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Operator: Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2025 Fourth Quarter Conference Call. If you change your mind, please press star followed by 2 on your telephone keypad. I would now like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President, Investor Relations. Mr. Tejada, you may begin the call. Good morning. Rafael Tejada: And thank you for joining us. On the call with me today is Marc Casper, our Chairman, President, and Chief Executive Officer, and Stephen Williamson, Senior Vice President, Chief Financial Officer. Please note this call is being webcast live and will be archived on the Investors section of our website thermofisher.com under the heading news, events, and presentations, until April 22, 2026. A copy of the press release of our fourth quarter and full year 2025 earnings is available in the Investors section of our website under the heading financials. So before we begin, let me briefly cover our safe harbor statement. Various remarks that we may make about the company's future expectations, plans, and prospects, constitute forward-looking statements within the meaning of applicable securities laws. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in the company's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q under the heading Risk Factors. These forward-looking statements are based on our current expectations and speak only as of the date they are made. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even in the event of new information, future developments, or otherwise. Also, during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our fourth quarter and full year 2025 earnings and also in the Investors section of our website under the heading financials. So with that, I'll now turn the call over to Marc. Marc Casper: Thank you, Raf. Good morning, everyone, and thanks for joining us today for our fourth quarter call. As you saw in our press release, we delivered a strong year capped off by an excellent fourth quarter. Our results reflect outstanding execution from the team, the strength of our proven growth strategy, and excellent operational performance enabled by our PPI business system. Looking to the year ahead, we entered 2026 from a position of strength as the market leader serving attractive end markets. Our growth strategy is resonating with customers, and our PPI business system will enable us to continue to deliver excellent operational performance. To recap our 2025 financial performance, starting with the quarter. Revenue grew 7% year over year to $12.21 billion. Adjusted operating income grew 6% to $2.88 billion. Adjusted operating margin was 23.6%. And adjusted EPS grew 8% to $6.57 per share. Now turning to our full year results. Revenue grew 4% to $44.56 billion. Adjusted operating income grew 4% to $10.11 billion. Adjusted operating margin was 22.7%, and adjusted EPS grew 5% to $22.87 per share. As I reflect on the year, first, the environment evolved differently than everyone had envisioned entering 2025. We actively managed the company, and our team responded with agility, effectively managing tariffs and US policy dynamics to deliver a very strong year. As a trusted partner, we work closely with our customers, helping them navigate the landscape and enabling their success. Let me now turn to our performance by end market and provide some context on how the quarter and full year played out. Starting with pharma and biotech, we delivered high single-digit growth in Q4, and mid-single digits for the full year. Performance in the quarter was led by continued strong growth in our bioproduction business, as well as our research and safety market channel. As expected, our clinical research business continues to strengthen, delivering mid-single digits growth in the quarter. For the full year, revenue growth was broad-based and was highlighted by strong performance in bioproduction, research and safety market channel, analytical instruments, and pharma services businesses. In academic and government, throughout the year, performance in this end market was impacted by the macro conditions in the US and China. We declined in the low single digits during the quarter and for the full year. In industrial and applied, we declined in the low single digits during the quarter, and grew in the low single digits for the full year. Growth during the year was highlighted by strong performance in our research and safety market channel, as well as our electron microscopy business. Finally, in diagnostics and health care, we delivered low single-digit growth in Q4 reflecting good performance across our Specialty Diagnostics businesses. For the full year, growth in this end market was flat, with strong contributions from our transplant diagnostics and immunodiagnostics businesses. Thanks to our proven growth strategy and our team's excellent execution, we delivered a strong finish to the year across our end markets and continue to drive meaningful share gains. Let me now turn to our growth strategy. As a reminder, our growth strategy consists of three pillars: high-impact innovation, our trusted partner status with customers, and our unparalleled commercial engine. In 2025, we meaningfully advanced the position of the company, becoming even more relevant for our customers, and enhancing our competitive position. Let me call out some key highlights for the year, starting with innovation. 2025 was another outstanding year of innovation, as we launched a number of high-impact products across our businesses that strengthen our industry leadership and enable our customers to accelerate breakthroughs and enhance their productivity. In chromatography and mass spectrometry, we launched the Thermo Scientific Orbitrap Astro Zoom. Building on the success of the Astro mass spectrometer, ASTROL Zoom delivers even greater sensitivity, speed, and depth of coverage, enabling researchers to uncover new biological insights and advance precision medicine. Customer adoption and feedback have been extremely strong, as the platform represents a significant leap forward in mass spectrometry, enabling researchers around the world to accelerate discovery and advance the pace of scientific breakthroughs. In bioproduction, we expanded our single-use portfolio with the launch of the Thermo Scientific five-liter DynaDrive single-use bioreactor, offering pharma and biotech customers increased workflow efficiencies and the ability to seamlessly scale up manufacturing of new therapies. In electron microscopy, we delivered a series of high-impact innovations across life sciences and advanced materials. This included the Thermo Scientific CryoCryoCryoCryoCryoTem, which is advancing structural biology by enabling faster, higher resolution insights to support drug discovery and development. In the fourth quarter, we launched the Thermo Scientific Helios MX-one plasma focused ion beam SEM, a fully automated semiconductor analysis designed to accelerate time to data for yield ramp and fab process control. In clinical next-gen sequencing, it's great to see the growing application of our Ion Torrent OncoMindDx target test as a companion diagnostic. During the quarter, this technology received another FDA approval, this time as a companion diagnostic for Bayer's new therapy targeted for certain patients with non-small cell lung cancer. In clinical diagnostics, we also achieved US 510 clearance for the Exens system, a first-of-its-kind automated platform that enables earlier and more confident diagnosis for patients with multiple myeloma and related disorders. So another spectacular year of innovation, and we also have an exciting pipeline of launches in 2026 that positions us well for the future. Let me turn to our trusted partner status and industry-leading commercial engine, which we continue to strengthen in 2025. Our trusted partner status with customers has been built over many years by anticipating, understanding, and meeting their needs. Increasingly, customers are relying on us not just for technologies and services, but for our expertise and deep understanding of how to apply them to enable their success. We help our customers accelerate innovation and improve their productivity. You've heard me talk about our accelerated drug development solution throughout the year. It's a terrific example of one of our unique capabilities. As a reminder, Accelerator is our integrated CDMO and CRO offering that brings together the strengths of our pharma services and clinical research businesses to help customers reduce development timelines, improve decision-making, and enhance returns on their R&D investment. In 2025, we secured meaningful wins for our clinical research and pharma services businesses and continue to see outstanding customer adoption. During the year, we also expanded and deepened strategic partnerships that create value for our customers and our company. This included a technology alliance with the Chan Zuckerberg for Advanced Biological Imaging to develop new technologies to better visualize human cells. We also announced a strategic collaboration with OpenAI, aimed at increasing our use of artificial intelligence at the company. This will improve productivity across our operations and also allow us to embed AI capabilities in our products and services to accelerate scientific breakthroughs and advance the drug development process. In addition, we continue to expand our global footprint to better support customers. During the fourth quarter, this included the expansion of our bioprocess design centers in Asia, with the opening of a new site in India. So as you can see, it was another excellent year of advancing our growth strategy. Let me now turn to capital deployment. We continue to successfully execute our proven capital deployment strategy, which is a combination of strategic M&A and returning capital to shareholders. 2025 was a very active year. As we advanced our strategy and added exciting new capabilities that further strengthen our long-term competitive position and create value for all of our stakeholders. During the year, we deployed approximately $16.5 billion, including committing $13 billion to M&A, and returning $3.6 billion to shareholders through stock buybacks and dividends. In terms of M&A, we completed the acquisition of our filtration and separation business from Solventa. The addition of filtration is a natural extension of our bioproduction capabilities, where we have leadership in cell culture media and single-use technologies along with a rapidly growing purification business. Our pharma and biotech customers see real value in Thermo Fisher offering these filtration capabilities for their manufacturing processes. The integration is going smoothly, and our new colleagues are thrilled to be part of Thermo Fisher Scientific. This year, we also expanded our US drug product manufacturing footprint through the acquisition of Sanofi's state-of-the-art sterile fill finish site in New Jersey. Both of these acquisitions enhance our ability to support our customers' growing production needs. During the fourth quarter, we also announced a definitive agreement to acquire Claria. The company is a market leader in digital endpoint data solutions, one of the fastest-growing areas and an essential capability in drug development clinical research. In 2025, the business generated approximately $1.5 billion in revenue. Its differentiated technology and deep medical expertise together enable unique capabilities in generating and delivering digital endpoint data for clinical trials. The business is an outstanding strategic fit, highly valued by our customers, and complementary to our clinical research capabilities. By adding Clario's high-growth capabilities over time, we will be able to deliver even deeper clinical insights for our customers and further accelerate the digital transformation of clinical research. This is an incredibly exciting opportunity to help our pharma and biotech customers improve the return on investment of the drug development process. Financially, the transaction has an attractive double-digit return profile, is expected to be accretive to organic revenue growth and to adjusted operating margin. We expect it to be accretive to adjusted EPS by approximately $0.45 in the first twelve months of ownership, and we expect to close the transaction by 2026. So overall, an active and high-impact year of capital deployment. Let me now turn to our PPI business system. In 2025, PPI continued to be a critical enabler of our performance. Throughout the year, we leveraged PPI to actively manage our cost base, drive operational excellence, and deliver strong earnings growth while continuing to invest and strengthen our long-term competitive position. PPI enabled us to operate with agility and discipline. As we navigated the environment and delivered excellent results for our customers and shareholders. PPI is deeply embedded in our culture and empowers colleagues across the company to find a better way every day. That's why we're also increasingly using artificial intelligence into PPI, which will further enhance its impact across the organization. The combination is helping us improve how we serve customers, streamline internal processes, and operate the company more effectively. Strengthening execution today, and positioning us well for the future. Before I wrap up on 2025, I want to briefly touch on the progress we made with our corporate social responsibility priorities. Part of our mission-driven culture is a focus on making a positive impact on society by supporting our communities and being a good steward of our planet. You can read more about this on our website, but I'll share a couple of highlights. In terms of environmental stewardship, we increased the use of renewable energy across our global operations and expanded the number of sites achieving zero waste certification, keeping us on track with our long-term sustainability commitments. We also continue to launch more sustainable products to help our customers achieve their own sustainability goals. In our communities, we remain focused on expanding access to STEM and advancing global health equity. In addition, our engaged colleagues and community action councils made a huge impact around the world through their volunteer activities throughout the year. As I reflect on 2025, I'm very proud of what our team accomplished and deeply grateful to our colleagues for their unwavering passion for our mission, which fuels our success. So let me now turn to guidance. Steve will outline the assumptions that factor into the guidance for the upcoming year. So let me quickly cover the highlights. In 2026, we will continue to actively manage the company, leveraging the PPI business system to enable excellent operational performance and very strong earnings growth. We are also well-positioned to continue our share gain momentum. We are initiating a 2026 revenue guidance range of $46.3 billion to $47.2 billion, which represents 4% to 6% reported revenue growth over 2025 and assumes 3% to 4% organic growth for the year. We are initiating our earnings guidance with an adjusted EPS range of $24.22 to $24.80 per share, which represents 6% to 8% growth in adjusted earnings per share. So to summarize our key takeaways, we delivered a strong 2025 capped off by an excellent fourth quarter. We delivered another year of excellent operational performance and share gain, reflecting the active management of the company, the strength of our proven growth strategy, and the power of our PPI business system. We advanced our long-term competitive position throughout the year, with high-impact innovation, strategic partnerships, and disciplined capital deployment. And we enter 2026 with strong momentum. Our growth strategy is resonating with customers and positions us for a very bright future. With that, I'll turn the call over to our CFO, Stephen Williamson. Stephen Williamson: Thanks a lot, and good morning, everyone. As you saw in our press release, we had a great Q4 to cap off the year. Throughout the year, the team effectively navigated the external environment and remained focused on delivering for all of our stakeholders. I'll take you through an overview of our fourth quarter and full year results for the total company, then provide color on our four business segments. I'll conclude by providing our 2026 guidance. I get into the details of our financial performance, let me provide you with a high-level view of how the fourth quarter played out versus our expectations at the time of our last earnings call. In Q4, we delivered 3% organic growth and 8% growth in adjusted EPS. It was another quarter of excellent execution. These results are significantly ahead of the assumptions of the midpoint of our prior guidance, on both the top and bottom line. Q4 revenue was approximately $250 million ahead, driven by 1% stronger organic revenue growth and a stronger than expected tailwind from FX. Adjusted EPS in Q4 was $0.14 ahead. This is comprised of $0.25 from very strong operational performance partially offset by $0.11 of higher FX headwind on the bottom line. The FX impact was driven by continued volatility in rates during the quarter due to trade tensions. And represented an incremental 65 basis points of headwinds of margins relative to our prior guidance. So as I said, a great Q4 with a strong beat to cap off the year. Let me now provide you with some additional details on our Q4 and full year 2025 performance. Starting with earnings per share, in the quarter adjusted EPS grew by 8% to $6.57. For the full year, we delivered adjusted EPS of $22.87, up 5% compared to last year. GAAP EPS in the quarter was $5.21 and for the full year it was $17.74. On the top line, Q4 reported revenue grew 7% year over year. The components of our reported revenue change included 3% organic growth, a 2% contribution from acquisitions, and a 2% tailwind from foreign exchange. For the full year 2025, reported revenue growth increased 4%, organic growth was 2%, and both acquisitions and FX were a 1% tailwind. Turn to our organic revenue performance by geography, in Q4, North America grew low single digits, Europe grew mid-single digits, and Asia Pacific grew low single digits with China declining low single digits. For the full year, North America grew low single digits, Europe grew mid-single digits, and Asia Pacific grew low single digits, with China declining mid-single digits. With respect to our operational performance, we delivered $2.88 billion of adjusted operating income in the quarter, an increase of 6% year over year, and adjusted operating margin was 23.6%, 30 basis points lower than Q4 last year, which includes over 100 basis points of headwind from tariffs and related FX. For the full year, we delivered $10.11 billion adjusted operating income, a year over year increase of 4% versus 2024, and adjusted operating margin was 22.7%, 10 basis points higher than the prior year, which also includes a headwind from tariffs and related FX of over 100 basis points. Throughout the year, our active management of the business and the power of our PPI business system enabled us to effectively manage the unexpected macro headwinds and continue to grow our adjusted operating income and expand our margins. I'm proud of how the team stepped up this year to enable these results. Total company adjusted gross margin in the quarter was 41.8%, and for the full year, it was 41.7%. The drivers of gross margin are similar to those adjusted operating margin. Moving on to the details of the P&L. Just SG&A in the quarter was 15.3% of revenue, down 80 basis points. The full year, it's 15.9% of revenue, down 40 basis points. Total R&D expense was $357 million in Q4 and $1.4 billion for the full year, up 1% year over year reflecting our ongoing investments in high-impact innovation. R&D as a percent of our manufacturing revenue for the year was 7%. Looking at our results below the line, our Q4 net interest expense was $107 million. Net interest expense for the full year was $426 million. The adjusted tax rate in Q4 was 10.5%, and 10.4% for the full year. And average diluted shares were 377 million in Q4, 6 million lower year over year driven by share repurchases net of option dilution. Turning to free cash flow on the balance sheet. Full year cash flow from operations was $7.82 billion and free cash flow was $6.34 billion after investing $1.48 billion of net capital expenditures. Cash flow was slightly lower than we'd assumed in the prior guide, largely driven by temporary impacts in working capital and the timing of cash taxes. During 2025, we continue to successfully execute our capital deployment strategy, deploying approximately $16.5 billion in 2025. This includes $4 billion for the acquisitions of our filtration and separation business from Sorventum and the sterile fill finish site from Sanofi earlier in the year. Then in Q4, we announced a definitive agreement to acquire Clario for approximately $9 billion in cash plus potential future performance-based payments. We expect to complete the transaction by 2026, at which point the business will become part of our laboratory products and biopharma services segment. In 2025, we also deployed $3.6 billion to the return of capital to shareholders, $3 billion of share buybacks, and approximately $600 million of dividends. We ended the year with $10.1 billion in cash and short-term investments and $39.4 billion of total debt. Our leverage ratio at the end of the year was 3.5 times gross debt to adjusted EBITDA and 2.6 times on a net debt basis. And concluding my comments on our total company performance, adjusted ROIC was 11.3% reflecting the strong returns on investment that we're generating across the company. Now provide some color on the performance of our four business segments. In life science solutions, Q4 reported revenue in this segment increased 13% versus the prior year quarter, and organic revenue growth was 4%. Growth in this segment was led by a bioproduction business, which had another quarter of excellent growth. For the full year, reported revenue increased 8% and organic revenue growth was 3%. Q4 adjusted operating income for Life Science Solutions increased 10% and adjusted operating margin was 35.5%, down 110 basis points versus the prior year quarter. During Q4, we delivered very strong productivity, and good volume leverage which is more than offset by unfavorable mix, strategic investments, and the expected impact from the acquisition of our filtration and separation business. For the full year, adjusted operating income increased 8% and adjusted operating margin was 36.3%, down 10 basis points versus 2024. In the analytical instrument segment for both Q4 and the full year, reported revenue increased 1% and organic revenue growth was flat. Growth in the quarter was led by our chromatography and mass spectrometry business. In this segment, Q4 adjusted operating income decreased 12%, adjusted operating margin was 26.3%, down 420 basis points versus the year-ago quarter. The majority of the year-over-year margin change was driven by the impact of tariffs and related FX. Outside of that impact, strong productivity was partially offset by strategic investments and unfavorable mix. For the full year, adjusted operating income decreased 11% and adjusted operating margin was 23%, 20 basis points lower than 2024. Turning to Specialty Diagnostics in Q4, reported revenue grew 5% year over year and organic revenue growth was 3%. In Q4, growth in this segment was led by our clinical diagnostics, transplant diagnostics, and immunodiagnostics businesses. For the full year, reported revenue increased 4% and organic revenue growth was 2%. Q4 adjusted operating income for Specialty Diagnostics increased 19% and adjusted operating margin was 26.6%, 300 basis points higher than Q4 2024. During the quarter, we delivered good productivity and volume leverage, and have favorable mix, which is partially offset by headwinds from foreign exchange. For the full year, adjusted operating income was 8% higher than 2024 and adjusted operating margin was 26.9%, an increase of 120 basis points versus the prior year. And finally, the Biology Products and Biopharma Services segment reported revenue increased 7% and organic revenue growth was 5%, with broad-based strength across our research and safety market channel, pharma services, and clinical research businesses. For the full year, reported revenue grew 4% and organic revenue was 3% higher year over year. Q4 adjusted operating income in the segment increased 12%, adjusted operating margin was 14.5%, 50 basis points higher than Q4 2024. In the quarter, we delivered very strong productivity and good volume leverage. It is partially offset by unfavorable mix, strategic investments, and headwinds from foreign exchange. For the full year, adjusted operating income increased 8% and adjusted operating margin was 14%, 70 basis points higher than 2024. Turning now to guidance, as Marc outlined, we're initiating a 2026 revenue guidance range of $46.3 billion to $47.2 billion and an adjusted EPS guidance range of $24.22 to $24.80, representing 6% to 8% growth. The guidance assumes 3% to 4% organic revenue growth, a $300 million revenue tailwind from foreign exchange, and 50 basis points of adjusted operating margin expansion. All of this will enable a really strong 6% to 8% growth in adjusted EPS. This guidance is consistent with the financial framing for '26 and '27 that we shared with you back on our Q2 earnings call. It reflects the continued improvement in our organic growth in 2026 coupled with very strong earnings growth. The strength of our guidance reflects our industry-leading position, our proven growth strategy, and the power of our PPI business system. Let me now provide some detailed context behind the guide. The midpoint of our guidance assumes organic revenue growth is slightly above 3%. This is a step up from 2025. We think this is appropriate to start at 3% at the beginning of the year. And as we progress through 2026, we can retire risk as we go and progress higher in the range. As is our normal practice, we've not included any future acquisitions or divestitures within our guidance. The guide, therefore, does not include the benefit of the pending acquisition of Clario. As a reminder, we expect this deal to close by 2026. Should that be the case, we would expect $0.20 to $0.25 of incremental adjusted EPS for this year, reflecting the strongly accretive nature of the acquisition. That would represent roughly one additional point of adjusted EPS growth for 2026, taking the total company growth into the range of 7% to 9%. In terms of the macro environment, our guidance is based on the tariffs that are in place as of today. It doesn't contemplate any future changes in tariffs nor their potential impact on FX rates. Should additional tariffs be levied, as we did last year, we will act with speed and scale to minimize them and provide our usual level of transparency as to their impact. The guidance includes $600 million of inorganic revenue from the acquisitions closed in 2025. In that inorganic period, these acquisitions are expected to contribute $60 million of adjusted operating income. The math of which adds a 20 basis point headwind to adjusted operating margins in 2026. After factoring in the financing costs, they represented 7¢ of adjusted EPS dilution for 2026. These acquisitions are progressing well versus our deal model expectations. We're in the integration and investment phase in 2026, which is setting us up to deliver strong accretion and very attractive returns going forward. To help you with your modeling, here are a few additional assumptions behind the guide. We expect approximately $500 million of net interest expense in 2026. We assume that the adjusted income tax rate will be 11.5% in 2026, largely driven by the increased earnings. We're expecting between 1.8% and $2 billion of net capital expenditures in 2026. The increase over '25 is driven by our investments in US manufacturing. In terms of free cash flow, we're expecting that to be in the range of $6.8 billion to $7.3 billion for the year. In terms of capital deployment, we're assuming $3 billion of share buybacks which were already completed in January. We estimate a full-year average diluted share count will be between 370 and 375 million shares. I'm assuming we'll return approximately $700 million of capital to shareholders this year through dividends. And finally, I wanted to touch on phasing for Q1. Embedded in the guidance is the assumption that Q1 organic revenue growth will be a couple of points lower than the full year 2026. This is largely driven by selling days and the expected phasing of our revenue in our pharma services business over the course of 2026. And we're expecting low single-digit adjusted EPS growth in Q1. So in conclusion, Q4 capped off a very successful 2025. The team is focused on continuing to maximize share gain, delivering very strong earnings growth, and generating great returns from our capital deployment. Also enable an excellent 2026 and advance our strategy for an even brighter future. With that, I'll turn the call back over to Marc. Marc Casper: Thanks, Steven. So before we turn to Q&A, I just want to say a few words. As you know, Steven will retire in March. Let me start with thank you to Steven for all of your contributions to the success of Thermo Fisher and the deep friendship we have developed over the past twenty-five years. And let me say a heartfelt congratulations on a spectacular career at Thermo Fisher, including being our CFO for the past ten years. You have played such an active leadership role in our growth and success and we're all very grateful. What is both so cool and so important is your consistent passion for developing people and also in building a world-class finance function. I'm thrilled to have the opportunity to work with Jim Meyer, who'll be taking the reins as CFO in March, having spent seventeen years at the company. Steven, on behalf of all of your colleagues and stakeholders of Thermo Fisher, thank you and congratulations. We wish you a wonderful retirement. And, Jim, congratulations on your promotion. Stephen Williamson: Thanks a lot for those incredibly kind words. It's been an honor to be part of this amazing company. I'm really excited about my next chapter. And I'm also excited about the continued success of Thermo Fisher with Jim as the CFO. Let me turn it back to Raf to start the Q&A. Operator, we're ready for the Q&A portion of the call. Operator: Thank you. When preparing to ask your question, please ensure your device is unmuted locally. In order to allow everyone in the queue an opportunity to address the Thermo Fisher management team, please limit your time on the call to one question and only one follow-up. If you have any additional questions, please return to the queue. Our first question comes from Michael Ryskin from Bank of America. Your line is now open, Michael. Please go ahead. Michael Ryskin: Great. Thanks for taking the question. And first off, on your remarks' comments, congrats, Stephen. It's been a great run. A pleasure working with you, and wish you all the best going forward. Marc, maybe I'll start with the high-level one on the guide. As you laid out, you guys had a framework previously that you talked to, and then the guide falls in that range. Just, but still, you know, you're talking about the acceleration from 2% that you did in 2025 organic to this three to four. Just can you talk a little bit more about what's underpinning that? What gives you confidence in the acceleration? Any particular end markets or customer groups where you're seeing the most improvement in activity as you'll go ahead? And I have a quick follow-up. Thanks. Marc Casper: Sure. So Mike, thanks for the question. When I think about the way we are opening up our guidance for the year, we're actually assuming market conditions are going to be pretty similar to 2025. As a reminder, we had just under one point of pandemic runoff in our 2025 results. So, you know, adjusted for that, we roughly had 3% growth last year. And we're assuming that we're gonna be in the three to four range. And as Steven said, you know, start with the assumptions, you know, around three. What we expect over time or in this two-year time frame is that just the absence of the negatives will start to allow for conditions to improve and build within that range, but we don't wanna make any major changes until the markets start the year. There's lots of things I'm optimistic about actually just based on how January is in terms of customer meetings and so forth. But we just wanna set ourselves up, in the industry for success this year. Michael Ryskin: Okay. And then maybe as a quick follow-up, again, Steven, you referred to that prior framework you gave on the 2Q guide last year. At the time, I think you talked about three to 6% over the course of 2026 and 2027 combined. Just want to make sure that entire framework is still intact, especially how we think about next year about 2027. Nothing's really changed in your forward outlook there. Thanks. Stephen Williamson: Yes. I think when we gave the back of the time when we gave that framework and where we are now, yeah, we see that consistent in terms of our assumption about the future and executing towards that. So yeah. Yeah. And what I would add is that, one of the key focuses back in April is that irrespective of market conditions, we were just going to deliver great earnings, right? And we did a great job of navigating 2025. There was a lot of, you know, headwinds around tariffs and so forth that we just worked our way through in delivering 5% EPS growth for the year, I feel very good about in our opening position with effectively around 3% growth, assuming 6% to 8% of EPS growth without any of the capital deployment embedded into that. So that's what we can control. That's what we're gonna deliver. And I'm optimistic about the progression of the industry as well, but we wanted to keep ourselves focused on controlling our destiny, which is just great earnings growth, drive share gain, and that's gonna serve us well. Michael Ryskin: Thanks, Mike. Great. Thanks. I'll leave it there. Thanks, guys. Operator: Thank you. Our next question comes from Dan Arias from Stifel. Your line is now open. Daniel Anthony Arias: Hey, good morning, guys. Thank you. Marc, I wanted to ask about biopharma here. One of the ideas seems to be that sentiment on spending at a high level has improved just because these companies are seemingly breathing a little easier now that you have some of these MSN deals in place. I'm just curious, are you finding that that's actually translating into spending plans? Are 26 pharma budgets actually looking better, you know, to the extent that you can tell with these meetings that you're having so far? Marc Casper: Yeah, Dan. So it's a great question. So we have a really unique set of capabilities to serve pharma and biotech. Right? And when I think about the year last year, you know, mid-single-digit growth, you know, obviously, we had some headwinds around the final roll-off of the pandemic embedded in that. To finish the quarter, the last quarter at high single-digit growth. The team is doing a great job. And our customers really value trusted partner, and I'll come back to that in a moment. So when I think about the tone of, you know, what we heard in the healthcare conference and certainly in my meetings in Europe in January. Saw quite a number of customers. Pharma, consistent with what we've been hearing for a while, which is good confidence around the ability to navigate governments, and feel good about the, you know, things that have been agreed to. And excitement around their pipeline. So, you know, the tone feels good in pharma and I think that ultimately we'll see that in activity. And then from a biotech, you know, you're seeing the data to show that funding is starting to improve, but the tone was incredibly positive. Now there is, of course, a lag between when funding flows and when money is spent, but would say January in terms of what the sentiment is in our customer base, was quite positive. Trusted partner is the other aspect of it. Right? There's one is what is the industry, and two is what is our role in all of this. You know, when I think about trusted partner, I've talked about it for a number of years. And so what does it really mean? And I thought maybe two anecdotes might be helpful to just bring it to reality. Right? Because we see lots of customers and, you know, all of our industry peers do. So I was at a healthcare conference. I was meeting with the CEO of one of our larger customers, and discussing objectives for the year, where we can be helpful, what are the challenges. The discussion was so positive that he literally said, can we go and find my head of development? And which we did. And let's talk about the specifics. Right? Literally, just kind of real-time, we tracked his peer down or his colleague down and we got into the details. And the right follow-ups happened from that. And if I think about spending a half day with the management team of, you know, one of our larger biotech customers and just working through systematically about their priorities, how we can help them, and then the long list of follow-ups about what the new opportunities are and why that's so relevant to their success. I hope that brings, you know, that a little bit more to life. And it's across our whole management team we're having these dialogues. Right? And that's the super cool thing about our role in pharma and biotech and why we're so well-positioned there. Daniel Anthony Arias: Yep. Okay. Helpful perspective. Maybe just to sort of summarize the point that you kind of touched on there. Mid-single-digit growth in 2025 in biopharma a year with some obvious headwinds. Is mid-singles plus the right way to think about things? Or something different? Marc Casper: Yeah. I think that's the right way to frame it. There's obviously different ways we can get to the three to four, but that's enough so way to frame the year as it moves down here now. Thank you, Dan. Daniel Anthony Arias: Okay. Thank you. Operator: Our next question comes from Jack Meehan from Nephron Research. Your line is now open, Jack. Please go ahead. Jack Meehan: Thank you. Good morning, guys. Wanted to build off of where Dan left off focusing on the LPBS segment. So in pharma services, Marc, how are you feeling about industry supply-demand dynamics entering 2026? And any color you can share on what's reflected in the guide for that business? Marc Casper: Yeah. So when I think about our pharma services business, really executing very well. A reminder, we have, you know, the leading positions in the drug product sterile fill finish and in our clinical trials logistics packaging business. We have a smaller position but meaningful in biologic drug substance as well. So when I think about industry demand capacity, really sterile fill finish has been the area where there is heightened demand relative to industry capacity. It's part of the reason that we acquired the Sanofi site in New Jersey. It's really in a way a capital project to expand our capacity. You know, we're winning contracts to meet our pharmaceutical customers' needs for reshoring to the US. So, the demand profile is good, and our business has had a strong year and will continue to step up in growth over the next couple of years. So well-positioned there and, you know, I would believe that that will continue to be a nice contributor to our long-term growth in this business. Jack Meehan: Excellent. Okay. And then next one to talk about the channel. So if you do some relatively simple benchmarking, it seems like you're doing pretty well there competitively. Wondering if you could just talk about what's resonating in terms of investments you've made there. And do you see this competitive advantage as stable or expanding, weakening, entering this year? Just any color on that business would be great. Marc Casper: Yeah, Jack. Thanks for the question on our channel business. So when I think about how we serve the, you know, the research and safety market, it's a business that's performed well for us for a long time. We have an excellent portfolio of supplier partners that has what our customers need and you see the strength of the performance broad-based. We've done well in pharma and biotech in terms of winning business. We have, you know, done well in serving industrial customers. We called that out. And while academic and government is certainly more pressured as the end market is, actually, our share position has been quite stable there. So I think competitive dynamics remain, you know, pretty consistent. We've been a, you know, methodical share gainer over many years and that trend continues. And we'll continue to do a great job serving our customers and helping them meet their innovation and productivity needs. Jack Meehan: Excellent. Thank you, Marc. Marc Casper: Thank you, Jack. Operator: Next question comes from Matt Larew from William Blair. Your line is now open. Please go ahead. Matt Larew: Hi. Good morning. You know, since you launched Accelerator in late 2024, now you've seen a number of pretty big changes in the drug development and manufacturing ecosystem in terms of manufacturing re-regionalization, rising use of AI in drug discovery, Marc, you referenced outstanding customer adoption of that solution. Just curious how some of these ecosystem changes are affecting customer preferences for outsourcing in general, and, I guess, more specifically in the accelerator offering? Marc Casper: Yeah, Matt. Great question. So when I think about let me start with this clinical research more broadly, and then I'll delve into change and a little bit about Accelerator. So, you know, the clinical research business Thermo Fisher is performing very well. And the year played out really exactly as we thought it would play out, and you know, with a steady progression of revenue building, sequentially quarter over quarter and then returning to growth in Q3 and mid-single-digit growth in Q4. Organically. And authorizations have been far ahead of our revenue throughout the year and are showing a strong momentum in our competitive position. So when I think about, you know, accelerated drug development, which was something that we worked on creating for almost three years. We launched it in 2024. What it really is about is how do you shave a week off here, a month off there, how do you get waste out of the system, and ultimately, meaningfully bring the drugs to market more quickly or have insights that a drug is not performing well and, therefore, end a clinical trial more quickly, both of which add value to our customers and it's really resulting in very meaningful authorizations wins for both our clinical research business and new total contracts for our pharma services business. So it is a differentiated capability. It's one that we've really worked hard to understand where the best opportunity is and then apply it to customers. When I think about how we are collaborating with OpenAI, really focused on the, you know, clinical research side of the equation. Is how do you further shave time and cost out of the process? And have even more insights? And you know, that's gonna be a journey because it's a highly regulated industry, and we'll go on that journey with our customers and look for new opportunities to drive an even more efficient drug development process. And our experience is the higher the returns our sponsors get on their investment, the more indications they want to go after, in terms of the scale of the clinical trials. And they actually, you know, in a way, pursue their pipeline more aggressively. So we're really excited about what the future holds in terms of drug development more broadly, both in the manufacturing of the medicines as well as executing the clinical research. Matt Larew: Okay. Thanks for that. So encouraged about drug development activities. But thinking about the drug discovery side, think still some debate about whether AI is a headwind or tailwind to the amount of wet lab work moving forward. Just would be curious about your experience with customers, be it, you know, AI-first biotechs and then larger pharma companies that were perhaps more aggressively using AI. And what you've seen about their wet lab activity, their demand for instruments, etcetera. Marc Casper: So what we're seeing is a recovery in the early research part of our business in terms of demand for, you know, the bioscience reagents, the basic R&D labs and pharma from the channel. So you're seeing that, you know, methodically strengthen. Some of that will come with biotech funding as well as that improves. What I would say is on the application of AI, we're doing a lot of work with customers on the wet lab dry lab combination, meaning that we're actually working with our customers to better link what goes on in their wet labs with their data management and insights from AI. Our experience to date and certainly our experience historically is the more confidence you have in the research, you wind up doing actually more wet lab experimentation. You're probably going to work on fewer things that are just going to fail. So there is some waste that comes out of the system. But customers want to have total confidence in the work they're doing, and that's been our experience. And so we're actually quite optimistic about the intersection between AI and the demand for wet lab research. Thanks, Matt, for the questions. Matt Larew: Thank you. Operator: Our next question comes from Casey Woodring from JPMorgan. Casey Woodring: Thank you for taking my questions. And first, just want to reiterate the comments. You know, congratulations, Steven, on retirement. And, Jim, looking forward to working with you moving forward. Wanted to touch on Analytical Instruments performance in 4Q. Curious on how the performance played out relative to your expectations in the quarter. Obviously, a tough comp, but curious to hear what you're seeing in that business across the different regions and end markets and whether you saw a budget flush in the quarter or any sort of stimulus in China. Marc Casper: Casey, thanks for the question. So the analytical instruments team did a really good job in the fourth quarter. As you said, we had a more challenging comparison. And we were flat growth in the quarter. And we grew modestly in the full year. So and when I think about that dynamic, that's in a dynamic where you have pressures on academic and government funding. Also have pressures in China more broadly throughout the year. So two of the important sectors of that part of the business faced the headwinds. We did very well with our pharma and biotech customers, so I feel good about that. And feel good about the performance in aggregate. For us, a lot of what drives it is the quality of our innovation and the impact. Right? We have an incredible year. Right? And if you think about where I allocated time, even in my remarks today, I spent more time on innovation than anything. Because customers want those breakthrough solutions that matter. Right? And whether it was we're doing in mass spectrometry, the next generation of our cryo electron microscope for tomography and structural biology. For all of those insights that we're bringing, that's what drives demand here. So the business is well-positioned. We're applying AI to the capabilities as well, and announced an interesting collaboration with NVIDIA, at the beginning of the year. And so we'll continue to strengthen that business and it's an important part of our company. That's helpful. And then relatedly, as we think about your analytical instrument end market, you know, the US academic market specifically there, Marc, at our conference a few weeks ago, you had talked about the expectation for US academic and government customers to really remain cautious until a finalized NIH budget is passed. And then for spending to increase thereafter. I guess, what's assumed for US academic and government growth in 2026? And really, how quickly would you expect spending to pick up after that budget is finalized? You know, last year, saw a bit of a discrepancy between fund appropriations and ultimate, you know, spending with tools. So just any further color on the expectations for US academic and government in 2026? Thanks. Marc Casper: Yeah. So, Casey, when I think let me first globally. Our assumption for academic and government embedded in our guidance is similar conditions to last year in aggregate. Right? And when I think about the US environment, our assumption here is that there'll be a level of customer caution that will probably abate as the year goes down, but I would still assume in our guidance it'll be a more cautious environment. As customers are navigating the landscape. You know, seems likely that we'll get a flat to slightly up NIH budget. That's gonna be a good point in time exactly when that happens, TBD. So that should create tailwinds. So when I think about over the next couple of years, I would expect that that will be one of the drivers of us higher in the range. But for now, our assumption is that relatively cautious for 2026. So thank you, Casey. Great. Operator, we have time for one more question. Operator: Thank you. Our last question comes from Dan Brennan from TD Cowen. Daniel Gregory Brennan: Great. Thank you. Thanks, Marc. Steven, obviously, congrats. Nice working with you. Maybe just one housekeeping, and then I'll follow-up with more of, like, a deeper question. Just on the housekeeping, so Steven and Marc, you want investors to like, 3% start at 3% for 2026 and around 1% the first quarter for organic. Is that right? Stephen Williamson: That's what I indicated in my script. That's how I think about on the year. And then, yeah, as we progress. Daniel Gregory Brennan: Terrific. Great. Okay. And then, Marc, I just wanted to ask maybe one more follow-up just on biopharma given it's the largest end market, obviously, and really strong growth to finish out the year. I know you've mentioned a couple of times, the guide doesn't assume any change in end conditions. And I know Dan asked this, but I think, you know, most of us are hoping or assuming that with all these deals in place and, you know, the level of obviously, cautiousness we think has persisted that there will be an increase in spending. So I'm just wondering, and you obviously mentioned the commentary that you had with that one customer that was pretty favorable. So is that just conservatism or maybe you were out punching the market in 2025 so that for you, really, there's not gonna be, you know, any change even if the environment gets better? Just wondering you can kind of maybe speak to that a little bit. Thank you. Marc Casper: Dan, truly appreciate the question. So when I think about we've been consistently gaining share. So I love creating difficult comparisons. That's our job. So that's a good thing. And we'll continue to build our momentum in pharma and biotech. I think the way we're viewing the year is we're starting out with market conditions or, you know, roughly the same as last year in aggregate. And we don't have the repeat of the obviously, we wouldn't have the repeat of the roll-off of the effect of the pandemic last of the revenue, right? So that's the starting assumption. And as Steven said, our goal is to retire risk as the year goes on. And work our way up in the range. And when I think about what would be the factors that would drive that, it's largely gonna be, as you said, pharma and biotech, biotech in particular, as funding flows. There's a lag between when funding flows and when money is spent. Usually, in roughly six months on average. But that bodes for a strengthening environment. And, you know, one could envision that it continues to strengthen, you know, into the following year as well, but I think just we all learned a lot over the last couple of years. I think starting out with, you know, a prudent set of assumptions to start the year is helpful. Gonna just deliver great earnings growth. Right? I mean, we're not looking at what the market's gonna be. We have a plan to deliver 6% to 8% growth plus the benefits of capital deployment, and we're excited about Clario. So we're setting ourselves up for, you know, the right way to start the year. And, ultimately, '26 will be, you know, another year of excellent performance with Thermo Fisher Scientific. So, Dan, thank you for the questions. And let me from here just wrap up with, you know, thanks everyone for participating in the call today, and I think you got a sense from our enthusiasm. We ended this year in a great position to deliver an excellent 2026. Of course, thank you for your support of Thermo Fisher Scientific, and we look forward to updating you as the year progresses. Everyone. Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your line.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Fourth Quarter 2025 Results Conference Call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Silicom's Investor Relations team at EK Global Investor Relations at +1 27040. Or view it on the News section of the company's website, www.silicomusa.com. I would now like to hand over the call to Mr. Kenny Green, of EK Global Investor Relations. Mr. Green, would you like to begin please? Kenny Green: Thank you, operator. I would like to welcome all of you to Silicom's quarterly results conference call. Before we start, I would like to draw your attention to the following safe harbor statement. This conference call contains forward-looking statements. Such statements may include, but are not limited to, anticipated future financial operating results, and Silicom's outlook and prospects. Those statements are based on management's current beliefs, expectations, and assumptions which may be affected by subsequent business, political, environmental, regulatory, economic, and other conditions and are subject to known and unknown risks and uncertainties and other factors many of which are outside Silicom's control, which might cause actual results to differ materially from expectations expressed or implied in the forward-looking statements. These include, but are not limited to, Silicom's increasing dependence on substantial revenue growth on a limited number of customers, the speed and extent to which Silicom solutions are adopted by relevant markets, difficulties in the commercializing and marketing of Silicom's products and services, maintaining and protecting brand recognition, protection of intellectual property, disruptions to manufacturing and sales and marketing, developments in customer support activities, the impact of rising inflation, changing interest rates, volatile exchange rates, as well as any continuing effects or new effects resulting from pandemics and global economic uncertainty, may impact customer demand through customers exercising greater caution and selectivity with their short-term IT investment plans. The factors noted are not exhaustive. Further information about the company's businesses, including information about factors that could materially affect Silicom's results of operations and financial condition, are discussed in Silicom's annual report on Form 20-F and other documents filed by the company that may be subsequently filed by the company from time to time with the Securities and Exchange Commission. Therefore, there can be no assurance that actual future results will differ significantly from anticipated results. Consequently, investors are reminded not to rely on forward-looking statements. Silicom does not undertake to update any forward-looking statement as a result of new information or future events or developments, except as may be required by law. In addition, following the company's disclosure of certain non-GAAP financial measures in today's earnings release, such non-GAAP financial measures will be discussed during this conference call. Such non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes that the presentation of these non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Unless otherwise stated, it should be assumed that the financials discussed in this conference call will be on a non-GAAP basis. Non-GAAP financial measures disclosed by management are provided as additional information to investors to provide them with an alternative method for assessing the company's financial condition and operating results. These measures are not in accordance with or a substitute for GAAP. A full reconciliation of non-GAAP to GAAP financial measures is included in today's earnings release, which you can find on Silicom's website. With us on the line today are Mr. Liron Eizenman, President and CEO of Silicom, and Mr. Eran Gilad, CFO. Eran will begin with an overview of the results followed by Liron who will provide the analysis of the financials. We will then turn over the call to the question and answer session. And with that, I would now like to hand the call over to Liron. Liron, please go ahead. Liron Eizenman: Thank you, Kenny, and good day, everyone. I'd like to welcome all of you to our call to share why we are truly excited about Silicom's momentum and potential ahead as we close out 2025 and move through 2026 and beyond. 2025 was a strong year of execution for Silicom. We are pleased to report better than originally projected growth for the year with the design win momentum giving us good visibility ahead. Q4 revenues grew 17% year over year, to $16.9 million, well ahead of our guidance range between $15 million and $16 million. It confirms that the demand for our core product is high, resilient, and strengthening. Our solid Q4 performance is in part due to the success of the strategic initiatives we undertook in earlier quarters. The progress we have made executing through 2025, and the resulting positive impact across our business. Furthermore, our opportunity pipeline is broader than it has ever been. And we continue to expand the pipeline for our core solutions. In 2025, we achieved eight major new design wins across edge systems, SmartNICs, and FPGA solutions, with both new customers and existing Tier one customers expanding their engagements with us. Those design wins give us strong visibility into 2026 and beyond, supporting our expectations for double-digit revenue growth for the year ahead. Just to give an example, a few weeks ago, we announced that a global networking and security as a service leader significantly expanded its deployment of Silicom edge devices into multiple additional use cases, increasing our expected annual revenues from this customer from $3 million to $4 million to between $8 million and $10 million, more than double, with some of those incremental revenues expected in the coming months. This achievement highlights the strength of our blue-chip customer relationships, recurring revenue growth model, particularly our strategy of growing by expanding existing design wins alongside new customer wins. Looking ahead, based on the depth of our pipeline and ongoing customer engagements, we are again targeting between seven and nine design wins in the current year, spanning across all our product lines. This gives us strong confidence in the sustainability of the continued growth of our business through the coming years. With that, we are very optimistic about the potential ahead and we expect to report accelerated double-digit revenue growth in 2026 and beyond. Our balance sheet remains very strong. At year-end, our working capital and marketable securities totaled $111 million, including $74 million in cash deposits and highly rated bonds with no debt. This represents approximately $20 per share. Beyond all this, our stable and growing core business along with a fortress balance sheet, provide us with the flexibility to not only execute on our ongoing strategy, but also allow us to invest and capitalize on market opportunities. Today, I will discuss three tectonic shifts with powerful new growth potential in the technology infrastructure market that leverage our core expertise, capabilities, IT, and customer base that we intend to capitalize on. Growth engines focused on those markets will give Silicom unique venture-style upside potential over and above the disciplined, well-capitalized, and stable public company that we are known for. The three major structural shifts in infrastructure are: AI inference, post-quantum cryptography, and white-label switching. Those are not small niche markets. And they are not cyclical trends. They are large markets undergoing structural changes in how infrastructure is built. They also share a common theme: timing. In each case, early positioning matters, but so does credibility and execution. That's where we believe our platform gives us a meaningful advantage. Let me start with AI inference, which we believe represents the largest opportunity for Silicom. AI infrastructure investments are shifting from training models to querying the models at scale, known as inference. Inference is continuous, distributed, and extremely latency-sensitive. While training primarily happens via network GPU cards at the core of the data center, inference happens everywhere. Continuously. At the edge, in telcos, and in enterprise data centers. This creates massive networking and interconnect bottlenecks. And that's exactly the problem that Silicom excels in solving. We already have initial orders to be utilized by our customer for our inference-optimized FPGA-based solution at a POC with a hyperscaler end user. And we are developing a dedicated AI NIC based on a leading high-performance networking chip for another AI inference leader. We have initial orders in hand and follow-on POCs underway. We are also engaging with multiple customers and we are in advanced discussions with additional AI inference chip vendors. While it's still in the early stage, this is increasingly becoming a real and huge potential opportunity for us, which is built directly on our IP, engineering experience, and leveraging existing customer relationships. This is a very large, long-term, and massive greenfield growth opportunity for Silicom with the AI inference hardware market expected to approach $80 billion plus level by the end of this decade. Our second potential upside engine is post-quantum cryptography. PQC, a future mandatory global security upgrade. Quantum computers are expected to have the eventual capability to break through today's encryption. That future risk is forcing governments, financial institutions, and infrastructure providers to act now to mitigate HarvestNowDecreePlater attacks. This is not discretionary spending. It's a required transition and this market is expected to grow to over $3 billion by 2030. We already offer one of the only production-ready hardware-based PQC accelerator solutions available today, with clear cost and performance advantages over solutions in software. It's implementing networking hardware, encryption algorithms that quantum computers cannot decrypt, and is therefore considered safe in the post-quantum world. Our legacy in cryptographic acceleration combined with FPGA flexibility allows customers to migrate now, ensure backward compatibility, and remotely adapt new post-quantum algorithms as standards evolve. Leading customers have already selected our solution for early deployment, leveraging long-standing relationships and existing IP. Our third new potential area for growth is white-label switching, which is the next phase of network disaggregation and is expected to reach over $6 billion by 2030. We already supply white-label edge, SD-WAN, and SASE platforms to many Tier one customers. Expanding into switching is a natural extension of those relationships and capabilities. This transition mirrors what we've already seen in servers and storage. Disaggregation starts with hyperscalers and then expands into the broader market. That expansion is now happening in white-label switches into enterprises and service providers. Cost pressure, flexibility, and vendor independence are driving the shift, creating opportunities to take share from proprietary incumbents. We have already shipped initial quantities of multiple switch platforms to a leading cybersecurity customer and are engaged in discussions with others. Looking to the near future, in terms of guidance, we project that revenues for 2026 will range between $16.5 million to $17.5 million, representing 18% growth year over year at the midpoint. Which is a great start to 2026. This affirms our expectation of generating double-digit annual growth in 2026. In summary, Silicom's core business is growing ahead of our earlier projection. And we are very pleased with our progress in 2025. We look forward to continuing to build on it over the coming quarters and years. With eight major new design wins secured in 2025, we have a solid foundation for accelerated double-digit growth in the core business throughout 2026. Our solid pipeline of opportunities, momentum across all our product lines, combined with our deep customer relationships, make us believe that we will broaden our design win roster with a further seven to nine design wins during the current year. The three significant venture-style upside opportunities, AI inference networking, post-quantum cryptography, and white-label switches, that I highlighted have the potential to become massive growth engines on top of our core business over the years ahead. All of this is made possible by the unique platform we've built over the past two decades, a thriving core business, our technological expertise, a proven ability to execute, and our Tier one customer base, all backed by a rock-solid balance sheet. This enables us to invest in venture-scale growth while at the same time maintaining our conservative financial profile. Silicom represents a unique convergence, a company with a stable growing core business that addresses $100 billion plus in new opportunities in some of the hottest technology markets. We have the technology, the fortress balance sheet, and customers trust us to execute and look forward to further scaling our core business as we work to capture the venture-style upside. With that, I will now hand over the call to Eran for a detailed review of the quarter results. Eran? Please go ahead. Eran Gilad: Thank you, Liron, and good day to everyone. Revenues for 2025 were $16.9 million, 17% above the $14.5 million reported in the fourth quarter of last year. The geographical revenue breakdown over the last twelve months was as follows: North America 74%, Europe and Israel 17%, Far East and rest of the world 9%. During 2025, we had one 10% plus customer which accounted for about 14% of our revenues. I will be presenting the rest of the financial results on a non-GAAP basis, which excludes the non-cash compensation expenses in respect of options and RSUs granted to directors, officers, and employees, taxes on amortization of acquired intangible assets, as well as lease liabilities, financial expenses. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release issued earlier today. Gross profit for 2025 was $5.1 million, representing a gross margin of 30.2% compared to a gross profit of $4.2 million or a gross margin of 29.1% in 2024. I note that our short to mid-term expected gross margin range remains between 27% to 32%. Operating expenses in 2025 were $7.5 million compared with $6.9 million reported in 2024. Our operating expenses were higher than expected due to the relative weakness of the U.S. Dollar, the currency in which we report, versus the Israeli shekel and the Danish kroner, currencies in which a large portion of our expenses are generated. Net loss for the quarter was $1.9 million compared to a net loss of $5.1 million in 2024. Loss per share in the quarter was $0.34. This is compared with a loss per share of $0.87 as reported in the fourth quarter of last year. Now, turning to the balance sheet. As of 12/31/2025, our working capital and marketable securities amounted to $111 million, including $42 million in high-quality inventory and $74 million in cash, cash equivalents, bank deposits, and highly rated marketable securities, with no debt. That ends my summary. I would like to hand back to the operator for the question and answer session. Operator, thank you. Operator: Ladies and gentlemen, at this time, we will begin the question and answer session. If you wish to cancel your request, please press 2. If you are using speaker equipment, kindly lift your hand up before pressing the number. The first question is from Ryan Koontz of Needham. Please go ahead. Jeff Hopson: Hi. This is Jeff Hopson on for Ryan Koontz. Thanks for the question and congrats on the quarter. Just for the new three opportunities, the timeline seems like maybe AI inference is the most near term with the two customer discussions and orders? Is that kind of how you think about it? Or maybe could you compare the timing between the three opportunities? Liron Eizenman: So all three opportunities, all of them I would say are in the initial stages right now. So from a quarter perspective, they have almost no meaningful revenue for this quarter, obviously. And even for 2026 as a whole, I think we are not expecting to be still huge. There is an opportunity for that. But we definitely are expecting our core business to be very, very strong in 2026 and keep growing. And each of those opportunities could boom at any point in time. But right now we are still in the early stages. But we feel that we are very strong in the early stages and that we feel very strong traction on each of those. Jeff Hopson: Got it. Makes sense. I guess a follow-up on that. Are you expecting similar sales cycles or design processes, the timeline to be similar to your historic business? Liron Eizenman: So in some of those projects, we are, as we said, leveraging existing IP and existing know-how. So it's not like we are starting from scratch. So for some of those opportunities, it's actually taking some of our existing products, making some changes on them. We can react very, very fast and it can actually be a quick road to revenue here and a quick road to design wins. But we already started with that. On some of the others, we do need to do some development. So we are deep into the development of some of those. So we think overall, we are expecting it to be faster than what we've seen in the past. Jeff Hopson: Perfect. And maybe just one more from me. Are there any changes to kind of your sales process or any additional investments on that side to go after some of these new opportunities? Liron Eizenman: We think we have the right team and the right size of the team and the right know-how and expertise. And everything I said is not only true for one team. It's not only R&D. It's the R&D, it's the operation, it's the sales. The entire team is really well structured to support this growth. And the existing relationship that we have with customers that we are building on and capitalizing on, we expect to continue with that. So right now we think we are structured with the right team and the right size and right investments and we plan to keep doing that. Jeff Hopson: Great. Thank you very much. Operator: The next question is from Greg Wieder of Invicta Capital Management. Please go ahead. Greg Wieder: Good day. Thanks for the opportunity here. Just following up on this AI inference opportunity. You mentioned about connectivity bottlenecks. Can you get more specific in terms of what's the use case? Is this to connect various nodes in an AI cluster? Or say external memory. And when I see talk of UA link or ultra Ethernet, is that kind of where you'd be playing? Liron Eizenman: So in general, yes. When we are talking about the challenges of networking, when we are talking about our focus is mainly on the inference side as I said and not on the training side. So the inference happens everywhere. And when we say everywhere it could be at the edge of the network, it could be a local data center, it could be a telco data center, it could be even in the enterprise. And there are so many different installation types and deployment types and types of different networking they need to support. Different cards, different companies developing different inference chips, not all of them able to provide all the different layers that they need to cope with. So they will only focus on the inference chip, but they need someone to complement it on the networking side. If you want to do, as you said, scale out to multiple servers, multiple ports, how do you do it efficiently? How are you making sure that the network is not the bottleneck and that you actually get the most you can out of the inference chip? That I think is the key. And it's very fragmented and very different from deployment type to another. That's where opportunity is created. Greg Wieder: Okay. Appreciate the color there. And kind of to follow-up on the question about sales, you said your sales team is in place. How about R&D in terms of supporting some of these new opportunities? Do we foresee more spending there? Liron Eizenman: Right now, we don't think that we need because as I said, we are really building on the IP and the know-how and team that we have that is running for so many years together and it's an expert team. If we will need, obviously, we have, as I said, we have the fortress we need to do it here in terms of cash and everything we need in order to do that if we will feel. Right now, we don't feel that we need to do it. But definitely, we have the capabilities to do it. In any case, we don't expect it to be significant. Greg Wieder: Okay. Well, if you get some traction in some of these spaces, I mind it. So thank you, Liron. Good luck. Liron Eizenman: Okay. Thank you. Operator: Please stand by. There are no further questions at this time. Before I ask Mr. Eizenman to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available by tomorrow on Silicom's website www.silicomusa.com. Mr. Eizenman, would you like to make a concluding statement? Liron Eizenman: Thank you, operator. Thank you, everybody, for joining the call and for your interest in Silicom. We look forward to hosting you on our next call in three months. Good day. Operator: Thank you. This concludes Silicom's fourth quarter 2025 results conference call. Thank you for your participation. You may go ahead and disconnect.
Operator: Good morning, and welcome to the Bread Financial Fourth Quarter 2025 Earnings Conference Call. My name is Kevin, and I will be coordinating your call today. At this time, all parties have been placed on listen-only mode. Following today's presentation, the floor will be open for your questions. To register a question, please press 11. It is now my pleasure to introduce Mr. Brian Vereb, Head of Investor Relations at Bread Financial. The floor is yours. Thank you. Brian Vereb: Copies of the slides we will be reviewing and the earnings release can be found on the Investor Relations section of our website at breadfinancial.com. On the call today, we have Ralph Andretta, President and Chief Executive Officer, and Perry Beberman, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are based on management's current expectations and assumptions and are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Also on today's call, our speakers will reference certain non-GAAP financial measures which we believe will provide useful information for investors. Reconciliation of those measures to GAAP are included in our quarterly earnings materials posted on our Investor Relations website. With that, I would like to turn the call over to Ralph Andretta. Ralph Andretta: Thank you, Brian, and good morning to everyone joining the call. Today, Bread Financial reported strong fourth quarter and full year 2025 results in line with our expectations. Starting with our 2025 financial achievements on Slide 2, we are proud of the progress we have made executing on our focus areas during the year. Leveraging our experienced team of associates and full product suite, we delivered against our responsible growth objective with seven major new brand signings in 2025 and renewing multiple existing partners in a number of verticals. Our vertical expanded significantly in 2025 with the signings of Bed Bath & Beyond, an e-commerce retailer with ownership interest in various retail brands; Furniture First, a national cooperative buying group that serves hundreds of independent home furnishings and bedding retailers across the US; and Raymour & Flanigan, the largest furniture and mattress retailer in the Northeast and seventh largest nationwide. Additionally, we signed and launched crypto.com, as well as BreadPay installment lending relationships with Cricket Wireless and Vivint, reflecting our flexible payment options and seamless integrations and solutions. These relationships demonstrate how our product solutions span all generational segments and are supported by our digital-first approach, creating value for our brand partners through increased sales, revenue, and lifetime customer value. Shifting to our renewals, we renewed multiple brand partners this year, including a multiyear extension with our long-term partner, Caesars Entertainment. All of our top 10 programs are now renewed until at least 2028. Additionally, in June, we launched a new enhanced fee-based Caesars Rewards credit card that gives members more ways to earn accelerated rewards and enjoy unique experiences. This is a clear example of how we continue to innovate and evolve our product set to fit our brand partner and customer needs and enhance value propositions to drive sales and loyalty. Our vertical and product expansion efforts continue to have a positive impact on both risk management and income diversification across our portfolio. With co-brand comprising 52% of our credit sales in the fourth quarter, up from 48% in 2024, Bread Financial continues to leverage our partner-first culture and experienced program management team to deliver full capabilities to brand partners and their customers. This includes providing a full suite of flexible payment options to unlock incremental sales and build loyalty through omnichannel delivery, seamless integrations, and exceptional customer experience. We are routinely chosen by industry-leading brands across a wide array of industry verticals to take their credit and loyalty programs to new heights. We continue to see success in our direct-to-consumer deposit program as it remains an important source of stable and lower-cost funding for the company. Our direct-to-consumer deposit balances increased 11% year over year and have grown 20 consecutive quarters, now representing 48% of our fourth quarter average total funding, up from 43% a year ago. Regarding capital allocation in 2025, we returned $350 million in capital to shareholders. This includes $310 million in common share repurchases resulting in the repurchase of 12% of our year-end 2024 outstanding shares. We also increased our quarterly common stock dividend by 10% during 2025. At the same time, we meaningfully strengthened and optimized our balance sheet by reducing and refinancing our senior debt and issuing subordinated debt and preferred equity. Lastly, we received a credit rating upgrade from Moody's and Fitch and positive outlooks from Moody's and S&P during the fourth quarter, acknowledging the actions we have taken to strengthen and improve our financial resilience and enhance our enterprise risk management. Our focus on operational excellence and technology advancements was evident this year as we achieved our goal of delivering positive operating leverage with over year-over-year adjusted expenses while continuing to invest in our business. During the year, we progressed our multiyear technology transformation, which included delivering new customer capabilities, continued cloud migration, and increased automation, including accelerating AI adoption. From a credit management perspective, we underwrite for profitability and returns, creating value for our partners and providing purchasing power for consumers. The effective execution of disciplined credit strategies and continued product diversification, coupled with a resilient consumer, led to improving credit metrics throughout 2025. Our full-year net loss rate of 7.7% was better than our outlook and meaningfully better than our initial expectations for 2025. We anticipate that a gradual improvement in our credit metrics will continue in 2026. Overall, we are pleased with our 2025 financial and operational results and remain confident in our ability to generate returns. Moving to the fourth quarter key highlights on Slide 3, during the quarter, we generated net income available to common stockholders of $53 million, excluding the $42 million post-tax impact from expenses related to debt repurchases in the quarter. Adjusted net income and earnings per diluted share were $95 million and $2.07, respectively. Our tangible book value per common share grew 23% year over year to $57.57, and our return on average tangible common equity was 8% for the quarter and 20% for the full year. In the quarter, we repurchased $120 million or 1.9 million common shares with $240 million remaining on our current share repurchase authorization. We also issued $75 million in preferred shares. Consumer finance health remained resilient during the quarter, driving a 2% year-over-year increase in credit sales as a result of higher transaction sizes and increased transaction frequency. We are seeing consumers continue to allocate a larger portion of their budget towards non-discretionary spend. Within discretionary spend, we saw an increase in travel and entertainment spending compared to 2024. Additionally, our credit performance trends continue to improve. The fourth quarter net loss rate was 7.4%. The positive trajectory of our credit sales and credit metrics, along with our new business additions and stable partner base, give us confidence that we are nearing an inflection point of loan growth as we enter 2026. Our solid, sustainable results underscore our disciplined approach to growing responsibly, building financial resilience, and advancing operational excellence. Supported by strong capital levels and cash flow generation, we entered 2026 with strong momentum, which positions us well to execute on our capital and growth priorities while delivering sustainable, long-term value for our shareholders. Now I will pass it over to Perry to review the financials in more detail. Perry Beberman: Thanks, Ralph. Starting on Slide 4, I will highlight our full-year 2025 financial performance. During the year, credit sales of $27.8 billion increased 3% year over year. The increase was driven by new partner growth and higher general-purpose spending. Average loans of $17.9 billion were down 1%, and end-of-period credit card and other loans of $18.8 billion were nearly flat. Both were pressured by an increasing payment rate. Revenue increased $7 million, primarily due to the benefit of pricing changes and paper statement fees, partially offset by lower billed late fees resulting from lower delinquencies. Total noninterest expenses were $72 million or 3% driven by a $43 million lower year-over-year net impact from debt repurchases. Excluding the impacts from our debt repurchases, adjusted total noninterest expenses decreased $29 million or 1%, driven by benefits from our continued focus on operational excellence initiatives. Income from continuing operations increased $142 million or 87% in 2025, benefiting from lower provision for credit losses and lower debt repurchase impacts. Excluding the impacts from our debt repurchases, adjusted income from continuing operations increased $188 million or 48%. Adjusted pretax pre-provision earnings or adjusted PPNR, which excludes any gain on portfolio sales and impacts from debt repurchases, increased $44 million or 2%. Moving to Slide 5, I will briefly highlight our fourth-quarter performance. During the quarter, credit sales of $8.1 billion increased 2% year over year, while average loans of $18 billion decreased 1%, and end-of-period loans of $18.8 billion were nearly flat year over year. The various drivers of fourth-quarter credit sales and loans were consistent with the full-year drivers I previously mentioned. Revenue increased $49 million or 5%, primarily reflecting the implementation of pricing changes, partially offset by lower billed late fees and higher retailer share arrangements. Total noninterest expenses increased $19 million or 4%, primarily driven by a $44 million higher year-over-year net impact from debt repurchases. Excluding these impacts, adjusted total noninterest expense decreased $25 million or 5%, driven by benefits from our continued focus on operational excellence initiatives. Income from continuing operations increased $45 million, primarily driven by higher net interest income and lower provision for credit losses, partially offset by the impacts from our debt repurchases. Excluding the impact from our debt repurchases, adjusted income from continuing operations increased $74 million. Looking at the financials in more detail, on Slide 6, fourth-quarter total net interest income increased 6% year over year, driven by the gradual build of our pricing changes and lower interest expense. Noninterest income was $10 million lower year over year in the fourth quarter, driven by higher retailer share arrangements, partially offset by paper statement fees. Moving to total noninterest expense variances, which can be seen on Slide 13 in the appendix, employee compensation and benefits costs decreased $10 million, primarily due to strategic staffing adjustments in the prior year. Card and processing expenses decreased $7 million, due primarily to lower operating volumes, including letter and statement costs. Other expenses increased $46 million, primarily due to the impacts of debt repurchases that I previously mentioned. Adjusted PPNR for the quarter increased 19% year over year. Turning to Slide 7, net interest margin of 18.9% increased compared to the fourth quarter of last year due to the continued gradual build of pricing changes as well as lower funding costs resulting from our opportunistic debt actions and growth in direct-to-consumer deposits. We expect these tailwinds to continue into 2026, offset by pressure from an anticipated lower prime rate, the ongoing gradual improvement in our payment and rate trends, which will result in fewer billed late fees, and a continued shift in product and risk mix, which helps lower credit losses but often comes with lower revenue yield. On the funding side, we are seeing interest expense decrease as our cost of funds benefits from growing our direct-to-consumer deposits and reducing and refinancing our debt. With our rating upgrades in 2025, we opportunistically issued a $500 million senior note at 6.75% and fully paid down our $900 million 9.75% senior note. With this refinancing, we reduced our rate by 300 basis points and reduced the size of the note by $400 million, resulting in continued overall improvement in our cost of funds. Moving to Slide 8, our liquidity position remains strong. The total liquid assets and undrawn credit facilities were $66 billion at the end of the quarter, representing 26.4% of total assets. At quarter-end, deposits comprised 78% of our total funding, with the majority being FDIC-insured direct-to-consumer deposits. Shifting to capital, we ended the quarter with a CET1 ratio of 13%, up 60 basis points compared to last year. As you can see in the upper right table, our CET1 ratio benefited by 300 basis points from core earnings. The repurchase of $310 million in common shares and common stock dividends of $40 million over the past year reduced our capital ratios by 180 basis points. The last CECL phase-in adjustment occurred in 2025, resulting in a 60 basis point reduction to our ratio. Additionally, the impact from debt repurchases accounted for approximately 40 basis points of impact on CET1 since 2024. Finally, our total loss absorption capacity, comprising total company tangible common equity plus credit reserves, ended the quarter at 24.7% of total loans, demonstrating a strong margin of safety should more adverse economic conditions arise. We have a proven track record of accreting capital and generating strong cash flow through challenging economic environments. We have demonstrated our commitment to optimizing our capital structure through the issuance of preferred equity with subordinated debt and appropriately returning capital to shareholders. During the fourth quarter, we issued $75 million of preferred shares, adding to our tier one capital, providing additional capital flexibility. We will continue to opportunistically optimize our capital structure, which may include issuing additional preferred shares in the future. Our commitment to prudently return excess capital to shareholders is evidenced by our share repurchase activity and the 10% increase in our common share dividend in the fourth quarter. In 2025, we repurchased 5.7 million common shares at an average price of $54, which was below our year-end tangible book value per share. We remain well-positioned from a capital, liquidity, and reserve perspective, providing stability and flexibility to successfully navigate an ever-changing economic environment while delivering value to our shareholders. Moving to credit on Slide 9, our delinquency rate for the fourth quarter was 5.8%, down 10 basis points from last year and down 20 basis points sequentially. Our net loss rate was 7.4%, down 60 basis points from last year and flat sequentially. Credit metrics continue to benefit from our multiyear credit actions, ongoing product mix shift, and overall consumer resilience. The fourth-quarter reserve rate improved 70 basis points year over year to 11.2% as a result of our improving credit metrics and higher quality new vintages. Compared to the prior quarter, the reserve rate declined 50 basis points, impacted by higher seasonal transaction balances related to seasonal holiday spend and gradual credit quality improvements. We continue to maintain prudent weightings on the economic scenarios in our credit reserve modeling, given the wide range of potential macroeconomic outcomes. Our weightings remained unchanged again this quarter. As a reminder, the reserve rate typically increases sequentially in the first quarter as holiday transactor balances pay down. We are pleased with our year-over-year improvement in credit metrics, driven by our disciplined credit risk management and product diversification. As you can see on the bottom right chart, the percentage of cardholders with a greater than 660 prime credit score of 59% remained fairly steady both year over year and sequentially. Turning to Slide 10 and our full-year 2026 financial outlook, our 2026 outlook is based on continued consumer resilience, inflation remaining above the Federal Reserve target rate of 2%, and a generally stable labor market. Our outlook also anticipates interest rate decreases by the Federal Reserve, which will modestly pressure total net interest income. Note that as we remain slightly asset-sensitive, a lower recent and future Fed and prime rate will pressure NIM as our variable rate assets reprice faster than our liabilities. As Ralph mentioned, we believe we are nearing an inflection point for loan growth. We expect full-year 2026 average credit card and other loans growth to be up low single digits compared to 2025. Growth will be supported by our stable partner base and new business launches, building credit sales growth, and continued credit loss rate improvement, partially offset by strong cardholder payment rates. Total revenue growth is anticipated to be up low single digits, largely in line with average loan growth. Net interest margin has a wide range of potential outcomes given that it is impacted by many variables. Our baseline estimates have full-year net interest margin near to slightly above the full-year 2025 rate as a result of continued benefits from implemented pricing changes and improving cost of funds, offset by interest rate reductions by the Federal Reserve, lower billed fees from improving delinquencies, and a continued shift in risk and product mix. For noninterest income, we would expect higher retail share arrangements or RSAs as a result of higher sales, implemented pricing changes, and lower credit losses. We manage expense growth based on revenue generation and investment opportunities and expect to deliver positive operating leverage in 2026, excluding the pretax impacts from debt repurchases. We will continue to invest in technology modernization and product innovation, including AI, to drive growth and efficiencies. The degree of positive operating leverage will be macro-dependent and related to credit improvement, loan growth, and the pace and timing of further Fed interest cuts. For 2026, we expect total expenses, less costs associated with debt repurchases, to be down slightly sequentially from the fourth quarter adjusted expense figure of $500 million. We anticipate a year-over-year net loss rate in the 7.2% to 7.4% range for 2026. This range contemplates stable to improving macroeconomic conditions, continued risk and product mix shifts, and a resilient consumer. We are seeing good momentum going into '26, which is a positive sign for continued improvement in the early part of the year. Given the less predictable nature of how consumers will respond to changing macroeconomic conditions, sustaining this momentum and the degree of improvement through the entirety of the year is less certain at this time. We expect our full-year normalized effective tax rate to be in the range of 25% to 27%, with quarter-to-quarter variability due to the timing of certain discrete items. The progress we made in 2025, along with our 2026 financial outlooks, puts us on a path to achieve our longer-term mid-20% ROTC target in the coming years. The key drivers of improvement include first, generating responsible sustainable growth while delivering on our efficiency initiatives, which will lead to higher PPNR. Second, gradual improvements in our credit metrics closer to our historical loss rate level, leading to a lower provision for credit losses. And third, executing on our opportunities for additional capital optimization, including potentially issuing additional preferred shares. We are proud of the results we achieved in 2025 and expect to build upon our momentum as we enter 2026. Now I will turn it back over to Ralph to review our 2026 focus areas. Ralph Andretta: Thanks, Perry. Before we open it up for questions, I am going to discuss a refreshed view of our focus areas as seen on Slide 11. Our focus areas for 2026 are designed to capitalize on our strengths while fortifying our business to help offset any potential external pressures. While our focus areas have remained fairly consistent over the last few years, they continue to evolve with our transformation and the ever-changing business environment. First, our commitment to responsible growth will not change. The work we have done to expand our product suite while enhancing our product capabilities, along with improving consumer health, gives us confidence we can accelerate sustainable, profitable growth. Second, the proactive strategic execution of a disciplined credit management framework has been key to the gradual improvement of our credit performance metrics. We proactively adopt our sophisticated models to effectively balance risk and reward and manage changes in the macroeconomic environment. In addition, we will continue to maintain strong risk and control effectiveness while reinforcing regulatory vigilance. Third, our operational excellence efforts have become part of our culture and are embedded across our business. This year, our initiatives will deliver AI capabilities, technology advancements, improved customer satisfaction, reduced risk exposure, and enterprise-wide efficiency. Finally, supported by strong capital levels and cash flow generation, we are well-positioned to execute on our capital and growth priorities while delivering sustainable long-term value for our shareholders. Our ongoing commitment to effectively manage capital will ensure appropriate returns on investments and help us achieve our long-term financial targets. In summary, our experienced leadership team remains focused on generating strong returns through prudent capital and risk management. This reflects our unwavering commitment to drive sustainable, profitable growth and build long-term value for our shareholders and other stakeholders throughout dynamic economic and regulatory environments. Operator, we are now ready to open up the lines for questions. Operator: Thank you. When preparing to ask your question, please ensure that your phone line is unmuted locally. One moment for our first question. Our first question comes from Sanjay Sakhrani with KBW. Your line is open. Sanjay Sakhrani: Thank you. Good morning, and congratulations on navigating through a challenging year for you guys. Maybe just first, a two-part question on loan growth. One, obviously, very encouraging we are starting to see a pickup in loan growth into 2026. I am just curious as we think about what is driving that growth. I know you guys mentioned sort of the stability of the partnership base and continuing to grow with them. Is there any sort of loosening of underwriting standards? I am just curious what kind of appetite you are seeing from consumers out there. And then secondly, I was just looking at Slide 14 in your deck, and I see BreadPay still kind of small of the total. I am just curious with buy now pay later growing, do you anticipate growing that a little bit more in 2026? Ralph Andretta: Hey, Sanjay. How are you? It is Ralph. You know, I think you answered part of my question. If you look at the tenets of loan growth, it is really the resilient consumer sales momentum we are seeing as we go into the year. You mentioned a new partner stability and new partners that we are adding and improving credit. And, you know, we are not doing anything out of the ordinary. We are underwriting the way we have always underwritten. We underwrite for profit. We make sure that it is thoughtful underwriting. So there is not a general loosening. It is a gradual look as credit improves. And that is how we have underwritten in the past. That is how we will underwrite in the future. So nothing unusual there. In terms of BreadPay, I expect BreadPay buying to pick up. We have added some really good partners. I mentioned Cricket and Vivint, which is, you know, home security. Those are really good popular partners. We have partners to the BreadPay platform on a pretty regular basis. We have got a good handle around underwriting on that platform as well. So we expect that to also improve in 2026. Sanjay Sakhrani: Great. And then just a follow-up on credit quality. Understood, you know, you guys are seeing the improvement and sort of the fruits of tightening on underwriting. You know, I know that labor market seems pretty stable, but underneath it all, every day you are hearing about layoffs and such. I mean, are you guys seeing anything in your data that sort of leads you to believe that there might be stuff happening underneath the surface that might be choppier? Or do you feel like your customer, your ability to underwrite are generally in a good place? Thanks. Perry Beberman: Thanks, Sanjay. This is Perry. You know, so I think when we look at it overall, we are encouraged by what we are seeing in our underlying data. When we look at our roll rates, while they are still elevated, you know, versus where they where we would like to have them, we are pleased with the improvements that we continue to see across all our vantage risk bands. And now they are starting to follow more normal seasonal trends. And the key here, though, you know, our early entry rate that we see is now below the pre-pandemic levels. And to your point, that is a lot due to the strategic actions we have taken, the product remix shifts, and things of that nature. But we are also observing improvement in our late-stage roll rates. And that is what we called out early on in order for our losses to continue to improve. We needed to see that improve. So we are seeing that improvement. So, you know, for lots of the reasons you mentioned, we feel pretty encouraged that the consumer has been resilient and, you know, while there could be pressures out there in the economy, overall, I think we are net constructive on it. Sanjay Sakhrani: Okay. Great. Thank you. Operator: One moment for our next question. Our next question comes from Moshe Orenbuch with TD Cowen. Your line is open. Moshe Orenbuch: Great. Thanks. One of the things in terms of Ralph, you talked a little bit about, you know, kind of a new T&E product. And if you look actually in the, you know, in your Slide 14, you have got that is one of the categories that, you know, that has been a big contributor both to volume and balance growth. Can you just talk a little bit about kind of where you sit in there both in terms of partners and proprietary products? Thanks. Ralph Andretta: Yeah. So, you know, we have an array of products. Obviously, Caesars has been a longtime partner, and we have been able to introduce new products over time with Caesars. And the one we have just introduced is a fee-based product. Give their customers, you know, both our customers access to, you know, better rewards and experiences. And, you know, that is really consistent in the marketplace with high-end co-brand cards. You know, AAA is a partner of ours, and that is a really that is a T&E card, and we are seeing good spend in AAA. Particularly, we saw that in the in the 2020 of 2025. And, you know, one of our proprietary cards is really focused around rewards and redemption around rewards for travel. So, you know, we are able to offer our customers and our partners' customers, you know, that array of travel rewards. And it has become a really, you know, a good vertical for us in terms of volume. And like I said, it is, you know, in the fourth quarter, it was up substantially from 2024. And, you know, we continue to focus on, you know, good partners that give us good returns in that category. Moshe Orenbuch: Got it. Thanks. Maybe for the issue, you mentioned that net interest income should grow, you know, kind of around the same rate as you see in loan growth. Perry, could you just drill into that a little more and maybe talk about the puts and takes of things? Because obviously, you are expecting better credits, so that will have an impact on, you know, on late fees. You have got, you know, your pricing still rolling in. And, obviously, you know, at the same time, you have also got, you know, gradually lower interest rates. Can you just talk about all of that and how it kind of fits into this dynamic? Perry Beberman: You are happy to do so. Right? So as you think about NIM, you have laid out a number of the elements. So as we look into next year, we said right now, we expect it to be pretty stable to slightly up versus 2025 on a full-year basis. Some of it is going to be dependent upon the timing and the number of prime rate reductions. You know, as we are currently asset-sensitive, we will get a little bit of a compression on that. We do expect to see continued lower billed late fees as delinquency improves and the product mix improves. And then as you, you know, kind of hit on this a little bit, around whether it is co-brand and more proprietary or installment lending, the shift in new account production and that results in overall product mix shift. While it lowers risk, it also means often having a lower APR because we need risk-based price, and that also means lower late fees associated with those accounts. As well, we will have a little bit higher average cash mix in the year, and some of it is resulting, you know, the timing of when loan growth happens, and some other things that we are caring for. And then, you know, the tailwinds, you also know that the continued, I will say, working through the pricing changes that have been made from in '24 and 2025. And then, you know, as gross losses do improve, we do have then some slower or better reversal of interest and fees, but it is also a catch-up period where the lower billed fees then you actually do end up with less of that benefit out there in the later quarter. So, you know, a lot of this is going to be variable by quarter, you know, the time of gross losses, the building of those pricing changes, then as I mentioned, the primary. And then I would note, though, as well on the revenue side, as originations start to pick up, and profitability improves, the RSA meaning the retail share arrangements that we have with the brand partners or customer awards. Those will also become elevated as, you know, there is more profit to share and then the originations drive more the compensations then as well. Moshe Orenbuch: Great. Thanks, Perry. Operator: One moment for our next question. Our next question comes from John Hecht with Jefferies. Your line is open. John Hecht: Morning, guys. Thanks very much, and congratulations on a productive year. The direct-to-consumer deposits, you guys mentioned it is almost percent of funding at this point. Do you guys have objectives? Where can that go? And then what is the pricing on that versus, you know, the non-term DTC deposits? Perry Beberman: Yeah. So we are very pleased with what we have achieved on our deposits. When you think about this, Ralph put out there a goal of being at 50%, and that was under current contract. Our longer-term goal is to be more in line with larger peers, which would say that our direct-to-consumer deposits would be probably 70% plus of our portfolio. However, our total funding and that will just happen gradually over time, and you should expect our pricing to remain competitive. Again, not having brick-and-mortar branches where it will be very competitive and, you know, have some online, you know, with the online presence. And it is still a, you know, better funding rate than we have in other things like our brokered CDs of Tenor. John Hecht: Okay. And then second question, yeah, is yeah. On the reserve rate, I yeah. There has been I would say it is down from the peak. Then you know, it and it is and it is coming down a little bit because your credit is improving. What do you where what you know, does it go back to day one levels? Or is there any way to think about the direction of travel of the ALL given that credit is stable and improving? Perry Beberman: Yeah. So the reserve rates are always one of my favorite questions every quarter. But to your point, with the fourth-quarter reserve rate at 11.2%, that is down 70 basis points versus the prior year and down 50 basis points linked quarter. And the reserve rate so far has improved solely as a function of improving credit metrics. So as I noted, we have maintained a we will call prudent credit risk overlay. We did not change any of our risk weightings. And, it is still a lot of uncertainty about how the tariffs will unfold and even the Fed yesterday mentioned that they expect those impacts to peak kind of midway through this year. So we are watching that. And what that means to our consumers. So, you know, we are going to continue to watch that. But, candidly, pretty optimistic that as these play out in the coming months, that we will be able to gradually move our weightings of the adverse and severely adverse scenarios in ways more to, I will call, neutral position over time. You know, we will continue to see the first-quarter reserve rate increase seasonally as holiday transactors roll off. But the way I think about the reserve rate, you think about how it is going to traverse to the rest of this year and into next year, it will follow the trajectory largely of the credit quality. So as credit quality delinquency improves, the reserve rate should come down accordingly. And then as we are able to move those risk weights back to neutral, we will get somewhere, around what we have said around that 10% area, time, I am not sure we get all the way back to day one because, it is a different portfolio and we have a different philosophy on how to, look at some of the risk weight. So different scenarios. John Hecht: Great. Thanks so much for the color. Operator: One moment for our next question. Our next question comes from Mihir Bhatia with Bank of America. Your line is open. Mihir Bhatia: Hi. Good morning. Thank you for taking my question. First, I just want to talk about credit. You are clearly making progress. You have tightened credit, and you are making progress getting back to your 6%, I think, target. Guess the question is, is this really a priority for you in the near term, or are you just comfortable being here in the 7% range and you are back to growth? Just trying to understand the balance between how much you would lean in on growth versus get back to your longer-term target, if you will, on credit. Perry Beberman: Yeah. Yeah. Mihir, the question. I would say it is a priority to get back to 6% over time, but not force it there. And we have talked about this previously that we could choke off credit and really, do things that would be detrimental to our brand partners and our customers. And we have been very disciplined that, again, our underwriting philosophy, first talk about this. We underwrite for profit. You know, we have industry-leading ROTCs on this, and, you know, we are trying to get down towards that 6% win rate each new vintage with that in mind, but we have an existing core portfolio that, you know, is in the condition it is in because of the macro environment. We are paid for the risk we take. You know, again, we did not swing the pendulum overly hard on credit tightening to the existing portfolio by dramatically reducing the lines. I think you have seen, you know, others in the industry have swung way now they are doing is loosening things. Like, you heard Ralph talk about we are gradually dynamically underwriting every day. And so when the credit quality is better, you underwrite deeper, you need stock of line increases, and when it does not, they are little risk. You tighten. It is a dynamic thing. So we are not forcing our way down. It will happen naturally, with the newer vintages coming in and the existing portfolio is back book healing. And so it is going to take time. Mihir Bhatia: Got it. So that makes sense. And then maybe just going to the 2026 outlook, you grew revenues 5% this quarter. Is obviously helped probably by, like, just an easier comp here. Is that, like, the main driver of the slowdown from 5% to low singles in your guidance, or is there something else also going on that we should keep in mind? Maybe just walk through some of the puts and takes on that on that line, on the revenue line, Adam. Perry Beberman: Yeah. I think when you look at the comparable period to 2024, we had done some accommodations through fee waivers, interest waivers, as it related to the hurricanes in that season. So those modifications were in that comp. So that is a piece of why the quarter comp being is a little higher than what ordinarily it should be. So I look more at, you know, the rate of NIM that we have this quarter and then how does that then extrapolate forward into the coming year? And as we said, with all the puts and takes, we think that, you know, we should be able to deliver a stable to, you know, slightly up net interest margin. Mihir Bhatia: Got it. Thank you. Operator: One moment for our next question. Our next question comes from Jeffrey Adelson with Morgan Stanley. Your line is open. Jeffrey Adelson: Hey, good morning, Ralph and Perry. Perry, maybe just dig a little bit on the NIM further. Appreciate all the color and the puts and the take. NIM expected to be slightly higher this year. If I look at where you exited 25% and if we put aside some of the benefit got non-funding costs. Your loan yield was really strong in the fourth quarter in light of what is typically a weaker seasonal quarter as you see more of those transactors come into the mix. So could you maybe just unpack a little further what drove some of that underlying strength? Was there maybe a little bit more of a step up in the pricing changes? Or was it more just that underlying reversal rate improving? And as we think about those pricing changes continuing to build their way in, how much of the book or, like, is now reflecting that? And how long can that tail last for you? Do you expect that might slow as we exit 2026? Or should we be thinking about that benefit from here? Perry Beberman: Yeah. So, again, I am not going to reiterate all the puts and takes because I think that you got those. But you are right on the way to think about this is that we do have some tailwinds that are building through slowly and gradually as it relates to the pricing changes. Largely, the pricing changes are complete for, you know, what was what has been pulled through the portfolio. Now it is just a matter of the, you know, the payment allocation working its way through. But largely, you will continue to see a little bit of that gradual benefit from that, but that could be offset by product mix and how the new vintage looks when it is, you know, the final construction of the year comes through. So at the 2026, will look different than right now just in terms of portfolio mix. But, you know, on a static basis, I would say, yes. You have got some of the tailwind from those pricing changes. That will continue to, you know, ease into the book. But, again, a lot some of that will be offset in the RSA line as more of that is shared with the brand partners through the profit share. Jeffrey Adelson: Got it. Thanks. That is helpful. And just, you know, going back to credit, maybe just focusing on the delinquencies a bit. You know, I appreciate the commentary on NCOs the roll rates improving. I think we have started to see your delinquency rate come a little bit more in line with seasonality still improving obviously year over year, but maybe at a bit of a slower pace. Just what is the path from here on delinquencies as you look at the end of 26 from here? Is that something you think will continue to improve, or will it start to flatten out a little bit? And how are you factoring in the benefit for larger tax refunds this year in your outlook for credit? Perry Beberman: Yep. So that is a good one. Let us start with the last piece of that is the tax refund. Is a little bit of the unknown in terms of how will customers use it. Like, I would tell you, you know, we are optimistic that the 2026 tax, you know, refund season is going to be a positive. You know, we are not exactly sure how that is going to play out. In any year, it is always a guess in terms of how consumers are going to use it, whether they are going to use to pay down debt, which obviously improve our delinquency a little bit. Are they going to spend it? Are they going to save it? But net, we believe it to be a positive. And, you know, with the tax refund plus, the fact that, you know, they probably did not everybody adjust their tax withholding. So overall, you know, we have even the I would say, lower consumer confidence out there, we think that we are going to see some improvement on that front. I would say our guide cares for a modest bit of improvement. But, you know, let us hope for something better. Now the government shutdown could put a little bit of a twist into that, so we will have to monitor that. You know, when we look at it, I think overall, we are thinking that we are going to get back to where that what I will BAU delinquency rate where it is going to flatten out some. Again, slow gradual improvement. Some of it will be product mix dependent. Again, the thing that we are most watchful of is continued improvement in those late-stage roll rates. Because that is going to manifest itself really into the better loss outcomes. Jeffrey Adelson: Okay. Great. Thank you. Operator: One moment for our next question. Our next question comes from John Pancari with Evercore. Your line is open. John Pancari: Good morning. On the operating leverage standpoint, you are guiding the positive operating leverage in '26. On top of what was a solid expense beat for the fourth quarter. Can you maybe help us think about the magnitude that you think is likely in terms of the operating leverage? You achieved 100 basis points or so in 2025. Fair to assume can remain at that pace as we look at '26? Perry Beberman: Thank you for the question. Yes, we are really pleased with the progress we made in 2025. You know, as Ralph has talked about and I have as well that, you know, our organization is really focused on operational excellence. And you think about that means for us is driving continuous improvement savings. We are executing across a whole spectrum of transformation. This is around technology, servicing, collections, marketing, looking for new revenue opportunities. So all of this enabled us to accelerate and, you know, figure out how to do things better. And you think about the use and deployment of AI, that is going to unlock even greater value. Again, there is some investment that goes along with that. But we are very use case focused. So that is going to evolve. So I think overall, the degree of operating leverage is going to end up being largely dependent on macro conditions impacting the revenue side of it. So loan growth, higher or lower in the range. You know, what does it mean? The Fed cuts, the delinquency improvement resulting in lower late fees. So, you know, the op leverage, I think, is more on the, as I said, the revenue side and on the expense side, we have got that well in hand. John Pancari: Okay. Great. And then we will deliver positive operating leverage. Got it. Okay. Thanks. And then separately on the buyback front, you bought back $120 million in the fourth quarter. You see Q1 solid at around 13%. Could you maybe help us think about the reasonable pace of buybacks as you look at this year in terms of factoring in the loan growth expectations? But also the capital generation outlook? Thanks. Perry Beberman: Yeah, I think as you look at the year as Ralph said, you know, we generate we could generate a lot of capital, and we are very proud of where we have landed. With our capital ratios and targets. You heard me talk about the last phase-in of CECL. This last first quarter, that was 60 basis points. RWA will come down in the first quarter seasonally. So, again, we are focused on the capital targets that we set. And as we work through this coming year, we do have $240 million of remaining share repurchases available. The pace will be dependent on loan growth, and capital in excess of those stated capital targets. John Pancari: Okay. Great. Thanks, Perry. Operator: One moment for our next question. Our next question comes from Reginald Smith with JPMorgan. Your line is open. Reginald Smith: Hey, good morning, and thanks for taking the question. I see you guys are advertising or offering personal loans on your website. I was curious I guess, your appetite for that channel and that business. And how large that business is today and maybe talk a little bit about the economics of that versus your core by the label or brand business, and then I have a follow-up. Ralph Andretta: Yeah. You know, we have many products in the marketplace. And, you know, private label is just one of them. I think if you look at us over the last five years, we have evolved to all these products, co-brand and buy now pay later, and obviously personal loans. And the macroeconomic environment is going to dictate, you know, how we, you know, weighted into installment and personal loans. So we are going to support growth first. And personal loans are just a part of our growth equation. Reginald Smith: Got it. Okay. And then Ralph Andretta: But, frankly, it is a good way for us to acquire new customers. Reginald Smith: Yeah. Is there any way to kind of size, and frame that? And do you hold those loans on balance sheet? Like, does that where does that show up in your volume? Ralph Andretta: Yeah. It is part of our loans. And personal loans have different tenors, obviously. It is a small portion of what we are doing. It is currently small, and, you know, it will grow gradually over time, and we will, like every other product we enter into, we will enter into it responsibly and manage it and be thoughtful about how we grow with personal loans. But it is on our balance sheet. Reginald Smith: Okay. Cool. And then I guess one, you know, kind of bigger picture question about AI and thinking about, you know, like, how it may transform the business operationally or underwriting. You know, if I look out five years or so, like, how do you think AI impacts the card issuing business? Like, where should we look for the most progress? And I would imagine it probably impacts, like, your variable headcount need. But I do not know. Maybe talk a little bit about that and how those tools can help you get more out of what you the employee base today. Perry Beberman: Reggie, thank you for the question on AI. It is certainly one that we think a lot about. We have a team of leaders and their people figuring how to deploy it. But, you know, I tell you, for our company, you know, we continue to deploy AI, respond across the enterprise to accelerate operational excellence. Which includes increasing productivity, efficiency, driving innovation, strengthening our risk management. And so recall, for our company, we have leaned in on emerging technology, including AI for years. And in doing so, we have established a solid governance model early on to ensure responsible use and oversight of AI. We have over 200 machine learning models embedded in our business. We have deployed thousands of bots to save over one million hours of manual work efforts. That goes to your point around what does it mean for, you know, people. Deployed call center agent-assisted tools. And that is just to stay with you. So when we look at, you know, at our enterprise, AI road map, you know, we now have more than 60 initiatives in motion with early wins contributing to improve fraud protection, better underwriting performance, enhanced call center effectiveness, increased automation in our workflow. So that is a we are continuing to build on that solid foundation of risk management automated controls and leveraging our tools for what we call always-on monitoring. If you think about that, that is already permeating throughout the release, how we could be more effective. So our go-forward areas of focus are on three basic things. You think about it as first, AI tools to improve call personal productivity and efficiency. And that means, like, content summarization, like, for contract and document reviews. Content generation for, you know, personalized marketing collateral, customer communications, intelligent search capabilities, where it helps the associate or folks or customers streamline how they can get an information and knowledge retrieval. Turn it on, controlled use of AI in our SaaS applications that we have, which further enhances platform function on output. So that is the first part. And the second, we are going to accelerate development and advancement of our core technology and data platforms, specifically leveraging AI tools to modernize code and accelerate our movement to the cloud. And then third one is think maybe where your goal is, where is commerce going? If making sure that we are developing intelligent and agentic applications and that will expand the reach of our products automate full processes, and unlock new and improved customer experiences. That will ensure that we have a foundation of strategic select application for agentic-driven commerce and personalized service among others. So, you know, overall, would hope what I want you to take away though is that there is a lot of investments being made, but they are backed by disciplined value tracking, and we have a strong ROI that we are going to make sure we can deliver more table stake capability. So we are moving with pace, rigor, governance, and confidence that you would expect for us as a regulatory regulated institution. But we feel real good about how we are being positioned for this. Reginald Smith: Now that sounds very exciting. I hope we can continue to get little updates and nuggets as you guys progress through. Even if they are small, like, just to hear how you are using AI and the impact that is happening. That stat about the man hours was fantastic. So good luck, and congrats on Perry Beberman: Thanks, guys. Reginald Smith: Thanks, Chris. Already given. So just two follow-ups. So first, on credit sales. And actually wanted to specifically focus on the better 2026 tax benefits that you were talking about earlier. It does seem like this earnings season so far that there has been some enthusiasm from many of the merchants reporting earnings so far on the sales potential from the tax refund season and the lower tax withholdings. So I am wondering if you are seeing more merchant engagement on driving sales this tax refund season. And then how you are expecting credit sales to do in 2026? Ralph Andretta: Yes. I mean, I think we talked about we see we will see credit sales in a low up low single digits and it remains to be seen about how people will use that tax refund. Some people use that tax refund probably savings and investments. You will see some of that. You will see some people pay down their debt, and you will see some people increase their spend. So I think it is going to be across the board. But, you know, the guides we put out in terms of, you know, single-digit growth is and we feel very comfortable with that, particularly since credit is trending in the right direction. We have a stable partner base. And the consumer has some resiliency. So we feel good about what we put out there in the marketplace. Reginald Smith: Okay. Great. And then the second follow-up on NIM and specifically wanted to get your thoughts on deposit beta. So those seem like industry-wide expectations for lower deposit betas this time, I think around 60%. So I want to get your take, your thoughts on your deposit beta, and I guess, for the industry, are we seeing just higher competition for deposits? Or are consumers more sensitive than historically to deposit rates? Just want to get your view. Thank you. Perry Beberman: No, I think that is a you kind of hit it right on the head there, right? I think previously, we were thinking that deposit beta is probably close to high 70s, right around 80. Now I would probably widen that range a bit to 60 to 80 per 80%, 80 betas, but that will be market dependent as you said. So that is what I think we are going to watch for. But over time, I would expect to probably get back. Reginald Smith: Okay. Great. Thank you. Operator: And I would now like to pass the call back over to Ralph Andretta for any closing remarks. Ralph Andretta: Sure. Well, thank you. Thank you all for joining our call today and for your continued interest in Bread Financial. And we look forward to speaking with you in the next quarter. Everyone have a terrific day, and thanks again. Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Operator: Two outsides on hold. Like to thank you for your patience. Please continue to stand by. Your formal program will begin here shortly. Your meeting is about to begin. Good morning and welcome to Lazard's Fourth Quarter and Full Year 2025 Earnings Conference Call. This call is being recorded. Currently, all participants are in a listen-only mode. Following the remarks, instructions will be provided at that time. At this time, I will turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations and Treasury. Please go ahead. Thank you, Nikki. Alexandra Deignan: Good morning, and welcome to Lazard's earnings call for the fourth quarter and full year 2025. I am Alexandra Deignan, Head of Investor Relations and Treasury. In addition to today's audio comments, we have posted our earnings release on our website. A replay of this call will also be available on our website later today. Before we begin, let me remind you that we may make forward-looking statements about our business and performance. Important factors could cause our actual results, level of activity, performance achievements, or other events to differ materially from those expressed or implied by the forward-looking statements, including, but not limited to, those factors discussed in the company's SEC filings you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update them. Please also note that unless we state otherwise, all financial measures we discuss today are non-GAAP adjusted financial measures. We believe these non-GAAP financial measures are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release and investor presentation. Hosting our call today are Peter Orszag, our Chief Executive Officer and Chairman, and Mary Ann Betsch, Lazard's Chief Financial Officer. After our prepared remarks, Chris Hogben, Chief Executive Officer of Asset Management, and Tracy Farr, our incoming CFO, will join as we open the call for questions. I'll now turn the call over to Peter. Peter Orszag: Thank you, Ali, and thank you to everyone for joining us this morning. Our fourth quarter and full year results demonstrate our ongoing focus on executing our Lazard 2030 long-term growth strategy. For 2025, we reported firm-wide revenue of $3 billion with record revenue in financial advisory and assets under management up 12% in Asset Management. Before we turn to our outlook and financial results, I would like to take a moment to thank Mary Ann and welcome Tracy as our new CFO. Mary Ann has played a significant role in elevating our finance team and building a foundation to support our long-term goals. I'd like to share my appreciation for her contributions and for her ongoing support as a senior adviser to Tracy through this transition. Tracy brings strategic insight, financial rigor, and deep familiarity with our business. He has worked closely with me and others on our corporate strategy for the firm's future. As CFO, he will lead efforts to improve operational efficiency, helping drive profitable growth and progress towards Lazard 2030 while playing a central role in engaging with the investment community. You can read more about Tracy in the press release we issued this morning alongside our earnings release. Now turning to our outlook and financial results. As we look ahead, we see substantial growth in both of our businesses. In Financial Advisory, the M&A cycle continues to deepen while client demand remains strong for our other advisory solutions such as private capital advisory, and restructuring and liability management. In Asset Management, the repositioning of our business is well underway and is being reinforced by investors looking to diversify their holdings across regions and strategies. Our current level of won but not yet funded mandates is $13 billion, even higher than a year ago, which is one of the factors leading us to expect positive net flows for the year. In both businesses, we expect our investments in exceptional talent to pay off increasingly as we execute against our long-term plans. Looking back on 2025 in Financial Advisory, we reported record revenue of $1.8 billion. This included record revenue for EMEA and for our private capital advisory group, and a strong year in restructuring and liability management, highlighting the breadth of our global brand and the ongoing diversification of our advisory business. We continue to invest in talent, with a goal of on net 10 to 15 financial advisory managing director additions each year as measured from Q1 to Q1. We met our goal for 2024 with 11 net adds. As exceptional bankers are increasingly drawn to our platform, we will exceed our goal for 2025 with more than double 2024's net additions. We continue to anticipate hiring within or above our stated range going forward. And we will prioritize acquiring top talent to deliver long-term profitable growth over time. Notwithstanding the pace of our talent expansion, which puts temporary downward pressure on productivity as these bankers acclimate to being managing directors on Lazard's platform, we outperformed our MD productivity goal in 2025, delivering average revenue per MD of $8.9 million. This is an increase of $2.5 million per MD since 2023, and we expect continued significant improvement in this important metric in the years ahead, which I will discuss later. Overall, and although timing within the year can always be subject to fluctuations, we expect financial advisory activity to accelerate in 2026. Turning now to Asset Management. As we have signaled throughout the past year, 2025 was a clear inflection point for the business. Revenue was $1.2 billion, and AUM was up 12% year over year. We achieved record gross inflows that exceeded our target of $50 billion through increased focus and accountability in sales and distribution, along with enhancements in our research and investment platform. While at an early stage, our global ETF platform helped to support strong gross inflows in 2025. We have successfully launched seven active ETFs in the U.S. this past year and have already surpassed $800 million in AUM. This growth demonstrates the opportunity to meet client demand for selling strategies from our specialized investment teams. We've continued to build more client interest and win new mandates across our asset management business. As I mentioned earlier, even with the record gross inflows in 2025, won but not yet funded mandates are above last year's already elevated level, underscoring this increasing demand for our active strategies and the successful collaboration across our team. Under our new executive leadership with Chris Hogben, we are well-positioned to deliver net positive flows in 2026. In summary, firm-wide performance in 2025 tracked our 2030 objectives. It was underpinned by our commercial and collegial culture and our commitment to delivering with excellence for our clients. I'll share more about our progress and outlook shortly, but let me first turn the call over to Mary Ann to provide more detail on our earnings and financial performance. Mary Ann Betsch: Thank you, Peter. Firm-wide revenue was $892 million for the fourth quarter, up 10% from the prior year, and $3 billion for the year, up 5% from 2024. Financial Advisory revenue was $542 million for the fourth quarter, up 7% from one year ago. Financial Advisory revenue was diversified across teams and geographies, with Lazard participating in several marquee transactions in the fourth quarter and into January. Completed transactions include Kellanova's $35.9 billion acquisition by Mars, Constellation Energy's $26.6 billion acquisition of Calpine, and Three Clouds' acquisition by Cognizant. Recently announced transactions include AgsoNovel's $25 billion combination with Axcelta, Invest Industrial's $2.9 billion acquisition of TreeHouse Foods, and Atlas Holdings' $1 billion acquisition of ODP Corporation. In addition, liability management and restructuring assignments include debtor roles with First Brands Group, Pine Gate Renewables, and Superior Industries, and creditor roles involving MotiveCare, SACS Global, and SI Group. We also engaged in several private equity assignments, including advising CVC Capital Partners on multiple engagements, advising Odyssey Investment Partners on a continuation fund, and advising on the closing of EIR Partners Fund III. Capital structure and debt raising assignments include Lighthouse, Next Wind, and Orsted. Turning to Asset Management. Revenue was $339 million for the fourth quarter, up 18% compared to one year ago, and up 15% on a sequential basis. Our revenues reflected management fees of $301 million for the fourth quarter, up 17% from the prior year quarter, and $1.1 billion in 2025, up 5% compared to the prior year. Incentive fees were higher year over year in both the fourth quarter and full year, totaling $37 million and $59 million, respectively. Average AUM for the fourth quarter was $261 billion, 12% higher than in 2024. As of December 31, we reported AUM of $24 billion, also 12% higher than December 2024, and 4% lower than September 2025. During the quarter, we had market appreciation of $10 billion, foreign exchange depreciation of $800 million, and net outflows of $19.7 billion, largely driven by the closure of one U.S. sub-advised relationship. Excluding this relationship, net inflows were $8.4 billion for the full year 2025. We see ongoing client engagement and demand across our investment platform, particularly with our quantitative emerging markets and Japanese equity strategies. Samples from this past quarter include over $1 billion from a Korean client in Global Equity Advantage, over $1 billion across our emerging markets equity funds from various clients, nearly $700 million from a UK institutional client for Japanese strategic equity, $350 million into emerging markets equity advantage from an Australian client, and over $250 million from a U.S. insurance company into International Equity Advantage. In addition, we have received over $600 million from a U.S. client for U.S. Equity Select in the fourth quarter. Now turning to expenses, our compensation expense was $585 million for the fourth quarter and $2 billion for the full year 2025. Investments in talent to support our long-term growth strategy have accelerated, while at the same time, our compensation ratio is trending in the right direction. For the full year 2025, our compensation ratio was 65.5% compared to 65.9% for the prior year. Our non-compensation expense was $159 million for the fourth quarter, and $613 million for the full year 2025. This resulted in a full-year non-compensation ratio of about 20%. We continue to take a disciplined approach to expenses as business activity and opportunities increase. Shifting to taxes, our adjusted effective tax rate for the fourth quarter was 29.5%, and for the full year 2025 was 22.7%. Turning to capital allocation. In 2025, we returned $98 million to shareholders, including a quarterly dividend of $47 million and $50 million in share repurchases. For the full year 2025, we returned $393 million to shareholders, including $187 million in dividends, $91 million in share repurchases, and $115 million in satisfaction of employee tax obligations. Additionally, yesterday, we declared a quarterly dividend of $0.50 per share. Now I'll turn the call back to Peter. Peter Orszag: Thank you, Mary Ann. 2025 marked the second full year since I became CEO in late 2023, and I've been encouraged by our progress in transforming our culture and our business since then. Even while undertaking this transformation and making the investments that set the firm up for sustained growth in the coming years, we have delivered solid revenue and shareholder returns. In Financial Advisory, we've been actively reshaping our managing director group to strengthen our commercial and collegial culture and to upgrade our connectivity with clients. These investments in top talent and our culture will yield increasing benefits over time in both revenue and productivity. As noted earlier, we have raised productivity by $2.5 million per Managing Director since 2023. And that is despite expanding the number of MDs above our target range in 2025, which means that the share of managing directors new to our platform has remained elevated. As that share normalizes to roughly 30% over time under our expansion plans, the result will be an estimated further increase of approximately $1 million in revenue per MD above the $8.9 million achieved in 2025 from this effect alone. Looking ahead, we see further productivity uplift for several other reasons as well. Increasing traction with clients, our ongoing focus on mandate selection, a disciplined approach to fee structures, and the benefits of integrating AI across our practice. In December, we therefore expanded our goal to include achieving $12.5 million per Managing Director in 2030 as part of our focus on continuing to meet or exceed our productivity objectives. As part of upgrading our financial advisory business, we have enhanced the solutions we provide to our clients by strengthening connectivity, private capital. Advisory revenue associated with private capital has increased from roughly 25% in 2019 to approximately 40% today, and we are confident we can move toward 50% over time even while also expanding our revenue from large-cap public companies. We see significant opportunity to further enhance our advisory business in North America. Last month, we announced Ray Maguire and Tim Donahue as co-heads of financial advisory in North America, with Mark McMaster leading a newly formed senior banker function dedicated to increasing our large-cap public company coverage, which is a top priority for 2026. We are continuing to raise expectations for our bankers to deepen client relationships and increase our market share. Alongside our focus on North America, we will continue to invest in Europe and The Middle East regions where our brand is strong and where we see significant additional long-term opportunities. In 2025, we opened new offices in Denmark and The United Arab Emirates, and we are actively exploring other countries for further expansion. Looking ahead, we expect M&A to accelerate in 2026, despite ongoing policy and geopolitical uncertainty as companies look to achieve both scale and focus. Unlike past cycles, we anticipate that M&A will increase alongside elevated restructuring and liability management activity, as the result of an ongoing dispersion in corporate performance. We also anticipate an increase in private equity activity as sponsors look to return capital to their LPs along with continued strength in fundraising. Together, these dynamics position financial advisory with multiple levers to expand revenue in 2026. Turning to Asset Management, we have established a cohesive and focused executive leadership team with Chris Hogben joining as CEO in December, and the appointment of Rosalie Berman as COO and Eric Van Naustrand as CIO, as part of Chris's broader management team. Strategic alignment across investment distribution and operational priorities further supports long-term success. Chris's leadership also allows me to refocus my time on CEO engagement, new client development, and firm-wide strategy. As we have discussed throughout the past year, we have been transforming our asset management business by sharpening our focus on areas of the market where we can add the most value to clients. Active management plays a particularly valuable role where information is imperfect and technology can be applied to generate excess returns, including quantitatively driven strategies, emerging markets, and customized solutions. These strategies and solutions are also where client demand is strongest. They account for a disproportionate share of our high level of won but not yet funded mandates, and they are disproportionately where Lazard delivered significant outperformance in 2025. Looking ahead, we expect to deliver positive net flows in 2026. This is supported by a more diversified platform, best-in-class research and investment processes, and an enhanced global distribution strategy. Furthermore, we believe 2026 will be a year in which investors continue to reallocate toward international markets, which is where our presence and performance are particularly strong. We entered 2026 with momentum, and we believe the ongoing transformation of our asset management business positions us to deepen client engagement and capture additional opportunities ahead. Along with the significant transformations of our businesses, we see two additional factors underpinning our growth over time: AI and contextual alpha. We remain committed to being the leader among independent financial firms in the adoption of AI, to unlock the collective intelligence of our firm and enhance outcomes for clients and shareholders. We have the scale to invest and experiment, but at the same time, an entrepreneurial culture and size that allows us to be nimble. We saw AI adoption accelerate in 2025 as we onboarded new tools and delivered customized AI solutions to our teams. At Lazard, we are defined by our ability to deliver independent, differentiated advice and investment solutions grounded in what I have taken to calling contextual alpha. In today's world, just looking at a narrow set of financial information, the alpha part of contextual alpha, to make investment or business decisions is not sufficient. Contextual alpha incorporates the judgment and insight across macroeconomic, geopolitical, regulatory, and other factors that help leaders see beyond what the world sees today. This notion of contextual alpha has always been part of Lazard's DNA. It is more important than ever in a world in which business and government are increasingly interdependent. To help clients navigate complexity, evaluate strategic options, and advance long-term objectives with clarity and confidence. In summary, we continue to execute our long-term strategy, and we have performed even while undertaking a substantial amount of investments in cultural transformation for the future. While we have more work to do, results so far validate our strategy and reinforce our conviction in substantial growth opportunities ahead. Now we'll open the call for questions. Operator: Thank you. We ask that you pick up your handset for best sound quality. We'll take our first question from Brennan Hawken with BMO Capital Markets. Please go ahead. Your line is open. Brennan Hawken: Good morning. Thanks for taking the question. Peter, nice to see hinted at the 12.5 productivity improvement on the last call, but good to see you guys made it official. I'd love to talk about advisory trends. Clearly, things are looking good. You spoke to some I'd love to drill into the non-M&A because M&A can all see excitement. You spoke to a good outlook on restructuring. You maybe speak to the revenue mix as it stands today among the non-M&A businesses? And then what your outlook is for those businesses in the coming year and how we should be thinking about forecasting that? Thanks. Peter Orszag: Sure. So for the year, the revenue mix was just a touch under 60% M&A and the residual non-M&A. So let's just call it sixty-forty roughly, but it's a touch under that on the M&A side and a touch over that on the non-M&A side. We do believe that in addition to raising the share of advisory private capital to 50% over time, the non-M&A component of the business can also rise from that roughly maybe just a little north of 40% to something like 50% over time. And that is backed by continued expansions in our fundraising business in particular, where we had a record year as I mentioned. Disproportionately activity in secondaries as you can imagine in that part of the business, but a lot of activity and additional talent and momentum there. Restructuring liability management also had a very strong year. Obviously, we're on a variety of very high-profile assignments in that part of the business, and we continue to see additional opportunities there. I want to again highlight I know I said it in the script, but that one of the underappreciated phenomena over the past decade or so is that the spread in return on invested capital and performance writ large across companies has gotten increasingly wide. That means that you can have a lot of restructuring and liability management happening towards the bottom of that distribution even while the firms at the top of the distribution look to buy other firms in each sector to expand their own activity. So in other words, the coexistence of M&A and restructuring and liability management with a different pattern than they have been the case historically. So we obviously also have other components. We've got Lazard Capital Solutions. We've got a whole variety of other parts of the business that are in the non-M&A category. But we see significant momentum frankly on both sides. You were skirting past them in M&A because I think as you put it, it's well appreciated. But obviously important momentum there also. So we see an increasingly diversified and also growing advisory business. So diversified public company, private company, North America, rest of the world, M&A, non-M&A. Brennan Hawken: Peter, thank you for that thorough answer. Really appreciate it. And I suppose I should have done this first. Mary Ann, best of luck. Tracy, welcome to the circus here. So we'd love to touch on the CFO transition. Sure. So I know we have a six-month transition period, but the timeline for Tracy's stepping in is rather abrupt. So maybe could you speak a little to what has led up to this, if it was normal? If it's normal course, you know, why not maybe telegraph it a little earlier, you know, to allow for a more extended transition? And it sounds like it's normal course, but, you know, CFO transitions do tend to make investors nervous. So any additional color around this would be helpful. Thank you. Peter Orszag: This is very much normal course. I wouldn't characterize it as abrupt in any way. I think you're focusing on the effective date, but in a situation in which you have an internal candidate or an internal person who knows all the issues and knows Lazard well, it facilitates a more rapid effective date. But more importantly, as you noted, Mary Ann will be serving as a senior advisor to make this transition entirely smooth. So, I don't view it as abrupt and I don't think it is. And again, it's a very natural transition. And I just want to, as I said in the script, extend my appreciation to Mary Ann and also the excitement for Tracy joining us. Don't know if they're both here. Don't know if you all want to say anything. Mary Ann Betsch: I think that's well said. Brennan Hawken: Thank you, both. Okay. Perfect. All right, thanks for taking my questions. Operator: Thank you. Our next question comes from Mike Brown with UBS. Please go ahead. Your line is open. Mike Brown: Great. Good morning, everyone. Thanks for taking my questions. Peter, you talked about the sponsor side of the M&A market here and the need for them to return capital to LPs as a strong driver of deal flow in 2026. And we did see the announcements really spike in April from this cohort, but just wanted to hear a little bit more about what are your observations here in terms of broadening out of activity? And, you know, when do you think this can really ramp more meaningfully? And then as we look at the spike of continuation vehicle activity, is there any risk that some of these M&A exits may be some of the high market expectations from either a volume or timing standpoint? Peter Orszag: So, let me try to take both questions. I'd say with regard to PE activity, we've all been waiting for a heightened level of that activity. I do think based on discussions with the tops of the house at a lot of private equity shops also, alternative asset managers and more pure play, that 2026 is likely to be the year in which this occurs. I know this has been a little bit of waiting for Godot. And the reason for that is the one I mentioned, which is LPs that are getting increasingly desirous of some cash return even outside of the continuation and secondary type approach. Along with the, I'd say, narrowing of the kind of bid-ask spread on expectations around valuations. There still is some gap there that might get to the second part of your question. But again, this is not just what our bankers are saying, but also what the heads of the large alternative asset managers are saying in terms of what is anticipated for activity in 2026. Look, with regard to continuation funds and also secondaries writ large, I think there has been this question about whether the pickup in activity will continue even as more traditional M&A exits occur. And our belief is the answer is yes. And the reason is that the secondary vehicles are still a relatively small share of penetration rate is still relatively low, it's growing. And we think this is going to just be a new permanent feature of the private equity landscape. The diminution of M&A activity as an exit may have helped to jumpstart additional secondaries business. But we think that that's a jump start, not an aberrational increase that will go away. It's going to be a new permanent part of the landscape. And this is one of the reasons why we're really excited about the growth that we're experiencing in our PCA business and our investments for the future in this business. Expect a lot more from us in this area in the years ahead. Mike Brown: Okay, great. Thanks for that, Peter. And just a quick follow-up here on the asset management side of the business. So certainly, positive movement in the fee rate here in the fourth quarter. Is the exit rate from the quarter relatively in line with where it was for the full quarter? Peter Orszag: As you think about that $13 billion of won and not yet funded, that's a great number. What is the asset mix in that $13 billion? And how should we think about the fee rates versus your blended fee rate? Thank you. Chris Hogben: Sure. I'll let Chris take that. Yes. Thanks, Mike. This is Chris. So the exit rate was modestly higher than the quarter run rate. The large sub-advised relationship that closed that we reported in the November AUM release obviously happened in November. So that wasn't and that was a lower fee, significantly lower than our average fee rate. So it didn't hit the full quarter. So the exit rate would be modestly higher than the quarter average. As I look at the book of business in that encouraging $13 billion of won but not yet funded, there's clearly a mix in there. It's predominantly emerging market equities, listed infrastructure that tend to be quite healthy fees. There's also some more of our systematic services that tend to be slightly lower fees. So as I look at that mix, I think it's broadly in line with the fee rate that we experienced in the fourth quarter. But the timing of when those hit and the mechanics will there's a little bit of uncertainty around. Mike Brown: Okay, sure. Thank you for all that color, Chris. Operator: Thank you. We will move next with Brendan O'Brien with Wolfe Research. Please go ahead. Your line is open. Brendan O'Brien: Good morning and thanks for taking my questions. I guess to start, while there's clearly a lot of optimism on the M&A outlook, we've seen a notable uptick in geopolitical tensions and political uncertainty within the U.S., a lot of which is likely to only intensify into the US midterms. Just want to get a sense of whether you've seen any impact on dialogue from this increased rhetoric and contention and if you anticipate the U.S. midterms will have any negative impact on activity? Peter Orszag: So the short answer is no impact on the corporate discussions that we've been having. But I think the fact of the matter is I'm going to come back to this concept of contextual alpha. Boards and C-suites recognize that they need to take into account a broader array of variables today. And this is one of the things that's fueling Lazard's rise. We've always been good at this, but we've now professionalized it more. It's deeply integrated into our banking teams and our investment processes. And it's a competitive advantage for us. So anyway, that's the direct answer on that. On the midterms, I do not anticipate any material change in the environment from the midterms. I think people mostly misinterpret what the impact would be if there were a shift in, the more likely outcome is that the house shifts. The back half of an administration typically does not involve any big legislation. So I don't think even if the House and Senate were to remain under their current configurations that you should anticipate any large pieces of legislation. What may happen if the House does flip is that there will be a lot of hearings, there will be a lot of subpoenas, a lot of tension between the legislative branch and the executive branch over executive privilege. And so on. That will all be, you know, a lot of noise, but I don't think has any direct corporate impact. The thing that could have some corporate impact is some of those hearings and subpoenas may then extend out to increase into what companies have been doing, how they've been interacting with various different players. We're now getting into a very speculative zip code. Final thing I'd say is I do think a lot of companies are realizing that the regulatory environment under the current administration is more accommodating to deals. It is also more political, but it is more accommodating. And so I think the more important thing than the midterms is this sense that with regard to the next presidential election that may or may not shift. And so there's an incentive to try to get deals in and done now. While the regulators are willing to consider things that, for example, under the prior administration, I don't think would have even been a debate. Brendan O'Brien: That's helpful color. I guess for my follow-up, I just wanted to touch on the comp ratio. I understand that it will be an of a revenue environment, but just given the robust hiring you've done in 2025, and plan to do in 2026, just wanna get a sense as to how we should be thinking about incremental comp leverage from here if we begin to see better revenue growth and how we should be thinking about that path back down to that 60% level? Peter Orszag: Yes. We do anticipate additional operating leverage in 2026 despite the robust hiring. Obviously, as you noted, it's dependent on revenue growth. I'd say it's also very, I mean, it's also on the advisory side very sensitive to those ongoing increases in productivity, which is why we're very focused on that variable. Because that gives you operating leverage against the non-managing director compensation ratio. In addition, one of Tracy's top priorities is going to be to look for additional operating efficiencies in our corporate functions and across the board. And so there are other levers that we're able to deploy. Continue to reduce the comp ratio over time. Brendan O'Brien: Great. Thank you for taking my questions. Operator: Thank you. We will move next with Daniel Coquiara with Bank of America. Please go ahead. Your line is open. Daniel Coquiara: Hello, good morning, and thank you for taking my question. I know it's early, but we've gotten some questions around a slower than start to the year for M&A. And just given Lazard's global footprint, I was hoping you guys can help unpack some of the trends that you're seeing across geographies in the business and how your expectations for domestic M&A compares to deal activity outside of the U.S. in 2026? Thank you. Peter Orszag: Look. It is super early, so I, you know, I would I would treat what I'm about to say with low conviction. At least, you know, with regard to our business, we're seeing a nice build in January. So that may be idiosyncratic to us. We'll have to see how it plays out. Very early days. With regard to the geographic mix, I would say U.S. CEOs seem a bit more confident than non-U.S. CEOs right now. But we're seeing significant interest in transactions both in North America and Europe and frankly across the globe. The thing that you need to remember about most European companies is their, at least the ones that we're interacting with, tend to be global in their business operations. So while they may be headquartered in Paris or in London or in Frankfurt or wherever, their operations are global. And so they are affected by what's happening across the globe and not just in their own countries. Final thing I'd say is this fracturing of the global economy into a pole around China and a pole around the U.S. with some about where the rest of the world kind of goes. That is leading to a lot of discussions with clients about how that affects their own operations. The move towards industrial independence is affecting supply chains and also both selling businesses and buying other businesses. So what I would say is to the extent that Prime Minister Carney is correct that we are in a period of what he referred to as rupture in the global economy. That is a time when our clients ask for a lot of assistance and look to a place like Lazard for help in reading between the lines of what's happening. So I you know we're engaged in a lot of client dialogue right now. I just want to go back to the first part and that kind of low conviction because it's very early days and uncertainty bands around how the year plays out at this time of the year is always very wide. Daniel Coquiara: Thank you. That's very helpful. And as a follow-up, this one may be more for Chris. You've come in and made some personnel changes. I was wondering if maybe you could spend some time on just discussing what areas you think you see need to see some significant change in maybe some areas where you actually see some healthy momentum. Thank you. Chris Hogben: Yes. Thanks, Daniel. So look, I think we've already laid out, you know, it's our 2030 strategy, the direction and goals for the asset management business. So I think my focus really has to be around execution. That execution really comes down to sort of three areas. The first of which is around delivering for our clients through strong investment performance. I'm encouraged that through last year, our investment performance actually improved sequentially through the year if you look at the percentage of AUM that's outperforming. But by appointing Eric Van Naustrand as CIO, it puts somebody a lot of bandwidth there to work with the investors to help them deliver good performance, evolve their processes, and ensure that we're really bringing the breadth of Lazard's asset management platform to bear. Because, you know, fixed income investors should be able to help an equity investor, and having Eric as CIO really helps us bring out that breadth of insights across the platform. So we need first priority is delivering investment performance for clients. The second is really around growing. The most important thing we can do there is to scale our existing products. So we'll be focusing a lot on that. But then there's secondly a lot of white space around us, whether that's in traditional markets, private, or our wealth channel, that over time, we'll explore and evaluate the best way to execute on those growth options. Then the third is just ensuring that we drive efficiency in the business so that the growth that comes through is profit for growth. And that's why we appointed Rosalie Berman as our COO. To really focus on a lot of the efficiency and cost control, but secondly to really ensure that we're integrating AI as wholesomely as we can across our business. Investments and client experience, and in our operations. So it really is, Daniel, a focus on execution, to deliver those Lazard 2030 goals. Daniel Coquiara: Thank you. That's very helpful. And Mary Ann, wishing you all the best in your future. And, Tracy, look forward to working with you. Thank you all. Peter Orszag: Thanks. Thank you. Operator: Thank you. Our next question comes from James Yaro with Goldman Sachs. Please go ahead. Your line is open. James Yaro: Good morning. Thanks for taking the question. I want to dig in a bit further on Asset Management. I think it'd be helpful if maybe you could identify for us some of the moving parts. So we can gain a little more comfort on the guidance for positive net flows in 2026. Specifically, is there any way that you could give us a little more granularity on the verticals by asset class, geography, however you wish to define it within asset management that are growing? Versus those that are shrinking, and specifically which you view as most material going forward for growth. And where the outflows may be slowing. Chris Hogben: Sure. So thanks, James. Look, if you think about net flows, it's the difference between two big numbers. So if you look at last year, we had record growth inflows. We also had an elevated level of outflows because of the closure of that large sub-advised mandate that we previously disclosed. As I look forward into 2026, we're budgeting for strong gross inflows again. Our goal, internal goal, is above the goal that we set for last year. And we don't expect there's not another large sub-advisory client that could close. We wouldn't expect that large level of outflow to repeat, we'd expect a more normalized level of outflows. And then the net of that should give us confidence around the positive net flows for this year. Secondly, we start the year with a healthy level of won, but not yet funded business at $13 billion. Within the areas where we're seeing a lot of client interest, it's areas like our emerging markets platform, our systematic platform, our listed infrastructure and real asset platforms, as well as some of our alternatives businesses. So and that's where, as I look at the sales goals, that we would expect to see more growth through the year. As Peter said in his remarks, what we are hearing, I hear this as I meet with asset owners around the world, we are starting to see asset owners looking to diversify the margin away from the U.S. into international markets, and we feel well-positioned given the services that we have and the investment performance we're delivering in those services. It's benefit from that diversification as it comes through. Peter Orszag: James, just really quickly, the reason that about this time last year we were flagging this sub-advised account was because that was something that we knew had performance issues and challenges. And was at some risk. Now, there may be normal puts and takes and you have to see there is no flashing red concentration like that. The business is much more diversified as a result. And so just to underscore what Chris was saying, we not only see significant investor interest in the quantitative, in the emerging market, and in customized solution type products and strategies that we offer, but we also don't have, you know, a concentrated risk. There may be outflows that occur, but it's not as we're not highlighting something for you like we did last year. James Yaro: Excellent. Super helpful. There. Maybe just one other one for you, Peter. Can just help us think through the secondaries outlook from here? You expect the strong CAGR in the business we've seen over the past three years to slow at all in 2026? Peter Orszag: The short answer is I think I may have mentioned before is we don't anticipate any slowing. And the reason is I understand the rationale behind asking the question, which is as M&A picks up, does the secondary's business slow? The reason we don't think that a material part of the outlook, while it may be true in some isolated situations, is because the penetration rate of secondaries in this space remains relatively modest, well under 50%. And, you know, probably closer to we can get you the exact number, maybe a third or so. So there's lots of room for that to continue to expand as part of the landscape of private equity. And we think it's just becoming a more normal part of the marketplace, and so it's here to stay. James Yaro: Very helpful color. Thank you so much. Operator: Thank you. We will move next with Ryan Kenny with Morgan Stanley. Please go ahead. Your line is open. Ryan Kenny: Hi, good morning, Chris and Tracy. Welcome to the call. And best of luck to all. I have another one on the asset management side. So we think about the growth drivers that Chris, you just walked through, how do you think about inorganic opportunities to get there, and what would be the framework on any inorganic opportunities that come your way? Chris Hogben: I think firstly, we will always look at inorganic opportunities. But you would want to look at them quite carefully to see, you know, do they is it additive to what we have? Is there an attractive return stream? Is that a result or robust process that we can believe in? Is it a cultural fit? Can we get the economics to work? And that narrows the funnel down pretty quickly. So while there are a lot of opportunities out there, you could expect that we're going to be super selective. As Eric gets settled into his seat, you know, bear in mind, this is my second month too. You know, we will start to, you know, really kind of put together a framework of the highest priority areas, you know, for us to look into. I'm very happy to come back later in the year to sort of share more thoughts on that. But look, inorganic is something that we'll look at, but we'll be highly selective looking at any opportunity. But we do see broadly the three drug drivers around us in public markets, private, and then our wealth channel. Ryan Kenny: Got it. And then separately, a question on restructuring. What's the view on where we are in the restructuring cycle? We've heard from some peers that maybe we're in an ebb period. Do you think restructuring has peaked, or is there more growth ahead? Peter Orszag: Well, as I again said earlier, I think we're in a different environment now than we were than have been the case in past cycles because there has been a very important and I think little noticed change in the landscape of companies. Companies have increasingly grown disparate in terms of their performance. So if you look at any metric you want, return on invested capital, whatever terms of corporate performance, the ninetieth percentile is pulling away from the fiftieth percentile in each sector, and the tenth percentile is falling relative to the fiftieth percentile. This is different than it was ten or twenty or thirty years ago. And it means that there's a very important shift in the correlation between M&A cycles and restructuring and liability management cycles. This is beyond the shift within restructuring and liability management. Towards the latter part, towards the latter term and away from the former term. Because those companies at the tenth or twentieth percentile that are falling increased behind the frontier firms in each sector. Needs liability management and restructuring assistance. So, we are seeing continued activity. I mean that continues in our own business. But I think other point is I think the marketplace is different. Because of this increased spread across companies. And so I'd also note by the way that that increased spread also creates a very strong incentive for mergers and acquisitions. Because the firms that are at the frontier have a big incentive to try to take over the ones that are at the, you know, the median. And then improve performance. And in fact, if you look at research from Nick Bloom at Stanford, you get massive efficiency benefits from mergers and acquisitions because of exactly what I just said. Spread between the top firm and the, which gets accentuated as the, and the, you know, the firm in the middle goes up. Ryan Kenny: Great, thank you. Operator: Thank you. We will move next with Devin Ryan with Citizens Bank. Please go ahead. Your line is open. Devin Ryan: Thanks. Good morning, Peter, Mary Ann, and welcome Chris and Tracy. Question on kind of the productivity discussion and appreciate all the additional detail here and kind of the updated framing. I also appreciate it's an output with a lot of moving parts into it. You have a big recruiting year. It might dip down the productivity of the existing group is improving. So to that point, can you just talk a little bit about when you're underwriting somebody that you're bringing in externally, you know, what should that person be doing once they're ramped relative to the blended average? Meaning, can they increase that because of bringing on kind of a pound per pound higher productivity? And then I know you're operating an integrated strategy, but just talk a little bit about their productivity potential between businesses, whether it's private cap or restructuring? Just trying to understand if there's any mix shifts here could that also change the trajectory one way or another? Thanks. Peter Orszag: Sure. So on the first one, look, we've we we actually, as we, have brought on a large number of new managing directors, we also believe that we have really upped our game on the diligence that we apply and therefore the quality of the people that we're bringing in. And the result is that the so-called ramp may be a bit faster than in the past. We have had actually had an example from it was last week where one of the new managing directors that we brought on in the last of months already has two new mandates, which is don't know if it's a record, but it's a very rapid ramp. But these things do vary and in general and on average, obviously, you become more productive after you settle in and get used to the platform and are able to it takes time for clients to switch over and so on and so forth. So, there's on average there still definitely is a ramp. With regard to and by the way, that's why let me just highlight that. That's why as we move from 40% of our managing directors being within the first three years of being on the platform down to a more normalized level of thirty. There's an additional kind of coiled spring effect that will play through on our productivity. I had been anticipating that that would happen partially in 2025. It did not because we had so many opportunities to grab exceptional talent. So ahead of schedule productivity we accomplished in 2025 was despite not benefiting from that kind of ramp down in the in the share that bankers that are, you know, quote on the ramp. That is still yet to come, which is great. And then with regard to the different parts of the business, there's not I wouldn't say there's any material difference between the non-M&A and M&A parts. One thing that is noteworthy is that on average, this is not individual by individual, but on average productivity tends to be a bit lower outside of the U.S. than in the U.S. I tend to remind our bankers that's not because the U.S. bankers are more talented, more charming, whatever, it's because the fee levels tend to be higher for the same deal size. In the United States, and the result of that is somewhat higher productivity on average and over time in North America relative to other geographies. But no massive difference between non-M&A and M&A bankers. And we often do have very, very, very look at the very top of our productivity, the top 10%, 20%, 30% that is also tends to be a mix of M&A and non-M&A bankers. So it's not just the average, but also the top performers tend to come from both sides. Devin Ryan: That's great. Thanks, Peter. Really appreciate the detail there. And then as a follow-up, love to ask about AI and the investments you're making. You've been talking about this for a couple of years, it's not new thematically. But I recall you mentioned some of the investments. I still think it's a bit abstract from the outside as people think about applications to your business. And so the question is, do you think what you're doing will be table stakes in the market? Or do you think you're leading, meaning this could actually drive an increase impact with clients or increase market share for the firm over the next few years? And anything else you can just share about kind of tangible areas of success or opportunity where you feel like you can really differentiate? Thanks. Peter Orszag: Sure. Let me tackle it in a couple of different ways. I believe that we're at the forefront. I don't think that that's believe that we're at the forefront, but I also believe that other firms will follow. And so this is an advantage, but it's not one that, you know, others won't replicate and try to follow. So I think the goal here is to always remain one step ahead. I would note, for example, I think we are the only firm on Wall Street that has a has on our board someone who is native to AI in the form of Dmitry Shevilenko, the deputy of Complexity. That's one small marker of what we're doing relative to the peer set. With regard to what it can do, I'll give you a few examples. So in my own experience, let's just talk about my day to day. What are some of the applications? First, I'll reveal that the terminology contextual alpha, I think describes Lazard, what Lazard brings to clients in a very apt way. Actually comes from an LLM about three or four or five months ago. I was inquiring how to describe what Lazard does and it and not a human being suggested the terminology contextual alpha. There's one small example. My daily briefing is now increasingly done in the first instance with artificial intelligence and then supplemented by humans that look over it. Opposed to being entirely human drawn. Or human done. I was at two different C-suite board level discussions the day before yesterday. In both cases, the deck that we presented I loaded into an LLM and I was clearing it in terms of how will the board respond to this. What's new here that the CEO hasn't spoken about publicly? Etcetera. It makes it a much more interactive form of preparation for the meetings as another example. And so on and so on. Could I could keep going but the fact of the matter is it is infused in my own daily experience as the CEO of this firm. And I think that's increasingly what's happening across the board with our ability to gain insights from our CRM, our ability to take out some of the mechanical rote parts of the job and then lift people up so that they can do higher value-added work. And so on and so forth. And so I think the question then becomes so what? How is this going to improve our ability to serve our clients? And I think the answer is going to be that at its heart we would love to be able to focus on those parts of the job that we think add the most value. That is the curiosity that leads you to ask good questions because as Dmitry Shevilenko puts it, answers will become commoditized. The ability to ask insightful questions will not. So encouraging that curiosity, which we think has always been part of Lazard, will allow us to continue to serve our clients in an effective way. Putting increased focus on personal relationships and connectivity with clients. So increased convening, increased time directly in person because trust and judgment are going to be difficult for the LLMs to replace because they lack context. They lack the subtle in-person signals that you can get. So we're encouraging our bankers to even more so than in the past. Go out and spend time in person with clients. And so on. So we're really excited about this technology in the form of its ability for us to deliver high-quality advice, trusted advice, and judgment to our clients. And we also think it will be an important part of Tracy's efforts to drive more efficiencies throughout her back office and frankly even some of the ways in which we support our clients. Devin Ryan: Excellent. Thank you so much. Operator: Thank you. We will take our last question from Alexander Bond with KBW. Please go ahead. Your line is open. Alexander Bond: Good morning, everyone. Thanks for fitting me in here. I actually have a question on AI and how it specifically relates to comp leverage. I realize it's still early days here, but can you share how you're thinking about AI-related comp leverage, maybe the timing around when we could see this show up in the comp ratio, and then also maybe the potential magnitude of that impact. Peter Orszag: Yeah. Look, I think there are a couple of different ways of thinking about that question. One is to the extent that the tools and using them in the ways that I just mentioned, you know, additional insight with regard to clients, additional, you know, coming into a meeting even better prepared than may have been the case in the past. That raises productivity per MD, which we believe it will. That's one way of getting operating leverage because the higher the productivity per MD, the lower the non-MD comp ratio tends to be. Secondly, though, over time, we do think that this technology is likely to lead us to be able to have a smaller team associated with each managing director. Each managing director, again, we're going to be expanding our total managing director size over time as previously articulated. So what happens to the number might be unclear, but with each managing director on each client, we think the teams could be smaller. That provides a lot of upward mobility to our analysts, associates, VPs, directors in terms of taking on additional responsibilities. And we think that's a feature, not a bug. Because it allows us to cultivate the skill set, trust, judgment, curiosity that leads to effective managing directors over time. And so the hope is, and we're spending a lot of time designing our HR and other systems to be able to encourage this, that as the opportunity to, I call it practice at the top of your licenses, a smaller team allows more upward trajectory in the responsibilities. We're going to be even better at cultivating and picking out those people that we think are really promising future managing directors. Alexander Bond: Got it. No, that's helpful color. And then just for a quick follow-up, and apologies if I missed this in the script, but did you provide any non-comp expense guide for 2026? And if not, maybe if you could help us size up what the right growth rate is there for the full year ahead? Thanks. Mary Ann Betsch: Yes, take that one, Alex. So the way I think about it is that you should expect us to make continued investments and growth on both sides of the business. Whether that's client development, staying on the cutting edge of technology, etcetera. So I would probably be expecting kind of mid to high single-digit increase in dollars depending on how FX rates evolve throughout the year. And importantly, that we're aiming to get back into our target range in 2026 as the revenues grow in both businesses. Alexander Bond: Okay, great. Thank you. Operator: This concludes Lazard's fourth quarter and full year 2025 earnings conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Nasdaq Fourth Quarter 2025 Results Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you would 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. In the interest of time, please limit yourselves to one question. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Ato Garrett, Senior Vice President and Investor Relations Officer. Please go ahead. Ato Garrett: Good morning, everyone, and thank you for joining us today to discuss Nasdaq's Fourth Quarter and Full Year 2025 Financial Results. On the line are Adena Friedman, our Chair and Chief Executive Officer, Sarah Youngwood, our Chief Financial Officer, and other members of the management team. After prepared remarks, we'll open the line for Q&A. The press release and earnings presentation accompanying this call can be found on our Investor Relations website. I would like to remind you that we'll be making forward-looking statements on this call that involve risks. A summary of these risks is contained in our press release and a more complete description of our annual report on Form 10-K. We will discuss our financial performance on a non-GAAP basis excluding the impact of divestitures and the impact of changes of FX. Full year comparisons also exclude a previously announced one-time revenue benefit in index during 2024. Definitions and reconciliations of US GAAP to non-GAAP plus adjustments can be found in our earnings presentation, as well as in a file located in the financial section of our Investor Relations website at ir.nasdaq.com. And with that, I will now turn the call over to Adena. Adena Friedman: Thank you, Ato, and good morning, everyone. Today, I will start with an overview of our fourth quarter and full year 2025 financial and operational performance. I will then discuss our strategic priorities and outlook for 2026 before handing the call to Sarah to walk through the financial results in more detail. 2025 was an excellent year for Nasdaq as we delivered strong organic growth and accelerated innovation across our business. Our team executed exceptionally well, demonstrating the resilience of our platform in a complex operating environment defined by volatile trading dynamics, sustained geopolitical tension, and an ever-changing regulatory landscape. It was also a year of significant milestones for the company. For the first time in our history, we surpassed $5 billion in annual net revenue and $4 billion in solutions revenue. Our index franchise reached new heights, delivering record average AUM, a second consecutive year of record inflows, and the highest number of new index products introduced in our history. Market services delivered record revenues for US equities and US options. We delivered industry-leading new listings performance and a record $1.2 trillion in listing transfers, the strongest year ever for our switch program. In financial technology, we strongly delivered against our cross-sell commitments, deepening our clients' relationships. And we are now proud to call every GSIB a Nasdaq client. Our financial crime management technology business pioneered innovative approaches to fight crime and introduced our new Agentic AI workforce, a suite of Agentic workers that automate key client workflows. We also formed a new partnership with Biocatch to bring additional intelligence and effectiveness to our solutions. These accomplishments reflect not only the breadth of our platform but the momentum behind it as we enter 2026 with more opportunity than ever. For the full year, we delivered net revenues of $5.2 billion, an increase of 12%. Our solutions revenue grew 11% to $4 billion at the top end of the range of our medium-term outlook. ARR ended the year at $3.1 billion, an increase of 10% year over year. Our operating income was $2.9 billion, up 16%, and we delivered 24% diluted EPS growth. Our fourth quarter net revenue was $1.4 billion, up 13% year over year, with solutions revenue of $1.1 billion, up 12% year over year. Expenses in the fourth quarter were $609 million, up 8% year over year. Operating income was $783 million in the quarter, up 16%, and we delivered 27% diluted EPS growth. Our performance was anchored in the strategic pillars of integrate, innovate, and accelerate, which enabled our teams to execute with clarity and focus. Within our integrate priority, we overachieved our expanded efficiency program net expense target with over $160 million in cost reduction actions as of year-end. We ended the year with gross leverage of 2.9 times, outperforming our previous expectation of reaching three times leverage by the end of the year. In recognition of our strengthening balance sheet, both Moody's and S&P upgraded Nasdaq senior unsecured debt ratings in 2025 to Baa1 and BBB+ respectively. Within our innovate priority, we executed across several key initiatives. We embedded AI across our business and have begun rolling out new AI-enabled products with strong client reception. For example, we've seen enthusiastic engagement from Nasdaq Verafin clients for our Agentic AI workforce that we launched at the '3. The first Agentic worker we introduced, our Agentic sanctions analyst, has strong early use among our clients. Continuing the momentum this month, we launched our second worker, the Agentic enhanced due diligence analyst. We look forward to expanding this offering with additional Agentic workers planned for 2026. In market services earlier in 2025, we announced plans to bring 23 by five trading to the Nasdaq stock market. And we will be ready to launch this capability in the '6 subject to regulatory approval. Further, we're driving industry efforts to realize the potential of digital assets across multiple initiatives, including our proposed approach to trade tokenized securities, which prioritizes issuer choice, investor protection, and capital efficiency. Lastly, within our accelerate priority, our one Nasdaq strategy continued to deliver strong results, driving 25 cross-sell wins across financial technology in the year for a total of 42 cross-sells since the Denza acquisition closed. At the end of the fourth quarter, cross-sells accounted for over 15% of Financial Technologies sales pipeline, and we remain on track to surpass $100 million in run rate revenue from cross-sells by 2027. This program culminated in net revenue growth of 12% and solutions growth of 11% at the top of the range of our medium-term outlook. Turning to our strategic and operational highlights for 2025. I'll begin with Capital Access Platforms, where we delivered 10% revenue growth for the year, driven by record index inflows, new IPOs, and strong bookings growth, particularly in data and analytics. Our listings business had the strongest IPO year since 2021. We secured three of the five top IPOs of 2025, including Medline, the largest IPO of the year. It was our seventh straight year as the leading US exchange by proceeds raised, with eligible operating companies raising over $24 billion, including over $10 billion in the fourth quarter alone. In our Nordic markets, we also welcomed the largest IPO in Europe, Verisure. In Europe, we continue to benefit from increased international focus on the Nordics where the equity markets have consistently outperformed the rest of the region. The strength of these markets attracted five new ETP issuers who listed 84 new exchange-traded products across the Nordics in 2025. We also made strong progress on our switch program in 2025, reinforced by Walmart's historic transfer to Nasdaq, the largest exchange switch ever completed. This milestone capped a record year for transfers, including Shopify, Kimberly Clark, and Thomson Reuters. In total, operating company switches in 2025 represented more than $1.2 trillion of market cap, bringing the ten-year total to $3.1 trillion. This quarter, we're introducing an updated listings win rate methodology that better reflects the pathways through which operating companies can list on Nasdaq, including a traditional IPO, a direct listing, and a SPAC combination. Under this new methodology, our win rate was 72% for the full year 2025. This metric also accounts for our newly approved listing qualifications that raise our minimum standards. We've included details on page 21 of our earnings presentation. Looking ahead to 2026, we see signs of accelerating capital markets activity further supported by recent Fed cuts and a very healthy pipeline of late-stage private companies. Based on the current market dynamics, we look forward to an active new issuance year. Our data business delivered robust growth in 2025, as clients across the ecosystem utilized our data more than ever to navigate the financial markets. Our growth was driven by new enterprise license agreements, which increased 24% year over year, and our international expansion efforts, including signing an agreement with one of the largest banks in Saudi Arabia. Our growth was also driven by higher use of our data products across our client base. Our index franchise remains an exceptional growth engine delivering tremendous performance and innovation. We achieved a record $99 billion in net inflows over the last twelve months, including a record $35 billion in the fourth quarter, and exited the year with ETP AUM of $882 billion, an all-time high. In Index, we delivered on our new product strategy, launching 122 new products in 2025, including 60 international products and 32 in the institutional insurance annuity space. Within workflow and insights, our analytics and corporate solutions businesses continue to advance through product innovation and strategic partnerships. In analytics, the investment business delivered robust performance, supported by our strong network effects with platform usage up 10% year over year, driven by increased use of research workflows. We continue to build powerful partnerships, including with Juniper Square and LSEG, reinforcing our strategy to embed Nasdaq's investment data in investment workflows across both public and private markets. In Corporate Solutions, investments in AI-powered features and tools as well as deep client engagement supported new sales efforts in our governance and Nasdaq Lens solutions. These tools also support a retention improvement across the portfolio. Turning next to our financial technology division. In 2025, FinTech delivered strong financial results with 11% revenue growth. Financial Crime Management Technology grew 22% over the year, including 24% growth in the fourth quarter. Regulatory Technology delivered 10% growth for the year, including 12% growth in the fourth quarter. And Capital Markets Technology grew 9% over the year and in the fourth quarter. With more than 3,800 clients, now including all of the GSIBs, the division has established itself as a leading modern technology partner helping institutions address complex risks, critical regulatory reporting, and the modernization of trading infrastructure. In financial crime management technology, we continued strong sales execution during the year, adding 255 new SMB clients and six new enterprise clients, a combined 23% total client growth over the prior year. In enterprise, five of the six new client signings were cross-sells, and we completed three expansion deals with existing enterprise clients for a total of nine enterprise deals. This underscores our ability to deepen client relationships through our one Nasdaq approach. In regulatory technology, our Acxiom SL team broadened our product portfolio to meet evolving regulatory demands, supporting geographic expansion into Saudi Arabia, India, and France. Additionally, we deepened our partnership with Revolut after they consolidated their UK and European regulatory reporting onto our cloud-managed platform this quarter. We also signed a significant cross-sell to a global tier-one bank, an enterprise cloud deployment demonstrating the scale of our solutions and the trust we've established across our platform. In our surveillance business, we drove strong client growth, including an agreement with CFTC, which selected Nasdaq to replace its legacy surveillance system. Overall, in 2025, our surveillance team signed 26 new clients across securities exchanges, crypto trading venues, market participants, and regulators to strengthen their protections across rapidly evolving markets. In capital markets tech, we delivered a strong year driven by durable demand for market modernization solutions. We continue to strengthen our relationships with central banks, ending the year with 24 total central bank clients, including three new central bank clients signed this quarter. Calypso experienced increased adoption from global banks and managers transitioning from legacy on-prem environments to cloud-hosted trading risk and treasury solutions. We're seeing early momentum in Calypso's fully managed service offering on AWS, which drove additional upsells and a major cross-sell into a leading market infrastructure operator during the quarter. In Market Technology, our managed service offering demonstrated strong momentum with growth across multiple solutions. And in the fourth quarter, we signed a major financial market infrastructure client for a multi-product cloud-based deployment based on the Eclipse platform, highlighting our ability to provide integrated end-to-end solutions. Turning to market services. We achieved record annual net revenue of $1.2 billion, up 17% year over year, fueled by elevated volumes in US equities and US equity options as well as robust performance in European cash equities and equity derivatives. Our teams continue to execute well, capturing opportunities in value-added products, and extending our competitive positioning in both US and European markets. Specifically, in the fourth quarter, our index options revenue more than doubled year over year for the second consecutive quarter. We grew market share in European equities, and we delivered strong US Paid Plan revenue. Nasdaq's closing cross also set a new notional value record during the triple witch event in December with $233 billion traded. Success in 2025 reflects our ability to execute with discipline, innovate with purpose, and meet our clients' evolving needs. I've used the start of this year to meet with clients across the globe, including on the ground at Davos, listening closely to their priorities and pressure points. Those conversations have reinforced our view of the industry's priorities to manage risk, advance market structure, and innovate with AI, strengthening our conviction and the durability of our diversified business offerings. Looking ahead to 2026, Nasdaq is well-positioned to build on our strong foundation and deliver durable growth. Our platform is built on three core strengths. First, an embedded client community that connects us to real-world needs and builds trust that accelerates adoption. Second, gold source data that delivers unique client value powering intelligence, and advanced workflows. And third, engineering excellence that delivers speed, resilience, and interoperability at scale, enabling innovation, global deployment. Along with our deep industry expertise, these foundational layers work together to create a differentiated platform that delivers outcomes that matter to our clients. Our platform strongly positions us to take advantage of key growth areas in the age of AI. Sustained investment from leading technology firms and AI firms is continuing to reshape the economic landscape, making digital infrastructure and data-driven innovation the key drivers of business investment and real growth. By architecting the world's most modern markets, by powering the innovation economy, and by building trust in the financial system, we're not just responding to the change, we're shaping it. We look forward to updating you on our progress on these priorities at Investor Day next month. And with that, I'll turn the call over to Sarah. Sarah Youngwood: Thank you, Adena, and good morning, everyone. We closed 2025 with strong momentum following an excellent year for Nasdaq. We delivered over $5 billion in annual revenue for the first time, projecting strength across the business, and performance that met or exceeded our outlook expectations in every division. We had 10% ARR growth in the year, Solutions now represent 76% of total net revenue at over $4 billion, underscoring the deliberate shift of our business mix. We coupled that growth with disciplined execution, expanding operating and EBITDA margins by two points, reducing gross leverage to 2.9 times, and delivering free cash flow conversion of 109%, while continuing to invest to support long-term growth. Let's start with annual results on Slide 11. Net revenue of $5.2 billion was up 12%, with Solutions revenue of $4 billion up 11%. Operating expense was $2.3 billion, up 7%, in part driven by our strong top-line growth, yielding a 56% operating margin and 58% EBITDA margin. Full-year net income was $2 billion with diluted EPS of $3.48, up 24%. Turning to quarterly results on Slide 12. We reported net revenue of $1.4 billion, up 13%, with solutions revenue up 12%. Operating expense was $609 million, up 8%, leading to an operating margin of 56% and EBITDA margin of 59%, both up two points compared to the prior year quarter. Net income was $554 million with diluted EPS of $0.96, up 27%. Slide 13 shows the drivers of our 12% net revenue growth for the year and 13% net revenue growth for the quarter. We generated over eight percentage points of alpha for the quarter and for the year, a 170 basis point improvement in our five growth versus 2024. The drivers were consistent for both alpha and beta. Alpha was driven by new and existing clients, low churn, and product innovation, beta was driven by elevated volumes in market services, and higher valuations in Nasdaq indices. As shown on slide 14, we achieved 10% ARR growth for the year. This represents a two percentage point improvement versus the prior year period and includes 12% in FinTech. Total SaaS revenue grew 13% in the quarter, including 19% SaaS growth in FinTech. SaaS continued to represent a consistent share of ARR at 38%, in line with the prior year quarter. Let's review division results starting on Slide 15. In Capital Asset Platforms, we delivered quarterly revenue of $572 million, up 12%, with annual revenue of $2.1 billion, up 10%, both were driven by 9% of our ARR growth ended the year up 7%. Data and Listings revenue was up 7% in the quarter with ARR up 8%. Data revenue growth was driven by upsells, usage, and new sales. Listings benefited from the improving IPO environment. Growth from new listings and pricing was partially offset by the revenue headwind from prior year delisting and lower amortization of prior year period initial listing fees, both of which were in line with our previous expectations. Looking ahead to 2026, expect an approximately $9 million year-over-year headwind in each quarter from delistings in the previous year, the impact from new proposed changes to listing standards, and the amortization wall off of prior period initial listing fees. Index revenue was up 23% in the quarter. We had net inflows of $99 billion over the last twelve months, a second consecutive quarterly record, including a record $35 billion in the fourth quarter. Beta drivers were fit, with approximately 70% coming from ETP AUM appreciation for market performance, and the remaining portion coming from strong year-over-year growth in derivatives contract volumes. Overall, Index delivered a 36% increase in average ETP AUM, which reached a record $860 billion in the fourth quarter. As a reminder, at the start of 2026, our contracted rate associated with trading of derivatives contracts resets. Holding volumes and capture constant, we expect a sequential revenue impact in 1Q 2026 similar to what we saw in 1Q 2025. The rate will increase once we cross a specific revenue threshold, which will likely occur sometime early in the second quarter. In workflow and insights, revenue was up 4% in the quarter, with ARR growth also at 4%. The revenue increase was primarily driven by analytics, mainly investment in DataLink, with both seeing strong booking growth as well as benefiting from the expansion into new products in DataLink. Corporate solutions delivered modest revenue growth. Quarterly operating margin for the division was 59%, up 100 basis points versus the prior year quarter. The annual operating margin for the division was 60%, up 150 basis points versus the prior year. Moving to Financial Technology on Slide 16. Revenue in the quarter was $498 million, up 12%, with annual revenue of $1.85 billion, up 11%. ARR ended the year up 12%. The quarterly results reflect strong performance across all three FinTech subdivisions. We signed 129 new clients, 143 upsells, and 12 cross-sells in the quarter, bringing the annual totals to 291 new clients, 462 upsells, and 25 cross-sells. Cross-sells continue to represent over 15% of the financial technology division's pipeline. Financial Crime Management technology revenue grew 24% in the quarter with ARR growth of 18%. We signed 119 new SMB clients in the fourth quarter, bringing the annual portfolio in the client segment to 255. Net revenue retention was 112%, reflecting strong client engagement. We also had continuous momentum with enterprise clients with three new signings in the quarter, bringing our totals to nine enterprise deals for the year. In 2025, we signed four times the number of enterprise deals at four times the ACV compared to 2024, with ACV concentrated in the second half of the year. The sequential revenue improvement in the fourth quarter was primarily driven by professional services fees related to SMB and enterprise client implementation. Do not expect to maintain these levels over 2026 based on the implementation timing for deals signed in 2025. As a reminder, as we grow our enterprise business, expect to see increased quarterly variability in revenue growth impact from enterprise client signings. Regulatory technology has quarterly revenue growth and ARR of 12%. Revenue growth in the quarter reflects strong performance across both Active Metal and Turbulence, driven by our successful sell execution, as well as sequentially improved professional services revenue, consistent with our previous comments. Capital Markets Technology had quarterly revenue growth of 9% and ARR growth of 11%, with a difference driven by professional services fees. Financial technology quarterly operating margin was 48%, down 100 basis points versus the prior year quarter, and annual operating margin was 47% in line with the previous year. We are well-positioned in 2026 for continued growth and expansion of the Financial Technology business. Before I wrap up on FinTech, let me provide an update on the 2025 performance of the combination of Axiom SL and Calypso. ARR growth was 13%, including the ramp-up to deals. Adenza also had healthy subscription revenue growth of 12%, partially offset by lower professional services, including the implementation delays related to client readiness, which we referenced earlier this year. Going forward, we will continue to report Calypso and Axiom SL within their respective service divisions and will no longer disclose Adenza-specific revenue or ARR performance. Turning to market services on slide 17. We had net revenue of $311 million in the quarter, a quarterly record, reflecting growth of 14%. For the year, we had net revenue of $1.2 billion, an annual record reflecting growth of 17%. Growth in the quarter was driven by record industry volumes in US equities and options, as well as our ability to consistently deliver alpha as reflected in index options revenue, more than doubling for the second straight quarter driven by improving volumes and capture. Elevated market share in European equities, and higher US Paid Plan revenue versus the prior year quarter, which had abnormally low per share. The growth was partially offset by lower capture in US Options with two drivers. The options regulatory fee or ARF allows us to recoup a portion of, or at most all our regulatory expense throughout the year. The fee that we collect is reflected as a component of our options capture rate. Given the strong volume and share performance of our options market in 2025, our regulatory expenses were mostly recovered during the first March of the year, resulting in lower ARF and thus a lower net options capture rate in the fourth quarter. Separately, the strong volumes we mentioned in the quarter came with a mix shift towards lower revenue quarter. Other revenue within Market Services also reflected record revenue in our Canadian equities business as well as higher capture in European equity derivatives. Market services quality and annual operating margins were both at 64% and both up over five percentage points due to higher revenue. Moving to expenses on slide 18. We had operating expenses of $2.331 billion for 2025, an increase of 7% driven by strong revenue performance, growth in employee compensation, and strong investments in people and technology to support revenue and drive innovation and growth. For the fourth quarter, we had operating expenses of $609 million, up 8%, driven by similar factors. Fourth quarter operating margin was 56%, EBITDA margin was 59%, both up two percentage points versus the prior year period. We are introducing our 2026 non-GAAP operating expense guidance of $2.455 billion to $2.535 billion. This reflects a non-GAAP organic growth rate of 7% at the midpoint, which includes the in-year benefit of net synergies action under our expanded cost program, a $25 million net decline due to divestiture and a small acquisition, and a nearly $20 million increase from FX, as well as a strong level of investments in growth and innovation, including AI, both in our products and on our business, which we'll discuss in more details at Investor Day. Our effective tax rate in 4Q 2025 of 21.2% reflects the impact of a few discrete items. This resulted in a 2025 full-year tax rate of 22.4%, slightly below the 2025 tax rate guidance. For 2026, we expect a non-GAAP tax rate going back to a range of 22.5% to 24.5%, due to the absence of one-time items and the expiration of certain benefits. Turning to capital allocation on Slide 19. Nasdaq generated free cash flow of approximately $2.2 billion in 2025, including $537 million in the fourth quarter. The year reflected a conversion ratio of 109%. In 2025, we paid dividends of $1.05 per share, totaling $601 million. Fourth quarter dividend payments of $153 million represented $0.27 per share, and a 31% annualized payout ratio. We paid down $826 million of debt in the year, including $100 million in the fourth quarter, through a successful tender offer to end the year with a gross leverage ratio of 2.9 times, beating our expectation of 3.0x. In the fourth quarter, we repurchased 3.2 million shares for $286 million, bringing full-year repurchases to 7.2 million shares or $616 million in 2025. As I wrap up, I want to thank the full Nasdaq team for an outstanding year of execution. And I am proud of our accomplishments. I am more confident than ever in our growth story, and our ability to deliver even more value to our clients and shareholders in 2026 and beyond. With that, open the call for Q&A. Operator: Thank you. Star one one on your telephone. To withdraw your question, please press 11 again. We ask that you please limit your questions to no more than one but feel free to go back into the queue. And if time permits, we'll be happy to take your follow-up questions at that time. Please stand by while we compile the Q&A roster. And I show our first question in the queue comes from the line of Patrick Moley from Piper Sandler. Please go ahead. Patrick Moley: Yes, good morning. Thanks for taking the question. So you recently received SEC approval for expanded options expirations in some of the MAG seven names your Monday, Wednesday, Friday now. So could you talk about just your expectation for what this now means for the options market overall, how Nasdaq stands to benefit and, you know, any expectation you have about what this could mean for just market volumes in general? And then as a second part to that, if we do see this lead to a proliferation of zero DTE trading in single stock options, I'm curious whether you think this will be a tailwind for your index option franchise given that the weighting of some of these MAG seven names is greater in your indices relative to a competitor like the S&P 500 and could be viewed as a more accurate hedging tool for this type of you know, new market activity that we could see. Adena Friedman: Thanks. Great. Thanks. Thanks, Patrick. Yeah. So first, we're really pleased that we were able to launch this and our clients are also very happy that they have more choice in terms of being able to manage risk more precisely and more accurately as they are managing their capital and markets. And we are definitely seeing, you know, early uptick that's really exciting. So we see this. You know, the world is changing very quickly. I think that giving our clients more opportunity to manage risk in a shorter-dated way allows them to be able to address changes in the marketplace, change in the environment, in a much more precise way. And we think that this is a trend that will continue to drive both volumes in the markets, but also participation in the markets. From institutional players, and it has an opportunity to expand that. So we're very pleased with this. We are focused on the stocks we've already launched, and we want to continue to be very mindful of the characteristics of the companies that we're introducing into this framework because I think that's really important in terms of being able to manage risk successfully. But we are very excited to continue to expand it over time, and we'll certainly provide you updates as we see the volumes into the market. It's only been live for a week. So we have some room to go in terms of being able to understand the effects on our market. Patrick Moley: Thank you. Operator: And I show our next question comes from the line of Jeff Schmidt from William Blair. Jeffrey Schmitt: Hi, good morning. You've seen really strong growth in equity options volumes in the second half year and in the quarter, even though comparisons have been tough, volatility has come down from the first half. Is that just being driven by retail strength? Do you see a structural shift there? And is that carried over into '26? Adena Friedman: Yeah. So you're right that we have seen very nice continued growth in the volumes within the equities and equity options markets. And I think that in both cases, it's actually really a broadening out of the investor base both in retail for the equities markets and in retail and in institutional and the options markets. And it is, I think, reflective of a structural shift in terms of the interest that investors have in public equities, which is terrific. I also think that the other thing that we have also seen is a really increase in equity options on the ETF options overlay. So there's a lot more AUM coming into ETFs with an options overlay, which then, of course, brings more institutional engagement into the options market. And so that's also been a driver of, I would say, a structural shift and a structural change in the drivers of the options market in particular. But just that level of engagement also just continues to drive our interest in expanding the market. So as we go later into 2026, we're really excited to be able to hopefully, pending SEC approval, launch 23.5 trading for in the Nasdaq stock market and start to really broaden the base even further around the world. So it's an exciting time to be in the markets business. No doubt about it. Operator: Thank you. And I show our next question comes from the line of Michael Cho from JPMorgan. Michael Cho: I just wanted to touch on the data and listing segment, Adena, you know, you called out some large wins in the quarter and in the year, and certainly pointed to maybe accelerating new listings activity ahead. Maybe I was just wondering if you could just unpack your comments around the pipeline and then pace expectations a little bit. And guess, is there anything to consider for this segment, you know, into guess, into 2026, you know, relative to the low single-digit medium-term guide that's out there now? Thanks. Adena Friedman: Great. Well, thanks, Michael. Yeah. We definitely had momentum in general for new issuances really started to build up as we went through 2025. We did, unfortunately, have an interruption to that with the government shutdown. So we actually saw some issuance, you know, some issuers who really wanted to tap public markets in the fourth quarter now, really focusing on the 2026. But that also and then we have a lot of active dialogue with companies, late-stage or private companies looking to tap the public markets. We also see that there's a lot of investor interest in the public market. One, I was actually, I was at a meeting in Davos with a lot of managers and pensions, and one of the things that we heard was that there really is a premium value to right now because the environment around us is so dynamic. That the ability to have liquid assets that they can invest in and have the opportunity to be able to invest in these growth assets in liquid state is something that's really more and more interesting to both the pensions and to asset managers. So we're excited about the fact that there's risk capital available, their company is ready to go. And now we just need to make sure that we can execute on them and I think that, you know, that's pretty exciting. It's also obviously accrues the benefit of our index business. And then with switches, companies that are coming from New York to Nasdaq, we continue to be able to demonstrate a differentiated value proposition that we're very excited to have more companies join us here at Nasdaq. Sarah Youngwood: Thank you. Operator: And I show our next question comes from the line of Dan Fannon from Jefferies. Please go ahead. Daniel Fannon: Thanks. Good morning. Wanted to follow-up on the Financial Crime Management outlook. 24% in the fourth quarter, I think you talked about some professional fees. Wanted to understand a bit better momentum into next year and tracking more towards the medium-term guide of mid-twenties growth. Adena Friedman: Yeah. So I think that Sarah gave you some good information around how we see the development of the sales, the fact that in the enterprise deals, a lot of the ACV was back-weighted in the year. It does take longer to implement those clients. So that also and we don't bring that into our ARR until they're fully implemented in live. So that, I think, kind of gives you a sense of how we're thinking about the year progressing for enterprise deals. Then on professional services fees, as we are engaging both with a lot of SMB clients, we had a really great sales year for SMB clients. In addition to the enterprise deals where there is a, you know, I would say, more effort involved with implementing those clients. We will see a little bit more variability quarter to quarter in the revenues as we manage our professional services revenues with those and that's some of what you saw in the fourth quarter. So with that, I think that kind of the building momentum we're just so happy. We have nine new clients and then or nine new deals. Including actually three upsells. Like, that's a new muscle also for the fintech I mean, for the financial crime management team to be a modular provider of capabilities to these enterprise clients. So I have to tell you, we're really, really excited about both what we've been able to do in '25, but also the pipeline of opportunity in '26. Sarah Youngwood: Thank you. Operator: And I show our next question comes from the line of Elias Abboud from Bank of America. Please go ahead. Elias Abboud: Adena, you made some comments at the SEC, CFTC joint roundtable a few months back. Kind of lamenting how difficult it is for Nasdaq to own an ATS? I was wondering if you could expand more on those comments. If the rules do indeed change at the SEC, is there an opportunity for Nasdaq to do M&A in the off-exchange space? Or do you think Nasdaq can compete organically with these off-exchange venues? Adena Friedman: Well, first, we are very encouraged by the fact that the SEC is focused on providing more innovation opportunities in the securities markets. And we really like to be a holistic provider to our clients. But we have been really limited in the way that we've been able to offer our solutions clients. You know, the exchange rules are very codified, and it makes it very difficult to be an innovator within the confines of the exchange rules. So allowing us to have the flexibility to have an ATS as part of our solution set to our clients and being able to tap into more of the off-exchange trading is a real interest of ours. We do see that the SEC we believe that they're gonna provide a more flexible framework for that. We continue to engage with them, we will be excited to see ways for us to get involved in that space going forward. Operator: Thank you. And I show our next question comes from the line of Simon Clinch from Rothschild and Co Redburn. Please go ahead. Simon Clinch: Hi. Thanks for taking my question. Wondering if I could just change tack a bit. In terms of you've already achieved beaten the leverage target you set. As we look ahead in terms of capital allocation then, you've made comments before that you know, sort of transformational deals, you know, are kind of I guess, maybe off the table is not the right word, but, yeah, they're not really on the agenda at the moment. So was wondering if you could talk about the pipeline of sort of opportunistic deals you have, how you balance that the potential for buyback because you're gonna have a lot of capital coming your way. And against that, the sort of the general range of leverage that you're willing to operate in. Thanks. Sarah Youngwood: Thanks, Simon. So in the $2.2 billion of free cash flow and 109% of free cash flow conversion. We're very proud of those numbers, and that gives us a lot of ability to have multiple things we can do. We are focused on organic growth. And are supporting on our organic growth. We are also continuing to have a progressive dividend, and you've seen us do some share repurchases, some debt repurchases, and is something which we are very interested in continuing to do. And, of course, we will continue to evaluate bolt-ons, especially with the build versus buy approach. Thank you. Operator: And I show our next question comes from the line of Brian Bedell from Deutsche Bank. Please go ahead. Brian Bedell: Maybe just to ring back on FinTech and the medium-term growth targets. You've had great acceleration in the upsells in new clients. Just in 4Q relative to even the '25 pace. And I know you talked about some like implementation lags and headwinds coming into 2026, but should you think about the full year, given that momentum and the secular trends that you're talking about, should we think of potentially an acceleration of RegTech and cap markets revenue growth higher towards the higher end of those ranges or at least acceleration on a full-year basis in '26 versus '25 just based on that comment. I know it's early, of course, but wanted to get some color around that. Yeah. Adena Friedman: Sure. Well, I think first to just to remember, our fourth quarter is always our largest sales quarter for fintech. And so it is you know, it's wonderful to see, but it is also a pretty cyclical element of business in terms of having a large portion of sales occur in the fourth quarter. I think that as we you are right, we do have good momentum in the business. We have you know, we feel very good about the client engagements. We've been had a particularly I mean, if I look at it, like, every part of the fintech business had a strong sales year in different ways. You know? The upsells and certain areas were just really remarkable, and the new sales in other areas were great. So I and we and when we look at the pipeline, we continue to have really strong engagement across the world with our clients and potential clients. So I'm not gonna give you a specific outlook for '26. But I just want to say that we're really pleased with the ongoing performance of the business. The way that we're engaging client customers, and the opportunity set in front of us you know, it's critical for us to continue to innovate, and we are doing that at scale. We're doing that with our clients. It's a really exciting time in that business as well. Brian Bedell: Thank you. Operator: And I show our next question comes from the line of Alex Kramm from UBS. Please go ahead. Alex Kramm: Yes. Hey, good morning, everyone. This may be a little bit of a random topic, but Adena, would be curious if you can talk a little bit about what's going on in proxy these days you've talked about it on some of the prior calls already, and there's clearly a lot of things happening on the advisory side. But you guys had an op-ed in November as well talking even complaining about the rising cost of even the processing side of that. And maybe even suggesting, like, there should be better solutions, maybe involving blockchain. So just wondering, given that this is a pretty sizable market today with one large player, do you think there is a role for Nasdaq? Do you have any ambitions and anything you can share that, you may be doing to help you and your listed clients? Adena Friedman: Yeah. Great. Thanks, Alex. You know, the focus we've been having on is definitely on policy reform or regulatory reform. And as well as modernization of the proxy infrastructure. And so I'm gonna say, you know, when we engage on that topic, we are engaging on behalf of our listed clients. And really reflecting their experience and what they feel is one of the bigger pain points to being a public company. If we want more companies to be public, we have to find ways to make the path to being public less onerous and less of a big leap. And so our engagement on proxy has primarily been both with the regulators and with the established providers to make it so that we can streamline the technology. I think there's actually, I know, if you've done a proxy vote lately, but I have to say the new app that they've delivered that Broadridge has delivered for a proxy voting is actually quite good and easy to use. So, you know, making sure we're modernizing that, making sure we're also focusing on the plumbing, the proxy plumbing, because we have so much more retail investment in the markets. We need to engage those retail investors. There's also pass-through voting that's been developed now among the institutions. And that also needs to have a process and technology that underpins it. In addition to having changes in the proxy process at the regulatory level so that companies can operate, spend their time operating their businesses and not dealing with proxy. So that's the focus we have, Alex. It's not so much as a business opportunity. Alex Kramm: Thank you. Operator: And I show our next question comes from the line of Michael Cyprys from Morgan Stanley. Please go ahead. Michael Cyprys: Hey, good morning. Thanks for taking the question. Just wanted to ask around the proposal you have out there to tokenize equity securities. Just curious how you envision that integrating with existing infrastructure. How your proposal, how you guys think about it being different from others that you're seeing out there in the marketplace or other proposals out there. And just more broadly, how you see the potential to ultimately migrate toward a fully on-chain environment? What hurdles would need to be overcome? What the time frame and path might look like? Adena Friedman: Okay. Great. Well, that's a big question. So I would say I would start by saying the purpose of our regulatory filing to introduce tokenized equities is to actually make sure it is in fact integrated into infrastructure that exists. We have the deepest, most liquid markets in the world. They operate at enormous scale. We manage three to 5 million messages a second depending on equities and options markets. We manage honestly, we have over, you know, in any given day, somewhere in the range of 80 to 100 billion messages that flow through our systems. And we provide latency of less than twenty microseconds on an average basis. So it is a remarkable business. And the resiliency of what we've created is so important to maintain. So as we've been thinking about and driving tokenization, it is a good technology. It is something that can over time, transform the ability to move money around the world, can transform the ability to manage collateral in a much more flexible way, can allow retail investors more access to more markets. So it's an exciting technology, but our approach to this has always been make sure we focus on investor protection, focus on issuer choice, focus on having the integrity of the markets be retained, while bringing this technology in. So our tokenization filing is meant to be working with the infrastructure providers like DTCC, like other transfer agencies, other providers, all of our market participants to allow for an equity to be tokenized at the CUSIP. To allow the investor to have a choice as to whether they want the stock to settle in a tokenized form or a traditional form. To allow for fungibility and interoperability. And we are engaging with DTCC and with other key players to make this a reality. And we will also look for other innovations. And there's a lot of innovation in space where we wanna make sure we're addressing investor needs and issuer needs, but also recognizing the role we play in the industry. And how we bring the proper protections through as we bring this technology into the market. Michael Cyprys: Thank you. Operator: And I show our next question comes from the line of Alexander Blostein from Goldman Sachs. Please go ahead. Alexander Blostein: Great. Hey, Adena. Sarah. Good morning, everybody. I was hoping you could expand on the sort of M&A discussion that Sarah hit on a little bit earlier. When you kind of zoom out, it feels like there's a lot of development in new markets, whether it's sort of digital assets and new technologies, obviously, with AI, etcetera. As you sort of progress and you're obviously very far in integrating Axiom and Calypso now and over the last call it, twelve to eighteen months, it was very clear, you preferred organic growth. But now that, perhaps balance sheet is in a better capacity space and you're further along and integrating, how are you thinking about M&A broadly? Is organic growth still the primary focus for the firm for the next call at couple of years? Adena Friedman: We are really focused on organic growth. Yeah. So thanks, Alex. As Sarah mentioned, and innovation and engaging with our clients. And, you know, but as she also mentioned, we have a lot of great ways to use this great capital that we make every year. So and we'll continue to evaluate, you know, potential bolt-on acquisitions in a kind of a build versus buy orientation. But if you were to ask our team, on that. Organic growth path and the opportunities we have in front of us are just are really tremendous, so we're keeping the team focused. Sarah Youngwood: Thank you. Operator: And I show our next question comes from the line of Ashish Sabadra from RBC Capital Markets. Ashish Sabadra: Thanks for taking my question. Adena, can you share your views on the prediction markets? Your peers have announced partnership investment or organic investments in prediction market. Does Nasdaq have aspirations to get into the prediction market as well? Thanks. Adena Friedman: Sure. Thank you. Well, one thing I've said pretty consistent is we really like to operate in regulated markets. And we operate best when the markets provide, like, clear rules of the road. And I think that the prediction market space is very dynamic. And the regulatory environment is still not really settled. And so, we are we're certainly focused on what kind of benefits they can offer to investors, the risks that they introduced, and things like that to say, does this fit within our risk tolerance? Does it fit within the regulatory mandate that we have? Do we feel confident in our ability to be successful? In making sure that we can deliver for investors and deliver a great experience, but also have the proper investor protections that we really look for when we do make decisions to operate markets. One of the things that we have been evaluating is within the options business, the potential for us to have event options within the options business so that we can have it within a regulated market. And the other thing is that we do provide technology to the prediction markets. We also can provide data distribution and other things to support prediction markets through other parts of our business. Sarah Youngwood: Thank you. Operator: And I show our next question comes from the line of Owen Lau from Claire Street. Owen Lau: Hey. Good morning. Thank you for taking my question. I wanna go back to the tokenization topic. And how do you think about the risk of splitting liquidity between on-chain and traditional well and also the competition between tokenized equities and issuance of block native token. A little bit technical, but thanks. Adena Friedman: Thank you. So we definitely have a real I think, I would say a mandate to be the provider that focuses on bringing liquidity together. I mean, that's really our you know, a big core function of ours is to drive transparency, liquidity, and integrity across the markets that we operate. So we do actually care a lot about making sure that investors have a complete view of the trading of any sort of equity, whether it's in tokenized form or not, that they have a complete understanding of the risks and benefits of whatever they're trading. So if it's a fully a full equity versus a synthetic equity, making sure they understand those differences and the risk that they bring. And then also allowing for issuers to have a complete view of the trading of their stock. That is one of the core tenants, frankly, of the national market system. And it's something that I think we feel it's important to preserve. We have been you know, we have obviously been engaging very closely with the SEC and with legislators to understand kind of the changes that they're trying to seek to open up the aperture to innovation with tokenized equities. And we did see some guidance come from the SEC last night around that topic of tokenized equities, which we're pleased to have an understanding of the framework that we should be operating within so that we can make sure that we're bringing the right experience to investors and maintaining that issuer choice as to how their stock trades and the transparency that they have. So it's a very dynamic time, Owen, and it's something where we have a lot of engagement with our clients and in Washington to make sure we're creating a sustainable path forward for bringing tokenization to the equities market. In terms of blockchain native, that's a harder thing to do in the equity space. I just have to say, like, to have blockchain native trading of equities at the scale we have with the message traffic we have with the determinism, the speed, the latency, is it I would have to say that's a the technology is not there to be able to support the level of the kind of the level of trading that occurs in the equities markets. The other thing we have to think about is capital efficiency too. In making sure that there's a lot of netting that happens in the equities market. To make it so it's an affordable trading environment for the market participants. And so we have to think about how do you persist that efficiency as you're bringing tokenization to the market as well. Owen Lau: Thank you. Operator: And I show our last question in the queue comes from the line of Benjamin Budish from Barclays. Benjamin Budish: Hi, good morning and thank you for taking the question. Maybe just to round out the discussion on tokenization. If you've talked about some of the benefits, capital efficiencies, creating access to new products, round-the-clock trading. If you kinda look forward, say, like, five years, and assume a lot of the market sort of migrates to tokenized trading, how do you think about the benefits to Nasdaq? Do you think there could be, you know, a material uplift in trading activity because of the capital efficiencies or around-the-clock trading? Do you see, you know, internal cost saves? Or does it, you know, come down to the same you know, if everybody is trading on blockchain, it's does it come down to the same competitive factors, you know, liquidity, depth of market, that kind of thing? Would be great to get your thoughts there. Thank you. Adena Friedman: Yeah. I mean, I think that if we think about the evolution of markets and bringing new technologies to market, anything you can do to drive more capital efficiency opens up the ability for more people to participate. Now how you bring capital efficiency into tokenized equities is a really, really important question that I don't think we have a perfect answer to at this point. But I do think that that's important. The one area that we're focused on is with capital efficiency is collateral movement. There's a lot of collateral that's kind of trapped inside of clearing houses and clearing brokers because of the fact that there's friction to converting that into something that can move and move across. And in fact, one of the conversations I've been having we've been having with the critical infrastructure providers is how do they manage the, you know, the netting and the capital obligations, the margining in these new you know, across newer market hours because the traditional payment rails are not designed for twenty-four five. So leveraging that tokenization and digital assets digital capital to allow for collateral to move more efficiently, we see as a real opportunity. And in five years, if that's something where money is just moving consistently across the world in a tokenized form that allows for more capital efficiency, we see that as opening the aperture. The other thing about twenty-four five trading is just you know, does it increase the addressable market? It's hard to know. Right? We've seen, you know, a small amount of trading occurring when our systems are not open today. But we are making a long-term bet that we can open the aperture and increase the addressable market in terms of investors who have access to our markets during their waking hours. And then, of course, it also means that we have an opportunity to provide more services, fintech services, to our clients. Whether that's surveillance, trade operation or trade infrastructure, regulatory reporting, things whereas institutional engagement grows and expands around the world, we hope to be a partner to them across our fintech solutions as well. Operator: Thank you. This concludes our Q&A session. At this time, I would like to turn the conference back to Adena Friedman, President and CEO for closing remarks. Adena Friedman: All right. Well, before we close, I want to remind everyone that we have scheduled our 2026 Investor Day for Wednesday, February 25. We hope to see you all there, either in person or virtually, we look forward to sharing our vision with you. Thank you all for joining, and have a great day. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye.
