomplishing our stated goal of returning to 35% to 36% gross margin levels. This year, our sales teams were able to offset a 29% year-over-year sales decline in China through increased sales in our primary markets that outperformed the market by 3% despite the turbulence in those markets. These results reinforce my confidence in our team's ability to persevere through unforeseen and volatile circumstances and to adjust rapidly to changing business conditions and environments. The market conditions in 2025 remind us of one key takeaway: growth must come from innovation. The team is answering that challenge with focus and determination. Despite the market conditions and the focus on cost alignment, the team has continued to launch and develop our next wave of products that include new driver monitoring systems, our next generation of full display mirrors, large area devices, our first production award for dimmable visors, and a whole new product lineup within the premium audio group, that won numerous awards at the Consumer Electronics Show. Our strategy is to continue to leverage our core to drive above-market growth through existing and new technologies. This growth combined with our cost discipline will allow us to create shareholder value for years to come. That completes our prepared comments for today. We can now proceed to questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. Our first question comes from Luke Junk with Baird. You may proceed. Luke Junk: Good morning. Thanks for taking the questions. Maybe just for starters, Steve Downing: Steve, if we could just square the downside and upside risk relative to the revenue guidance range, outgrowth as we went through last year, of course. A little uneven on a quarter-by-quarter basis, how you're thinking about some of those impacts that we saw last year, vehicle and true mix. And maybe anything customer-specific that we should keep in mind as well. Thank you. Steve Downing: Yeah. I think if you look at overall, the yeah. You're absolutely right. First of all, 2025 was definitely lumpy in terms of what was happening, not only regionally, but with our customer base. I think if you look at the upside or kind of the tailwinds behind that forecast, you start to see some stability in the North American market. We you know, there's definitely some upside for that market to improve or be a little better than production estimates. I mean, if you look at where it's been the last few years, it's definitely been towards the lower end of probably what we'd expect to be an economically stable production environment in North America. If you look at the Western Europe side, that's probably the next biggest opportunity for us to see some improvements. There definitely seems to be some stability there. Definitely not as bad as what probably I thought it was coming into 2025. It definitely performed a little better than I thought. The risk factor is obviously what's going on in the China market, and does that deterioration continue to happen? And then the last one for us is we do have some pretty good exposure to Tesla as a customer. You know, what continues to be the role of Tesla as it relates to EV and the acceptance rate of those vehicles globally. We've been a long-term partner with them and definitely have some out risk on an OEM basis with Tesla. Luke Junk: Got it. Maybe switching gears to margins, you know, gross margin for 2025 and Steve Downing: total. Luke Junk: If my numbers are ended up being about 30 bps above the high end of your guidance with the 4Q upside. Can we just unpack what was better than expected over the last couple of months of the year the fourth quarter versus where you guided? And then what is sustainable as we walk into 2026? Or is there anything that we should be making sure that we adjust for coming out this quarter? Steve Downing: Yeah. What I'd say is on the positive sides, Luke Junk: the product mix Steve Downing: operational efficiencies, labor yield, all the things internally were really solid, especially in the fourth quarter. PPV and the pricing out of the supply base was solid. If you look on the negative side, obviously, tariff impact in the second half of the year was a lot larger than it was in the first half. A lot of that was not reimbursed in the quarter. And so that was that 150 headwind in Q4 was really pretty significant when you look at overall performance. For us to hit that mid-35s, despite those headwinds was yeah, obviously tells you kinda what the upside could be longer term if we can get the tariff situation completely under control. Luke Junk: Yeah. DRAM, obviously, getting a lot of headlines in auto. Maybe if you could just comment on what you're seeing in the supply chain right now or relative to pricing trends and any internal efforts that you might be working on from an engineering standpoint? And would I be right in assuming that there's some direct exposure here in terms of the FDM bill of materials, especially? Neil Boehm: Yeah, Luke. So in regards to the FDM, that uses the DDR3 technology. So it's a little older technology. So we from a supply side, there's not a lot of risk on that. But there is just from a pricing side. Pricing on RAM with these issues that popped up gone through the roof. On pretty much every version of that component. On the DDR4, there is a little bit of exposure in that as well from DMS product, driver monitoring product that we're doing from a supply side. We've got allocation. We've got parts to build and ship. But we are working on ultimate supply sources as well to alleviate that any risk associated with that. Luke Junk: Got it. I'll leave it there. Thanks, Neil. Operator: Thanks. Thank you. Our next question comes from Mark Delaney with Goldman Sachs. You may proceed. Mark Delaney: Yes. Thank you very much for taking the questions. I was hoping to also ask a question around gross margin, but with respect to the 2026 guidance and hoping you could walk us from the 2025 level to 2026, which is pretty flattish year over year. You just reported very strong 4Q gross margins. You just spoke a bit about some of the drivers there. But can you talk a bit more on puts and takes for 2026? It sounds like there's more opportunity to go on tariff recoveries. You've also, I think, have some opportunities with VOXX as you work on the integration there. But then there's been, obviously, some of these challenges like DRAM that you were just referring to. So any more on the puts and takes and bridging to 2026 outlook would be helpful. Steve Downing: Yeah. Absolutely. So if you look at if you look at the performance exit rate for the last six months of 2025, that's kind of our base case going into 2026. And so we continue to see on the headwind side, obviously, you got customer pricing challenges like we always have. But on the tailwind side, you have supplier pricing that should improve. The two biggest challenges you have going into 2026, however, are one of them are commodity pricing, especially as it relates to precious metals. So our exposure typically runs silver, gold, and ruthenium. Obviously, ruthenium, most people don't follow. But silver and gold are pretty obvious issues. I'm also expecting a little bit of challenge as it relates to copper and some of the things that are happening in that marketplace, especially their impact on circuit boards and other electronics. The other big one is tariffs. So we'll have a full year of tariff rates, and some of those have changed since the beginning of 2025. And so, if you look at the weighted average, you really only had about six months of the full weighted average of tariffs this year versus a full twelve months next year. So those two in particular represent probably $45 or $50 million of headwinds when we start the beginning of the year. Mark Delaney: Okay. Understood. My other question was on China, and you've spoken a bit already on what you've seen in the China market directly. Maybe you stick a bit more on what you're expecting for China this year up but then higher level as we're seeing the Chinese OEMs continuing to expand beyond the China market, to what extent do you think Gentex can sell to those OEMs as they're selling into markets like Europe? Thank you. Steve Downing: Well, I think on the China market, what our primary focus right now and what we're expecting to happen is continued a little bit of headwinds for us exporting into the China market. And that's primarily driven by the fact that the content and the tariff rates just don't support that additional cost on given how high those tariffs are for us to be able to operate under that business model and sell into the China market. At least at the levels we have in the past. As you look as you start talking about Chinese OEMs and their role in the rest of the world production, I think that's a big function of is it cars produced in China and exported to those markets, or are they cars produced by Chinese OEMs domestically in the markets they're selling? And the reason why I separate the two is if we're shipping into the China market for manufacturing, and then export, that still will be a difficult business model to engage in. On the flip side of that is Chinese OEMs, if they grow capacity in the Western world or in other parts of Asia, and we can ship into those regions at a better duty rate, then we absolutely have a better chance of being competitive and have and a way for us to sell into those customers. Mark Delaney: Yeah. And so you just you know, a quick follow-up there. I mean, as you're seeing some of the Chinese OEMs start to set up factories outside of China, are you already getting interest in using your products and making progress? Or is that something you'd still have to accomplish going forward? Steve Downing: No. There's they most of those customers have worked with us in the past, and as they look to expand footprint into other regions, we're absolutely on their list of suppliers. Operator: Okay. Thank you. Mark Delaney: Thanks, Mark. Operator: Thank you. Our next question comes from Josh Nichols with B. Riley Securities. You may proceed. Yeah. Thanks for taking my question, and great to see the Josh Nichols: robust margin expansion. That's already been touched on, but I guess between, like, you've been talking a little bit about some new commercialization wins that are gonna be ramping up CMS also and dimmable glass longer term. When you look at, like, the 2027 guidance that you kind of put out there now, I think that implies, like, 6% growth. Like, what's your expectations that are being built into that return in terms of the ramp for BMS, China recovery, and the Google Glass in terms of, like, revenue contribution overall? Steve Downing: Yeah. So if you look at the 2026 revenue has virtually nothing in it from has nothing in it from dimmable glass. So I mean, other than existing aerospace products. Operator: But if you look at Steve Downing: know, the rest of it, we're anticipating continued decline in exports into the China market. You know, no help from dimmable glass. Obviously, revenue in 2026 will start to see some tailwinds from the DMS launches. Right now, they're fairly immaterial between the two OEMs that we're shipping on currently. Once we add those other two, it starts to become material. The real impact of that will be in 2027 and beyond. Josh Nichols: Got it. And then, in terms of the commercialization timelines, it's great to hear you already have your first customer, like, the Pfizer, but additional larger opportunities like sunroof, side windows, things like that, What's an update on that? Neil Boehm: Yeah. So the interest in, large obviously, the Pfizer stuff is great. The excitement in that is truly ramped up in the last twelve months and since CES even higher than So we're super excited about that and being able to expand on that from a larger device side. Customer side, customer engagement still is really strong. Interest levels are really strong. In this quarter, I think we announced that last quarter, we were in process of getting capital in place to be able to do our own coding processes on film substrates, which is required for this. That equipment is in house and in process of being assembled and installed. So we're hoping by the Q1 here that we'll be starting to build off material And on this line, we'll be able to start building material that we can start using with customers to demonstrate production capability. Steve Downing: Think the key important difference there is, visors that is basically our core chemistry. And so from a timing to market, it can be a quicker go to market because it basically leverages what we've done in mirrors and in aerospace. Josh Nichols: Thanks. Yeah. Interesting to see how that progresses because know, obviously, be a very significant growth driver similar to kind of what that PM was if you go back Last question for me would just be on on the VOXX integration path. I know you said you've been targeting this $40 million plus. Like, how much of that work is is is already done? Is it showing any material profitability, or do you expect a lot of those synergies to kind of be realized by, like, the 2026? Kevin Nash: Yeah. I think if you look at where we came from, it was the business that was breakeven to lose money. And then if you look at 2026, you know, we're probably about halfway there. We'll we feel like that it will continue to ramp The teams have been hard at work at finding opportunities The PAC team, the Klipsch team is just getting ready to launch some new products kinda midyear into the last part of the year, will help boost sales growth, improve margins. And then everybody's hard at work on kinda trimming up the cost side. So, we feel like we're pretty well halfway to 60% of the way there. In 2026 and then coming into 2027. Steve Downing: For a run rate at that at that level. Well, if you look at the profitability Q4, if you look at the VOXX standalone financials, you can if you annualize what Q4 was, we're in a pretty good shape already going into 2026 to be basically halfway there. Then it's about trying to get beyond that. During calendar year 2026 and then the 2027. Josh Nichols: Appreciate it. Thank you. Thanks, Josh. Thank you. Operator: Our next question comes from Joseph Spak with UBS. You may proceed. Joseph Spak: Thanks. Good morning, everyone. Kevin Nash: Couple couple questions. First, just Josh Nichols: on 5% grower in calendar Kevin Nash: if you were to look at a full run rate. Year for 2026. Okay. So then if we think about core Gentex, Steve Downing: that's Kevin Nash: pretty flattish, or maybe even down a little bit. Is that is that the right way to think about it? No. GenTex is up about two to three. competitor. We're looking at production down one. Core Gentex was up. Production that's down just as a my as a Josh Nichols: For the year. Yeah. We're really two for the Primary markets. Primary markets. Yeah. Steve Downing: Yeah. Okay. Kevin Nash: The and then the the the the OpEx up year over year, obviously, part of that again, another quarter of VOXX. Anything else to consider in in the OpEx outlook? No. Really, that's the one thing is the one quarter of pretty much flat year over year. a combined entity. I mean, if if you look at the core Gentex operating expenses, they're Josh Nichols: Okay. Luke Junk: Last quarter, you had sort of talked about Kevin Nash: of the I I know this was sort of touched on a little bit with Mark's question with the Chinese into into Europe, but you you talked about some European content thing. Is there is there any sort of update on what you're seeing from some of your customers there? The revenue in the quarter was actually reversed. So I think some of that was anomaly given some of the shutdowns in Q3 with some of the larger of the European customers. But that's decontent thing is continuing as it relates to some of the ones that we discussed before. But the volume in the quarter was Steve Downing: actually reversed. And that and that and just to be clear, the decontent primarily focused on outside auto-dimming mirrors. A lot of it is passenger side. Elimination. And so, you know, as OEM struggle on their cost side, that's one of the things they do look at is feature elimination to try to save money. Joseph Spak: Okay. Thanks. I'll I'll pass it on. Joe. Thank you. Operator: Our next question comes from James Picariello with BNP Paribas. James Picariello: Just have a question first on the the walk to the 2027 revenue growth. So Josh Nichols: for for this year in 2026, you're pointing to maybe, yeah, 1% core growth against your core markets down 2%. Right? And then for 2027, this influx a bit. Right, in terms of your your growth over market. So Steve Downing: just curious on that bridge. And does Josh Nichols: VOXX potentially outpace that growth rate, like, more than its Kevin Nash: know, pro rata share or or or not necessarily? Thank you. Steve Downing: No. I well, like Kevin mentioned, a minute ago, I think we would view it as more like two to 3% core Gentex growth, in 2026. And part of the inflection that you see in in terms of that performance in 2027 isn't overweight VOXX at all. It's actually, gents core Gentex. And the Gentex portion of that growth is really gonna be driven by some of the full years of the DMS launches that Neil talked about, some continued FDM growth. And then by the end, not that it's material, but at the end, we start looking at, Pfizer sales actually starting to hit the income statement as well. James Picariello: Got it. Josh Nichols: Okay. And then apologies if I missed this, but is there an expectation to recover the $19 million or $20 million of net tariff headwind that you incurred this past year in 2025. And then just how are you thinking about free cash flow and buybacks for for the So we Thank you. So the yeah. No problem. Thanks, James. Steve Downing: The on the first on the tariff side, yeah, our intention is to recover as much of that as humanly possible. Now some of that may be like, indirect in terms of how we get it. Some of the customer negotiations are direct, you know, PO to PO you know, price increases to cover the tariff impact. Some of them are, you know, delaying APRs or not giving price downs. In exchange. It's just dollars to us, so we try to just negotiate the best deal for each of our customers that makes sense for them and for us. Sorry. And then, yes, a second question there too, James. Cash flow there. Oh, cash flow. Yeah. So, obviously, if you look at cash flow, this year, it was at the highest highest level we've had in a long time. And so our goal is to continue to focus on cash flow. We've done a great job of that, and buybacks are obviously one of the primary uses of cash flow when we're successful on generating it. James Picariello: Thank you. Josh Nichols: Thanks, James. Operator: Thank you. Our next question comes from Ryan Brinkman with JPMorgan. You may proceed. Ryan Brinkman: Great. Thanks for taking my question. I wanted to ask on China. Joseph Spak: When do you see that your sales are softer in that region due to the abnormally high tariff rates you're facing. Are the customers mostly foregoing the use of electrochromic mirrors? Or they maybe turning to domestically produced alternatives, which I think might be lower end, maybe less desirable? But lower cost. I ask because I'm curious what your expectation is. Should the tariff rates eventually normalize lower in terms of your ability to maybe see a rebound in revenue from that market? Steve Downing: Yeah. If if I think if tariff rates drop significantly, then we would be right back in a good position to compete in that space. On the second part of your question about what are the alternatives, I I would say it's probably a two-thirds, one-third type scenario, which is two-thirds of the time, domestic Chinese OEM is just dropping the technology. And about a third of the time, they're using a local a local supplier out of the domestic China market to try to replicate the products that we were selling. Ryan Brinkman: Okay. That's helpful. Thanks. And, then on the DRAM issue discussed earlier, I mean, it sounds like it's not going to really impact vehicle production. Certainly, nothing like the chip shortage. But you did reference some higher costs, and I assume those were higher costs to to Gentex, as you acquire, the components. But what is your expectation in terms of the completeness or timing differences in in terms of, you know, maybe being compensated by cost customers for those higher memory costs. Neil Boehm: Yes. I think that's a great question. I think from a memory side, that's one of the items that we still got go back from a customer perspective, just like the tariffs in go some of these DRAM cost points are multiples of where they used to be from a pricing. So they are something we're gonna have to go back to the customer base and negotiate increases in compensation for And and a lot of times, like, we did during the other supply shortage is once they became available, we would work with OEMs ahead of time saying, what do you want us to do? Right. Steve Downing: If a chip is $4 and now it's trading for $40, obviously, the supply base can't eat that on their own. So you know, an OEM has to help us with the determination of are they willing to you know, pay that extra that extra premium to guarantee production. And so we've historically worked with them proactively when we find chips available. Luckily, we've had to do less of that than a lot of the a lot of the supply base unfortunately, had to Ryan Brinkman: Okay. Very helpful again. Thank you. And then just lastly, is there an update you can provide on the dimmable sun visors? Did I hear you say you're looking to launch that product, I think, before sort of large area dimmable glass and and what progress you might have made it Neil Boehm: Yeah. The dimmable visor, we'll we've got our first customer on board. In launch, and we'll go to production in late 2027. Ryan Brinkman: And on large area devices, Neil Boehm: the update was around the equipment we talked about last quarter, getting in the wet coat capability in house so we're not dependent on outside suppliers. For making the films so that the material the that equipment is in house being installed, started last week, and the plan is for that to be up and operational late Q1, early Q2 so we can start producing some of our own films, to give us better film quality to be able to keep that product moving forward. Ryan Brinkman: Thank you. Joseph Spak: Welcome. Kevin Nash: Thanks, Ryan. Operator: Thank you. And as a reminder, to ask a question, please press Our next question comes from David Whiston with Morningstar. You may proceed. David Whiston: Hey, guys. On the, headcount reductions, Luke Junk: sounds like they're the latest ones we hear about are more on the Gentex side. I'm just curious, is that where you want it now, or do you see more file packages needed this year? Steve Downing: If sales if sales continue on the path that we believe they will, we're really close to the right head count that we need to be. The the fundamental change, obviously, would be driven by market conditions. So in other words, if the market continues to soften, then obviously, we'd have to react to that. But as of right now, we've 90% of everything we need to do to be ready to go for 2026. David Whiston: Okay. And on the core gross margin, Luke Junk: going beyond 35% to 36%, is that at all realistic to think about is that really just a very best case scenario long term assuming Josh Nichols: constant tariff environment? Steve Downing: Yeah. It's a really kind of best case scenario, especially your point, especially regarding what happens with the tariff environment. I mean, if that were to go away overnight, then obviously, I think there's a lot of opportunity. You know, on the upside. But given the what's happening with the pressure metal side right now and with tariff environment, it seems, that 35 that thirty five thirty six seems like a really good spot David Whiston: And just last question. Any major pickup in business due to automated on shoring some production back into The United States because of tariffs? Steve Downing: No. There's a lot of conversation. We haven't seen anything drastic yet in terms of tailwinds from that. It does add some it does add some complexity because on the flip side of that conversation is what about on shoring on Europe and other places where those customers are asking for any help they can get to eliminate you know, duty and tariff implications on exports into those regions. So you know, the business is definitely becoming more complex over the next several years. I think most of those tailwinds that are gonna help on the onshoring side are still out two to three years before you'll see any change, in revenue because of that those decisions. David Whiston: Okay. Thank you. Thanks, David. Thanks, David. Operator: Thank you. I would now like to turn the call back over to Josh O'Berski for any closing remarks. Josh O'Berski: Awesome. Thank you, everyone, for your time and questions today. This concludes our call. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good morning or good afternoon all. My name is Adam, and I will be your conference operator today. At this time, I would like to welcome everyone to the SoFi Technologies Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]. With that, you may begin your conference. Unknown Executive: Thank you, and good morning. Welcome to SoFi's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today to talk about our results and recent events are Anthony Noto, CEO; and Chris Lapointe, CFO. You can find the presentation accompanying our earnings release on the Investor Relations section of our website. Unless otherwise stated, we'll be referring to adjusted results for the fourth quarter and full year 2025 versus the fourth quarter and full year 2024. Our remarks today will include forward-looking statements that are based on our current expectations and forecasts and involve risks and uncertainties. These statements include, but are not limited to, our competitive advantage and strategy, macroeconomic conditions and outlook, future products and services and future business and financial performance. Our GAAP consolidated income statement and all reconciliations can be found in today's earnings release and the subsequent 10-K filing, which will be made available next month. Our actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's press release and our subsequent filings made with the SEC, including our upcoming Form 10-K. Any forward-looking statements that we may make on this call are based on assumptions as of today. We undertake no obligation to update these statements as a result of new information or future events. And now, I'd like to turn the call over to Anthony. Anthony Noto: Thank you, and good morning, everyone. 2025 was a tremendous year on all fronts. Our member focus drove an unprecedented level of innovation across our business that led to the strongest financial performance in the history of our company. As we begin 2026, we're positioned for another year of unprecedented results, and I could not be more excited. We come into the year with a differentiated one-stop shop model with a full suite of products that allow members to borrow, save, spend, invest and protect better. A demonstrated track record of driving durable growth through continuous innovation resulted in compound annual growth of nearly 50% from $240 million in 2018 to $3.6 billion in 2025. A scaled member base of 13.7 million members, more than 20x larger than the 650,000 members we had in 2018 and our highest brand awareness ever at nearly 10% versus roughly 2% in 2018. Despite the unprecedented growth, we still have massive addressable markets across our existing businesses and huge opportunities for growth in newer areas like crypto, AI and business banking. And finally, we have a fortress balance sheet, which we further strengthened through $3.2 billion in new capital, increasing our tangible book value by $2 per share to $7 per share, giving us a broad range of optionality. This gives me great confidence that we will continue to drive durable compounding growth for years to come, resulting in superior financial returns. I will discuss some of what we've planned for the year ahead in a moment, but first, let me begin with our key results for the fourth quarter. Starting with the drivers of our durable growth. We added a record 1 million new members in Q4, increasing total members by 35% year-over-year to 13.7 million SoFi members. This was our first time adding over 1 million members in a single quarter. We also added a record 1.6 million new products in Q4, increasing total products by 37% year-over-year. We now have over 20 million products. Cross-buy continues at an exceptional pace with 40% of new products opened by existing SoFi members. Over the past year, our cross-buy rate has increased by 7 percentage points. This clearly demonstrates the effectiveness of our one-stop shop strategy and our ability to build deeper, multiproduct relationships with members. And as before, we fully leverage new technologies like artificial intelligence. Our strong member and product growth powered our revenue growth in the fourth quarter. Adjusted net revenue was a record at over $1 billion, up 37% year-over-year, marking our first $1 billion quarter. Together, financial services in our technology platform generated revenue of $579 million, an increase of 61% year-over-year and representing 57% of total revenue. In our Lending segment, adjusted net revenue grew 15% year-over-year to $486 million. This was driven by strong originations in this segment of $6.8 billion, a 13% increase from the prior year. Combined with the very strong loan platform business originations of $3.7 billion, total originations reached a record of $10.5 billion for the fourth quarter. This is our first quarter originating over $10 billion in loans, demonstrating our ability to originate high-quality loans at scale. In fact, through all of 2025, we originated over $36 billion of loans. I am also proud to report that total fee-based revenue across our business was a quarterly record at $443 million, up more than 50% from the prior year, driven by a strong performance from our loan platform business, referral fees, interchange revenue and brokerage fee revenue. On an annualized basis, we are now generating nearly $1.8 billion of fee-based revenue, up from less than $1.2 billion in the fourth quarter of 2024. This reflects our delivery diversification towards more capital-light revenue streams. In addition to delivering durable growth, we delivered strong returns and profitability. In the fourth quarter, adjusted EBITDA was a record at $318 million, up 60% year-over-year. Our adjusted EBITDA margin for the quarter was 31%. This is above our original goal of long-term margins of 30% set when we went public. Our incremental EBITDA margin was 44% as we continue to balance reinvesting in the business to drive long-term growth and profitability. Net income in the quarter was $174 million at a margin of 17%. Earnings per share were $0.13. Finally, our tangible book value ended the year at $8.9 billion. In 2025, we grew tangible book value by over $4 billion and $2.54 per share. Our diversified business is uniquely built to deliver a winning combination of growth and returns. In the fourth quarter, we achieved a Rule of 40 score of 68%, once again demonstrating the strength of our model and our solid execution. The consistency with which we've exceeded the Rule of 40 continues to put us in [indiscernible] among fintechs and technology companies more broadly. Despite these exceptionally strong results, I know that we are just getting started. We are still just scratching the surface of the opportunity that exists across each of our existing products and the newer areas like crypto. Given these dynamics, I've never been more optimistic about our prospects than I am today. This is why we will continue to invest heavily to make our existing products even better by providing the best speed selection experience to build new products to help our members get their money right and to further strengthen our trusted brand name. Our investments will power a durable compounding growth and drive stronger returns as we continue to scale. Let me now spend a moment discussing our brand-building efforts, which are key to driving new members to SoFi, feeding our productivity loop and growth. In 2025, we significantly increased our brand strength, and stature through our first ever music partnerships, including becoming the presenting partner of the CMA Fest and partnering with Country Music Star, Kelsea Ballerini and by expanding our sports partnerships. More recently, we signed [indiscernible] NFL MVP, Josh Allen, to team SoFi. Josh has been instrumental in showcasing the most valuable product in financial services in SoFi Plus. This partnership included ads across some of the most watched NFL game of the season and has continued through the existing postseason playoffs. So far, this has been one of our most successful campaigns ever, more than doubling the effectiveness of our advertising in the targeted market. This year, we also kicked off season 2 of TGL presented by SoFi with an exciting plan from the biggest names in Dow. So far, the season is off to a great start, building on the momentum from last year with viewing guardians up 22% versus a year ago in the first 5 matches. And later this year, the World Cup will be coming to SoFi Stadium in Los Angeles, allowing fans worldwide to get a glimpse of the nation's most advanced stadium and the most ambitious stage in sports and entertainment. Our marketing efforts continue to have a strong effect driving unaided brand awareness to an all-time high of 9.6% during the quarter. That's up 250 basis points from the fourth quarter of 2024, a 33% improvement. Turning now to our product innovation across our business. At SoFi, we are one team united under a common purpose of helping people achieve financial independence to realize their ambitions. We are passionate about meeting our members' needs driving us to work harder and innovate more rapidly to bring them the best products and services in the market. We call this the SoFi way. Guided by the SoFi way with a differentiated business model and capabilities, we are uniquely positioned to benefit from both the crypto and AI technology super cycles taking place. Only SoFi has the strength and stability that comes with being a national bank, a tech-driven culture with a track record of innovating in the financial services industry and a large and growing member base that embraces innovation. A full set of products that allow us to leverage crypto and blockchain technology in a number of innovative ways and a technology platform that allows us to innovate more rapidly and serve us as a channel to support business clients. Since March, when the OCC made crypto permissible for national banks, we've moved with urgency to bring new products to our members. In October, we enhanced our unprecedented money movement offering with the launch of SoFi Pay, our first payment product that leverages blockchain technology to provide fast, seamless, low cost and safe international payments. We've already expanded SoFi Pay to include over 30 countries including Mexico, India, the Philippines, Brazil and much of Europe. SoFi Pay is available to all members right in their integrated SoFi App, making money movement easier than ever. In November, we announced SoFi Crypto, once again giving members the ability to invest in dozens of tokens directly in our SoFi app. As the first nationally chartered bank to launch crypto trading for consumers, our members can instantly buy crypto currencies from their FDIC insured deposit account, which is a very meaningful difference. At other providers, customers funds uninsured earning no interest as they wait to fund digital asset purchases. At SoFi, those funds sit in a SoFi money account protected with insurance and earning up to 4% interest. In December, we took an even bigger step forward through to the launch of our own stablecoin, SoFi [indiscernible] this launch made us the first national bank to issue a stable coin on public permissionless blockchain. Once again, this is a meaningful step forward in differentiation versus the landscape. For every SoFi USD outstanding, we will have a dollar of cash into our Fed master account, which means there is no credit, liquidity or duration risk, and we will share economics with partners for their marketing and distribution services. SoFi USD will be a game changer for our business as it enables us to be an infrastructure provider for banks, fintechs and enterprise platforms, positioning us at the center of the crypto ecosystem. As you can see, we're moving quickly, but we have a lot more to do to accomplish our ambitious plans over the near and medium-term horizons. This year, we will leverage SoFi USD to power SoFi Pay and we'll continue to add more contracts to the offering. Over the medium term, we plan to offer a SoFi Pay experience to people outside the United States, allowing them to receive, send, hold and spend money anywhere, all supported by SoFi USD. This initiative could serve as a launching point to build our brand in a more global way. In 2026 and beyond, we will look to offer additional crypto products and services, including secured lending by crypto currencies, which will give members better rates on their loans, institutional trading and correspondent payments and settlement via stable coins. For members that hold SoFi USD, we will look for innovative ways to provide them with benefits such as interest or other perks. Beyond our member-facing initiatives, we are hard at work building our business banking offering, which we will begin to launch in 2026. Our ambition is to be the bank for businesses and other financial institutions that want to transact in both [indiscernible] and cryptocurrencies filling a critical gap that has existed in the market. Leveraging our tech platform capabilities and SoFi USD, over time, we will build an offering that includes institutional and crypto trading, making us the first national licensed bank to offer this service, stable coin as a service, cryptocard issuing, digital asset custody and infrastructure services, and the ability to interchange VAT and digital assets in real time through our SoFi exchange network as well as the ability to settle transactions 24/7 on a virtual ledger. We have brought on significant expertise from the crypto and banking industries, and I couldn't be more excited to see this business take shape in the coming years. Turning now to SoFi Smart Card, which we launched in the fourth quarter. This new all-in-one card and account allows members to earn significant rewards and an industry-leading API while also growing their credit score. Here's how it works. Members can use their SoFi Smart Card to make purchases just like a typical debit or credit card. Purchase amounts are automatically set aside from the deposit in the SoFi account in real time. The balance can be paid in full each month via funds on hand or an alternative bank account or source of funds. And all the while, members are an unlimited 5% cash back rewards at grocery stores. We built and launched Smart Card in just 4.5 months with the help of our tech platform, a feat that would not have been possible had we relied on another party. This demonstrates once again how our tech platform gives us a greater ability to customize and launch financial services products faster than competition. Beyond helping drive innovation across SoFi's financial services products, we are excited to see renewed energy around innovation within financial services more broadly. This started to take shape in 2025 with big consumer brands like Southwest Airlines and United Airlines come with us to help them launch new programs that drive greater loyalty and engagement from their customers. Now we are seeing strong interest from an even wider range of companies, including those based internationally, who see the highly supportive business environment in the U.S., particularly for crypto and are interested in launching new products here. Our tech platform business is in a prime position to support these enterprise clients. Turning to invest. 