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Operator: Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mastercard Incorporated Q4 and Full Year 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Followed by the number one on your telephone keypad. Star one multiple times may affect your position in the queue. Mr. Devin Corr, Head of Investor Relations, you may begin your conference. Devin Corr: Morning, everyone, and thank you for joining us for our fourth quarter 2025 earnings call. With me today are Michael Miebach, our Chief Executive Officer, and Sachin Mehra, our Chief Financial Officer. Following comments from Michael and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session. It is only then that the queue will open for questions. You can access our earnings release, supplemental performance data, and a slide deck that accompany this call in the Investor Relations section of our website, mastercard.com. Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a non-GAAP currency-neutral basis unless otherwise noted. The release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts. Finally, as set forth in more detail in our earnings release, I would like to remind everyone that today's call will include forward-looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance is summarized at the end of our earnings release and in our recent SEC filings. A replay of this call will be posted on our website for thirty days. With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach. Michael Miebach: Thank you, Devin. Good morning, everyone. There was a lot of activity to close out 2025, and it's been a fast-paced start to the new year. In that spirit, let's jump right in. My headline for you today, we continue to deliver in 2025 was another very strong year. For the fourth quarter, net revenues were up 15% overall, with value-added services and solutions net revenue up 22% versus a year ago on a non-GAAP currency-neutral basis. Our consistently solid performance is driven by several factors. First, we are focused. Our strategy is clear, and we're executing against it. We're making strong progress against each of our strategic pillars and benefiting from the virtuous cycle across our payment network and services offerings. Second, we're innovative and agile. We spearhead the payments evolution. At the same time, environments shift. Customer needs, technology, regulation, so we adapt. And we prioritize ensuring we have the right capabilities and skill sets. Recently, we completed a strategic review of our business. This will result in reductions in some areas and roles, but lead to further investment and increased focus in others. And finally, we're diversified and differentiated. Our business extends across geographies, spend categories, and payment adjacencies. The diversification of our business means we benefit from a wide range of growth drivers, which make us more resilient. As we enter 2026, geopolitical and macroeconomic uncertainty persists. We will continue to monitor and work to navigate just as we have successfully done in the past. But for now, we remain optimistic and confident in our execution and the fundamentals of our business. Looking back at 2025, we won hundreds of new issuing deals and expansions globally. This doesn't just happen; it is the result of our dedicated sales force, technology, and differentiated value we deliver to our customers. I will share a few highlights from this past quarter. In the U.S. and Canada, we extended our long-standing partnership with Capital One, where we renewed our partnership in credit. We will be the network for a large portion of newly acquired credit accounts. And across their business, Capital One will continue to use several of Mastercard's services. In Turkey, Yapi Credi will migrate nearly 10 million cards across their consumer credit, debit, and affluent portfolios to Mastercard. Our consulting and marketing services will be used to support the end-to-end portfolio conversion. In Latin America, Scotiabank chose Mastercard as their network partner in Chile and Uruguay. Why? They see Mastercard's security, loyalty, and analytics offerings as key to fueling their growth. This builds upon our strong relationship with the bank in Peru and the Caribbean markets. In South Africa, our modernized real-time payment switch is a key factor in assigning exclusive deals with several players in the market, Nedbank and Standard Bank. These wins position us to increase our share in the market by multiple points, and we continue to win in affluence, so important. We have secured more than 60 new affluent programs in 2025 across the world. Our drumbeat of wins continued this quarter with new deals secured with PickPay, Zikub, Sis Prime in Brazil, and Nedbank in South Africa, which I just mentioned. We're seeing the same momentum in co-brands, with leading merchants and digital players. Earlier this month, it was announced that Mastercard will continue to be the exclusive network for the Apple Card, which will transition to JPMorgan Chase as the issuer in approximately twenty-four months. We supported the launch of this industry-leading co-brand nearly seven years ago, and we are excited to support its continued success. We won the Walmart and Sam's Club co-brands in Mexico in partnership with Invect Spankel. We renewed our partnership with Barclays, supporting its U.S. co-branded card programs and its Tesco Bank card programs in the UK. And we partnered with Amazon and Emirates Islamic to launch the Amazon credit card in the UAE. As I said, we remain focused on driving long-term growth across each of our strategic pillars. In Consumer Payments, this quarter was about continued innovation and focus on driving incremental growth. Our drumbeat of wins I just mentioned shows that Mastercard's preferred over alternative networks. Banks chose Mastercard because of our global acceptance, our consumer protections, strong security, and digital capabilities. It's also about our dedicated teams and our commitment to driving mutual growth. We work with our existing customers to optimize their portfolios by using our advanced analytics and AI capabilities. We help clients activate their cardholders, drive top-of-wallet behavior, and increase approval rates. And it works. We're driving more transactions of our network and in key categories. Think digital or cross-border. In looking at digital commerce alone, we've seen approval rates increase by 270 basis points in the last five years. Now think about what that means when applied to Mastercard's global payment network. Last year alone, we switched more than 175 billion transactions. That's a lot of potential to further optimize. We now switch more than 70% of all Mastercard transactions globally, an increase of 10% since 2020. More switched transactions result in more data and more opportunity to sell services and so on. All of which allows us to help our partners drive top and bottom-line growth, enabling seamless and secure experiences for our cardholders. This is the virtuous cycle in motion. The payments industry continues to evolve. Stablecoins and the Gentecommerce bring new choices to pay and get paid. And we are leaning in just as we have with neobanks, digital wallets, and installments and so on. For us, stablecoins and agenetic commerce are emerging opportunities, ones where Mastercard has a natural role to play. We have been active in the digital asset space for over a decade. Most use cases for crypto and stablecoin today offer trading and the like. For us, it is another currency we can support within our network. We've made good traction enabling the purchase of these assets, facilitating transactions, and supporting stablecoin for settlement over our network. Trust, interoperability, and global acceptance are key in all payments. That's where we come in. This quarter we have supported co-brand partners such as MetaMask, as they scale across geographies. We partner with co-brand partners to extend their offerings to new customer types. Gemini brings their success in the digital asset space to launch the first business-focused stablecoin co-brand. And we continue to expand our settlement capabilities, now working with Ripple. Moving on to Agenci Commerce. Where AI-powered agents assist or act on behalf of consumers throughout their commerce journeys. For us, Agenty Commerce represents another avenue to enable payment choice with the same trust that we always deliver. It's early days, but we are ready. You remember, last year, launched Mastercard AgentPay, a framework designed to foster trust in agentic transactions. Have now enabled our US issuers to participate in agent pay. And we are working to enable our global issuer base by the end of the first quarter. As more agents come on board, there will be more opportunities for consumers to experience a truly seamless commerce experience. We're actively working with ecosystems participants to adopt Agenci commerce across all regions. I'll share a few highlights from this quarter. In Asia, we're partnering with Anthem on card-based tokenized payment solutions for agentic payments. In The UK, where consulting clients such as Lloyd's Banking Group, Elavon, and Santander on AgenTek commerce innovations. And in The UAE, we're piloting AgenTik payments with the leading retailer in the entertainment group, Majid Alsattain. And with banks, merchants, and digital players, we continue to position them for success in this new era of commerce. Whether it be through consulting, security, data-driven insights, or new loyalty programs, we are there. Moving to commercial and new payment flows, one of our three strategic priorities. In 2025, our commercial credit and debit volumes represented 13% of our total GDV, and grew at 11% year over year on a local currency basis. That's a clear reinforcement that our differentiated value propositions and broad-based partnerships are driving meaningful results. In commercial point of sale and invoice-based payment flows, our offerings are designed to meet corporate demands for more efficient, data-rich, and secure transactions. We continue to expand usage of our virtual cards by enabling transactions to be initiated within B2B and T and E platforms. Mastercard's commercial express program simplifies the integration and commercial onboarding. This quarter, Ambers, a leading T and E platform, and BMO and Huntingbank were the latest issuers to participate. Differentiated solutions benefit our customers. And that has translated into significant wins. This quarter, we renewed our global partnership with WEX and extended our partnership with Barclays the UK and across Europe. Also, we partner with Cooper, a leading business spend management platform, to launch the Coupa Mastercard. Together, we are enabling virtual card payments across the entire customer base, which spans millions of buyers and suppliers globally. There's much more than winning share. We're actively working to capture the sizable secular opportunity. Small businesses represent more than half of the cash and check opportunity in commercial point of sale that we outlined at our Investor Day. Given the broad-based diversity of the small business segment, we are working across banks, and non-bank partners to serve this segment. It benefits our partners, Mastercard in the overall economy. This quarter, we extended our partnerships with Intesa Sanpaolo to drive greater small business issuance in Italy. Partnering with L'Oreal to issue small business cards across Latin America our first market launch is a co-brand card with Clara for salon owners in Mexico. This is a prime example of how we are using a vertical approach to partner with large-scale players to capture untapped payment flows. Grow through differentiated value and broad-based partnership continues for Mastercard move. Our disbursements and remittances capability. Now with more than 17 billion endpoints available, Move is positioned to be the money movement platform with the greatest reach in the industry. Mastercard Move recipients had the option to receive funds across a variety of endpoints, including, but not limited to, bank accounts, debit cards, digital wallets, and cash if you want to. We continue to expand our network reach just recently by enabling bank account deposits in Bangladesh. By expanding digital wallets and endpoints in The Philippines, a partnership with GCash, and in China through our partnership with Tenpay Global for Weixin Pay. With Stablecoin Wallets through our partnership with Zunes. Our expanded reach and endpoint options are resonating with customers. This quarter, we partnered with Banco Ripley a subsidiary of the Ripley Corporation, one of the largest retail companies in South America, to offer Mastercard cross-border services to their customers in Chile and Peru. Also partnered with Capital Bank, a leading neobank in Mexico which is leveraging Mastercard and Corpay's cross-border payment solutions. Our Mastercard move capability is demonstrated consistently strong transaction growth, In quarter four 2025 and full year 2025, saw transaction growth exceeding 35% versus a year ago. Our extensive reach and market adoption position us well going forward. Turning to value-added services and solutions. We delivered strong performance in 2025 with full-year net revenue growth of 21% or 18% excluding acquisitions year over year on a currency-neutral basis. This growth was broad-based, with consistently strong growth across regions, and product groups. Our performance is a clear demonstration of our growth algorithm in action. That steps through that. We have curated a suite of value-added services and capabilities in large and fast-growing addressable markets such as digital, security, and data-driven insights. Mastercard's proprietary data and AI capabilities combined with our payment network reach provide us a real competitive advantage. Simply put, we provide unique intelligence at scale. There's a natural tailwind to services from payments. At our Investor Day at the 2024, we noted that 60% of our value-added services and solutions net revenues were network linked. This simply means value-added services and solutions revenues benefit from transaction growth. And also higher growth drivers such as tokenization. For example, fraud scores and token authentication fall into this category. And we are actively working to further penetrate our customers and markets just like the Mastercard threat intelligence offering we launched last quarter, which has already started scaling across our payment network. In addition to network-linked offerings, we also provide our customers with consulting, marketing, and platform-based offerings. These non-network services enable us to sell to new buying centers at retail banks, They also extend our reach across a more diversified customer base, including governments, merchants, digital players, and more. This quarter, we supported Costco in Canada and their omnichannel growth strategy using Mastercard's marketing and consulting services, that's meaningful strategic value. Innovation remains core to our long-term growth. We have a long-standing history of success in launching and scaling innovation. Way back in 2013, we architected the industry standard for tokenization to enable trusted digital transactions. The critical need of customers and partners at that time and still true today. In fact, as of quarter four, we have tokenized nearly 40% of all transactions. And we continue to see adoption in both card present and card not present use cases. And with this growth, we're seeing higher transactional approval rates enabling further services growth. Our innovations continue to deliver real value to our customers and continue to drive financial benefit today. We're adding to that innovation. Now with the launch of Mastercard Credit Intelligence, By using Mastercard's proprietary network data, identity, and open finance capabilities, we can deliver faster credit assessments. For individuals and entrepreneurs, this could mean greater access to credit, from banks, greater insights to inform their lending strategies. And that fuels a healthy, inclusive digital economy live in market and seeing adoption across a variety of customer types. In addition, we've launched Mastercard Agent Suite, evolving our consulting practice from AI strategy to now include asset-led engagements. You will design and deploy AI agents within customer environments to drive operational excellence, and enhance end customer experience. In addition to directly engaging with customers, we're scaling our services through distribution partners, one to many, including FIS, WPP, and Comcast advertising will be added this quarter. So with that, I will wrap it up. In summary, we delivered a very strong fourth quarter and full year 2025. Our performance is a direct reflection of growth strategy deliberate diversification and focused execution. We're at the forefront of innovation, and we're remaining differentiated versus the competition. This helps us be an agile, trusted, valued partner, especially as markets evolve. With strong momentum moving into 2026 and remain confident in our continued growth, Sachin, over to you. Sachin Mehra: Thanks, Michael. So turning to page three, which shows our financial performance for the fourth quarter on a currency-neutral basis. Excluding where applicable special items and the impact of gains and losses on our equity investments. Net revenue was up 15% reflecting continued growth in our payment network and our value-added services and solutions. Acquisitions contributed one ppt to this growth. Before discussing expenses, I am pleased to share that in late December, the company secured various new multiyear government grants related to investments in select geographies. These grants benefit both operating expenses and other income and expense. We expect to realize the operating expense benefit primarily in 2025 and 2026, while the other income and expense benefit will extend multiple years beyond 2026. The Q4 2025 impact reflects the full-year value of the 2025 grants. With operating expenses growth improving by around 5.5 ppt and other income and expense benefiting by approximately $135 million in the quarter. These positively impacted each of the following metrics, that I will discuss on this page. Operating expenses increased 12% including a five ppt increase from acquisitions. And operating income was up 17%, which includes a one ppt headwind from acquisitions. Net income and EPS increased 17-20%, respectively. Driven primarily by the strong operating income growth and a positive discrete tax item, which primarily benefited the effective tax rate. EPS was $4.76, which includes a 10¢ contribution from share repurchases. During the quarter, we repurchased $3.6 billion worth of stock and an additional $715 million through 01/26/2026. Now turning to page four. Let's first look at some of our key volume drivers for the fourth quarter on a local currency basis. Worldwide gross dollar volume or GDV increased by 7% year over year. In The US, GDV increased by 4% with credit growth of 6% and debit growth of 2%. The growth of our debit portfolio was impacted by the Capital One debit migration, which continued through Q4. Outside of The US, volume increased 9% with credit growth of 9% and debit growth of 9%. Overall, cross-border volume increased 14% globally for the quarter, reflecting continued growth in both travel and non-travel-related cross-border spending. Turning to page five. Switch transactions grew 10% year over year in Q4. We continue to drive contactless penetration, which in Q4 stood at 77% of all in-person switched purchase transactions. This is up five ppt since the same period last year. In addition, card growth was 6%. Globally, there are 3.7 billion Mastercard and Maestro branded cards issued. Turning now to slide six. A look into our net revenue growth rates for the fourth quarter discussed on a currency-neutral basis. Payment Network net revenue increased 9% primarily driven by domestic and cross-border transaction and volume growth. It also includes growth in rebates and incentives. Value-added services and solutions net revenue increased 22%. Acquisitions contributed approximately three ppt to this growth. The remaining 19% increase was primarily driven by growth in our underlying drivers, strong demand across digital and authentication, security solutions, consumer acquisition and engagement, and business and market insights, as well as pricing. As we reflect on value-added services and solutions growth for full year 2025, we continue to see strong broad-based growth, as Michael mentioned earlier. Looking at our organic growth rates, both AP EMEA and The Americas delivered high teens growth. And we also saw at least high teens growth across all the services product areas apart from other solutions. Now let's turn to page seven to discuss key metrics related to the payment network. Again, all growth rates are described on a currency-neutral basis. Unless otherwise noted. Looking quickly at each key metric. Domestic assessments were up 8%, while worldwide GDV grew 7%. The difference is primarily driven by pricing, offset by mix. Cross-border assessments increased 17% while cross-border volumes increased 14%. The three ppt difference is driven primarily by pricing in international markets, partially offset by mix. Transaction processing assessments were up 14% switched transactions grew 10%. The four ppt difference is primarily due to favorable mix and pricing, partially offset by a decline in revenue from FX volatility. Towards the end of Q4 and month-to-date January, we saw FX volatility well below historical norms. Other network assessments were $272 million this quarter. Moving on to page eight, you can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 12% which includes a five ppt impact from acquisitions. Excluding acquisitions, the growth of total adjusted operating expenses was primarily driven by increased spending to support various strategic initiatives, including investing in our infrastructure, geographic expansion, and enhancing and delivering our products and services. This was partially offset by the benefit of the government grants I described earlier. Turning to page nine. Let me comment on the operating metric trends. Starting with Q4 and looking at the metrics on a sequential basis. U.S. Switched volume growth declined primarily due to the migration of the Capital One debit portfolio. Worldwide less US switched volume saw a slight deceleration driven primarily by tougher comps including the lapping of portfolio wins in Europe. Switch transactions were in line with Q3. Cross-border volume remained strong. Of note, we saw a sequential decline in cross-border card not present ex travel, primarily driven by tougher comps from the lapping of share wins in Europe and higher growth from crypto purchases a year ago. As we look to the first three weeks of January, our metrics continue to remain strong, generally in line with the fourth quarter. Of note, U.S. Switched volume was flat sequentially, as the Capital One debit roll-off was mostly offset by easier comps due to weather impacts in the prior year. Saw a decline in cross-border travel volumes primarily due to weather-related impacts in Europe this year. Cross-border card not present ex travel continued to be impacted by higher growth from crypto purchases a year ago. Overall, we continue to see healthy consumer and business spending. Turning to page 10, I wanted to share our thoughts on fiscal year 2026. As Michael said, we delivered very strong results in 2025, across all facets of our business despite an uncertain backdrop. The fundamentals of our business remain strong. The macroeconomic environment remains supportive, with balanced job markets across the globe underpinning healthy consumer and business spending. That said, there continues to be ongoing geopolitical, and economic uncertainty. We maintain a disciplined capital planning approach have levers to pull if needed. But most importantly, we're focused on the execution of our strategy. Positioning ourselves for long-term growth and remaining innovative, and differentiated. Coupled with our diversified business model, this creates resiliency, helps us navigate diverse environments, just as we have done in the past. We remain positive about the growth outlook and our base case for 2026 continues to reflect healthy consumer spending. As it relates to our expectations for the full year 2026, we expect net revenues to grow at the high end of a low double digits range on a currency-neutral basis, excluding inorganic activity. We estimate a tailwind of approximately one to 1.5 ppt from foreign exchange. From a net revenue perspective, we expect currency-neutral growth in the first half of the year to be lower than in the second half. This is driven by tougher comps in the first half, primarily due to elevated revenue growth from FX volatility in 2025. From an operating expense standpoint, we expect growth to be at the low end a low double digits range versus a year ago on a currency-neutral basis excluding inorganic activity and special items. We expect a headwind of 0.5 to one ppt from foreign exchange on a full-year basis. Now turning to the 2026. Year over year net revenue growth is expected to be at the low end of a low double digits range. On a currency-neutral basis, excluding inorganic activity. Estimate a tailwind of approximately 3.5 to four ppt foreign exchange for the quarter. From an operating expense standpoint, we expect Q1 growth to be in the high end of high single-digit range versus a year ago, again, on a currency-neutral basis, excluding inorganic activity and special items. Foreign exchange is forecasted to be a headwind of approximately 2.5 ppt for the quarter. Separately, as Michael mentioned, based on the recent strategic review of our business, we expect to record a one-time restructuring charge in Q1 of approximately $200 million will be recorded as a special item and is excluded from our non-GAAP metrics. These actions will impact approximately 4% of our full-time employees globally. We expect these actions will free up capacity to further invest in our strategic priorities and best position us to continue to execute on our growth algorithm. Other items to keep in mind, on other income and expenses in Q1, we expect an expense of approximately $50 million including the benefit from the government grants previously discussed. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metric. Finally, we expect a non-GAAP tax rate in the range of 20% to 21% for the full year and approximately 19% to 20% for Q1. A lower forecasted tax rate for Q1 as compared to the balance of the year is consistent with prior years, due to expected discrete tax benefits related to share-based payments in the first quarter. And with that, will turn the call back over to Devin. Devin Corr: Thank you, Sachin. Thank you, Michael. Julianne, you may now open the line for questions. Operator: Thank you. At this time, I would like to remind everyone in order to ask a question, press star then the number one on times may affect your position in the queue. Our first question comes from William Nance from Goldman Sachs. Please go ahead. Your line is open. William Nance: Hi. Thank you for taking the question. I wanted to start on the Capital One renegotiation. Congratulations on announcing that. Maybe if you could just provide a little bit more details. I think Cap One has talked about wanting to move volumes over to the Discover network over time, but at the same time, has talked about a lot of investments on the acceptance side. So can you talk about just the renegotiation as it relates to your existing Capital One cards outstanding? Are you expecting your share of Capital One credit volumes to remain stable? As a function of the renegotiation? And if you could just maybe talk about how long the extension was for. I appreciate any details you can share. Thank you. Michael Miebach: Yeah. Thanks for the question. So no surprise. We're excited about these recent news that we announced earlier. So extending our credit portfolio agreement with them is important, but also we should not overlook the aspect of Capital One as the great partner they are to use more of our services across their whole business. It's a strong signal, in my view at least, that the Mastercard network is valued. This is important to consider. We continue to invest in this network because we continue to invest in our acceptance. We know this is hard to build, and that is really what matters when it comes to affluent portfolios, when it comes to business portfolios, and so forth. So the partnership will continue, but we will continue to invest to ensure that we have a truly differentiated proposition as a partner for Capital One. William Nance: Appreciate you taking the question. Operator: Our next question comes from Sanjay Sakhrani from KBW. Please go ahead. Your line is open. Sanjay Sakhrani: Thank you. Good morning. I just have a question on the CCCA. It's obviously back in the news flow. I'm just curious how you guys are thinking about the implications to yourselves and the industry and sort of you know, the probability that it may or may not get through. And then just a quick clarification on the Capital One question. I'm just curious, it talks about sort of new account. Is there any volume migrating to Mastercard from Capital One? Or I'm I just wanted some more clarity there. Thank you. Michael Miebach: Let's start with the first topic, CCCA. You know, Sanjay, as you said, it's back in the news, and, yeah, it's been back in the news. But, yeah, it's been ongoing for a long time. So this was first introduced in 2023. And, you know, if you take it down to the facts, little progress has been made. A lot of discussions there around that, but also, what clearly has emerged is that there's a very united opposition to this proposed bill, as the benefits of the bill are yet to be proven while the risks are pretty clear. That aspect is about taking consumer choice away from consumers. They can't really take pay the way they want to pay. You know, that choice moves to merchants. This has been discussed in the context of affordability, but there is no particular, you know, consideration in this bill to actually pass on any savings. There's a big topic, that is often overlooked, and that is the potential risk to cybersecurity. This is a race to the bottom for the cheapest network option, but not the safest. Those are all things that haven't really changed since 2023. But the opposition, based on, you know, focused on these points has intensified. So the industry is very aligned. We're engaging with regulators at every point to educate and ensure that this is fully understood. So it's also important to understand that payments ecosystem is highly competitive. Now this the Credit Card Competition Act isn't really about It's about lowering cost without considering all the points I just said. So you know, there is competition. It's working. It's a highly effective ecosystem. So that is our perspective on it. That hasn't changed. On a probability of this going through, I mean, we shouldn't be speculating here. A few moves weighed over the last couple of weeks, which haven't succeeded, and I think we attribute that to a continued discussion on the, you know, risk associated with this particular regulation. And then, Sanjay, a new question around Capital One. It's like Michael said in his prepared remarks. Right? We're really excited about the new agreement which we struck with them as it relates to new credit issuance. And, you know, that's the extent of what we'll share with you publicly. As it relates to the interactions. But suffice it to say, you know, the reality is customer sees real value with what Mastercard brings. That's the reason, you know, we are actually doing what we are doing in the nature of the credit agreement. And, you know, they're seeing that across the payment network as well as value-added services solutions. Sanjay Sakhrani: Thank you. Operator: Our next question comes from Adam Frisch from Evercore ISI. Adam Frisch: Thanks, guys, and thanks for restoring some order. In the marketplace as it relates to your stock this morning. Wanna address the d go back to DC for a second. We wrote earlier this week that CCCA is is all but dead for now at least, but would love your views on the topic around a 10% rate cap on credit. Which seems like it's a back burner for now, but it's only a tweet away from being reignited. So would love your perspective on how you describe the conversations going on between the industry industry and the administration to address the affordability the affordability issue. As it relates to our space? And then if you could also provide some insight around your conversation conversations with issuers and other players in the ecosystem about ways to address the president's concerns without creating a broader crisis in the industry. Michael Miebach: Thanks. Good. Yes. Appreciate your first comment, actually, on the order. So the rate the rate cap. You know, that's a it's a really important conversation around affordability, and we shared that that it should be addressed Yeah. But when you think about the rate cap in particular, here is a a proposal that comes with a whole range of consequences that you think through, how that would something like this would be impacted. And the, you know, consequence that comes to mind first is what does this mean to credit access for a lot of the most vulnerable people that may not have access to credit any longer should a rate the cap like this be passed. So this is an important topic to be understood. To your question about our conversations with the the banks, with the issuers, the card issuers, We don't set rates, but, obviously, we have a shared interest in making sure that the overall credit ecosystem does work and provides credit access. So we're sharing data. We're on you know, we're you know, helping to compute what the impact would be. Then it is really understanding from our bank partners where they are gonna go. Is it, you know, it gonna be different products? It's you know, what is there today? Part of this is education. What kind of 0% introductory rates are out there today? Low interest rate products, and so forth. So it's a broad conversation that's going on, and I you know, across the industry leaning in on the topic of affordability and options around that. So I think overall, a constructive dialogue that was sparked you know, we have yet to see. As I it doesn't affect us directly as we don't set rates, but we're actively engaged as an industry custodian. Adam Frisch: Do you see the administration and the industry having more constructive talks about feasible alternatives here? As opposed to a blanket temper There's a lot there's a live doc. Yeah. There is a live dialogue here. You know, I think everybody realizes it's an important topic. Devin Corr: I think we need to move to the next question. Okay. Great. Michael Miebach: Thanks, guys. Operator: Next question comes from Ramsey El-Assal from Cantor Fitzgerald. Please go ahead. Your line is open. Ramsey El-Assal: Michael, could you give us a view on the health of the consumer? It's a very noisy kind of media political environment. A lot of mixed signals. On the other hand, it seems like the underlying spend volumes are really hanging in quite solidly across the board. What are you guys seeing out there? Any changing patterns? Anything interesting to call out? Thanks. Michael Miebach: Right. You know, it's a it's a great question. You know, when you look back over 2025, over the whole year, and we just take, soft data, like headlines or consumer confidence, data that comes out. You know? On one hand, consumers fill in surveys that the same time, their spend behavior hasn't actually changed. So that's a pattern that just continues We see know, just taking 2025, it it hasn't changed quarter on quarter. We see a truly savvy and intentional consumer. So what the digital economy brings to consumers almost back to the affordability topic is an ability to figure out what's the best deal, what do you wanna spend on, Where can you use your rewards to avail something that otherwise you might not do at this time. So is it a savvy and intentional consumer They're using their loyalty programs, their data to kind of spend on what they wanna spend on anyway. So that has been a continuous trend. There is question on how the consumer was affected or not, you know, by some of the tariff changes that we've seen not year. And, you know, that doesn't show up in our data either. So it's not coming through somewhere across the ecosystem between, you know, importers and big brands it's all been adjusted in a way that it hasn't really affected consumer spending. At least we cannot tell that. There's conversation on how does the you know, the whole spend pattern change when you look across higher income bands and lower income bands. And what we see across the board you know, in the light of a job market that is supporting paychecks and people are spending those paychecks, And the wealth effect on the other hand, so there are different types of supporting kind of factors around that support overall affluent spend as well. Lower income spend. So that hasn't really changed. And, you know, Sachin talked about it earlier. The first three weeks into January, we see this continue. Now if you zoom out and you look across the world, these patterns are different by region here and there, but the aggregate top line is the consumer spending remains healthy is the same. Ramsey El-Assal: Got it. Thank you. Operator: Our next question comes from Craig Maurer from ST Partners. Please go ahead. Your line is open. Craig Maurer: Yes. Hi. Thanks for taking the questions. First, there's been quite a bit of FX volatility in the past week, which makes a nominal guide a bit of a moving target. Can you talk about the sensitivity of the overall business to FX rate moves these days? And when you set the FX rates for the guidance? And secondly, vast grew regardless of how I look at it, VAS growth accelerated significantly in '25 versus the growth in the rest of the business. And so I'm curious if this is a trend that we should expect to continue in terms of the relationship between vast revenue growth and however we look at it, whether purchase volume or process transaction growth, or whatever metric you prefer? Thanks. Sachin Mehra: Sure, Craig. So let me just take both questions. Here, which is from an FX follow-up release standpoint. I'll be humble enough to tell you I have no idea where FX volatility is gonna be tomorrow. As it's gonna be in the remaining part of this year. So what we do is we take our best estimates of what we think it's going to be. We look at long-term averages. We kinda look at, you know, what the general environment is. And, you know, on the basis of that, we build in our best estimates. In quarters in which we see outsized benefit come from FX volatility, we call it out as we did in the first and second quarter of last year. Right? And, in other quarters where we see record low levels of FX volatility, we'll call it out as well as I did today. So look. I mean, the reality is super hard to predict. Right? And the impact to our business, as you can see, is fact that I'm calling it out means it does have an impact on our business. In particular, in the transaction processing assessments line. Right? So that's kinda important for people to know where it kinda sits. From an overall perspective. The more important thing here, though, is Mastercard is actually delivering some incremental value to our customers, which is why we actually generate the revenue associated with whether it's good volatility or bad The reality is we're delivering currency conversion services. Which means that our customers are seeing value in terms of what we're doing and allows us to actually you know, participate in that volatility to the extent it's high or then, you know, the detrimental impact of that volatility to extent it's low. So that's kind of point number one. On VAS growth, super pleased with the results. You know, the company continues to be very focused. It's an important part of our various strategic pillars. You can see that the growth rates are healthy. I'll go back to what Michael said in his prepared remarks. Right? Our business in terms of how we actually operate our vast portfolio is very tightly intertwined with what's going on in the payment network. Let's stop there. Right? The payment network brings volume onto the system, It brings data. Data enables the creation of the solutions. And that allows the social cycle to keep going. As it relates to the growth, know, we continue to remain very encouraged about the growth prospects from a vast standpoint. We've we shared with you previously what the building blocks of that growth are. Start with the fact that if there's underlying growth in drivers driven by know, what we're doing in the payment network, You know, there's an attach rate, which is related to that, which actually helps growth take place. Our Investor Day, we talked about how 60% of our 60% of our VAS revenues are network linked. So if you see the network the payment network growing, and the underlying drivers growing, you're gonna see that the growth of that come through. Second, we are in the business of actually really increasing the attach rate to the there are new solutions we're putting out in the market. Doesn't mean that every new solution that we put under the market is necessarily network link. But those which are allow us, you know, the opportunity to continue that growth algorithm. Third, we're increasing the penetration of these solutions with our customers globally. So the color I gave you in my prepared remarks today about the fact that our VAS growth is broad-based gives me confidence that this is not episodic in one particular region. Kinda talked about how across AP, EMEA, and Americas, we're seeing good growth from a vast standpoint. As also across the various elements of our services portfolio, we're seeing good growth. So that's kind of pretty comforting to me to see that we are actually executing across that VAS growth algorithm in a meaningful manner. And the last point I'll make is enabling this growth has been the constant look we do from an innovation standpoint organically, and we've done a bunch of new innovation, which we've announced, But also what we're doing to expand our addressable market. And examples of that would be things like recorded future, which takes us into new and different and fast-growing spaces like threat intelligence. So if I had to bring all of this together for you, I'd say, know, good solid growth in DAS in 2025 and we continue to remain encouraged about the prospects from a growth standpoint from a BaaS standpoint. Going forward. Michael Miebach: Yeah. If I can add a point here, this is you know, what's really important here is is the differentiation. Because there's when you look at the competitive landscape and in services, there's specialist companies out there that focus on cyber security. There's loyalty companies out there. 's really not a company out there like us. So it puts us in a very differentiated problem. Prop position here. We have the payment data as Sachin laid out, and we can build a set of services that are truly unique. It's a very curated set of services. We keep getting the questions from you now and then. What is actually in services? But if think about it from the perspective of cybersecurity solutions, data insight solutions, those are all, you know, you know, types of services that ground it in fundamental growth drivers and needs of the growing digital economy. So differentiated underlying growth drivers everything that Sachin just said. And all this is powered by a significantly changing distribution network that we're using. By selling these services through many others other than our payment partners. Thank you. Operator: Our next question comes from Tien-Tsin Huang from JPMorgan. Please go ahead. Your line is open. Tien-Tsin Huang: Hey. Appreciate it. Great growth here. I wanted to ask about Capital One little differently. You mentioned think it's Michael, you mentioned hundreds of issuing wins in twenty five. I'm curious for this year in '26, Any updated callouts on timing and impact on let's say, the KPIs from all these conversions and renewals. In in '26? How how does the renewal pipeline in general look? And any callouts on on pricing or competitive intensity, that kind of thing? Thanks. Sachin Mehra: Tien-Tsin, it's Sachin. Why don't I take the Look. I mean, you know, again, from a overall, customer engagement standpoint and a deal pipeline standpoint, I'd coming into 2026 is I I'd put it in in the realm of pretty normal what we see at this time of the year compared to prior year. So active pipeline, you know, lots of great engagement taking place with numerous customers. Nothing unusual to call out there in terms of the pipeline of deals. As it relates to the competitive environment, we're in a competitive space. There's no question about it. And what we're also very clear about is that in a competitive space, you've got to differentiate. And differentiation is gonna be driven by what we can do at the payment network level, through our digital capabilities, but also what we can bring in the nature of value-added services solutions. So this virtuous cycle piece kinda comes into play again. And and we're seeing ourselves be able to participate and actually grow in such an environment, which is very encouraging. So I I think it's a competitive environment. We have you know, very, what I would call, formidable competitors out there, but you know, I feel very good about our ability to compete given our suite of services and solutions as well as our payment network capabilities that are out there. So net net, the here's what I'd share with you, which is feel encouraged about the the robustness of the pipeline, and, you know, we'll keep doing what supposed to do in terms of actually driving with our customers to deliver value. To them. The last point I'll make is I don't expect, and I certainly hope that we don't win all deals. Wanna win the right kind of deals. We've said this in the past. And we will be very focused on doing that, which is making sure that we want to win those deals which are fast-growing, which are cross-border heavy, which are ones where we can bring our services to bear, to actually drive incremental growth for the issuer. That's really important because if you can't drive incremental growth for the issuer, you know, the the the whole idea of being able to take it take the deal over from the other network is kinda redundant from a issuer standpoint. So we really gotta push on that. Which is the way we kinda go about doing what we do. Michael Miebach: Yeah. I think it's a it's a really important question, Tien-Tsin. So you know, when you look across I'm just looking back at my prepared remarks. Sixteen minutes and you see all the wins in there. So the pipeline is healthy. But it it sounds like maybe it's broad stroke. We are very focused. Based on what Sachin just said, the focus on affluent, for example, on cross-border, on really high octane kind of, you know, partnerships that help our customers, but also us, really important. And then as I called it out, it's not just about share. It's about secular So wins in the secular opportunity context are just as important when I think about small business and I think about B2B and so forth. So full on, Really full on. That's the plan for '26, but not for everything, as Sachin just said. Tien-Tsin Huang: Yep. No. It's very good good good detail there. Just forgive me for asking one other clarification question. Just if if if it looks similar to '25, can we infer that the rebate in incentive outlook is also similar? Sachin Mehra: Yeah. Here's what I'd share with you. I am not gonna give you a full-year rebate guidance. But what I will share with you is that in Q1, we expect our contra as a percentage of payment network assessments to be flat to slightly down. Sequentially compared to Q4, very much in line with what you've seen in the past. Tien-Tsin Huang: Terrific. Thank you both. Michael Miebach: That's what he really wanted to know. Operator: Our next question comes from Darrin Peller from Wolfe Research. Please go ahead. Your line is open. Darrin Peller: Just following up on guidance for a minute. When you look at the trajectory of it, obviously, starting off And then calling for maybe a slight acceleration of the year progresses to the high end of low double digits from low end of low double digits. Maybe just give us a just remind us the puts and takes of your progresses. And then more importantly, just the inputs. What are you assuming the consumer does spend volumes do both cross-border domestically? What are your thoughts on the potential for more stimulus? Is that embedded in your guide? So any more color on that would be great. Thanks, guys. Sachin Mehra: Sure, Darrin. So our base case, which is the the basis of the guidance that we've shared with you, is that consumer and business spending remains healthy That's kinda our going in position because that's what we've seen. Right? And like Michael said earlier, you know, the different numbers as it relates to the soft data from sentiment standpoint, and then there's the hot data. And that's what kinda see. We've kind of triangulated around the best we can, and it's you know, our base case assumes a strong consumer. So that's kind of the starting point of you know, where we are from a driver standpoint. That contemplates, you know, the the dialogue around, you know, a fairly healthy tax refund season, etcetera, All of that's taken into consideration. Again, recognize that The US and then we're a global business as well. We've got 70% of our business, roughly coming from overseas markets. So I I think Right. It's important to kinda think about in that whole context. Now I think you're asking the question as it relates to cadence between the first half and the second half, which is something I shared. You know, the the the the I've given you full-year guidance, and I've kinda said that we expect the growth in the first half to be lower than in the second half, and that's primarily driven by the fact that you've got tougher comps. From an FX volatility standpoint. We called this out last year where we talked about first quarter, second quarter of last year, higher FX volatility. I called out how we're seeing lower FX volatility you know, you know, coming out of Q4 and into the January. Something to keep in mind. And, you know, the reality is it that's really what primarily explains the difference in cadence, which is there between the first half and the second Okay. Darrin Peller: Thanks, guys. Operator: Our next question comes from Trevor Williams from Jefferies. Trevor Williams: Sachin, think you called out pricing as a driver across every revenue line. Quarter. So just how should we think about the durability of what we're seeing come through across each of the line items, especially on cross-border, which has been a it's seen a nice pricing tailwind over the course of the year. And then in terms of magnitude, just what you're building into the guide for '26 for pricing relative to '25? Thanks. Sachin Mehra: Yeah. I think it's important to actually understand how we go about thinking about what we do and what we call pricing as well. Right? It's kind of very much a function of, you know, what is the nature of products and solutions and services that we have delivered whether they're brand new in nature and or they are you know, modifications or improvements in terms of delivering incremental value to our customers. Which comes into play. So there is the impact of know, what we've done last year. And not everything starts on January 1, so there's the lapping effect of that which comes through in the following year. And then what do we see in the nature of of pipeline of new capabilities that will deliver incremental value to our customer? That we will price for, that we build into our forecast. Trevor, I'm not gonna get more specific than that as it relates to, you know, how much of that there is just because at the end of the day, a lot of this is a function of our ability to be able to deliver everything we've got in the nature of the pipeline in terms of new capabilities and new value, which will actually ultimately result in how much we generate in the nature of pricing. Trevor Williams: Okay. Fair enough. Thanks. Operator: Our next question comes from Harshita Rawat from Bernstein. Please go ahead. Your line is open. Harshita Rawat: Hi. Good morning. I wanna on your recent announcements in AgenTek, including the suite you just announced. It's early in this era. Lots of experimentation happening. But maybe help us frame the different pieces of the capabilities here. You have the identity trust layer, not the platform for custom AI agents. But there's so much fragmentation competing protocols. I you're partnering with Google and OpenAI. Among others. So how does that frame this and talk about why you believe you'll see Mastercard not only growing, but in a genetic era, but also thriving with respect to the trust, governance, personalization, and other services you can provide. Thank you. Michael Miebach: Thank you, Harshita. This is a this is a great question. What what an exciting space. It might be one of those use cases, AI-driven use cases that meet our reality much faster than other AI use cases out So I think AgenTeCommerce is gonna come, is gonna come fast. So this whole idea of you know, a consumer using an agent to drive you know, have a better commerce journey, think that just resonates. With people. You get better quality insights. You get better recommendations. So from that perspective, that's just kind of the the starting headline and, hence, when you didn't build out from that, you know, we've been at this for over eight months now with agent pay launching that as our framework around recognizing agents, ensuring identity, and then bringing all the protections of payments into the world of AgenciCommerce. So those are all know, consumer protections and user experience journeys that are understood by consumers, also by our partners. Take a Google, for example. So this isn't new. And which gives me great confidence because it's understood and it comes it can be delivered at scale. We are a really important partner in this whole journey. So there's new entrants, LLM companies that haven't been really in the commerce space, you know, contrary to somebody like Google maybe. So yet again, you know, that puts it on us to engage with these partners. From the outset, we ensured as we do in other emerging payment spaces, that the standards are set. We put out protocols. Others put out protocols. There's a question, how do these protocols all interact with each other? Well, it's it's the focus on consumer protection, safety, security, and cyber. And, you know, registering agents and making sure they're real and all of that. That is really driving this. And they these protocols generally reinforce each other. So from that perspective, we feel they're very centered here. The cards ecosystem brings a lot of value, and that is understood, and it will bring it into this space. So then you kind of ask yourself and say, well, from here on, what's different then? Well, new relationships are being built, and, of course, we're stepping forward with a differentiated set of you know, solutions that we can offer. You know, we just talked about services earlier that that's an opportunity. You could start to see that there's a transaction opportunity in all of this, because, you know, a basket might be spread over many merchants. So that's another opportunity. You could also see that certain application of services, for example, tokenization, get you know, to see a a very different path than it might see without the Gentec Commerce. So these are all aspects that make me very excited about this. We're leaning across the ecosystem. Everybody, you know, wants to talk about this. If we take a step back right now, it's also true it's early days. But everything that I just said is true, and we're leaning for that. It's hard to predict in when and how to is gonna scale to what degree, but the train is leaving the station, and we're right in front of it. Thank you. Operator: Our next question comes from Bryan Keane from Citi. Please go ahead. Your line is open. Bryan Keane: Congrats on the solid results. I was just going to ask, when there's geopolitical risks investors are always trying to figure out what the impact would be to Mastercard. And you talked about you know, levers and mitigation efforts that you guys use. Could you just talk a little bit about some of the things that you could do or pull or know, things you've done in the past when political things have popped up. To kinda mitigate downside to top line and bottom line? Thanks. Michael Miebach: Yeah. So it's a it's a very important topic. You know, we are probably one of the most global businesses 220 countries and territories. So as I said in my prepared remarks, we're monitoring geopolitics all the time. We we have through the past years, and we're doing so today. It's really important for us to that this is not just about geopolitics. If you look at our business model, we're aligned in terms of our interest. You know, with banks around the world. We're aligned with merchants and companies around the world. We are focused on driving an inclusive digital economy aligns us with broader populations and NGOs and so forth. So it's not just about the politics when you look at the geopolitical landscape. We're engaging with all partners. An important aspect of this is we don't do the same thing everywhere. This is not a you know, off the shelf kind of solution that Mastercard brings. We always strive to understand the local needs the local considerations. Of course, it's very different in Africa, which is why we partnered with MTN. It's very different in The U in The UAE versus Europe. We just announced in October that we're bringing three additional data centers into Europe, $250 million of investments on the ground to drive better resilience and competitiveness for Europe, So these are all aspects that we can do today because we've invested in our technology. We continue to invest in our technology. So some of the, you know, comments that Sachin earlier made about reprioritization and where we take charges because that is what we need to fuel, that we have that flexibility. To engage with a country on their path and be a true partner for that. At the same time, we bring global best practice and global cybersecurity solutions and that sets apart to navigate that world very actively. This will only work, with a strong public policy and engagement process and spending time with governments and their understand where they want to go, and that is what we do because we're, you know, in with 125 offices around the world to really stay very close. To the local needs. Sachin Mehra: Yeah. And and I guess, Bryan, you asked what kind of levers do we have in in, you know, uncertain environments to the extent we need to pull levers. I I think the headline I would first say is that we will not do anything which will impair our ability to grow over the long term. I I think that's super important. But all of that being said, there are several several levers we've got. We got levers which we in terms of taking a look at where are we spending our our dollars Are they in favor with our customers? Are there things which, you know, are going to deliver returns in the near term, medium term, or long term? And we will pull those levers. This could be across all our expense line items, everything from personnel, to our, you know, our a and m spend to our T and E, pro fees, you name it, right, at the end of the day. And also remember, we do have a component of our revenues, which come with know, cost of goods sold. And so if to the extent you're asking what kind of levers are there because revenue is not to actually decline, you know, revenues coming down has a natural effect of bringing cost of goods sold down as well. So sufficient levers. You know, we'll never be complacent around this. I do want to leave you with one thought, which is we do care about investing for the long term, and that's something we will continue to do. Through up and down cycles because the the set of opportunities in front of us is so big that we shouldn't lose sight of that. Bryan Keane: You very much. Michael, any closing comments? Michael Miebach: Yes. Yes. So we just spent the past hour talking about our diverse global business and how we're winning in the market. None of this is possible, of course, with our colleagues around the world, the dedicated teams. I mentioned it twice earlier in my remarks, and we're we're proud about the work that's being done for our customers. We're also grateful for your support. Thank you for the dialogue and the great questions. We're gonna speak to you in a quarter from now. Thank you very much. Thanks, everyone. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning, and thank you for joining Quálitas' Fourth Quarter and Full Year 2025 Earnings Call. I will pass the call over to Jorge Pérez, Quálitas' IRO. Jorge Pérez: Good morning, and thank you for joining Quálitas Fourth Quarter and Full Year 2025 Earnings Call. I'm Jorge Pérez, Quálitas IRO. Joining me today are Jose Antonio Correa, our Executive President; Bernardo Risoul, our CEO; and Roberto Araujo, our CFO. Before we begin, please note that information discussed on today's call may include forward-looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today's call. Quálitas undertakes no obligation to publicly update or revise any forward-looking statements whether because of new information, future events or otherwise. With that, I will now turn the call over to Jose Antonio, our Executive President, for his remarks. Jose Correa Etchegaray: Thank you, Jorge. Good morning, everyone. It's great to be with you once again, and let me begin by wishing you all the very best for the year ahead. 