Operator: Greetings and welcome to the Dow Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If you would like to ask a question during that time, please press star followed by one on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Dow Investor Relations' Vice President, Andrew Riker. Mr. Riker, you may begin. Andrew Riker: Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Andrew Riker, Dow's Investor Relations Vice President. Leading today's call are James R. Fitterling, Chair and Chief Executive Officer, Karen S. Carter, Chief Operating Officer, and Jeffrey L. Tate, Chief Financial Officer. Please note our comments contain forward-looking statements and are subject to the related cautionary statement contained in the earnings news release and slides. Please refer to our public filings for further information about principal risks and uncertainties. Unless otherwise specified, all financials where applicable exclude significant items. We will also refer to non-GAAP measures. A reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in the earnings news release that is posted on our website. On Slide two is our agenda for today's call. Jim will review our fourth quarter and full-year results, Karen will provide an overview of our operating segment performance, and Jeff will share some details on the macroeconomic environment and our modeling guidance for the first quarter. We will also provide updates on several of our strategic priorities, including the transformational work that we announced earlier today, an update on our Alberta project, and several of our in-flight actions that aim to provide near-term cash support and ensure we maintain our financial flexibility. Following that, we will take your questions. Now let me turn the call over to Jim. James R. Fitterling: Thank you, Andrew. Beginning on slide three, Team Dow continued to execute with discipline during a year marked by persistent macroeconomic challenges, trade and policy volatility, as well as anticompetitive behaviors by certain industry players. In the face of external pressures, we managed what was within our control. Our fourth quarter operating EBITDA was $741 million, reflecting an expected sequential decline from lower seasonal demand and typical margin compression across many end markets. Looking across 2025, we accomplished several impactful near and longer-term milestones all while the market wasn't providing many tailwinds. We identified more than $6.5 billion in near-term cash support items and delivered well over half in 2025, including the accelerated delivery of our in-year cost savings from our $1 billion cost-out program. We further strengthened our global manufacturing footprint, including our announced plans to shut down upstream high-cost assets as well as the completion of our remaining incremental growth investments which serve downstream higher-value markets that are growing above GDP. We were also once again recognized as one of the world's best workplaces, reflecting direct feedback from our employees about the culture and talent that continues to drive Dow forward. As we move into 2026, we recognize that many markets are fundamentally shifting. Geopolitical dynamics, rapid advances in AI and automation, and economic volatility require new, breakthrough approaches, greater agility, and continued technological adoption. That's why we announced our Transform to Outperform program earlier today. This work builds on our track record of taking proactive measures to help Dow and it represents a fundamental change in how we will operate and serve our customers. We believe this will strengthen our long-term competitive position through every part of the economic cycle. Lastly, we have finalized the value-maximizing path forward for our Path to Zero project in Fort Saskatchewan. We'll share more details on all of this later in the call, but before that, Karen will cover our fourth quarter operating segment performance. Karen S. Carter: Thank you, Jim. Good morning to everyone joining today. Dow's cost savings measures gained significant traction across every business in 2025, which is reflected in our fourth quarter performance. Despite continued industry pressures, we are delivering on our commitments and self-help actions. Beginning with our Packaging and Specialty Plastics segment on Slide four, fourth quarter net sales were $4.7 billion with year-over-year and sequential decreases that were largely driven by lower downstream polymer prices. Volume decreased 2% year-over-year, primarily due to lower merchant olefin sales in Europe, the Middle East, Africa, and India, following our previously announced decision to idle one of our crackers in the Netherlands. Polyethylene sales volume increased year-over-year and grew sequentially driven by continued global demand growth. Operating EBIT was $215 million, down from the year-ago period driven by lower integrated margins. Sequentially, operating EBIT increased by $16 million, driven by the company's cost savings efforts throughout the quarter, which more than offset margin compression. In addition to lower fixed costs, Packaging and Specialty Plastics benefited from higher licensing revenue, increased energy sales, and higher sequential volumes in polyethylene. Through a challenging environment, Team Dow set an annual ethylene production record for the third consecutive year. This highlights the strength of our cost-advantaged asset footprint, our focus on operational excellence, and the early impact from the startup of our new Poly 7 polyethylene train in the US Gulf Coast, which serves high-value downstream markets. Next, turning to our Industrial Intermediates and Infrastructure segment on Slide five. Overall demand for industrial applications remains challenged, which continues to pressure the industry and our businesses. Net sales for the segment were $2.7 billion, down 9% versus the same period last year. Sequentially, net sales decreased 5%, mainly due to lower local prices and seasonally lower building and construction volume. Volume decreased 1% year-over-year, primarily driven by lower volumes in polyurethanes and construction chemicals. This was partly offset by higher than typical seasonal demand for deicing fluids, which have continued into 2026. Operating EBIT decreased $285 million versus the same quarter last year, and $154 million sequentially driven by lower integrated margins. Our cost savings in both businesses helped offset some of the decline. We also completed the shutdown of our higher-cost upstream propylene oxide unit in Freeport, Texas, rationalizing approximately 20% of North American PO industry capacity. Moving to the Performance Materials and Coatings segment on Slide six, net sales were $1.9 billion, representing a 6% decrease compared to the same period last year. This decline was primarily driven by a 4% decrease in local prices across both businesses. Sequentially, net sales declined, reflecting typical seasonal slowdowns, particularly in building and construction end markets. Volumes decreased 2% year-over-year, driven by lower supply availability from planned maintenance in coatings and performance monomers, while volumes in consumer solutions were flat. Even with the impacts from tariff uncertainties, we delivered increased volumes in 2025, marking the second consecutive year of growth for our downstream silicones franchise. The business remains focused on shifting our mix towards higher-value products while reducing upstream capacity. The strategy advances our previously announced European asset actions, including plans to shut down our basic siloxanes plant in Barry, UK, by mid-2026. Operating EBIT for the segment increased by $34 million compared to the year-ago period, driven by strong demand for our electronics and mobility applications as well as our ongoing efforts to reduce costs. On a sequential basis, operating EBIT was down $55 million, largely driven by lower monomer supply availability from our planned turnaround in Deer Park, Texas, as well as typical low seasonal demand. To summarize our fourth quarter performance, even with continued industry challenges and normal seasonality throughout our portfolio, our self-help actions enabled us to deliver results ahead of expectations. In 2026, we will continue to operate with discipline while taking decisive measures to adapt to market realities and transform our business for long-term resilience. I will touch on all of that shortly, but first, I'll turn the call over to Jeff, who will share some macroeconomic insights and our outlook for the first quarter. Jeffrey L. Tate: Thank you, Karen. Good morning to everyone participating on today's call. Slide seven shows that across the broader macroeconomic landscape, there are mixed signals in some of our end market verticals and key geographies. Recent developments are showing some encouraging signals in response to structural industry challenges as well as trade and tariff uncertainties. This includes several announcements of further ethylene capacity rationalization, as well as the elimination of VAT export rebates on select products in China. Across our packaging market vertical, global polyethylene fundamentals are expected to remain stable heading into 2026. From a price standpoint, ACC inventory shows a net draw in 2025, which should provide support for the price increases we've announced for January and February. Across the infrastructure sector, building and construction conditions are likely to gradually improve as interest rate cuts over the past twelve months gain traction. Housing starts and existing home sales remain well below historical averages, but there are some signs of positive momentum with existing home sales increasing for four months in a row. Consumer confidence has improved slightly but remains near historic lows, continuing to weigh on overall demand. At the same time, US retail spending is holding steady in several categories, with resilient sales of electronics as a bright spot. Mobility remains mixed. In China, EV sales are anticipated to moderate as subsidies expire and government support narrows, but growth rates are still expected to remain strong. And in the US, auto manufacturers anticipate a softer market in 2026 due to increasing costs. Overall, our teams are continuing to navigate a variety of dynamics across the key markets that Dow serves, reinforcing the importance of our disciplined cost actions, diversified market exposure, and strategically advantaged manufacturing footprint. As we've demonstrated in the past, we will continue to maximize value while making appropriate trade-offs. Throughout 2026 and beyond, we will build on this momentum to enable even further improvements in our top and bottom-line performance. Next, I'll cover our outlook on slide eight. Our expectations for first quarter EBITDA is approximately $750 million. This sequential improvement accounts for anticipated margin expansion, as well as the normal seasonal uplift following typically low fourth-quarter market demand conditions. We also expect continued tailwinds from our efforts to reduce costs across every business, function, and region. With that, some of these gains should be offset by higher planned spending on turnaround activities as well as lower equity earnings. Turning to our operating segments, in Packaging and Specialty Plastics, we anticipate that price increases and lower feedstock costs will provide higher sequential integrated margins. Lower equity earnings from a cracker turnaround at our Kuwait joint ventures as well as lower licensing activity will represent a collective headwind of approximately $75 million in the quarter. Finally, planned maintenance at one of our crackers in Louisiana represents another headwind of approximately $125 million. Moving to Industrial Intermediates and Infrastructure, we expect normal seasonal improvements in building and construction end markets. Additionally, positive demand momentum for deicing fluids should continue into the first quarter, providing a tailwind for the segment. Our cost savings efforts will provide an additional $10 million tailwind, while approximately $15 million for planned maintenance activity throughout the quarter is expected to offset these gains. And in the Performance Materials and Coatings segment, we anticipate typical seasonal improvements for architectural coatings, as well as higher siloxane pricing following the increased market prices that happened in China late last year. Collectively, this will provide roughly $80 million of sequential tailwinds this quarter. We'll also see a small uplift from lower maintenance activity following the completion of a planned turnaround at our Deer Park, Texas site, as well as continued contributions from our cost reduction actions. Across the portfolio, this combination of factors results in improved operational results for the quarter. Our continued efforts to structurally reduce costs in every area of the company, paired with seasonal demand improvements and expectations for margin-related tailwinds, are meaningful. However, higher planned turnaround spending will weigh on first-quarter results. Looking ahead, as our transformational work and continued cost reduction actions progress, our teams will remain focused on managing what's within our control to preserve our financial flexibility. Now I'll hand the call back to Jim. James R. Fitterling: Slide nine outlines the key areas where we're focused on strengthening Dow's earnings power to ensure that we remain resilient through every cycle. First, we expect to deliver the remaining more than $500 million in cost savings by the end of this year from our previously announced $1 billion program. We're also executing a series of strategic moves that will uniquely position Dow to win. This includes the startup of our remaining incremental growth investments in cost-advantaged regions, as well as our announced shutdowns of upstream higher-cost assets. Additionally, Transform to Outperform is expected to deliver at least $2 billion in near-term EBITDA improvement. About two-thirds of that will come from productivity gains, and the remaining one-third from growth. This work will radically simplify how we operate, streamline our end-to-end processes, reset our cost structure, and modernize how we serve our customers. We anticipate the outcomes to deliver step-change improvements in productivity, more growth with our customers, and greater shareholder returns. Lastly, a refined timeline for our cost-advantage Path to Zero project in Alberta will enable us to align capital deployment with market conditions and maximize project returns when demand improves. The underlying enabler to all of this work is our focus on maintaining financial flexibility while preserving our investment-grade credit rating. Together, these actions form a cohesive roadmap that aims to strengthen our near and long-term competitiveness. Next, Karen has more details about several of these key strategic priorities. Karen S. Carter: Thank you. Turning to slide 10, as Jim mentioned, we are well on our way to delivering more than $500 million in cost savings, representing the remainder of our 2025 $1 billion cost savings program. This builds on our demonstrated ability to deliver higher than expected savings last year when we realized more than $400 million versus our original target of $300 million. In addition to that, we are executing several strategic moves that will uniquely position Dow to win, many of which will begin to materialize in 2026. For example, in Packaging and Specialty Plastics, we completed the startup of our Poly 7 world-scale polyethylene train last year. Using Dow's proprietary solution technology, Poly 7 is designed for lower cost and increased production capacity as well as improved efficiency and flexibility. The new asset is supporting customer-driven demand in specialty packaging, health and hygiene, and industrial and consumer packaging applications. Additionally, the completion of our new alkoxylation will support growth in industrial solutions, which serves attractive end markets such as home care, pharma, and energy. We're also progressing our plans to shut down higher-cost upstream assets, including three in Europe, largely due to the ongoing structural challenges in the region. Each of these assets represents a meaningful portion of our regional capacity and are high on our cost curve. These shutdowns are cash accretive and expected to result in an annual EBITDA uplift of $200 million by 2029, with benefits beginning in 2026 with the shutdown of our basic siloxanes capacity in Barry, UK, by mid this year. Next on slide 11, I'll walk through additional details about some of the work that is already underway as well as what's next. Transform to Outperform builds upon the self-help actions that we have implemented over the past few years. But importantly, it goes a lot further, representing a structural reengineering of our operating model and cost base. The goal of this transformation is to achieve significant growth and productivity gains that elevate Dow's competitive position. And while this transformation aims to simplify the way we work, it will not impact our long-standing commitment to our core values of faith, reliable operations. In addition to simplification, we will focus on streamlining all of our end-to-end work processes and resetting our cost structure. And we'll continue to utilize the power of leading-edge practices and technology to modernize how our teams serve customers in key fast-growing markets. We are bringing a full 360-degree view to this work, inclusive of external viewpoints, lessons from other industries, and robust benchmarking in addition to our own expertise. And we have established a dedicated Dow team to drive our transformation efforts across every part of the company. We anticipate at least $2 billion of near-term uplift from this work, and we've outlined a clear timeline and understanding of the cost to achieve it, which we will hold ourselves accountable to. A third of this will come from new growth, and the remaining two-thirds of the benefit will be in the form of productivity improvement. This year, we expect to deliver approximately $500 million in value. And as a reminder, this is on top of the more than $500 million we will deliver in 2026 to round out our 2025 cost savings program. We anticipate one-time costs of approximately $1.1 billion to $1.5 billion, including $600 to $800 million of severance, and $500 million to $700 million of other one-time costs. Next, I'll share a few examples of the early opportunities that we have already identified and are taking action on. First, as part of our commitment to operational excellence, we will simplify Dow's operating model. We do anticipate this will include a global Dow workforce reduction of 4,500 roles. It will also result in a reduction of third-party roles and resources. As the way we work evolves, so will our expectations for where and how work gets done. This will allow us to speed up decision-making and put the right role in the right areas of the company to better align with the changing market landscape and with where our customers are investing. We will also adopt new ways of working. This includes streamlining all of our end-to-end work processes by leveraging the power of automation and AI, which we expect will result in lower cost and improved efficiency across the entire organization. We will modernize the way in which we grow with our customers through our industry-leading innovation capabilities and deeper insights into customer and end-market needs. Finally, we will fundamentally reset our cost structure. This work will result in a renewed focus on improved raw material sourcing and logistics to drive further efficiency. These are just a few examples of how Transform to Outperform will deliver step-change improvement in both growth and productivity. We're committed to providing you with updates every quarter as the work and value delivery progresses. And we are confident that these efforts will create a Dow that raises the competitive benchmark, is more resilient across the cycle, and consistently delivers growth, customer success, and shareholder value. Next, Jim will provide an update on our Path to Zero project. James R. Fitterling: Turning to slide 12, in April, we announced that we would be delaying construction of our Path to Zero project in Fort Saskatchewan. This decision supported our near-term cash flow while also assuring the project timing would better align with a market recovery. After careful analysis and collaboration with all of our project partners, we have determined that completing the project with a two-year delay is the most value-creating option. This moves phase one startup to late 2029 and remains the best option in support of our long-term value creation goals. We remain committed to the strategic rationale of the project and the upside that it will enable in targeted applications like pressure pipe, wiring cable, and food packaging. And we're confident that Dow can capture outsized growth in these markets for years to come, which will create value for shareholders. We are taking deliberate steps to ensure the new asset will be first quartile globally, further enhancing our low-cost footprint. Importantly, we do not expect any material impact on the cash and tax incentives associated with this timeline. On the execution front, several milestones have been achieved. This includes heavy equipment procurement and detailed engineering design. As we begin to ramp up workforce labor for the project, our robust risk mitigation strategies will help us ensure that it remains on track with current cost projections. With the project delay and resulting incremental CapEx increase associated with it, we now expect returns of at least 8% to 10%. We anticipate that our efforts to reduce and mitigate costs will provide further upside, and we continue to advance several additional levers within our control that could further improve our returns. For example, the value for low-carbon product premiums is not included in our base model, representing potential further upside of 100 to 200 basis points. The low-carbon supply agreement that we signed last year is a testament to the value brand owners and consumers place on decarbonized products, and we have more in the queue. Approximately 30% of the total project CapEx spend is complete, and we anticipate that Dow's CapEx spending will remain at or below D&A until we see mid-cycle earnings. While our intention is to continue this project on a stand-alone basis, we remain open to all options that could enhance value, provided they benefit Dow's strategy and support shareholder returns. Market conditions remain challenging, but the industry has made significant progress in 2025, including accelerating capacity rationalizations. We anticipate that the startup of the Alberta project will align well with these industry operating rate improvements ahead of the next cycle peak. With that, I'll hand it off to Jeff to share more about how we're preserving near-term financial flexibility. Jeffrey L. Tate: Thank you, Jim. On slide 13, looking ahead, the strong financial actions we initiated in 2025 will help us continue to navigate a still challenging macro environment while executing with discipline and consistency. Taken together, these actions give us line of sight to more than $3 billion in near-term earnings uplift potential before the phase one startup of our Path to Zero project. In addition to this, our cash and cash equivalent balance was above $3.8 billion at the end of 2025, and Dow has approximately $14 billion of available liquidity, including a revolving credit facility that was recently renewed through 2030. In 2025, we completed multiple actions to strengthen Dow's near-term cash flow, further reinforce our balance sheet, and achieve lasting operational improvements. For example, we received approximately $3 billion in total cash proceeds for our strategic partnership with Macquarie for the sale of a 49% equity stake at select US Gulf Coast infrastructure assets. We lowered our cost by more than $400 million in the year, and we lowered our CapEx plans by $1 billion. In addition to that, we completed two bond issuances at attractive spreads for a total of $2.4 billion, pushing our next material maturity to 2029. We made the prudent decision to implement a 50% dividend reduction. Collectively, the actions we took provide near-term financial flexibility and support while maintaining our commitment to an investment-grade credit profile. Our teams will continue this momentum into 2026. This starts with delivering approximately $1 billion of benefits this year. As a reminder, this includes the more than $500 million of cost savings that remain in our 2025 program as well as an additional $500 million in operating EBITDA benefits from Transform to Outperform. We remain focused on completing the remainder of our more than $6.5 billion in near-term cash support actions. Our disciplined operating model, commitment to capital efficiency, and the decisive actions we've taken over the last few years ensure Dow is well-positioned to continue navigating near-term volatility. At the same time, Transform to Outperform will enable us to build towards sustained earnings power and a recovery. Next, Jim will provide closing remarks on slide 14. James R. Fitterling: Thank you, Jeff. In summary, 2026 represents an inflection point where our long-term vision and the steps we've taken to navigate a challenging down cycle come together to position Dow for stronger, more resilient growth. First, and foundational to everything we do is our commitment to safe and reliable operations and financial flexibility. Transform to Outperform will become a central driver of new value creation. It builds on our core strengths and positions us to operate with greater speed and efficiency while also enhancing our focus on innovation and value creation with our customers. With the revised timeline, our Path to Zero project will enable growth in high-value packaging, infrastructure, and wiring cable applications. The project represents a growth opportunity that is unique to Dow. It adds a first quartile cost asset in a globally competitive NGL basin and gives us the best portfolio of low-carbon product offerings. We also expect to fully realize the benefits of our near-term incremental growth projects, which expand our ability to serve high-value markets from cost-advantaged positions. Lastly, as Jeff just outlined, we're progressing several cash and cost support actions to give us even further financial flexibility in the near term. In summary, we're revamping our operating model, resetting our cost structure, and enabling new growth. Our strategic priorities are clear. We are delivering on near-term cash and cost savings levers. We're investing where we have lasting structural advantages. We're simplifying, streamlining, and modernizing to enable greater agility, and we are building a more competitive Dow that is positioned to innovate faster and grow more effectively with customers. These are not new priorities. They are part of Dow's DNA, but it is a step change in how we operate that is especially critical in today's environment. 2026 will be about execution, discipline, and accelerating the work we've already begun. With that, I'll turn it back to Andrew to get us started with the Q&A. Andrew Riker: Thank you, Jim. Now let's move on to your questions. I would like to remind you that our forward-looking statements apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions. Operator: Thank you. Ladies and gentlemen, we will now begin our Q&A session. Telephone keypad. We kindly ask that everyone limit themselves to one question. Your first question comes from Hassan Ahmed with Alembic Global. Hassan Ahmed: Good morning, Jim. Jim, a question around, well, a two-part question around capacity curtailments. In the last call, you guys obviously talked at length about seeing roughly 20 million tons of capacity rationalization. So I would love to sort of get an update with regards to where we stand on that figure. And then part and parcel with that, about your decision to carry forward with the Alberta project, I mean, how do you, I mean, obviously, the returns seem favorable to Dow. But in the broader landscape, what compelled you to sort of go through with that decision? The fear, obviously, being that any sort of future upcycle, you know, if there's sort of, quote, unquote, phantom capacity that lingers on, that may impede the sustainability of any sort of future upcycle? So I would love to hear your thoughts about that as well. James R. Fitterling: Good morning, Hassan. Thanks for the question. I don't think there's dramatically new data on the number of ethylene capacity rationalizations that have come out. We've seen more firm announcements out there. I think the total amount now is in the 15 to 20% of the European capacity that's coming out. We haven't seen anything substantive on anti-involution in China. So nothing has changed there. On Path to Zero, I think several things in our view, the changes that are happening are going to lead to the next upcycle. We're at a point right now, and you've made this comment in some of your writing, that demand has been relatively lackluster, and we know what the supply situation is and where supply is going. Demand in some of the higher volume markets has been where things are soft. So as we see housing, construction, infrastructure, and other things pick up, that's typically where you see things start to take off on operating rates. As we mentioned, the low-cost assets, we ran them hard. We set an ethylene production record even with a good cracker idled in Europe. So I think it speaks to running the low-cost assets hard. Path to Zero will put another cracker in the first quartile for us while we exit positions that are in the fourth quartile. I think that's something that we have to do in every cycle. We gave guidance on the return on Path to Zero, which is at the low end, and there are some upsides in there. Those will be driven by things that we can do to mitigate costs and, obviously, continued success in bringing in the premiums for the low-carbon product that's coming out of there. We're able so far to see a good outlook on the cost picture. We've got the detailed engineering design essentially done. We've got the long lead time items procured. So we've got a pretty good handle on how the costs are coming in. The remainder is going to be the labor when we start to ramp that up. Operator: Your next question comes from Vincent Andrews with Morgan Stanley. Vincent Andrews: Thank you, and good morning, everyone. Jim, on Alberta, just a few clarifications. Is this it? One more year delay and then 100% moving forward? Or is there any potential off-ramp or other opportunity there? And then secondarily on that, it sounds like you were maybe saying you'd be interested in bringing a partner in. Maybe I'm putting words in your mouth or looking at project finance or something else. But maybe you could just expand on other sort of things you might look at there and whether you're getting incoming interest around that. James R. Fitterling: Good morning, Vincent. Yeah. The two-year delay, I think, as we look at it, most of the change in the cost picture and the reduction in the returns is the capitalized interest on what happens with that delay. And so, you know, we had some of that, and our partners had some of that as well. So, yes, I think that is it. I mean, you'd have to have a very Armageddon scenario to look at something different. We don't anticipate that happening. When I mentioned about flexible arrangements, we haven't had any serious inquiry from a partner standpoint. Mentioned on the last call, we're always open to value-creating opportunities, and we still remain that way. I think there may be some creative finance opportunities there. As long as those are good returns for shareholders, we'd be open to talk about those. Operator: Your next question comes from Michael Sison with Wells Fargo. Michael Sison: Hey, good morning. So the export markets have continued to have really low margins, zero margins in most cases for polyethylene. Can you help me understand how much of your ASP capacity goes to the export market? And, you know, some companies have opted to reduce their capacity in the States because, you know, those markets remain low for quite some time. Any thoughts on how much of your capacity you want to be in the export market? And any thoughts about reducing that over time? James R. Fitterling: Yeah. Good morning, Michael. About 30 to 40% of our PASP volumes currently from our North American assets go to the export market. I think as we look forward, two things that we have to take into consideration are the cost position of ethane cracking and the rate cost advantage we get from that. It's especially important. The second is the product mix. When you look at the product mix that we put on the assets, are all of those products available globally? And in many cases, they are not. That has a big difference on the returns that we get on some of the exports. There's going to be a shift. Obviously, there's a lot of shifts coming with all the trade talks, with all the geopolitical tensions that are going on. But from our viewpoint, long term, the Americas are going to be advantaged from a gas cost position. The supply is there. They will be low cost. The Middle East will continue to be advantaged. And our position in Argentina looks to continue to be advantaged. So that's where we want to maximize, and that's where our investments, if you look at our investments, not just plastics, but across the board, they've been in our home bases that are in those low-cost positions. Operator: Your next question comes from Jeffrey Zekauskas with JPMorgan. Jeffrey Zekauskas: Thanks very much. Your cash flow from operations was $1 billion. In reading your slides, I guess slide 13, it looks like you got $450 million from long-term supply agreements and $250 million from divestitures. So excluding that, cash flow from operations is $300 million. What are your expectations for 2026, and is that a correct assessment of what happened this year? James R. Fitterling: Jeff, maybe I'll ask you to make some comments on the cash flow outlook. But Jeff Z., one of the things I would say is clearly, we're working hard on restoring margins. So that's one of the first priorities. And then, obviously, the cost-out actions that we mentioned, which are worth about a billion dollars for this year on self-help actions. Jeffrey L. Tate: Yeah. Good morning, Jeff. A couple of comments I would make. As you recognize, we're closing out 2025 with a really solid cash balance of almost $4 billion. If you add in those year-over-year earnings improvement opportunities that Jim just mentioned, the one is the $500 million closeout of the billion dollars of cost reductions. Secondly would be the Transform to Outperform EBITDA uplift of $500 million. We've also got our growth investments and our asset actions that will deliver at least a $100 million of earnings uplift year-over-year. In addition to that, Jeff, we'll have the $1.2 billion from the Nova proceeds as well as we're expecting a net working capital efficiency gain with the release of cash of $500 million during the course of 2026. So with each one of those actions from an EBITDA uplift perspective as well as direct cash flow infusion, we're in a good position to be able to support our cash flow needs going through 2026 and beyond. Operator: Your next question comes from Christopher Parkinson with Wolfe Research. Christopher Parkinson: Great. Thank you so much. Jim, if you could just take a step back, just given the $6 billion quoted in the PowerPoint and what you're seeing from polyethylene integrated margins. How do you see that evolving over, let's say, the first half of '26 through '27, '28, just given where we are in the cycle? What underpins those assumptions? And what do you think perhaps the street is missing if you believe people are, let's say, particularly too low? Just your updated thoughts on that would be greatly appreciated. Thank you so much. James R. Fitterling: Yeah. Thank you, Chris. Good question. I think we do expect integrated margins to improve. Even with the weather situations that we've had here, I think the input costs, especially in the Americas, have been very stable. The drawdown in inventories at the end of the year in North America has really helped as we lean into the first quarter. We're getting some pricing power and moving things up. So I think one of the things we have to be careful of is that we're not extrapolating from a fourth-quarter first-quarter data point, which typically are not the strong parts of the quarter. So we're talking about bottom-of-the-cycle integrated margins. And, you know, you don't want to extrapolate those forward. And we will see demand improvement as we continue to move through this and see the rationalizations come. Karen, any specific comments on what you're seeing in the marketplace right now on integrated margins? Karen S. Carter: Yeah. I think the other thing I'd add, Jim, is that from a polyethylene demand perspective, it remains resilient. It's still growing above GDP. You mentioned towards the end of the year that through November, we saw industry inventories come down by 400 million pounds. I think the other important data point is that November was the highest monthly volume of 2025 and actually set a total sales record, both from a domestic perspective as well as exports. So exports out of the low-cost regions in North America continued to be strong. And so absolutely expect coming into the first quarter that integrated margins will improve. Prices will go up in January. And even before the recent spike in the feedstock that you referenced, Jim, the situation was already there. The conditions were there for prices to go up. And the other thing, last thing I'd mention is we have to keep in mind that industry integrated margins have been at this low level for a while. And so there's a lot of motivation and reason to move them up. Operator: Your next question comes from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Yes. Thank you, and good morning. Your II&I segment trended a little bit weaker than I think you and I both expected two or three months ago. So maybe a two-part question. Can you talk about the variances that manifested in that segment versus your prior expectations? And then the second part would be on polyurethanes. I think in the past, you had discussed a strategic review of that business. Is there any update on the efforts there? Is it active or dormant? Appreciate any color there. Karen S. Carter: Sure. In the fourth quarter, we did see normal seasonal demand declines, particularly in the building and construction market. And the reality is that that market just continues to be under pressure, not just domestically, but around the world. And, of course, that is putting downward pressure on pricing. But also, if you think about housing, if you think about automotive, those markets are just weak around the world. And so as we went into the fourth quarter, we saw that we had some lower fixed costs as well as lower planned maintenance. But the building and construction end markets and durables just really offset that. As we think about the first quarter, we do expect to see some modest seasonal demand improvements and also tailwinds from cost actions. But we have a bit of planned maintenance that's going to offset that and, again, just continued downward pressure, particularly in the building and construction market. James R. Fitterling: On polyurethanes, we continue to look for the best options, Kevin, on a go-forward basis for the polyurethanes franchise. Obviously making a lot of changes. We noted that we took out 20% of North American PO capacity at the end of the first quarter. So we're having some rationalization in the industry, higher-cost assets, to kind of address the oversupply situation there. I would say, additionally, the team has been very busy on the trade front. I mentioned anticompetitive practices before, but Europe especially has been hit very, very hard from dumping of material into the European continent. And this comes from regions that don't have any particular cost advantage to bring it in. And so we've seen some actions I think are going to have a positive impact. In China, for example, the announcement that the 13% duty drawback for exports out of China is going away at the end of the first quarter in April, I believe, is when it goes away. So there were companies that don't have the cost position to be able to export under free trade, fair trade rules. We're getting 13% duty drawbacks for all their exports. That's going to go away. And you've got a whole host of cases on antidumping that are starting to take hold. There's been more traction in the Americas than there has been in Europe. Europe is a bit slower to respond, but it is on the radar screen. It is getting attention in Europe. Operator: Your next question comes from Matthew Blair with TPH. Matthew Blair: Thank you, and good morning. Could you talk a little bit more about your outlook for feedstock costs for your US cracking business? I think you mentioned that Q1 should benefit from lower ethane costs, which makes sense based on just the quarter-to-date numbers. But are you concerned that ethane might rise later in 2026 with the startup of three new natural gas pipelines from the Permian? And then long term, how do you feel about the overall availability and pricing for natural gas and ethane given all this competing demand from AI and LNG? Thank you. James R. Fitterling: Hey, Matthew. Good question. I mean, the energy sector is one we watch pretty closely. In general, I would say the electricity demand that drives, you know, that power demand for AI and tech is a good thing. America has the production capability, and it will drive the natural gas production. And as the natural gas needs rise, obviously, people want to take the natural gas liquids out to get the maximum return they can. And we see about 8% growth in the fractionation capacity coming at the end of 2026 and into 2027. So I think there's going to be plenty of ability to take that ethane out, and we'll have pretty good NGL prices through there. We've got 20 to 23 cents right now in the price outlook, which is a frac spread of about 25 cents a million BTU. You know, 0 to 25 cents is pretty normal. And then I think the other thing that we have to watch is just what happens with LNG exports. And so LNG has been moving because of the so we have to watch LNG export capacity and approvals and timeline when those come on. The short-term spike that we just witnessed was because of freeze-offs in the Haynesville and some of the other basins that were pretty cold. And so that creates a kind of a short-term supply disruption and a very cold weather environment where we're drawing down natural gas. So we've seen some pretty wild movements in that market. For that market, it clears pretty quickly, and I think as this weather moderates, you'll see things come back to normal. Operator: Your next question comes from Matthew DeYoe with Bank of America. Matthew DeYoe: Good morning. $2 billion. It's a really big number. I think one of the issues that we kind of see with productivity initiatives sometimes in commodity companies is, like, it just kind of gets lost to the cycle. And we often hear, you know, you should have seen how bad things would have been if we didn't, you know, cut costs. So as we try to grade the curve, where will we begin to see the tangible evidence? Like, there's $400 million savings in 2025. Where was that registering across the line items? I know you had mentioned II&I saw some benefits, but it's candidly hard to tell. And then there were comments about lower cost quarter over quarter in TNSP. Is that where we're seeing some of the $400 million in the fixed cost? And as we look ahead with the $2 billion, does SG&A move lower on an absolute basis? You know, what segments will we see the most tangible uplift? James R. Fitterling: It's a good question, Matt. And, you know, the $2 billion Transform to Outperform target is two-thirds from productivity and a third from growth. And so I think it's important to split those out. If I look back at last year and the cost out, we had significant margin pressure, and we saw that on price. A lot of the savings that we saw came through cost to manufacture. And so when you look at our cost of goods sold, it would have come out in there. But obviously, in the face of the declining margin environment. And I think we've also been in a low oil environment. And in general, for us, higher oil is a more constructive environment. And I think that's going to take some demand snapback in some of these bigger volume markets to see that. Karen, maybe you want to unpack a little bit about what's different about the approach on Transform to Outperform than what we've done in the past. Karen S. Carter: Yeah. Thanks, Jim. You know, I think it's important to just highlight what Jim mentioned. This is not just about cost out. This is not just about productivity. But it's also about growth. Just a couple of other things that are going to be different about this versus even the $1 billion cost restructuring that we announced in 2025. First, it's really the scale and the speed at which we intend to deliver. So at least $2 billion between now and 2028. This is about our entire operation. And so this is going to touch every aspect of the company. And we expect to see the benefits in all of the businesses. You know, we're also being proactive about ensuring that when we achieve the gains, we sustain the gains. We have a dedicated team at Dow that's driving these efforts. We are fundamentally looking at how we change the way we work but also being careful about preserving the best parts of our culture and shifting where we need to. And then we're also putting governance in place to ensure that there's complete alignment and accountability across the entire organization, and that we are focusing on things that are going to drive shareholder value. So this is really a reset of our cost structure. It's also about streamlining our end-to-end processes and simplifying how we operate, including looking at the management structure, the management layers to reduce bureaucracy and complexity. Operator: Your next question comes from Duffy Fischer with Goldman Sachs. Duffy Fischer: Maybe I can sneak into the first one. I believe Sadara is up for its debt midyear this year. So can you just give us some details about operationally how Sadara is looking and what does that debt refi mean for Dow? And then just the second one is you gave us a billion dollars on the Canada project at mid-cycle. What would that project be making in today's environment? James R. Fitterling: Morning, Duffy. Yeah. On Sadara, we continue to keep a close eye on Sadara. It's running safely and reliably. I'd say we had one small incident at the cracker this year, but the assets are in a good position on the global cash cost curve. Most of it has been around the financial structure. And Dow and Aramco are conducting an ongoing strategic review of Sadara, which is targeted to be completed during 2026. The JV obviously operates very safely and very reliably, and we'll look at the evaluate the opportunities to enhance the long-term resilience of the joint venture. I don't anticipate any cash payments to Sadara lenders in 2026. Sadara's got ample liquidity through their facilities, including some that they utilized in the fourth quarter. And, of course, Dow and Aramco have support behind that, pairing guarantees behind that. On the second part, I don't have a number for you on what that would be instantaneously, but I can ask the team to talk with you and see if they can get you an estimate of what that would look like. I do have the forward look, which we put in the slides, which is we still see the ability to generate a billion dollars of uplift out of that project. Operator: Your next question comes from Frank Mitsch with Fermium Research. Frank Mitsch: Just touching base again on this Transform to Outperform. Obviously, it's been a very difficult past couple of years, and now you're unveiling this big project, and I understand that it's going to touch everything that you do. And you mentioned earlier, you know, how much AI is playing a role in this. Is the fact that, you know, are you getting confident in the ability of AI to help achieve these productivity savings? And in terms of how much you're spending on AI, you know, have you seen a return as of yet? I mean, how is AI being integrated into this whole Transform to Outperform? And, obviously, when demand comes back, I would imagine that you anticipate seeing all of this drop to the bottom line. Is that the current thinking? James R. Fitterling: Yeah. Good morning, Frank. It's a good question. And I just want to make sure that we're clear that it's not all AI. So, you know, there are also going to be some fundamental changes. We're going to look at all of our integrated work processes from end to end and simplify those. So, for example, in previous changes, we've looked at trimming third-party costs. We've looked at obviously, always look at procurement and what we can do to do better in procurement and bring costs down for what we pay out to third parties. But in this case, we're looking at how things are built into our system and how we do our work end to end and how can we take steps out, how can we automate things that are done either manually or hand off within the system today? And AI is going to give us a lot of possibilities there. Over the last couple of years and in the first, I mean, we had a not in 2025, but we had a billion-dollar cost-out program before that. And some of the money from that program actually went into digital capabilities and IT. So one of the things that we have is we have a lot of high-quality data. We've got an intelligent data hub that we've built inside the company that AI on top of that will allow us to take a look at these work processes and really take steps out and streamline the whole thing. So we call it a reengineering or a rewiring of the way we do business globally. And then that can be, you know, baked into the system and automated. And that's one of the ways we'll keep cost out as we go forward. We're seeing progress in many functions right now. Many different functions are using AI in ways that are speeding things up or reducing the cost to do things. We see it in legal, for example, patent research work, you know, doing discovery on cases, on legal, as a big cost savings there. We're seeing it in a lot of other applications. So I think it's going to be there. And we haven't really started to get into yet robots and AI and robotics together. I think at some point, we will. On traditional AI, we've seen great progress, obviously, from using technology to make things safer and eliminate certain costs from turnarounds and things like cost of scaffolding is a big cost in a turnaround. By using drones and crawlers with cameras and other kinds of technologies, we can eliminate big costs out of having to scaffold parts of plants to go in and do those turnarounds. So they're real numbers, and we're pretty confident that we can bring all of it to the bottom line. On the growth side, there will also be some refocus on where we have our people positioned. I would say the focus will be on still boots on the ground on the sales side, sales, tech service, application development. Our model is you have to be at the design table with your customers, and you have to be on the ground to do that. We'll look at how those are deployed. Are they in the right geographies and the geographies that are growing? And then how we support that from behind the scenes inside the shop, see what we can do to automate to help them and bring better data to their fingertips. Operator: Your next question comes from David Begleiter with Deutsche Bank. David Begleiter: Thank you. Jim, just on CapEx, can you discuss how you will be able to keep CapEx below D&A as you ramp up the spending on the Path to Zero project? And just on the and is that due to any timing from the Canadian cash and tax incentives? Thank you. James R. Fitterling: Yeah. Good morning, David. Well, obviously, we're finishing up in-flight growth projects. So we've got a few of them rolling off. Our outlook for CapEx for this year is still $2.5 billion like we spent last year. So there will be some most of what was spent on Path to Zero this year is receiving long lead time items that will be delivered into the site. Mostly engineering work will get finished by the middle of the year. And so detailed engineering will be done. We'll have the roll-off, obviously, of some of the growth projects that are already up and operating. And we have some small incremental growth projects that come along, like in silicones that we need to support. And so that will get us through 2026. And then as we look at '27, '28, '29, and that's where Path to Zero will ramp up. We'll keep a pretty tight control on the rest of the CapEx spending and maintenance spending. And as you can see from maintenance spending, we're right in line with our traditional levels. Wanted to make sure, obviously, that we keep our asset footprint on the low-cost assets and keep them reliable. That's what's carried us through. So it helped us as well deliver in the fourth quarter. And so we want to continue to do that, make sure that they're in good shape. No change on the Canadian receipt of the goods. Canada's been very positive and continues to be very supportive. So as we near that time frame, obviously, we'll have discussions about timing, etc., on that. Operator: This concludes our Q&A session. I will now turn the conference back over to Andrew Riker for closing remarks. Andrew Riker: Thank you, everyone, for joining our call today, and we appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow's website within forty-eight hours. This concludes our call. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Norfolk Southern Corporation Fourth Quarter 2025 Earnings Conference Call. Note that at this time, all participant lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. And if at any time during this call, you require immediate assistance, please press 0 for the operator. Also note that this call is being recorded on Thursday, January 29, 2026. I would now like to turn the conference over to Luke Nichols, Senior Director, Investor Relations. Please go ahead. Luke Nichols: Good morning, everyone. Please note that during today's call, we will make certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance of Norfolk Southern Corporation, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full discussion of those risks and uncertainties we view as most important. Our presentation slides are available at norfolksouthern.com in the Investors section along with a reconciliation of any non-GAAP measures used today to the comparable GAAP measures including adjusted or non-GAAP operating ratio. Please note that all references to our prospective operating ratio during today's call are being provided on an adjusted basis. Turning to slide three. I'll now turn the call over to Norfolk Southern's President and Chief Executive Officer, Mark George. Mark George: Good morning, and thanks for joining. With me today are John Orr, our Chief Operating Officer, Ed Elkins, our Chief Commercial Officer, and Jason Zampi, our Chief Financial Officer. Before we get into the numbers, I want to recognize our Thoroughbred team. 2025 was a demanding year in every sense. And our people have met it with resilience, focus, and commitment. They kept serving customers, improving our railroad, and they did it while tuning out the noise and concentrating on what matters most. Look, Q4 played out in an environment where volume was clearly softer than anyone had predicted. But even so, we controlled the controllables. Costs landed exactly in line with the guidance we provided last quarter, reflecting disciplined execution across the company. And while there's been heavy external attention around the merger, I'm really proud that the team maintained its focus on the business prioritizing safety, dependable service, and strong cost control. Now looking back at the full year, 2025 was dizzying. It started with a challenging winter, followed by persistent tariff uncertainty, and then competitive dynamics tied to the announced merger. In the back half, the macro softened further and freight flows shifted. But through it all, our operating foundation held. Safety, our most important work, continued to advance and service was consistent and reliable. We expanded our digital train inspection program, so now more than three-quarters of our traffic each month is scanned by portal technology. We had zero reportable mainline derailments in the fourth quarter. Let me repeat that. Zero reportable mainline derailments in the quarter. Our investments in our one-of-a-kind digital inspection technology, our enhanced processes, as well as investments we've made in our people are collectively paying dividends. John will share more detail, but based on current data, 2025 stands as our best year in more than a decade when it comes to train accident rates. That progress comes from better technology tools, rigorous standards, and a culture that treats safety as a value, not a statistic. A year ago, I spoke about our desire to adopt a total quality management mindset at the railroad. And in our results, we are now seeing evidence of what we call total quality railroading. On cost and productivity, we did what we said we would do. And in several areas, we did better. We moved 3% more GTMs in 2025 with 4% fewer employees. That's 7% productivity. Our network is humming, and in 2025, we delivered steady efficiency gains with improved fluidity, asset utilization, and day-to-day execution that our customers can feel. These aren't one-off wins, but they're the product of sustained discipline. And a team that knows how to execute. With that, I'll turn it over to the rest of our leadership team to walk through the quarter in more detail. John, let's start with you. John Orr: Good morning, and thanks, Mark. I want to repeat Mark's opening comments, recognizing the outstanding railroaders across all of Norfolk Southern. Today, I will highlight their resilience, discipline, and committed leadership that produced the transformational results that I'll share with you today. 2025 was a defining year for operations. We strengthened the core of the franchise. Delivered measurable improvements in safety and service and advanced the structural changes required under PSR 2.0 to build a more resilient and efficient railroad. Despite macroeconomic volatility, weather-related disruptions, and the operational transitions required by the zero-based plan, the team executed with discipline and intention. The progress achieved in 2025 reflects the maturing operational culture when grounded in accountability, transparency, and intentional leadership. And positioned us to enter 2026 with stronger fundamentals, improved cost discipline, and a more reliable network for our customers. Turning to slide five. Safety as an operating system. In 2025, we closed the year with exceptional safety performance. As we enter '26, operations strategy is clear. A relentless commitment to our core value of safety. A relentless focus on service, and decisive actions to operate with cost discipline, positioning Norfolk Southern to compete and win. The data points on this slide represent a structurally safer, more resilient railroad. Poised to deliver consistent and reliable performance. Our FRA reportable injury ratio improved 15% to 1.0. And reportable accidents improved 31% to 2.19, reflecting meaningful sustained progress that underscores the effectiveness of our transformation. We closed the year with a capstone and tremendous momentum. Delivering a quarter with zero reportable mainline derailments. Finishing the year with an industry-leading 0.43 ratio. For the quarter, our mainline accident rate dropped to 0.13. A 71% improvement year over year. Taken together, these results are balanced and intentional. We are developing generational railroaders through the Thoroughbred Academy, placing people in the right roles with the right workload and reinforcing organizational clarity. Soft Work Authority is respected and safety accountability is synchronized at every level. Turning to slide six. Disciplined scheduled operations. Our PSR 2.0 transformation has been rapid, multidimensional, and disciplined. It is an operating model designed to simultaneously deliver safety, service, and productivity. In 2025, we focused on delivering high-quality service and reducing costs in response to variability. One of our most effective productivity levers was train operations. Increasing train size while lowering the horsepower used to move those trains. Throughout this effort, we were intentional about protecting service performance and keeping the network operating at a low-cost structure. This strategy delivered meaningful results. Train load increased 4%. Horsepower per ton decreased nearly 10%. Fuel efficiency improved 4%. And GTMs per crew start rose 2.5%. War rooms have matured into a core competency. Improving over-the-road performance, tackling complex mechanical, and need for speed challenges. Year over year, unscheduled stops declined 31%. And through zero-based plan migrations, Q4 2024 versus Q4 2025, we reduced qualified T and E headcount by 76% for the full year. Let's go to the balance line for a minute. Our new wheel integrity system introduced just last quarter has already proven its value. Pinpointing a critical external vendor casting flaw on a wheel set that had been in service for less than a week. The new system, internally developed by NS, coupled with our relentless root cause investigation with stakeholders, confirmed there were seven additional brand new wheel sets across North America with the same manufacturing defect. Our findings and the collective actions of stakeholders led to an immediate industry-wide recall of these defects across North America. This is a powerful example of how Norfolk Southern's advanced digital capabilities help us solve real problems with scale, speed, and accountability. From an infrastructure point of view, mega work blocks continue to elevate productivity. In 2025, we delivered our $2.2 billion capital programs on time and on budget. Network reliability derived from our PSR 2.0 flywheel has allowed us to reduce our 2026 capital envelope by a further 14%. Bringing our 2026 capital budget down to approximately $1.9 billion, delivering a two-year $450 million planned capital reduction while supporting a safe and reliable network ready for future growth. Turning to slide seven. Continuous measurable improvement. Our team delivered a clear and compelling result. Even after raising our cost takeout commitment to $200 million during the year, we outperformed that higher target delivering $216 million in full-year savings. As we have said before, our team is never satisfied. As you can see in the chart, we exceeded our 2025 cost takeout targets. And we are once again raising our 2026 cost takeout savings commitment from $100 million to $150 million, bringing our three-year cumulative total cost takeout to approximately $650 million. This underscores the strength of our PSR 2.0 transformation. And our committed leadership to deliver. Turning to 2026. We are intensifying efforts to lower dwell for both cars and locomotives. We will apply our new zero-based terminal methodology to terminals with outsized consumption of core resources and assets. By challenging and strengthening processes, our ZBT will instill a factory management mindset. Empowering terminal teams to operate their yards like small businesses. Supporting this shift are our clarity camps. Which will equip frontline supervisors to think like owners, understanding how their decisions influence cost, how they drive profitability, and how to do so while maintaining industry-leading safety performance. They will gain a deeper appreciation for the cost of every asset. And help build a bottom-up culture of disciplined cost control. I'm proud of how our team performed in 2025. They embraced change, delivered results, and strengthened the foundation of this railroad. We have talent. We have 19,000 railroaders who deliver safety with intention. Where discipline drives performance, where accountability builds trust, and where culture fuels pride. Our people are propelling our PSR 2.0 transformation shift by shift, mile by mile, with intention and clarity. Now I will pass the mic to Ed. Ed Elkins: Thanks, John. Let's move to Slide nine. Overall, this quarter presented challenges for both volume and for revenue. As you can see on the slide, merchandise led the way. Although our success was tempered by challenging market conditions, within Intermodal along with persistently weak export coal markets. Overall volume for the fourth quarter was down 4% driving a 2% reduction in total revenue. The volume impacts were partially offset by positive mix with RPU increasing 2% year over year. Now within merchandise, volume increased 1% from a year ago driven by auto and our chemicals markets. Merchandise revenue, less fuel, grew 2% year over year, reflecting strength in both volume and price supported by our strong service product that John mentioned. RPU less fuel grew 1% year over year within the segment, as negative mix offset core pricing most notably mix within the chemicals franchise. In our intermodal business, shifting market conditions during the quarter drove a 7% decline in volume. RP was up slightly at 1% as we continue to compete in an unexceptional pricing environment, leading to a 6% decline in revenue. Let's look at coal. Volume was up as increased electricity demand, favorable natural gas prices, and regulatory support gave strength to our utility markets, which was partially offset by reduced volume in export. So while volume was up 1%, revenue was down 11% as lower seaborne coal prices drove RPU less fuel down by 12%. If you'll turn with me now to slide 10, let's review the full year. Walking left to right on the waterfall chart, we achieved an outstanding year in our merchandise business, growing revenue less fuel by $287 million or 4% through volume growth and pricing discipline. To underscore the strength, we delivered record annual revenue and record revenue excluding fuel across each of the underlying merchandise business groups, for the full year 2025. Now I want to drill into this one just a bit. We delivered a record year for our automotive franchise. Setting a record for total revenue and revenue less fuel. And this performance was enabled by strong train performance and car order fill, thanks to our operations group. As well as focused efforts by our customer logistics group to reduce on terminal dwell. The key result of these combined efforts was a 4% year over year improvement in equipment cycle times and substantially greater terminal fluidity allowing us to take advantage of the favorable market conditions and deliver the record revenues that I just noted. A really nice job by everyone involved and our customers took note. Gaining confidence in our service throughout the year. Back to the numbers, Intermodal revenue finished flat as we weathered trade volatility throughout the year, and second half share losses due to merger-related competitor activity. Seaborne coal market weakness throughout the year drove $108 million year over year decline even as utility coal volumes increased 2025. Finally, volatile fuel surcharge revenue represented $134 million of drag for the year. These factors combined to produce a modest increase to overall volume and revenue. Moving to Slide 11, we have our market outlook. Like last quarter, we continued to navigate an uncertain economic environment. For our merchandise markets, we expect a mixed outlook for vehicle production due to affordability challenges and the fading EV incentives. Overall manufacturing activity remains mixed with output forecast to expand modestly amid ongoing economic uncertainty. Elevated natural gas fracking and drilling activity in the Marcellus, Utica is contributing to stronger demand across non-crude chemical energy sectors. Driving increased engagement and business development with both new and existing customers. Looking to our intermodal markets, import volumes are expected to remain soft due to continued tariff volatility and evolving trade pressures. Warehousing capacity is increasing, as companies deplete inventory backlogs and truck capacity remains oversupplied. All these factors plus an enhanced competitive environment in response to our merger announcement, shape our restrained view for intermodal. Seaborne coal prices have remained pressured. With significant uncertainties surrounding export trade. But we expect that utility demand to remain elevated due to continued strong demand for electricity generation in our service area along with supportive natural gas pricing. Alright. Let's quickly turn to slide 12 while we're on the topic of coal. We're proud to be partners with Warrior Met Coal in servicing their new Blue Creek facility in Alabama. Back in 2024, we noted that the mine was in development. And we're equally proud now to have attended the formal ribbon-cutting ceremony earlier this month. As the mining operations, the belts, and the rail loadout are now fully operational, we're pleased to be ramping up rail service and delivering high-quality metallurgical coal to markets around the world. As always, we want to thank all of our customers for their continued partnership and their business. The entire NS team is aligned around delivering the service that our customers need every day, building trust as a vital partner in their supply chains. And with that, I'll hand it over to Jason to review our financial results. Jason Zampi: Thanks, Ed. I'll start with a reconciliation of our GAAP results to the adjusted numbers that I will speak to today on slide 14. Total costs attributable to the Eastern Ohio incident were $29 million which included $24 million of recoveries under our property insurance policies. In addition, we recorded $65 million in merger-related costs consisting primarily of legal and professional services and employee retention accruals. Adjusting for these items, the operating ratio for the quarter was 65.3. And from an EPS perspective, we earned $3.22 per share. Moving to Slide 15, you'll find the comparison of our adjusted results versus last year and last quarter. Both comparisons reflecting a degradation in the operating ratio due to the top-line headwinds, as Ed just discussed. The drivers of the revenue decline are similar to what we discussed last quarter, and additionally, as we previously guided, we absorbed a full quarter's worth of impact from competitor responses to the merger, in the fourth quarter. Expenses were favorable by 1% in both periods primarily due to one large land sale in the quarter that benefited operating expenses by $85 million. Those year-over-year expense variances are laid out on Slide 16. Overall, we had guided to quarterly expenses of $2 billion to $2.1 billion. And absent the large land sale that we weren't counting on closing in the quarter, we were right within that range. Notably, inflationary pressures we've experienced throughout 2025 in wages, materials, and depreciation continued to be headwinds in the quarter. That coupled with timing of certain expense activity drove increases primarily within purchase services and materials. Nonetheless, we continue to focus on the controllables. Delivering significant improvements in fuel efficiency and continued strong labor productivity. Lastly, I'd point out we did have some recoveries in the quarter associated with storm damage incurred throughout the year. All in, while there were some puts and takes in the quarter, we are pleased with how our team handled a dynamic environment. Turning to full-year results on slide 17. You'll note favorable performance across all metrics compared to last year. However, not in the way we originally intended. A year ago, we were projecting 3% revenue growth, which didn't materialize. But we did control the controllables. We had good cost discipline, and exceeded our original productivity targets, as John just discussed, by over $65 million. In addition, while the timing of large land sales are hard to predict, the actions we took to monetize these underutilized assets during the third and fourth quarters helped to mitigate the operating income shortfall from the weak macro. The fourth quarter and full year also benefited from the resolution of a state tax issue. Which increased net income and EPS by $50 million and $0.22 respectively. Overall, the bottom line grew by 5% compared to last year. Finally, moving to cash flow on slide 18. We generated $2.2 billion in free cash flow. An increase of almost $500 million over the prior year. In addition, our free cash flow conversion was very strong. With the highest conversion rate since 2021. As we had guided to, we spent $2.2 billion on our capital plan, a 7.5% decrease from 2024. Going forward, we are planning for a $1.9 billion CapEx spend in 2026. With continued focus on the safety and resiliency of our network. I'll hand it back to Mark to wrap it up. Mark George: Okay. Thanks, Jason. Before we wrap up, I want to leave you with a clear view of how we are approaching the road ahead. With the amount of change and uncertainty around us given the demand environment, and of course the pending merger, we are keeping our team focused on simple priorities for 2026. We will prioritize safety. We've got to keep our employees and our communities safe. We must continue to deliver consistent and reliable service. And we will control costs. By driving productivity across the network. All while we fight for every dollar of quality revenue that is available. While we are seeing long-awaited stabilization in truck pricing, the impacts of shifting tariff policies remain uncertain. And many customers continue to adjust to fluid conditions. The macro backdrop remains hard to read, but we are staying sharply focused on the fundamentals. For the year ahead, we expect our cost base to be in the range of $8.2 billion to $8.4 billion with an ability to accommodate a variety of volume growth scenarios within this cost envelope. We are also reducing capital spending by nearly $300 million to $1.9 billion reflecting a prudent approach in this environment while still supporting the reliability and safety of the network. Now let me close with a brief update on the merger. As you heard from Jim on Tuesday, we are working closely with UP to include the additional information requested by the STB and submit an augmented application. Taking the necessary time to ensure that it's thorough. We remain committed to working constructively with all stakeholders throughout the regulatory review. We continue to firmly believe in the benefits of creating the nation's first TransCon rail network, one that connects The United States from east to west and gives shippers a more competitive single-line rail option to ship across and within the watershed. Growth has eluded The US rails, and I strongly believe that this merger is a necessary catalyst to grow. Helping us recapture freight from the highway while supporting the reindustrialization of our country. And strengthening our supply chains while offering better opportunities for employees across a unified network. We will have a more efficient, flexible, and reliable railroad providing single-line access to more than 100 ports connecting to global markets, and 10 gateways to markets in Canada and Mexico. So to wrap as we move into 2026, the priorities for our team are clear. Focus on the preservation of safety, protect the excellent service that our customers count on, maintain tight control of our cost structure, and compete hard for quality revenue. That's how we will continue delivering value both as Norfolk Southern today and as part of a stronger future transcontinental network. So thanks for your time. And your continued confidence in our team. We'll open it up to questions. Operator: Ladies and gentlemen, if you do have any questions at this time, please your hand has been raised. And should you wish to decline from the polling process, please press star followed by 2. And if you're using a speakerphone, you will need to lift the hands first before pressing any keys. And out of consideration to other callers on the line today and time allotted for questions, we ask that you please limit yourself to one question. Thank you. Your first question will be from Tom Wadewitz at UBS. Please go ahead, Tom. Tom Wadewitz: Yes. Good morning. I wanted to ask you a bit about how you're thinking about volume. You gave us the expense guide. I just want to see if you could kind of point us to an area for volume and revenue. And also, I guess, within that, how are you thinking about, I guess, the strategy on volume? Obviously, you took a bit of a hit from the shift in some of the J. B. Hunt business over to CSX. I'm just wondering and it's a weak overall freight backdrop, right? So wondering, do you get more aggressive in your focus on growing volume? Are those efforts? Or do you kinda say, look, we'll just kinda deliver good service and we'll see what the market does, kinda take what the market, you know, brings to us? So, yeah, thank you. Mark George: Hey, Tom. Thanks a lot for the question. And you know, look, like I mentioned, it's a tough demand environment out there. Actually pretty hard to predict. As we go into 2026, just you have to understand, we're also swallowing about a point of revenue headwind from the enhanced competition that already exists out there. And some of the losses that we've had because of that new competitive environment. We feel really good coming off of '25 based on our performance in merchandise. Where, you know, we grew healthy. And we also took share. Obviously, intermodal was the battleground for us where we faced some real challenges. So it's a little bit hard to say, and I'll hand it to Ed to give you his perspective. But right now, we're really focused on just maintaining our cost within the guidance range that we gave you. We can accommodate a variety of different volume scenarios. And, you know, so we can handle growth, you know, up to several points and frankly, you know, whatever revenue we get, it's going to come with really strong incrementals. Because we've got the capacity. But Ed, why don't you build on that? Ed Elkins: Sure. And thank you, Tom, for the question. Look. We know what we have to do in 2026. We got a great record on safety right now, and our service is where we want it to be. And that's what our customers have really come to depend on. And so we're gonna fight for revenue. For every dollar, both in terms of share as well as pricing. And frankly, I expect to continue the momentum that we've had in merchandise, particularly around our price model. Now that's gonna be offset probably by the intermodal, which still looks sluggish when you think about all trucks that are still out there on the highway. And the enhanced competition that Mark mentioned. And frankly, you know, we don't see a lot of support from coal going forward, at least in the near term, in terms of price. So '25 is a volatile year, and, you know, November and December in particular, we really had a loss of momentum across the industry, I would argue. In terms of volume and demand. So it's really hard to predict where '26 is gonna land. But again, as Mark said, we know we got a 1% headwind to start with. And we think softness is probably gonna continue in the first half at least. We're gonna wait and see what happens. We are ready. Thanks, Tom. Next. Operator: Next question will be from Brandon Oglenski at Barclays. Please go ahead, Brandon. Brandon Oglenski: Hi, good morning, and thanks for taking the question. Mark, maybe you want to reply to some of your competitors because we had a call last night where maybe the view was that this merger really doesn't enhance rail-to-rail competition. Maybe customers aren't really asking for it. So maybe you want to provide a little bit of insight from your perspective. Mark George: Sure, Brandon. You know, look, railroads came out, the competing railroads came out pretty early on opposed to this before we even filed an application. Okay? Before we could even lay out the case, there was a little bit of a panicked reaction. And let's face it, they're all taking positions that they believe will benefit their own business. I understand it. But it's not really however it's couched, it's not really positions that are based on customer interests. Or benefiting the industry. I feel when you look at it, a lot of misinformation out there. There's a lot of scare tactics that are out there. And then those are being circulated by the other railroads and we're addressing those. But when it comes to prices as an example, you know, those are based on market principles, not simply the elimination of arbitrary geographic barriers that exist like the Mississippi River. Remember, the customers aren't losing options. BASF, they're still competing in the West. With the combined railroad. CSX is still competing in the East against the combined railroad. You know, they all say alliances work just as well as a merger. But then they've you know, so they've quickly joined up with each other in various alliances, and they took business from us. It's enhancing competition. No doubt about it. So their arguments are deeply inconsistent. Ultimately they know that to compete with seamless single-line service, they've got to compete harder including likely lowering their prices. And that's what customers should be excited about. And frankly, that's what scares the other railroads. And that's why you hear such a backlash about this merger. I would argue we're on the side of nobility here because we're giving customers more options than they have today. And the customers I speak with, they know it. You know, they really, they're rolling their eyes at a lot of the noise that they're hearing from the others. They actually want deeper access into the watershed via rail to new and unserved markets or underserved markets. So they can move the freight onto the railroad from the costlier highway solutions. So that's basically it from my perspective, full stop. Thanks, Brandon. Operator: Next question will be from Jason Seidl at TD Cowen. Please go ahead, Jason. Jason Seidl: Thank you, operator. Mark and team, good morning. So sticking on the sort of the competitive nature, do you guys still think that there's going to be a little bit of bleed of freight to some of that competitive environment that exists in the marketplace as we move throughout the year and sort of steps are you taking to sort of stem the tide? And then maybe if as a quick follow-up, the $300 million reduction in CapEx can you talk about where it comes from? Thanks. Mark George: Sure. Yeah. I mean, more bleeding, would say, we've got to lap the impact of what happened in the you know, September time frame. And as we lap that, we're looking at like I said, a full point of headwind. Could there be more? Well, I mean, like I mentioned, we are in a new enhanced competitive environment. And you know, we're fighting back. We've offered new services. And will the other railroads compete harder? Probably. But right now, what we've got line of sight to is about 1% of revenue headwind. But you know, I've kinda told the team we're gonna fight like hell for quality revenue here. So we wanna go get attractive carloads, and we wanna try to you know, optimize our revenue line as best as we can. We're not sitting back and take body blows. So we're gonna fight like hell, and we're like I said, offering new products at the same time. So Ed, you wanna add on to that a little bit? Ed Elkins: Yeah. Not much to add. You know, you think about products like our new Louisville service in conjunction with UP as well as what we just announced up in Air, Massachusetts. Which will enhance the competitive landscape in New England. That's just two examples of what we're doing to fight back. There's more in the pipeline, and we'll have those out as soon as we're ready. You know, frankly, Mark hit it. We of what we know, know, it's about a point of headwind. Customers as Mark said, they're gonna choose the options that make the most sense for them economically. And that's what we're focused on. Jason, you wanna talk about CapEx? Jason Zampi: Yeah. Yeah. So, you know, Jason, thanks for the question. I think just to be clear, our capital spending as it's always been and as we will continue to as we move forward, really focused on the safety and resilience of our network that I talked about. You know, we've also done a lot of work over the last couple years to build the foundation for growth. You've heard us talk about that in strategic areas like the three b down in Alabama. To support the Warrior Coal partnership as an example. So we're now benefiting from a lot of those investments. Specific to the reduction in capital, you've seen not only over the last year, but our projection for 2026 it's really the result of, you know, asset efficiency and the gains we've made from a net fluidity perspective, it's really allowed us to pull back on some of the equipment spending as we're turning our assets more quickly. You know, John, I think maybe some color on locomotives and the capacity that we've created. John Orr: Yeah. Yush and I couldn't say it any better than you did. It starts with our productivity. We're sweating every asset creating accountability for the consumption of our resources. And the value where we've generated over the last call it, two years is really paying dividends in that. So we're able to protect all of the core investments to make the harden the network from an engineering perspective, harden and modernize our technology structure, and then take some reinvestments in our growth and our capacity so that we're able to grow be poised for growth for Ed without having to do those capacity projects. And as we've committed to, as always, as our business pipeline comes to fruition, we'll make those smart strategic and very tactical investments. From a capital perspective. Very, very specifically. So we have a no regrets approach to things. And we're gonna sweat every asset. Alright. Thank you. Operator: Next question will be from Chris Wetherbee at Wells Fargo. Please go ahead, Chris. Chris Wetherbee: Hey, thanks. Good morning, guys. I was hoping maybe you could unpack the OpEx guidance, maybe help us walk from, I guess, the roughly $8 billion in 2025 to where you see it going in 2026? And I know it's difficult to predict the top line from a volume perspective given the macro and competitive forces. But I guess, do you see a path to year-over-year earnings growth? I guess, the OpEx number gives us a little bit of context of what the potential earnings power of the business could be. I'm just kind of curious how you think about year-over-year earnings growth in that context. Jason Zampi: Yes. Let me start with the OpEx side. So when I look at this, Chris, I'd really put the expense drivers into three buckets. So first, we've got some outsized inflation. You think about, I think the latest CPI forecast I saw was about 2.6%, 2.7%. We're expecting inflation more in the 4% range. So, you know, we've got things like our wage inflation. We had a 4% increase last July that's, you know, coming in still into the 3.75% as we move into the back half. Our health and welfare rates are up over 12%. You know, we've got insurance premium increases. So you put all those things together. In twenty five percent insurance premium increase. That's right. That's right. And so, you know, you put all that together and that's about a 4% increase in inflation. In addition, you know, from a land sale perspective, we're expecting some more normalized land sales. We had two large ones that we called out in the third and fourth quarters. But even without those, we had some smaller sales that totaled about $70 million in 2025. And next year, we're really back to that $30 million to $40 million run rate. So that's another headwind. Finally, the third bucket is productivity. So we talked about another $150 million of productivity that we're going after here, and that's, you know, that's on the back of $500 million that we've already achieved over two years. Almost hitting our full three-year guide within that two-year time frame. So you put all those three things together, and then I think, you know, when you think about the range, it's really based on a range of various volume outcomes that Mark talked about that we're really ready to handle in any scenario. Mark George: Yeah. So mean, in the end of the day, we've got higher inflation than obviously any of us want. So we've tasked ourselves with going after more productivity than we originally had in the line of sight, but there's still some you know, some leakage that throws the OpEx line. So alright. Thank you very much. Operator: Next question will be from Scott Group at Wolfe Research. Please go ahead, Scott. Scott Group: Hey. Thanks. Good morning. So Mark, anything from the STB process or rejection of the application, anything in there actually concern you as it relates to sort of ultimate merger approval odds? And then just separately, Mark, I've heard you now say fight for business five times, including, I think, one fight like hell. I haven't really heard that language before. What does this ultimately mean from a pricing standpoint? Do we need to think about what are we seeing with price right now? Do we need to think about price just differently right now given this backdrop? Mark George: Alright. I'll start with the first point. Obviously, the turn back from the STB was not what we wanted, but all the precedent and history shows that this is what typically happens. It's hard to get this right the first time around. Nobody really does. When an application is 7,000 pages and marked incomplete, you feel you know, kinda bummed about it. But we shouldn't you know, we shouldn't be too surprised. And so the beauty is they've given us the path to completeness. We know exactly what we need to do. And we're working on it. And as kinda Jim mentioned on Tuesday, we'll we're gonna get it in, and we're gonna get it in right. We're gonna we're working hard together to make sure that thorough. And at the end of the day, the STB has made it very, very clear they are not reviewing, they did not review this based on the merits. They reviewed it based on completeness. So don't read anything else into it other than it was incomplete. So they've given us the answer key to completeness, we'll get it done. So we're not we're not too worried about that. Yeah. Look. When I say fight for business, it's a rallying cry to this organization to go out and continue what we did as an example in merchandise. Where we had an excellent year last year. We grew our merchandise business. And we grew yields. So we're really proud that we had that double coupon. And it's a rallying cry. We're going to remain disciplined. We actually had very, very good yield performance in the areas under our control. Pricing core pricing was really good. And the volume growth was really good in merchandise and auto. Was kind of overwhelmed and offset by the challenges that we had in seaborne coal pricing. As well as fuel. So that kind of neutralized what you see a little bit on that great top-line performance we had in merchant auto in particular. So that's kind of what I mean, and I wouldn't read anything into it. There's you know, we need quality revenue. And you heard me say that too. So we're not we're not gonna do anything other than what we've been doing this past year, which is to fight like hell to offer new products and create a compelling environment for customers come onto our railroad. Yeah. We'll fight for every revenue dollar. Yeah. Quality revenue dollar there. Yep. Thanks a lot, Scott. Operator: Next question will be from Bascome Majors at Susquehanna. Please go ahead, Bascome. Bascome Majors: Yes. Thanks for taking my questions. Just to follow-up on the Fight Like Hell commentary, can you talk about where you see maybe more tactical opportunities where there are some potential wins in the merchandise portfolio that hits those quality revenue thresholds. And, you know, on the other side, the enhanced competition you know, sorta leakage from some of the competitive actions. You've talked a lot and sized up the J. B. Hunt thing. You know, is there anything else you think might be on the horizon that could move the needle in 2026 there? Thank you. Ed Elkins: Sure. I'll start back at the beginning of your question, which was, where do we what do we think we can grow? You know, we had really good tailwind behind us in our automotive markets as well as some of our discrete chemical markets throughout the year. That includes non-petroleum chemicals as well as some of our energy markets. And waste markets. We think about automotive a couple different ways. One is we serve more direct auto origins than I think just about anybody. And because of the network and the way it's running right now, which I talked about during prepared remarks, you know, we were able to take everything that our auto partners can throw at us in terms of volume, and that's that is a real testament to fluidity of the network, and as John mentioned, sweating every asset, you know, that's what gave our partners in the industry the confidence to deliver that volume to us because they knew we can handle it. And that confidence increased throughout the year. So I look at those markets and that kind of performance as a place where we're gonna be able to continue to capitalize. We'll see what Intermodal does. You know, we're four and a half years into a freight recession. And at some point, it's gonna end if demand comes back and we're ready for that too. And frankly, you know, the utility markets, we think, for coal are gonna be strong this year like they were last year. Seaborne's gonna be a tough fight, though. Another fight. So that's where we see the opportunities. Thank you. Operator: Next question will be from Brian Ossenbeck at JPMorgan. Brian Ossenbeck: Hey, good morning. Thanks for taking the question. Just a quick follow-up for Jason or Mark. How much retention expense do you have in your OpEx guide? Maybe you can give us a little bit of color on how that's going given some of the challenges you're talking about here. Then maybe for John, obviously, STB has talked about some form of reciprocal switching. You've got experience over your career in Canada. How do you think that would be applied, or how would it what would the impact be if it was applied as written in an Eastern network? You know, what would you think would be some of the challenges that could come from that? And, do you think you have to deal with this with or without M and A? Thanks for your time. Jason Zampi: Yes, Brian. On the retention dollars, so that's in our merger-related cost line item, which is excluded from a non-GAAP perspective. So the guide we gave you of $8.2 to $8.4 billion is excluding those amounts. John Orr: Well, I think the proposed rulemaking is really indicative of customers being dissatisfied with service in general in certain locations. And the good news is that we're building the case of great service and the focus we're putting on our franchise to the commitment we've made to our customers to deliver outsized service performance and value really moots the whole argument associated with that proposed rulemaking. If they've got great service, there's no reason to wanna go somewhere else and it's a little different than in Canada where you have, you know, two transcontinental railroads that don't give the options that customers have here in The US. So I'd say it's early. It's proposed rulemaking. And I think there are two different distinct options. And from an Eastern Railway and really for the sector, our job is to perform with exceptional reliability with enough resilience to carry the planned and the emerging volumes that come with it. And to have the overall commitment to this to the ecosystem that we support. That's what PSR 2.0 does. And we're really proud of how we performed. My job is to give no customer any reason to wanna talk to Ed about going somewhere else or anything else like that. So we're really, really pleased with the competitive service product we put out there. We always wanna be better. Mark is you guys hear the word fight a few times, you get excited. We hear it every day here. And he's tenacious on safety and service. And that's what we're all about. And that's why we have 19,000 committed railroaders with absolute clarity on what makes this company work. Service and safety. Thanks, Brian. Operator: Next question will be from David Vernon at Bernstein. Please go ahead, David. David Vernon: Okay. Good question, please? Operator: Apologies. Moving on to yes. I'm sorry. Moving on. To, Richa Harnain at Deutsche Bank. Please go ahead. Richa Harnain: Hey. Is this working? You guys hear me okay? Operator: Yes. Richa Harnain: Okay. Great. Yeah. So, basically, what I wanted to talk about was, Mark, you know, you said your cost target the cost target you laid out is ready to absorb a variety of different revenue scenarios, including higher ones. Back of the envelope math for us suggests you need to grow revenues by, like, pretty significant amount, call it maybe mid-single digits to not see a deterioration in OR. Just is that correct? And is there a reasonable scenario you think that could get you there? And then just, you know, on that, if you are getting some revenue tailwinds, should we assume higher personnel expense or like you said, you know, you've been doing a really good job on productivity, I think, headcount was down 4%, volume up 3%. Should we assume headcount kind of can stay where it is if you potentially pick up extra revenue? Thanks. Mark George: Yeah. I'll let Jason talk to this. But I think, you know, when you look at the low end of our range, it's you know, I think basically a 1.10.8% growth. So in spite of all of those inflation numbers that we gave you, and other headwinds, the productivity really offsets a lot of it and leaves us with 1.8% growth. So that's where we that's where we kind of see a more moderate revenue outlook. And, you know, as you grow revenue, you might have some volumetric costs that bring you higher into that cost range. Now from a headcount perspective, I think what you're going to continue to see is us continue to trip down a bit. Especially if the volume isn't there. I mean, we have to continue hiring our trainees, our conductor trainees to replenish the pool because we do have a fair amount of attrition, but there will still be net attrition. And I think, you know, we put that model out there in 2025. You saw incredible productivity. You know, I think GTMs were up 3% and headcount was down 4%. That's 7% productivity right there. You're going to see similar type of results here in 2026. But Jason, what else do you want to add? Jason Zampi: Yeah, no, think you hit it well Mark. I think, you know, the key here were the guide to expenses controlling what we can control. And specific to your headcount question, just a little more color there. We've held headcount relatively steady during 2025 around that 19,350 employees quarterly average. A bit lower than we were projecting for 2025. And as Mark said, know, we'll attrite down a little bit, kind of flat to down, for 2020 but really trying to maintain that trainee base. And the one thing that we've always reinforced as well is the overall productivity and decrease the overall cost associated with employee and the workload that they have. And so as we make the system work better, we reduce recrews by our technology and the implications of running a tighter network. That translates into less overall wages by less detention, less taxis, less just cost of disruption. That feeds itself into the productivity we associate with locomotives. They're not sitting idle longer. They're not wasting fuel. All of those things go hand in hand. So there one indication on productivity headcount really drives or is driven by dozens and dozens of metrics that treat on their own, a lot of small wins, some outsized wins that all come into the cost reduction program that we've got so we can manage expense to workload. Okay. Thank you. Operator: Next question will be from Walter Spracklin at RBC Capital Markets. Please go ahead, Walter. Walter Spracklin: Yes. Thanks, operator. Good morning, everyone. Just wanted to understand the productivity gains that you flagged. I think it was $260 million in total. Land sales, that I know you did north of $150 million land sales. Was that in the productivity number? And then just following up on the truck competitive lane, truck on the pricing side, truck competitive lanes, we've heard about capacity taken out of the truck market now. On some of the regulations. And higher prices. So is it is that having any positive impact on your efforts toward truck to rail conversion? Truck prices move higher and their capacity lower? Jason Zampi: Yeah. Thanks, Walter. This is Jason. I'll start with your, the productivity question. So we had, as you mentioned, about $150 million in kind of outsized land sales third and fourth quarter. That is excluded from the $216 million in productivity that we earned during the year. Mark George: Yeah. And, talking about you know, truck competitive lanes and, competition from the highway, look. All those factors are gonna help over time. Whether it's a reduction in the available driver pool, or the amount of trucks that are out there on the road themselves. But to be clear, in my career at least, I've never seen a recovery that was supply-side led. It has to be demand-led. And that's where that's where I think we're really gonna be looking hard to see what The US consumer does and, you know, what the market can offer. Thanks a lot, Walter. Thank you. Operator: Next question will be from David Vernon at Bernstein. Please go ahead, David. David Vernon: Hi. Thanks for getting me back in the queue. So Ed, with the coal outlook, I wonder if you can help understand kinda what's happening on the pricing side right now. Obviously, in the net side, I understand it's challenged, but are rates still declining or are they stable and we're just we just have to get through the comps? And it feels like or it actually looks like when I go and check, like, Australian benchmarks in the global market, pricing's actually recovered a little bit there. I'm wondering if you can help us understand maybe why that's decoupling from The U. S. Market a little bit? Thanks. Ed Elkins: Sure. Well, it wouldn't be earnings call if we didn't go coal pricing question. So thank you for that. We've seen that benchmark price slide throughout the year. Pretty consistently, but you're right. We've seen a little uptick here in January in the benchmark price. And that's given us some encouragement, but when I look at the forwards, you know, it's still declining for at least the first half of the year. And we'll see what happens in the second half. In terms of decoupling, I'm not sure if the pretty thinly traded market, frankly, on a global basis. Even. And, you know, there's a lot of weakness both on domestic side for Metcold and, frankly, on the on the global side. We're ready to handle it. And as we talked about with Warrior, we got a have a fantastic new coal mine that's now pumping out coal for the global markets and that's exciting. As those markets recover, we're gonna be in a really good place. But I don't see it at least in the first half. I think there's probably some geo that have played too where Australia is largely supplying China now? Yeah. Not us. Right. So I think some of who procures from who can create a little disconnect in the markets. Thanks for the question. Yeah. Thank you. David. Hey. Look. To recap Thank you. To recap 2025, just to put it all in perspective, I think we delivered extremely solid productivity. $216 million of productivity, and that follows $292 million that we delivered in 2024. But this year in particular, we moved 3% more GTMs with 4% fewer employees that's 7% headcount productivity. T and E productivity, actually improved 9%. We drove 21% reduction in recrews. And on top of that, we delivered 5% fuel efficiency in the year, which is what we budgeted for that I thought was gonna be a stretch and probably we wouldn't get there all the way, but we did. We delivered 5%, and we pretty much got four to 5% each quarter of the year. So really great performance there. We improved our locomotive productivity by 10%. And we kept a lid on our OpEx by really offsetting inflation with this incremental productivity. And then on top of that, we grew merchandise and our merchandise share with healthy core pricing. So really pleased with that, and we did it all while delivering outstanding service throughout the year. And really excellent safety performance as John detailed in his prepared remarks earlier. You know, we've got industry-leading accident rates right now. And mainline derailment rates. So really proud of what we did. And we did this all while we negotiated a transformational merger for the industry. And began the heavy lift of a whole application process. So we didn't get distracted by that. We still delivered on that. The challenge in '25 was just simply revenue was flat. We had flat carloads, and, you know, the negative fuel and seaborne coal pricing offset that good core pricing we had in merchandise, as well as we had some favorable mix that could offset. So that's kind of 2025 in a nutshell. And again, for 2026, we aim to keep the priority on safety, service, responsible cost controls that don't compromise safety or service. And fighting for quality revenue. So we guided you to a cost envelope, the demand environment, it's the wild card. We can handle whatever demand comes our way. And I can tell you whatever revenue growth we do get, it's going to drop through at attractive incrementals. Given the capacity that we have. And I'll just leave you with this. Several of us are gonna be working quite hard through the year to try to get this merger across the finish line with the STB process. But we will protect the vast majority of our business leaders from distraction so we can continue to execute on a daily basis to bring these two well-run railroads together. So thank you very much for the participation today. And please all stay safe. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Enjoy the rest of your day.