2025 was a blockbuster year for SoFi Invest in which we significantly expanded our offering to give members the best selection, including investments that have been traditionally reserved for the ultra wealthy. We give members access to private companies, including SpaceX and Epic Games, access to invest in alternative investments through private market funds managed by Cashmere, Fundrise and Liberty Street Advisors, access to invest in IPOs, including [indiscernible], Gemini, Figma and StubHub. We launched Level 1 options in our own SoFi agentic AI ETF. We made rolling over 401(k)s easier and more efficient, and we continue to make our user interface even more intuitive and engaging. This expanded offering helped drive a 2.2x year-over-year increase in the brokerage revenue, helping drive invest closer to full profitability, which we expect to achieve this year. Turning now to our Lending segment, which continues to drive strong revenues and allows us to support members at key points in their lives. We show up with a simple but differentiated message. We are here to help you get your money right. Our personal loan product does just that. With a SoFi personal loan, members can refinance absurdly expensive credit card debt held at other institutions so they can stop paying for other people's rewards and focused on their own financial well-being. For example, if a member is able to refinance $40,000 of debt on which they are paying 24% interest with a SoFi personal loan that has an interest rate that's 10 points lower, they can reduce their monthly payment by nearly $200 moving closer to becoming debt-free. If we would translate that example across the more than 0.5 million loans that were originated in 2025, you can see that we're having a massive impact on our members' lives. SoFi is the preeminent company offering personal loans originating roughly 15% of total U.S. prime volume. However, the opportunity remains massive as the real addressable market is the nearly $1 trillion of prime revolving credit card debt, just sitting there, waiting to be refinanced at up to half the rate. And that $1 trillion opportunity is before even considering the additional debt that is outside of our traditional credit box, but could be refinanced through our loan platform business. Our student loans are also designed to help our members get their money rate. Here, too, we have become the preeminent company for refinancing student debt, having a massive impact on our members' lives. We estimate that we will save our members over $400 million in interest expense just under student loans we refinanced in 2025. Despite our strong market share in the student loan refinance market, we see continued opportunity for growth. We estimate the total market opportunity to be around $400 million, which would increase by 25% if rates were to drop 50 basis points. In addition to refinance, we've launched new private in-school student loans options to help people finance their education along the gaps left by the federal graduate programs. These include medical, veterinary, dental and stem loans with more coming soon. Turning now to home loans where we had our best year of originations and where we are primed for an acceleration in growth when rates decline. In 2025, we originated $3.4 billion of total home loans, surpassing our prior record set in 2021 when the real estate market was added tight. In fact, in the fourth quarter, we originated home loans at an annualized pace of $4.5 billion, nearly 2x the pace of the prior year, and the opportunity for continued growth is massive. Within our own member base, about 90% of those that have home loans have them with other institutions. As rates come down and many of these members look to refinance, we'll be in a prime position to win that business. Additionally, as others within our 13.7 million strong member base look to purchase a home for the first time, we believe they will come to SoFi as a trusted partner. As you can see, 2025 was an incredible year by any measure, our best year ever. We leaned into what sets us apart, our unique one-stop shop strategy, our ability to innovate and our relentless focus on helping members get their money rate. Heading into 2026, we see a tremendous opportunity, and we continue to be energized by our values in the SoFi way to capture it. With that, let me now turn the call over to Chris to discuss our financial results for Q4 and 2025. Chris Lapointe: Thank you, Anthony. 2025 was an exceptional year. Adjusted net revenue for the year was a record at $3.6 billion, up 38% year-over-year. Adjusted EBITDA was also a record at $1.1 billion, up 58% year-over-year at a margin of 29%. This is our first time surpassing $1 billion of EBITDA. Net income was $481 million at a margin of 13%. Net income was up 2.1x, excluding onetime items in the prior year, and earnings per share was $0.39. We finished the year strong with a great fourth quarter. In Q4, adjusted net revenue grew 37% year-over-year to a record $1.013 billion. Adjusted EBITDA was also a record at $318 million and a margin of 31%. Net income was $174 million at a margin of 17% and earnings per share was $0.13. This was our ninth consecutive profitable quarter. An important driver of our growth was the increased contribution from capital-light, non-lending and fee-based revenue sources. Our financial services and tech platform businesses generated $579 million of revenue, up 61% year-over-year, and we also generated record fee-based revenue across all segments of $443 million, up 53% year-over-year. Turning now to our segment performance, starting with Financial Services. Financial Services generated record revenue of over $1.5 billion in 2025, up 88% from the prior year. For the fourth quarter, net revenue was $457 million, up 78% year-over-year. Contribution profit was $231 million, up 2x from last year. And contribution margin was 51%, up from 45% last year. Net interest income for this segment was $208 million, up 30% year-over-year, which was primarily driven by growth in member deposits. Noninterest income grew 2.6x to $249 million for the quarter, which equates to nearly $1 billion in high-quality fee-based income on an annualized basis. Importantly, improved monetization continues its strong contribution to revenue growth. Annualized financial services revenue per product was $104 in the fourth quarter. That's up from $81 in the fourth quarter of 2024, a year-over-year increase of 29%, and we see continued upside as newer products mature. The successful expansion of our loan platform business was one of our greatest achievements in 2025, further diversifying our revenue and making our growth more durable. We've built this business into a powerhouse. In Q4, our loan platform business generated $194 million in adjusted net revenue, an annualized pace of $775 million, which is nearly 3x higher than the same period last year. And as we head into 2026, we continue to see strong demand from both existing and new partners. Beyond our loan platform business revenue, we continue to see healthy growth in interchange, up 66% year-over-year, driven by close to $22 billion in total annualized spend in the quarter across money and credit card. Turning to our tech platform, which generated record revenue of over $450 million in 2025. For the fourth quarter, the Tech Platform business delivered net revenue of $122 million, up 19% year-over-year. Contribution profit was $48 million and a contribution margin of 39%. This includes the remaining revenue earned from a large client who fully transitioned off our platform prior to year-end. Turning to our Lending segment. Lending generated record adjusted net revenue of over $1.8 billion in 2025, up 24% from the prior year. For the fourth quarter, adjusted net revenue was $486 million, up 15% from the same period last year. Contribution profit was $272 million with a 54% contribution margin. These strong results were primarily driven by growth in net interest income, which increased 29% year-over-year to $445 million. During the quarter, we had record total loan originations of $10.5 billion, up 46% year-over-year. Personal loan originations were a record at $7.5 billion, of which $3.7 billion was originated on behalf of third parties through [ LTV ]. In total, personal loan originations were up 43% year-over-year. Student loan originations were $1.9 billion, up 38% from the same period last year. Home loan originations were a record $1.1 billion, a year-over-year increase of nearly 2x. Capital markets activity was very strong in the fourth quarter. We sold and transferred through our loan platform business, $4.5 billion of personal and home loans. In terms of personal loans, we closed $100 million of sales in whole loan form at a blended execution of 106.5%. All deals had similar structures to other recent personal loan sales with cash proceeds at or near par and the majority of the premium consisting of contractual servicing fees that are capitalized. These sales included a small loss share provision that is above our base assumption of losses and immaterial relative to the exposure we would have had otherwise had if we held on to the loans. Additionally, we sold $90 million of late-stage delinquent personal loans. By selling these loans, we're able to generate positive incremental value over time versus selling after they charge off, both from our improved recovery capabilities and by maintaining servicing. In terms of home loan sales, we closed $692 million at a blended execution of 102.3%. In addition to our loan sales, we executed a $463 million securitization of loans originated through the loan platform business. This channel provides our partners with meaningful liquidity to support their ongoing investment in the loan platform business. The transaction priced at an industry-leading cost of funds level with a weighted average spread of 101 basis points. Turning to credit performance. Our credit remains strong, performing in line with expectations and driving attractive returns across all loan types. Our personal loan borrowers have a weighted average income of $158,000 and a weighted average FICO score of 746, while our student loan borrowers have a weighted average income of $149,000 with a weighted average FICO score of 765. For personal loans, the annualized charge-off rate was 280 basis points, up 20 basis points from the third quarter. I would note that while this is up from last quarter, it is down slightly from the second quarter and down over 50 basis points from a year ago. In fact, this is our second best quarter since 2022. Importantly, the increase in our balance sheet charge-off rate is driven by mix rather than credit deterioration. In Q4, as a result of increased LTV activity, we retained fewer new loans on the balance sheet. This naturally increases the average age or seasoning of our personal loan portfolio held on the balance sheet. Adjusting for this seasoning, underlying credit trends actually improved quarter-over-quarter. And we not sold any late-stage delinquencies, we estimate that including recoveries between 90 and 120 days delinquent, we would have had an all-in annualized net charge-off rate for personal loans of approximately 4.4% versus 4.2% last quarter. The on-balance sheet 90-day delinquency rate was 52 basis points, up 9 basis points from last quarter, also driven by portfolio seasoning. I would note that the delinquency rate is down year-over-year. For student loans, the annualized charge-off rate was 76 basis points, up slightly from 69 basis points in the prior quarter, driven primarily by seasonality as well as the impact of a student loan repurchase that began in Q1 2025 and concluded during the fourth quarter. The on-balance sheet, 90-day delinquency rate was 14 basis points, consistent with the prior quarter. The data continues to support our 7% to 8% net cumulative loss assumption for personal loans in line with our underwriting tolerance, although we continue to trend below these levels. Our recent vintages originating from Q4 2022 to Q1 2025 have net cumulative losses of 4.55% with 37% unpaid principal balance remaining. This is well below the 6.27% observed at the same point in time for the 2017 vintage, the last vintage that approached our 7% to 8% tolerance. The gap between the newer cohort curve and the 2017 cohort curve widened by 8 basis points during the fourth quarter. In fact, this gap has widened in each of the past 6 quarters since we began measurement. Additionally, looking at our Q1 2020 through Q3 2025 originations, 60% of principal has already been paid down with 6.8% in net cumulative losses. Therefore, the life of loan losses on its entire cohort of loans to reach 8%, the charge-off rate on the remaining 40% of unpaid principal would need to be approximately 10%. This will be well above past levels at similar points of seasoning, further underscoring our confidence in achieving loss rates below our 8% tolerance. Turning to our fair value marks and key assumptions. As a reminder, we've marked our loans at fair value each quarter, which considers a number of factors, including the weighted average coupon, the constant default rate, the conditional prepayment rate and the discount rate comprised of benchmark rates and spreads. At the end of the fourth quarter, our personal loans were marked at 105.7%, down 8 basis points from the prior quarter. This included an increase in the annual default rate, which was primarily driven by loan vintage seasoning, not changes to the individual loan loss assumptions, partially offset by a lower benchmark rate. At the end of the fourth quarter, our student loans were marked at 105.6%, down 8 basis points from the prior quarter, driven by minor changes in the average coupon and annual default rate. Turning to our balance sheet. In December, we raised $1.5 billion of new capital in the form of common equity. This was our second opportunistic raise of 2025, giving us great flexibility to pursue organic and inorganic growth opportunities. It also allowed us to further improve our funding base. Over the past 2 quarters, we fully paid down our warehouse lines, reducing our funding costs by an estimated $110 million on an annualized basis, fully mitigating the bottom line impact of the additional shares. In the fourth quarter, including the $1.5 billion of new capital, total assets grew by $5.4 billion. This was driven by $3.1 billion of loan growth and approximately $1.7 billion of growth in cash, cash equivalents and investment securities. Total company-wide cash at quarter end was $5.4 billion. On the liability side, total deposits grew by $4.6 billion to $37.5 billion, primarily driven by growth in member deposits. Our net interest margin was 5.72% for the quarter, down 12 basis points sequentially. This included a 30 basis point decrease in average asset yields as we saw a modest mix shift from personal loans to home and student loans, partially offset by a 15 basis point decrease in cost of funds. We continue to expect a healthy net interest margin above 5% for the foreseeable future. In terms of our regulatory capital ratios, we are very well capitalized. Our total capital ratio of 22.9% at quarter end is well above the regulatory minimum of 10.5% as well as our additional internal stress buffer. Tangible book value grew $4 billion year-over-year to $8.9 billion, including the benefit from the new capital raised. Intangible book value per share at quarter end is $7.01, up from $4.47 a year ago, a 57% increase. Let me finish by providing our outlook for 2026 in the medium term, starting with the macro assumptions that underpin our financial guide. In line with market expectations, our 2026 assumptions are as follows: an interest rate outlook consistent with the Fed funds futures and 2 rate cuts to get us to a 3.0% to 3.25% exit rate in 2026. Real GDP growth of approximately 2.5% and an unemployment rate in the 4.5% to 5% range. Now for our specific guidance. For the full year 2026, we expect to increase total members by at least 30% year-over-year. We expect adjusted net revenue of approximately $4.655 billion, which equates to year-over-year growth of approximately 30%. We expect adjusted EBITDA of approximately $1.6 billion, which equates to an EBITDA margin of approximately 34%. We expect adjusted net income to be approximately $825 million, which equates to a margin of approximately 18%. We expect adjusted EPS to be approximately $0.60 per share. The guidance assumes a mid-teens tax rate, which we currently believe to be our effective tax rate in 2026. For the first quarter of 2026, we expect to deliver adjusted net revenue of approximately $1.04 billion, which is a 35% year-over-year increase compared to 33% in the same period last year. Adjusted EBITDA of approximately $300 million, which equates to a margin of 29% versus 27% in the same period last year. Adjusted net income of approximately $160 million, which equates to a margin of 15% versus 9% in the same period last year. And adjusted EPS of approximately $0.12, 2x the $0.06 delivered in the same period last year. It's important to note that each year, we have seasonal payroll taxes during the first 2 quarters of the year, and we plan to accelerate marketing expenses in the first half of 2026 relative to Q4 2025. Overall, 2025 has been a remarkable year for SoFi. We are proud of the strong results we delivered and are excited to build on this momentum in the year ahead. Looking beyond 2026, given our differentiated model, the strength of our balance sheet and the tremendous opportunities that exist across our business and in newer areas, we expect to deliver compounded annual adjusted net revenue growth of at least 30% from 2025 to 2028. Additionally, we expect to deliver compounded annual adjusted earnings per share growth of 38% to 42% from 2025 to 2028. Let's now begin the Q&A. Operator: [Operator Instructions] First question today comes from John Hecht at Jefferies. John Hecht: Congratulations on the good momentum. I guess first -- I guess my question is, you guys gave some good consolidated guidance. Maybe can you break some of those details out at the segment level? Unknown Executive: Sure. I can take that one, John. So overall, like we've said in the past, given that we're right in the middle of 2 super cycles with blockchain and crypto and AI, and the fact that we have significant capital cushion in any scenario that we could have possibly imagined and makes us extremely excited about the outlook for our business, both in the immediate and the longer term. In terms of our 2026 outlook, we expect continued very strong revenue growth of roughly 30% year-over-year. As it relates to the segments for Financial Services, we expect revenue growth of 40% or more. For Lending, we expect revenue to grow approximately 23% year-over-year. And then for Tech Platform normalized for the transition of a large client, we expect revenue growth of approximately 20%. And then for our Corporate segment, revenue should generally be in line with what we saw in 2025 on a dollar basis. As we look forward out to the medium term, we're expecting at least 30% annual revenue growth compounded between 2025 and 2028, and 38% to 42% annual compounded EPS growth between 2025 and 2028. From a segment perspective, we expect to see continued momentum across all segments. And given the investments that we've made to date, we see the opportunity to accelerate growth in 2027 and '28 across a number of products that are just starting to scale, including our crypto business, our brokerage business, home loans and student loans given the rate environment. So overall, really optimistic about the outlook, given everything in head of us. Operator: The next question comes from Andrew Jeffrey at William Blair. Andrew Jeffrey: Great to see the momentum in the business. Anthony, you've talked about driving awareness. And I think you mentioned today on the call, the opportunity for refinancing at $1 trillion. It looks like perhaps that messaging hit an inflection point this quarter, and you mentioned some of the celebrity partnerships. Can you elaborate a little bit on the acceleration in KPI growth, whether it's sustainable, whether you think this is sort of the tipping point in which consumers say, "Hey, look, it's just simply [indiscernible] we have better answer than traditional banks? Can we sort of declare that we've reached that point in your business model? Anthony Noto: Thank you for the question, Andrew. We're just -- we are at 9.6% unaided brand awareness. We would love our unaided brand awareness to continue to grow to get into the mid-20s, which would -- when we get there, likely put as a top 10 financial institution. When I joined, our [indiscernible] brand awareness was around 2%. And for those who aren't familiar with that measure, our needed brand awareness is asked in the following way. When you're thinking about a financial services product, please name 3 companies you would consider. So it doesn't ask about student loans. It doesn't ask about personal loans or any of the other products that we have, it just ask that generic question. The ability to move from 2% to 9.6% is really, really challenging in the time period that we have. The largest banks in our country, the most well-known banks in our country, the most trusted banks in our country, they've been doing it for centuries and some of them are less than centuries, but a very, very long time. So our team has really crushed it in leveraging a combination of branded advertising and performance-based advertising, and we absolutely partner with big, well-known stars, big, well-known entities like SoFi Stadium and innovative things like SoFi [indiscernible] continue to look for those opportunities. But I'm more than confident than ever that we've reached the point where I can go someplace and someone will say, "Oh, you work for SoFi, I have a SoFi account. That wasn't happening 8 years ago. It happens all the time now. And so one of our prior [indiscernible] '26 is trying to build product quality to such an extent that we drive virality and our customer acquisition costs go down meaningfully because of word of mouth, because of referrals. We're doing incredibly well now as it relates to our return on marketing spend. You can see that in our margins. We delivered more than our long-term margin originally stated when we went public, which we've now increased directionally. So we do believe we can spend money and get a return on it. We have the analytics of that now down. That's what's allowing us to drive more than 30% member growth consistently over the last 8 years and coupling it with product growth. The 40% cross-buy number, that is a number that's up almost 10% versus a year ago. And that's not easy to do when you're growing the business so quickly on a new member basis. So we're -- we're really hitting on all cylinders. We feel like we have the right marketing formula, but we're not going to rest on our laurels. I really want us to get that escape velocity where the amount that we spend becomes more and more efficient. And this is before implementing AI. It's really about product quality and awareness and that filtering down to greater productivity of our marketing dollars. Operator: The next question comes from Dan Dolev at Mizuho. Dan Dolev: Great quarter and epic medium-term guidance. Congratulations. Wanted to ask you maybe, Chris, about LTV, in terms of like how do you think about originations specifically? And like how much should be allocated to LTV versus the other stuff? Chris Lapointe: Sure. Thanks, Dan. So step back and talk a little bit about our origination outlook for the entire business. Overall, we had record originations in 2025, which were fueled by strong borrower demand across each and every one of our asset classes. What we're seeing so far in 2026 is that, that demand remains extremely robust, and we have more flexibility than we've ever had as a company entering 2026. We expect the total originations for the company will be up strongly year-over-year. And we have the luxury of, a, choosing to drive capital-light fee-based revenue through our strong capital market pipeline, particularly in the loan platform business, as you mentioned, where we just signed a new partner, and we have several partners at final term sheet stages; or b, we have the opportunity to keep these higher returning assets on our balance sheet and putting our newly raised capital to work. Ultimately, how we're going to allocate those assets is going to be determined by our overarching goals of serving our members, and driving durable growth to maximize returns for our shareholders in the long run. Given that we have significantly scaled our loan platform business to over $14.5 billion in annualized volume, we've diversified our revenue to 44% in fees, and we have the excess capital, we have phenomenal optionality today. Holding these loans on our balance sheet results in the highest total return for each and every one of our loans, while transferring them through the loan platform business carries no risk and results in immediate revenue and cash as well as attractive returns for us. So we're really in an enviable position of choosing between 2 great options, and we're going to balance them accordingly. Operator: Next question comes from Kyle Peterson at Needham & Co. Kyle Peterson: Nice results. I wanted to touch on the deposit growth this quarter. It's really impressive for me to see. So I guess is this still largely coming from member deposits? And then could you guys give us a refresher on what the recent downward beta has been? That would be really helpful. Anthony Noto: So a couple of things on deposits. I've said since we -- since we opened the bank, that we have a competitive advantage in being able to offer our members a better value proposition than anyone else on something like SoFi Money, combination of a high APY reward opportunities as well as other services that we provide like free certified financial planning, et cetera. I think as rates continue to go down, our advantage will make itself more clear. Everyone that we compete against in that top quartile, they kind of fall into 2 buckets. One, they're a newer bank that actually does lending and they have an ability to provide a rate of above Fed funds, but they have a deposit base that's so big, they can't be too aggressive because they'll reprice their entire deposit base. And that's a structural issue that we fundamentally don't have. Second is people that are not actual banks that are using sponsor banks and they can only get Fed funds plus 20 or 30 basis points. Because we have such a large and profitable lending business, we can use that -- those profit pools to give a rate that's unmatched by other people. We haven't had to do that yet because we've had such great demand for our product, and that's driven the deposits. And I think we'll continue to show that we can be the top quartile API and achieve the level of deposit funding that we want, and it remains relatively sticky. The bulk of our deposits almost 97% are direct deposit customers, and that is high-quality primary account relationships, and that's where we're aimed at. Chris Lapointe: Yes. And the only other thing I would add to Anthony's comments because you asked about it is the downward beta. We've -- since we launched a bank, we've been at roughly a 60% to 70% beta, and we would expect that to stay consistent going forward. Operator: Next question comes from Reggie Smith of JPMorgan. Reginald Smith: Congrats on the quarter and strong guidance. Real quick for me. I guess it sounded like, Anthony, you sounded very, I guess, bullish on some of the new products. I'm thinking about the crypto, thinking about stable coin, thinking about the smart card. And I'm curious, do you think that the innovation that we're seeing on the fintech side could spur more interest in demand from your platform -- platform customers. And historically, I think you guys have lived with kind of card processing and things like that. Good stuff, not is as interesting as some of the newer things that are kind of coming down the pipe, maybe can you talk a little bit about that? And if this could signal or catalyze like a change in adoption and growth in Tech Platform? Anthony Noto: Sure. The Tech Platform business is definitely benefiting from, let me say, it could benefit from the areas that you just mentioned. So a year ago, the amount of demand or interest that we had in blockchain, in stable coins and wallets, et cetera, for tech platform partners was really not existent. But since the administration change and the OCC came out with the permissibility of crypto and blockchain among banks, the amount of interest in leveraging the tech platform services has really increased quite meaningfully. We don't have anything to announce yet. We're in tons of dialogues with different types of companies. There are companies that are launching a debit card type of product in LatAm countries that's back to 100% by stable coins. It's not backed by Fiat dollars at all. And so there's a fair amount of that. There's also a fair amount of program managers for that type of product. And then in the U.S., I think there's less activity from financial institutions for those services it's more in the LatAm countries. But we do anticipate it will spill over to the U.S. and some of the international companies will look to the U.S. because it's a more inviting environment from an administrative standpoint. I think the [indiscernible] is very important because it will establish into law the permissibility of crypto and blockchain by banks. Right now, we're all relying on the OCC interpreted letters, and it'd be much better if it was locked into law, especially if the administration changes in a couple of years. But I'd say the outlook and opportunities that crypto provide for the tech platform as well as our own business are pretty enormous, and I couldn't be more excited about it. It adds a whole another dimension of growth for us, but it also drives a whole another sort of lens of innovation across all of our products. And when you have as many products that we have and you have an entirely new technology platform, at a lower cost, at faster speed and it safer, it could fundamentally change everything that we do. Operator: The next question comes from Kyle Joseph from Stephens. Kyle Joseph: On the third quarter call, we talked a lot about capital markets, and I think you guys referenced a flight to quality from investors. Just kind of looking to get an update there. Obviously, sentiments change. But yes, a little bit of a capital markets update and any implications on the competitive front on the personal loan side of things? Chris Lapointe: Yes. Sure. Thanks. So overall capital markets activity and demand remains extremely robust. We continue to see that flight to quality that we mentioned during the Q3 call. We just had a phenomenal quarter in our loan platform business, transferring $3.7 billion of loans on behalf of others. We just signed a new partner this week for 2026. [indiscernible], and we had several other partners who are in final term sheet stages. So overall, demand can be better from an investor perspective. As it relates to personal loan competition, we just had record originations of $7.5 billion in the quarter. We're seeing that trend persist into 2026. So all else people, we feel great both from a capital markets perspective as well as a borrower demand perspective. In terms of how we're thinking about, just as it relates to personal loans and growth in the balance sheet, we are expecting to grow the balance sheet in the double-digit billions, which is in line with what we did in 2025. We're seeing great momentum so far here in early 2026, and we expect that to persist throughout the year. Operator: The next question comes from Peter Christiansen from Citigroup. Peter Christiansen: Congrats on the great momentum here. Anthony, I'm curious to your perspective. There's been some areas within private credit, which have seen some sentiment change more recently. It doesn't seem like it's too much in the direct consumer lending portion of that area. I'm just curious, from your perspective, what you're seeing from some of your private credit partners and demand flows there? Anthony Noto: Yes. What I'd say is the attractiveness of our assets and our loans is tied to the returns that they have and we obviously are focused on a prime customer in the business that we're putting on our balance sheet and mostly what we're doing with partners. And the key is to make sure we're delivering our return -- our target return against that. We'll able to manage the performance of prepayments, the performance of defaults and the performance of interest rates and our cost of funding to deliver great value for our partners. And as long as we keep doing that, they'll continue to be in more demand than supply. With the amount of capital we have on our balance sheet now, I think you could see our growth in originations and revenue and lending start to close a little bit. In the fourth quarter, our originations were up 40% year-over-year, but our lending revenue was up 15%. And so we're really servicing our partners in a great way, but we could keep more of that production if we so chose especially given our confidence in our returns. Operator: The next question comes from Moshe Orenbuch from TD Securities. Moshe Orenbuch: Chris, you talked a little bit about the allocation between the loan platform business and the core product of the balance sheet for your Lending Segment. Could you just kind of tell us what the -- what your -- the contribution from the loan platform business you're expecting in the '26 guide? Chris Lapointe: Sure. We aren't guiding specifically to origination volumes or LPV volumes for 2026. But what I would say is we just exited 2025 at a $3.65 billion quarter annualizes to about $14.5 billion of originations. We feel good about that level heading into 2026. We have sufficient demand from borrowers, like I said, the new one we just signed up. We have all of our existing partners as well have extended their contracts and often upsize their commitments in period. So there's sufficient demand from capital markets participants in our LTV program. But like we said, we have a very robust balance sheet, high capital ratios, and we're going to balance the allocation between the two to maximize shareholder value. Operator: The next question comes from William Nance from Goldman Sachs. William Nance: Just a lot of good questions already on the call. I just wanted to clarify the comment on the expectation for segment growth rate on the Tech Platform business. I think you mentioned it was pro forma for the large customer migration. Is there any way you could give us a baseline or just a jumping off point there as we think about kind of rolling forward the next quarter? And then I think separately, I think that customer has spoken about like a very large termination fee that they would have to recognize. Could you just confirm that was in this quarter if you recognize if you've already recognized that or just how that's being treated, I appreciate the already questions here. Anthony Noto: Yes, sure. So as it relates to the outlook that Chris mentioned, he said 20% growth for the Tech Platform, apples-to-apples without the large customer in both years. We're not going to give you more granularity than that. Our outlook assumes no revenue in 2026 from that large customer. The deal with that large customer ended. The revenue also ended in Q4, and the revenue in the quarter from that large customer was part of our contract, and it was equal to the average of the revenue in the last 6 quarters. So I think people will characterize that revenue in a lot of different ways, but the simplistic way to look at it is the revenue was tied to the ending of the contract. Our revenue came in at a level that was equal to the average of the last 6 quarters. Chris, I don't know if you'd add anything to that. Chris Lapointe: No, that's fine. Operator: The next question comes from Jill Shea from UBS. Jill Glaser Shea: I just wanted to touch on profitability. You've posted some really nice progress on ROTCE. I think you posted 9% in the fourth quarter. And clearly, there's a lot of momentum in the business, and you've been leaning into capital-light businesses and growing the fee income mix. I'm just wondering if you could touch on the ROE of the business over a longer-term horizon. I think you've mentioned 20% to 30% in the past. Has that changed at all? Is the timing of the past changed at all? Perhaps you can just touch on the overall profitability of the business that you're building? Anthony Noto: Jill, I would say that we believe we're building a business that will have superior return on equity, return on tangible equity. We still believe it's in the 20% to 30% range. We are not going to underinvest in the business to get to that number while we're growing at the rate that we're growing. You should expect that we're going to continue to manage the business with a 30% incremental EBITDA margin, and as opposed to trying to drive it higher to maximize the ROE in the near term. Ultimately, if you see us growing less than 15% revenue, you're going to see meaningful margin expansion and thus driving to our long-term ROE. Between there and here, which hopefully I'm long gone by the time we get down to 15% from a -- not [indiscernible] any longer because I expect to be here for the rest of time, unless, for some reason, someone asked me to leave, I hope we never see 15%. But we would be under delivering on the opportunity in front of us if we didn't keep investing. So we're not just dropping it all into investment. We're dropping some to the bottom line, at least $0.30 of every incremental dollar in an annual period, and that will give you a good indication of how we can drive returns over the long term. But the growth rates of over 30% that are in front of us this year at the scale that we're at, just says we're just getting started. So we don't want to underinvest in that. Chris, do you have anything else. Operator: The final question we have time for today comes from Devin Ryan at Citizens Financial Group. Unknown Analyst: This is Noah Katz on for Devin. With over $3 billion raised in the back half of the year, you're entering 2026 with a substantially stronger capital position. How should we think about capital allocation towards balance sheet growth versus other strategic opportunities? And can you speak on your appetite for M&A? And also on M&A, please remind us of the hurdles and considerations there? Chris Lapointe: Yes. So in terms of how we're thinking about capital allocation, like you said, we have 23% capital ratios today. It's over 1,000 basis points higher than our regulatory minimum and meaningfully higher than the regulatory minimum plus our internal stress buffer. So we feel great about the position that we're in. We're in that enviable position where we can grow and put more assets on the balance sheet. These are very good returning assets, that we're underwriting today, and we feel good about that as well as the LTV partnerships, as I've mentioned a few times during this call. I'll let Anthony touch on anything as it relates to M&A. Anthony Noto: There's a lot of opportunities out there. I would say, more than we've ever seen in 8 years here. But I'd also say the bar is really high for us. And when I say really high, we've looked at dozens and dozens of things, some of which were for sale, some of which were interesting to us. What we're prioritizing are things that can accelerate our growth versus the time it would take to build it ourselves. So one area we're very interested in is technology platform capabilities. And so while it's as a custody as a service, stable coin as a service, being able to provide a market exchange for Fiat and for different types of stable coins. Our pay product, SoFi Pay, we launched in September, it is currently using Bitcoin in the Lightning network, the transport [indiscernible] from the U.S. to Fiat dollars in over 30 countries internationally. And so is there a way for us to accelerate SoFi Pay's international expansion through a technology platform type of acquisition or infrastructure. We're also very interested in international countries and the licenses some small companies could have. In addition to that, in technology platform, we don't have revolving credit card processing and issuing. It's something we can build ourselves, but if there's a technology that's not that expensive, and we don't have to pay for a business, we may do that and leverage our technology platform in core plus their processing to enter the revolving credit technology platform services space. There are some horizontal things that we've looked at, but nothing of interest. As you know, we've talked about building big business banking, and we look at some SMB platforms to see if they would accelerate our opportunity there. The fact of the matter is they don't. We're likely going to build that ourselves, big business banking that is, which we have seen really strong positive response from the marketplace as it relates to the need of these services to be a bank that can do both [indiscernible] and crypto. So we feel really good about having optionality in our balance sheet. I don't feel good about finding stuff at the price that we want. So so far, what I'd say is it's all going to be organic. But if something presents itself in the area that I mentioned at the right price versus doing it internally, we would act on that. But the bar is really high. I know that was our last question. So I just want to wrap the call up. First, thank you all for joining. 