2025 proved to be a year of strong performance alongside notable regulatory changes for Quálitas and for the insurance industry as a whole. As we review our results, we would like to highlight several key developments, and I would like to begin by formally recognizing the commitment of our agents, policyholders and employees, whose efforts enabled a strong full year performance amid a challenging macroeconomic environment. This strong execution continues to be clearly reflected in our industry's positioning and operating metrics. For example, according to the latest AMIS figures, as of September, Quálitas remains the clear market leader with 32.7% market share in written premiums and 35.9% in earned premiums. Furthermore, Quálitas accounted for 45.9% of the industry's total operating income, while posting the best combined ratio among the top 5 companies. I am glad of the 2025 results once everything is considered, which includes the VAT regulatory changes and its effects in P&L for the year. In 2025, our top line grew 9.4% despite pricing pressures and a challenging macroeconomic environment. Profit wise, net income was above MXN 5 billion, and we delivered an ROE above 20%, consistent with our long-term target. Bernardo and Roberto will provide further detail in a few minutes. To provide a broader perspective, in the last 4 years, Quálitas has doubled the size of the business, driven by our differentiated business model. Additionally, in 2025, Quálitas surpassed 6.1 million insured units, adding more than 335,000 units and representing 5.8% increase versus 2024, achieving a 10% compounded annual growth rate over the last 5 years. Looking ahead, we expect 2026 to be a complex operating environment, but Quálitas remains well positioned to excel driven by our disciplined execution towards our 3-pillar strategy. Thus, we are confident Quálitas will continue in delivering another year of solid results and value creation. Aligned with this long-term perspective on our commitment to sustainability, I would like to briefly revisit the leadership transition we announced last quarter, which reflects a well-structured internal succession plan, aimed at strengthening our governance and ensuring strategic and cultural continuity. As I transition from my role as CEO to Executive President, I do so with unshakable confidence in Bernardo Risoul, who has assumed the role of Chief Executive Officer on January 1, 2026. Since joining Quálitas in early 2019 as CFO and later serving as International CEO and Deputy CEO, Bernardo has consistently demonstrated a strong leadership, deep knowledge of our business and a clear alignment with our values and long-term purpose-driven vision. I am very proud of this transition and confident that Bernardo is the right leader for the next phase of Quálitas. From my new role, I look forward to continuing to support him and the management team as we remain focused on creating sustainable value for all stakeholders. And with this in mind, I would like now to hand it over to our new CEO, Bernardo. Please go ahead. Bernardo Risoul Salas: Thank you, Jose Antonio, and good morning, everyone. It is an honor to be back on these calls under the new role from which I will devote myself to build a strong organization that focuses on creating value to policyholders to agents, investors and our communities. I would like to begin by thanking Jose Antonio for his leadership, guidance and continued support as Executive President of Quálitas, as well as to the Board of Directors for their confidence in me. Having had the opportunity to serve the company in different roles over the past several years, I stepped into this position with a deep understanding of our business, our culture and the responsibility we have to our stakeholders. I am proud to be part of a great team, I am confident in our ability to continue delivering sustainable growth and long-term value, and I am certainly energized to lead the way into an exciting and promising future. With that, let me turn to some high-level notes regarding the current market dynamics, including the latest regulatory topics regarding sales tax or VAT. In terms of Mexico car sales, according to the Association of Auto Distributors, AMDA, new vehicle sales in 2025 were broadly flat, deaccelerating versus prior years. At the same time, the competitive environment became more aggressive with pricing pressure across certain segments as players sought to attract volume and behavior historically linked to healthier combined indexes. Against that backdrop, we see a focus on our underwriting discipline and service execution, prioritizing adequate pricing, portfolio quality and long-term profitability over short-term market share. Related to service, our core differentiator, I am glad to share that in 2025, NPS across all measured variables and service APIs improved versus prior years, being the highest since we started measuring them. This approach is at the heart of why Quálitas continues to deliver consistent performance through different market cycles. Now let me move to another key topic, the VAT legislation that was approved under the 2026 revenue law. We continue to refine the implementation of this new process in close coordination with the authorities, emphasizing that the resolution reached while representing an important financial impact in 2025 and beyond, has provided certainty and clarity, bringing to closure a relevant matter for the whole insurance industry. As part of this resolution, we reflected the full 2025 VAT impact in our fourth quarter and full year results. Despite this, we acknowledge that 2026 will be a transition year in which we will continue to navigate through these changes, digesting effects of policies issued with technical models that had not incorporated this new cost dynamic. Roberto will provide further details on the specific figures later on this call. With this topic behind us and supported by the strength of Quálitas and the dedication of our team, we're moving forward from a position of strength into 2026, which, as mentioned, will be a year of transition for the company. Quálitas is well positioned to overcome the impact of these new roles through the proving agility, adaptability and resilience of our business model. Changing gears into another key strategic matter, I want to highlight the progress made in our U.S. subsidiary where the outlook has improved meaningfully, as we execute changes in our model. Specifically, in addition to domestic program exit back in 2021, as of January 1, we will no longer underwrite commercial cross-border serving now our binational customers through a partnership. As a result of this, our U.S. operation will focus on properly managing the runoff of both programs and continue building a binational PPA winning proposition. We have resized the organization to operate more efficiently. We are all focused on committed to this new path that better aligns with our strength and potential to create value. With that context in mind, let me now share a few highlights of our 2025 full year performance. We delivered record annual written premiums of MXN 75.8 billion, underscoring the strength and consistency of our business. Top line growth was in line with our expectations, reaching 9.4% for the full year, despite significant pricing pressure. We maintain a sustainable loss ratio, resulting in a combined ratio of 94.1% or 90.6% when excluding VAT impact, outperforming our 92% to 94% long-term target. On the investment side, our well-managed portfolio in which we had increased duration led to another year of strong financial income despite interest rates easing faster than expected. The trifecta of strong top line, solid operating and financial results led to a net income of MXN 5.1 billion and 12-month ROE of 20.2%. All this, again, despite the VAT impact. During 2025, Quálitas continued to advance on each of the 3 pillars of our corporate strategy, aimed at strengthening the business and driving sustainable mid- to long-term growth. For example, operating with excellence and maintaining service as the core of our model. In 2025, our call center delivered meaningful improvements, handling 3.3 million calls, while reducing average response time from 6 to 5 seconds, enabling faster assistance when it matters the most at the first moment of truth. These operational gains translating into a 95% customer satisfaction rate above prior year's level, reinforcing our commitment to continuous improvement, efficiency, and best-in-class service. Talking about accelerating our international expansion, we continue to scale our Colombia business, delivering strong results and in less than a year, closing with 1,200 agents, more than 9,500 insured units and 15 offices across the country, all exceeding our initial projections. We expect this growth trajectory to continue into 2026, positioning Colombia as an increasingly important contributor to Quálitas long-term growth strategy. Beyond international markets, we're also deepening our tech capabilities. In 2025, we've made progress in leveraging AI to unlock the value from our data assets and together with our technology subsidiary, DCT, strengthen our value proposition by delivering more targeted solutions and value-added services, including enhancing our risk prevention programs. Delivering the above-mentioned results, seeding the future projects and strengthening our organization in a year that had particularly unprecedented challenges across so many vectors is a true testimony of what Quálitas is able to do. A praise to everyone who made it possible, which is also the source of our optimism towards the future. I recognize 2026 will not be an easy ride. We acknowledge the reality we face, but we'll never surrender to it. We have the capabilities. We have the tools and most importantly, the team and the determination to capture the opportunities that are out there. I remain confident that Quálitas is well set to outstand and continue creating value. And with that, I will hand it over to Roberto for a deeper dive into our quarter and full year financial performance. Roberto Balderas: Thank you, Bernardo, and good morning, everyone. Our fourth quarter and full year results reflect the strength of our strategy by delivering solid top line growth, disciplined underwriting, a resilient investment portfolio and a combined ratio at the upper end of our long-term target range. Let me walk you through the details. Starting with top line performance. Written premiums grew 6.4% in the quarter and 9.4% for the full year. In Mexico, the traditional segment accounted for approximately 62.7% of total written premiums, decreasing 3.7% in the quarter and improving 2.8% for the full year. From this segment, the individual business decreased 0.2% in the quarter with growth of 7.7% for the full year, while the fleet business decreased 7.2% and 3.2%, respectively. This performance reflects our deliberate pricing downwards adjustments prior VAT resolution, while supporting our long-term profitability, which were partially offset by the continued growth in the insured units as customers continue to choose Quálitas for our differentiated service offering amid pricing pressure. Moving to the financial institution segment. This represented approximately 33% of total written premiums. Growing 29.4% in the quarter and 24.6% for the full year. This strong performance was achieved despite the slowdown in new vehicle sales across the industry. Growth was supported by continued shift in customer preference toward larger vehicles, such as SUVs and pickups, which carried higher average premium, as well as higher mix of multi-annual policies and increased market share with key financial institutions. As reported, our international subsidiaries contributed 5% of the total written premiums full year. Across Latin America, subsidiaries posted a strong growth, with 16.6% in the quarter and 31.2% for the full year. Each quarter, we continue to reach important milestones across our international footprint. In Peru, written premiums grew 28.1% in the quarter and 34.1% for the full year, reaching a market share of 7.5% and continuing to outperform the competition. In Colombia, our newest subsidiary, as Bernardo already highlighted, we exceeded our first year business target objectives. Laying a strong foundation for a scalable and sustainable long-term growth. In the U.S., as expected from our strategy to reshape our business, premiums decreased by 15.2% in 2025. The new strategic partnership for our cross-border business will help us deliver a healthier financial business into our U.S. operation, while providing Quálitas policyholders with the highest standard of service. Overall, insured units closed the quarter at 6.1 million, representing a 5.8% year-over-year volume growth. Back to our financials. Earned premiums increased 8.5% in the quarter and 13.1% for the full year, more in line with our expectations, reflecting the effect of research movement in accordance with a more stable top line growth pace. During the quarter, we constituted reserves of MXN 4.2 billion, basically in line with the same period a year ago. Full year reserves constitution totaled MXN 6.4 billion. As a reminder, technical research constitution is based on approved regulatory models and it speaks to the corresponding premiums growth, consistent with our expectations earned premiums are growing at a faster rate than written premiums being able to capitalize accelerated growth from past periods, as well as the benefit from lower claims costs. Moving down to our costs. Our loss ratio stood at 77% in the quarter, reflecting the full year onetime VAT impact recognized in the period. Excluding this effect, the loss ratio would have been at 63.6%. Still, on a full year basis, the loss ratio closed at 65.7%, improving by 40 basis points year-over-year. highlighting the effectiveness of our cost discipline and a business model, even under recent regulatory changes. Excluding the VAT effect, the loss ratio would have been 62.2% for the year. In Mexico, the loss ratio was 77.8% for the quarter and 64.5% for the full year, up 14.6 percentage points and 10 basis points, respectively. Again, the quarterly increase primarily reflects the full recognition of the 2025 VAT impact. On thefts, full year cases decreased 11% for Quálitas, despite having more insured units becoming an important building block for our claims cost performance. These results follow the historic annual seasonality where the first year of administration, we see reductions of thefts and are coupled with internal efforts on theft provision and recovery. On the latter, Quálitas recovery rate stands at 43.6%, 100 basis points above the rest of the industry and improving versus last year. We continue enhancing our technology tools and coordination with suppliers and authorities to reduce costs and improve our efficiency. Frequency on a 12-month basis stood at 27.4%, an improvement of 80 basis points compared to the prior year. On a quarterly basis, frequency decreased by 30 basis points versus fourth quarter '24, reflecting the continuing improvements in risk prevention and driving behavior. The acquisition ratio stood at 22% in the quarter and 23.1% full year, about 70 basis points and 120 basis points higher than last year, respectively, driven by the stronger growth in the financial institution segment, which carries higher commissions. The operating ratio was 3.6% for the quarter and 5.3% full year, including profit sharing, given the positive performance of our company. As a result, we also had an increase in fees paid to service offices and corporate bonuses that are linked as well to their successful performance during the period, aligning productivity and cost control efficiencies towards the positive results of Quálitas. If we were to exclude employees profit sharing from this provision, that by law must be incorporated, our operating expense ratio would have stood at 4.4% full year. Altogether, this resulted in a combined ratio of 102.6% in the quarter and 94.1% for the full year. Excluding the onetime VAT impact, the normalized combined ratio would have been 89.3% for the quarter and 90.6% for the full year, fully delivering on our commitment and confirming the discipline of our business strategy. On the financial side of the business, comprehensive financial income decreased by 21.3% in the quarter, while growing 3.6% on the full year basis, highlighting how resilient our investment strategy is even amid lower interest rate throughout the year. Our portfolio totaling MXN 53.2 billion remains 86.5% in fixed income with an average duration of 2.3 years and a yield to maturity of 8.4%. For the Mexican subsidiary, the yield stands at 9%. The rest of our portfolio allocated in equity has remained resilient from the market performance during the full year. For example, the S&P 500 stumbled in the first quarter of the year, still, a 16.4% return was observed in 2025, setting a positive tone as markets head into 2026. All our investment assets are classified as available for sale, meaning their unrealized gains or losses are reflected in the balance sheet until realized. Our investment strategy has not had any relevant changes in 2025. We have strived to bring our fixed income duration slightly higher than 2 years as our reference rates remain in the mid- to high single digits in Mexico. Following the guidelines, advisory and a strategy decided by our investment committee as part of our institutionalized corporate coverage. Total comprehensive financial income was MXN 1.2 billion in the quarter, and MXN 5.1 billion full year, delivering 8.1% and 8.7% ROI, respectively. Total unrealized gains are in the magnitude of MXN 2 billion, including FX, considering a 14% peso valuation during the year. These unrealized gains reflect both mark-to-market revaluation of our fixed income portfolio as rates began to ease, as well as gains in equities. When considering all mark-to-market positions, ROI would be 7.2% for the quarter and 10.9% for the year. This reinforces the importance of our available for sale accounting treatment in which valuation effects remain on the balance sheet until realized, but the expanded cushion of our capital base and highlight the embedded value within our portfolio. As interest rates continue their downward trajectory. These gains are likely to remain a relevant driver of our financial results. Approximately 22% of our portfolio is invested in U.S. dollars, given our international presence. For every peso that appreciate or depreciates, the estimated annual impact is around MXN 675 million, service as a natural hedge. Our effective tax rate for the quarter was distorted by the full year VAT impact in the period, while for the full year, the effective tax rate was 31%, in line with our historical trends. Net income closed at a loss of MXN 190 million in the quarter and MXN 5.1 billion net income for the full year with a net margin of 6.7% full year. As anticipated by Bernardo, our 12-month ROE despite VAT impact stands at 20.2%, in line with our long-term target of 20% to 25%. Our regulatory capital stood at MXN 6.1 billion with a solvency margin of MXN 16.1 billion, equivalent to a solvency ratio of 362%. Our 12-month earned premium to capital ratio is 2.7x. We maintain a strong capital position that allow us to invest strategically to continue improving customer service and experience through innovation and technology, while reinforcing our core capabilities. Our approach remains disciplined and selective, always with the goal of delivering long-term sustainable value to our shareholders. Dividend distribution will remain a core element of our capital allocation framework. While the final decisions rest with the AGM from a management perspective, we expect the upcoming dividend to fall within our policy range of 40% to 90%. In summary, we had a solid 2025, and we're very pleased with our underlying business performance. As the industry moves through the claims cycle and competition remains intense, our disciplined execution and resilient operating model continued to set Quálitas apart. Looking ahead, our priorities for 2026 are clear. We will focus on restoring our combined ratio in Mexico to our target ranges through disciplined pricing and cost initiatives, strengthening claims and service capabilities to further differentiate our value proposition, accelerating innovation, digital transformation and new product development as well as reinforcing our culture and organizational discipline to sustain productivity and execution. We're taking the needed decisions to deliver short-term results, but never at the expense of long-term value. We believe these priorities will allow us to further strengthen our competitive position. enhanced profitability and continue creating long-term value for our shareholders, customers and employees. We are excited about what lies ahead and remain fully committed to disciplined execution and sustainable growth. Now before moving to the Q&A session, let me provide you with some color on what we could expect for next year's performance. reiterating that since a few years back, we do not disclose a formal guidance or targets, but rather some overall expectations. Top line growth momentum is expected to be at a slower pace, following the projections the new car sales growth from the Mexican Association of Auto distributors, AMDA, which is forecasted to be between 0.2% and 2%, Written premiums are expected to continue to grow in the high single digits to low double with earned premiums growing a few points ahead. Regarding the loss ratio, we expect results to be in the higher end or slightly above our technical range objective of 62% to 65% and to normalize over the course of the year, as we continue making progress toward absorbing the VAT impact. We do expect first quarter and even half of the year to be above target given the impact of both 2026 claims at a higher cost and those incurred in 2025, not yet paid, with pricing and cost-saving plans to partially mitigate due to its annual nature. The acquisition ratio and operating ratio should continue within its historical levels with no major changes. The above metrics should lead to a combined ratio at the upper end of our long-term target range of 92% to 94% or slightly higher. Finally, we expect our financial performance to be consistent to the results posted in 2025 given our fixed income duration strategy. Discipline in execution and a culture of service excellence remains the foundation of Quálitas. These strengths enable us to navigate a 2025 regulatory changes with clarity and effectiveness. Throughout the year, Quálitas led the industry, both operationally and financially, while consistently delivering best-in-class service to our policyholders and agents. This disciplined execution reinforces the strength of our operating model and our ability to perform across cycles. We invite you to be part of our long-term vision, grounded in the resilience of the company that has demonstrated across multiple cycles and environments over the past 31 years. I am highly optimistic about what lies ahead for Quálitas and our customers. And I'm confident that our focused strategy will continue to drive meaningful value creation for our shareholders in the years to come. And now operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Tiago Binsfeld from Goldman Sachs. Tiago Binsfeld: I just wanted to double click on the financial income expectations. You're coming off a pretty good quarter, pretty good year as well, very resilient despite lower rates. When you look forward and your message on consistent year-over-year growth, does that mean that you can deliver the same nominal level of results in 2026? And to get there, would you need to realize any portion of your unrealized gains that you currently have in your balance sheet? Or just the rollover of the fixed income portfolio would get you there? Bernardo Risoul Salas: Tiago, thank you for your question and always good to have you joining this call. Let me just highlight that from an investment standpoint, our strategy has not changed. We will continue to focus on fixed investments, which should account somewhere in the 80% to 85% and the balance will continue to be invested in equities, mostly ETFs that stand outside of Mexico. With that consideration and recognizing that interest rates have gone down significantly, when we say consistent, it's about consistency in the way we invest, not necessarily the amount we expect. We should expect that absolute returns on the portfolio can be lower than 2025, but we will continue to stay ahead reference rates. And the reason why is, again, that we increased the duration of our portfolio, fixed rate, and it currently stands on around 2.3 years. And that is giving us the benefit of extending the rates, the yield to maturity, which currently stands at 8.4% relative to Mexico set that are now to 7%. So specifically to your question, financial income will likely be below in absolute terms, but will continue to be outstanding or above reference rates. Operator: Our next question comes from Pablo Ordóñez at GBM. Pablo Ordóñez Peniche: On your expectations for 2026, I was wondering if you can help us to give us more color on the top line outlook by segment. What do you expect in terms of the traditional business? We saw some deceleration in the quarter. Financial institutions remain solid and banks continue to guide towards mid-teens level growth in terms of that side of the business. And the fleets, how do you see the competitive environment evolving? And the second question related to this is how should this affect the acquisition ratio? Something that surprised us in the quarter is that the acquisition ratio was 22%, and we have seen higher levels in the previous 2 quarters, driven by the higher growth in financial institutions. And finally, it seems that despite 2026 being a transition year, ROE could remain at 20%. Would you agree with this view? That would be my questions. Bernardo Risoul Salas: Thank you, Pablo. And let me take a piece of your question and then hand it over to Roberto. And I'll give you a broader answer on 2026 expectations. You all know Quálitas, it is never easy to come up with an exact forward-looking figures, so we'll not spend a lot of time on that. But we always have some guidance and color. And especially at current times, we saw high degree of uncertainty across so many angles, tariffs, exchange rate, it is hard to be able to come up with some exact numbers. So please take it as directionally. And as it was broadly said, top line should be in the high single to low double digits. And to your question on how do we break it down? I think individual will continue to be the broad and stronghold of the company. We want to continue building a portfolio of individual policies, which historically have been more resilient, easier to change prices given their annual nature. Now second line of business, which relates to fleets. We had a good year in terms of number of units, but a decrease in terms of premiums because of their positive results on claim cost which ended up being renewed at a lower premium levels. We do expect fleets to come up with a strong growth, but we also expect fleets to be highly influenced by pricing given the nature of its business. And when it comes to financial institutions, we were all flatly surprised by the outcome of this niche. We will continue to grow, but expect it to be on a more moderate pace compared to 2025, mainly driven by average premium price increases and again, following last year's strong expansions. Now let me just take this opportunity to continue building on some perspective of 2026. Our combined indexes, as I said, should be in the upper range or slightly above our ongoing targets and the financial portfolio we've already addressed. ROEs could be a 20% or slightly below. And we also want to highlight that the behavior on a quarterly basis will come up different to prior years. First quarter combined indexes will be stressed by the impact of the VAT on new claims in addition to the payments made of prior claims, specifically last quarter of 2025. And all that with the impact of pricing and savings that are already implemented but will take time to fully reflect. Do we have a shot of ROEs or at 20%? We certainly do. I think that will continue to be our goal. And there's a lot of things that can go better. Industry recovery can go faster. Industrial investment can pick up. It all depends on GDP and our ability as a country to come up with new terms on the U.S. agreements. The peso strength that has surprised us is expected to have a benefit of spare part cost, but we are still yet to see on how fast that happens. It could be also a result of responsible competitor behavior, the performance on non-Mexico auto subsidiaries or faster benefit of our already implemented saving plans. So there's a lot of things in the pipeline that can lead us to have another year of strong performance, top and bottom line, but I think it's fair to recognize that we're dealing with unprecedented challenges, probably the biggest one we have had as an industry. And Quálitas once again is set to prove its agility and resilience. I did give you a longer perspective on your question, but I think it was worth to use this opportunity to give you a broader perspective on the expectation and the things that can go better to once again outstand. Roberto, why don't you take the second piece on the question on the acquisition ratio expectations. Roberto Balderas: Yes. Thank you, Pablo. Thank you for joining us. On particularly on 2025, you're right. I think the big driver of the increase on acquisition cost is mainly by mix. As Bernardo alluded, we are increasing double digits on the financial institutions. So that has a higher commission rate. And when we think about the expectations for 2026, as long as that mix continues and depending on how that mix that Bernardo just mentioned, that will continue to be stable or actually improving the mix depending on how it comes up in 2026. So I hope that answers your question. Operator: Our next question comes from Guilherme Grespan at JPMorgan. Guilherme Grespan: My question is also a follow-up on financial results and investments. Just want to confirm, you have roughly 15% of the portfolio in equities. I want to confirm if it's basically TF on S&P on U.S. equities. And you also have international bonds, I think, another 15%. I want to confirm if it's U.S. or ex U.S. And then the main point of the question is actually on the balance sheet. Just want to confirm a few as well. How you book the USD changes. There is a -- there was a big movement on translation effect in the equity. I imagine this is related to the FX conversion of those investments, but I'm not sure if it's booked on this translation line or if it's on the valuation purposes of the investments? So just the moving parts on the FX and how this is going to impact either the P&L or balance sheet on the financial results side. Bernardo Risoul Salas: Hello Guilherme. Let me take the first question, the first part of your question regarding the investment portfolio. Yes, it's around 15% on equities. That includes both ETFs that are U.S. mostly based, but they do have some participation of global equities. We can share later on the split between global equities, ETFs and U.S.-based ETFs. I think that part of the strategy that has worked, and it was lined up that way from the investment committee is to have a more diversified portfolio, and that is one of the reasons why we have decided not to fully have placed the ETFs on U.S. business only. That portion of the 15% includes as well FIBRA, which is the only thing that we have when it comes to Mexico exposure equities. Now we do not expect to increase significantly that. We've always moved it between the 15% to 20% equities. So depending on how the market is perceived, we could see some shifts, but not necessarily intentionally to drive up that percentage. Roberto, do you want to take up the question on FX? Roberto Balderas: On the translation effect, you're right, it has to do with the U.S. and what we see is in the [indiscernible] effect on quick. It also has been reflected on that portion. So we can actually go offline and take it a little bit deeper when we have some time to go through the details. But yes, it has to do with what you have mentioned. Bernardo Risoul Salas: Just to give you the exact 2/3 of our ETFs are global ETFs and 1/3 is directly S&P 500. Operator: Our next question comes from Thiago Paura. Please state your company name and then ask your question. Thiago Paura Mascarenhas: Just a few ones on my side, if I may. And the first one is a bit of a follow-up on the -- on some of the latest questions. Just to clarify, is there still any VAT impact from 2025 to be booked in 2026? Because I'm just trying to understand why in your soft guidance, you expect the combined ratio for this year to be at or even above the top end of the range. And in this case, potentially higher than the combined ratio of 2025 despite the repricing initiatives planned for this year. Because in theory, the way I see is that 2025 absorb all full year cost pressure in Q4 with somewhat limited price pass-through and you still was able to deliver a 94% combined ratio. So I tend to believe that 2026 should be structurally better, right? Because there is some kind of reprice initiatives that goes throughout the year just to try to be more clear here, understanding these dynamics for this year to come. And also to assess if you plan to do any other initiatives on top of repricing to help to offset this higher cost pressure going forward? Jose Correa Etchegaray: Thank you, Thiago. This is Jose Antonio. Just let me -- before Roberto answers, just let me tell you that, yes, we have taken the full impact of the 2025 VAT as indicated by the regulation. But there's something that you need to acknowledge, and that is the way how pricing is really built over a period of time. It is not immediate. I mean, we immediately change whatever we have to change in terms of tariffs, which includes inflation and many variables, including part of the VAT. But some of the underwriting that had already taken place in 2025, which will be effective in 2026, will not be able to get a benefit of the increases in price. It will gradually be that. So we expect that in the first half of the year, it will probably will be a little bit higher the amount of the all the combined index and the loss ratio because of that. It takes time. As you know, a lot of our portfolio includes for all the individual businesses is really on a year. So everything that has already been written in 2025 that will have an impact in 2026. But that's why there's going to be a delay impact, which is naturally in our business on the price increases that we are having. This is important to say. Clearly, the VAT, let me tell you also that this VAT thing, which is an industry-wide stock, really provides clarity and certainty on some topic that for the whole industry and in Quálitas in particular, potentially had a significant impact. So that's already solved. Now for the second part of your question, let me Roberto answer that part, Thiago. Roberto Balderas: Thiago, thanks for the question. Just to complement on what Jose Antonio was mentioning, I think there are 2 phases, right? So what we did recognize in 2025 is what it was determined and paid during 2025 for those claims. So those -- that credited that should not be credited, that's the recognition in 2025. For those that have occurred in 2025, but have not been finalized, determined or paid, that's the impact that Jose Antonio was alluding in 2026. So that -- there is a still a second piece of that portion of it. On top of that, when you think about how we are accruing and reserving for those -- given that, that VAT is no longer credited, there is an additional portion that it will be impact on the new claims that are originating on 2026. So that double hit is what we are going to be experiencing particularly on the early quarters of the year. And as we are taking actions, that will be starting to mitigate throughout the year of the -- given the annual nature of our policies. So that's going to be phasing out through the year. That's why early in 2026, we should expect to be even slightly higher or higher than our targets in loss ratios, but over the course of the year, we'll be getting back and closer to our ranges. That's a little bit more details on how we are thinking about it. And again, think about the -- also the multi-annual business, right? So given the rates and the tariffs that were prior to the VAT regulation that will stick. So it will take some time to digest that. Now that's the reality of our business. The good news, I'm going back to what we've been communicating is that we now have a clarity and confidence on how the rules are being established. And now we already had a very clear strategy on how to go about different tactics or strategies to mitigate those. And some of those examples is by leveraging, obviously, certainly pricing on average premium pricing. But there are other components to that equation. We've been mentioning our vertical integration capabilities. Some of those efficiencies, obviously, the work that we continuously do on risk prevention programs, that's -- all of those will help us on really absorbing that and not necessarily passing that through to our customers, but rather to really digesting and ensuring that we have a long sustainable business over time. Bernardo Risoul Salas: And Thiago, we have a long list. Just last Monday, we had a full-day session multifunctionally to review the priorities for the year, to review all the projects that would help us offset the cost impact. But one thing that is important is that we will not jeopardize service experience and value creation for short-term savings. We're managing this business for the long run. We've done so over the past 30 years, and we will continue to do so. So we need to ensure that the benefits of any decision outweighs the service impact. Operator: Our next question comes from Carlos Gomez-Lopez at HSBC. Carlos Gomez-Lopez: The first one refers to pricing. And again, we go back to the same thing. If we understand correctly, you have to take on the cost of the VAT. That is what is making your claims ratio higher and you do not expect to compensate for that. Initially, you expect to do it over the year. We understand that. But in addition to that, what is the competitive environment right now? I mean, in the past, you have said that in some lines, you are starting to see pricing go down. After this agreement with VAT, are you still seeing competition? Or has that eased? And then slightly -- taxes, could you confirm expected tax rate, I think you said 30%, 31%. Finally, you are talking about an ROE that could be up to 20%. When I look at the consensus right now, they are close to MXN 6.5 billion. So probably that sounds too high compared to what you are saying. Roberto Balderas: Carlos. Let me take a few of those comments and questions. So on the competitive environment, I think what we have 2 realities, but that doesn't necessarily going to be changing in the future. So one is prior VAT and then the post-VAT. What we've been communicating over the course of 2025 is that we did experience pricing pressures, particularly on the fleet segments, and as well as we're starting to see that in the individual business. Now that the new regulation kicked in, when we've been discussing and goes back to your first point on pricing is the dynamic will start moving on a different dynamic just because of everything that we've been talking on the loss ratio dynamics on the VAT credit. So what we should experience is a more intense competition, but in a higher level. Hopefully, that will bring a little bit of the average premium going up, but still, there are going to be some competition depending on how all the different players see their efficiencies and being able to compete for the customers and the policies. On the taxes front, we did close the year on 31%. We do expect for 2026 to start going slightly lower than that tax rate, that's on a historical levels. Just because we will be able to be -- able to apply many of those provisions, and that will hopefully get those deductibility on the corporate tax. So that should be a good expectation to 2026. With that, let me get back to Jose Antonio so that he can complement as well. Jose Correa Etchegaray: Well, thank you, Carlos. Let me tell you first regarding the competitive environment. As Roberto indicated, it continues to be tough. Now let me tell you that we are now entering into -- it has been accelerated. This VAT situation has accelerated the change in the cycle of the insurance cycle. As we have had increasingly better loss ratios and combined ratios for -- not only for Quálitas who was leading, but for the industry as a whole. The VAT changes that and now it changes and goes back to the standard cycle that we have had 3 or 4 cycles over the past 15 or 16 years. So this will change, and we will need to see what happens with the reactions of all the competition in here. But clearly, it is a change in that. Now regarding the ROE, it is important, and Bernardo also mentioned that, that we don't manage the company on a quarter-by-quarter basis. We manage for -- and we do the things for the long-term. And that's because we want to create sustainable value, and that is on a long-term basis. So while we might have some changes. And as Roberto indicated, in the first half of the year, we will be pressured in terms of the loss ratio and consequently into the combined ratio. Clearly, in the end, that will have an impact into the ROE for the year. But still, we aim to get into this 20%, which we have been able to achieve in the past. And we don't forecast exactly what it's going to be, but we are going to be close probably, and we are aiming to do that. And it will depend on how fast we get into some of the savings and the structural costs that we are taking to compensate also for this VAT impact. I hope Carlos, this answers your question. Bernardo Risoul Salas: And to wrap it up, Carlos, ROE continues and will continue to be a key performance metric for management. We're not walking away from our long-term 20% plus on ROE desirable target. But again, we recognize that 2026 will be another transition year. So even if we're not there at the 20%, we should be close to it. And long-term, we will strive for it. Carlos Gomez-Lopez: That's very clear. Now related to the ROE, if I may add, your capital -- your solvency ratio declined slightly to 350. Should we expect a reversal to the 400 that you have posted in the past? Jose Correa Etchegaray: Carlos, obviously, the reduction of that for MXN 401 million to MXN 362 million has to do with the recognition of the VAT liability. So that actually, I just want to mention that, that continues to be a strong capital structure that just highlights what we are talking about. But we do believe, depending on the results of how those movements are and also how the dividend policy and the final dividend comes in the next year, that will play out and how the margin will remain. Operator: We have time for one last question today. We will hand it over to Ernesto Gabilondo at Bank of America. Ernesto María Gabilondo Márquez: My first question will be on your policy pricing strategy. So during the quarter, we saw year-over-year contractions in the traditional business and fleets. Also, we have been going into different auto agencies, and there are a lot of promotions, discounts, reflecting what you were saying from the AMDA expectations that there will be low activity in the sale of new cars. And on top of that, last December, the Mexican government increased tariffs into autos and auto parts. So this, together with the VAT impact would have an impact in the demand of premiums. And I remember that around 20% of your total policies are multiannual. So I just wanted to like to pick up your brains and understand how do you want to mitigate those headwinds? Of course, one will come from pricing. How much pricing can we expect or higher prices in 2026 to mitigate that impact? And also, what will be the strategy to return the traditional and fleet businesses into year-over-year growth within a context in which we are seeing probably more competition? And also, if you can give us like some color if this competition could come from large players or small players willing to sacrifice profitability to take market share? And then just a last question on your guidance. So we put everything together, your double-digit earned premium, a combined ratio of 92%, 94% and consistent financial results. This is putting us into practically no recurring earnings growth considering that the VAT of 2025 was only onetime. So I just wanted to double check if that is a reasonable assumption. Bernardo Risoul Salas: I'll take out the first related to pricing. And let me just stand a little bit back and say everything starts with our combined ratio target, which aims to be at the 92% to 94% -- from there on, we look at saving opportunities. Obviously, we also look at pricing. And in terms of policy pricing, what we are expecting, and we have already taken some steps regarding increases is to rate increase around 6% to 8%. Now that will -- that is going to come on top of decreases that we have made during 2025 as a result of combined ratio performance. Therefore, if you're renewing as an individual policyholder, your policy in the next months, your net increase could be close to local inflation, let's say, anywhere between 3% and 5% -- now pricing, that's an average, but it depends on multifactors, as we have said in the past, and that continues to be one of the strongholds of Quálitas -- that's the way we do prices because we incorporate not only car value and type of usage, ZIP codes and several other factors that will come into the pricing decision. But I think just to move along, pricing will continue to be a key item on our commitment to deliver that combined ratio between 92% and 94%, but not as a stand-alone item. Jose Correa Etchegaray: And we will take the lead on that one as we have always done. Roberto Balderas: Ernesto, on how the competition is playing in terms of large business or key players, I would probably say, again, it goes back to in a case-by-case basis, right? So the way that we play and the way that we go through on pricing, we looked at every fleet, every case, whether it's small, medium or large, and we will go and look at their profitability, and we're targeting on our combined ratio accordingly. That's our underwriting discipline. Certainly, the big businesses and the large players will go after those, and we have seen this in 2025. And we will continue to see this in 2026. So that will continue to be a rule of the game. And what we have seen is where we see some space and align to our long-term profitability, we will certainly address whether we need to increase, maintain or decrease our pricing. On the second piece of your -- or the last piece of your question on the guidance, yes, I think that is a fair assumption to continue on keeping it at that same level given the transition that we've been talking about and looking at how 2026, but more importantly, how the long-term of those earnings will come back as we go through this transition and absorb the VAT regulation in 2026. Ernesto María Gabilondo Márquez: No, that's very helpful. Just a follow-up in terms of the pricing. You were saying it could be between already 6% to 8%, but in the new renewals, it could be around inflation, 3% to 5%. But what about, for example, the increase in tariffs that happened in December? Is that also already incorporated in the higher pricing that you're expecting for the year? Or is something that you will be evaluating depending on how you see the picture in the first, second quarter of this year? Bernardo Risoul Salas: Those effects are being considered together with some other, which include exchange rate. So I think when you put everything together, the 6% to 8%, which we have already taken should help us navigate through most of the impact. Again, only when you're talking about the pricing. Operator: This concludes today's conference call. Thank you all for participating, and have a pleasant day.
Operator: Thank you for standing by. You are on hold for the Blackstone Inc. fourth quarter and full year 2025 investor call. At this time, we are gathering additional participants and should be underway shortly. We appreciate your patience and ask that you continue to hold. Good day, and welcome to the Blackstone Inc. Fourth Quarter and Full Year 2025 Investor Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. If you would like to ask a question, please signal by pressing star one. If you are using a speakerphone, please make sure your mute function is off. At this time, I would like to turn the conference over to Weston Tucker, Head of Shareholder Relations. Please go ahead. Weston Tucker: Great. Thank you, and good morning, and welcome to Blackstone Inc.'s fourth quarter conference call. Joining today are Stephen Schwarzman, Chairman and CEO; Jonathan Gray, President and Chief Operating Officer; and Michael Chae, Vice Chairman and Chief Financial Officer. Stephen Schwarzman: Earlier this morning, we issued a press release and slide presentation, which are available on our website. We expect to file our 10-K report later next month. I would like to remind you that today's call may include forward-looking statements which are uncertain and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the factors that could affect results, please see the Risk Factors section of our 10-K. We will also refer to non-GAAP measures, and you will find reconciliations in the press release and the shareholders page of our website. Also note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any Blackstone Inc. fund. This audio cast is copyrighted material of Blackstone Inc. and may not be duplicated without consent. Just quickly on results. We reported GAAP net income for the quarter of $2 billion. Distributable earnings were $2.2 billion or $1.75 per common share, and we declared a dividend of $1.49 per share, which we paid to holders of record as of February 9. With that, I will now turn the call over to Steve. Jonathan Gray: Good morning, and thank you for joining our call. Blackstone Inc. just reported the best results in our forty-year history. With distributable earnings of $1.75 per share, as Weston mentioned. This capped a record year for the firm, in which DE increased 20% to $5.57 per share, or $7.1 billion. Powered by strong growth in fee-related earnings, and a significant acceleration in net realizations. Inflows reached a stunning $71 billion just in the fourth quarter, the highest level in three and a half years. Michael Chae: At approximately $240 billion for the full year, reflecting robust momentum across the institutional private wealth, and insurance channels. Of particular note, our fundraising in private wealth increased 53% year over year in 2025 to $43 billion. And we expect strong inflows again in 2026 given our performance and continuous innovation. According to recent analyst research, Blackstone Inc. has an estimated 50% share of all private wealth revenue across the major alternative firms. In total, the firm's fundraising success lifted assets under management 13% year over year to a new industry record of nearly $1.3 trillion. Most importantly, we generated outstanding investment performance overall for our limited partners again in 2025. Highlighted by notable strength in infrastructure, corporate private equity, our multi-asset investing business, BXMN. We achieved these results amid the turbulent year for markets, which was impacted by tariff uncertainty, geopolitical instability, and the longest government shutdown in US history. Federal Reserve officials liken this backdrop to driving in a fog. For Blackstone Inc., a key advantage of our leading scale with a portfolio spanning more than 270 companies, nearly 13,000 assets in real estate, and one of the largest credit platforms is the expansive array of proprietary data it produces. This data provides deep insight into what's happening in the global economy, helping us see through the fog and chart the path forward. What we saw in the data was a fundamentally strong economy underpinned by the ongoing technology AI-driven investment boom. We were also encouraged by what we were seeing on the ground in terms of moderating inflation. The context of limited input and labor cost growth at our companies, as well as our real-time understanding of shelter costs given our unique position in real estate. We shared these perspectives with you throughout the year, which did not always align with the consensus viewpoint. Today, there continues to be a range of geopolitical uncertainties that are impacting markets. But we remain anchored by the strong operating and capital market fundamentals we see through our portfolio. Our views on the economy and inflation have informed our investment approach. They also led to our conviction that the deal cycle would accelerate, including a resurgence in capital markets activity. First, in terms of our investments, our data gave us the confidence to lean into key thematic areas such as digital infrastructure, including data centers, power, and electrification. Private credit, life sciences, and from a regional perspective, India, and Japan. These areas have been among the largest drivers of appreciation in our funds. We also took advantage of volatility in markets to sign or close eight privatizations during the year. In private equity and real estate, including in the fourth quarter, medical technology company, WholeLogic, for $18 billion. And in credit, we saw record deployment in 2025, including the emergence of an important new source of direct origination, customized long-duration capital solutions for investment-grade corporates. We have executed multiple of these to date and we expect to do more over time. In total, we invested $138 billion across the firm in 2025, the highest level in four years, planting the seeds of future value. Stepping back, the historic pace of investment taking place in the US to facilitate the development of artificial intelligence, including the design and manufacture of semiconductors, data center construction, and the expansion of power generation is the key driver of economic growth today. And is creating an enormous need for capital solutions. The US has long occupied a unique position in the world in terms of its innovation and economic leadership. And the investment medical cycle underway in AIMpower and the expected future boost in AI-related productivity should propel US economic growth for years to come. Blackstone Inc. is extremely well positioned to benefit against this backdrop, given our scale and expertise in these areas, including our ownership of the world's largest data center platform, as well as our position as a major investor in the modernization and growth of the US electric grid. Jonathan Gray: Turning to the acceleration in the deal cycle and capital market activity, we regularly spoke about this dynamic last year. And we are now seeing it start to materialize. IPO and M&A activity are accelerating. Deal sizes are increasing. And sponsor activity is picking up. In the fourth quarter, global IPO issuance rose 40% year over year, including a two and a half fold increase in the United States notwithstanding the government shutdown. Blackstone Inc. was a major contributor with the $7.2 billion IPO of medical supply company Medline, the largest IPO since 2021, and the largest sponsor-backed IPO in history. The offering was extremely well received with shares trading up over 40% on the first day. Medline is a perfect illustration of the power of Blackstone Inc.'s private equity model at work and our ability to generate attractive returns on large-scale control deals across vintages. This 2021 transaction represented the largest healthcare buyout in history, which we completed in partnership with the company's founding family, key limited partners, and two other financial sponsors. During our ownership, we accelerated the company's growth, implemented multiple initiatives to drive value, and executed accretive acquisitions to expand the company's product suite and end markets. Today, Medline is a category-leading public company that is exceptionally well positioned for continued success. Medline was Blackstone Inc.'s fourth IPO globally since last summer, and our momentum continues to build. We have one of the largest IPO pipelines in our history, reflecting a diverse mix of sectors and geographies. Looking forward, the structural tailwinds driving the alternative sector and in particular Blackstone Inc. are accelerating. More investors are discovering the benefits of private market solutions, including in the vast private wealth and insurance channels. At the same time, we continue to deepen our relationship with institutional limited partners across multiple areas. These tailwinds alongside the cyclical recovery underway in transaction activity are a powerful combination for our firm and our shareholders. In closing, I could not have more confidence in the firm and our prospects for continued growth. Our business performed exceptionally well through the high cost of capital backdrop of the past several years. And we believe we are now moving into a more supportive environment with a portfolio concentrated in compelling sectors and nearly $200 billion of dry powder to take advantage of opportunities. We are extremely well positioned for the road ahead. And with that, I will turn it over to John. Michael Chae: Thank you, Steve, and good morning, everyone. This is an exciting time for Blackstone Inc. Three powerful dynamics are coming together. First, the deal environment has reached escape velocity on the back of moderating cost of capital. Secondly, the AI revolution is creating generational opportunities to invest private capital at scale, both debt and equity, while creating attractive gains across multiple sectors. And third, adoption of private markets continues to deepen across all three of our major customer channels: institutions, insurance, and individual investors. These dynamics are translating to outstanding results across the firm. Starting with our institutional business, which makes up over half of our AUM, and comprised over half of 2025 inflows. We are seeing strong demand today across numerous open-ended and drawdown fund strategies. In infrastructure, our dedicated platform grew a remarkable 40% year over year to $77 billion, including over $4 billion raised in the fourth quarter underpinned by exceptional investment performance. The commingled VIP strategy has generated 18% net returns annually since inception seven years ago. And 2025 was one of the best years yet, with broad-based gains across digital energy and transportation infrastructure. Our QTS data center business was again the largest single driver of returns for BIP as well as in real estate. Speaking with our open-ended strategies, DXMA reported excellent results again in Q4. The composite gross return for BXMA's largest strategy has been positive for twenty-three straight quarters and exceeded 13% for the year in both 2025 and 2024, the best since 2009. Investors are responding favorably with $6.3 billion of net inflows for BXMA in 2025, representing the highest net fundraising in nearly fifteen years and lifting AUM 14% year over year to a record $96 billion. Meanwhile, in our institutional drawdown area, our business is accelerating with a new fundraising cycle underway. We have held initial closings of $5 billion for our new PE secondaries flagship, targeting at least the size of the prior $22 billion vintage, with another major close expected in the coming weeks. Our secondaries platform saw a record year of deployment in 2025, and we see strong growth ahead fueled by the ongoing expansion of private markets. In corporate private equity, we have raised over $10 billion to date for our next Asia flagship, compared to approximately $6 billion for the previous vintage, and expect to reach over $12 billion. We also launched fundraising for our fifth private equity energy transition vehicle, which we expect to be meaningfully larger than the prior vintage of approximately $5.5 billion, with a first close anticipated this spring. Rising demand in the power and electrification ecosystem is creating enormous deal flow in this area. And our currently investing vintage is approximately 80% committed only a year and a half after launch. In Q4, we also held closings for the new vintages of our tactical opportunities, GP stakes, and life sciences vehicles. And in credit, we raised additional capital for our fifth opportunistic strategy, bringing it to over $7 billion with a target of $10 billion. There is no question that institutional investors remain the bedrock of our firm. Diving deeper into credit specifically, our platform overall continues to see extraordinary momentum. We now manage $520 billion of total assets across corporate and real estate credit, up 15% year over year. Inflows exceeded $140 billion in 2025, with strong fundraising across the institutional insurance and private wealth channels. Underpinning this demand, again, is investment performance. Our non-investment grade strategies in private credit and real estate credit delivered gross performance of 11% and 17% respectively for the year. Since inception twenty years ago, our non-investment grade private credit strategies have generated 10% net returns annually, double the return of the leveraged loan market with minimal losses. Despite the external noise today in private credit, facts do matter, and our portfolio overall is in excellent shape, including high single-digit EBITDA growth on average for our direct lending borrowers for the most recent annual period. The backdrop remains favorable with corporate profits growing, short-term rates declining, and transaction activity increasing. At the same time, we are benefiting from the massive secular shift underway towards investment-grade private credit, which we believe is in the earliest stages. We now manage $130 billion in this area, up 30% year over year. Our farm-to-table approach, which brings clients directly to borrowers and is designed to create a structural premium to liquid fixed income, is really resonating. Why is investment-grade private credit growing so quickly? Two main reasons. First, corporate investment-grade bond spreads are at their tightest level since 1998. We have been seeing insurers and now some pensions and sovereign wealth funds looking to earn materially higher spreads at the same or lower risk level. Second, the build-out of AI infrastructure requires a massive amount of private debt capital for the construction of fabs, energy supply, and data centers. Turning to the insurance channel specifically, our AUM grew 18% year over year to $271 billion. This remarkable growth is happening without taking on any insurance liability. Investors are responding particularly well to our open architecture model and the value we deliver. We placed or originated $50 billion credits for our private IG-focused clients in 2025, which generated approximately 180 basis points of incremental spread versus comparably rated