Operator: Good morning, and welcome to the Allegro MicroSystems third Quarter Fiscal Year 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jalene Hoover, Vice President of Investor Relations and Corporate Communications. Please go ahead, ma'am. Jalene Hoover: Thank you, Michelle. Good morning, and thank you for joining us today to discuss Allegro MicroSystems' Fiscal Third Quarter 2026 Results. I'm joined today by Allegro's President and Chief Executive Officer, Michael Doogue, and Allegro's Chief Financial Officer, Derek D'Antilio. They will provide highlights of our business, review our quarterly financial performance, and share our fourth quarter outlook. We will follow our prepared remarks with a Q&A session. Today's call includes remarks about future expectations and plans, which are forward-looking statements. Such statements are based on current expectations and assumptions as of today's date and are subject to risks and uncertainties that could cause actual results and events to differ materially from those anticipated or projected on today's call. The company assumes no obligation to update these statements, except as required by law. For a discussion of these risks and uncertainties, please refer to today's press release and the Risk factors contained in our periodic filings with the SEC. Additionally, we will refer to non-GAAP financial measures during today's call. Today's earnings press release, which is available on the Investor Relations page of our website at www.allegromicro.com, contains important information about our non-GAAP financial presentation and also includes reconciliations of our non-GAAP financial measures to the most directly comparable GAAP measures. This call is also being webcast, and a replay will be available in the Events and Presentations section of our IR page shortly. It is now my pleasure to turn the call over to Allegro's President and CEO, Michael Doogue. Michael? Michael Doogue: Thank you very much, Jalene, and good morning, and thank you all for joining our third quarter earnings conference call. We continue to see positive momentum across the business, once again achieving growth in bookings and backlog to multi-quarter highs, and securing significant design wins in our strategic focus areas led by ADAS, XEV, and data center. This momentum has enabled us to deliver strong third quarter results with sales above the high end of our guidance range at $229 million and EPS above the midpoint of our guidance range at $0.15. E-mobility led continued growth in third quarter automotive sales. Our automotive sales growth was once again fueled by Allegro content gains and the increased adoption of XEV and ADAS systems in cars. This momentum is reflected in our third quarter automotive design wins where e-mobility led the quarter. In ADAS, we secured key wins for position sensors and motor drivers in electronic power steering systems. We also had several design wins for higher dollar content steer-by-wire systems with OEMs in North America, China, and Europe. In XEV, we won several designs with our current sensor ICs and onboard charging systems, and high voltage traction inverters. In our industrial and other end markets, sales growth was again led by data center, establishing a new quarterly record at 10% of sales, up 31% sequentially. The rapid expansion of higher power AI servers continues to drive increased demand for our fan driver ICs. Additionally, our market-leading high-speed current sensors are ramping in data center power supply applications, where we enable crucial improvements in efficiency and power density. We are pleased to report that current sensors were a growing contributor to data center sales growth. Looking ahead, we are also building another growth vector in the data center with our isolated gate driver ICs. We recently released our first isolated gate driver IC for silicon carbide transistors, and we are broadly sampling this new IC to market leaders in the data center power supply market. Our growing product portfolio and strong market pull were also evident in our industrial design wins where data center continued to lead third quarter wins. Our motor drivers for cooling fans represent the majority of data center wins in the quarter, with current sensors also securing meaningful wins and driving future content gains. Sales for many of these new wins will ramp within calendar year 2026. To further capitalize on our industrial opportunities, we conducted a Robotics Roadshow in the US, Japan, and China. This focused customer activity confirmed new wins and pilot production ramps with market leaders in quadruped and humanoid robots. Our customer engagements validated our high content opportunity in robots, including up to 150 Allegro sensor ICs, and 50 of our power ICs in advanced humanoid robots. Let me now pivot to our focus on relentless innovation. During the quarter, we introduced an innovative current sensor that cuts power-related losses by up to 90%, enabling new levels of power density in XEV and data center applications. This IC can measure up to 200 amperes of current in a very tiny form factor and is gaining broad customer interest while deepening our competitive advantage. For some perspective, the maximum current consumed by the average American household is 200 amperes, and our new sensor can measure 200 amps of current in a package form factor that is less than half the size of a postage stamp. As I mentioned earlier, we also expanded our power through isolated gate driver portfolio by releasing our first IC that drives a broad array of silicon carbide transistors. Our isolated gate driver ICs present a significant content uplift in automotive and industrial markets. We have sampled our new silicon carbide driver to a broad group of industrial customers, and we are also sampling market leaders in the XEV charger and inverter markets. We also attended CES this quarter. Robotics was the highlight of the show and a hot topic of conversation with our customers. We had dozens of customer meetings at the show, and it is clear that customers view our highly differentiated market-leading TMR sensors as a key enabler for their next-generation platforms. Additionally, existing and new customers confirmed our belief that Allegro's unique motor driver ICs allow them to make smaller, quieter, and more efficient electric motors in both automotive and industrial applications. In summary, we are seeing positive momentum across the business and continue to execute on our strategic priorities. We are excited to share more regarding our strategy, growth drivers, and target financial model at our upcoming analyst day in a couple of weeks. I'll now turn the call over to Derek to review the Q3 2026 financial results and provide our outlook for the quarter. Derek D'Antilio: Thank you, Michael, and good morning, everyone. Starting with our third quarter results, net sales were $229 million and non-GAAP earnings per share were $0.15. As a percentage of sales, gross margin was 49.9%, operating margin was 15.4%, and adjusted EBITDA was 20.1% of sales. Total Q3 sales increased by 7% sequentially and 29% year over year. Sales to our automotive customers increased by 6% sequentially and 28% year over year, and within auto, eMobility sales increased by 46% year over year. Industrial and other sales increased by 11% sequentially, and 31% year over year led by continued strength in data center to record levels. Distribution sales increased by 11% sequentially and 39% year over year. End market demand remained robust and both sell-in and POS increased in the quarter. From a product perspective, magnetic sensor sales increased by 5% sequentially, and 21% year over year, and sales of our power products increased by 9% sequentially and 43% year over year. Sales by geography on a ship-to basis were as follows: 30% of sales in China, 27% in the rest of Asia, 17% in Japan, 15% in The Americas, and 11% of sales in Europe. Now turning to Q3 profitability. Gross margin was 49.9%, an increase of another 30 basis points sequentially. Operating expenses were $79 million, an increase of approximately $3 million compared to Q2 largely due to variable compensation. Operating margin was 15.4% of sales, an increase of 150 basis points compared to 13.9% in Q2 and 10.8% a year ago. The effective tax rate for the quarter was 7%. Third quarter interest expense was $4.7 million. Third quarter diluted share count was 186 million shares. And net income was $29 million or $0.15 per diluted share. EPS increased by 15% sequentially and 114% year over year on sales increases of 729%, demonstrating the significant operating leverage in our business model. Moving to the balance sheet and cash flow. We ended Q3 with cash of $163 million and our term loan balance was $285 million. Cash flow from operations was $45 million, CapEx was $4 million, and free cash flow was $41 million or 18% of Q3 sales. From a working capital perspective, DSO was forty days compared to forty-five in Q2. And inventory days were one hundred and thirty-three days compared to one hundred and thirty-five in Q2. Finally, I'll turn to our Q4 2026. We expect fourth quarter sales to be in the range of $230 to $240 million. The midpoint of this range equates to a 22% year over year increase. Additionally, we expect the following on a non-GAAP basis: Gross margin to be between 49-51%. The midpoint of this range equates to an increase of 440 basis points compared to 2025, again showing the operating leverage in our business. Operating expenses are expected to increase by approximately 3% sequentially largely due to annual payroll tax resets. And earlier this month, we repriced our term loan down another 25 basis points to SOFR plus 175 basis points. This repricing reflects our lenders' confidence in our business model and our financial discipline. Interest expense is projected to be $5 million in Q4, which includes approximately $700,000 of expenses related to this repricing. We expect our tax rate for the quarter and the full year to be 8%. We estimate that our weighted average diluted share count will be 186 million shares. And as a result, we expect non-GAAP EPS to be between $0.14 and $0.18 per share. Now I'll turn the call back over to Jalene for Q&A. Jalene Hoover: Thank you, Derek. This concludes management's prepared remarks. Before we open the call for your questions, I'd like to share our fourth fiscal quarter conference lineup with you. We will attend Morgan Stanley's Technology, Media and Telecom Conference on March 2 in San Francisco, and Loop Capital Markets Seventh Annual Investor Conference virtually on March 9. And finally, we are excited to host our upcoming Analyst Day event on February 18 in Boston and look forward to seeing many of you there. We will now open the call for your questions. Michelle, please review Q&A instructions. Operator: Thank you. Star one one again. To provide the opportunity for everyone to ask a roster. Our first question comes from the line of Timothy Arcuri with UBS. Your line is open. Please go ahead. Timothy Arcuri: Thanks a lot. Derek, if I look at gross margin, revenue came in above the high end, but gross margin was barely at the midpoint. And then in the guidance, it's a little the, you know, the sort of incrementals are a bit below the 60 to 65 you've been talking about. Can you talk about that? Derek D'Antilio: Yes. Sure, Tim. So in the quarter, I would say that the gross margin was largely geographic and product mix. What I mean by that is China was 30% of our sales in the third quarter. And so that drives the gross margins down a bit, about 10 basis points below the midpoint of our guidance, still 30 basis points above last quarter. And on a positive note, as I've talked about in the past, we're expecting gross margins to be between forty-nine percent fifty-one for the March, which is actually better than we expected originally because coming into that March, we always expect to have some pricing friction. But two things are happening in this March. One is with Chinese New Year, China is a smaller piece of the overall mix. And number two, as we've talked about in the past, we expect pricing this year to be far less pronounced than it was last year. Timothy Arcuri: Thanks. And then, can you just talk about sell-in versus sell-through, and whether that's, you know, that's kind of been a tailwind, but it seems like that tailwind, you know, sounds like they were about equal. So that, you know, tailwind's kind of you know, gone away. So you're gonna get back to shipping to, you know, to sell through? Derek D'Antilio: That's exactly right. For the past about four quarters leading up to this, we had a significant POS far exceeded sell-in, right, as they were burning down inventories. Our distributor inventories are down nearly 50% over the last almost five quarters right now. This quarter, POS and sell-in were close to each other. Sell-in was slightly higher than POS. Going forward, I'd expect those two to be about equal. Regions will vary. Timothy Arcuri: Thanks a lot, Derek. Derek D'Antilio: And I should just say, Tim, too, on distribution, maybe a little bit less indicative of actually what's happening in markets. Because all of our sales in Japan are serviced through distribution. And about a little bit more than half of our sales in China are serviced through distributions. That also includes auto, of course, and 90% of our industrial sales, including data center, are serviced to distribution. Operator: Excellent. Thank you. And one moment for our next question. Our next question comes from the line of Joseph Moore with Wells Fargo. Your line is open. Please go ahead. Joseph Moore: I know you don't give, like, segment guide, but just trying to think about how to think about automotive growth into the March relative to the continued strength you're seeing in industrial and data center? Derek D'Antilio: Yeah. So for the March, it will absolutely be led by industrial. So industrial will be up in the March. The midpoint of the guidance is up about 2.5% in total for the company led by industrial. I expect auto to be about flat to marginally down, again led by Chinese New Year. Really, the Chinese New Year drives that. And I should say we're also right now still shipping 20% below our peak in automotive at this point, even in this Q3. Michael Doogue: Yeah. Maybe not sure, Joe. This is Mike. Not if there's a deeper question just about automotive in general, but I do wanna point out we feel good about what we're seeing in automotive strong bookings and backlog, great design win XEV and ADAS. And actually great design wins in China as well. So we are feeling good overall. About automotive. That that's helpful. Yeah. As a follow-up, just kind of maybe double clicking on the automotive. I mean, are you seeing any propensity from your customers maybe build a little bit of inventory just given there's been some disruptions across like kind of the auto supply chain from a component standpoint? Yeah. The instructions are out there. We have yet to see any meaningful increases in inventory at the tier ones in automotive. I've stated in prior calls we see fairly lean inventory out there in automotive, and that's what we continue to see. Operator: Thank you. Thank you. And one moment for our next question. Our next question will come from the line of Blayne Curtis with Jefferies. Your line is open. Please go ahead. Blayne Curtis: Hey, good morning guys. A couple of questions. I just want to ask on the data center business. I think you mentioned fan drivers still driving the majority of the growth, but obviously, big opportunity with the gate drivers as well as current sensors. Can you just talk about that pipeline a little bit more, when that revenue kinda layers in and how big that opportunity is for you? Michael Doogue: Sure. So thanks, Blayne. Yeah. As you know and as we stated, the biggest piece of the business today in our data center area continues to be the fan drivers. There's just really continued to be a larger number of fans going into these data center racks as power levels increase. What started about a year ago, that's when we started ramping our current sensor business in the power supplies for these higher power data center installations. That business is growing nicely. I mentioned in the prepared remarks, the record-setting levels of data center that we achieved this quarter current sensors played a role in that. So it's nice to see that ramping significantly. On the gate drivers, big opportunity there. We're excited about it. We have truly unique products. We are in the design-in phase with some of the biggest customers in the marketplace. We would expect to see revenue in that space start to ramp somewhere in the eighteen months to twenty-four months time frame. Blayne Curtis: Thanks. And then maybe just a follow-up for Derek on the gross margin. So as we think about data center increasing as a percent of the overall mix, how do you think about that impacting gross margins? Derek D'Antilio: Yeah. As I've talked about in the past, the majority of what we're shipping to data center today, as Mike talked about, is more to drivers or fans, which are slightly below fleet average from a gross margin standpoint. But what's actually impacting the March slightly is to a positive basis is more of the current sense as we saw when they have slightly better gross margins. As we continue to move in that direction with current census and, of course, isolated gate drivers, the margin will continue to improve within data center for us. Operator: Thanks, guys. Thank you. And one moment. For our next question. Our next question will come from the line of Thomas O'Malley with Barclays. Your line is open. Please go ahead. Thomas O'Malley: When I look at the eMobility business and the general broad trucking business, it looks like both are seeing a bit of growth here in the quarter. Can you talk about in the guidance, what's assumed between those two and where you're seeing some of the additional growth? Derek D'Antilio: I actually didn't catch your question, Tom. I'm sorry. There was a little I'll start, Tom. We're not gonna really guide, you know, parse out the guidance between e-mobility within auto. You know? And ICE business. That can vary depending on what's scheduled to ship within the quarter. As I said, in total, I expect the March to be up 2.5% at the midpoint of guidance. Within that, industrial will certainly lead the way led by data center. I expect auto to be flat to down marginally, really, just because of Chinese New Year. The biggest portion of our e-mobility business continues to be ADAS applications, both from a revenue standpoint and from a design win standpoint. Thomas O'Malley: Gotcha. I guess, yeah, inherent in the question is, you've heard others this earnings period already talk about health of auto maybe a little bit slower off the bottom than on the industrial side, it sounds like. You've got some really good trends in your specific industrial verticals. But just anything on the health of the broader auto market. Are you seeing customers behave any differently? Are you starting to see any inventory built? And then customers, just anything on the broader health of auto would be helpful as, I guess, where I'm getting that. Michael Doogue: Yeah. Sure. I could take that one. So when we look at our automotive, Sam, it's about $8 billion. $5 billion of which is the e-mobility portion of the business. So that would be our XEV and our ADAS business. And we see strong momentum not only for Allegro there, but strong activity from our customers. No signs of slowing down. Generally, when you look on a global perspective across ADAS and EV. When we look at the stats for EV growth, going forward and taking them from S&P, the growth rates for electrified vehicles continue to be around 20%. Some people say high teens. We're seeing that activity both in hybrid where we do very well battery electric vehicles where we also do very well. And ADAS adoption is starting to enter a broader swap of cars, which is a good tailwind for us. We see the design work continuing to be very robust. It's a good sign for the future. We have a lot more dollar content as a company in these future design ins, so we're pleased there. Like I said earlier, from an inventory perspective, we still see people holding very thin inventory and automotive as well. Operator: Thank you. And one moment for our question. Our next question comes from the line of Gary Mobley with Loop Capital. Your line is open. Please go ahead. Gary Mobley: First of all, let me extend my congratulations on the good top line execution. If we nitpick on anything in particular, which is, I guess, what we're paid to do, you know, might be the OpEx discipline. I understand that you guys need to reward yourselves for execution and hence the variable compensation recognition in the quarter in the guide. But as we look into fiscal year 2027, how should we think about the OpEx growth relative to sales growth? Derek D'Antilio: Yes, Gary, this is Derek. If you look at our OpEx, have absolutely right. The increase in the quarter was almost entirely variable compensation. And without that, we're kind of on our plan for OpEx. The increase in the March is simply the payroll tax resets. As we roll into the June, which I'm not really giving guidance for, but as I said before, we've built our OpEx to service well over a billion dollars as we reset our variable compensation in that June, we also have merit increases. You should expect inflationary only inflationary increases within OpEx. In some other things, we've been able to really keep our G&A flat for about five years. And those dollars have been reallocated into where you'd want them to be reallocated into research and development, into some of these high growth areas like isolated gate drivers. TMR. And over those last three years, we've bought those two acquisitions into largely into R&D. So it's really all about reallocation. I expect going forward after we get through Q4 that OpEx will increase at about the rate of inflation. Gary Mobley: Thank you. As my follow-up, would ask about the lifetime value of design wins. I have no doubt that you track the lifetime value of all these design wins on a quarter by quarter basis. Maybe you're not willing to share what value is and whatnot, but can you at least give us an idea of what type of revenue growth supported by the trends that you're seeing in lifetime value design wins say, over the last twelve months? Michael Doogue: Yeah. So good question, Gary. This is Mike. So we do track that, of course. A couple of quick points. We're not giving numbers. But when we look at this year, we're seeing much higher intensity, meaning higher dollar values for design wins, is a positive sign for an accelerating business. The funnel that we see, the results of all these design wins, it does support our double-digit sales growth number. What I can say, this is a good plug. You're a good setup person for this one. We're gonna have a deep discussion at our analyst day in a few weeks that will actually show you some data and walk you through how our funnel and how the design win support a robust growth number. So we're gonna make you wait a few weeks for the numbers but we appreciate the question, and you'll see a better answer at Analyst Day. Gary Mobley: Look forward to it. Thank you, guys. Michael Doogue: Welcome. And one moment for our next question. Operator: Our next question comes from the line of Nathaniel Quinn Bolton with Needham and Company LLC. Your line is open. Please go ahead. Nathaniel Quinn Bolton: Hey, guys. Let me offer my congratulations as well. I guess, Mike, question I've gotten from investors is, as you look at sort of across the auto analog landscape, some of your peers are sort of back, if not at record auto levels. You're kind of still 20% below peak. Why do you think you're slower to get back to peak? And I guess the real concern is, do you think there's any evidence of share loss to the broader analog peer group? Michael Doogue: Yeah. Thanks for the question, Quinn. So, no, we don't think there's any evidence of share loss. In fact, we feel like we're driving the So share loss is not even a part of the conversation for us. You know, I think every company has different situations. There were relationships with customers where you have some customers that were just happy to build much larger than expected levels of inventory. That's what we were impacted by. And now we're working closely with those customers, and we feel good about the growth future of automotive. In our e-mobility, Sam, 16% CAGR driven largely on the backs of automotive dollar content gains. So we are at this measured pace that you've been seeing roll out quarter over quarter. We continue to increase. We have the bookings in backlog to keep that happening in automotive. But I wanna reiterate, we don't think share loss is any part of the story when we tell Allegro's automotive story. In fact, again, ours is one of share gain. Nathaniel Quinn Bolton: No. Thank you for that. And then, Derek, I guess just looking at the variable comp, usually as you go into the next fiscal year that resets, you talked about March ticking higher. Because of FICA and payroll taxes. I guess, is there any opportunity for a step down in OpEx once you get into the June quarter? Or is 81 sort of the right base to be thinking about as we head into June and as you said, to grow that base at a sort of inflationary rate. Sort of on a sequential basis through the year? Derek D'Antilio: Yeah, Quinn. Absolutely. So what I talked to earlier, but to Gary about is I expect year over year inflationary increases in OpEx. So mathematically, as we get past this March quarter, there'll be a couple of million dollar step down in OpEx. One, as we reset variable compensation, offsetting that is meriting increases that happened in that June quarter. But net net, I expect OpEx to be marginally down in that June quarter. And then growing from an inflationary after that. Nathaniel Quinn Bolton: Okay. Thank you for the clarification, Derek. Derek D'Antilio: You're welcome. Operator: And one moment for our next question. Our next question comes from the line of Christopher Caso with Wolfe Research. Your line is open. Please go ahead. Christopher Caso: Yes. Thank you. Good morning. I wanna talk a little bit more about the data center business and how you're thinking about growth in that going forward. And I guess there's two aspects to that business. One is the fan business, which is existing and then some of the other things you're layering on top of that. You know, for that existing business, should we expect that that's growing sort of at or a little above a rate of what we're expecting for that data center business, and then we're growing on top of that. Just maybe just some clarification on how you're thinking about that growth going forward? Michael Doogue: Absolutely, Chris. This is Mike. So, good question. So, as we all know, data center is a growth market. It is for us as well. When we look at profiling our business, we expect the business to grow at sort of a typical market rate with a CAGR north of 20%. At least on a short-term basis. And as you've suggested, we have a growing dollar content story as well. So we have the capability to grow higher than that. So we think it will be a robust growth business for Allegro for many quarters to come. One thing I wanna point out, we've been getting a lot of that there have been comments and releases about increased prevalence of liquid cooling. We believe that the dollar content expansion story we have data center, which I'll share in a minute, holds true even with all these new levels of liquid cooling architectures out there. So if you look in our investor presentation today, you'll see our dollar content opportunity per rack for Allegro around $150 today. Growing to $425 in the future. And we maintain those numbers even in the face of increased liquid cooling. There's just a lot of potential for Allegro products in the data center, so it will remain a growth story. Christopher Caso: Thank you. As a follow-up, and this is something I'm sure you're gonna touch on at the Analyst Day, but maybe I'll ask a preview question. With regard to the operating leverage that you folks would have in recovery, and know, not just for a quarter or two, but as we look out, like, 10 over the next two, three years or so, what should we expect with regard to operating leverage? And I mean, one is the ability to absorb some of the fixed costs on the gross margin side and OpEx growth as a in comparison to the revenue growth? Derek D'Antilio: Yeah, Chris. So this is Derek. So you can already see it in FY '20 right? If you use the midpoint of our Q4 guidance, the sales growth is expected to be just over 20%. And on that, we'll more than double our non-GAAP EPS. That's all operating leverage from two things. One, that's that 60% drop through on gross margin where gross margins at the midpoint of Q4 improving 440 basis points above the trough. Four quarters ago. And then two, as I mentioned, we'll be pretty disciplined, continue to be very disciplined on OpEx and reallocation. And remember, we did $1.48 billion in revenue in FY 2024 with the fixed cost that we have in the COGS and also the OpEx that we have. So there's significant operating leverage in the model. Thank you. Operator: You're welcome. Thank you. One moment for our next question. Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. Please go ahead. Vivek Arya: Thanks for taking my question. For the first one, I just wanted to dig into the industrial segment. So first on the data center, if you could quantify how much it was as a percentage of sales in December, I think in the past, you said it was about 8%. For the September, I believe. So how much how large was it in December? And then outside of the data center, what trends, Mike, are you seeing in the rest of your industrial business? You know, recently, we have seen very positive commentary from the likes of, you know, TI and Microchip and others. So I'm curious. What are you seeing outside of the data center in your industrial segment? Michael Doogue: Sure. Thanks, Vivek. On the first one, that's easy. I did say in my prepared remarks that the data center business was 10% of total sales for Allegro in the quarter. So you see a nice increase from 8% last quarter. Any further questions on that, Vivek? Vivek Arya: And what are you expecting for March, if you could give us that? Michael Doogue: Yeah. We're not guiding forward other than I sorta gave the just a few questions ago that if you look at the growth rate of data center, you know, we expect and we believe we have the potential to grow at about that growth rate going forward. Moving on to the trends that we're seeing. You know, there's an interesting storyline here. So Allegro developed a large array of unique technologies, whether it's precision sensing, 48 volt, 800 volt, isolated gate drivers, and as we were developing that tech, we had automotive at the front of our mind, but we knew that all of that tech technology was going over into the industrial market. So 48 volt technologies went to the data center. It's actually roughly 48 volts is the preferred voltage rail for humanoid robots, for example. Isolated gate drivers are all throughout the EV with the 800 volt battery. They're all throughout the data center. So from a general trend perspective, we see very positive signals from the industrial market. It really matches the unique technologies that we have very, very well. So we see very good customer activity, design and activity in the industrial market. Perhaps your question was more in the short term in terms of the health of customers. Certainly, we see a robust growth in our data center customers. Beyond that, it's certainly we see growth from the broader swap of industrial customers. But not at the same level of data center. The rest of the market is at a more muted growth level, but it is growing. Vivek Arya: Got it. So my follow-up, maybe one for Derek on gross margins. So the last time you were at these revenue levels, you know, gross margins were in the mid-fifties. I realize, yeah, that was an extraordinary time. But I was just hoping that you would contrast you know, where you are now versus the situation then. And more importantly, what is, what are the next levers you have to take gross margins towards your target model? Is it volume? Is it mix? Is it utilization? Like, just what does the road map look like from here in the near to medium term? Thank you. Derek D'Antilio: Sure. When gross margins were at their peak, right, obviously, volumes were at their peak, and we were at peak in terms of pricing in the industry and those sort of things. Both of those things have come down over the last few years. While costs have gone up. Right? So our costs have gone up. We continue now to start to get cost mitigations or cost reductions from our vendors, which is really, really helpful. Going forward, what I'd expect really is the large majority of it is gonna be led by leverage as we talked about improving 440 basis points just over the last twelve months. That's all leverage. The second piece is factory efficiencies. We continue to do a lot of things in our own factory to be far more efficient. And then the third piece is maintain that very healthy variable contribution margin between 60-65% that we've talked about in sort of held in that range, generally speaking, year over year, since we've been public. That requires, you know, continued more mix of industrial, these higher margin parts that we keep releasing TMR and some of these other things. It requires geographic mix. It requires cost reductions, product cost reductions that Mike's been talking about with some things like copper to gold, the gold to copper, and those sort of things. And then managing ASPs, which I think we're doing quite well this year. Thank you. Operator: You're welcome. One moment for our next question. Our next question is from the line of Joshua Buchalter with TD Cowen. Your line is open. Please go ahead. Joshua Buchalter: Hey, guys. Thanks for taking my question, and congrats on the results and guide. Maybe following up a bit on that last one. It seems like there's a lot of optimism in particular on current sensing in both auto and, you know, in data center and industrial. Any way to sort of help us better understand how much of this is sort of the legacy hall effect portfolio versus some of the TMR stuff layering in, in particular, the IP you got from Crocus? Thank you. Michael Doogue: Thanks, Josh. This is Mike, and I'm always happy to talk about current sensors for lots of reasons. So when we look at the growth of magnetic current sensing, we believe that's the highest area of growth both for the market and for us. There's a number of reasons for that. When you think about power management in general, whether it's cars electrifying power levels of the data center, robotics. You have these even energy infrastructure. There's so many areas of power conversion, and people wanna measure current to have active information for the control of this power conversion step. We offer products whether they're Hall or TMR. They can increase the efficiency of a power conversion system. We were the first company to come to market with these innovative magnetic current sensors, and we have continued to just layer innovation upon innovation into the current sensor space. In terms of the predominance of revenues today, it's mostly hall today. And we've actually been pushing the boundaries of efficiency gains through optimized packaging, through higher bandwidth or speed of operation. So we were leading the market with those in terms of those attributes with hall sensors and getting increased levels of design wins. We talked recently about our 10 megahertz TMR current sensor, a newer product for Allegro. This now starts to take the current sensor capability beyond what can be achieved with Hall ICs. And it is actually very important to have a fast current sensor to make power more efficient. We're starting to accelerate activity with customers, accelerate share gains, through the use of TMR and current sensing, and that's actually a strategy or a playbook that we plan to step and repeat in other areas of our sensor business as well. Joshua Buchalter: Thank you for all the there, and glad you could talk about your favorite topic. Maybe one for Derek. You guys have done a nice job delevering both by paying down debt and by having EBITDA move higher. Saw that you didn't pay down any in the December quarter for the first time in a while. Are you guys comfortable with the amount of debt on the balance sheet here? And how should we think about capital allocation going forward? Derek D'Antilio: Yeah. Thanks, Josh. Yeah. So we built a little bit of cash this quarter. We built about $40 million of cash, ended the quarter with $163 million, which interestingly kind of equates to about six months' worth of sort of OpEx plus CapEx, which is just one benchmark for liquidity. We have an untapped line of credit for $256 million, which we plan to tap. So I feel like we have a good amount of liquidity, which is obviously one of our priorities. We have $285 million in term loan exiting the quarter. And we refinanced that here to a fairly tight, so for plus $1.75. You know, exiting Q4 at the mid of our guidance, the net leverage ratio is just slightly below one to one. There's no metric for where we're trying to get to. I think that's a pretty healthy number. We will continue to balance liquidity on the balance sheet with paying down debt because I think that's just accretive to EPS, and it moves some of the enterprise value, of course, to the shareholders. So we'll continue to look at that each quarter. Joshua Buchalter: Thank you. Derek D'Antilio: You're welcome. Operator: Thank you. One moment for our next question. Our next question comes from the line of Vijay Rakesh with Mizuho. Your line is open. Please go ahead. Vijay Rakesh: Hi, thanks. Good call, Mike and Derek. Just on the eMobility side, obviously, nice step up in the December quarter. Was there a pull in there, or do you see that growing at kind of similar rates as you go through 2026? I know you mentioned big driver was ADAS and the current sensing, but just wondering how you look at that through 2026. Thanks. And I have a follow-up. Michael Doogue: Thanks, Vijay. This is Mike. Yeah. So, you know, sometimes new programs pop. That's why I don't talk too much about order to quarter dynamics. But in general, in e-mobility, yes, we've had a lot of strength in ADAS, recently. We see a lot of wins as well in the XEV space. You know, we see going forward a 16% growth rate for our SAM, the e-mobility space. So we continue to believe this will be a long-term growth driver, and we have the design wins to back it up, both across ADAS and EV. Vijay Rakesh: Got it. And I saw you mentioned robotics slide deck. Just wondering and also you mentioned in the remarks that you have been doing the customer engagements in US, Japan, etcetera. Just wondering how you see the revenues there as you look out 06/2728 in terms of mix? Or dollars? Thanks. Michael Doogue: Yeah. Absolutely. This is Mike again. So, you know, I mentioned sort of the potential unit count in humanoids, and the robotics market is about a lot more than humanoids, but certainly humanoids are where the real dollar content's at. So as we work with customers, the trend I would say we're seeing is you have customers talking about tens of thousands of robots per year in the near term. Over the next few years, maybe that ramps up to hundreds of thousands of humanoids, and you have some companies which are talking about numbers much bigger than that as well. So we see revenue ramp starting to happen probably two or three years out. It really comes down to how the market develops. But internally, this is how we're looking at it. We are out there talking to the lead robotics manufacturers. I mentioned in the prepared remarks, we've confirmed numerous times a 150 sensor sockets for both our physician and current sensors in a humanoid robot up to 50 of our motor drivers, the dollar content is high, but as I said, you'll start to see tens of thousands of robots in the next year, then that ramps to hundreds of thousands. And, hopefully, we get to millions over the three-year period, but that's really up to the market. We just plan to be prepared for the ramp. And we have ideal technologies and products to support that ramp. Derek D'Antilio: And, Vijay, this is Derek. Maybe this touches on some of the OpEx investments. Right? What's really nice about this is much of the robotic space, particularly the humanoids, a lot of that is automotive type of customers and automotive customers. So in many cases, it's existing products to existing customers. We really get to continue to leverage that OpEx and their existing customers, which is probably the best tangential sale you can have. Vijay Rakesh: Got it. Great. Thanks a lot, Derek and Mike. Thanks. Derek D'Antilio: You're welcome. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Joseph Moore with Morgan Stanley. Your line is open. Please go ahead. Joseph Moore: Great. Thank you. First, wanted to follow-up. You sort of mentioned average selling prices moving in a good direction. Can you talk about any changes in like for like pricing? Any difference in how those negotiations are going, customer behavior, anything like that? Michael Doogue: Sure, Joe. This is Mike. So in the prior call, we even talked about price dynamics. They stay the same, but I'll repeat them that as we enter calendar year 2026 with our customers, we would normally be looking at a low single-digit reduction in ASPs and I've characterized this year's pricing environment as one where the reductions are very low single-digit reductions. That's for a number of different reasons. I think we're all aware of some of the pricing dynamics from competitors in the marketplace. There have been other signals in terms of tight supply, etcetera, that allow us to have a more favorable than normal pricing environment as we enter 2026. I will say we do have longer-term contracts with customers that do have some price declines built in. So that is why there's still a very low single-digit decline in pricing, but more favorable in 2026 than historical. Joseph Moore: Great. Thank you for that. And then the robotics piece, I wanted to ask about that as well. You know, who should we think of as the major customers there? You talked about automotive customers, which there are some clear examples of that. But are you seeing the sort of traditional industrial robotics companies make investments in humanoid and just know, is this an evolution from existing robots or an entirely new space? Just how do you think about all that? Michael Doogue: Yeah. Thanks, Joe. It's Mike. You know, I can't mention names, of course, but, unfortunately, the answer to your question is a little bit all of the above. Right? I think so many of these companies that have motor manufacturing and motor control expertise are looking to get into the humanoid space. And that's fantastic for us because as Derek mentioned, not only do we sell motor drivers to many of the leading motor companies out there, many of them need position sensor feedback, current sensor feedback. So we see a broad swath of customers which would include many of the automotive players, but also just major motor manufacturers, some of the bigger industrial companies in general, all trying to dip their toe into the water. And I think there is such an array of robots and so many components in those robots that there's room for various players. But our strategy is just to make sure that we're participating and securing design ins with the winners, which will probably include some of the new innovative players that we're working with as well. So a dynamic space, a very interesting one as well. And we're happy to have such high dollar content and be participating in the market. Joseph Moore: Great. Thank you. Michael Doogue: You're welcome. Operator: Thank you. At this time, I'm showing no further questions in the queue. I would now like to hand the conference back to Jalene for closing remarks. Jalene Hoover: Thank you, Michelle. This concludes today's call. To all of you for taking the time to join us this morning. We look forward to seeing you at various investor events in the coming weeks. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
Operator: Good morning, ladies and gentlemen, and welcome to Comcast Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note this conference call is being recorded. I will now turn the call over to Executive Vice President, Investor Relations, Miss Marci Ryvicker. Please go ahead, Miss Ryvicker. Marci Ryvicker: Thank you, Operator, and welcome, everyone. Joining us on today's call are Brian Roberts, Michael J. Cavanagh, Jason S. Armstrong, and Steve Crony. I will now refer you to slide two of the presentation accompanying this call, which can also be found on our Investor Relations website, and which contains our Safe Harbor disclaimer. This conference call may include forward-looking statements subject to certain risks and uncertainties. In addition, during this call, we will refer to certain non-GAAP financial measures. Please see our 8-K and trending schedule issued earlier this morning for the reconciliations of these non-GAAP financial measures to GAAP. With that, I turn the call over to Brian Roberts. Brian L. Roberts: Good morning, everyone, and thanks for joining us. Before I turn the call over to Michael J. Cavanagh and Jason S. Armstrong to walk you through our results, I wanted to take a moment to say a few words about the team and the year ahead. We are at an inflection point, both in our industry and at Comcast Corporation. The business is changing rapidly, and competition has never been more intense. The choices we are making right now matter. I feel very good about how we are positioned, and it really starts with our leadership. Steve Crony joins us for the first time on this call today. From day one running this business, he challenged long-held assumptions and moved quickly to reset priorities around actions that will drive growth. We spent time last week at Steve's leadership meeting where he brought together the entire team following a major reorganization. And coming out of that, my confidence has only increased. There is a clear sense of focus and urgency. Everyone understands the priorities and is moving with speed and purpose. I think you will enjoy meeting Steve today for those that do not know him. And as Michael J. Cavanagh starts this year as co-CEO, I could not be more excited about him stepping into his role. We have worked side by side for a long time, and he brings an exceptional combination of strategic clarity and operating discipline. As we continue to pivot the company towards our six growth drivers, Michael J. Cavanagh is leading the strategy and execution of that shift. As we look ahead to the upcoming Winter Olympics, we are excited about the prospects for Team USA but more importantly, are reminded of the power of shared moments to bring people together across the globe. Like so many, I am heartbroken by the tragic events of recent weeks. And our thoughts are with the families and communities that have been deeply impacted. In a time of profound division, we hope the Olympic Games can offer a moment of connection for our country, and for people everywhere. Now I would like to turn it over to you, Michael J. Cavanagh. Thanks, Brian. Michael J. Cavanagh: 2025 was a year of meaningful progress for us. We moved with urgency to make decisive management, operational, and structural changes, resetting how we run our businesses and how we compete, all with a clear focus on positioning the company for sustained growth. A key step in that effort was appointing Steve Crony as CEO of Connectivity and Platforms, and I could not be more pleased to have him leading that business. Under Steve's leadership, we have made the most significant go-to-market shift in our company's history. We have simplified our broadband offering by moving away from short-term promotions toward a clear, transparent value proposition. Customers now choose from four nationwide speed tiers with straightforward, all-in pricing that includes our best-in-class gateway and unlimited data, along with a five-year price guarantee that brings predictability and removes long-standing complexity from the category. We also strengthened our wireless approach with new offers tailored to different customer segments, from premium unlimited plans for higher-value households to a twelve-month free line promotion designed to increase mobile awareness and attachment. At the same time, we began to simplify the overall customer experience with faster access to live agents, easier digital buy flows and activation, and same-day delivery. Those changes are beginning to show up in customer behavior. Voluntary churn continues to trend lower, NPS is moving in the right direction, adoption of the five-year price guarantee remains strong, and gig speed sell-in has improved meaningfully with approximately 40% of the base on gig plus tiers. We have also expanded the use of simplified market-based pricing and retention, including broader deployment of new everyday pricing. Refreshed packaging is driving higher Xfinity gateway attachment, enabling a more differentiated in-home experience, better streaming performance, and lower latency. Turning to wireless, I am pleased to share that we have modernized our MVNO partnership with Verizon, supporting continued profitable growth for Comcast Corporation, Charter, and Verizon. With these enhancements, we have an even stronger relationship with Verizon to enable our customers to have a world-class experience. With the addition of T-Mobile as a network partner for our business customers later in the year, we continue to have a capital-efficient mobile platform with a cost structure that supports a durable and growing convergence value proposition for our customers. Wireless continues to be a powerful driver of that convergence strategy, and 2025 was our strongest year yet. We added approximately 1,500,000 net lines, ending the year with over 9,000,000 total lines and roughly 15% penetration of our residential broadband base. That performance reinforces wireless as a key growth engine for the company while also strengthening customer relationships and lifetime value across our connectivity portfolio. Even as wireless competition intensifies, our broadband scale, industry-leading Wi-Fi, and improving offers position us well to grow wireless profitably while maintaining a disciplined long-term approach. And finally, we continue to make substantial progress on our network upgrade with roughly 60% of the footprint now transitioned to mid-split spectrum and a virtualized architecture. We are already seeing benefits from greater automation and the deployment of AI across the network to optimize the end-to-end customer experience. Our investments are delivering tangible operating benefits, including a 20% reduction in trouble calls and a 35% reduction in repair minutes where we have deployed FDX technology. 2025 also marks great progress across content and experiences. At parks, the opening of Epic Universe is already acting as a catalyst across Orlando, driving longer stays, higher per cap spending, and increased demand across our parks and hotels, reinforcing the attractive returns we see from continued investment in this business. In media, we have made meaningful progress at Peacock, improving EBITDA losses by approximately $700,000,000 for the year, and we are pleased with the successful launch of the NBA on NBC and Peacock late in the year, which is delivering strong viewership while expanding reach and engagement across our platforms. We strengthened our content pipeline with a long-term creative partnership with Taylor Sheridan, adding premium franchise-scale film and television IP. And finally, we have completed the spin of Versant Media, creating a focused, well-capitalized public company while enabling NBCUniversal to concentrate on driving profitability in our media business powered by best-in-class live sports, entertainment, and news across NBC, Peacock, and Bravo. Looking ahead, 2026 is about building on the changes we made in 2025 and advancing the next phase of our plan centered on levers that matter most. Our priorities in connectivity and platforms are clear: position the business for a return to growth, deepen convergence through wireless, and fully leverage our network leadership across residential and business services. This will be the largest broadband investment year in our history, focused squarely on customer experience and simplification, with the goal of migrating the majority of residential broadband customers to our new simplified pricing and packaging by year-end. In wireless, we expect a meaningful portion of customers currently taking a free line to transition to paid relationships in the second half of the year as engagement deepens and customers experience the value of the product, consistent with the progression we have seen over time. We will further simplify activation and service interaction with a focus on reducing call-ins, improving first contact resolution, and shortening speed to service. We will also lean into our network leadership as we complete upgrades across most of the footprint and start marketing multi-gigabit symmetric speeds and their differentiated capabilities, creating opportunities to move customers into higher value tiers over time. And in Comcast Business, we will remain focused on stabilizing small business while accelerating growth in mid-market and enterprise where demand for advanced, secure, and scalable connectivity continues to increase. 2026 will also be a defining year for content and experiences. It marks NBC's one hundredth anniversary, a century of leadership in broadcast and live storytelling, and a year in which NBCUniversal will deliver roughly 40% of the industry's major live events, bringing the biggest moments in media to audiences at scale. Sports remains one of our most durable strengths, with the full breadth of that portfolio on display. Beginning with legendary February featuring the Super Bowl on NBC and Peacock, followed by the Winter Olympics in Milan, and the NBA All-Star Game. All sold out. Later in the year, Major League Baseball returns to NBC and Peacock under a new agreement followed by the World Cup on Telemundo. And at Peacock, we expect another year of meaningful EBITDA improvement as we continue progressing toward breakeven even as we absorb the NBA rights. Our studio slate remains exceptional, led by the Odyssey from Christopher Nolan, the Super Mario Galaxy movie, and Minions three from Chris Melandandre, and Disclosure Day from Steven Spielberg. At Parks, 2026 marks the first full year of Epic Universe alongside the opening of Universal Kids Resort in Frisco, Texas, the debut of our first outdoor roller coaster at Universal Studios Hollywood, and groundbreaking on our new Universal Resort in The UK. So to wrap up, my focus remains squarely on growth. We have been consistent in investing behind the six growth engines that define our future while protecting one of the strongest balance sheets in the industry and returning substantial capital to shareholders. We like the position of both of our major businesses. Our broadband network and products are best in class, our customer experience keeps improving, and as the market shifts to multi-gigabit symmetrical speeds, we are well positioned to grow. We have the best hand in convergence, combining broadband leadership with a differentiated capital-light mobile business, and we are the market leader with small businesses and the fastest-growing provider in mid-market and enterprise. On the media side, we operate world-class theme parks and studios, and we are scaling a streaming platform that runs in concert with our television business delivering unmatched sport, news, and entertainment. Taken together, we feel very good about where we are positioned with the right assets, the right strategy, and the financial strength to perform through cycles and create long-term value. With that, I will turn it over to Jason S. Armstrong. Jason S. Armstrong: Thanks, Michael J. Cavanagh, and good morning, everyone. I will start with a high-level overview of our consolidated results, and then get into more detail on our businesses. Total company revenue grew 1% in the fourth quarter, benefiting from strength across our six growth businesses which collectively represent 60% of our revenue and grew at a mid-single-digit rate. Notably, theme parks, Peacock, and domestic wireless, three of our six key growth drivers, each grew revenue right around 20%. As we previewed, we are in an investment period. We are pivoting in the broadband business through changes to packaging and pricing and significant investments in the customer experience, all designed to stabilize our base and subsequently grow revenue in the category again. We are also absorbing the full cost of the first year of the new NBA contract in our content and experiences segment and expect that to scale over time. As a result, adjusted EBITDA in the quarter declined 10% and adjusted earnings per share declined 12%. We generated $4.4 billion of free cash flow in the quarter, which includes about $2 billion of a cash tax benefit related to an internal corporate reorganization. Recall, we received the P&L benefit associated with this in last year's fourth quarter, and at the time mentioned that the cash benefit from this would occur in 2025. So this quarter's free cash flow includes the benefit of that. Finally, during the quarter, we returned $2.7 billion to shareholders, including $1.5 billion in share repurchases. Now turning to our businesses, starting with Connectivity and Platforms. The competitive environment for broadband remains intense, similar to prior quarters, while we saw wireless competition step up towards the end of the fourth quarter. Against that backdrop, we continued to advance our new go-to-market strategy we launched earlier this year. While it is still early, we remain encouraged by what we are seeing, including lower voluntary churn, strong adoption of our five-year price guarantee, a significant improvement in take rates of gig plus speeds, and continued uptake of free wireless lines. We remain focused on transitioning the majority of our customer base to simplified, market-based pricing plans, and importantly, prioritizing getting to the other side of this transition as quickly as possible. As we have highlighted, this pivot comes with an investment. That includes rate reinvestment through simplified broadband pricing and offering free wireless lines, which impact near-term revenue, as well as higher operating costs tied to customer experience initiatives. These dynamics were reflected in the quarter through dilution to broadband ARPU growth and elevated marketing, product, and customer service expenses, contributing to the 4.5% decline in connectivity and platforms EBITDA. As we have said before, as we continue to invest through this transition, we expect incremental EBITDA pressure over the next couple of quarters until we begin to lap these initial investments in 2026. As we move past this investment period, we will have the vast majority of our base on new pricing and packaging for broadband, we will have a much higher percentage of our customers on gig plus speed plans which are substantially differentiated from fixed wireless and satellite offerings, and we will have a large base of free wireless customers moving into paying relationships with us. All tailwinds to our business at that point, which will better position us for long-term growth. Now let me get into some more details of the quarter, starting with broadband. Subscriber losses were 181,000, as the early traction we are seeing from our new initiatives was more than offset by continued competitive intensity. Broadband ARPU grew 1.1%, slight growth, but consistent with the deceleration that we had previewed reflecting our new go-to-market pricing, including lower everyday pricing and strong adoption of free wireless lines. Looking ahead, we expect further ARPU pressure for the next couple of quarters, driven by the absence of a rate increase, the impact from free wireless lines, and the ongoing migration of our base to simplified pricing. At the same time, convergence revenue grew 2% in the quarter, driven by 18% growth in wireless. We added 364,000 wireless lines, and similar to last quarter, nearly half of our residential postpaid connects came from customers taking a free line. Our free line strategy is a logical and, importantly, a rational competitive approach for us. It adds value to our core broadband product, builds familiarity in a tough-to-penetrate wireless market, and will convert to a paying relationship after one year. In a product category where we are firmly profitable and one which delivers strong bundling benefits to our core broadband business. We also continue to see a strong uptake of our premium unlimited plans, further strengthening our position in the higher-value postpaid market. In total, we now have over 9,000,000 wireless lines, with penetration of our residential broadband base above 15%. While the wireless environment has become more competitive, we remain confident in our strategy. Our converged offerings continue to deliver meaningful savings versus comparable plans from our competitors, reinforcing the value proposition we deliver to our customers. Looking ahead to 2026, we expect to convert the vast majority of free lines into paying relationships, which in turn should provide a meaningful tailwind to convergence revenue growth. Turning to business services, revenue increased 6%, and EBITDA grew 3% in the quarter. Results continue to reflect the dynamic we have been seeing for several quarters, with modest revenue growth in our small and medium business segment and strong momentum at our enterprise solutions business. In SMB, competitive intensity remains elevated, particularly from fixed wireless, but we are driving higher ARPU through increased adoption of advanced services, including cybersecurity and Comcast Business Mobile. Enterprise solutions continue to gain traction as we expand our customer base and deepen our relationships. This remains an area of investment and an important growth driver going forward. In addition, in 2026, we look forward to expanding our business mobile relationships through our T-Mobile MVNO. In content and experiences, there are a few items I would like to highlight. At theme parks, we delivered another strong set of results, with growth accelerating in the fourth quarter. Revenue increased 22% and EBITDA grew 24%, with EBITDA crossing the $1 billion level for the first time. This performance was driven by strong results at Universal Orlando. We are really pleased with what we are seeing from Epic, which continues to drive higher per cap spending and attendance across the entirety of the resort. While we are not yet operating at full run rate capacity, we have made meaningful progress expanding ride throughput, and we remain focused on scaling further over the next several quarters, with higher attendance, stronger per caps, and additional operating leverage over time. At studios, we have had great success with the Wicked franchise, which has now grossed well over a billion dollars worldwide. Our overall results reflect tough comparisons to last year's film slate, the timing of content licensing deals, and higher marketing spend associated with the higher volume of films this year. Turning to media, we successfully completed our spin of Versant on January 2, after the quarter closed, so our fourth quarter results still reflect a full quarter of ownership. We will provide pro forma trending schedules excluding Versant ahead of our first quarter earnings to help with comparability in forecasting as we go forward. Media revenue increased 6% in the fourth quarter, primarily driven by Peacock. Peacock revenue grew more than 20% to a record $1.6 billion, supported by strong distribution revenue growth of over 30% as paid subscribers increased 8,000,000 year over year and 3,000,000 sequentially, reaching 44,000,000 as of December 31. Advertising revenue at Peacock grew nearly 20%, benefiting from our strong sports lineup, including the premiere of the NBA, and the timing of the exclusive NFL game this quarter. Total advertising increased 1.5%, with strong underlying demand driven by our record upfront, continued strength from Sunday Night Football, which delivered the most-watched season in its history, and the launch of the NBA this quarter, partially offset by lower political advertising compared to last year. Media EBITDA declined in the quarter, primarily reflecting the addition of NBA rights. As we have discussed, we are straight-lining the amortization of these sports rights, which creates upfront EBITDA dilution, particularly in the first season, with game counts driving the quarterly realization of this expense. While the fourth quarter represented about 25% of our total games for the season, the first quarter will be the peak volume period with roughly 50% of our games played, which will also result in peak EBITDA dilution. Over time, we expect to offset this impact through advertising growth and subscriber acquisition and monetization across both linear and Peacock. At Peacock, while losses came in at $552,000,000 for the quarter, reflecting the addition of NBA rights and our exclusive NFL game, full-year Peacock losses improved over $700,000,000 year over year. Peacock has reached meaningful scale and continues to demonstrate improvement, giving us confidence in our ability to absorb near-term investments, including the first full year of the NBA. And in 2026, we expect Peacock losses to meaningfully improve again. I will wrap up with free cash flow and capital allocation. For the full year, we generated $19.2 billion of free cash flow, up significantly year over year and the highest year on record. We benefited in 2025 from lower cash taxes, favorable working capital comparisons, particularly related to studio production spend, and lower capital spending. As we look towards 2026, it is important to note that one-time cash tax benefits in 2025, including the $2 billion mentioned upfront, will not recur. In addition, recall, we said the benefits from new tax would average about a billion dollars per year for the next five years. The timing of those benefits is lumpy. We saw an outsized benefit in 2025 and expect the benefit to be significantly lower in 2026. Finally, as you can see from their filings, the Versant spin-off removes a significant pool of cash flow from our operations. Total capital spending in 2025, inclusive of CapEx and capitalized software and intangibles, declined 5% to $14.4 billion. This includes a 17% decline to $3.6 billion at content experiences, driven by lower investment at theme parks following the completion of Epic Universe earlier this year, alongside relatively consistent capital spending of $10.5 billion at connectivity and platforms. Looking ahead to 2026, we expect total capital spending to be relatively similar to 2025, with spending at both CMP and C&E remaining relatively consistent year over year. Turning to leverage, our balance sheet remains incredibly strong, ending the year with net leverage at 2.3 times. As you know, the Versant spin was capitalized in a way that positioned them for success, with low leverage and ample liquidity. As a result, our leverage ratios will increase slightly on the back of the spin-off. Our intention will be to migrate back to the 2025 ending leverage of 2.3 times. On capital returns in 2025, we returned nearly $12 billion to shareholders, including nearly $7 billion in share repurchases, resulting in a mid-single-digit year-over-year reduction in our share count. Consistent with what we articulated at a conference last month, we are maintaining our annual dividend at its current level of $1.32 per share. In addition, our shareholders received a dividend in kind through the distribution of Versant shares and now will be able to participate directly in Versant's capital allocation priorities, including dividends. As a result, our investors should see higher total dividends in 2026, marking our eighteenth consecutive year of dividend growth. As we look ahead to next year, our capital allocation strategy remains unchanged. Our priorities are to invest organically in our growth businesses, maintain a strong balance sheet, and return capital to shareholders. This formula has served us well and will continue to guide our approach. With that, before turning back to Marci Ryvicker for Q&A, let me welcome Steve Crony as this is his first earnings call, and turn it over to him for a few opening remarks. Steve? Steve Crony: Thanks, Jason S. Armstrong. I appreciate it, and it is great to be on the call. I look forward to getting to know those of you I have yet to meet. As Brian Roberts and Michael J. Cavanagh have outlined, we have been moving with urgency on a number of important changes across the business, and the team is focused and aligned on executing against the plan. When I think about what success looks like, it starts with being honest with ourselves and clearly defining our reality. The market is going to remain intensely competitive. Success is not about waiting for the environment to change; it is about how we perform inside of that environment. We are executing against a clear, actionable plan to change the trajectory of the business. We are focused on simplifying how we operate, eliminating redundancy, and aligning the entire team around a single set of growth objectives, all of which are centered around improving our competitiveness in the marketplace. A lot of the progress Michael J. Cavanagh outlined on pricing, mobile penetration, network modernization, and the customer experience is exactly what this plan is designed to deliver. Fewer distractions, clear ownership, and accountability, and much better execution. From there, we stay focused on our core pillars. First is the network, which remains our foundation. We offer gig Internet and wireless to 65,000,000 homes, the largest converged network in the country. Our job is to stay well ahead of demand on speed, performance, and capacity. Usage continues to grow at double-digit rates, and as competition intensifies, a scalable, reliable, and increasingly intelligent network will become an even more important competitive advantage. Second is the product. This is where we have our clearest differentiation. Customers make decisions based on the quality and reliability of their Wi-Fi, and our Wi-Fi reliability ranks number one in our footprint based on independent open signal testing. We have a Wi-Fi-centered strategy designed to reliably support hundreds of connected devices and deliver a seamless experience in and out of the home. Mobile then builds naturally on this foundation. When customers take mobile with broadband, lifetime value increases substantially, and those customers are more meaningfully loyal. Third is the customer experience, which is our biggest opportunity by far. We must make it easier to do business with us and build a more loyal customer base through greater price transparency, more simplicity, fewer friction points, and consistently getting it right the first interaction. And importantly, the same operating model applies to Comcast Business, where we are accelerating growth in enterprise while continuing to lead in SMB, with a clear shift towards advanced, multiproduct solutions. When we get these three critical pieces right, I am determined to improve our broadband performance year over year in the near term, return to revenue and EBITDA growth, drive higher mobile penetration, and create much better customer outcomes, which include higher relationship and transactional Net Promoter Scores, lower effort, and stronger loyalty. All of this is within our control. It does not assume relief in the competitive environment, and it does not rely on any one lever. It is about executing better with the industry's best products, a differentiated Wi-Fi-first experience, and a unified team focused on growth. With that, back to you, Marci Ryvicker, for Q&A. Marci Ryvicker: Thanks, Steve Crony. Operator, let's open the call for Q&A, please. Operator: Thank you. We will now begin the question and answer session. Please press star then the number one on your touch-tone phone. If you wish to be removed from the queue, please press star then number two. If you are using a speakerphone, you may need to pick up a handset first before pressing the numbers. Once again, if there are any questions, please press star, then the number one on your touch-tone phone. The first question is coming from Michael Ian Rollins from Citi. Your line is now live. Michael Ian Rollins: Thanks. Good morning. If I could dig into the broadband side of the business for a moment. First, in terms of moving from more localized rate plan management to national, can you give us an update in terms of what you are seeing on both the intake and retention of customers? And then secondly, can you discuss more of the wireless opportunity? And in terms of the converged bundle, with the free line promotion, if there is an opportunity to further accelerate quarterly wireless net adds. Michael J. Cavanagh: Thanks, Michael Ian Rollins, for the question. I appreciate that. So let me start with broadband. As was highlighted in the opening, it is our largest go-to-market shift in the company's history. And on top of the go-to-market shift, we are investing across marketing, product differentiation, and the customer experience. And we are encouraged by what we are seeing early. We have seen year-over-year improvement in voluntary churn, we have seen an active migration of the base to more simplified transparent pricing which has long-term benefits, we have a strong adoption of the five-year price guarantee further stabilizing the base, and we are seeing continued mix shift toward our gig plus tiers, which is a clear differentiator from fixed wireless and satellite. And on top of that, even though we have the national price points, we still maintain flexibility market by market. We have a data-led approach, and we look at competitive intensity and will adapt our pricing accordingly as we approach that. In reference to mobile, there is just a huge opportunity in mobile. 65,000,000 passings as I highlighted earlier. We are really excited about the opportunity there. It is one of the largest and fastest-growing markets, $200 billion TAM, and we strongly believe we have the right to compete and win in that marketplace. Customers are responding to the value. We did see competition intensify a bit in the fourth quarter, but we still had our best year ever in 2025 with wireless net additions. Another positive is in the back half of the year, about 50% of our residential postpaid phone connects were free lines, creating a meaningful monetization opportunity as we move forward. Additionally, we have strong early results in our premium unlimited tier that we launched this year, expanding our reach into the higher end of the market, enabling gig download speeds, 4K streaming, and guaranteed device upgrades, all at a price that is well below the market. Additionally, we have a structural advantage when it comes to mobile. 90% of Xfinity mobile traffic is offloaded on our own network, and we have lower acquisition costs by selling into our existing broadband base. If you take all that together, we are 15% penetrated today, and we have a long runway ahead of us. Marci Ryvicker: Thanks, Michael Ian Rollins. Operator, next question, please. Operator: Thank you. Next question is coming from Craig Moffett from MoffettNathanson. Your line is now live. Craig Moffett: Hi. Two questions, if I could. First, Brian Roberts, I wonder if you could just reflect a bit on the process that we have seen play out with Paramount, Netflix, and Warner Brothers Discovery and how you think that sort of shapes your thinking about Peacock with respect to scale or partnerships and what have you? And then second, Michael J. Cavanagh, if you could just quickly return to what you said in your prepared remarks about the modernization of the contract with Verizon. I wonder if you could just put some meat on the bones for us with respect to the MVNO agreement as to what might have changed. Brian L. Roberts: Okay. Thanks, Craig Moffett. Let me start and kick it over to Michael J. Cavanagh and feel free to talk on either subject. I do not think we have too much data on the Verizon piece that we just covered. But in terms of Warner Brothers, I mean, what can you say? It is still underway, obviously. But I think we saw an opportunity to see if we could build value for the Comcast Corporation shareholders looking at their international reach, which would have been additive. But once it looked like all cash, we were just not interested in, at these values, stretching our balance sheet to do something like that. So I do not know how much more we can say except that it forced us in the journey to really take a good look at what we have and what we are building. And I will let Michael J. Cavanagh expand a little bit on this, but I think we have done a super job. The businesses that we would have contributed in a very creative structure, putting the two companies together is post-verse and spin. And they are trying to do the same thing with their cable nets that we have already done. We have a wonderful studios business, as you just heard in the opening, creating franchises. 2026 should be a great year for the film business. We are excited with the number of the films coming out. Off of that business, we have two studios in the television business, which is feeding Peacock. Your question on Peacock, I think we made a lot of progress in 2025, and we are getting there. And there is an integrated media business that is profitable, that has got a lot of sports, it has got someday Taylor Sheridan, today it has got great pay-one movies and wonderful shows. All Her Fault, Love Island, really some breakthrough content in 2025 with more coming with now the Olympics, and the Super Bowl, and the World Cup, and on and on, and the NBA. So I just think we came to this late because of our Hulu one-third ownership, which we have been able to monetize. And so finally, this is the theme park business. And so all three of those businesses put us in a very different kind of business than perhaps what you are witnessing with Paramount, Netflix, and Warner Brothers, what their ambitions may be. So I think we are very, when we sat and looked at our businesses, we are very confident and comfortable that we are in the right part of the industry. We have separated the businesses that have more strategic issues that have to get resolved with the cable nets, and Mark Lazarus is off to a great start trying to do that with Versant. And so I think we take a wait and see. It has stirred the pot. I would end with this one thought. A lot of companies are, what does this mean to me? And there are a lot of conversations on whether, you know, there are opportunities to build value, and we are always open to that. So we are looking at ways to creatively compete, succeed, and go into a part of the business that perhaps is not the same as, quote, everybody else. And I think we are doing a great job of that. Michael J. Cavanagh, do you want to expand on that at all? Michael J. Cavanagh: I think you said it well, Brian L. Roberts, but I will just add that the Versant spin did, you know, leave us by design with the three growth businesses that Brian L. Roberts described within NBC. And I think it is a microcosm of really across the whole company. My focus over the last eighteen months has really been to make sure the management teams and leaders in all of our businesses are properly focused on dealing with the challenges that some of the legacy businesses within our mix have. And not let that take away from the focus of putting resources and energy and ambition behind those parts of the business that have growth opportunities, and that has been the focus. And I think you see with Versant set off on their course, I think the remaining businesses of NBC were focused on driving top-line growth and then converting that into the bottom line as time passes, and you see that happening. I think one other thing I would add on that score is it is competitive. As Steve Crony said, we are operating in very competitive markets across all the businesses. And one other area of focus for me, Steve Crony, and others across the business is to make sure that in these competitive times, we make sure to take advantage of all the opportunities we have across the businesses. Not that we were not on that previously, but I would say the energy of making sure that we are using all parts of the company to help the business. We have been very strong at this broader notion called symphony over time, but I think we have gotten a lot more tactical in the last six, nine months on a week in, week out basis with a real cadence around what can NBC be doing to help the connectivity business and, likewise, what the connectivity business, for example, can be doing to help Peacock. So I think there are opportunities ahead of us to make sure we execute that at a high level. So I think that is what I would add on the NBC side of it all. Going to Verizon, great. Not much to add there. I think we are, you know, we amended the long-standing agreement, the partnership we have. It is a good arrangement for all parties involved. It is modernized, and it is a foundation for mutual profitable growth as we continue to build the business together. So as you zoom out, I think what was important to us, what is important to us, going back to my comments just now, is that we take advantage of the opportunity that you and others have pointed out that we have in connectivity. I think we have a right to win. We are across 65,000,000 homes with gig plus speeds, broadband on a path to multi-gig symmetrical. And we can today sell gig speed plus mobile plans with the best devices across a leading network, and that is a real opportunity for us to execute against. And so our agreements allow us to feel confident that we are well positioned with the extension of the agreements to continue to do that. Marci Ryvicker: Thanks, Craig Moffett. Operator, next question, please. Operator: Thank you. Next question is coming from Jessica Reif Cohen from BofA Securities. Your line is now live. Jessica Reif Cohen: Thank you. Maybe continuing with the theme of potential consolidation. Can you step back and talk about how you are thinking about your asset portfolio over the next twelve to twenty-four months or longer? And what would need to change for you to consider a different structural approach to the media assets to recognize the value and potentially strategic flexibility? Because for the first time in a really long time, there are clear values for different parts of the media business versus the current conglomerate multiple that you are unfortunately getting. And other areas of the business that are scaling up. So how do you think about the next couple of years? And then just drilling down to Peacock for a second, your 44,000,000 subs now, and I am just wondering what the levers are to narrow the losses. Is it pricing? Is it ad loads? CPMs? Do you manage turnarounds? Sports, you know, seasonality? What are the milestones that we can look for to, you know, for Peacock to actually get to breakeven and sustain profitability? Michael J. Cavanagh: Sure. So it is Michael J. Cavanagh. I will jump in there. So I think, piling on to what Brian L. Roberts and I had just said, I think I would add to it that we do not really see that there is a strategic advantage or making NBCUniversal stronger by separating it from the cable side of the house or putting it outside of Comcast Corporation. So start there. So the advantages we have sitting inside the company do not get stronger by being smaller as a standalone entity is our view. What our view is, as I just said, is to create value by executing against the plans we have. And the second part of your question, I think one of the big ones, I do not think there is any doubt about the strength and value creation opportunity that we have in parks. Leaning in heavily to that. I do not think we need anything more than just the team we have and the resources that we can put behind it. Very much the same in the studio business. And so the real work to do is on the media side, execute now post-Versant on the integrated domestic strategy to have a broadcast business aligned with a streaming business in Peacock, that adds to it the pay-one movie windows from our studios, as well as the strong sports news and entertainment that goes along with it. To drive Peacock towards profitability, as Jason S. Armstrong said earlier, we made great strides in 2025, and we will do the same in 2026. When it comes to the path to doing that and particularly the NBA side of it all, I think what you are seeing is the strength of the content, especially new content, is price increases. So we successfully took a $3 price increase last summer, late summer, and held the full-year growth that we have seen in subscribers. You see it in advertising, with growth there and, you know, for the note on the NBA, we have seen really nice success in the NBA thus far with adding, you know, something like 170 advertisers in the NBA. Great demand. 20% of those advertisers are new and basically sold out on our NBA season, so we feel very good on that score. Then as time passes over several years, 2025 to 2028, as our affiliate deals renew as opposed to they do not accelerate simply because we took on new content. So we will see that revenue stream build as those multiple levers are the levers that over the period of time ahead bring Peacock to profitability in the overall media segment. To sustainable profitability alongside parks and studios. Marci Ryvicker: Thanks, Jessica Reif Cohen. Operator, next question, please. Operator: Certainly. Next question is coming from John Hodulik from UBS. Your line is now live. John Hodulik: Great. Thanks. Maybe a quick one for Steve Crony. Talk about the competitive environment in high-speed data and just sort of how that has evolved over the last several months? Michael J. Cavanagh mentioned at our conference that they were seeing you guys are seeing more competition on the fiber side. Just want to get a sense for whether or not that has continued into January. And then maybe for Jason S. Armstrong, you referred to the biggest year investment in the broadband business. And it sounds like your point is sort of incrementally accelerating declines in the first half with C&P EBITDA. Are you suggesting or do you guys model out that those declines will improve in the second half of this year or that we can actually get to EBITDA growth? And when do you guys expect that to happen? Steve Crony: John Hodulik, great to hear from you. So in reference to the competitive environment, in the fourth quarter, we did see a more competitive environment from fiber. And that remains. It is just, you know, I think we assume that is going to happen continually as we go forward as I already mentioned. You know, from a fixed wireless perspective, it stayed pretty consistent, and we are seeing stability there. I think as we are all aware, the mobile environment got significantly more competitive within the quarter. So as, you know, as discussed, we built the plan assuming the environment stays the same, we will continue to operate accordingly. Jason S. Armstrong: Yes. John Hodulik, I will take your question on EBITDA and just sort of pacing through the year. I think you are right. In upfront remarks, we talked about sort of the fourth quarter and into the first half of next year. That is going to be a period characterized by incremental investment, which obviously we have talked about to feed several of the initiatives Steve Crony has walked you through. We did not take a rate hike, at least in the first part of this year, in broadband. So that is going to impact ARPU, as we said, over the first couple of quarters. As we look to the back half of the year and really sort of zooming out, you know, we will have a far greater percentage of our base and, you know, well over 50% and creeping into sort of the vast majority on new pricing and packaging, which is really sort of the intention here, really stabilize the base, create durable pricing and packaging, and really sort of lock it down from a churn perspective, and create monetization mechanisms on top of that. So wireless being the biggest one. We sort of came into this year saying, much like we did end of last year, you know, Steve Crony and team focused on how do you go accelerate wireless. And part of this was the low to mid-tiers of the market. We had a little bit of an awareness issue. We went after that with free lines. Come try us for a year, and we can monetize it after that and move you into a paying relationship. I think we have great confidence that the vast majority of our lines will move into a paying relationship. And then we took on the high end with the premium unlimited plans that Steve Crony has mentioned. We are off to a great start with those and having a lot of success. So as you look at the back half of the year, I think one of the things that gives us confidence is, a, we start to lap some of the incremental investments we made starting in 2025. And b, we will get into monetization of what is probably the biggest vehicle we have out there, is free wireless lines moving into paying relationships. So I will stop short of giving a full EBITDA guide. I would tell you in the back half of the year, we would expect improvement. Marci Ryvicker: Thanks, John Hodulik. Operator, we are ready for the next question. Operator: Our next question today is coming from Kutgun Maral from Evercore ISI. Your line is now live. Kutgun Maral: Great. Thanks for taking the question. Was hoping to dig in on the theme parks. Can you expand on the trends that you are seeing there and outlook for the business? Epic seems to be delivering on what you had hoped for in terms of driving higher per caps and attendance across Orlando. You touched on this a bit earlier, but perhaps you can discuss the operational or financial priorities for its second year. And whether you are seeing any shifts in competitive posture in that market. And any more color on your broader parks portfolio would be appreciated as well. Thank you. Michael J. Cavanagh: Okay. Good. It is Michael J. Cavanagh. So I think we could not be more pleased with Epic. You know, it was a big swing, as everybody knows. The biggest park opened in the country and maybe beyond the world in twenty-five years. Lots of excellent technology. The theming is incredible. So to sit here and look back on the achievement that the team made of getting it, you know, successfully opened and ramping it with more ramp still to go as we head into 2026. And by the end, we will, I think, of this coming year, I think we will be, you know, fully ramped up in that park. But I think you said it well, and it was in my earlier remarks. The point of it was to lift all of Orlando, and that is in fact, you know, what it has done. So when you level the whole thing up, you know, having taken this fourth quarter that we just ended and the first time that the parks business has crossed $1 billion of EBITDA in a quarter is a great achievement. We have had a phenomenal year with Epic, and I think the plans continue to invest behind that park in the fullness of time, but I think this year is a year where we continue to drive the original agenda, which is to fill up our hotels, which is the case. We have, you know, we added 2,000 rooms. Our average daily rate in the hotels in Orlando is up 20% and occupancy up 3%. So we, again, feel great. It is a continuation in the near term. More broadly in parks, as you know, last year, we secured and have recently got the national level approvals for our park in The UK. We will be off opening the kids' park in Frisco, Texas, later this year. Japan delivered its second-best EBITDA year in the history of our business. So there is a lot I feel good about. Great team under Mark Woodbury. Plenty of enthusiasm to keep building behind the successes that we have seen. But going back to the top, I think when you have a moment like the ambition of opening Epic and succeed, I think it makes us all feel good about the future of the business ahead of us. Kutgun Maral: Thanks, Kutgun Maral. And Marci Ryvicker: Operator, we will take our last question, please. Operator: Thank you. Our final question today is coming from Michael Ng from Goldman Sachs. Your line is now live. Michael Ng: Hi. Good morning. Thank you for squeezing me in. First, just on the comments around the broadband investments this year, I was just wondering if you could just expand on that a little bit more. Is that more in kind of customer relationships and pricing? Is that more on the CapEx side? And then relatedly, I wanted to ask if there was a shift in posture in terms of pursuing some of these premium unlimited plans. It just feels like, you know, a good opportunity to lean into some of the potential jump walls over the next, you know, year or two just given the Apple iPhone cycle. Just would love your thoughts there. Thank you. Steve Crony: So, yeah, in reference to broadband, I would say it leans much heavier into our go-to-market pricing strategy. As we look at it, we did a few things. We simplified it considerably as we discussed. Down to four tiers. We are all-inclusive now with those tiers. One positive in being all-inclusive is we have more customers taking our gateways, which we believe are best in class, and they will get the feature benefits of that over time. But a big part of the investment is around migrating our base into the new pricing and package in a simplified way. So we are managing through that now. And as Jason S. Armstrong highlighted a little bit earlier, we will see the heavy majority of our customers in the new pricing and packaging. Additionally, we did lower our everyday prices, which makes us much more competitive in the marketplace. And for those customers who may have a promo role, it is much more manageable now. And then the biggest driver is the free wireless line. And importantly, lean into that space, you know, big market ahead of us, as I mentioned. Substantial improvement in CLV there. And greater loyalty from those customers that have both products that have or converge households. So we will continue to lean into that and push forward. So that is the bulk of the investment that we are making around the broadband. Michael J. Cavanagh: And I do think that is the case. You know, investment, it is less the capital side where our network has been steadily doing what we need to do. The investment, you know, language is about putting more value to the customer, getting them on new pricing and packaging in a variety of ways that is just seen in, you know, seen through EBITDA. And I think on the premium side, I do think that is, and as Jason S. Armstrong said in his remarks earlier, getting more exposure to our broader base through exposure to the free line for one year is a strategy to get breadth of exposure, but our ambition is to be a leading provider competing against all segments. And so the launch of Premium Unlimited has been directly targeted at being relevant in that space versus our earliest offers of by the gig, which targeted or succeeded in a different segment. So we are pleased with what we are seeing, and it gives us the opportunity, as you suggest, to think about where and when to lean in, you know, further. I just would end by saying that I hope you feel like I do that there is a bounce and an energy with the new team. And I think, Steve Crony, good luck. We are all counting on you, and I think you are off to a great start. Marci Ryvicker: That concludes our fourth quarter earnings call. Thank you all for joining us. Operator: Thank you. That does conclude today's conference call. A replay of the call will be available starting today at 11:30 AM Eastern Time on Comcast Corporation's Investor Relations website. Thank you for participating. You may all disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Kirby Corporation 2025 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the You will then hear an automated message advising that your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Kurt Niemietz, Vice President of Investor Relations and Treasurer. Please go ahead. Kurt Niemietz: Good morning, thank you for joining the Kirby Corporation 2025 Fourth Quarter Earnings Call. With me today are David Grzebinski, Kirby's Chief Executive Officer, Christian O'Neil, Kirby's President and Chief Operating Officer, and Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer. Slide presentation for today's conference call as well as the earnings release which was issued earlier today, can be found on our website. During this conference call, we may refer to certain non-GAAP or adjusted financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and are also available on our website in the Investor Relations section. As a reminder, statements contained in this conference call respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties and are results could differ materially from those anticipated as a result of various factors. A list of these factors can be found in Kirby's latest Form 10-K and in other filings made with the SEC from time to time. I will now turn the call over to David. David Grzebinski: Thank you, Kurt. And good morning, everyone. 2025 was a record year for Kirby, capped off by a solid final quarter. During the fourth quarter, we navigated typical seasonal weather and year-end softness with exceptional execution by both our marine transportation and our distribution and services teams. We also continued to return capital to shareholders with over $100 million in share repurchases and we further strengthened our balance sheet by paying down $130 million in debt. 2025's record year of earnings supported another consecutive year of generating more than $400 million in free cash flow. We closed the year with strong operational and financial momentum combined with improving market conditions. And as we look ahead, we expect steady growth and solid performance in 2026. In inland marine, early quarter market softness from muted demand and high barge availability gave way to improving conditions as the quarter progressed. Barge utilization strengthened during the quarter averaging in the mid to high 80% range and overall market activity became increasingly constructive utilization exiting the year close to 90%. Pricing was mixed with early quarter softness giving way to firmer prices as utilization improved. Term renewals were down in the low single digits and spot prices declined in the low single digits sequentially. At the end of the quarter and thus far in January, we've seen spot prices rebound in the low to mid single digits sequentially. With these market conditions, our teams worked hard on controlling costs, operating safely, and protecting margins. With this disciplined execution, the inland business delivered solid operating margins in the low 20% range for the quarter. In coastal, market fundamentals remain solid with our barge utilization levels running in the mid to high 90% range. Throughout the quarter, customer demand was stable, supported by limited availability of large capacity vessels. Our teams delivered strong operational execution and maintained a disciplined focus on cost, efficiency, and this resulted in an operating margin of approximately 20%. Turning to distribution and services. Overall demand tracked in line with the prior quarter. We continue to see strong activity in power generation, stable marine repair demand, a slowly recovering off-highway market, and persistent softness in the conventional frac market. In power gen, total revenues grew 10% sequentially and 47% year over year, driven by execution on existing backlog, which was further supported by strong order flow and multiple large project wins, as customers continue to prioritize reliable power solutions. In our commercial and industrial market, revenues were down sequentially driven by seasonal slowness in marine activity and ongoing slow recovery in the off-highway market. In oil and gas, revenues continued to be pressured by a very soft conventional oil and gas business yet we continue to maintain profitability in this part of the segment. In total, we exceeded our expectations in the sec as the segment grew operating 20% for the full year. In summary, Kirby closed the fourth quarter and year on solid footing despite the usual seasonal challenges in both segments. So far in the first quarter, we've seen stable refinery activity, improving inland utilization, and spot rates that have early signs of an upward trend. In coastal, market conditions remain stable, our barge utilization is strong, and pricing continues to move in the right direction. In distribution and services, even though demand is expected to remain mixed across our product lines, power generation continues to be a standout performer helping to offset softness in the other areas. Overall, we expect to deliver steady financial performance in 2026, with earnings projected to strengthen year over year. I'll talk more about our outlook later but first, I'll let Raj discuss the fourth quarter segment results and the balance sheet in more details. Raj Kumar: Thank you, David, and good morning, everyone. In the 2025, Marine Transportation segment revenues were $482 million and operating income was $100 million with an operating margin in the low 20% range. Compared to the 2024, total Marine revenues inland and coastal together increased $14.9 million or 3% and operating income increased $14 million or 17%. When compared to the 2025, total 1% and operating income increased 13%. As David mentioned, typical seasonal winter weather along the Gulf Coast produced an 82% sequential increase in delay days and negatively impacted operations and efficiency in the fourth quarter. Looking at the inland business in more detail. The inland business contributed approximately 79% of segment revenue. Average barge utilization was in the mid to high 80% range for the quarter. Which was an improvement over the 2025. But down from the 2024. Long term inland marine transportation contracts or those contracts with a term of one year or longer contributed approximately 70% of revenue with 59% from time charters and 41% from contracts of affreightment. Lower market conditions, contributed to spot market rates that were down in the low single digits sequentially and in the mid single digit range year over year. Our term contracts that renewed during the fourth quarter were down in the low single digit range due to the short term softness in the market. Compared to the 2024, inland revenues decreased 1% primarily due to lower utilization. Inland revenues increased 3% compared to the '25. Due to higher utilization from improved market conditions. Inland operating margins were in the low 20% range. Margins improved sequentially driven by aggressive cost management which helped offset softer pricing lingering inflationary pressures and challenging operating conditions caused mainly by weather delays. Now moving to the coastal business. Coastal revenues increased 22% year over year driven by steady demand higher contract prices, and limited availability of large capacity equipment. Overall, Coastal had an operating margin around 20% benefiting from higher pricing and effective cost management. We do expect to see some margin headwinds going into the 2026 given the higher number of planned shipyards. The coastal business represented 21% of revenues for the Marine Transportation segment. Average coastal barge utilization was in the mid to high 90% range. Which was in line with both the 2024 and the 2025. During the quarter, the percentage of coastal revenue from under term contracts was approximately 100%. All of which were time charters. There were no term contracts scheduled for renewal in the fourth quarter. With respect to our tank barge fleet, for both the inland and coastal businesses, we have provided a reconciliation of the changes in the fourth quarter as well as an outlook for the full year 2026. This is included in our earnings call presentation posted on our website. At the end of the fourth quarter, the inland fleet had 1,105 barges representing 24.5 million barrels of capacity and is expected to be flat in 2026. Coastal marine is expected to remain unchanged for the year. Now I'll review the performance of the Distribution and Services segment. Revenues for the 2025 were $370 million with operating income of $30 million and an operating margin of 8.1%. Compared to the 2024, the Distribution and Services segment revenue increased by $35 million or 10% with operating income increasing by CHF 3 million or 12%. This growth was driven by the power generation business. When compared to the 2025, revenues decreased by $16 million or 4% and operating income decreased by CAD 13 million or 30% due to the year end softness in marine repair and off highway activity and continued weakness in the conventional frac market. Moving through the segment in more detail. In power generation, we continue to see significant power generation orders from backup and prime power data centers, and other industrial applications. Resulting in higher backlog. Overall, total power generation revenues were up 47% year over year with operating margins in the high single digits. Power generation represented 52% of total segment revenues. This is the second quarter in a row that Power Generation increased its contribution to the overall segment. We anticipate this trend to continue given the strength we are seeing in the data center and backup power markets. On the commercial and industrial side, activity remains steady in marine repair and on On Highway. As a result, commercial and industrial revenues were almost in line with the prior year. However, revenues were down 11% sequentially due to seasonal soft softness in marine repair and on highway activity. Commercial industrial made up 40% segment revenues and had operating margins in the high single digits. In the oil and gas market, we continue to see softness in legacy conventional frac related equipment as lower rig counts and lower fracking activity tempered demand for new engines, transmission service, and parts throughout the quarter. Revenues in oil and gas were down 45% year over year, and 33% sequentially, and operating income was down 30% year over year and 54% sequentially. Even with the declines in revenue, Oil and Gas was able to aggressively manage costs and maintain profitability. Oil and Gas had operating margins in the high single digits in the fourth quarter and represented 8% of segment revenue. I would like to take a moment to call out a few other items that have had an impact on the income statement in the quarter. We have seen an increasing trend in our medical costs and expect this to continue in 2026. This impacted fourth quarter operating margins in both of our segments. Conversely, moving down the income statement our general corporate expenses declined in the quarter as we experienced lower claims losses driven by our strong focus on safety and execution. The medical cost increases were largely offset by the lower claims losses. We will continue our relentless focus on strong safety and operational excellence. But we expect continued higher medical costs going forward. And we expect general corporate expenses to normalize in 2026 at a similar level to the 2025. I'll now turn to the balance sheet. As of 12/31/2025, we had $79 million of cash with total debt around $920 million and our debt to cap ratio was 21.4%. During the quarter, we had net cash from operating activities of around $312 million. Fourth quarter cash flow from operations benefited from working capital reduction approximately $127 million. We use cash flow and cash on hand to fund $47 million of capital expenditures primarily related to maintenance of marine equipment. Free cash flow generation during the quarter was just over $265 million. We used $102 million to repurchase stock at an average price just under $99 and reduced our debt by around $130 million. Further strengthening our balance sheet. As of December 31, we had total available liquidity of approximately $542 million. For all of 2025, we generated cash flow from operations of $670 million driven by higher revenues and earnings and our continued focus on working capital. Having said that, we still see some supply constraints causing some headwinds to managing working capital in the near term especially to support the growth in the power generation space and expect to build in working capital at least in the 2026. With respect to CapEx, our total capital spending was $264 million for 2025. Approximately $20 million was associated with marine maintenance capital and improvements to existing inland and coastal marine equipment and facility improvements. Approximately $45 million was associated with growth capital spending in both of our businesses. For 2026, we expect CapEx to fall into the $220 million to $260 million range. We generated $406 million of free cash flow in 2025, which exceeded the high end of our guidance, driven in part by a favorable working capital release in the fourth quarter. We expect 2026 to be another good year for free cash flow generation with operating cash flow expected to be ranging from $575 million to CAD675 million. As always, we are committed to a balanced capital allocation approach and will use this cash flow to return capital to shareholders and continue to pursue long term value creating investment and acquisition opportunities. I will now turn the call back to David to discuss our full 2026 outlook. David Grzebinski: Thank you, Raj. 2026 is off to a strong start. While macro factors, including Venezuelan oil flows and ongoing tariff developments may create some near term noise that could also present upside for demand. We exited the year with solid momentum. Refinery activity is steady, Inland barge utilization is improving. And spot rates are showing early signs of firming. Coastal market conditions remain constructive. With pricing continued to move in the right direction. In distribution and services, even though demand will vary across product lines, our power generation business remains a standout. Our expanding backlog, continued strength, in customer demand, and the rising importance of reliable twenty four seven power are driving sustained performance in this segment. These tailwinds are helping to balance softness in other parts of the business, but they do position us for continued growth. Overall, we expect to deliver consistent year over year earnings growth in 2026. Supported by stable operations, improving market fundamentals, and strong execution across the company. Moving to specific detail on the segments, In inland marine, limited newbuild activity continues, to keep equipment supply and balance and supports constructive market fundamentals. We expect refinery utilization to remain healthy and see early signs of strengthening petrochemical demand. Which together should support higher fleet activity. For the full year, we anticipate barge utilization to average in the low 90% range, with pricing improving steadily as demand improves. In addition, 2026 is expected to be a lower maintenance year for the fleet providing more barges available for service. Overall, inland revenues are expected to increase in the low to mid single digits year over year. As is typical seasonal weather winter weather has set in and that will weigh heavily on both revenues and margins in the first quarter. However, as we move through the year, we expect operating performance to strengthen. Margins should gradually improve with better utilization, firmer pricing, and lower maintenance, ultimately averaging in the high teens or low twenties for the full year. In coastal, market conditions remain favorable and supply and demand remain balanced across the industry fleet. Steady customer demand is expected to keep barge utilization in the mid 90% range. While we expect elevated shipyard activity to persist throughout the year, we still anticipate mid single digit revenue growth versus 2025. Which has been helped by gradual pricing improvement as new contracts renewed. Coastal operating margins are expected to be in the high teens range on a full year basis with some pressure in the first part of the year due to heavy shipyards. In the distribution and services segment, we expect stable growth supported by rising customer demand in several areas offsetting weakness in others. We anticipate that deliveries will continue to be somewhat uneven due to persistent availability constraints and long OEM lead times. Which are affecting the timing of equipment and parts flows but fundamental demand trends continue to show strength. Power generation will continue to be a core engine of growth for the segment driven by a robust order pipeline, expanding backlog, and rising customer focus on reliable prime power. And backup power solutions, and cross industrial and energy applications. In commercial and industrial, the outlook remains stable. With solid marine repair activity and ongoing improvement in on highway service and repair activity. In oil and gas, we expect revenues to be down in the double digit range as demand continues to be soft. But more importantly, we expect to continue to maintain profitability in oil and gas driven by strong cost control. Overall, the company expects total segment revenues to be flat to slightly higher year over year with strength in power generation helping to offset lower oil and gas activity. Operating margins are projected to be in the mid to high single digit range on average for the full year, with continued discipline on cost management. To conclude, overall, 2025 was another record year of earnings. And we remain encouraged as we look to this year and beyond. Despite the softness we saw in the inland market in the 2025, limited new build activity in the marine market continues to keep industry supply in check, and our customer demand remains solid. The demand for our power generation equipment is strong and growing, as we continue to receive new orders and build backlog. Our balance sheet is in excellent condition, and we expect to generate significant free cash flow again in 2026. Overall, we anticipate solid financial performance for this year with solid earnings growth and supportive fundamentals extending into the coming years. Operator, this concludes our prepared remarks. Christian, Raj, and I are ready to take questions. Operator: Certainly. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. And our first question will be coming from Reed Seay of Stephens Inc. Reed, your line is open. Reed Seay: Hey, guys. Thanks for taking the question. I just had a question on 4Q term contract pricing. It was down slightly, but I would assume that these have some type of forward-looking conversation when you get into the room with these customers. Is this somehow a read into maybe their demand outlook into 2026? Or is this solely a function of near-term pressures? And then if you can give any color on how the conversations are going so far in 1Q, as you say, you've seen a bottoming spot rate. That'd be very helpful. Thank you. David Grzebinski: Sure. Yeah. Good morning, Reed. Thanks for the question. Christian and I will tag team this a bit. Yeah. The fourth quarter, you know, we had pretty weak demand early in the fourth quarter. It was carrying over from the third quarter being a little weaker on demand. We had a little more barge availability than we would have liked. That puts some short-term pressure on term pricing. As you heard, it was down, low single digits. You know, that's just part of the normal renewal cycle. The good news is that we've already seen spot prices retrace and are probably up more so far in January than they were down in the fourth quarter. So that bodes well for the renewal cycle going into this year. I think it was really demand softness in, you know, in the latter half of last year, kinda set the tone for the price renewal, term renewals. But so far, the tone is much improved this year. Part of that is weather. For sure, we're tighter because of weather, but we are seeing more volumes. You know, I don't know, Christian. What was our utility morning? It was We were ninety-four percent this morning. So utility's tight. Yeah. Anything you wanna add on pricing? Christian O'Neil: Yeah. No. Thank you, Reed, for the question. I think your observation that near-term pressure was probably more of what we saw in Q4. I think it reflects an outlook of our customers on 2026. You know, we definitely feel some momentum as we enter this year, and we last year. We were just in a window there where we were fighting for rate increases, and we ended up, you know, kinda slightly below that single digits. In light of where the refining industry was with running the light crude slates, where the chemical markets are with some of the distress and the malaise that you hear about in the headlines, you know, we feel okay about those Q4 renewals, but we definitely are optimistic that as we enter Q1, you know, pricing stabilized, teams execute very well. Utilizations David just had us mention is 94%. So feeling okay as we enter Q1. Your question's about Q4, but short answer is about the near-term pressure in the market. David Grzebinski: Yes. I would add, Reed, that you know, the refinery complex is doing better. You know, we have seen the lighter crude slate get a little heavier. We remain hopeful on Venezuelan crude. It's still early days to see what impact that has. I would just add that, you know, chemicals have been really tough for the last couple years, almost the last several years. Boy, if we got a little upturn in chemicals, we could be extremely tight very quickly. So yeah, we're feeling that tightness, and I think our customers are starting to feel the same. So we're very constructive about how this year looks, and the good news is nobody's building equipment as well. So that's, you know, it's a really constructive market as we head into full year '26. Reed Seay: Got it. That's helpful. Thank you. And then on the coastal side, revenue is expected to be up in the mid single digit range. You don't have a lot more room on your shifts to increase volumes. It seems like it could be almost a proxy for price increases in 2026, but is there some impact in there from maybe your increased shipyard that you talked about? And then, I guess, what cost impact should we expect from increased shipyards in the first part of this year? David Grzebinski: Yeah. No. This will be a heavier shipyard year for sure. You know, the number of shipyard days are up, at least 10% plus. So as you know, with shipyards, we don't get the revenue, but we still have the cost so that there is a margin impact, which you so when you hear, we're up in terms of revenue, that's all price. It's all price. And because you know, obviously, when you're in the shipyards, you're not moving the volume. So, it's a very constructive market in the coastal business. Nobody's building any new capacity. You know, pricing, to justify new builds is still 40% plus away. So nobody's thinking about building. Even if they were to build, it would take three years from deciding to build. So we're very constructive on the Coastwise business. I will say that, you know, we've had several years now of double digit price increases. So, you know, the law of large numbers is coming into play. So, you know, seeing double digit 20% type price increases probably won't see those going forward, but we are still getting pricing increases. The market's really tight in the higher, in the large capacity vessels. So we're very optimistic about coastal. Reed Seay: Perfect. Appreciate the color, guys. David Grzebinski: Thanks, Reed. Operator: And our next question will be coming from Ken Hoexter of Bank of America. Your line is open, Ken. Ken Hoexter: Hey, Greg. Good morning, Dave, Christian, and Raj. So you guys set a pretty big range for EPS. Right? Zero to 12. Maybe drive a barge through there. So maybe just talk a little bit about top to bottom expectations or thoughts. And I know. Is that more on the deliveries for PowerGen and the timing of that? Is it unknown about the I mean, I guess, most of your contracts, I thought, were done in the fourth quarter for Inland. Is there still a lot of debate given the flop of what's going on with rates? So maybe just walk through your thoughts on the range, why it's so large, and then where the opportunities lie. David Grzebinski: Yeah. No. I think you hit the key reason. You know, there's a couple reasons for the breadth of the range. And power gen deliveries are a big part of it. As you know, the OEMs still are supply chain constrained. You know, we get lumpy deliveries from them, and then we've gotta process them through our manufacturing facility. So, you know, the cadence of power gen deliveries is a big part of it. And then a lesser extent is the inland market and how much pricing improves throughout the year. We're very optimistic, but we don't wanna be too optimistic given we saw a little demand pullback last year when the fruit slate went a little lighter. So far, you know, we're seeing a heavier feedstock slate come in, and that's certainly helping. You know, our refining customers are having really good years in I think they like cracking the heavier crude. And, you know, this Venezuela is just part of it. But given Venezuelan coming back in is also making, Mayan and Mexican crudes, slates a little cheaper. So there's some good dynamics coming, but, you know, we're a little cautious given what we saw in the third quarter in terms of demand. So, you know, that's part of our guidance range, Ken. Ken Hoexter: Yeah. So maybe clarify just the inland part of that. Right? Because that caution. Right? So your inland turned the corner and seems to be accelerating into the start of the year, but the high teens to low 20s. Maybe a little bit lighter than I don't know. Is that are you thinking some capacity coming back just given the lack of yard work, or is it slower start to rates? I'm just wondering why. Because you seem so bullish on getting at least that twenties level before. David Grzebinski: Yeah. Let me take a shot at that, Ken. So on the inland side, you know, I think supply and demand remain in excellent condition. You know, I wanna just tighten up one thing that you mentioned. The percentage of contracts that were in Q4 was probably 30% ish of the portfolio that just repriced that single digits down. So that, you know, that bakes through the forecast. But I think we're feeling pretty good today about where spot markets can go. You know, we'll see. And, you know, maybe that puts you at the higher end of that range if all that continues. David referenced the Venezuelan crude dynamic. You know, that could be significant. You know, not sure how much that is really priced into the forecast. It was it's hard to do that. I was joking with David and Raj. I wish we'd have gone a day or two after all these big refiners calls today. We would sound a lot wiser about all that. But you know, I don't know if that answers your question, but, you know, inland's got some positive optionality upside with spot rates as we go through the year. David Grzebinski: Yeah. I guess caution on our margin. You know, we fully would expect to be in that 20% range, but we are seeing some inflation. One of the things that's actually helping the marine dynamic market here is mariners are still very tight. And so, you know, we are seeing wage pressure and, you know, there's still some inflation that's impacting. So yeah, maybe we're being a little conservative, but you know, we thought it's better to be prudent given the inflationary environment and knowing that it's gonna take a little more spot market improvement. Raj Kumar: Yeah, David. We saw the medical cost this quarter inching up. You know, it's been trending higher. So inflation is real there. Ken Hoexter: Yeah. Alright. Last one if I can just sneak one more in. Your capital allocation, Dave, you mentioned all the time, like, when you never wanna sell at the bottom. Now that DNS or at least the power gen market is really taking off and establishing itself, is that now part of core? Do you view it as core? Is that something you still look at opportunities, maybe just your big picture thoughts on the business. David Grzebinski: Yeah. No. Well, you know, we're really excited about power gen. You know, it's been a lot of fun. You know, with that said, we're always looking for ways to enhance shareholder value. And if there's a transaction that really adds to shareholder value, we would go after it. You know, that said, we're very excited about PowerGen. We're starting to get into higher power nodes. The percentage of behind the meter equipment that we're providing is going up. You know, just standby backup power has got a little lower margin. But when you get behind the meter, it's natural gas driven. Lot more engineering involved, and so we're excited about that. And then as you look out, all this equipment that's going in is going to provide some service annuities for us. So, you know, we're pretty excited about where power gen's going. So, you know, it's hard to say, but we've always been focused on how can we maximize shareholder value. Ken Hoexter: Appreciate the time and thoughts. Good luck in '26. David Grzebinski: Thanks. Appreciate it, Ken. Operator: And our next question will be coming from Jonathan Chappell of Evercore ISI. Your line is open. Jonathan Chappell: Thank you. Good morning. David, when we hear you talk about all three core businesses, kind of getting to that guidance range seems ultraconservative. I mean, you spoke to being conservative on inland margin, and that makes sense with the inflation in the medical side. You know, Venezuela, you noted as being a big air pocket driver back in June, July, August maybe. Now you mentioned the potential for that to be upside. Power gen's obviously driving the bus. On DNS. That was a high single digit margin business in 4Q, and DNS overall margin guide is mid to high single digits, and you bought back $100 million of stock in '25. So just trying to flush out in this flat to 12% guide, is there any buyback? Is there any Venezuela upside? Why wouldn't DNS be better than mid single digit margins? If power gen, which is a high single margin high single digit margin business, is doing so much better than oil and gas and C and I. You just help out with that. David Grzebinski: Yeah. Yeah. Let we'll tag team that a little bit. Let me break that down in a couple things. On the DNS margin, let me break that down a little bit. I alluded to it a little bit here with behind the meter versus just backup. One of the things with power gen, if it's just a backup engine now there's some a backup diesel engine for a data center, for example, that there is some engineering components tree there, but it or input there. You know, it's a pretty basic piece of equipment. We add bells and whistles to it and cooling and fuel tanks and software to control it and stuff like that. But, you know, the big piece of that is the engine, and unfortunately, the whole market knows what every engine costs. So our ability to mark up the price on engines is constrained. So when we're shipping a lot of data center backup power, you know, it's gonna be lower margin. Conversely, when we start shipping behind the meter type stuff, that's all natural gas recip. Engine's very highly engineered. A lot more sophisticated, higher margin. So part of our margin progression for '26 is lower margins in the first half when we're shipping a lot of kind of backup power. And then the second half, is when some of our behind the meter, backlog will start to ship. You know? So you know, we're melding that together and giving you our best thought on margins. Know, the good news is, you know, revenue is growing. Yeah. The margins are a little lower, but it's this is still a really good growth market. And then when you look out '27, '28 as service and parts start to grow, I mean, there's a lot of equipment going out there right now. Know, we'll see margins improve in the outer years. Know, we provide service and parts to not just the equipment. We've deployed, but the equipment that some of our competitors have deployed. We've got a very large technician base and, frankly, we'll continue to grow our service capabilities, and that gets to kind of the acquisition and the capital allocation. If you will. And I know Christian's gonna add some more color here in a minute on PowerGen, but on capital allocation and share repurchases, you know, the conversations we're having in M&A are more frequent. You know, as we look at our free cash flow, it'll be like it was in '25. I think we did over $400 million in free cash flow. And in '25, we put $360 million of that free cash flow to share repurchases. So you know, we definitely like buying back our stock. So absent some acquisitions, you should see us deploy free cash flow. So we've got a little bit of share buyback in that guidance, not a lot. Because we're constructive on where we think M&A might go. But as you know and you've seen John over the years, really hard to predict that M&A. Christian O'Neil: Yeah. We remain very disciplined on our capital returns, and so that bid offer spread is what comes into play. But I think Christian wanted to add a few more thoughts on Power Gen. Christian O'Neil: No. I appreciate the question, John. Thank you, David. You know, just a little more information on the behind the meter power system. In the DNS profitability. There's you know, it's obviously a mixed piece, as David referenced, between the standard backup diesel power generation for a data center and our behind the meter power system. And the key there is that it's an entire system. It's got more value. Integrated power, it's not just the generator. Several I mean, there's it's a highly engineered product. We include our own advanced power distribution units that go with the system. Our power management and control systems add value. It requires a lot more extensive ballast plant. And as David referenced, the service opportunity on behind the meter power where the gens are running twenty four seven and not just firing up on standby basis. Represents a significant long term service opportunity. So I think David touched on all this, but I just wanted to give a little more color on that behind the meter power system. And then I think you asked about Venezuela and its impacts. David Grzebinski: Mhmm. And I'll touch on that, Dave. So Venezuela crude in large volumes in the Gulf Of Mexico is historically been a really good story for us barge guys. Heavy crude in general for pad three creates bottom of the barrel residuals that have to move by barge. Produces intermediates and mediums that are better moved by barge and move between refineries to balance them. Also, you're starting to see the evidence that this Venezuelan crude is gonna be discounted. To, you know, other crude so the price is cheaper. If our refiners are happy and crack spreads are better and they're more profitable as they go, we go, and we have seen a small sample set already of some refiners taking positions on equipment particularly our thermal fluid hot oil pieces of equipment we own. And operate the largest black oil heater fleet in the industry, and we've seen some small sample set today of people taking positions in advance of Venezuelan crude. So you know, again, I'm not sure you know, we really, you know? David Grzebinski: Yeah. Part of the problem, John, is we haven't seen the volumes yet. I mean, there's a lot of talk of the Venezuelan volumes coming. You know, the refinery complex is pretty big, and you know, they process a lot of crude. And so, you know, so far, it's just been a drop in the bucket. But you know, there's a lot of good discussion out there, but we haven't really seen the barrels come in yet. Christian O'Neil: Yeah. I imagine we'll all be a little wiser after the refiners do their calls today. Jonathan Chappell: Yeah. That all makes sense. That's super helpful context. And just a two-part follow-up too. My apologies. So many questions. One, you talked about a potential kind of price holiday, so to speak. For some of your biggest customers as they struggled a little bit in mid twenty five that think you were supposed to get back in '26. So just wanna see if that's gonna shake out as you had expected and baked into the guide. And then two, seems like there's a lot of surging demand in gas turbine production. And some of maybe your biggest customers in The US. So I don't know if that's a '26 event or a '27 or beyond event, but any way you can kind of talk to that potential as well. David Grzebinski: Yeah. Let me touch on the rates. On what we had. You know, there were some opportunities for us to help some very large long-term customers who were going through austerity measures and we did the right thing and took a haircut on some rates in '25. Those rates will come back in '26, and, you know, we continue to just be good partners where we can. We're in it for the long run. So I guess the rate holiday as you referred to it, I don't see any of that today. That we need to talk about. Yeah. On the larger power nodes, you heard us talk about it. Part of that is larger recips coming from the OEMs. But, there is a portion of gas turbines. We are working actively right now packaging some larger gas turbines. But those are revenue in 27. And then, you know, assuming that goes well, you know, it could become very meaningful in '28 and '29. Jonathan Chappell: Got it. Incredibly helpful. Thanks, Christian and David. David Grzebinski: Sure. Thanks, John. Operator: Our next question will be coming from Sherif Elmaghrabi of BTIG. Your line is open. Sherif Elmaghrabi: Hey. Good morning. Just one for me. Spending some time on the CapEx guidance, $65 million is earmarked for growth, but we're not baking any acquisitions into our estimates, for the size of the inland fleet. On the inlet side. So I'm wondering if you have any lines of sight on opportunities in inland. And if you could please give us an update on how new build pricing is trending this year versus a year ago. Thank you. David Grzebinski: Yeah. We'll jump into that. Yeah. Raj outlined the CapEx, but we don't bake in onto our CapEx guidance any acquisitions. You know, the acquisition pipeline is probably more bolt-on than transformative, in what we're looking at. You know? On the inland side, you know, they could be in the order of a $100 million type dollar deals, but then probably not billion dollar deals, this year. We always remain hopeful, but, you know, we're being a little more pragmatic there. About what the bid offer spread could narrow to. And what opportunities that gives us. On the DNS side, you know, those would be very small bite-size, you know, kinda under $50 million type dollar deals that get us more service capabilities, you know, more longevity, in terms of recurring revenues in DNS. But to your direct CapEx, that growth CapEx is really just helping us expand some internal capabilities. For example, in our power gen we're building a new building that handles these higher power nodes. You know, it's not a big CapEx. You know? It's under $20 million kind expenditure, but it, you know, it's a bigger, taller building with bigger cranes that can handle some of this bigger equipment. Those are the kind of growth CapEx that we're talking about. Christian O'Neil: And I can talk about new build pricing. So Sherif, new build pricing is consistent with where it's been in prior quarters. You know, steel really hasn't moved much. And the cost input for labor at the shipyards, I continue to hear from our good friends that operate the major shipyards that they still have some challenges around labor and the labor costs are still running pretty hot. You're looking at about $4.5 million to build a 30,000 barrel cookie cutter clean barge, and that's consistent with where it's been. So and on the new construction, you know, windshield, and looking in arrears, you know, we saw about we think, 50 to 60 barges get built last year. Probably somewhere in that same realm, 50 to 60 barges in 2026. And we do follow retirement as closely as we can. It's not an exact science, but we do think retirement did outpace new construction in 2025. And so you know, I think the shipyard dynamic pricing supply the ability of shipyards to supply a larger volume of barges is still constrained. And so I think the you know, all that's pretty consistent with what we've said in prior quarters. Sherif Elmaghrabi: Okay. Yeah. Very helpful. Thank you both. David Grzebinski: Yes. Thanks for your help. Thank you. Operator: And our next question will be coming from Benjamin Nolan of Citi. Your line is open. Benjamin Nolan: Hey, great. Good morning. Thanks all for your great insights. Maybe just on the storm impact in 1Q, could you share your views on that, on your inland coastal volumes and pricing? And you mentioned utilization at 94%. Can you kinda parse out how are looking so far into the quarter and how that might progress rest of the quarter stepping up? David Grzebinski: Yes. Good morning, Ben. Yes. Thanks for the question. I'll let Christian answer that on the weather impacts of the marine. But just anecdotally, the winter storm here, helps our power gen business, believe it or not. We rent large trailers that have, say, a megawatts worth of power and they go out to customers like Walmart, Target, Costco. So, you know, that's a little hedge against some of the negativity that comes with the winter storm, but I just wanna add that little tidbit before Christian talks about how it impacts marine business. Christian O'Neil: Yeah. Thank you, David. So you know, Ben, starting north to south, you know, you're seeing ice build on the Illinois River. Which does affect navigation, slows down navigation. We do have contractual protection against risks like that. Ice clauses, and whatnot. So shouldn't be a real factor. Other than that, it might chew up some more barge days, and you know, maybe some trips get a little less efficient. In the Gulf Of Mexico, I was pleased to see the refiners in the chemical plants that have had some real issues in freezing weather and ice storms below in their continuity, I don't think we saw any really major interruptions to production of chemicals refineries. That were, you know, can be attributed to the cold weather. There was one unit c drift that I know shut down, but beyond that, we didn't see a sort of anomalistic industry demand effect from the cold weather. If anything, you could argue it might be a net positive as you know, really, there wasn't much traffic moving for a couple of days, which really, you know, tightens up the market. From a utility perspective. So, you know, not a nonevent, but nothing that would significantly move the needle in Q1. As I sit here today. Benjamin Nolan: Great. Really appreciate that. And maybe going back to, you shared some great insights on the, overall Venezuelan oil complex. Can you share you know, you've got possible crude inbound, northbound into The US. That you could be a part of, and then the refined product from that that you can be part of. Can you also discuss going outbound down south, being part of the supply chain of dilutants like c five and naphtha, into Venezuela to lower their viscosity coming out of the source. Maybe discuss each of these sort of up, down, and all around type movements that could drive potentially, you know, kind of offsetting the cancer session and drive growth in marine over the next couple of years? David Grzebinski: No. That's a great question. The international pieces of what you described, the diluent going down to Venezuela and the heavies coming up, probably believe that to some of the larger ships that are kinda that's their business is moving crude internationally. We will, I think, for, you know, benefit from the refining portion of you know, if you input one barrel of Venezuelan crude versus one barrel of light sweet, you know, what does that mean to a barge line? Means there's gonna be more opportunities for us to move the heavies and the intermediates. Just history just proves that out. And I do think the constructive pricing discounts for the major refiners and other refiners they'll take advantage of that. And, you know, that means they'll heavy up, you know, even more. There's maybe some knock-on effects that are, you know, we'll have to watch a while to understand, but as Canadian crude gets backed out of pad three, if Venezuela starts coming in significant volumes, then maybe you'll see some Canadian move into pad one, some other places, and maybe produce some similar opportunities in those refining complexes where they're running heavy enough their slate a little more. So you know, it's definitely gonna have some kind of ripple effect. It's very early innings. Very hard to tell. But short answer, yeah, we like the prospects of what happens in the golf. We probably won't be participating in international moves. Benjamin Nolan: Great. Appreciate that. And maybe just one last one for me. Sorry for the three questions. Back to Ken's question on the step up in power gen growth in 4Q. Can you, maybe as best as you can, parse out what portion of that is just lumpiness and what portion is sustained acceleration? David Grzebinski: Yeah. Let me try a couple things to answer that. You know, part of our constraint is the OEM supply. You know, I'd love to adjust up our revenue growth. The problem is just getting the engines. But the growth is there for the longer term, you know, into particularly if we add some service components and '27 and '28. And, you know, if perhaps some higher power nodes should add revenue as well because they're just more expensive pieces of equipment. And, certainly, if with the gas turbine side. Yeah. And we're already doing some service on gas turbine. So you know, that growth should happen over time, but to accelerate it, it would take a bigger supply chain. Now that said, some of our OEMs have announced capacity expansions, but those capacity expansions are gonna take a couple years to come forward. Benjamin Nolan: Yes. The four q strength, maybe parsing out what you think is lumpiness versus sort of sustained acceleration. David Grzebinski: Yeah. We did have some we're gonna have lumpiness throughout the year. And, you know, it'll depend whether we're shipping, you know, backup power or behind the meter power, I would focus on just kind of the full year and not worry about the quarter to quarter lumpiness. I know that's not a very satisfying answer, but, you know, that's the way we look at it. You know, we're expecting that 10 to 20% kind of growth in power gen. Know, when we look at our backlog, you know, we haven't given backlog, but, know, sequentially, backlog was up 11%. And then year over year, our backlog was up about 30%. You know? So that's the way we look at it. You know, the market continues to grow. We continue to participate in it. It will be lumpy just because of the way the supply chain works. You know, we get a batch of engines, and then we've gotta build out our kit on them. And then and get the shipments out, and it's just gonna be lumpy quarter to quarter. Benjamin Nolan: Great. Thanks very much. So 10 to 20% for next one, two years until the OEMs add capacity, and then that step up from there. David Grzebinski: Yeah. I believe that's true. Benjamin Nolan: Great. Yeah. Everybody does wonder about is this an AI bubble, but I would say you know, this power need is real. All these AI and data center guys are actually generating real cash flow. It's a lot different than the .com era when they didn't have cash flow. These guys have real cash flow. And what we're hearing is, you know, our customers are talking about their customers and saying it's real demand. So our customers' customers are really talking about real demand. So we're, yeah, we're very constructive on this. Benjamin Nolan: Great. Thanks for that. From what we're seeing, it does look like it's still very nascent, very early innings. Thanks again. David Grzebinski: Thank you, Ben. Operator: Appreciate it, Ben. And our next question will be coming from Greg Wasikowski of Weber and Advisory LLC. Your line is open, Greg. Greg Wasikowski: Hey. Good morning, guys. Just wanted to keep going off that last question. You just talked about the OEM's capacities, but can you give us an idea of your capacity? Just there and the power generation as a whole? You know, if we look ahead to twenty six, seven, and eight, we model in, you know, x megawatts of growth or x percentage of growth, you know, is there a natural ceiling there for you guys that you're able to physically handle? Or is there then a, you know, a call for reinvestment on your end in order to grow the segments? Capacity. It's just you know, trying get. David Grzebinski: No. Good. Great question, really. We have two major manufacturing facilities. We do a lot of our branches do a lot of support work and service work, but we have two major manufacturing facilities in Oklahoma, one in Houston. We're not running twenty four seven, so we do have a lot of capacity left. You know, that said, they're very busy, and, you know, that's good. Our constraint really is adding service techs. We just continue to need to add service techs. You know, electric equipment's got a little more sophistication and a little more need for specialized technicians. And, you know, so that's what we're working on growing. I did mention earlier in the call that part of Raj's description of growth CapEx included, expanding a larger building to handle this bigger. We're doing that in the Houston plant. You know, that's it's not large CapEx. You know? Like I said, it's less than $20 million, but we need to do it not because we couldn't get more throughput through the existing facility, but because we needed the higher crane heights to handle the bigger power node pieces of equipment. You know, we've got the capability to go, twenty four seven, add shifts, you know, sometimes we run evening shifts, but we're not running a night shift now. We do occasionally work a lot of times, we work up through the weekend. So we're not twenty four seven, so we do have more capacity is the short answer. Christian O'Neil: And, also, the bigger the installed base gets, the bigger our parts and service offers. Greg Wasikowski: Yeah. Makes sense. Okay. Thanks, guys. One more follow-up on Inland David, you mentioned chemicals being a little bit of a weaker spot. It's something that we tend to hear every quarter as well. I'm just curious to hear your thoughts on why it's been a little softer and then what you're looking at for a potential to potentially turn around either this year or just eventually in the future? David Grzebinski: Yeah. No. I think the chemical customers are global customers. And they've got plants all over the world. And if you I don't wanna specifically name some customers, but multiple numbers of customers have been shutting down European chemical facilities. They're just feedstock disadvantaged. And over the years, they keep those plants open because it's so expensive because of labor situations. To shut those plants down. Know, they would cut back a little bit in The US, and to just so they could keep their European plants running. And now that they're shutting those down, we're getting more constructive. That said, we haven't seen a big pop or anything yet. I do believe they're taking the right moves. Know, we heard some Asian plants getting shut down as well. So we're optimistic but you're right. We do talk almost every quarter about how tough it is in the chemical space. They've had a tough several years. Now part of that is, as you know, in The US is new home construction and auto construction's a big part of their intermediates. You know, that's picking up a little bit. So yeah, a lot of good things are happening. Right? We're seeing more homebuilding in the US, Auto production is still kinda flat, but that may be coming back. They're shutting down their European and cost disadvantage plants around the world. The US chemical plants are the most efficient ones. And they're most efficient because they're newer and then also because the feedstock situation is so good in The United States. So we're pretty optimistic that they're closer to a bottom than anything else. They're not doesn't feel like there's much more downside in terms of chem. Greg Wasikowski: Awesome. Great to hear. Alright. Thanks, guys. Take care. Operator: And our next question will be coming from Scott Group of Wolfe Research. Your line is open. Scott Group: Hey. Thanks, guys. I know we're past the hour, so I'll just ask one just quick one. Can you just share with us where are we now, both inland and coastal on just spot price versus contract price? Like, what's the spread? What's normal? Where do we want the spread to be? Where are we? David Grzebinski: Yeah. No. We're in a constructive area. Let me there's not much spot in you know, we're essentially termed up in coastal. So there's no spot work that we're doing there. On the inland side, spot prices are a good 10% above term, which is a very healthy market. We're happy there. You know, the bigger picture is we need 40% higher pricing to justify new builds. So you know, there's still some room here, and nobody's really building new equipment. So you know, the construct is both Christian and I have talked about is pretty positive for 2026. Scott Group: So I guess, ultimately, do you think that Q4 renewal is an anomaly? Or is that a new trend? David Grzebinski: No. I think the Q4 renewals, you know, I mean, this is a big basket of 30% of our portfolio. Some of it was up. Some of it was down. The net of it is just we bake it all together, and we're down low single digits. I think that was a reflection of the market at the time, you know, the snapshot in time that we were negotiating those deals. It was coming out of the backside of when the crude slate lightened up. And there were barges excess in the market. And, you know, just unluckily, it happened to be the time we were negotiating those contracts. You know, that said, Q1 renewals looking favorable. Spot market looking favorable, but I wouldn't read too much into low single digit renewals at the end of Q4, honest. As far as trying to use that as a proxy for where we're headed, I don't think that reflects where the market's headed right now. I like the optimism and I like the momentum we have going into Q1 here. Scott Group: Right. Thank you. David Grzebinski: Thanks, Scott. Operator: And I would now like to hand the conference back to Kurt for closing remarks. Kurt Niemietz: Thank you, operator, and thank you, everyone, for joining us. As always, feel free to reach out to me throughout the day and next week for any questions. And this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Honeywell Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's call is being recorded. I would now like to hand the call over to Sean Meakim, Vice President of Investor Relations. Please go ahead. Sean Meakim: Thank you. Good morning, and welcome to Honeywell's fourth quarter 2025 earnings and 2026 outlook conference call. On the call with me today are Chairman and Chief Executive Officer, Vimal Kapoor, and Senior Vice President and Chief Financial Officer, Mike Stepniak, as well as Mark McAluso, who will be leading investor relations for Honeywell going forward. This webcast and the presentation materials, including non-GAAP reconciliations, are available on our Investor Relations website. From time to time, we post new information that may be of interest or material to our investors on this website. Our discussion today includes forward-looking statements that are based on our best view of the world and of our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our recent SEC filings. This morning, we will review our financial results for the fourth quarter and full year 2025, and discuss our guidance for the first quarter and full year 2026. As a reminder, we began reporting advanced materials as discontinued operations beginning in 2025 following the successful spin of Solstice Advanced Materials on October 30, 2025. Fourth quarter results we present today exclude Solstice. As always, we will leave time for your questions at the end. With that, it's my pleasure to turn the call over to Vimal, who will begin on Slide three. Vimal Kapur: Thank you, Sean, and good morning, everyone. Honeywell delivered a strong fourth quarter to close 2025, exceeding our expectations for both adjusted sales and adjusted EPS, with orders up 23%, driving our backlog to over $37 billion. This performance reinforces the strength of our end market positions and execution. We exited the year with a sales growth of 6% excluding the impact of the 2024 Bombardier agreement, which demonstrates the outcome of our portfolio actions and our emerging focus on innovation stemming from continued investment in R&D. This gives us conviction in another year of meaningful top and bottom line growth in 2026. Looking ahead, we expect to once again drive strong organic growth fueled by conversion of our record backlog, disciplined price execution, and momentum in new product introductions. The strong organic growth coupled with productivity and an aggressive reduction in stranded costs related to the spins will enable us to deliver 6% to 9% earnings growth in 2026, along with accelerating cash generation. It was about a year ago that we announced our intention to spin off aerospace, which will result in the creation of three leading pure-play independent public companies. We have made tremendous progress throughout the year with the advanced materials spin complete, and we now expect to complete the aerospace spin in 2026. Both aerospace and automation will host investor day in June, and I hope many of you can join us then. Our teams are working around the clock to ensure this gets done as quickly and judiciously as possible. I want to thank all our employees for their commitment and dedication to this process. We also remain very excited about the progress at QuantiNUM on key technological and commercial milestones that position the business to lead the way in quantum computing. I will talk more about QuantiNUM and its progress in a few minutes. 2026 will be an exciting year as we move forward with the final stages of our portfolio simplification. This positions each business with the right strategic focus, organizational agility, and tailored capital allocation strategies needed to grow faster and drive incremental value for all our stakeholders. Let's now turn to Slide three to discuss the latest update on our portfolio transformation. As I mentioned, we are progressing faster than originally anticipated on our separation milestones. On October 30, Solstice began trading as an independent public company, and we now expect the aerospace spin to occur in quarter three. To that end, we announced the aerospace leadership team last week, comprised of tenured aerospace veterans, and made key board appointments to bring extensive operating experience to our teams. Tim Courier, who will serve as president and CEO of Honeywell Aerospace at the time of separation, will be joined by Josh Jepsen, who will serve as chief financial officer. Additionally, we announced that Craig Arnold, the former chairman and CEO of Eaton Corporation, will serve as nonexecutive chair of Honeywell Aerospace Board of Directors. Greg brings more than two decades of experience in leadership roles at the and tech businesses where he delivered transformational results through operational excellence and disciplined capital allocation. Together, Craig, Jim, and Josh bring the right mix of industry company, and capital market experience to maximize the value for our customers, partners, employees, and our shareowners. We're also excited to welcome Indra Noohi, former chair and CEO of PepsiCo, to Honeywell's board of directors, further strengthening our team with her proven track record of leading diverse global businesses and accelerating long-term growth. Beginning in 2026, we reorganized Honeywell's segment into a more simplified structure focused on a cohesive, synergetic business model. Moving forward, we'll be reporting four segments: Aerospace Technologies, Building Automation, Process Automation and Technology, and Industrial Automation. The three automation reporting segments will be organized into six strategic business units, enabling us to better solve customer challenges and deliver in-house outcomes with the Honeywell Forge platform. Finally, we concluded the strategic review of productivity solutions and services and warehouse and workflow solutions and have announced that we intend to pursue a sale of both businesses in 2026. All of these actions position both aerospace and automation for a strong beginning as new industry-leading public companies in 2026. Let's start to slide four to discuss the recent advancements of QuantiNu. Following the recent fundraising in which QuantiNUM raised $840 million at a $10 billion pre-money valuation, the pace of both technological and commercial progress at Continuum is rapidly increasing. Close collaborative share owners as Quanta, NVIDIA, JPMorgan, Amgen, and Mitsui have led to new commercial partnerships that are supporting the development of critical applications for improving drug discovery, cybersecurity, and encryption for large financial institutions. In November, QuantiNUM announced the launch of Helios, the world's most accurate commercial quantum computer, which nearly doubles the qubit count of its predecessor, H2, and we believe sets a new standard for quantum computing performance with the highest fidelity for quantum computing qubits ever released in the market. Helios' groundbreaking design and advanced software stack brings quantum programming closer to the ease and flexibility of classical computing, which we believe positions the company to accelerate Quantum's commercial adoption. Quantum also announced a partnership to integrate Helios with NVIDIA's AI supercomputing technology to create powerful new architecture that can solve the world's most pressing challenges. This collaboration between QuantiNUM and NVIDIA is creating a future where AI becomes more expansive through quantum computing, and quantum computing becomes more powerful through AI. As Continuum achieved these important technological and commercial milestones, I'm confident of the company's future and the best is yet to come. And before Mike talks about 4Q results, let's move to slide five to discuss our recent growth acceleration. This chart demonstrates the recent acceleration in organic growth stemming from a combination of strong end market demand, our portfolio simplification, and innovation. This drove a 300 to 400 basis point improvement in LTM average organic growth since the beginning of 2024. As I noted earlier, we see favorable end market dynamics across aerospace and defense, process and building automation. We are enabling this further with an intentional shift to higher growth verticals. Our performance simplification efforts are positioning the company toward less cyclical and less capital-intensive markets, where we can build our installed base and leverage this to drive software and services growth. This is being compounded by recent acquisitions in excess LNG process technology, compressor control, and defense technology. On innovation, we delivered 4% organic growth from our new product introduction in 2025, with the majority coming from innovation in new markets and offerings as opposed to upgrades on existing core products. This is a direct result of our meaningful step up in R&D in 2025, which continues at these levels in 2026, as well as management's focus on growth through new products. On the people side, we have made a concerted effort to enhance our talent pool to drive growth. We added approximately 600 engineers to our workforce in 2025, which has greatly bolstered our R&D capacity and have also allocated the overwhelming majority of R&D to new product development. Additionally, our sales team incentives are now better aligned to our objective of prioritizing the commercialization of new products, further reinforcing our plan to drive growth through innovation while building stronger customer intimacy. With that, I will now turn the call over to Mike to go through our fourth quarter results, starting on Slide six. Mike Stepniak: Thank you, Vimal, and good morning. We ended the year with robust fourth quarter results. Sales grew 11% organically or 6% excluding the impact of the 2024 Bombardier agreement, led by double-digit growth in aerospace and high single-digit growth in building automation. We also continue to drive price across the portfolio, as Vimal noted, which contributed roughly four percentage points to the top line. On a segment basis, aerospace sales grew 11% organically, excluding Bombardier, led by continued strength in both commercial aftermarket and defense and space. Commercial OE growth accelerated as expected from the third quarter as shipments continue to recouple with customers' bill rates. Robust demand across all end markets led to the third consecutive quarter of strong double-digit order growth and a book-to-bill of 1.2. Building automation grew 8% organically, supported by growth of 9% in solutions and 8% in products. Regionally, North America and the Middle East led the overperformance, with Europe up strong mid-single digits as well. Orders increased both year over year and sequentially, driven by ongoing momentum across both building solutions and products and highlighted by strength in the projects and fire businesses. Industrial automation grew for a second consecutive quarter with organic sales up 1%, led by warehouse and workflow solutions and sensing, as well as a return to growth in productivity solutions and services. Process solution sales were flat, as strength in aftermarket services was offset by lower volumes in measurement and controls products. Finally, organic sales in energy and sustainability solutions declined 7%, stemming from lower petrochemical catalyst shipments, coming in slightly below our expectations due to continued project deferrals. However, orders momentum in EOB continued, with over 40% orders growth in refining and petrochemicals projects, which supports our confidence in a gradual 2026 recovery. In total, Honeywell orders grew 23% organically after 22% growth in the third quarter. Wins in long-cycle aerospace, energy, and broad-based demand in building automation led the way, resulting in a total book-to-bill above one and pushing backlog up 15% to a new record. On profitability, adjusted segment profit increased 23% or 2% excluding Bombardier, with segment margin of 22.8%, led by ongoing margin expansion in building automation, partially offset by the timing of high-margin power shipments in ESS and a headwind from a step-up in R&D. In aerospace, adjusted segment margin expanded 40 basis points sequentially to 26.5% as we again delivered stronger volumes enabled by supply chain improvements. While in BA, margins expanded 20 basis points year over year to 27%, driven by commercial excellence and volume leverage. This was partially offset by declines in IA and ESS, driven principally by unfavorable mix from lower catalyst volumes and cost inflation. As a reminder, ESS fourth quarter and full year 2025 results include only the UOP business unit following the fourth quarter of advanced materials to discontinued operations, and this will be the last quarter we present results for ESS. Adjusted earnings per share of $2.90 was up 17% and down 3% excluding the impact of the Bombardier agreement, driven primarily by higher segment profit and a lower share count, overcoming a 24¢ year-over-year headwind from the timing of taxes. You can find additional information on the fourth quarter adjusted EPS bridge in the appendix of our presentation. Finally, free cash flow of $2.5 billion was up 48% or up 13%, excluding the impact of the prior year Bombardier agreement. Growth in free cash flow was driven by higher operational income and collections, offset by higher cash taxes and interest payments. On capital deployment, we returned $900 million to shareholders in the quarter through dividends and share repurchases while funding $300 million in high-return capital projects. We also repaid $2.3 billion of debt in the fourth quarter. For the full year, sales increased 7% organically or 6% excluding the impact of the Bombardier agreement, exceeding the high end of original full-year guidance by two points. Adjusted segment profit grew 11% or 6% excluding Bombardier, with adjusted segment margin expansion of 40 basis points or contraction of 40 basis points excluding Bombardier to 22.5%. Adjusted earnings per share was $9.78, up 12% year over year, or up 7% excluding Bombardier. Finally, free cash flow was $5.1 billion, up 20% or up 7% excluding the impact of the Bombardier agreement, representing a 14% margin. We deployed $10 billion to capital in 2025, including $3.8 billion to repurchase 18 million shares, $2.2 billion to acquisitions, $1 billion to capital expenditures, and $3 billion to dividends. We also repaid $3.8 billion of debt to lower interest expense. All in all, a very strong performance to end the year with plenty of momentum heading into 2026. With that, let's turn to slide eight to discuss our 2026 segment outlook. In aerospace, we expect top-line growth in the high single-digit range organically. We anticipate continued end market strength supported by a resilient supply chain that continues to grow its output. Commercial OE growth should accelerate in 2026 as we move past customer destocking and ramp our shipments alongside increasing production rates, particularly in commercial air transport. Defense and space should maintain its momentum as higher global spending drives substantial orders growth and record backlog. Steady increases in flight hours in air transport and business jet underpin ongoing commercial aftermarket strength, though we expect modest normalization in growth rates from the prior year. Segment margin should expand modestly as volume leverage, better pricing alignment with tariff costs, and tapering acquisition integration costs more than offset mix pressure from stronger growth in defense and space and commercial OE. For building automation, we expect full-year sales growth above mid-single digits, highlighted by strength in growing data center and healthcare end markets. We expect growth to be led by North America and acceleration in Europe on increased investments in healthcare and the decarbonization infrastructure buildup. For the year, both products and solutions will grow at similar rates. We anticipate BA margin to expand over 50 basis points, driven by volume leverage, pricing, and productivity actions. Process automation technology sales are expected to be roughly flat organically year over year. Slower first-half growth in petrochemicals and refining should be offset by robust demand in global projects, particularly in life sciences and cybersecurity solutions. We expect margin to be roughly flat, with pricing and productivity offsetting material cost inflation. And finally, in industrial automation, we expect sales to be down low single digits to roughly flat, with stable growth in industrial solutions offset by headwinds from a challenging prior year comparison in products. Within this framework, we're not assuming any rebound in underlying end market demand. We expect IA to lead margin expansion across all segments in 2026 through meaningful productivity options and fixed cost reduction. Let's now turn to slide nine to double click on process automation and technology dynamics in 2026. During 2025, we saw 17% organic orders growth in the new P&T segment, which led to a corresponding 16% rise in the opening backlog. This continues to be a significant part of our long-cycle order strength, particularly in LNG and refining, both in the US and internationally. The backlog growth gives us confidence in an expected second-half ramp, especially when measured against our historical backlog conversion rates. Wins in LNG, a number of large module equipment deals are expected to convert to sales in the back half of the year. In addition, we're encouraged by our pipeline in P&T, which grew high single digits year over year, signaling that the strength of long-cycle orders is expected to persist contingent on the pace of final investment decisions from our customers. We're diligently tracking the slower-than-expected aftermarket order rates for catalysts, particularly within petrochemicals, which has been influenced by overcapacity in the market. Alloy shipments can be temporarily delayed in the short term but are ultimately necessary for our customers to maintain yields. Those can only be deferred for a period of time. So while we acknowledge the challenges this business faced in 2025, we're encouraged by orders growth and backlog as well as pent-up catalyst demand that should eventually fuel strong growth as we progress through 2026 and into 2027. Let's move to Slide 10 to talk further about our expected segment margin expansion for 2026. In 2026, we anticipate the demand for our differentiated high-value solutions and continued pricing that is outpacing inflation will drive further margin expansion. On a segment basis, we expect improved volume leverage principally in our building automation and aerospace technology businesses, which will drive solid incremental margins, while P&T margins will be roughly flat in 2026 due to the impact of stronger projects growth in the second half. Our focus on productivity action and rigorous fixed cost management will continue in 2026. We're working diligently to rightsize our cost structure ahead of the planned aerospace spin and expect to eliminate stranded costs in twelve to eighteen months after the spin. We have already neutralized the impact of Solstice stranded costs in 2025 through productivity and fixed cost reduction in the rest of the business. Finally, continuing investments in R&D and technology will be a modest headwind in 2026. As Vimal noted, our team is making significant commercial R&D investment to maintain its leadership position in quantum computing. With that as the backdrop, let's move to slide 11 to go through the details of our full-year 2026 guidance. Before we get into the specifics, I want to point out that our 2026 guidance includes a full-year outlook for aerospace, productivity solutions and services, and warehouse and workflow solutions. And does not incorporate the pending acquisition of Johnson and Marty's Catalyst Technologies business. We intend to update our outlook when these transactions are complete. For the full year 2026, we anticipate sales of $38.8 to $39.8 billion, up 3% to 6% organically. We expect growth to be led by Aerospace on higher commercial demand and increased defense budgets, and building automation driven by new product innovations. This will be partially offset by a slower start to the year in process automation technology, which turns to growth in the second half driven by order visibility and significantly easier comps, and mixed regional and end market dynamics in industrial automation. Segment margins are expected to be up 20 to 60 basis points to 22.7% to 23.1% as the benefits from price execution and productivity actions more than offset cost inflation and a roughly 30 basis points headwind from increased investments in Quanti. Industrial automation will lead for the year driven by targeted fixed cost takeout followed by building automation as higher volumes continue to drive margin expansion. Aerospace margin should expand modestly as volume leverage is partially dampened by mix pressures. Finally, we expect P&T segment margins to be roughly flat year over year, with pricing and productivity offsetting material cost inflation. Expect a combination of strong top-line growth coupled with fixed cost reduction will drive adjusted earnings per share of $10.35 to $10.65, up 6% to 9%. Our guidance assumes a 1% reduction in share count stemming from share repurchases. As we have signaled, we intend to focus our cash deployment in 2026 on reducing debt ahead of the separation. Moving to cash, we expect free cash flow of $5.3 to $5.6 billion, up 4% to 10%, which represents an approximately 14% cash flow margin and 83% conversion at the high end, or 90% excluding noncash pension income. Capital expenditures are anticipated to increase by roughly $250 million to support growth investment attached to orders we already have in build backlog. This increase in spending will be funded by improvements in working capital efficiency, with a continued focus on aerospace inventory. Let's move to slide 12 to briefly review our full-year 2026 EPS bridge. The main takeaway on this slide is that the overwhelming majority of our earnings growth in 2026 is expected to come from segment profit growth, adding approximately 64¢ at the midpoint. We expect to benefit from higher volumes, enhanced productivity, and favorable price cost offset by higher investment in Quantinuum, as I noted. As you can hopefully see, we have a fairly clean, high-quality, and straightforward path to our 2026 outlook. A few other points to note. Below the line, expenses should be roughly flat year over year as higher pension income of approximately $660 million is offset by increased repositioning expenses as we prepare for separation, while net interest expense remains in line with 2025 levels. We expect the tax rate to remain roughly 19% and average shares outstanding to decline approximately 1%, adding $0.08 to earnings per share. Additional below-the-line details are available in the appendix of the presentation. Now let's turn to slide 14 to talk briefly about 1Q guidance. We anticipate first-quarter organic sales growth of 3% to 5% organically. By segment, we anticipate organic sales growth in building automation and industrial automation to look very similar to our full-year outlook for these businesses, while process automation technology will be more in line with 4Q 2025 levels given the slow start as mentioned earlier. In addition, we expect to see a normal seasonal step down in revenue from 4Q to 1Q, similar to past years. We expect segment margin to be in the range of 22.4% to 22.6%, flat to up 20 basis points, led by productivity actions in our automation businesses. We anticipate aerospace margins to be down slightly from the prior quarter on seasonally lower volumes. This will drive adjusted earnings share growth in the first quarter of 2% to 6%. We expect a roughly $70 million increase in below-the-line driven by higher interest expense from recent acquisition and increased reposition expense ahead of the separation. Additionally, as we announced last week, following a settlement of all Flexjet-related litigation matters, we made a one-time cash payment of $177 million in the first quarter, which is excluded from our full-year free cash flow guidance. I'll now hand the call back over to Vimal to wrap up before Q&A. Vimal Kapur: Thank you, Mike. We are pleased with our strong finish to 2025, with sales and adjusted earnings per share exceeding the high end of our guidance range. This performance underscores the resilience of our business model approach and highlights the growing demand for our innovative solutions. Looking ahead, our guidance for 2026 is underpinned by continued strength in our orders growth, price execution, and record beginning backlog. As always, our guidance serves as a prudent baseline for performance that we have a strong conviction we can achieve. Moreover, we continue to progress our separation milestones, which we are tracking ahead of plan, paving a clear path for both aerospace and automation to emerge as leading companies in 2026. We look forward to sharing more about our strategy and long-term growth at the upcoming Honeywell Aerospace Investor Day in June in Phoenix, followed by Honeywell Automation Investor Day on June 11 in New York City. These events will provide an excellent opportunity for us to engage with our investors and showcase the strength of our portfolio. And before turning to Q&A, I want to take a moment to acknowledge our head of investor relations, Sean Meakim, for all his contributions over the past four years. As you know, Sean will be moving to aerospace with the spin-off to establish another world-class investor relations function as he did in Honeywell. He will be an incredible asset to Craig, Jim, and Josh as they begin their journey as a standalone entity. Sean effectively communicated the vision and value of Honeywell's strategy with credibility and conviction, linking the framework with investors for our emergence post-separation. On behalf of the leadership team and shareholders, I want to thank Sean for your dedication and commitment and say that I could not be happier to have you lead the IR function at Honeywell Aerospace. Congratulations. And with that, Sean, let's take the questions. Sean Meakim: Thanks for the kind words, Vimal. Very grateful for the opportunity to lead IR and be part of this team. It's been a great learning experience, and I'm really excited about what's ahead for both aerospace and Honeywell. Vimal and Mike are now available to answer your questions. I ask that you please be mindful of others in the queue by only asking one question and one related follow-up. Operator, please open the line for Q&A. Operator: Thank you. Our first question comes from the line of Julian Mitchell with Barclays. Please proceed with your question. Julian Mitchell: I want to say thank you, Sean, for all the help. If we think about the margin progression, just to try and understand that a little bit more for the total, so it's sort of flattish year on year in the first quarter, picks up steam over the balance of the year. Maybe help us understand how second-half weighted that margin acceleration is? And are there any specific items on a segment level driving that, please? Mike Stepniak: Sure, Julian. Thank you for the question. So on the headline numbers, we're expanding 20 to 60. Operationally, we really are expanding margins about 50 to 90 basis points. And we have a little bit of a headwind about 30 basis points this year from Continuum. That headwind is a little bit higher in the first quarter. In the first quarter, we also have our taxes at the highest, and we're paying our interest expense for the year at the highest. So that's easing. So I think what you'll see from us is 20 to 20 bps in the first quarter, and then sequentially improving. The second half looks much better than the first half. Vimal Kapur: Yeah. And, Julian, what I'll add is that the fundamental playbook, which Honeywell always executed on margin expansion, which is price, volume, productivity, that will be in full play this year. We do expect, as Mike mentioned, our operational margins to expand, you know, to 90 basis points and invest some money back in Continuum. But we are very well programmed to deliver margin expansion as we did in the past, like, 2023, we were 100 basis point margin expansion. So we are very confident in delivering our margin expansion rubric for 2026. Mike Stepniak: And I would just also maybe add that last year, we talked about it. We stepped up on engineering from an R&D standpoint. That's now normalized going into 2026. It's not a headwind for us. And last year, it was about, I think, 50 bps of headwind if you take 2025 as a whole. Julian Mitchell: That's helpful. And then just a quick follow-up on the aerospace margins. Specifically, I think they're starting out the year maybe down a touch year on year and then up a few tens of basis points for the year in aggregate. Maybe clarify kind of how you see those mix impacts playing out through the year? And there's been some discussion on commercial OE contract renewal timings and so forth. Is that a factor this year affecting the aero margins at all? Mike Stepniak: Sure. So maybe I'll just start with the 2025 progression, but I think it's important as you think about 2026. So we entered 2025, and we said we'll finish about 26% for the year. That's exactly what we did, and the team executed well. Despite the Liberation Day having to contend with the tariffs. Largely, tariffs are behind us. Going into 2026, price will be better. For aerospace, acquisition integration costs are abating. That's also a tailwind. And the supply chain is continuing to improve. So for 2026, really, to me, it's a margin expansion question. It's really just a question of how much, and that's a factor of mix and how is mix going to play out in the business, as well as how we continue to unlock and scale the supply chain and how the trajectory progresses. But 2026, I fully expect margin expansion in aerospace. And, Julian, to your question on the OE contracts, yeah, we are indeed negotiating our contracts with multiple OEs as we speak. On the commercial side and business jet side. You know, those are under progress right now. Vimal Kapur: And what I can share with you is that longer term, it will play bolt on quite well for aerospace margin expansion. Because the nature of these are long term. So remain very confident that this is gonna have a positive impact on our margin expansion story for the business in the time spent. Sean Meakim: And, Julian, one last piece I would just add on. Just think about the first quarter reminder that Liberation Day was in April, so there's a little bit of a lapping where we have that little bit of lag on the pricing impact relative to the tariffs in aerospace in the first quarter for the OE business. Julian Mitchell: Great. Thank you. Mike Stepniak: Thank you. Operator: Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question. Nigel Coe: Thanks. Good morning. So a lot going on here, guys. Continuum, you announced you filed a confidential S-one earlier this month. Are you fully committed to an IPO at this point? So is there an option to bring in a strategic investor? And then I want to make sure we get the right numbers on the investment spending. It looks like it's picking up by about $100 million year over year. So that would be what $250 million of total spend within corporate? Just want to make sure that's the number. And does the free cash flow or rather the cash burn kind of equate to that number as well? Mike Stepniak: So I'll start and I'll let Vimal comment on the just on the commercial progress, etcetera. But exactly right. It's about $100 million year over year. Increase. We fully consolidate Quantinuum right now. As you know, our raise was quite successful, so Continuum has plenty of cash. But it flows through for Honeywell's financials. But it's about $100 million year over year increase in terms of maturation and commercial efforts that the team is progressing. Vimal Kapur: And, Nigel, you put it well. A lot going on in Honeywell. So we are absolutely working on the continuum lag. What I can share with you is obviously in the legal restrictions on what we can share. But as a practical matter, the progression on platform continues to be very promising. Which is the reason we are investing more on the need dollars to continue to progress to launch the next version of our quantum machine, which is committed in the 2027 time frame. So that's a driver. And I actually spend a lot of time with the customers now to talk about leveraging for commercial applications. So think about banks, about pharmaceutical companies, and think about large governments. They're all very interested given we are coming closer to time to value. And we are also building the leadership team of Continuum businesses, expanding its capability so that it could stand alone as an independent company at the right time. So that's what I can share. I think a lot of wheels in motion. And we continue to work very hard to make it a successful business. Nigel Coe: That's very helpful. Thanks. And then my follow on is, is really just wanted to dig into the extraordinary strength in the process orders. Last time we checked in with you guys, you were talking about softness in large productivity. That seems to have changed one and eighty. So just wondering what's changed and perhaps a bit more detail on where you've seen the strength by geography or end market? Vimal Kapur: So Nigel, there are two dynamics going on in the market. On the positive side, people are spending capital to build more capacity in LNG and refining. That defined that's showing our orders up. It's so substantially and backlog up by 15%. So that's positive. Those are long cycle. And we therefore, will show more revenue accretion from them in 2026 because the cycle time is twelve to eighteen months. So we started lapping up our bookings from quarter three of last year and built the backlog, which will convert now Q3 and 2026. Also on the positive side, the LNG business continues to do quite well. Sundyne business we acquired is gonna become based baseline. You know, and organic growth, so that's gonna help. In the second half of the year. On the other side of the ledger, we continue to see pressure on the catalyst demand on petrochem side. Petrochemical has excess capacity in the world, so our customers are shy to buy more Catalyst. And, also, I would say, in automation side, some of our migration offerings there's a certainly a slowness there. Our guide doesn't factor any change in that in 2026. Now I'm not suggesting it won't change, but we are cautious on how we are guiding at this point. And that remains the, the low point in the business. So strength in long cycle, in LNG and refining, and weakness in short cycles, specifically in the petrochemical side. Nigel Coe: Okay. That's great. Thanks, Noah. Thank you. Operator: Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question. Scott Davis: Good morning, guys. Good morning. Glad to see the final spin off moving up here. But look, I wanted to talk a little bit about price because forever Honeywell was kind of a 1% to 2% price company, and now the last couple years, you've been able to capture meaningfully more, 4% now, which is still meaningfully more than the peer group average. But what what can you guys walk through you know, there's kinda two angles here. I mean, one is kinda passing through tariff impacts. You know, and that's not a structural price increase, that's more of a pass through. But can you talk about really how much of this price is kind of a change in pricing strategy how you guys approach projects, contracts, know, obviously, products help, I I would imagine. And and how much of that 4% is kind of just the run of the mill passing on? Tariffs? Thanks. Vimal Kapur: Yep. So that's a great question, and and I think a lot about it, you know, on the dynamic. I think, fundamentally, the inflation drivers have become more persistent in the markets we serve. And I drive the insistent the inflation drivers into three buckets, labor cost, is increasing, typically, three to 4%. In a typical year, there are labor shortages. There's enough talk to you know, messaging around that. We also see cost increase in electronics prices. Memory is the new new driver now. Of course, it a small portion of what we buy, but it all starts compounding. And then commodity prices keep going up. I mean, there's a lot of news on gold, but then there's a also other commodities which keep ramping up. So when you put it all together, fundamentally, the inflationary trend in industrial segment and segments per Honeywell Surf they they remain quite persistent. And our pricing strategy, therefore, has become more mature, really, to look at as a long term trend, work with our customers, customers, and align with them that what's coming ahead. And minimize the impact on their businesses to the extent we can and deploy pricing, which is also different by regions. It could be one in US, different in Europe, different in other parts of world, Also, different for new products. Because we need to see where we have some leverage there. Based upon feature function, which are differentiated So a lot going on in the pricing front, and I would say 2026 is gonna look very similar to 2025 in the same ZIP code. And we spend a lot of time to make sure that the price cost doesn't become a headwind for us. And we do maximum to preserve our volume while we are preserving our margins. Scott Davis: That's Yeah. Very helpful. Yeah. I would just maybe just add that too. You look at our portfolio, we've been migrating to high growth verticals where we can afford better pricing and we have a bigger step up in terms of revenue that is generated by NPI. And these products tend to be accretive and and give us better pricing as well. Scott Davis: Yeah. No. And then just a natural follow-up would just be, is there you know, you could when you talk about NPI, you talked about product launches, but is there do you guys use a vitality index or anything internally and any kind of way to kinda compare the acceleration of NVI versus the past? Vimal Kapur: You saw one of the mention of that in our growth acceleration chart in the our our prepared remarks. One thing, with certainly started measuring is how much of revenue in a given year is coming from new products. Net new growth coming from new products. And last year, it was approximately 4%. It means our R&D dollars are creating a differentiated demand into our offerings. And we are able to either keep share or gain share or able to move to new verticals. So we are measuring two key, KPIs One is vitality, We used to measure that, Scott, for many years. What I learned is some of our segments high vitality is just, you know, right to play. Because the turnaround of the product is so fast. And if your vitality is not you know, forties and fifties, you basically may start losing share. So, incrementally, while we continue to measure vitality and RemainCo Honeywell will have vitality vitality in high 40s, Think about 45% or so. We also now measure every quarter new product revenue coming from new products. And our internal target is like, we did 4% last year, like to maintain that rate. That requires a lot of, you know, ideation, working with the customers, having the right ideas, and so on. But that's gonna be the new playbook for Honeywell that we wanna grow to new products, and then whatever my market allows us to pick up on price. So, yeah, that's that's that's how I will summarize that, that that comment. Scott Davis: Very helpful. Thanks. I'll pass it on, and best of luck this year, guys. Vimal Kapur: Thank you. Mike Stepniak: Appreciate it. Operator: Thank you. Our next question comes from the line of Steve Tusa with JPMorgan. Please proceed with your question. Steve Tusa: Hey, good morning. Mike Stepniak: Good morning, Steve. Good morning. Just to clarify that answer, so you're expecting roughly 3% price this year? Mike Stepniak: Price will be above 3%. I would say most likely three and a half depending on geography and the vertical we're deploying 3% to 4%. On average, it should be should be three and a half. And quarterly, also, I I think there'll be a little bit of movement, but that's kind of the framework we're using for the year with the teams. Steve Tusa: So at the low end of the range, you have volume down 50 bits. Mike Stepniak: No. No. It really just depends on on the it deploy price at at SKU level essentially. So it's depending on how fast if the product is growing at at 1% and market doesn't allow us to deploy more price, we won't do that. Vimal Kapur: Think low end, would say, Steve, volume growth in the low end of the guide three to six to zero. High end, it is about three. So that's kinda how you wanna look at the guide. Three to six, price being somewhere around three to three and a half, and the balance is volume. Steve Tusa: Yeah. It's it's it seems pretty conservative with your order growth rate, but I won't belabor that point. Just on the stranded costs, it seems like I would have maybe expected the advance material stranded cost to come out a little bit quicker. Can you maybe just level set us on where those stranded costs lie today, especially on the aero side, what to and how those should, you know, layer out of the numbers, because that that seems to be a relatively heavy burden that, you know, you're leaving in there. But should, you know, be a tailwind at some point in the next, eighteen months or so. Vimal Kapur: No. You're right, Steve. So we have already neutralized the advanced materials stranded cost in 2026. So that's one of the walk we are showing in our margin expansion that it is net neutral So the headwind of that is gone, which shows that we are looking ahead and executing it as simultaneously as we're working to spin Now specifically coming to the aerospace question, right now, will Admit that we are so heavily focused to make spin happen in Q3. We'll share the specifics of stranded cost, etcetera, during our Investor Day coming up in June. But we are absolutely confident and committed that we will eliminate stranded costs in twelve to eighteen months' time. Earlier, the better. We get it. But that's the range we expect to take it out. Steve Tusa: Okay. And then just one last one on Aero. Can you give us any kind of magnitude of margin improvement embedded in the guidance for aero this year? Is it 25, 50 bps, like just a little bit of color on directionally? Magnitude? Mike Stepniak: Yeah. I would say modest. Do you think, like, low thirties incrementals? Steve Tusa: Got it. Okay. Thanks, guys. Mike Stepniak: Thank you, Steve. Thank you. Operator: Thank you. Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question. Deane Dray: Thank you. Good morning, everyone, and congrats to the team on hitting the transformation milestones earlier. And also best to Sean and welcome back to Mark. Just for the first question, just you've been now more specific about the portfolio cleanups for PSS and warehouse. What can you tell us about the sales process? Vimal Kapur: So I would say at this point, we have a lot of interest in both the businesses. And we expect to do sign of the deals in quarter two. None of specific within the quarter. It's it's hard to pinpoint a month here at this point, but we do expect the quarter two, we'll be able to sign it, and the close will be customary you know, regulatory approvals So that you can then estimate that the the total time this business may not be part of Honeywell. You know, what it does is, Dean, interestingly, when we complete the transaction of warehouse automation business and telegraded, and productivity solution business it simplifies us into three end markets. Process, buildings, and industrial. Because this allows us to make a choice not to be in a transport transportation, logistics, and warehouse market Not that these are bad markets, It's more a question of where we want to participate as a company. So it's a choices to be made. The second thing it does is it makes industrial automation as a sensing and measurement business. We had one of the challenge of industrial automation being a complex business to understand with lot of segments, and lot of drivers, So with this decision, we are able to narrow down the business to sensing and measurement. Which gives us a platform on which we will build upon you know, through organic growth and you know, hopefully, we'll look at more inorganic actions in the future. So it it plays out extremely well in our overarching strategy. Deane Dray: That's real helpful. And, second question, there was a reference about pockets of weakness in Europe and China. Maybe just give us a sense of, from the geographies, what you're seeing at the margin. Vimal Kapur: I would say that know, those comments are specifically for industrial automation business. Industrial automation business is seeing strength in North America and US in particular. The segments are performing extremely well. But the segments of IA business in China and in Europe the exposures we have in end markets we serve, we see pressure there. And that's a weakness in short cycle Europe. Now that's not true for other parts of Honeywell. If you see building automation, they don't see pressure in Europe and China because they serve different markets. And they have different product lines. So it's very specific to industrial automation at this point. And we'll observe how the year progresses. What we are doing is we are focused on launching more much more new products. So that we are able to generate more demand organically to offer some of these, you know, drivers And we'll observe how the year progresses with our to counter some of these, market conditions. Deane Dray: Thank you. Thank you, Dave. Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question. Sheila Kahyaoglu: Good morning, guys, and thank you. I'll focus on Aerospace, that's okay. All three end markets grew double digits in 2025. Maybe if you could tell us the rank order of how you're thinking about 2026 end markets and any changes around the medium-term growth trajectories as we for Investor Day in June? Sean Meakim: Thanks, Sheila. Yes, I would say that we were really pleased with the progress the team made on supply chain, really great performance on volume, especially to end the year. So great momentum particularly with the order rates. Going into '26. Looking at the growth rates by end market, we'd say defense and space is likely to lead, so high single digits maybe creeping in a low double depending on supply chain progress. We then expect OE to be high single digit growth and then still strong performance in aftermarket but continue on that path towards normalization. So call it mid to high single digit growth is the range and all that should blend to high single digit performance for 2026. Sheila Kahyaoglu: Got it. Thank you. And then one on, I know a lot has been asked on margins already, but just specifically around incremental investments as we see from the defense contractors. How are you thinking about incremental investments surrounding your portfolio within aerospace and R&D focus areas? Vimal Kapur: Peter, we have been investing if you look at the broader of, you know, investments, we have been investing in supply chain. We have telegraphed earlier. More than a billion dollar investment. Then we have delivered volume growth over 14 quarters now. Digit volume growth, which results into our organic growth. Now in 2025, 2026, overall Honeywell CapEx increases about $250 million. Aero is a large part of it. And it's a good news in my view because Aero needs more volumes. It needs to supply chain capacity. There are other parts of investment and other parts of, automation business, but Aero has a large share of it. So fundamentally speaking, we are able to deliver to Department of War needs for more volume. And in fact, we are close to Peony, hardly with any past due, which shows that we have ability to meet their needs of the volume they are looking for. So we are very well positioned there. I think our our volume capacity our our investments are always in order. And we'll continue to make more if it is necessary to grow the business. Mike Stepniak: Pillar four, it's about a $150 million. In in CapEx increase next year. Majority of it is gonna be funded through working capital. Improvement. And it's So not no impact. Should Sheila Kahyaoglu: Okay. Got it. Thank you. Operator: Our next question comes from the line of Amit Mehrotra with UBS. Please proceed with your question. Amit Mehrotra: Vimal, the building automation growth has been good the last few quarters, and I I think some of that is applicable applicable to kind of the success you've had in plugging the assets into Forge. And I guess the question I have is, what is the how can you can you replicate that in the process and industrial businesses whereby maybe that those cyclical parts of the business, you can generate more recurring revenue by upselling some of the services by plugging into your platform Can you just talk about that? Or are those just two different different things? Vimal Kapur: Yep. No. They, excellent question, Ahmed. You know, we have been working very hard to change our business model to more recurring revenue and the basis of that is stronger linkage to our IoT platform, Forge. Building started that first. Started that later. I would say the gap between that is about nine to twelve months. And you can clearly see results in the buildings what we have been able to do is really build I'm gonna use word ontology based models. It means that we are able to when we connect a building, we are able to identify all its assets. And really build a reference data model for a for for for for for our customer. Which allows us to then build different applications on top of it. And, hopefully, when we are in Investor Day, we'll be able to show you agents on top of four which are managing different operations, maintenance, energy management, So we have moved now to agentic way of working on our on our customer base. And absolutely right. That kind of innovation is driving the growth pull through of our products. Because it's a one solution. It's not separated from other. Now you're on the same journey in the process. We're just about nine months, twelve months behind. A connected plant is our key offering. Which takes our customer install base both on process technology and process automation and, again, a ability to build this ontology based model and then give a much more capability to optimize their operations. So that's coming. That's coming soon. And we do expect that to become an enabler for recurring revenue growth in the process segment in in the near future. And then finally, we'll in industrial side, our business is far more becoming sensing and measurement. It's less about our controls. But we have to evolve that strategy there. But I remain very confident we are gonna see the same pattern in process in the very near future. Amit Mehrotra: And and just sort of very much related to that, you know, you're building automation revenue forecast. It's kind of mid single digit plus this year. It feels like that journey in connecting those 11, 12,000, you know, assets in the field is kind of a third of the way through. And I think you guys have a goal of kind of accelerating that this year. So I'm just wondering is is it just conservatism? Because it seems like as you as you get to that journey of fully connecting assets, you can actually drive sustainability in that kind of high single digit organic growth. Vimal Kapur: Yeah. I mean, our penetration, Amit, actually is much lower, which gives us sort of runway and upside. You know, we'll share those details during day, how much of install base it's penetrated from connected assets perspective. But, also, bear in mind that recurring revenue takes time to scale So if I you know, as our recurring revenue bank is building, it just compounds every year at a bigger scale. So we are at a low base at this point. But we do believe that we also will continue to ramp it up at a much higher rate in the times ahead. As our ARR is growing there. And we expect to expect to share two things during the Investor Day. Our offerings on Ford, both for buildings and process and industrial some initial ideas. And then our ARR strategy, how much it is and how much we expect it to compound in the times ahead. Amit Mehrotra: Okay. Yeah. That'll be helpful. Thank you very much. Appreciate it. Vimal Kapur: Thanks. Thank you. Operator: Thank you. Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Please proceed with your question. Nicole DeBlase: Just wanted to start on some of the order trends that you saw during the quarter. Can we talk a little more about how short cycle order trends generally trended? And not just relative to 3Q, but also throughout the cadence of each month of the quarter. Mike Stepniak: Sure. So I would tell you that, generally, if you have to look at it regionally. So US, META, India, short cycle orders performed well throughout the year and in the fourth quarter as well. On the other hand, Europe and China at least for where we participate, specifically in industrial automation, or just or just okay, not great. Going into the first quarter, we see that orders generally will be high single digits. On the short cycle side, probably mid mid single digits, for for BA and, and aerospace. And then on a IA and and and P and T, we will we'll continue to monitor. But as Vimal mentioned earlier, the catalyst and convergence are a little bit a little bit slow. Nicole DeBlase: Okay. Got it. Thanks, Mike. That's helpful. And then maybe just a question on Industrial Automation margins. I think you mentioned in the prepared remarks that this is where you guys expect the greatest year on year margin expansion in 2026. Can you maybe elaborate a little bit on that with respect to the magnitude of potential margin expansion? Thank you. Mike Stepniak: Yeah. So vis a vis our our guide of 20 to 60 and what are we driving operationally, we have industrial automation at close to a 100 bps. And and the reason for it, if you look at the margin, trajectory and progression, feel like Industrial Commission has the most opportunity both from productivity operationally as as well as pricing leverage volume and demand. And so that's that's how we instrumented the year, and I have a high confidence the team will execute on that. Nicole DeBlase: Thank you. I'll pass it on. Mike Stepniak: Thank you. Operator: Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question. Thank you. I wanted to follow-up on some of the commercial OE contracting discussion. Just given the very long nature of these contracts, I imagine these negotiations are a lot more comprehensive than just pricing for some of the tariff pressure that's come through over the last year. So I don't know, maybe you don't want to kind of frame the magnitude of these conversations, but any color there would be helpful. Or if you could just maybe talk about, like, when was the last time the company did a big comprehensive commercial OE price reset. Vimal Kapur: So Chris, these contract negotiations don't span one particular OE or all. I mean, this is more than one. Few are large. We are small. That's just a matter of fact. And know, some of these are due for long time. Think about five years plus in some cases. So the impact of that you're absolutely right. Because when you're renegotiating a contract after five, seven, eight years, not only you're looking at the pricing changes, but other aspects of the contract. And that's why it takes very long time to renegotiate a long term contract there. And as I said before, these renegotiated contracts will be a very well for aerospace margin expansion in the future. So it will be a great setup. Because we lap all the previous long term inflation we have been absorbing in some of these contracts, that won't be a headwind anymore. Chris Snyder: No. Thank you. Really appreciate that. Yes. Certainly, a lot of cost inflation over the last five, seven, eight years. Maybe just a quick one. I think you guys mentioned that R&D was kind of at the full run rate, obviously, an increase in twenty five. So is that right? Is R&D kind of at full run rate level now? And I know Arrow takes a long time to convert into sales. But I would imagine the industrial side of the business converts quicker. So can you just maybe talk about how you think some of the R&D spend converts to sales on industrial? And could there be any tailwinds from that over the next twelve months? Thank you. Mike Stepniak: Yes. So I said earlier, I think the the R&D right now is at the level that that that we wanted it. It's about 4.40.8% of of sales. That's we feel it's a sweet spot for us. Quarterly going from into the first quarter. That's will continue to abate. And will be more normalized. And we're obviously getting revenue growth, which will be a tailwind from margin standpoint. Vimal Kapur: And the cycle time, Chris, you know, varies from I would say, you know, eighteen months fifteen to eighteen months for the short cycle and for the long business, like aerospace and some of our process technology. Would be three to five years. So these are long bets in some cases, and it's our job as leadership to put those bets so that we could not deliver even short term growth but also position the companies well for the long term growth. Mike Stepniak: And I and I believe answered the if you look at our corporate calls, I mean, it's really, for us, the 30 bps drag on Continuum no impact from R&D, stranded calls. We we addressed in the in the throughout last year, so we don't have a a lot of stranded calls as far as Solstice. So we feel really good about the progression we're making on on our structural cost. Operator: Our final question comes from the line of Andrew Obin with Bank of America. Please proceed with your question. Andrew Obin: Yes, good morning. Thank you for fitting me in. A question on The question on building automation, just a follow-up. Can we just talk about how much growth is coming from Access cross sell? And also how much exposure do you have there to data centers just because are the market leader on building automation, I would imagine. That's a nice tailwind as well. Yep. Vimal Kapur: So, Andrew, the the Access Solution acquisition is playing well, and overall, the revenue in that segment is growing high single digits. In line with building automation, which is growing high single digits. So our thesis has played out quite well. The second part of your question that sales synergies have been a big feature of it. That was one of the main drivers we thought this business will create our value, and that's been, a additive to the overall growth again, it's reflected in building automation numbers. Because that growth is not only coming in excess solutions business, We're able to pull through a lot of excess solution in our projects business in our solutions side of the house there. So that's certainly is is becoming import you know, an important play. And finally, data center overall position of Honeywell in building automation is becoming slowly material. We are inching towards that becoming you know, greater than 5% of our revenue. Think about it. That that number was zero. Couple of years back, so we are inching our way through across all the three solution we provide in data center, the safety for fire, the environmental controls to building management system, and security. So we continue to work our way through, and as that market is performing, that will continue to help the growth of building automation. Andrew Obin: Thank you. And another question, follow-up question. After selling productivity solutions and warehouse and workflow solutions, anticipate further portfolio actions on industrial automation side or beyond that? Vimal Kapur: No. I mean, we are we are very pleased with the end state. And as I mentioned, Andrew, that we have built now a business in industrial automation, which is heavily focused on sensing and measurement. So we have a common blast sensing in sensors for aerospace, sensor for medical devices, you know, measurement system for gas detection in industrial and semiconductor, measurement of, you know, gas, and others. So we have a common theme which allows us to build a business around it. So we'll scale from here. So stay tuned. And as we, you know, share our strategy for industrial automation during our Investor Day. Andrew Obin: Look forward to that. Thanks so much. Vimal Kapur: Thank you. Operator: Thank you. Ladies and gentlemen, I'm sorry. Go ahead, sir. Andrew Obin: No. Operator: This concludes our question and answer session. I'll turn the floor to Mr. Kapoor for any final comments. Vimal Kapur: Thank you. So as always, I would like to thank our shareholders, our customers and all the Honeywell future shapers across the world for a strong finish to 2025. We remain confident in our path ahead, and we look forward to sharing more with everyone in the quarters to come. So thank you for all listening, and please stay safe and healthy. Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to ManpowerGroup's Fourth Quarter Earnings Results Conference Call. You will be put into listen-only mode until the question and answer session time begins. This call is being recorded. If you care to drop off now, please do so. I would now like to turn the call over to ManpowerGroup's Chair and CEO, Mr. Jonas Prising. Sir, you may begin. Jonas Prising: Good morning, and thank you for joining us for our fourth quarter 2025 conference call. Our Chief Financial Officer, Jack McGinnis, and our President and Chief Strategy Officer, Becky Frankiewicz, are both with me today. For your convenience, our prepared remarks are available in the Investor Relations section of our website at manpowergroup.com. I'll begin with a brief overview of the quarter and the full year, including how we're seeing conditions evolve across markets and what that means for our execution. Becky will ground us in the broader environment, what we're hearing directly from the market, and how we're evaluating those insights as we position the business. Jack will then walk through the detailed financial results and our guidance for 2026. I'll close with a few comments before we open the line for Q&A. Jack will now cover the safe harbor language. Jack McGinnis: Good morning, everyone. This conference call includes forward-looking statements, including statements concerning economic and geopolitical conditions, which are subject to known and unknown risks and uncertainties. These statements are based on management's current expectations or beliefs. Actual results might differ materially from those projected in the forward-looking statements. We assume no obligation to update or revise any forward-looking statements. Slide two of our earnings release presentation further identifies forward-looking statements made in this call and factors that may cause our actual results to differ materially and information regarding reconciliation of non-GAAP measures. Jonas Prising: Thanks, Jack. Let me begin by saying we're pleased with our fourth quarter results, which marked a clear shift to stabilization, led by enterprise demand and supported by disciplined and continued commitment to cost optimization. In the fourth quarter, we delivered reported revenues of $4.7 billion, which represented organic constant currency growth of 2%. System-wide revenue, which includes our expanding franchise revenue base, was $5.1 billion. Adjusted EBITDA margin of 2.1% reflects improving demand trends across core markets, as well as P&L leverage. Though we faced strong headwinds during 2025, reflected in our full-year results, we are encouraged by our fourth quarter performance, which demonstrated sequential improvement through year-end. As we move through the fourth quarter, revenue trends strengthened in several key markets. Clients remain deliberate in their hiring given the macro backdrop, yet engagement levels are steady, and activity is becoming more consistent. Importantly, while we're not yet calling a broad-based recovery, we are seeing clear sequential improvement in key demand indicators, including Manpower associates on assignments in key markets, such as the US and France, which are performing better than expected, with France in particular showing resilience despite ongoing political and budget uncertainty. Markets such as Italy and Spain stabilized earlier and began to inflect, with Italy standing out as a clear outperformer on both growth and margin. These trends reinforce our view that the shape of the recovery can be different by market, with some inflecting earlier and others requiring longer periods of stabilization first. Against this backdrop, our priorities remain clear: execute with rigor, maintain cost discipline, and leverage our digitization advantage to position the business to generate operating leverage as demand improves. We are working to ensure that we're structurally stronger, more efficient, agile, and better positioned to capture share. To that end, our diversified multi-brand portfolio continues to perform well in a selective demand environment and plays a critical role in earnings durability. Manpower addresses in-demand AI-resilient skills at scale, supporting clients from entry-level to specialized roles in growth sectors and has grown for three consecutive quarters, with six quarters in the US. Experis, our brand providing specialized technology talent and services that match returns on digital, cloud, AI, and data investments, has seen the rate of decline narrowing and sequential improvement through the second half of the year. Talent Solutions delivers scaled enterprise offerings, including TAPFIN MSP, Right Management, placement, and consulting, which saw growth in the quarter. Firm recruitment across brands, including our Talent Solutions RPO offering, continues to face a challenging environment. As demand stabilizes, this breadth of our portfolio and geographic footprint positions us to improve win rates, capture share, and generate stronger incremental margins. We are pleased with our progress but a long way from being satisfied, and we will continue to focus on improving the current trajectory. On that point, let me provide an update on our cost discipline and operating leverage. Cost discipline remains a core leadership priority across our operations. Over the last three years, we have taken decisive actions to structurally reduce costs and align capacity with demand. These actions include permanent changes to our operating model in our back office and technology infrastructure, as well as targeted adjustments to current market conditions. Our efforts were further on display during the fourth quarter, as we delivered a 4% constant currency reduction in SG&A while driving organic growth. This reflects both structural cost reductions and tighter discretionary spend. Further, we accelerated cost actions across corporate functions in select geographies, sharpened capacity alignment, and reduced overheads. These actions are translating into improved profitability across the portfolio. For instance, for the first time in five quarters, we delivered positive operating profit in our Northern European business this quarter, a region where we've been highly focused on rightsizing the cost base. Importantly, we have more opportunity to enhance our cost structure across our global business. Jack will provide additional details on these efforts, including ongoing optimization actions, particularly in North America, as part of our broader transformation program. Before that, let me turn it over to Becky to expand on the work we're doing to cap critical market insights that are evolving our business model in line with changing customer needs and candidate behaviors. Becky Frankiewicz: Thanks, Jonas. Glad to be with you all this morning. My remit for ManpowerGroup is focused on three areas: driving commercial excellence, evolving our core capabilities to better serve the business, and infusing AI in the organization for today and tomorrow. In recent months, we've embarked on a comprehensive process to evaluate our strategy and priorities as AI accelerates and client and candidate needs change. As part of this work, we've engaged a wide set of experts, inside and outside our industry, including our clients and candidates, to conduct independent research and rigorous analysis across both technology and human behavior. While we are still early in this process, this work is surfacing two clear macro themes around how clients and candidates want to engage with us. First, flexibility. Candidates are increasingly looking to curate flexible engagement models for when, where, and how they contribute to work. Our clients are also seeking flexibility to attract talent and to remain agile in the changing landscape. The second theme is how AI will shape workforce composition. Our clients are asking tough questions: How could I get work done in the future? What are the new paths between humans and technology? They are increasingly seeking our advisory capabilities on new ways to get work done beyond the traditional models. Advancing the path of temp and perm alongside newer models of flexibility like gig and freelance, and they are seeking guidance on the newest path to work, leveraging AI in combination with humans for productivity and for growth. From this research and our continuous connections with clients across every industry, the intersection of AI and workforce readiness is an urgent priority. And unlocking productivity gains and growth will depend on combining technology adoption with workforce transformation. This was reinforced once again by our engagement with clients and prospects at the World Economic Forum in Davos last week, where we showcased insight and research around what we are calling the human edge, where empathy, imagination, and resilience are elevated by technology, and where human potential meets digital intelligence. Ultimately, these insights give us enhanced visibility on where client demand and growth will be, enabling us to make critical decisions now on where to play and how to win. Though we're in the early stages of this process, we are encouraged that the opportunity ahead to further differentiate our offerings. I look forward to continuing to update you on this critically important initiative. Jonas Prising: Thank you, Becky. As you heard, the environment for AI and automation continues to unfold. Since 2019, we have been executing against the clear technology roadmaps centered on PowerSuite, our end-to-end operating system and best-in-class technology stack. Today, PowerSuite operates across nearly 90% of our business, creating integrated global technology rails and proprietary data assets spanning more than 70 countries. This foundation enables faster innovation and allows us to convert technology adoption into productivity gains more quickly than in the past. Last quarter, we shared how we are increasingly moving from AI use cases to scaled commercial impact. Our integrated AI recruiter toolkit is now scaled to more than 12 markets, streamlining content creation, talent search, communication, and workflow automation. This is improving recruiter precision and productivity while enhancing the candidate experience to faster, smarter matching and real-time insights resulting in a 7% increase in placement rates. This is not just about productivity. It is about commercial excellence, positioning us to increase revenue, win clients, and deliver a superior experience to our clients and candidates. For instance, we are scaling the use of AgenTiK AI coding assistance across Experis in the US to deliver faster, higher quality, and more cost-efficient solutions for clients. This helps our clients accelerate delivery, improve product quality, and reduce operating costs while enabling us to strengthen our value proposition and win higher-margin work. More broadly, we're moving from experimentation to disciplined, governed deployment of AI, turning proprietary data, embedded technology, and human expertise into faster delivery, higher win rates, and durable differentiation. And as part of this commitment, we're upskilling our 25,000 employees and embedding AI more deeply across the organization to drive productivity, support higher-margin growth, and ensure that these gains translate into a leaner, more efficient cost structure. Pleased that we're able to deliver sequential improvement in revenue growth and profitability improvement through 2025, finishing Q4 with momentum that reflects stronger execution in our core markets and profitability improvements from our cost actions. Assuming current trends continue, and as we anniversary the tariff-related headwinds, we believe 2026 has the potential to represent an important inflection point for the business, with a path towards sustainable organic growth and margin expansion. At the same time, we remain agile and continue to monitor geopolitical developments. While uncertainty exists, our focus remains on supporting clients and executing in this evolving environment. And with that, I'll now turn it over to Jack to walk through the fourth quarter and full-year financial results in more detail. Jack McGinnis: Thanks, Jonas. In the fourth quarter, we delivered reported revenues of $4.7 billion. System-wide revenue was $5.1 billion. Our fourth quarter revenue results represented organic constant currency growth of 2%. US dollar reported revenues in the fourth quarter were impacted by foreign currency translation, and after adjusting for currency impacts, came in above the midpoint of our constant currency guidance range. Our revenue trends demonstrate the continuation of largely stable activity levels across North America and Europe overall, with improving trends in France and ongoing strength in Italy. Gross profit margin came in just below our guidance range, driven by lower permanent recruitment in Europe, while staffing margin came in as expected and consistent with the previous quarter year-over-year trend. As adjusted, EBITDA was $100 million, representing a 2% decrease in constant currency compared to the prior year period. As adjusted, EBITDA margin was 2.1%, equal to the prior year and came in at the midpoint of our guidance range. Foreign currency translation drove a favorable impact to the 7% US dollar reported revenue increase from the constant currency increase of 1%. Organic days adjusted constant currency revenue increased 2% in the quarter, which was favorable to our midpoint guidance of flat. Turning to the full-year results for a few moments. Reported earnings per share for the year was a negative $0.29. As adjusted, earnings per share was $2.97 and represented a constant currency decrease of 38%. Reported revenues for the year decreased 2% in constant currency to $18 billion, and system-wide revenues were $19.5 billion. Reported EBITDA was $270 million. As adjusted, EBITDA was $337 million, which represented a 20% constant currency decrease year over year. Transitioning to the EPS bridge, reported earnings per share for the quarter was $0.64. Adjusted EPS was $0.92 and came in $0.09 above our guidance midpoint. Walking from our guidance midpoint of $0.83, our results included improved operational performance, representing a positive impact of $0.06 and improved interest and other expenses, which was $0.03 favorable. Restructuring costs and other represented $0.28. Next, let's review our revenue by business line. Year over year, on an organic constant currency basis, the Manpower brand had growth of 5% in the quarter, a sequential improvement from the 3% growth in the third quarter. The Experis brand declined by 6%, an improvement from the 7% decline in the third quarter. And the Talent Solutions brand declined by 4%, an improvement from the third quarter decline of 8%. Within Talent Solutions, our RPO business experienced lower demand, notably in select ongoing client programs in the US year over year. Our MSP business saw continued revenue growth, and Right Management saw slight growth year over year. Looking at our gross profit margin in detail, our gross margin came in at 16.3% for the quarter. Staffing margin contributed a 40 basis point reduction due to mix shifts towards enterprise accounts, which was stable from the third quarter trend. Permanent recruitment activity was softer than expected in Europe, and the lower contribution resulted in a 30 basis point decline. Other services resulted in a 20 basis point margin decrease. Moving on to our gross profit by business line. During the quarter, the Manpower brand comprised 62% of gross profit. Our Experis Professional business comprised 22%, and Talent Solutions comprised 16%. During the quarter, our consolidated gross profit decreased by 3% on an organic constant currency basis year over year, representing an improvement from the 4% decline in the third quarter. Our Manpower brand increased 1% in organic constant currency gross profit year over year, an improvement from the flat third quarter year over year trend. Gross profit in our Experis brand decreased 5% in organic constant currency year over year, an improvement from the 10% decrease in the third quarter. Gross profit in Talent Solutions declined 12% in organic constant currency year over year, which was an improvement from the 13% decrease in the third quarter. Right Management gross profit improved from the third quarter on increased outplacement activity. MSP experienced similar activity levels from the third quarter, and RPO experienced slightly lower activity from the third quarter. Reported SG&A expense in the quarter was $686 million. SG&A as adjusted was down 4% on a constant currency basis and 3% on an organic constant currency basis. The year-over-year organic constant currency SG&A decreases largely consisted of reductions in operational costs of $22 million. Corporate costs have increased sequentially from the third quarter and include incremental investments in our transformation initiatives. These initiatives include our back-office transformation programs and are progressing well, and now also include our front-office transformation program, which is being planned for our North America business. These programs are enabling industry-leading end-to-end processes and further efficiencies associated with our leading PowerSuite front and back-office technology platform. Going forward, I will carve out any incremental expenses associated with the new front-office transformation program, which we will fund to the greatest degree possible through ongoing strong cost management as we remain focused on expanding EBITDA margin year over year in 2026. Dispositions represented a decrease of $3 million, while currency changes contributed to a $29 million increase. Adjusted SG&A expenses as a percentage of revenue represented 14.4% in constant currency in the fourth quarter. Adjustments represented restructuring of $13 million. Balancing gross profit trends with strong cost actions while funding ongoing transformation to enhance EBITDA margin in both the short and long term remains one of our highest priorities. The Americas segment comprised 24% of consolidated revenue. Revenue in the quarter was $1.1 billion, representing an increase of 5% year over year on a constant currency basis. As adjusted, OUP was $39 million, and OUP margin was 3.4%. Restructuring charges of $1 million largely represented actions in Peru. The US is the largest country in the Americas segment, comprising 60% of segment revenues. Revenue in the US was $682 million during the quarter, representing a 1% days adjusted decrease compared to the prior year, which was stronger than anticipated, driven by Experis and Talent Solutions MSP business. This represents a flat revenue trend sequentially from the third quarter. OUP as adjusted for our US business was $15 million in the quarter. OUP margin as adjusted was 2.2%. Within the US, the Manpower brand comprised 27% of gross profit during the quarter. Revenue for the Manpower brand in the US increased 7% on a days adjusted basis during the quarter, which represented strong market performance with six consecutive quarters of growth and a relatively stable trend from the 8% increase in the third quarter. The Experis brand in the US comprised 39% of gross profit in the quarter. Within Experis in the US, IT skills comprised approximately 90% of revenues. Experis US revenue decreased 10% on a days adjusted basis during the quarter, broadly stable from the 9% decline in the third quarter. Talent Solutions in the US contributed 34% of gross profit and saw a 2% increase in revenue year over year in the quarter, an increase from the flat result in the third quarter driven by a well-executed MSP business, which again posted strong double-digit revenue increases year over year and slight growth in Right Management outplacement activity. This was partially offset by lower RPO activity and the anniversary of select client programs in 2024. In 2026, we anniversary very strong healthcare IT project volumes in Experis and expect the overall US business to have an increased rate of revenue decline compared to the fourth quarter. If we exclude healthcare IT project volumes from both periods, the US year-over-year revenue trend in Q1 will be largely in line with the Q4 trend. Our Experis Healthcare IT project volume timing can be uneven, and although we do not anticipate comparable volumes in 2026, we have a very strong pipeline that is expected to benefit 2026. Southern Europe revenue comprised 48% of consolidated revenue in the quarter. Revenue in Southern Europe was $2.2 billion, and following thirteen consecutive quarters of revenue declines, flipped to 1% growth in constant currency during the fourth quarter. As adjusted, OUP for our Southern Europe business was $77 million in the quarter, and OUP margin was 3.4%. Restructuring charges of $6 million represented actions in Spain and France. France revenue equaled $1.2 billion and comprised 52% of the Southern Europe segment in the quarter, and decreased 3% on a days adjusted constant currency basis. As adjusted, OUP for our France business was $28 million in the quarter. Adjusted OUP margin was 2.4%. France revenue trends improved during the fourth quarter. This represents four consecutive months of revenue trend improvement, and we expect a similar sequential rate of revenue trend improvement into the first quarter. Revenue in Italy equaled $486 million in the quarter, reflecting an increase of 7% on a days adjusted constant currency basis. OUP as adjusted equaled $33 million, and OUP margin was 6.7%. Our Italy business is performing very well, and we estimate a similar constant currency revenue growth trend in the first quarter as compared to the fourth quarter. Our Northern Europe segment comprised 17% of consolidated revenue in the quarter. Revenue of $819 million represented a 1% decline in constant currency. As adjusted, OUP was $5 million in the quarter. This represents sequential OUP improvement during the last three quarters, reflecting cost actions taken to date. The restructuring charges of $6 million primarily represented actions in The Netherlands and Germany. Our largest market in the Northern Europe segment is the UK, which represented 32% of segment revenues in the quarter. During the quarter, UK revenues decreased 3% on a days adjusted currency basis, representing significant sequential improvement. We expect the rate of revenue decline in the UK to improve into the first quarter compared to the fourth quarter. The Nordics revenues flipped to growth during the fourth quarter, representing an increase of 2% in days adjusted constant currency. In Germany, revenues decreased 22% on a days adjusted constant currency basis in the quarter. Germany remains a very difficult market, but we are expecting an improvement in the rate of year-over-year revenue decline in the first quarter compared to the fourth quarter trend. The Asia Pacific Middle East segment comprises 11% of total company revenue. In the quarter, revenues equaled $520 million, representing an increase of 6% in organic constant currency. OUP was $28 million, and OUP margin was 5.3%. Our largest market in the APME segment is Japan, representing 58% of segment revenues in the quarter. Revenue in Japan grew 7% on a days adjusted constant currency basis. We remain very pleased with the consistent performance of our Japan business, and we expect continued strong revenue growth in the first quarter. I'll now turn to cash flow and balance sheet. In full-year 2025, free cash flow equaled an outflow of $161 million compared to an inflow of $258 million in the prior year. As we discussed in prior quarters, 2025 cash flows were impacted by timing of items that benefited 2024, which have not been repeated in 2025. In the fourth quarter, we drove a strong finish to the year with a free cash flow result of $168 million, which was not significantly impacted by timing items. At year-end, day sales outstanding increased to fifty-five days, up from fifty-two days in the prior year, as enterprise client mix has increased. During the fourth quarter, capital expenditures represented $11 million, and we did not repurchase any shares. Our balance sheet reflects continued actions to strengthen our liquidity and overall balance sheet composition. Our year-end reporting amounts reflect the successful refinance of our €500 million note in December 2025, resulting in the payoff of the previous €500 million note shortly after year-end in January 2026. Adjusting to exclude the temporary increase from the new euro and offsetting cash, we ended the quarter with cash of $284 million and total debt of $1.1 billion. Net debt equaled $806 million at December 31. Our adjusted debt ratios at year-end reflect total gross debt to trailing twelve months adjusted EBITDA of 2.7 and a total debt to total capitalization at 35%. Detail of our debt and credit facility arrangement are included in the appendix of the presentation. Next, I'll review our outlook for 2026. Our forecast anticipates a continuation of existing trends. When considering our guidance for the first quarter, it is also important to note there's always a meaningful sequential seasonal decrease in earnings from the fourth quarter to the first quarter. With that said, we are forecasting earnings per share for the first quarter to be in the range of $0.45 to $0.55. The guidance range also includes a favorable foreign currency impact of $0.06 per share, and our foreign currency translation rate estimates are disclosed at the bottom of the guidance slide. Our constant currency revenue guidance range is between a 1% decrease and a 3% increase. At the midpoint is a 1% increase. Considering business day variances are very slight, and the impact of dispositions is very small, our organic days adjusted constant currency revenue increase also represents 1% growth at the midpoint. EBITDA margin for the first quarter is projected to be up 10 basis points at the midpoint compared to the prior year. Although the government of France has not yet enacted the 2026 budget, their current proposal includes the corporate tax surcharge being extended into 2026. As a result, our 2026 tax guidance incorporates a similar level of surcharge, and we estimate a full-year global tax rate of 45%. In addition, the US workers' opportunity tax credit (WOTC) in the US has not been renewed for 2026 at this time, and this benefit has not been included in our 2026 estimate. If WOTC is enacted in the US and retroactively applied to the beginning of the year, we estimate it would reduce our full-year rate to within a range of 43.5% to 44%. We estimate that the effective tax rate for the first quarter will be 43%. As I mentioned earlier, I will carve out any restructuring and related front-office incremental transformation expenses incurred in Q1, as they are not included in the underlying guidance. In addition, we estimate our weighted average shares to be 47.3 million. I will now turn it back to Jonas. Jonas Prising: Thank you, Jack. In closing, we're confident that we have the right strategy, capabilities, and team in place to execute in this environment. With improving consistency across our major markets and early signs of inflection becoming increasingly evident, our cost discipline, diversified portfolio, scaled digital and AI platform, this is a clear leverage as demand stabilizes. With improving productivity and margin potential over time. Thank you to our talented team for your relentless commitment and to our candidates and clients for your continued trust in ManpowerGroup. And that concludes our prepared remarks. And as we go into our Q&A session, I'd like to ask if you could limit your question to one so we can make sure everyone has the opportunity to ask a question this morning. And with that, I'll ask our operator, Michel, to start our Q&A session. Operator: Thank you. If your question hasn't been answered and you'd like to remove yourself from the queue, press 11 again. And our first question comes from Mark Marcon with Baird. Your line is open. Mark Marcon: Hey, good morning, Jonas and Jack. It's great to see that there's some early signs of an inflection here. Jonas, I'd like to go back to some of your earlier comments just on a broad base with regards to the productivity and not just productivity, but also excellence. Initiatives that you have with some of your technology. As PowerSuite is fully implemented and as you implement AI, I'm wondering if you could discuss a little bit from a longer-term perspective what your aspirations are in terms of where the margins could ultimately end up going if we end up having, you know, kind of a nontraditional, more moderate recovery in the markets as opposed to, you know, the types of cyclical rebounds that we've seen, you know, more traditionally back in the nineties, early aughts, post-GFC, just because it seems like employment on the whole is gonna, you know, be a little bit more limited in terms of growth. So I'm wondering if we have a moderate recovery, what should investors expect over the next two to four years with regards to where we could potentially go from a margin perspective? Jonas Prising: Good morning, Mark. And, you know, as you've heard from our prepared remarks, we're pleased to see that, you know, we're seeing the early signs of an inflection coming through. But to your specific question about our PowerSuite and, you know, investments over the last couple of years, they've really put us in a really, really good position for us to think about ways to evolve our business and optimize, you know, our processes and improve our customer, our client, our candidate experience. Regardless of what the market does and how quickly it comes back. So as you heard from Becky's prepared remarks, we're really thinking about this around productivity and growth. And we're encouraged by the early signs that we're seeing. You heard me talk about a number of in terms of AI enablement around Experis, how we are improving the candidate experience and process as well. And, you know, we are really encouraged by what we're seeing. But as we said, it's early days yet. But our entire focus is around controlling what we can control, and whether that is a faster recovery or slower recovery, we're going to be driving growth and we're going to be driving productivity. We will always be a people business today, but we are going to be an AI-enabled global people business, and that's the path that we're on. And we are very encouraged by the results that we're seeing so far. But maybe Jack, you can talk a bit about what investors should expect from a longer-term perspective on margin. Jack McGinnis: Yeah. Happy to add some additional color there. I think, Mark, to Jonas's point, I think on the technology implementations that, you know, as you mentioned in the prepared remarks on the front office side, we're now 87% complete on PowerSuite front office revenues, global revenues running through. And on the back office, we're at 75%. We just had Italy go live as we ended the year. So we're in a really good place. A lot of the heavy lifting has been done on the technology implementation. And now we're very focused on centralization and standardization, and that is going to drive structural cost efficiency going forward. And as I mentioned on the back office, we expect that in the second half of this year. So even in a modest recovery scenario, you should expect EBITDA margin improvement year over year over the next four years in that scenario when we see continued improvement year over year. And as I we're really excited about extending the work we're doing on the back office now to starting additional work on the front office, and that's gonna drive it even further in terms of margin expansion opportunities going forward. Mark Marcon: Any sort of goal or target that you would have just under a moderate recovery? I know it's early days, but just trying to get a realistic sense in terms of, you know, one point we were targeting four and a half percent. You know, is it realistic to assume that, hey, we could, you know, we should be able to get to 3%? Just wondering how you're thinking about it. Jack McGinnis: Yeah. Yeah. No. I would say first off, we're absolutely still committed to the four and a half to 5% mark. And you're right. We've delevered pretty the recent period here. So we're starting from a lower