2025 was an exceptional year by any measure. The more I went through our results in preparation for Earnings Day, the more I was able to truly [ brass ] how exceptional the fourth quarter and full year are looking through any lens, and how far we've come over the last 8 years. I could not be more proud of our team for building a diverse, resilient business that is impacting our members in an unbelievable way, and that positions us to overcome whatever obstacles are thrown our way. All of that said, I think it's an understatement to say that we're just getting started, and I am more excited about what lies ahead than I have ever been at SoFi. You can rest assured that we will move faster than we ever have, we'll work smarter than we ever have, and we'll be more resilient than we ever have to capture the massive opportunity in front of us, fresh horses we ride and look forward to seeing you next quarter. Operator: This concludes today's conference call. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Autoliv Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anders Trapp, Vice President, Investor Relations. Please go ahead. Anders Trapp: Thank you, Sandra. Welcome, everyone, to our Fourth Quarter and Full Year '25 Earnings Call. On this call, we have our President and Chief Executive Officer, Mikael Bratt; our Chief Financial Officer, Fredrik Westin; and me, Anders Trapp, VP, Investor Relations. During today's earnings call, we will highlight several key areas, including our record-breaking sales, cash flow and earnings per share. We also provided an update on the latest market development. And finally, we will outline the expected margin improvement in 2026 and how our strong balance sheet and asset returns will support the continued high level of shareholder returns. Following the presentation, we will be able -- available to answer your questions. As usual, the slides are available on autoliv.com. Turning to the next slide. We have the safe harbor statement, which is an integrated part of this presentation, and it includes the Q&A that follows. During the presentation, we will reference non-U.S. GAAP measures. The reconciliations of historical use GAAP to non-use GAAP measures are disclosed in our quarterly earnings release available on autoliv.com, and in the 10-K that will be filed with the SEC or at the end of this presentation. Lastly, I should mention that this call is intended to conclude at 3 p.m. Central European Time. So please follow a limit of two questions per person. I now hand it over to our CEO, Mikael Bratt. Mikael Bratt: Thank you, Anders. Looking on the next slide. I am very pleased to report another great quarter with strong development in sales, profitability, cash flow and balance sheet. These achievements reflect the performance of the whole Autoliv team and the depth of our customer partnerships and our dedication to ongoing structural cost savings. We achieved record high sales for both the quarter and the full year supported primarily by strong growth in India and with Chinese OEMs. Sales to rapidly expanding Chinese OEMs surged nearly 40% in the quarter, reinforcing our position in the industry's most dynamic markets. India, again, delivered exceptional growth, representing nearly half of our global organic growth. Looking ahead, we expect to continue to significantly outperform light vehicle production in both China and India in 2026. As we have guided for, adjusted operating income declined slightly in the quarter, mainly due to lower out-of-period compensation and lower customer RD&E reimbursement. We recovered close to 100% of tariff costs in the fourth quarter. We delivered record operating and free operating cash flow for both the quarter and for the full year. In 2025, we generated $734 million in free operating cash flow, an increase of over $230 million, driven by higher profitability and disciplined capital management. It is also important to note that we delivered record earnings per share for both the quarter and the full year. During the quarter, we returned $216 million to shareholders while reducing our debt leverage ratio to 1.1x, reinforcing my confidence in our ability to continue delivering attractive shareholder returns. We also announced that Autoliv and Tensor have developed the first foldable steering wheel for the Tensor's Robocar, targeted for volume production in late 2026. This innovation enhances safety and design flexibility for autonomous vehicles and marks an important strategic step in expanding our role in the emerging autonomous vehicle ecosystem. Looking on the next slide. Fourth quarter sales increased by 8% year-over-year, driven by strong outperformance relative to LVP, along with favorable currency effects and tariff-related compensations. This growth was partly offset by an unfavorable regional and market light vehicle production mix. The adjusted operating income for Q4 decreased by 4% to $337 million, compared to an exceptionally strong fourth quarter last year. The adjusted operating margin was 12%, 140 basis points lower than in the same quarter last year. Operating cash flow was $544 million, an increase of $124 million or 30% compared to last year. Looking now on the next slide. We continue to deliver broad-based improvements with particularly strong progress in direct costs. Our positive direct labor productivity trend continues as we reduce our direct production personnel by almost $700 million. This is supported by the implementation of our strategic initiatives, including automation and digitalization. Gross profit increased by $22 million, while gross margin declined by 70 basis points year-over-year, but improved by sequentially by 100 basis points compared with the third quarter. RD&E net costs rose year-over-year, primarily on lower engineering income due to timing of specific customer development projects. SG&A costs increased by $12 million, mainly due to higher costs for personnel, as well as negative FX translation effect. Looking now on the market development in the fourth quarter on the next slide. Light vehicle production in the fourth quarter of 2025 reached its highest level for any quarter on record. This reflects strong demand across several major markets. The regional production mix has changed significantly in recent years with a large share now coming from lower content per vehicle markets in Asia. According to S&P Global data from January, global light vehicle production for the fourth quarter increased 1.3%. And exceeding the expectation from the beginning of the quarter by 4 percentage points. The stronger-than-expected market was primarily driven by China, where light vehicle production came in 8 percentage points above expectations, supported by consumers taking advantage of scrapping and replacement subsidies before their expiration. India also contributed to better-than-expected light vehicle production growth, supported by significantly reduced taxes on new vehicles. Light Vehicle demand and Light Vehicle demand and production in North America have held up better than expected, leading to a small decline in light vehicle production than anticipated. As many low content markets grow during the quarter, the global regional light vehicle production mix was approximately 150 basis points unfavorable. This was more than 100 basis points worse than expected at the start of the quarter. During the quarter, we experienced increased volatility driven by inventory adjustments in North America early in the period. In December, we also saw production adjustments in Asia, including China, in response to rising inventory levels. We view this volatility as temporary and expect conditions to improve in 2026. We will talk about the market development more in detail later in the presentation. Looking now on our sales growth in more detail on the next slide. Our consolidated sales were over $2.8 billion, the highest for any quarter yet. This was around $200 million higher than last year, driven by volume and positive currency translation effects and $27 million from tariff-related compensation. Excluding currencies, our organic sales grew by 4%, including tariff costs compensations. China accounted for 23% of our group sales. Asia, excluding China, accounted for 20%, Americas for 30%, and Europe for more than 27%. We outlined our organic sales growth compared to LVP on the next slide. Our quarterly sales growth was driven by strong performance across most regions, particularly in the rest of Asia and China. Based on the latest light vehicle production data from S&P Global, we outperformed the market by 3 percentage points globally, despite the unfavorable regional light vehicle production mix. We returned to outperformance in Europe and the Americas. In rest of Asia, we outperformed the market by 11 percentage points, driven by continued strong sales. Growth in India, where we did outperform in more than 30 percentage points. Our sales to Chinese OEMs grew by almost 40%, exceeding the light vehicle production growth by 34 percentage points. Sales to global customers in China were 8 percentage points below the light vehicle production development. On the next slide, we see some key model launches from the fourth quarter. The fourth quarter of 2025 saw a relatively high number of new launches, primarily in China with both Chinese and other OEMs. These new China launches reflect strong momentum for Autoliv in this important market. The models displayed here feature Autoliv content per vehicle from $150 to over $400. Higher CPV is driven from -- by front center [ air ] banks on three [ obvious ] vehicles produced in China. In terms of Autoliv's sales potential, the Mercedes GLB and CLA combined are the most significant. The CLA was the highest scoring or by Euro NCAP in 2025. For 2026, we expect a record number of new product launches, driven by Chinese OEMs. Now looking at the next slide. 2025 was a challenging year for the industry, marked by tariffs, ongoing supply chain disruptions, the slowdown in EV demand, shift in the OEM, landscape and demand pressure due to concerns of vehicle affordability. Despite these headwinds, Autoliv delivered a record year. On the next slide, where we summarize the year. For the year, we met or exceeded all of our full year guidance metrics, sales, adjusted operating margin and cash flow. Our sales reached a new all-time record. global light vehicle production surpassed 90 million units for the first time since 2018. However, the regional mix has shifted significantly with higher volumes in Asia and lower volumes in high content markets, such as Western Europe and North America. We also reached several other significant milestones Operating income exceeded $1 billion for the first time. Earnings per share rose above $9, and we paid more than $3 per share in dividend. During our Capital Markets Day in June, we reiterated our medium- and long-term financial targets, and we initiated a new USD 2.5 billion share repurchase program. Another highlight of the year was the signing of the strategic agreement with Qatar, and we expand further into advanced automotive safety and electronics. Now looking at next slide. Industry sourcing of new business remained at the low level during 2025 as OEMs continue to reassess their product plans. Amid high geopolitical and technogical uncertainty, our customers are reassessing both what and where to produce future models. At the same time, they are navigating a more dynamic and competitive industry landscape with many new players. We have also experienced notable market mix effect as a shorter program life cycles and Chinese OEMs reduced their average lifetime sales. With these OEMs now representing roughly 1/3 of global industry sourcing, the impact of this shift is increasingly pronounced. Despite these headwinds, our intake remained robust, supporting our current market position. Chinese OEMs remained a strong contributor for us, accounting for over 30% of our global order intake. And importantly, we secured our first order with Chinese OEMs for vehicle production in Europe. Despite this, looking on the order intake in more detail on the next slide. In 2025, about 1/3 of our total ordering became from new automakers, highlighting the growth in importance of new mobility players. We won multiple awards tied to industry trends, such as autonomous driving. This includes solutions that protects occupants in reclining seating position, addressing critical safety risks in next-generation interiors. We strengthened our mobility safety solution business by winning new orders for our advanced pyro-safety switch supporting the growing segment of 1,000 volt electrical vehicles. Additionally, awards, including an occupant safety system development program from a major premium automation, as well as wins for steering wheel switches with integrated ECUs and rear window inflatable carton airbags. We continued to expand our safety offering in India with advanced systems such as seat cushion airbags and front center airbags. We licensed our human body model solution to our first customer a leading automaker, enabling next level virtual crush testing and demonstrating the strength of our digital safety capabilities. Let's now look at organic sales growth for the full year 2025. For the full year, we grew in line with global light vehicle production. Outperformance came in lower than anticipated earlier in the year as the regional and market light vehicle production mix developed almost 4 percentage points less favorable than expected. We outperformed in rest of Asia by 6 percentage points. In the Americas by 3 percentage points and in Europe by 2 percentage points. In China, our sales to Chinese OEMs grew by 23% and they accounted for more than 44% of our China sales, doubled our share from 3 years ago. However, the unfavorable market mix still resulted in a 6 percentage points underperformance in China overall. Our global market position remains strong with clear market leadership across all regions and product categories. In 2025, our global market share was around 44%, almost 5 percentage points higher than in 2018 following the Veoneer spinoff. Supported by new launches, especially with Chinese OEMs and CPV growth, we expect sales to outperform light vehicle production by around 1 percentage points in 2026. Now looking at the next slide. I will now hand over to Fredrik Westin. Fredrik Westin: Thank you, Mikael. I will talk about the financials now more in detail on the next few slides. So turning to the next slide. This slide highlights our key figures for the fourth quarter of 2025 compared to the fourth quarter of 2024. The net sales were approximately $2.8 billion, representing an 8% increase. Gross profit increased by $22 million. The drivers behind the gross profit improvement were mainly improved operational efficiency, with lower cost for logistics and labor, as well as positive effects from higher sales and lower material costs. This was partly offset by lower out-of-period customer compensation, less capitalization to inventories and higher depreciation. The adjusted operating income decreased from $349 million to $337 million, and the adjusted operating margin decreased to 12.0%. The reported operating income of $319 million was $18 million lower, mainly due to costs for recycled accumulated currency translation differences related to the closure of our entities in the Netherlands and Italy. Despite lower adjusted profit, the adjusted earnings per share diluted increased by $0.14. The main drivers were $0.10 from taxes, $0.11 from lower number of outstanding shares and $0.05 from financial items, partly offset by $0.16 from lower operating income. The adjusted return on capital employed was a solid at 32%, and our adjusted return on equity was 37%. We paid a dividend of $0.87 per share in the quarter and repurchased shares for $150 million and retired 1.3 million shares. Looking now on the adjusted operating income bridge on the next slide. In the fourth quarter of 2025, our adjusted operating income decreased by $12 million. Operations contributed $41 million, primarily driven by higher organic sales and the successful execution of operational improvement initiatives despite increased call of volatility. We out-of-period cost compensation was $24 million lower than last year. Costs for RD&E net and SG&A increased by $33 million, mainly due to lower engineering income. The net currency effect was $7 million positive, mainly from translation effects. The combination of unrecovered tariffs and the dilutive effect of the recovery portion resulted in a negative impact of around 15 basis points on our operating margin in the quarter. Looking now at full year results on the next slide. 2025 was a record year for sales, adjusted operating profit, operating cash flow and adjusted EPS. Our net sales were $10.8 billion, a 4% increase compared to 2024. The combination of unrecovered tariffs and the dilutive effect of the recovered portion resulted in a negative impact of around 20 basis points on our operating margin for the year. The adjusted operating income increased by 11% to $1.1 billion. The adjusted operating margin was 10.3% compared to 9.7% in 2024. We our operating cash flow was $1.2 billion, about $100 million higher than in 2024. And the adjusted earnings per share rose 18% to $9.85 and reflecting higher net profit and the benefit of a reduced share count from repurchase activities. The earnings per share has grown on average by close to 18% per year since 2021. Dividends of $3.12 per share were paid, an increase of 14%, we repurchased shares for $351 million. Looking now at the cash flow in more detail on the next slide. The operating cash flow for the fourth quarter totaled $544 million, an increase of $124 million, mainly as a result of positive working capital effects. The positive working capital was primarily driven by lower accounts receivables due to lower sales levels towards the end of the quarter and also from $44 million improvement in inventories mainly due to lower sales levels towards the end of the quarter. Capital expenditures net for the quarter decreased by $22 million. Capital expenditures net in relation to sales was 3.9% versus 5.0% a year earlier. The lower level of capital expenditure net is mainly related to lower footprint CapEx in Europe and Americas and less capacity expansion in Asia. Free operating cash flow for the quarter was $434 million compared to $288 million in the same period the prior year, mainly due to higher operating cash flow and lower CapEx. For the full year, free operating cash flow was $734 million. Over the past 5 years, we have delivered average annual free operating cash flow growth of 25%, reflecting improved profitability and capital management discipline. The cash conversion for the full year, defined as free operating cash flow in relation to net income was 100%, exceeding our target of at least 80%. Now looking at our trade working capital development on the next slide. We continue to advance our capital efficiency program with a target of improving working capital by $800 million. Over the last 5 years, we have improved working capital by approximately $740 million. Improved cash conversion supports a stronger balance sheet and supports our ability to deliver attractive shareholder returns. Compared to the prior year, trade working capital increased by $106 million, where the main drivers were $243 million in higher accounts receivables, $208 million in higher accounts payables, and $72 million in higher inventories. This increase in trade working capital was mainly due to increased sales. In relation to sales, it was virtually unchanged year-over-year at 10.8% despite higher cooler volatility towards the end of the quarter. Now looking on our shareholder returns on the next slide. Over the years, Autoliv has demonstrated its ability to generate solid cash flow across different market conditions. During 2025, we returned approximately $590 million to shareholders through dividends and share buybacks. Over the past 5 years, we have improved our debt leverage while returning $2.44 billion directly to shareholders. This includes repurchases totaling nearly $1.4 billion and dividends of almost $1.1 billion. In 2025, we substantially increased the quarterly dividend from $0.70 to $0.87 per share, representing a 24% increase. Since initiating the previous stock repurchase program in 2022, we have reduced the number of outstanding shares by almost 15%. When executing the program, we consider several factors, including our balance sheet, the cash flow outlook, our credit rating and the general business conditions as well as the debt leverage ratio. We always strive to balance what is best for our shareholders in both the short and long term. Now looking on our debt leverage ratio development on the next slide. Autoliv's balanced leverage strategy reflects prudent financial management, enabling resilience, innovation and sustained stakeholder value over time. Our leverage ratio improved from 1.3x to 1.1x during the quarter despite accelerated shareholder returns. Our net debt decreased by over $200 million. The 12-month trailing adjusted EBITDA was $3 million lower in the quarter. Now on to the next slide. And with that, I hand it back to you, Mikael. Mikael Bratt: Thank you, Fredrik. I will talk about the outlook for 2026, more in detail on the next few slides. Turning to the next slide. Overall, global light vehicle production in 2026 is expected to be slightly down compared to 2025, with regional gains and losses nearly offsetting each other. European light vehicle production is expected to remain broadly unchanged as improved affordability is likely to be offset by rising imports from China. Looking to North America, U.S. light vehicle sales in 2025 generally outperformed expectations. However, the market is now facing inflationary pressures as automakers seek to recoup at least part of tariff costs. As a result, S&P forecast light vehicle production to decline by 2% in 2026. The North America outlook remains uncertain due to upcoming USMCA negotiations. Despite weaker demand in China, full year production is expected to show only a modest decline, supported by continued strength in exports. Japan short-term outlook has improved. Supported by tax reductions and the reallocation of production from certain vehicles from Mexico to Japan. For the year, S&P is forecasting flat light vehicle production. Korean light vehicle production remained subdued given weaker domestic demand and a tougher export environment. In the light vehicle production is expected to increase by 8%, driven by a reduction in purchase taxes on new vehicles with disproportionally benefits smaller and lower-priced models. Geopolitical uncertainty, including tariffs and other trade restrictions, the USMCA review and industrial policy shifts are expected to be the biggest risk to the 2026 light vehicle production outlook. Now looking on our way forward on the next slide. For the full year 2026, we expect flat organic sales overall. Growth in China, India and South America is expected to be offset by lower sales in North America and Europe, reflecting a limited number of new product launches in those regions. Turning to profitability. We expect margin expansion supported by higher operational efficiency, ongoing structural cost reductions and improved light vehicle production call volatility. At the same time, we anticipate headwinds from higher raw material costs, particularly gold and from higher depreciation as recent investments come online. Finally, we expect continued strong operating and free operating cash flow generation. CapEx is expected to be slightly higher than in 2025, but still below 5% of sales as we invest in new manufacturing capacity to meet increasing demand in fast-growing regions such as India. Now looking more specifically on the first quarter 2026. The first quarter is expected to be the weakest of the year, which is consistent with the normal seasonal pattern for our industry. China is facing near-term demand headwind due to the reduced scrappage and new energy vehicle incentives, alongside elevated inventories of new vehicles. As a result, light vehicle production in the Chinese market is expected to decline by more than 10% in the first quarter. As a result, Q1 global light vehicle production is expected to decline by nearly 1 million units or 4% compared with the same period last year. Sequentially versus Q4 2025, LVP is expected to fall by 3.3 million units or 14%, about twice the normal sequential decline. We expect adjusted operating margin in the first quarter to decline significantly compared to Q1 2025, primarily due to lower light vehicle production, lower engineering income high depreciation and amortization in relation to sales. It's also worth noting that Q1 operating income last year included $12 million positive impact from the sale of our Russia operations. Turning to the next slide. This slide shows our full year 2026 guidance, which excludes effects from capacity alignment and antitrust-related matters. It is based on no material changes to tariffs or trade restrictions that are in effect as of January 23, 2026, as well as no significant changes in the macroeconomic environment for changes in customer call or volatility or significant supply chain disruptions. We expect to outperform light vehicle production by around 1 percentage points as our organic sales is expected to be flat, while global light vehicle production is expected to decline by 1%. The net currency translation effect on sales is expected to be around 1% positive. The guidance for adjusted operating margin is around 10.5% to 11%. Operating cash flow is expected to be around $1.2 billion. We expect CapEx to be below 5% of sales. Our positive cash flow and strong balance sheet supports our continued commitment to a high level of shareholder return. We expect a tax rate of around 28%. And now looking on the next slide. This concludes our formal comments for today's earnings call, and we would like to open the line for questions from analysts and investors. Now I hand it back to our operating operator, Sandra. Operator: [Operator Instructions] We will now take the first question from the line of Colin Langan from Wells Fargo. Colin Langan: Great. Is there a way to frame some of the major puts and takes when you talk about margins on Slide 25, in particular. I think you mentioned it was about $30 million in cost savings. Is that the structural bucket? How large is the raw material drag? Any way to quantify that? And then two things not mentioned on the puts and takes. Engineering was a drag last year. Is that good news in '26? And is there any FX or peso impact that we should be worried about? Fredrik Westin: Yes. Thanks for the question. So the puts and takes, if I tried to quantify the more explain a bit more in detail. So on the raw material side, we had about $10 million in headwinds in '25 for the full year, and we expect that to be a larger headwind in '26, so more around $30 million headwind. So that's mainly related to nonferrous metals. And here, the largest headwind is from gold actually. Then on the RD&E part, for the full year, we expect the RD&E cost as a percent of sales to be more or less flat. And that was also the case in 2025. It's just the timing in '25 was different compared to 2024. But if you look at the full year cost as a percent of sales, it was more or less unchanged. And that's also what we expect for '26 in terms of percent of sales. Then FX, that had about $20 million positive impact in '25 million, and we expect that the current or the rates that we have included in the forecast, which they've changed a little bit since then on our guidance. It would indicate a similar positive effect of around maybe $20 million for '26 million, again, which is -- as in '25. And then lastly, the structural cost savings, so we have now achieved about $100 million of the $130 million that we set out or detailed out when we announced the plan. So it's about $30 million left, of which we expect to get $20 million here in this year and then the remaining $10 million next year. So that's maybe some more quantifications there on the puts and takes for '26. Colin Langan: Yes. That was very helpful. Just as a follow-up, there was media reports earlier this week that Hyundai has an airbag recall, and I think the reports are saying that you were a supplier? Is that quantified in the guidance? Any color you could provide there? I guess a lot of investors are always a little worried when there's recalls. Yes, is there -- or is that very specific to those models that were recall? Mikael Bratt: Thank you for the question. I think as I said, it just came out here. And I mean, we're working together with the customer here, but at this point, there is no indication really towards our products and so forth. But we continue to work with [ there ] to support them, but there are nothing more really to say at this point on that. So right now, at this point, no indication towards us. Operator: We will now take the next question from the line of Gautam Narayan from RBC. Gautam Narayan: The first one is on the 2026 guidance, you're calling for a 1% outperformance versus the market. In the last quarter, Q4, you did, I think, a 3% outperformance. Just wanted to know if we could just better understand why the outperformance is only 1%. I know the market items you called out, the launch delays in North America and Europe, those are kind of impacting LVP is this perhaps worse for you guys? Just trying to understand the Autoliv's specific why the outperformance, I guess, is only 1%. And then I have a follow-up. Mikael Bratt: Yes. Thank you. I mean, first of all, I think this is very much in line with what we have talked about for quite some while here about our organic growth components where we have the 4% to 6% breaking up into three pieces, you could say, our contributors. And light vehicle production there stands for the first 1% to 2% and then our content or yes, the safety market as such, 1% to 2% and then our Mobility Safety Solutions 1% to 2%. And here, we've been also clear that the 1% to 2% related to mobility Safety Solutions is more towards the 2030 time horizon which leaves us with the LVP and the content there. And LVP, as we mentioned, is negative. So the 1% that we outperformed here is the consistent with the 1% to 2% CPV contributor here, even though it's the lower end of the range here. And as we have indicated here, I think we have faced headwinds during 2025 due to the mix, mix effect where the, let's say, the lower-end vehicles with lower content has been the ones that really have been growing. And for 2026, we expect a neutral mix effect, meaning that the mix structure we have now is moving into 2026 and then the lower end of the range of 1% for content growth. So I think it hangs very well together with what we have communicated in the past and our expectation as well here. Of course, we would like to have seen some more positive mix effects coming through here, but we don't see that right now here for 2026. But it will come further down the road here, I believe. Gautam Narayan: Got it. Understood. That's actually very helpful. My follow-up is, we've all seen the registration data in Europe in the recent months with obviously the Chinese OEMs really gaining share very quickly in certain countries. Maybe you could just -- I know you talked about this a little in the prepared commentary, but maybe just give a little more detail on how you guys are performing with exports and also prospective production in Europe from the Chinese OEMs. Mikael Bratt: Yes. Thank you. No, I think, I mean, as we have indicated here, I think our overall ambitions here to grow with the Chinese OEMs, in general, is progressing very well. And we basically have, I said, double our decision here in the last couple of years here. And have a very strong position in China as the market leader there. And one of the, I think, strength we have here is really that we can support our Chinese customers as they move outside their home market. And as we reported here, we are happy to share that we have on, first, very important quote here with one of the Chinese customers setting up production in Europe, and we are the only external supplier to that platform, which, of course, is really good indication of where we are at. However, I mean, right, so far, it's not the massive localization taking place right now. We are on many of the vehicles that are exported into Europe, of course. But I think it's still some way to go until we see really high volumes of localized Chinese production going forward here. Bottom line is we are well position for that. Operator: We will now take the next question from the line of Agnieszka Vilela from Nordea. Agnieszka Vilela: I have two questions. Maybe starting with your orders progress. Can you tell us what is your estimation of your current market share in the industry? And also, as I understand, you are making progress with the China OEM, but are you keeping your position with the Western OEs? Mikael Bratt: Yes. I mean we had a market share of 44% in 2024. We can also report -- we are reporting a market share of 44% in 2025. So yes, we are defending our market share position globally here. And an important part of that, of course, is that we see such a strong growth also with the Chinese OEMs here. And continue to be in focus. But we shouldn't forget also our strong position in India, which we also mentioned here, where we -- with 60 -- roughly 60% market share in the Indian market, see strong CPV growth and also light vehicle production growth. And I think also India is growing its importance as a global hub as well. So of course, with our position there and that growth. We're also well positioned there to continue to build on our market position globally here. Agnieszka Vilela: Yes, understood. And then the second question is on the raw material headwind that you assumed for 2026 of $30 million or about $30 million. How did you calculate the -- calculate that headwind? Did you use any kind of spot prices that you see? And if in that case, from what to date? Or are you using some contract prices that you have? Fredrik Westin: It's a mix of both. So in some cases, we have some long-term agreements with our suppliers, that's mostly related to steel in Europe. But then we also have contracts which are updated, yes, anywhere between quarterly up to annually. And then we based the forecast here on different index forecast that we have available. And it's -- we lock this forecast at say, late November. We lock the prices and that's what the $30 million is estimated or based on. So we see a headwind from steel. But as I said, the largest impact we see from gold and the [ res ] part. Agnieszka Vilela: And just to understand that this is net of any potential compensations that you would be getting for that? Fredrik Westin: This is a gross impact we're talking about -- so this is only how our costs will be impacted. This is not the net impact on our P&L. Operator: We will now take the next question from the line of Winnie Dong from Deutsche Bank. Yan Dong: I wanted to just go back to the order intake lifetime sales chart. Just wanted to ask what part of this do you think is structural and what part of it is more temporary. I would just take a step back. We've been talking about that we're in the phase of OEMs reconsidering their future offerings due to many different market factors. And then like where are we do you think is in this phase of uncertainty? And then I have a follow-up. Mikael Bratt: Yes. I think when you look at that number, as I said, it's in lifetime, slightly low compared to historic but in line with the previous year. And I would say the structural part is the effect you get from the more higher turnover of platforms. So I mean, as we take the Chinese here, for example, with the high pace of renewal of their model programs, then you get that effect. And I think that will continue. I think there will continue to be a high pace of new models coming out, meaning that you have end of life also coming quicker here for the models here. So I think that at least for a period of time here, I think that's a long-term effect. I think the short-term effect here is the cancellation of programs that were intended to launch here as the uncertainty around the driveline question here is prominent here and now. That should, of course, be of a temporary nature. So we get more -- to more certain product planning that has cleared out. So you have a little bit of both here in these numbers for 2025. Yan Dong: Okay. Got it. That's very helpful. My second question is on the foldable steering wheels that you guys unbilled for autonomous driving. Will this be essentially like the first of many products to come potentially for autonomous driving? And then, just curious on the -- any potential customer feedback that you might have? And when do you foresee for this to take off? And if you can also comment on content versus traditional steering wheels. Mikael Bratt: I think, I mean, in general, starting with last question, I think in general, with more advanced product is a good thing from a growth point of view, for sure. And I think the whole autonomous, even if it's still early days when it comes to volume. We see a lot of interesting and attractive innovation opportunities here where the foldable steering wheel is one. Then, of course, zero gravity seats, even if that's applicable also on the traditional vehicles is for sure, becoming even more interesting in an autonomous vehicle. So comfort is one driver there. And I think as we said, we will launch this together with our customer here towards the end of 2026. So of course, volume-wise, it's not big in 2026. And then it depends on, of course, the ramp-up of autonomous vehicles going forward here. So I think it's more a long-term and a medium-term play at least here. But the important thing here is that I think we see great opportunities in the changing of vehicles going forward here, both when we talk to drivelines as well as autonomous vehicle is positive from a content point of view. And also on the reactions you asked about here, is very positive here, and we have had several approaches and discussions after that presentation there at CES. So very positive response on [ the ]. Operator: We will now take the next question from the line of Jairam Nathan from Daiwa Capital Markets America. Jairam Nathan: I just -- you mentioned how the mix or the regional mix is changing. And I just wanted to understand if there is -- it offers more opportunities in terms of structural efficiencies or footprint rationalizations going forward? Mikael Bratt: Yes, I think, I mean, we are, of course, extremely focused on continuing to sharpen our abilities here to drive efficiency and productivity and all those things, and that we will continue with. I don't think the mix changes that we have talked about here, the mix changes temporary mix composition here is something that has a major impact on our need to do this. I think what we do and what we drive here to improve the company fits well into also manage that, of course. So I don't see any drama in it in terms of our possibilities here to generate earnings growth and cash flow, et cetera, but it's more from, as we said, and the light vehicle production outperformance measurement. But it's is more of a temporary point of view, I think. Jairam Nathan: Okay. And my follow-up was on when you initially announced a 12% medium-term goal for margins, I think there was $85 million or over $85 million LVP. I'm just trying to understand, given that the mix changes again and higher mix of lower content regions, would that -- would you need to update that $85 million and you might need to maybe increase it to hit that 12%. Mikael Bratt: No. I mean, we are very firm and committed on the 12%. I think what we have said here that the 85% is -- it's also a mix effect, as you mentioned here. And also we have markets here that has disappeared since we talked about that certain regions that we can't operate in any longer, as well as -- we have some customers that have taken a large share of the growth here that has their own domestic and, of course, thinking about BYD and SIC that stands for a large portion of the difference there in between that is more of a captive solution. So of course, we see that we can continue to drive our own controllable activities here to support our growth. So we are not hesitating on our ability to get there. Operator: We will now take the next question from the line of Hampus Engellau from Handelsbanken. Hampus Engellau: Two questions for me. Just a question on this domestic Chinese OEM that you got business in Europe with. Is that an already existing client to you guys in China? Or is it a new client? And fundamentals behind this, is this basically transportation cost if it's not the client in China? And second question is just to get a sense of your margin guidance for the full year, the upper range, the 11%,s that within your control? Or is it just -- is it the stability in customer call-ups is that the denominator there? Mikael Bratt: Thank you, Hampus. Regarding the customer there, it's a customer we interact with already. So it's established relationships. So it's not a completely new customer for us. And then on the second question, I don't know if you would like to take it further here. But I would say, I mean, this is, as always, a guidance best on our best knowledge about the future. And what we see here in terms of the external environment, et cetera, is what we have taken into this. So I mean, within this range, of course, is within our own control, then of course, where you can end up a little bit depends on many things, of course, as always. So I think the range is there as it has been now for also last year, is because of the high level of uncertainty in the world around us here. But of course, we feel comfortable on our road here road ahead here to have earnings growth and also the new guidance of $1.2 billion in cash flow here. So that's within lot of our own control. And what we can see also -- just as a reference there, I mean, when we talk about last year's results, is primarily, if not all coming from our own internal [ sites ]. Hampus Engellau: And [ just ] -- I know we need to, but the customer call -- are you getting indications that it's kind of resuming to the trend... Mikael Bratt: No, on the call off here, I mean, that we dropped in the fourth quarter here, we see as a temporary thing. So we expect that to least come back to the 95-ish that we talked about. And I'm still a strong believer that over time, we will get back to pre-pandemic levels when we get presuming more stable external environment here as an industry. But for sure, getting back to where we were before Q4 here, because the volatility here was very much related to some OEMs deciding to -- with very short notice or no noise at all soft production to manage the inventory situations. We also had some cases with some customers have had some supply issues inventory management and supply chain issues. Operator: We will now take the last question from the line of Emmanuel Rosner from Wolfe Research. Emmanuel Rosner: I wanted to ask you again about the margin walk and improvement for this year. So on basically stable organic growth, you're still planning to achieve pretty meaningful margin expansion. And you gave some of the puts and takes and you -- very helpfully quantified some of them before. But I was wondering if there's a couple that we can come back to. In particular, currency, looks like the peso has moved quite a bit. So I've been surprised that it's not a little bit more of a headwind. So maybe you have some other offsets that you could talk about? And then on the positive side, I think you clarified for us the structural cost reduction, but curious about how do you think about the operational efficiency and the call-off benefit, I guess, the positive pieces of the equation. Fredrik Westin: Yes. On the FX part, we do expect, as in 2025, a larger part of the positive development here from the translational effect. I mean, we saw actually on the transactional part, we also saw a net or a negative effect in '25, and that could also continue as to imply here in '26. But the overall results were impacted then expect to be slightly positive. On the structural cost savings, as I said, $20 million of the $30 million remaining coming in we do then expect also further improvements from our operational improvement programs. I mean, automation digitalization. Those contributed quite significantly here in '25 already. and we expect further improvements also from that year in '26. So I hope that answers your question a bit better then. Emmanuel Rosner: Yes, I didn't quite catch the FX piece of it, though. Would you mind just going back over this? Fredrik Westin: Yes. So as I said, in '25, we actually -- on the transactional part, which then includes our exposure to the peso, mostly, we had a negative effect year-over-year for the full year. But the major -- or the positive part was from translational effects and that we expect to continue also in '26 with a similar picture as we stand today. I mean now the dollar has depreciated a bit further versus the assumptions we have based our guidance on. So that could also then have a larger or more positive impact on the top line and potentially also on the bottom line. Emmanuel Rosner: Understood. And then also just following up on the raw materials piece, if you could give some good color for what the growth it would be. Just curious if you can give a little bit more in terms of which of the specific materials, I guess, are most impactful within that and how things have essentially been evolving in terms of input costs? Fredrik Westin: Yes. So as I said, it's -- we expect a gross headwind of a little bit less than $30 million. And then basically, half of that we expect from gold alone of that headwind or closer to 2/3 actually. Then the second largest headwind we expect from steel. And then behind that copper, whereas we expect yarn actually to be a tailwind for us at the current pricing levels. Operator: That is all the time we have for questions today. I would now like to turn the conference back to Mikael Bratt for closing remarks. Mikael Bratt: Thank you, Sandra. Before we conclude today's call, I would like to say that I'm confident that our strong market position and growth momentum in Asia, especially in China and India, sets us up well for continued success. Combined with our proven ability to strengthen profitability also in a low growth environment. We have a solid foundation for delivering attractive shareholder return and a clear path towards achieving our 10% adjusted operating margin target. Our first quarter call is scheduled for Friday, April 17, 2026. Thank you for your attention until next time, stay safe. Operator: This concludes today's call. Thank you for participating. You may now disconnect.