liquid credits. These results are more important than ever in an environment of tightening yields. Moving to the individual investor channel where we are uniquely positioned given the breadth of our product lineup, our performance, and the power of our brand. Our AUM in private wealth grew 16% year over year, to more than $300 billion, and is up threefold in the past five years. In Q4, our total sales in the channel exceeded $11 billion, up 50% year over year. BCred led the way with gross sales of $3.3 billion while net inflows were $1.2 billion. For the full year, BCRED reported record gross sales of over $14 billion powered by investment performance, with 10% net returns annually since inception five years ago, almost entirely comprised of current income. Our private equity flagship in this channel, BXP, has also generated outstanding performance achieving an annualized net return of 17% since inception. BXP has grown to $18 billion in only two years, with its broad-based approach to our expansive private equity platform. Our infrastructure strategy in private wealth, BX infra, is approximately $4 billion only one year after launch with strong performance out of the gates. And BREIT delivered terrific results in 2025, underpinned by a net return of 8.1% for its largest share class, nearly three times the public REIT index. BREIT's portfolio position continues to drive returns, including its significant exposure to data centers. In private wealth, as with the rest of Blackstone Inc., our relentless focus on investment performance gives us the license to innovate. And our innovation is accelerating. We expect 2026 to be our busiest year yet in terms of product launches as we stated previously. Blackstone Inc. has led the evolution of the private wealth market to date, and we expect to lead it in the future. Turning to real estate where we have been navigating the early stages of the sector's recovery. We said the cycle was bottoming two years ago, but that the recovery would not be a straight line. Since then, US private real estate values have been slowly improving. However, since the interest rate cycle began approximately four years ago, real estate values are still down 16% compared to an increase of 75% for the S&P 500. We think real estate has plenty of room to run. We have taken advantage of choppy investor sentiment to lean into deployment, investing or committing over $50 billion in real estate since the cycle trough two years ago, including our commitment in Q4 to privatize Alexander and Baldwin, an owner of high-quality grocery-anchored shopping centers and warehouses in Hawaii. The gradual pace of the recovery today has meant our real estate funds in aggregate saw limited appreciation in 2025, notwithstanding BREIT's strong performance. That said, we do see a number of positive signs which point to a better year ahead. These include the sharp decline in construction starts, which have fallen to the lowest level in more than twelve years in the US, in both logistics and multifamily, our two largest sectors in real estate. Continued growth in debt availability and declines in the cost of debt, a pickup in transaction activity, and now an improvement in logistics demand with our US platform reporting record leasing activity in Q4. At the same time, our exposure to data centers continues to be a source of strength, as does real estate credit. We remain highly optimistic about the direction of travel for our real estate business. In closing, we enter 2026 with tremendous momentum. Our clients are growing their commitments to us across channels. We are actively investing that capital in compelling thematic areas and realizations have begun to accelerate. Blackstone Inc.'s performance-driven, capital-light, brand-heavy model continues to deliver for shareholders. And with that, I will turn things over to Michael. Michael Chae: Thanks, John, and good morning, everyone. The firm's fourth-quarter results represented an outstanding finish to a record year. I will first review financial results and then discuss investment performance and the forward outlook. Starting with results. The fourth quarter represented the best quarter of distributable earnings per share in the firm's history, as Steve highlighted, and one of the three best quarters of fee-related earnings. First, in terms of FRE, which reached $1.5 billion in Q4 or $1.25 per share. Management fees increased 11% year over year to a record $2.1 billion, underpinned by 10% growth in base management fees and a 27% increase in transaction and advisory fees. Base management fees for three of the firm's four segments—private equity, credit insurance, and multi-asset investing—on a combined basis grew 17% year over year in Q4, while in real estate, base management fees declined moderately. Fee-related performance revenues for the firm totaled $606 million in the fourth quarter, generated by a broad range of perpetual strategies led by BREIT, as well as BCRED and VXPE. The year-over-year comparison reflected the crystallization of over $1 billion of these revenues in our institutional infrastructure business in last year's fourth quarter related to three years of accrued gains. Excluding this from the prior period, fee-related performance revenues grew significantly year over year and FRE overall grew 24%. In terms of distributable earnings, we reported $2.2 billion of DE in 2025, or $1.75 per common share. Alongside robust FRE, net realizations increased 59% year over year to $957 million, the highest level in three and a half years. Gross performance revenues exceeded $1 billion in the quarter, driven by a number of net realizations across the firm, including the sale of a portion of our stock in energy solutions company Legions, the sale of a stake in the city center complex on the Las Vegas Strip, the monetization of certain royalty interests in our life sciences portfolio, and importantly, year-end crystallizations in BXMA and certain credit vehicles. With respect to full-year 2025 performance, VXMA specifically reported record performance revenues in Q4 of $465 million, up 38% year over year. We also closed the sale of the firm's 6% stake in Resolution Life in the fourth quarter in connection with the company's sale to Nippon Life. With the realized gain reflected in principal investment income. Turning to the full year. Despite numerous challenges in the external operating environment in 2025, Blackstone Inc. delivered record full-year results across digital earnings, fee-related earnings, management fees, and assets under management. All of which have approximately doubled or more than doubled in the past five years. Distributable earnings grew nearly 20% to $7.1 billion. Fee-related earnings increased 9% to $5.7 billion. Management fees rose 12% to $8 billion, while FRE margin expanded over 100 basis points to the highest level ever for a full-year period. And net realizations grew dramatically in 2025, up 50% to $2.1 billion. Meanwhile, the firm's extraordinary breadth lifted AUM up 13% year over year to $1.275 trillion. At the same time, all of our key operating metrics accelerated in 2025. Inflows, capital deployed, total fund appreciation, and realizations. Net accrued performance revenues on the balance sheet or STORE value increased 7% in 2025 to $6.7 billion. The foundation of future value for the firm continued to expand even as the pace of monetizations increased. And all of this during a period where the significant underlying earnings power of our real estate business has yet to reemerge. The fundamental driver of this positive momentum is, of course, investment performance. Our funds overall delivered strong returns in the fourth quarter and in 2025. Infrastructure led the way with 8.4% appreciation in the quarter and a remarkable 24% for the full year. The corporate private equity funds appreciated 5% in the fourth quarter, with particular strength in the public portfolio, and 14% for the year, supported by high single-digit revenue growth in our operating companies and resilient margins. BXMA reported a 4.3% gross return for the absolute return composite in the fourth quarter and 13% for 2025. BXMA has delivered positive composite returns for the last twenty-three quarters, as John noted, and in each of the past thirty-three months, which is driving strong inflows and the segment's fifth consecutive quarter of double-digit year-over-year AUM growth in the fourth quarter. In credit, our non-investment grade private credit strategies reported a gross return of 2.4% in the fourth quarter and 11% for the full year, reflecting stable underlying credit performance. In our $160 billion-plus global direct lending portfolio specifically, realized losses were only 11 basis points over the last twelve months. In real estate, overall values appreciated approximately 1% in the fourth quarter and 1.5% for 2025. In Q4, continued significant strength in data centers was partly offset by headwinds in certain areas, such as life sciences office, and UK student housing. In total, our real estate portfolio remains well-positioned, with 75% of our global equity holdings concentrated in data centers, logistics, and rental housing. RE sectors supported by very positive long-term fundamentals, as John discussed. At the same time, our real estate credit business continues to report outstanding performance, with our non-investment grade funds appreciating 17% for the full year, including 2.8% in the fourth quarter. Moving to the outlook. The firm is advancing with significant momentum across multiple drivers. We expect management fees to continue on a strong positive trajectory in 2026, underpinned by robust growth in the private equity, credit, and insurance, and multi-asset investing segments, with real estate management fees consistent with Q4 levels in the near term. Along with a strong contribution from our capital markets business in 2026. Meanwhile, the continued expansion of our platform and perpetual capital strategies overall is widening the aperture for generating fee-related performance revenues. In terms of net realizations, the backdrop has become much more constructive as you have heard this morning. While we will not have the one-time benefit of the sale of our Resolution Life stake, and our software platform Bistro, we expect a strong year ahead, particularly with respect to our drawdown fund business, with activity building as we move through the year. Overall, our embedded value and realization potential are significant, and we are very optimistic in the multi-year outlook. So in closing, in 2025, the firm delivered robust financial performance in the face of a complex external environment. And as we look forward, with powerful structural tailwinds and multiple engines of growth, we strongly believe the best is yet to come. Thank you for joining today's call. We would like to open it up now for questions. Operator: Thank you. We ask you limit yourself to one question to allow as many callers to join the queue as possible. We will take our first question from Craig Siegenthaler with Bank of America. Craig Siegenthaler: Good morning, Steve, John, Michael. Hope everyone's doing well. Our question is on the record IPO pipeline. So what sectors and industries will you be leaning into? Will some of that spill over into real estate, or is it too early? And as you hand limited partners cash back at a blended MOIC of two times, can you talk about the second-order effect it will have on fundraising as LP liquidity profiles rebound? Jonathan Gray: Thanks, Craig. I would say it will be mostly concentrated in the corporate space. Just because obviously, the fundamentals there are strong. The market is open. I think it will be broad-based. But, obviously, there is a lot of focus around energy and electricity and some of the picks and shovels around that. But in general, as we saw with Medline, high-quality companies are getting a good reception. I do think it will be more US-focused, but I think we will do a number of things in India. And that is a place where we will see probably more real estate activity as well just because of the underlying health of that economy and that IPO market. Europe is slower, but it feels broad-based to us. And getting better. And as I said, on TV a little earlier, it feels like 2013-2014 where you had that four, five-year hibernation period. The markets reopened, and we took a bunch of companies public. And that is the way it feels today. And the fact that Medline and Allegiance, a couple of companies we have taken out, have performed so well for shareholders, I think that is a very good sign. So we do have a lot of confidence. In terms of what it means for our customers, yes, as they get capital back, as they get gains back, it makes it easier for them to allocate more capital to us. It does get that flywheel going again. This is a very positive sign. I think we forget sometimes that the last four years have been in the abnormal period. That M&A and IPO activity have been well below historic levels, and we are moving back towards more historic levels of activity. And a very positive sign for our business and helps obviously with transaction fees. It delivers returns. Generally, we are these things out at higher levels and carrying value. It gives the investors more capital in their pockets to redeploy. So it is a very good virtuous cycle for us, and we are excited to see the IPO market coming back like it is. Operator: Thank you. We will take our next question from Michael Cyprys with Morgan Stanley. Michael Cyprys: Hey, good morning. Thanks for taking the question. I just wanted to ask about AI. You guys are big investors in data centers and AI infrastructure, but just curious how you are deploying AI across your portfolio companies, what learnings you have had along the way, what sort of impact you are seeing from this deployment, and how do you see this evolving over the next twelve to twenty-four months? Jonathan Gray: Well, it is still early days, but we are starting to see some real impact. I would say at the Blackstone Inc. level, it has been with our software engineers. That is where we have seen the biggest impact day one in terms of making our folks places of efficient when they are coding. We are beginning to use it for cyber monitoring. It is giving us a productivity boost. We invested in a company called Norm AI to help us on the legal side, particularly marketing compliance. And then I would say data summarization is super helpful. You know, we have 270 companies, 13,000 pieces of real estate, and the ability to get that real-time and to use that information to make us better investors to me, that is hugely important. At our portfolio companies, I would say customer engagement. We have a number of companies who are doing that. Content creation, certainly with the media focus, companies there. Rules-based businesses, again, legal, accounting, transaction processing. We are working with some of the LLM companies on how to accelerate this. And so it feels to us like real productivity gains will come. It is not happening immediately, but we are seeing early test cases that are quite positive. And this is one reason I am optimistic about what can happen to earnings overall in the stock market and certainly across our portfolio. So we want to be really leaders in this space. We hired Rodney Zemmel who ran AI at McKinsey to help with this, and it is a huge focus for our firm. Operator: Thank you. We will take our next question from William Katz with TD Cowen. William Katz: Great. Thank you. Good morning. Just so curious, just coming back to the retail opportunity, certainly appreciate the big picture and your market share. One of the biggest pushbacks is as rates continue to work their way lower, the relative appeal of oriented vehicles is going down. So I was wondering, a, what are you hearing on the evolution of, in the wealth market? And how would you be positioned if that trend were to continue and maybe could break that down in terms of maybe flushing out your activity level you mentioned in your prepared remarks for '26? And what it might mean for products, geography, or incremental opportunities. Thank you. Jonathan Gray: Thanks, Bill. I think the place to start, of course, is the breadth of our we have. So one of the great things about our firm is we obviously have income. We have products that are incoming growth, and we have growth-oriented products. So the fact that we have a very large-scale private equity vehicle. We have got this just starting out infrastructure vehicle. We have real estate. Obviously, we have credit as well. That is powerful if investors start to shift a little bit. But I think it is worth noting that I think the appeal of, let's say, private credit is not just about absolute returns. It is also very much around relative returns and the return premium we can generate. So in the fourth quarter, our institutional investors in credit we had record fundraising with them because of that premium, both in non-investment grade and investment grade. And if you think about when we started, for instance, Bcred, base rates were close to zero at that point, and yet we had significant flows. So the key to us and if you look at what we have done in direct lending, let's say, over twenty years, consistently outperform what the leveraged loan and high yield market offers. That is why I think these products can continue to do quite well. Yes. There may be a little less demand for these at the margin because of lower rates in the wealth channel. Although the institutional clients are actually leaning more into the space now. And at the same time, obviously, equity-oriented products benefit in a meaningful way lower rates. And I think one of the great things about our firm is we have the ability to capture that benefit across a wide range of equity products and things we own. Both on the individual investor side and the institutional side. Operator: We will take our next question from Alexander Blostein with Goldman Sachs. Alexander Blostein: John, I was hoping you could unpack a little bit what is going on in direct lending both on the wealth side and the institutional side. On the one hand, obviously, we saw redemptions pick up, not surprisingly, last quarter. Gross sales on gen one. Looks like they slowed down a little bit in BCRED still. So what is the sentiment from advisers? How long do you think this will continue? On the wealth side of things? And then importantly, it looks like on the institutional, it has been almost the opposite where your fundraising dynamics on direct lending on the direct lending side quite strong. So help us understand kind of both of those markets least then today. Jonathan Gray: Well, Alex, you characterized it well. On the institutional side, where they are looking at the fundamentals and it is not the headlines and some of the noise here is not as impactful. Their confidence in what we are doing and their need in many ways is going up. So if you think about it on the insurance side, the fact that investment-grade credit is at 71 basis points, corporate investment-grade credit, which is the tightest level since 1998. The fact that we can bring our insurance clients an extra 180 basis points, which is what we did in 2025, obviously motivates them in this area. And similarly, as rates come down, on the non-investment grade side, they still see the benefit of the incremental yield because of our farm-to-table model that we can bring them as investors directly up to borrowers without all the origination financing friction. And so that is helpful. On B credit and wealth specifically, the numbers are as you know, we raised $14 billion in BCRED last year. In the fourth quarter, it was $3.3 billion despite the noise. We did see this uptick in redemptions, which is not a surprise. Given all the headlines out there. Although, of course, it is very different than what we are seeing on the ground. In reality, yes, there will be losses in non-investment grade credit. The key, of course, is is your portfolio healthy? Last year, we saw actually high single-digit growth in the EBITDA of our borrowers. The loan to values are sub 45%, and rates are coming down. So the credit metrics are healthy. The key remains, can we deliver a durable premium to what you can get in liquid credit? And that we feel very confident in terms of, you know, sort of outlook. We will have to wait and see on the redemption front. Over time. But I think performance will be a key driver here on that. And on inflows, think it is notable that the last two months despite all of this, we have had $800 million of gross inflows each of the last two months in excess of that. So we have a lot of confidence in the portfolio and the outlook over time despite these headlines. Operator: Thank you. We will go next to Glenn Schorr with Evercore. Glenn Schorr: Hi there. So maybe a little more of a yeah. You know what? I am going to go with the management fee question instead. Sorry. So I think we in consensus have that flattish near-term management fee growth that you talked about, but we also have a ramp in '26 and ramps up even more in '27. So I guess I am looking for you to talk to when about you see the ramp and the why, meaning how much and when do you is it about the deployment of all the dry powder? How much do you see fee holiday running off and helping in over the next couple of quarters? Thanks very much. Michael Chae: Sure. Well, look, overall, I think as I outlined in my remarks, you have this picture of overall strength. And in the private equity credit and the SMA segments, 17% base management fee growth in the fourth quarter year over year, you have that really entering the year with significant momentum in those areas. To put a little more context around that, and sort of the shape of the year and the period ahead that you said, first, we have talked about our new drawdown fundraising cycle that is underway. We are actively fundraising for five PE drawdowns among others. We are targeting over $50 billion for those in aggregate. We expect it will be materially larger than their respective predecessors in aggregate. And following what we expect to be the commencement of their respective investment periods in the first half of the year and then fall at different lengths, we expect all five to be fee-earning by year-end. Second, I would say you have the continued seasoning and expansion of perpetual strategies overall. Perpetual capital is 48% of our fee-earning AUM. That is up 18% year over year. You have this, you know, quite impressive scaling in BXPE. You have BXMper just entering in the second year coming off holiday. You obviously have our VIP area, new products coming. And then overall, you know, from a business line standpoint, this strong momentum in credit insurance across channels and really broadening diversity fee-earning AUM in that area, 19%. And I talked about real estate in my remarks. So fundamentally, we are on this upward trajectory. We feel really good about our positioning. I just commented on sort of the shape of some of these major new drawdowns. And sort of the timing of fundraising closes, launches, and fee holidays. And so you will see that upward ramp in contribution in the course of the year. And then full-year contribution next year. And I would note in this year, you also will have full-year contribution of a couple of newer drawdown funds like the second growth funds the life sciences fund. And so you have those embedded components around the overall picture. Operator: Thank you. We will take our next question from Daniel Fannon with Jefferies. Daniel Fannon: Thanks. Good morning. Michael, maybe just to follow-up on that in the context of all that growth, how you are thinking about FRE margin the potential for expansion in 2026? Michael Chae: Sure. Look. As I think if this past year illustrated, we think our margins position is fundamentally strong. Expanded over 100 basis points, to a fiscal year record in the context of record FRE. And we do always sort of advise people to look at the full year. And as it relates to 2026, you know, in terms of drivers to note, as we said before, there is a level of sensitivities to BRRPRs and transaction fees. And we think the setup for both of those is quite strong entering the year. On operating expenses, we had previously outlined a path of a decelerating rate of growth for 2025, and that is what happened. And we feel good about the continuation of that trend over time. All of this in the context of quite healthy expected top-line revenue. So at this stage in the year, you have heard me say it before, we would view the starting point again as margin stability with the potential for upside. So that is what I would sort of leave you with here in January. Operator: We will take our next question from Brian Bedell with Deutsche Bank. Brian Bedell: Great. Thanks very much. Those last two questions were similar to mine. Maybe if I can extend it to '27 just because the ramp-up happens more in the back half of the year, especially with the turn-on of the various private equity funds and fee holidays? So, looking at base management fee growth of probably 11%-ish or similar in '26 to '25, again, just because the ramp is happening in the back half. But as we get into '27, does that portend an inflection point upward back to base management fee growth rates that are closer to what we saw in the twenty to twenty-twenty-two cycle you know, versus the this the low double digits side. And then, if I can layer in the FRE margin question for '27, is it fair to assume that you you know, if you have that accelerating revenue growth, obviously, it depends on FRPRs, but can you continue to scale that for FRE margin improvement in 2027? And is there any ceiling you are thinking about for FRE margin in that context? Michael Chae: Yes. Thanks, Brian. I would say overall, as you are hearing, we feel quite good about 2026. And, we feel really good about 2027. Just overall, across the business, from a fee-related earnings standpoint, from a, as part of that fee-related performance revenues with obviously, the infrastructure every three-year large incentive fee happening late that year. With transaction fees over the next couple of years. Around net realizations, certainly, if this, sort of market cycle we see continues and with margins as well. So without getting too granular, you know, certainly for a couple of years from now, that is the overall picture. And structurally, and in terms of the kind of timing of those, new fundraisers I mentioned and the fact that Bill contributes full-year fees in 2027 and the other factors, and, yes, around operating leverage. We feel quite good about it. Operator: Thank you. We will go next to Michael Brown with UBS. Michael Brown: Great. Hi. Good morning. So in light of the DOL's proposed rules facilitating the ALTs in 401 plans, last week. I just wanted to check-in and see if you had kind of updated view on how the market could start to open up and if you are expecting anything in 2026. And then on a related note, does the alliance with Vanguard and Wellington sit today? Is there any new developments to share on that front? Jonathan Gray: So on the 401 front, we obviously have to wait and see what the administration puts out. There is a rulemaking process. So I would expect, '26 is a year of sort of building and hopefully the rules coming out and you know, I think you will begin to see capital raising more in '27 on the 401k side. I do think that if we get a favorable outcome here that allows private assets to move into American worker savings program, I do think long term it has a very significant potential. And, obviously, for us, as the largest player with the biggest products, that it positions us quite well. And, obviously, the strength of our brand. So it is something we are very focused on. We have an excellent team and leadership group on it, but it is that is going to build, and I see this as sort of a foundational year. On the Vanguard Wellington front, there is not a lot I can say I do think that we will hopefully be launching products this year in the first half of the year. I am not sure I can go much beyond that. But to me, it speaks to just what is happening to alternatives and the fact that in the wealth channel, continue to spread out. And we are hopeful that we can reach a broader audience beyond sort of very top end of potential clients wealth advisers. And there are a lot of people, I think, interested in these products, particularly if we can make them easier to access. And so I would just say overall in wealth, and individual investors, that the firm's brand and performance we have delivered is pretty extraordinary. And that this is an area where I think there is lots and lots of overall lots and lots of opportunity. We have been at it for many years. We did our first drawdown product going back to 2002. We did our first semi-liquid perpetual. Now nine plus years ago with BREIT, and we built up a lot of goodwill in this channel. And I think you will continue to see new products come online, We filed something in the hedge fund area as well recently. I think you will see us continue to deliver for these customers. And continue to expand. And what is nice about this AUM, as you know, is it is in this perpetual format. It tends to stick for long periods of time in compounds. So we have a lot of optimism, and it is on multiple fronts. Within this wealth and retirement area. Operator: Thank you. We will take our next question from Brennan Hawken with BMO. Brennan Hawken: Good morning. Thanks for taking my question. In the perpetual wealth management strategies, what does the AUM base look like across geographies? Particularly interested in what the exposure is as far as Asia goes, Asian investors, and it would be great if you could to give that breakdown by asset class. Thanks. Jonathan Gray: Yeah. Do not know if we have that Andy. What I would say is the vast majority of the capital comes from the US. And within Asia, I think the next biggest market for us globally is Japan. Which is a market that obviously has long-term stickiness. And then we have had recent great success in Canada. Do have an investment base in Hong Kong and Singapore. We are spreading out around the globe. But it continues to be a US-dominated business. With Japan now a strong number two for us. Operator: We will take our next question from Brian McKenna with Citizens. Brian McKenna: Great. Thanks. So just a bigger picture question for me. As Blackstone Inc. has become bigger and bigger over the years, I mean, there have been some questions from time to time around your ability to keep generating strong outperformance. But if you look at your results over the past year, think you could argue that fundamentals are only accelerating here. And then performance across most of the businesses is only getting better. I think this is a great example of why scale is so important in the industry. But as the company continues to grow from here, how do you make sure you continue to deliver for your investors and then also make sure you are preserving your culture across the firm? Jonathan Gray: It is a great question. I would say we have a fair strive at this place that starts with Steve at the top. And a desire to deliver for our customers. The reason we have grown so much over forty years is because we have not lost sight of True North. Which is delivering returns for our customers. And so for us, what we are utilizing is the enormous scale advantages in terms of insights coming from our companies, our real estate and infrastructure, and translating that into the capital. And so you have seen this thematic push into AI infrastructure both digital and energy infrastructure. You see this in geographically. The big focus we have had in India, as the leading foreign investor there in private equity and real estate are pushing to Japan as well, which has paid off for us so well. In Asia overall. Our focus on secondaries and GP stakes and our knowledge of alternatives using that to translate into terrific returns. Obviously, our enormous scale in real estate, which is a competitive advantage. And in credit, doing this on an asset-light basis just based on our relationships with clients. And the ability to write these very large checks allows us in our minds and in the numbers to outperform. So I know everyone's always like, oh, larger is worse. I think in this environment, having more scale and more data is a meaningful moat. And we are trying to capitalize that for our investors each and every day. There is very much of an entrepreneurial spirit in this place. There is a fierce sense of urgency and desire and will to win. And none of that is going away. And so I think the key thing to look at is we raised $71 billion of inflows in a quarter, $239 billion in a year. In what has still been a pretty tough environment, real estate lagging, the M&A and IPO market's not quite open yet, and look at what we are doing. So we think the future has been world normalized. Cost of capital comes down. You have what is happening. In the AI world. Economy growing faster. Productivity picking up. And us investing in sectors we really like, we think that will really get this flywheel going, which is why you hear this optimism on the call. Operator: We will take our question from Benjamin Budish with Barclays. Benjamin Budish: Hi, good morning and thank you for taking the question. I wanted to follow-up on some of the discussion on the exit environment I hear the optimism around the IPO opportunity in particular, but I am just curious you could comment a little bit on what you are seeing regarding financial and strategic sponsor-backed M&A. What does that mean for the near-term pipeline? I think your commentary about the ramp is more on the IPO cycle just taking some time despite the growing pipeline. But how are you thinking about other types of M&A? What should we expect maybe in the next couple of quarters? How should we be thinking about Thank you. Jonathan Gray: Well, the strength in the stock market is certainly helping. We announced a defense contracting business that we sold in the fourth quarter you know, which was maybe it was early this year, maybe in the last couple of weeks, our card that we sold, and that was from a strategic. We do see strategics now given the strength of their stocks and the fact that the regulatory environment is much more conducive for M&A. There is more confidence as we have sort of normalized the approach in terms of evaluating antitrust issues. That has been very helpful. So I would expect a mix. IPOs are obviously helpful for a number of these companies, but I think we will see strategics. There was an announcement this week on the stake side where a large manager bought a smaller credit manager that we had a stake in. Again, that reflects an M&A environment that is improving. So I think it is fair to say it is on both sides. And then on real estate specifically, you know, we did see a 21% in overall M&A activity in real estate. We talked about the strength in logistics. We have seen some of the stocks on the screen start to pick up. I would not be surprised if you start to get momentum in that space, particularly as you move towards the latter half of the year, you will see a pickup there as well. So we did lean a lot into the IPO story. But I do think M&A and strategic sales will be there, and they will continue to be financial buyers for some assets as well. Operator: Thank you. We will take our next question from Steven Chubak with Wolfe Research. Steven Chubak: So wanted to ask on the outlook for e-credit flows cited the $700 million of equity raise in 4Q. Those flows appear to be accelerating. I was hoping you could speak to what the reception has been for the product. How you are approaching marketing the offering given just a more complex regulatory apparatus in Europe. And as you think about your North Star, whether BCred is a reasonable paradigm to anchor to as you think about how much this could scale over a longer horizon? Jonathan Gray: Well, we are excited about the eCred product. Direct lending in Europe is a compelling area. The spreads are wider. The loan to values are lower. We have had a product that has delivered 10% inception to date returns in a lower rate economy in Europe. It is a harder place to distribute product because of the regulatory matrix that exists in Europe, but we are beginning to get more and more traction. Some of the new structures that have come out in the UK and on Continental Europe, we believe will make it easier. And the fact that we have delivered this consistent performance. So I think this is a product that could scale. You know, it is not the size of the US market, so I would not have those kinds of expectations. But, certainly, it has gone from raising, you know, single-digit dollars or euros. Now, as you pointed out, $700 million in a quarter, and we have real positive momentum there. So it is an example, again, of the strength of our platform and the way it is globalizing and the growing recept to private assets, not only in the US but around the world. And so this is one where we are going to just keep focusing on it, keep delivering strong returns, and I think it can consistently grow. Operator: Thank you. We will take our next question from Kenneth Worthington with JPMorgan. Kenneth Worthington: Hi, good morning. Thanks for taking the question. Curious how you see the deployment opportunities developing in real estate this year particularly core versus opportunistic, and you have got plenty of capital still in the latest flagship prep funds. How does the deployment pipeline look for those funds this year? Jonathan Gray: Well, I would say it has been a little bit lumpy. We have done some big things. We said here we have deployed across the whole real estate platform last two years, $50 billion. But sellers generally are a bit reluctant because people obviously want to see higher prices, want to see the sector recover. I think you will continue to see us find some big things to do. I think we will continue to invest in AI infrastructure and data centers in this space. I think we will continue to look for privatizations because certain parts of the public real estate market are lagging. And then as values start to move up again and sellers become more motivated, I think we will see transaction activity pick up. It is still very low relative to historic levels. And again, this is an asset class that is not going away. You know, real estate has fallen pretty far out of favor. And yet hard assets, apartments, logistics, you know, beachfront hotels, they are definitely going to you know, have long-term demand. I would say I think the focus for us initially will be more on the opportunistic side. But over time here, I think you will see more and more transaction activity. Operator: We will take our next question from Arnaud Giblat with BNP. Arnaud Giblat: Yes. Good morning. I was wondering if you could carry on the on the real estate side. Could you talk a bit more about the outlook for performance in multifamily? I mean, I heard what you said with regards to the very low levels of new starts and potential from rate cap improvements. Bleeding into performance. But I was just wondering if you could develop a bit more what are the drivers you see that could help her performance in multifamily? Thank you. Jonathan Gray: What we have seen in multifamily in the US has been pretty slow growth, in some cases, modest negative, but pretty flat the last couple of years as the absorption of construction and slower job growth just basically led to a relatively flat market. I think the good news sign goes back to this supply dynamic, which is you know, the starts are now down two-thirds from their peak. That takes a while to work through the system. But when you stop building new supply, that should be supportive of rental values over time. And again, this is a sector, so long as the population continues to grow, there is some aging of existing stock. There should be incremental demand and better fundamentals. We have seen an improvement over what we saw versus you know, six months ago, twelve months ago. And, again, the cost to own remains pretty high, which is pushing people into the rental area. So I would say, overall, logistics is clearly in a better position today, which is our biggest asset class. Multifamily in the US, our second biggest area, is beginning to show some better signs. But that lack of new supply combined with a healthy economy should create a favorable dynamic as we work through this year. Operator: Our next question comes from Patrick Davitt with Autonomous Research. Patrick Davitt: Hi. Good morning, everyone. You talked about the increased demand for IG private credit. But mostly from institutional pools. It seems like retail demand for those strategies has been slow to develop, just looking at BMAX and similar products from other managers. Do you think the relative yields of returns are too low relative to other products on the market? Or is it something else? And then, I guess, looking forward, given your discussions and education process, with distributors, do you see a path to, you know, a meaningful uptick there as that process plays out? Thank you. Michael Chae: So what I would say on the individual investor side, there clearly is more attraction to higher-yielding products and credit relative to the institution who are just looking at a pure fixed income replacement. But I do think over time, these things will evolve. I mean, if you think about the evolution of alternatives, they really started at the highest level with, you know, private equity and real estate private equity. And over time, within institutions have also migrated into infrastructure and real estate and performing credit, you know, non-investment grade, now investment grade. I would guess as alternatives mature over time and they are more and more accepted, you will see a similar path. It may not happen overnight, but they will not just think about, I am going to do an alternative just because I am going to get a double-digit return. I think people will begin to recognize the benefit of premium return over what I can get in liquid markets. But as it relates to fixed income, investment-grade fixed income today, it is not there yet. Operator: Thank you. We will take our final question from Crispin Love with Piper Sandler. Crispin Love: Thank you. Good morning, everyone. You announced the BREIT bonus shares early in the quarter. It is not huge, but first, how is the uptake on that special so far? And then was that driven by your opportunity to deploy capital in real estate? And then where are you most focused in that area for deployment? And then also just separately, how are your institutional investors in real estate? Is the interest improving, noticing a shift in sentiment? Thank you. Jonathan Gray: Well, I would definitely say that the institutional owners are much more open to hearing about real estate than they were, let's say, two years ago. That sentiment is starting to shift and getting better. On the individual side, we have seen some uptick in BREIT over the last year, but it has been modest. The motivation for the bonus shares was really about attracting more capital to invest into what we think will be a very favorable environment. We did have in December the best net flows in the BREIT that we have seen in more than three years. So but but at this point, I think it is still too early to see what the reaction is going to be. I think the key thing with BREIT, as with all these products, will be performance. So the fact that we posted something at 8.1% last year, which was well better than the public markets, well better than other private REITs, is important. We have got to continue to consistently deliver strong performance. I believe if we do that, we will begin to see the flows pick up in BREIT over time. Operator: Thank you. With no additional questions in queue, I would like to turn the call back over to Weston Tucker for any additional or closing remarks. Weston Tucker: Great. Thanks, everyone, for joining us today, and look forward to following up after the call. Jonathan Gray: Goodbye.
Operator: Good morning, and thank you for joining Quálitas' Fourth Quarter and Full Year 2025 Earnings Call. I will pass the call over to Jorge Pérez, Quálitas' IRO. Jorge Pérez: Good morning, and thank you for joining Quálitas Fourth Quarter and Full Year 2025 Earnings Call. I'm Jorge Pérez, Quálitas IRO. Joining me today are Jose Antonio Correa, our Executive President; Bernardo Risoul, our CEO; and Roberto Araujo, our CFO. Before we begin, please note that information discussed on today's call may include forward-looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today's call. Quálitas undertakes no obligation to publicly update or revise any forward-looking statements whether because of new information, future events or otherwise. With that, I will now turn the call over to Jose Antonio, our Executive President, for his remarks. Jose Correa Etchegaray: Thank you, Jorge. Good morning, everyone. It's great to be with you once again, and let me begin by wishing you all the very best for the year ahead. 2025 proved to be a year of strong performance alongside notable regulatory changes for Quálitas and for the insurance industry as a whole. As we review our results, we would like to highlight several key developments, and I would like to begin by formally recognizing the commitment of our agents, policyholders and employees, whose efforts enabled a strong full year performance amid a challenging macroeconomic environment. This strong execution continues to be clearly reflected in our industry's positioning and operating metrics. For example, according to the latest AMIS figures, as of September, Quálitas remains the clear market leader with 32.7% market share in written premiums and 35.9% in earned premiums. Furthermore, Quálitas accounted for 45.9% of the industry's total operating income, while posting the best combined ratio among the top 5 companies. I am glad of the 2025 results once everything is considered, which includes the VAT regulatory changes and its effects in P&L for the year. In 2025, our top line grew 9.4% despite pricing pressures and a challenging macroeconomic environment. Profit wise, net income was above MXN 5 billion, and we delivered an ROE above 20%, consistent with our long-term target. Bernardo and Roberto will provide further detail in a few minutes. To provide a broader perspective, in the last 4 years, Quálitas has doubled the size of the business, driven by our differentiated business model. Additionally, in 2025, Quálitas surpassed 6.1 million insured units, adding more than 335,000 units and representing 5.8% increase versus 2024, achieving a 10% compounded annual growth rate over the last 5 years. Looking ahead, we expect 2026 to be a complex operating environment, but Quálitas remains well positioned to excel driven by our disciplined execution towards our 3-pillar strategy. Thus, we are confident Quálitas will continue in delivering another year of solid results and value creation. Aligned with this long-term perspective on our commitment to sustainability, I would like to briefly revisit the leadership transition we announced last quarter, which reflects a well-structured internal succession plan, aimed at strengthening our governance and ensuring strategic and cultural continuity. As I transition from my role as CEO to Executive President, I do so with unshakable confidence in Bernardo Risoul, who has assumed the role of Chief Executive Officer on January 1, 2026. Since joining Quálitas in early 2019 as CFO and later serving as International CEO and Deputy CEO, Bernardo has consistently demonstrated a strong leadership, deep knowledge of our business and a clear alignment with our values and long-term purpose-driven vision. I am very proud of this transition and confident that Bernardo is the right leader for the next phase of Quálitas. From my new role, I look forward to continuing to support him and the management team as we remain focused on creating sustainable value for all stakeholders. And with this in mind, I would like now to hand it over to our new CEO, Bernardo. Please go ahead. Bernardo Risoul Salas: Thank you, Jose Antonio, and good morning, everyone. It is an honor to be back on these calls under the new role from which I will devote myself to build a strong organization that focuses on creating value to policyholders to agents, investors and our communities. I would like to begin by thanking Jose Antonio for his leadership, guidance and continued support as Executive President of Quálitas, as well as to the Board of Directors for their confidence in me. Having had the opportunity to serve the company in different roles over the past several years, I stepped into this position with a deep understanding of our business, our culture and the responsibility we have to our stakeholders. I am proud to be part of a great team, I am confident in our ability to continue delivering sustainable growth and long-term value, and I am certainly energized to lead the way into an exciting and promising future. With that, let me turn to some high-level notes regarding the current market dynamics, including the latest regulatory topics regarding sales tax or VAT. In terms of Mexico car sales, according to the Association of Auto Distributors, AMDA, new vehicle sales in 2025 were broadly flat, deaccelerating versus prior years. At the same time, the competitive environment became more aggressive with pricing pressure across certain segments as players sought to attract volume and behavior historically linked to healthier combined indexes. Against that backdrop, we see a focus on our underwriting discipline and service execution, prioritizing adequate pricing, portfolio quality and long-term profitability over short-term market share. Related to service, our core differentiator, I am glad to share that in 2025, NPS across all measured variables and service APIs improved versus prior years, being the highest since we started measuring them. This approach is at the heart of why Quálitas continues to deliver consistent performance through different market cycles. Now let me move to another key topic, the VAT legislation that was approved under the 2026 revenue law. We continue to refine the implementation of this new process in close coordination with the authorities, emphasizing that the resolution reached while representing an important financial impact in 2025 and beyond, has provided certainty and clarity, bringing to closure a relevant matter for the whole insurance industry. As part of this resolution, we reflected the full 2025 VAT impact in our fourth quarter and full year results. Despite this, we acknowledge that 2026 will be a transition year in which we will continue to navigate through these changes, digesting effects of policies issued with technical models that had not incorporated this new cost dynamic. Roberto will provide further details on the specific figures later on this call. With this topic behind us and supported by the strength of Quálitas and the dedication of our team, we're moving forward from a position of strength into 2026, which, as mentioned, will be a year of transition for the company. Quálitas is well positioned to overcome the impact of these new roles through the proving agility, adaptability and resilience of our business model. Changing gears into another key strategic matter, I want to highlight the progress made in our U.S. subsidiary where the outlook has improved meaningfully, as we execute changes in our model. Specifically, in addition to domestic program exit back in 2021, as of January 1, we will no longer underwrite commercial cross-border serving now our binational customers through a partnership. As a result of this, our U.S. operation will focus on properly managing the runoff of both programs and continue building a binational PPA winning proposition. We have resized the organization to operate more efficiently. We are all focused on committed to this new path that better aligns with our strength and potential to create value. With that context in mind, let me now share a few highlights of our 2025 full year performance. We delivered record annual written premiums of MXN 75.8 billion, underscoring the strength and consistency of our business. Top line growth was in line with our expectations, reaching 9.4% for the full year, despite significant pricing pressure. We maintain a sustainable loss ratio, resulting in a combined ratio of 94.1% or 90.6% when excluding VAT impact, outperforming our 92% to 94% long-term target. On the investment side, our well-managed portfolio in which we had increased duration led to another year of strong financial income despite interest rates easing faster than expected. The trifecta of strong top line, solid operating and financial results led to a net income of MXN 5.1 billion and 12-month ROE of 20.2%. All this, again, despite the VAT impact. During 2025, Quálitas continued to advance on each of the 3 pillars of our corporate strategy, aimed at strengthening the business and driving sustainable mid- to long-term growth. For example, operating with excellence and maintaining service as the core of our model. In 2025, our call center delivered meaningful improvements, handling 3.3 million calls, while reducing average response time from 6 to 5 seconds, enabling faster assistance when it matters the most at the first moment of truth. These operational gains translating into a 95% customer satisfaction rate above prior year's level, reinforcing our commitment to continuous improvement, efficiency, and best-in-class service. Talking about accelerating our international expansion, we continue to scale our Colombia business, delivering strong results and in less than a year, closing with 1,200 agents, more than 9,500 insured units and 15 offices across the country, all exceeding our initial projections. We expect this growth trajectory to continue into 2026, positioning Colombia as an increasingly important contributor to Quálitas long-term growth strategy. Beyond international markets, we're also deepening our tech capabilities. In 2025, we've made progress in leveraging AI to unlock the value from our data assets and together with our technology subsidiary, DCT, strengthen our value proposition by delivering more targeted solutions and value-added services, including enhancing our risk prevention programs. Delivering the above-mentioned results, seeding the future projects and strengthening our organization in a year that had particularly unprecedented challenges across so many vectors is a true testimony of what Quálitas is able to do. A praise to everyone who made it possible, which is also the source of our optimism towards the future. I recognize 2026 will not be an easy ride. We acknowledge the reality we face, but we'll never surrender to it. We have the capabilities. We have the tools and most importantly, the team and the determination to capture the opportunities that are out there. I remain confident that Quálitas is well set to outstand and continue creating value. And with that, I will hand it over to Roberto for a deeper dive into our quarter and full year financial performance. Roberto Balderas: Thank you, Bernardo, and good morning, everyone. Our fourth quarter and full year results reflect the strength of our strategy by delivering solid top line growth, disciplined underwriting, a resilient investment portfolio and a combined ratio at the upper end of our long-term target range. Let me walk you through the details. Starting with top line performance. Written premiums grew 6.4% in the quarter and 9.4% for the full year. In Mexico, the traditional segment accounted for approximately 62.7% of total written premiums, decreasing 3.7% in the quarter and improving 2.8% for the full year. From this segment, the individual business decreased 0.2% in the quarter with growth of 7.7% for the full year, while the fleet business decreased 7.2% and 3.2%, respectively. This performance reflects our deliberate pricing downwards adjustments prior VAT resolution, while supporting our long-term profitability, which were partially offset by the continued growth in the insured units as customers continue to choose Quálitas for our differentiated service offering amid pricing pressure. Moving to the financial institution segment. This represented approximately 33% of total written premiums. Growing 29.4% in the quarter and 24.6% for the full year. This strong performance was achieved despite the slowdown in new vehicle sales across the industry. Growth was supported by continued shift in customer preference toward larger vehicles, such as SUVs and pickups, which carried higher average premium, as well as higher mix of multi-annual policies and increased market share with key financial institutions. As reported, our international subsidiaries contributed 5% of the total written premiums full year. Across Latin America, subsidiaries posted a strong growth, with 16.6% in the quarter and 31.2% for the full year. Each quarter, we continue to reach important milestones across our international footprint. In Peru, written premiums grew 28.1% in the quarter and 34.1% for the full year, reaching a market share of 7.5% and continuing to outperform the competition. In Colombia, our newest subsidiary, as Bernardo already highlighted, we exceeded our first year business target objectives. Laying a strong foundation for a scalable and sustainable long-term growth. In the U.S., as expected from our strategy to reshape our business, premiums decreased by 15.2% in 2025. The new strategic partnership for our cross-border business will help us deliver a healthier financial business into our U.S. operation, while providing Quálitas policyholders with the highest standard of service. Overall, insured units closed the quarter at 6.1 million, representing a 5.8% year-over-year volume growth. Back to our financials. Earned premiums increased 8.5% in the quarter and 13.1% for the full year, more in line with our expectations, reflecting the effect of research movement in accordance with a more stable top line growth pace. During the quarter, we constituted reserves of MXN 4.2 billion, basically in line with the same period a year ago. Full year reserves constitution totaled MXN 6.4 billion. As a reminder, technical research constitution is based on approved regulatory models and it speaks to the corresponding premiums growth, consistent with our expectations earned premiums are growing at a faster rate than written premiums being able to capitalize accelerated growth from past periods, as well as the benefit from lower claims costs. Moving down to our costs. Our loss ratio stood at 77% in the quarter, reflecting the full year onetime VAT impact recognized in the period. Excluding this effect, the loss ratio would have been at 63.6%. Still, on a full year basis, the loss ratio closed at 65.7%, improving by 40 basis points year-over-year. highlighting the effectiveness of our cost discipline and a business model, even under recent regulatory changes. Excluding the VAT effect, the loss ratio would have been 62.2% for the year. In Mexico, the loss ratio was 77.8% for the quarter and 64.5% for the full year, up 14.6 percentage points and 10 basis points, respectively. Again, the quarterly increase primarily reflects the full recognition of the 2025 VAT impact. On thefts, full year cases decreased 11% for Quálitas, despite having more insured units becoming an important building block for our claims cost performance. These results follow the historic annual seasonality where the first year of administration, we see reductions of thefts and are coupled with internal efforts on theft provision and recovery. On the latter, Quálitas recovery rate stands at 43.6%, 100 basis points above the rest of the industry and improving versus last year. We continue enhancing our technology tools and coordination with suppliers and authorities to reduce costs and improve our efficiency. Frequency on a 12-month basis stood at 27.4%, an improvement of 80 basis points compared to the prior year. On a quarterly basis, frequency decreased by 30 basis points versus fourth quarter '24, reflecting the continuing improvements in risk prevention and driving behavior. The acquisition ratio stood at 22% in the quarter and 23.1% full year, about 70 basis points and 120 basis points higher than last year, respectively, driven by the stronger growth in the financial institution segment, which carries higher commissions. The operating ratio was 3.6% for the quarter and 5.3% full year, including profit sharing, given the positive performance of our company. As a result, we also had an increase in fees paid to service offices and corporate bonuses that are linked as well to their successful performance during the period, aligning productivity and cost control efficiencies towards the positive results of Quálitas. If we were to exclude employees profit sharing from this provision, that by law must be incorporated, our operating expense ratio would have stood at 4.4% full year. Altogether, this resulted in a combined ratio of 102.6% in the quarter and 94.1% for the full year. Excluding the onetime VAT impact, the normalized combined ratio would have been 89.3% for the quarter and 90.6% for the full year, fully delivering on our commitment and confirming the discipline of our business strategy. On the financial side of the business, comprehensive financial income decreased by 21.3% in the quarter, while growing 3.6% on the full year basis, highlighting how resilient our investment strategy is even amid lower interest rate throughout the year. Our portfolio totaling MXN 53.2 billion remains 86.5% in fixed income with an average duration of 2.3 years and a yield to maturity of 8.4%. For the Mexican subsidiary, the yield stands at 9%. The rest of our portfolio allocated in equity has remained resilient from the market performance during the full year. For example, the S&P 500 stumbled in the first quarter of the year, still, a 16.4% return was observed in 2025, setting a positive tone as markets head into 2026. All our investment assets are classified as available for sale, meaning their unrealized gains or losses are reflected in the balance sheet until realized. Our investment strategy has not had any relevant changes in 2025. We have strived to bring our fixed income duration slightly higher than 2 years as our reference rates remain in the mid- to high single digits in Mexico. Following the guidelines, advisory and a strategy decided by our investment committee as part of our institutionalized corporate coverage. Total comprehensive financial income was MXN 1.2 billion in the quarter, and MXN 5.1 billion full year, delivering 8.1% and 8.7% ROI, respectively. Total unrealized gains are in the magnitude of MXN 2 