point. But from that lower point, we're very optimistic we have an opportunity to expand margin meaningfully from this point over the next few years here. To get back to the 4.5% to 5% over time. And it is going to be a measure of how much operational leverage comes in through the environment. That will help. But even without that, we're gonna have a really good opportunity to continue to climb progressively forward towards that four and a half percent over the next couple of years. Mark Marcon: That's excellent. Thank you so much. Operator: Thank you. Our next question comes from Andrew Steinerman with JPMorgan. Your line is open. Andrew Steinerman: Hi. This one is probably a little tougher. So when you talk about a path towards sustainable organic revenue growth, could you give us a sense of what level of sustainable organic revenue growth is likely once the staffing market starts to improve? And then kind of an add-on to that question, we've been hearing a notable chatter from the staffing industry operators talking about an increased interest in flexible workers once such a recovery takes hold because labor uncertainty will remain. Do you have a view on that thesis? Jonas Prising: So thanks, Andrew. Yeah. No. To predict when and how the market is going to be improving overall, I think, is difficult. But as you can tell, we've been improving our performance in the US, for instance, in a tough market with six quarters of continuous growth for the Manpower brand. You've seen a number of our countries, despite, you know, reasonably stable but not growing labor markets, perform very well, such as Italy and Spain, not to mention Japan that has forty-five quarters of consistent growth. So I'd say that just as Jack just mentioned in his conversation with Mark, that we're going to control what we can control. Make sure that we drive the efficiencies we need to do in markets where we are facing headwinds. We will be very focused on rightsizing the business and adjusting capacity to the existing demand. In markets where we see the opportunity, we're investing in demand-generating activities. And we'll keep on working very, very hard on driving growth to capture share, as well as driving the productivity initiatives that you have seen us execute on in a number of markets and over a number of quarters. And we're encouraged by the inflection points that we have seen and the improvement in trends in France and in the US particularly, and the earlier ones, it's too early for us to call a broad-based recovery is in motion. Certainly, over the last couple of quarters, we've had some positive signs. And as you can tell from our guide, we expect those trends to continue into the first quarter. On the second part of your question around flexibility, maybe Becky, you could give some insights into what you've heard from clients and some of the work that we've been doing. Over to you. Becky Frankiewicz: Thanks, Andrew. You know, it's a timely question because we're just off of two weeks in Europe spending time with our markets as well as spending time with our clients and partners. The World Economic Forum. And just as you said, the chatter around flexibility is increasing. And, you know, for us, that's good for our business because it's one of the prime core propositions that we offer is flexibility. And so we're seeing that in the short term as well as over the long term. You know, all the research I've done around the strategy indicates that candidates want more flexibility and clients want more flexibility. And so we anticipate this is good for today, it's also gonna be good for us in the future. So the chatter is starting. We're not seeing all that flow through in volume yet, but it starts with conversation. Andrew Steinerman: Thanks, Becky. Operator: Thank you. Our next question comes from Kartik Mehta with Northcoast Research. Your line is open. Kartik Mehta: Hi, good morning. Jack, I think you said enterprise demand is helping at least stabilize the revenue. And I'm wondering, as enterprise revenue grows, what that means for margins, maybe even cash conversion, and kind of what you think by revenue durability for the business. Jack McGinnis: Sure, Kartik. Hey, happy to talk about that. So you're right. And that has been the trend we've seen in the second half of the year. The enterprise client has been the lion's share of the demand, and we've seen the mix impact on the GP margin. Now with that being said, most of that has worked its way through. If you look at the third quarter, that's really when we signaled the shift weighted in a bit more. And from the third quarter to the fourth quarter, it's really been quite stable. So you see in the GP margin bridge on the staffing side, it's down that same 40 basis points year over year from Q3 again in Q4. So that is signaling that a lot of that enterprise shift has worked its way through. And I'd say with that, you know, pricing remains very rational. That indicates that, you know, we are, it's always competitive, but pricing is not changing. And that is not having the impact. It's really just that averaging impact on the enterprise client. With that being said, you mentioned a couple of other things. What impact is that going to have on the balance sheet and cash? So, and I would say, you know, that is part of the equation. We did see DSO tick up a bit. We do know enterprise clients traditionally have a bit longer payment terms on average. And, you know, that's again, I'd say that's worked its way through in the numbers. With that being said, we're very focused on that. We have actions in place to continue to mitigate that. And we expect ongoing progress in that in 2026. And then lastly, I'd say, you know, the other part of the enterprise component is, you know, that does create some timing in terms of the cash flows. And we saw that with, you know, perhaps some lighter cash flow in the third quarter year over year, but a really good fourth quarter cash flow result as a lot of those enterprise client payment terms came in during the fourth quarter, really driving a pretty strong fourth quarter free cash flow result for us on an overall basis. So it's all part of the balancing equation between enterprise and non-enterprise on an overall basis. We have actions in place to mitigate that, you know, the DSO that I mentioned, and we do expect ongoing improvement as we go forward here in 2026. Kartik Mehta: Thank you. Appreciate it. Operator: Thank you. Our next question comes from Trevor Romeo with William Blair. Your line is open. Trevor Romeo: Good morning. Thank you for taking the questions. I wanted to, I guess, focus on some of the commentary on near-term demand. I think you noted some improvements throughout the quarter in some of your key markets. So I was just wondering if you could maybe provide some more color or Jack, if you could maybe quantify how the revenue trends progressed on a monthly basis in, you know, maybe France, Italy, US, maybe UK, and any color on what you're seeing so far in January if you have it. Thanks. Jack McGinnis: Thanks, Trevor. I'd be happy to add a little color there. I'd say generally, we're seeing positive momentum in a lot of our large markets. And maybe to your point, starting with France, improvement over the last four months sequentially month over month. So we ended September on a days adjusted basis at minus four, improved slightly into October, moved to minus three in November, and ended December minus two. So very good progress sequentially. And as we sit here in January, we're seeing ongoing progress here, and that aligns with the guide that I gave for the first quarter. So that is, you know, ongoing quarter over quarter improvement in France. And that's great to see for us. And so that's our biggest country, and that's a big driver. I would say if we look at the US, you know, we've been very, you know, we've discussed the trends in Manpower very frequently this year. Very strong. We're performing really, really well. So they've been running plus seven, plus 8% in the second half of the year. We take that momentum into the first quarter. I think on US overall, on an underlying basis, very stable from Q4 to Q1. I say underlying because we know the healthcare go-lives in the Experis business, as I mentioned in prepared remarks, can be a bit lumpy. But if you normalize for that, the US is trending on a stable position into Q1. And then Italy, as we mentioned, as Jonas mentioned, performing very, very strong. And I'd say on those trends, Italy, very strong sequential quarter trends as we end the year here. And I'd say we saw that generally December is always a little bit of a tricky month just based on the holidays and so forth. But I'd say on an overall basis, Italy is continuing to see very strong momentum, particularly here in January. So moving, you know, we're at that plus 7% base adjusted in Q4. And we feel really good, as I mentioned, for a similar trend into Q1. So I'd say those are the biggest countries and some of the momentum. But as I mentioned, I'd say generally, moving in line with positive trends as we start 2026. Trevor Romeo: Got it. Thank you, Jack. Operator: Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open. Jeff Silber: Thank you so much. Jonas, I think in one of the answers to the previous questions, you talked about being able to control what you can control. I'm just curious, are you expanding your workforce in any regions? Or because of the technology you put in, you're still able to have, you know, some excess capacity. Jonas Prising: Good morning, Jeff. Yeah. We are expanding more so thinking about this from a regional perspective. We're thinking about it from a country perspective. And there are definitely countries where we're expanding our teams, and it's mostly in demand-driving roles. So when you think about the growth that we're seeing in Japan, if we're thinking about the growth we're seeing in Italy, we're leaning into and we're expanding our team members there, especially in demand-driving roles. And we continue to bring great tools through the PowerSuite to our recruiters. And we are seeing, as I mentioned in my prepared remarks, some notable productivity improvement, for instance, on our candidate screening capabilities. And one of the huge advantages that we believe we are uniquely positioned to take advantage of is our global scale of PowerSuite. So we have a global technology infrastructure, modern and a global data asset that we are leveraging for faster expansion of recruiter tools that drive better productivity and enhance the client and candidate experience. So the answer to that is yes. We adjust capacity to demand, and in some cases, in some countries, that means we're leaning into demand-generating roles. In others, we are pulling back so that we ensure we protect our ability to deliver the bottom line margins that we're targeting. Jeff Silber: Alright. Great. Thanks for the color. Jonas Prising: Thanks, Jeff. Operator: Thank you. Our next question comes from Ronan Kennedy on behalf of Manav Patnaik with Barclays. Your line is open. Ronan Kennedy: Hi, good morning. This is Ronan Kennedy on for Manav. Thank you for taking our questions. Could you please reconfirm? I know you talked about what you're seeing associates on assignments in key markets, the positive trends in the US and France, etcetera. Could you please reconfirm other leading indicators to be mindful of that give insight to potential depths and breadth of the demand dynamics, and then what we could or should potentially look for to see to enable to call a broad-based recovery, whether that's, you know, new assignment starts and priority verticals or even fundamental client conversations. What we could look for for that broad-based recovery confirmation. Jonas Prising: Thanks, Ronan. Well, there are a number of indicators that we look at from, you know, demand perspective. And, you know, you can take anything from the conversations that Becky referenced. You know, we are hearing more clients express a desire to start to think about through our various brands about projects that they have held back and are now getting closer to activating. As Becky said, we're not seeing the activation yet, but the number of conversations with clients and employers seems to indicate that they are looking forward with greater confidence and that their plans are getting closer to being executed. So we then look at, of course, the flow of demand in terms of RFPs and RFIs that would come our way. And clearly, what we've been very successful at is targeting the verticals, the industry verticals that we feel good about for growth at this point versus others that we notice that we see have, you know, headwinds. So we feel, for instance, that the aerospace and defense sector could give us some tremendous opportunity across Europe. We have strong positions in a number of our very strong countries such as France, the UK, Sweden, and Italy. So we're very well positioned there. We feel good about that opportunity. So that's how we're sort of thinking about both looking at the moves within industry sectors as well as the client conversations within those sectors or verticals and then in other areas as well. And frankly, you know, when we'll know the broad-based recovery when you see these inflection points coming through in lots of our countries. But as we mentioned in our prepared remarks, we've been very encouraged by the overall trend in a number of our important markets. We continue to do very well in Asia Pacific as well as in Latin America. In fact, Asia Pacific broke an all-time profitability record in 2025. Latin America continues to perform very well. We have market-leading positions in 13 countries in that important region. So we're encouraged by what we're seeing. But we're not fully there yet from a broad-based recovery. But we are controlling what we can control, driving growth where we see demand, and adjusting our cost and capacity to demand in markets that remain more difficult. Ronan Kennedy: Thank you. Appreciate it. And as a follow-up to having spent two weeks in Europe around the World Economic Forum, are there any implications of potential political sentiment shift from Europe towards the US or any shifts in trade alliances as a result of US ambitions in the continent and the general approach that was taken at Davos? Could these developments have implications for some of the momentum you are seeing in Europe? Or the shape of recovery inflection or general time required for stabilization where it hasn't come yet? Jonas Prising: You know, we clearly are living in a turbulent environment, but I have to say from what we're seeing from our clients and from our business, at this point, this is not impacting our business. And to Becky's earlier point on flexibility, if anything, employers are becoming more confident about the future. Against the backdrop of greater turbulence, flexibility is key for them to find the right talent and be able to adjust, you know, with various kinds of skill sets. So we actually think, you know, this so far has not really impacted our business based on the trends that we're seeing. And we're now used as employers and organizations to a more fluctuating geopolitical environment, and companies at some point have to decide to manage through it and get on with the business of doing business. And that's what we're seeing, I think, in a lot of countries. Ronan Kennedy: Thank you. Appreciate it. And may I just sneak in one more? Could I ask for your broad, high-level characterization of the labor and hiring markets? I think previously, it was frozen. Is it thawing now, or how would you characterize it? Jonas Prising: I would say that the labor market is stabilizing, and, you know, we think the broader labor market, if you're referring to the US, is heading to stabilization. Thank you very much. Operator: Thank you. Our next question comes from Josh Chan with UBS. Your line is open. Josh Chan: Hi, good morning. Thanks for taking my question. I just have a two-part question on margins. So for SG&A leverage, it seems like your momentum is picking up quite nicely there. So could you talk to what's driving that in the last two quarters and where SG&A leverage could potentially go? And then I guess number two is on the gross margin line. You know, a lot of this call has been about stabilization, but that's sort of the one line that has not yet stabilized. So do you have any thoughts on whether gross margin will stabilize as the demand environment does the same? Thanks for any color there. Jack McGinnis: Okay. Thanks, Josh. I think on the SG&A, it's pretty straightforward, and thank you for your comments there. So we are very proud of the actions we've taken and the results we're seeing in the SG&A coming down 4% in constant currency in the fourth quarter. And it's to your point, that's an improvement from the 2% constant currency decline in the third quarter. So, you know, we've done a lot of work. We've taken a lot of actions earlier in the year, and we're seeing the benefits of that hard work coming through in the run rate now. And that is going into our continued trajectory into Q1 as well as we continue to see the benefit of those actions. And, you know, we've talked previously about, you know, the restructuring we've taken. A lot of that in Northern Europe. And, as we mentioned on the call and you saw in our results, Northern Europe flipped to a profit in the quarter. So, you know, based on the work we've done earlier in the year, we are actually helping to improve the seeing the benefits of those actions, helping to improve the profitability of Northern Europe as we end the year. So those are the main items that are driving that. Continue to be more stable. And, you know, in parts of the business that are still recovering, we're holding the line on cost, and that's coming through in the run rate. Your question on GP margin, I would say it really to your point, it has come down over the course of the year. But that's that enterprise element that we've talked about. And as enterprise demand continues to be the biggest part of demand in the current environment, that's averaged in. And to my earlier points, a lot of that has worked its way through, Josh. So you see that on the staffing margin progression from Q3 to Q4 being pretty stable year over year. But the bigger part of the story on an overall basis is perm. Perm is lower, and perm will come back in the future, but it's at historically low levels of a percentage total GP for us right now. And that's depressing the GP margin on an overall basis. So when perm starts to rebound, we'll see an opportunity for GP margin to increase. And we also will see opportunities for that as the higher margin businesses inflect in the future and start to average in at a higher percentage of the mix as well. So and convenience will come back going forward as well. So we have some really good opportunities as you know, right now, is the strongest part of demand, and that's been holding very steady. But as the other components start to come back and they usually follow enterprise, enterprise usually leads. That will be opportunities for us to increase GP margin in the future. Josh Chan: Great. Thank you for that color, Jack. I appreciate that. Operator: Thank you. Our next question comes from Andrew Grobler with BNP Paribas. Your line is open. Andrew Grobler: Hi, good morning. Just the one from me around technology. With the IT sector still down quite sharply in the US, what are you seeing in those end markets? I noted one of your competitors was talking about improvement in late 2025 and into this year. Is that something that you are also seeing? And if so, what can we expect through the remainder of this year? Thank you very much. Becky Frankiewicz: Yeah. Good morning, Andy. Yeah. We're, as we mentioned in our prepared remarks, we've seen sequential improvements in Experis, although still experiencing headwinds. We're encouraged by that. I would say that in conversations with our clients, you know, they've been very focused on a number of areas, and specifically within the technology sector, the very strong hiring that occurred during the pandemic caused a hiring bubble, and they've been working their way through that. And they've been focused on projects primarily related to AI. But with our clients, we are hearing that their pent-up project demand is getting closer to being executed. We haven't seen this come through yet, but we're encouraged by those conversations, and we would expect to see that, you know, the sequential improvements that we've seen in Experis continue. We would characterize it as stable into Q1. But overall, our clients are telling us that we want to proceed with the other technology investments and the projects that we need to do. And overall, I would say, you know, we've seen a very nice evolution around data and infrastructure projects where, you know, we were having to shift a bit into those areas. And then with our AI tools that are starting to give us, you know, confidence both consulting with our clients on how they can access AI and use AI in their own work and how we are providing solutions to our clients that resonate. We are faster, efficient, better quality, more cost-effective, which is also differentiating us. So long term, we feel very good about the trajectory that we have in Experis, acknowledging the headwinds, acknowledging that we still have a lot of work to do, but we think that we'll continue to see the progress going forward. Andrew Grobler: Thank you very much. Operator: Thank you. Our next question comes from Tobey Sommer with Truist. Tobey Sommer: Wanted to ask you a follow-up question on your comments about the 4.5% EBITDA margin goal longer term and that commitment. Could you talk to us in broad strokes, whether it's about top line, gross margins, or, you know, mix that may be required from the higher margin sources of revenue, how much do those have to rebound? Do they have to go back to prior peaks, or is it sort of more normalized levels to think about that long-term EBITDA margin goal? Thanks. Jack McGinnis: Yeah, Toby, I'd be happy to talk to that. So I think the way to think about it, and that is definitely part of the equation, right? So if you look at where we're ending 2025, so at 2.1% margin, you know, our previous peak was 4.1. And if we look at the mix of the businesses, what we've seen with the 5% Manpower growth in the quarter, Manpower certainly has been averaging in as a bigger part of the GP mix. And as the environment continues to recover, that will start to change. We'll start to see Experis and Talent Solutions start to average back in at a higher contribution. That in itself is going to be a positive. And we were just talking a little bit about this on the GP margin. That in itself will be a very positive impact on the overall consolidated GP margin. And we do expect that to happen. As Jonas said, we don't know the exact timing of that. Those parts, you know, permanent and professional have been more sluggish. But we are starting to see some signs that, you know, on the stabilization, there's opportunities for improvement here as we walk into 2026. So we will need that to happen. That will be important as we look at the overall GP margin component as getting back to where we were from a mix perspective. And that will be quite significant. And then, you know, just forget, you know, aside from just the brands, as we mentioned, just even within all the brands, as we see convenience come back, that will be a positive for the GP margin. So that's definitely part of the equation. As I mentioned previously, I think all the work we're doing structurally on cost is a big part of the equation. So as we see EBITDA, as we see that GP margin improvement fall down to the EBITDA line, combined with the cost improvement, those two items together will be big drivers for that EBITDA margin progression to the 4.5%. And as I said, hey, if the recovery is stronger and we start to see professional and RPO and perm come back stronger, it'll be faster. We'll see more help on the GP line. We'll get more operational leverage. But even in a modest recovery, as those, you know, as those sectors come back, that will be positive for both GP and EBITDA margin. So it's really just a question of, you know, the pace of when those other sectors start to come back. But it is encouraging that we're seeing Manpower now growing at 5% as we end 2025. And so that's a very good initial sign. Tobey Sommer: Thank you, Jack. Operator: Thank you. Our next question comes from Harold Anter with Jefferies. Your line is open. Harold Anter: Hello. This is Harold Anter on for Stephanie Moore. I guess, just on AI just real quick. I guess, you know, could you provide your long-term views on the impact of blue-collar versus white-collar staffing? And then, I guess, are you hearing clients talk about the need to hire people who can use AI? But they focus on just training their current staff to use the technology. And I guess the last thing is do you expect to see long-term pricing to be pressured in the future as clients request to share in the productivity benefits gained from AI. Thank you. Jonas Prising: Alright, Harold. We'll try and cover that's four questions in one. So here it comes. You know, first of all, let's be clear that we think that AI has tremendous opportunity for growth and productivity improvement generally, but specifically to our business. And that's what we are preparing for, and that's what we have been preparing for as we are creating more growth opportunities in terms of addressing how we're setting ourselves up for growth. In the research that Becky has done, we've looked at some of the, you know, the AI resiliency, and I mentioned this in my prepared remarks that there are a lot of skill sets that we have in Manpower that appear to be more resilient and that we're seeing in the other skill sets, white-collar, the emergence of some greater use of AI, and frankly, mostly enhancing human capabilities as opposed to replacing them. But I think, from a usage perspective, Becky, as we look at what we talk to our clients about and how they see it, in terms of where they're using AI, I think that could be great color. And then also, maybe talk a little bit about the work that we have done on SoFi.ai and how that is resonating with our clients as well. Becky Frankiewicz: Yeah. Thanks, Jonas. First, I would say I've spent a lot of time focused on AI over the last few months trying to understand what it can do today, but maybe more importantly, what it will grow up into tomorrow. And it is true that AI will impact most jobs, most skills inside most jobs. The difference, it'll be the varying degrees, and I think that was part of your question. What we found is that for blue-collar industrial manufacturing roles, they appear to be more resilient over the horizon where the disruption is happening more in the white-collar software developers and coders as we've already seen in demand. You know, keep in mind, though, that in the US, software developers are still the number three job in demand in our country. So even though it's impacted, it's still a huge in-demand role. We've also seen impact in call center professionals. And the good news for our business is we have limited exposure there, so we have an opportunity to actually find opportunity in this changing landscape. And a highlight of that is what Jonas mentioned with Experis, and us getting into these coding assistance to provide value in that incremental growth pocket for us as a company. Small, early days, but we think that's an opportunity. In terms of SoFi, Jonas mentioned SoFi.ai, just to remind everyone, it's our proprietary AI ecosystem. Ecosystem. So it's built on our PowerSuite foundation. It's why that foundation is so important. And it's designed to integrate human expertise, our proprietary data, as well as leading-edge AI models. And probably one specific example that I'm encouraged by is a pilot we're doing around workforce insights. So that we're providing real-time AI agents available twenty-four seven to give accurate labor market insights. It's 10x faster than anything we could do with humans alone, it is augmenting humans. It's 99% accurate, and it has self-correcting capabilities. So if something is off, it will alert us. And so those are the kind of actions we're taking to find profitable growth opportunities in the changing landscape. Jonas Prising: And then to your last part of the question, Harold, you asked about, you know, we're seeing an impact on this from a pricing perspective in taking a share? And, you know, whilst it is early days, most of our enhanced AI capabilities are coming through with higher value offerings and differentiated innovation. So we're actually seeing opportunities for us to deliver higher value work and actually maintaining, if not increasing, our margin opportunities on those offerings. So so far, we have not seen this. And the indications are positive to the reverse, but this may change as time goes on. Operator: Thank you. This concludes the question and answer session. I'd like to turn the call back over to Jonas Prising for closing remarks. Jonas Prising: Thanks, Michelle, and thanks, everyone, for joining us this morning for our Q4 earnings call. We look forward to speaking with all of you again on our Q1 earnings call sometime later in April. Until then, stay warm. Greetings from the frozen tundra in Milwaukee. We look forward to speaking with you on our next call. Thanks, everyone. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Please standby. Your meeting is about to begin. Good day, and welcome to the Altria Group, Inc. 2025 Fourth Quarter and Full Year Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Altria's management and a question and answer session. In order to ask a question, please press star followed by the number one on your touch tone phone at any time. Representatives of the investment community and media on the call will be able to ask questions following the conclusion of the prepared remarks. I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations. Please go ahead, sir. Mac Livingston: Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO, and Salvatore Mancuso, our CFO, will discuss Altria's 2025 fourth quarter and full year business results. Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics, and our latest corporate responsibility reports are all available at altria.com. During our call today, unless otherwise stated, we are comparing results to the same period in 2024. Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statement section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of our Board of Directors. We report our financial results in accordance with U.S. Generally Accepted Accounting Principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to nicotine consumers or consumers within a specific nicotine category or segment refer to existing adult nicotine consumers 21 years of age or older. With that, I'll turn the call over to Billy. Billy Gifford: Thanks, Mac. Good morning, and thank you for joining us. 2025 was a year of continued momentum for Altria Group, Inc., marked by strong financial performance, strategic progress across our smoke-free portfolio, new relationships in support of our long-term growth goals, and significant cash returns to shareholders. Our leading brands and talented teams enabled our core tobacco businesses to deliver solid income growth and margin expansion while we invested in our vision. For the full year, we grew adjusted diluted earnings per share by 4.4% and returned $8 billion to shareholders through dividends and share repurchases combined. As the year progressed, we achieved meaningful milestones that we believe advance our smoke-free portfolio and position us for sustained success in the U.S. nicotine space and for long-term adjacent growth. In 2025, Helix received marketing granted orders from the FDA for certain ON PLUS products. Horizon submitted a combined PMTA and MRTPA to the FDA for Plume and Marlboro heated tobacco sticks. We entered into a strategic collaboration with KT and G to advance international modern oral U.S. non-nicotine growth and traditional tobacco operating efficiencies. And we continue to advocate for a responsible and well-regulated marketplace. My remarks this morning will focus on our latest view of the U.S. nicotine space, our smoke-free progress, and our earnings guidance for 2026. I'll then hand it over to Sal, who will provide further details on our business and financial results. Let's begin with our view of the U.S. nicotine space. Over the past year, the estimated number of adult consumers in the e-vapor and oral tobacco categories grew to almost 30 million, nearly as large as the adult smoker population and a reflection of the potential for tobacco harm reduction in the U.S. Total nicotine industry equivalized volumes increased for the third consecutive year and grew by approximately 2% over the past five years on a compounded annual basis. And we estimate that smoke-free alternatives represented more than 50% of the total nicotine space, up five percentage points from the prior year. However, the primary driver of industry and smoke-free growth continues to be the widespread availability of illicit flavored disposable e-vapor products evading regulatory process, which jeopardizes the long-term tobacco harm reduction opportunity. We estimate the e-vapor category grew approximately 30% in 2025 with illicit products representing approximately 70% of the category. At year-end, we estimate there were more than 20 million vapers with nearly 15 million using disposable products. We have long advocated for stronger enforcement against illicit products and an acceleration of FDA market authorizations for smoke-free products. In 2025, we saw increased engagement and action from federal agencies and government officials, including fourth quarter legislation requiring the FDA to allocate at least $200 million of tobacco user fees to enforcement activities. Early signs suggest that these efforts, together with tariffs on Chinese manufactured goods, are beginning to impact the illicit marketplace. We are also seeing early indication that growth in the total number of disposable vapers is moderating. In 2025, disposable e-vapor volumes grew approximately 30% compared to over 50% in 2024. Growth in the number of disposable vapers also slowed, rising approximately 10% in 2025 versus over 40% in 2024. Additionally, the FDA's Pollak program to streamline PMTA reviews for certain oral nicotine pouches could be a meaningful step toward improved regulatory speed and clarity required to deliver products that meet adult consumer preferences and regulatory standards. While we are encouraged by this early progress, additional action is needed to accelerate product authorization decisions and ensure a level playing field for all manufacturers. We're hopeful that 2026 will bring consistent enforcement and further improvements to the regulatory process. We continue to believe that responsible participation in the e-vapor category with products that meet consumer preferences supports our vision and our broader smoke-free strategy. We're making progress against our product pipeline and are executing with discipline and intention. The proliferation of illicit disposable products, pace of FDA authorizations, and the intellectual property landscape remain significant headwinds. Accordingly, we intend to maintain a measured approach to our investments in e-vapor until the regulatory framework is functioning as intended and enforcement actions meaningfully address the illicit market. Let's now turn to the nicotine pouch category. Nicotine pouches continue to drive overall oral tobacco volume growth, which increased an estimated 14% over the past six months. In the fourth quarter, oral nicotine pouches grew 10.4 share points versus the prior year and now represent nearly 57% of the total oral category. Competitor promotional activity remained elevated during the fourth quarter. Average retail prices for category competitors in the fourth quarter declined 3% sequentially and 12% year over year. In contrast, Helix remained focused on balancing profitability with retaining loyal ON consumers. At retail, ON price increased by approximately 4% sequentially and 3% versus the prior year. For the full year, Helix successfully delivered against its plans and contributed profitable growth to our oral tobacco product segment. In this environment, Helix was relatively stable in the growing ON reported shipment volume to more than 44 million cans. For the full year, Helix grew ON reported shipment volume by approximately 11% to more than 177 million cans. ON's retail share of the total oral tobacco category was 7.7% for the fourth quarter and 8.2% for the full year. While Helix cheerfully stewarded ON through disruptive second half market conditions, the team also prepared to bring ON PLUS to the market. In December, the FDA authorized ON PLUS Mint, Wintergreen, and Tobacco in six and nine milligram nicotine strengths, with the twelve milligram variant still in the review process. Following authorization, Helix resumed shipments of ON PLUS in Florida, North Carolina, and Texas. Innovation in pouch formats, including wet pouches, broader flavor variety, and higher nicotine strength offerings, is driving nicotine pouch growth. We believe ON PLUS is a premium differentiated product that is well positioned to meaningfully participate in this growth. Early consumer feedback indicates that its innovative pouch material with smooth flavor proposition is a competitive advantage in the marketplace. In recent research, ON PLUS Mint achieved higher overall purchase intention scores than the leading nicotine pouch brand and distinguished itself with superior pouch comfort and mouthfeel, critical attributes in the nicotine pouch category. In the fourth quarter, Helix began laying the foundation to expand ON PLUS nationally. Our teams made strategic investments in retail merchandising, fixtures, and equity to prepare for the ON PLUS national launch planned for the first half of this year. In 2026, Helix plans to focus on generating trial for ON PLUS and retaining adopters for ON CLASSIC. We anticipate Helix will continue to be profitable for the full year 2026. Looking to the future, Helix's strategy remains focused on innovation and responsibly delivering on consumer preferences. In November, Helix submitted PMTA applications for ON PLUS products in six additional flavor varieties across three nicotine strengths. Helix looks forward to bringing these new products to the U.S. market. Turning to our international smoke-free efforts, we continue to focus on the fast-growing nicotine pouch category. In 2025, ON PLUS and our newly added Fumi brand competed across select international markets through e-commerce and targeted retail distribution. Fumi appeals to the 80% of consumers interested in slim, well-pouch products. Early performance has been encouraging, supporting our expansion to 40,000 retail locations in seven markets. In addition, we added three new line extensions, bringing the brand to 12 unique flavor offerings. Our broadened nicotine pouch portfolio has accelerated international expansion and is generating valuable consumer insights that will inform future product development. While these are early days, we believe our expanded international portfolio and the momentum from our efforts in 2025 put us on a path towards accomplishing our long-term international smoke-free growth goals. Moving to our 2026 financial outlook, we expect to deliver 2026 full-year adjusted diluted EPS in a range of $5.56 to $5.72. This range represents a growth rate of 2.5% to 5.5% from a $5.42 base in 2025. We expect growth to be weighted to the second half of the year, reflecting a progressive increase in cigarette import and export activity over the course of the year. Our guidance contemplates planned investments to support our contract manufacturing capabilities, limited impact on combustible and e-vapor product volumes from illicit enforcement efforts, and NJOY ACE not returning to the marketplace in 2026. We remain committed to our vision and to building a portfolio of FDA-authorized smoke-free products for adult smokers and nicotine consumers who use smoke-free products. Our planned investment areas include marketplace activities, support of our smoke-free products, and continued smoke-free product research, development, and regulatory preparations. In summary, Altria Group, Inc. continued to build momentum in 2025. Our core businesses remain resilient. We advanced our smoke-free portfolio, and we opened new pathways for long-term growth in international modern oral and U.S. non-nicotine innovation. These efforts support our vision and enterprise goals. I am confident in our strategy, energized by the opportunities ahead, and grateful for our employees' commitment to delivering long-term shareholder value. I'll now turn it over to Sal to provide additional details on our business and financial results. Salvatore Mancuso: Thanks, Billy. Our core tobacco businesses delivered solid financial performance again this year in a dynamic external environment. The smokeable products segment delivered over $11 billion in adjusted OCI for the full year and expanded adjusted OCI margins by 1.8 percentage points to 63.4%. This performance was supported by robust net price realization of 8.4%. For the fourth quarter, adjusted OCI declined by 2.4% and adjusted OCI margins contracted by 0.8 percentage points to 60.4%. Year-over-year cost per pack comparisons were impacted by higher manufacturing costs driven by investments to build PM USA cigarette import and export capabilities. Smokable products segment domestic cigarette volumes declined by 7.9% in the fourth quarter and 10% for the full year. When adjusted for calendar differences and trade inventory movements, domestic cigarette volumes declined by 7% in the fourth quarter and 9.5% for the full year. At the industry level, when adjusted for trade inventory movements, calendar differences, and other factors, we estimate domestic cigarette volumes declined by 8% for the full year and by 6.5% for the fourth quarter, representing a sequential improvement of approximately 1.5 percentage points. As Billy described, illicit flavored disposable e-vapor growth moderated slightly in 2025 compared to the prior year. We have closely monitored this trend and its impact on cigarette industry decline rates. Based on our latest data, we are updating our cigarette category decomposition. We now estimate that cross-category impacts, primarily driven by illicit flavored disposable e-vapor, contributed approximately 2% to 3% to the cigarette industry decline over the past twelve months, versus our prior estimate of 3% to 4%. In the discount segment, persistent discretionary income pressures remain the primary driver of growth. We also believe that the discount cigarette segment was most affected by the change in cross-category impact. For the fourth quarter and full year, discount retail share grew by 2.6 share points and 2.2 share points, respectively. Continued discount segment growth pressured Marlboro retail share, which declined 1.5 share points in the fourth quarter and 1.2 share points for the full year. In the premium segment, competitive dynamics during the fourth quarter contributed to Marlboro's share of premium decreasing 0.1 share point to 59.2%. For the full year, Marlboro remained the undisputed leader in the highly profitable premium segment, growing its share to 59.4%, up 0.1 share point versus the prior year. Basic continued to share in the discount segment, reflecting PM USA's data-driven total portfolio approach to meeting a broad set of consumer needs. In the fourth quarter, Basic retail share grew by 0.6 share points sequentially and 1.9 share points year over year. Basic's strong performance demonstrates PM USA's ability to deploy advanced RGM capabilities to effectively compete in the most price-sensitive stores while minimizing incremental impact to Marlboro. In cigars, Middleton continued to outperform in the large mass cigar industry. For the fourth quarter and full year, Middleton reported shipment volume increased 4.2% and 1.8%, respectively. Let's turn now to the Oral Tobacco Products segment. Strategic investments behind ON! and ON! PLUS contributed to a 4.6% decline in adjusted OCI for the fourth quarter. Over the same period, segment adjusted OCI margins contracted by five percentage points to 64.5%. For the full year, adjusted OCI increased by 1.3% and adjusted OCI margins expanded modestly by 0.1 percentage points to 67.9%. Total segment reported shipment volume decreased 6.3% for the fourth quarter and 5.5% for the full year, as growth in ON! was more than offset by lower MST volumes. When adjusted for trade inventory movements and calendar differences, we estimate that fourth quarter and full year oral tobacco product segment volumes declined by 6.4% and 5.5%, respectively. Oral Tobacco Products segment retail share was 29.6% for the fourth quarter and 31.9% for the full year. Let's turn to an update on our e-vapor reporting unit. As Billy mentioned, while enforcement activity has increased, efforts thus far have not meaningfully reduced illicit e-vapor volumes to date. We now believe that effective sustained enforcement will develop over time at a more gradual pace. Given this dynamic, we performed impairment assessments of the e-vapor definite-lived intangible assets and goodwill in the fourth quarter. Based on these assessments, we recorded noncash impairment charges of $1.3 billion. We continue to believe we gained valuable assets and capabilities in the NJOY acquisition that can be applied to a future e-vapor pipeline to meet consumer preferences over the long term. Before moving on from e-vapor, I'd like to point out a reporting change you will see in our 2025 financials. In accordance with accounting standards, we updated our reportable segments for the full year 2025 to also include the e-vapor products segment, which consists of our NJOY business. Turning to ABI's financial results, we recorded $161 million of adjusted equity earnings in the fourth quarter, up 1.3% versus the prior year. We continue to view the ABI stake as a financial investment, and our goal remains to maximize the long-term value of the investment for our shareholders. Before I conclude, I'd like to highlight that as we continue to invest for the long term of the business, we are at the same time returning significant value to shareholders. In 2025, we paid $7 billion in dividends, and our Board raised our dividend by 3.9% in August, marking our sixtieth increase in the last fifty-six years. We also repurchased more than 17 million shares for $1 billion under our $2 billion share repurchase program. At the end of the fourth quarter, we had $1 billion remaining under the current program, which expires at the end of 2026. We effectively balanced our capital allocation priorities during the year, and our balance sheet remains strong. Our total debt to EBITDA ratio as of December 31 was two times, in line with our target. With that, we'll wrap up, and Billy and I will be happy to take your questions. While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory, and other items. Operator, let's open the question and answer period. Operator: Thank you. Investors, analysts, and media representatives are now invited to participate in the question and answer session. We will take questions from the investment community first. Our first question comes from Matthew Edward Smith. Your line is open. Matthew Edward Smith: Hi, good morning, and thank you for taking my question. Good morning, Billy. The fiscal 2026 outlook ranges, you know, the benefit from import-export activity building in the second half. Can you provide any color on the scope of the program? We calculate today that the percent of packs with the FET benefits around 3%. And if the second half benefits are more weighted towards cost normalizing associated with the initiative versus increased volume throughput, that would unlock greater tax efficiency? Thank you. Billy Gifford: Yeah. It's a little bit of both, Matt. We're a bit reluctant to share any of the specifics there, but certainly there's some upfront investments that are moderate as we go through the year. We think those investments are wise. Not only are we able to make those investments and afford ourselves the opportunity of the duty drawback, but it also sets the manufacturing center that we have here in Richmond up to be available to produce for any market internationally. With some of the changes and differences in international markets versus the U.S. market. In addition, as we've said previously, with the duty drawback, we're looking to not be at a competitive disadvantage regarding that. We will continue to look for opportunities to expand. Matthew Edward Smith: Appreciate that perspective. And as a follow-up before I pass it along, 2026 CapEx guide is elevated. I think that's associated with the investments you're talking about to unlock the double duty drawback efficiency. The $300 million to $375 million investment level is that we think this is a one-time increase in CapEx? Or do you expect kind of a as we look forward? Thank you. Salvatore Mancuso: Yes. Thanks for the question. You are correct. The primary driver of the increase is the investments for import-export business. I'll repeat what Billy said. Not only provides us the ability to participate in the duty drawback, but it does provide us with capabilities for our longer-term vision. I would say obviously, we're not going to guide for future CapEx. But we are making investments today. They generally precede the volume, you think about it. We're making investments in our smoke-free portfolio. Obviously, we want to have the appropriate manufacturing capability for products like ON PLUS and future pipeline products. We believe that for a company of our size, it's still a relatively low level of capital expenditures, but we're going to be disciplined and diligent when we make those capital investments. Matthew Edward Smith: Thank you, Sal. I'll pass it on. Operator: We'll move next to Bonnie Lee Herzog with Goldman Sachs. Your line is open. Bonnie Lee Herzog: Thank you. Good morning, everyone. I guess I also had a couple of questions on the double duty drawback. I guess, first, is it fair to assume your aggressive promotional strategy behind Basic, which is weighing on your net price realization and dollar OCI growth in smokeable. I mean, that been implemented with the idea that these pressures can be offset this year as you ramp your import-export activity with KT and G? And then I guess without a pretty big step up of this activity, it does seem like your smokable dollar profit growth will likely remain negative. Which could put you at the low end of your full-year EPS guidance range. So just any thoughts on that would be appreciated. Billy Gifford: Yeah. I would disaggregate those two. Everyone wants to keep combining those two decisions, and we see them as independent of one another. Certainly, we're not gonna be at a competitive disadvantage for the duty drawback as we discussed earlier. I think when you think about the strategy around Basic, remember that nationwide it's only deployed in, call it, roughly over 30,000 stores. So it's not a type effort. What we saw there were a number of stores where the consumer has been under severe economic pressures. And that's really the major cause of that has been the cumulative inflation that the consumer has been experiencing. And we felt that wise and prudent to invest behind Basic not much different than if you go back in history Basic before and then L and M at other times. Now we're repositioning Basic. And so in those 30,000 stores, we are able to apply the revenue growth management analytics that we have invested in. And then you see the superb performance of Basic, what it does is it captures consumers that would have gone to deep discount. And it allows us to capture it with latent equity. And as the economic situation changes for our consumers, adjust accordingly. Bonnie Lee Herzog: Alright. And then any thoughts on just this notion of if you don't get a lot more activity, the import port, just thinking about the EPS range you put out there, is pretty wide. Billy Gifford: It's not any wider, Bonnie, if you go back. We typically open the year with about a 3% range. And then we accordingly as we move through the year and have more insight to how the year is gonna play out. We feel very pleased to be able to provide the range that we provided. And look forward to continuing through the year. Bonnie Lee Herzog: Okay. And then maybe just a little bit of a follow-up. It just as we're talking about Basic, but so then it does beg a question on Marlboro, your retail share on the brand did drop below 40% for the first time, I think ever. So how are you thinking about your strategy behind Marlboro? And then how much of your promotional strategy on Basic is maybe cannibalizing Marlboro? So I guess, Billy, maybe I'd love to hear whether or not you might consider changing your strategy on Marlboro and are you maybe rethinking your strategy to balance share with the goal of driving profitability? Billy Gifford: Yeah. I think it's important, Bonnie, to remember the strategy we used to manage the smokable subhand. It's to maximize profitability over the long term. While making appropriate investments in Marlboro on the growth categories. And we feel like we're executing against that. And so when you think about Marlboro overall, we feel very good about the strength of the brand. Certainly, in the fourth quarter, you saw product availability in the e-vapor related to enforcement. I think it's intuitive that the consumer was feeling some price break when they moved over to e-vapor. As that product availability is no longer available. And I want you to think that the consumers moving back and forth. It's primarily dual consumers. Those that are using cigarettes, and those that are using e-vapor. And they decide on the occasion which product to use. As product availability was much less due to enforcement, and they went back to more cigarette occasions in their day, it's intuitive that discount brands benefited from that. I think through time, we'll see if that holds true or not. I think from a standpoint of your question related to Marlboro versus Basic, feel like with our analytics, we feel comfortable that it's not impacting or cannibalizing Marlboro in the marketplace. Certainly, a mathematical standpoint, the more Basic grows, its share grows and it affects the brands in the marketplace. But we don't feel like it's having any outsized impact on Marlboro. Bonnie Lee Herzog: Okay. That's helpful. I'll pass it on. Thank you. Operator: We'll take our next question from Eric Adam Serotta with Morgan Stanley. Your line is open. Eric Adam Serotta: Yes. Thanks for the question. I'm just wondering first if you have any commentary or color around some of the articles and, you know, kinda popular press lately about increased in smoking incense among younger, 20, legal-aged, nicotine users, don't really seem to see it in the data yet, but you guys have, better data on this than anyone. So wondering if you're seeing any increased incidents among any of the younger legal cohorts. And then a separate question. Looking at ON PLUS, could you talk a bit about the pricing strategy there? Where you plan to position it sort of as you get past the initial, you know, introductory and trial periods. Do you think that that could command a premium to the classic and your what you're thinking about in terms of pricing there? Billy Gifford: Yes. Thanks for the questions. I think related to your first one, would refer you to their vision, which is to move consumers in a responsible fashion to smoke-free products. Nothing in the trends that I would point to. I've seen some of the same stories you have. And that is why we've been after the FDA for an expedited authorization process so you can get smoke-free products in the marketplace and inform consumers about the risk of the various forms of nicotine in the marketplace. As far as ON PLUS pricing, while I'll be careful not to play out our whole strategy, we do believe ON PLUS is a differentiated product and commands a premium in the marketplace. And I would really direct you to go on nicotine.com and what you can see is the price differential where e-commerce now is live on a national basis, you'll see the price differential that ON PLUS is listed at there versus ON Classic. So we feel good about the strategy. Certainly, as we introduce the retail, we'll have various introductory price promotions and that can vary state by state. So we'll continue to use our analytics but we feel very excited about the differentiation we have and the consumer feedback related to that differentiation. Eric Adam Serotta: Great. And then just one follow-up on the double duty drawback, not to beat the dead horse here. But just in terms of sizing the potential here, can you talk or provide any color on what you're doing here that may be apart from the KT and G partnership or relationship? Are there things that are already in place? Just things that are set to ramp or from the KT and G? Looking for see if there's any scope apart from that one partnership here. And how you're thinking about adding capacity? Billy Gifford: Yeah. I think when you think about it, the cap on that opportunity is truly the matching of exports with imports. And as much as you can match on those, that is the, if you will, the cap through time. Related to what's the opportunity. As far as specifics around individual companies or partners that we have relationships with, I'm not gonna get into the detail there. Know that we are continuing to seek opportunities because we're not gonna be put at a competitive disadvantage related to those other competitors that have both foreign or international manufacturing capacity and U.S. based. So we'll continue to seek opportunities as we go through time. Eric Adam Serotta: Great. I'll pass it on. Thank you. Operator: We'll take our next question from Mirza Faham Baig with UBS. Your line is open. Mirza Faham Baig: Good morning, Billy. Good morning, Sal. A couple of questions from me as well. I could come back to the controllable costs, I calculate there were 14.5% in the quarter and that sort of compares to a nine-month run rate of 9.5%. Was the investment behind this import and export the sole reason behind the different outcome in the fourth quarter? Or would there be any other factors that you would point to? I would think the former is one-off in nature, but it would be good if you could clarify that as well. And I guess, secondly, I have a few clarifications on nicotine pouches. Do I understand that you will be national with ON PLUS in the first half of this year? Or you plan to start the national rollout? And I presume, as you've sort of passed this comment, there aren't any sort of supply chain issues that you would be worried about? And then the second clarification is on the momentum in ON PLUS. I know been in the market for a few weeks now. Are you able to provide any in-state data from a market share perspective? That you may have seen in the early readings that we can try and extrapolate from, please? Billy Gifford: Yes. So we'll try to unpack all of those. Let Sal start with controllable cost. But if we miss any, please follow-up. Salvatore Mancuso: Yes. Faham, you are correct. It is predominantly the investments we are making around our manufacturing process for import-export. If you think about it, there were different pack configurations, an example. There are different capabilities we need for international markets. An example would be track and trace capabilities. So those investments precede really the volume and revenue you get from the export volume. So that is the driver that you are seeing. Billy Gifford: Yes. As far as nicotine pouches, you're correct. We'll be national through the 2026. As far as momentum, while I would love to be able to share exact volumes or exact shares, it was a bit messy. You recall we launched in three states. Then we halted shipments to those three states related to the pilot program that was kicked off by the FDA. We have now launched back into those three states or resumed shipments. And again, we'll be national through the first half of this year. What we can share is the positive feedback anecdotally we received from consumers. It really supported some of the research we had where the consumer really sees differentiation in the mouthfeel and the softness of the pouch. Paired with great flavor. And so we're excited to be able to bring that national as we progress through the first half of this year. Mirza Faham Baig: Thanks, guys. Operator: We'll move next to Pallav Mittal with Barclays. Your line is open. Pallav Mittal: Good morning. Thank you for taking my question. So I have three of them. Firstly, just a follow-up. So on this ON PLUS distribution, if I could just ask, I mean, why are you starting with just three states and not go out national from the start? Because we do have the distribution in place already. And just to check, is there any inventory benefit from ON PLUS in the Q4 numbers? Billy Gifford: Yes. So from a standpoint, really no benefit in Q4. Remember, we had just initially started distribution in the three states and then we halted that as we progressed through the end of the year. So we had very minimal and it was a bit messy. I think when you think about why the three states versus national, it was easy. The Salesforce had already sold it into retailers. It was easy to turn those shipments back on. And they're in the process of doing that on a national basis. So that'll follow as we progress through the 2026. I think that got all of your questions, but if I missed one, please follow-up. Pallav Mittal: That was the first one. So secondly, I can ask in your comments, you said that the pricing from competitors and nicotine pouches was down 3% sequentially. And 12% Y o Y. But that is not what I think the scanner data is suggesting. And it seems pricing is rather up for the larger players. So can you just help us understand or some other factors? What we are missing there? Is there anything in terms of promotions or trade? Billy Gifford: All competitors combined. Yes. So you are correct. We did say down 3% sequentially, 12% for the year from a competitive standpoint. Think what you saw was a significant competitor promotion that took place in the third quarter into the fourth. Where free cans were distributed for any nicotine purchase. That had a significant impact on competitive pricing in the marketplace. As far as and we're excluding, if you will, ON Classic. ON Classic, we were up in price both sequentially and total year. So that was the comparison we were trying to draw that there's significant promotional activity in nicotine pouch both in the third quarter and the fourth quarter. Pallav Mittal: Sure. Thank you. Operator: We'll take our next question from Damian Paul McNeela with Deutsche. Your line is open. Damian Paul McNeela: Yes. Good morning, gents. Thanks for taking the questions. The first question is just on the Basic strategy. And can you clarify or confirm that this 30,000 stores that you've targeted is kind of the ceiling? Or are there any potential stores that we may consider entering into during the course of '26? Is the first question. The second question is just are you able to sort of indicate the payback time from the investment that you're making in manufacturing facilities help import exports? And then the last one is just on the step up in costs that you saw in Q4. Are they likely to repeat in Q1 and Q2? Or are they done now and it's that the second half will see an improvement because you're seeing improved import-export volumes? Billy Gifford: Yes. So I'll take the first one and then I'll turn it over to Sal. As far as Basic again, over 30,000 stores currently. We'll continue to monitor the situation. We want to be there for our consumer that's under economic pressure. We feel like it's prudent. Basic has performed very well. As I mentioned earlier, L and M used to play that role for us and we've increased profitability on L and M. And it allows us as the economic situation changes, we're still in connection and the consumers in our portfolio of brands we're able to have conversations with them through time. And as that economic changes, you can look to see us adjust price promotions in the marketplace. So we feel like it's good. As far as number of stores, we'll make adjustments around the fringes, but we feel like we're in the right group of stores, but we'll continue to monitor that as we go through 2026. Salvatore Mancuso: Sure. And Damian to your other two questions, the return on investment for the import-export is very strong. The payback is less than a year. As far as continued spending, as Billy pointed out earlier, the back half weighted nature of our EPS growth guidance really is both volume and cost. So there are some incremental costs that continue to happen before you realize the revenue, and that happens when you enter different markets, different partnership arrangements. So yes, we expect some elevated investments upfront as you get more volume through the import-export process. Damian Paul McNeela: Great. Thanks, very clear. Operator: There appears to be no further questions at this time. I would like to turn the call back over to Mac Livingston for any closing remarks. Mac Livingston: Thanks, everybody, for joining us today. Have a great day. If you have further questions, please feel free to reach out to Investor Relations. Operator: This concludes today's call. Thank you for your participation. You may disconnect at any time.
Operator: Ladies and gentlemen, thank you for standing by. Today's conference call will begin momentarily. Until then, your lines will be placed again on a music hold. Thank you for your patience. You for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the PulteGroup, Inc. Fourth Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I'd now like to turn the call over to James Zeumer. Please go ahead. James Zeumer: Thank you, Jordan, and good morning. I want to welcome everyone to today's call to review PulteGroup's fourth quarter operating and financial results. Joining me on today's call are Ryan Marshall, President and CEO, and James Ossowski, Executive Vice President and CFO, along with David Carrier, Senior VP Finance. In advance of this call, a copy of our Q4 earnings release and this morning's webcast presentation have been posted to our corporate website at pultegroup.com. We'll also post an audio replay of this call later today. I would highlight that today's presentation includes forward-looking statements about the company's expected future performance. Actual results could differ materially from those suggested by our comments made today. The most significant risk factors that could affect future results are summarized as part of today's earnings release and within the accompanying presentation. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports. Now let me turn the call over to Ryan Marshall. Ryan? Ryan Marshall: Thanks, Jim, and good morning. I hope that many of you have had the chance to review our new investor presentation we posted to our website early December. If you haven't seen it, I would encourage you to take a few minutes to review the deck, which is available on our website. The document is designed to provide a comprehensive review of the fundamental goals, strategies, and results of our company. The process of creating a completely revamped investor presentation afforded us the opportunity to revisit many of the core tenets against which we have been operating for more than a decade. I have to admit that it was gratifying to see that we have consistently operated in alignment with the strategy established in 2011 and how well they have helped us navigate through the housing cycle. It is also gratifying to see that the underlying operating model has delivered such outstanding results. I would note that investors have recognized and rewarded us for this performance as PulteGroup has ranked number one in total shareholder returns among homebuilders for both the past year and the past decade. This is a sustained record of success for which we are rightfully proud. PulteGroup's 2025 operating and financial results further demonstrate the value of our differentiated operating model and emphasize diversification and balance across markets, buyer groups, and spec versus built-to-order production, as well as a highly disciplined approach to project underwriting and overall capital allocation. In a year that saw buyer demand and overall market dynamics be highly variable, I am pleased to report that our operating model helped us to generate annual revenues, margins, and earnings that rank among the highest in the seventy-five-year history of PulteGroup. Among the 2025 financial results that I would highlight, we closed over 29,500 homes and generated home sale revenues of $16.7 billion. We reported full-year gross and operating margins of 26.3% and 16.9%, respectively, and we generated cash flow from operations of $1.9 billion. I would also note that we ended the year with $2 billion of cash after investing $5.2 billion into the business and returning $1.4 billion to shareholders through share repurchases and dividends. I have talked about this on other calls, but a critical driver to PulteGroup's results in 2025 and prior years is our highly diversified business platform. With homebuilding operations now established in 47 distinct markets, we benefit from having a strong presence in the Midwest, Northeast, and Florida, where on a relative basis demand in many of these markets has held up better. Relative strength in these areas helped offset pressure coming from the markets where overall home buying demand was softer, such as Texas and in many of our Western markets. Beyond this broad geographic footprint, PulteGroup continues to benefit from having arguably the deepest and most balanced buyer base in the industry. At 38% first-time, 40% move-up, and 22% active adult, our 2025 closings were in line with our long-term targets. More importantly, our 2025 sales demonstrate the powerful impact such buyer diversity can have on our results. In a year in which demand was more challenged among first-time and move-up buyers, full-year sign-ups among active adult buyers increased by 6% over last year and were up 14% in the fourth quarter over the fourth quarter of the prior year. In addition to the obvious benefit to our subsequent closing volumes, our Del Webb communities routinely deliver our highest gross margins. Del Webb has been and will continue to be an important driver of PulteGroup's superior gross margins and, most importantly, high returns. While I think we all view 2025 as more challenging than anticipated, PulteGroup still reported $2.2 billion of net income, the fifth most profitable year in our history, and generated $1.9 billion in cash flow from operations. Consistent with our disciplined capital allocation process, we used our strong 2025 financial results to invest in the future growth of our company, investing $5.2 billion in land acquisition and development. Inclusive of 2025, PulteGroup has invested a total of $24 billion in land acquisition and development over the past five years. We believe our disciplined land investment will enable us to routinely achieve community count growth in the range of 3% to 5% in 2026 and in the years beyond. As part of our keen focus on advancing a homebuilding platform that can consistently deliver strong financial results, as reported in this morning's earnings release, we have made the strategic decision to divest our off-site manufacturing operations. ICG has proven to be a strong operator that can consistently deliver high-quality house shell components that have delivered many benefits to our extending homebuilding platform. But we have determined that our business and, in turn, our shareholders are best served by us focusing on our core homebuilding operations. After the sale, we will be able to benefit from any innovation and off-site manufacturing achieved by the building component suppliers, many of which are making significant investments in technology and innovation, while we focus on our core competencies. Having recorded another year of strong results, PulteGroup enters 2026 in an exceptional financial position with $2 billion of cash and a net debt to capital ratio of negative 3%. We also control a land pipeline of 235,000 lots that will allow us to continue growing community count in 2026. As such, I am optimistic about the year ahead and PulteGroup's ability to capitalize on any opportunities the market may present. Let me turn the call over to James Ossowski for a review of our fourth quarter results. Jim? James Ossowski: Thanks, Ryan. Consistent with Ryan's comments, our fourth quarter performance capped another year of excellent operating and financial results, which I'm excited to review. We recorded net new orders in the fourth quarter of 6,428 homes, which is an increase of 4% over Q4 of last year. The increase in net new orders for the quarter reflects a 6% increase in average community count to 1,014 in combination with a 1% decrease in absorption pace to 2.1 homes per month. Reflective of the challenging demand conditions we experienced over the course of 2025, we realized a full-year absorption pace of 2.3 homes per month compared with 2.6 homes per month for all of 2024. For the fourth quarter, our cancellation rate as a percentage of starting backlog was 12% compared with 10% in the prior year. For the fourth quarter, net new orders among first-time and active adult buyers increased 9% and 14%, respectively, over Q4 of last year. Comparatively, net new orders in our move-up business declined by 5% from the prior year fourth quarter. By buyer group, net new orders in Q4 2025 were 39% first-time, 38% move-up, and 23% active adult. This compares with 37% first-time, 42% move-up, and 21% active adult in 2024. As we have discussed on prior calls, new community openings are helping to increase our active adult business as we grow that segment towards our targeted range of 25% of total unit volume. For the fourth quarter, home sale revenues totaled $4.5 billion, which is down 5% from the fourth quarter of last year. Lower home sale revenues for the period reflect a 3% decrease in closings of 7,821 homes, in combination with a 1% decrease in the average sales price of closings to $573,000. By buyer group, closings in the fourth quarter were 37% first-time, 39% move-up, and 24% active adult. In the prior year fourth quarter, our closing mix was 40% first-time, 40% move-up, and 20% active adult. In response to the questions we have received, I would note that our Q4 closings included approximately 100 built-for-rent homes. Given our strategic approach to BFR, it has always been a small part of our operations and accounted for less than 2% of full-year 2025 closings. Our year-end backlog totaled 8,495 homes, with a value of $5.3 billion, and we ended 2025 with 13,705 homes in production, of which 7,216 were speculative. Consistent with our stated strategy, our spec inventory is down 18% from the end of 2024. We have remained disciplined in managing spec starts as we rebalance our product mix and work to increase the percentage of built-to-order homes in our production pipeline. Given the number of homes under construction and their stage of production, we expect to close between 5,700 and 6,100 homes in the first quarter of 2026. We also have provided a guide for full-year 2026 closings in the range of 28,500 to 29,000 homes. Based on pricing in our backlog and the anticipated mix of closings, we expect the average sales price of closings to be in the range of $550,000 to $560,000 for both the first quarter and full year of 2026. As Ryan discussed during his comments, given investments made in prior years and a land pipeline of 235,000 lots under control, we expect our average community count for all four quarters of 2026 to be 3% to 5% higher than the comparable quarter of 2025. For our fourth quarter, we reported a gross margin of 24.7% compared with 27.5% in Q4 of last year. As noted in this morning's press release, our reported fourth quarter gross margin includes $35 million or 80 basis points of land impairment charges. In addition to these charges, PulteGroup's fourth quarter gross margin was impacted by higher incentives of 9.9% of gross sales price. This compares with 7.2% in Q4 of last year and 8.9% in 2025. Higher incentives for the quarter were primarily the result of our effort to sell finished spec inventory as we closed out 2025. We currently expect to realize gross margins of 24.5% to 25% for both the first quarter and for the full year of 2026, but recognize that the spring selling season will be a key driver of our financial results this year. Embedded within our margin guide is the expectation that our house costs in 2026 will be flat to slightly down relative to 2025. On a year-over-year basis, we expect our lot costs in 2026 to increase by 7% to 8% from 2025. Our reported gross fourth quarter homebuilding SG&A expense of $389 million or 8.7% of home sale revenues includes an insurance benefit of $34 million recorded in the period. Prior homebuilding SG&A expense of $196 million or 4.2% of home sale revenues includes an insurance benefit of $255 million. We remain thoughtful in managing our overheads as we continue to identify opportunities to adjust spending levels while still meeting our high standards for build quality and buyer experience. For the full year 2026, we expect our SG&A expense to be in the range of 9.5% to 9.7% of home sale revenue. Given the typical lower delivery volumes we realize in the first quarter of the year, SG&A expense in Q1 is expected to be approximately 11.5% of home sale revenues. In the fourth quarter, we reported other expenses of $99 million, which includes a charge of $81 million resulting from the expected divestiture of our off-site manufacturing operations. For the fourth quarter, our financial services operations reported pretax income of $35 million, which is down from pretax income of $51 million in the fourth quarter of last year. Financial services pretax income for the period was impacted by a number of factors, including lower ASPs and closing volume in our homebuilding operations and a lower mortgage capture rate. Our mortgage capture rate in the fourth quarter was 84%, compared with 86% last year. PulteGroup's reported pretax income for the fourth quarter was $655 million. In the period, we reported a tax expense of $104 million or an effective tax rate of 23.4%. Our effective tax rate benefited from renewable energy tax credits recorded in Q4. Looking ahead to 2026, we expect our tax rate to be approximately 24.5%. Our expected tax rate does not take into consideration any discrete period-specific tax events that might occur. For the fourth quarter, we reported net income of $502 million or $2.56 per share, which compares with a reported net income of $913 million or $4.43 per share in 2024. For the full year, PulteGroup reported net income of $2.2 billion or $11.12 per share. Our Q4 earnings per share was calculated based on 196 million diluted shares outstanding, which is down 5% from the prior year and reflects the impact of our systematic share repurchase program. In the fourth quarter, PulteGroup repurchased 2.4 million common shares for $300 million. Including our Q4 activity, we repurchased 10.6 million common shares in 2025 for $1.2 billion or an average price of $112.76 per share. We ended the year with $983 million remaining under our existing share repurchase authorization. In the fourth quarter, we invested $1.4 billion in land acquisition and development, which was evenly split between the two activities. For the full year, we invested a total of $5.2 billion in land acquisition and development, of which 52% went for the development of existing land assets. Inclusive of our Q4 investments, we ended the year with 235,000 lots under control. This is comparable with the fourth quarter of last year but down on a sequential basis by 5,000 lots from Q3 as we continue to carefully review each land deal and make tactical decisions to exit select transactions. It is fair to say that the slower housing environment is beginning to have an impact on the land dynamics of markets around the country. Depending on the market, the seller, and the underlying land asset, we are finding opportunities to renegotiate deals to adjust the timing, the price, or sometimes both. Our land teams have and continue to do an excellent job of reviewing every transaction to ensure deals still meet our risk-adjusted return hurdles given current prices and basis. Our local teams are also looking for opportunities to upgrade positions should land deals that were previously under contract come back to market. As I mentioned earlier, we generated $1.9 billion of cash flow from operations in 2025 as we managed our housing starts, controlled land spend, and closed incremental homes in the fourth quarter. We will maintain the same disciplined approach in 2026 as we align investments in the business with buyer activity. Given current market dynamics and our expected 3% to 5% growth in community count, we are projecting land acquisition and development spend of $5.4 billion in 2026. Assuming this level of land spend and the expectation that house inventory will increase commensurate with an increased level of built-to-order home sales, we'd expect 2026 cash flow generation to be approximately $1 billion. And finally, we ended the year with exceptional financial strength and flexibility as we had $2 billion of cash and a debt to capital ratio of 11.2%. Adjusting for the cash balance, our net debt to capital ratio at quarter-end was negative 3%. Now let me turn the call back to Ryan for some final comments. Ryan Marshall: Thanks, Jim. Appreciating the more challenging market conditions, I still look back on 2025 and say it was a good year. As you heard repeatedly, demand was highly variable as consumers responded initially to movements in interest rates and later to a slowing economy, which pressured jobs, and as important, consumer confidence. All that being said, monthly absorption rates followed a typical seasonal pattern for the year and through the fourth quarter. The first few weeks of January have also demonstrated the expected seasonal increase in demand as we move from December into the start of the new year. It's too early to glean much in terms of the strength of the entire spring selling season other than to say we remain optimistic. As was the case through much of the year, in the fourth quarter we continued to realize stronger homebuyer demand in key markets in the Northeast, and many parts of the Midwest and the Southeast. Fourth quarter demand is seasonally slower, but on a relative basis, we saw positive homebuyer activity in markets that included Boston, the Northern Virginia DC area, as well as Chicago, Indianapolis, and Louisville, and then entering extending down into The Carolinas. Once again, I have to recognize the success of our Florida operations, which generated a year-over-year increase in fourth quarter sign-ups of 13%. Beyond the strength of our land positions and our overall homebuilding operations throughout the Florida markets, data suggests that new and existing home inventories are generally stable to improving modestly. Obviously, a strengthening housing market in the state of Florida would be a huge boost to the industry. We closed out the year with our Texas and West markets continuing to experience sluggish demand trends, although we may be seeing some signs of bottoming in Dallas and San Antonio. At this time, I would tell you that improvements in the pace of sales are likely the result of pricing actions as we work hard to find a clearing price and turn assets. This is particularly true with regard to finished spec inventory that we needed to clear. Looking ahead to 2026, the industry enters a new year with improved affordability as mortgage rates are almost a full percentage point lower than a year ago, and whether through price reductions or incentives, new home prices have reset lower while consumers benefited from another year of income growth as wages increased by upwards of 4%. A more financially capable consumer in combination with an improving affordability picture puts the industry in a much better position heading into the 2026 spring selling season. Given these dynamics, I think consumer confidence will be a critical component to determining just how strong buyer demand will be in the months to come. Before opening the call to questions, I want to recognize and celebrate the entire Pulte team. Beyond the outstanding financial results, you continue to set the industry standard for build quality and customer satisfaction in 2025. You have been relentless in your efforts, and I am so proud of all that you've accomplished in these areas. Now let me turn the call over to James Zeumer. James Zeumer: Great. Thanks, Ryan. Now prepare to open the call for questions. So we can get to as many questions as possible during the remaining time of this call. We ask that you limit yourself to one question and one follow-up. Jordan, if you would, we're prepared to take question and answer, but prepare to implement question and answer now. Operator: Your first question comes from the line of John Lovallo from UBS. Your line is live. John Lovallo: Thanks, guys. I appreciate you taking my questions. And Ryan, I share your optimism heading into the year versus heading into the beginning of last year. I think the setup is a lot better. But, you know, maybe starting with just SG&A, you guys did a really good job of managing that in the quarter despite home sales being down about 5% year over year. Can you just help us with some of the levers that you may have pulled? And what else can be done on the SG&A front? Ryan Marshall: Yeah. You know, John, we didn't make a ton of kind of changes. I think we've always prided ourselves in being balanced and consistent. We put a lot of incremental investment into our people. We're five years in a row now recognized as a top 100 best company to work for. We make incremental investments in quality and customer experience. So aside from that, we've really just tried to run kind of a balanced, thoughtful business, not be wasteful, but make sure that we're, you know, invested in the right places. You know, we have made some targeted reductions in force in a handful of markets. We did that in the November time frame of last year. Pretty small numbers overall. But it was focused in some of the markets that you might expect that were a little slower. Texas and some of the Western markets. Beyond that, John, I wouldn't tell you that there's anything that I'd call out as extraordinary. John Lovallo: Okay. That's helpful. And then I wanted to touch on ICG. I mean, you know, we've been pretty big proponents of off-site construction and the benefits there. I can understand not wanting to vertically integrate it, but I guess the question is, you know, what is your view overall on just technology infusion into homebuilding, you know, as a longer-term solution to the, you know, the chronic undersupply? Ryan Marshall: Yeah, John. I think that's the spot that I would highlight is we are huge proponents of the innovation capability and the ability to incorporate it into the homebuilding machine. And we've learned a lot over the last six years, gotten a ton of benefits in kind of what the overall housing operation has derived from the innovation that's happened there. We've just come to the conclusion that we think we're better off focusing on the core competency of buying land, entitling, developing, building homes. And including ICG, and whoever the eventual owner of that will be combined with many of the other national off-site manufacturers, they're making a truckload of investment in innovation, and we think we'll be able to continue to benefit from those innovations. That innovation spending into the homebuilding operation without necessarily being a direct owner of it. John Lovallo: Yep. Makes sense. Thank you, guys. Operator: Your next question comes from the line of Michael Rehaut from JPMorgan Chase. Your line is live. Michael Rehaut: Hi. Thanks for taking my questions. Good morning, everybody. First question, love to get maybe dive in a little bit to the full-year gross margin outlook that you laid out on the call and appreciate that. Given that it's maybe a step more in the direction of guidance than some of your peers are willing to do. Wanted to understand the assumptions, particularly as you anticipate your first-quarter gross margin it seems like being sustained throughout the year. And what that means in terms of the progression of the year because you think land costs maybe continue to go up throughout the year as it's kind of a long-term trend? So I was just wondering the components of that as you think sequentially throughout the year how are you thinking about promotions if promotions or incentives stabilize? They obviously rose throughout 2025. Know, labor materials, and if there's any positive impact from the divestiture of ICG. Ryan Marshall: Yeah. Hey, Mike. It's Ryan. Appreciate the question. And we take kind of the process of giving guidance very seriously. As I'm sure you can appreciate. We go through, and we try to evaluate every element of every element of the, you know, the P&L that contributes to the margin guide. Our expectations are to really see ASP flat through the year. We've kind of given a guide that's the same for Q1 and the full year. We do expect our house costs to go down slightly. The sticks and bricks, Jim talked about that in his prepared remarks. We're anticipating land cost to increase in the range of 7% to 8%. And we'd expect to see the discounts remain elevated. We'd hope and we'd be optimistic that we can pull back just a tad on those discounts, but you know, broadly, we think they're gonna remain elevated. So you know, we've strived to keep our margins best in class. We'll endeavor to do that in 2026 as well. And as you know, ultimately, we're focused on is driving the best return on investment and we manage kind of pace and price toward an outcome that gives us the optimal return for the shareholder. And look, we think it's worth. And it was the reason in my opening comments I said, you know, that strategy and the way we operate has generated the highest TSR not only for the last year, but also the last decade. So you know, I would say those are the big components of how we think about margin. Michael Rehaut: No. That's great. Thank you for that. And I guess, secondly, you mentioned in your prepared remarks, Ryan, around maybe some of the inventory trends that you're seeing starting perhaps stabilize in Florida. We've seen some of that as well. In certain of our statistics. I was wondering if you could kind of go through your major markets if possible and you know, particularly from a supply from an inventory perspective, as you look at, you know, your major markets, how the trends have been over the last, you know, three to six months? And if you would describe that stabilization as kind of broad throughout your footprint or if there's some areas that are still you know, rising perhaps or even some that are starting to come in a little bit? Ryan Marshall: Sure. Florida is an important market for us, Mike, and we've talked we tried because it's such an important market to us and we think all of housing, really, we tried to talk about it every quarter. It's up 14% over last year, so we had good sales in the quarter. I'd start there. Generally, I would tell you every market is positive but there are some outperformers. The outperformers, Fort Myers, Naples, the East Coast of Florida, so Palm Beach, Vero Beach, kinda Port Lauderdale. Orlando continues to be exceptional. You know, Tampa's been stable, but, you know, not as good as the others. And I put Jacksonville in that same category. Michael Rehaut: Okay. When you talk about that, you're referring to the order trends, not the inventory, just clarifying. Ryan Marshall: Correct. I'm speaking to order trends. That's right. Or that's exactly right, Mike. Michael Rehaut: Thank you. Operator: Your next question comes from the line of Sam Reid from Wells Fargo. Your line is live. Sam Reid: Thanks so much, guys. Wanted to unpack the step up in incentive loads from the third to fourth quarter. I believe they were up about 100 bps sequentially based on the prepared remarks. It sounds like a lot of that was geared towards clearing spec inventory. So we'd just love to hear the levers that you've pulled to clear the spec inventory. Maybe delineate between price reductions versus buy down. And then talk a little bit about incentive load into the first quarter and what's embedded in that guide. James Ossowski: Thanks for the question, Sam. Yeah. The increase in the fourth quarter really was, you know, the incentives to move some of the speculative inventory. We closed a couple extra 100 units, you know, at the over the high end of our guide. And so we got a little bit more aggressive in some places. So that's really where it's coming from. Know, financing incentives for the quarter were flat. It was really just had to get a little bit lean in a little bit more. In some places, and so that's what we did in the fourth quarter. Ryan Marshall: Sam, you had a question on Q1 that I didn't hear. What was your Q1 question? Sam Reid: Just on the incentive load into the first quarter. Talking through the guide path there, Q4 to Q1. Ryan Marshall: Yeah. I point you back to the answer that I gave to Mike. We're, you know, we don't specifically guide to incentive loads. Other than we've given you a margin guide for the quarter. And I made the comment that our expectation is incentives will remain elevated. Sam Reid: All helpful. And then moving to stick and brick. So, obviously, hearing that stick and brick is gonna be lower in 2026, any categories I'm thinking of material categories where you're getting price concessions. We'd just love to hear the wins that you might be achieving here to get the lower stick and brick. And then perhaps also talk through the labor component and just what you're seeing on the labor side. Thanks. James Ossowski: Sure. So, you know, for your benefit in the fourth quarter, our sticks and bricks were $78 a square foot, so slightly less than what they've been for the past year. And as we said in our prepared remarks, they'll be down flat to down slightly next year. Know, some of the things we've seen, a little bit of help on the lumber side, a little bit of help on the labor side. Materials are kind of ups and downs. You know, the one thing I'd say is included in that, you know, the impact of tariffs are in that guide of slightly down next year. So again, I think our procurement teams are doing a great job. The labor is available in the market, and so we see that as a good opportunity for next year. Sam Reid: Always appreciate the color, guys. Thanks so much. Ryan Marshall: Thanks, Sam. Operator: Your next question comes from the line of Stephen Kim from Evercore ISI. Your line is live. Stephen Kim: Yeah. Thanks a lot, guys. Appreciate all the color so far. Your spec levels look like they were pretty well contained by the time you got to the end of the fourth quarter. I'm curious if you think that there's additional reduction there. I think I have you at a set level basically, it's seven specs per community. Wondering, could you give us some sense or, you know, where you'd like to see that as you head into 2026. And assuming that your specs will be less of a headwind, I'm curious why you're not assuming that you might see any reduction in your incentives. If I heard you correctly, Ryan, what I'm getting from your guidance is that your guidance does not assume any reduction in incentives, and that it feels a little conservative to me, so I just curious. Am I reading that right, or is there something maybe that I'm missing? Maybe the spec level you think, you know, may actually rise next year for some reason. So just a little color there combining those. Ryan Marshall: Sure, Steven. So let me start with the specs. We're, you know, we're comfortable with where we're at right now. But we have worked very hard through the last three to four months to make sure that our start rate matches our sales rate and that we weren't adding to the specs that we have. Ideally, what we're really endeavoring to do is to move back more into a built-to-order builder where 60 plus percent of our sales are built-to-order, 40% are spec. The last couple of years, we've kind of been inverted. We've been 60% spec, 40% dirt. And, you know, it won't happen overnight, but we're moving the company slowly back in the direction of more build-to-order. We think that's better for the way that we have our capital allocated to homebuilding business. Our margins are higher on built-to-order, so we're kind of threading that needle. Our financial services team has done a wonderful job helping to put some forward commitments in market that actually can be used on built-to-order homes. So we're finding a way to kind of get the best of both worlds and making sure that we're tackling the affordability challenge while still moving into or closer into a built-to-order model that we want to be. So we go into the spring selling season, Steven, our goal is going to be to sell dirt in a higher percentage than spec while still having some spec available, especially in the entry-level price points. As it relates to the incentives, the spring selling season, I think, is ultimately gonna kind of dictate what we're able to do with incentives. We would certainly be optimistic and hopeful that we pull those down from where we're at. You know, we've given the full-year guide that incorporates assumptions that we've made around the incentives plus the increase in lot cost, which is not insignificant at 7% to 8%. A little bit of a, you know, a tailwind or a help from lower house costs. So, you know, we think the range is at where we sit and kind of early or late January, early February. Think it's a pretty good range. But, you know, we're optimistic that, you know, maybe there's more. Stephen Kim: Yeah. Appreciate that. So if I can just put a little color around what you said, if you were to return back to sort of a DTO mix, I look and see that, you know, pre-pandemic, you all were running kind of, like, three to four specs per community, which is, you know, pretty significantly lower than where you are now. So if I'm reading what you're saying right, it sounds like there's gonna be this transition that's taking place. As that transition does take place, your turnover rate I would think, would go down. Your backlog turnover rate would go down because you wouldn't be carrying as many specs and be doing more build-to-order. Your closings guide that you've given would if I have your backlog turnover ratio going down, in order for you to hit your closings guide, it would assume that your order pace is gonna be up year over year close to double digits. And so I just wanted to make sure that I am doing the math properly here and then I haven't missed something. Ryan Marshall: Yes, Steven. Not having the luxury of seeing your model, I probably wouldn't want to comment on your math. You know, we'd certainly be happy to follow up with you on that. I would say, you know, we've got pretty complicated models on our side as well, and you know, we've gone through and made assumptions on what our new communities are, what absorptions are, what our sales rate's gonna be, and what our monthly start rate is going to be. And it really comes down to kind of that start rate. We do have the benefit of cycle times being back to pre-COVID level cycle times at around one hundred days. So, you know, again, we need spring selling season to continue to cooperate with us and be strong. As long as that happens, we've got the production capability to put the starts in the ground that will allow us to deliver the closing guide that we've given. Stephen Kim: Okay. Great. Thanks, guys. Operator: Next question comes from the line of Alan Ratner from Zelman and Associates. Your line is live. Alan Ratner: Hey, guys. Good morning. Thanks for all the details so far. You know, Ryan, you brought up an interesting point that I was hoping to touch on, you know, in terms of the forward commitments on build-to-order. You know, I think a lot of builders have kind of talked about the fact that that's really difficult to do from a financial perspective just because you're paying for longer lock periods. So I would love to hear a little bit more about those programs that you're offering right now in BTO, what kind of rates you're offering the consumer? And I guess just extending that to the margin profile of BTO versus spec right now, if you could talk a little bit about what that differential looks like. Thank you. Ryan Marshall: Yeah, Alan, what was the last part of that question? I missed it. Alan Ratner: Just the margin differential between DTO and spec. Right now? Ryan Marshall: Oh, sure. Yeah. Yeah. So, Alan, in terms of kind of the forward commitments, it's really driven by the faster cycle times. So, you know, we're overall, for the entire enterprise, we're at a hundred days on single-family. We've got some multifamily in there that takes a little longer. But on single-family, we're a hundred days, and we have some markets that are down into the seventies. So that's the predominant driver. And then, you know, the rates that we can offer on those longer-term rate locks, they're not quite as competitive or as low as what you might see on a spec offer. They're pretty good. You know, they might be within 50 basis points of what we would offer on a spec. So it depends on the community. But, you know, roughly, we're, you know, we're somewhere in the low fives, low to mid fives. So today, you know, roughly a 100 basis points below what you could get kind of in the open market. And then in terms of kind of margin differential, between spec and built-to-order, depends. But, you know, suffice it to say, and I think we've been fairly consistent with this. We have hundreds of basis points higher gross margins when it's built-to-order. And that is simply kind of derived from the fact that when the customer comes in, and they're able to pick out everything they want, that really works well within our strategic pricing model. That allows them to pick their floor plan, their options, their lot premium. And, you know, we've often I don't think we quoted it this quarter, but what we can talk about is the dollars that we make off of lot premiums and options are real. And those margins are great. So outperformance is the customer picks what they want. You know, that's the biggest kind of contributor to the margin outperformance. Alan Ratner: Great. I appreciate that detail. And then second question on price point trends. I know you gave the data for, I think, sign-ups and closings. Sounded like active adult was up solidly year over year, but I guess just more qualitatively, if you could talk about the demand trends and kind of the pricing trends you're seeing at each of your price points and any notable shifts we've seen over the last, you know, call it, couple of months alongside all the policy noise and interest rates hopping around. Any color you can give would be great. Thank you. Ryan Marshall: Yeah. Alan, in terms of price, the biggest change in price came in the first-time segment. So last year, average price in first-time was $467,000. That's down to $438,000. So we're down about 6% in price on first-time, which is where, you know, the majority of the affordability pinch is really being felt. So I think we've leaned in. We've really worked to try and address affordability. Move-up in active adult pricing has really been kind of flat. So, hopefully, that kind of helps give you a little color on what you're after. Alan Ratner: A lot. Operator: Your next question comes from the line of Anthony Pettinari from Citigroup. Your line is live. Anthony Pettinari: Good morning. I was wondering if you could talk a little bit more about the 80 bps of impairments in the quarter and maybe the drivers there. And I think some other builders have reported maybe elevated walk-away costs for their lot options. Are you seeing that? Or just any kind of color you can give us moving into the spring? James Ossowski: Yeah. Thanks for the question, Anthony. So, you know, Ryan touched on it a little bit earlier in some of our prepared remarks. You know, we leaned in a little bit heavier on some incentives where we had a little bit more speculative inventory out there in the market. And so, you know, the thousand communities that we operate in, we had eight of them that, you know, we took a land impairment charge on, which is really just a matter we had to get a little bit more aggressive on pricing. And so, you know, we moved through the inventory. Resulted in a charge. And so as you said, that's what we quoted in here. The other thing that I would tell you is, and it was in our prepared remarks, we've been more disciplined as we've been looking at it. You know, in the quarter, we, you know, we put another 18,000 lots under contract, but we also walked from about 1,000. So we're always prioritizing our land book. And so within that, there was about $22 million of land charges, which is included in our other expense categories for, we classified in the fourth quarter. Anthony Pettinari: Okay. That's very helpful. And then just switching gears, with regards to affordability, do you see the administration's, you know, restrictions on institutional ownership of single-family homes? Do you see that as being impactful in any of the major markets where you're operating? And then just more broadly, are there policies, I mean, a lot has obviously been floated, but are there policies that you think would, you know, could help stimulate housing demand in kind of a sustainable way? Ryan Marshall: So I'll take the build-to-rent question first. Jim shared the numbers for us and for both the full year and the quarter, and they're really immaterial. We had 100 build-to-rent closings in the quarter. So pretty insignificant. Going back to the very beginning of when we even entered into the build-for-rent space, we strategically limited the percentage of volume that we were willing to put toward that. We just, you know, we felt that we wanted to dip our toe in the water, but we didn't want to be overexposed. And, you know, I think hindsight being 2020, that was a great decision. In terms of kind of markets where it could be impactful, significant, I just really don't see it being a big deal kind of anywhere. I know that there is the perception that it's moving prices and taking supply out of the market. Know? So I guess time will tell. We're certainly, you know, going to adhere to the executive order and some of the things that are being talked about. And, you know, if those are the rules of the road, we're gonna play by them, and it won't really have an impact on our business. And then Anthony, I'm sorry. What was the other part of your question? Anthony Pettinari: Yeah. Yeah. I'm just wondering if there were policies that you think could, you know, help with affordability or home construction and help with housing activity that would be, you know, sustainable and positive from your perspective? Ryan Marshall: Yeah. You know, it's we've had conversations with the administration, and the administration has been very active in leaning in and trying to address housing affordability. There's a lot being talked about. As I know you can appreciate, it's hard. Because housing remains very, very local. And so, you know, I think the entire industry, us included, are gonna continue to work with, you know, the administration to try and create more supply, which ultimately will impact affordability. The American dream is and homeownership is at the core of the American dream. And we want to make sure that we're doing everything that we can to keep that healthy, and I think, you know, the administration as well. Anthony Pettinari: Okay. That's very helpful. I'll turn it over. Operator: Your next question comes from the line of Matthew Bouley from Barclays. Your line is live. Matthew Bouley: Hi. Good morning, everyone. Thanks for taking the questions. Wanted to ask another one on the build-to-rent side. I think Ryan, you just alluded to that. I think I heard you say you were, I guess, if I paraphrase, glad you didn't lean as much into it as you could have. But I think the way that executive order was written the other day suggested, you know, purpose-built, build-for-rent would still be potentially okay, if that does all go through. So I'm curious if there's actually an opportunity to do more build-for-rent, or is that given what you just said, the business is still too either cyclical or rate-sensitive, what have you, that you know, it's ultimately not where you want to be focusing your investment. Thank you. Ryan Marshall: Yeah. I would tell you, you know, maybe taking the last piece, Matt, it's just probably not where you're gonna see us lean in no matter what the executive order says. I just think there's better places for our capital that'll drive better returns for our shareholders. You know, we'll see ultimately kind of what the rules end up being when the executive order is kind of fully clarified, what purpose-built means, you know, does that mean the entire community is built for rent? Does that mean it never goes on the MLS? Some, I think, open questions, but no matter how those get resolved, I just I don't see it being a huge part of our business. Matthew Bouley: Got it. Okay. Perfect. Thanks for clarifying that. And then secondly, on the incentive front, you guys in the past have commented on your mix of, I guess, call it financing incentives versus other incentives whether, you know, upgrades and options and so forth. Just curious if you can kind of comment on the trends in both of those and maybe how quickly can the different types of incentives sort of respond to this move lower in interest rates that we've had. James Ossowski: Thank you. Yeah. I would tell you the financing incentives have stayed very consistent for the past three, four quarters. Really, we've seen it more on the other incentives, so primarily discounting on some of the speculative homes we had. So as Ryan touched on, you know, as we get to the spring selling season and we've gotten our spec levels down, you know, there's hope that there's opportunities that maybe you could pull back on that other lever. But otherwise, financing incentives have stayed flat for us. I wouldn't expect it. Matthew Bouley: Okay. Thanks, Jim. Thanks, Ryan. Good luck, guys. Operator: Your next question comes from the line of Trevor Allinson from Wolfe Research. Your line is live. Trevor Allinson: Hi. Good morning. Thank you for taking my questions. A question on your volume performance in the quarter. From an orders perspective, you outperformed historical seasonal trends for the second straight quarter. That in mind, should we think of the roughly 2.3 absorption rate that you did in 2025 as representing a floor for you guys here? And even if we don't get better demand conditions in '26, would you expect to work to drive absorptions at 2.3 level or higher moving forward? Ryan Marshall: Trevor, I think, you know, we would certainly endeavor to do more. We'd always like to sell more. You know, in terms of saying, are we at a floor? That's, you know, that's hard to tell. The market will ultimately kind of dictate that. We have been pretty clear, though, in saying, kind of the way we run our business, we need a minimum amount of volume that's gotta go through every store we tend to target that around two. So, you know, we're above that. You know, we didn't endeavor to do more. You know, in such a way that we can deliver the guide that we've given for the full year. So, hopefully, that helps. Trevor Allinson: Yeah. That is helpful. I think what I was trying to get at was kind of the minimum volume level that you guys would target. That two number is very helpful. Then second, just follow-up question on specs. I think last quarter, you had mentioned your finished spec. Community were about twice your target level. It sounds like you guys made some real effort to move some products in 4Q. So I may have missed it earlier, but where does your do you finish spec for community fit today? And with that in mind, what is your expectation for starts moving forward relative to sales? Thanks. Ryan Marshall: Yeah. Trevor, so as I mentioned, for the last four or five months, we've been matching our starts to our sales. So, you know, we haven't really added to kind of the specs in any kind of way. Our total specs are down versus prior year by about 1,500, so we've made a pretty significant dent in it. Spec finals sit at 2,000. You know, that's the number that's probably a little higher than what I'd ideally like it to be. Just because you got a lot of capital tied up in those homes. So the number in and of itself isn't anything that we're overly freaked out about other than to say, I we can do better. And we'd like to have less finished homes, you know, sitting out there. I go back to, you know, the very first question that I addressed. Ideally, we'd like to see kind of our business revert over time back to, you know, predominantly built-to-order model, we think it is, you know, it's a major contributor of our kind of return outperformance and, you know, it's hard to do. It's hard to run a build-to-order business but we think we know how to do it. We've got a good model that we'll, you know, we'll endeavor to put back in place. Trevor Allinson: Thank you for all the color, and good luck moving forward. Operator: Next question comes from the line of Kenneth Zener from Seaport Research. Your line is live. Kenneth Zener: Good morning, everybody. Hey, Ken. Good morning, Ken. Ryan, team, I wonder, you know, if we find about your business which you report consolidated, and we look at it, if you could give us some comments by your regional disclosure, I'm just using like third quarter as kind of the trend line for you to comment on. Florida looks like it's basing. Texas is obviously, like, still facing headwinds. The Midwest, North, doing excellent. But can you talk about the West? It's a broad area for you. But the gross margins which, you know, would have been higher to compensate for, you know, lower asset turns, it's lower. Is it what's happening in the West? Is it where affordability is most pronounced? So are incentives greater in the West than your other regions? Is it what we've seen last, you know, x call it, quarters? Is there immigration issues or headwinds that are just distinct in the West versus, you know, Florida or Texas? Can you just talk about why that region has appears to have a structurally greater challenge on the gross margin side. Thank you. Ryan Marshall: Yeah. Sure, Ken. You know, we've I think we, along with the entire industry, have been pretty clear for over a year and a half that the West has been a more challenged environment, predominantly driven by affordability. It does have, especially the coastal markets, some of the highest home prices in the country and as interest rates have gone up, it certainly made that challenging. There's also, you know, a lot of tech employment on the West Coast, and the tech sector, I think, has gone through some challenges. That have contributed to the employees in the tech sector being a little more hesitant in moving forward with buying these expensive homes. Know, we are seeing it in the West. We have had very good success in Las Vegas. We've had some, you know, pretty decent success in Arizona. The Colorado market has been, you know, more challenged. It's, you know, expensive, and it saw a lot of the same post-COVID population surge, pricing surge. That Texas saw. So I think it's going through some of the similar things Texas. So that's how I'd characterize the West. An important part of our business. But, you know, as we've highlighted, the fact that we have such a diversified geographic platform even with some of the challenges in the West, we've been able to perform incredibly well because of what our Florida, Southeast, Midwest, and Northeast businesses have done. So, you know, another advertorial kind of pitch for why the diversity in geography is so important to kind of who we are. Kenneth Zener: Thank you very much. Operator: Your next question comes from the line of Mike Dahl from RBC Capital Markets. Your line is live. Mike Dahl: Morning. Thanks for squeezing me in. Just a couple of follow-ups. Wanted to go back on the incentives. I'm sorry to harp on this, but if incentives were kind of up under dips and the quarter, can you just comment on if you're 9.9% for the quarter, does that imply the exit rate was in the low double-digit range? And when you talk about remaining elevated, are you talking remaining elevated to that exit rate, which likely would have been kind of the highest level that you saw through the quarter and year, or should we be thinking more in line with kind of the average levels that you've seen? Ryan Marshall: Yeah, Mike. We're probably not gonna slice the baloney quite that thin. So, you know, we were nine nine in the quarter. We were nine the prior quarter. So, you know, the exit rate probably was a little higher than nine nine as we move through some of the spec inventory that Jim talked about, which primarily was in the form of just outright price discounts. Financing, as Jim mentioned, was flat. It has been flat for the last three quarters. We move into the, you know, the current year, you know, I wouldn't again, I wouldn't slice the baloney quite so thin on exit rate versus quarter rate. Just look. Our expectation is that we're gonna continue to lean into the forward commitment. It's a real important part of addressing affordability. We're gonna make sure that we're priced right in a competitive way, both against resale and other new home competitors. And then all that said rolls up into the margin guide that we've given them 24 and a half to 25, which, you know, kind of no matter the housing cycle and particularly in this environment, I think is now outstanding margin absolute margin performance. So I guess I'd leave it there. Mike Dahl: Okay. Understood, Ryan. And then second one, just back on ICG, I guess previous experience in, you know, your company and its predecessors had owning some of these assets. Exited. Then when you bought ICG, it was, you know, supposed to be kind of, like, the next evolution and something that would be different. And I guess I'm just wondering, you know, what ultimately catalyzed your decision here that it just for whatever reason, you know, this you reached the decision that this doesn't make sense. And can we think of this as I don't nothing's ever final, but this is basically now your philosophical view going forward that you don't need to have own assets like this in a vertically integrated way. Ryan Marshall: Yeah. I think it's a couple of things. Number one, we bought it right as COVID was starting. So I think the supply chain challenges and some of the things that happen kind of in a post-COVID environment certainly slowed us down, in kind of our ability to get some of the gains out of it that we wanted. We've also seen a lot of the other suppliers off-site manufacturers make tremendous investments into this space. And they've got way more scale than what we have. And so when we think about what's the best kind of allocation of our capital, not only for the current operation, but also to grow, we just think that we're better, you know, we are and our shareholders are better by putting capital to grow in other places. So as much as anything, it's really about kind of a capital allocation question. We really believe in the innovation that we got out of ICG. We believe we'll continue to benefit from that innovation, but it comes down to what's the best allocation of our resources. Both time, money, and focus is probably the short answer. So with that, I think we probably have time for maybe one more question, operator. Operator: Your next question comes from the line of Jay McCanless from Citizens. Your line is live. Jay McCanless: Hey, good morning. Thanks for taking my questions. The first one just wanted to square up the commentary that James Ossowski made about being able to maybe reprice some land deals and relating that to the land inflation you talked about 7% to 8% for this year, is there any chance y'all could work that number down as you rework some of these land deals? James Ossowski: Great question, Jay. I would tell you, you know, the land that we're, you know, under contract or we're seeking to buy right now, the one that we're renegotiating, those are 2027-2028 closings. So, you know, really, the increase that's in our guide this coming year is land we bought a couple years ago. So really don't see the opportunity in the short term, but as we look to the long term, that's certainly our goal to see if we can get some price out of it. Jay McCanless: Okay. Great. And then my second question, you guys, the last couple of quarters, have talked about Del Webb communities more than coming online. Just wanted to get an update on that and see if that's still gonna be the case in '26. Ryan Marshall: Yeah, Jay. It is. You see it in the sign-up trends. In the quarter and even in the full year. You know, we're up to in the most recent quarter, 24% of our closings were from Del Webb. 23% of the sign-ups in the quarter were Del Webb. So there's new communities have opened in the last kind of one to two quarters. We've got some more that are coming next quarter. Which is, you know, what we always said. That, you know, in 2026, you'd see us get back up to that kind of targeted mix of 25%. James Zeumer: With that, we're gonna wrap up this morning's call. We'll certainly be available over the course of the day for any follow-up questions. We thank everybody for your time this morning, and we'll look forward to speaking with you on our next earnings call.