Jim Chapman: Good morning, everyone. Welcome to Exxon Mobil Corporation's fourth quarter 2025 earnings call. Today's call is being recorded. We appreciate you joining us. I'm Jim Chapman, vice president, treasurer, and investor relations. This quarter's presentation and prerecorded remarks are available on the investors section of our website. They are meant to accompany the fourth quarter earnings press release which is posted in the same location. During today's presentation, we will make forward-looking remarks including comments on our long-term plans, which are subject to risks and uncertainties. Please read our cautionary statement on slide two. You can find more information on the risks and uncertainties that apply to any forward-looking statements in our SEC filings on our website. We also provide supplemental information at the end of our earnings slides which are also posted on our website. And now I'll turn it over to Darren for opening remarks. Good morning, and thank you for joining us. Darren Woods: In 2018, we set out to transform Exxon Mobil Corporation to fully leverage our unique competitive advantages. Results we share today demonstrate the significant progress we've made. We've built a higher return, lower cost, technology-led company. One that delivers superior results across market cycles. Our strategy, our advantages, and the structural value we're creating put us in a league of our own. 2025 was a year of exceptional execution and technology-driven differentiation. We continue to deliver strong safety and reliability performance, reflecting the commitment and operating discipline of our workforce. We've already achieved our 2030 emission reduction plans for GHG emissions and flaring intensity. As of 2025, we've reduced our corporate GHG intensity by more than 20%, reduced upstream GHG intensity by more than 40%, and reduced corporate flaring intensity by more than 60%. We expect to reach our 2030 methane intensity reductions by the end of this year. Upstream production averaged 4.7 million oil equivalent barrels per day, with unit earnings more than double those in 2019 on a constant price basis. We successfully delivered all 10 key 2025 projects, further strengthening our portfolio and positioning us for long-term profitable growth. And we continue to high-grade the portfolio by maintaining our disciplined approach. That approach, the same as it's been since we rolled out our strategy, increases investments in an advantaged portfolio, divests nonstrategic assets, and significantly lowers cost. Bottom line, we're improving our mix and structurally reshaping the business. Results are clear: industry-leading earnings power, stronger cash flow potential, and more profitable barrels and products. In the Upstream, production from advantaged assets including the Permian, Guyana, and LNG, continues to grow. These assets have lower cost of supply, lower emissions intensity, and higher returns. We expect them to make up roughly 65% of total production by 2030. In product solutions, we're strengthening the portfolio with advantaged project startups and high-value product growth, transforming lower-value molecules into higher-value products. These projects are expected to drive meaningful earnings growth through 2030, with 60% coming from assets already online. We're delivering consistent, ratable organic growth, anchored by our advantaged assets and projects that are expanding earnings power over time. Our fourth quarter and full-year 2025 financial results reaffirm that our transformation is driving improved earnings power across a broad range of metrics. Over the past five years, our annualized shareholder return of 29% has led the industry, supported by $150 billion of distributions to shareholders during that period. Earnings, cash flow, and return on capital employed remain among the strongest in the sector, with higher upstream earnings per barrel and structurally higher returns. We continue to increase our structural cost savings in 2025, significantly outpacing competitors. In fact, our captured savings are greater than all other IOC savings combined over the same period. These improvements continue to deliver industry-leading earnings and cash flow even in periods of lower commodity prices. Our industry-leading balance sheet, structurally lower breakevens, and level of short-cycle investments give us unmatched flexibility through the cycle. During the year, we completed $20 billion in share repurchases, retiring shares equivalent to one-third of those issued during the Pioneer transaction, significantly reducing the dilutive impacts of the acquisition. Let me turn to two of our most advantaged growth engines: Guyana and the Permian, which both continue to set records. In Guyana, we continue to deliver results never before seen in our industry and have set new standards for operational excellence. Our most recent project, Yellowtail, came online ahead of schedule, raising gross production in the fourth quarter to roughly 875,000 barrels per day. Altogether, our first four FPSOs are now producing 100,000 barrels a day above the investment basis, reflecting operational performance to date and the value of this advantaged asset. Turning to the Permian, we delivered a new production record in the fourth quarter, 1.8 million oil equivalent barrels per day, driving the highest annual company production in over forty years at 4.7 million oil equivalent barrels per day. Technology deployment continues to be our primary focus. Lightweight proppant deployed during 2025 in roughly 25% of wells. We expect that number to reach 50% of new wells by the end of this year. With more than 40 stackable technologies in various stages of testing and deployment, we expect to continue growing production at lower capital cost far into the future. Simply put, there is no near-term peak Permian for us. Our growth trajectory remains robust, and we expect to exceed 2.5 million oil equivalent barrels a day beyond 2030. The role of technology in growing value can be seen across all of our businesses. For instance, Proxima Systems continues to scale. We more than tripled capacity this year, with growing opportunities across rebar, coatings, automotive, and oil and gas applications. Our Proxima-based rebar delivers a 40% improvement in installation efficiency versus steel and delivers superior strength, lightness, and corrosion resistance. We've recently leveraged Proxima-based rebar to build the foundation for a new overpass at our Kearl site after our technology team in India worked with our upstream team to qualify it in a heavy industrial application. In carbon materials, our advanced battery anode graphite program is showing exceptional delivering 30% faster charging, up to 3% higher available capacity, and up to four times the battery life. In Singapore, our resid upgrade project demonstrated full capacity performance, validating proprietary catalyst technology to convert low-value fuel oil into higher-value lubricants and diesel. Our carbon capture network continues to advance. We made progress on the Rose permit, brought our first third-party CCS project online, capable of storing up to 2 million tons per year, and secured our seventh CCS contract. Taken together, these projects represent approximately 9 million tons per year of sequestered CO2. As you've heard me say before, execution excellence remains a hallmark of Exxon Mobil Corporation. We commenced startup activities for all 10 key projects meeting our 2025 goal. These included Golden Pass LNG and the Proxima systems expansion. This was a record year for us in project startups, and each will play an important role in further strengthening our global portfolio in supporting long-term shareholder value. On average, our global projects organization executes about three times as many mega projects as the nearest competitor. They do this at up to 20% lower cost and 20% faster delivery schedules than the industry average. This is a testament to our disciplined approach and organizational expertise. Our transformed company will continue to build on this success in 2026, with higher structural earnings power, stronger mix, lower breakevens, and a portfolio designed to perform across commodity cycles. Our strategy is working, and the benefits are evident in operating performance, cash generation, and shareholder returns. We're capturing more value from every barrel and molecule we produce, and building growth platforms with scale. We're focused on high-margin, technology-differentiated markets where our integration, process expertise, and global footprint give us a durable, material competitive advantage. Our capital priorities remain consistent and disciplined: invest in competitively advantaged opportunities, maintain financial strength, and return surplus cash to shareholders. We're maintaining a measured pace of share repurchases subject to reasonable market conditions, while preserving flexibility to invest through the cycle. Underpinning all of this is a new enterprise-wide process and data platform that is changing how the company operates. With redesigned end-to-end processes and connected data transactions, and decision-making across every business geography, and function. You will enable us to learn and act faster and better leverage our scale, accelerate the adoption of artificial intelligence, integrate new solutions. It's already delivering results, with much more to come. 2025 again demonstrated that the advantages we've built, the capabilities we've developed, the performance we're delivering is creating industry-leading value for our shareholders, today and far into the future. Jim Chapman: Thank you, Darren. Before we move to Q&A, I have a few quick announcements to share. First, on February 2, we're launching a new individual investor-oriented page. It can be found within the main Investors section of the Exxon Mobil Corporation website. Our individual investors make up nearly 40% of our shareholder base, and this new site caters directly to their needs. And then on February 20, we'll be releasing a refreshed version of our company overview presentation. Both of these can be found on the Investors section of our website and we encourage you to take a look. With that, we'll move to our Q&A session. Please note that we ask each analyst and operator, please open the line for our first question. Operator: Thank you. The question and answer will be conducted electronically. The first question comes from Devin McDermott of Morgan Stanley. Devin McDermott: Hey, good morning. First, Kathy, I just wanted to wish you all the best and thank you for your help and positive contributions to Exxon Mobil Corporation during your time as CFO. And Neil, I look forward to working with you again in your new role. My question, I wanted to ask actually about Guyana. Darren, one of the two key growth engines on upstream that you mentioned, the expiration license on the Stabroek Block is set to expire in 2027, but you've also had a large portion of the position under force majeure that sits in waters that have been disputed by Venezuela. So I'd love to hear your latest thinking on the exploration strategy leading up to that scheduled brand legacy position? And then your view on the opportunity set for this force majeure area. Will it qualify for an extension? And what are some of the milestones to get into work on evaluating the resource potential? Darren Woods: Yeah, sure. Good morning, Devin, and thanks for the question. I think what you see us doing in Guyana is continuing in the areas that we do have seismic and have been developing, continue to take what we're learning through the wells that we're drilling in our development program to identify additional targets and drill, and we still think there's opportunity in that space to explore the block that we can currently access. And then, of course, as we roll forward and have to relinquish pieces of the block, we do that based on, I think, a very well-informed understanding of the geology and the opportunity sets. The portion of the block that's under force majeure as a result of the border dispute remains there. And I think from my perspective, one of the unlocks with respect to that region will be the ruling that comes out of the International Court of Justice that's, you know, the process that Guyana has been going through with Venezuela to align on, you know, the border to resolve the border dispute. So I think that'll be a critical milestone. Obviously, with the developments in Venezuela, perhaps we'll see an opportunity to, with less naval patrols, that'll make it a little more friendly environment. So we'll see how that goes. But we've got plenty of work ahead of us here in the short term. And then longer term, we'll get into that additional acreage and see what the opportunity looks like. We're pretty optimistic. I think one of the advantages of force majeure is it pauses the clock. And so we will have an opportunity to do what we need to do in that portion of the block when it's available to us. Devin McDermott: Okay. Great. Thank you. Darren Woods: Thank you. Thanks, Devin. Operator: The next question comes from Neil Mehta of Goldman Sachs. Neil Mehta: Yes. I'd just like to echo Devin's comments, Kathy. Thank you for everything and enjoyed the partnership and the welcome as well. And I'd like to focus my comments on the Permian. Looked like a very good fourth quarter, Darren. You exited around 1.8 million barrels a day. Your guide for this year is 1.8 million barrels a day. If you look at the volume cadence over the course of the year, do you see upside potential to it? And just talk about the lightweight proppant opportunity that you continue to see and deploy out in the field. And is that manifesting itself in potential upside to numbers? Thank you. Darren Woods: Sure. Thank you, Neil. I appreciate the question. The one, I guess, point I'd start with is I guess, I'd caution extrapolating, you know, a quarter result to an annual result. If you look at the annual production that we had in the Permian, that was a significant improvement year on year and we expect to see that significant improvement going into 2026 versus 2025 on an annual basis. And I think what you saw in the fourth quarter demonstrates that capability. But we've always said the quarters are a little lumpy as we bring on cubes and the timing of as those cubes come on. So we still feel pretty good about the developments that we've got there and pretty good about the plan that we've laid out and the volumes that we've communicated to all of you through the plan updates. With respect to the technology, I would tell you, we just had a review of this the other day with the technology group. A lot of enthusiasm for what we're seeing. I would tell you nothing, nothing, everything basically points to, if anything, greater promise. Obviously, we've got to demonstrate that in the field. We've been deploying that pretty consistently, as I mentioned in my prepared remarks, we're going to continue to do that. There are other technologies, as we've talked to you about as part of the corporate plan update that frankly hold a lot of potential as well, and we're beginning to kind of feather those in. And so, you know, the challenge will be the time it takes to develop the cubes. And I guess one point I would make is we're not changing our approach of maximizing ultimate recovery. And so we're still very focused on bringing these technologies to bear in our cube design focused on maximum recovery and doing it at a lower cost. And so doing the cubes, doing those designs and then drilling those and bringing them on, takes longer for us to see the results. But ultimately gives us much better results. And so that continues to happen. And I think as we get through this year, we're going to begin to see a lot of these some of the additional technologies that we're bringing to bear kind of manifest themselves in our results. And I feel again pretty optimistic that they're going to deliver some very promising results as we move forward. And frankly, what we've seen today, on a conservative basis, that takes us well beyond 2030 with our production. Kathy Mikells: And I'd just add, Neil, if you look at the annual numbers and the Permian, we expect to be up about 200,000 ko kind of year over year. Again, that's not gonna be necessarily what you see each and every quarter. And then on lightweight proppant, you know, this year about 25% of our wells had lightweight proppant. By the time we get to the end of next year, at that point, when we're drilling, we should see about 50% of our wells having lightweight proppant. So you know, a very good performance in terms of just increasing the lightweight proppant in new wells going forward. And we'll see that benefit as Darren said over time. Darren Woods: Thank you. Operator: The next question comes from Doug Leggate of Wolfe Research. Doug Leggate: Thanks. Good morning, everybody. And I'll add my best wishes to both the outgoing and incoming CFO. Good luck, Catherine. Hope you feel better. Kathy Mikells: Thank you. Doug Leggate: My question is not about the dividend, Kathy. You'll be delighted to have the last... Kathy Mikells: I'm shocked. I'm shocked, Doug. You're not taking one last crack at it. Doug Leggate: No. Not at all. Neil will have to pick that back on up from here. But, Darren, I do have a question about what's not in the portfolio through 2030. And I'm thinking specifically about last August, I think it was you signed an MOU in Libya. We're seeing improved PSC terms in Iraq, and there's speculation you guys are potentially reentering there. And then, of course, there's the question over what it would take for you to reenter Venezuela. So I wonder if you could address what was not in the plan through 2030 that could surprise on the upside. Darren Woods: Yes. Thank you, Doug. And you're right, there are some of these markets that have significant potential with respect to resources and the challenge going back in time has historically been accessing those resources with the right kind of fiscal regime and the right kind of call it, legal infrastructure or investment guarantees, a number of those things. That have made it difficult to enter with the confidence that we need to compensate for the risk associated with what we do in the business. Of developing these resources. That I think over time to evolve. The recognition that many of these resources have their challenges, are difficult to develop, and they need capabilities that don't exist within the country. And frankly lends itself directly to the work that we've been doing to really differentiate Exxon Mobil Corporation from our competitors. Based on this intense focus of driving competitive advantage driving our developments in technology, driving project execution, and development. And more recently, the work that we've done to consolidate all of our operations so that we operate with executional excellence. And so I think those things begin to provide an advantage that not only accrue to the company, but accrue to these resource owners. And the faster that we bring on, the production, the lower cost that we bring that production on, And using the technology, the higher the recovery rates all directly go to the, you know, the resource owner and the the of the resource owners. That advantage, I think, is being recognized today. And as a result, we're getting an opportunity to look at a number of these locations and start working with them to see if we can come to a contractual arrangement with the right kind of fiscal that reward us for the benefits we bring and reward the resource owners with a higher value proposition. I'm pretty confident that we're gonna make some progress that today is not in the plan for some of the areas that you've referenced. So I do think there'll be some upside out there. But as you know, Doug, these things tend to take some time. And as we develop them and we get more surety around some of those things, we'll obviously bring those into the plan and talk to all of you about that when it gets to a point that we've got the confidence start baking them into the plans. But I do think the work we've been doing to strengthen our capabilities going to have a huge payout. With respect to that. Doug Leggate: Darren, if I may, at the White House, you said Venezuela was uninvestable, but you might be prepared to put a technical team in country. Has any of that happened? Darren Woods: Yes. So what I would say is, what I said at the White House was given the current fiscal structures in place, legal that you couldn't invest, but that there's opportunities to address that. I did feel like the Trump administration is committed to doing that. In fact, you look at what they're currently focused on it's stabilizing the country kick starting the economy, and then ultimately transitioning into a more representative democratically elected government. Think those are the right objectives that the government is working on for the benefit of Venezuela and the Venezuelan people that the know, Venezuela's got those challenges that I mentioned, which I believe with time will get addressed. The other challenge with Venezuela is, you know, those barrels are high cost barrels, and so you need a capability to bring that to market with the right kind of technology to get low cost supply out there. Frankly, we have that with the work we've done up in Canada and the technology organization's focus on developing heavy oil resources. We think we bring an advantaged approach that will lead to lower cost production higher recovery and therefore more economic barrels onto the marketplace. So that's, I think, the opportunity set for us will play out maybe over time. With respect to the team, I offered up given the challenges, to send a team there to do the assessment and to offer up our perspective and what we found to the administration to help them in their decision making as they lay out the policy. We're still committed to doing that. Operator: The next question comes from Bob Brackett of Bernstein Research. Bob Brackett: Good morning and a bit of a follow on to Doug's question. The underpinning of your upstream production growth are these advantaged assets, namely Guyana, the Permian, and LNG. As you think and you basically have a fairly clear line of sight into the 2030s, you all tend to think even longer than that. So as you think about refreshing the upstream portfolio even further out, is there a requirement that assets you add to the portfolio have to be quote unquote advantaged assets? Or will you soften that requirement? And I have a brief follow-up. Darren Woods: Yes. So maybe the way I would characterize it slightly differently, Bob, is the advantaged assets are the advantage derives from what we bring to the development of those assets. Not necessarily in the resource itself. And so, you know, my challenge in the way we make these investments advantaged is by bringing a unique set of capabilities that that delivers more than what the market or competitors or what the average can deliver. That advantages those investments. And I would tell you that that's not going to change for us. I continue to see with the transformation we've been making in the company, the consolidation of like activities across this very broad and diverse portfolio. And to centralize groups that focus on driving excellence in each of these areas. That we continue to see huge opportunities to improve performance and keep getting better at what we're already pretty damn good at. And so I think all of that will lend itself to then when we go into a market or into a new resource, bringing an approach which is advantaged versus a market rate and therefore a return that's advantaged. And that's how I would think about it. And I'm actually convinced that as where we sit today, there is upside to the advantages that we can bring. And therefore, I would expect going forward that we'll continue to see that even as we go into new places and continue to grow the business. Kathy Mikells: And I would just add to that, Bob. I mean, as you know, this is a long cycle business and return on capital employed is really key. Performance indicator of how well we're deploying that capital. And if you look over the last five years, our ROCIA has averaged 11%. Two percentage points above our next closest peer. So I think that just speaks to the discipline and us focusing on those competitive advantages we bring to the table. To just drive higher returns consistently. Bob Brackett: Yeah. Very clear. A quick follow-up. The Permian as an advantaged asset is a combination of acreage which is finite, and technology which is scalable. Can you talk about how you can scale the Permian technology toolkit? Is it scalable just within US shale, just within shale, or is it perhaps scalable to a range of future extractions? Darren Woods: Yeah, I think it's a really good question. And I do think it's scalable. I mean, one of the great things about having the technology organization that we have and then having consolidated buy capabilities across our businesses into a single technology organization. We have a very diverse set of experiences and very core technology areas that are contributing to solving problems across the entire portfolio. So we're getting a lot of input from our technical experts that have grown up in different parts of the business, but now bring that experience to bear on new areas and new opportunities. So I do think we will find that as we discover and innovate particularly for the Permian that that will have applications across a lot of the things that we do in the upstream. In fact, we're already seeing that. Likewise, you know, what we're doing in some of the deepwater has applications. So this we're not one of the advantages of this centralized approach that we've put in place is we're not trapping any of the innovation in any one part of the organization. It is free to flow and move to the highest value opportunity set within the company. I think that's a huge unlock that frankly most of our competitors have trouble matching. The other final point I would make there is you're right about the limits in the acreage. But I continue to challenge our folks. We're not the industry as a whole. The recovery rate of the oil that we know is there is still in my mind way too low. While we're working to improve the recovery of what we're doing on a go forward basis, I'm also quite focused on cracking the nut of how we can go back and improve the recovery for things that have already been played out. And I think there's an opportunity there that I'm hopeful that our technology will unlock here in the future. Bob Brackett: Interesting. Thank you very much. Darren Woods: You bet. Thank you, Bob. Operator: The next question comes from Arun Jayaram of JPMorgan. Arun Jayaram: Yes. Good morning. My question is on LNG. You're on the cusp of first cargoes at Golden Path. I was wondering if you could update the market on Exxon's plans to pursue FID decisions at Papua New Guinea and Mozambique and perhaps talk about how these projects stood on the global cost curve versus perhaps Gulf Coast LNG? Darren Woods: Yes, sure. Thanks for the question. I would tell you, so maybe starting with the back end of your question and then I'll circle back around to the progress Golden Pass. But with respect to the competitiveness of what we're trying to do in Mozambique and Papua New Guinea, as I talked about and have been talking about many years now that as part of any of the projects that we FID and the developments that we put in place, they have to be cost competitive. They have to be advantaged versus the rest of the market. They have to be on the low end of the cost of supply curve or we will not progress those. And so the simple answer to, you know, how we're looking at Papua New Guinea and Mozambique is the work that the Projects Organization has done to drive the to develop the project design has led to those being very cost competitive, very advantaged with respect to the market. And so we feel good about the competitiveness of those. Obviously, there's challenges to continue to work our way through, but we feel like we've got a very good basis for progressing those projects. My expectation is with Mozambique, we'll see something here as we move through this year, probably on the back half of year with respect to an FID if things go kind of to plan. So feel good about that. And I would tell you that the time the delay that we've had with the force majeure in Mozambique, I mean, we weren't sitting in our hands during that time frame. We were challenging our projects organization to keep driving innovation and find ways to reduce that cost, and they were very successful at doing that. So we actually used the delay productively to come up with what we think is a much more cost advantaged design than we had originally. So as we learn and get better across this portfolio of things that we're doing, the opportunities then there for us to fold them into the next development. That's certainly the case in Mozambique. So good about those and the same with Papua New Guinea as we work our way through that development. With respect to Golden Pass, I would just say that venture has done a really good job of recovering from the bankruptcy. Obviously, that was a huge break, but really got back on track and feel good about the progress they've made and mechanically completed that project in the fourth quarter of last year. We're basically into commissioning and start up now. My expectation is we will see kind of first LNG produced in very early March is what's looking like right now. Kathy Mikells: Thanks, Arun. Arun Jayaram: Great. Thanks. Darren Woods: You bet. Thank you. Operator: The next question comes from Betty Jiang of Barclays. Good morning. Thank you for taking my question. It's on the corporate-wide data system transformation that Darren that you alluded to earlier. Just want to get more color on what that process entails and how should we expect this to manifest maybe financially across the portfolio? Is it just more structural cost savings? Better productivity, and just how material could it be over time? Darren Woods: Yes. Thanks, Betty. Yes, it is a very material part to the transformation that we've been on. And just to kind of maybe set the context of what we're doing here. If you go back in time with the way we had organized the company, we had actually delegated the development of the systems and the systems that support the businesses to the business themselves. So we had a number of different ERP systems, more than 10, across the scope of our operations. And over time, each of our businesses and organizations develop their own data construct. They're all their own data nomenclature. And so it made it very, very difficult for us to really take advantage of the scale across all of our businesses. In areas where we had a whole lot of duplication or similarities. As we started the restructuring in 2018 and aligning all of our businesses into value chains and then pulling out some of the centralized organization. As we've talked about, we've made huge progress with that work in terms of delivering structural cost savings. Dollars 15 billion to date through 2025. And as I said this morning on the call, that's more than any of our competitors combined. And that that is a function of and driven primarily by the discipline that we have. It's the same discipline we had when we chose to invest during the downturn when everybody else was stepping back from the marketplace and hunkering down. It's that same discipline that we had in not investing in the green business. Businesses where we had no real advantages, no real expertise, even though many in our industry chose to go in that direction. It's the exact same discipline we've had in rolling out the new operating model. Which is different than what anybody else in the industry doing to their day. And that model is allowing us to deliver the benefits that we have. And that model and that discipline is gonna underpin this new ERP system. One data construct for the entire corporation. One data set, one set of nomenclatures. It will be the first time in the history of this company that we can actually tap into everything that we're doing across the company. And when you couple that with the opportunity with AI and the data set that that represents, I don't think there's a there's a company out there that can that can match what we're trying to accomplish here. And the progress that we're making despite the scale of this has been really, really impressive. We remain on schedule and on track, and we're beginning to see the benefits accrue even now. And maybe I'll let Kathy touch on that that is one of the areas in her portfolio that she's been driving. Kathy Mikells: To understand where we've come from and where we're headed to. Thanks very much, Darren. So just to give you a couple stats. You know, all companies need to who operate on an SAP platform need to upgrade as SAP is moved to, S/4HANA. And so we were facing a need to upgrade. But we historically, as Darren said, operate at more than 10 ERP systems. We did it on-prem. And we had more than 65 million lines of custom code in that the highest of any of SAP's customers. As a result of that, we couldn't easily take upgrades to software, right? So we couldn't benefit from that. Because of the cost of having to plug the new upgrade in to what was a very bespoke software system that we had created was just too high. You know, we, as a result of now having central organizations are able to really standardize and simplify our processes. We're going to have 97% fewer profits centers. 