billion, including FX, considering a 14% peso valuation during the year. These unrealized gains reflect both mark-to-market revaluation of our fixed income portfolio as rates began to ease, as well as gains in equities. When considering all mark-to-market positions, ROI would be 7.2% for the quarter and 10.9% for the year. This reinforces the importance of our available for sale accounting treatment in which valuation effects remain on the balance sheet until realized, but the expanded cushion of our capital base and highlight the embedded value within our portfolio. As interest rates continue their downward trajectory. These gains are likely to remain a relevant driver of our financial results. Approximately 22% of our portfolio is invested in U.S. dollars, given our international presence. For every peso that appreciate or depreciates, the estimated annual impact is around MXN 675 million, service as a natural hedge. Our effective tax rate for the quarter was distorted by the full year VAT impact in the period, while for the full year, the effective tax rate was 31%, in line with our historical trends. Net income closed at a loss of MXN 190 million in the quarter and MXN 5.1 billion net income for the full year with a net margin of 6.7% full year. As anticipated by Bernardo, our 12-month ROE despite VAT impact stands at 20.2%, in line with our long-term target of 20% to 25%. Our regulatory capital stood at MXN 6.1 billion with a solvency margin of MXN 16.1 billion, equivalent to a solvency ratio of 362%. Our 12-month earned premium to capital ratio is 2.7x. We maintain a strong capital position that allow us to invest strategically to continue improving customer service and experience through innovation and technology, while reinforcing our core capabilities. Our approach remains disciplined and selective, always with the goal of delivering long-term sustainable value to our shareholders. Dividend distribution will remain a core element of our capital allocation framework. While the final decisions rest with the AGM from a management perspective, we expect the upcoming dividend to fall within our policy range of 40% to 90%. In summary, we had a solid 2025, and we're very pleased with our underlying business performance. As the industry moves through the claims cycle and competition remains intense, our disciplined execution and resilient operating model continued to set Quálitas apart. Looking ahead, our priorities for 2026 are clear. We will focus on restoring our combined ratio in Mexico to our target ranges through disciplined pricing and cost initiatives, strengthening claims and service capabilities to further differentiate our value proposition, accelerating innovation, digital transformation and new product development as well as reinforcing our culture and organizational discipline to sustain productivity and execution. We're taking the needed decisions to deliver short-term results, but never at the expense of long-term value. We believe these priorities will allow us to further strengthen our competitive position. enhanced profitability and continue creating long-term value for our shareholders, customers and employees. We are excited about what lies ahead and remain fully committed to disciplined execution and sustainable growth. Now before moving to the Q&A session, let me provide you with some color on what we could expect for next year's performance. reiterating that since a few years back, we do not disclose a formal guidance or targets, but rather some overall expectations. Top line growth momentum is expected to be at a slower pace, following the projections the new car sales growth from the Mexican Association of Auto distributors, AMDA, which is forecasted to be between 0.2% and 2%, Written premiums are expected to continue to grow in the high single digits to low double with earned premiums growing a few points ahead. Regarding the loss ratio, we expect results to be in the higher end or slightly above our technical range objective of 62% to 65% and to normalize over the course of the year, as we continue making progress toward absorbing the VAT impact. We do expect first quarter and even half of the year to be above target given the impact of both 2026 claims at a higher cost and those incurred in 2025, not yet paid, with pricing and cost-saving plans to partially mitigate due to its annual nature. The acquisition ratio and operating ratio should continue within its historical levels with no major changes. The above metrics should lead to a combined ratio at the upper end of our long-term target range of 92% to 94% or slightly higher. Finally, we expect our financial performance to be consistent to the results posted in 2025 given our fixed income duration strategy. Discipline in execution and a culture of service excellence remains the foundation of Quálitas. These strengths enable us to navigate a 2025 regulatory changes with clarity and effectiveness. Throughout the year, Quálitas led the industry, both operationally and financially, while consistently delivering best-in-class service to our policyholders and agents. This disciplined execution reinforces the strength of our operating model and our ability to perform across cycles. We invite you to be part of our long-term vision, grounded in the resilience of the company that has demonstrated across multiple cycles and environments over the past 31 years. I am highly optimistic about what lies ahead for Quálitas and our customers. And I'm confident that our focused strategy will continue to drive meaningful value creation for our shareholders in the years to come. And now operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Tiago Binsfeld from Goldman Sachs. Tiago Binsfeld: I just wanted to double click on the financial income expectations. You're coming off a pretty good quarter, pretty good year as well, very resilient despite lower rates. When you look forward and your message on consistent year-over-year growth, does that mean that you can deliver the same nominal level of results in 2026? And to get there, would you need to realize any portion of your unrealized gains that you currently have in your balance sheet? Or just the rollover of the fixed income portfolio would get you there? Bernardo Risoul Salas: Tiago, thank you for your question and always good to have you joining this call. Let me just highlight that from an investment standpoint, our strategy has not changed. We will continue to focus on fixed investments, which should account somewhere in the 80% to 85% and the balance will continue to be invested in equities, mostly ETFs that stand outside of Mexico. With that consideration and recognizing that interest rates have gone down significantly, when we say consistent, it's about consistency in the way we invest, not necessarily the amount we expect. We should expect that absolute returns on the portfolio can be lower than 2025, but we will continue to stay ahead reference rates. And the reason why is, again, that we increased the duration of our portfolio, fixed rate, and it currently stands on around 2.3 years. And that is giving us the benefit of extending the rates, the yield to maturity, which currently stands at 8.4% relative to Mexico set that are now to 7%. So specifically to your question, financial income will likely be below in absolute terms, but will continue to be outstanding or above reference rates. Operator: Our next question comes from Pablo Ordóñez at GBM. Pablo Ordóñez Peniche: On your expectations for 2026, I was wondering if you can help us to give us more color on the top line outlook by segment. What do you expect in terms of the traditional business? We saw some deceleration in the quarter. Financial institutions remain solid and banks continue to guide towards mid-teens level growth in terms of that side of the business. And the fleets, how do you see the competitive environment evolving? And the second question related to this is how should this affect the acquisition ratio? Something that surprised us in the quarter is that the acquisition ratio was 22%, and we have seen higher levels in the previous 2 quarters, driven by the higher growth in financial institutions. And finally, it seems that despite 2026 being a transition year, ROE could remain at 20%. Would you agree with this view? That would be my questions. Bernardo Risoul Salas: Thank you, Pablo. And let me take a piece of your question and then hand it over to Roberto. And I'll give you a broader answer on 2026 expectations. You all know Quálitas, it is never easy to come up with an exact forward-looking figures, so we'll not spend a lot of time on that. But we always have some guidance and color. And especially at current times, we saw high degree of uncertainty across so many angles, tariffs, exchange rate, it is hard to be able to come up with some exact numbers. So please take it as directionally. And as it was broadly said, top line should be in the high single to low double digits. And to your question on how do we break it down? I think individual will continue to be the broad and stronghold of the company. We want to continue building a portfolio of individual policies, which historically have been more resilient, easier to change prices given their annual nature. Now second line of business, which relates to fleets. We had a good year in terms of number of units, but a decrease in terms of premiums because of their positive results on claim cost which ended up being renewed at a lower premium levels. We do expect fleets to come up with a strong growth, but we also expect fleets to be highly influenced by pricing given the nature of its business. And when it comes to financial institutions, we were all flatly surprised by the outcome of this niche. We will continue to grow, but expect it to be on a more moderate pace compared to 2025, mainly driven by average premium price increases and again, following last year's strong expansions. Now let me just take this opportunity to continue building on some perspective of 2026. Our combined indexes, as I said, should be in the upper range or slightly above our ongoing targets and the financial portfolio we've already addressed. ROEs could be a 20% or slightly below. And we also want to highlight that the behavior on a quarterly basis will come up different to prior years. First quarter combined indexes will be stressed by the impact of the VAT on new claims in addition to the payments made of prior claims, specifically last quarter of 2025. And all that with the impact of pricing and savings that are already implemented but will take time to fully reflect. Do we have a shot of ROEs or at 20%? We certainly do. I think that will continue to be our goal. And there's a lot of things that can go better. Industry recovery can go faster. Industrial investment can pick up. It all depends on GDP and our ability as a country to come up with new terms on the U.S. agreements. The peso strength that has surprised us is expected to have a benefit of spare part cost, but we are still yet to see on how fast that happens. It could be also a result of responsible competitor behavior, the performance on non-Mexico auto subsidiaries or faster benefit of our already implemented saving plans. So there's a lot of things in the pipeline that can lead us to have another year of strong performance, top and bottom line, but I think it's fair to recognize that we're dealing with unprecedented challenges, probably the biggest one we have had as an industry. And Quálitas once again is set to prove its agility and resilience. I did give you a longer perspective on your question, but I think it was worth to use this opportunity to give you a broader perspective on the expectation and the things that can go better to once again outstand. Roberto, why don't you take the second piece on the question on the acquisition ratio expectations. Roberto Balderas: Yes. Thank you, Pablo. Thank you for joining us. On particularly on 2025, you're right. I think the big driver of the increase on acquisition cost is mainly by mix. As Bernardo alluded, we are increasing double digits on the financial institutions. So that has a higher commission rate. And when we think about the expectations for 2026, as long as that mix continues and depending on how that mix that Bernardo just mentioned, that will continue to be stable or actually improving the mix depending on how it comes up in 2026. So I hope that answers your question. Operator: Our next question comes from Guilherme Grespan at JPMorgan. Guilherme Grespan: My question is also a follow-up on financial results and investments. Just want to confirm, you have roughly 15% of the portfolio in equities. I want to confirm if it's basically TF on S&P on U.S. equities. And you also have international bonds, I think, another 15%. I want to confirm if it's U.S. or ex U.S. And then the main point of the question is actually on the balance sheet. Just want to confirm a few as well. How you book the USD changes. There is a -- there was a big movement on translation effect in the equity. I imagine this is related to the FX conversion of those investments, but I'm not sure if it's booked on this translation line or if it's on the valuation purposes of the investments? So just the moving parts on the FX and how this is going to impact either the P&L or balance sheet on the financial results side. Bernardo Risoul Salas: Hello Guilherme. Let me take the first question, the first part of your question regarding the investment portfolio. Yes, it's around 15% on equities. That includes both ETFs that are U.S. mostly based, but they do have some participation of global equities. We can share later on the split between global equities, ETFs and U.S.-based ETFs. I think that part of the strategy that has worked, and it was lined up that way from the investment committee is to have a more diversified portfolio, and that is one of the reasons why we have decided not to fully have placed the ETFs on U.S. business only. That portion of the 15% includes as well FIBRA, which is the only thing that we have when it comes to Mexico exposure equities. Now we do not expect to increase significantly that. We've always moved it between the 15% to 20% equities. So depending on how the market is perceived, we could see some shifts, but not necessarily intentionally to drive up that percentage. Roberto, do you want to take up the question on FX? Roberto Balderas: On the translation effect, you're right, it has to do with the U.S. and what we see is in the [indiscernible] effect on quick. It also has been reflected on that portion. So we can actually go offline and take it a little bit deeper when we have some time to go through the details. But yes, it has to do with what you have mentioned. Bernardo Risoul Salas: Just to give you the exact 2/3 of our ETFs are global ETFs and 1/3 is directly S&P 500. Operator: Our next question comes from Thiago Paura. Please state your company name and then ask your question. Thiago Paura Mascarenhas: Just a few ones on my side, if I may. And the first one is a bit of a follow-up on the -- on some of the latest questions. Just to clarify, is there still any VAT impact from 2025 to be booked in 2026? Because I'm just trying to understand why in your soft guidance, you expect the combined ratio for this year to be at or even above the top end of the range. And in this case, potentially higher than the combined ratio of 2025 despite the repricing initiatives planned for this year. Because in theory, the way I see is that 2025 absorb all full year cost pressure in Q4 with somewhat limited price pass-through and you still was able to deliver a 94% combined ratio. So I tend to believe that 2026 should be structurally better, right? Because there is some kind of reprice initiatives that goes throughout the year just to try to be more clear here, understanding these dynamics for this year to come. And also to assess if you plan to do any other initiatives on top of repricing to help to offset this higher cost pressure going forward? Jose Correa Etchegaray: Thank you, Thiago. This is Jose Antonio. Just let me -- before Roberto answers, just let me tell you that, yes, we have taken the full impact of the 2025 VAT as indicated by the regulation. But there's something that you need to acknowledge, and that is the way how pricing is really built over a period of time. It is not immediate. I mean, we immediately change whatever we have to change in terms of tariffs, which includes inflation and many variables, including part of the VAT. But some of the underwriting that had already taken place in 2025, which will be effective in 2026, will not be able to get a benefit of the increases in price. It will gradually be that. So we expect that in the first half of the year, it will probably will be a little bit higher the amount of the all the combined index and the loss ratio because of that. It takes time. As you know, a lot of our portfolio includes for all the individual businesses is really on a year. So everything that has already been written in 2025 that will have an impact in 2026. But that's why there's going to be a delay impact, which is naturally in our business on the price increases that we are having. This is important to say. Clearly, the VAT, let me tell you also that this VAT thing, which is an industry-wide stock, really provides clarity and certainty on some topic that for the whole industry and in Quálitas in particular, potentially had a significant impact. So that's already solved. Now for the second part of your question, let me Roberto answer that part, Thiago. Roberto Balderas: Thiago, thanks for the question. Just to complement on what Jose Antonio was mentioning, I think there are 2 phases, right? So what we did recognize in 2025 is what it was determined and paid during 2025 for those claims. So those -- that credited that should not be credited, that's the recognition in 2025. For those that have occurred in 2025, but have not been finalized, determined or paid, that's the impact that Jose Antonio was alluding in 2026. So that -- there is a still a second piece of that portion of it. On top of that, when you think about how we are accruing and reserving for those -- given that, that VAT is no longer credited, there is an additional portion that it will be impact on the new claims that are originating on 2026. So that double hit is what we are going to be experiencing particularly on the early quarters of the year. And as we are taking actions, that will be starting to mitigate throughout the year of the -- given the annual nature of our policies. So that's going to be phasing out through the year. That's why early in 2026, we should expect to be even slightly higher or higher than our targets in loss ratios, but over the course of the year, we'll be getting back and closer to our ranges. That's a little bit more details on how we are thinking about it. And again, think about the -- also the multi-annual business, right? So given the rates and the tariffs that were prior to the VAT regulation that will stick. So it will take some time to digest that. Now that's the reality of our business. The good news, I'm going back to what we've been communicating is that we now have a clarity and confidence on how the rules are being established. And now we already had a very clear strategy on how to go about different tactics or strategies to mitigate those. And some of those examples is by leveraging, obviously, certainly pricing on average premium pricing. But there are other components to that equation. We've been mentioning our vertical integration capabilities. Some of those efficiencies, obviously, the work that we continuously do on risk prevention programs, that's -- all of those will help us on really absorbing that and not necessarily passing that through to our customers, but rather to really digesting and ensuring that we have a long sustainable business over time. Bernardo Risoul Salas: And Thiago, we have a long list. Just last Monday, we had a full-day session multifunctionally to review the priorities for the year, to review all the projects that would help us offset the cost impact. But one thing that is important is that we will not jeopardize service experience and value creation for short-term savings. We're managing this business for the long run. We've done so over the past 30 years, and we will continue to do so. So we need to ensure that the benefits of any decision outweighs the service impact. Operator: Our next question comes from Carlos Gomez-Lopez at HSBC. Carlos Gomez-Lopez: The first one refers to pricing. And again, we go back to the same thing. If we understand correctly, you have to take on the cost of the VAT. That is what is making your claims ratio higher and you do not expect to compensate for that. Initially, you expect to do it over the year. We understand that. But in addition to that, what is the competitive environment right now? I mean, in the past, you have said that in some lines, you are starting to see pricing go down. After this agreement with VAT, are you still seeing competition? Or has that eased? And then slightly -- taxes, could you confirm expected tax rate, I think you said 30%, 31%. Finally, you are talking about an ROE that could be up to 20%. When I look at the consensus right now, they are close to MXN 6.5 billion. So probably that sounds too high compared to what you are saying. Roberto Balderas: Carlos. Let me take a few of those comments and questions. So on the competitive environment, I think what we have 2 realities, but that doesn't necessarily going to be changing in the future. So one is prior VAT and then the post-VAT. What we've been communicating over the course of 2025 is that we did experience pricing pressures, particularly on the fleet segments, and as well as we're starting to see that in the individual business. Now that the new regulation kicked in, when we've been discussing and goes back to your first point on pricing is the dynamic will start moving on a different dynamic just because of everything that we've been talking on the loss ratio dynamics on the VAT credit. So what we should experience is a more intense competition, but in a higher level. Hopefully, that will bring a little bit of the average premium going up, but still, there are going to be some competition depending on how all the different players see their efficiencies and being able to compete for the customers and the policies. On the taxes front, we did close the year on 31%. We do expect for 2026 to start going slightly lower than that tax rate, that's on a historical levels. Just because we will be able to be -- able to apply many of those provisions, and that will hopefully get those deductibility on the corporate tax. So that should be a good expectation to 2026. With that, let me get back to Jose Antonio so that he can complement as well. Jose Correa Etchegaray: Well, thank you, Carlos. Let me tell you first regarding the competitive environment. As Roberto indicated, it continues to be tough. Now let me tell you that we are now entering into -- it has been accelerated. This VAT situation has accelerated the change in the cycle of the insurance cycle. As we have had increasingly better loss ratios and combined ratios for -- not only for Quálitas who was leading, but for the industry as a whole. The VAT changes that and now it changes and goes back to the standard cycle that we have had 3 or 4 cycles over the past 15 or 16 years. So this will change, and we will need to see what happens with the reactions of all the competition in here. But clearly, it is a change in that. Now regarding the ROE, it is important, and Bernardo also mentioned that, that we don't manage the company on a quarter-by-quarter basis. We manage for -- and we do the things for the long-term. And that's because we want to create sustainable value, and that is on a long-term basis. So while we might have some changes. And as Roberto indicated, in the first half of the year, we will be pressured in terms of the loss ratio and consequently into the combined ratio. Clearly, in the end, that will have an impact into the ROE for the year. But still, we aim to get into this 20%, which we have been able to achieve in the past. And we don't forecast exactly what it's going to be, but we are going to be close probably, and we are aiming to do that. And it will depend on how fast we get into some of the savings and the structural costs that we are taking to compensate also for this VAT impact. I hope Carlos, this answers your question. Bernardo Risoul Salas: And to wrap it up, Carlos, ROE continues and will continue to be a key performance metric for management. We're not walking away from our long-term 20% plus on ROE desirable target. But again, we recognize that 2026 will be another transition year. So even if we're not there at the 20%, we should be close to it. And long-term, we will strive for it. Carlos Gomez-Lopez: That's very clear. Now related to the ROE, if I may add, your capital -- your solvency ratio declined slightly to 350. Should we expect a reversal to the 400 that you have posted in the past? Jose Correa Etchegaray: Carlos, obviously, the reduction of that for MXN 401 million to MXN 362 million has to do with the recognition of the VAT liability. So that actually, I just want to mention that, that continues to be a strong capital structure that just highlights what we are talking about. But we do believe, depending on the results of how those movements are and also how the dividend policy and the final dividend comes in the next year, that will play out and how the margin will remain. Operator: We have time for one last question today. We will hand it over to Ernesto Gabilondo at Bank of America. Ernesto María Gabilondo Márquez: My first question will be on your policy pricing strategy. So during the quarter, we saw year-over-year contractions in the traditional business and fleets. Also, we have been going into different auto agencies, and there are a lot of promotions, discounts, reflecting what you were saying from the AMDA expectations that there will be low activity in the sale of new cars. And on top of that, last December, the Mexican government increased tariffs into autos and auto parts. So this, together with the VAT impact would have an impact in the demand of premiums. And I remember that around 20% of your total policies are multiannual. So I just wanted to like to pick up your brains and understand how do you want to mitigate those headwinds? Of course, one will come from pricing. How much pricing can we expect or higher prices in 2026 to mitigate that impact? And also, what will be the strategy to return the traditional and fleet businesses into year-over-year growth within a context in which we are seeing probably more competition? And also, if you can give us like some color if this competition could come from large players or small players willing to sacrifice profitability to take market share? And then just a last question on your guidance. So we put everything together, your double-digit earned premium, a combined ratio of 92%, 94% and consistent financial results. This is putting us into practically no recurring earnings growth considering that the VAT of 2025 was only onetime. So I just wanted to double check if that is a reasonable assumption. Bernardo Risoul Salas: I'll take out the first related to pricing. And let me just stand a little bit back and say everything starts with our combined ratio target, which aims to be at the 92% to 94% -- from there on, we look at saving opportunities. Obviously, we also look at pricing. And in terms of policy pricing, what we are expecting, and we have already taken some steps regarding increases is to rate increase around 6% to 8%. Now that will -- that is going to come on top of decreases that we have made during 2025 as a result of combined ratio performance. Therefore, if you're renewing as an individual policyholder, your policy in the next months, your net increase could be close to local inflation, let's say, anywhere between 3% and 5% -- now pricing, that's an average, but it depends on multifactors, as we have said in the past, and that continues to be one of the strongholds of Quálitas -- that's the way we do prices because we incorporate not only car value and type of usage, ZIP codes and several other factors that will come into the pricing decision. But I think just to move along, pricing will continue to be a key item on our commitment to deliver that combined ratio between 92% and 94%, but not as a stand-alone item. Jose Correa Etchegaray: And we will take the lead on that one as we have always done. Roberto Balderas: Ernesto, on how the competition is playing in terms of large business or key players, I would probably say, again, it goes back to in a case-by-case basis, right? So the way that we play and the way that we go through on pricing, we looked at every fleet, every case, whether it's small, medium or large, and we will go and look at their profitability, and we're targeting on our combined ratio accordingly. That's our underwriting discipline. Certainly, the big businesses and the large players will go after those, and we have seen this in 2025. And we will continue to see this in 2026. So that will continue to be a rule of the game. And what we have seen is where we see some space and align to our long-term profitability, we will certainly address whether we need to increase, maintain or decrease our pricing. On the second piece of your -- or the last piece of your question on the guidance, yes, I think that is a fair assumption to continue on keeping it at that same level given the transition that we've been talking about and looking at how 2026, but more importantly, how the long-term of those earnings will come back as we go through this transition and absorb the VAT regulation in 2026. Ernesto María Gabilondo Márquez: No, that's very helpful. Just a follow-up in terms of the pricing. You were saying it could be between already 6% to 8%, but in the new renewals, it could be around inflation, 3% to 5%. But what about, for example, the increase in tariffs that happened in December? Is that also already incorporated in the higher pricing that you're expecting for the year? Or is something that you will be evaluating depending on how you see the picture in the first, second quarter of this year? Bernardo Risoul Salas: Those effects are being considered together with some other, which include exchange rate. So I think when you put everything together, the 6% to 8%, which we have already taken should help us navigate through most of the impact. Again, only when you're talking about the pricing. Operator: This concludes today's conference call. Thank you all for participating, and have a pleasant day.
Operator: [Interpreted] Ladies and gentlemen, thank you for attending this conference call. We will now begin Hyundai Motor Company's Business Results Conference Call for the fourth quarter of 2025. Once again, the presentation material can be downloaded from the Financial Supervisory Services electronic disclosure system at dart.fss.or.kr or the IR website at www.hyundai.com. Joining us are EVP Seung Jo Lee, Head of Planning and Finance Division; EVP Zayong Koo, Head of IR Division; [ Harry Hyun ], Head of Finance Accounting Subdivision; Michael Yun, Head of IR Group; VP Hyungseok Lee, Head of Planning and Finance Division of Hyundai Capital. We will first have HMC's presentation on the business results followed by a Q&A session with the attending investors. [Operator Instructions] Now we'll proceed with the presentation by Michael Yun, Head of IR Group at HMC. Michael Yun: [Interpreted] Hello. This is Michael Yun, Head of IR Group. Welcome, everyone, to Hyundai Motor Company 2025 Q4 Business Results Conference Call. On behalf of Hyundai Motor Company, I appreciate your time for joining today's call. And please refer to the presentation, HMC 2025 Q4 business results on the IR website. The presentation includes quarterly key messages, sales performance and profit analysis. And for quarterly summarized cash flow statement and detailed regional sales breakdown, please refer to the appendix. First, Q4 key messages. Despite concerns over tariff impact and the resulting slowdown in demand, strong sales performance led to the highest fourth quarter revenue on record. Particularly in the U.S. market, we have achieved annual wholesale sales of 1 million units for the first time, driven by strong hybrid sales and a diversified SUV lineup. Finally, thanks to the robust hybrid sales in the U.S. market, the share of global hybrid sales recorded 16.3%. Next, the sales performance. In the fourth quarter of 2025, global wholesale sales recorded 1.03 million units, a decrease of 3.1% compared to the previous year. Retail sales recorded 1.07 million units, reflecting 0.2% decrease Y-o-Y. The annual wholesale decreased by 0.1% to 4.13 million units, while retail sales decreased by 1.6% to 4.1 million units. Next, I'll go over details about the increase or decrease in wholesale sales through key market summaries. In the U.S. market, sales increased 0.8% Y-o-Y, totaling 244,133 units. We continue to see strong sales performance of high-margin vehicles as hybrid sales accounted for a record high 22.6% of total sales, driven by new model effect of the Palisade hybrid and Genesis recorded the highest share of 8.9%. Sales of eco-friendly vehicles rose 29.2% Y-o-Y, reaching 70,503 units, driven by strong hybrid sales. In Europe, sales decreased 11.6%, totaling 138,152 units, revised EV incentive in key countries like Italy and France led to EV wholesale sales increase of 54.1% compared to the previous year. As we continue to expand our key EV lineup such as INSTER and IONIQ 9, our EV sales accounted for 18.4%. Sales of eco-friendly vehicles rose 12.1% Y-o-Y, reaching 62,078 units. In the domestic market, sales decreased by 6.3% Y-o-Y, totaling 177,496 units. Despite the reduced business days in the fourth quarter due to a holiday break, the new model effect of the Palisade, IONIQ 9 and NEXO led to a higher proportion of SUV sales. Sales of eco-friendly vehicles reached 62,189 units, a 1% Y-o-Y increase. Despite intensified competition from rival hybrid model launches, the new model effect of hybrid drove hybrid sales to grow 8.9%, reaching the share of 29%. Next, I will explain the sales analysis by vehicle type. Global SUV sales, including Genesis, totaled 638,149 units, accounting for 61.8% of total sales. Eco-friendly vehicle sales increased by 12.1% Y-o-Y, driven by hybrid sales growth in the U.S. market and expansion of EV sales in Europe. Despite the termination of EV subsidy programs in the U.S., EV sales rose 6.8% Y-o-Y, while hybrid sales continued to show strong momentum, growing 15.3% Y-o-Y. This concludes the discussion on sales, and now I will explain P&L. This page summarizes our income statement. Consolidated revenue increased by 0.5% Y-o-Y to KRW 46.8 trillion and operating income decreased by 39.9% Y-o-Y to KRW 1.7 trillion. The Automotive division's revenue increased by 2.4% Y-o-Y due to favorable FX environment and improved mix driven by hybrid and EV sales. The OP decreased by 49.7% Y-o-Y with tariff impact and increase in incentives. Revenue from finance division increased by 9.2% Y-o-Y due to interest rate cuts and FX fluctuations, while OP decreased by 2.7%. Net income decreased by 52.1% Y-o-Y to KRW 1.2 trillion. Next is quarterly revenue and operating income analysis. Revenue benefited from favorable FX rate contributing KRW 1.7 trillion, while decreased global wholesales resulted in negative volume effect of KRW 2 trillion. Additionally, regional mix improvement and sales expansion of hybrid and EV contributed to KRW 1.25 trillion. Despite the decline in the financial segment, total revenue rose 0.5% Y-o-Y. Despite the record high fourth quarter revenue, unfavorable business conditions negatively impacted our profitability, including the tariff impact and higher incentives driven by intensified competition in key markets. Although contingency plan partially offset tariff impact, OP decreased by 39.9% Y-o-Y. Our Q4 cost of goods sold ratio recorded 83.3%, a 2.8 percentage point increase Y-o-Y. SG&A recorded KRW 6.1 trillion, which is a 1.9% decrease compared to last year due to decrease of sales warranty provisions owing to quarter end exchange rate decrease. Finally, our net profit decreased by 52.1% to KRW 1.2 trillion. This concludes the presentation of the 2025 Q4 business results. Thank you. Next, EVP Seung Jo Lee, the Head of Planning and Finance Division, will assess the company's business results in Q4 and the annual guidance. Seung Jo Lee: [Interpreted] Good afternoon. This is EVP Seung Jo Lee, Head of the Finance Division. I will now present Hyundai Motor Company Q4 2025 business performance and Q4 dividend and shareholder return policies. First, revenue reached -- sorry, I'm going to share with you the performance of the fourth quarter and guidance status. Revenue reached KRW 46.8 trillion, marking a slight Y-o-Y increase, which was driven by an improved regional mix from increased North American exposure and higher EV and HEV sales. Although a weaker one offered favorable FX effect, operating profit declined by KRW 1.1 trillion Y-o-Y to around KRW 1.7 trillion due to ongoing U.S. tariff impact, lower sales volume resulting from fewer working days and increased incentives driven by intensifying regional competition. With the 15 tariff rate applied retroactively from November 1, tariff costs declined by KRW 360 billion Q-o-Q to KRW 1.46 trillion. However, the benefit of the tariff rate costs were limited due to the sales of inventory subject to a 25% tariff in Q4. Nevertheless, the company actively executed contingency measures, mitigating the negative tariff impact by around 60%. Additionally, shutdowns at European and Jeonju plants to accommodate new model launches led to an increase in fixed cost per unit, resulting in about KRW 200 billion. However, the sales momentum from upcoming new model launches is expected to enhance future business results. Next is 2025 guidance. This guidance was first announced at the fourth quarter 2024 earnings call, and this outlined wholesale of 4.17 million units, revenue growth of 3% to 4% and OPM of 7% to 8%. However, following the unforeseen U.S. tariff issue, the guidance was revised at the 2025 CEO Investor Day with the OPM target lowered by 1 percentage point to 6% to 7%. Despite an unfavorable external conditions, we presented an upward revision of the revenue growth, which was raised by 2 percentage points to 5% to 6%, driven by aggressive and flexible production and sales strategies. Due to geopolitical challenges and intensified market competition, total sales reached 4.138 million units, falling short of the target by 36,000 units. However, we achieved a history milestone by surpassing 1 million wholesale units in the U.S. market for the first time, driven by growing global demand and our diversified lineup, hybrid sales continued their strong momentum, rising about 28% Y-o-Y to 635,000 units, accounting for 15.3% of total sales. Despite the difficult environment as a result of our commitment to meeting the market communicated guidance with a higher sales mix in North America and strong performance in hybrid and EV models, revenue grew 6.3% Y-o-Y, reaching KRW 186.3 trillion, exceeding our revenue growth target. OP declined Y-o-Y due to about KRW 4.1 trillion in annual tariff impact, but the OP margin reached 6.2%, falling within the guidance range that we have provided. Next, I'd like to discuss our year-end dividend and shareholder return policy. We enhanced dividend visibility and ensured the continuity of shareholder returns. Even in periods of earnings volatility, the company introduced a minimum annual DPS of KRW 10,000 based on common share from 2024. Despite a 25% Y-o-Y decline in consolidated net income attributable to controlling shareholders in 2025, we remain committed to this pledge to our shareholders. Accordingly, we declared a year-end DPS of KRW 2,500 based on common share, thereby fully delivering the minimum annual DPS of KRW 10,000. As a result, our dividend payout ratio exceeded 25%, reaching 27.7%. In addition, in line with the three-year mid- to long-term shareholder return policy announced in 2023, we completed the retirement of 1% treasury shares in April to achieve our target of TSR ratio of at least 35% in 2025 and to execute the plan to repurchase up to KRW 4 trillion of treasury shares over three years, we plan to conduct a treasury share buyback amounting to KRW 400.7 billion. Of this amount, around KRW 200.2 billion will be included in the calculation of the 2025 TSR ratio. The remaining around KRW 200.5 billion corresponds to our previously announced policy of retiring 1% of treasury shares per year over three years and is intended for the final 1% retirement schedule for 2026. As such, this portion will be reflected in the 2026 TSR calculation upon requirement. The treasury shares to be repurchased under this program are solely intended to enhance shareholder value and will be fully retired during '26. The share repurchase program will commence on January 30 and will be conducted over a three-month period. This year, the automotive industry is expected to face a challenging environment marked by stagnant growth in key markets and intensifying competition, while continuous investment remains necessary to secure leadership in the future technology amid rapid changes. Despite these challenges, we will actively implement continuous measures to reduce cost and optimize volume and profitability by region with the aim of delivering solid results and fulfilling our commitment to shareholder return policy. Finally, we'd like to express our sincere appreciation for your continued support and interest in our long-term investment and efforts in future business, including robotics, autonomous driving and the hydrogen ecosystem. Going forward, we'll continue to strive for sustainable growth as a smart mobility solution provider and provide regular updates on matters of importance to our shareholders. Thank you for listening. Unknown Executive: [Interpreted] I'd like to present our 2026 annual guidance. Let me begin with our wholesale plan. Our sales target for 2026 has been set at 4.158 million units, representing an increase of around 20,000 units Y-o-Y. This target reflects our assessment of industry demand by regional segment. And please refer to Page 2 for a detailed breakdown of regional ad sales targets. Turning to our consolidated financial outlook. We expect 2026 consolidated revenue to grow by around 1% to 2% Y-o-Y. Supported by continued ASP improvement, and this outlook is driven by increased sales volume in North America and further expansion of hybrid vehicle sales. And we expect that there will be no temporary cost increase in 2026. So with respect to profitability, despite a challenging external environment, based on our fundamentals and competitiveness and cost innovation, we are targeting a consolidated OPM of 6.3% to 7.3% for 2026. Moving on to our investment plan. Total investment for 2026 is planned at KRW 17.8 trillion, representing a 23.2% increase compared to 2025 actual of KRW 14.5 trillion. By category, R&D investment is planned at KRW 7.4 trillion, up 21% year-over-year, driven by efforts to strengthen the Genesis and eco-friendly vehicle lineup, including Genesis SUV. CapEx is planned at KRW 9.0 trillion, 32% increase Y-o-Y for U.S. localization related to investment in response to U.S. tariffs and for electrification to gain future growth momentum. Strategic investment planned at KRW 1.4 trillion, representing a 7% decrease Y-o-Y. Regarding free cash flow, taking into account our profitability outlook and continued investment expansion in 2026, we expect free cash flow to be in the range of negative KRW 1 trillion to positive KRW 0.5 trillion. With respect to shareholder returns, in line with the value program announced on August 28, 2024, we intend to continue our shareholder return policy in 2026 targeting a shareholder return of at least 35% on a TSR basis. In closing, even amid heightened internal, external uncertainties in 2026, we remain committed to achieving our annual guidance through sustained profit generation and management activities that prioritize shareholder value grounded in strengthened product competitiveness and improved fundamentals. For further details, please refer to the 2026 guidance materials available on our website. This concludes our 2026 annual guidance presentation. Thank you. Next, Vice President, Hyungseok Lee, the Head of Planning and Finance Division of Hyundai Capital, will assess the Q4 results for the finance business. Hyungseok Lee: [Interpreted] Good afternoon. I am Hyungseok Lee, Head of Finance at Hyundai Capital. Let me now present the finance sectors Q4 2025 performance and 2026 outlook. In Q4, Hyundai Capital and Hyundai Capital America delivered solid results by continuously expanding their roles as the group's captive finance companies. I will now touch upon the detailed performance by company. First is Hyundai Capital. In Q4, under strengthened sales finance collaboration with the group by introducing specialized programs such as Genesis Finance, Hyundai Capital actively supported vehicle sales. As a result, installments and lease volume increased by 14.7% and 10.1%, respectively, Y-o-Y. Total product assets grew 3.6%. Lease income rose on the back of expanding high-value model-based lease assets. However, due to declining market interest rates and regulatory impact, Installment and loan interest income decreased, leading to a slight Y-o-Y decline in operating revenue, excluding FX and derivative effects. On the funding side, 14% of domestic bond issuance in 2025 was ESG bonds by standing a foundation for lower cost funding with diverse borrowing offerings such as offshore bonds and ABS, interest expense in Q4 decreased 2.7% Y-o-Y. In January this year, we were the first to issue public bonds in the amount of EUR 500 million as a credit finance company, further demonstrating strong global funding competitiveness despite continued downward pressure on soundness in the industry, driven by real estate stress in the regional areas and rising household debt and others, Hyundai Capital maintained solid performance through a high-quality captive portfolio and active NPL disposal recording a delinquency rate of 0.82%. In spite of decline in lease costs, we rather increased provisioning for preemptive risk management. As a result, total operating expenses rose slightly Y-o-Y, driving a decline in operating profit in Q4. However, with equity method gains from overseas subsidiaries increasing profit before tax rose 13.6%. In 2026, Hyundai Capital intends to strengthen liquidity to navigate heightened market volatility and defend profitability through funding cost management and OpEx optimization. The company will further enhance digital capabilities through data collaboration at the group level and adoption of AI in core operations. Globally, Hyundai Capital is preparing to launch its finance subsidiary in India and further advance capabilities across overseas subsidiaries to reinforce position as a leading global mobility finance provider. Next is Hyundai Capital America. Despite macro uncertainty in Q4, thanks to strong vehicle sales trends at the group level since the beginning of the year, a high 72% P rate, we recorded growing trend across the overall portfolio. In particular, prior to the IRA subsidy expiration, the lease volume of eco-friendly vehicles increased rapidly, driving a 32.2% Y-o-Y rise in leased assets and a 16% growth in total product assets. On the back of robust asset growth, installment and lease income grew in Q4 Y-o-Y, keeping operating revenue at a similar level to last year. For funding, HCA issued a total of USD 11.9 billion in public bond in 2025 and successfully debuted in the euro bond market in June, impacted by an increase in total borrowings, interest expense in Q4 rose 14.3% Y-o-Y. In terms of asset, above 85% of the customers were rated prime with those subprime rated recording less than 1%. Although the bad debt expense went down with the increased provisioning for residual value risk management. However, as total operating expenses declined slightly, OP in Q4 grew 48.4% Y-o-Y. In 2026, tariff impact, interest rate volatility and inflation are expected to create a challenging environment. Nevertheless, HCA like to maintain sufficient liquidity based on strong credit ratings to navigate this uncertainty. The company will continue to support the auto sale financing to sustain asset growth and secure outstanding financial soundness through disciplined risk management. Added to that by diversifying business such as financing for the group's new businesses, the company will broaden its role as the HMG as global mobility finance company. This concludes my presentation. Thank you for listening. With that, we will conclude the presentation and take your questions. Please limit your questions to two. Operator: [Foreign Language] [Interpreted] Now Q&A session will begin. [Operator Instructions] The first question will be provided by Ji-Woong Yoo from DAOL Investment & Securities. Jiwoong Yoo: [Foreign Language] [Interpreted] I'm Ji-Woong Yoo from DAOL Investment & Securities. So I have two questions regarding cost. First, you mentioned about the fixed cost for 4Q being close to KRW 200 billion. And the tariff in Q4 was KRW 1.5 trillion, which is lower than the amount for Q3. However, the operating profit for Q4 has gone down by KRW 1 trillion versus Q3. So, all in all, although the tariff cost has gone down, the expectations high that the cost would also get better. So I was wondering if there were any other costs that ought to be occurred in Q4 for this result? Or are there any other costs that are expected for Q1? My second question is based on the CID announcement, you said that you are planning for the five years, KRW 77 trillion investment. So if you divide that on an annual average, that comes to close to about KRW 14 trillion. And this year, you announced that the investment will be around KRW 17.8 trillion. So, for the past four months, have there been any drastic measures to make new investment decisions or maybe end of last year or earlier this year or for the year of 2026, do you have any new investment decisions that to be executed? Unknown Executive: [Foreign Language] [Interpreted] Before answering your question, I think during my presentation, I made some numerical error. So, the buyback of treasury shares, I said it was KRW 470 billion, but in fact, it is going to be KRW 400.7 billion. Right. So, to answer your first question, I mentioned that there's going to be an increase in fixed cost of about KRW 200 billion due to new cars being input in Jeonju and Turkey plant. And you asked if there are any other costs due to -- that results in this increase in fixed cost. So there were temporary increase in fixed costs. At the end of last year, we had to reflect the increase in labor cost, which came to about KRW 140 billion. And also, there was a quality cost that occurred for [ CapCo ], which came to about KRW 100 billion. So that was just our temporary cost that was a onetime happening for the end of the year. And also with HCA, during the auditing process of its fiscal orders, it was found that usually for lease cars, we set the time to 36 months for the incentives, but it was found that on average, the use of the lease was 31 months. So we were adjusting the cost and profit, and that was altogether reflected in the financial sheet. So that resulted in KRW 130 billion at the end of the year. So, I think, I pretty much explained if any further costs were going to be created in Q1 of 2026 compared to Q4. But if I'm to give you a bit more of elaboration on the performance regarding Q1, with IRA being abolished in Q4 last year, the EV inventory of our dealers is now piling up. So we are really trying to decrease this inventory amount. And that's why we have made a strategic approach so that we can lower the inventory in Q4, and we believe that this will help with our Q1 performance. Now moving on to your second question. You said that CID announced a total KRW 77 trillion investment for five years. And on an annual average, it comes to KRW 14 trillion. And this year, we announced an investment of KRW 17.8 trillion and whether there is a new investment plan that is coming ahead. However, that is not the case. It's just that our investments are mostly focused on 2026 and 2027. So I think this year will probably the peak our investment size. So, overall, the total investment size or pie has not grown. It's still the same. And just to elaborate further regarding our investment, we will continue our investment for our future businesses. We have been doing this from four years ago. And I think most recently, this value is now represented through our share prices. However, we are still trying to make sure that our investment is effective and efficient. And within that decision, we'll be making our priorities so that with the same high investment that we have, the same budget that we have, we make the most effective and efficient investment. Overall, we will not be reducing our investment for our future. Operator: [Foreign Language] [Interpreted] The following question will be presented by Eun Young Yim from Samsung Securities. Eun Young Yim: [Foreign Language] [Interpreted] This is Eun Young Yim from Samsung Securities. I have two questions. My first question is related to tariff. You've mentioned during your presentation that the annual tariff impact is estimated to be KRW 4.1 trillion in 2025. And you've said that the mitigation impact was around 60%. So if I interpret your presentation, the net burden coming from the tariff impact will be around KRW 1.2 trillion or KRW 1.5 trillion. So if the tariff rate is going down to 15%, how can we estimate or forecast the impact for the year 2026 coming from the tariff? And I'm wondering if you are going to continue to make contingency efforts to reduce the impact from tariffs. My second question is related to your shareholder return policy. As if I look at the plan that you announced during the disclosure for the purchase of treasury shares, we believe that the portion of preferred share will be around 8% to 9%. But if I remember your presentation, you said that during your presentation, you are going to close the gap between the preferred stock and the common stock. So if you look at the current price trend of the common stock, actually, the price of the common stock went up dramatically. So that widen the gap between preferred stock and common stock. So I think the level of the preferred stock repurchase is not really enough. So I'm wondering you're going to increase the portion of repurchase of the preferred stock in late mid next year or two years later. Unknown Executive: [Foreign Language] [Interpreted] If I answer your first question, we've explained that the impact from tariff was around KRW 4.1 trillion. And what we are forecasting for the impact for this year, 2026, the level of the impact will be flattish, similar. As you all know, the tariff took effect as of 3rd of April, but well, the tariff actually applied to the inventory from mid-May. So when we are -- when we were calculating the tariff impact when we set up the business plan, we realized that the impact from tariff will be similar between 2025 and 2026. And we had the mitigation impact of 60%. So you asked about if the contingent plan will be continued in the next year. So I can say for sure that the mitigation plan for the tariff impact will be maintained in this year. And with the limited budget and the cost that was reduced this year was applied to the establishment of the business plan for 2026. Your second question was related to our repurchase plan for the treasury stock. So you mentioned that the gap between preferred stock and common stock is getting wider and wider. And you asked about if there will be any plan or direction that we can share with you in regard to how to close the gap between two different types of stock -- treasury stocks. So in order to meet the TSR ratio of 35%, we said that we are going to repurchase KRW 200.4 billion of treasury stock, and we said we were going to retire around 1%. So, for that to happen, we are going to spend around KRW 200.7 billion for -- and 0.2% for the common stock. So, as we disclosed before, so when we're dealing with KRW 200.4 billion, 0.16% will be composed of the common stock, whereas the preferred stock will account for 0.2%. That means if you look at translated into the proportion that preferred stock will account for 25%. Of course, the number of the purchase won't be really big, but you can understand from our plan that how we are going to proceed with our shareholder return policy. So in order to close the gap between preferred stock and common stock, we are going to give a lot of thoughts to it. And once ready, we're going to communicate more with the market. Operator: [Foreign Language] [Interpreted] The last question will be presented by Jinsuk Kim from Mirae Securities. Jinsuk Kim: [Foreign Language] [Interpreted] I actually had a question about tariff. I think that was answered in the previous question. So, I only have one question. I think the most significant event that HMC has done in terms of bringing change to our society and our value was the Kkanbu Chicken meeting last year and signing the contract in sourcing 50,000 units of GPU. And if you look at your presentations made during the Investor Day or the Mobis CID as well as this CES Media Day, you announced plans to distribute and also present smart cars as well as the demo cars as well. And based on my own prediction, we believe that this will be possible maybe by fall at the latest. So -- and I think we also have a look at Atlas and maybe the input of humanoid in the meth plant could be done by September and October. So, to do that, you will have to start securing data for movement and control as well. So is it safe to think that the GPU installment and the actual operation will also be done at that time as well? Unknown Executive: [Foreign Language] [Interpreted] Yes. So, as we had mentioned during the CES, we are planning to conduct a POC for the humanoid metaplant at the end of this year. And also the demo cars for smart cars, R&D is currently working on this, and it is expected to be launched in the latter half of this year. And we already have made a project code for this. And of course, the demo car launch, there will be a small number of models, but it will come to -- it will be launched by the end of the year. Regarding the contract for 50,000 units of GPU, we are currently working on the plan of when and how to use these chips. However -- and it's probably likely that they may be used with the utilization of humanoids and smart cars as well, but we haven't come out with a concrete plan as of yet. So, when that is done, we will communicate with the markets regarding this. Operator: [Foreign Language] [Interpreted] If you have any questions, please contact Hyundai Motor Company's IR group. Thank you very much for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Apologize for the delay this morning due to technical difficulties. Our anticipated start time is now 08:30AM eastern time. Welcome to the Q4 twenty twenty five Earnings Call. My name is Tina and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session, if you would like to ask a question, please press star 1 on your touch tone phone. As a reminder, the conference is being recorded. I will now turn the call over to Stephanie Rabe, Stephanie, you may begin. Stephanie Rabe: Thank you, and good morning. Welcome to Ameriprise Financial's third quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman and CEO and Walter Berman, Chief Financial Officer. Following their remarks, we'd be happy to take your questions. Turning to our earnings presentation materials that are available on our website. On Slide two, you will see a discussion of forward looking statements. Specifically during the call, you will hear references to various non GAAP financial measures. Which we believe provide insight into the company's operations. Reconciliation of non GAAP numbers to their respective GAAP numbers can be found in today's materials, and on our website at www.ir.ameriprise.com. Some statements that we make on this call may be forward looking, reflecting management's expectations about future events, and overall operating plans and performance. These forward looking statements speak only as of today's date, and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward looking statements, can be found in our third quarter twenty twenty five earnings release, our 2024 annual report to shareholders, and our twenty twenty four ten ks report. We make no obligation to publicly update or revise these forward looking statements. On Slide three, you see our GAAP financial results at the top of the page for the third quarter. Below that, you'll see our adjusted operating results, followed by operating results excluding unlocking. Which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations. And facilitates a more meaningful trend analysis. We completed our annual unlocking in the third quarter. Many of the comments that management makes on today's call will focus on operating results and adjusted operating results excluding unlocking. And with that, I'll turn it over to Jim. Jim Cracchiolo: Good morning, everyone, and thanks for joining our call. I'll begin with my perspective on the business. And Walter will follow with more detail on our third quarter metrics and financials. As you saw in release, Ameriprise delivered another strong quarter and generated significant value as we built on our performance from the first half of the year. Regarding the operating environment, clearly, it remains fluid. We've continued to see strong bull markets. But investors still have many variables to navigate. Inflation remains elevated. In terms of interest rates, the Fed announced yesterday that they cut rates by another quarter point. Meanwhile, there are signs of softening in the labor market along with lingering questions around tariffs and ongoing geopolitical impacts. And our business continues to demonstrate both its relevance and resilience in that regard. In a dynamic landscape, Ameriprise consistently generates strong results driven by a diversified business and disciplined management. And our third quarter financials, excluding unlocking, reflect this momentum. Assets under management, administration and advisement grew to a new high of $1,700,000,000,000, up 8% year over year. We continue to deliver strong earnings and also generated double digit EPS growth up 12%. And our firm wide margin of 27% is exceptionally strong as we continue to invest significantly