Operator: Welcome to the Fourth Quarter 2025 Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded. Please, I would now like to hand the conference over to your speaker today, Alex. Thank you. Please go ahead. Alex Kapper: Thank you, Adria. Good morning, everyone, and welcome to Caterpillar's fourth quarter 2025 earnings call. I'm Alex Kapper, Vice President of Investor Relations. Joining me today are Joe Creed, CEO, Andrew Bonfield, Chief Financial Officer, Kyle Epley, Senior Vice President of the Global Finance Services Division, and Rob Regel, Senior Director of IR. During our call, we'll be discussing the fourth quarter earnings release we issued earlier today. You can find our slides, the news release, and a webcast recap at investors.caterpillar.com under events and presentations. The content of this call is protected by US and international copyright law. Any rebroadcast, retransmission, reproduction, or distribution of all or part of this content without Caterpillar's prior written permission is prohibited. Moving to slide two. Our call today will make forward-looking statements, which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different from the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder and the news release details on factors that individually or in aggregate could cause our actual results to vary materially from our forecast. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. On today's call, we'll also refer to non-GAAP numbers. For reconciliation of any non-GAAP numbers to the appropriate US GAAP numbers, please see the appendix of the earnings call slide. For today's agenda, Joe will begin sharing his perspectives about our results and provide an update on our performance toward achieving our Investor Day targets. Then he'll share our full-year outlook and insights about our end markets, followed by an update on our strategy. Finally, Andrew will provide a detailed overview of results and key assumptions looking forward. We'll conclude the call by taking your questions. Now let's advance to slide three. Turn the call over to our CEO, Joe Creed. Joe Creed: All right. Well, thank you, Alex, and good morning, everyone. Thanks for joining us today. Our centennial year marked a significant milestone, and we achieved full-year sales and revenues of $67.6 billion, the highest in Caterpillar's history. In a dynamic environment with net tariff headwinds of $1.7 billion, we delivered full-year adjusted operating profit margin within the target range at 17.2% and adjusted profit per share of $19.06. We also generated robust MP and E free cash flow of $9.5 billion in 2025, allowing us to deploy $7.9 billion to shareholders through share repurchases and dividends during the year. Our backlog grew to a record level of $51 billion, an increase of $21 billion or 71% compared to last year. All-time high sales and revenues along with record backlog are evidence of the strength in our end markets and strong execution by our team. Now let me take a minute to walk you through our fourth-quarter results. Sales and revenues were $19.1 billion, an all-time record for a single quarter. The increase of 18% versus the previous year was better than we expected and reflects higher volumes in all three of our primary segments while price realization was about neutral. In particular, volume growth was better than expected in power and energy as we were able to ship more product than anticipated at year-end. Adjusted operating profit margin was 15.6%, and adjusted profit per share was $5.16. Fourth-quarter adjusted operating profit margin and adjusted profit per share were better than we anticipated due to stronger than expected volume growth in Power and Energy. In the quarter, the net incremental cost from tariffs was near the top end of our estimated range. Robust ordering activity across all three primary segments contributed to the very strong backlog growth. Now I'll review fourth-quarter retail statistics for each of our three primary segments, starting with Construction Industries. Construction Industries total sales to users grew for the fourth consecutive quarter, rising 11%, which exceeded our expectations. Increases in North America were better than expected due to strong nonresidential and residential construction. Rental fleet loading and our dealers' rental revenue also grew in the quarter. Sales to users declined slightly in EAME and Asia Pacific, in line with our expectations, and we saw growth in Latin America, which was better than anticipated. For Resource Industries, fourth-quarter sales to users declined 7%, consistent with our expectations. Mining sales to users were lower year over year as customers exercised capital discipline in response to weaker coal prices. In power and energy, our largest and fastest-growing segment, sales to users grew a robust 37%, with another quarter of double-digit growth across all applications. Power generation grew 44%, driven by strong demand for large Gensets and turbines used in data center applications. Strong sales to users in oil and gas were driven primarily by turbines and turbine-related services. Industrial grew from relatively low levels, with the increase driven by sales to users in electric power applications. And finally, transportation increased primarily due to international locomotive deliveries. Moving to slide four. Our full-year 2025 results showed meaningful progress towards achieving the 2030 targets we outlined at our recent Investor Day. As I mentioned, we delivered record sales and revenues of $67.6 billion, resulting in 4% year-over-year growth. This increase was led by record sales in power and energy. Notably, in addition to record sales in power generation, we also achieved record sales in oil and gas due to strength and demand for gas compression. Despite tariff headwinds, full-year adjusted operating profit margin of 17% was within the target range for our level of sales and revenues. Full-year services revenues totaled $24 billion in 2025. We continue to connect more assets, growing the fleet to over 1.6 million and made great progress in other initiatives like condition monitoring, prioritized service events, e-commerce sales, and tech-enabled machines. Our digital and technology initiatives, along with a growing installed base, position us well to increase services revenues towards our goal of $30 billion by 2030. Robust MP and E free cash flow allowed us to deploy $7.9 billion to shareholders through $5.2 billion of share repurchases and $2.7 billion of dividends paid. We're proud of our continued dividend aristocrat status, paying higher dividends for thirty-two consecutive years, and remain committed to returning substantially all MP and E free cash flow over time. Andrew will share more about our cash deployment plans for 2026 in a moment. Turning to slide five. I'll highlight the advancements we made towards our 2030 targets in our three primary segments. In 2025, Construction Industries' growth outpaced the global industry supported by the success of our merchandising programs. As a result, full-year total sales to users growth was 5%, advancing our progress towards the 2030 goal of growing 1.25 times the 2024 baseline. In Resource Industries, customer interest in our autonomous hauling solution remains strong. And we're making steady progress towards our 2030 goal to triple the number of CAT autonomous haul trucks in operation compared to 2024. We ended the year with 827 autonomous haul trucks in operation, up from 690 at the end of 2024. Adoption is expected to accelerate given our proven solution, our expansion into quarries, and our ability to support mixed fleets. For example, last month Caterpillar and Sotrak, our dealer in Brazil, announced an agreement to provide Vale with an autonomy solution for a mixed fleet of more than 90 trucks. Power and energy delivered meaningful progress towards our 2030 goal to more than double power generation sales compared to 2024. In 2025, power generation sales exceeded $10 billion, which is year-over-year growth of more than 30%. We're also on track in our multiyear effort to double our large engine capacity and more than double our industrial gas turbine capacity. As we've discussed, the additional capacity will serve a broad range of applications, and the phasing will occur between now and 2030. Now on slide six. I'll provide our 2026 outlook. Overall, we anticipate full-year sales and revenues to grow around the top of the 5% to 7% long-term compound annual growth rate target. As I mentioned earlier, our record backlog of $51 billion provides strong momentum to start the year. We're also starting to get multiyear visibility in power and energy, as we work closely with our customers to schedule factory orders in line with their project timeline. As a result, approximately 62% of our backlog is expected to deliver in the next twelve months, which is lower than our historical average. The strong backlog coupled with healthy end markets supports our expectation for volume growth in all three primary segments. We also expect all three segments to benefit from positive price realization, about 2% of total sales and revenues, and continued growth in services revenues. Full-year adjusted operating profit margin should exceed 2025 levels but remain near the bottom of the target range for our expected sales and revenue. Our adjusted operating profit margin expectation reflects the ongoing impact of tariffs as well as investments we are making to execute our growth strategy. I remain confident that we'll manage the impact of tariffs over time as we aim to operate around the midpoint of our adjusted operating profit margin target range. Capital expenditures are expected to be around $3.5 billion, driven primarily by our capacity expansion plans. And finally, MP and E free cash flow is expected to be slightly lower than 2025, reflecting the increase in capital expenditures. Now I'll discuss our outlook for key end markets starting with construction industries. Another year of sales to users growth is expected in 2026, supported by elevated order rates and a robust backlog. Overall, the outlook for North America remains positive. As sales to users grow moderately versus last year with construction spending remaining healthy due to IIJA funding and other critical infrastructure programs. We also anticipate accelerated investment in data centers, which will further bolster overall construction spending. Dealer rental fleet loading and rental revenue are both projected to increase compared to 2025. In EAME, economic conditions in Europe are expected to strengthen and construction activity in Africa and The Middle East is projected to remain strong. In Asia Pacific outside of China, moderate economic conditions are expected in 2026. We anticipate positive momentum in China off of low levels with full-year growth in the above 10-ton excavator industry. Growth in Latin America is expected to continue at a similar rate to 2025. Resource Industries had positive momentum in the fourth quarter with growing backlogs supported by healthy orders across a broad range of products. For 2026, sales to users are expected to increase, primarily driven by rising demand for copper and gold, positive dynamics in heavy construction in quarry and aggregates. Most key commodities remain above investment thresholds, and customer product utilization is high, while the age of the fleet remains elevated. With modest increases in commodity prices projected in 2026, we expect rebuild activity to increase slightly compared to last year. And finally, for power and energy, the 2026 outlook is positive. Robust backlog growth in the fourth quarter was driven by continued momentum in both power generation and oil and gas. We anticipate growth in power generation for both CAT reciprocating engines and solar turbines driven by increasing energy demand to support data center build-out related to cloud computing and generative AI. Additionally, we're starting to see orders for Prime Power trend higher as data center customers look for alternative power solutions to keep pace with their growth. For example, yesterday, we announced an order for two gigawatts of reciprocating generator sets for a prime power application from American Intelligence and Power Corporation. Generators will be used to support the initial development phase of the Monarch Compute Campus, which has a total potential of about eight gigawatts of power generation. This represents one of our largest single orders for complete power solutions. The value of the order will be reflected in our first quarter 2026 backlog. We expect to deliver the generator starting in late 2026 through 2027. This exciting announcement is one of four orders we've booked with at least one gigawatt of Caterpillar equipment for data center prime power. After reaching record levels in 2025, oil and gas is expected to see moderate growth in 2026. Reciprocating engine sales are expected to increase driven by strong demand in gas compression applications. Solar turbines oil and gas backlog remains healthy with continued solar oil solid order and inquiry activity. And as a result, we expect another year of strong turbine sales comparable to our record 2025 performance. Demand for products in industrial applications is expected to grow moderately in 2026, as we see continued recovery from previous lows. And in transportation, we anticipate full-year growth in rail services and locomotive deliveries. I'll close on slide seven with an update on our strategy. Since our Investor Day in November, the Executive Leadership Team and I have engaged our employees and dealers around the globe to launch our refreshed enterprise strategy for profitable growth. Our mission statement, solving our customers' toughest challenges, is creating strong alignment around keeping customer needs at the center of everything we do. The strategy is centered on three pillars for profitable growth: commercial excellence, being the advanced technology leader, transforming how we work, all built upon a foundation of continued operational excellence. I look forward to advancing the strategy with regional leaders and dealers throughout 2026. And finally, we were excited to kick off the year with a showcase and keynote at CES 2026 in Las Vegas where we unveiled the next era of industrial AI and autonomy. This was an important opportunity to demonstrate our advanced technology leadership by highlighting Caterpillar's significant role in creating the invisible layer of the tech stack. The critical minerals, reliable power, and physical infrastructure that the digital world relies on to function. We made exciting announcements, including the launch of our new CAT AI assistant, which will allow customers to more easily buy, maintain, manage, and operate their equipment. We also announced a commitment to the most important part of the invisible layer: people. Caterpillar pledged $25 million to ensure the future workforce has the tools they need to make advanced technology possible. With that, I'll turn it over to Andrew for a detailed overview of results and key assumptions looking forward. Andrew Bonfield: Thank you, Joe, and good morning, everyone. As usual, I will begin with a summary of the quarter and then provide brief comments on the performance of the segments. Next, I will discuss the balance sheet and free cash flow, and conclude with comments on our high-level planning assumptions for 2026 as well as our expectations for the first quarter. Beginning on Slide eight. Sales and revenues of $19.1 billion reflected an 18% increase versus the prior year. As Joe noted, this was an all-time quarterly record. Adjusted operating profit was $3 billion and our adjusted operating profit margin was 15.6%. We generated strong MP and E free cash flow of $3.7 billion in the quarter, and $9.5 billion for the full year. This was our third consecutive year with more than $9 billion of MP and E free cash flow. Moving to Slide nine, I'll discuss our top-line results for the fourth quarter. Sales and revenues of $19.1 billion exceeded our expectations driven by stronger than anticipated volume in power and energy. Versus the prior year, stronger sales volume supported the sales increase. Price was about neutral and roughly in line with our expectations. Volume growth reflected a 15% year-over-year increase in total sales to users, and a favorable impact from changes in dealer inventories. Total machine dealer inventory decreased by about $500 million in the quarter compared to a $1.6 billion decrease last year. The decrease in the fourth quarter was larger than we had anticipated, primarily due to stronger than expected sales to users in Construction Industries. Services revenues increased in the quarter compared to 2024. Moving to operating profit on Slide 10. Operating profit in the fourth quarter decreased by nine while adjusted operating profit of $3 billion was about flat versus the prior year. As I mentioned, adjusted operating profit margin for the fourth quarter was 15.6%, slightly stronger than we had anticipated driven by volume being better than expected, partially offset by higher incentive compensation expense. Versus the prior year, the 270 basis points decrease was primarily due to higher manufacturing costs driven by tariffs. Excluding tariffs, our fourth-quarter margin was higher than the prior year. For the full year, excluding the impact of tariffs implemented in 2025, margin was in the top half of the target range. Moving to slide 11. Profit per share was $5.12 in the quarter. Adjusted profit per share was better than we had anticipated at $5.16, excluding restructuring costs of 52¢ and mark-to-market gains of 48¢ for the remeasurement of pension and other post-employment benefit plans. When you exclude the impact of mark-to-market gains from other income and expense, we had a headwind of about $73 million, which was mainly driven by the absence of foreign exchange gains related to MP and E balance sheet translation that occurred in the prior year. Excluding discrete items, the provision for income tax in 2025 reflected a global annual effective tax rate of 24.1% as compared with 22.2% in 2024. This is in line with our expectations. Finally, the year-over-year impact from the reduction in the average number of shares outstanding primarily due to share repurchases, resulted in a favorable impact on adjusted profit per share of approximately $0.14 as compared to 2024 and benefits of the full year by about $0.66. Moving to Slide 12, I'll now discuss segment results. Construction industry sales increased by 15% in the fourth quarter to $6.9 billion. This is roughly in line with our expectations as the stronger sales to users were about offset by a larger than expected decrease in dealer inventory and slightly unfavorable price realization. Compared to the prior year, higher sales volume reflected stronger sales to end users and the positive impact from changes in dealer inventories. Dealer inventory decreased less during 2025 than during 2024. Fourth-quarter profit for construction industries decreased by 12% versus the prior year to $1 billion. The segment's margin was 14.9%, a decrease of 470 basis points versus the prior year. The margin decrease was primarily due to higher manufacturing costs driven by tariffs, which had an impact of about 600 basis points on margins. Margin was lower than we had expected due primarily to higher incentive compensation and a slightly unfavorable price realization, which offset the impact of stronger volume. Turning to Slide 13. Resource Industries sales increased by 13% in the fourth quarter to $3.4 billion, which was in line with our expectations. Sales volume was slightly more favorable than we had anticipated, while price realization was a slightly larger headwind than we had expected. Compared to the prior year, the sales increase was primarily due to higher sales volume driven by the impact from changes in dealer inventories. Fourth-quarter profit for Resource Industries decreased by 24% versus the prior year to $360 million. The segment's margin of 10.7% was a decrease of 510 basis points versus the prior year primarily due to higher manufacturing costs driven by tariffs, which had an impact of about 490 basis points. The margin was lower than we had anticipated, primarily due to higher short-term incentive, higher tariffs, and a slightly unfavorable price realization. On slide 14. Power and energy sales increased by 23% in the fourth quarter to $9.4 billion. Sales exceeded our expectations driven by stronger than anticipated volume, particularly in power generation and oil and gas. Compared to the prior year, sales increased primarily due to higher sales volume and favorable price realization. Fourth-quarter profit for Power and Energy increased by 25% versus the prior year to $1.8 billion. The segment's margin of 19.6% increased by 30 basis points versus the prior year on the higher volume. The tariff impact was about 220 basis points. The margin was stronger than we had anticipated, primarily due to favorable volume. Price was also slightly more favorable than we had anticipated. Moving to slide 15. Financial products revenues increased by 7% versus the prior year to about $1.1 billion, primarily due to a favorable impact from higher average earning assets partially offset by the impact from lower average financing rates. Segment profit increased by 58% to $262 million. This was due in part to a favorable impact of higher margins at insurance services, due to lower loss ratios, higher average earnings, and a lower provision for credit losses, also benefited profitability. Our customers' financial health remains strong. Past dues were 1.37% in the quarter, down 19 basis points versus the prior year, and our lowest year on year-end on record. The allowance rate was 0.86%, the lowest ever reported in any quarter. Business activity at Cat Financial remains healthy. Retail credit applications increased by 6%, and our retail new business volume grew by 10% versus the prior year. In addition, demand for our used equipment remains healthy on relatively stable pricing, inventories remain at historically low levels. Conversion rates remain above historical averages, as more customers choose to buy equipment at the end of the lease term. Moving to slide 16. As I mentioned, we continue to generate strong MP and E free cash flow, with $9.5 billion in 2025, which was slightly higher than 2024 despite an $800 million increase in capital expenditures. In 2025, we deployed about $7.9 billion or 84% of our MP and E free cash flow to shareholders. We continue to expect to return substantially all MP and E free cash flow to shareholders over time. This quarter, we expect to enter into a larger accelerated share repurchase compared to the $3 billion ASR we executed in early 2025. Our balance sheet remains strong with an enterprise cash balance of $10 billion at the year-end. In addition, we held $1.2 billion in slightly longer-dated liquid marketable securities to improve yields on that cash. Now on slide 17. Before I begin, I'll remind you that my comments today assume the rail division within Power and Energy, as was the case through year-end 2025. In March, we will file an 8-K recasting our historical periods to reflect the movement of our rail division to resource industries. This will establish an appropriate baseline for evaluating future segment-level performance and expectations. If necessary, we will also update any of our segments' specific forward-looking assumptions impacted by this change. Obviously, there will be no impact on the enterprise-wide assumptions. Now let me start with our expectations for the full year. As Joe mentioned, we expect enterprise sales and revenues to grow versus the prior year, likely around the top end of that 5% to 7% CAGR target, on higher volume and favorable price realization. We anticipate sales growth across each of our primary segments, with Power and Energy delivering the strongest year-over-year rate of growth supported by the robust backlog. Growth in this segment will be paced by the timing of bringing capacity increases online over the next few years. Our planning assumption is that the $500 million decline in machine dealer inventory in 2025 will be offset by an increase by 2026, a tailwind to 2026 sales. As Joe mentioned, we expect favorable price realization to account for a roughly 2% increase in sales for the full year. For perspective on the quarterly sales cadence, we anticipate the lowest sales of the year to occur in the first quarter, which aligns with our normal seasonal pattern. On Enterprise adjusted operating profit margin, excluding the impact of tariff costs, we expect to be in the top half of the target range at our anticipated sales level, supported by favorable price realization and volume. Specific to volume growth, we anticipated the attributable profit pull-through or incremental margin to reflect our recent operational performance, which has been impacted by tariffs. In contrast to prior years, we are committed to investing for long-term profitable growth, which includes capacity investments, will impact depreciation expense, and higher technology and digital spend. We believe these investments will support future absolute dot OPEC dollar generation, which I'll remind you is our definition of winning. Including the impact of tariffs, we expect margin to be near the bottom of the target range. I'll provide some perspective, but let me explain how we intend to report to you about tariffs as we move forward. The absolute dollar value of new tariffs imposed in 2025 was $1.8 billion. Mitigating actions can come in two forms. First, those that reduce the direct tariff exposure bill, which will include actions like sourcing changes. These reduce the actual dollar value of tariffs paid. And second, there are cost control actions and pricing, which help reduce the impact on our profitability. Most of the actions taken in 2025 related to cost controls, which could be specifically attributed to tariff mitigation, and these amounted to around $100 million, resulting in a net incremental tariff impact of $1.7 billion. Looking forward, it will become increasingly challenging to pass out and track whether cost control or price action is directly tied to tariff mitigation versus being taken in the normal course of business. Therefore, going forward, we report our absolute incremental tariff cost, which will only take into account those mitigating actions that reduce the absolute value of the tariff exposure. As a reminder, the incremental tariffs we report are measured against the 2024 baseline year. For the full year, incremental tariff costs are expected to be around $2.6 billion, which is $800 million higher than incurred in 2025. If we did not take the actions we plan to take in 2026, this bill would be around 20% higher. We expect incremental tariff costs of around $800 million in the first quarter, a level similar to 2025. The run rate should improve towards the second half of the year as we take actions to reduce our tariff exposure. Finally, please remember that tariffs are volume sensitive. We will continue to take actions to manage our costs in the normal course of business and remain committed to operating within our adjusted operating profit margin target range with the goal of being around the midpoint of the range over time. Now concluding our expectations for the year, we expect restructuring costs of roughly $300 million to $350 million. Our global annual effective tax rate is anticipated to be 23% excluding discrete items, MP and E free cash flow should be slightly lower than 2025 reflecting the high CapEx of around $3.5 billion in 2026. Now turning to slide 18. To assist you with your modeling, I'll provide color on the first quarter. Starting with the top line, we would expect stronger sales and revenues versus the prior year. We anticipate stronger volume in K, including sales to users growth, and a tailwind from machine dealer inventories. We expect a more typical machine dealer inventory build this quarter aligning with a seasonal pattern to the first quarter build in excess of $1 billion. This compares to flash levels in 2025. We also anticipate a favorable impact from price realization. In Construction Industries in the first quarter, we anticipate strong sales growth with the increase versus the prior year, driven by volume and favorable price realization. We expect continued sales to users growth with our confidence supported by the strong order rates and backlog. In addition, we anticipate a sizable benefit from changes in dealer inventories given a more typical seasonal pattern build in the first quarter. In Resource Industries, we anticipate strong sales growth versus the prior year driven by volume, including healthy sales to users growth, and a favorable impact from changes in dealer inventory. Price realization should be relatively flattish, though we anticipate favorability as we move through the year. In Power and Energy, we anticipate sales growth versus the prior year driven by strength in power generation and oil and gas, along with favorable price realization. As is typical, we expect first-quarter sales in power and energy will be the segment's lowest of the year and sequentially lower than 2025. This expectation aligns with the seasonal pattern. Now I'll provide some color on our first-quarter margin expectations. Excluding incremental tariff costs, we expect a higher adjusted operating profit margin percentage year over year supported by strong volume and price realization, partially offset by higher manufacturing costs and SG&A and R&D expenses tied to our strategic investments. As a reference, we would expect some seasonal margin uplift in the first quarter compared to 2025. Including incremental tariff costs at a level similar to the fourth quarter or around $800 million, margin is expected to be lower than versus the prior year. Now on to first-quarter margin expectations by segment. In Construction Industries, excluding incremental tariff costs, we anticipate a higher margin percentage compared to the prior year, on favorable price realization and volume, partially offset by higher manufacturing costs. In Resource Industries, excluding incremental tariff costs, we anticipate a slightly lower margin percentage compared to the prior year, favorable volume is more than offset by unfavorable manufacturing costs and higher SG&A and R&D expenses, including spend on strategic investments in autonomy. We do anticipate some unfavorable mix impact, as we expect proportionally higher sales of original equipment compared to the prior year. In Power and Energy, excluding incremental tariff costs, we anticipate a higher margin percentage compared to the prior year, driven by favorable price volume and price realization, partially offset by higher manufacturing costs, particularly spend including higher depreciation related to our capacity expansion project. During the first quarter, we anticipate around 50% of the incremental tariff costs will be in construction industries, 20% in resource industries, and 30% in power and energy. All segment margins are expected to be lower than they were in 2025 after taking into account incremental tariffs. So turning to Slide 19, let me summarize. In a year marked by uncertainty, our team delivered record sales and revenues, maintained adjusted operating profit margin within our target range, and achieved a healthy adjusted profit per share of $19.06. We generated $9.5 billion of MPE free cash flow, our third consecutive year of generating over $9 billion. For 2026, we anticipate sales growth across all three primary segments, driven by stronger volume and price. We also anticipate services revenue growth. Excluding the impact of incremental tariffs, we expect the operating profit margin to be in the top half of our target range, but near the bottom, including tariffs. And we expect MP and E free cash flow to be slightly lower than 2025 reflecting slightly the higher capital expenditures. We continue to execute our strategy for long-term profitable growth. And with that, we'll take your questions. Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand to join the queue. If you would like to withdraw your questions, simply press 1 again. Please note, we are only allowing one question per analyst. Your first question comes from the line of Mig Dobre with Baird. Your line is now open. Mig Dobre: The thing that obviously stood out most in the quarter was just a very impressive order growth and backlog growth that you had. And I guess my question related to this maybe twofold. First, can you comment a little bit about what's happening in some of the other segments outside of and maybe P and T or power generation? And then as you sort of think on a go-forward basis, if I understand correctly, you got roughly $20 billion of backlog that is not going to be delivered in the near term. And it sounds like this figure might further grow as we think about Q1. So how do you think about these deliveries that now are stretching to '27 and beyond? And I'm asking through the lens of price cost, making sure that you know, you are ensuring that you have the proper margins and the proper pricing given how volatile just the cost picture and the tariff picture has been. Thank you. Joe Creed: Yeah. Good morning, Mig. This is Joe. Thanks for that question. There's a lot in there. I'll try to make sure I get to most of them. So we are really excited. I'm really excited about how we finished the year with our backlog at $51 billion, you know, at 70% higher than year-end prior and $11 billion higher than where we finished, you know, the third quarter. So as you suggest, I'll talk about it and frame it in the way of order rates that we saw in the fourth quarter, and they were strong in all three segments. It's not just power and energy. CI had one of its best quarters from an order standpoint, ever, supported by both the growing industry that we think confidence, in the industry in '26 from us and our dealers, and strength in our STUs. You know, we've continued to outperform the industry and we'll we hope to try to do that again here in 2026. I'd say for CI as well, just keep in mind, we're also returning to a more normal seasonal pattern. So the selling season, you know, coming in the spring and us getting ready for that, we entered 2025, you know, at a much slower pace. And so we're getting back to more normal seasonal patterns in CI. RI had a great order run rate in the quarter. It's one of the best quarters since 2021 that we've seen, and that's supported by strength in heavy construction in North America as well as some good mining orders, particularly in South America related to copper mining. And then obviously, power and energy had a really strong order intake quarter as well. Power generation continued to be strong. We're seeing more deals, a little more mix into prime power like the one that we announced yesterday, which obviously wasn't in this backlog figure. It'll come in in the first quarter. But we've had four now prime power orders of greater than a gigawatt. We've had a handful of other sizable orders that were less than a gigawatt. The other thing there is we're seeing strong orders in oil and gas, particularly for gas compression. So, you know, the more power that is needed out there, we're gonna move a lot of gas. We have to feed turbines and engines to continue to provide that power. So we had a really, really strong quarter from an order standpoint. And again, it was strength across the board. When it comes to visibility farther out, I think that's a good thing for us. You know, one of the things that we're trying to do, particularly most of that's in power and energy, is work closely with our customers to schedule their orders in our factory to deliver when they need them in their project timing. And what that allows us to do is make sure we're not sending things ahead of time and we can satisfy more customers and make sure every order gets to the customer when they need it. Obviously, as you suggest, you know, we're taking orders farther out, for those types of orders. We have frame agreements for a lot of customers. Those will have inflationary indices tied in there for pricing. And for non-frame agreements, we usually have escalators if they're out past the normal twelve-month type period. So again, really, really happy with the order performance that we had in the fourth quarter and the outlook that we have ahead of us. Operator: We'll go next to Michael Feniger at Bank of America. Michael Feniger: Yes. Thanks for taking my question. Just the 50 gigawatt power by 2030 that number you guys provided in Investor Day. Can you just give us a sense where that kind of finishes '26 and '27? And the genesis of the question is there's always worries that with everyone raising capacity, if data center slows, you know, do we get into an overcapacity type of market? How much of this 50 gigawatt is going into other markets outside of data centers? Energy, gas compression, downstream, and when you're booking these orders, I know Mick talked about pricing. But how are you also thinking about terms and conditions, service agreements, you know, prime moves to backup? Just how are you guys thinking of also preparing yourself for down the road as, you know, as you've seen boom and bust in the past? Thank you, everyone. Joe Creed: Yeah. Thanks, Mike. So when it comes to the capacity increase, we obviously, you know, work all of our industries, kind of work with our customers and figure out what the forecast is. So, you know, there could be puts and takes, forecasts move around, but what we've sort of gauged the capacity we need based on what we see in all industries. We're gonna make sure, like I said, we're gonna move a lot of natural gas in the next few, so we're gonna make sure we take care of our oil and gas customers as well as power generation. And I think rightfully, as you point out in there, you know, some of the things that are also in that capacity, it's not all just assembling finished product. Right? There's supply base, and there's components machining, and component capacity for us to make sure we can grow services. So when we take prime power or gas compression applications that run continuously, right? Those will hit overhaul cycles, and those are great services business for us. So we need to make sure we have capacity in place to do that as well. So all that's taken into consideration. You know, we have we're on schedule. We were able to ship a little bit more at year-end in our large engine facility than we anticipated, which is a great thing. Need to be able to sustain that throughout 2026, and we expect a big chunk of capacity, the first real big step up to come towards the end of this year and heading into 2027. And then the turbine investment started a little later. It'll start to come on a little bit after that. So we continue to stay close to our customers. I mean, talk to hyperscalers and large data center customers weekly and make sure we stay in line with their plans. And like I said, we're starting to take farther out, and I think that's a good thing. Operator: We'll go to our next question from David at Evercore ISI. David Raso: I'm trying to reconcile the sales guide for '26. Right? The roughly 7%. If you look at the backlog that ships the next twelve months, on a year-over-year basis, it's up about 44%. The orders for backlog that ships in the next twelve months are up 36%. And your view of retail being up in '26, just trying to understand why such a low sales growth given the order momentum, the size of the backlog, and you see retail up in '26. And if you indulge me, just a clarification, maybe I missed it. The tariff impact, the $800 million, does that include expected pricing for '26 netting against a gross number? Or is it before any pricing actions? Thank you. Andrew Bonfield: Yes, David. So first, let me answer the second part of your question. That is, it does not take into account any pricing actions. The 2% pricing action we talked about is completely separate. So this is just the incremental cost that we dollar cost that we will actually incur or pay for tariffs in 2026. And then when you talk about the backlog and the sales guide, the one thing I'd just point out to you and Joe mentioned it, was last year, if you remember, we actually did in particular in construction. There was a very low there was no virtually no increase in dealer inventory in the first quarter, which was unusual. So one of the factors that you have to take into account when you're looking at backlog is the fact that, obviously, CI's backlog is stronger, but part of that is for the, and machines for the billion-dollar plus increase in dealer inventory that we expect in the first quarter, which is a difference versus the prior year. So that's one factor. Overall, you know, just to remind you that in power and energy, we are capacity constrained. Obviously, we are basing our estimates based on the capacity we have today. As Joe mentioned, we are obviously trying and we managed to bring it a little bit earlier online. But, obviously, that is not certain at this stage. So, obviously, if we are able to bring something on, there will be some upside in the second half of the year. Operator: We'll go next to Tammy Zakaria at JPMorgan. Tammy Zakaria: Hi. Good morning. Thank you so much. So the AIP announcement last night, could you give some color on what the battery energy storage system opportunity could be for an order of that magnitude in addition to recip engines? Could it be half and half, 25-seventy-five, seventy-five-twenty-five? Or any color on the revenue mix with the engines and BESS would be helpful. And related to that, do you have enough capacity for BESS products should there be more deals like this? Joe Creed: Hey. Good morning, Tammy. Most of that order is gonna be, you know, in generators and natural gas generators. You know, I think you saw as part of the JUUL, it's a complete system. Same similar to JUUL. So when we do have batteries in there, it's a small portion of the overall total. So most of it is gas generator sets. And, you know, as far as capacity goes, that's all part of our capacity planning. So, you know, we feel like we can continue to keep up with the growth in prime power and hopefully continue to see more mix shift that way. Because as we said, you know, that would help from a services standpoint, and we'll have to look at components farther out because obviously even mean more upside to services, you know, in that kind of three to five years half after, after delivery of those gensets. So exciting opportunities for sure. Operator: Our next question comes from Chad Dillard at Bernstein. Chad Dillard: A couple of questions for you on Prime Power. So for that application, what's the future role of backup diesel generators versus BESS? You know, when you're talking to the customers, like, how are you thinking about how that evolves over the next several years? And then also, with regard to your capacity ramp in power gen, do you think you can keep the revenue momentum growing in '26 versus '25? I think it goes up to 30%. Or, you know, should we be angling more towards that 20% CAGR that you've laid out for power gen? Joe Creed: Yeah. A couple of questions there. I think the last one first, as Andrew stated, it's not a demand issue for us. It's really going to be can we bring on supply faster. Kind of what we have in that revenue guide now is what we have high confidence in. You know, if everything turns up heads, remember, it's not just us. We have to bring our supply base along with us. You know, we're gonna get out as much product as we can, and, obviously, that would provide, you know, a little bit of upside if we can continue to outpace our current plans for bringing the capacity online. When it comes to these prime power applications, most of what we're seeing so far is still having backup power, and they're also with gensets. Not with batteries. In fact, in these, they're using our fast start gas gensets for backup power versus diesel when they do a couple of the big orders we've seen for gas prime power. So, right now, we're not seeing, you know, a 100% battery backup. It's mostly generators. Operator: We'll move next to Jamie Cook at Truth Securities. Jamie Cook: Hi, good morning and congratulations. Sorry, Joe, another question on backlog. Just given the strength. Was there anything sort of one-time in that growth number or pull forward perhaps an announcement that you weren't able to press release? You know me understanding that the AIP that goes into next quarter. But just wondering if there's a pull forward in your understanding there'll be lumpiness quarter to quarter, but do you still see an expectation where you can grow your backlog double-digit as we exit 2026 for the full year? And then just again, the growth you're seeing, is there any way do you think you're outgrowing the market for whatever reason, competitive positioning, product, dealer? I'm just wondering if you're getting a greater share of the market relative to your peers. Thank you. Joe Creed: Yes. Thanks, Jamie, and good morning. As far as orders in the quarter, on your first question, I think nothing of significant note where we had something that we couldn't announce. I would, you know, there are a couple of things outside of power and energy. We talked about CI and the seasonality. Would also say, you know, the strong orders in RI again, those are RI can be a lumpy business, and those orders come in big orders. And it's not, you know, steady. So, we're happy to see the orders that came in. You know, I don't know that you can count on repeat every quarter of that. As we exit, we'll see where we exit this year. Right? We wanna ship a lot of product and, you know, I appreciate you asked this question last time as well. I mean, the backlog is a nuanced number. We need it to go up because we're adding capacity and other things. But, you know, if I can, you know, slow that growth in the backlog because I can significantly get more product out while orders are still increasing, that's obviously a good thing as well. So, you know, we're focused on winning as much of the business as we can. You know, we outpaced the industry in CI. I think we are, you know, definitely a market leader in power and energy for what we provide in that space just from a scale standpoint. So and we have the widest offering below 38 megawatts between turbines and engines. And burn a lot of fuel. So we feel really good in our competitive position. From a lead time standpoint, they are extended, but still, you know, we're able we're one of the fastest solutions out there for data centers who are trying to get up and running quickly. So yeah, we'll see how the year plays out, but we have great momentum, and I'm hopefully I'm planning on and expect the momentum to continue throughout this year. Operator: Our next question comes from Jerry Revich at Wells Fargo. Jerry Revich: I'm wondering, Joe, if you could just talk about for the turbine business. You had spoken about potential for it to be used in some key plant applications by utilities. Any update on how those conversations are tracking when we might see those use cases? And then in the prepared remarks, you folks spoke about comparable shipments. 26 versus 25 for turbines. But you're ramping up really significant deliveries in Titan 350s, I thought, in 26 versus 25. So I just want to make sure I'm not missing any outsized shipments in the fourth quarter or any other moving pieces there. Thank you. Joe Creed: Yeah. I mean, we're seeing most, you know, the 350 first units have gone out and we're trying to ramp 350. So it's a relatively new product that's going out there. So, you know, Solar had a record year in 2025. We expect something comparable in 2026. We announced the capacity increase for solar, but, again, we just announced that, you know, middle of last year, late last year, so that's not gonna really have a significant impact on 2026 results. I think we'll see a mix to the larger frames, you know, like the 350 as we're shipping a few more of those in 2026 as well. And then, you know, we continue to work all the deals that we can for power, and we're seeing, you know, traditionally, Solar's business has been, you know, very heavy weighted towards oil and gas. That business is still really strong. But now we're starting to see more of the mix shift into power gen as well. So, you know, we're anxious to get that capacity program moving along and we'll provide updates as we move throughout it. We'd love to get more product out. But right now, you know, that's what we have line of sight to in 2026. Operator: Our next question comes from Rob Wertheimer at Melius Research. Rob Wertheimer: Morning, Rob. So the project scope at the Monarch data center looks interesting, and I wonder if you could give us a mini education. I think that they're gonna use the waste heat from the cat engines to provide cooling to power chillers. You know, there's been an argument that combined cycle in conjunction, you know, combined cycle turbines with steam turbine attached are higher efficiency. I don't quite know how to compare the efficiency with this, but, obviously, using the waste heat is good. And in Juul, I think there was backup diesel with Prime recip and gas. In this case, I think you're just over sort of overbuilding the gas recips and there's no diesel involved? And last question, just, you know, do you get a lot of inquiries on this sort of thing, or is there a robust, you know, kind of quoting and activity pipeline behind it? Thank you. Joe Creed: Yeah. Rob, I need my engineers or Jason to talk to you on the technical specs of it, but, you know, as you're looking at customers who are wanting speed to market, bringing your own power is definitely, you know, one of the ways that they can do that, and we can support them. And I think once you make that decision to go to gas prime power and kind of have your own mini power plant there with the gensets, it's we've been able to sit with them and say, okay. Let's make it as efficient as possible. So, obviously, if we can use the heat to help with the cooling and use that energy on-site, it makes the whole project more efficient, and the competitiveness of it better from a financial standpoint. So we continue to work with all of our customers on that. I think we'll continue to make headways. You know, we also, you know, announced partnerships with Vertiv. We're trying to find ways to make these solutions as cost-effective and efficient as possible for our customers. And we're having a lot of these discussions. Juul, I think in the early days, if I'm not mistaken, was diesel backup, but then switched to actually gas-fired fast start backup power as well. So all natural gas. And I think, you know, the latest one is natural gas as well. So, you know, that's one of the great things about our portfolio. You know, we up to 38 megawatts, we have all sorts of different solutions, and we can configure it however is best for that customer site, what type of fuel availability they have, and the size and what they're trying to do to make it the most efficient. So, you know, we have a team that really sits with customers and has turbine experts and recip experts on it. We have a lot of microgrid experience, and, essentially, that's what these are. And so we're working with customers to put the best solution forward, and I think it's gonna be exciting. We have more and more discussions around it daily. Joe Creed: Roger, we have time for one more question. Operator: Thank you. Today's final question comes from the line of Kristen Owen with Oppenheimer. Kristen Owen: Good morning. Thank you so much for taking the question. Going to ask a rare question on Construction Industries. And just help us unpack some of the demand drivers that you're seeing there. How much of this is just a return to a normalized replacement level? How much of this is actually supported by data center activity? And how much should we expect is embedded in your market share growth for 2026? Thank you. Joe Creed: So I'll make some comments, Andrew. You can chime in here. But, you know, we expect North America to continue to be strong. Obviously, you know, the data center build-out is not just good for power and energy. You know, that drives a lot of construction activity as well. There are a number of other construction projects moving along. And as we said in our prepared remarks, you know, we continue to see that strength here in North America, IIJA spending continuing to go on. The Middle East, in particular, continues to be really strong. And then we expect, you know, China has been really low, and we'll hopefully see some positivity there in above 10-ton excavators coming off of low levels as we enter into this year. From a competitive standpoint, we made great progress and were able to the industry last year. With the strength of our merchandising programs. We have exciting things to continue to roll out. We continue to work on our rental strategy with our dealers. We'll have some things to share at CONEXPO as well. When it comes to our, you know, BCP equipment, the smaller part of the CI lineup, which has a ton of momentum in the industry. So we feel pretty good about our ability in CI. It is some of that order strength is getting back to that more normal seasonal pattern. But we have great confidence around the industry and where it's heading. So with that, I want to thank you all for joining us today, and we appreciate your questions and interest in Caterpillar. Really proud of our team. We had exceptional performance in 2025 as they delivered record sales and revenues, an adjusted operating profit margin that was within our range, and robust MP and E free cash flow. These results demonstrate the strength of our end markets and our team's disciplined execution. So with a record backlog, we enter the New Year with strong momentum and a continued focus on delivering long-term value for our customers and our shareholders. Now I'll turn it back to Alex. Alex Kapper: Thank you, Joe, Andrew, and everyone who joined us today. A replay of our call will be available online later this morning. We'll also post a transcript on our investor relations website as soon as it's available. You'll also find a fourth-quarter results video with our CFO, an SEC filing with our sales to users data. Click on investors.caterpillar.com, and then click on financials to view those materials. If you have any questions, please reach out to me or Rob Wrangel. Investor relations general. Phone number is (309) 675-4549. Now let's turn it back to Audra to conclude our call. Operator: That concludes our call. Thank you for joining. You may all disconnect.
Operator: Good day, and welcome, everyone, to the Lockheed Martin Fourth Quarter and Full Year 2025 Earnings Results Conference Call. Today's call is being recorded. If you would like to ask a question, please press star, then 1 now. At this time, for opening remarks and introductions, I would like to turn the call over to Maria Ricciardone, Vice President, Treasurer, Admin, and Investor Relations. Please go ahead. Maria Ricciardone: Thanks, Sarah. Good morning, everyone. I'd like to welcome you to our fourth quarter and full year 2025 earnings conference call. Joining me today on the call are James Taiclet, our Chairman, President, and Chief Executive Officer, and Evan Scott, our Chief Financial Officer. Statements made today that are not historical fact are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Please see Lockheed Martin's SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We posted charts on the website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www.lockheedmartin.com and click on the Investor Relations link to view and follow the charts. With that, I'll turn the call over to Jim. James Taiclet: Thanks, Maria. Good morning, everyone, and thank you for joining us on our fourth quarter and full year 2025 earnings call. As you saw in our press release this morning, 2025 marked unprecedented demand for Lockheed Martin's industry-leading defense technologies. We finished the year with a record high backlog of $194 billion, about two and a half times annual sales, and delivered 6% year-over-year sales growth. We also generated free cash flow of $6.9 billion, which was above our prior expectation, and after we prefunded our pension at almost $900 million. We also made a significant $3.5 billion investment in capital and independent research and development in support of transformative innovation and increased production capacity. This strong financial performance is a direct result of our relentless focus on operational execution. Some examples of this from 2025 include delivering 191 F-35 fighter jets and 120 PAC-3 MSC interceptors, both record numbers. We also pioneered over-the-air updates to the Aegis weapon system for real-time battlefield advantages using AI and successfully launched GPS III and Tranche 1 transport layer satellites to strengthen national security architectures in space. This is what you can expect from Lockheed Martin: continued significant investment to advance technology development and produce proven major weapon systems at ever greater scale. We've built on this momentum with a powerful start to 2026. Lockheed Martin products once again proved critical to the US military's most demanding missions. The recent Operation Absolute Resolve included F-35 and F-22 fighter jets, RQ-170 Sentinel stealth drones, and Sikorsky Black Hawk helicopters, which helped ensure mission success while bringing the men and women of our armed forces home safely. In addition, we worked closely with the Department of War Leadership to reach the landmark seven-year framework agreement for PAC-3 MSE interceptors that we together announced earlier in January. This groundbreaking agreement was just the first step in bringing commercial business practices to large-scale production within the defense industrial base. And progress continues as we just announced this morning a similar framework agreement for the THAAD interceptor along with additional systems from our industry colleagues also being discussed this week. As the first implementation of such a long-term multiyear agreement, the PAC-3 MSC will increase annual production capacity from approximately 600 to 2,000 per year. That's more than tripling the production rate to support US forces, allies, and partner nations in today's increasingly unsettled geopolitical environment. These types of agreements fully support the Department of War's acquisition transformation strategy, and we look forward to continuing our partnership with the US government to definitize the contract and unleash a renewed era of innovation, accountability, and execution across the defense industrial base. In fact, I am in Camden, Arkansas today, which is where we build PAC-3 MSC missiles and other munitions. Lockheed Martin has produced more than 700,000 missiles and rockets here in Camden. We've been steadily increasing PAC-3 MSE production since 2023, more than 60% over the last two years alone. And the progress we've already made will give us the critical head start in ramping up to 2,000 per year. Further, we intend to make a multibillion-dollar investment to accelerate munition production over the next three years, including building facilities across five states, such as in Camden, Arkansas, with a brand new munitions acceleration center facility breaking ground today. I was also recently in Fort Worth with Secretary of War Pete Heck, visiting the F-35 production line as part of his Arsenal of Freedom industry tour. The visit underscored Lockheed Martin's role in driving acquisition transformation, delivering critical capabilities to the US and its allies. Our mile-long Fort Worth facility employs more than 19,000 people, and over 1,900 suppliers across the United States contribute to the F-35 supply chain, providing skilled jobs to many thousands more Americans nationwide. Together, these talented Lockheed Martin and supplier employees enable an F-35 production rate that is five times faster than any other allied fighter currently in production, highlighting the program's scale and maturity. With regard to our 2026 financial outlook, we expect year-over-year sales growth to be approximately 5% at the midpoint, with the year-over-year reported segment operating profit growth to be more than 25%. Free cash flow is anticipated to be in the range of $6.5 to $6.8 billion, which is well above our prior expectation and includes a year-over-year increase in investment of about 35%, with capital and independent research and development approaching $5 billion in 2026, which is a step function increase in internal investment. Given the size and scope of Lockheed Martin, in 2026, we will continue our disciplined and dynamic approach to capital allocation, enabling the step function increase in internal investment to fund capacity and growth. Evan will provide more detail on our 2026 outlook in a moment. Turning to our programs and highlights. First, on the F-35, during the fourth quarter, we delivered 48 F-35 aircraft, bringing total deliveries in 2025, as I said, to 191, beating our own expectations. As noted earlier, Lockheed Martin ended the year with record backlogs, and the largest awards in the quarter were with the F-35 program. We definitized Lot 18 and 19 contracts with the Department of War's Joint Program Office, we were awarded the full fiscal year 2026 air vehicle sustainment contract, and we received a contract modification in support of Lots 20 and 21 production aircraft. These awards total over $15 billion and reinforce the continued demand for the most advanced fighter jet by both domestic and global customers. For example, in October, Belgium's first F-35A aircraft to be stationed in-country arrived at Florence Airbase, marking the F-35's official incorporation into the Belgian Air Force. In December, senior US and Finnish officials gathered at our Fort Worth facility to celebrate the rollout of Finland's first F-35. In 2026, we will make further investments in the program to advance its position as the world's most capable multirole fighter, with a focus on making further progress on Block 4 capability improvements. We've also committed to an additional $1 billion of strategic internal investment for the F-35, with an emphasis on the aircraft sustainment system to improve mission-capable rates across the fleet. This is an absolute priority for us and one we are working closely with the Department of War on. Also at Aeronautics, we are making investments in the most advanced technologies, such as unmanned systems. At Lockheed Martin Skunk Works, with industry partners and the US Air Force, we together demonstrated the capability to control a drone wingman from the cockpit of an F-22, the first time ever that a fifth-generation fighter showed the ability to control an uncrewed vehicle in flight together. Further, at Skunk Works and in partnership with NASA, we successfully completed the first flight of the experimental X-59 aircraft in October. This is a revolutionary quiet supersonic aircraft designed to pave the way for faster commercial air travel even over land. At MFC, we continue to experience unprecedented demand across many critical munitions. We were awarded a contract for 31 THAAD interceptors and secured the largest production contract to date for the infrared search and track ERS 21 Block 2 pod system. This brings fifth-generation sensors and data links to fourth-generation aircraft. At RMS in November, Secretary Heck remotely piloted an autonomous Black Hawk from DARPA headquarters. This AI-enabled unmanned helicopter technology will enable critical missions such as contested logistics, air evacuation, and even wildfire fighting without putting pilots and aircrews at risk. Speaking of amazing technology, we successfully used the shipboard laser system, Lockheed Martin's Helios, to knock an incoming UAV right out of the sky. The Helios weapon system successfully neutralized four drone threats in a US Navy-operated counter-UAS drone demonstration at sea, showcasing an opportunity to eliminate drone attacks using lasers and saving US and allied air defense missiles for more advanced threats. This development of laser weapon systems is just one example of Lockheed Martin's support of the Homeland Defense Mission, including Golden Dome for America. We also continue to collaborate with government and industry in our prototyping environment at our Center for Innovation in Virginia to support the command and control aspects of Golden Dome. We're also, as mentioned earlier, making substantial investments to rapidly increase production capacity across missiles, sensor suites, battle management systems, and satellites, as well as the rapid development of space-based interceptors that will be directly relevant to achieving the overall objective for Golden Dome. Also in the quarter, the Space Development Agency awarded Lockheed Martin Space a contract for 18 satellites for its Tranche 3 Tracking Layer Constellation, with a potential value of more than $1 billion. These satellites will provide next-generation missile tracking capabilities for the SDA's proliferated warfighter space architecture. Finally, on the US defense budget, as the FY26 appropriations process unfolds amid this dynamic geopolitical environment, there continues to be broad support for national defense initiatives from the administration, the Department of War, and Congress. Lockheed Martin's core programs remain fundamental to defense priorities, such as PAC-3 missiles, homeland security for forward force security as well, the F-35 fighter jet for air dominance, the CH-53K heavy lift helicopter for contested logistics, and the fleet ballistic missile for the nuclear triad. We remain fully focused on converting our backlog and partnering with our US customers, as well as across defense and commercial industry, to deliver the systems and solutions necessary for global security and deterrence and to keep our soldiers, sailors, airmen, and guardians safe in doing their missions. I'll now turn it over to Evan before we take your questions. Evan Scott: Thank you, Jim, and good morning, everyone. Today, I'll provide an overview of our consolidated financial results for the fourth quarter and full year, then hand off to Maria, who will cover business area details, and I'll come back at the end to discuss the outlook. 2025 was a transformative year for Lockheed Martin. Backlog grew $17.3 billion, or 17%, and included significant awards for key programs such as F-35, PAC-3, JASSM, LRASM, and CH-53K, providing better visibility through the end of the decade. We generated over $9 billion of underlying operating cash flow before making $860 million of discretionary pension contributions, and we took the necessary steps to reduce risk on Aeronautics and Sikorsky programs in the second quarter, positioning these programs to deliver much-needed capabilities to our customers. Moving to chart four, fourth-quarter consolidated sales were $20.3 billion, up 9%, with strong year-over-year growth coming from all four business areas as our core programs continue to build momentum and the much-anticipated growth inflection begins to take shape. Next, segment operating profit of $2.1 billion in the quarter was up considerably year-over-year due to the charges on the Aeronautics and MFC classified programs in the fourth quarter of last year. Segment operating profit margins were 10.1% in the quarter. As we expected, program milestone timing and life cycles led to a light quarter of favorable profit rate adjustments. We generated $5.80 of earnings per share in the quarter, which included a noncash nonoperating charge of $479 million related to the follow-on pension transaction, partially offset by a $109 million benefit due to the favorable resolution of tax accounting issues. On a year-over-year basis, EPS was up significantly due to the prior year charges. Shifting to cash, we generated $2.8 billion of free cash flow in the fourth quarter as we continue to rapidly deliver capabilities to customers, achieving operational milestones that triggered strong cash receipts. Moving to chart five in the full year, sales of $75 billion were up 6%, driven by strong growth at Missiles and Fire Control, Aeronautics, and Space. Segment operating profit of $6.7 billion grew approximately 11% year-over-year. Recall both periods included significant charges. On a normalized basis, segment operating profit grew in line with sales. Regarding new business, the company recorded over $65 billion in orders during the second half of the year, bringing the full-year book-to-bill to 1.2, resulting in a record backlog of $194 billion to end 2025, the fourth consecutive year of backlog growth. This demonstrates the resilient global demand for Lockheed Martin's capabilities. Our earnings per share was $21.49 in 2025, down 4% from the prior year. While our sales growth and slightly higher reported margins drove segment profits higher, this was more than offset by below-the-line items, including increased interest expense, a higher tax rate, and higher operating FASCAS expense. Shifting to cash, the strong fourth-quarter collections exceeded our prior expectations, helping us to deliver over $6.9 billion of free cash flow in 2025. And we reinvested $3.6 billion back into the business to drive innovation into our solutions and more rapidly scale technologies for our customers. Now we'll turn it over to Maria. Maria Ricciardone: Thanks, Evan. Starting with Aeronautics on chart six. Fourth-quarter sales at Aero increased 6% year-over-year, primarily driven by higher sales on classified programs due to the absence of losses recognized in 2024. Higher volume and favorable contract mix for the F-35 program also contributed to the increase. Adjusting for the impacts of the classified program charges and the C-5 contract resolution benefit in last year's fourth quarter, the adjusted sales growth at Aero was approximately 4% year-over-year. In the quarter, segment operating profit increased 80% compared to Q4 2024, driven by higher profit booking rate adjustments due to the absence of classified Reach Forward losses recognized in last year's fourth quarter. Higher sales volume in 2025 also contributed to the year-over-year increase. Adjusting for the classified charges and the C-5 claim resolution benefit in Q4 of last year, Aero operating profit year-over-year increased slightly in the quarter. For the full year, sales increased 6% to $30.3 billion, driven by higher F-35 production and sustainment volume, partially offset by lower volume on classified programs. Full-year segment operating profit at Aero decreased 17%, driven by lower profit booking rate adjustments related to the classified program reach forward losses and unfavorable profit adjustments on C-130 in 2025. This was partially offset by the higher sales volume. Adjusted for the classified program losses in both years, 4% in 2025. Aero's segment operating profit margin was 6.9% for full-year 2025. Adjusted for the classified program losses, Aero's segment operating profit margin was 9.9%. The photo to the right depicts the successfully completed first flight of the X-59 Quiet Supersonic aircraft, as Jim previously mentioned. Turning to Missiles and Fire Control, chart seven. Sales at MFC in the quarter increased 18% from the prior year, driven by higher volumes from production ramps for precision fires programs and existing PAC-3 contracts. Segment operating profit in Q4 increased by $1.3 billion year-over-year to $535 million, primarily from the absence of the loss recognized on a classified program in 2024. The higher sales volume also contributed to the increase. For the full year, MFC sales increased by 14% to $14.5 billion due to production ramps on JASSM, LRASM, and Precision Fires programs, as well as existing PAC-3 contracts. Full-year segment operating profit increased by $1.6 billion year-over-year, primarily driven by the absence of the $1.4 billion loss recognized on a classified program in 2024, as well as the higher sales volume. MFC's segment operating profit margin for the full year 2025 was 13.8%. You can see on the right the photo of a high mobility artillery rocket system mobile rocket launcher, HIMARS. On November 5, we delivered the 750th HIMARS. Shifting to Rotary and Mission Systems on Chart eight. Sales at RMS increased 8% year-over-year in the quarter, primarily from higher volume at Integrated Warfare Systems and Sensors (IWSS), radar programs, and River Class Destroyer, formerly known as Canadian Surface Combatant. Higher production volume on Sikorsky Black Hawk programs also contributed to the increase. Operating profit in the fourth quarter decreased 9% year-over-year, mainly due to unfavorable profit adjustments on Black Hawk programs and the absence of a benefit from an intellectual property license arrangement that occurred in 2024. This decrease was partially offset by the higher sales volume. For the full year, sales at RMS were comparable to 2024, at $17.3 billion. 2025 sales increased from higher production volume on Black Hawk programs at Sikorsky and the higher volume on the River class destroyer and radar programs at IWSS. These increases were offset by charges on the Canadian Maritime Helicopter Program (CMHP) and the Turkish Utility Helicopter Program (TUHP) that were recognized in the second quarter, as well as lower volume for various training, logistics, and simulation programs. Operating profit at RMS decreased 31% for the year, driven by a $610 million decrease in profit booking rate adjustments, primarily due to the losses recognized on CMHP in the second quarter. This decrease was partially offset by the absence of an unfavorable profit adjustment on SIFIHawk programs in 2024. Adjusting for the CMHP and TUHP program losses in '25, RMS operating profit grew 3% year-over-year. RMS's segment operating profit margin was 7.6% for full-year 2025. Adjusted for the CMHP and TUHP program losses, RMS segment operating profit margin was 11.3%. The photo on this page represents the fully autonomous Black Hawk helicopter, the UHawk. On Chart nine, we'll conclude the business area discussion with 8% year-over-year in the fourth quarter, primarily driven by higher sales volume on strategic and missile defense programs, including the Next Generation Interceptor (NGI) and fleet ballistic missile (FBM) programs, as well as higher volume for the transport layer and Orion programs. Operating profit decreased 4% compared to Q4 2024, due to lower equity earnings from United Launch Alliance (ULA), partially offset by the higher sales volume. Turning to the full year, sales increased 4% to $13 billion, driven by higher volume on NGI, FBM, and Orion programs, partially offset by a decrease for National Security Space programs due to program lifecycle, the overhead persistent infrared (OPIR) missions. Operating profit increased 10% to $1.3 billion in 2025, primarily resulting from favorable at-complete performance on certain commercial civil space programs during the first half of the year, as well as the higher overall sales volume. The increase was partially offset by lower ULA equity earnings. Space's segment operating profit margin for the full year 2025 was 10.3%. To the right on this page is a photo of the Space Development Agency Tranche 3 Tracking Layer Constellation, which, as Jim previously mentioned, was awarded to Lockheed Martin in the fourth quarter. Now I'll turn it back over to Evan. Evan Scott: Turning to Chart 10 and our 2026 outlook, we expect to carry the momentum from 2025 into this year. And it's worth noting that we continue to make progress on our digital transformation, having recently completed the first migration of a business area to an upgraded enterprise resource planning system to start the year. We expect this internal investment will unlock speed and drive efficiencies across the enterprise, helping us to maintain cost and schedule for customers and create value for shareholders. In 2026, we are forecasting sales to be in the range of $77.05 to $80 billion, up $3.7 billion at the midpoint, applying a solid 5% organic growth year-over-year. Segment operating profit is anticipated to be in the range of $8.425 to $8.675 billion, resulting in a midpoint margin of 10.9%. Before moving to EPS, I'll briefly step through some of the business area dynamics. First, Aeronautics. We expect low single-digit overall growth in 2026, with Skunk Works and F-35 sustainment leading the way, each with potential for double-digit growth year-over-year. F-35 production will see a slight lift due to lot mix and pricing, with the production rate holding steady at 156 aircraft per year. We expect deliveries to be in line with the production rate this year. Aero margins of 9.8% at the midpoint reflect the dilutive nature of the growth in Skunk Works and from F-35 sustainment. At MFC, we estimate the ongoing missile production ramps to drive 14% year-over-year sales growth at the midpoint, with margins expected to remain consistent with 2025 levels. Next, at RMS, we anticipate overall sales to grow in the low single-digit range, with higher growth coming from Sikorsky driven by the CH-53K and Black Hawk programs, partially offset by program timing and lifecycle headwinds on several radar training programs. RMS margins at 10.5% at the midpoint include impacts due to portfolio mix and program life cycles. Finally, space is projected to grow approximately 5% year-over-year at the midpoint, with strong growth expected on fleet ballistic missile, NGI, and hypersonic programs within the strategic and missile defense systems portion of the business, as well as solid growth from space tracking communication missions due to the Space Development Agency's transport and tracking layer programs. Space margins at the midpoint are slightly above 10% and include higher equity earnings related to ULA. Back to the consolidated level. On earnings per share, we project a range of $29.35 to $30.25. The midpoint range is over $8 higher than 2025, primarily due to the aforementioned program pension-related charges accounting for approximately $7 of the year-over-year improvement. The remaining upside comes from higher volume and a higher net FASCAS pension adjustment, partially offset by nonoperating related expenses, namely a higher tax rate. Wrapping up with cash, our free cash flow guidance is $6.5 billion to $6.8 billion. That estimate includes between $2.5 billion and $2.8 billion of capital expenditures as we are planning to increase our investment to support production ramps and other strategic growth opportunities. Included in this range is the initial portion of the multibillion-dollar investment for MFC's missile ramps. We expect investment will continue to be elevated going forward to meet customer demand for our munitions, and the acceleration of production for these programs provides line of sight to a compound annual growth rate for MFC sales of at least double-digit through the end of the decade. Our one final item is the quarterly cadence for 2026. With 2024 and 2025, we had thirteen weeks in every quarter. This year, there are twelve weeks in Q1 and fourteen weeks in Q4, with the second and third quarters both at thirteen weeks. Consistent with prior years, I expect the majority of our cash to come in the second half of the year. In summary, we're excited about the future for Lockheed Martin, and we are investing in numerous projects with the objective to improve the speed and capabilities of our company. Whether that's towards innovative product development, improving internal operations, or accelerating production capacity, our goal is to create unmatched technologies to support our customers' most critical missions, execute the record backlog, and trust on time and within budget. And in doing so, we will generate favorable outcomes that deliver value for all stakeholders. With that, Sarah, let's open up the call for Q&A. Operator: Thank you. You will hear an enunciator indicating you have been placed in queue. You may remove yourself from the queue at any time by pressing star, then one again. We ask that you limit yourself to one question, please. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press star then one at this time. Your first question comes from Scott Micas with Melius Research. Your line is open. Scott Micas: Good morning, Jim and Evan. Wanted to ask on capital deployment. You have the big step up in CapEx for this year, and it seems like that's gonna persist for the next few years. So are you changing your overall capital deployment strategy of returning 100% free cash flow to shareholders following the president's executive orders? And if so, should investors expect that to be a new normal? And how might vertical integration factor into capital deployment going forward? James Taiclet: Yeah. Good morning, Scott. It's Jim. We're gonna continue to use a disciplined and dynamic capital allocation process that we've been using for years. There's differences this year, which is the introduction of these long-term contracts, which I do think will be extended and expanded by the Department of War, which creates stable growth opportunities for companies like us. That the ROIs will exceed our cost of capital, and therefore, we should invest in those stable growth opportunities over much longer terms than we've ever enjoyed before. So the process remains the same, but the conditions have changed. On the availability of accretive investments that we can make in our company. The second area is R&D. And we are making inroads in a number of areas that, again, we believe with the new approach for acquisition transformation in the government, we will be able to prove ourselves by making R&D investments and building prototypes even at a greater rate than we ever have before. I'll give you just a couple examples of that. You saw one already, the autonomous Black Hawk helicopter. That's real. I mean, it flies. You can control it from a tablet, command post, or inside the aircraft, but there's where all the controls and all the intelligence are to fly using AI. You don't need a pilot in there. So we are doing this on our own R&D budget. Another example is the COMET, which is a low-cost, high-capability cruise missile design that we're creating ourselves because we do think there's gonna be upside opportunity in that arena as the cost per unit will be attractive. And then finally, as far as the drone wingman, which we know how to actually control from F-22s and F-35 and the design of a product to do that, we're building our own prototypes of the drone wingman CCA, if you will, again, on our own R&D budget because we think we will have the best product. We will get the scaled orders. And we can connect them and have shown that we can connect our design of a CCA to a fifth-generation aircraft that actually flies today, and that's a scalable opportunity for us. So there will be better and longer-term CapEx opportunities. There are more creative and open-field R&D opportunities for us. And as you mentioned, what's the vertical integration opportunity that may come throughout this administration and perhaps the next? We have been active in exploring and even attempting some mergers and acquisitions during the last five years. One that was publicized wasn't approved by a different administration. So we're gonna keep our powder dry for those opportunities too because they will be accretive as well. So what we can say today is we're gonna continue to use our disciplined and dynamic approach based on the conditions that we experience in that period of time. We're gonna allocate our capital that way. Operator: The next question comes from Richard Safran with Seaport Research. Your line is open. Richard Safran: Thanks. Good morning, everybody. It's okay. I have, I think, a quick two-part question on multi-years. First, regarding the two missile framework deals for PAC-3 and THAAD, what's the timing of a multiyear there? And how are you thinking about MFC margin potential, you know, over the long term? Second part, the F-35 has been mostly bought in annual increments, and for the most part. Should we be expecting a multiyear for the F-35? And how are you thinking about program quantities there? James Taiclet: Rich, as far as the multiyear missile agreements, their frameworks, they are committed and purposeful by both sides, industry and government. There's a couple of steps that government needs to take. One is to definitize the and to do that, they need to have an appropriations that is approved. So they're working through and we will work through them on the definitized contract and RDR, actually, but all those steps do need to get be completed. The timing on that will be up to the congressional budget cycle. We expect both of those programs to be up and running under the framework agreement with appropriations by, you know, by this year, 2026, that's our expectation. On F-35, we have been publicly advocating for a few years on multi-year sustainment potential for aircraft like the F-35. There's no reason whatsoever that whether it's production, modernization, and sustainment, those activities couldn't be wrapped into a multiyear framework just like we've done for the missile systems. Some additional complexity there given the nature of the program. But there's no reason we couldn't get to the goal line should the government be interested in pursuing any of or all of those elements of the F-35. And I'll address your question, Rich, on the MFC margins. So we, in our guidance this year, have contemplated the PAC-3 and THAAD multiyear agreements getting awarded this year with initial sales starting this year. So I think, first of all, it's encouraging to see margins holding despite growth beginning this year. I think as you know, the way we do our profit recognition is we start typically at a lower profit recognition point on a program and build it up over time as we make progress on deliveries and risk. So think of this as a seven-year program that will step up over time. What that would mean for MFC margins in the coming years is some possible dilution, but probably no more than 20 to 30 basis points at max. But that's gonna then create over time an opportunity to exceed MFC margins beyond where they have historically been with the opportunity to perform that is presented to us with these multiyear agreements. Yeah. And that margin pressure because of the start-up nature of this production ramping will be in an environment where sales should be double-digit growth in MFC and maybe even mid-teens sales growth in MFC? We'll take that trade, and then margins will, as Evan just said, will catch up. This is a very, very good arrangement for Lockheed Martin. Operator: The next question comes from Kristine Liwag with Morgan Stanley. Your line is open. Kristine Liwag: Hey. Good morning, Jim, Evan, and Maria. Jim, thank you for your earlier comments on R&D and capital priority. There's been growing interest in disruptive defense technologies, and large established companies are often discussed and valued differently than newer entrants in the space. How do you think about technology disruption? Are there areas where you still see yourself as light speed ahead of industry? And how do you view your role within the broader defense innovation ecosystem? James Taiclet: Yeah. Good morning, Kristine. We address disruptive technology opportunities literally every day in every business area we have. And so I'll just give you a couple. And by the way, with the geopolitical environment that faces the United States today, we need to marshal all resources in American industry, so it could be the startup community. It's the midsized companies. It's the new entrants, if you will. It's the capital markets. And the major aerospace and defense companies have to have a large role in this. Because you've gotta have the infrastructure. You gotta have the workforce. You have to have the cyber capability. You have to have the deployability around the world of anything you develop in the national defense arena of the United States. So we are all involved at every level and every BA in disruptive technology. And I'll just give you a couple examples. Start at the highest level, if you will, in space. We've already announced that we're building an operable space-based interceptor that we wanna fly in space by 2028 that would be part of Golden Dome potentially that can actually incorporate our technology of how to hit, as my chief engineer says, a bullet with a bullet in space but do it from space. That guidance technology, the ability to build the fins, the actuators, the electronics to actually make that happen. We know in this company how to do. We also know how to build satellites and also low orbit satellites that we just described on the tracking layer, where we have a billion-dollar contract to do military-hardened low orbit satellites already. So for us, it's a matter of being creative and combining our capabilities within Lockheed Martin and outside of Lockheed Martin. Right? So if any initiative in this space doesn't have military theater-level scalability, it's interesting, but it will not be decisive. We are in the business of decisive military advantage. And so I'll give you another example. And this is teaming with a new entrant. The company is called SailDrone. Many of you have heard of that. Distributed naval vehicle surface company. Pretty advanced, very well run. Excellent base product. But it'll be interesting to have, you know, surface ship drones sailing around the Pacific, but to make them decisive in deterring a potential aggressor's action, they're gonna have to be armed. And they're gonna have to be effectively armed with the reliable kind of weapon, frankly. And we're doing that with SailDrone. We've actually innovated ourselves and took a JAGM, which is a joint air-to-ground missile, so generally fired from a helicopter, for example. We've taken this air-to-ground missile, we've reconfigured it to be a ground-to-ground missile or surface-to-surface missile if you're on the ocean. That we did ourselves. We built and invented a quad launcher that will take four of these JAGMs and be able to fire them not at a vertical angle, but at a 45-degree angle, which is also new to that system. And we're installing them as partners with SailDrone on their autonomous ships. Now you've got something that can affect the deterrence equation of a potential adversary. And these are the kinds of things that we innovate on. How do we combine our own capabilities that I just described in space? And another example, how do we combine our capabilities with a proven product that the Navy actually knows how to use and has a supply chain for and has a repair system for already, that we can introduce onto a new vehicle that no one's ever had before, which would be the SailDrone autonomous shipping. So we're all about disruptive technology. Some we'll do on our own. Some we'll do with our aerospace and defense, you know, kind of prime partners. Some we'll do with smaller and more novel companies. Operator: The next question comes from Douglas Harned with Bernstein. Your line is open. Douglas Harned: Good morning. Thank you. Wanna go back to Missiles and Fire Control and a couple things around the PAC-3 and the THAAD deals. I mean, this is clearly very good in terms of allowing you to plan for the long term and long-term growth. But if I put this into kind of a context of history first, you know, appropriations are still done annually in Congress. And there are periods of time, and you all saw this back kind of in the 2015 time frame when there was huge growing demand for missiles. And then things changed, and that all collapsed. And so how do you get comfortable about that seven-year ramp that the support will be there? And if I can extend it a little bit, do you see the opportunities on some of the other MFC programs that you have underway to do a similar thing? James Taiclet: Yeah. Good morning, Doug. Jim here. Yes. Traditionally, there's been annual appropriations. The administration is striving to modify that. They've already got authorization for a range of effectors or missiles through Congress, part of the process, not the complete process. But it's already been introduced, and it's advancing on a seven-year basis for, I think, it's four or five specific missile systems, including THAAD and PAC-3. So that's the first confidence builder. The second one is that the agreements that we have struck, and, you know, we were the pathfinder in these framework agreements. Others may sign on to something similar. But in our agreements, we had ensured with the department, as I alluded to earlier, that if there is a change in the procurement strategy along the way during the seven years, there are make-whole provisions that will bring our company back to sort of the same ROI cash flow perspective as we would normally have had in a single-year appropriation. So there is a remediation element to and a strong remediation element to make whole if the procurement strategy changes. Operator: The next question comes from Rob Stallard with Vertical Research. Your line is open. Rob Stallard: Thanks so much. Good morning. Maria Ricciardone: Morning. Rob Stallard: Jim, a question for you following up from Scott's question early on. I just wanted to clarify, will you be holding the buyback and dividend this year and going forward, or is it coming down? Thank you. James Taiclet: So we will be evaluating all of our capital deployment options as time progresses. We'll announce those decisions as they occur, publicly as required and has been our practice. So we will be continuing to operate in a dynamic way. It's actually more dynamic than ever these days. And the opportunity set is much greater along the lines of what I've already described. So, Rob, we will disclose when we can what our actions are as the months progress through 2026 and beyond. Operator: The next question comes from Gautam Khanna with TD Cowen. Your line is open. Gautam Khanna: I was wondering if you could give us a quick refresher on how the Aero classified program is performing. And also, Evan, if you could just speak to 2027 pension requirements given where things sit today. Thank you. James Taiclet: So on the Aero classified program, this is Jim speaking. Yeah. As a reminder, this is a very complex design and system integration activity. And risk is gonna remain over the next few years as we progress through, you know, more key phases of the program, which is progressing well. However, to note, there were no additional charges reported on this program in the fourth quarter, and we continue to proactively monitor and manage potential risks with our highest level of executives personally involved in this now. And we will keep such a close eye on the program that we should be able to identify any other potential risks and opportunities even to drive better outcomes on a much more timely basis. So where the program stands today, we're very confident in it. We're very confident in the team that we have on the field now to execute it. And it's being monitored monthly, as never before. Evan Scott: And I'll address the pension. And it's important to note when it comes to free cash flow. I think you've seen in 2025 and now in 2026, I think we've done a very good job with a lot of focus to convert working capital to operating cash. So between the two years, you do see a significant uplift in operational cash. What that meant in 2025, of course, is that we had the ability to prefund the required 2026 pension in full such that there's no required this year to your question. That requirement does come back in starting in 2027, of at least a billion dollars depending on how we look in terms of pension performance this year. I think with the strong cash flow that we're seeing this year, we'll continue to be opportunistic as we have in prior years. If we could drive free cash flow to such a way again this year, there may be an opportunity to pre-fund 2027's required pension as well. So we'll continue to stay focused on that and advise as we make progress. Operator: The next question comes from Myles Walton with Wolfe Research. Your line is open. Myles Walton: Great. Thanks, and good morning. Jim, on last quarter's call, I think we talked about R&D and CapEx as a percent of sales. And at the time, you didn't see a need for that to rise materially. But, obviously, that's changed here in the release. I think I understand the CapEx side for a capacity build-out, but what changed specifically in terms of opportunity set? Was it SDA or something else? That drove the change in R&D as a percent of sales? Are these new numbers the new norms going forward, or would they go higher? James Taiclet: So what's changed, Myles, is the department's very transparent interest in advanced technology development and to support advanced technology development. As the defense budget rises and Congress and the administration work together to decide exactly what those numbers are. But as it rises, there will be more opportunity for companies like ours to engage in more R&D type prototype activities. We've actually been doing that, you know, to the level you've seen us do for the past three or four years. And we actually have an entire process that goes from, you know, scientific level of research all the way through prototypes on active ships, Air Force, Marine bases, test ranges. We've got that process in place now and have developed it over the last few years with our customers, actually, who do trust us in these matters. And now that we see that the budget could increase in this realm, that the leadership of the research and development staff in the Pentagon is in place, and that the commitment is to be innovative, we are gonna commit more to R&D. Operator: The next question comes from Michael Ciarmoli with Truist Securities. Your line is open. Michael Ciarmoli: Hey, good morning, guys. Thanks for taking the question. First, Evan, just a housekeeping. Should we expect the share count to stay flat or go down this year? And then, Jim, I was wondering if you could elaborate, maybe even tying into Myles' question. You talked about $1 billion strategic investment on F-35 sustainment. Can you maybe give us a little bit more detail and unpack that, what the expectations are? Was that maybe at the direction of the government? Any more color there would be helpful. Evan Scott: Yep. So share count will be reported quarterly as always, so you'll see that as it comes over the course of this year. On F-35 sustainment, over, I'll say, a few prior years, there was, in our opinion, some underfunding of spare parts and repair capacity in the various defense budgets previous to this administration. And we have been striving to make up for some of that ourselves with internal investment. But what we wanna do is really kind of double down on our, and frankly, we have put a billion plus into spare parts and repairs already. But we're gonna double down on that to make extra effort to improve the mission-capable rates of the aircraft and kind of make up for this unfortunate spare parts and repairs deficit that's been created over the last, you know, four, five, whatever years. That's just something we're gonna step up and do. It does require investment, but these systems are so critical in today's world that we do feel that we are gonna get benefit both financially and operationally the performance of the aircraft for making this investment, so we're going to do it. Evan Scott: And I'll note that this elevated investment is, I think it's clear, is to the underlying strong operational cash flow. Operator: The next question comes from Gavin Parsons of UBS. Your line is open. Gavin Parsons: Thank you. Good morning. Maria Ricciardone: Good morning. Gavin Parsons: Quick clarification on cash flow first. Is there any customer support or CapEx reimbursement in your operating cash flow? And then on the PAC-3 and THAAD frameworks, could you talk a little bit more about how those are structured, maybe particularly as it relates to kind of the performance opportunity versus risk? Thank you. Evan Scott: Yes. So with respect to cash flow and CapEx, what are the key dynamics of these multiyear agreements? Is that they're in no way intended to be punitive. This is a customer partner with us to find the best, most efficient way to rapidly scale capabilities to the warfighter. And as such, I think we're gonna see some partnership with cash flow terms to make sure that we're well supported as we make these investments. So I think you are going to see an elevated working capital benefit or operational benefit to offset some of these CapEx expenditures. So that is a key part of what we're contemplating with these deals. James Taiclet: Yeah. And then there's incentives in both the Patriot and the THAAD framework agreements for us to outperform the objectives. And so what we have agreed upon is a profit sharing above a certain robust level, I'll call it, where we start to share some of the increased profits with the US government by plowing some of those increased profits back into something like I just talked about, which is additional spare parts or it's additional equipment or tooling in the factory. Those kinds of things. And so there's a sort of reinvestment mechanism in a profit-sharing vehicle, if you will, for us to even better support these programs going forward on behalf of and with the government. Maria Ricciardone: Great. And, Sarah, I think we have time for one last question as we're approaching time here. Thank you. Operator: Thank you. Your last question will come from Sheila Kahyaoglu with Jefferies. Your line is open. Sheila Kahyaoglu: In the past, Jim, maybe you've talked about a target framework with low single-digit revenue growth in the single digits and 10 to 20 basis points of margin expansion. In light of what we've seen recently with PAC-3 and THAAD, double-digit growth at MFC is inevitable. So how do you think about the target growth model? And maybe the segment ranking through that? Outside of MFC and free cash flow contribution going forward? James Taiclet: So, Sheila, we do see upside to growth both, you know, again, once we get things ramped up and margin compression out of the way. But certainly on revenues, and then you have to follow on margins and certainly on operating profit as well. So we do see upside there. I could turn it over briefly to Evan just to talk a little bit about each of the business areas quickly. Evan Scott: Yeah. So underlying, I think to Jim's point, there's a strong growth pace by MFC. Space continues to be our second fastest-growing business now as we've seen strength in the strategic missile defense business particularly, but also in the classified space area. So I think, and with respect to MFC, you know, we are scaling other munitions beyond the ones that were contemplating these multiyear agreements. So all across the board there, I think you're seeing strong revenue growth. As we look kind of beyond, I mean, we're not ready to give multiyear frameworks at this point, but I do think you're gonna continue to see upward pressure on revenue and a real intention to drive margins. And in the next couple of years, we still have some dilutive pressure of some of the programs that we took prior losses on. So as those sort of work down, there's gonna be, I believe, increased margin opportunity in the out years. And as time goes, we'll give added insight into that. James Taiclet: Alright. Well, thanks for joining our call today, everyone. 2025 was a successful year for Lockheed Martin, and we're already carrying that momentum into 2026. As the war department continues to adopt new ways of doing business, I am more confident than ever in our company's ability to deliver both value to our military services and our allies and to our shareholders. I'd like to thank our 121,000 Lockheed Martin teammates for their commitment and dedication to the mission. And I look forward to speaking with all of you in April for our first quarter earnings call. Sarah, that concludes our call for today. Maria Ricciardone: Thank you. This concludes today's conference call. Thank you for joining. You may now disconnect.