70% fewer cost centers. And the core of our platform is going to be clean, which allows us to take upgrades easily. In fact, during this design period, we've already taken at least one upgrade into the development platform. That we're utilizing. And we've had some early wins as we started to implement. Some of the software that surrounds the system. So we had a successful implementation of group reporting of BlackLine of some supply chain technology that pushes us much more towards not just automation, but being able to use artificial intelligence to do things like, you know, plot out the logistics across our system for things like marine. So it's a really big change. But we will both get a great simplification, automation. And the ability to apply AI at scale much more easily. Thanks very much for the question, Betty. Darren Woods: Yeah. The other thing I just add as a final point is by through that automation, we're really allowing freeing up time for our folks to focus on the things where they can add unique value. So I not only are we gonna get a lot of efficiencies, I think we're gonna see the effectiveness improve. So we'll basically benefit on both sides, both the revenue and the cost side. Kathy Mikells: Yes. A much better experience for our people who still today spend way too much time, I'd say sorting through our data and information and reporting the numbers, you know, as opposed to higher level activity that's really driving insights and actions across the business. Thank you. Operator: Thank you. The next question comes from Steve Richardson of Evercore ISI. Steve Richardson: Hi, good morning. I was wondering, Darren, if you could talk. We're seeing a pretty robust asset market out there in terms of where private and other assets, not only in the Lower 48, but elsewhere transacting. I was wondering if you could talk about maybe the role of divestitures and potentially contract expiries and legacy assets. I think you've been very clear on the uplift that's coming from your upstream in terms of margins with the advantaged assets. But the other piece of it is what could be leaving the portfolio potentially to accelerate that margin uplift. So just wondering if you could talk about the environment as you see it. Darren Woods: Yes, no, thanks. I think and you touch on one of the areas that has been a pretty concentrated focus for us really over the last five years just around as we bring in new opportunities, bring technology to play, grow these advantaged assets, is focusing our efforts on that. And for the assets that we have out there that then no longer compete in the portfolio because they don't have the same opportunity that we have with the rest of the portfolio as an opportunity to sell that off to others who don't have the kind of the depth and advantage projects that we have so we've been going through that fairly rigorously, very thoughtfully. We're not rushing. We're going to find buyers who place a higher value on it than we've got. And we've been very successful with that as we've talked about over the quarters with respect to the amount of divestments that we've had. In fact, I think the number is up to $25 billion since 2019 with the investments that we had both from the upstream and our Product Solutions business. In fact, just last year, we closed our sale of our French affiliate. And so there's it's been a continuous making sure that what's left in the portfolio can compete for capital is advantage versus the rest of industry and then making sure that it they're at the left hand side of the cost of supply curve. So low cost so they can compete across whatever part of the cycle is in. And that is paying huge dividends now as we continue to kind of go through cycles. So that's going to be a constant focus. And we get ready. We don't try to time the market per se, but we do lean into the market when the opportunity are there and with a portfolio that's ready to go. On the flip side of that, you know, continue to look for inorganic opportunities where we can bring an advantage. And as we've talked about many times in the past, where you know, one plus one equals three or more, and that continues to be a focus. It's got to be accretive. It's got to leverage some of the things that we can uniquely bring and it's got to be competitive with our other investment opportunities. And that remains a continued focus across all of our businesses. Steve Richardson: Thanks. Darren Woods: You bet. Thank you. Operator: The next question comes from Sam Margolin of Wells Fargo. Sam Margolin: Hey, maybe take it away from upstream a little bit. Because everything seems to be directionally, you know, consistent and in line there. I wanted to ask about the comment you made in the prepared remarks on the carbon business and battery contribution. And then, you know, it ties into lithium too. The lithium price environment favorable, but you know, there's maybe some synergies or some relationship there with the with the carbon business. And I don't know. It even ties into lightweight materials and proximate chemicals too. So, you know, I guess the question is, what's exactly going on with this with this battery initiative? It seems like there's a lot of inputs here that could drive an interesting outcome. Darren Woods: Thank you, Sam. And I think you actually touched on one of the advantages of the work that we're doing and sticking to know, what I'd call is our hydrogen and carbon molecule business is a lot of the applications that we're developing the new applications that we're developing, leveraging the same capabilities go into the products that we're currently serving with our traditional businesses. And so there is a synergy that exists between the different elements of the technology that we're developing. But each of them are driven by a focus on the molecule side of the equation. So on the battery equation, it's really around the recognition that the world is going long carbon as we clean up products and focus on lowering emissions. Carbon becomes a cheaper and cheaper feed stock. What can we make with carbon? Our technology organization, development a molecule that has properties that really lend themselves to battery applications that result in these types of performance, step changes in performance with batteries. Those are real. We've tested them here internally. We've tested them externally. We're working with OEMs. And there's a lot of optimism around that application. And of course, the challenge then is building the at scale the production facilities and do that in a way that's very cost competitive and can compete with sources supply all around the world. And we feel really good about the progress we're making there and we're continuing to advance that. That goes into battery applications, Lithium, goes into battery applications. So there's a synergy there. But we came at that again differently. It wasn't that we wanted to go into the battery business. It was you know, what products are gonna be in demand that we think we can bring an advantage to and produce at a low cost of supply and realize a margin. Lithium, I think continues to hold promise, but there's work to be done around ensuring that we can put a process in place that brings lithium to market at a cost very competitive with the cash cost of existing producers. And so that's a piece of work that we're doing or demoing that that technology to convince ourselves that we can get the costs where we want them. We will have a robust resilient business irrespective of where the pricing goes. And then with Proxima, it too has a it's got a lot of in terms of rebar that we're making, the coatings that we're using in the shipping business and the piping business, pipeline business, oil and gas business. And we can also use it in injection molding and to make battery holders. And so there's a lot of overlap here, but it's really a function of understanding where those applications can bring the most value bring a value in use versus the incumbents and then build those businesses up and sell into them. So I think we're going to find portfolio over time continues to grow and we're working with a set of customers that frankly are leveraging each of those products. In addition to our existing traditional products. Sam Margolin: Thanks so much. Darren Woods: You bet. Operator: The next question comes from Jean Ann Salisbury of Bank of America. Jean Ann Salisbury: Hi, good morning. Exxon Mobil Corporation is a leader in carbon capture and storage. There have been conflicting things that I've read and heard about data center interest in using CCUS as an offset to emissions. From your standpoint, is this interest real? And do you see this as being a potential material uplift for that segment? Darren Woods: Yes. Thanks, Jean Ann, for the question. I recognize your comment with respect to the ups and downs and conflicting information you may be reading. I think you know, like a lot of these things that start off with a lot of hype and enthusiasm, it takes time for the market to kind of work through and land on or ground on the realities of the opportunity set out there. And I think as the development of these data centers have progressed and the desire to have low carbon data centers, and what opportunities exist. I think people have begun to realize that certainly in the timeframe that our people are talking about today, real the really only viable option at scale today here in the very near to medium term is gas-fired power generation with carbon capture. And we're uniquely positioned with respect to that with the investment that we made in Denbury and now today have the only scale end-to-end carbon capture and sequestration system. And frankly, the only integrated set of capabilities that can follow the molecule from capture all the way down through the pipe and into the subsurface. And so, that unique offering, I think, puts us in a position to have really substantive conversations with some of the high hyperscalers. And I would say that today we are engaged in very serious substantive conversations with a number of the hyperscalers. There is a commitment to finding a competitive way to decarbonize these data centers. We have an offer with respect to a site and location that I think meets those needs and we're kind of working our way through the commercial construct. And my hope is and expectation is we should see that work manifest itself. Hopefully by year end with the project announcement. But I think it's serious right now. Jean Ann Salisbury: Very clear. Thank you, Darren. Darren Woods: Thank you. Operator: The next question comes from Paul Cheng of Scotiabank. Jim Chapman: Paul, do we have you? Not hearing you on this end. Paul Cheng: Hi. Jim Chapman: Oh, great. There you go. Okay? Yep. Go ahead. Thanks. Paul Cheng: Thank you. Darren, I think over the past several years, you guys have done a good job in managing the base. Due to, I think, both the asset mix as well as the technology application and all that. So can you tell us that today, what is your base underlying decline for your upstream portfolio we should assume? And also in your manufacturing operation, whether it's refining, or chemical, for the cycle, what is the expected needed downtime or that your available uptime, and from that standpoint, if this is where you are, where you see is the biggest opportunity for the next five years, further improve on those? Thank you. Darren Woods: Yeah. Thank you, Paul. What I would say is we're at a very beginning of what I think is the ultimate capture of the potential that we're unlocking with the transformation that we made we're making here. And I would say we're very early in to bringing the technology or the weight and the power of our technology organization to bear on the areas that you're talking about in terms of depletion rates and how quickly we can offset those. And the growth that we're bringing in. If you look at frankly the plans that we've got out past 2030, we're continuing to grow production and therefore offsetting any depletion. And as we continue to do more work bring technology on, use the supercomputer that we have and the algorithms we have to better understand the movement of the hydrocarbon underground and tap into those things. We're improving the recovery at very low cost. So I think we haven't reached the end of that string yet. You know, there's still an opportunity there. And so I don't know ultimately where we get to. But I can tell you that the organization is very motivated to continue to use the tools and the capabilities that we're unlocking to change the curve and to change the slope of that curve. And I'm I tell you today, I can't give you an answer specifically what that's gonna look like because we haven't gotten to the end of that journey. On the our product solutions manufacturing facilities, again, I would tell you we just formed the beginning of this year our global operations organization where we bring together all of our operating organizations to basically work to and raise the standard and basically do what we've been doing in supply chain and projects and technology. We have prior to that, set up a global operations organization to support all of the businesses and to bring kind of the best thinking and the best on reliability and safety. And even with the centralized organizations, bringing support to the existing operations that were embedded in the businesses, we saw material improvements and the cost of maintenance and improvements in reliability, improvements in safety. And so we demonstrated to ourselves that the power of this collective thinking and taking the best of all is really bringing bottom line value. This next step that we've taken with the operations organization is just going to enhance that and supercharge it. So I think we're gonna see reliability and availability and uptime continue to improve across the portfolio. Which ultimately brings down our cost, makes us a lower cost supplier, which allows us to manage through the cycles even better. And so there's continues to be a lot of upside with respect to those two areas that you mentioned. Then I would just broadly say across the whole portfolio, we're just getting warmed up on some of these centralized organizations to supply chain organization, you know, what we're doing in procurement, what we're doing in our business solutions group. So there's a lot of I'd say, work going on now. And we have a very clear line of sight of how we're going to improve the effectiveness of the organization as well as the. So would just say we've got plans out to 2030 that reflect some of that. My view is we're gonna improve upon those things as we actually learn more and mature these brand new organizations. Paul Cheng: Hey. Darren, do you have a number you can share what is the base, the kind way at this point in your upstream portfolio? Darren Woods: No, Paul, I don't have a number for that. Jim Chapman: Sorry. Hey, Paul. Thank you. Paul Cheng: No problem. Jim Chapman: Thank you, Paul. And operator, unfortunately, we have time for just one more question. Operator: We have time for one more question. Our final question will be from Biraj Borkhataria of RBC. Biraj Borkhataria: Hi, thanks for taking my questions, squeezing me in. I wanted to ask about the Chemicals segment. Base Chemicals segment. It's obviously been in a tough spot for a while now. Just from your global perspective, are you seeing any signs of green shoots in base camp either on the supply or demand side? With your competitors? Thank you. Darren Woods: Thanks, Biraj. I think so like all of our businesses, there's a the tale of two halves. From a demand standpoint, I would say continue to see very robust strong demand across the world for the chemical products. The challenge with respect to the margins that are out there is obviously from the supply side of the equation. So despite record levels of demand and very good growth in demand, there continues to be a lot of capacity that comes on that expresses the margin. So I think that's as you look at the landscape out there, that's the challenge. A good healthy market, a good demand for the product, good applications that continue to grow. Our focus has been within that context again with the cost efficiencies that we've been capturing with the effectiveness that we've been driving and our focus on high value products. Is trying to kind of differentiate ourselves with to the the marginal supplier that's setting the price out there to get an advantage and to get an improved margin. I think that's been working in our favor in addition to the feed advantages that we've got with the locations that we have. And so our focus continues to be the same. Selling to high value products, continue to drive cost down, be efficient, take advantage of every lever that you've got to pull, lean heavily into the centralized organizations to help the efficiency of what you're doing and the effectiveness of our supply chains. I think all those are paying off. It allows us to be more competitive and deliver better results than many of our competitors are able to do in this space today. But the ultimate, you know, how this resolves itself from a market standpoint I think hard to judge just based on the competitive dynamics that are out there. Thanks for your question. Listen, we've reached the end of the call and I want to I guess thank all of you for the recognition that you've given Kathy. And I wouldn't want to end the call without adding to the comments that many of you made. Kathy, I want to thank you for everything you've done for the company. Kathy came in at a very unique time in the company, a level in the company that frankly we've never brought somebody in from the outside. And I think became an instant partner to the rest of the management committee I have benefited greatly by having her at my side and engaged in discussions over the last five years. So it's been a great ride. Appreciate your commitment and hard work that you've made. And in particular, over the last year, as you struggled to kind of overcome some of your personal challenges, never missed a beat, never compromised on the contributions that you're making to the company. And so you're definitely going to be missed, but we're looking forward to you accelerating your recovery wishing you and Ed and your family just a really long healthy and happy retirement. I will say that we're happy that one of the first things that Kathy got engaged in when she when she stepped in was to make sure that we had a very robust succession plan and happy to have Neil who been training here for several years and now bring back into the mix I think we're all real confident that Neil is going do a great job. Stepping into the big shoes that that Kathy has left behind. And fortunate for Neil, they're not high heeled. So I think he he got an advantage there in Neil. So but thank you, Kathy. Thanks for everything. Kathy Mikells: Thanks very much, Darren. Listen, I'm humbled and honored by having the opportunity to have worked here at Exxon Mobil Corporation. And I hugely appreciated your support, Darren, the support of the management committee and the board. And hopefully, I leave things in a little better place than when I first came here. I'm gonna miss our people. The most. You know? Our people are amazing. And I'm incredibly proud of what they've accomplished over the last five years. And finally, I just say I'm thrilled to have Neil stepping in my place. You know, he has a little bit of experience, twenty-five years, at the company. Most of that actually in the finance organization. So he's just the right person at the right time, and it's really terrific to have such a smooth transition. And he's here with us. I don't know. You wanna say a couple words? Neil Mehta: Yeah. Thank you, Darren. And thank you, Kathy. We wish you the very best. Your positive impact on Exxon Mobil Corporation will be long-lasting. And we are all truly grateful for everything that you've done for us. And personally, I'm very excited to step into the role as CFO and build on really the strong unmatched foundation that we have in place as a company. And I look forward to connecting again with the investment community, getting to catch up with those of you that I already know. And then getting to meet those who I have not met yet, hopefully sometime in the near future. Jim Chapman: You, in particular, Kathy. Okay. Thank you, Neil. Thank you, Darren. And thanks to all of you for joining today and for your questions. We'll post the transcript of this webcast on the Investors section of our website next week. And that concludes today's call. Have a good weekend.
Vesa Sahivirta: Good morning, everyone, and welcome to Elisa's Fourth Quarter 2025 Conference Call. I'm Vesa Sahivirta, Head of Investor Relations. This is now a purely conference call. We don't have audience today here. So we start with the presentations, and the team is here, CEO, Topi Manner; and now as first time, CFO, Kristian Pullola. And I think we are ready to start. So I give the word to Topi. So please go ahead. Topi Manner: Thank you, Vesa, and good day, everybody. Welcome to this Q4 Elisa earnings call. And let's get right down to business and go through the Q4 highlights. During Q4, our revenue increased by 1.5%. That was predominantly driven by mobile service revenue growth but also related to growth of revenue in international software services. Mobile service revenue growth amounted to 2.4% and the telecom service revenue, to 2.2%. And to telecom service revenue, we include both mobile service revenue as well as fixed service revenue. In international software services part of the business, the Q4 total revenue growth was 11.3%. The comparable organic revenue was flat, predominantly driven by projects being postponed to 2026. Importantly, in this part of the business, the full year EBITDA was positive, as we stated at the start of the year. So in that sense, we delivered according to our plans. Looking at the total company, comparable EBITDA was at the previous year's level despite quite intense competition during Q4, leading to increased temporary sales cost. The amount of those sales costs was EUR 5 million to EUR 6 million during the quarter. Comparable cash flow was very strong during Q4, especially driven by net working capital efficiency. Comparable cash flow grew by 37.6%. In Finland, postpaid churn was 23%, reflecting also Q4 being seasonally, typically, the highest in terms of churn. But then again, if you look at Q3, Q4 churn in total, that is a reflection of intense competition in mobile services on the market during those quarters. Postpaid subscriptions decreased by some 2,000, and then M2M and IoT subs grew by some 19,000 pieces. The fixed broadband subscription base increased by 6,000. So we are seeing a gradual pickup in those subscriptions, which is positive. And then importantly, during the quarter, we maintained our market share in consumer postpaid subscriptions in Finland, as we stated in connection to our Q3 report. So in the intense competitive environment, we showed competitiveness by maintaining our market share. The transformation program that we launched in connection to the Q3 report proceeded well during the remainder of the year. We have been conducting the first phase of that transformation program, leading to reducing 360 jobs in the company. And that means that majority of the cost savings that we are targeting has already come into force from 1st of January onwards. So we are well on our way of delivering according to the plan and realizing EUR 40 million of cost savings on the back of the transformation program during the course of 2026. And then finally, our Board of Directors proposes a dividend of EUR 2.40. And assuming that the AGM so decides, this would be a 12th consecutive year of continuously increasing dividend in Elisa. Looking into the numbers a little bit more deeply. As stated, revenue landed at EUR 588 million during the quarter, and we saw 1.5% increase in that one. On top of the international software services and mobile services, we also saw equipment sales picking up a bit. In terms of EBITDA, the EBITDA for the quarter was impacted by the mentioned temporary sales cost. These costs would be related to the competitive situation in the sense that we have been having marketing costs like gift cards, related to our mobile services business, and also investing to promotional sales force, for example, in shopping malls, in fairs and these kinds of events -- also in telemarketing. And when you look at the EBITDA margin on a year-on-year basis, the impact of these temporary sales cost was approximately 1% unit, as stated, amounting to some EUR 5 million to EUR 6 million during the quarter. Mobile service revenue, 2.4% up with continued 5G upselling. I will come back to that in a minute. And then when we look at the ARPU development, the ARPU grew 3% on a year-on-year basis, also driven by the upsells, but also the value-added services in the form of the security features that we have been introducing to the part of our customer base during the year. Now when we look at what has happened on the market after Q4, we have seen, in January, some front-book price increases taking place on the market. We were the first mover on that as a market leader. And this leads us to think that our operating environment will gradually improve during the first half of '26. Going into the segment-specific reporting. Consumer customer segment was impacted by the competition during the quarter. The temporary sales costs that I mentioned were impacting in full the consumer segment, and that is visible in the comparable EBITDA development for the segment as well as the EBITDA margin for the segment. The revenue growth for the segment was 1.9%. In corporate customers, we saw some quarterly fluctuation in terms of revenue. But if we even that out and especially if we look into EBITDA development, corporate customer segment developed in a stable fashion and the EBITDA margin actually increased with 1% unit on a year-on-year basis to EUR 63 million. In international software services, the profitability picked up during the quarter and landed at EUR 4 million in terms of EBITDA. On the back of that, as stated, the full year EBITDA for that segment was positive. And then the EBITDA margin for Q4 stand-alone was 9%, reflecting that we are taking steps gradually to improve the profitability of that business as the scale of the business grows. Just shortly looking into Estonia. In Estonia, during the quarter, the revenue increased by 3%. In EBITDA, we also saw some quarterly fluctuation in EBITDA that was largely flat in Estonia, but then especially looking into the full year development, in Estonia, EBITDA increased by 5%, so above the company average of Elisa. And therefore, we can conclude that the market was performing well, and job well done in Estonia. And at the same time, in connection to the Q4 results, we are wrapping up the full year of 2025, and it was a record year in terms of comparable EBITDA development and in terms of revenue as well as cash flow. I think that the high point was that we increased our cash flow during the year with 15%. Revenue increased 3%. Comparable EBITDA increased 3.2%. And in the intense competitive environment, we kept our base of mobile subs largely intact. Postpaid churn during the year was 20.3%, increasing 3.5% in comparison to previous years. This is a reflection of a competitive situation. But at the same time, this is clearly something that we would want to improve for '26. And now as stated, in the first weeks of the year, we have been seeing positive signals on the market related to this. Our strategy, Faster Profitable Growth, is on track, and we stay the course. We have our 4 growth pillars: 5G and fiber, telecom service revenue in effect; home services; corporate IT and cyber; international software services, enabled by simplicity and productivity, that we are especially tackling with the transformation program that we have been introducing. When executing the strategy during the year, we will be putting more focus on customer centricity and AI-enabled growth as well as AI-enabled productivity. And steps are being taken on all of those fronts as we speak. So the bottom line being, we stay the course, we focus on implementing the strategy. During the quarter and at the end of the year, we reached a milestone related to 5G penetration, now hitting the 50% mark in 5G penetration. And with that, we are now disclosing a bit new information to you in this presentation. Previously, we have been discussing about high-speed penetration of mobile services, namely above 200-megabit speeds, including all of our 5G subscriptions, but also some 4G subscriptions. And now this graph is only about 5G subscriptions. As we can see, the 5G smartphone penetration in the market has been increasing to 74%. And as stated, our 5G subscription penetration now hit the 50% mark at the end of the year. And it is a nice, linear trend over the years from one quarter to another, that we also expect to continue from here onwards. What is worthwhile to mention is that 5G stand-alone subscriptions are today already a significant part of all of our 5G subscriptions and the number of those subscriptions is growing steadily. We also have the highest customer NPS score for the 5G stand-alone users. And that is basically signifying that we are already quite well into taking next steps in terms of network technology, providing value to our customers and also being able to monetize that value. In other part of telecom services, in the fiber business, the strong revenue growth continues and then clearly is picking up. We are also transforming to modern technologies in there and ramping down the ADSL technology. Then just quickly taking a look at the domestic services a little bit from a customer and product perspective. In terms of home services, during the quarter, we launched Elisa Entertainment Sound, bringing home theater quality to our entertainment services. This has been well received by customers, and it is clearly boosting the sales of entertainment services. Another development on the product front was that we launched licensed home security services, Elisa Kotiturva service, to customers. It is early days for this product, but clearly, the reception from customers has been upbeat. In corporate IT and cyber part of the business, we launched a new feature to customers, Who's Calling feature. Basically, technologically, we were the first one to be able to crack the code and be able to deliver this information to customers without a separate app being used. So this is a nice feature that the customers seem to appreciate, and the penetration is growing as we speak. On the same space, we also won European Crime Prevention Award for our scam call prevention solution. In Finland, this has effectively meant that on a yearly basis, we are preventing 3 million scam calls on the market, effectively erasing this category of fraud altogether in the market and protecting vulnerable groups, like elderly people. And this is a nice innovation, having societal significance, also something that -- where we have patents and where we can help other telcos in Europe to do similar kind of crime prevention in their respective markets. In terms of international services -- software services, as I mentioned, some of our projects during the quarter were postponed to 2026. We did not lose any deals. We did not lose any customers. This is a timing issue. And therefore, at the end of the year, we had a record high backlog in international software services. The new sales was impacted during the year related to the tariff concerns, and that was very similar phenomenon that we have been seeing all across the software industry globally. During Q4, the order intake, however, picked up notably. And Q4 was a record quarter in terms of order intake for the software part of the business. And on that note, we won a big deal from Ooredoo Group, a big Middle Eastern telco, also reflecting that our product offering and our product strategy is very competitive on the marketplace as we speak. And we have been winning new customers in that telco vertical during the course of '25, which will be supportive of our revenue during '26. And this brings me to the outlook and guidance for '26. In terms of revenue, our guidance is that we see revenue being at the same level or slightly higher than in 2025. In terms of comparable EBITDA, we are introducing an EBITDA range from EUR 815 million to EUR 845 million, the midpoint there being EUR 830 million. CapEx, 12% of revenue. And then related to our outlook and guidance, we introduced certain assumptions. And these assumptions are that we expect our economic and operating environment to gradually improve during the year. And then secondly, we expect telecom service revenue growth being in the bracket from 1% to 3%, where mobile service revenue growth is the main part and main driver of telecom service revenue growth. In International Software Services, we expect an organic revenue growth to be above 10%. So I guess this covers my presentation, and now I will hand over to Kristian before we go to the Q&A. Kristian Pullola: Okay. Thank you, Topi. As Topi said, the intense competition did negatively impact both growth as well as EBITDA in the quarter. We did especially see temporary sales costs increased during the quarter, partly as a result of increased kickbacks in the form of vouchers, for example. This decreased EBITDA margin by approximately 1 point. I want to highlight that these costs are temporary in nature and can be avoided if the market situation changes. Also an additional note here. When it comes to the costs related to kickbacks, we have a conservative policy as we book these costs upfront, even if, in most cases, the costs relate to fixed-term contracts with a maturity of 1 year. When it comes to CapEx, the strict discipline continued, and our investments were focused into areas that further improve our technology leadership and allow us to continue to upsell both 5G and fiber. We are also making investments into IT systems to drive simplification and productivity longer term. Our fiber investments did ramp up. And as discussed earlier, these mainly take place through the JV structure we established during the first half of '25. And thus, the investments are visible through the increased IFRS 16 liabilities. Then into an area which is very important to me, cash flow. We continued strong cash flow momentum in Q4, delivering 38% growth compared to last year. For the full year, cash flow was up 15%, driven by good net working capital development, especially in inventories where the focus have been during the year. Also lower CapEx continued -- contributed positively, while this was also -- this was somewhat offset by higher cash outflows related to financial expenses. Going forward, we will further focus on cash and cash flow, and I do see possible areas of improvement in net working capital, especially in accounts receivable and accounts payable going forward. Then a few words on capital structure and our returns. Elisa continues to have a solid capital structure, and in the quarter, we took proactive steps to refinance the maturities we have this year. Both the bond transaction as well as the increased loan from the Nordic Investment Bank further improves the maturity profile of our debt. Elisa continues to have industry-leading returns, both on equity as well as on investments. The proactive financing that we did during Q4 resulted in us having somewhat higher cash balances at the end of the year, which temporarily negatively impacted the return on investments. With the cash flow focus and the continued strict CapEx discipline, we want to continue to produce industry-leading returns also in the future. And then finally, to shareholder remuneration. The Board proposes to pay an increased dividend of EUR 2.4 for the financial year '25. The proposal is supported by the earnings development, the strong cash flow generation and the solid capital structure of Elisa. The dividend has been and continues to be our main distribution mechanism. By making payments quarterly going forward, we make the dividend even more continuous to our shareholders. Quarterly payments also give us the flexibility from a financing and a liquidity management point of view. We are committed on our dividend policy, and we will continue our competitive shareholder remuneration. And as I said earlier, strong cash flow focus is a key enabler for this also going forward. With that, Vesa, over to you for Q&A. Vesa Sahivirta: Thank you, Kristian. And now we move on to Q&A, and we ask first question from the conference call lines, please. Operator: [Operator Instructions] The next question comes from Andrew Lee from Goldman Sachs. Andrew Lee: I had just 2 questions. The first was on -- thanks for the great color you've given in the guidance for 2026 around the total service revenue growth. Could you just help us understand the contribution of mobile service revenue growth within that guide? Just you've given us some help on that in the past, especially on the midterm guidance. And maybe just give us a bit more of an insight into how important you see the price rises that you made followed by DNA and Telia last week. How important are they in getting the pricing environment back on track in Finland? Is it quite important or very meaningful? And how have you seen responses to that? And then just second question, you've guided to medium-term EBITDA growth of 4% CAGR. You obviously fell a little bit short of that last year in 2025 and are guiding to be falling short of that again in 2026, so certainly in the midpoint. That puts a lot of pressure on 2027. What are you thinking about in terms of your ability to actually deliver to that midterm EBITDA growth? Topi Manner: Yes. Thank you, Andrew. If I start from the last one, related to the midterm targets, we are committed to our midterm targets, 4% revenue growth, 4% EBITDA growth. We are targeting that, and these targets are valid. Now in our guidance, we, of course, now need to take the prevailing economic environment and the operating environment into account. And that we have done. But as stated, we will be staying the course with the strategy and targeting the midterm targets by '27. Then coming back to your first question that was around mobile service revenue. As stated in our guidance assumption, we now speak of telecom service revenue, including mobile service revenue and fixed service revenue. And the range for that is from 1% to 3%. And in that, we see that mobile service revenue will be a main contributor to the telecom service growth. And if you look at the development in Q4, the mobile service revenue development was 2.4% and telecom service revenue development, 2.2%. So they were basically going forward hand by hand. And then, Andrew, there was a little bit of interruption on the line when you said something about price increases as part of your second question. So could you please repeat that? Andrew Lee: What I was trying to understand was just there are some price rises last week, and it's difficult for us to get a sense of scale always in the Finnish market given promotions and below-the-counter pricing, et cetera, et cetera. So I just wondered your sense of how meaningful the price rises and DNA and Telia's response was last week in terms of the progress of the Finnish market, to trying to get back to some sort of rationality given the irrationality of Telia's pricing strategy over the last year or so? Topi Manner: Yes. Thank you for that. As stated, we have seen during the weeks of January positive signals on the market. And as the market leader, we increased some of our price -- front book prices a couple of -- 2 weeks back. And we have been seeing competitors following those moves. It's early days at this point of time. But when we look at the step-ups in 5G and 4G from the levels of experienced in Q4, those increases so far are noteworthy. Operator: The next question comes from Max Findlay from Rothschild. Max Findlay: I just wanted to ask a couple of questions regarding your OpEx. So at Q3, you guided to EUR 20 million of restructuring costs to deliver 450 personnel reductions, but actually delivered EUR 26 million restructuring costs for only 360 personnel reductions. Can you help us understand why restructuring costs were higher than expected and positions reduced lower than expected? And on that note, you suggest that savings not made up by headcount reductions, would include cost savings initiatives like reduced use of outsourced services and procurement efficiencies. Presumably, you need more savings from these reductions than initially expected given fewer headcount reductions. And I just wondered how you think about the net savings from such measures given you presumably will incur some costs by in-housing these services? And then finally, can we just get some color on the EUR 12 million in network dismantling and repair costs, which were also excluded from adjusted EBITDA. Are these costs that you've not incurred before? Kristian Pullola: Yes. So thanks for the question. So first of all, I think when we set out to simplify and rationalize our organization, we had some estimates in mind both in terms of what could be the potential headcount and the related costs. In the end, after also a thorough kind of negotiation with the personnel, we ended up with somewhat different numbers. And it is a somewhat different mix than what we set out. Of course, you always have buffers in also the numbers, particularly on the headcount side. And then on the cost side, yes, they were a bit higher, but still in the same ballpark. So no drama there. When it comes to the dismantling costs, this is really air cables, related to the copper business that we are now having to take down as the service will be ending and thus, costs that we haven't occurred in the past. And I don't see that we would have similar costs in the future either. And thus, we are dealing with them as a one-off item. Topi Manner: And just to continue on the transformation program. So we introduced it in connection to Q3. And now we are through the first phase of that transformation program, which included the headcount reductions. And we are proceeding well in accordance with our plan, meaning that with the headcount reduction, majority of the targeted cost savings for '26 has already come into force. But we will continue with the transformation program. And like you mentioned, we will be looking into outsourced services, for example, in the area of IT consulting and software development. We have opportunities there. We will continue our initiative of taking a long and hard look on the procurement of the company, materializing cost savings from there. And then we will be continuously working with AI-driven productivity going forward. The bottom line of all of this being that we are well on our way on delivering on the EUR 40 million target. Operator: The next question comes from Paul Sidney from Berenberg. Paul Sidney: I had 2, please. Firstly, you've stated that Elisa wants to maintain your #1 position in Finnish mobile, maintain your postpaid market share. I was just wondering, is this still the plan over 2026 and beyond? And just wondering how you sort of balance that with