in the business. I would also highlight that the Ameriprise ROE is best in class year after year and one of the highest in financial services at nearly 53%. In fact, Ameriprise is well positioned even if the environment becomes more challenged. Our complementary mix of revenue streams, effective expense management and strong margins help enable us to sustain strong financial performance. Regarding the overall business, we're driving nice progress across many areas. Our advisers are leveraging our proven advice value proposition and generating high client value satisfaction and practice growth. Overall, we had continued strong AWM client asset growth of 11%. Wrap assets were also up nicely, up 14% year over year. And our adviser count is up, and adviser productivity continues to be very strong, increasing another 10%. And we're back to strong recruiting levels, bringing in 90 experienced advisers in the quarter, one of our best. The Ameriprise value proposition as well as the strength and stability of the firm continue to differentiate us in the recruiting space, and our pipeline in the fourth quarter is strong. Across the business, we're leveraging our investment to further elevate our value proposition and drive long term economic returns. In September, we launched a new advertising that reinforces our premium brand and helps You're in 2025. It's been one of our most successful rollouts and early adviser feedback has been very positive. We continue to build on these early results as more advisers integrate the new platform into their practice. Stephanie Rabe: Thank you, operator, and good morning. Welcome to Ameriprise Financial's Fourth Quarter Earnings Call. On the call with me today are Jim Cracchiolo, Chairman and CEO and Walter Berman, Chief Financial Officer. Following their remarks, we'd be happy to take your questions. Turning to our earnings presentation materials that are available on our site. On Slide two, you will see a discussion of forward looking statements. Specifically, during the call, you will hear references to various non GAAP financial measures. Which we believe provide insight into the company's operations. Reconciliation of non GAAP numbers to their GAAP numbers can be found in today's materials, and on our website at www.ir.ameriprise.com. Some statements that we make on this call may be forward looking. Reflecting management's expectations about future events, and overall operating plans and performance. These forward looking statements speak only as of today's date, and involve a number of risks and uncertainties. A sample list of these factors and risks that could cause actual results to be materially different from forward looking statements. Can be found in our fourth quarter twenty twenty five earnings release our 2024 annual report to shareholders, and our twenty twenty four ten ks report. We make no obligation to publicly update or revise these forward looking statements. On slide three, you see our GAAP financial results at the top of the page for the fourth quarter. Below that, you see our adjusted operating results, which management believes enhances our understanding of the business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on adjusted operating results. And with that, I'll turn it over to Jim. Jim Cracchiolo: Good morning, everyone, and thanks to joining our call. I'll begin with an overview of the business and our progress. And then Walter will discuss our financials in more detail. Ameriprise delivered a strong fourth quarter complete a very good year in 2025. Reflecting the strength of our business, effective strategy, and excellent client experience. Looking externally, equity markets performed well in the quarter. Supported by resilient US economic growth, and the overall environment remains quite positive. With that backdrop, Ameriprise delivered new all time records across the board in the fourth quarter. On an adjusted operating basis, revenue grew 10% to $4,900,000,000 driven by strong organic client flows and markets. We also had double digit growth in our earnings, up 10% to over a billion dollars, as well as in earnings per share which increased 16% to $10.83. And Ameriprise return on equity was again excellent. Increasing over 100 basis points to 53.2%, our highest ever. We completed 2025 with assets under management, administration, and advisement at $1,700,000,000,000, up 11% another new high. Across the firm, we're leveraging the strength of our businesses and capabilities to deliver good results while investing in organic growth opportunities and innovation. Supported by our strong financial foundation, we're making key investments across the company. In top tier technology, digital capabilities, AI, and cloud infrastructure. We're also bringing out new product solutions in each of our businesses to further serve more investor needs and deepen relationships. These investments help further enhance our client and adviser experience and drive organic growth. These investments extend to advice and wealth where our leading adviser value proposition integrated technology continue to drive excellent client satisfaction as well as strong organic flows adviser productivity. Total client assets reached a new record of $1,200,000,000,000 at year end. Up 13% from our focused action to drive flows as well as from positive markets. Total client inflows were $13,300,000,000, up 18% which is one of our best quarters for flows. These results reflect the strength of our legacy flows from our adviser engagement, client acquisition in the target market, and our recruiting success. Our rep business also grew strongly. Assets increased 17% to $670,000,000,000 with meaningful growth and flows. This included good flow momentum in our new signature wealth unified account, which we launched at midyear in 2025. It's been one of our most successful rollouts and early advice feedback has been very positive. We continue to build on these early results as more advisers integrate the new platform into their practice. Advisers are seeing real value in the enhanced personalization automated portfolio monitoring, rebalancing, reporting, and centralized trading. We're also adding new capabilities and strategies to our Signature Wealth as we move forward. In addition, we continue to have good transaction activity up 5% year over year. Our bank products complement the business nicely with assets up to $25,300,000,000. We're rolling out and testing new offerings, including expanding our lending book we saw good growth led by pledge and nice initial uptake in mortgage loans. After our initial launch of HELOCs, we're seeing strong early interest. We just launched checking accounts, which rounds out our complete bank offering and will be important to enable greater uptake of savings and lending products in adviser practices going forward. Adviser productivity continues to increase nicely as I up 8% to $1,100,00 per adviser in the quarter. Our proven adviser value proposition helps them achieve this level of productivity. This includes our interconnected systems of capabilities. Anchored by our strong digital advice CRM, and extensive practice management resources. As we shared, we're also innovating with AI and automation to help advisors identify meaningful client insights and growth opportunities while reducing time consuming tasks. Also key, our integrated capabilities drive strong system reliability, efficiency, and resiliency. Our best in class service is another competitive advantage. This year, JD Power recognized the merit prize for seventh consecutive time for delivering an outstanding customer service experience to advisers for our phone support. And for the second straight year, we earned JD Power certification for our client phone support as well which is terrific. We're known for our commitment to client and adviser success. Experience advisers continue to choose Ameriprise. We've added 91 quality advisers building on a strong momentum from the third quarter. And the pipeline for experienced recruits across channels remains attractive. And by the way, our total adviser count is up 1% year over year. Ameriprise advisers continue to stand out industry wide for exceptional service growth, and high quality practices. We had a record 478 teams named to the Forbes best in state wealth management teams 2025 ranking. Earlier this month, I attended the AWM field leader kickoff for the year. Our AWM team is made up of strong cadre of field leaders who help advisers leverage our value proposition and client experience to build even more successful practices. Our retirement and protection solutions are also contributing nicely to transactional activity, organic growth, and deeper share of wallet. Structured annuity sales were up 7% in the quarter and life and health sales grew 14%, with most of the focus on accumulation focused variable universal life. Our overall portfolio continues to perform very well. Here again, we're investing in product enhancements and leveraging AI and digital to increase efficiencies in underwriting and overall service. In asset management, we're delivering meaningful as we leverage our global capabilities for greater efficiency and future growth. Assets under management and advisement reached $721,000,000,000 for the quarter up 6%. We had continued strong investment performance with 103, four and five star Morningstar rated funds at year end. Nearly 70% of our funds globally were above the median for the one year time frame on an asset weighted basis and stronger for long term timeframes. With 80% of our funds above the median for three and ten year performance periods. Regarding flows, we generated $1,900,000,000 in net inflows in the quarter, which included higher reinvested dividends. Overall, we had net inflows and model delivery strategies and improvement in institutional gross sales. We continue to invest to further broaden out our investment capabilities to meet evolving market demand. That includes expanding our active ETF lineup and further building out our SMA model delivery and alternatives offering. During the quarter, we launched six new actives managed and research enhanced ETFs in The US, along with our initial launch of ETFs in EMEA. Across asset management, we're leveraging our global footprint to generate additional operational efficiencies. Our back office transformation and data foundation work will continue to increase the cost effectiveness of data delivery and help ensure our solutions are scalable. Reflecting on Ameriprise overall, our business and financial results remain strong. With record revenue, earnings, EPS and return on equity. As well as a differentiated level of capital return. As you saw, we increased our capital return to more than 100% in the quarter. We were opportunistic with a discount in the share price. And the size of the buyback brought our total capital return for the year to nearly 90% one of our highest levels in recent years. We've also consistently maintained a healthy and resilient balance sheet. 2025 was another terrific year for our twentieth as a public company. In just two decades, we've established Ameriprise as a premier brand built on helping millions of clients achieve their most important financial goals. And we're continually innovating and transformed how we go to market earning best in class recognition and results across a wide range of environments. Equally important, we earned a highly respected reputation over the years for who we are and how we operate the firm. In fact, Ameriprise was just named one of America's most iconic companies by Time. We rank among the top 50 across industries. And we're also the leading diversified financial services firm on the list. And this award adds to many others. We were again included on The Wall Street Journal's list of best managed companies for 2025. And America's most responsible companies 2026 list from Newsweek. As well as Ameriprise is one of America's best companies 2026 according to Forbes. In closing, we feel very good about the business and how we're positioned as we look to 2026. We're executing our clear, consistent strategy and driving innovation and using operating leverage where we see opportunity. With that, Walter will discuss the numbers in more detail, and then we'll take your questions. Walter Berman: Thank you, Jim. Ameriprise delivered excellent financial metric performance in the quarter. With adjusted operating earnings per share up 16% to $10.83 and a strong operating margin of 27%. We had record assets of $1,700,000,000,000.0 up 11%, which coupled with strong client engagement, drove record revenues of $4,900,000,000. We continue to make good investments for growth. Particularly within wealth management. We were optimistic with share repurchase in 2025 given share price and accelerated our capital return. In the quarter, we returned over 100% of operating earnings to shareholders. Our balance sheet remained exceptionally strong, with excess capital of approximately $2,100,000,000.0 and holding company available liquidity of $2,200,000,000. Let's turn to Slide six. Performance metrics and wealth management were strong across all measures. Notably with client and reflow rates in our historic ranges. Total client assets grew 13% to a record high of $1,200,000,000,000.0. With strong client flows of $13,300,000,000.0 representing a 4.7% annualized flow rate. Wrap assets increased 17% to a record high of $670,000,000,000 dollars with $12,100,000,000 of net inflows in the quarter. Representing 7.4% annualized flow rate. These are near record levels of flows and we saw both our client and raft load rates build each month of the quarter. The improvement in both client and RAF flows was a result of continued strong core flows, higher adviser recruiting in the back half of the year, and very strong retention levels. In addition, transactional activity remains strong. Increasing 5% compared to the prior year. Primarily from growth in annuity products and brokerage. Cash sweep balances increased to $29,900,000,000.0 compared to $27,100,000,000 in the third quarter. Which is consistent with the normal seasonal trend we typically see near the end of the fourth quarter. Our VASA trends remain solid as well. Retention was good across all channels. And we saw a strong momentum in our experienced adviser recruiting with 91 advisers joining us in the quarter. Our value proposition resonates with advisers and we remain focused on ensuring our transition packages are attractive to experienced advisers that share our values and commitment to the client experience. In total, our adviser productivity continues to grow reaching a new high of $1,100,000. Let's turn to Wealth Management financial results on slide seven. Adjusted operating net revenues increased 12% to $3,200,000,000.0 The core business is performing very well given the value of our planning model and the multiple touch points we have with the client to meet their needs holistically. Our fee based and transaction revenues were quite strong. Increasing in the low teen percentage range benefiting from higher client assets and activity levels. Our cash revenues which include net investment income, distribution fees related to off balance sheet cash, and banking and deposit interest expense, increased modestly despite the impact from the Fed funds rate reduction since September 2024. Adjusted operating expenses in the quarter increased 11% with distribution expenses up 12%. I would note that adviser compensation within distribution expense increased in line with the revenues advisers generate. Distribution expenses in the quarter was 65.8%, of total management and financial advice fees and total distribution fees excluding off balance sheet sweep cash which is consistent with the 66% level we have guided to. Full year g and a expenses were up 4.5%, primarily driven by volume and growth related expenses. Including investments in Signature Wealth and banking products. This level was consistent with the guidance we provided. Pretax adjusted operating earnings increased 13% to $926,000,000 with continued strong contribution from both core and cash earnings. Our core earnings grew in the mid-twenty percent range benefiting from higher client assets, and advisory fees. As well as strong activity levels. The strong level of core earnings that we generated is unique and demonstrates our focus on profitable growth. Cash earnings increased modestly despite the impact from the Fed funds rate reduction since September 2024. Our strategy of leveraging Ameriprise Bank has been important in minimizing the impact from Fed funds effective rate reductions on our AWM business. In fact, net investment income in the bank was flat for the year. We continue to take actions to build the bank investment portfolio a way that supports stable earnings contributions going forward. The overall bank portfolio has a yield of 4.6%, with a three point eight year duration. With now less than 9% of the portfolio in floating rate securities. In the quarter, new purchases at the bank were $2,700,000,000.0 at a yield of 5% with a four point three year duration. Last, our margins remain excellent at 29.3%. Turning to asset management on Slide eight. Financial results were strong in the quarter. Operating earnings increased 17% to $293,000,000 Results reflected asset growth higher performance fees, and the positive impact from transformation initiative. Toll assets under management and advisement increased to $721,000,000,000 up both year over year sequentially from higher ending market levels. Revenues increased 12% to $1,000,000,000 benefiting from higher performance fee revenue than a year ago. Performance fees are an important revenue stream for the asset management business and this quarter were recognized due to very strong performance in our hedge fund. Expenses increased 10% in total. With distribution expenses up 5%. In the quarter, general and administrative expenses were up 13% as a result of higher performance fee compensation and foreign exchange translation. Margins reached 40% in the quarter, which is above our target range. Let's turn to slide nine. Retirement and protected solutions continue to deliver strong earnings and free cash flow generation. Reflecting the high quality of the business that was built over a long period of time. Pretax adjusted operating earnings were $200,000,000 in line with our target range. This business has excellent risk adjusted returns and continues to be an important part of the AWM client value proposition. Turning to the balance sheet on Slide 10. Balance sheet fundamentals and free cash flow generation remain strong. Which is a core to our ability to invest for growth on a sustainable basis while also continuing to return capital to shareholders. We have an excellent excess capital position of $2,100,000,000.0 We have $2,200,000,000.0 of available liquidity. Our assets and liabilities are well matched. And our investment portfolio is diversified and high quality. Ameriprise consistent capital return strategy is a key element of our ability to consistently generate strong long term shareholder value. As I mentioned, we were opportunistic in the 2025 and accelerated our share buyback. In fact, we increased our capital return 37% year over year to $1,100,000,000 in the fourth quarter, which is 101% of operating earnings. For the full year, we returned $3,400,000,000.0 of capital, which was 88% of operating earnings. As we enter 2026, our strong foundation coupled with our capabilities, and decisioning framework, position us well to continue investing for growth in a targeted way. And return capital to shareholders at a differentiated pace. In summary, on slide 11, Ameriprise delivered solid results in the fourth quarter to conclude a strong 2025. In 2025, revenues grew 6% Adjusted EPS increased 12%. Return on equity grew 60 basis points and we returned $3,400,000,000.0 of capital to shareholders. We have an excellent foundation and capacity moving forward that enables consistent and sustainable profitable growth. With that, we will take your questions. Stephanie Rabe: Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your touch tone phone. If you wish to be removed from the queue, please press 1. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press 1 on your touch tone phone. Our first question comes from the line of Steven Chuvek with Wolfe Research. Please go ahead. Steven Chuvek: Hi, good morning, and thanks for taking my questions. So wanted to start off on organic growth. The four q acceleration was quite impressive, especially in light of a tougher recruiting backdrop cited by some of your peers. You also spoke of maintaining competitive TA rates as part of your recruiting packages. And was hoping you could help us reconcile the acceleration net new flows that we saw in the quarter the lower distribution expense ratio. And can you speak to the outlook for both organic flows and distribution expense in the coming year? Jim Cracchiolo: So I'll I'll start, and then I'll ask Walter to handle more on the expense side. First of all, I wanna apologize for the delay. We were having some technical difficulties. Our flows in the fourth quarter were very strong. It was both organic growth, new clients added flows from current clients as well as as you saw a pickup in the recruiting as we had towards the latter part of the year. Retention was very good. So we feel good about the underlying flow picture as we said. We thought that would be something that you would start to see coming back. We were a little delayed from some of our peers at in that regard from a quarterly basis. From an overall perspective, we feel good about how we're moving into 2026. From an expense perspective, it's very much in line with the productivity increases that our advisers generated and the volume of what they generated. Walter, I'll I'll ask you to cover the expense side. Walter Berman: Yeah. On the on the distribution expense side, we we certainly see it's in line where we've seen with the revenue growth. So on that basis, we see that will be in the ranges that you've seen, and we feel comfortable with it. Obviously, they're as we talked about, we are competing, so you could see some increase in distribution, but it is certainly within the ranges that we feel very comfortable and the revenue generation associated with it. Steven Chuvek: It's helpful color. And maybe, switching gears to the expense side. Given a number of areas on the investment front that were cited in the prepared remarks, Was hoping you could provide preliminary guidance on for '26, growth in firm wide OpEx as well as GNA growth within AWM just given higher percentage of investment likely being allocated on the wealth side? Jim Cracchiolo: Let me just start. What we have and we we continue to invest aggressively in technology capabilities AI, product solutions and services. We've rolled out a good number of them. Including some of the stuff we mentioned for the bank, expanding some of our product services, our signature wealth, etcetera. So we feel good, and we got a good agenda to continue. But having said that, we continue to reengineer and transform and free up and get some productivity improvements from things like AI and intelligent automation, etcetera, as well as where we locate our resources. So I'll turn it over to Walter. Walter Berman: Yeah. So, as it relates to what and the key point is what Jim said is while we continue to invest, we also basically transforming our expense base by constantly evaluating and improving the way we operate. So the net effect of that should be as you look at the company. Staying within the ranges that you saw, you know, again, based on volume and updates, but certainly small increase versus last year and on as it relates to AWM. With that combination of investing and then and and streamlining and transformation, probably in the same range of, you know, mid you know, single digits. That's probably but, again, there's investments in there being offset. Steven Chuvek: That's great color. Thanks so much for taking my questions. Operator: Your next question comes from the line of Wilma Burgess with Raymond James. Please go ahead. Wilma Burgess: Hey, good morning. Great results on flows in 4Q twenty five. Could you give us a little bit more color on what to expect into early 'twenty six Saw 91 advisers recruited in 4Q. Which seems to imply a pretty solid result for 1Q. So maybe give us a little more color there. Thanks. Walter Berman: Yes. So as we talked about, the drivers of that certainly are are organic. And looking at that and looking at the components of organic recruiting and certainly terms that we we believe we were all going seeing good results, but there is seasonality attached to that. But certainly, as the fundamentals, we do see good results as as it relates to those elements of getting the traction. And so it's we just feel like we're certainly on recruiting. And and oh, no. Organic. We're certainly there. And then certainly are competing on to ensure that we retain our advisers. But there is a seasonality factor attached to it. Wilma Burgess: Thank you. And then how should we think about the buyback going forward Strong result in the quarter. And could you also remind us what you consider the best use of $2,100,000,000 of excess capital particularly in this environment? Thanks. Walter Berman: Sure. So, Wilma, and again, as you saw, we said we will be optimistic, and we certainly were as we saw we bought the amount of buyback and dividends in the fourth quarter. And, again, that's a with investment in the businesses and looking at all aspects of it, So we feel comfortable with the generation as we look into 2026. As a certainly important element to return to shareholders. And I at this point, I would say that the range that you saw for the year was 80 we returned 88% with dividends and buyback. That's a pretty good range of 85 to 90 based on what we today with our capabilities and the ability to return to shareholders is a value point. Operator: Thank you very much. Your next question comes from the line of Craig Siegenthaler with Bank of America. Please go ahead. Craig Siegenthaler: Thanks. Good morning, Jim Walter. Hope everyone's doing well. We have a follow-up on the strong net new assets in wealth management in the quarter. So I heard your response just to Wilma's question that there's a seasonal factor that we should account for. But what about a second factor from elevated financial adviser movement in the quarter? Due to integration at a peer? Should we also be adjusting for this going forward? Jim Cracchiolo: From our perspective, you know, we we know things are happening from an industry perspective. Our recruiting, as we we showed you in the fourth quarter, our pipeline in the first quarter is quite strong. So we feel from our perspective that we'll continue to bring on good experienced people, and we continue with all of the resources that we've been applying and the technology, focus very much on our advisers generating continued organic, growth in our and that's the core of our business. So I don't know if that answers your your question. From a recruitment listen. It's a competitive market out there. We also very much focus on retaining our advisers. Our retention was quite strong in the fourth quarter. But we feel very good about where we are I I don't wanna comment from an, an industry perspective from other competitors. Craig Siegenthaler: Thanks for that. And just a follow-up on client cash, also in wealth management. Overall trends are pretty good in the quarter. And but we saw some mixing in the underlying balances. Especially with off balance sheet. You know, what's going on with that mix How should we think about the mix going forward? And seasonality will flip from positive kinda tougher in 1Q. What are your thoughts on cash sweep growth in the 2026? Walter Berman: Okay. So I've before that, yes, you saw the seasonality that you would see in the fourth quarter, and we felt very good about it. But we are seeing certainly, looking at the sweep component, looking at the on balance sheet and off balance sheet, comfortable with the generation. And the management, but we do say we with certainly managing that. We'll certainly as in the first quarter, will see utilization tax for another reasons, but we do we have positive generation. And the other thing as it relates to our strategy, we have certainly minimized the amount of floating and certainly within our buffers, but we intend to and we are to basically continue to implement our strategy to basically invest out long. So the impact, even if rates come off, that we can absorb that. Yeah. And certainly and offset some of that. Craig Siegenthaler: Thanks, Walter. Operator: Your next question comes from the line of Brennan Hawken with BMO. Please go ahead. Brennan Hawken: Good morning. Thanks for taking my questions. I'd love to drill into the bank channel. We see continued consolidation among the regional banks. You know, you guys are intending that yourselves with the Comerica deal. So curious about—I believe you guys have spoken though, despite that consolidation about a desire to continue to grow. So how do you manage the risk of consolidation if you're gonna continue to look to grow in that channel? And how is the engagement going with your partners at Comerica as they approach the close of their deal with Fifth Third? Thanks. Jim Cracchiolo: So we continue to see good opportunity in the financial institutions business. So we've been adding a number of institutions through the latter part of the year. We feel the opportunity is really good there for us to continue. We know that consolidation occurs that can both present opportunities or challenges depending on how that takes place and what the in interest parties may be considering. In regards to Comerica, we have a very good relationship with them. I know they're going through their acquisition. I know that will be assumed closing. So we'll we'll see exactly where they proceed there. But we have really generated really good value in our partnership with them. Their advisers love our platforming capabilities and the support their clients as well, etcetera. I know Comerica is very keen on our relationship. But, again, you know, that's a decision now for Fifth Third make as part of whatever deal and arrangement. I know they already had their own activities in house, etcetera. So we'll see where that goes, but we still feel very strongly that with the what we can provide and what we deliver, and the satisfaction that every party who have joined us has with us both the adviser and the client and the institution, we feel good opportunity for us to continue to move forward. Walter Berman: The only thing I would add to that, as you would imagine, any contractual arrangement that you have contemplates these sort of contingencies and so there were protections built into the contract. Brennan Hawken: Understood. Thanks for that color. Appreciate it. Following up on Steven's question, you guys spoke to expense outlook. Thanks for that color. I believe, Walter, when you spoke to some of the growth that you saw in G and A investments were flagged as a driver. Certainly, we've seen some of your competitors in wealth leaning in on expense growth and making investments in the platform. Can you speak to what portion of expense growth we should expect to come from investments? And, you know, how how long a duration those investments will take in order to finish up, and then what you what's sort of an to the extent that you are comfortable competitively, you know, what kind of enhancements you're looking to make. Jim? Jim Cracchiolo: Yeah. So what I would say is, I I think as we continue to proceed, we'll continue to make very good investments. So technology continues to change. Capabilities are continuing to one where we really look to help our advisers really manage their business really highly productive with information and data. And the use of analytics and AI. So I would say our investments are going to continue. It's not like one you know, like, tranche and that's it. Having said that, as you would know from following us is over the years, we continue to transform our business and free up resources from other places. So I would say if we were just doing the investment and not the reengineering, we would have, a much higher expense increase every year, but we are very good at what we do and how we do it. So that we offset some of that increase if it's just purely if you're thinking about investments. So the largest part of our expense growth really is from volume increase as you would imagine. But I would say we feel very comfortable, but I will also say we have a leading technology and capability platform out there. I put against anyone in the industry. And the way it's all integrated and the way the adviser could be productive on it because when we attract advisers in coming from you name on the house, they are very positive about our capabilities here. Walter Berman: The other thing I would just add is, yes, and with the scope of Ameriprise, we have the ability to leverage across our entire platform to support all the businesses. So that gives us an advantage to really provide that capability in a more efficient and effective way because can leverage it over a broader base. Brennan Hawken: Got it. Okay. Thanks for taking my questions. Operator: Your next question comes from the line of Suneet Kamath with Jefferies. Please go ahead. Suneet Kamath: Great. Thanks. Wanted to start with Signature Wealth. Can you give an update in terms of what percentage of advisers are are using it? And and when you roll out these platforms, is there a material difference in terms of utilization for the franchisee advisers relative to the employee advisers? Jim Cracchiolo: So, Suneet, when we started the initial launch of it, back in the mid summer time frame, you know, it always takes a little time as you then have to roll out and launch the platform, advise the advisor of how to utilize and train them on it, etcetera, etcetera. So our uptake from the rollouts we've done of previous wrap type advisory programs is actually one of the best so far. And the amount of assets, the number of advisers uptaking it. Having said that, you know, it's more of they start, they sample it, and then they start to continue to go down that journey. And as they get comfortable with it, then they start really picking up their level of activity. We have a reasonable good percentage of accounts open from advisers, a number of advisers across both channels. So we feel very good about that. But I think this will be something that, as an example, it is a new, more complex comprehensive platform. And all of its capabilities, the advisers are getting used to from how they do the portfolio construction, etcetera, but they love the idea of the the proposals it generates, how it monitors the portfolio, how it does more centralized trading for the portfolio, etcetera. And and the reporting that they're able to provide the client and the intelligence from it. So we think it'll be very good. We've recently added managed SMAs to it. That will continue to roll out. We're adding other capabilities as we do that. So over the course of this year, we'll have a full spectrum of all of the various types of subset of programs in it that they can then utilize more comprehensively. So I think we're in good shape with our initial launch and it's proceeding very well. Suneet Kamath: So so so fair to say we're kind of still in the early innings of this? Early innings. And there's a lot more? Early innings. Jim Cracchiolo: Very early innings, but very good progress. Suneet Kamath: Okay. That that's helpful. And and then just on the organic growth, I know you talked about the seasonality, but can you maybe quantify how much of a benefit that was in the quarter in terms of seasonality? And then just longer term, do you still think 4% to 5% organic growth in Advice and Wealth is is a reasonable bogey for you? Thanks. Walter Berman: As we said, seasonality is again, it occurs in the fourth quarter. Actually, there wasn't that much seasonality and more as it relates to the first and other quarter. But it oh, yes. The the range that we're talking about and especially driven by our our our our the organic aspect is is is probably an is is appropriate. You then get the changes as it relates to one off events of that. So, yeah, I I think the four to five is is is a good measure, and you would have adjustments as seasonality takes place within a year. But that's our annual as we think about it on a roll rate basis. Suneet Kamath: Okay. That's helpful. Thanks. Operator: Your next question comes from the line of Alex Blostein with Goldman Sachs. Please go ahead. Alex Blostein: Hi, everyone. This is Luke on for Alex. Thanks taking the questions. Had just a couple of quick clarifications. So obviously, expenses have been very well maintained for a few years, and you kind of spoke to a similar outlook in 2026. As you think maybe longer term, sounds like investments remain a big focus. I'm sure you guys will keep finding ways to reengineer the base. But do you think that kind of like low single digit growth is the right way to think about the expense algorithm beyond 2026 at a high level? Jim Cracchiolo: Yep. Yep. I think so. I mean, you you still got a level of inflation and other things. And and even as you look at other services that you actually buy externally, prices have gone up, you know, particularly from various vendors that provide things. So so I I think, yes, you you gotta consider that. I mean, I don't know about you, but when you look at inflation still at roughly 3%, you gotta deal with that as a factor in and, technology companies and others, even though there are savings or improvements in in the lowering of some costs, other technology services are have been charged higher and higher as they invest in their capabilities and AI, etcetera. Walter Berman: Yeah. And that is one input, but, obviously, you're always managing the margin to ensure that you have that relationship of expense to revenue. And but as you said, we continually invest. So this it was and we're continuing to re engineering. That's been the hallmark of the way we manage. Alex Blostein: Yep. Loud and clear. And and just one more clarification for me. You mentioned positive cash generation during the quarter in the AWM business. I just wanted to make sure, does that mean like seasonality, you're still seeing kind like cash growth on an organic basis? And then, like, maybe more high level, how do you think about the pace of of cash growth, particularly as we head into potentially an environment where our rates continue to migrate lower? Thanks. Walter Berman: Yeah. Yes. In the fourth quarter, you do see that, but what I do see there's an underlying element as it relates to cash generation, as it relates to cash coming in from that standpoint, but also new product capabilities, which will generate additional cash for us. The answer is yes. So, again, we it is an area of growth for us because it it meets our clients' needs, and there's there's certainly a key element to building relationship with our clients and providing that product. Jim Cracchiolo: Yeah. I would also say if rates continue to come down on the short end of the curve, people will continue to start to move more from what they're you know, placed in money markets, etcetera. So you saw it already move from you know, term type loans, I mean, CDs and and and certificates, etcetera. To money markets. Money markets are still very high. I think the money market will then start to continue to move into the market in one way or the other. So I think and once that does, it'll move into sweep a bit more for more transactional and investment purposes. Operator: Your next question comes from the line of John Barnidge with Piper Sandler. Please go ahead. Jim Cracchiolo: Good morning. Thank you for the opportunity. What does the consolidation opportunity look like for asset management? In your opinion? Thank you. I would probably I mean, you've seen consolidation over the many years in asset management. Think with the markets being so good, there's more of a a probably a wait and see, so to speak, in some regards. What we've been doing really is really transforming our platform capability in a sense so that we have the the good, real strong technology capability to add more assets introduce more products and services more effectively, efficiently. And to set up our resourcing in locations that can lower our cost, including where we might outsource. So we feel good about that. We've been introducing a number of new products whether active ETFs growing or SMAs and our model capability, and getting that launched as well as expanding some of our alternative assets like our hedge funds and other things like that. So we are in a good organic state of what we're changing around and maintaining the the the the margins and the fee basis, even though we are impacted by some of the flow situation in the active. I actually think over time, active will re exert itself just like it's starting to do in different types of formats like in the active ETFs. I think the consolidation will continue out in the industry. And I think there's an opportunity in that regard as we think about it to to partner. But right now, we're very much focused on getting our position in a very good state. And I think we are at this point for how we're managing the expense base and investing. And I feel really good about that. And our investment performance is quite strong over the the track record. So we're in a good state depending on what the environment is for us to capitalize. John Barnidge: Thank you very much. And my follow-up question, maybe sticking with that, and I totally acknowledge your comments that with markets being favorable, it's kind of a wake and see mode, but you've also really transformed the tech capability. And I know that's like a continual investment type of thing, but what inning do you think we are in in that initial transformation of the expense base to better position the organization to add additional AUM. Thank you. Jim Cracchiolo: We're probably in the later innings. We're completing well, we will be, you know, doing the work right now and we'll complete it sometime later this year on the the back office part of that. We are really doing more on the front end. We're using, you know, AI and automation and other things like that. And leveraging demographics that we have offshore, etcetera. So we're pretty far along in that regard. Walter Berman: No. No. I I it's So I feel pretty good. Walter, you wanna comment? I think you covered it well. John Barnidge: Thank you. Operator: Your next question comes from the line of Tom Gallagher with Evercore ISI. Please go ahead. Tom Gallagher: First question, where do you see AWM margins going in 26? Do you think you can maintain this 29% to 30% range? Walter Berman: On certainly, if you look at core and as Jim said and what again, we are generating good, strong, consistent margins in core. The other thing is gonna be on an interest, and now we've minimized that also because of the way we invested. So it is in a good range as we look at what the Fed is saying and other things that that nature that it will be in this certain range, and it'll be just if there are other third party elements that we just can't manage, like government or other changes as it relates to interest. But as it relates to the core, we feel we're tracking well. And so it's a reasonably good range. Tom Gallagher: Thank you. And then I know you mentioned, Jim, you felt good about the pipeline for recruiting in 26. How do you feel about retention of existing advisers? Would you you know, any any color there? Jim Cracchiolo: So I I think overall, we feel very good. It doesn't mean you won't lose some people because it depends on what people you know, put out there and offer them. But we're also very good in a sense of where we can when that happens, show why we help the adviser more over time generate value than the the check. So but, you know, those things will come along. We got hit with a little last year as you recognize and and others do. So we we know that this is something we we are dealing with, but so what try to help our advisers really achieve and then recruit in people who want to actually have the capability and have a strong focus on their growth and how we can assist them in their growth. We're not looking to just attract anyone here. We have an excellent platform. We have excellent capabilities. We have excellent people that help advisers. I I continue to get notes from people who have come to us from the independence, from wirehouses, from RIAs, and they said their only mistake was not coming to us sooner. And their growth since they got here has been tremendous. And I can name any firm that you mention and I can show you that. So, again, now it's a very competitive people say a lot out there. They promise a lot out there. I think that's all I can say is when they hear, we deliver. Tom Gallagher: Gotcha. That's helpful color. And just I could just squeeze one more in. The elevated mortality in RPS this quarter, was that more a large claim volatility or higher frequency of claims? Walter Berman: It is higher claims at stage, I think it is more frequency. It's I'm it's you know what? It it's a balance. It's nothing really, that are it's in both elements. So I think it's both, actually. You contribute on both. Nothing nothing exceptional in either way. Jim Cracchiolo: And we don't see it as something that will impact where we've what we've been seeing over the longer term. Walter Berman: It's Yeah. It's it's certainly within the range, so there's nothing there from that standpoint. And it's a sub yep. So I would say it's it's a balanced situation both. There was nothing that elevated us to even think there was any any issue. Tom Gallagher: Okay. Thanks. Operator: And our final question comes from the line of Tyler Mueller with William Blair. Please go ahead. Tyler Mueller: Hi, good morning. Just one on asset management. I know you called out the strong hedge fund performance driving higher performance fees. Were there any other strategies or regions contributing to that? And then could you give any color on the hedge fund performance and outlook there? Jim Cracchiolo: Yeah. No. We we've had some really good flows in in a number of our disciplines. So so both in equity and retail, if you you look at some of our different areas there, the dividend income, contrarian core, things like that. We've had it in institutional and things like our Japan and other strategies. Some of the fixed income. But, I would just say, and we have been getting very good flows into our hedge funds area, etcetera. We picked up some real estate last year in Europe, etcetera. That was very good. So we see really pockets of good growth and and consistency there. But as you know, there's also the rotation in some of things like LDI and other things that have impacted us. So we feel looking into 2026, we're in a good state, and that we're hoping that that will continue to show its improvement. And I think we're doing some of the right things in our performance is quite strong. We just need to pick up a bit more in the fixed income area where our performance is really good, and I think that's where we can pick up a bit more share as we get that identified. Operator: Thank you. We have no further questions at this time. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the CNX Resources 2025 Fourth Quarter Q&A Conference Call. All participants will be in listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Tyler Lewis, Senior Vice President of Finance and Treasurer. Please go ahead. Tyler Lewis: Thank you, and good morning, everybody. Welcome to CNX's fourth quarter Q&A conference call. Today, we will be answering questions related to our fourth quarter results. This morning, we posted to our Investor Relations website an updated slide presentation and detailed fourth quarter earnings release data such as quarterly E&P data, financial statements, and non-GAAP reconciliations. These can be found in a document titled 4Q 2025 Earnings Results and Supplemental Information of CNX Resources. Also, we posted to our Investor Relations website our prepared remarks for the quarter, which we hope everyone had a chance to read before the call as the call today will be used for Q&A. With me today for Q&A are Alan Shepard, our President and Chief Executive Officer, Everett Good, our Chief Financial Officer, and Navneet Behl, our Chief Operating Officer. Please note that the company's remarks made during this call, including answers to questions, include forward-looking statements, which are subject to various risks and uncertainties. These statements are not guarantees of future performance, and our actual results may differ materially as a result of many factors. A discussion of risks and uncertainties related to those factors and CNX's business is contained in its filings with the Securities and Exchange Commission and in the release issued today. Before we get into Q&A, I'm going to turn it over to Alan for a couple of comments related to the recent cold weather events. Alan? Alan Shepard: Thanks, Tyler, and good morning, everyone. We normally do not provide opening remarks on these calls. I would be remiss today if I did not take a moment to acknowledge the hard work and incredible efforts of not just our CNX team, but of all the men and women of the natural gas industry who are working to keep the heat and lights on across America during this extraordinary cold weather event we are experiencing. Speaking on behalf of myself, everyone in the room with me, and all of our fellow citizens who are staying warm today, thank you for everything you have done and everything you will continue to do in the days, weeks, and years ahead. With that being said, operator, can you please now open the line for questions? Operator: We will now begin the question and answer session. The first question today comes from Jacob Roberts with TPH. Please go ahead. Jacob Roberts: Good morning. Good morning, Jake. We wanted to ask about the commentary on the front half weighted capital until program and how we should be thinking about that translating to a flat production profile across the year? Just wondering if you can provide any more granularity on how you're thinking about the Till schedule quarter to quarter? Everett Good: Yes. Thanks, Jacob. This is Everett. You can generally think about the first half CapEx being about 60% of the year's total. And then from a production basis, it's pretty flat throughout the year. But the weighting of that capital to the first half gives us some flexibility in the second half of the year to potentially accelerate frac activity if conditions warrant. Jacob Roberts: Okay. Great. That's helpful. And turning to the RMG business line, we're curious to how you view the outlook on the AEC pricing and is there a pathway or to getting that back to the $65 million or $75 million annual run rate? And in terms of the 45Z outlook, is it fair to assume that $20 million are kind of grossed up $30 million? Is that also firmly tied to the met stream in terms of the volume being relatively steady going forward? Everett Good: Yeah. So for the questions there. Let's start with the PA tier one rec market. So that market has been pretty stable since, call it, spring of last year. With the Trump administration coming in, it softened a little bit. Think longer-term outlook for that market, the prices you're seeing now are basically what you need to underwrite sort of new solar wind activity in the PGM markets. So for value megawatt hour to increase there, you're gonna need to see some of the step-ups and the required percent of contribution to the grid from renewables. So that's sort of the long-term bull case as those standards tighten and obviously, pricing moves up. But in the near term, it's sort of settled into the marginal cost of bringing on new renewable supply. On 45Z, yeah, I think the way to think about that is, you know, our current production levels, we're able to generate on a run rate basis about $30 million a year with the initial proposed guidance, and we'll see what the final guidance looks like when it comes out if there's any adjustments to that. Jacob Roberts: Great. I appreciate your time. The next question comes from Leo Mariani with Roth. Please go ahead. Leo Mariani: Hi. I was hoping you could talk about the Utica program here in 2026. I'm only seeing kind of three turn in lines, probably a little bit lower than I expected. It seems like the company has been very excited about the Utica and made some good progress. So it just seemed like maybe it was a little smaller program this year. So just trying to reconcile that, but maybe some of this is timing or maybe some of the '26 wells are coming on that next year. Alan Shepard: Yeah. I think it's the latter, Leo. I appreciate the question. I mean, it's really not indicative of the underlying kind of belief in the Utica or anything like that. It's just we have a lot of TILs from last year coming online. We have some Southwest PA inventory that we want to harvest that's really economic. And then we're gonna continue in the last half of the year back at it with reps at the wellhead on the Utica. So I don't know if Nav has got anything to add, but nothing to read into on sort of the till timing there. Navneet Behl: Yeah. Leo, I can add a bit. We are really confident of our Deep Utica program right now. And as Alan mentioned, this is just a timing issue. Nothing else. In fact, we'll be completing about five Utica laterals this year. So it's just a function of timing on when we complete it. Leo Mariani: Okay. No. That's very helpful for sure. And then Alan, you kind of went off the call talking about weather here. Just wanted to get a sense, are you guys expecting some disruption to the operations or the volumes here in the first quarter? Obviously, it sounds like your team is doing a great job. I just wanted to get a sense if you think there's some impact there. Alan Shepard: No. We're not. So, you know, our team's been preparing for the last weeks heading into this event. They've done a tremendous job keeping the field running. The numbers that we put out today include any expected disruptions, so nothing on that front. Leo Mariani: Okay. That's helpful for sure. And then just lastly on your new tech business, wanted to get a sense if there's any update in terms of how some of the other businesses are progressing like AutoSet on the service side. And I know you guys have also discussed kind of some CNG, LNG ambitions over time. Alan Shepard: Yeah. On the AutoSet, I think as we mentioned before, we fully internalized, adopted that technology. We use it on our flowbacks. It provides tremendous cost savings, environmental, and safety benefits. We are the sort of non-op on that. We've outsourced that to an OFS company who's continuing to roll that out across Appalachia here. Everything we're seeing is it's starting to be adopted, and we think '26 might be an uptick year for that. But nothing contributing yet materially to the financial bottom line. When it does, we'll provide guidance on that. As far as the other businesses, the tech still exists for those businesses, but just nothing material to update on those right now. Leo Mariani: Okay. Thanks. Operator: The next question comes from Michael Scialla with Stephens. Please go ahead. Michael Scialla: Yes, good morning. You guys said in your prepared remarks you expect to be responsive to any material changes in gas prices this year, Everett? You mentioned you'd consider adding a frac crew in the '6. Wanted to see, is that built into the CapEx guidance range, that $20 million variance for this year? Or any more detail you could provide there would suggest what CapEx could do in the for the full year. Everett Good: Yeah. Michael, yeah, any uptick in activity is not included in our base ranges. What we're seeing right now in terms of pricing, you know, after you get beyond the February contract where it falls off pretty significantly in terms of the strip. So we're not seeing yet the price activity yet to kind of incentivize us to add frac activity in the '26. Alan Shepard: Yeah. Just to add on. We're not gonna chase sort of spot activity. When we talk about adding, it would be some sort of long-term call associated with new infrastructure, new power plans, something like that that would really get the 27, 28, 29 strip moving. We're not gonna try to jump around to catch a month of pricing. Michael Scialla: Got it. Okay. And then just wanna see if you could add any color on the three deep Utica wells you turn in line for the quarter. I realize it's early days, but anything you can say there in terms of cost or production? Navneet Behl: I think everything is generally aligned, Ava. Anything to add? Yeah. Our team has been really working on the drilling cost and, like, we had guided, like, our average, you know, Utica cost is about $1,700 per foot. So that's on the cost. And second, on the performance, these wells are in line with our expected performance. And we are pretty confident, and now we are into the spacing evaluation. So we have, like, two spacing tests going on now. One is 1,300-foot spacing, and then the second is 1,500-foot spacing. And as we get more results from these tests, we'll be getting that information out. Michael Scialla: Great. Look forward to that. Thank you, guys. Operator: Next question comes from Kalei Akamai with Bank of America. Please go ahead. Kalei Akamai: Hey, good morning guys. For my first question, I want to ask about coal mine methane volumes. Kind of a modest downtick year over year, maybe half of the year 17.5 from last year. Can you kind of help us understand the activity set behind the volumes how that may compare to last year? How many years of visibility you have looking forward? Alan Shepard: Yeah. The way to think about it, those volumes are really the primary driver is the underlying mining activity at that particular mine. Our expectation is that we're sort of in that range moving forward assuming that mine continues to operate. You know, that life of mine is twenty plus years and so it's a metallurgical mine in Virginia. If you're familiar with it. So really any sort of wiggle you see in volumes is just a function of the pace of their longwall and what needs degassed. Kalei Akamai: Can you just remind us on the hedging strategy? Got it. Thank you, Alan. For my second question, when do you guys expect to be done by 2027? Everett Good: Yeah. Yeah. Clay, I can take that. So for '27, I mean, as we approach that year, we look to be approximately 80% hedged. '27 is a really good year for us. Right now we have kind of a weighted average NYMEX price of about $4. So we target that level around there, you know, based on what we can get in the basis markets as well. So at $4 kind of swaps business forms really, really well at that level. Yeah. And we're 60% hedged already on Yeah. We're a little over 60% hedged on that. Alan Shepard: Yeah. So we'll dig into the rest of that book throughout the year. Given we're already 60% hedged, we can be a little more opportunistic on putting those on. As Everett mentioned, we'll be at our 80% sort of number heading into that year. Kalei Akamai: Got it. Thank you, guys. Operator: The next question comes from Jeff Baumann with Daniel Energy Partners. Please go ahead. Jeff Baumann: Hi, good morning everybody. I had two questions. First one, I appreciate the comments around not chasing a front month gas price or a near price. But maybe just to expand on it, can you frame maybe a little bit more of kind of what you want to see? You mentioned a 27 strip, 28 strip. Is this something where you want to get through the winter, kind of see where storage levels end in terms of kind of timing on any kind of increase in activity? Just maybe a little bit more on kind of how you're thinking about level setting from maintenance to maybe something higher? Thanks. Alan Shepard: Yeah. So maybe break it into two parts. I think if you think long term, right, we've been in maintenance of production give or take for the last six years, and that's really a function of just the constraints up here in Appalachia. The unwillingness for regulators to allow additional pipelines to get gas to where it should go. And then some of the projects you are seeing for potential in-basin demand, they're sort of longer lead projects with the new power and AI demand. You know, we're hopeful on those, they're still a few years out. So there's no reason to build those volumes just yet. In terms of, you know, jumping up or down 5% any given year, to make that decision as part of your planning cycle, you'd want to be able to have pretty good visibility that the prices aren't going to slip away from you by the time you bring the volumes on. So you'd want to hedge off that if you were going to increase production. And then, you know, you're just always trying to manage your chill count and your duck count to give you a little bit of flexibility. But that's all just sort of short-term tactics as opposed to sort of a longer-term strategy which we'd like to see, which is an actual increase on the demand side. Jeff Baumann: Right. Yeah. So a follow-up question on that. Can you just speak more broadly on incremental takeaway? I get it on the greenfield, difficulties, but I'm hearing more and more there's smaller projects, brownfield expansions, moving gas west out of Pennsylvania into Ohio, kind of some of the bigger data center growth. Just any thoughts on how everybody is doing in terms of kind of pushing a little bit more gas west and south? Alan Shepard: Yeah. A lot of the low-hanging fruit on those westbound projects was taken up last decade. I mean, there are some proposed on the table that get you back sort of to the Midwest area, the kind of area. But those haven't been greenlit yet. I mean, the cost of some of those projects is just a little bit challenging just yet. I think everyone's sort of waiting to see sort of what the final outlook is here on AI demand. Right? You need those guys to make their decisions, and then, you know, we'll be right behind them with the fuel supply to support all that. But, yeah, there are some cats and dogs out there, but nothing material to kind of move anybody off maintenance production in my view. Jeff Baumann: Gotcha. Thank you very much. Operator: The next question comes from Betty Chang with Barclays. Please go ahead. Betty Chang: Good morning. Thank you for taking my question. I have a question on the 2020 activity of going to do the three wells in Marcellus in CPA and three wells in Utica. Just surprised just with the Marcellus activity, what's your expectation for the Marcellus productivity in that region? Alan Shepard: Yes. So the way to think about that, that's kind of our stacked pay development. Right? So we're going first with the Utica. You think about putting incremental laterals above that on the Marcellus. Think you're in the sort of just shy of two o range, right, with the high ones on those wells? Betty Chang: Got it. And back to your core South Southwest PA Marcellus, where you're focusing most of your activity, in that could you just remind us what is your latest inventory runway area if you maintain at the 2026 level? Alan Shepard: Yeah. So I think we'll put out the updated acreage counts at the '1, but generally, we're in the, call it, 40 to 50,000 acres remaining. So it'll get you towards the end of the decade. Betty Chang: Okay. Got it. That's it. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Tyler Lewis for any closing remarks. Tyler Lewis: Great. Thank you for joining us everyone this morning. Please feel free to reach out if anyone has any additional questions. Otherwise, we look forward to speaking with everyone again next quarter. Thank you. Navneet Behl: Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to MarineMax, Inc. Fiscal 2026 First Quarter Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. I would now like to turn the call over to Scott Solomon, of the company's Investor Relations firm, General Merrill Advisors. Please go ahead. Scott Solomon: Thank you, operator, and good morning, everyone. Hosting today's call are Brett McGill, MarineMax's Chief Executive Officer and President, and Mike McLamb, the company's Chief Financial Officer. Brett will begin the call by discussing MarineMax's operating performance and recent highlights. Mike will review the financial results and the company's fiscal 2026 financial guidance. Brett will make some concluding comments, and then management will be happy to take your questions. The earnings release and supplemental presentation associated with today's announcement can be found at investor.marinemax.com. And with that, I'll turn the call over to Mike. Mike? Mike McLamb: Thank you, Scott. Good morning, everyone, and thank you for joining this call. I'd like to start by reminding you that certain of our comments are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Any forward-looking statements speak only as of today. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations. These risks include, but are not limited to, the impact of seasonality and weather, global economic conditions and the level of consumer spending, the company's ability to capitalize on opportunities or grow its market share, and numerous other factors in the company's most recently filed 10-K and 10-Q and other filings with the Securities and Exchange Commission. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. On today's call, we will make comments referring to non-GAAP financial measures. We believe that the inclusion of these financial measures helps investors gain a meaningful understanding of the changes in the company's core operating results. These measures can also help investors who wish to make comparisons between MarineMax and other companies on both a GAAP and a non-GAAP basis. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in today's earnings release. With that, let me turn the call over to Brett. Brett? Brett McGill: Thank you, Mike. Good morning, everyone, and thank you for joining us today to discuss our fiscal first quarter 2026 performance. I'd like to begin by acknowledging the work of our teams across our stores, marinas, manufacturing, and superyacht service organization. Market conditions remain challenging throughout the quarter, with elevated promotional activity and cautious retail behavior continuing to influence demand patterns. Even in this environment, our teams maintained a strong focus on the customer experience while working to keep inventory aligned with current demand levels. Their efforts, which are reflected in our strong net promoter scores, contributed to the results we delivered and will help to ensure operational improvement as we move into the upcoming season. Revenue for December increased year over year with strong same-store sales driving the growth. Granted, as we previously noted, we were up against an easier revenue comparison this quarter due to the hurricanes last year. Retail boat margin pressure increased across the recreational boating industry, with the onset of winter. Competitive intensity remained high, and overall consumer sentiment continued to be affected by broader uncertainty. These dynamics reflected what we expected as the industry continues progressing toward normalized inventory levels. Against this backdrop, margins on new and used boats remained well below historical levels. However, our same-store sales performance was supported by our premium brand offerings and the migration to larger products as well. Our long track record of sustaining gross margins above 30% even in one of the more challenging lower margin periods for boat sales underscores the strength of our strategy to expand into higher margin, more stable businesses. By steadily acquiring complementary, less cyclical, higher margin operations, we've built a broader and more durable model. As these businesses continue to grow, together with improvements in our core operations, including marinas, storage, service, and finance and insurance, they are elevating our performance and will enhance our cash flows as the retail boating industry begins to recover. Even with industry challenges, in what is seasonally our smallest quarter of the year, we were able to deliver on our goal of reducing inventory levels by nearly $170 million compared with last year. Also looking ahead, we expect the industry's inventory environment to continue progressing toward more normalized levels as we move into the second half of the fiscal year. Although the timing and extent of improvement will depend on broader macroeconomic industry factors, a return to more typical inventory levels should help ease pressure on retail margins over time. Our presence at the premium end of the market continues to be a point of differentiation. Reflecting the strength of our brands and product portfolio. At the same time, we remain appropriately cautious for our outlook given the broader retail and macroeconomic environment. We continue to prioritize maintaining an appropriate inventory position, delivering a reliable and high-quality customer experience, and managing the business with discipline and long-term perspective. As we look at broader demand signals, to this year's selling season, the Fort Lauderdale International Boat Show effectively served as the kickoff, providing an early read on customer engagement across key segments. Subsequently, winter shows in Boston, Atlanta, New York, Milwaukee, Saint Petersburg, and Minneapolis, among others, offered additional touchpoints that collectively helped us gauge early season positive sentiment across a variety of markets. While it is still early, the consistency of interest across these events has us increasingly optimistic as we prepare for the spring selling season. Looking ahead, the Miami and Palm Beach shows in February and March will be important indicators of in-season demand at the premium end of the market and will further inform our outlook as seasonal retail activity accelerates. While recent demand has been positive, our outlook for fiscal 2026 remains balanced given the ongoing uncertainty regarding the broader consumer and macroeconomic environment. Against this backdrop, we continue to prioritize maintaining appropriate inventory levels, delivering a consistent and high-quality customer experience, and managing the business with discipline and long-term perspective. The execution of these priorities combined with our scale and operational capabilities, positions us well to navigate the near-term uncertainty and support long-term value creation for our shareholders. So now let me turn the call over to Mike for our financial review. Mike? Mike McLamb: Thank you, Brett. To amplify Brett's comments, a customer-first culture is essential regardless of where we are in the cycle. And our team has done an outstanding job in that regard. Through previous cycles, repeat customers created through our outstanding customer experience have played a prominent part in propelling us forward. Looking at our first quarter results, achieving nearly 11% same-store sales growth was encouraging. Our revenue of $505 million supported our efforts to reduce inventory and contributed to an even stronger, more liquid balance sheet. We also benefited from our location optimization strategy which resulted in a more efficient footprint compared with last year. You can see from reported industry data that boat sales were challenged throughout the quarter. Particularly in the fiberglass segments, which are most important to us. Accordingly, our unit volume declined by low to mid-single digits. This implies a significant increase in average unit price driven primarily by mix and aided in part by the strength of the Fort Lauderdale Boat Show which skews toward larger products. Historically, in past recoveries, the larger product has tended to lead the way. Not surprisingly, gross profit of $160 million was down from the prior year due to anticipated margin pressure in the winter months from the industry's inventory overhang and its impact on less capitalized dealers. Gross margins today are more than 400 basis points below what would be considered a normal historical margin in most periods. That said, our higher margin businesses like our marinas, finance and insurance, and superyacht services contributed favorably to consolidated gross profit demonstrating the benefits of our diversified portfolio. Selling, general and administrative expenses increased to over $155 million but when adjusting for transaction costs, changes in contingent consideration, which was a gain of over $25 million last year, weather events and other items in both periods, SG&A was $1.7 million higher year over year but it was down 200 basis points as a percentage of revenue. Interest expense also declined due to decreased borrowings from lower inventory and lower rates. Interest expense should continue to be a tailwind for us in fiscal 2026 compared with last year. Our reported net loss per share was $0.36 per share or $0.21 per share on an adjusted basis. Adjusted EBITDA was $15.5 million. Our balance sheet remains strong with nearly $165 million in cash, while fiscal 2025 and 2026 were challenging periods for the industry, we still generated significant cash flow that allowed us to repurchase approximately 6% of our shares, acquire the high-quality Shelter Bay Marina and Retail business in the Keys, and continue investing across the company to support long-term growth and operational excellence. These investments included the opening of IGY Savannah, the expansion of our Stewart Marina, the rollout of our enhanced Fort Myers operation, and several other strategic initiatives. Interestingly, as we start the March, our customer deposits are flat year over year, an encouraging sign given the environment we just navigated. Through our disciplined approach, we improved both our current ratio and total liabilities to tangible net worth ratio. At the same time, we maintained a healthy net debt to adjusted EBITDA ratio of just over two times at quarter end. Based on current business conditions, recent industry registration data, retail trends, and other relevant factors, we are reaffirming our guidance for fiscal 2026. We continue to expect fiscal 2026 adjusted EBITDA to be in the range of $110 million to $125 million with adjusted net income in the range of $0.40 to $0.95 per diluted share. As I noted on our last earnings call, this guidance assumes industry units for our fiscal year will be down slightly to up slightly depending on the various factors that have affected consumer demand. Same-store sales are expected to finish fiscal 2026 flat to slightly positive depending on mix. We anticipate retail margin pressure to persist across the industry through the end of our fiscal second quarter. Which aligns with the typically slower winter period. We also expect inventory levels in the industry to show more meaningful improvement in the second half of the fiscal year compared with the same period in fiscal 2025. Supported by the continued growth of our margin businesses, we believe we can maintain consolidated gross margins in the low 30% range for the year. Our outlook reflects the interest rate cuts announced to date and assumes an annual effective tax rate of 26.5% and a share count of approximately 22.8 million shares. These projections do not incorporate the potential effects of significant acquisitions or other unforeseen developments, including shifts in global economic conditions. Reiterating what we said when we provided our fiscal 2026 guidance in early November, it's important to note that for the six months through March, our revenue and EBITDA was flat to up slightly while business became drastically more challenged for us and the industry after Liberation Day in early April. Liberation Day disruption was at the very beginning of the June, which seasonally is the most meaningful quarter to us and the industry. The resulting softness in that quarter caused the inventory overhang the industry is still working through. Accordingly, when modeling the business, you should bear in mind that the front half of the year is meaningfully more difficult from an earnings comparison. Having said that and looking at current business conditions, January trends have been solid, thanks in large part to successful boat shows and the month will finish with positive same-store sales. With that, I'll turn the call back over to Brett for closing comments. Brett? Brett McGill: Thank you, Mike. Despite the challenging economic environment across the recreational boating industry, we expect activity to seasonally strengthen as we head into the spring selling season. Early momentum at this year's boat shows has been encouraging. And our position within the premium segment puts us in a strong position to capture meaningful growth and outperform the broader market as conditions improve. Our strength in the recreational marine sector comes from our diverse interconnected business lines. This integrated approach builds operational efficiency and long-term value. Through continued innovation, and elevated customer experience, and expansion in high-margin areas of our business, we remain confident in our ability to drive sustained growth and long-term value. With that, Mike and I will be happy to take your questions. So operator, please open up the line for Q&A. Operator: Thank you. Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from Joe Altobello with Raymond James. Please proceed. Joe Altobello: Thanks. Hey, guys. Good morning. Not surprisingly, one, to start on gross margin here. I know, Mike, you mentioned your second half compares get easier, but what are you assuming in terms of the discounting environment you know, as we progress throughout the selling season? And if that does get better, is this offset by lower OEM promotional support? Mike McLamb: Good question, Joe. So we expect, as we said in the prepared remarks, that during this quarter, which is during the wintertime, the promotional environment is still going to be pretty active and pretty aggressive. That's baked into our guidance numbers. We do think when you get into maybe late March, or early in the June quarter, the weeks on hand of inventory in the industry are expected to actually drop, you know, first get even with they normally would be and then get below where they where they would normally be. And at that point, I think you know, lesser capitalized dealers out there who've been under a lot of pressure will feel a lot better. They'll be easing know, their aggressiveness, which does impact the entire industry, including us. And I think in kind of early in the spring is the opportunity for margins to begin to recover from the levels that they're at today, which historically very, very low. Don't think it's going to be a hockey stick recovery, but I think it's going to start to recover, sure in the June, which is meaningful. Then as it relates to how what that means for promotional environment for the manufacturers, I would think in some cases, they probably can also take a little bit of their foot off the gas a little bit as they work closely with dealers like us and their and their partners. But we're all aligned in terms of continue to create retail and stay ahead of demand and continue to create demand. Joe Altobello: Got it. Very helpful. Maybe just to follow-up on that. You mentioned you still expect inventory reductions in the back half. Is there a number that you have in mind where you want to end the fiscal year from an inventory standpoint? Mike McLamb: You know what? We talk a lot about numbers internally. But really, what we're trying to get to is the inventory the inventory turns for us are below where we normally would like them to be. We're below two times now, which is normally above two times. So we're trying to end fiscal 2026 with inventory turns above two times. And to get there, you our inventory will have to be a little bit lower than where we ended last year. Which was already a reduction from the year before. And we've made very good progress as Brett said, being a $170 million down year over year at December. And, you know, subject to retail expectations, I think we'll end the year with less inventory dollars. Joe Altobello: Okay. Super. Thank you. Mike McLamb: Thanks, Joe. Operator: Our next question is from James Hardiman with Citigroup. Please proceed. James Hardiman: Hi. This is Sean Wagner on for James. Wanted to one first confirm. So you said nearly 11% same-store sales growth in the quarter. Unit volumes, I think you said declined low to mid-single digits. And ASPs were down. Is that correct? Or ASPs were up again? Mike McLamb: Yeah. To get to the 11% same-store sales growth, with a mid-single-digit decline in units, had a very significant increase in average unit selling prices, which I think I said in the on the remarks, the strength of the Fort Lauderdale boat show really helped to propel. That tends to be a bigger boat show, and it was a very strong show. That drove AUPs in the, in the quarter. Sean Wagner: Okay. I guess following up on that, if there's a mixed benefit on the top line I guess, why didn't why didn't that translate into better gross margin? Where you called out sort of a negative mix headwind? Mike McLamb: Yeah. Actually, it's not a it isn't really negative. The mix is when boat sales increase, as much as they did in terms of boat sales revenue, 11%. And boats today are the lowest margin product we sell. Given the fact that we're you know, we have so many other higher margin businesses. That mix increase is adverse to your consolidated margin if you follow me. If you sell a lot more of a lower margin product, it impacts your consolidated margins. That's what that comment meant to hit on. Sean Wagner: Okay. And you but you did you you called out higher margin businesses contributing favorably to the consolidated gross margin. Is that just saying without those businesses, it would have been even worse? Mike McLamb: Yeah. Yes. For sure. The marina businesses that we're in, our superyacht services, finance and insurance, service, all the other business, brokerage, all the other business we're in. Contain a much higher gross profit margin, and they they've all they all keep doing and performing pretty darn well. Sean Wagner: Okay. Got it. Thank you very much. Mike McLamb: Thanks, Sean. Operator: Our next question is from Eric Wold with Texas Capital Securities. Please proceed. Eric Wold: Thanks. Good morning, guys. I just Good morning. Coming out of the the the just the initial set of boat shows into the winter, I guess, you talk a little bit about what you're seeing with demand kind of across the various income groups and price points? I know you talked about seeing demand on the high end, which raised the average price point. Does that mean there was weakness at low end or just that you saw greater demand at the at the high end? And does that give you in that case, does that give you more confidence that you know, some of the the higher end premium buyers that that surprisingly work on staying on the sidelines are starting to, to come off. Brett McGill: Yeah. Hey, Eric. It's Brett. I think the Lauderdale boat show is exactly what we saw. It's a higher ticket price type of show. And the demand was good. And in fact, like you just said, there were some people that had been waiting that were just kinda wanna go boating, and they just decided to kinda come in and get boating. So that that was good momentum. Second half of the quarter, you know, was was tough. You know? Trends were down. Don't know if I'd categorize it because that time of year for us is kind of a larger product, a winter season type of type of sales. So it's the bigger boats. There's some industry data out there, but the fiberglass segment continues to be under pressure. Which is, you know, we're trying to fight through that. And that's Mike's comments about kinda getting into the second half of the year with inventory being in in good alignment. You know? Good things will happen for that. Eric Wold: Okay. Just to follow-up. I know you're not necessarily low end, boat seller, but I guess I guess on the lower end of your scale, are you seeing that cohort of buyers change at all? Are they staying relatively cautious? Are they getting more cautious? Are they starting to come off the sidelines as well with rates coming down? What are you kinda seeing from the lower end? Brett McGill: Yeah. I think it's it feels similar. I think my comment about it being seasonally the larger boats, we're not feeling any additional pressure on the lower end of what we carry versus the upper end. It feels generally about the same. Yeah. Mike, you wanna add to that? Mike McLamb: No. Eric, I think what I can add to that is that the, you know, within the industry, obviously, we we see what's happening within our stores. We know what's happening outside of our stores. And, clearly, the data tells you that the premium product, the higher price point, the premium end is performing better overall than the value or entry-level end segments. They're both they're both challenged. I think the value end and the the more entry-level is more challenged for sure. Than the premium end. And the strength that we saw in Lauderdale, and Brett commented another shows, the strength that we saw in January in a lot of shows, it does seem to be being led by some of our larger product, which is historically what's happened in past cycles when we come out of a cycle. The more premium product that we sell tends to lead the way, which is encouraging when we start thinking about the rest of 2026 also. You know, I'll add one more thing. I think sometimes right now, it's less about this segment for us, for the products we carry. It's less about one segment being up or down. And this buyer, it's about, kind of a start-stop thing. You know? Different world news that comes out. You know, just literally, we can see sales buying trends change for two weeks after some crazy news that might get released. And so it's great great Lauderdale show, and then, you know, a couple weeks of crazy news and the buyers all stop. So it's it's really the uncertainty right now that's out there that's causing people to to either be buying or slowing down for a little bit. Eric Wold: Got it. Thank you both. Brett McGill: Yeah. Thanks, Eric. Operator: Our next question is from Anna Glaessgen with B. Riley Securities. Please proceed. Anna Glaessgen: Good morning. Thanks for taking my question. I'd like to turn back to the cadence of boat margin embedded in the guidance. You know, you've been clear that expect some pressure through the second fiscal quarter. Should we expect that in the back half, there's less pressure or that it actually inflects the positive year over year as you lap that liberation day impact? Mike McLamb: Yes. If I understand your question right, Anna, it's the March will have very similar pressure to what we experienced here in the December. And then, yes, it's going to be less pressure. So there ought to be opportunities for consolidated gross margin expansion. I'd be, you know, modest in that. Is what's in our guidance. But there should be the opportunity for some boat margin expansion which would affect and improve our consolidated margins in the June and the September. Anna Glaessgen: Got it. Thanks. And then turning to the customer deposits, you know, we've seen you know, of an extended stint of, you know, year over year compression in light of the broader retail environment seems to be a positive that that's starting to inflect. Just trying to understand if there's anything one tiny in this most recent quarter. I know it can be lumpy if you have one really big boat in there. So anything to call out on mix or anything to note there? Thanks. Mike McLamb: Actually, great question. I called it out on the on our prepared remarks. I think it's a great point to note that our the customer deposits is in some way fuel for future quarters, and the fact that it's stopped declining and evened out on a year over year basis despite all the uncertainty, I think, is a real positive. There isn't really anything overly lumpy in there. It just reflects solid business trends with some of the larger which is usually where you're given deposits. But, no. Generally, it's good that deposits are holding up year over year. Brett McGill: Right. Anna Glaessgen: Thanks. Mike McLamb: Thanks, Anna. Operator: Our next question is from Derek Johnson with Seaport Research. Please proceed. Derek Johnson: Great. Thank you. Hey. I wanna go a little bit deeper into Eric's question about boat shows. You mentioned early boat shows are encouraging. Now excluding Fort Lauderdale in this conversation, can you just dive deeper into that? What shows, what regions maybe were most encouraging over the past month or so? And what segments? Brett McGill: Yeah. This is Brett, Jared. The boat shows, that's kinda what made the comment in our script there that we called out a bunch of different shows from Saint Pete to Boston and in between. And the reason we did that is, really across all markets, we saw a positive boat show. You know, some of these shows are smaller in the grand scheme of things, but it's an indicator for that market of what to expect. And, you know, like we keep saying, kinda heading into the spring selling season, what are we kinda up against, which last year, like Mike's keep keeps saying that Q1 and Q2 were were pretty good last year. And then Liberation Day did. And so, therefore, we've been adjusting inventory because of that harsh reduction in the industry sales. And with inventory in line, you know, hopefully, nothing like a liberation day come at the beginning of the quarter for Q3. You're kind of going in with good inventory and an uptick in sales. You know, you should be in a good good place there. Derek Johnson: Okay. So it sounds encouraging. Now, given that we lost Sunday in New York, is that impactful to your second quarter? Brett McGill: I think all of those shows, I would say when I think back to the decades that Mike and I have been attending shows in our team, feels like every year there's there's something at every one of those shows. So the comparables are real hard to say. We probably lost a day last year. The attendance was down. There was a lot going on in Minneapolis but all of our shows did did fine. You take Saint Petersburg. I mean, two days were weather issues. And we still had a great show. So, yes, to back to your question, you know, that does have effects on things, but, usually, it balances out for the effect of, New York. You know, it's a decent show, so it should shine through in our quarter. Derek Johnson: Okay. And you and you mentioned, you know, news having an impact on your customer last year. Did that have any impact in in the quarter given the government shutdown happened, like, middle of the quarter? Mike McLamb: It's actually it the way I would answer that, and Brett may have his own views on it, but the way I'd answer that is to the extent something like that just kinda messes with consumer demand and how the consumer feels and all that, then that's negative. It probably had a negative impact on us from that perspective. I don't know if we can directly go, you know, we got this boat sale. We lost this boat sale simply because of it. It has that start-stop effect on our consumer. Right? You get good momentum at Lauderdale or a boat show and then news like that, and it just people get consumed, and they sit on the sideline for a couple weeks, and then they start coming back. So it's the start-stop uncertainty that we're feeling this last three, four months. Derek Johnson: Okay. Great. Appreciate it. Thank you. Operator: Our next question is from David MacGregor with Longbow Research. Please proceed. David MacGregor: Hi, good morning. This is Joe Nolan on for David. Hey. Joe Nolan: Hi. Just on gross margin, the year over year change can you quantify or talk directionally about the drivers to the decline in margin? Just how much was mix, how much was promos, etcetera? Mike McLamb: It's a good question. I don't really have that broken down right in front of me. I tell all of it is promotional, not really mix in terms of new boat gross margin, decline from a year over year perspective. And that's really what driving the overall gross margin decline. So I guess to your point, mix, because we do have an increase in boat sales overall, would contribute to that. But the biggest driver is just where both margins are versus last year. Joe Nolan: Got it. Okay. And then on same-store sales, you guys had a great quarter. Can you just talk about the cadence through the quarter and just what you've seen so far into January? Mike McLamb: Yeah. October was a was a good month. November and December were aided by the Fort Lauderdale Boat Show. Traffic and just, you know, units and business itself were challenged in those two months. Consistent with the industry data. I mean, we did fine, but, so the, same-store sales were strong kinda throughout the quarter because of the strength of the Fort Lauderdale boat show. And then as we said on the call for January, we are expecting January to finish with positive same-store sales growth. And as Brett said, all the boat shows, all the ones you rattled off, which were quite a few, across the country, have been generally pretty positive. Joe Nolan: Okay. Great. And if I could just speak one more in just on acquisitions. Just wondering you're seeing in terms of valuations, where your targets are there and just anything you could say about that. Mike McLamb: I can comment. We always have a robust acquisition pipeline, and we still do. The challenge right now is for many of the entities in our pipeline, and they're not all necessarily boat dealers, but for many of them that are dealers, there's just no earnings. And so that's kinda hard to it's hard to come up with you know, good valuation discussions with potential people that we had merged with. What I'd say is over our long history of doing this, we don't really lose an acquisition target. They may get postponed. And then we come back and acquire them at some point in the future when it makes sense to us and makes sense to them as well. The valuations in terms of those type of businesses haven't changed a whole lot other than the earnings within those businesses. It's just very, very weak to the extent they have any. Joe Nolan: Got it. Okay. I'll pass it on. Mike McLamb: Thanks, Joe. Operator: There are no further questions at this time. I would like to turn the conference back over to Brett for closing remarks. Brett McGill: Well, yes, thank you, everybody, for joining us this morning. And for those of you heading to the Miami Boat Show, we hope to see you there. And look forward to talking to you on the next call. Have a great day. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, thank you for your participation.
Operator: Good morning and welcome to Whirlpool Corporation's Fourth Quarter 2025 Earnings Call. Today's call is being recorded. Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer, Roxanne Warner, our Chief Financial Officer, Juan Carlos Fuente, our Executive President of North America and Global Strategic Sourcing, and Ludovic Bouffiz, our Executive President of KitchenAid Small Appliances in Latin America. Our remarks today track with a presentation available on the investor section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we will be making forward-looking statements to assist you in better understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from the statements due to many factors discussed in our latest 10-K, 10-Q, and other periodic reports. We also want to remind you that today's presentation includes non-GAAP measures outlined in further detail at the beginning of our presentation. We believe these measures are important indicators of our operations as they exclude items that may not be indicative of results from our ongoing business operations. We also think the adjusted measures will provide you with a better base for analyzing trends in our ongoing business operations. Listeners are directed to the supplemental information package posted on the investor relations section of our website for the reconciliations of non-GAAP items to the most directly comparable GAAP measures. At this time, all participants are in listen-only mode. Following our prepared remarks, the call will be open for analyst questions. As a reminder, we ask that participants ask no more than two questions. With that, I'll turn the call over to Marc Bitzer. Marc Bitzer: Thanks, Scott, and good morning, everyone. Today, we're going to discuss our 2025 results and share our expectations for 2026. Before we dive in, I would like to acknowledge three leadership promotions we have recently made. By their new faces or rather new voices on this call, they together represent over seventy years of experience within Whirlpool. Each one of them brings deep operational, strategic, and financial experience to a new role. Let me start by handing it over to Roxanne to introduce herself. Roxanne Warner: Thanks, Marc, and good morning, everyone. I am honored to step into the role of Chief Financial Officer of Whirlpool Corporation. Having spent the last eighteen years at Whirlpool, I have a deep appreciation for our operations and a firm commitment to driving long-term shareholder value. Prior to my current role, I served as Executive Vice President Finance and Corporate Controller. In 2021, I was the Chief Financial Officer of our Europe segment where I led both finance and integrated supply chain operations and supported the organization through our European divestiture. Joining Whirlpool in 2008, I have had the privilege of holding numerous roles across cost management, commercial, and corporate finance, including leading the finance functions of our US laundry and US sales organization in North America. In 2019, I had the honor of leading investor relations where I connected with both our investors and analysts. I look forward to reestablishing those connections and creating new ones. I'm excited to work alongside the leadership team and our employees to deliver our next chapter of growth. I will turn it over to Juan Carlos. Juan Carlos Fuente: Thanks, Roxanne, and good morning, everybody. It's a privilege to be speaking with you today as I start my new role leading MDA North America in global strategic sourcing. I joined Whirlpool as an intern in 1996, and I have spent the last thirty years in almost all functions and regions of the corporation. While my recent years were spent abroad, I have been in North America before. Where I previously led our laundry business unit, the core of our product portfolio, as well as served as general manager for our business with Home Depot. Having held these roles before, I know that winning in North America requires continuing to strengthen our brand and product portfolio, enhance our customer relationships, as well as our world-class supply chain to fulfill our purpose of improving life at home. I'm very excited to return to the MDA North America business. I'm looking forward to building on our powerful foundation and creating value for our stakeholders. Now I'll hand the call to Ludo. Ludovic Bouffiz: Thanks, Juan Carlos, good morning, everyone. Expanding my role beyond KitchenAid small appliances to our MDA Latin America business is an exciting opportunity. It's an opportunity to drive growth for both an iconic global premium brand and now iconic local brands such as Brastemp. One of our most dynamic high-growth segments. I have spent the better part of my twenty-year career with Whirlpool developing our products and brands. From inception to industrialization and to commercialization. I went from leading critical categories in EMEA and in the US to driving our product marketing organization in North America. These roles, combined with my more recent position in the global product organization, and my current responsibilities with KitchenAid, have given me a unique vantage point on how to drive innovation and cost competitiveness to win in every channel and every market. I look forward to this tremendous opportunity to accelerate growth for our company. Now I'll turn the call back over to Marc to provide an overview of our 2025. Marc Bitzer: Thanks, Ludo. I'm very excited about these leadership appointments and have every confidence that we have the right team in place to continue to execute on our strategic priorities. As you're well aware, 2025 marked a difficult year with unforeseen challenges in particular for our North American business. There are two particular challenges that our business faced. One, tariffs. As domestic producers, we will ultimately benefit from the tariffs that were put in place, there is no question in my mind. However, in 2025, we absorbed roughly $300 million of tariffs largely for components and some finished products, but the industry did not yet move on pricing. This might be surprising given that our competitors are two to four times more exposed to tariffs than we are, but the significant amount of inventory preloading ahead of the tariffs and the uncertainty of a tariff framework might explain the delay of industry price moves. The good news is that we observed a meaningful change in industry pricing and promotions after mid-December into the MLK holiday and the upcoming Presidents' Day. Two, housing. As we discussed in prior calls, existing home sales are the most important driver for appliance demand and in particular for discretionary demand. Which inherently is more margin attractive. However, mortgage lock-in effect coupled with lower consumer confidence, led to a thirty-year low of existing home sales. But there's no doubt about an eventual multiyear housing recovery, 2025 did not yet unlock the housing sector. With these macro challenges in mind, delivered results largely in line with the prior year. Our global organic revenues were essentially flat, and we're pleased with the MDA North America market share gains during 2025. Our operating margins were slightly below 5% largely driven by the intense promotional environment in North America during Q3, and in particular Q4. We delivered cost takeout actions of $200 million but with the absence of industry pricing, they were not enough to mitigate the cost of tariffs. Lastly, our Latin America business had yet another strong year, while our KitchenAid SDA business delivered outstanding double-digit growth rates with mid operating margins. With 2025 in the rearview mirror, and despite the extreme macro volatility we experienced, we're confident about 2026. First of all, we believe we will be able to sustain the strong trajectory of our KitchenAid SDA and our Latin America business. For North America, there are a number of catalysts to drive margin improvements. First, we already identified more than $150 million of cost actions primarily focused in North America. This will allow us to largely offset the remainder of the tariff headwinds. Second, launched a record number of new products last year. These new product launches have been hugely successful, with expanded floor space and incremental share gains. Third, the industry's promotion intensity has clearly normalized over the past six weeks. We have already announced and implemented promotion pricing changes as well. Lastly, while the new housing starts will likely still be slow, we do see a potential faster improvement of existing home sales on the back of lower mortgage rates. However, as you will hear later during our guidance discussion, we have not yet factored in any discretionary demand upside. With this, let me hand it over to Roxanne who will discuss the 2025 results in more detail. Roxanne Warner: Thanks, Marc. Turning to slide six. I'll provide an overview of our full-year results. As Marc mentioned, our global organic revenue was flat to the prior year and we delivered significant cost takeout to help mitigate the incremental cost of tariffs. We did not see the industry pricing adjustments to offset these incremental tariff costs in 2025. And the prolonged intense promotional environment unfavorably impacted our margins. Ultimately, we delivered a full-year ongoing EBIT margin of 4.7% and a full-year ongoing earnings per share of $6.23. Given the challenging operational environment in 2025, these results are proof of our resilience and commitment to focus on what we control. We generated $78 million of free cash flow which was unfavorably impacted by the timing of tariff payments and higher inventory necessary to support our new products. In November, we executed the previously announced India share sale transaction which resulted in a reduction of our majority stake from 51% to a minority stake of 40%. Proceeds were utilized to pay down debt in line with our capital allocation priorities. We are pleased with the results of this transaction and our retained position. We will continue to evaluate all options to further reduce our debt throughout 2026 in line with our guidance and capital allocation priorities. We continue to fund a healthy dividend returning approximately $300 million to shareholders in 2025. Turning to Slide seven, I will provide an overview of our fourth quarter and full-year results for our business segments, starting with MDA North America. On a full-year basis, net sales excluding currency was largely flat year over year. We saw continued strong share gains throughout the fourth quarter driven by the momentum of our new product launches. Promotional activity remained intense. As industry pricing did not reflect the cost of tariffs. Which impacted margins. As a result, the segment delivered an EBIT margin of 2.8% in the fourth quarter, and a full-year EBIT margin of approximately 5%. Looking ahead, given the industry's pricing changes over the last six weeks, we expect a less promotional environment. In December, we saw a shortening of the post-Black Friday promotional period, and in January, we saw a decrease in the depth of the promotional pricing for the MLK holiday. Based on these data points, we expect a less promotional environment during Presidents' Day. We have already announced and implemented promotional pricing changes that went into effect in early January. We expect these actions to put MDA North America back on track for margin expansion in 2026 which we will discuss in detail shortly. Moving to our MDA Latin America business, On a full-year basis, net sales excluding currency declined approximately 2% year over year due to volume decline. In the fourth quarter, we continue to see economic instability in Argentina and an aggressive promotional environment in Brazil. Which negatively impacted revenue and margins. These unfavorable results were offset by a favorable operational tax benefit related to the default legal ruling. As a result, the segment delivered a full-year EBIT margin of 6.2%. Next, I will review the result for our MDA Asia business. On a full-year basis, excluding the impacts of the India and currency, net sales increased approximately 1% year over year. The segment delivered a full-year EBIT margin of approximately 5% with 120 basis points of expansion year over year. The India transaction resulted in margin accretion of approximately 40 basis points, while the remaining benefit was driven by a favorable cost take-up. As a result of the deconsolidation of India, we will not report Asia as a stand-alone segment moving forward. Turning to our SDA global business. SDA Global continues to perform very well. Achieving impressive net sales growth of approximately 10% year over year in the fourth quarter. And approximately 9% on a full-year basis driven by new product launches and strong direct-to-consumer business. Fourth-quarter EBIT margins expanded 130 basis points year over year as a result of favorable price mix. For the full year, the segment delivered a strong EBIT margin of 16%, with 170 basis points of margin expansion year over year. Now I will turn the call over to Juan Carlos and Ludo to review how our investment thesis is as strong as ever. Juan Carlos Fuente: Thanks, Roxanne. Turning to slide nine, I will cover how our MDA North America is well-positioned to further organic growth and margin expansion. Our structural drivers for value creation in North America are stronger than ever. The first driver is our strong lineup of new products. As Marc mentioned earlier, in 2025, we transitioned over 30% of our product portfolio to new products, and we're seeing a very strong response from both our trade customers and consumers. These new products gain significantly more floor space than their predecessors within the key retailers. Resulting in share gains as we exit the year and we have more innovation coming in 2026. The second driver is our unique position as a domestic manufacturer in the tariff environment. Our US manufacturing legacy started over a hundred and ten years ago and we never left. We produce more of our appliances in the US than any of our industry peers who, in contrast, only produce approximately 25% of what they sell in the US in the US. Our US factories use approximately 96% American steel and work with thousands of US suppliers. We operate some of the largest appliance plants in the world, and we continue to make investments to strengthen our domestic position. The tariffs imposed by the current administration aim to support US manufacturers like Whirlpool and we're starting to see positive signs suggesting that the tariffs will become a tailwind. As Roxanne mentioned, we have also observed a less promotional MDA industry throughout January in comparison to the same period in previous years. This suggests that the tariff costs for importers are beginning to impact their business and therefore the elevated promotions we saw last year are proving to be unsustainable in the long term. The last driver is the state of the US housing market which I will cover in the following slide. Turning to slide 10, the historical data both for existing and new home sales clearly signals a multiyear recovery is on the horizon. Looking at existing homes over the last forty years, whenever we observe a multiyear sales trough, like the one we saw since 2022, recovery has followed. The lack of recovery has created pent-up demand in the market. Existing home sales are highly correlated with the discretionary demand for home appliances. Which as a result has also been suppressed. On new home construction, fundamentals are also favorable and include decades of long undersupply of new homes since the great financial crisis, coupled with the highest aging stock of existing homes in the US, which now has a median age over 40 years old. Finally, affordability concerns remain, the US government has made housing affordability a clear priority to address, which only strengthens our prospects of a recovery. In this context and given our strong competitive advantage in the builder segment, there is simply no company better positioned to benefit from the multiyear housing recovery. Turning to slide 11, let me highlight one of the many new products we are launching this quarter that will continue to support our product leadership. Our new Whirlpool laundry tower allows the consumer to save space while having easy access controls, featuring the new FreshFlow bend system and an industry-first UB Clean technology, this product reduces bacteria in the wash without requiring high temperatures that compromise your fabrics. Now let me turn it over to Ludo to review the MDA Latin America and SDA global business. Ludovic Bouffiz: Thanks, Juan Carlos. Turning to Slide 12, let me explain why we believe the MDA Latin America business is uniquely positioned to grow. MDA Latin America has enormous growth potential given the low market penetration of appliances in the industry's compound annual growth rate projections of approximately 4% to 5%. Our MDA business in Latin America has a sustained track record of value creation rooted in the strength of our products and brands. And is ideally positioned to take advantage of this industry growth. We hold the number one share position in the region, supported by our strong historical presence in Brazil, the Brastemp and Consul brands. These are leading brands in consumer preference that have held this position for decades as a result are present in more than half of Brazilian homes. Whirlpool brand also holds the number one position in terms of preference in the second largest market in Latin America, Mexico. In many other smaller markets around the region. We have built an exceptionally strong infrastructure across the region. We have a well-established supply base, some of the largest plants in the world, great distribution and service network, and a direct-to-consumer channel representing approximately 20% of our sales. We are therefore incredibly well-positioned to continue to grow profitably in this very large region. Turning to Slide 13, let me introduce one of the tools to drive that growth in 2026. A new lineup of refrigerators coming to the Brazilian market. This quarter. Brastemp, our premium home appliance brand in Brazil, is launching a new portfolio of products in two of the most critical categories in the market, top mount and bottom mount refrigerators. These new refrigerators offer increased capacity, improved energy efficiency, and bring a refreshed aesthetic to consumers' kitchens. They are poised to do very, very well in the market starting this quarter. Turning to slide 14, I will review how well-positioned the SDA global is for continued profitable growth. As you already know, KitchenAid is an iconic brand known for its high-quality craftsmanship and performance as well as superior design. It is the number one mixer brand in the world, and with over 75% of the products we sell in the US being produced in the US, holds a strong competitive advantage in an industry that is almost entirely reliant on imports. Across the globe, we have successfully developed strong trade relationships and more recently, have significantly expanded our online presence, which now represents over 20% of our sales and continues to grow at an accelerated pace. Outside of the stand mixer, we're starting to drive tremendous growth in adjacent categories as espresso, blenders, cordless appliances, and other food preparation segments. We are leveraging KitchenAid's strong brand preference, our industry expertise, and our established infrastructure to drive profitable growth in these categories. And we're successfully reinvesting the proceeds of that growth into further growth acceleration while maintaining highly accretive margins. Turning to Slide 15, let me preview the exciting innovation coming to the SDA Global business this quarter. First, our KitchenAid compact grain and rice cooker. This tankless version of our popular grain and rice cooker now features precise pour technology which automatically measures liquid as it is added based on your preferred texture and simmers rice and all kinds of grains to perfection. Next, our KitchenAid Artisan Plus stand mixer. This new stand mixer will bring the biggest advancements to the KitchenAid tilt-head mixer since 1955. This product is sure to be a hit to enthusiasts around the world, so stay tuned for the big reveal coming this March. Now I will turn the call back over to Marc to review our expectations for 2026. Marc Bitzer: Thanks, Ludo. Turning to Slide 17, I will review our guidance for 2026. Given the recently executed transaction to reduce our majority stake in India, we have provided a reset baseline for our long-term targets in 2025 results. These targets reflect our business performance expectations during a mid-cycle which will be after housing recovery has started but before it reaches the peak. On a like-for-like basis, we expect revenue growth of approximately 5% in 2026. Our new product launches are expected to deliver growth in MDA North America and we expect continued strength in our SDA Global and international businesses. On a like-for-like basis, we expect 80 to 110 basis points of ongoing EBIT margin expansion 2026 EBIT margin of approximately 5.5 to 5.8%. Free cash flow is expected to deliver $400 million to $500 million or approximately 3% of net sales driven by improved earnings, and significant inventory optimization. We expect full-year ongoing earnings per share of approximately $7. This includes an adjusted effective tax rate of approximately 25% which is an increase compared to 2025, and impacts 2026 ongoing earnings per share by approximately $2. Turning to Slide 18, we show the assumptions supporting our 2026 ongoing EBIT margin guidance. We expect a positive price mix impact of 175 basis points from our recent and future new product launches, and benefit from our previously announced pricing actions in a reduced promotional environment. While we have seen interest rates beginning to ease, we do not expect a material catalyst for new home sales in early 2026. As mentioned before, we do see the potential for faster recovery of existing home sales and thus discretionary demand, but at this point, we're not factoring this into our guidance. We will drive further actions to optimize our cost structure and expect 100 basis points of net cost benefit from more than $150 million of cost takeout actions. Based on having long-term steel agreements in place, we expect minimal to no impact on EBIT margin from raw materials this year. We expect approximately 125 basis points of negative impact from the tariffs announced in 2025, will be concentrated in 2026. It is important to note that these impacts represent currently announced tariffs and do not factor in any future potential changes in trade policy. With approximately 100 new products launching this year, we plan to increase investments in marketing technology which will impact margin by approximately 50 basis points. Currency and transaction impacts are both expected to have minimal impact on EBIT margin this year. Turning to Slide 19, I will review our segment guidance. Starting with industry demand, we expect the global industry to be approximately flat in 2025. In the US, we expect similar demand trends to what we saw throughout 2025, with an emphasis on replacement demand. Strong replacement demand creates a solid foundation for industry volumes, while consumer discretionary demand is still significantly below long-term averages. Again, this might change as a result of faster growth of existing home sales, thus providing upside to our demand forecast. We expect the MDA Latin America industry to be slightly between 0-3%. Finally, we expect the SDA global industry to be approximately flat with our growth driven by new products and continued investments in our direct-to-consumer business. For MDA North America, we expect to deliver a full-year EBIT margin of approximately 6%. Previously announced pricing actions are expected to positively impact the full-year margin, and additional cost actions are expected to be delivered throughout the year. For MDA Latin America, we expect a solid EBIT margin of approximately 7%, driven by new product launches and continued cost takeout. And for SDA Global, we expect a strong EBIT margin of approximately 15.5% driven by sustained momentum from new products. Turning to Slide 20, let me review the actions we're taking to deliver price mix expansion. Firstly, as mentioned, we've seen a less promotional environment in MLK and Presidents' Day. This is an encouraging indicator that our competitors are now experiencing the full cost of tariffs. We first saw positive signs with the end of a Black Friday promotional period. While in prior years, retailers and competitors extended Black Friday prices well into January, we observed meaningful pricing moves immediately after Black Friday. Probably an indication of preloaded inventories finally being sold through. Given these broader industry dynamics, we're confident in the 2020 pricing actions we previously announced. Secondly, incremental flooring gained by the new product launch in 2025 is largely installed. The flooring costs are behind us, and we should start to experience the full benefit of these new products. As a reminder, the new products that we launched in North America gained over 30% incremental flooring on a like-for-like basis. Lastly, we're focused on continuing to expand our mass premium and premium product offering where we see consumer preference for our brands, the opportunity to drive differentiation. Our KitchenAid MDA launch in late 2025 is a perfect example of how we see an opportunity to elevate and position our brands for growth. Turning to Slide 21, you will see the actions we're taking to support our cost position and deliver over $150 million of cost reduction in 2026. We are accelerating vertical integration and automation in our factories. Leveraging some of our core competencies to improve quality, and efficiency in manufacturing. In particular, with vertical integration, will not only bring us cost savings, but will further strengthen the resilience of our supply chain. We're taking steps to optimize our manufacturing and logistics footprint. And lastly, we're launching a strategic sourcing initiative to deliver the best landing cost for our components. We have had significant success in the past with activating the sourcing initiative and are excited to renew its effort in 2026. Turning to Slide 22. I will provide the drivers of our free cash flow guidance. I'm confident that we will improve free cash flow in 2026, and this is a key priority for us. We expect cash earnings of approximately $800 million driven by an improvement in our earnings. We expect approximately $400 million of capital expenditures as we continue to invest in our products and fund organic growth. We plan to optimize our inventory and improve our working capital by approximately $100 million to support cash generation in 2026. And we expect approximately $50 million of restructuring cash outlays related to our manufacturing and logistics footprint optimization efforts. Overall, we expect to deliver free cash flow of $400 to $500 million or approximately 3% of net sales. Now I will turn the call back over to Roxanne to review our capital allocation priorities for 2026. Roxanne Warner: Thanks, Marc. Turning to Slide 23. I will review our capital allocation priorities, which are consistent with what we shared in 2025. Funding our organic growth is critical to delivering innovative products that meet our consumers' needs. We will continue to invest in product innovation, digital transformation, and cost efficiency projects with approximately $400 million of capital expenditure expected this year. Secondly, we are committed to reducing our debt levels. We expect to pay down at least $400 million of debt in 2026 continuing our commitment to deleverage. Thirdly, we are committed to returning cash to shareholders through funding a healthy dividend. We will continue to evaluate our dividend funding and ensure it aligns with our progress toward our long-term goals. As a reminder, the dividend is approved quarterly by the Board of Directors. Turning to Slide 24. Let me summarize what you heard today. Despite navigating a year of significant external shocks, led by the substantial cost increase of tariffs. Our 2025 results were largely in line with the prior year. We maintained our track record of course takeouts and delivered cost reduction of $200 million to help offset the impact of tariff costs. Introduced a record number of new products proving their early success through flooring expansion and share gains in 2025. As we look forward into 2026, we have another strong pipeline of new products coming. With industry pricing expected to normalize, and structural cost takeout actions yielding results. We expect margins and free cash flow to strengthen. We expect the SDA global business to continue to be a bright spot. With sustained momentum from new products resulting in significant year-over-year growth. Lastly, we continue to be extremely well-positioned to fully capture the benefits of the housing market recovery. As it begins to turn in a favorable direction. I'm confident in our strategy and our path forward will create shareholder value. Now we will end our formal remarks and open it up for questions. Operator: At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of David MacGregor from Longbow Research. Your line is open. David MacGregor: Yes. Good morning, everyone. And Roxanne, it's David speaking with you again. Good morning. I guess, Marc, I wanted to start by just unpacking the 26 flat industry units number. And you referenced no expectations for an increase in discretionary or builder, which would I guess, imply a flat replacement demand outlook. But you also, at the same time, talked about seeing strength in replacement demand. So I guess I just wanted to better understand that. And maybe within the context of that answer, could just talk about the extent to which you're pent up demand, as you had referenced. And then I have a follow-up. Marc Bitzer: Yeah. So so so, David, again, you as you well know, there's two main components of replacement demand, discretionary demand. The replacement demand what we base that is continues to stay on a very, very healthy structural level. And that is still on the tail end of post-COVID. We saw a significant higher use of appliance and that just drives a lot of healthy ongoing replacement demand. As a reminder, as everybody knows, while we like that part of our business, it's not necessarily the most margin accretive part of the