Christopher David O'Reilly: [Interpreted] Thank you very much for taking time out of your busy schedule to join us for the earnings announcement for the third quarter FY '25 of Takeda. I'm the MC, O'Reilly from IR. [Operator Instructions] Before starting I would like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in our most recent Form 20-F and in our other SEC filings. Please also refer to the important notice on Page 2 of the presentation regarding forward-looking statements and our non-IFRS financial measures, which will also be discussed during this call. Definitions of our non-IFRS measures and reconciliations with comparable IFRS financial measures are included in the appendix to the presentation. Now we would like to start with the today's presentation. Today, we have Christophe Weber, President and CEO; Milano Furuta, Chief Financial Officer; Andy Plump, President of R&D; and Julie Kim, CEO-elect. They will present, and this will be followed by Q&A. We'll get started right away. Christophe Weber: Thank you, Chris, and thank you, everyone, for joining us today. Our fiscal year 2025 third quarter results are confirming the strength of Takeda fundamentals and our ability to maintain disciplined cost management and operational efficiency while continuing to focus on innovation and long-term sustainable growth. Milano will explain our financial results in detail in his presentation shortly. Fiscal year '25 remains truly a pivotal year for Takeda. We are in a phase of preparing for significant new product launch, making major step forward in our new growth trajectory. In particular, I would like to focus on oveporexton, rusfertide and zasocitinib, which are key assets in our late-stage pipeline that we expect to launch over the next 18 months. Oveporexton is the first orexin agonist to be submitted to the FDA and has a considerable first-mover advantage. Phase III results were statistically significant across all primary and secondary endpoints, demonstrating clinically meaningful improvement on daytime and nighttime symptoms. This reinforce our belief that this medicine can truly transform the life of patient with narcolepsy type 1. Rusfertide is an hepcidin mimetic that has demonstrated durable and sustained hematocrit control in patients with polycythemia vera or PV. Nearly half of PV patients remain untreated in the U.S. today, and those that are treated still have significant challenge in managing their disease. The Phase III data underscore the potential for rusfertide to transform the standard of care for these patients. We have filed a new drug application with the FDA for oveporexton and rusfertide and are awaiting formal acceptance. Finally, at the end of last year, we announced positive Phase III psoriasis data for zasocitinib, our highly selective TYK2 inhibitors. Full detail will be disclosed at the upcoming congress, but this once-daily oral therapy offers a compelling profile to help shift the psoriasis advanced therapy market towards oral treatment. Regulatory filing preparations are underway, and we expect to launch zasocitinib in the first half of calendar year 2027. The positive data for all the three programs met or exceeded our expectation. Now we are focused on preparing for launch. We will update the peak revenue potential for these three programs in the future. Combined, we believe this product could more than offset the anticipated impact of ENTYVIO biosimilar entry from the early 2030s onwards. And in addition to these three, our transformative late-stage pipeline includes five other innovative programs, two of which we have recently added through our strategic partnership with Innovent Biologics. Each of our eight late-stage program has the potential to transform the current standard of care, providing strong and sustainable growth drivers for Takeda well into the future. Andy will share more details about our pipeline advancement later in this call. Now I will hand it over to Milano, who will discuss our financial results and the outlook for the rest of the fiscal year. Milano, over to you. Milano Furuta: Thank you, Christophe, and hello, everyone. This is Milano Furuta speaking. Slide 6 summarizes our Q3 year-to-date results. As you know, this year, we are managing the significant impact of VYVANSE generic erosion. However, if you look at the performance quarter-by-quarter, the headwind from VYVANSE is steadily tapering off as the year goes by, and we are maintaining strong cost discipline to limit this impact to profit. Revenue for the 9 months period was just over JPY 3.4 trillion, a decrease of 3.3% or minus 2.8% at constant exchange rate or CER. Core operating profit, core OP was JPY 971.6 billion, a year-on-year decrease of 3.4% at both actual FX and CER. This is a meaningful improvement from our first half results. Reported operating profit was JPY 422.4 billion, an increase of 1.2%. Core EPS was JPY 428, and reported EPS was JPY 137. Cash flow has been very strong this period with adjusted free cash flow of JPY 625.9 billion, even after the upfront payment of USD 1.2 billion to Innovent Biologics in December. Slide 7 shows our growth and launch products, which represents over 50% of total revenue and grew 6.7% at constant exchange rate. This is a steady improvement on the 5% growth rate we saw in Q1 and Q2. In GI, ENTYVIO grew 7.4% at CER. Growth in the third quarter was particularly strong as expected, partially due to a onetime gross to net true-up in the period prior year. ENTYVIO Pen continues to be the main driver, helping us maintain leadership share in a competitive IBD market. We are also pleased to report that as of this month, ENTYVIO Pen is now on formulary with all three large pharmacy benefit managers with commercial coverage of more than 80%, in line with competing products. With this progress, we are on track to achieve our full year projection of 6% growth. In rare diseases, TAKHZYRO has slowed to 2.4% growth at CER. Although we continue to see strong uptake in international markets, this is being offset by the impact of new competing products in the U.S. In PDT, Q3 revenue growth marked an improvement on the first half. That said, we acknowledge some headwinds, particularly in albumin. IG growth was 4.3% year-to-date, driven by subcutaneous IG products, which grew double digits. IVIG sales have been impacted by Medicare Part D redesign in the U.S., which we expect to normalize in Q4. Albumin has returned to growth of 1.3%, but this is slower than expected due to softening demand in China, which is also putting pressure on other markets where supply is reallocated. While we anticipate additional tenders in Q4 to support an uptick in growth, there's a possibility we'd finish the year below our full year forecast. In oncology, FRUZAQLA continues to expand as well as we roll out global launches. Finally, in vaccines, QDENGA growth has accelerated to 22.1%, driven primarily by Brazil. On Slide 8, you can see how incremental revenue of growth and launch products and the impact of the VYVANSE loss of exclusivity contributed to total revenue performance. With each quarter, the gap is becoming smaller as the VYVANSE decline was heavily weighted to the first half of the year and the growth and launch products are performing better in the second half. Slide 9 shows year-on-year core OP performance. Here, you can see that the LOE of high-margin VYVANSE was the main reason for the year-on-year decline of 3.4% at CER. However, we have been able to limit the VYVANSE impact through operational efficiencies with R&D and SG&A expenses, both lower than the prior year. As we explained at the Q2 earnings call, we continue to tighten the belt on expenses, building on the progress of the cost efficiency program we started in 2024. This will be critical as we ramp up investment behind the three new product launches. We will not compromise on the necessary investments for long-term growth. We also have multiple programs in the late-stage pipeline that will require additional R&D investments in the coming years. At the same time, we will continue to pursue opportunities to offset these investments where possible to minimize the near-term impact on profit. Next, reported operating profit on Slide 10. This was flat versus prior year, with the lower restructuring expenses more than offsetting an increasing impairment of intangible assets. The main impairment item was booked in Q2 related to the cell therapy, and there were no major new items in Q3. Slide 11 shows our updated full year outlook. Starting with management guidance, we are revising only revenue guidance to low single-digit decline at CER, primarily due to stronger-than-anticipated VYVANSE generic erosion in the U.S. However, our commitment to OpEx discipline allows us to offset the gross profit impact from VYVANSE, and we maintain full year guidance for core OP and core EPS. For our reported and core forecast, we have revised our FX assumptions. As a result, our revenue forecast is now JPY 4.53 trillion, core OP forecast is JPY 1.15 trillion and core EPS forecast is JPY 486. We have also upgraded our adjusted free cash flow forecast. On Slide 12, we show more detail about the updated revenue and core OP forecast. For revenue, we are reflecting latest momentum of VYVANSE and other products, which includes plasma-derived therapies under TAKHZYRO. However, this is more than offset by FX upside, resulting in a net increase of our forecast of JPY 30 billion. For core OP, continued OpEx discipline fully offset the impact of VYVANSE. We also have FX benefit for a net increase to our forecast of JPY 20 billion. Thank you, and I will now pass over to Andy. Andrew Plump: Thank you, Milano, and hello to everyone on today's call. Takeda is entering an exciting new period of growth powered by our late-stage pipeline. As Christophe mentioned, in 2025, we were 3 for 3, delivering positive Phase III data readouts for oveporexton, rusfertide and zasocitinib. These exciting results are at the high end of our expectations, further strengthening our belief that these new medicines have the potential to fundamentally reshape their respective therapeutic landscapes, bringing transformative benefits to patients in the next 18 months. Let me begin with oveporexton, our expected first-in-class orexin 2 receptor agonist, which can transform the treatment paradigm for narcolepsy type 1. Approximately 85% of patients in the Phase III oveporexto trials saw measurable improvement, which brought them into the normative range on the Epworth Sleepiness Scale, or ESS, the gold standard measure of excessive daytime sleepiness. That means the majority of patients have the possibility of a normal day. In both Phase III studies, oveporexton achieved clinically and statistically significant improvements across all 14 primary and secondary endpoints with most participants reaching normative ranges. This normalization across such a broad range of NT1 symptoms, including daytime sleepiness, nighttime symptoms, cataplexy and cognitive function is unprecedented. Oveporexton doesn't just manage symptoms, it addresses the underlying orexin deficiency in NT1, offering patients a single, well-tolerated oral therapy that could restore how a majority of NT1 patients feel and function. We have submitted a new drug application to the FDA and are working to launch oveporexton this calendar year. Next is rusfertide, our hepcidin mimetic for polycythemia vera. One key data point from the Phase III study is the ability to maintain hematocrit control below 45% through 52 weeks. Real-world data shows that 78% of PV patients experience uncontrolled fluctuating hematocrit, leading to a fourfold increase in the risk of thrombotic events, including stroke, deep vein thrombosis, pulmonary embolism and acute coronary syndrome. Rusfertide targets the biology upstream, offering more stable and durable hematocrit control and fewer variable swings in hematocrit. Durable hematocrit control with impressive safety and tolerability also led to clinically meaningful and statistically significant benefits to patients' quality of life as measured by the PROMIS Fatigue Scale and myelofibrosis symptom assessment form. By reducing fatigue and other key disease-related symptoms as well as the need for phlebotomy, rusfertide enables patients to spend less time managing their disease and more time engaging in everyday activities. We have submitted an NDA to the FDA and are working to launch rusfertide in PV this calendar year. And finally, we have zasocitinib, our next-generation TYK2 inhibitor for immune-mediated diseases. In our Phase III psoriasis studies, zasocitinib worked fast with significant improvement in PASI 75 within 4 weeks. Patients, of course, want clear skin. At week 16, more than half of patients on zasocitinib achieved PASI 90 or almost clear skin, and approximately 30% achieved PASI 100 or completely clear skin. PASI scores continue to improve through week 24. These results are at the very high end of reported results for all therapies in development. Zasocitinib is a once-daily, well-tolerated pill that does not have any food interactions. We are looking forward to sharing the complete data at a medical conference in the near future and expect to launch zasocitinib in psoriasis during calendar year 2027. In addition, we remain confident in future indication expansion opportunities for zasocitinib, including psoriatic arthritis and inflammatory bowel disease. Together, oveporexton, rusfertide and zasocitinib represent three transformative medicines we plan to bring to patients over the next 18 months. They demonstrate the strength of our R&D engine, the speed and quality of our clinical execution and our commitment to delivering therapies that meaningfully change how patients live. Next slide, please. These first three approvals are just the beginning. I want to highlight some additional bright spots within our late-stage pipeline. Building on our success, a head-to-head study of zasocitinib versus deucravacitinib is fully enrolled and on track to read out in 2026. These data are not required for filing, but will be insightful to further differentiate zasocitinib from other oral psoriasis medicines. Last November, at the American Society of Nephrology Kidney Week, we presented new IgA nephropathy data from a proof-of-concept study for mezagitamab, our anti-CD38 monoclonal antibody. IgAN is a progressive autoimmune disease that causes irreversible damage to kidney function. Patients receiving mezagitamab demonstrated durable kidney function for about 2 years. This is an incredible 18 months after the initial 5-month treatment period, suggesting a disease-modifying effect sustained long after dosing that could allow for extended treatment holidays, very important for patients with this lifelong disease where many progress to kidney failure within 10 years. In addition to oveporexton, we are excited about the potential of our second orexin 2 receptor agonist, TAK-360, which is initially focused on patients with normal orexin levels like those with narcolepsy type 2 and idiopathic hypersomnia. Phase II studies in NT2 and IH are enrolling well, and we expect to have data this year to inform Phase III development. Next slide, please. Turning our attention to oncology. Late-stage highlights include elritercept, our activin A/B ligand trap that showed compelling data in myelofibrosis as presented at this past ASH meeting. Phase II myelofibrosis data showed clinically meaningful improvements in anemia and thrombocytopenia alongside favorable trends in spleen volume and symptoms when added to ruxolitinib. Elritercept remains a late-stage, potentially best-in-class approach across MDS and myelofibrosis. And lastly, we recently licensed two new innovative oncology drugs from Innovent Biologics, now called TAK-928 and TAK-921. TAK-928 is a potential first-in-class alpha biased IL-2 PD-1 bispecific antibody designed to selectively activate tumor-specific cytotoxic T cells through activation of the IL-2 alpha CD25 receptor while reducing the risk of exhaustion through immune checkpoint inhibition. In early-stage clinical studies, TAK-928 has demonstrated encouraging activity in heavily pretreated immunotherapy and chemotherapy refractory lung cancer as well as in immunologically cold tumors such as microsatellite stable colorectal cancer. We have seen compelling high-quality data in well over 1,200 Chinese patients and consistent early signals from ex-China populations. We have completed the rapid transfer of data and materials and are now executing with speed to generate global data sets that will supplement the China data shared last year at ASCO. This will allow us to advance TAK-928 to treat a broad range of solid tumors, including non-small cell lung cancer and microsatellite stable colorectal cancer. These go to Phase III decisions will start as soon as 2026 and into 2027. The shared investment in TAK-928 has a 60-40 split with Innovent and is stage gated by these go decisions. TAK-921 is a Claudin 18.2 targeted antibody drug conjugate that couples a selective antibody with a silenced Fc region to a topoisomerase payload. This approach is designed for potent, tumor-specific delivery of this preferred payload to patients with pancreatic and gastric cancers where unmet need remains high. The engineered Fc silencing reduces off-target toxicity in the GI tract and lung, potentially allowing for more robust dosing and the ability to combine with first-line regimens. Clinical data shows lower rates of GI adverse events relative to other Claudin 18.2 targeted antibodies in development. We plan to develop TAK-921 in first-line gastric cancer and first-line pancreatic cancer. And now I'd like to turn it back to Christophe and Julie for a few closing remarks. Christophe Weber: Thank you, Andy and Milano. Before we start the Q&A, I would like to share that this is my last earnings call as a main presenter. I will be on the full year earnings call, but in a supportive role as Julie Kim, our CEO-elect, take the lead and sets guidance for fiscal year '26 ahead of our formal handover in June. This is part of our intentional and coordinated transition. Starting this month, Julie began taking on more operational responsibilities to ensure that we remain focused on our upcoming launches without interruption. I would like to thank all of you for the important dialogue we had over the years about our business. I am proud of the work we have done to position Takeda among the global R&D-driven pharma leaders and poised for growth in the years ahead. It has been a wonderful journey, and I am excited about Takeda's future and confident in Julie's leadership in its next era. Julie, over to you. Julie Kim: Thank you, Christophe, and thank you for your leadership and guidance over the last 12 years. Hello, everyone, and thank you for your trust that you're putting in me to lead Takeda's next era of growth. As Christophe shared, our transition has been incredibly collaborative. And one of the benefits of being an internal successor is that we don't have to slow down, we can keep the momentum going and continue to move the organization forward. To that end, you may have seen our post today about changes to our organizational structure and executive leadership we are making effective April 1. These changes are designed to position us for competitiveness, growth and speed in the years ahead, particularly as we plan for multiple launches. As we implement these changes, we expect the teams will identify opportunities to simplify their work further as we continue to redesign our processes to adopt AI and other advanced technologies. Next quarter, I look forward to taking the lead on the earnings announcement and providing guidance for fiscal year 2026. I value our ongoing dialogue and will stay closely engaged with all of you in the months and years ahead. Thank you. And with that, I will turn it back to Chris for Q&A. Christopher David O'Reilly: [Interpreted] [Operator Instructions] Morgan Stanley, Muraoka-san. Shinichiro Muraoka: [Interpreted] This is Muraoka, Morgan Stanley. I hope you can hear me. Christopher David O'Reilly: Yes, we can hear you. Shinichiro Muraoka: Maybe it's too early to ask, but Milano-san, what are your thoughts about the next fiscal year? Contribution from the new product is probably small, and you'll be spending a lot of marketing expenses for those new launches, I understand that. But live situation is coming down, it's getting better, and profit will be maybe flat or slight decrease. And I'm thinking that you can continue to increase dividend. But can you give us some suggestions about what will happen in the next fiscal year? Christopher David O'Reilly: Milano, please go ahead. Milano Furuta: [Interpreted] Thank you, Muraoka-san. Yes, it's a little bit too early, you're right. Our guidance will be provided as usual in May. And the next fiscal year's budget is being finalized as we speak. So please give us some more time. With regard to the current momentum, I believe that we can give you some more information. Top line. Well, growth of growth and launch products versus the LOE impact, I think it's a balance between the two. We expect the growth products and launch products to continue to grow. But as you saw in the numbers in this fiscal year, they are beginning to mature. This cannot be denied. But the gap between LOE and growth and launch products is shrinking every quarter. So we need to see how this balance will work out for the next fiscal year. We are trying to figure that out now. So please give us some more time. As far as expenses are concerned, this fiscal year, the whole company endeavored on saving the costs, and we will continue to make this effort. But Muraoka-san, like you said, launch costs, three products we launched within 1 year. This means that there will be some load burden. But this uptick is very important for the future growth as well. This is a very important timing for us. So we will be discerning in terms of which investments are necessary, and we will not compromise in investing these launches. As far as R&D is concerned, this fiscal year, we have been trying to save the costs and also at the same time, continue to drive various projects through the Innovent partnership. We have introduced new assets for Japan and full-scale development is expected to start. Considering that impact, R&D expenses are likely to go up. I think that would be the correct way of reading it. But again, I would like to emphasize that we will continue to tighten the cost wherever we can, and I hope that you can evaluate that as well. Shinichiro Muraoka: [Interpreted] Do you have any comments about the shareholder return? Milano Furuta: [Interpreted] Well, dividend, yes. Progressive dividend is something that we have been talking about for a long time. So this is the basic policy. So either keep it flat or try to increase the dividend. This is the basis. Whether or not the dividend will increase and by how much? Well, in order to decide that we have to look at the core EPS and also reported EPS as well as cash flow generating power and the speed of a reduction of debt-bearing -- interest-bearing debt. So we'll pay attention to those and decide. Shinichiro Muraoka: [Interpreted] Understand. I have great expectations. I have another question about zasocitinib. UC CD Phase II outcome, when can we expect it? And also what about dosing? Phase II for UC was 50 milligram or 30 milligram? And what about the psoriasis safety data based on that safety data? Can you perhaps comment on this? Christopher David O'Reilly: So the question on timing for the UC and CD readouts for zasocitinib and which doses we are using. Andy, if you could comment on that, please? Andrew Plump: Thanks, Chris. Thanks, Muraoka-san. So we'll have data from both the UC and Crohn's disease Phase IIb studies this year. Both are dose-ranging studies. As we've mentioned -- we haven't disclosed the precise doses, but as we've mentioned, the 30-milligram dose that we've studied in psoriasis and that we'll be registering for psoriasis is the low end of the dose range in IBD. We have reason to believe that higher exposures will be necessary for efficacy in UC and Crohn's disease, and we have significant upwards headroom in dose to study. So those studies are ongoing. And then your last question was with respect to safety profile for psoriasis. So we've just commented at the top line in December when the Phase III studies read out. We'll be presenting at a medical conference in the near future. You could probably guess which conference we're targeting. And overall, the safety profile that we've seen in both Phase III studies is very consistent with the profile that we had seen previously in our Phase II study. Christopher David O'Reilly: [Interpreted] The next question is Yamaguchi-san, Citi. Hidemaru Yamaguchi: [Interpreted] Can you hear me? Christopher David O'Reilly: [Interpreted] Yes, we can. Hidemaru Yamaguchi: This is Yamaguchi from Citi, I have two questions. First of all, the first one is more of a broad question because MFN situation or medical policy in the United States seems to be are coming down because the major companies are now settled with the U.S. comment on MFN. But a Japanese company, including your company, are still excluded from this discussion. But what do you think about this sort of activity, which you need to do regarding MFN or U.S. policy in the near future? That's the first question. My second question is regarding the organization change, which you announced today, especially on the strategic portfolio development, which it sounds like you're trying to speed up on the some of marketing activity in those areas. Especially in the U.S., U.S. marketing is a key for next few years. And it depends on the products, but your marketing activity in the past are not necessarily executing better than expected, to be honest. But how are you going to change, especially in the U.S. marketing organizations or activities in the near future through the Kim-san's roles or our CEOs roles in the near future? Thank you. Two questions. Christopher David O'Reilly: Thank you, Yamaguchi-san. So the first question on MFN and latest U.S. policy updates. The second question regarding the organizational updates that we announced today. So I'd like to call on Julie to address both of those questions, please. Julie? Julie Kim: Yes. Thank you, Yamaguchi-san for the questions. First, in regard to MFN, as you've noted, the number of companies, 17 companies that had originally received the letters from the White House, they have all gone in for negotiated agreements in regards to how they will approach MFN, how they're going to be managing tariffs with the relief that they received and further investments in the U.S. So since those agreements have been made, there were also releases from the government in terms of the generous model, which details how these agreements can be actually implemented through Medicaid. And there have been a release of GLOBE and GUARD CMMI demonstration projects for commentary by the public. So at this point, we have assessed both the impact of generous and looking at the potential design of the two CMMI products on Takeda and Takeda portfolio. So we are evaluating those impacts and taking necessary steps to address that within our approach to MFN. But let me end by saying that in general, MFN is not an approach that we support. Having price controls and importing one component of health care systems that have very, very different structures does not make sense for the U.S. and can impact future innovation. So we are not in favor of MFN, but we will continue to address the challenges that may face Takeda going forward. In regard to the organization changes that were announced today, you will see that from a commercial standpoint, there are basically two key structures that we are trying to focus on. One is a therapeutic one. And so you will see that the oncology business unit is still a separate business unit. Both Andy and Christophe have talked about the assets that we have brought in, particularly the Innovent ones will be a key part of our oncology portfolio, and we are very much looking forward to launching rusfertide later this year. So maintaining our focus on oncology to drive that growth and the potential that we have in our pipeline now is absolutely critical. And then for the upcoming launches, creating two primarily geographic focus, one in the U.S., maintaining the U.S. focus given the size of the market and the dynamics that exist that we have to manage, that is part of being able to set ourselves up for success going forward in terms of the commercial approach to the U.S. as well as the international markets. So what may not be as visible through the org changes that are announced is the work that we're doing in terms of our marketing excellence and sales excellence and commercial operations. So we are working on all those aspects, again, to ensure that we are ready and can deliver successful launches going forward. Thank you. Christopher David O'Reilly: For the next question, I would like to call on Stephen Barker from Jefferies. Stephen Barker: Steve Barker from Jefferies. I have two questions, both about ENTYVIO. The third quarter sales were very robust. The global third quarter sales expanded 17% year-on-year on a reported basis, much better than the 3% growth reported in the second quarter. You said that you are now confident that you can achieve your 6% guidance for the full year, but that would imply a 2% decline year-on-year in fourth quarter sales. So would you agree that your -- that there's a decent chance at least that you can beat the current guidance for full year, 6% growth. And if you could just talk a little bit more about what's driving the good performance in the third quarter and if it is something that can be sustained into next year? That's the first question. And then second question. A couple of days ago, CMS announced that ENTYVIO has been chosen as one of the drugs for the third cycle of IRA price negotiations, meaning that it's likely to get a substantial Medicare price cut from the start of 2028. Any comments on how big that price cut might be? And if you can still achieve your peak sales guidance of $7.5 billion to $9 billion even with the price cut? Christopher David O'Reilly: Okay. Thank you, Steve. So the question on ENTYVIO sales trend, impact of IRA inclusion and the implications on peak sales. So I'd like to ask Christophe to start with this one and then perhaps Julie can add some comments as well. Christophe? Sorry, Christophe, I think you might be muted. Christophe Weber: Thank you, Steve. Obviously, ENTYVIO is operating now in a very competitive market. We know that, but we are pleased by the Q3 performance. One important point is that we have improved our coverage situation in the U.S. All the big 3, now PBM, are reimbursing and covering ENTYVIO Pen. Took a while, but we have now a coverage at the level of our competitors around 80% since January. So it's quite recent. So we are hopeful that the Pen will continue to progress in the U.S. as it has progressed in other countries. And long term, we still aim to have a 50-50 split between the IV and the Pen. So overall, a good performance in Q3. Long term, we project ENTYVIO not to gain market share, but to remain stable and to grow at market pace basically. While the Pen is developing, that's our current estimation, but the market is changing quite a bit, but good performance for sure in Q3. Julie Kim: And then Steve, in regards to the IRA selection of ENTYVIO. As we've shared in the past, this was anticipated. And so we've been preparing for this eventuality. As you know, from a timing perspective, we have a period of time in which we have to confirm engagement in the negotiation. And then towards the end of the year, we will actually find out what price will be set. I think you are also aware, it's not really a negotiation, but we will be submitting our best evidence package to support ENTYVIO. If you look at what's been happening over the previous two cohorts, the second cohort had higher price cuts than the first cohort. So it is too early to say whether that trend will continue into the third cohort or whether it will be similar to the second cohort. So it really depends on where we'd land with the final pricing on ENTYVIO in terms of when that peak sale could -- sorry, peak revenue could be and also if we end up in the 7.5% to 9% or not. So we will update later once we understand what our pricing situation will be for ENTYVIO. Christopher David O'Reilly: [Interpreted] Next question is from Matsubara-san, Nomura Securities. Matsubara: [Interpreted] This is Matsubara, Nomura Securities. First question is about TAKHZYRO. On a CER basis from the second quarter, the growth rate seems to be slowing down. And is it affected by the competitor DAWNZERA? And the transition from TAKHZYRO to DAWNZERA and HAE template showing some 65% decrease. So what about the prescription rate in existing patients or new patients? Could you comment on those? Second is, as Milano-san mentioned, oveporexton and zasocitinib will be launched and also R&D spending -- more spending will be necessary. And in the midterm viewpoint, as you try to increase the operating profit, how are you going to take measures? Christopher David O'Reilly: Thank you, Matsubara-san for your questions. So the first around recent TAKHZYRO trends -- prescription trends in the U.S., I'd like to ask Julie to comment on that. And then the second question, looking at our outlook for profit over the medium term. I'd like to ask Milano to comment on that, please. First, Julie? Julie Kim: Yes. Thank you for the question, Matsubara-san. When it comes to TAKHZYRO, I will share a few comments. First, in terms of the overall market, this is a market that has been maturing. The diagnosis rate is high and the penetration of prophylaxis treatment has been high as well. So TAKHZYRO continues to be the gold standard for HAE patients. And you are correct that we have seen an impact of the launches of the two competitive -- recent competitive entrants. And so we are seeing an impact in terms of new starts from these new competitive entrants. But I also want to point out that part of the lower growth is also due from the impact of Medicare Part D redesign that we are experiencing a bit higher impact from that in the U.S. than anticipated. Now when it comes to long-term efficacy, if you look at the real-world evidence that we have for TAKHZYRO, no other product is able to demonstrate the level of efficacy that we have when you look at the data from an attack perspective. We have patients that are attack-free for over a year at any given point in time. And so from an efficacy standpoint, our real-world data for TAKHZYRO, it can't be beat. So that is something that I would like to highlight, and it's something that we continue to defend and support from a TAKHZYRO standpoint. Milano Furuta: [Interpreted] Thank you very much, Matsubara-san. And I'd like to answer to your second question. At the beginning as Muraoka-san also asked, and I mentioned about the pressure of overall expenditure increase. And therefore, I'd like to touch upon the potential contribution of new products to the profit. And this is a general comment that whenever new products come out, then in the second year or the third year since its launch, we will see a contribution to the profit. It depends on the timing of the launches. Therefore, it is difficult for us to say anything concrete whether it's going to be next year or the year after the next and how much. But amongst the three products, oveporexton's uptake after the launch is expected to be fast. Whereas zasocitinib will have to play in a very highly competitive market. Therefore, I think for zasocitinib, I think we need to take time to monitor. And rusfertide is in between. It is a highly innovative product. But at the same time, the market access may not necessarily be so easy. Therefore, how that will demonstrate the uptake, we would like to monitor. But the speed of uptake will be impacting on to the timing that we start to see the product contribution to the profit. And also not just these three products, but five new pipeline assets, readouts are coming. And in forthcoming 5 or 6 years, they will continue to be launched. And as a result, overall, I think that the overall profit level should be able to be enhanced. At the same time, not just the core OP, but the reported operating profit is also monitored. For instance, VYVANSE, the intangible asset, the amortization will be complete. And as a result, there will be also a positive contribution in that sense. Thank you. Christopher David O'Reilly: Moving on to the next question, I would like to call on from TD Cowen, Mike Nedelcovych. Michael Nedelcovych: I have two. My first is also related to the IRA impact on ENTYVIO. I believe it is Takeda's base case that ENTYVIO Pen will be included in the IRA price negotiation. But I'm curious if that is a completely settled matter or not. Is there any chance that ENTYVIO Pen is ultimately excluded from the IRA price negotiation? That's my first question. And then my second question relates to the partnered AC Immune asset in Alzheimer's. It looks like data may be anticipated in mid this year. Should we expect that to be the time when Takeda decides if it wants to opt in or not? And Andy, I'm curious to hear your thoughts more broadly on prospects for Alzheimer's disease prevention or delay based on early amyloid plaque clearance? What are your general thoughts on this approach? Christopher David O'Reilly: Mike, so I think the first question, Julie, can comment on IRA ENTYVIO impact on -- potential impact on Pen. And then the second question to Andy on the AC Immune partnership and AD in general. Julie? Julie Kim: Thanks for the question, Mike. And in terms of the negotiation with the IRA, we do expect that Pen will be included. Andrew Plump: And Mike, on the AC Immune program, so we won't have data this year to drive a decision that will come in subsequent years. And thanks for asking more generally. Of course, I've been working in this industry for almost 3 decades now. And the first project I worked on was a project of a gamma secretase inhibitor designed to reduce A-beta production. It's been one of -- to me, one of the most exciting and promising, but also one of the most challenging areas in our industry. I'm a big believer that if we could clear a beta plaque early in the longitudinal course of Alzheimer's disease that we could drive even greater benefits than what we see from the passive antibodies that have been used in demonstrated efficacy. So we're quite excited about the vaccine program. Of course, the challenge with the -- historically with the vaccines has been threading the needle of safety and efficacy. We think we have a shot with the -- with our AC Immune partners and still working towards that. Christopher David O'Reilly: [Interpreted] The next question is Wakao-san, JPMorgan. Seiji Wakao: [Interpreted] This is Wakao, JPMorgan. I have two questions. Firstly, regarding PDT, how do you assess the third quarter progress on PDT? Compared with your guidance, PDT progress seems to have been somewhat slower. And could you share your outlook for PDT in fourth quarter and next fiscal year? This is the first question. And second question is about zasocitinib. Should we expect zasocitinib Phase III data to be presented at AAD in March? If so, what key aspects should we focus on? As Icotrokinra and [indiscernible] programs have shown favorable data or so, where do you see zasocitinib's key point of differentiation? Christopher David O'Reilly: Thank you, Wakao-san. So the first question on the PDT business performance and outlook, I'd like to ask Julie to comment on that. And the second question on zaso data, where will it be presented and what should we focus on in that data, I'd like to ask Andy to comment on that, please. Julie Kim: Thank you for the question, Wakao-san. In regards to PDT, as Milano was sharing in his part of the presentation earlier, we do see some slowdown in demand, particularly in regards to albumin in China. As you may be aware, the Chinese government has put in place utilization guidelines that are impacting demand for albumin in China. And it will -- it has slowed down the growth, and it will take time for growth to return in China. When you look at the overall outlook for PDT overall, there, we still believe we will have mid-single-digit growth for this year as previously shared and longer-term outlook is still strong. The quarter-to-quarter, as you know, because there are lots of variabilities in regard to tender timing, et cetera, we do -- as Milano mentioned, we do believe that there is a possibility we will have a shortfall, particularly in regards to albumin. But overall, we will be meeting the forecast for PDT. Seiji Wakao: So could you also comment on the immunoglobulin? Julie Kim: Sure. Yes. From an immunoglobulin perspective, again, long-term growth, we believe will remain steady. And from a short-term perspective, we are expecting to be on forecast for immunoglobulin. Andrew Plump: Wakao-san, this is Andy. So thank you for your question on zasocitinib. So we haven't disclosed yet the conference that we'll be presenting at, but AAD certainly is like is a possibility. I just suggest that you watch out for the abstract when they're released in mid-February for AAD. And then in terms of what to look for, it's pretty straightforward. It's fast onset of action. It's clear skin and it's ease of administration. We have a once-daily oral pill that's well tolerated with a strong safety profile. And then when you double click, you'll see that in the two Phase III studies, we hit on every single primary and secondary endpoint, and that's 44 total endpoints. So there'll be a lot of data that will be shared, and we're quite excited to get it out there. Seiji Wakao: So what is our competitive advantage? Andrew Plump: Well, it's has -- as we mentioned over the last hour, it has an efficacy profile that at 16 weeks is at the very high end of what's been seen for oral agents. It's ease of administration without having any food effects and it's the overall profile, and it's the rapidity with which we generate clear skin in an oral agent. We believe and we think the data will demonstrate that it's as good or better than any other oral option in the moderate to severe plaque psoriasis space. Seiji Wakao: Okay. I'm looking forward to see the data. Christopher David O'Reilly: Okay. Thank you very much, Wakao-san. I think we have just time for one final questioner. So I'd like to call on Tony Ren from Macquarie. Tony Ren: Yes. Thanks for the chance to ask the last question. My first one, and I'll go back to the -- again, for Andy, the zasocitinib regulatory pathway. So assuming that you will present the data at AAD in March, the standard FDA review takes about 10 months. So do you think you can actually launch it earlier than the 18 months of a time line guided? Are you being a little bit too conservative in estimating the time line? So that's my first question. The second one is probably to Julie about the ENTYVIO biosimilar. Have you -- as you're thinking about the biosimilar entry changed because of the subcutaneous Pen, I noticed that a recent conference in San Francisco, you guys are now saying 2030 and beyond. So just want to confirm whether the launch of the Pen and the wide adoption of the Pen has anything to do with the biosimilar entry. Yes. So that's my second question. Christopher David O'Reilly: Okay. Thank you, Tony, for your questions. So the first on zasocitinib regulatory pathway and potential launch timing, Andy can comment on that. And then the second question on the ENTYVIO biosimilar entry timing, I think Julie can comment on that, please. Andy? Andrew Plump: Thanks, Chris. Thanks, Tony. So just to put perspective on the filing time line. So there are three elements that define the time line for filing. There's the Phase III studies, which we've completed. Those are ready to go. There's the overall patient safety database. So we have to accrue safety in about 1,000 patients on active drug for a full year, and then the third is the CMC package. So when you put all three of those together, Tony, we're looking at a submission that's likely to occur sometime in this summer. And then, of course, the time line for the review will be something that will be in dialogue with the FDA and once we've made that submission. Julie Kim: Thanks, Tony, for the question on the ENTYVIO biosimilar timing. So we have not really changed our timing expectations here. As we've shared previously, we do have patents that cover various different aspects of ENTYVIO that go out to 2032. But as you are also well aware, there are biosimilars in development, and they could file with legal challenges -- I'm sorry, they could file and we would then pursue legal challenges. So that's why the timing could be 2030, 2032, and that's why you hear us saying that. Also from an overall market attractiveness perspective for ENTYVIO, as now ENTYVIO has been selected for IRA negotiation. The pricing expectations for biosimilars will also be impacted by that. Thank you. Christopher David O'Reilly: Thank you, Tony, for your questions. With that, we'd like to bring this call to a close. Thank you all very much for participating in the call today. This concludes our Q3 earnings call. Thank you. Good night. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Welcome to the Trelleborg Q4 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Peter Nilsson; and CFO, Fredrik Nilsson. Please go ahead. Peter Nilsson: Thank you. Welcome to all of you to our, let's say, Q4 call of 2025. Peter Nilsson speaking and joined on the call also by Fredrik Nilsson, our CFO; and also supporting us here in the call is also Christofer Sjogren, our Head of Investor Relations. And as usual, we're going to use the slide deck, which has been on our webpage for some time now for some hours, and use this as guiding us through. And as usual, I'll kick off by some overall comments and commenting for our business areas and business sustainability before turning over to Fredrik to guide us through the figures and then summing up with a summary and then ending up with the Q&A session. So once again, back to the slide deck, turning to Page 2, the agenda, highlights, starting in the business areas, financials, summary outlook and Q&A. Quickly turning to Page 3. We see, let's say, we say continued margin improvement in the quarter. And we can say the quarter overall is actually somewhat better than it looks when you're looking at the figures, and I'll get back to that and commenting on that as we move along. Sales in the quarter, slim organic sales growth, slightly shy of our expectations, but it doesn't really mean that the business actually was worse. It's actually a slide in a few project deliveries in Industrial Solutions, which is pushing down the organic sales somewhat, but that's going to come back. I'm going to comment on that later as well. M&A adding 3%. And then, of course, like most companies reporting in Swedish krona, so a fairly heavy wind against us then from currency, which is pushing down the reported sales in Swedish krona by 9%. EBITA, well managed. We are delivering a record high margin in the quarter, 18.4%, which is best ever for us for Q4. Let's say, a result of good control, let's say, a good mix and yes good overall cost control and good overall price control. So we're fairly happy with the margin in the quarter. Also here, of course, we will have, let's say, substantial currency translation effect of minus SEK 140 million, which fully explains the -- let's say, absolute figure deviation compared to a year ago. We have items affecting comparability, SEK 176 million higher than last year, but in line with guidance. Cash flow, very strong, strong ending of the quarter in terms of cash, which we also see as a quality item for overall. We managed the cash good, I mean, which is both in terms of CapEx, working capital, so good delivery of cash, which, of course, is something we are happy with. Share buybacks continue same pace as before, roughly SEK 0.5 billion a quarter. And on top of that, the Board is also proposing an increase of the dividend from SEK 7.50 to SEK 8, which then going to be confirmed at the upcoming AGM in April. And you also note the acquisition here happening just after the ending of Q4. We're buying a smaller but important business for us in Austria, which is focusing actually to improve our efficiency and technology in manufacturing more than adding kind of, yes, external sales, but that is also something we're going to create some foundation for improved efficiency as we move along both in Sealing Solutions as well as in Medical Solutions. So this is, let's say, the overall headline. So turning to the page. Next page, Page 4, commenting organic sales. And here is the one that actually looks -- it is slightly better than it looks. I mean, Europe continuing. I mean we've seen, let's say, improvement in organic sales throughout the year, starting with a fairly solid minus in Q1 and then step-by-step in moving. And then we are up to plus 4% organically in Europe in the quarter. Americas continuing in a good way in a way and a solid positive. And then we have Asia and Rest of the World turning negative. But I mean, the explanation is here, which is linked also to Industrial Solutions is actually a result of lower project deliveries in a few countries here, if I may say, some odd countries like Taiwan, Malaysia, with Australia orders, Morocco, which is pushing it down, while we continue to deliver a solid organic positive growth in the main markets, China and India. So overall, it's actually a better development than the, let's say, reported figure here, minus 4% shows. Turning to next page, back to the agenda. And quickly turning to Page 6 and commenting on the business areas. Industrial Solutions, I've already been touching on that for a few times here, lower project sales, and that is not really a result of lower order intake. I mean, we have a good order intake. We continue to build the order book, but there's been a few bigger projects which has been delayed. And it's not really delayed causing by problems. It's more that some of these projects related to LNG and temporary also to construction tunnel seals and stuff like that, the projects has been a bit delayed. It's actually full in the pipeline there and order books for us and for the market is good. But nevertheless, in the quarter, we impacted. And we already commented on that. We do not expect that to really bounce back already in Q1. We will see in Q4 and on -- Q2 next year and onwards what we're going to see. So we are not concerned about the full year of '26, but it will be a little bit soft ending, a little bit soft start of '26. But overall, once again, I want to say on this lower project deliveries is actually deliveries. It's not order intake. Order intake is still strong, and we continue to build order book in this segment. Continuing to see in varying sales what we call diversified industrials, we're exposed to variety of segments here and also within construction, we see kind of the more, say, window related, if I may say, windows and facade sales, which is still a little bit depressed, while other segments in construction like water infrastructure is actually performing better. So there is, let's say, a mix within this. But overall, once again, positive actually in this area and all of the business area is being pulled down by this kind of lower sales, lower deliveries in the quarter related to the project-related part of the business area. Automotive stable, good performance, small aerospace sales in Industrial Solutions, but that's developing nicely in the quarter. And we see actually a smaller decrease in EBITA, which is fully -- let's say, explained by negative currency translation rate effects because overall, the margin is improving. We continue to invest in structural improvement here. We get the more efficiency in the structure. And then we have a slight, let's say, sales mix negative here well -- sorry, sales mix positive in the quarter, which is also pushing it up a little bit. But overall, better than it looks, that is kind of the overall message that we want to send in relation to Industrial Solutions. We also note in Industrial Solutions, there's also been quite a lot of acquisitions throughout the year, and they are being integrated in a successful way, and we see kind of also improvements as these businesses are getting even more, let's say, included in our daily operations. So moving then to the next page, Page 7. Comments on Medical Solutions, organic sales growth margins up. And if you say a slight negative, let's say, development within these -- within Industrial Solutions, we say Medical was slightly better than we expected by some extra orders in the quarter from some of our key customers, which then pushed organic sales up to plus 5%. Solid sales growth in Europe and Asia, while North America still, we think we call it sluggish, which is still a little bit up and down. It is a little bit volatile, more volatile than we kind of should be. Our customers a little bit ordering in, let's say, uneven way. So this is something that we continue to monitor overall, still positive in medtech, but once again, good development in Europe, while still North America can be improved. Life science, although small in the business area, but continue to deliver strong growth and continue to look very positive. And also here, we have EBITA down, but also fully explained by the exchange rate effect. As you see, the margin is actually up year-on-year, supported then by these higher volumes, but also in this area, we are initiating some efficiency improvements. We have some restructuring within the business area, which is going to improve the overall efficiency, and we see the first improvements in this quarter. We also note with it, let's say, with a great satisfaction that we now have a factory in Costa Rica up and running, although at very small volumes to start with, but that is kind of offering new opportunities for us to both on the local market in Costa Rica, but also as a very efficient facility able to support our overall business in North America. So overall, good development in Medical Solutions and we're definitely moving in the right direction. Then turning to Page 8. Sealing Solutions, solid organic growth. We see an improvement that we see here. And we have, say, also, even though we have a -- let's say, solid organic improvement, we continue to build the order book. We continue to see a good demand going forward. And also here, adding M&A to improve it -- improve sales even further. And we see that actually industrial segments all over the world is improving. Automotive segment is down, mainly in Europe and somewhat we call sluggish here as well. So sometimes varying also in other areas and especially we are continue to be hurt a little bit in the aftermarket of automotive, where we have this as a brake-related businesses, which is still challenged a little bit, and that is where we are also, which is driving a little bit negative mix actually if you look at the overall and which explains a little bit why we are not getting kind of the add-ons here by the higher volumes to push up the margin. Aerospace continued to develop very well. Good order intake, order intake well above sales and continue to build a good order book. Also here, of course, the let's say, the supply chain is fully loaded. And I mean, although the ambitions for Boeing and Airbus is high, we don't expect them really to deliver as they are guiding. But nevertheless, we continue to see a very good development within Aerospace. EBITA, a little bit up, margin a little bit up. And then also here, we have also, of course, like every else, a substantial negative, let's say, currency impact. And we also note, I mean, we are, of course, as you know, aiming for an improvement here in the margin, and we are very certain that it's going to happen. But in this quarter, we are slightly hurt with these acquired businesses also here, which is coming in with a slightly lower margin. And also, as I already mentioned, a slight thin, let's say, also sales mix negative effect on the margin. So overall, good development and Sealing Solutions moving in the right direction and the markets are kind of supporting us going forward here as well. Turning to Page 9. A few comments on sustainability. We continue to improve, and we're getting to a level where, yes, almost as far as we can go on this. We've done a good job in this in many -- for many years, continue to improve year-on-year, 28% down in CO2. And looking at the next page, where we talk -- also share of renewable and fossil-free electricity, we're actually approaching 100% here, up at 98%. And I mean, as you know, you cannot really improve a lot from this level. So this is more a challenge to maintain on this level. So good development in CO2 and good development in renewable and fossil-free electricity, which we are very satisfied with. So with that, turning to Page 8, agenda and then turning over to Fredrik on the financials. Turning to Page 12, I guess, Fredrik, and then your turn. Fredrik Nilsson: Thank you so much, Peter. Let's start looking into the sales developments. Reported net sales decreased by 5% and amounted to SEK 8,380 million in the quarter. We have negative translation effects by 9% in the quarter. As Peter mentioned, we had an organic sales growth of 1%. And then we saw both Sealing Solutions and Medical Solutions growing 5% organically, while Industrial Solutions decreased by 3%. Structural changes added 3% growth of sales in the quarter. Moving on to Page 13, showing a more historical sales growth over some quarters. And if you look at the fourth quarter, we achieved 4% sales growth at constant FX. Moving on to Page 14, showing the quarter sales and the rolling 12 months. Looking for the full year of 2025, we have sales amounting to SEK 34.7 billion, which was flat versus last year. Looking for the full year, we have an organic sales growth of 1%. Structural changes added 5%, which was then offset by negative translation effects of 6%. Moving on to Page 15, looking at the EBITA and looking at EBITA, excluding items affecting comparability, down 3% to SEK 1.542 billion. In the quarter, we have SEK 140 million in negative translation effects. So if we look at EBITA at fixed FX, it was up 6%. And then on the margin side, up from 18.1% to 18.4%, and that was the highest margin for fourth quarter. Moving on to Page 16. Looking at the full year, we saw an increase by 2% and got an EBITA for the full year of SEK 6,286 million. And here, we also have a substantial negative FX impact of SEK 329 million for the full year. And looking at the margin for the full year of 2025, we have 18.3%, which was the highest to-date for a full year. Moving on to Page 17, looking at some details into the income statement. We have items affecting comparability, minus SEK 176 million in the quarter. Then we have SEK 222 million that were relating to restructuring. And then we have a positive effect of SEK 46 million, which was revaluation of an additional purchase payment recorded earlier as a liability. Financial net minus SEK 111 million in the quarter, slightly higher than last year, but that is mainly due to a higher debt compared to Q4 last year. Tax rate for the quarter, 25%, well in line with communicated guidance for the full year. Moving on then to earnings per share. On Page 18, if we look at earnings per share, excluding items affecting comparability, up from SEK 4.24 to SEK 4.30, increased by 1%, and that is mainly due to higher profitability and the effect of the ongoing share buyback, which then has been offset by negative translation effects. If we look at fixed FX, earnings per share has been up 10%. Moving on to Page 19. Looking at the cash flow. As Peter also mentioned, we had a really good cash flow in the fourth quarter, up 3%, giving us a cash flow of SEK 1.726 billion. And to summarize it on a high level, we have a little bit lower capital expenditure that had a positive impact, and we continued also to generate a positive working capital movement in the quarter. Page 20, cash conversion, up from 89% to 93% on a rolling 12-month basis. And in other words, we continue to deliver a high cash conversion ratio despite that we have invested on a high level through the year. Moving then on to the gearing and leverage development. We ended the quarter with a net debt of SEK 7.216 billion. We have done share buyback of SEK 508 million during the quarter. And looking at the debt-to-equity ratio, ended the year at 20% and our net debt in relation to EBITDA was 1. In other words, our balance sheet remains very strong. Moving on to Page 22, looking at the return on capital employed, excluding items affecting comparability, 12.1% for the fourth quarter. And here, you can actually see that we are now having a couple of quarters with a sequential improvement from Q2 to Q3 and now also from Q3 to Q4. And then looking into 2026, some guidance for 2026. CapEx, SEK 1.450 billion for the full year. Restructuring cost expectation is SEK 375 million for the full year, amortization of intangibles, SEK 650 million and underlying tax rate, 25%. And by that, I would like to hand back the microphone to Peter. Peter Nilsson: Great. Next Page 24, then agenda, summary and outlook and quickly then to Page 27. A quarter organic growth still, although slim, but where we've been able to good cost control and good sales, focus deliver a higher margin. And we actually see in the quarter, what I started with, it's basically underlying slightly better than maybe the report looks from the first view on it, where we see an improved demand in the quarter. We see that especially TSS and TMS and Medical and Sealing is delivering good organic growth in the quarter, and we also with a good order intake. And also actually within Industrial Solutions, we also have a good order intake. But they have been impacted, what I said, let's say, lower project deliveries in the quarter. We have some odd projects last year, same quarter, which we didn't have this quarter. We have once again a good order book, and we see we are not kind of concerned about the full year of '26, but it will be a little bit slow start also in '26 as we see it today within Industrial Solutions. But overall, once again, the message is that we see an improved demand in more or less all areas. We continue to see a margin improvement. We are step-by-step pushing up the margin. And as the volumes will kick in here during '26, we do expect a continued margin improvement if you look at the full year, if we now get the volumes as we see in the order books at the moment. We have substantial, as a lot of other companies, an adverse currency impact that we're reporting in Swedish kronas. Nothing strange with this, but it's something that we cannot really influence short-term. And we also note that we continue to do share buybacks at a level of roughly SEK 0.5 billion a quarter. So this is kind of the overall message for us from Q4 2025. And if we're then looking at the outlook in Page 26, we guide for kind of a similar demand in the first quarter of '26. Underlying, actually, we do expect continued good order intake, but we continue the deliveries in Industrial Solutions to be somewhat muted, which is then, let's say, bringing us up to that. It doesn't mean that it could be still a few percentage points up. But I mean, it means that we still believe, let's say, the organic growth in Q1 to be low single digit. And so that is kind of what we want to -- the message we want to send this. And then, of course, we all know that there is still somewhat turbulent geopolitical situation, which could influence this if something happens. But I mean, we cannot really prepare for that, but we are, of course, aware that there is kind of a little bit higher uncertainty than usual in the global arena at the moment. Turning to Page 27, agenda, Q&A and then quickly turning to Page 28 and opening up for questions. Operator: [Operator Instructions] The next question comes from Chitrita Sinha from JPMorgan. Chitrita Sinha: I have 2, please. So my first one is just on Industrial Solutions. I wanted to clarify on the underlying development given your comments on order intake being positive. So excluding the impact of the project deliveries, would the development in the quarter have been positive or still negative? Peter Nilsson: It's been a positive. I mean we have a rather substantial effect from the project deliveries. And just to elaborate a little bit on that is also that we had a few -- we have actually a good order book, especially for LNG, but also for construction. But I mean the pipeline there is full. I mean the shipyards are full and they are kind of being delayed on a few of their projects, and that is impacting us that we cannot really get the deliveries as expected. I mean, going into the quarter, we had kind of deliveries, but then the customers wanted this to push us. And so we are not -- it's a tricky communication, of course. We still believe it's good markets, good order intake, good projects, but we see that a bit slow from the customers kind of accepting the orders. So if you exclude kind of LNG, this what we call infrastructure construction, harbors, tunnels in that segment, overall development is, let's say, clearly in the positive territory. Chitrita Sinha: My second question is on the Sealing Solutions margin. So the margin declined obviously versus the Q3. So could you please just explain the moving parts sequentially? Was it primarily the mix? And then perhaps how you're thinking about reaching the 23% target from here? Peter Nilsson: That is primarily, let's say, mix, to be honest, and especially driven that we have a slower sales in this, what we call the automotive aftermarket, which is kind of a high-margin business for us. And then we shouldn't neglect also we have M&A also kicking in. And then usually -- almost all the time, when we buy something, it's lower profitability than us, and it takes some time to get that to the right figures. And we -- I said it before, and of course, I understand the proof is in the pudding. But if we continue to deliver on organic growth levels as we've seen in this quarter, we will be seeing a fairly, let's say, quick upturn in the margin here. And we are confident going into '26 with the current order book and the growth we see in the order book and the growth in some of the more depressed segments like, let's say, construction equipment. We also have semiconductors, which is performing very well. I guess that is the main segments actually driving the positives here, while we're still -- surprisingly, we say, on the negative side, we are still automation, which will be slower than we kind of expected. But I mean, since this hydraulic what we call, let's say, fluid power segment is kind of the biggest in Sealing Solutions, and that segment is actually showing substantial positive growth in all geographical areas you say as well. And we must not neglect also in Sealing Solutions that we have continued very good development in aerospace. But also there, order intake is, if I say, substantially higher than the underlying sales. So that is we're building an order book and there will be an uptick, but then it's difficult to say exactly how much. The ambitions are very high on the customer side, but also there, we need to look at some carefulness, whether actually it will happen, but it will be a substantial growth in aerospace. It's more a matter of how much. Operator: The next question comes from Vivek Midha from Citi. Vivek Midha: My first question is on the TIS margin, quite solid despite the weaker organic growth. And you highlighted within that the positive mix effect. Historically, the project deliveries were perhaps a higher-margin business. Would you maybe be able to elaborate on what drove the positive mix effect in the quarter? Peter Nilsson: I think -- I don't think overall, as a project business is higher deliveries. It's more that the cream -- with the cream on the top, if you say to that. So it's adding gross profit on top of everything. But overall, gross profit margin in that business is somewhat lower than the rest. So that is kind of also driving a positive mix in the quarter, you say a little bit lower project deliveries and higher in other areas. But also in Industrial Solutions, we've been investing quite a lot in the structure. We're moving factories, creating more efficiencies. So this is something which has always been happening in Industrial Solutions, and we continue to deliver an overall kind of cost improvement, which we now also -- so I say this improved margin is coming from efficiency improvements as a base. And then on top of that comes also some mix, which is basically higher sales in non-project-related businesses. But I mean, if we now -- with the current base, if you get project business on top of this, then, of course, we'll also drive the margin. But if you have, let's say, since the sales mix is changing somewhat, there is a positive driver in the margin. You follow me, Vivek? You follow the... Vivek Midha: I do. I do. Understood. My second question is just going by region. You've highlighted European organic order growth improved relative to the third quarter. And we can see that in TIS, for example, in your commentary. It would be great to get some color on maybe the verticals which you're seeing improving within Europe. Is there anything you'd like to highlight? Peter Nilsson: No. I mean I highlighted the biggest impact for us is this kind of construction equipment and Sealing Solutions, where we see an improvement, which is kind of more, yes, construction equipment a little bit actually surprisingly slightly better also in agriculture. We don't think that's going to continue really. I mean -- and also, of course, we need to note also in this overall kind of diversified industrial segments, we believe we've been exposed to some inventory downs throughout the year, and that is flattening. So we see the underlying demand is actually kicking in without any kind of inventory reductions on top of that. So that is also something that we are seeing and that is valid in most industrial segments in Europe, to be honest, where we see -- we don't see really. What we're waiting for is an uptick in residential construction, which is very much depressed. I don't say it's continuing down, but it's not really, let's say, moving upwards. So -- but overall, once again, the biggest -- if I should pick one segment looking at Fredrik, I think pick one segment, I think, is this construction equipment, fluid power, where we see an improvements coming both once again from a better underlying demand, but also from, let's say, no more inventory reductions. Operator: The next question comes from Alex Jones from BofA. Alexander Jones: Maybe first, just to follow-up on your answer on Europe. Do you see any subsegments where there's actually now restocking momentum? And or as you said, it's sort of just destocking has ended and you're now in line with underlying demand? Peter Nilsson: We don't really see that at the moment, but we do kind of expect it. So that is also creating some confidence going into '26. We do believe, even though we don't really have a proof, I mean, we're following this VDMA, I trust you will look at the same. And if you referring VDMA, it's been kind of flattish now in inventory for a few months. And I mean, if the demand is picking up, which we do believe, then, of course, they're going to be a double up as there have been a double down. But we don't really see that -- we cannot see that -- we see that in the order book at the moment, but we kind of do expect it to happen throughout '26. Alexander Jones: And then just on capital allocation, there were recently some press reports about a potentially larger deal in Italy. Can you just remind us how your pipeline looks and whether you feel ready for potentially another larger deal? Now it's a few years since Minnesota Rubber, if the right opportunity arose? Peter Nilsson: Yes. But if you look at this Italian opportunity, which I mean talk bluntly, I mean, which is ALFAGOMMA. ALFAGOMMA is not of interest for us. That is a different segment, and we are not involved in that what they call hydraulic hoses, and we are not looking at that, just to be clear. So that is kind of not on our agenda. So we are still not looking at -- and it's also -- I mean, some of you asked about ContiTech it's neither, let's say, on our target list at all. So just to clarify that, we are not looking at that kind of deals. You're going to see us continuing to work on bolt-ons, which is kind of strengthening already strong positions. So we are not looking for any kind of new positions at the moment. We have plenty of opportunities within our current scope, which is kind of where you're going to see us spending both money and spending our efforts going forward. Operator: The next question comes from Agnieszka Vilela from Nordea. Agnieszka Vilela: I have 3 questions. The first one to maybe both Peter and Fredrik, actually. Can you talk about the development in your operating costs in the quarter? If we look at the gross margins, you had a fantastic performance with gross margin improving actually by 2.5 percentage points, but then much of that benefit almost disappeared in the OpEx line. So maybe you can discuss what was driving the admin cost expansion and other operating cost expansion? Peter Nilsson: Fredrik, yes, please. Fredrik Nilsson: Yes. No, but it's right that we have a good development on the gross profit. But then also there was, of course, some accruals needed for variable salaries and so forth throughout the end of the quarter here when we saw the performance. So -- and also, I mean, coming in some of the acquisitions that coming in come in with a little bit higher admin cost as well. So I think that's the 2 main explanations Agnieszka. But what you're pushing here Agnieszka is actually creating a solid foundation for us going forward. I mean this is kind of one of the -- how should I say, confidence factors that you see here that we're pushing up. We managed to increase both the contribution margin and the gross profits, which, of course, is much easier to cut cost and to increase pricing, to be honest. So that is of course something which is on our agenda. Agnieszka Vilela: And then, Peter, maybe a bit on that topic. I mean, you guide for flattish sequential demand development in Q1 specifically, and you also allude to Industrial Solutions here. But overall, when you look at 2026 and your priorities as a CEO, would you say that you kind of try to position the company now for more growth or still kind of more stability and cost containment as you look at 2026 in total? Peter Nilsson: It's, of course, never one priority, Agnieszka. It's several priorities. But I mean, we create -- we have a good platform. You said we're moving the gross profits up. We are getting an improved mix. There is still something to do with the cost, but we have the structure in place. So of course, we are gearing up to absorb more growth, and we do expect that to kick in '26. I mean we do expect kind of a better second part of '26 than the first part of '26 on the backing of good order intake and good activity with the customers. And we do have solid cost control. We do have, let's say, good activities ongoing to further address this, what we call more the fixed cost part of it. So overall, it's a combination of maintaining cost control, getting more efficiency. But most important probably is -- most important is to continue to get into a growth mode and absorb this kind of high order book as we move throughout '26. Agnieszka Vilela: And then the last one for me on Medical specifically. So your Medical business grew organically by 6% in '25. Can you give us any kind of expectations or flavor on the expected growth in '26 also considering that now you have more capacity in Costa Rica that you could use. So could you comment on that and maybe also on any puts and outs when it comes to profitability for Medical in '26? Peter Nilsson: I mean we have, let's say, it's still -- I mean, how do I say? It's still a smaller part of Trelleborg and it's still, let's say, a little bit volatile. So you say -- and we're looking at the rolling 12, we are happy with the 6% if you look at the full year. Still might be a little bit bumpy. We don't take that as a guidance that we expect it to really go down, but it might be bumpy still in between the different quarters because we are exposed to some bigger deliveries and the customers are somewhat, how should I say, the volatility in the ordering is still there. But overall, we have said, let's say, this 5% give, let's say, plus/minus. I mean that is where we feel this business will continue to grow, and that is where we do expect to grow. We have a better setup. Costa Rica will create benefits. But I mean, not really the biggest benefits of that will not happen in '26. It's probably beyond '26. But there is kind of solid foundation for growth both in Asia, in North America and Central America. And I mean, to be very open and blunt, I mean we'll be looking for how to get more also into Europe in this. So that is really the target today. We have a good Asian footprint with Australia, China, primarily looking a little bit to Southeast Asia, whether we need a satellite plant there also to support our customers in that part of the world. Americas is great. The Americas has a good footprint. So we feel confident that the kind of overall positioning of Medical Solutions is good, and we do expect that to continue to deliver good growth for several years to come. Operator: The next question comes from Hampus Engellau from Handelsbanken. Hampus Engellau: Two questions for me. Just on Sealing Solutions, I was a bit curious here. You have 5% organic growth, and you've been searching for growth to like extrapolate synergies with Minnesota. Are Minnesota now not diluting the business area's margin and much of that kind of hampered leverage during the quarter. Is that related to what you highlighted, the negative sales mix within automotive aftermarket business? Or how should I think about that? Peter Nilsson: I mean it's still -- I mean, the North American business is slightly lower than European to be overall, but I mean, it's not really deteriorating to the overall Americas business. As U.S. is getting a little bit bigger. There is a slight negative mix still even kind of beyond the integration of Minnesota. But now as we do expect volume to kick in, we do expect the margin there to improve. But I cannot say that Minnesota is kind of, in itself, is the main explanation on kind of pushing down the margin in any way. It's been integrated and we're now starting to see the benefits in the order book, and it will get better as the volumes kick in. I don't know whether that, Hampus is clarifying or... Hampus Engellau: Yes, yes. I think that's a more flavor for my modeling. And then on Industrial, the project business, is -- do you dare to say like when that should kick in? Should we expect like a catch-up effect like Q3, Q4? Or are you still like waiting to see when that will materialize? Peter Nilsson: We expect -- I shouldn't say there's been a disaster in Q1, but I mean it's not going to kick in. We do expect it to kick in, in Q2, Q3, Q4. Once again, it's backed by a solid order book, and we are not kind of concerned about it. It's more that -- of course, I understand you're looking at individual quarters. But for us, honestly, whether the deliveries is in March or April, I mean, we don't really care because we are -- we want it as early as possible, but important for us is to get the orders and to get that into when we have a solid order book, and we are also, I should say, pushing the margin up. So we are confident that it's more a matter of when the delivery actually will take place. So we are more, let's say, confident on this one. I mean -- but it will be a kind of a solid second half of the year compared to the first half of the year. That is the way we look at it at the moment. While then commenting on that, I mean, it's still a relatively small part of Industrial Solutions. So the overall Industrial Solutions will continue to perform well and some of that will benefit from this overall, let's say, improved industrial demand as well. Operator: The next question comes from Timothy Lee from Barclays. Timothy Lee: My first question is again on the order intake. When you say you are building order book, can you give us a little bit color on what's the book-to-bill that you're achieving in the fourth quarter and especially for the Industrial Solutions segment? Peter Nilsson: We don't want to give any -- we have decided not to report order book, but I mean it's, let's say -- how should I put it? I mean it's still, let's say, mid-single digit, let's say, above. So let's say, we talk about this, let's say, above 100%, mid-single-digit growth on the order book compared to the sales. Timothy Lee: And then when you comment on the first quarter outlook, when you said about the low single-digit organic growth, is it something that you have already factoring in the Industrial Solutions for what that you just comment the delivery is probably not going to happen in the first quarter? Peter Nilsson: [indiscernible] do you mean that I mean for Industrial Solutions in Q1? Is that what your question is? Timothy Lee: You mentioned about the first quarter organic growth is probably at a low single digit, right? Peter Nilsson: Yes. Timothy Lee: And is that... Peter Nilsson: Overall. Overall, yes, overall for the group. Timothy Lee: Yes. Peter Nilsson: Not specifically for Industrial, we're not guiding -- Timothy Lee: Yes. Peter Nilsson: -- let's say, any kind of organic growth per business area really. Timothy Lee: Yes. Yes, that's right. But then that number is already factoring in the fact that the delivery in the Industrial Solution is not going to happen? Peter Nilsson: Yes. Yes, correct. Correct. I mean if that's the case. So we gave a guidance is for the overall Trelleborg and not for the individuals. So it still might be -- if you may say, it still might be negative in Industrial Solutions, but then that's going to be, let's say, covered by continued good growth in other areas. Timothy Lee: Yes. Understood. Very clear. And I have one more question on share buyback. I think last year, we have a share buyback program, which is a scaled down from the previous buyback level, about SEK 500 million per quarter under the current program. Do you have any color at this point in time regarding what to do with this buyback program when it comes to renewal probably in April this year? Peter Nilsson: Yes. I mean, the current guidance is to continue in the same way. There's no thoughts on changing it. So the current kind of guidance or the current decision, which will also -- yes, most likely will be the proposal for the AGM is that continues in the same way. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Peter Nilsson: Thank you. Thanks all of us for listening in. Let's say, a solid quarter for us, it looks actually slightly better than maybe the figure shows, good order intake and solid cost control and then a solid foundation for '26 as we see it. So keep in touch and speak to you soon and see you in various -- or see and meet in various ways. So do take care. See you soon.
Jacob Broberg: Good morning, and welcome to Electrolux Professional Group Q4 and full year results presentation. My name is Jacob Broberg. I'm heading up Investor Relations and Corporate Communication. And with me, as always, I have Fabio Zarpellon, our CFO; and Alberto Zanata, our CEO. And I hand over to you, Alberto, please. Alberto Zanata: Thank you, Jacob, and morning to everybody. And before starting the usual presentation, let me add a comment because I'm sure that you already saw the announcement that was posted yesterday night, where it has been announced that Paolo Schira, the current President of the Laundry business is stepping up and has been appointed as my successor following the decision to retire. Everything has to come to an end. And after the year that I spent in this company, I think it is the right time to hand over the baton to a person that I've been working with for many, many years and that have been instrumental together with all the colleagues in the group management to build the company for what it is today. So I'm very happy that he's taking over this responsibility. I'm confident that together with the team, he will build an even stronger Electrolux professional organization. With this said, I would move on. And before commenting the quarter, let me spend a couple of words on the year because clearly, we closed also the year, not only the Q4. And the year has been another year characterized by uncertainty and geopolitical and macroeconomical headwinds. They have been very significant these headwinds, in particular, for what currency and tariffs are concerned, but also for the indirect effect of currency and tariffs with the business in the U.S. and in China. Despite all these headwinds, we have been able to deliver another year with a profitable growth. We improved organic sales. We improved the profitability. We improved margin, and we took down the ratio between net debt and EBITDA to 1%. So another year in the -- along the path to deliver the result that we all expect to deliver. But you know what, more than the result in itself, I believe this year is characterized by the fact that while performing, we continue to transform and invest for transforming this organization. We continue to invest in R&D starting to bring to market some of the products that we have been developing for years, starting with the cooking lines during Q1. And then even more important during the summer, we will start to bring to market again new cooking product, but also the first batch of the laundry machine that are part of the big program that will revolutionize the portfolio of laundry. We also continue to invest to grow the business in North America and with the chains acquiring Royal Range. It is a small company, but it is an important step, an important add-on to our organization because of the product portfolio, because of the margin and because of the kind of customers that they are currently serving. And last but not least, the third big pillar of the transformation that was significant in 2025 is the efficiency program that we launched in September, a program that is progressing very well, a program that is expected to generate significant savings already this year, but even more next year, a program that will redesign our footprint, concentrating the production of 2 factories into others that will generate efficiency, productivities and [ there's ] a consequent benefit both for the organization and the P&L, but also a program that is allowing us to upskill the organization to make sure that we get people into the organization that are more focus on the front end because that is the shift that we want to have in 2026 to move from back to front to start using all the things that we have been developing during the years to grow sales and win the preference of the customer in the market. With this said, we move to the quarter. And in summary, I would say that the quarter -- we closed the quarter with a strong growth of the margin despite all the headwinds that we had to face. Just to quantify, we are talking about 1.3 percentage point that is the negative impact of currency, in particular, currency in the quarter. So quite significant about that. In the numbers, we also include the SEK 10 million of the acquisition cost. So if you look at the underlying profitability, it's even stronger than what it is -- what you see on papers. The quarter has declining organic growth. But let me see that inside of this one, the decline comes mainly from the U.S. food and beverage market that has been weakening just after the summer, after being very strong in the first part of the year has been weakening during the summer, is coming from Japan that is still a weak market. And in some way, we had also declining sales in North America Laundry, and we will comment later. But in reality, the big business for food and beverage have been growing. We have been growing in Europe. We have been growing in -- excluding Japan in the other Asian market. And Laundry has been growing in general, excluding the United States and Asia in that case. That is again Japan. So, a good quarter, a quarter also solid in term of cash flow and that gave us the possibility to reduce the ratio between net debt and EBITDA. And again, a quarter marked by the signing of the acquisition of Royal Range that was completed in January this year. With all these things said, we are also proposing dividends that are increasing the dividend per share according to our objective to continue to remunerate the shareholders. Specifically about the market, I think I said it. So Europe strong, that is good because it is still more than half of our business, geographically speaking; a relatively weak North American market, but we will comment later about Laundry because the dynamics between the 2 segments are completely different. And you see a declining business in Asia Pac, but it is entirely related to Japan. If we look at the specific trend in Food and Beverage, Food and Beverage has been growing organically, and this is thanks to Europe. Europe is doing extremely well, extremely well, improving, growing sales, gaining market share and improving profitability. And if you think that now Europe is also launching new product, you can imagine how positive it can be about the European business. U.S. is weakening. It has been weakening during -- as I said, during the fall, where we were flattish, but we saw this happening also in Q4. And as I said, the Asia Pac is mainly Japan. Despite this, profitability improved. Profitability improved, is above 10%, including acquisition cost. So the underlying profitability is even stronger. To be noted, and I think it is completing just the comment that I had about Europe is that the order intake for Europe is higher. So not only strong sales in Europe, but also a strong collection of orders. If we move on to Laundry, here, you see that we reported declining organic sales. And it is mainly related to North America and Japan, so Asia Pac, Middle East, but mainly Japan. Two comments about that one. Japan, I believe we believe -- or at least this is the feeling we have, is that we touched the bottom of the decline. And the other thing is that -- and this is we know because Japan is one of the market where we have hard numbers. We know that we didn't lose market share. So having maintained the market share that we have, that is slightly below 50%, so very strong market share in this large market. And having known that the decline should come to an end. Also in this case, the feeling is that we could see the future in a positive way. North America is a different story. Yes, we had a decline, but we have to consider that last year was a super strong last quarter -- last year, I'm sorry, I'm referring to 2024. In the last quarter of 2024 was a very strong quarter where our distributor built up a stock. I still remember that call 1 year ago, exactly this call I was asking if that strong growth would have been replicated? And I said, no, it can't be because it was a buildup of stock. Okay. In this quarter, the same distributor normalized the inventory that he has in North America. So the difference between generated a negative for us, and that is what you see reflected in the overall sales. Nevertheless, the business in North America, that is an important business for our Laundry segment, is a healthy business. It's a healthy business, completely different compared to the situation of Food and Beverage, and that is reassuring. The other important thing that I want to underline for Laundry is that despite the headwinds that we have been talking about, the currency in particular, but also tariff, we improved margin. And this is, again, showing the strength of this business -- the strength of the business. Also in this case, I think that if I look at the magnitude of the headwinds, it would have been a 3 percentage point better in terms of margin and profitability. Looking ahead, also Laundry as well as Food and Beverage Europe, the order intake at the end of the year was higher than what we had the year before. With this said, I would pass to Fabio to comment the financials. Fabio Zarpellon: Thank you, Alberto, and good morning to everybody. Before I deep dive into quarter 4 financials, let me give you overall a perspective from a financial perspective of 2025. Overall, we grew sales organically by 0.5% and the EBITDA margin before the provision we did in September last year for restructuring increased from 11.6% of 2024 to 12.1% at year-end despite the large impact from tariff and currency that Alberto mentioned. Food and Beverage, the larger operating segment, grew 1.5 points overall, same currency and margin is close to 11%, 10.7% we closed the year. Laundry overall sales, the same currency, were flat, but not only the quarter, but full year margin increased, and we closed the year 17.4%, over 1 point better than 2024. Overall, if we look at how we generate the sales, I would say we have a pretty well balanced from a geographical perspective with America that is roughly around 24%; Asia Pac, 60%; and Europe around 60%. So, then moving from the yearly perspective to the quarter. As anticipated by Alberto, Q4 was another step towards our margin expansion, in line with our plan. EBITDA margin moved from 12% of last year to 12.6% of this year. The margin expansion overall was sustained by positive contribution from price, lower material cost and better productivity in our operations. To be noticed that good price management in U.S. compensated most of the tariff impact in the quarter. And let me say, provided there will be no additional change in the tariff award as anticipated during our Capital Market Day, we are confident to be able to fully compensate it in 2026. But before moving on, let me spend 2 words about currency. I mean, we are living in a period of unprecedented volatility for what concern currency. And I would like to develop through 2 dimensions, currency translation and currency transaction. When it comes to currency translation, SEK has been strengthening last year against, I would say, most of the currency. And currency -- all the rest equal, currency translation has reduced the top line by roughly 7 points and the EBITDA value in absolute term more or less by the same amount. So, with no change in what is the EBITDA margin. This also means that our EBITDA generated in quarter 4, if I look at it the same currency of the previous year, we are not deteriorated. So where you see a negative reduction in reality at the same currency, it is even a plus. On the other side, currency translation affected the underlying performance of the business, no doubt about it. And it touched sales, but also profit and profitability. On sales, I would say, mainly for Laundry where we invoice our U.S. distributor in U.S. dollar from our Swedish operation, SEK got stronger, meaning for the same $100 we get less SEK. And the impact is such that the group organic growth in the quarter net also of the currency transaction effect on sales instead of being negative would have been somehow positive, 0.6%, but positive. But I would say the main impact is on the profitability. The currency transaction, and it is mainly related to U.S. dollar, has hit our P&L by roughly SEK 45 million, 1.3 point in margin. So the underlying business performance is much better than what the reported numbers are showing. Currency transaction that was not important just for the quarter, but on a full year base, the impact is roughly SEK 100 million or roughly 0.8 point in margin. Alberto anticipated about the plan to reorganize and restructure our organization and improve our operation agility and profitability. The plan is proceeding according to plan and the anticipated saving, meaning over SEK 80 million for this year 2026 and over SEK 170 million for 2027, are confirmed. Going through the remaining part of the P&L, you see that the finance net was pretty low, SEK 80 million, lower than same quarter of the previous year, thanks to reduced borrowing, but I would say, even a more cost-efficient funding structure. To be noted in the quarter that the tax rate was pretty low, 11%. And this is due to a non-recurring, let me say, change of the funding structure that we put in place to finance our U.S. operation that led us to review the deferred tax asset and therefore, a non-recurring reduction on the tax cost. On a -- As a consequence of this, the overall tax rate for the year was in the range of 21%. But let me say this is not changing going forward the guidance that we gave in the past of roughly 26% of tax rate on income before taxes. Overall, this led to, I would say, a pretty strong earnings per share at SEK 0.98. That is roughly 30% up compared to the same quarter of last year. Cash flow generation was solid, slightly below -- somehow below last year. And this is due, I would say, from 3 components. We delivered somehow a slightly lower EBITA. We have had higher CapEx, and we started to have a cash out related to the execution of our restructuring activity. CapEx year-to-date we concluded the year with a CapEx over SEK 360 million. It's roughly 3% of sales. And as anticipated also during Capital Market Day, I expect it to remain around this level also for 2026, where as we anticipated, we are bringing to market very important product innovation, both in Food and in Laundry. Last word on capital efficiency. We have further improved the operating working capital on sales, meaning the utilization of it. We have seen a slight increase to the rolling 12 that we had in September. This is mainly related to a marginal increase in inventory. Our financial position at the end of the year is, I would say, pretty strong. You see that since the acquisition that we performed in the first part of 2024, we progressively reduced net debt, and we end up a year in a very, very strong financial position. And with that, back to you, Alberto. Alberto Zanata: Thank you, Fabio. And as I mentioned at the beginning, in a quarter with very strong headwind or even a full year, but a quarter with strong headwinds. But despite that solid performance and even stronger underlying performances, we continue to transform to bring to market new products that will surely generate additional sales. During the quarter, we launched the new cooking line in Europe. It will be sold also in Asia Pac, Middle East and Africa, but it's mainly the heart of the program of our European food organization. That is in line with what we always do. So more efficient product, product with higher productivity, product with the innovation that makes us different from competitors. But at the same time, we also -- despite the weak market conditions, we continue to innovate also in Japan. And this is a new product that is coming from the Tosei company, the one that we acquired. Also this one, pretty unique in the market. There are no similar stacking solution with a combo and a dryer in the market anywhere in the world. And this is, again, looking at a trend -- combining the trend of smaller spaces and lower investments to open a launderette. Part of this transformation is to create a new tool for the organic growth as the new products are, but also continue to make use of the cash that we are generating, investing in inorganic acquisition. I already mentioned the Royal Range, that has been completed. We are already working with the team -- [ of ] the Royal Range team to start generating value from this acquisition. So I'm very pleased about that one as well as the investment that we have been doing in this start-up. This is not significant for sale and EBIT today, but we [ count it ] to make use of the technology that the start-up is using to further increase the innovation path of our company. With this said, I would say that we are at the summary. And I have to say that we closed the quarter with profitability improvement. The profitability is mainly driven by the European business -- Food and Beverage, European business and by the Laundry business in general. And this improved profitability has been achieved, and we have been underlining more than once during the call, has been achieved despite of the strong headwinds that we had to face. We also closed the quarter with an improving order intake for Food and Beverage in Europe and for Laundry. And Food and Beverage and Laundry, they account for roughly 70% of our total business and -- you also know that for -- even more in terms of profitability, in terms of EBITA. We closed the quarter with the acquisition of the assets in the company in the United States, a company that we count to make use of this acquisition already in '26 or at least to start. And then for sure, it is something that will come next year. We closed a quarter starting to introduce to market the new cooking product and preparing for the Laundry platform. It is a quarter where we accelerated the execution of the efficiency program presented in September. I mentioned already that in the -- during the first quarter of 2026, we count to already move most of the production of the coffee from one factory to the other. And I think it is a [ counter ] that in a summary is another step in the building blocks path that we have been also presenting to reach our targets. It's a quarter where, thanks to the result of the quarter and the full year, bring us to propose the dividend and improved dividend per share according to our target and to our ambition to remunerate the shareholder. If I look at the first quarter of 2026, what we see, also thanks to the order intake that was reported at the end of Q4, we expect that the trend that we experienced in Q4 for what the Food and Beverage business in Europe and for what the Laundry business are concerned, should continue also in Q1. And this should compensate the U.S. Food and Beverage business that is -- that we saw relatively weak during the quarter. So that is what at least we can say today. With this said, Jacob, back to you. Jacob Broberg: Thank you, Alberto. Thank you, Fabio. With that, we open up for questions. Please go ahead, operator. Operator: [Operator Instructions] The first question comes from the line of Johan Eliason from SB1. Johan Eliason: This is Johan at SB1 [indiscernible]. I have just a question. You talked about the positive Europe. Do you think there are some temporary impacts from the Olympic Games coming up in Milan in Q4 -- Q3, Q4? Alberto Zanata: Let's say that we have obviously some good businesses as usual for the Olympic Games. But first, the Winter Olympic games are not as large or as impactful as the Summer Olympic games. And secondly, no, it is not because it is not only Italy. The European market, all the Mediterranean market are doing well. And the good things in Q4 is that also the Nordic market started to perform much better. So some sales, yes, but not as such that they could be considered a spike in the trend of Europe. Johan Eliason: Okay. Good. Excellent. And then I'm wondering a little bit, I mean, you are generating pretty good cash flows here and your net debt is quite rapidly coming down and then probably closer to 0 at the end of this year than to 1x net debt to EBITDA, obviously, depending on what you are doing on the M&A side. How is the M&A pipeline? Is it sort of more of these smaller potentially attractive acquisitions that we should expect? Or do you still have something more sizable that could or could not materialize in the coming year? Alberto Zanata: I believe you know that my answer will not be a straightforward answer on the matter. The only thing that I can tell you is that we are working on acquisitions. We are working on acquisitions. We just completed one, and I can tell you that we are working in parallel on many other opportunities. If I look around, clearly, there are more opportunity for mid-mall (sic) [ small ] sized company than for large one. The larger not so many all around. But for sure, we are looking for any possible additions -- inorganic addition that is instrumental to our strategy. Johan Eliason: Good. And then you mentioned market share gains. I can't remember if that was related to Europe or where you said that. But is it any product category or geographic area? Or can you say any details on that? Alberto Zanata: Okay. Yes, I was referring to Europe, in particular the food business in Europe. I'm referring to the cooking, and that is very good because remember that we are launching also the new line of cooking where we are the leading company in this market. So we are reinforcing our stronghold. So geography wise, let's say that as during the past quarters or here, so the South European market, in particular Italy, they've been overperforming. They've been above the average. But as I said, the pleasing thing is that also the Nordic started to move well. So -- but it is hot, so cooking in some way. And I would say that it's across Europe more or less now. So it's a very good and promising thing. Johan Eliason: Excellent. And then I just have a detailed question to Fabio. In the cash flow statement, we see that the change in other operating assets, liabilities and provision was quite negative in the quarter. Is that the release of the provisions you took on the restructuring? Or what is that? Fabio Zarpellon: I would say -- I believe you touched on the point. I would say the remarkable things that is somehow sort of discontinuity to the normal path is the cash out related to the execution of the restructuring. The rest is normal business development. Operator: [Operator Instructions] There are no questions at this time. Jacob Broberg: Okay. Thank you very much, operator. Glad that we have been clear in our presentation. So with that, I would say thank you very much for listening in, and see you next time. Thank you, and goodbye.
John O'Reilly: Good morning, everyone. A little video there of the Vic, Victoria Casino, Vic as we know it, now complete with 80 gaming machines and performing very strongly too. It's a fabulous casino. Thank you for joining Richard Harris and me this morning for the Rank Group interim results for the half year from July to the end of December 2025. Thanks to those of you who are here with us. Great to see you. And thanks also to those of you who are joining us online. Now very sadly, this is my last set of results after what has been a hugely enjoyable best part of 8 years as CEO of the Rank Group. Some of you already know I'm retiring today. I'm super sad to be leaving as this is a very special business with some very special people and I shall miss it enormously. And I would like to thank all my colleagues within the group for their talent and for the commitment that they have in delivering huge amounts of fun and excitement to Rank's customers. I'd also like to thank our shareholders for their personal support to me over the past 8 years. However, while sad to leave, I'm absolutely delighted to be passing the baton to Richard, who is doing and will continue to do a superb job on behalf of the Rank Group, its colleagues, its shareholders and of course, its customers. So for today, I've just carved out a very small speaking part for me, a quick overview of half 1 performance, and then I will fully hand over to Richard, who will take you through the detailed first half financial numbers and talk some of the key trends, the strategic challenges and the opportunities ahead. And notably, of course, how we're still on track to get the group to an operating profit of GBP 100 million and beyond. Right to business, and we've had another good half in terms of our commercial and financial performance with revenue and profit growth across all of our businesses. So here are the headlines. Like-for-like net gaming revenue was up 6% at GBP 419.8 million. Underlying like-for-like operating profit rose 15% to GBP 40.6 million. The group's underlying operating profit margin was 9.7% and that was up from 8.9% in half 1 last year. Our return on capital employed continues to progress, up 2.6 percentage points, to 15.9%. At a group level, our employee engagement score, which is -- has always been very important to us, has risen again and is now at 8.2, that's out of 10, which reflects the level of energy and drive within the Rank business. Within the Grosvenor Casino business, average weekly net gaming revenue was up 6% to GBP 7.8 million per week, which has been supported by the rollout of 850 additional gaming machines following the legislative change last summer, a rollout that commenced in late August and completed in December. In the Mecca Bingo business, net gaming revenue was up 4%. And in Enracha in Spain, net gaming revenue was up 6%. Digital revenue grew 8% with Grosvenor growing 17% and Mecca Bingo was up plus 5%. And the Yo business in Spain was back into growth for the half as we had expected. And in terms of current performance, we've had a very strong Christmas and New Year trading period and that has continued through January with trading very much in line with our expectations. So another good half year period for the group, reflecting the strategy we have in place, the priorities we've set and the quality of execution by our talented colleagues. And on the strength of the performance and the confidence in the business, notwithstanding the very significant increase in digital gaming taxes we faced from April, the Board has recommended an interim dividend per share of GBP 0.01. Richard, over to you. Richard Harris: Good morning, everyone. And for one final time, thank you, John. I'll spend a bit of time taking you through the key drivers of performance as well as updating on that plan to deliver at least GBP 100 million operating profit in the medium term. So starting with the operating profit improvement in the half. Like-for-like revenue growth of 6% contributes GBP 14.5 million of additional profit after deducting all direct costs. That's partially offset by higher employment costs of GBP 6 million, which have grown 4% on the prior year due to the higher national minimum wage and the impact of higher national insurance contributions. Over the full year, employment costs are expected to increase by a similar percentage. Depreciation costs were higher in the year due to the capital investments we've been making in the business, and the higher statutory levy also impacted performance in the half. However, overall operating profit is up 15% on a like-for-like position from last year. Net free cash flow in the period was GBP 3.8 million. And within this, we've continued to make targeted investments with strong expected paybacks. Capital expenditure was GBP 27.6 million as a result. For the full year, we've adjusted the CapEx guidance to be in the range of GBP 50 million to GBP 55 million. And the change from the previous expectation of GBP 60 million is just a timing point with the reduction being deferred into next year. There was a working capital outflow of GBP 5 million in the period, which was in line with expectations and you can expect working capital to be broadly neutral for the full year. Cash flows in relation to separately disclosed items were GBP 5.5 million. So that includes income and outgoings associated with closed venues, but also the GBP 6.5 million impact of the Spanish payment fraud. It's worth dwelling on that for a moment because it's not something we expect to happen and we have taken the issue extremely seriously. As soon as we became aware of the matter, we put in place additional preventative measures with immediate effect to ensure no further risk to the business. The investigation has concluded and we've made some further improvements to the group's payment controls as a result. Returning to the slide. In the table on the right-hand side, you can see how the net free cash flow has converted through into closing net cash of GBP 39.4 million. There's deferred consideration of GBP 1 million received from the business disposal that concluded in December 2024. Some shares have been bought for the outstanding LTIP schemes. And last year's final dividend of GBP 9.1 million was paid in the period. Including lease liabilities, net debt was GBP 165 million. As a reminder, in the second half of last year, we extended the leases on a number of key strategic properties in Grosvenor that will come into the end of their lease term and that materially increased our lease liabilities. As reported in today's announcements, we've also capitalized gaming machine leases onto the balance sheet in Mecca. Lease payments in the cash flow increased to GBP 23.4 million for the same reason. So moving into the business unit detail for last year -- the first half, I should say. Grosvenor venues grew by 6%, driven by visit growth. Following growth of 8% in Q1, revenue in Q2 was up 4%, impacted by lower consumer confidence in the run-up to and immediately after the November budget. Subsequently, trading over Christmas and the New Year period was strong. Gaming machines were the fastest-growing product vertical with revenues up 11% due to the early benefit of the new machine rollout. I'll go into more detail on that in a moment. Table gaming revenues grew 2% and electronic gaming was up 6%. London performance has particularly benefited from the refurb of the Vic, where total revenues were up 13% on the same period 2 years ago. So that's prior to any refurb disruption. And over that same 2-year period, gaming machine revenues are up 26% with additional machines and gearing in mid-November. So I'm very pleased with how that's performing. Employment costs were the main headwind for Grosvenor, growing GBP 3.8 million in the period. And as a result, like-for-like operating profit was up marginally at GBP 20.9 million. Colleague engagement scores in Grosvenor remain excellent as we continue to reap the benefits of our cultural change program, "From Like to Love." At the Capital Markets event we held in October, we laid out our plans to deliver average weekly NGR of GBP 9.5 million and to improve operating profit to over 13.5%, an increase of at least 500 basis points. A critical part of that plan is enabled by the casino reforms, where we can increase the number of gaming machines from 20 per license to 80 per property. 850 additional machines were rolled out before Christmas, an increase of around 65%. That's in line with our planned timetable. In casinos where we've only been able to increase machine numbers from between 20 to between 30 and 40, revenue growth has generally been very strong with examples of casinos in which the average revenue per machine has increased with additional supply. Where we've significantly increased the available machines from, say, 20 to 80, the revenue per incremental machine has inevitably been lower and we're working to increase the customer awareness and stimulate demand. Demand levels are gradually building as customers become aware of the better availability and choice of both machines and content. And just as a little reminder, here's the maturity curve that we expect the casino estate to go through. We're currently early in the launch phase and in the venues that have received additional machines, we've been able to satisfy the unmet demand as expected. Considerable focus has now been applied to optimize machine mix, product layout and service levels at an individual casino level. In H2, we'll also launch a new gaming machine rewards scheme that enables customers to earn and redeem rewards directly onto the gaming machines themselves. Grosvenor now has 6 machine suppliers, an increase from the historic position of 2 primary suppliers, providing a much broader choice for customers. And further suppliers and game packs are being trialed in the second half of the year. The speed, focus and direction of the next phase in machine rollout will be shaped by customer and performance data. Player behavior, player preferences and demand curves will inform investment into our estate, ensuring we continue to deliver strong return on investment. The second component of the land-based reforms is the ability to offer sports betting in casinos. We're trialing a full sports betting proposition in Luton and Leicester as well as a reduced offering in Reading South. Learnings from the trials will determine the options for wider estate rollout. And over time, sports betting has the opportunity to broaden the appeal of casinos. We're excited to understand how our customers respond to these trials. In table gaming, we continue to add more innovative side bets and progressive jackpots into our live table proposition. We've completed the rollout of our table management system across the whole estate and that uses AI-led real-time recommendations and data to optimize table opening and pricing across the estate. There's much more performance upside to come from that. The ongoing refinement of our approach to safer gambling revolves around the better use of data and technology, improved processes for identifying and addressing potentially harmful play, developing the skill sets of our colleagues and supporting colleagues in improving their interactions with customers. In H2, we're trialing facial recognition technology in a number of our venues to more quickly identify customers who may present a higher risk. Turning now to digital. The first half of the year saw further progress with like-for-like revenues up 8%. Within this, the U.K. business was up 9%, driven by strong growth in average revenue per user, reflecting the appeal of our products and our service to the regular customers that we serve in our business. Improvements in data science, enhanced customer journeys, efficient and effective customer incentives, all played a part in driving growth. And those levers will continue to be a focus as we move into a higher tax environment. Grosvenor revenue was particularly strong at 17% and Mecca grew by 5%. Again, revenue growth was slower in Q2 as we faced into tougher comparatives and the lower consumer confidence. However, in absolute terms, we continue to make further progress. Performance in the Spanish digital business also improved with growth of 4% in the second quarter, contributing to growth of 1% for the half year. Improvements in customer proposition, including performance marketing, launch of new apps for Yo and enhanced rewards programs have all contributed to the turnaround after a flat year in FY '25. We successfully became the first licensed bingo operator in Portugal with a soft launch in November. And the important next step is to build liquidity as part of the full customer launch at the end of February. And we're really excited about the opportunity that that presents. At a total level, operating profit for the digital business grew 12% to GBP 17.8 million and that's despite the impact of a higher statutory levy and maximum slot staking limits. As we reported at the time of the November budget, the impact of 40% RGD on the bottom line of the U.K. digital business is GBP 46 million before mitigating actions. Since then, we've already taken a significant cut to marketing spend that's further away from the customer transaction, including canceling above-the-line spend and TV sponsorship deals. We've also started negotiations with suppliers with the main benefits expected by the beginning of April and there are further efficiency improvements also expected by that date. So the majority of the heavy lifting in terms of mitigating actions has been done. However, it is reasonable to expect that the U.K. digital gaming industry will change significantly with higher taxation. We're already seeing operators planning to exit the market and it's inevitable that there will be reduced competition in the license market over time. In a world of higher taxation and lower competition, we'll take an agile approach to promotional investment, performance marketing and customer incentives. Our base plan does not see us reducing spend in this area as they are critical levers to driving long-term growth, albeit from a new lower profit base. We believe that going forward, the strength of our casino and bingo brands, the billboard effect of our venues and the attractiveness of our cross-channel experience will be key to driving growth. They will enable our digital business to rebuild profitability over the coming years as the market stabilizes with less competition and lower marketing investment. With that in mind, our focus on improving the customer proposition remains steadfast. In the second half of the year, we'll deliver a unified membership scheme to Mecca customers across venues and online. It will allow us to deliver an improved and more personalized experience across channels. The live casino experience also improved in the second half of the year with new live slot streaming products, improved venue-led casino content and again, enhanced customer journeys. The new bingo platform goes live in Spain this quarter, removing the capacity constraints we faced over the last 12 months or so. Moving to land-based bingo. Revenue growth in Mecca was 4% in the half, all driven by an increase in spend per head. Main stage bingo revenues were down 1% off the back of investments we've made in additional prize money, which we believe is key for the long-term health of the business. We introduced 600 new Mecca Max tablets across the estate as customers increasingly embrace the appeal of electronic bingo via tablet-based play. 59% of customer visits were played on electronic terminals, with those Max customers now accounting for 75% of main stage bingo revenue. Gaming machine revenue in Mecca grew by 9% and now accounts for 43% of our NGR. We're committed to providing the best gaming machine proposition in the industry and completed 5 gaming machine area upgrades in the half. We've also continued to focus on modernizing our external profiles with 5 new signage schemes. As with Grosvenor, the largest cost in Mecca is employment costs, which were up 2.9% due to the impact of national living wage, employees national insurance, but partially offset by cost efficiencies. As a result, like-for-like operating profit was up GBP 2.7 million from GBP 0.7 million last year. And in Spain, there was further revenue and profit growth from our estate of 9 well-invested flagship Enracha venues. Revenue was up 6% on a constant currency basis. And similar to Mecca, spend per head was a key driver of revenue growth. The ongoing investments in product, service and environment has seen gaming machine revenues in Enracha grow 10% and this included the initial benefit of an upgrade to the gaming machine area in Cordoba. In the first half, we also completed the refurbishment of our Sabadell venue in Catalonia and that's opened this week to customers. Underlying like-for-like operating profit in Enracha grew 5% to GBP 5.9 million. The abolition of the current 10% bingo duty effective from April this year provides a much more sustainable platform for Mecca's future, delivering an annualized benefit of GBP 6.5 million. This means the target of delivering double digit operating profit is now expected to occur next financial year, alongside much improved cash generation. Unified membership will materially improve the data quality we have in our Mecca venues. It allows customers to use their app as their membership card and receive personalized offers and rewards, something that's not been possible so far. We'll continue the rollout of signage schemes and gaming machine area upgrades. These low-cost investments are delivering returns in under 18 months and will help to further improve Mecca profitability. Further legislative reforms are on the horizon for Mecca and the future looking much brighter than it has since before the pandemic. On Enracha, we're trialing an immersive bingo experience called Bingo Boom in Seville, targeting a younger demographic in an enlarged venue. This is just one great example of the propositional improvements we're trialing in Enracha. So bringing all of that together, the group is well placed for further revenue growth in the second half of the year. We had a strong Christmas and New Year period. Performance in January has been in line with our expectations and we have a strong pipeline of initiatives to drive performance. In Grosvenor, the early results from the launch of the additional gaming machines reaffirm our confidence in the medium-term opportunity. It's great to be up and running. On digital, we have a clear plan to deliver average weekly NGR -- sorry, in Grosvenor, we have a clear plan to deliver average weekly NGR of GBP 9.5 million and 500 basis points margin improvement in the medium term. On digital, we have taken the financially responsible actions needed to significantly reduce the impact of RGD at 40%. The plan is in place to reset the business, but without impacting the attractiveness of our customer offering. We've got clear strengths that allow us to continue growing revenues in what is seismic shift for the industry. And as I mentioned, the abolition of bingo duty will see us deliver the target of double digit operating profit in Mecca next year. So the group retains a clear path towards delivering its target of at least GBP 100 million annual operating profit in the medium term. And as we continue to execute that plan, we'll also focus on the strategy required to grow shareholder returns beyond the medium-term ambition. So that concludes the formal part of the presentation. But just before I move into Q&A, it would be remiss of me not to take this opportunity to register my own thanks to John as he prepares to retire from his role as CEO of Rank. He's suitably embarrassed, I hope. He's been great to work with. I've learned plenty from him and he leaves us, as you've hopefully heard today, with a really strong foundation on which to build. I personally owe him a great deal. I know that Rank owes him a great deal. But perhaps most of all, the entire U.K. gambling industry owes him a debt of gratitude because as you all know, he's been a tireless advocate for the industry that he loves. So thank you, John. And now, we'll move to Q&A. Richard Harris: Please, can I ask that before you ask your question -- one hand has gone up already -- you give your name and your company? We'll start with questions in the room and I'm sure there will be some questions online, so we'll take those as well. Ivor Jones: Ivor Jones from Peel Hunt. You talked, Richard, about adding reward schemes into the gaming machine offering Grosvenor. In terms of profit -- in terms of revenue consequences, is that going to be marginal? Or is it like a big dip in terms of marketing spend, which we should watch out for and then you'll see recovery? How will it work? Richard Harris: I'm glad you're asking questions one at a time, Ivor, because there's only me to answer them today. So thank you for that. So is it -- are you going to see a big increase in marketing spend? No. But what this is, is a tailoring of approach to each individual venue based on their competitive environment to other gambling venues they've got around them. And it's trying to give us the best possible rewards incentives based on the customers that we want to attract to our venues going forward as well as the customers that come to us today. So is it a big marketing spend? No, it's not. But is it an enhancement of the offer as we gradually build revenues in game machines? Absolutely. Ivor Jones: On digital, in Grosvenor digital, why was -- I probably asked this before, but why again was Grosvenor digital revenue growth so strong? Was there something in the extra marketing cost push that drove that? What was driving it? Richard Harris: Yes. So Grosvenor at 17% was particularly pleasing because the second half compared to last year was particularly tough as we had a higher win margin at that point in time. So to grow 17% on that, we were delighted with that. It's a number of factors, I think. So we've been making good consistent improvements to the customer proposition in Grosvenor for quite some time. So roll back 12 months or so ago, we were launching new Grosvenor apps. So the performance from that has continued to benefit results. As a consequence of RGD, we've definitely had a shift from some of our smaller brands aren't cross-channel brands, so everything other than Grosvenor and Mecca in the U.K. We've diverted some of the marketing spend towards Grosvenor because we're seeing greater returns there and we expect to see greater returns in the future. So undoubtedly, that's played a contributing factor as well. Ivor Jones: You didn't mention cross-sell from the venues. Is that because it's not important for driving Grosvenor digital? Richard Harris: It absolutely is. I'd say in terms of the progress we've made on that in the last 12 months that has contributed directly to performance, not so much at the moment. There's some additional stuff on there around venues content that will improve the offer. But I wouldn't point it out as being a single contributing factor to performance in the first half, but it is a much greater contributory factor to our growth in the future. Ivor Jones: And can you carry on and talk about the proprietary brands? What's the future for them in an RGD, 40% RGD world? Richard Harris: Yes. So with Grosvenor and Mecca, the opportunity we still think to grow the business is significant because of that billboard effect, the venues experience, the cross-channel experience. When you piece all that together, Grosvenor and Mecca have got a very strong future. And we'll continue to invest in customer incentives, free bets, et cetera, to make sure that that offer is as attractive as possible as it can be. For the smaller brands, we're working through exactly what they will look like in RGD world of 40%. But the role they play is likely to be different. We're likely to invest less in marketing because the returns aren't anywhere near as great. Tax has gone up by almost double. So the returns are going to be less, but we still think they'll play a role from a casino and bingo perspective in supporting the Grosvenor and Mecca brands. Are they going to be big drivers of growth? Probably not. Ivor Jones: Let me pass the microphone, maybe come back at the end if there's time. Richard Harris: Fighting over who gets the next question. There we go. Richard Stuber: It's Richard Stuber from Deutsche Bank. Just a couple for me, please. First of all, I guess, given the increase in RGD, do you feel that some of your venues may now be slightly more marginal in terms of the ability to cross-sell into a -- sort of a valuable customer? I guess from the Mecca side, less so because you've got the abolition of bingo. But in terms of any growth in casinos, are there some which are slightly more marginal, or are you rightsized? And the second question is, I guess, also on the back of RGD, does -- because of the returns you get from U.K. customers, does that maybe sort of change your view in terms of where the incremental spend may go? So in other words, would you invest maybe more in Spain now or other parts of Europe versus the U.K.? Richard Harris: So taking the first one, actually, I think probably the opposite. So I think the importance of cross-channel in a 40% RGD world increases because the lowest cost of acquisition that you'll find is from customers that are playing with you in venues. So the role and the relationship between the venues and the digital proposition, they've been a big focus for us in the recent past. They'll continue to be a big focus for us going forward. So I don't think RGD at 40% changes the dynamics of a venue in the Grosvenor estate. The point about switching returns, I'll be a little bit careful about saying this because historically, we haven't capped out what the marketing spend is with a fixed budget in either of our Spanish business or our U.K. business. What we're trying to do is drive performance and maximize returns. If we're getting very strong returns, there is more money to be spent on marketing. So when I talked about customer incentives, free bets, performance marketing earlier and how that will be critical going forward, could there be a chance that we increase investment there because that's the right thing to do to drive growth and drive returns? Absolutely. So I don't see it as a decision between U.K. and Spain -- or U.K., Spain and Portugal going forward. But the teams have got the responsibility to maximize the returns that we're getting from any investment spend. David Brohan: David Brohan from Goodbody. Just 2 questions from me. Firstly, in light of the RGD changes in the U.K., would you potentially consider M&A to scale up your digital presence there? And then secondly, just on the GBP 100 million-plus operating profit target, could you help us out a bit in terms of the time line and the building blocks there, again, given the changes to RGD? Richard Harris: Yes. So taking the first one on M&A, David. So I think it's inevitable there will be operators in the kind of long tail that leave the market. From our perspective, the kind of primary focus, we've done the heavy lifting around mitigating actions that we want to take at this point in time. We've got a clear plan to delivering a profitable business in U.K. digital going forward and also a clear plan that allows us to grow going forward. So it's not just about surviving and being viable. It's about having a healthy, strong business that will be able to grow in the future. So right now, I wouldn't want to kind of commit either way to M&A. It's kind of a bit early to tell really. Nobody really knows how this is going to play out. We've got other examples around the world of how things change where tax rate goes up, increased consolidation and so on. But I think from our perspective, right now, we're focused on delivering the best possible results we can do in our brands. And from there, we'll always consider what the next move are -- what the next move is strategically. In terms of the GBP 100 million operating profit, so as you know, the kind of key levers within that, the additional gaming machine opportunity, that is a key part of getting Grosvenor to GBP 9.5 million per week, but also a key part in improving the operating margin by at least 500 basis points. So that is #1 priority within the business. We're pleased with how that's gone so far. But as you've seen from the growth curve, there's a long way to go and we need to gradually work hard to drive that performance over a period of time. It won't be an overnight thing. It's going to come over a period of time. The second part is, as you kind of rightly pointed out, RGD -- having a profitable business that you can grow going forward, that's going to be critical. But also, I think the abolition of bingo duty gives us some options around Mecca. So that's going to materially improve in terms of profitability. Some of the things that might not have been good investment choices in the past in Mecca might now become good investment choices. I don't think it's going to radically change the amount of money we're making -- change the amount of money we invest into Mecca, but how we think about that business, I think, does change. And we'll continue to kind of drive the Enracha business because it's a great little business and there's still further room for improvement. So from a -- realistically, you can't take a GBP 46 million unmitigated hit to the bottom line without that changing the shape of your plan going forward. So inevitably, there's probably a 12-month lag from where we were prior to RGD at 40%. But internally, super focused on that GBP 100 million and beyond, I'm very confident we can get there. Unknown Analyst: It's [ Rebecca Chacha ] from Investec. Just one question for you, Richard. You mentioned before in your speech that you believe that the market after the RGD changed, the licensed market will be less competitive. What do you think about the potential evolution of the unlicensed market? And what do you think that are the actions that the government will take or... Richard Harris: Yes. So in the run-up to the budget, I think we were relatively clear that we thought the risk around increasing online taxes was that there would be a shift to the unregulated market. And that still feels like that thesis holds. What we do know is that the government have kind of channeled some money to the Gambling Commission to increase enforcement on unlicensed operators. But they need every penny of that investment because it is a growing part of the market and an area that needs increasing focus. So I talked about the license market, particularly in the speech, but we are also very cognizant of we're not just competing with the license market. So free bets, customer incentives, all of that needs to be targeted to drive the best possible performance in our business. Of course, yes, we've got some questions online as well, but we'll finish off all those in the room first. Ivor Jones: Very good. Ivor Jones, Peel Hunt. Could you just remind us of your plans for the cost of the launch in -- the hard launch in Portugal next month? Richard Harris: Yes. So there is relatively significant investment -- in the context of our international digital business, relatively significant investment upfront in this financial year, particularly in order to kind of get -- build that liquidity and grow that business from a standing start. As I mentioned earlier, we did the soft launch in November and the number of customers that we have coming back to our site, without doing any marketing, is encouraging, but it's still very, very early days. So we've got to build liquidity. And in order to build liquidity, that really involves marketing spend. So in the current financial year, based on the level of marketing spend that we intend to put behind that and the level of revenues that we expect, I would expect that Portuguese business to be loss-making this year, but to the tune of small single digit millions. And that's captured in -- I think that's pretty much captured in all analyst forecasts. So that shouldn't be a surprise to people, I don't think. Ivor Jones: Okay. In relation to Mecca venues, you mentioned 2 things, reasonably good growth in machine gaming revenue and the rollout of additional tablets. Is the machine gaming revenue increase on physical devices, or was it partly driven by virtual machines on the tablets? And does that lead you to invest in more tablets because it drives up the machine revenue growth? Richard Harris: So the vast majority of machine revenue income comes from physical cabinets, not on the tablets. So that's where all the growth is coming from. And I would pin that to the fact that we have invested heavily in the proposition, whether it be upgrading machines -- upgrading machine areas, the audiovisual, the whole lot is much enhanced. So I put that down to what's driving the revenue growth in gaming machines. On the tablets, customers that play on tablets spend more money with us. They have more fun. They're more regular players. So will we continue to invest in tablets, making sure they're of the best quality, best reliability? Absolutely, because that is a strong part of the offering, 75% of revenues are coming from -- 75% of main stage bingo revenues are coming from those customers. So we want -- they're our best customers. We want them to be well looked after. Ivor Jones: When you replace old tablets with new tablets, do they deliver an uplift in revenue because of improved functionality? Or are you only talking about people going from being paper players to electronic players? Richard Harris: It's both. So every 1% of customers that we can transfer from paper-based to electronic tablets, that is worth -- they're worth more money to us. So they spend more money as a consequence. But also, it's the reliability, the delivery of the service, to make sure you get that proposition right for regular bingo players. And it's about, at peak times, have you got the capacity to deliver everything you need to, to make sure everybody there that wants to play electronic bingo can do so. I think we've probably got some questions online. [ Matt ]. Unknown Executive: Yes. Thank you, Richard. We've got 3 from Greg Johnson at Shore Capital. Can you provide some granularity on the slightly softer Q2 period, especially around the budget and the uplift over the festive period and into January? And are these recent trends more consistent with Q1? Richard Harris: Yes. Good question. So performance -- so revenue growth in the first quarter was 9%. Revenue growth in the second quarter was 4%. I think 2 main factors I'd kind of call out. So we did have a tougher comparative in the digital business in the U.K. in particular, which I mentioned earlier and also the impact of consumer confidence running up to and after the budget. It was pleasing to see that over the Christmas and New Year period, when we're absolutely our best, revenue growth was really, really strong. And then that strength of growth has also continued into January. So really pleased with January performance so far. In both the Christmas and New Year period and January, performance was better than what we saw in Q2 and more in line with what we saw in the first quarter of the year. So appreciating it's early days, we're only 4 weeks into a new financial year -- sorry, a new financial half, but relatively satisfied with our performances at the moment. Unknown Executive: Machine income growth has been much stronger in those casinos which have benefited from installation of additional machines. Given the phasing of the rollout, what was the growth in machine income during Q2, please? Richard Harris: So first quarter gaming machine income was 12% up and it was broadly similar in the second quarter of the year. As you know, we started to launch machines from the middle of August and that rollout continued with a large proportion of the machines coming in at the end of December. So overarchingly, at 16%, we're really, really pleased with that performance. It compares with 4% for gaming machine revenue growth in those venues that didn't have the investments, that [ factor ] of 12, I think, is relatively material and relatively important to us. But from this point onwards, we have to kind of continue to build that growth. So this is about improving the product layouts, improving supplier mix, improving content, improving promotional rewards. The whole gambit is kind of being constantly reviewed in a casino-by-casino level in the context of their competitive environments. So we're supporting the best customer proposition we can in each casino. Unknown Executive: And just a follow-on, have you seen any cannibalization following the rollout of more machines? Richard Harris: Not obviously. Actually, no. So do you feel implicitly that there might be some money that might have been put down on the table that now goes into a gaming machine because you've got -- previously, they were all taken and you weren't able to satisfy that demand. So intuitively, it feels like there might be a little bit. You don't see it in the numbers. So there's no material crossover from gaming machines to table gaming. Unknown Executive: That's it for online questions. Richard Harris: Great. In which case, we'll draw the presentation to a close. Thank you very much.