protecting your back book ARPUs? And just wondering if this volume strategy is the right one, given we're seeing some of your European peers focus more on price increases and not be obsessed about volumes? And then just as a second question on comparable cash flow. I think you generated EUR 411 million in the year. You've clearly got a very clear focus on free cash flow given your presentation remarks, but you have no targets for '26 and '27. So I was just wondering if you could help us in terms of the direction of free cash flow over the next couple of years? If you could give us a bit more detail around that? Topi Manner: Okay. Thank you. If I could take the first one and then Kristian will continue with the second one. So related to the mobile service business and our strategy on the Finnish market, we are a market leader. We want to maintain that position on the market. So we are committed to keep our market share, like we said in connection to the Q3 and like we delivered during Q4. At the same time, it is very important to note that we are a responsible market leader. We don't want to grow our market share, and we don't want to fuel irrational behavior in the market. And we have been striking that balance during the Q4. Our strategy in mobile services is a value strategy. We want to provide customers with value. We are a technology leader. We have 50% penetration in 5G. We have a significant portion of our subscriptions already in 5G stand-alone network, and our competitors have not started on 5G stand-alone as of now. And then we have, during the year, brought value-added services to our customers in the form of the security features. And our plan in '25 was that we roll out the security features to some 600,000 customers, and that we did before Q4. And then to start with Q4 rollout, was not planned to play a big role in that. We continue to do this during '26, building our ARPU, in our business. But the security features rollout, we will be pacing in accordance with the competitive situation on the market. But we definitely see possibilities to bring value to our customers with all the kind of innovations and features like Who's Calling service and others that we have innovated. Kristian Pullola: And on the cash flow question, you're right, we haven't provided any specific guidance or targets on cash flow. You need to give us a bit time to get back to that topic. But as I said, last year was strong. We had clear measures when it comes to inventories. I think inventories are now on a good level. We need to continue to maintain that level going forward. We will now look at additional areas and see how much cash conversion can we drive from those net working capital areas. And as we have clarity on that and as -- and if it makes sense, we'll then get back to more clear targets around cash flow. But rest assured, this is an important area of focus for me and the team. This is the enabler for us also, continue to pay dividends to shareholders and thus, we are on it. Operator: The next question comes from Ulrich Rathe from Bernstein. Ulrich Rathe: I have 3 questions, please. The first one is, the guidance is framed around the expectations of an improving trading environment. And you highlighted the ability to raise prices despite intense competition at the beginning of the year. What other reasons do you have to expect an improving trading environment, in particular, vis-a-vis the behavior of the MVNOs, which I understand, are a big part of this intense competitive environment that you're currently experiencing. My second question is, you highlighted postpaid subscriber momentum and also the business situation in postpaid with 5G. Now in your reporting, you always include M2M, machine-to-machine, as postpaid. Are the comments that you're making about the postpaid situation, including M2M as well, like in the reporting? Or are you looking at the sort of human subscriptions there? The reason I'm asking is that the subscriber base is actually shrinking, excluding M2M, and you're sort of pointing out KPIs there in the commentary that suggests the subscriber base is doing a lot better than that, also on Slide 8, when you're talking about 5G penetration? And my last question is, the ISS organic growth is guided at 10% versus flat last year. You mentioned deferred projects, which probably give you some visibility into the growth, into -- reaccelerating quite materially. But what was the visibility overall to go from flat to 10% for the year? Topi Manner: If I start from the first one and related to the mobile competition and MVNOs and the operating environment at large, I think that what we need to acknowledge is that MVNOs, of course, have entered the market. There has been 2, Giga Mobiili and [ OMI ]. But the impact of MVNOs on the market has been marginal. They they have not introduced that disruptive price points. So the competition that has been experienced in the market during Q3 and Q4 has been driven by competition between the established players on the market, first and foremost and some of the competitors changing their strategy in that respect. So I think that, that is important to note in terms of the market dynamics. And as a small nugget of information, what we have sort of observed on the market right now during the weeks of January is that Giga Mobiili, an MVNO that is a subsidiary of Gigantti Electric Stores, has actually clearly become more passive on the market. And Gigantti Stores are sort of reinitiating their collaboration with other players, established players, on the market. So clearly, things have not been easy for the MVNOs on the market so far, which is consistent with the historical evidence on the market when we go years back. So I think that, that is useful to say. And then related to the economic environment and the operating environment on the overall -- I mean, if we look at our home market economies, the GDP and consumer confidence, in particular, has been sluggish during '25 in Finland and Estonia, driven by many factors, one of them being the geopolitical situation. Now the forecast is that there would be a small improvement in the overall economy during the course of 2026. And as stated, when it comes to the operating environment, otherwise, we have been seeing -- in the market dynamics, we have been seeing positive signals during the first weeks of January. Then to your second question related to M2M subscriptions. I mean, when we say that our consumer postpaid subscriptions have been stable, and we have been keeping our market share during Q4, that is based on number portability statistics on the market. And M2M subscriptions are not included in that figure. So to use your terminology, this would be human [ postcriptions ] or people-based subscriptions. And then finally, your question related to the ISS revenue momentum. If I remember correctly, then indeed, the backlog at the end of the year is record high, given some of the projects being postponed. And then during Q4, we saw a record intake and the intake clearly picking up -- the order intake clearly picking up during the quarter. We have a competitive product. We have been winning customer deals in a more sizable category than we have been winning in the past. Ooredoo is one of those examples. And then this makes us optimistic about the revenue prospects during '26. Ulrich Rathe: That's very helpful. Can I just follow up really quick? I realize I'm stressing patience here with 3 questions. But on your first point, we're saying the MVNOs really didn't have an impact. But would you -- how would you frame this? I mean the MNOs have gone into this hyper-competition mode in 3Q and 4Q because the MVNOs came in, I would suspect, but correct me if I'm wrong in this, which then sort of leads to the MVNO impact being a bit muted simply because of this heavy competition of the MNOs. So to sort of simply say, oh, it's the MNOs, it's not the MVNOs that are driving the competition, seems to sort of -- seems to sort of ignore that dynamic a little bit. So I'm just wondering how I should look at that? Topi Manner: I mean, of course, competitive dynamics on the marketplace are driven by a number of factors. And certainly, the MVNOs entering the market sort of play into that equation as well. But our analysis of the situation is that, that has not been the main driver. The main driver has been competition between the established players and the balance between the established players being sort of -- or that equilibrium being rebalanced in the market. Operator: The next question comes from Ajay Soni from JPMorgan. Ajay Soni: Mine -- I've got a couple. One is on the EBITDA guidance. So I think comparable EBITDA for '25 is around EUR 810 million. And then if I just kind of take the building blocks of going into next year, you've got around EUR 40 million of cost savings. I think telecom revenue growth adds another EUR 10 million on EBITDA. You probably have some benefit from ISS as well. So that gets us to EUR 50 million to EUR 60 million higher, which is well above your guidance range. So maybe a nice to ask it would be -- what would need to happen within the market for you to deliver at the low end of your guidance of EUR 815 million for 2026 because it feels like there's quite a few tailwinds which push you above your current guidance range for EBITDA. And then the second one was just around, you mentioned accelerating fiber network construction. So do you still see this being within your current CapEx guidance of around 12%? Or do you see a need to maybe increase that in the short or medium term? Topi Manner: We'll start from the first one. The question about the lower end, what would need to happen? I think that we would need to see the kind of competition levels that were experienced during Q3 and Q4 to prevail during the course of '26 and even intensify. And then we would need to see in the B2B part of the business, both on the home market as well as in industry, the economic situation not picking up and then new kinds of geopolitical uncertainties materializing in the market, for example, impacting the software business and then on top of that, us not being able to move forward in cost efficiency-related measures in the planned way. Kristian Pullola: Maybe just an additional note there. So as we said after Q3, the EUR 40 million OpEx savings that we get from the restructuring and the savings that we have executed on, some of that will be invested back to growing the business. So that will not all be kind of visible as a net reduction of OpEx going forward. Some of that will be kind of reallocated to drive faster profitable growth going forward throughout the business. So that's also a good thing to keep in mind. Then on the fiber investment. So first of all, we are committed to the 12% CapEx target that I stated, and that is part of the guidance also. But then as I said, some of our fiber investment that was ramping up during last year is done through the JV structure that we have established and in that sense, is a more kind of capital-efficient way to ramp up. That's part of the EUR 200 million investment program that we have also talked about in the past. So we'll be dealing with parts of the fiber investment in that sense outside of the 12% target. Operator: The next question comes from Felix Henriksson from Nordea. Felix Henriksson: I have 2. One is on the dividend. You're now paying out more than 100% of your comparable EPS as opposed to your target of 80% to 100%. Is this something that you consider acceptable going forward? I know it's a Board decision, but any commentary around that would be great. And secondly, can you open up the dynamics in your fixed business for 2022 -- 2026, I mean, in particular, when it comes to the ramp down of the ADSL business and at the same time, growth in the fiber business? Overall, should we expect growth in fixed service revenues for 2026? Topi Manner: So when it comes to dividend, it is very important to note that our dividend policy stays intact. And when you look at the dividend proposal for the AGM now, EUR 2.40, our cash flow covers the dividend in full and more than that. So the focus on cash flow is and will be very important when it comes to the dividend considerations. Kristian Pullola: And then the second part, do you want to take that you want to take that on the fixed business? Topi Manner: Yes. Felix, could you please remind me, was that about ADSL? Or -- can you... Felix Henriksson: Yes. Just about the dynamics between ADSL ramp down and growth in fiber, should that overall lead to positive growth in the fixed service revenues for 2026? Topi Manner: Yes. I think that -- I mean, we are sort of seeing sort of a gradually changing momentum in the fixed service business. We are ramping down legacy technologies, PSTN, like we announced during the course of the year, other technologies, like ADSL as well. And at the same time, we are seeing fiber take-up -- picking up in terms of FTTH, FTTB and potentially going forward with new categories, like data center connectivity. So that is something that we are expecting in terms of future development. Operator: The next question comes from Sami Sarkamies from Danske Bank Markets. Sami Sarkamies: I have 3 questions. We'll take this one by one. Firstly, coming back to dividend. You've been previously raising dividend by approximately 4% per annum. Now that's been cut to half. You still keep your medium-term targets, which should indicate sort of 4% EBITDA growth and sort of covered dividend even with sort of the earlier increases. So can you explain what's, call it, broken that you're cutting back on the dividend growth? Kristian Pullola: I think -- so first of all, I think it's fair to say, as Topi said, we are sticking to our targets of 4% plus 4%. Then as was visible during this year, some of the line items below EBITDA are, from a cost point of view, growing faster than EBITDA, which is then reducing the growth of EPS. And that is a dynamic that we need to take into account. Having said that, growing the dividend by EUR 0.05 on the back of strong cash flow is a good performance. Sami Sarkamies: Okay. And then next question on campaigning. I think you said that the additional marketing and campaign costs can be avoided in the future. Why will it be different in the future than in Q4? So what are you thinking here? Topi Manner: So it is very much driven by the competitive situation, of course. So the temporary sales costs that were amounting to EUR 5 million to EUR 6 million during Q4 are related to, for example, gift cards that were used as kickbacks for fixed-term contracts. This is a market phenomenon. So again, we did not fuel that kind of competition on the market. We responded to competition to keep our market share. This is a variable cost that will -- it's basically a derivative of a competitive situation on the market. And the same goes to additional promotional sales force. During the Q4, we spent money to promotional sales force in shopping malls, in fairs, in telemarketing and so forth. These are typically part-time employees, variable cost and therefore, easily adjustable and yet again, a derivative of a competitive situation. Sami Sarkamies: Okay. And then lastly, I wanted to check what's been happening in January on the pricing front. So was it so that you did raise prices in January and then both competitors have been following these price increases? Topi Manner: By and large, so in big picture. And then as stated, as a market leader, we were the first mover in that one, and we have seen competitors following up. Different price points in different channels, but generally positive signals on the market. Operator: The next question comes from Artem Beletski from SEB. Artem Beletski: Topi and Kristian, so I still have 3 to be asked. And the first one is relating to ISS outlook for '26. So you do comment, what comes to revenue development and double-digit growth, what you're anticipating, is it fair to assume that we should see also some further improvement in terms of profitability? Could you provide some color on that front? Then the second question is relating to PSTN network shutdown during this year. Could you maybe talk about net impact in terms of earnings? So you will be losing some customers, but of course, there should be some savings associated to it. And the last one is maybe a bit more longer-term question. So how do you see business opportunities relating to data centers? So we have many projects being planned and ongoing in Finland. What is your business opportunity on that front? So those are my questions. Topi Manner: Thank you, Artem. So starting on the first one, related to the ISS business and especially the profitability outlook, on that one. I think that it's very important to note that during '25, amidst all kinds of tariff-related uncertainties that impacted our software customers business, we grew inorganic and organic growth. Together, we grew with more than 20% in terms of revenue. And we delivered on our soft guidance on profitability, so reaching positive EBITDA for the full year of '25. Then if you look at the Q4 ISS EBITDA margin, we reached 9% EBITDA margin. So we have been gradually improving the profitability as the scale of the business grows. There will be seasonality in ISS business also going forward. Q1 is typically relatively good. Q2 and Q3 are seasonally calmer. And then Q4 is typically the strongest in that business. Adjusting for the seasonality, we expect to see gradually improving profitability in that part of the business as the scale of the business grows and as we get our sales machine humming better and better all the time. Then if you take the PSTN... Kristian Pullola: I think on the PSTN, so yes, we still have some net sales headwind to work through. But as Topi said to the earlier question, we still see that, that will be more than offset by the growth that we can achieve in fiber. And then you're right, there will be kind of improvements on the cost side that will then also be coming through. So I think during next year, we'll start to move from a situation -- or during this year, we'll start to move from a situation where this is a headwind to one where we'll start to see benefits. Topi Manner: And then to your question related to the data centers, I think that -- now taking a longer-term perspective on this one. This is a longer-term business opportunity, 5 years onward, 10 years onward and more than that. Finland is a very attractive place for data centers. The cost of electricity is low. The electricity grid is probably of best quality in Europe at least. Climate is cool, stable earth and high-quality infrastructure in terms of telecommunications and other things. So it is clear that data centers -- more and more data centers will be placed in this country. And therefore, we see a longer-term opportunity in this one. We think that we are -- our business in data centers is related to the data center connectivity in particular, the fiber connectivity from data centers to the world. And we think that we are naturally advantaged in that business because we have the best backbone network in the country, meaning that if you build a mammoth data center on a more rural part of the country, you simply need to build less fiber to connect it to our backbone. And this is certainly an opportunity that we are eyeing on over the long term. Operator: The next question comes from Ondrej Cabejšek from UBS. Ondrej Cabejšek: Thank you for the presentation, all of the additional color that you are providing today. I also have 3 questions, if I may, and I'll also go one by one, please. So first of all, on the cost-cutting program, the EUR 40 million. So you mentioned that obviously, this is now a bit of a different structure, fewer or less of an impact from the FTE reductions, more of an impact from other things. So is it fair to assume that the impact under this new kind of structure will be more kind of phased into 2027 than before? And is there any reason to believe that because, again, the structure of the -- or the nature of the cost cutting is a bit different that the net impact from this new structure could be less or more than the previous one? Kristian Pullola: So I think, first of all, maybe it was my unprecise comments that might have triggered your question. And if so, apologies for that. We are on plan when it comes to our EUR 40 million cost reduction program. When we set out and when you set out to do a program like this, you naturally kind of indicate a higher headcount than maybe where you will end up. Our headcount-related costs and the related reduction is on plan. And as a result of that, we are on plan both when it comes to where is it coming from and the pace at which it will come through our P&L. So in that sense, everything is in order there. We don't see that there are kind of mix shift here. And again, there will be no spillage into '27 or anything like that. Having said that, of course, we then continue to work on other areas, areas that are non-headcount related, to find more efficiencies, to drive longer-term productivity. And that's business as usual, particularly in a market environment like the one that we are operating in currently. Topi Manner: Yes. I think that what Kristian is saying is very important to understand. Majority of the headcount reductions were related to Finland. And in Finland, there is a specific law that at the start of the so-called change negotiations, you need to announce the maximum amount of possible job reductions. That then will be negotiated with the unions. And that means that you cannot, under any circumstance, exceed that number, leading to companies typically announcing a bit higher number than in real life is in their plans. And that is really the case in this situation as well. So the bottom line is that there's no deviation in terms of mix from our plan, and we are well on our way on delivering on the targets of the transformation program. Ondrej Cabejšek: That's clear. Maybe a clarification. So you mentioned EUR 40 million for this year, the calendar year '26 clear, but surely the run rate of the impact would kind of at least on the non-FTE costs impact positively 2027, right? Kristian Pullola: I think the impact and the run rate is relatively close to each other. So no need to worry there. Ondrej Cabejšek: Okay. Okay. Cool. On Estonia, and apologies if you addressed this before and I missed it, but can you explain why EBITDA suddenly from like a -- usual decent growth rate is suddenly negative? Topi Manner: You mean on Q4? Ondrej Cabejšek: Yes, exactly, yes. Topi Manner: Yes. There's some quarterly fluctuation in that one. I mean, if you look at the full year EBITDA growth on the Estonian market, that was plus 5%. And in Estonia, given the structure, especially of the mobile services, and given the structure of the market, many players on the market have conducted inflationary price increases during the course of the year. And they were a little bit sort of more front-loaded during the year -- conducted during the first part of the year. This dynamic most likely will play out in '26 as well, leading to some quarterly fluctuation in Estonia in terms of EBITDA. So I think that in the case of EBITDA, instead of looking into -- in the case of Estonia, instead of looking into EBITDA development in Q4, it is more relevant to look at the longer-term development during the full year. Ondrej Cabejšek: That is helpful color. And final question for me, if I may. You flagged the extra commercial costs in Finland this quarter to the tune of EUR 5 million to EUR 6 million. I was just curious, number one, I believe this is the first time you're flagging these or at least the severity of these. So I was wondering, is that really -- like did 4Q really get so bad that the amount is high enough for you to flag? Or is it just a case of, in the previous quarters, there were other efficiencies that were maybe mitigating this and there was no reason to flag, but these extra costs have been there all along? Or is 4Q -- or was 4Q really that bad? Topi Manner: Q4 was very competitive. I mean Q4 is always seasonally the most active in the market with all kinds of Black Friday campaigning and Christmas campaigning. And Black Friday is not 1 day. It's these days, it's basically the whole of November and then continued with Christmas. So there would be a bit of that sort of seasonal campaigning cost on every year. But what we did see is intense competition Q4 -- during Q4, more intense than we have been experiencing in this market in many, many years. Kristian Pullola: And just to be clear, when we talk about the EUR 5 million to EUR 6 million or the 1% of EBITDA, that is costs above and beyond what we normally see in the fourth quarter. Topi Manner: Correct. Operator: The next question comes from Abhilash Mohapatra from BNP Paribas. Abhilash Mohapatra: The first one was just around the dividends. There's some language in the outlook around sort of the use of the word maximum. So you say you'll pay EUR 0.60, and then the Board could pay up to a maximum of EUR 1.80. If you could just sort of clarify that, if there's anything there? And then related to the dividend, you mentioned sort of improving working capital is a focus. It's going to be a key driver for dividends and sort of covering divids with cash flow. So when you say that, do you mean sort of covering dividends with cash flow, including net working capital contributions? Do you expect that to be a positive contribution going forward? And like would you be able to cover dividends without working capital, is my question. And then secondly, just around the sort of cybersecurity products bundling, which is presumably a big driver of the service revenue growth. What do you need to see that will make you go ahead and sort of execute this or hold back? What do you need to see changing in the market? Because I suppose the MVNOs are sort of now here. They've been launched, and Telia also seem focused on, I suppose, improving the commercial performance in the market. So what do you need to see changing which will allow you to sort of go ahead and execute these price changes? Kristian Pullola: So maybe if I start on kind of dividend and cash flow. So first of all, dividend, this is now a quarterly dividend, which will total EUR 2.4, so EUR 0.60 a quarter. That -- it's a technicality that we talk about the EUR 0.60 separate from the EUR 1.80, which is then the 3 next quarterly payments because the AGM will make the decision on the first one, give a mandate to the Board, which will then decide on the 3 next quarterly ones. So for all kind of purposes, this is a EUR 2.4 dividend, which is a EUR 0.05 increase from last year. Then when it comes to cash flow, will we be able to cover it without working capital improvements? I would say that we will drive strong cash flow overall and working capital is one lever that we have to being able to generate cash flow to continue to fund the dividend. So it's not the only lever. I'm just highlighting it because we do see that there are -- based on the learnings from this year, there are more opportunities for us to go after in other areas of working capital, and we will do that to continue to deliver strong cash flow going forward. Topi Manner: And on your last question related to the rollout of the security features and the progress of that, as stated, our original plan was to cover, during '25, those subscriptions where the terms and conditions allow us to make changes during the tenure, and those subscription types are of ongoing nature. And that part of the clientele has now been addressed. It was largely addressed already by the end of Q3. And now during the course of this year, we will be continuing and especially we'll be continuing with the fixed term contract base of our customers. And the terms and conditions of those contracts allow us to introduce the new offering when the term -- the fixed term for the customer expires. And that we will be doing. We will be basing our sales approach to the competitive dynamics on the market. Related to your point about MVNOs, the MVNO pricing has not been disruptive. And that is important to note. The price points that they are using are higher, and that creates us some possibility to continue the security feature rollout. At the same time, we do see that on the prevailing economic woes on our home market, there is a price-sensitive end of the market, price-sensitive end of the customers. And certainly, we will need to take that into consideration when we move forward. The bottom line being that we will be pacing the security features rollout to the competitive dynamics, and we will be gradually moving forward with that during the course of '26. Operator: The next question comes from Max Findlay from Rothschild. Max Findlay: I just had a question on mobile. So the midpoint of your mobile growth guidance is 2% despite delivering 3% this year. And as has been referenced several times in this call, your guidance assumes the economic and operating environment improves during the year. Does this imply that the first half of the year, we should expect growth below 2%? And are you factoring in better second half performance? And linked to that, I know we've just discussed facts, but it seems that your kind of value-added services strategy has been less supportive of growth than had hoped. And I was just wondering if this is a fair assessment. Topi Manner: So first of all, we are not giving assumptions related to the mobile service revenue. We -- related to our guidance, our assumption is that telecom service revenue, mobile service revenue and fixed service revenue together will grow in the range of 1% to 3%. So that is an important note. Having said that, we do expect mobile service revenue to be the main driver of telecom service revenue during the year. And then when it comes to competitive dynamics impacting the security features rollout and the value-added services rollout, during '25, we proceeded according to our plans. And Q4 was planned to be a calm quarter in that respect in any case. Going forward, we will need to take the competitive dynamics into account. And as stated, we will be pacing the rollout in accordance with the competitive dynamics. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Vesa Sahivirta: Thank you for participating in this conference call, and we wish you a nice weekend when it comes. Thank you now and bye-bye. Topi Manner: Thank you very much. Kristian Pullola: Thank you. Topi Manner: Bye-bye.
Operator: Good day, everyone, and welcome to today's Nomura Holdings Third Quarter Operating Results for Fiscal Year ending March 2026 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time. [Operator Instructions]. Please note that this telephone conference contains certain forward-looking statements, and other projected results, which involve known and unknown risks, delays, uncertainties, and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions. With that, we'd like to begin the conference. Mr. Hiroyuki Moriuchi, Chief Financial Officer. Please go ahead. Hiroyuki Moriuchi: This is Moriuchi, CFO. Thank you for joining us. I will now give you an overview of our financial results for the third quarter of the fiscal year ending March 2026. Please turn to Page 2. Return on equity was 10.3%, reaching the quantitative target for 2030 of 8% to 10% or more for the seventh consecutive quarter. Group-wide net revenue came in at JPY 551.8 billion, up 7% over the last quarter. Income before income taxes fell 1% to JPY 135.2 billion, while net income fell 1% to JPY 91.6 billion. EPS for the quarter were JPY 30.19. The 4 main divisions performed solidly, but the segment -- other incurred losses because of the downturn in market conditions for the digital asset-related businesses. For all 4 divisions in total, pretax income rose 8% to JPY 142.9 billion. This is the highest level in 18.5 years since the first quarter of the fiscal year ended March 2008. Wealth Management achieved growth of around 30% versus the previous quarter, which was itself a strong quarter. Investment Management saw business revenue rise to an all-time high since the establishment of the division, thanks to the consolidation of the public asset management business of the Macquarie Group, which we acquired in December 1, 2025, but profits fell because of weaker investment gains and onetime expenses associated with this acquisition. In wholesale, both Equities and Investment Banking performed solidly generating record revenues. Banking also generated solid revenues from lending activities as well as trust and agent services. In view of our strong momentum, we resolved to set up a share buyback program in order to enhance shareholder return and capital efficiency. The program will run from February 17 to September 30 of this year with an upper limit of 100 million shares and JPY 60 billion in amount. Before we go into details for each business, let us first take a look at earnings in the first 9 months of the fiscal year. Please turn to Page 3. As shown on the bottom left, income before income taxes rose 15% year-on-year to JPY 432.1 billion, net income rose 7% to JPY 288.2 billion. Earnings per share came in at JPY 94.67, and return on equity came in at 10.8%. Please see the bottom right for breakdown of income before income taxes. Pretax income at 4 main divisions rose 10% to JPY 381.3 billion. On a 9-month basis, income before income taxes is running slightly ahead of the target of over JPY 500 billion in our 2030 management vision. Looking at individual divisions, Wealth Management continue to generate stock strong profits and year-on-year recurring revenue cost coverage ratio rose sharply, improving revenue stability. Profits fell in Investment Management because of onetime expenses associated with the Macquarie acquisition, but existing operations continued to generate organic growth, thereby steadily broadening the division's business foundations with a view to future growth. Moreover, at all wholesale businesses -- business lines, they performed well, thereby actively driving group-wide earnings. Banking saw costs rise ahead of the introduction of the new deposit sweep service in the next fiscal year, but loans outstanding and investment trust balances rose smoothly. We will take a look at the third quarter results. Please turn to Page 7. All percentages discussed from now on are based on a quarter-on-quarter comparison. On the top left, you can see that Wealth Management net revenue increased 14% to JPY 132.5 billion, while income before income taxes of JPY 58.5 billion represents a growth of 29% versus the previous quarter, which was itself a strong quarter. The margin of over 40% on income before income taxes was not only high in absolute terms, but was ahead of the street, too. On the bottom left, you can see that recurring revenue rose to an all-time high of JPY 52.7 billion. The first and third quarters tend to be flat quarters for recurring revenue because investment advisory fees are only booked in the second and fourth quarters, but this was completely offset this quarter, thanks to net inflows of recurring revenue assets in excess of JPY 500 billion. Floor revenue also increased sharply to JPY 79.8 billion. Accurate assessment of market movements and client needs, along with supply of new products, helped to ensure strong revenue. Recurring revenue cost coverage ratio also rose 1 percentage point to 71% amid ongoing cost control initiatives. Please turn to Page 8, where you can see an update on total sales by product. Total sales rose around JPY 300 billion to JPY 6.6 trillion, thanks to growth across a wide range of products. Equities registered growth of 4%, thanks to increased secondary trading during market correction phases as well as major primary deals. Bonds registered a decline of 25%, yen-denominated bond sales came in flat as rising interest rates boosted yields and ensured solid demand, but foreign bond sales were hit by the disappearance of primary deals booked in the previous quarter. Investment Trusts and Discretionary Investments, which make up recurring revenue assets saw steady growth in sales and insurance sales remained strong. This demonstrates that the shift from savings to investment has now firmly taken root. Next, we take a look at the KPIs on Page 9. On the top left, you can see that recurring revenue assets saw a net inflow of JPY 503.9 billion, although there were some liquidity needs prompted by record highs in major markets, we secured the largest net increase on record. Our efforts to expand the recurring business are steadily producing results, strengthening our confidence. Meanwhile, as shown on the top right, recurring revenue assets totaled JPY 28.1 trillion at the end of December, which also presents an all-time high. As shown on the bottom left, the number of flow business clients rose by around 270,000 to 1.53 million. Volume market conditions led to an upturn in client activity and primary deals such as the SBI Shinsei Bank IPO, also encouraged trading activity. Next, let's take a look at Investment Management on Page 10. On the top left, you can see that net revenue came in flat at JPY 60.9 billion, and the income before income taxes fell 42% to JPY 17.9 billion, mainly because of onetime expenses associated with the Macquarie acquisition, together with weaker gain associated with American Century Investments, which came under investment gains and losses. On the bottom left, you could see that business revenue, which constitutes stable revenue rose to an all-time high of JPY 57.8 billion, benefiting from revenue from the acquisition that we completed in December last year as well as from solid performance in asset management business in Japan. However, Investment gains fell because of smaller gains related to American Century Investments and the disappearance of gains in the sales of portfolio companies at Nomura Capital Partners. Although profits for the division fell because of weaker investment gain and onetime expenses associated with the acquisition. The impact was offset in consolidated accounts via the reversal of the valuation allowance for deferred taxes, -- deferred tax assets. Let's now turn to Page 11 and examine our Asset Management business, which is a key source of business revenue for the division. The graph on the upper left shows that assets under management reached an all-time high of JPY 134.7 trillion at the end of December as shown on the bottom left, net inflows amounted to JPY 115 billion, representing the 11th consecutive quarter of net inflows. Net inflows to domestic investment trust business totaled JPY 71 billion. Although there were outflows from ETFs for profit taking amid rising equity markets and from Japanese equity investment trusts due to early redemptions, they were offset by inflows into newly established Japanese equity active funds, private assets and balanced funds. Net inflows into domestic investment advisory and International businesses totaled JPY 44 billion, with the outflows from U.S. high-yield bonds and the business we acquired, but influenced mainly into yen-denominated bonds in Japan. As shown at the bottom right, alternative assets under management rose to a new high of JPY 3.3 trillion. This represents growth of about JPY 400 billion versus the end of September, more than half of which stems from net inflows. Next, let's take a look at wholesale on Page 12. On the top left, you can see that wholesale net revenue rose 12% to JPY 313.9 billion, while income before income taxes rose 17% to JPY 62.3 billion. The breakdown on the bottom left shows that global market net revenue rose 9%, while Investment Banking net revenue rose 31%. Please turn to Page 13 for an update on each business line. Page 13, please. Net revenue in the Global Markets business rose 9% to JPY 256.8 billion. Please look at the middle section on the right. Fixed income revenue rose 12% to JPY 136.9 billion. In macro products, rates, revenue growth in Japan and the Americas increased flows, while FX emerging revenues rose in EMEA and also recovered in ASIA from the previous quarter. In Spread products, credit revenues fell in AEJ of investors adopted a cautious approach, but securitized products revenues remained high in the Americas, in particular. Equities revenue rose 5% to a new high of JPY 119.9 billion. Equity Products revenue rose sharply in the Americas on strong performance in derivatives, and execution services revenues rose sharply in Japan, particularly thanks to primary deals. Turn to Page 14, please. As you can see on the bottom left, Investment Banking net revenue rose 31% to JPY 57.1 billion. This represents the strongest performance for the period since the fiscal year ended March 2017, the earliest period for which we can make meaningful comparisons by product in advisory momentum remained strong in Japan with multiple transactions involving moves to take companies private and cross-border deals, and international businesses made the contribution with multiple deals, including deals in closely watched sectors, mainly in EMEA and AEJ. Revenue rose sharply in financing and solutions. Major IPOs and public offerings made strong contributions to growth in ECM, especially in Japan. Elsewhere, solutions