business. The discretionary side and to be also very clear, again, we have not factored in upside in the discretionary side. The discretionary side would have to largely come from increased remodeling activities and, in particular, faster or uptick of existing home sales. So that is not factored in even though I think there's a certain chance that, you know, depending on what the mortgage rate environment will do, that we will start a slow unfreezing of existing home sales. But again, as a reminder, it's not factored in our numbers, in our guidance. And as such, could potentially provide an upside. But, again, let's just see how that evolves. So far, as you look in the rearview mirror on 2025, the existing home sales were just on a very low level and got stuck there pretty much. David MacGregor: And you had mentioned pent-up demand. I guess just what your assessment is at this point. Of where that stands, and then I have a follow-up. Marc Bitzer: I mean, I think, David, there's a very significant pent-up demand tied towards the housing. And then I'm not gonna repeat I think everybody knows. I mean, this the entire housing market is in terms of new home sales, is undersupplied in the tune of 3 million homes. Now that will not happen overnight, but it just means just the new homes will spill a multiyear uptick on demand. The other side is and this is and, again, that could potentially materialize earlier. The discretionary side, which comes with remodeling or existing home sales, I think, could accelerate faster than the new homes. And very significant potential out there, as you know, but the consumer has equity. Equity in particular in the form of housing stock. So the perceived equity the consumer has is there, it will take an uptick also in consumer sentiment to unleash that. That, in my view, could happen faster than the new home sites. But again, it's right now, we're you all know, we're in a very uncertain global environment, I would say if consumer sentiment changes, I think you could see an uptick already this year on the discretionary side. But, certainly, it's just it's only a question of when it's not if there's a multiyear pent-up demand still waiting out there. David MacGregor: Okay. Great. And then second is follow-up. I guess, you had a very substantial product refresh 2025, and along with that, of course, comes elevated flooring costs. What's the benefit in '26 from the relief on the flooring costs? Marc Bitzer: To North American market? David, you're highlighting a very important point. Just as a recap, and I think many of you listening understand that know that when you have a lot of new product introductions, and we as we highlighted in particular North America, we had the highest amount of product introductions in more than a decade, and it's been massive. You have, of course, it starts acting with factories. You have phase-in and phase-out costs. Of course, you don't run the factory in the most efficient way if you at one point, take down production and you ramp it up, you have inefficiencies in there. You have inefficiencies in warehousing inventory because for some period, and you saw that all in Q4, you hold inventory pretty much on phase-out and phase-in. And then lastly, you have very significant flooring costs. Which just come with flooring with products now. Ultimately, it's like a return investment. You get your return on these flooring costs, but it all hit our P&L large in '25. So in particular, in the back half, and I'm not trying to take it as infused. It's just there. And it was it's an investment against the future. So as we turn the page into '26, first of all, you have the absence of these introduction costs, which is an uplift. And second of all, now I have a full benefit of a higher flooring. We know because, of course, we get weekly sellout numbers. We know when new products are not just floored, best selling. So we're very pleased with the sellout. And so not only do you have the absence of a cost, but you also have tailwinds in form of a demand of new products. So I don't wanna give a precise number how much that means, but, of course, that is a very beyond a normalization promotion environment, that's a key driver of where we see the improvement in North America. Operator: Your next question comes from the line of Michael Rehaut from JPMorgan. Your line is open. Michael Rehaut: Great. Thanks very much. Good morning, everyone. My first question is for good morning. First question is for Roxanne and Juan Carlos. Congratulations, obviously, stepping into your new roles, your expanded roles, and Roxanne a pleasure working with you again. Wanted each of your perspectives on you know, if there's any kind of how are you gonna approach the jobs over the next couple of years? Obviously, you know, the business has had a number of challenges particularly in the in the North America margin. Challenges. Through various you know, macro, tariffs, you know, promotional, etcetera. What's the road back from a margin perspective over the next few years? I mean, obviously, you continue to look at your kind of tried and true playbook of cost savings, better mix, etcetera. I know a lot of this is also macro led with the challenges in the existing home repair model market. But I'm wondering if you're looking at anything maybe a little bit bigger picture structural or kind of changing strategy, then that might kinda jump start you know, the pathway back, or is it going to be more of, you know, you know, the initiatives that you've done already. And expanding on that. Roxanne Warner: Thanks, Michael. I will answer from a global perspective, and then I will move it over to Juan Carlos. First of all, thanks. It's great working with you again as well. The number one priority for us continues to be, one, debt pay down, and I will continue to have that focus. Driving that is our continued focus on cash and working capital. You see in 2026, we have a guidance of $400 million to $500 million of free cash flow, and that is imperative that we drive our inventory down. And so that is going to be a number one focus for us. And then overall, we will continue to deliver on cost takeout as we've done over the years. And absolutely in 2026. Price mix is going to be absolutely a huge focus. One, on seeing the pricing from an overall industry, but then secondly, delivering on the benefits that Marc just touched on as it relates to our new product launches. With that, I'll turn it over to Juan Carlos. Juan Carlos Fuente: Yep. So thank you very much for the congratulations. I am super happy and excited to be in this new role. Like I mentioned at the beginning, I've been in North America before, and I was part of the I would say, in the global financial crisis two thousand and eight. Moved in 2008, and then, obviously, that happened. So I was together with Marc, in that turnaround in 2009, 2010, and not that those tools will be working moving forward, but I think by like, look Roxanne mentioned and we mentioned before, with the new products that we're putting in place, with aggressive cost take actions that we have, and, obviously, with our manufacturing footprint that is extremely strong in North America, we believe that focusing lasering focusing on that we we could turn the business around. Michael Rehaut: Great. No. Appreciate that. I guess, secondly, you know, the sales growth like for like of 5%, and it looks like that's against a volume outlook of flat. If I'm understanding the segment regional segment guidance you know, by and large, I guess that that results in a balance of price and mix driving the growth. I wanted to make sure I'm understanding that right and how much exactly you're anticipating to come from price versus mix? And lastly, if that 5% also I would assume applies broadly to the North American segment as well? Marc Bitzer: Michael, it's Marc. First of all, the 5% in North America or globally, but directionally also reflective of what we have in mind in North America. Also, on a global level, we showed 1.75 percentage points coming from price mix, there is a healthy mix portion because we have a lot of new products and premium products. But there is also pricing comes with a more normalized environment. So what we showed on a global level is also true on a direction on North America level. So, yes, there is also in our organic, in North America, call it a two to three points of unit growth in there because we we know these new products have been picking up market share, and we expect them to carry over into next year. So short answer is there's a portion of price mix. The price mix also has a good content element of mix in there. But there is also some unit growth into our North America assumptions. Operator: Your next question comes from the line of Mike Dahl from RBC Capital Markets. Your line is open. Mike Dahl: Good morning. Thanks for taking my questions. Marc, I was hoping you could touch on or your team could touch on just more specifically the comments around the promotional cadence then also your own actions around your promotional pricing plans. Can you be more specific or quantitative about what you've seen in recent weeks and how that gives you the better confidence ahead of Presidents' Day, think quantification would help if you can. Marc Bitzer: Yeah. So, Michael, so let me maybe give you a lot more color on what we've seen in North America up until Presidents' Day. Obviously, I can't comment on the go forward. So first of all, in Q4, in some ways, we've seen two parts of a market in Q4. One was the nonpromotional period where we had the new product in there, where we actually like what we saw and we picked up market share. The promotional period itself was intense. By any definition, and think once the competitors announce their numbers, you would see it was intense. We made a conscious decision to hold our ground during this promotion. Period. We did not pick up share during the promotion period. But, frankly, it was a very costly investment. I mean, there's no denial, and you see that in our number. What difference we saw after a particular backfiring is an event well, the meaningful difference is post-Black Friday, the prices, the promotion prices immediately recovered, pretty much exactly what we got after. And that is, for those of you following the steel different from prior years. Very often, saw that either retails or competitors did not sell all the products they want. Like, Friday, prices were extended well in some cases to January. We did not see that last year. So as intense as the promotional period was, it also ended pretty abruptly. And these higher prices held now for pretty much six weeks, now we all know it's six weeks. It's not fifty-two weeks, but it's six weeks. And that is very different from prior year. We saw a meaningful price change already on MLK. We have, of course, already announced our prices with trade towards Presidents' Day, and what we see is these call it, this normalized promotional environment certainly held for Presidents' Day. So we saw a big difference the last six weeks. Again, is that a full extrapolation for the full year? No. We all don't know. This is a competitive environment. But at least we saw over the last six weeks that the industry's finally starting to reflect the full cost of tariff in the prices. Mike Dahl: Okay. Got it. Thanks for that, Marc. And just to dovetail on that, can you give us a sense then of within your margin guidance? And I'm thinking specifically the 6% for North America how you envision the cadence between first half and second half? Marc Bitzer: I mean, there's several elements coming in that cadence. First of all, you will not see the 6% throughout the full year. And there's Q1, in particular, will be still impacted by a number of factors. First of all, we just see now the pricing, a more positive pricing coming through. So it's starting to build, and that is still a good guy. A negative side, we will curtail production. We said we will control inventories, and we're correct, but we had too much of inventories. That will be a burden on our Q1 numbers in North America because we will adjust inventory. As Roxanne highlighted before, cash is a key priority, and we take that very seriously. So you will have the inventory reduction going against us in Q1. But prior starts moving our favor. And on top of that, you have now in Q1, contrary to last year, you had the full cost of tariffs in there. So there's a number of factors. So Q1 will still be clearly below that 6%. And as of Q2, we expect this low and gradual buildup. Operator: Your next question comes from the line of Rafe Jadrosich from Bank of America. Your line is open. Rafe Jadrosich: Hi. Good morning. Thanks for taking my questions. I wanted to ask on the capital allocation for the year. This free cash flow guidance of $400 million to $500 million the $200 million dividend and then, I think, $400 million of debt pay down. Is a bit of a funding gap there. So can you just help us understand how we get to the full, like, debt paydown and dividend relative to the free cash flow guidance? Roxanne Warner: Rafe, good morning. One of the things that we touched on in the script earlier as well is that we are pleased with the India transaction that we have executed, which turned our majority stake from 51% to 40%. As of this time, we will retain that position, but we will continue to evaluate all options to further reduce our debt in line with the debt pay down guidance of $400 million. Rafe Jadrosich: Got it. So are there additional India sales, like, you can better than the in the guidance, or is that just an option that's sort of on the table? There are other things outside of India that could be done to generate cash. Marc Bitzer: Yeah. So so, Rafe, you know, it's Marc. And so Roxanne said, right now, we feel very comfortable with where we are in India. We're not gonna make a statement about what if. As you know, first of all, we have a number of minority stakes throughout the world. And India is now one of these, but we've continued to evaluate all the time where we are. We also still have some smaller asset sale opportunity. They're smaller and which could be part of closing that element. And so we're the ideas which we have in mind, we're pretty confident that we can close that gap. Or, I mean, specify it very soon. But we feel right now with that pay down, as we then point out before, we will get going. Rafe Jadrosich: Okay. That's really helpful. And then on the promotional cadence, that you're seeing from competitors, it's encouraging to see sort of the improvement at the end of 4Q and into 1Q. Are you seeing like actual price announcements from competitors. Either on resale or wholesale retail or wholesale. Or do you think they've sort of just worked through that inventory? What's driving this improvement in the promotional cadence that's out there? Marc Bitzer: Yeah. So so, Rafe so first of all, our perspective, it's pure outside incumbent on competitors. We don't know what's going through ahead or whatever. So what we observe, just more from a dataset, is we have a fairly sophisticated price scraping tool where every week, we see we get thousands of in-car pricing for every competitor, every product, every SKU. We have a fairly sophisticated in-house tool, so we pretty much weekly observe everything which was going on the marketplace. So our comments in terms of promotion depth from what we see is based on this pricing scripting tool which would say is very accurate. And also my comments on recovery afterward are based on this price scripting tool. The actual mechanism which competitors use it's their decision. I would say, it's partially like we also do. Sometimes it's a like-for-like price change. Sometimes it's just a reduction of promotional depth. But we don't know ultimately what matter of price what consumer prices are basic in the card, and that's what we look at. But I would assume every competitor chooses slightly different tools. Operator: Your next question comes from the line of W. Andrew Carter from Stifel. Your line is open. W. Andrew Carter: I wanted to ask about the negative price mix variance in 4Q. And how it changed so much from kind of the 3Q guidance I wanted to ask is that, you know, number one, did all I think you said at one point that you didn't participate in promotion. But it's obviously a more promotional environment. Was there anything to this about clearing activity? I you had a lot of innovation. You also had a weaker, market. Therefore, the old analogs didn't move as quick. So anything you can help us on, you know, that big delta and kind of the speed at which it improves to 26. Marc Bitzer: So, Andrew, I think what has changed versus what we had in mind Q3 coming into Q4, we knew there's still some preloaded inventory of the markets. Obviously, because we don't have exact competitor data, I think what we may have underestimated how much first deal is out there. So we promotion MedBev will be an aggressive promotion environment. We anticipated it but it was deeper than we expected in all transparency. And now at the same time, and I made that comment in the script already, is the fact that the price is corrected pretty immediately after Black Friday I would read as an indication that this preloaded inventory is out of the system. Because if it would still be there, we would have seen Black Friday pricing continuing longer. So I think the big change is probably there was more inventory out there than we assumed. And right now, we assume that is normalized. And we're kind of that is behind us. And, again, what I said before, but last six weeks would indicate we're now in a more, what I would consider, normal competitive environment. W. Andrew Carter: Thank you for that. And I think at one point, you mentioned you get sellout data on a weekly basis. We could obviously see the AHAM data guess it gets cut monthly but released quarterly. We could see how both how far below the discretionary units are relative to 19. Are you seeing a quicker reversion in sellout? And I guess where I'm going with this is, like, could there be a massive catch-up in discretionary unit shipments relative to nondiscretionary. They're higher mix. You know, if the turn has happened quicker, about what I'm asking. And I know just to be clear, your guidance is pretty much for 2026 more of the same on the discretionary nondiscretionary mix. Thanks. Marc Bitzer: Yeah. So so so, Andrew, I mean, first of all, to your question, we get sellout data, iCasel registered data for about 70% of our trade partners. So we have a pretty good sense about how we are doing from a sellout. And coupled with that, we typically also get comparable house sales. I e, we know how we're doing in the store in terms of picking up balance of sale or not. So we have a very good sense, and that is, of course, critical in particular when we're trying to assess the success of our new product launches. Lot of confidence you heard before comes exactly from looking at we sellout data on a weekly base. To your question about the discretionary demand, again, reemphasizing it's not baked in the guidance. Is there a certain chance? Yes. But you also we've been waiting for this uptick in discretionary demand for a long time, and that's why we're a little bit cautious at this point. What really and, again, it's the big driver will be ultimately consumer sentiment. The broader perception. Consumer sentiment, and we've seen that before, changes a lot faster than other indicators. And right now, it's low. And if you just take January, consumer sentiment is low by any definition. So reading that, you wouldn't have a lot of confidence. But, again, we have seen this coming around faster. And to your point, yes, that could unlock quite a bit of pent-up discretionary demand. But it's not factored in. Operator: Your next question comes from the line of Eric Bosshard from Cleveland Research. Your line is open. Eric Bosshard: Good morning. Thank you. Marc Bitzer: Morning, Eric. Eric Bosshard: Question for Just two housekeeping questions for Roxanne. First of all, a lot of talk about the last six weeks on price mix. Has price mix been positive in this one and a half, 2% range over these six weeks? Is that what you've seen in your business? Roxanne Warner: Hi. Good morning, Eric. A couple of things to keep into consideration. One of the time periods where we saw the improvement is Black Friday. And so as you'd expect, during the Black Friday period, we are all paying out for the depth of the Black Friday holiday. So the majority of the benefit as it relates to price mix for the six weeks would really come in 2026. As Marc mentioned, from a Q1 perspective, though, keep in mind that there are other items that we will be doing, such as reducing production, which would therefore impact the Q1 results. And so we expect price mix to build up as we go throughout the year. Marc Bitzer: Eric, maybe and again, keep in mind, we largely pay our sales a trade partner on a sellout base. So there's a delay effect when you pay out pretty much a lot of these costs. What we look at as an early indicator, now we're getting two operations probably is also the gross ASVs, i.e., what is really the gross sales value which we have. And that is favorable the last six weeks. So that is an early indicator that we see the pricing coming through. Eric Bosshard: Okay. And then the second is, the assumption in '26 on outgrowing the flat market by two or three points. Similar question, Roxanne, is that what you're seeing now that your business is outgrowing the industry? By two or three points is that what's happening now, or is that a ramp in '26? Marc Bitzer: So so, Eric, I can comment on this one. That is almost entirely built on the success of a new product, and that is not just the last six weeks. As I mentioned before, ever since again, they didn't all launch at the same time. There was a big KitchenAid launch '3, but we have other products. And by the way, we continue to have new products also in '26. So we see from these new products on the flooring. Gains, and we also see the sellout gains. So that's pickup in volume is, I would say, almost entirely driven by what we see from the new products. Operator: Your next question comes from the line of Sam Darkatsh from Raymond James. Your line is open. Sam Darkatsh: Good morning, everyone. And Roxanne, JC, Ludo, again again, congratulations, and Roxanne in particular. I know you well. Very, very well deserved. And I think it made us all smile when we saw your the announcement. Roxanne Warner: Thank you. Sam Darkatsh: Couple of quick questions. I know we've been dancing around the pricing question. Quite a bit this morning. The 1.75 guide for the year, what's the inherent assumption for industry like-for-like net pricing in order for you to achieve the one seven five? Marc Bitzer: So, Sam, again, we're not publishing what we assume as an industry pricing, and a lot depends on what competitors will do. Having said that, you saw earlier, and that's why we had this slide with the three components of pricing pitch, a better promotion environment, added new products, and mix overall. So, yes, there's a in the one seventy-five, there is a component about what we just think from a less promotional environment. Again, we to be honest, but assume it's roughly a third probably of that overall assumption or maybe half of a less promotional environment. But in all transparency, yes, we like what we saw over the last six weeks, but, of course, we're just cautious in terms of extrapolating the last six weeks for the full year. And I think right now, this assumption is kind of a little bit of middle ground. Sam Darkatsh: So to paraphrase, if there is announced increase industry pricing from competitors that would be additive to your price guide theoretically? I've got a follow-up, but I just wanted to clarify that. Marc Bitzer: And then there's obviously a lot of ifs and whens and forward-looking statements, but let's if the price the promotion environment, which was seen in the last six weeks holds on a full year, we will like the outcome. Sam Darkatsh: Okay. My follow-up question noticed that the RMI guide remains flat for '26. We recognize that steel is set but there have been moves of late in things like resins and base metals. Since the October call. I'm guessing the resins are getting offset by lower oil prices, so I think that's pretty understandable. But on the base metal side, can you help us as to how the hedges work from a timing standpoint as to when that might flow through or if you are exposed to higher copper, aluminum, nickel, zinc, that kind of stuff in '26 potentially? Marc Bitzer: Sam, you know our business very well, and you pretty much already gave the answer. So steel, because we have multiyear contract, is flat. In our assumption. There's still a couple moving pieces. On resins, it's directionally a good guy versus our assumption, but as you point out, aluminum, copper, in particular, a little bit of net a bad guy. A little bit buffered because, as you know, we go out with edges. With certain hedging corridors. And that's why we're saying right now the sum of it all is we basically assume a flat or not a major surprise. And, again, it's a wash of ins and outs. But we feel pretty comfortable about that RMI assumption. Operator: Your next question comes from the line of Susan Maklari from Goldman Sachs. Your line is open. Charles Perron: Hi. Good morning, everyone. This is Charles Perron in for Susan. Thanks for taking my question. First, I just wanna Marc Bitzer: Good morning. Charles Perron: First, I just wanna go back on the cost action, the 150 plus tailwind for 2026. Can you talk about some of the what is the new actions, that are gonna be implemented this year versus the carryover impact from 2025 action. Can you elaborate on some of these measures put in place in terms of automation, strategic sourcing, and footprint of rationalization? And what factors are you considering before determining whether additional action would be necessary? Marc Bitzer: Yeah. So, Charles, it's Marc. First of all, there is some carryover, but, frankly, it's not that much. It's obvious overall. It's $150 million plus. It's probably less than a third is carryover. And that largely comes from the actions which we initiated about the cost they got last year, but just carried through, and there's the additional actions. The vertical integration is actually a new angle which we're pursuing. We've made good experience with vertically integrating some components actually in our Mexico factories. And we will aggressively go after that also in North America, where we expect quite a sizable saving on the respective components and frankly, also just more stability in our supply chain. That's one element. Automation is an ongoing effort and will accelerate. That will also drive benefits. What we refer to as a strategic sourcing initiative. It's a fairly elaborate and sophisticated process which we don't do every year because it's way too complex. The last time we've done that six years ago, and we got a lot of savings out of this one. It basically goes down to you take a book, take apart every single component. You weigh it. You do a global complete clean sheet assessment, what should cost be, we're putting it out for bidding across the world. It's just a very elaborate thorough process. And, again, just for complexity, you can't do whatever you're but given that it's six years ago, I think it's right. And we know we know the tool. We've done it before, and we expect, probably in the overall context, almost a third of cost savings coming out of this one. Charles Perron: Got it. That's super helpful color, Marc. And then second, I just wanna ask on the continued progress here seeing in small domestic appliances. It's good to see the 10% sales growth this quarter. When considering the business, how do you balance the growth momentum that you're seeing here versus holding to your 16% EBIT margin as you to maximize your returns over time? Ludovic Bouffiz: Yeah. Charles, this is Ludo. So I'll take this one. So as you said, we're very happy with the performance of the SDA business. We grew at 10% in Q3 and again in Q4, and we have similar projections for 2026 going forward. A margin standpoint, what we believe is most of the highest value we can create, frankly, is through growth given the level of accretiveness we have on the margins already. So we're very focused on delivering that growth, and we're effectively reinvesting the margin that we create in excess of this 15 to 16% margin range into further acceleration. Operator: And your final questions come from the line of Jeffrey Stevenson from Loop Capital Markets. Your line is open. Jeffrey Stevenson: Hi. Thanks for taking my questions today. You reported healthy share gains in the third quarter from your new product introductions, which offset your first half share losses. But I was wondering if you could comment on your fourth quarter share gains and whether heavier competitor discounting and a soft underlying R and R demand environment prevented similar levels of share gains during the quarter? Marc Bitzer: So, Jeffrey, based on what we report in Q3, we picked up quite a bit of share with the new product, and that off what we lost in the entire first half. In Q4, the positive momentum when new products continued, so we continue to gain share with the new product. But, of course, by definition, the overall promotional period in Q4 is just a bigger portion of a quarter than in our prior quarter. During the promotional period, and that's what I indicated before, we did not pick up share. We just decided to hold our ground, and that's what we've done. So you have continued gains of share with a new product, in the promotion period, we didn't pick up a lot more. So overall, it ended with a full year, but we have a small market share gain for the entire year in North America. And almost entirely driven by the back half. Almost entirely driven by new products. Jeffrey Stevenson: Understood. Thank you. Then I wanted to go back to, you know, comments earlier on a replacement demand. And this was tracking to roughly two-thirds of North America MDA sales last year, which is well above normalized levels. And just so I'm clear and your guidance are you not expecting, you know, any moderation in the percentage of replacement demand in 2026 unless we see some improvement in existing housing turnover or And then over the midterm, do you believe the percentage of replacements sales could move closer to, you know, 50% once the industry returns to a more normalized repair and remodel demand environment. Marc Bitzer: So, Jeffrey, there's two components. The absolute number of replacement volume we get, we expect to stay stable. And we've seen that pretty stable now for an extended time period. And then, again, it just comes with simple math. It's installed base, and we know that. And the overall usage in terms of here has come down a little bit because people are more using it more intensively. MET has now been stable for, I would say, two, almost three years on a pure replacement side. So the volume will stay the same. But, of course, then by definition, if it finally the discretionary demand picks up, the percentage of a total market replacement, will come down. Right now, it's well above 60%. And in I would even wouldn't even call it peak cycle. I would call it early or mid-cycle, discretionary cycle easily cover 50%. Not easy, but we had years where it would the discretionary side was up to 60%. So it's so the percentage is all driven by how much we would see on the discretionary demand going forward. So with that, I think that was the last question I'm which sorry. We went a little bit overtime today, but there's new faces, new voices, and then I think a lot of good questions. Again, as you heard before from us, you know, 2025 is behind us. It's in real video. We right now look just forward '26. There are some encouraging signs already happening now in '26, and I think we laid out the catalyst why we believe we are confident and it's in our execution control to deliver on them. And gives us the confidence behind '26. So thanks for joining me today, and looking forward to talking to you again next quarter. Operator: Ladies and gentlemen, that concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the Oshkosh Corporation Fourth Quarter and Full Year 2025 Financial Results 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 anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patrick Davidson, Senior Vice President of Investor Relations. Thank you, sir. You may begin. Patrick Davidson: Good morning, and thanks for joining us. Earlier today, we published our fourth quarter 2025 results. A copy of that release is available on our website at oshkoshcorp.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this call and is also available on our website. The audio replay and slide presentation will be available on our website for approximately twelve months. Please refer now to slide two of that presentation. Our remarks that follow, including answers to your questions, contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our Form 8-Ks filed with the SEC this morning, and other filings we make with the SEC as well as matters noted in our Investor Day in June 2025. We disclaim any obligation to update these forward-looking statements which may not be updated until our next quarterly earnings conference call, if at all. Our presenters today are John Pfeifer, President and Chief Executive Officer, and Matthew Field, Executive Vice President and Chief Financial Officer. Please turn to Slide three, and I'll turn it over to you, John. John Pfeifer: Thank you, Patrick, and good morning, everyone. I want to thank our over 18,000 Oshkosh team members that work together to deliver strong results in a dynamic external environment. Before we review our fourth quarter and full year highlights, I'd like to talk about the CES show in Las Vegas earlier this month. This was the second year of showcasing our products and technologies that serve everyday heroes by making jobs safe, intuitive, and productive. Our vision for the airport of the future, the job site of the future, and the neighborhood of the future incorporates robotics, autonomy, AI connectivity, and electrification which we highlighted at our booth. In particular, visitors to our booth saw our concept for a welding robot that utilized a JLG boom lift coupled with autonomous scissor lifts, AI software, and sensing technologies. This concept highlighted our strategy to shift from providing equipment that enables jobs at height to offering equipment that executes jobs autonomously. We believe this technology is also applicable for a wide range of AWP use cases. In addition, we demonstrated how a modular airport robot platform can support the airport of the future. We have trialed a perimeter detection robot at airports and are optimistic about our ability to commercialize this technology in the coming years and expand it to other applications. Lastly, through an immersive theater experience, we demonstrated how our equipment and technology, including the autonomous jet dock, modular runway robots, and IOPS software, work together in any weather to deliver the perfect turn for airlines, airports, and travelers. Our industry-leading technology also received third-party recognition at the show, winning two best of innovation awards. One for JLG's robotics on the job site, and another for our hybrid electric Volterra ARF. We were also named as innovation honorees for our JLG boom lifts, and our McNeilus Volterra electric refuse and recycling collection vehicle. As the show was happening, we were delighted that our racetrack-inspired collision avoidance mitigation system or CAMS was awarded a CES picks award. The picks award recognize and celebrate brands at the forefront of innovation. Honoring standout products and creative solutions. CAMS is the first purpose-built technology to anticipate collisions for firefighters and others on active roadways. Following a strong response to our showing this technology at CES last year, we have been field testing the AI-powered solution with fire departments in large cities over the past year, and the feedback has been powerful. We are working on scaling this safety platform to support everyday heroes, such as EMS crews at accident scenes, police officers managing traffic or responding to calls, and even tow truck operators assisting motorists. The awards we received at CES as well as the resoundingly positive response we received from show attendees, demonstrate how our investments and innovation are creating safer, more efficient workplaces for America's everyday heroes. We are excited about our next-generation products and are confident they will lay the foundation for long-term profitable growth as we transform industries and help our customers achieve their goals. Please turn to slide four for some highlights for 2025. For the year, we posted revenue of $10.4 billion leading to adjusted operating income of just over $1 billion and adjusted earnings per share of $10.79. As we have discussed on prior calls, the team pulled together across the company to respond to the evolving tariff landscape. Effectively managing our costs, and supply chain throughout the year. We also continued to make strategic investments and strengthened our leadership team to execute on our 2028 goals, as laid out at our Investor Day in June. Please turn to Slide five for a discussion of Q4 highlights. For the quarter, we delivered adjusted operating margin of 8.4% on revenue of $2.7 billion. This led to adjusted EPS of $2.26. In line with the guidance we provided last quarter. Strong performance in both our Access and Vocational segments led to our solid finish to the year. Turning our outlook to 2026, we see a general continuation of recent economic conditions which includes expected lower capital investments at certain of our industrial customers, notably in our access equipment and refuse businesses. Without an improvement expected in nonresidential construction in 2026, our outlook for the year is for adjusted EPS in the range of $11.50. Our EPS growth compared to 2025 reflects strong performance in the vocational segment, reflecting our higher production throughput for fire trucks and the continued ramp-up of our NGDV in the transport segment. Partially offset by our expectation for weaker market conditions in the Access segment. Matt will provide additional details on segment performance and our 2026 outlook later in the call. Please turn to Slide seven for segment highlights. Our access team managed through challenges to finish the year on a high note with fourth quarter revenue of $1.2 billion roughly equal to last year and a higher than the third quarter as we benefited from strong demand in advance of 2026 price increases. As you will hear from Matt shortly, we believe that our strong Q4 sales will have an impact on Q1 sales. Orders were strong at more than $1.7 billion leading to a book-to-bill ratio of 1.5 as customers continue to move toward more traditional seasonal ordering patterns. We are pleased with this performance and we continue to work with customers on their plans for 2026. Our backlog is $1.3 billion which we believe is reasonable in this environment. JLG products serve many end markets in our communities. But the primary driver for demand is nonresidential construction. While we continue to see underlying strength supported by data centers and infrastructure, many other construction sectors remain soft, and we therefore expect revenue in the 2026 to be down compared to 2025. We believe that elevated fleet ages and improving economic conditions in the second half of the year will provide momentum for 2027. As I mentioned earlier, generated tremendous excitement with our technology and vision for the Connect job site of the future at CES. Customers, analysts, and attendees recognize the value of our innovations positioning JLG to build on its market leadership. We look forward to the CONEXPO show in March, we'll be announcing new products and demonstrating our boom lift with robotic end effector concept that was such a hit at CES earlier this month. Matthew Field: Turning to Slide eight. Vocational delivered another quarter of growth. Leading to full year revenue of more than $3.7 billion up nearly 13% and a robust adjusted operating income margin of 15.8%. Our fire apparatus business continues to lead the way with sales up about 17% for the year. We made good progress on throughput with fire truck deliveries up nearly 10% in the second half compared to a year ago. We continue to execute our plan to reduce lead times with expected capital investments of about $150 million to support improved throughput across our three key locations with about $70 million spent to date. The airport products business continues to grow with sales up about 13% in 2025, and we remain confident in our outlook as we see strength in both air passenger and cargo traffic over the long term. Airports and airlines are investing in critical infrastructure and embracing technologies like those we showcased at CES. This provides outstanding opportunities for us to grow this business. Before I turn to our transport segment, I want to briefly touch on our refuse and recycling vehicle business. We're excited about the refuse contamination detection and service technology that we displayed at CES. Which we plan to launch in the first quarter. This technology uses AI and onboard edge computing to identify 14 different types of contaminants so customers can identify contamination in their waste streams, in order to reduce the amount of recyclables going to landfills. While we have seen a moderation of near-term demand, we believe in the long-term growth of this business and our opportunities to bring technology to solve customer problems. Our backlog for the vocational segment of more than $6.6 billion provides excellent visibility as we expect the segment to deliver meaningful revenue over the coming years, as we improve production throughput as outlined at our Investor Day. We expect our investments in production will reduce this backlog over time as we build units to meet continued robust demand for our products. Please turn to Slide nine. We made significant progress on transforming our transport business in 2025. You will recall that we changed the name of the segment to reflect the growing importance of the delivery business and the expanded opportunities we see for this segment. About six months ago, Steve Nordland joined Oshkosh as the segment president. Steve's outstanding experience and fresh perspective are shaping both the direction of delivery as well as our defense strategy going forward. We continue to increase NGDB shipments during the year and are delivering in line with or ahead of USPS expectations. We surpassed the production milestone of our five thousandth unit and are pleased to share that the fleet has exceeded 10 million miles driven. NGDVs now operate in nearly all 50 states including Alaska. Postal workers continue to praise these vehicles, which include modern safety equipment and productivity enhancements that improve their working conditions and are a significant upgrade to the decades-old vehicles being replaced. On the defense side, several key contracts that we announced in 2025 will be important for 2026. As we build and ship units for programs to support the US Armed Forces. In particular, both the FMTV and the rogue fires programs are essential for our nation's security, and they will become more meaningful in our defense results as the year progresses. And just a little over two weeks ago, we announced a follow-on order for JLTV units for the Dutch Marine Corps. We expect to begin delivering on that order towards the 2026. With that, I'll hand it over to Matt to walk through our detailed financial results. Matthew Field: Thanks, John. Please turn to slide 10. Consolidated sales in the fourth quarter were nearly $2.7 billion, an increase of $91 million or 3.5% from the same quarter last year. Primarily due to improved pricing in the vocational segment and higher sales volume in the access segment. Adjusted operating income was $226 million, down about $20 million from the prior year primarily due to unfavorable product mix and higher manufacturing overhead costs. Partly offset by lower incentive compensation costs and higher sales volume. As a result, adjusted operating income margin of 8.4% was down 100 basis points from last year. Adjusted earnings per share was $2.26 in the fourth quarter resulting in full year 2025 adjusted EPS of $10.79 slightly above the midpoint of our most recent guidance. On full year 2025 sales of $10.4 billion, which was also in line with our most recent guidance. During the quarter, as we said on the last call, we stepped up share repurchases to 912,000 shares of our stock for $119 million, supporting our Investor Day target of cash conversion in excess of 90%. Turning to our segment results on slide 11. The Access segment delivered fourth quarter sales of $1.2 billion, up 1% over last year. Adjusted operating income margin of 8.8% reflected unfavorable price cost dynamics including about $20 million of tariffs. And adverse product mix partly offset by higher sales volume. As we expected, the impact of tariffs was largest on the Access segment during the quarter. Across all segments, the impact of tariffs was approximately $25 million in line with our prior call. We believe that the announced 2026 tariff-related price increases for access products contributed to stronger sales performance in the fourth quarter compared to our most recent guidance. Our vocational segment achieved an adjusted operating income margin of 16.2% on $922 million in sales in the quarter. Sales increased by $42 million with improved pricing partially offset by lower sales volume. Lower volume in RCVs was partially offset by improved volumes in municipal fire apparatus and airport products. Vocational adjusted operating income increased to $150 million as a result of improved price cost dynamics partially offset by unfavorable product mix within municipal fire apparatus in the quarter. Transport segment sales increased $33 million to $567 million in the quarter. Delivery vehicle revenue grew by $130 million to $165 million and represented approximately 30% of Transport segment revenue during the quarter. Delivery revenue grew 13% sequentially compared to the 2025. As expected, defense vehicle revenue was lower compared with last year due to the wind down of the domestic JLTV program. Transport segment operating income margin was 4%, up from 2.8% last year reflecting the net impact of changes in CCAs and improved pricing on new contracts. Partially offset by NGDV ramp-up costs. Fourth quarter operating income margin was down sequentially from the third quarter due to the non-recurrence of the one-time sale of the JLT related IP license to the US government. Turning to our expectations for 2026, on Slide 12, we remain on our plan to deliver strong improvements to revenue and operating margin by 2028. For next year, we expect sales to be approximately $11 billion on a consolidated basis which represents growth in the mid-single digits. We are estimating adjusted operating income to be a little over $1 billion and we estimate that adjusted earnings per share will improve to approximately $11.50. Our sales outlook assumes roughly flat nonresidential construction activity in line with many external projections. We expect lower sales and access, we expect to grow both sales and adjusted operating income for the vocational and transport segments. Also, it's worth noting that we are assuming that the present tariff rates remain in place throughout the year. The rough magnitude of these tariffs is estimated at $200 million or about $160 million higher than 2025. While we expect full year results to reflect improved performance, we anticipate that the first quarter will be the lowest quarter of the year as we would traditionally see from seasonal factors. We expect the strong fourth quarter 2025 customer response to pricing actions at Access will also adversely impact Q1 volumes. As a result, we believe our adjusted EPS for the first quarter could be about half of last year. Building on John's earlier comments, we believe our second half performance will be more favorable across the segments than in the first half. For the full year, at a segment level, we are estimating access sales to be approximately $4.2 billion with an adjusted operating margin of 10%. Reflective of softer market conditions in North America. We expect to fully offset the impact of tariffs by year-end. We project vocational sales will be approximately $4.2 billion about equal to our 17%. Supported by a continuation of favorable price cost dynamics and volume growth from improved production throughput. For transport, we expect sales to be approximately $2.5 billion with expectations for operating margin of approximately 4% as we continue to transition out of past fixed price contracts and ramp up NGDB production. Performance in this segment is anticipated to improve throughout the year as we grow revenue on NGDV deliveries, receive follow-on NGDV orders, and billed units under the new FMTV contract. Our estimate for corporate and other costs is $180 million, and tax rate is approximately 24.5%. Expect to invest approximately $200 million in CapEx, and our estimate for free cash flow is approximately $550 to $650 million or about 80% of net income. We are announcing our quarterly dividend of $0.57 per share, which reflects our expectation of strong long-term cash flow generation and our Board's confidence in our ability to sustain profitable growth while continuing to fund our investments in innovation, and to expand US manufacturing. We also plan to continue repurchases of shares throughout the year. With that, I'll turn it back over to John for some closing comments. John Pfeifer: Thanks, Matt. We just delivered a solid fourth quarter to complete a great year and we remain confident in our long-term growth opportunities. Driven by our people, innovative products, and strong businesses. We believe our guidance for 2026 continues to support our plans to achieve our adjusted EPS range of 18 to $22 per share by 2028. We appreciate your continued confidence in Oshkosh and look forward to answering your questions. I'll turn it back to you, Patrick, for the Q and A. Patrick Davidson: Thanks, John. I'd like to remind everyone to please limit your questions to one plus a follow-up, and please stay disciplined on your follow-up question. After that follow-up, we ask that you rejoin the queue if you have additional questions. Operator, please begin the Q and A session. Operator: Thank you. We will now be conducting a question and answer session. Again, we ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may requeue, and those will be addressed time permitting. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Moment please while we poll for questions. Operator: Thank you. Our first question comes from the line of Jamie Cook with Truist. Please proceed with your question. Jamie Cook: Hi, good morning. I guess just two questions. One, John, on the access guidance or the aerial guidance for the year. I think it's applied down 6% or 7%. You know, relative to United Rentals who came out, and I think their CapEx guide was up modestly. Katz retail sales in North American construction were up double digits. So there just seems to be a disconnect between what I mean, like, what's implied in your guide versus what we're seeing from competitors or peers or customers. So just color there. Is it is is there a you know, I guess, so color there. And then, my second question, just on the Transport margins. It sounds like you're ramping as you expected. I think implied sales are up 20%, the margins of only 4%. I know there's some some pricing that needs to happen on the defense side. But just color there on how we think about margins as we exit the year under you said things should get better as the year progresses? Thank you. John Pfeifer: Yeah. Great, Jamie. Thanks for your questions. I'll take the first one. I'll probably pass the the margin question on transport over to Matt. Starting with our access business and your and your question on our outlook, First of all, I I wanna make sure I I state that we think we're taking a balanced approach to 2026. The the market is is unfolding right now. Kinda what we all hear about on a regular daily basis in terms of what's going on, meaning, really strong big mega projects and data centers power gen, some large infrastructure projects. So that that does drive demand, and then that's very positive. On the other hand, you've got private nonres construction, which is a huge segment of non nonresidential construction, which is still under some pressure. And we just we read the stats, and we look at the outlooks for these markets. And long term, we feel really good. You know? Eventually, we'll see some of these delayed starts start to come back online. And and and when that does, that'll be really good news. But right now, we we've taken a balanced approach on that. When you talk about United Rentals and what they reported today, last night, I guess it was, versus a lot of other businesses that are out there. They're they're not all the same. You know, if you're highly if a if one of our customers is highly exposed to these big mega projects, then then then that's a that's one story. The other story, you've got a lot of independent rental companies that are more exposed to the private nonres, is still under pressure. And that kind of is what leads into our balanced approach on the market and and what we're seeing in in 2026. You know, for example, manufacturing construction is is still under pressure, and that's a big sector of nonresident construction. We kinda need to see that turn a bit. And and if we do, in a future call, we'll let you know. Matt, I'll turn it to you on the transport question. Matthew Field: Yeah. Morning, Jamie. So first, let me just say we remain confident in our 2028 outlook for the transport segment. Our guide in 2026 reflects a number of factors. There's pricing for new contracts, as you mentioned, with FMTV, new pricing coming on in the second half? We'll see steady production increases for the NGDV, We do anticipate further NGDV orders to come throughout the year, And then there's a couple things that are are maybe nuances you worth noting. One is we do have lower defense volume in 2026 largely on export orders. And then some investment in new product development, cost and so forth, normal engineering that steps up over the year. That's what results in the OI of 4% with the back half a bit stronger than the first half. But, again, remain very confident in our 2028 outlook. Operator: Thank you. Our next question comes from the line of Jerry Revich with Wells Fargo. Please proceed with your question. Jerry Revich: Yes. Hi. Good morning, everyone. John Pfeifer: Morning, Jerry. Jerry Revich: John, hi. John, I I know you you have excellent telematics data from your fleet gauge. Just tell us what you're seeing in The U. S. And European market for your products? You United Rentals spoke about good utilization for your equipment categories. Curious what you're seeing. John Pfeifer: Yeah. We, you know, we've got a lot of machines out there that are connected Jerry. I mean, in in the hundreds of thousands. Like like, a lot of equipment that's connected. We've got really good insight into the health of the equipment that's in the fleet, and it is we see it as healthy. And and same in Europe. The European fleet's relatively healthy too. So that's good news. Right? And the used market is also pretty healthy. Right now as as we see it. You know, the prices in the used market, the amount of supply that's in the used market, it's not in a it's in a healthy state. So I I can't you know, we we that's all good news. And I think we're all kind of looking forward and saying, okay. We got a lot of nonres under some pressure, but we've got big mega projects that are growing at a healthy rate. And we're we're kinda all looking for the data to tell us if there's an inflection point. And right now, we don't we don't know exactly when that's gonna happen. We just know that at some point, it will happen. And that gives us the reason for our balanced outlook on 2026 for access equipment. Quarter versus the fourth quarter because the guidance implies a really meaningful earnings acceleration. So in Access, it sounds like you're expecting under absorption because of the pull forward and of price increases, but maybe we could just unpack that and talk about margin expectations and access it in in in the first quarter and the transport headwinds, you mentioned sounds like those might be heavier in 1Q than 4Q. Can we just maybe quantify those points just to build the comfort with the earnings acceleration? Matthew Field: Yes. So our first quarter, as as we mentioned on the call, we expect that about half of last year. Most of that decline is is in the access segment year on year in terms of the growth And so if you think about that, we had a strong first quarter last year ending flowing through from 2024. This year, we did see very strong sales in the fourth quarter as we just reported. We think that'll have a moderate impact in the first quarter. We also have some adverse price costs. While we did announce pricing, we do have a full load of tariffs in the back half of the year, we'll start getting some of the cost reductions that we kicked off couple years ago, which progressively increased throughout the year. So so that's the large driver of kind of the year over year EPS at at roughly half of last year. Operator: Thank you. Thanks, Jerry. Our next question comes from the line of Mircea Dobre with Baird. Please proceed with your question. Mircea Dobre: Sorry. I'm gonna have to stick with access equipment too because I am little bit confused here in terms of how we're thinking about the the first quarter. Can we can we be specific in terms of what you guys are are are thinking in terms of year over year revenue decline and margin? And my follow-up, you know, as you as you think about the full year guide, right, I mean, if if if we're recognizing that the order intake that you had in the fourth quarter maybe as you said, pull forward some of the demand because of the announced price increases. Where you're guiding the full year revenue at $4.2 billion frankly, is still higher than what your order intake was for 2025. So to me, in that in that guidance, it you do imply that things are, frankly, getting a little bit better. As the year progresses. What's your visibility related to that? I mean, you know, are you hearing that from your customers in terms of how they're deploying CapEx? Or are there some other assumptions that you're baking in? Matthew Field: So I'll take first quarter and kinda how to think about that and then hand off to John to talk about some of the backlog and how we see the year developing. So, again, for the full year, we're 4.2. As you mentioned, that's about a 6% to 7% decline year on year. We think on a year over year basis, that'll be higher in the first quarter. Again, first quarter last year was very strong coming off Q4 2024. This year, we are seeing a relative weakness in part because of the pricing we announced for 2026, which resulted in strong sales in Q4 so we would expect to see the revenue decline year on year, first quarter higher. What we have for our full year guide. John Pfeifer: Yeah. And and with regard to how the year is gonna progress, Mircea, so we did in the fourth quarter, our orders were $1.7 billion. Our book to bill was 1.5, and we have a backlog of $1.3 billion. So I always pay attention to we we always pay attention to our backlog and how it's how it's continuing to progress. We and and I always indicated our backlog is was typically, we say should represent three to six months of demand, and it that $1.3 billion is right in the middle of it when you look at our guide. We do look at the first half being under a continued pressure because of some of the nonresidential activity that we see we we also saw you know, a heavy, shipments in the fourth quarter, which may impact the first quarter a little bit. As Matt just indicated and you indicated with your question. When you look at where our backlog is, and that backlog also shows when customers need equipment because their shipment dates on every order we take. That that's what leads to our to our guide of of the $4.2 billion which is down a little bit year over year. But kinda consistent with our balanced outlook on where we are with the market. Mircea Dobre: K. Lastly, if I if I recall, we were looking at $300 million of revenue delivery with these units, the customer is delighted with them. Quarterly at full run rate for 10 million miles, and the customer with When you look at our our our performance, we are at or ahead of US Postal Service delivery requirements right now. The Postal Service is very happy with the deliveries we're making. And we have a formal schedule that we have to meet. And we're at or ahead of that formal schedule. So when you look at our revenue for the full year, you know, we've always said that we will do between 16,020 units a year on this program. And in '26, we're right at the low end of that range. We're in that range on the low end side of it. So we we continue to do well with production. Sure. We'll produce more units in the second half than the first half, but we're, you know, we're running fairly well with this program. And and our customer is very happy with it. If you look at our guide for the transport business, kinda thinking about the revenue side of it, about half of that guide is NGDV or delivery units. To give you kind of some numbers. And it's a little bit more on the back half than the first half. Mircea Dobre: Alright. Appreciate that. Thank you. Operator: Thanks, Mircea. Our next question comes from the line of Steve Barger with KeyBanc. Please proceed with your question. Christian Zyla: Morning. This is Christian Zyla on Steve Barger. Thanks for taking the questions. Just on access, were there any other industry or customer specific ordering dynamics in access that you don't think would recur as we head later into the construction season. Or was it really primarily just the pricing pull forward on top of a regular ordering cadence from your customers? Matthew Field: Hi, Christian. It's Matt. So certainly, we I'm gonna say there's anything unique. I would just say we had, you know, a strong sale into independents in the fourth quarter. We think that'll reverse out and the the year will normalize. For 2025, know, in general, we saw relative strength in independence And I think we all expect that that'll