revenue and DCM revenue in Japan also remained strong. Now let's look at banking. Please turn to Page 15. As seen on the top right, in banking, net revenue came to JPY 13.7 billion, up 7% from the previous quarter. Income before income taxes rose 31% to JPY 4.2 billion. Income from lending business and trust agent business held firm as the division established in April 2025 increased the outstanding balances that we have set as KPIs, while benefits of marketing and advertising strategies slowly started to emerge. Preparations for the deposit sweep service scheduled for introduction in the next fiscal year are progressing as planned. Next, Page 16, for expenses. Group-wide expenses came to JPY 416.5 billion, a 10% or JPY 37.7 billion increase from previous quarter. As shown on the right, the drivers of the increase include an FX impact of JPY 9 billion as well as JPY 13 billion in one-off costs, such as onetime expenses associated with the acquisition and the temporary costs arising from partial changes to the deferred compensation plan. Other major factors include operating expenses related to the acquired business provisions for performance-linked bonus and commissions and the floor brokerage fees. These are primary strategic investments aimed at strengthening our future earnings base or variable costs that move in line with revenue. Moving forward, we will continue to execute strict cost control and work to secure our profitability. Last, Page 17 for financial position. In the table on the bottom left, we can see that Tier 1 capital at the end of December came to JPY 3.6 trillion, up JPY 60 billion since the end of September, while risk-weighted assets came to JPY 24 trillion, up by JPY 700 billion. The common equity Tier 1 ratio at the end of December came to 12.8%. Our common equity Tier 1 ratio finished the quarter down 13% at the end of September, but this is mainly attributable to the negative effect of 0.5% as a calculation method for regulatory capital ratio changed with the completion of the acquisition of the business from Macquarie Group. This concludes our overview of third quarter results. In closing, in the Q3, strong performance continued across all 4 segments, as stable revenue grew and repeat client flows were monetized against backdrop of U.S. Japanese equities rising to new heights, while absorbing one-off costs associated with acquisition, ROE for the Q3 came to 10.3% and ROE based on performance in the 9 months through the end of Q3, came to 10.8%. Let me touch upon the situation in January. In Wealth Management, net revenue thus far in January is about even with the level in the third quarter. Client sentiment has been favorable despite some selling pressures in the market, and we think household financial assets are steadily shifting into investment in response to concerns about the inflation and heightened long-term diversified investment need. In wholesale, due to seasonal factors, Q4 tends to be somewhat slower than the previous quarter, even though GM, or Global Market, is striking broadly in line with the prior quarter. Meanwhile, Investment banking has gotten off to a slower -- slightly slow start, but overall, the pipeline is solid, and we are not concerned. In Q3, the impact on earnings from fraudulent transactions stemming from phishing and scams was negligible based on recent conditions, we think the impact on earnings will continue to be very minimal. Also, there are 2 items that needs additional explanation regarding Laser and Investment Management division. First, starting with Laser. Let me explain the losses in the segment Other. In this past quarter, we recorded losses in part of our business in EMEA owing to digital asset market movements and the effect of currency hedges. Specifically, earnings at Laser Digital, the unit that runs digital asset business were negatively impacted by market movements observed in October and November of last year. Laser became profitable 2 years after its establishment and its performance was solid in Q2, but the units suffered a temporary negative impact in the third quarter. Earnings in the crypto asset business are volatile by nature, and we are well aware of management of the business over medium to long term, has to take that volatility into account. At the same time, to limit short-term earnings fluctuations, we have further tightened control over positions and risk exposure. Moving forward, we will continue to capture growth in crypto markets while strengthening our services and customer base. Next, regarding Investment Management division's performance, let me add -- let me explain the existing platform and acquired business separately. First, excluding the impact of the acquisition of existing platform's AUM expanded from JPY 101 trillion as of end of September to JPY 110 trillion at the end of December, supported by net inflows and the business revenue reached a record high. I will explain next the acquired business after consolidating December results. We newly recorded approximately JPY 25 trillion in assets under management, business revenue for the period was JPY 7 billion, and operating expenses were JPY 5 billion, in addition, one-off acquisition-related costs and amortization of intangible assets were recorded, bringing total expenses, including operating costs to roughly JPY 11 billion. These one-off acquisition costs reduced the division's pretax profit, but the impact on consolidated net profit after tax was offset by releasing valuation allowances against deferred tax assets associated with the acquisition. As we explained at the investor event in December, we expect total future expenses of $100 million or so for transfer and integration-related costs and other items. These costs will be incurred over the next 2 years, but the majority is expected to be recognized over the 1-year period starting from the fourth quarter, we are now going over the details of what we expect to spend on growth investments and plan to present this information at the Investor Day event in May because the acquisition was only just been completed, have commented in some detail here about the contribution of the acquired business, but as acquired the business, becomes more fully integrated into operational commentary on business performance, we will treat the division as a unified whole while maintaining the disclosure transparency once we are through the initial investment phase of the J-curve, our long-term aim is to grow profits by maximizing synergies between our existing and the newly acquired business. The company celebrated its centennial on December 25 last year. Going forward, we aim to continue striving for growth with the help of our stakeholders and other stakeholders. We are grateful for your continued support. Thank you. Operator: [Operator Instructions] The first question is by SMBC Nikko's Muraki-san. Masao Muraki: Muraki of SMBC Nikko. I have 2 questions. Page 24, JPY 10.6 billion Red Inc. in Europe. Laser Digital, you said that there was a fluctuation of the market between September and November. So JPY 10 billion of losses. At that stage, there was quite a sizable position. What was the status in terms of position management? One year ago, quite a sizable profits had been recorded, but at that stage, what was the state of position management and in order to control volatility, you said that you are taking measures, but what's your forecast regarding the volatility of performance going forward? That's my first question. Second question, Wealth Management, Page 7. There was net increase in investment trust, but amount outstanding, net inflow was quite strong. What's the backdrop? There was not any outflow. Is this sustainable? And margin is more than 40% -- 44%, AI-related investment was cited, but what would be the level of margin? Hiroyuki Moriuchi: Muraki-san, thank you for those questions. The first question -- the first point of question one, Laser's activity, were there any long positions taken? As you know, regarding Laser's activities, institutional investor market making and crypto assets, fund management and Nomura seed investment, venture investment. These are the diverse activities that Laser is engaged in as we offer services to customers. As you pointed out, there had been some long positions, and based upon that situation, going to the second point of your first question, how will we control volatility of performance going forward? This is a new industry of digital assets, and there are growth prospects, and we are currently in the stage of fostering businesses. And we -- our position is unchanged. We will -- we have long-term commitments. And in terms of risk management framework, we already had a robust risk management framework. On the other hand, in the short term, as you have rightly pointed out, how should I put it? There are times when sizable revenues are recorded, but last year, in November and December, there was some market disruption. So there is upside as well as downside, quite significant upside as well as significant downside. So in the short term, already, in order to control volatility, we are reducing the volume of risk in the positions we take. So this kind of precise position management will be continued in order to control upside and downside volatility, and in the long run, we wish to expand this business. So that concludes my response to your first question. Second question, net inflow of investment trust is sizable. Is this sustainable? Now having said so, there is market impact. There is impact from customers' preference. And I would like to, therefore, refrain commenting on whether we think that this trend will continue. On the other hand, 44% is a high margin, and can we further seek higher margin on this matter? Partially there are impacts coming from the market. So it's difficult to make any comments on that dimension. We are impacted by cyclical factors. Market structural change is taking place. And our policies are well aligned to market structural change. The Japanese market, retail investors are making a major shift from savings into investment. This is a sustainable trend, and we are taking measures that are well aligned to that trend. So in comparison to historical trends, we think that the margin level will be high, we will be able to maintain higher margin level. On the other hand, on the cost control side, we are continuing our efforts. But selectively, we are using AI, investing into AI, in order to improve the services we provide to our customers, so that will continue. So that concludes my response to your 2 questions. Masao Muraki: My second question, Morgan Stanley and Merrill Lynch margins are 30%. They've targeted 30% and the actual is slightly over the target, but why does Nomura such advantage? Is it because the asset size is -- would they have larger asset size? What's your advantage? Hiroyuki Moriuchi: Thank you for the question. I was consulting with our people in IR. There are country-to-country differences in terms of market structure, making it difficult to do an apple-to-apple comparison. Nomura's Wealth Management 100% sales are in-house. And because of that, partly because of that, it's easier to control cost. And the revenue market structure, I will have to once again check the market structure to respond regarding revenue. So I will conclude here. Operator: The next question is asked by Watanabe-san of the Daiwa Securities. Kazuki Watanabe: I'm Watanabe from Daiwa. I have 2 questions. First question is about Wealth Management's pricing strategy, other face-to-face securities, overseas equities, and other products they are raising commissions. Do you have a discussion internally about raising pricing? Second question is about the timing and scale of buyback. Why Q3? Why not Q4? What's the background of the JPY 60 billion in size? Hiroyuki Moriuchi: Thank you for your questions. For your first question on Wealth Management's commission rate, whether our peers are raising commission and what is our situation? That's your question. It's related to Wealth Management strategy. So I would like to refrain from answering that question. For us, we are focusing on value provision to customers. So we are considering what is the best solutions for customers. And we would like to continue our deliberation. Regarding your second question about the timing of buyback, why Q3? And also you asked about the value or amount. Regarding the timing, for one thing, Macquarie U.S. Asset Management transaction closing was the 1st of December. And by booking the business, CET1 ratio impact was not clear, but it was clarified and finalized. So our investment capacity was clarified. So in the market, there is expectation for buyback. So with that taken into consideration, we wanted to live up to expectations of investors and decided on buyback. Regarding the size of buyback as mentioned repeatedly, for us, investment strategy and future opportunities and also, at the same time, the importance of shareholder return are all considered. And based upon the balance, we came to the decision on the size. Kazuki Watanabe: Regarding the second answer, CET1 ratio. That's above the target range this time. And on that basis, you came to JPY 60 billion. So if FY 2025, so based upon the total return ratio target. So this completes your actions to meet the target for FY 2025? Hiroyuki Moriuchi: So whether we are at or above 50% in total return ratio that cannot be decided until we see the fourth quarter results. Based upon the fourth quarter results, we will check whether there is shortfall or not. If there is shortfall, then we will consider measures to take at that point in time, but when deciding on the amount, it is possible to add to what we have announced. Operator: The next question will be by JPMorgan Securities, Sato-san. Koki Sato: JPMorgan Securities, Sato. I have 2 questions. First, Global Markets, post-January performance. You touched upon that subject Q3. You said that the trend of Q3 has been maintained since the beginning of the month. Domestic rates, recently, there had been some fiscal concerns that had led to spike in interest rates, which means there was lack of buyers. So some people cited that there was dysfunctioning of the market. And under such circumstances, how should we view your domestic rates business? Secondly, just to confirm the numbers, Macquarie acquisition, 1-month worth revenue expenses, revenues and expenses will be booked, but normal rate contribution, JPY 7 billion revenue, JPY 5 billion cost, so JPY 1 billion per month times 12. Is that the right assumption? So can you confirm whether those numbers are correct? Hiroyuki Moriuchi: Thank you for the question. Then on the first question, the performance is solid in January as was the case of Q3, but what about domestic rates? As you have pointed out, there has been some increase in volatility in the market, super-long bond rates are going up. And therefore, some of the clients are taking a wait-and-see attitude and that is partly reflected in our Japan rates business, which has seen some slowdown. On the other hand, for global markets, in general, we are doing quite well because our business has diversified. In Japan, it's not rates alone. We're doing equity, credit. We're in diverse business areas and our GM business overseas, especially U.S., the business has grown to become quite sizable. So this slowdown has been absorbed, and we are recording sound performance in January. On the second question of Macquarie acquisition, no, in peacetime, 7 minus 5, to minus goodwill, 1 times 12. That's the broad image, but this 1 month is quite difficult because in revenue, seed capital -- we have seed capital to foster the business, and there is fluctuation. For the annual -- in annualized term, the position is neutral, but when we look at a snapshot of 1 month, there could be some fluctuation. So it could become bigger. So I think that's the way to look at it. Operator: The next question comes from Tsujino-san of BofA Securities. Natsumu Tsujino: So this time, personnel cost increased and deferred compensation accounting method was changed and that impact is included, and moving forward in Q4 and after Q4 as well, what is going to be the impact in and after Q4? And also, what is the actual amount, absolute amount in impact? And considering that this time, revenue due to weak yen and personnel costs due to weak yen, both seem to have increased. But the way personnel costs increased, what was the reality of how personnel costs increased. That is my first question. And the impact from next fiscal year. Next question, second question is about Laser Digital. You said you have reduced position, but moving forward, this business is what you would like to grow. And of course, you have traditional securities business, which is growing, but when the size increases, then you have no choice about to increase positions and then hedge is impossible for crypto assets. Then how should we think about the positioning. In the long term, how do you deal with the volatility that needs to be considered. So what is your thinking? Hiroyuki Moriuchi: Thank you for your questions, Tsujino-san. Regarding your first question on deferred compensation, accounting method change, what is the actual impact? And what is the impact expected in the fourth quarter and the next year? In the third quarter, actual impact amount is about JPY 8 billion. In the fourth quarter, about the same amount is expected as impact. And next year onward, JPY 15 billion or JPY 16 billion are expected impact. But next year -- well, that's this year. So next year, 40% or 50% of that is what we expect for next year. And year after next, the impact will be negligible. It's difficult for me to explain here the accounting treatment involving the slide in timing of cost recognition. Deferred compensation systems have varying treatments. So the cost is front-loaded and spending after 12 months, the level normalizes, that's how we should think about it. Regarding your second question about the reduction of Laser positions. In the medium and long term, with the business growing, the position will grow bigger, and the volatility will stay elevated. That's the point, which you pointed out, I believe. And regarding your point, strategy included, we need to have a thorough discussion in any ways. We would like to grow this business in the medium to long term, but there are several activities by holding inventories we do market making and trading for customers, then the unit risk exposure will be reduced. On the other hand, as mentioned, digital asset or crypto asset-related businesses, in addition to market making for institutional investors include other businesses such as crypto asset, management business or venture ecosystem supporting business, also combine custody-related businesses, there are such other businesses. So while ensuring diversity, we would like to grow the ecosystem. That is our direction. So just like you, Tsujino-san, we have the same sense of risk. So while understanding those points, we would like to conduct this business. Natsumu Tsujino: Regarding lending, are you conducting lending right now? And there is no extra risk there, if you are conducting lending business like crypto asset lending. Hiroyuki Moriuchi: Regarding lending business, we do have lending business as part of product lineup, but activity is very small. Operator: The next question is for UBS Securities, Niwa-san. Koichi Niwa: This is Niwa. I hope you can hear my voice. Operator: Yes, we can hear you. Koichi Niwa: Wholesale resource efficiency and private assets. First, revenue and risk-weighted asset ratio Page 12, 7.7%, quite high. And how does the management evaluate this level? And you've been talking about improving efficiency. So is there room for further increase division ROE. Do you think that this could be raised further? That's the point of my question. And secondly, I will deviate, but in Nikkei newspaper, Mr. Okuda was responding to an interview regarding private assets, and he was talking about selling Japanese products in other countries. So if you want to invite assets or investments into Japanese private asset, what is your estimate of the size of the business in terms of AUM or revenue? Or in order to engage in such business, does Nomura need to be equipped with a new function. So those are my questions. Hiroyuki Moriuchi: Then on your first question regarding resource efficiency of resource, Page 12, 7.8%, revenue modified RWA, we think that this is so and so acceptable global markets, Hong Kong, Singapore, IWM is engaged in wealth management business. Resource is not so much needed and taking that growth, all of the activities taken together, this is the level. So for example, if the question is whether the resource efficiency is going up in a certain business, not so. This is a result of the business mix. So that's my first point. And next, this number, is it possible to further increase this number? If we overfocus on that, the statutory capital RWA revenue or profitability in order to increase that, we may end up taking too high substantive risk in light of the economic capital. So it's good that this number goes up, but rather than just focusing on this indicator, we would look at various indicators comprehensively for risk management. And if in the end, this number goes further up, then that's positive. We have the self-funding program. The resource maybe somewhat tight for the business, and they are incentivized to focus on efficiency of resources. So even if there is a potential project, they have to judge whether resource can be used efficiently in light of the revenue that could be gained from that project. So I think that kind of incentive has also delivered some results. So this 7.8% is quite reasonable and appreciated, but we're not just chasing this number. Second question, Japanese private asset in order to invite money into Japan for development of Japanese infrastructure, what kind of mechanism, or what's our estimate of the size of the resource? Regarding those points, it might be a bit premature to share the design we have in mind. And I think we need to engage in more internal discussions. At one point in time, we will probably have more factors that we can speak to you, and then we will explain our strategy. I hope that this would do for today. Operator: [Operator Instructions] As there is no more question, we'd like to conclude question-and-answer session. Now, we'd like to make closing address by Nomura Holdings. Hiroyuki Moriuchi: Thank you very much. I am Moriuchi. Thank you very much for spending your precious time. As mentioned, there are one-off items and the technical accounting-related items, which are difficult to grasp. And they are ending up in increase in revenue and decrease in profit in any ways for divisions delivered a strong performance and we are positively looking at the performance. So medium, long term, we are focused on growing the revenue power of those four divisions. As for Laser Digital, we believe the business is promising in the medium, long term. So we would like to grow the business while suppressing short-term volatility by controlling the risk volume. In any case, thank you very much for your precious time that you spent with us. That is all for me. Thank you. Operator: Thank you for taking your time, and that concludes today's conference call. You may now disconnect your lines. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Welcome to the Invesco Mortgage Capital Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. Now I'll turn the call over to Greg Seals, Investor Relations. Mr. Seals, you may begin the call. Greg Seals: Thanks, operator, and to all of you joining us on Invesco Mortgage Capital's quarterly earnings call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address today. The press release and presentation are available on our website, invescomortgagecapital.com. This information can be found by going to the Investor Relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slide 2 of the presentation regarding these statements and measures as well as the appendix for appropriate reconciliations to GAAP. Finally, Invesco Mortgage Capital is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. Again, welcome, and thank you for joining us today. I'll now turn the call over to Invesco Mortgage Capital's CEO, John Anzalone. John? John M. Anzalone: Good morning, and welcome to Invesco Mortgage Capital's Fourth Quarter Earnings Call. I will offer brief remarks before turning the call over to our Chief Investment Officer, Brian Norris. Joining us for Q&A are President, Kevin Collins; COO, Dave Lyle; and CFO, Mark Gregson. Financial conditions improved during the quarter, supported by 2 Federal Reserve rate cuts, solid corporate earnings, improved financial conditions and strong economic growth. Equity markets extended their gains, credit spreads remained tight and agency mortgages outperformed treasuries, aided by lower rate volatility in a supportive supply and demand environment. Inflation readings trended modestly lower during the quarter with headline CPI at 2.7% and core CPI at 2.6%. Investors responded by reducing inflation expectations, reflected in lower breakeven rates on inflation-protected treasury bonds. Even with continued economic growth, the U.S. labor market continued to exhibit weakness as the economy lost 67,000 jobs during the quarter. Despite inflation running above target, the FOMC cut the federal funds target rate by 25 basis points at each of its last 3 meetings in 2025, citing labor market weakness. The Federal Reserve also ended its quantitative tightening program after reducing its treasury and agency mortgage holdings by more than $2.2 trillion since mid-2022, specifying that mortgage paydowns will be reinvested into treasury bills going forward. Markets are pricing in an additional 50 basis points of cuts through 2026. Interest rates were generally stable during the quarter and the decline in interest rate volatility that began after the sharp increase in April continued into year-end. With market expectations shifting towards a more accommodative monetary policy stance, agency mortgages delivered its strongest calendar year performance relative to U.S. treasury since 2010. Key drivers included a decline in interest rate volatility, broad inflows into fixed income and increased demand from Fannie Mae and Freddie Mac's investment portfolios. Agency CMBS spreads finished the year slightly tighter as markets gained confidence in the path towards monetary policy easing and improved clarity in U.S. trade policy. Higher issuance levels are readily absorbed given money manager inflows and continued bank demand for assets with stable cash flows. These factors led to a 3.7% increase in our book value per common share to $8.72 and combined with our recently increased dividend of $0.36 resulted in an 8% economic return for the quarter. We modestly increased leverage to 7x, consistent with the constructive investment environment. At year-end, our $6.3 billion portfolio included $5.4 billion in Agency mortgages, $900 million in Agency CMBS and our liquidity position remained robust with $453 million in unrestricted cash and unencumbered assets. We remain positive on agency mortgages following the sharp decline in volatility, though we view near-term risks as balanced given recent strong performance and the announcement of $200 billion in agency mortgage purchases by Fannie Mae and Freddie Mac. Agency CMBS continues to provide attractive risk-adjusted yields and diversification benefits. Longer term, we believe conditions for agency mortgages will remain favorable given lower interest rate volatility and expectations for broadening demand and a steeper yield curve. I'll now turn the call over to Brian for additional detail. Brian Norris: Thanks, John, and good morning to everyone listening to the call. I'll begin on Slide 4, which provides an overview of the interest rate markets over the past year. As depicted in the chart on the upper left, despite 2 25 basis point cuts to the Fed funds rate during the fourth quarter, the 10-year treasury yield was largely unchanged, increasing less than 2 basis points to end the year at 4.17%, 40 basis points lower than where it started the year. Although 10-year yields were relatively stable over the quarter, the yield curve continued to steepen meaningfully with 2-year treasury yields falling 14 basis points, while 30-year yields increased 11 basis points. The difference between 2-year and 30-year treasury yields ended the quarter at 137 basis points. 83 basis points steeper than a year ago. The steeper yield curve benefits longer-term investments such as Agency RMBS and Agency CMBS and is supportive of our strategy. The chart in the upper right reflects changes in short-term funding rates over the past year, with the fourth quarter highlighted in gray. While financing capacity for our assets remained ample and haircuts unchanged, 1-month repo spreads began to indicate broad-based funding pressures in late September and continued into October, widening approximately 5 basis points. Positively, the Fed's decision to end quantitative tightening in December alleviated the pressure and its announcement at the December meeting to initiate purchases of shorter-term treasury securities as needed to maintain an ample supply of reserves led to notable improvement in repo spreads as we head into 2026. Lastly, the bottom right chart on Slide 4 highlights the significant decline in interest rate volatility since April, which provided a tailwind for risk assets, including Agency MBS in the second half of the year. Although we do not anticipate further declines in 2026, the current level of volatility is in line with longer-term averages and remains supportive of the Agency RMBS sector. Slide 5 provides more detail on the agency mortgage market. In the upper left chart, we show 30-year current coupon performance versus U.S. treasuries over the past year, highlighting the fourth quarter in gray. Agency mortgages delivered strong performance both for the quarter and the full year, driven by reduced interest rate volatility that kept money manager and mortgage REIT demand robust, while net supply remained below expectations. Two additional cuts to the Fed funds rate, the end of quantitative tightening and the beginning of monthly T-Bill purchases by the Federal Reserve, all announced during the fourth quarter, provided significant support for risk assets in general and agency mortgages in particular, as funding markets improved notably. Although bank and overseas purchases remain subdued, increased demand from the GSEs provided additional support, resulting in strong returns for the sector. Net GSE purchases began to increase late in the second quarter and accelerated in the second half of the year, providing notable support for agency mortgage valuations. Not only did the unexpected demand provide an immediate lift to valuations, but it also strengthened expectations that the GSE's retained portfolios could serve as a stabilizing backstop for the sector, helping to reduce spread volatility going forward and providing support that the agency mortgage market has lacked since Federal Reserve and bank participation waned in 2022. This supply and demand environment also helped support the TBA dollar roll market, as you can see in the lower right chart. Implied financing improved notably during the quarter, whereas for most of 2025, financing via the dollar roll market was relatively unattractive compared to funding via short-term repo markets. As illustrated, that advantage narrowed late in the quarter and the shift is indicative of strong demand for agency mortgage collateral amid limited net supply. As this environment persists, the sector becomes more attractive, allowing investors to fund purchases at implied levels significantly below short-term funding rates. Lastly, 30-year mortgage rates declined modestly to end the quarter near 6.25% as tighter mortgage spreads offset slight increases in the 10-year treasury yield and primary secondary spread. This decline in mortgage rates continue to weigh on the performance of higher coupons relative to those lower in the coupon stack with discount coupons modestly outperforming premiums as investors were reluctant to increase prepayment risk in their portfolios. In the upper right-hand chart, we show higher coupon specified pool pay-ups, which are the premium investors pay for specified pools over generic collateral and are representative of the bonds that IVR owns. Positively, pay-ups improved during the quarter, offsetting some of the underperformance of higher coupons relative to lower coupons given increased investor demand for additional prepayment protection in premium dollar priced bonds. We continue to believe that owning prepayment protection via carefully selected specified pools, particularly in premium-priced holdings, remains an attractive investment for mortgage investors and helps mitigate convexity risk inherent in agency mortgage portfolios. Slide 6 details our Agency RMBS investments as of year-end. Our Agency RMBS portfolio increased 11% quarter-over-quarter as we invested proceeds from ATM issuance and paydowns and modestly increased leverage as the investment environment for agency mortgages improved. Purchases were primarily focused in 5% and 5.5% coupons with a decline in our 6% and 6.5% allocation, a result of paydowns and the overall growth in the portfolio. Although we continue to focus our specified pool allocation on prepayment characteristics that are expected to perform well in both premium and discount environments, price appreciation in our holdings has resulted in a higher percentage of our pools valued at premium dollar prices. Therefore, we continue to favor specified pools with lower loan balances, particularly in our higher coupon exposures given their superior predictability of future cash flows, while we remain well diversified across collateral stories with limited changes during the quarter. Overall, we remain constructive on Agency RMBS as supply and demand technicals are favorable and lower levels of interest rate volatility should continue to encourage demand for the sector. We believe near-term risks are balanced following recent outperformance with nominal spreads tightening approximately 15 basis points during the fourth quarter and another 10 basis points year-to-date. Despite the decline in risk premiums, levered returns on Agency RMBS hedged with swaps remain attractive with the current coupon spreads to 5- and 10-year SOFR blend ending the year near 140 basis points, equating to levered gross returns in the mid- to upper teens. Slide 7 details our Agency CMBS portfolio. Risk premiums were largely unchanged during the quarter as higher issuance levels were well absorbed via money major inflows and continued bank demand for stable cash flow profiles. Given more attractive relative value in Agency RMBS, we did not add to our Agency CMBS position during the quarter, and our allocation declined modestly due to the growth in the overall portfolio. Despite the lack of new purchases, we continue to believe Agency CMBS offers many benefits, mainly through its inherent prepayment protection and fixed maturities, which reduced our sensitivity to interest rate volatility. Levered gross ROEs are in the low double digits and consistent with ROEs and lower coupon Agency RMBS. We have been disciplined in adding exposure only when the relative value between Agency CMBS and Agency RMBS accurately reflects their unique risk profiles. Financing capacity has been robust as we continue to fund our positions with multiple counterparties at attractive levels. We will continue to monitor the sector for opportunities to increase our allocation to the extent relative value becomes attractive, recognizing the overall benefits to the portfolio as the sector diversifies risks associated with Agency RMBS. Slide 8 details our funding and hedge book at quarter end. Repurchase agreements collateralized by our Agency RMBS and Agency CMBS investments increased from $5.2 billion to $5.6 billion, consistent with the increase in our total assets, while the total notional of our hedges increased from $4.4 billion to $4.9 billion. Our hedge ratio was relatively stable during the quarter, increasing slightly from 85% to 87% as market expectations for monetary policy in 2026 were largely unchanged during the quarter. The table on the right provides further detail on our hedges at year-end. The composition of our hedges remained weighted towards interest rate swaps with 78% of our hedges consisting of interest rate swaps on a notional basis and 57% on a dollar duration basis. Swap spreads widened during the quarter, serving as a tailwind for our performance. Despite the recent widening, we remain comfortable focusing the majority of our hedges in interest rate swaps as we continue to believe swap spreads are historically tight and offer an attractive hedge profile relative to treasury futures. To conclude our prepared remarks, financial market volatility declined notably in the second half of 2025, resulting in strong performance for agency mortgages. IVR's economic return of 8% during the fourth quarter is a result of that positive momentum, which has continued into 2026 with book value up approximately 4.5% since year-end through Wednesday of this week. While agency mortgage valuations have improved significantly over the past year, we believe the current environment is reflective of a more normalized investment landscape that continues to provide investors with attractive levered returns. The January announcement of the MBS purchase program by the GSEs was well received by the market and the reduction in interest rate and spread volatility has broadened the investor base and enabled modestly higher leverage. The conclusion of quantitative tightening in the fourth quarter, along with announced T-Bill purchases by the Fed helped solidify funding markets and tightened repo spreads, serving as another tailwind for our strategy. Lastly, we believe our liquidity position provides substantial cushion for any potential market stress while also allowing sufficient capital to deploy into our target assets as the investment environment evolves. While we view near-term risks as somewhat balanced, we believe the current environment of low volatility in interest rates and spreads, along with further steepening of the yield curve and supportive supply and demand technicals will provide a positive backdrop for agency mortgages over the long term. Thank you for your continued support of Invesco Mortgage Capital, and now we will open the line for Q&A. Operator: [Operator Instructions] Our first question comes from Trevor Cranston with Citizens JMP. Trevor Cranston: I think in the prepared comments, I heard you characterize your view on MBS post the GSE buying announcements as a little more balanced. Can you talk about how you're approaching the leverage level post the tightening that's occurred and kind of where you guys are finding value within the coupon stack with marginal deployments today? Brian Norris: Trevor, it's Brian. Yes, so we did take leverage up a little bit in the fourth quarter, just reflective of that positive environment that we've continued to kind of see in the second half of the year. And so I think we're still relatively comfortable there. I think with the announcement with spreads a little bit tighter, we do kind of let leverage drift a little bit. So as book value increases, leverage could come down just a little bit. But I think we're still pretty comfortable because the environment overall, even though spreads are tighter, it's pretty supportive with limited spread volatility. As far as the coupon stack goes, I think I mentioned that there's been some notable improvement in the TBA dollar roll market. And that's really been across the coupon stack, but primarily in the belly, so call it 3.5 through 5.5s. And so I think we're finding pretty good value in those securities. Trevor Cranston: Got it. Okay. And I was curious within the specified pool portfolio, particularly in higher coupons, if you guys have seen any surprises within prepaid reports or if things have kind of behaved pretty much as you expected them to? Brian Norris: Yes, I wouldn't necessarily say that we've seen any surprises. We certainly saw an increase over the second half of the year in higher coupons in our 6s and 6.5s, prepayment speeds did increase. But because we do own prepaid protection, they certainly were less impacted than what you would see in generic collateral. Loan balance continues to, like I said in the prepared remarks, continues to be superior predictability of cash flows, and we continue to feel that way. I think certain FICO and LTV and even geo stories, a little bit less so, but still relatively in line with expectations heading into it. Operator: Our next question comes from Jason Weaver with JonesTrading. Jason Weaver: Maybe just to tee off of Trevor's first question there. Year-to-date, with new capital invested, have you continued rotating down in coupon? And maybe you can talk a little bit about the trade-off you see between elevated prepay risk and the positioning in some of those 5.5 and 6 pools. Brian Norris: Sure. Yes. Jason, it's Brian. Yes, I think certainly, there is a push by the administration on housing affordability, and they are directly focused on the mortgage rate and bringing that down. So to the extent that, that impacts higher coupons, I think the goal is likely to not necessarily reduce the allocation by selling, but to future purchases come a little bit lower in the coupon stack. So like I said earlier, more belly and lower coupons. Like I said, the TBA dollar roll market is pretty attractive in those coupons right now. So that's providing a nice boost as implied funding levels are significantly below SOFR. Jason Weaver: Got it. And the only other thing is, did you give an updated estimated book value as of today? Brian Norris: I did say we were up about 4.5% through Wednesday. Jason Weaver: Yeah you did, right. I missed that one, but I appreciate the color. Thank you. Operator: Our next question comes from Doug Harter with UBS. Douglas Harter: You continued kind of modest capital actions in the quarter, some small common issuance and some small preferred buyback. Can you talk about how you're thinking about capital structure and kind of the ability to raise capital going forward? John M. Anzalone: Yes. Doug, it's John. Yes, I think in terms of capital structure, we feel like we're in a better place than we've been. It's been improving. So that's -- we're happy about that. As far as the ATM goes, we do selectively access the ATM when the common stock provides clear benefits to shareholders. And we continue to view the ATM as the most efficient mechanism for raising capital. It was a pretty modest issuance during Q4 and conditions were slightly better in -- have been better in Q1. So you'll get an update later this month or actually in February when we report our monthly dividend, we'll provide more color on that. Operator: [Operator Instructions] Our next question comes from Jason Stewart with Compass Point. Jason Stewart: Just following up on the capital raising, just putting it in context with the investment environment. Is the decision on the ATM solely where the stock is? Or is part of this equation, what the pro forma ROEs look like? And on that front, would additional government action like an increase to the limit of the GSEs or removal of the PSPA cap or like a standing repo facility change your view of a spread range for MBS and change your view of capital raising on the second half of that? John M. Anzalone: Yes. I'll start with the first part, and I'll let Brian tackle the harder part, second part. I think it is a combination of things when we make a decision on whether to issue. I mean it obviously price to book is important. I mean that's the first metric. And then after that, it's other accretive investment opportunities. And so we tend to look at it as through the prism of how long is the payback period in terms of, okay, we're making accretive investments. And if we're trading slightly below book, we need accretive investments. If you're trading above book, you'd like to have accretive investments. But. Yes, I mean, that's how we kind of look at it. It's a combination of those 2 things. And then the second part of the question. Brian Norris: Yes. I would just add to that just -- this is Brian, Jason. Yes. I would just add, those are certainly kind of more quantitative aspects of it. There is a qualitative aspect as well, just, I guess, even economies of scale on reducing expenses, improving liquidity in the stock. Those are all things that kind of go into the factor on whether we are using -- utilizing ATM or not. As far as available ROEs, I did mention as of year-end, spreads versus SOFR were still pretty attractive around 140. We've seen about 10 basis points of tightening since then. So knock 1% or 2% off the available ROEs that we're seeing. But I think with the presence of the GSEs being more substantial now and being more prescriptive, that does help reduce volatility, brings greater comfort into potentially higher leverage. So I think there's a lot of positive things that despite slightly lower ROEs that there's a lot of reasons to kind of like the space right now. Jason Stewart: Yes. Okay. That's helpful. But on the government intervention side or the presence of GSEs, is there anything that would sort of get you to the next level where it's less of a backstop view and more of the view that it's a tighter spread range and a lower spread range? Brian Norris: Yes, lower than where we are now? Jason Stewart: Yes. Brian Norris: Yes. Certainly, if there was an announcement that they increased the caps from currently to $450 billion. That would be a signal. And maybe as we move along here throughout the year, if we start to see that the pace of purchases has increased notably. I think in December, the GSEs added a combined $24 billion between loans and mortgages, agency mortgages. So I think if we were to see that pace continue to increase, that would be a pretty clear signal that at some point, the administration or the treasury and the FHFA plan to increase those caps. And so that could potentially take us into another spread regime and take us another 10 to 15 basis points tighter from here. Operator: And our last question comes from Eric Hagen with BTIG. Eric Hagen: All right. So spreads have already tightened a lot. How should we think about the book value sensitivity and just like the overall upside to further spread tightening? Like would you say that the sensitivity or the magnitude is kind of similar as when spreads were relatively wider? Or how should we think about the magnitude because of the fact that spreads are kind of reset tighter? Brian Norris: Eric, it's -- sorry, didn't mean to cut you out there. I would say the magnitude of the change in book value to spread changes is the same, just given that our leverage is relatively in line with where it has been here recently. But our expectation for further spread tightening is significantly reduced. And so we kind of -- we saw a lot of spread tightening in 2025. We certainly would not expect that to occur unless there are, again, like I just mentioned, significant changes in the caps for the GSEs and their use of those retained portfolios. So we're not really expecting significant spread tightening from here. The $200 billion of purchases is largely priced into the market as we sit here today. So unless we start to see banks come in, in greater size and also increased caps. We don't necessarily expect spreads to tighten much. The expectation is that the longer we kind of stay at these spread levels, we'll see kind of money managers start to sell a little bit into it and kind of keep us here as opposed to taking us tighter. Operator: And at this time, I'll turn the call back over to the speakers. John M. Anzalone: Okay. Well, thank you, everybody, for joining us, and we will talk to you next month. Thank you. Operator: Thank you. And this does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.
Operator: Good day, everyone, and welcome to today's Nomura Holdings Third Quarter Operating Results for Fiscal Year ending March 2026 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time. [Operator Instructions]. Please note that this telephone conference contains certain forward-looking statements, and other projected results, which involve known and unknown risks, delays, uncertainties, and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions. With that, we'd like to begin the conference. Mr. Hiroyuki Moriuchi, Chief Financial Officer. Please go ahead. Hiroyuki Moriuchi: This is Moriuchi, CFO. Thank you for joining us. I will now give you an overview of our financial results for the third quarter of the fiscal year ending March 2026. Please turn to Page 2. Return on equity was 10.3%, reaching the quantitative target for 2030 of 8% to 10% or more for the seventh consecutive quarter. Group-wide net revenue came in at JPY 551.8 billion, up 7% over the last quarter. Income before income taxes fell 1% to JPY 135.2 billion, while net income fell 1% to JPY 91.6 billion. EPS for the quarter were JPY 30.19. The 4 main divisions performed solidly, but the segment -- other incurred losses because of the downturn in market conditions for the digital asset-related businesses. For all 4 divisions in total, pretax income rose 8% to JPY 142.9 billion. This is the highest level in 18.5 years since the first quarter of the fiscal year ended March 2008. Wealth Management achieved growth of around 30% versus the previous quarter, which was itself a strong quarter. Investment Management saw business revenue rise to an all-time high since the establishment of the division, thanks to the consolidation of the public asset management business of the Macquarie Group, which we acquired in December 1, 2025, but profits fell because of weaker investment gains and onetime expenses associated with this acquisition. In wholesale, both Equities and Investment Banking performed solidly generating record revenues. Banking also generated solid revenues from lending activities as well as trust and agent services. In view of our strong momentum, we resolved to set up a share buyback program in order to enhance shareholder return and capital efficiency. The program will run from February 17 to September 30 of this year with an upper limit of 100 million shares and JPY 60 billion in amount. Before we go into details for each business, let us first take a look at earnings in the first 9 months of the fiscal year. Please turn to Page 3. As shown on the bottom left, income before income taxes rose 15% year-on-year to JPY 432.1 billion, net income rose 7% to JPY 288.2 billion. Earnings per share came in at JPY 94.67, and return on equity came in at 10.8%. Please see the bottom right for breakdown of income before income taxes. Pretax income at 4 main divisions rose 10% to JPY 381.3 billion. On a 9-month basis, income before income taxes is running slightly ahead of the target of over JPY 500 billion in our 2030 management vision. Looking at individual divisions, Wealth Management continue to generate stock strong profits and year-on-year recurring revenue cost coverage ratio rose sharply, improving revenue stability. Profits fell in Investment Management because of onetime expenses associated with the Macquarie acquisition, but existing operations continued to generate organic growth, thereby steadily broadening the division's business foundations with a view to future growth. Moreover, at all wholesale businesses -- business lines, they performed well, thereby actively driving group-wide earnings. Banking saw costs rise ahead of the introduction of the new deposit sweep service in the next fiscal year, but loans outstanding and investment trust balances rose smoothly. We will take a look at the third quarter results. Please turn to Page 7. All percentages discussed from now on are based on a quarter-on-quarter comparison. On the top left, you can see that Wealth Management net revenue increased 14% to JPY 132.5 billion, while income before income taxes of JPY 58.5 billion represents a growth of 29% versus the previous quarter, which was itself a strong quarter. The margin of over 40% on income before income taxes was not only high in absolute terms, but was ahead of the street, too. On the bottom left, you can see that recurring revenue rose to an all-time high of JPY 52.7 billion. The first and third quarters tend to be flat quarters for recurring revenue because investment advisory fees are only booked in the second and fourth quarters, but this was completely offset this quarter, thanks to net inflows of recurring revenue assets in excess of JPY 500 billion. Floor revenue also increased sharply to JPY 79.8 billion. Accurate assessment of market movements and client needs, along with supply of new products, helped to ensure strong revenue. Recurring revenue cost coverage ratio also rose 1 percentage point to 71% amid ongoing cost control initiatives. Please turn to Page 8, where you can see an update on total sales by product. Total sales rose around JPY 300 billion to JPY 6.6 trillion, thanks to growth across a wide range of products. Equities registered growth of 4%, thanks to increased secondary trading during market correction phases as well as major primary deals. Bonds registered a decline of 25%, yen-denominated bond sales came in flat as rising interest rates boosted yields and ensured solid demand, but foreign bond sales were hit by the disappearance of primary deals booked in the previous quarter. Investment Trusts and Discretionary Investments, which make up recurring revenue assets saw steady growth in sales and insurance sales remained strong. This demonstrates that the shift from savings to investment has now firmly taken root. Next, we take a look at the KPIs on Page 9. On the top left, you can see that recurring revenue assets saw a net inflow of JPY 503.9 billion, although there were some liquidity needs prompted by record highs in major markets, we secured the largest net increase on record. Our efforts to expand the recurring business are steadily producing results, strengthening our confidence. Meanwhile, as shown on the top right, recurring revenue assets totaled JPY 28.1 trillion at the end of December, which also presents an all-time high. As shown on the bottom left, the number of flow business clients rose by around 270,000 to 1.53 million. Volume market conditions led to an upturn in client activity and primary deals such as the SBI Shinsei Bank IPO, also encouraged trading activity. Next, let's take a look at Investment Management on Page 10. On the top left, you can see that net revenue came in flat at JPY 60.9 billion, and the income before income taxes fell 42% to JPY 17.9 billion, mainly because of onetime expenses associated with the Macquarie acquisition, together with weaker gain associated with American Century Investments, which came under investment gains and losses. On the bottom left, you could see that business revenue, which constitutes stable revenue rose to an all-time high of JPY 57.8 billion, benefiting from revenue from the acquisition that we completed in December last year as well as from solid performance in asset management business in Japan. However, Investment gains fell because of smaller gains related to American Century Investments and the disappearance of gains in the sales of portfolio companies at Nomura Capital Partners. Although profits for the division fell because of weaker investment gain and onetime expenses associated with the acquisition. The impact was offset in consolidated accounts via the reversal of the valuation allowance for deferred taxes, -- deferred tax assets. Let's now turn to Page 11 and examine our Asset Management business, which is a key source of business revenue for the division. The graph on the upper left shows that assets under management reached an all-time high of JPY 134.7 trillion at the end of December as shown on the bottom left, net inflows amounted to JPY 115 billion, representing the 11th consecutive quarter of net inflows. Net inflows to domestic investment trust business totaled JPY 71 billion. Although there were outflows from ETFs for profit taking amid rising equity markets and from Japanese equity investment trusts due to early redemptions, they were offset by inflows into newly established Japanese equity active funds, private assets and balanced funds. Net inflows into domestic investment advisory and International businesses totaled JPY 44 billion, with the outflows from U.S. high-yield bonds and the business we acquired, but influenced mainly into yen-denominated bonds in Japan. As shown at the bottom right, alternative assets under management rose to a new high of JPY 3.3 trillion. This represents growth of about JPY 400 billion versus the end of September, more than half of which stems from net inflows. Next, let's take a look at wholesale on Page 12. On the top left, you can see that wholesale net revenue rose 12% to JPY 313.9 billion, while income before income taxes rose 17% to JPY 62.3 billion. The breakdown on the bottom left shows that global market net revenue rose 9%, while Investment Banking net revenue rose 31%. Please turn to Page 13 for an update on each business line. Page 13, please. Net revenue in the Global Markets business rose 9% to JPY 256.8 billion. Please look at the middle section on the right. Fixed income revenue rose 12% to JPY 136.9 billion. In macro products, rates, revenue growth in Japan and the Americas increased flows, while FX emerging revenues rose in EMEA and also recovered in ASIA from the previous quarter. In Spread products, credit revenues fell in AEJ of investors adopted a cautious approach, but securitized products revenues remained high in the Americas, in particular. Equities revenue rose 5% to a new high of JPY 119.9 billion. Equity Products revenue rose sharply in the Americas on strong performance in derivatives, and execution services revenues rose sharply in Japan, particularly thanks to primary deals. Turn to Page 14, please. As you can see on the bottom left, Investment Banking net revenue rose 31% to JPY 57.1 billion. This represents the strongest performance for the period since the fiscal year ended March 2017, the earliest period for which we can make meaningful comparisons by product in advisory momentum remained strong in Japan with multiple transactions involving moves to take companies private and cross-border deals, and international businesses made the contribution with multiple deals, including deals in closely watched sectors, mainly in EMEA and AEJ. Revenue rose sharply in financing and solutions. Major IPOs and public offerings made strong contributions to growth in ECM, especially in Japan. Elsewhere, solutions revenue and DCM revenue in Japan also remained strong. Now let's look at banking. Please turn to Page 15. As seen on the top right, in banking, net revenue came to JPY 13.7 billion, up 7% from the previous quarter. Income before income taxes rose 31% to JPY 4.2 billion. Income from lending business and trust agent business held firm as the division established in April 2025 increased the outstanding balances that we have set as KPIs, while benefits of marketing and advertising strategies slowly started to emerge. Preparations for the deposit sweep service scheduled for introduction in the next fiscal year are progressing as planned. Next, Page 16, for expenses. Group-wide expenses came to JPY 416.5 billion, a 10% or JPY 37.7 billion increase from previous quarter. As shown on the right, the drivers of the increase include an FX impact of JPY 9 billion as well as JPY 13 billion in one-off costs, such as onetime expenses associated with the acquisition and the temporary costs arising from partial changes to the deferred compensation plan. Other major factors include operating expenses related to the acquired business provisions for performance-linked bonus and commissions and the floor brokerage fees. These are primary strategic investments aimed at strengthening our future earnings base or variable costs that move in line with revenue. Moving forward, we will continue to execute strict cost control and work to secure our profitability. Last, Page 17 for financial position. In the table on the bottom left, we can see that Tier 1 capital at the end of December came to JPY 3.6 trillion, up JPY 60 billion since the end of September, while risk-weighted assets came to JPY 24 trillion, up by JPY 700 billion. The common equity Tier 1 ratio at the end of December came to 12.8%. Our common equity Tier 1 ratio finished the quarter down 13% at the end of September, but this is mainly attributable to the negative effect of 0.5% as a calculation method for regulatory capital ratio changed with the completion of the acquisition of the business from Macquarie Group. This concludes our overview of third quarter results. In closing, in the Q3, strong performance continued across all 4 segments, as stable revenue grew and repeat client flows were monetized against backdrop of U.S. Japanese equities rising to new heights, while absorbing one-off costs associated with acquisition, ROE for the Q3 came to 10.3% and ROE based on performance in the 9 months through the end of Q3, came to 10.8%. Let me touch upon the situation in January. In Wealth Management, net revenue thus far in January is about even with the level in the third quarter. Client sentiment has been favorable despite some selling pressures in the market, and we think household financial assets are steadily shifting into investment in response to concerns about the inflation and heightened long-term diversified investment need. In wholesale, due to seasonal factors, Q4 tends to be somewhat slower than the previous quarter, even though GM, or Global Market, is striking broadly in line with the prior quarter. Meanwhile, Investment banking has gotten off to a slower -- slightly slow start, but overall, the pipeline is solid, and we are not concerned. In Q3, the impact on earnings from fraudulent transactions stemming from phishing and scams was negligible based on recent conditions, we think the impact on earnings will continue to be very minimal. Also, there are 2 items that needs additional explanation regarding Laser and Investment Management division. First, starting with Laser. Let me explain the losses in the segment Other. In this past quarter, we recorded losses in part of our business in EMEA owing to digital asset market movements and the effect of currency hedges. Specifically, earnings at Laser Digital, the unit that runs digital asset business were negatively impacted by market movements observed in October and November of last year. Laser became profitable 2 years after its establishment and its performance was solid in Q2, but the units suffered a temporary negative impact in the third quarter. Earnings in the crypto asset business are volatile by nature, and we are well aware of management of the business over medium to long term, has to take that volatility into account. At the same time, to limit short-term earnings fluctuations, we have further tightened control over positions and risk exposure. Moving forward, we will continue to capture growth in crypto markets while strengthening our services and customer base. Next, regarding Investment Management division's performance, let me add -- let me explain the existing platform and acquired business separately. First, excluding the impact of the acquisition of existing platform's AUM expanded from JPY 101 trillion as of end of September to JPY 110 trillion at the end of December, supported by net inflows and the business revenue reached a record high. I will explain next the acquired business after consolidating December results. We newly recorded approximately JPY 25 trillion in assets under management, business revenue for the period was JPY 7 billion, and operating expenses were JPY 5 billion, in addition, one-off acquisition-related costs and amortization of intangible assets were recorded, bringing total expenses, including operating costs to roughly JPY 11 billion. These one-off acquisition costs reduced the division's pretax profit, but the impact on consolidated net profit after tax was offset by releasing valuation allowances against deferred tax assets associated with the acquisition. As we explained at the investor event in December, we expect total future expenses of $100 million or so for transfer and integration-related costs and other items. These costs will be incurred over the next 2 years, but the majority is expected to be recognized over the 1-year period starting from the fourth quarter, we are now going over the details of what we expect to spend on growth investments and plan to present this information at the Investor Day event in May because the acquisition was only just been completed, have commented in some detail here about the contribution of the acquired business, but as acquired the business, becomes more fully integrated into operational commentary on business performance, we will treat the division as a unified whole while maintaining the disclosure transparency once we are through the initial investment phase of the J-curve, our long-term aim is to grow profits by maximizing synergies between our existing and the newly acquired business. The company celebrated its centennial on December 25 last year. Going forward, we aim to continue striving for growth with the help of our stakeholders and other stakeholders. We are grateful for your continued support. Thank you. Operator: [Operator Instructions] The first question is by SMBC Nikko's Muraki-san. Masao Muraki: Muraki of SMBC Nikko. I have 2 questions. Page 24, JPY 10.6 billion Red Inc. in Europe. Laser Digital, you said that there was a fluctuation of the market between September and November. So JPY 10 billion of losses. At that stage, there was quite a sizable position. What was the status in terms of position management? One year ago, quite a sizable profits had been recorded, but at that stage, what was the state of position management and in order to control volatility, you said that you are taking measures, but what's your forecast regarding the volatility of performance going forward? That's my first question. Second question, Wealth Management, Page 7. There was net increase in investment trust, but amount outstanding, net inflow was quite strong. What's the backdrop? There was not any outflow. Is this sustainable? And margin is more than 40% -- 44%, AI-related investment was cited, but what would be the level of margin? Hiroyuki Moriuchi: Muraki-san, thank you for those questions. The first question -- the first point of question one, Laser's activity, were there any long positions taken? As you know, regarding Laser's activities, institutional investor market making and crypto assets, fund management and Nomura seed investment, venture investment. These are the diverse activities that Laser is engaged in as we offer services to customers. As you pointed out, there had been some long positions, and based upon that situation, going to the second point of your first question, how will we control volatility of performance going forward? This is a new industry of digital assets, and there are growth prospects, and we are currently in the stage of fostering businesses. And we -- our position is unchanged. We will -- we have long-term commitments. And in terms of risk management framework, we already had a robust risk management framework. On the other hand, in the short term, as you have rightly pointed out, how should I put it? There are times when sizable revenues are recorded, but last year, in November and December, there was some market disruption. So there is upside as well as downside, quite significant upside as well as significant downside. So in the short term, already, in order to control volatility, we are reducing the volume of risk in the positions we take. So this kind of precise position management will be continued in order to control upside and downside volatility, and in the long run, we wish to expand this business. So that concludes my response to your first question. Second question, net inflow of investment trust is sizable. Is this sustainable? Now having said so, there is market impact. There is impact from customers' preference. And I would like to, therefore, refrain commenting on whether we think that this trend will continue. On the other hand, 44% is a high margin, and can we further seek higher margin on this matter? Partially there are impacts coming from the market. So it's difficult to make any comments on that dimension. We are impacted by cyclical factors. Market structural change is taking place. And our policies are well aligned to market structural change. The Japanese market, retail investors are making a major shift from savings into investment. This is a sustainable trend, and we are taking measures that are well aligned to that trend. So in comparison to historical trends, we think that the margin level will be high, we will be able to maintain higher margin level. On the other hand, on the cost control side, we are continuing our efforts. But selectively, we are using AI, investing into AI, in order to improve the services we provide to our customers, so that will continue. So that concludes my response to your 2 questions. Masao Muraki: My second question, Morgan Stanley and Merrill Lynch margins are 30%. They've targeted 30% and the actual is slightly over the target, but why does Nomura such advantage? Is it because the asset size is -- would they have larger asset size? What's your advantage? Hiroyuki Moriuchi: Thank you for the question. I was consulting with our people in IR. There are country-to-country differences in terms of market structure, making it difficult to do an apple-to-apple comparison. Nomura's Wealth Management 100% sales are in-house. And because of that, partly because of that, it's easier to control cost. And the revenue market structure, I will have to once again check the market structure to respond regarding revenue. So I will conclude here. Operator: The next question is asked by Watanabe-san of the Daiwa Securities. Kazuki Watanabe: I'm Watanabe from Daiwa. I have 2 questions. First question is about Wealth Management's pricing strategy, other face-to-face securities, overseas equities, and other products they are raising commissions. Do you have a discussion internally about raising pricing? Second question is about the timing and scale of buyback. Why Q3? Why not Q4? What's the background of the JPY 60 billion in size? Hiroyuki Moriuchi: Thank you for your questions. For your first question on Wealth Management's commission rate, whether our peers are raising commission and what is our situation? That's your question. It's related to Wealth Management strategy. So I would like to refrain from answering that question. For us, we are focusing on value provision to customers. So we are considering what is the best solutions for customers. And we would like to continue our deliberation. Regarding your second question about the timing of buyback, why Q3? And also you asked about the value or amount. Regarding the timing, for one thing, Macquarie U.S. Asset Management transaction closing was the 1st of December. And by booking the business, CET1 ratio impact was not clear, but it was clarified and finalized. So our investment capacity was clarified. So in the market, there is expectation for buyback. So with that taken into consideration, we wanted to live up to expectations of investors and decided on buyback. Regarding the size of buyback as mentioned repeatedly, for us, investment strategy and future opportunities and also, at the same time, the importance of shareholder return are all considered. And based upon the balance, we came to the decision on the size. Kazuki Watanabe: Regarding the second answer, CET1 ratio. That's above the target range this time. And on that basis, you came to JPY 60 billion. So if FY 2025, so based upon the total return ratio target. So this completes your actions to meet the target for FY 2025? Hiroyuki Moriuchi: So whether we are at or above 50% in total return ratio that cannot be decided until we see the fourth quarter results. Based upon the fourth quarter results, we will check whether there is shortfall or not. If there is shortfall, then we will consider measures to take at that point in time, but when deciding on the amount, it is possible to add to what we have announced. Operator: The next question will be by JPMorgan Securities, Sato-san. Koki Sato: JPMorgan Securities, Sato. I have 2 questions. First, Global Markets, post-January performance. You touched upon that subject Q3. You said that the trend of Q3 has been maintained since the beginning of the month. Domestic rates, recently, there had been some fiscal concerns that had led to spike in interest rates, which means there was lack of buyers. So some people cited that there was dysfunctioning of the market. And under such circumstances, how should we view your domestic rates business? Secondly, just to confirm the numbers, Macquarie acquisition, 1-month worth revenue expenses, revenues and expenses will be booked, but normal rate contribution, JPY 7 billion revenue, JPY 5 billion cost, so JPY 1 billion per month times 12. Is that the right assumption? So can you confirm whether those numbers are correct? Hiroyuki Moriuchi: Thank you for the question. Then on the first question, the performance is solid in January as was the case of Q3, but what about domestic rates? As you have pointed out, there has been some increase in volatility in the market, super-long bond rates are going up. And therefore, some of the clients are taking a wait-and-see attitude and that is partly reflected in our Japan rates business, which has seen some slowdown. On the other hand, for global markets, in general, we are doing quite well because our business has diversified. In Japan, it's not rates alone. We're doing equity, credit. We're in diverse business areas and our GM business overseas, especially U.S., the business has grown to become quite sizable. So this slowdown has been absorbed, and we are recording sound performance in January. On the second question of Macquarie acquisition, no, in peacetime, 7 minus 5, to minus goodwill, 1 times 12. That's the broad image, but this 1 month is quite difficult because in revenue, seed capital -- we have seed capital to foster the business, and there is fluctuation. For the annual -- in annualized term, the position is neutral, but when we look at a snapshot of 1 month, there could be some fluctuation. So it could become bigger. So I think that's the way to look at it. Operator: The next question comes from Tsujino-san of BofA Securities. Natsumu Tsujino: So this time, personnel cost increased and deferred compensation accounting method was changed and that impact is included, and moving forward in Q4 and after Q4 as well, what is going to be the impact in and after Q4? And also, what is the actual amount, absolute amount in impact? And considering that this time, revenue due to weak yen and personnel costs due to weak yen, both seem to have increased. But the way personnel costs increased, what was the reality of how personnel costs increased. That is my first question. And the impact from next fiscal year. Next question, second question is about Laser Digital. You said you have reduced position, but moving forward, this business is what you would like to grow. And of course, you have traditional securities business, which is growing, but when the size increases, then you have no choice about to increase positions and then hedge is impossible for crypto assets. Then how should we think about the positioning. In the long term, how do you deal with the volatility that needs to be considered. So what is your thinking? Hiroyuki Moriuchi: Thank you for your questions, Tsujino-san. Regarding your first question on deferred compensation, accounting method change, what is the actual impact? And what is the impact expected in the fourth quarter and the next year? In the third quarter, actual impact amount is about JPY 8 billion. In the fourth quarter, about the same amount is expected as impact. And next year onward, JPY 15 billion or JPY 16 billion are expected impact. But next year -- well, that's this year. So next year, 40% or 50% of that is what we expect for next year. And year after next, the impact will be negligible. It's difficult for me to explain here the accounting treatment involving the slide in timing of cost recognition. Deferred compensation systems have varying treatments. So the cost is front-loaded and spending after 12 months, the level normalizes, that's how we should think about it. Regarding your second question about the reduction of Laser positions. In the medium and long term, with the business growing, the position will grow bigger, and the volatility will stay elevated. That's the point, which you pointed out, I believe. And regarding your point, strategy included, we need to have a thorough discussion in any ways. We would like to grow this business in the medium to long term, but there are several activities by holding inventories we do market making and trading for customers, then the unit risk exposure will be reduced. On the other hand, as mentioned, digital asset or crypto asset-related businesses, in addition to market making for institutional investors include other businesses such as crypto asset, management business or venture ecosystem supporting business, also combine custody-related businesses, there are such other businesses. So while ensuring diversity, we would like to grow the ecosystem. That is our direction. So just like you, Tsujino-san, we have the same sense of risk. So while understanding those points, we would like to conduct this business. Natsumu Tsujino: Regarding lending, are you conducting lending right now? And there is no extra risk there, if you are conducting lending business like crypto asset lending. Hiroyuki Moriuchi: Regarding lending business, we do have lending business as part of product lineup, but activity is very small. Operator: The next question is for UBS Securities, Niwa-san. Koichi Niwa: This is Niwa. I hope you can hear my voice. Operator: Yes, we can hear you. Koichi Niwa: Wholesale resource efficiency and private assets. First, revenue and risk-weighted asset ratio Page 12, 7.7%, quite high. And how does the management evaluate this level? And you've been talking about improving efficiency. So is there room for further increase division ROE. Do you think that this could be raised further? That's the point of my question. And secondly, I will deviate, but in Nikkei newspaper, Mr. Okuda was responding to an interview regarding private assets, and he was talking about selling Japanese products in other countries. So if you want to invite assets or investments into Japanese private asset, what is your estimate of the size of the business in terms of AUM or revenue? Or in order to engage in such business, does Nomura need to be equipped with a new function. So those are my questions. Hiroyuki Moriuchi: Then on your first question regarding resource efficiency of resource, Page 12, 7.8%, revenue modified RWA, we think that this is so and so acceptable global markets, Hong Kong, Singapore, IWM is engaged in wealth management business. Resource is not so much needed and taking that growth, all of the activities taken together, this is the level. So for example, if the question is whether the resource efficiency is going up in a certain business, not so. This is a result of the business mix. So that's my first point. And next, this number, is it possible to further increase this number? If we overfocus on that, the statutory capital RWA revenue or profitability in order to increase that, we may end up taking too high substantive risk in light of the economic capital. So it's good that this number goes up, but rather than just focusing on this indicator, we would look at various indicators comprehensively for risk management. And if in the end, this number goes further up, then that's positive. We have the self-funding program. The resource maybe somewhat tight for the business, and they are incentivized to focus on efficiency of resources. So even if there is a potential project, they have to judge whether resource can be used efficiently in light of the revenue that could be gained from that project. So I think that kind of incentive has also delivered some results. So this 7.8% is quite reasonable and appreciated, but we're not just chasing this number. Second question, Japanese private asset in order to invite money into Japan for development of Japanese infrastructure, what kind of mechanism, or what's our estimate of the size of the resource? Regarding those points, it might be a bit premature to share the design we have in mind. And I think we need to engage in more internal discussions. At one point in time, we will probably have more factors that we can speak to you, and then we will explain our strategy. I hope that this would do for today. Operator: [Operator Instructions] As there is no more question, we'd like to conclude question-and-answer session. Now, we'd like to make closing address by Nomura Holdings. Hiroyuki Moriuchi: Thank you very much. I am Moriuchi. Thank you very much for spending your precious time. As mentioned, there are one-off items and the technical accounting-related items, which are difficult to grasp. And they are ending up in increase in revenue and decrease in profit in any ways for divisions delivered a strong performance and we are positively looking at the performance. So medium, long term, we are focused on growing the revenue power of those four divisions. As for Laser Digital, we believe the business is promising in the medium, long term. So we would like to grow the business while suppressing short-term volatility by controlling the risk volume. In any case, thank you very much for your precious time that you spent with us. That is all for me. Thank you. Operator: Thank you for taking your time, and that concludes today's conference call. You may now disconnect your lines. [Statements in English on this transcript were spoken by an interpreter present on the live call.]