that'll normalize more through 2026. Christian Zyla: Got it. And then maybe a slightly different question. Just at CES, you guys showcased delivery vehicles for non USPS. As your team put together the concept, just kind of what drove you to pursue that that plan? Was it the market size or unit economics that you like? Was it the financials? Or or kind of the cross synergies? Just any thoughts on that concept. Thank you so much. John Pfeifer: Yeah. Thanks for the question on CES. We I mean, all of the above, on what your question was. I mean, we we you know, when you look at our NGDV, we developed in United States, there's a lot of technology on that vehicle. It's the most advanced last mile delivery vehicle ever put into the market. It provides so much benefit for the operator to be productive, but underscore also safety. Safety for people around the vehicle and safety for the operator. And so in at CES, we wanted to showcase that we have the capability to to continue to deliver this type of a vehicle for other segments of delivery market know, these are purpose-built vehicles. They're not they're not modified Or a body on chassis, which you see a lot Cox vehicles, which you tend to see a lot in the delivery market. These are purpose-built vehicles with technology on them to drive productivity, safety, and economic performance for the fleet operator. And we wanted to showcase that because we've you know, we we've we've always talked about future opportunity beyond NGDB. So that that was the intent of it. Operator: Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your question. Angel Castillo: Hey, thanks for taking my question. Just wanted to maybe get a little bit more color Sorry to keep harboring on the access side. But have you said exactly, I guess, how much pricing you anticipate to get in 2026 within your sales guide? And can you just kind of talk about that in a little bit more color just to how much is kind of embedded right now at this point in your backlog? And not just for your arrows, for each segment? John Pfeifer: Yes. Thanks, Angel. I'll take the question as Great question, of course. So when we look at our our pricing plans, you know, course, we've been through a dynamic period. When you look at our the cost side of the equation, it's been headlined by tariffs, tariffs, and more and tariffs in that dynamic environment. So we go to work, and we went to work in 2025 doing a lot of tariff engineering work. To try to do everything we can to take the cost of tariffs and mitigate it. And a lot of that has to do with engineering, reengineering, you know, our sourcing teams work hard on, where we're sourcing what product, and and we we try to localize or move product when we need to. So we've done a lot of that work, and we'll continue to do that work. We try to minimize the impact to our customers, but you can't you can't eliminate all of it. So eventually, you have to pass some through in price. So we did we've done that. And we believe that the price increase is reflective of something that our customers can manage as well as something that allows us to stay whole throughout 2026 on the price cost equation. So that's the gist of it. Angel Castillo: That's very helpful. And maybe just following up on that point of, you know, localizing cost And one of the big kind of questions we've been getting is just what what happens to kind of the bill of materials or or just materials cost in general, whether it's from commodity price inflation or memory chips and other things that we're seeing out in the market. So could you just comment a little bit on what's kind of embedded in your guidance in terms of just broader cost buckets? In particular, for Xtandi, maybe on the access side, if you could just kind of unpack how much is maybe of of the cost or or the margin potential dynamics here is tariffs versus materials versus mix of independence. Know, or any other kind of buckets here? Matthew Field: Yeah. Angel, thanks for the question. So on the cost side, I'll give kudos to the access team, which really kicked off a cost reduction initiative going all the way back to 2024, and that progressively has results And so they're continuing to identify cost savings throughout this year. So cost savings are kind of grow cumulatively quarter over quarter. So we'll get more in the back half of this year than the front half of this year. You know, with those actions, with with other actions, I'd say overall, we're seeing largely flattish cost set aside tariffs. And so the team's really doing a great job to manage the cost equation of this and offsetting as much of the tariffs as they can through those initiatives. In terms of mix, you know, we've we've historically seen a higher mix of IR IRCs. I I can't be explicit about how that impacts the financials. But, you know, traditionally, that's been 55% NRC, 45% IRC. We think that'll shift kinda more normalized to those levels in 2026. Angel Castillo: Very helpful. Thank you. Operator: Thanks, Angel. Our next question comes from the line of Timothy Thein with Raymond James. Please proceed with your question. Timothy Thein: I just have one. As on the vocational segment. Can you maybe give some comments in terms of the the the backlog there and and and how that's kinda influencing the the revenue, what you expect in terms of the revenue composition and in 26. I I take it that that the RCVs will are are likely to step down just given comments in some of the the the public waste haulers. But maybe if if there's some further handholding you can give there in terms of of, you know, split across f and e and and AeroTech, etcetera. Thank you. John Pfeifer: Sure. Yeah. Thanks, Tim, for the question. So a vocational, you know, continues to be a great story, a great business for us, will be for for many years into the future. The backlog in across the business is really healthy. When you look at the backlog at a as one step down from that, which is your question, the the the fire backlog is still really healthy. You know, we've had a big backlog. We're continuing to increase capacity, increase output. Yet we continue to see healthy order rates. I mean, customers want our product. So the backlog is really, really healthy in the fire market. It's the same in the airport market with our airport and AeroTech business. A healthy business conditions, healthy order rates, the stats on both you know, customers are continuing to invest. You see the passenger and commercial demand for airport. It's really good. There is some pressure in the environmental business with refuse and recycling. The business in total is very healthy. And our customers are are very healthy in this segment. There's just a little bit of a of a reluctance right now to place a lot of CapEx That's just temporary. We see the long term being fantastic as we had indicated in our investor day through 2028. Just could be a little bit of a lull in CapEx, so some downward pressure on that business. In in 2026. But long term, it's fine. And that and the vocational business will perform exceptionally well even with a little of that blip in in 2026. So we feel great about this segment. The segment where we really showcase our technology makes such a big impact for our customers. And that's one of the reasons it's so healthy. Timothy Thein: Great. Thank you, John. Operator: Our next question comes from the line of Kyle Menges with Citi. Please proceed with your question. Kyle Menges: Thanks for taking the questions, guys. I was hoping we could just go back to the the margin and just how to think about the transport margin ramp throughout 2026. And then, Matt, you still sounded confident in in hitting the Investor Day target for Transport margins in 2028. So would be helpful to hear some color on how to think about the bridge from transport margin of around 4% in 2026 to to meeting the investor day target by 2028. Matthew Field: Yeah. Thanks, Kyle. So you know, as I think about going from the 4% that we got this year to the 10%, all the building blocks are there. It's just a matter of timing. And so we've talked about is new price on on new contracts we're building on our FMTVs sorry, FHTVs now. Which you see in the performance in the 2025. We'll build under the medium contracts, the FMTV, '26. NGDV ramp, so we'll continue to increase our production progressively throughout the year. John mentioned that about half of our revenue for next year, so the $2.5 billion is NGDV, which is right what we said we would be in in the long term guide of 3.1. So you're starting to see those elements come in with with us seeing more of that the second half, obviously, than the first half. You will have some some launch costs that we pick up in the first half. The other thing just to note is that with that half of the revenue being delivery, then you can see some of the defense decrease year on year from the export orders, and we would expect defense volume to pick up into our future guide a bit as well relative to 2026. So that's kinda how to think about 2026. Again, all the building blocks there, it's just a matter of timing for them. And then the second half being stronger for the reasons I mentioned earlier. John Pfeifer: Yeah. We're and we remain really confident on the confident on this going forward. And on on the recovery of its margins. We're very confident that that continue to progress as we head towards 2028. Kyle Menges: Helpful. And then a question on AeroTech. Just how how do you think you've been able to to to extract some some margin synergies? And what what's really the the potential to to squeeze out some more margin from that And I think you guys have hinted at doing some eighty twenty within AeroTech. So it'd helpful be helpful to hear just what what some of those eighty twenty initiatives look like. Thank you. John Pfeifer: Yeah. Thank you for that question. The AeroTech business is a great business for us. The market that we're in and the synergies that we get between our our core synergies and the capabilities of AeroTech, and that's what you see. So the the market's healthy. We're continuing to drive technological innovations within that market segment. You already see our autonomous jet docking and autonomous cargo loading. Being deployed right now in so production, so to speak, meaning at gates. There's a lot more technology to come. Technology really helps customers be more productive. And when that the case, it it it also helps our margins, of course. But we are we are we do, on the other hand, have operating synergies, and and we do eighty twenty similar to the way we do it in some of our other businesses, which is dramatically helped us transform margins over the years. And there's opportunity there for us to continue to get margin through improvement in operating performance. It's not to say that there's anything wrong with the operations of AeroTech. There isn't. But you can always make operations better. You could always do that. And if you ever don't have that mindset, you're probably in trouble. Mhmm. But this is a great business. We expect margins to continue to expand because of technological synergies. And continuing to be better and better with operations through our 8020 philosophy. So thanks for that question. Kyle Menges: Great. Thank you, guys. Operator: Thanks, Kyle. Our next question comes from the line of Steven Fisher with UBS. Please proceed with your question. Steven Fisher: Thanks. Good morning. Just on within the vocational side of things on fire side, just curious how much of a surprise was this municipal mix in the quarter relative to kind of what your expectations were start of the quarter? And what's your baseline expectation of mix in '26 versus '25? Matthew Field: So what we see in the fire business is some quarters, you kinda have a mix of products that has a bit of a lower margin as you kinda work through the one offs and so forth. What we seen in prior quarters is more batches you've seen us talk about those even on the call. We have, you know, 13, 15 trucks being delivered to a department. In the fourth quarter, we had a few more snowflakes, I guess, I'd say. Than we would have in other quarters, and that resulted in a little bit of adverse mix You know, I don't see that being anything sustained. It's more of a periodic thing. And over the year and kinda over the long arc, it really gets lost in the shuffle, but it was something we saw in the fourth quarter specifically. Steven Fisher: Okay. That's helpful. And then just coming back to the cost elements, just curious how much visibility you have to the costs for this year at this point. How locked in are you for what you expect to produce? And then I think, John, you you mentioned your expect to be whole on the price versus cost, but just on the second half of the year in particular, is versus cost expected to be positive for that second half? Thank you. Matthew Field: Yes, Steve. So we have good visibility into the cost at this stage for the year. We think we're in a stable of an environment as we've seen for a while in terms of tariffs at least. And we've got good visibility into our raw material prices as well as our cost reduction initiatives. So we feel we've got a good handle on the cost for the year. We do anticipate price cost to turn positive in the back half of this year. That's one of the drivers of some of the better performance in the second half. And is a bit of a drag in the first quarter as as we work through some of those costs reduction initiatives throughout the year. Steven Fisher: Terrific. Thank you. Operator: Thanks, Steve. Our final question comes from the line of Chad Dillard with Bernstein. Chad Dillard: Hey, good morning, guys. I was hoping you could quantify the incremental tariffs in '26 suppose not by segment, And then also, talked about taking price increases to cover them. In the event that AiEPA gets overturned, I guess, do you think about that? Are you able to maintain the margin? Or do you revisit the the pricing discussions with your customers for '26? Matthew Field: Thanks, Chad. So as I mentioned on the call, full year impact's about $200 million. That's roughly a $160 million higher than last year. I just of that as mostly in access, so about three quarters is in access segment. To put some ballpark numbers on that. If there is anything overturned, our assumption in certainly our planning assumption is that something equivalent will go in place. So our guidance assumes that the present tariff rates sustain throughout the year. I think that's a probably fair assumption based off everything I've read, but you know, as the situation evolves, we'll adapt as we did in 2025. Chad Dillard: Gotcha. That that's helpful. And then I was hoping you could bridge your your incremental margins in the vocational business. They're pretty sizable. So I was wondering if could split it out, how much comes from price realization versus volume? And then secondly, you know, with 17%, you're kind of at that midpoint of your long term guidance. So I guess what's stopping you guys from from taking that that target a bit higher now? Sound like a CFO. Matthew Field: So so we're at 17%. We're really pleased with that margin. It's it's a good step forward. And what you see in that growth and I won't be explicit about the breakout between volume and price cost, but volume plays a larger driver in 2026 than it did in 2025. As we bring on more capacity, John referenced the amount of capital we're investing into our assembly plants for fire capacity. So we started to see that come to the floor in 2026 relative to 2025. Price cost, we do see still favorable in 2026. Then we do have some investments that help us support our business growth that's really what drives the 17%. But that's a great margin. It is right within the sweet spot of the 16 to 18% we got it in 2028 with revenue growth in the 2028 guide relative to where we are in 2026. So really pleased with the progress we're making in that segment and pleased with the performance we're seeing. John Pfeifer: Yeah. I'll just say that, you know, we're at we are we're expecting to be at 70% margins. Which which we'd all look at and say that's that's good compared to our '28 guidance. So we we got a lot of good things still happening in business. A lot of good things on deck to come. So we feel good about it. Chad Dillard: Okay. Thanks, John. Operator: Mr. Davidson, I'd like to turn the floor back over to you for closing comments. Patrick Davidson: All right. Appreciate it, Christine. Thanks for joining us, everybody, on the call today. We will be meeting with investors at several conferences during February and March. We're also looking forward to another CONEXPO show, as John mentioned earlier during his comments on the access business. If you're interested in learning more about our company and our construction equipment leaders, consider a trip to Vegas in March for the show. Last held back in 2023, right, three years ago. So it's a great opportunity to gain exposure to our industries and hear about the new products and technology. Have a good rest of the day. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: [Interpreted] Ladies and gentlemen, thank you for attending this conference call. We will now begin Hyundai Motor Company's Business Results Conference Call for the fourth quarter of 2025. Once again, the presentation material can be downloaded from the Financial Supervisory Services electronic disclosure system at dart.fss.or.kr or the IR website at www.hyundai.com. Joining us are EVP Seung Jo Lee, Head of Planning and Finance Division; EVP Zayong Koo, Head of IR Division; [ Harry Hyun ], Head of Finance Accounting Subdivision; Michael Yun, Head of IR Group; VP Hyungseok Lee, Head of Planning and Finance Division of Hyundai Capital. We will first have HMC's presentation on the business results followed by a Q&A session with the attending investors. [Operator Instructions] Now we'll proceed with the presentation by Michael Yun, Head of IR Group at HMC. Michael Yun: [Interpreted] Hello. This is Michael Yun, Head of IR Group. Welcome, everyone, to Hyundai Motor Company 2025 Q4 Business Results Conference Call. On behalf of Hyundai Motor Company, I appreciate your time for joining today's call. And please refer to the presentation, HMC 2025 Q4 business results on the IR website. The presentation includes quarterly key messages, sales performance and profit analysis. And for quarterly summarized cash flow statement and detailed regional sales breakdown, please refer to the appendix. First, Q4 key messages. Despite concerns over tariff impact and the resulting slowdown in demand, strong sales performance led to the highest fourth quarter revenue on record. Particularly in the U.S. market, we have achieved annual wholesale sales of 1 million units for the first time, driven by strong hybrid sales and a diversified SUV lineup. Finally, thanks to the robust hybrid sales in the U.S. market, the share of global hybrid sales recorded 16.3%. Next, the sales performance. In the fourth quarter of 2025, global wholesale sales recorded 1.03 million units, a decrease of 3.1% compared to the previous year. Retail sales recorded 1.07 million units, reflecting 0.2% decrease Y-o-Y. The annual wholesale decreased by 0.1% to 4.13 million units, while retail sales decreased by 1.6% to 4.1 million units. Next, I'll go over details about the increase or decrease in wholesale sales through key market summaries. In the U.S. market, sales increased 0.8% Y-o-Y, totaling 244,133 units. We continue to see strong sales performance of high-margin vehicles as hybrid sales accounted for a record high 22.6% of total sales, driven by new model effect of the Palisade hybrid and Genesis recorded the highest share of 8.9%. Sales of eco-friendly vehicles rose 29.2% Y-o-Y, reaching 70,503 units, driven by strong hybrid sales. In Europe, sales decreased 11.6%, totaling 138,152 units, revised EV incentive in key countries like Italy and France led to EV wholesale sales increase of 54.1% compared to the previous year. As we continue to expand our key EV lineup such as INSTER and IONIQ 9, our EV sales accounted for 18.4%. Sales of eco-friendly vehicles rose 12.1% Y-o-Y, reaching 62,078 units. In the domestic market, sales decreased by 6.3% Y-o-Y, totaling 177,496 units. Despite the reduced business days in the fourth quarter due to a holiday break, the new model effect of the Palisade, IONIQ 9 and NEXO led to a higher proportion of SUV sales. Sales of eco-friendly vehicles reached 62,189 units, a 1% Y-o-Y increase. Despite intensified competition from rival hybrid model launches, the new model effect of hybrid drove hybrid sales to grow 8.9%, reaching the share of 29%. Next, I will explain the sales analysis by vehicle type. Global SUV sales, including Genesis, totaled 638,149 units, accounting for 61.8% of total sales. Eco-friendly vehicle sales increased by 12.1% Y-o-Y, driven by hybrid sales growth in the U.S. market and expansion of EV sales in Europe. Despite the termination of EV subsidy programs in the U.S., EV sales rose 6.8% Y-o-Y, while hybrid sales continued to show strong momentum, growing 15.3% Y-o-Y. This concludes the discussion on sales, and now I will explain P&L. This page summarizes our income statement. Consolidated revenue increased by 0.5% Y-o-Y to KRW 46.8 trillion and operating income decreased by 39.9% Y-o-Y to KRW 1.7 trillion. The Automotive division's revenue increased by 2.4% Y-o-Y due to favorable FX environment and improved mix driven by hybrid and EV sales. The OP decreased by 49.7% Y-o-Y with tariff impact and increase in incentives. Revenue from finance division increased by 9.2% Y-o-Y due to interest rate cuts and FX fluctuations, while OP decreased by 2.7%. Net income decreased by 52.1% Y-o-Y to KRW 1.2 trillion. Next is quarterly revenue and operating income analysis. Revenue benefited from favorable FX rate contributing KRW 1.7 trillion, while decreased global wholesales resulted in negative volume effect of KRW 2 trillion. Additionally, regional mix improvement and sales expansion of hybrid and EV contributed to KRW 1.25 trillion. Despite the decline in the financial segment, total revenue rose 0.5% Y-o-Y. Despite the record high fourth quarter revenue, unfavorable business conditions negatively impacted our profitability, including the tariff impact and higher incentives driven by intensified competition in key markets. Although contingency plan partially offset tariff impact, OP decreased by 39.9% Y-o-Y. Our Q4 cost of goods sold ratio recorded 83.3%, a 2.8 percentage point increase Y-o-Y. SG&A recorded KRW 6.1 trillion, which is a 1.9% decrease compared to last year due to decrease of sales warranty provisions owing to quarter end exchange rate decrease. Finally, our net profit decreased by 52.1% to KRW 1.2 trillion. This concludes the presentation of the 2025 Q4 business results. Thank you. Next, EVP Seung Jo Lee, the Head of Planning and Finance Division, will assess the company's business results in Q4 and the annual guidance. Seung Jo Lee: [Interpreted] Good afternoon. This is EVP Seung Jo Lee, Head of the Finance Division. I will now present Hyundai Motor Company Q4 2025 business performance and Q4 dividend and shareholder return policies. First, revenue reached -- sorry, I'm going to share with you the performance of the fourth quarter and guidance status. Revenue reached KRW 46.8 trillion, marking a slight Y-o-Y increase, which was driven by an improved regional mix from increased North American exposure and higher EV and HEV sales. Although a weaker one offered favorable FX effect, operating profit declined by KRW 1.1 trillion Y-o-Y to around KRW 1.7 trillion due to ongoing U.S. tariff impact, lower sales volume resulting from fewer working days and increased incentives driven by intensifying regional competition. With the 15 tariff rate applied retroactively from November 1, tariff costs declined by KRW 360 billion Q-o-Q to KRW 1.46 trillion. However, the benefit of the tariff rate costs were limited due to the sales of inventory subject to a 25% tariff in Q4. Nevertheless, the company actively executed contingency measures, mitigating the negative tariff impact by around 60%. Additionally, shutdowns at European and Jeonju plants to accommodate new model launches led to an increase in fixed cost per unit, resulting in about KRW 200 billion. However, the sales momentum from upcoming new model launches is expected to enhance future business results. Next is 2025 guidance. This guidance was first announced at the fourth quarter 2024 earnings call, and this outlined wholesale of 4.17 million units, revenue growth of 3% to 4% and OPM of 7% to 8%. However, following the unforeseen U.S. tariff issue, the guidance was revised at the 2025 CEO Investor Day with the OPM target lowered by 1 percentage point to 6% to 7%. Despite an unfavorable external conditions, we presented an upward revision of the revenue growth, which was raised by 2 percentage points to 5% to 6%, driven by aggressive and flexible production and sales strategies. Due to geopolitical challenges and intensified market competition, total sales reached 4.138 million units, falling short of the target by 36,000 units. However, we achieved a history milestone by surpassing 1 million wholesale units in the U.S. market for the first time, driven by growing global demand and our diversified lineup, hybrid sales continued their strong momentum, rising about 28% Y-o-Y to 635,000 units, accounting for 15.3% of total sales. Despite the difficult environment as a result of our commitment to meeting the market communicated guidance with a higher sales mix in North America and strong performance in hybrid and EV models, revenue grew 6.3% Y-o-Y, reaching KRW 186.3 trillion, exceeding our revenue growth target. OP declined Y-o-Y due to about KRW 4.1 trillion in annual tariff impact, but the OP margin reached 6.2%, falling within the guidance range that we have provided. Next, I'd like to discuss our year-end dividend and shareholder return policy. We enhanced dividend visibility and ensured the continuity of shareholder returns. Even in periods of earnings volatility, the company introduced a minimum annual DPS of KRW 10,000 based on common share from 2024. Despite a 25% Y-o-Y decline in consolidated net income attributable to controlling shareholders in 2025, we remain committed to this pledge to our shareholders. Accordingly, we declared a year-end DPS of KRW 2,500 based on common share, thereby fully delivering the minimum annual DPS of KRW 10,000. As a result, our dividend payout ratio exceeded 25%, reaching 27.7%. In addition, in line with the three-year mid- to long-term shareholder return policy announced in 2023, we completed the retirement of 1% treasury shares in April to achieve our target of TSR ratio of at least 35% in 2025 and to execute the plan to repurchase up to KRW 4 trillion of treasury shares over three years, we plan to conduct a treasury share buyback amounting to KRW 400.7 billion. Of this amount, around KRW 200.2 billion will be included in the calculation of the 2025 TSR ratio. The remaining around KRW 200.5 billion corresponds to our previously announced policy of retiring 1% of treasury shares per year over three years and is intended for the final 1% retirement schedule for 2026. As such, this portion will be reflected in the 2026 TSR calculation upon requirement. The treasury shares to be repurchased under this program are solely intended to enhance shareholder value and will be fully retired during '26. The share repurchase program will commence on January 30 and will be conducted over a three-month period. This year, the automotive industry is expected to face a challenging environment marked by stagnant growth in key markets and intensifying competition, while continuous investment remains necessary to secure leadership in the future technology amid rapid changes. Despite these challenges, we will actively implement continuous measures to reduce cost and optimize volume and profitability by region with the aim of delivering solid results and fulfilling our commitment to shareholder return policy. Finally, we'd like to express our sincere appreciation for your continued support and interest in our long-term investment and efforts in future business, including robotics, autonomous driving and the hydrogen ecosystem. Going forward, we'll continue to strive for sustainable growth as a smart mobility solution provider and provide regular updates on matters of importance to our shareholders. Thank you for listening. Unknown Executive: [Interpreted] I'd like to present our 2026 annual guidance. Let me begin with our wholesale plan. Our sales target for 2026 has been set at 4.158 million units, representing an increase of around 20,000 units Y-o-Y. This target reflects our assessment of industry demand by regional segment. And please refer to Page 2 for a detailed breakdown of regional ad sales targets. Turning to our consolidated financial outlook. We expect 2026 consolidated revenue to grow by around 1% to 2% Y-o-Y. Supported by continued ASP improvement, and this outlook is driven by increased sales volume in North America and further expansion of hybrid vehicle sales. And we expect that there will be no temporary cost increase in 2026. So with respect to profitability, despite a challenging external environment, based on our fundamentals and competitiveness and cost innovation, we are targeting a consolidated OPM of 6.3% to 7.3% for 2026. Moving on to our investment plan. Total investment for 2026 is planned at KRW 17.8 trillion, representing a 23.2% increase compared to 2025 actual of KRW 14.5 trillion. By category, R&D investment is planned at KRW 7.4 trillion, up 21% year-over-year, driven by efforts to strengthen the Genesis and eco-friendly vehicle lineup, including Genesis SUV. CapEx is planned at KRW 9.0 trillion, 32% increase Y-o-Y for U.S. localization related to investment in response to U.S. tariffs and for electrification to gain future growth momentum. Strategic investment planned at KRW 1.4 trillion, representing a 7% decrease Y-o-Y. Regarding free cash flow, taking into account our profitability outlook and continued investment expansion in 2026, we expect free cash flow to be in the range of negative KRW 1 trillion to positive KRW 0.5 trillion. With respect to shareholder returns, in line with the value program announced on August 28, 2024, we intend to continue our shareholder return policy in 2026 targeting a shareholder return of at least 35% on a TSR basis. In closing, even amid heightened internal, external uncertainties in 2026, we remain committed to achieving our annual guidance through sustained profit generation and management activities that prioritize shareholder value grounded in strengthened product competitiveness and improved fundamentals. For further details, please refer to the 2026 guidance materials available on our website. This concludes our 2026 annual guidance presentation. Thank you. Next, Vice President, Hyungseok Lee, the Head of Planning and Finance Division of Hyundai Capital, will assess the Q4 results for the finance business. Hyungseok Lee: [Interpreted] Good afternoon. I am Hyungseok Lee, Head of Finance at Hyundai Capital. Let me now present the finance sectors Q4 2025 performance and 2026 outlook. In Q4, Hyundai Capital and Hyundai Capital America delivered solid results by continuously expanding their roles as the group's captive finance companies. I will now touch upon the detailed performance by company. First is Hyundai Capital. In Q4, under strengthened sales finance collaboration with the group by introducing specialized programs such as Genesis Finance, Hyundai Capital actively supported vehicle sales. As a result, installments and lease volume increased by 14.7% and 10.1%, respectively, Y-o-Y. Total product assets grew 3.6%. Lease income rose on the back of expanding high-value model-based lease assets. However, due to declining market interest rates and regulatory impact, Installment and loan interest income decreased, leading to a slight Y-o-Y decline in operating revenue, excluding FX and derivative effects. On the funding side, 14% of domestic bond issuance in 2025 was ESG bonds by standing a foundation for lower cost funding with diverse borrowing offerings such as offshore bonds and ABS, interest expense in Q4 decreased 2.7% Y-o-Y. In January this year, we were the first to issue public bonds in the amount of EUR 500 million as a credit finance company, further demonstrating strong global funding competitiveness despite continued downward pressure on soundness in the industry, driven by real estate stress in the regional areas and rising household debt and others, Hyundai Capital maintained solid performance through a high-quality captive portfolio and active NPL disposal recording a delinquency rate of 0.82%. In spite of decline in lease costs, we rather increased provisioning for preemptive risk management. As a result, total operating expenses rose slightly Y-o-Y, driving a decline in operating profit in Q4. However, with equity method gains from overseas subsidiaries increasing profit before tax rose 13.6%. In 2026, Hyundai Capital intends to strengthen liquidity to navigate heightened market volatility and defend profitability through funding cost management and OpEx optimization. The company will further enhance digital capabilities through data collaboration at the group level and adoption of AI in core operations. Globally, Hyundai Capital is preparing to launch its finance subsidiary in India and further advance capabilities across overseas subsidiaries to reinforce position as a leading global mobility finance provider. Next is Hyundai Capital America. Despite macro uncertainty in Q4, thanks to strong vehicle sales trends at the group level since the beginning of the year, a high 72% P rate, we recorded growing trend across the overall portfolio. In particular, prior to the IRA subsidy expiration, the lease volume of eco-friendly vehicles increased rapidly, driving a 32.2% Y-o-Y rise in leased assets and a 16% growth in total product assets. On the back of robust asset growth, installment and lease income grew in Q4 Y-o-Y, keeping operating revenue at a similar level to last year. For funding, HCA issued a total of USD 11.9 billion in public bond in 2025 and successfully debuted in the euro bond market in June, impacted by an increase in total borrowings, interest expense in Q4 rose 14.3% Y-o-Y. In terms of asset, above 85% of the customers were rated prime with those subprime rated recording less than 1%. Although the bad debt expense went down with the increased provisioning for residual value risk management. However, as total operating expenses declined slightly, OP in Q4 grew 48.4% Y-o-Y. In 2026, tariff impact, interest rate volatility and inflation are expected to create a challenging environment. Nevertheless, HCA like to maintain sufficient liquidity based on strong credit ratings to navigate this uncertainty. The company will continue to support the auto sale financing to sustain asset growth and secure outstanding financial soundness through disciplined risk management. Added to that by diversifying business such as financing for the group's new businesses, the company will broaden its role as the HMG as global mobility finance company. This concludes my presentation. Thank you for listening. With that, we will conclude the presentation and take your questions. Please limit your questions to two. Operator: [Foreign Language] [Interpreted] Now Q&A session will begin. [Operator Instructions] The first question will be provided by Ji-Woong Yoo from DAOL Investment & Securities. Jiwoong Yoo: [Foreign Language] [Interpreted] I'm Ji-Woong Yoo from DAOL Investment & Securities. So I have two questions regarding cost. First, you mentioned about the fixed cost for 4Q being close to KRW 200 billion. And the tariff in Q4 was KRW 1.5 trillion, which is lower than the amount for Q3. However, the operating profit for Q4 has gone down by KRW 1 trillion versus Q3. So, all in all, although the tariff cost has gone down, the expectations high that the cost would also get better. So I was wondering if there were any other costs that ought to be occurred in Q4 for this result? Or are there any other costs that are expected for Q1? My second question is based on the CID announcement, you said that you are planning for the five years, KRW 77 trillion investment. So if you divide that on an annual average, that comes to close to about KRW 14 trillion. And this year, you announced that the investment will be around KRW 17.8 trillion. So, for the past four months, have there been any drastic measures to make new investment decisions or maybe end of last year or earlier this year or for the year of 2026, do you have any new investment decisions that to be executed? Unknown Executive: [Foreign Language] [Interpreted] Before answering your question, I think during my presentation, I made some numerical error. So, the buyback of treasury shares, I said it was KRW 470 billion, but in fact, it is going to be KRW 400.7 billion. Right. So, to answer your first question, I mentioned that there's going to be an increase in fixed cost of about KRW 200 billion due to new cars being input in Jeonju and Turkey plant. And you asked if there are any other costs due to -- that results in this increase in fixed cost. So there were temporary increase in fixed costs. At the end of last year, we had to reflect the increase in labor cost, which came to about KRW 140 billion. And also, there was a quality cost that occurred for [ CapCo ], which came to about KRW 100 billion. So that was just our temporary cost that was a onetime happening for the end of the year. And also with HCA, during the auditing process of its fiscal orders, it was found that usually for lease cars, we set the time to 36 months for the incentives, but it was found that on average, the use of the lease was 31 months. So we were adjusting the cost and profit, and that was altogether reflected in the financial sheet. So that resulted in KRW 130 billion at the end of the year. So, I think, I pretty much explained if any further costs were going to be created in Q1 of 2026 compared to Q4. But if I'm to give you a bit more of elaboration on the performance regarding Q1, with IRA being abolished in Q4 last year, the EV inventory of our dealers is now piling up. So we are really trying to decrease this inventory amount. And that's why we have made a strategic approach so that we can lower the inventory in Q4, and we believe that this will help with our Q1 performance. Now moving on to your second question. You said that CID announced a total KRW 77 trillion investment for five years. And on an annual average, it comes to KRW 14 trillion. And this year, we announced an investment of KRW 17.8 trillion and whether there is a new investment plan that is coming ahead. However, that is not the case. It's just that our investments are mostly focused on 2026 and 2027. So I think this year will probably the peak our investment size. So, overall, the total investment size or pie has not grown. It's still the same. And just to elaborate further regarding our investment, we will continue our investment for our future businesses. We have been doing this from four years ago. And I think most recently, this value is now represented through our share prices. However, we are still trying to make sure that our investment is effective and efficient. And within that decision, we'll be making our priorities so that with the same high investment that we have, the same budget that we have, we make the most effective and efficient investment. Overall, we will not be reducing our investment for our future. Operator: [Foreign Language] [Interpreted] The following question will be presented by Eun Young Yim from Samsung Securities. Eun Young Yim: [Foreign Language] [Interpreted] This is Eun Young Yim from Samsung Securities. I have two questions. My first question is related to tariff. You've mentioned during your presentation that the annual tariff impact is estimated to be KRW 4.1 trillion in 2025. And you've said that the mitigation impact was around 60%. So if I interpret your presentation, the net burden coming from the tariff impact will be around KRW 1.2 trillion or KRW 1.5 trillion. So if the tariff rate is going down to 15%, how can we estimate or forecast the impact for the year 2026 coming from the tariff? And I'm wondering if you are going to continue to make contingency efforts to reduce the impact from tariffs. My second question is related to your shareholder return policy. As if I look at the plan that you announced during the disclosure for the purchase of treasury shares, we believe that the portion of preferred share will be around 8% to 9%. But if I remember your presentation, you said that during your presentation, you are going to close the gap between the preferred stock and the common stock. So if you look at the current price trend of the common stock, actually, the price of the common stock went up dramatically. So that widen the gap between preferred stock and common stock. So I think the level of the preferred stock repurchase is not really enough. So I'm wondering you're going to increase the portion of repurchase of the preferred stock in late mid next year or two years later. Unknown Executive: [Foreign Language] [Interpreted] If I answer your first question, we've explained that the impact from tariff was around KRW 4.1 trillion. And what we are forecasting for the impact for this year, 2026, the level of the impact will be flattish, similar. As you all know, the tariff took effect as of 3rd of April, but well, the tariff actually applied to the inventory from mid-May. So when we are -- when we were calculating the tariff impact when we set up the business plan, we realized that the impact from tariff will be similar between 2025 and 2026. And we had the mitigation impact of 60%. So you asked about if the contingent plan will be continued in the next year. So I can say for sure that the mitigation plan for the tariff impact will be maintained in this year. And with the limited budget and the cost that was reduced this year was applied to the establishment of the business plan for 2026. Your second question was related to our repurchase plan for the treasury stock. So you mentioned that the gap between preferred stock and common stock is getting wider and wider. And you asked about if there will be any plan or direction that we can share with you in regard to how to close the gap between two different types of stock -- treasury stocks. So in order to meet the TSR ratio of 35%, we said that we are going to repurchase KRW 200.4 billion of treasury stock, and we said we were going to retire around 1%. So, for that to happen, we are going to spend around KRW 200.7 billion for -- and 0.2% for the common stock. So, as we disclosed before, so when we're dealing with KRW 200.4 billion, 0.16% will be composed of the common stock, whereas the preferred stock will account for 0.2%. That means if you look at translated into the proportion that preferred stock will account for 25%. Of course, the number of the purchase won't be really big, but you can understand from our plan that how we are going to proceed with our shareholder return policy. So in order to close the gap between preferred stock and common stock, we are going to give a lot of thoughts to it. And once ready, we're going to communicate more with the market. Operator: [Foreign Language] [Interpreted] The last question will be presented by Jinsuk Kim from Mirae Securities. Jinsuk Kim: [Foreign Language] [Interpreted] I actually had a question about tariff. I think that was answered in the previous question. So, I only have one question. I think the most significant event that HMC has done in terms of bringing change to our society and our value was the Kkanbu Chicken meeting last year and signing the contract in sourcing 50,000 units of GPU. And if you look at your presentations made during the Investor Day or the Mobis CID as well as this CES Media Day, you announced plans to distribute and also present smart cars as well as the demo cars as well. And based on my own prediction, we believe that this will be possible maybe by fall at the latest. So -- and I think we also have a look at Atlas and maybe the input of humanoid in the meth plant could be done by September and October. So, to do that, you will have to start securing data for movement and control as well. So is it safe to think that the GPU installment and the actual operation will also be done at that time as well? Unknown Executive: [Foreign Language] [Interpreted] Yes. So, as we had mentioned during the CES, we are planning to conduct a POC for the humanoid metaplant at the end of this year. And also the demo cars for smart cars, R&D is currently working on this, and it is expected to be launched in the latter half of this year. And we already have made a project code for this. And of course, the demo car launch, there will be a small number of models, but it will come to -- it will be launched by the end of the year. Regarding the contract for 50,000 units of GPU, we are currently working on the plan of when and how to use these chips. However -- and it's probably likely that they may be used with the utilization of humanoids and smart cars as well, but we haven't come out with a concrete plan as of yet. So, when that is done, we will communicate with the markets regarding this. Operator: [Foreign Language] [Interpreted] If you have any questions, please contact Hyundai Motor Company's IR group. Thank you very much for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
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: Good day, and thank you for standing by. Welcome to the Valley National Bancorp Fourth Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. Ask a question during this session, you will need to press star 11 on your telephone. You'll then hear automated message if either your hand is raised. Withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Andrew Gianetti. Please go ahead. Andrew Gianetti: Good morning. And welcome to Valley's Fourth Quarter twenty twenty five Earnings Conference Call. I am joined today by CEO, Ira Robbins, and CFO, Travis Lan. Our quarterly earnings release and supporting documents are available at valley.com. Reconciliations of any non GAAP measures mentioned on the call can be found in today's earnings release. Please also note Slide two of our earnings presentation and remember that comments made today may include forward looking statements about Valley National Bancorp and the banking industry. For more information on these forward looking statements, and associated risks factors, please refer to our SEC filings including forms eight k, 10 Q, and 10 k. With that, I'll turn the call over to Ira Robbins. Ira Robbins: Thank you, Andrew. Valley delivered record earnings in the 2025. With net income of approximately $195,000,000 or $0.33 per diluted share. Excluding certain non core items, adjusted net income was $180,000,000 or $0.31 per diluted share. An increase from 28¢ on both the reported and adjusted basis in the 2025. Our adjusted return on average assets of 1.14% represents the highest level since the 2022. For the full year of 2025, we produced $598,000,000 of net income or $585,000,000 on an adjusted basis. This material improvement versus 2024 reflects disciplined balance sheet management, a stronger funding mix, and continued benefits from strategic investments in talent, technology, and our operating model. We enter 2025 with a fortified balance sheet and clear profitability targets, tied to sustained funding improvement and credit cost normalization. By year end, we had exceeded these expectations across all major metrics, while further strengthening our capital and liquidity positions. This performance underscores both the resilience of our franchise and the depth of our customer relationships. Our improved profitability has accelerated retained earnings growth and enabled us to return more capital to investors through share buybacks and regular cash dividends. Our substantial core deposit growth stands out as one of our major significant achievements of the past year and is the key underpinning of our profitability improvement in 2025. On a year over year basis, we grew core deposit by nearly $4,000,000,000 or 9%. Past strategic investments in talent and technology have deepened customer engagement, increased operating account wins, and driven momentum across our diverse delivery channels. We continue to recruit experienced commercial bankers who are focused on both loan and deposit opportunities in their geographies or areas of focus. While future growth is not likely to be linear, we have a high degree of confidence in our ability to further enhance funding profile over the next twelve months. The course loan growth was strong, diverse, and tightly aligned with our relationship focused strategy. For the first time since the 2024, total commercial real estate loans grew on a sequential basis. This growth was primarily in the owner occupied category and was partially funded by strategic runoff of nonrelationship commercial real estate. During the quarter, owner occupied CRE and C and I growth was driven primarily by activity in our specialty health care vertical and Southeast franchise. Loan growth is well positioned to accelerate further in 2026. Our immediate and late stage pipelines are exceptionally strong, up over $1,000,000,000 or nearly 70% from just a year ago. Driven by a $600,000,000 increase in C and I, and $700,000,000 increase in commercial real estate. Past investments in data analytics, artificial intelligence, and sales effectiveness are making our bankers more productive across the franchise. These investments also ensure that newly onboarded relationship bankers have the tools necessary to hit the ground running and contribute more quickly to our consolidated results. To this end, recent additions to our teams, New Jersey, California, and Florida have already generated loan and deposit activity and directly support the aforementioned expansion in our pipelines. Our recruiting efforts remain active, which we expect will continue to accelerate the growth in our relationship business model. Most importantly, increased activity from both legacy and new hires is the result of our strategic focus on attracting profitable holistic banking relationships, which align with our risk appetite. Our improved balance sheet position and profitability metrics reflect the cumulative benefits of a variety of multiyear initiatives. We have focused on geographic and business line diversification across the franchise and have invested in high caliber commercial talent to achieve our goals. Our twenty twenty three core systems conversion set the stage for our expanded treasury management offering. Which improved our ability to win operating accounts, and deepen commercial relationships. This has directly supported additional growth in both core deposits and fee income. And has been further augmented by specialty funding niches that have produced above average deposit growth. Our strategic priorities for 2026 remain generally consistent and focused on sustained value creation. To support our deposit ambitions, we are igniting our small business sales efforts, improving branch productivity, and exploring new growth oriented deposit niches. Additionally, there is an opportunity to further expand the customer adoption of our treasury platform. Recent investments in branding artificial intelligence solutions, and service model improvements have been designed to accelerate customer acquisition and elevate the client experience which we believe will contribute to future revenue growth and increased franchise value. At the same time, we are always working to identify and execute on expense offsets to help fund these initiatives. Our strong momentum in 2025 directly supports our 2026 outlook. Which Travis will detail shortly. From a high level, we expect continued benefits from repricing opportunities on both the funding side of the balance sheet and in the lower yielding fixed rate segment of our loan portfolio. While Travis will describe some of the traditional seasonal headwinds that we face in the first quarter of each year, we anticipate an additional 15 to 20 basis points of margin expansion from the 4Q 2025 to the 4Q 2026. All else equal. This combined with continued fee income growth, credit stability, and expense management, should result in further profitability improvement in 2026. I am extremely proud of what our team accomplished in 2025. We have built undeniable momentum with respect to customer growth, funding diversification, loan quality, talent acquisition, and ultimately, financial performance. Our strategy is paying off, our teams are executing, and we remain focused on delivering additional long term value for our associates, shareholders, and clients. With that, I will now turn the call over to Travis to discuss our financial results. After his remarks, Gina Martocci, Patrick Smith, Mark Sager, Travis, and I will be available for your comments. Travis Lan: Thank you, Ira. Continuing the discussion on 2026 expectations, we have provided our guidance for the year on slide nine. We expect mid single digit loan growth supported by roughly 10% C and I growth, low single digit CRE growth, and mid single digit consumer and residential growth. While results may not be linear, we anticipate deposit growth will outpace loans throughout the year, allowing us to further reduce our loan to deposit ratio. We expect CET1 will remain in the previously guided 10.5% to 11% range, as we continue to execute our capital deployment strategy. As a result of expected balance sheet growth and continued repricing tailwinds, we anticipate that net interest income will grow between 11-13% in 2026. Our forecast assumes two rate cuts in 2026 that we remain generally neutral to the front end of the yield curve. While fourth quarter fee income benefited from abnormally high commercial loan swap activity, and, to a lesser extent, valuation gains on fintech equity investments, which may not recur, we anticipate high single digit growth in 2026. Ira discussed the investments we have made and will continue to make in talent, branding, technology, and capability expansion. These are incorporated into our operating expense guidance, and any incremental investments would be expected to further enhance our growth potential. Finally, we expect further credit cost improvement in 2026. We anticipate general stability in our allowance coverage ratio, and further normalization in net charge offs. These factors would combine to imply a 2026 loan loss provision of around $100,000,000 give or take. While quarterly trends naturally vary, I would remind you that our first quarter tends to be somewhat softer as a result of lower day count, elevated payroll taxes within operating expenses, and seasonal headwinds on both sides of the balance sheet. These dynamics may be more evident in the 2026 as we saw a late year spike in both fee income and noninterest deposits which are likely to moderate early in the year. That said, our 2026 guidance reflects the strong momentum that we have and our expectation for further profitability improvement throughout the year. We added slide 10 to provide a clearer view of our capital deployment strategy, which continues to balance organic growth with meaningful capital returns. In the fourth quarter, we generated $188,000,000 of net income to common shareholders. Of which we returned $109,000,000 of that in the form of cash dividends and share repurchases. Our earnings generated about 38 basis points of CET1 during the quarter, and we used about half of that to support organic loan growth while returning the other half to shareholders and preserving capital ratios well within our target range. At the upper end of that range, we believe we have significant flexibility and anticipate preserving this balanced approach to capital deployment going forward. Slide 11 illustrates the continued momentum in our deposit gathering efforts. During the quarter, we increased core deposits by about $1,500,000,000 enabling us to pay off almost $500,000,000 of maturing higher cost brokered deposits. Our core deposit growth is primarily concentrated in non interest and transactional accounts. Noninterest deposits grew over 15% on an annualized basis, but benefited from late quarter activity, which is likely to moderate. Still, total deposit costs came down by 24 basis points sequentially, implying a 55% quarterly deposit beta. Turning to slide 14. Total loans grew about $800,000,000 or 7% on an annualized basis. This was the result of accelerating commercial real estate originations, continued C and I momentum, and complementary residential and consumer growth. We continue to fund relationship based CRE growth with transactional CRE runoff. For the year, we anticipate 40% of our net loan growth will come from C and I, 40% from CRE, and the remainder from consumer and residential. Our loan yield data continues to meaningfully lag our deposit data, as the replacement of low yielding fixed rate loans with higher yielding originations slows the rate base compression. Slide 17 tells our net interest income and margin expansion story as we benefit from loan growth and repricing dynamics on both sides of the balance sheet. Net interest income increased 4% quarter over quarter or 10% year over year. We also saw our margin expand to 3.17% well beyond our fourth quarter target of above 3.1%. We continue to see the repricing dynamic playing out, supporting our expectations for an additional 15 to 20 basis points of margin expansion from the 4Q 2025 to the 4Q 2026. We saw exceptional 18% growth in noninterest income during the quarter. Roughly two thirds of the sequential growth was from swap fees and unrealized gains on certain fintech investments. Some of this activity was episodic and is not likely to recur. That said, we continue to have strong momentum from a deposit service charge and wealth management perspective. Quarterly fee income in the mid to high $60,000,000 range is likely a reasonable starting point for 2026, with anticipated growth throughout the year. Similar to fee income, fourth quarter adjusted expenses were elevated by a few discrete and infrequent items. Roughly half of the quarterly expense growth was due to our new branding campaign, and performance based accruals tied to the execution of certain operational initiatives and milestones in 2025. Even with these items, expenses for the full year year increased just 2.6% well below our 9% revenue growth. We continue to project low single digit expense growth in 2026 as ongoing investments in talent, technology, branding, and capabilities are partially funded by efficiencies from other parts of the organization. As a result of these efforts, we anticipate that our efficiency ratio continue to decline towards 50% throughout the year. Slides twenty one and twenty two illustrate our asset quality and reserve trends. Criticized and classified loans declined by over $350,000,000 or 8% during the quarter. And total nonaccrual loans to total loans were effectively unchanged. Quarterly net charge offs were 18 basis points of average loans, bringing twenty twenty five net charge offs down to 24 basis points of average loans versus 40 basis points in twenty twenty four. Our allowance coverage ratio declined by two basis points during the quarter, as lower quantitative reserves more than offset higher specific and qualitative factors. We remain confident in the performance of our loan portfolio and expect further normalization of credit costs in 2026. Turning to slide 24. Tangible book value increased nearly 3% during the quarter, as a result of retained earnings and a favorable OCI impact associated with our available for sale portfolio. Regulatory capital ratios remain generally stable as we support our loan growth and utilize excess capital to repurchase stock. We utilized over $60,000,000 of organically generated capital to repurchase 6,000,000 shares in 2025. 4,000,000 of these shares were bought back in the 4Q 2025 alone, and we anticipate continued repurchase activity going forward. With that, I will turn the call back to the operator to begin Q and A. Thank you. Operator: Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you'll need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. And our first question comes from the line of David Chiaverini of Jefferies. Your line is now open. David Chiaverini: So wanted to start on net interest margin, you mentioned about 15 to 20 basis points 4Q twenty twenty five versus 4Q 'twenty six. Can you talk about some of the drivers behind that on both sides, the loan side? As well as the deposit side in terms of betas? Travis Lan: Yes. This is Travis, David, and thanks for the question. The benefits between now and the 4Q 2026 will be fairly balanced between the loan and deposit sides of the balance sheet. So from a deposit perspective, you know, we continue to work customer deposit rates lower and then we have the the additional benefit of replacing higher cost brokered with lower cost core. In 2026, we also have one... excuse me, $600,000,000 of FHLB advances at about 4.7% that will come due and will be replaced lower as well. That's another benefit that we anticipate to to play out on the margin. We have $1,800,000,000 of fixed rate loans that are going to mature in 2026 at a rate of around 4.7%. Those are coming back on, 150 to 200 basis points higher. And so while, you know, as rates fall yields may fall, you know, we slowed the the rate of compression of that fixed rate repricing dynamic. David Chiaverini: And in terms of kind of the cadence, you mentioned a couple times about results not being linear through the year. How should we think about the net interest margin as we kind of progress through the year? Travis Lan: Yes. So in the first quarter, I anticipate the margin comes down a little from the 3.17% that we put up this quarter. And then grows from that level back to that kind of mid-three 30s that we talked about by the fourth quarter. The drivers of that, again, I mentioned that we had some late December spikes in noninterest bearing balances. I would expect that that's closer to the average noninterest deposit balance for the fourth quarter, at 3.17. And then we also get the headwind from day count. So each day, we accrue about $5,000,000 of NII. So two fewer days in the first quarter is a slight headwind. We'll offset some of that with growth and the rate dynamics, but that's the way that we think about it. David Chiaverini: Thanks very much. Operator: Thank you. One moment for our next question. And our next question comes from the line of Freddie Strickland of Hovde Group. Your line is now open. Freddie Strickland: Hey, thanks for taking my question. Good morning, guys. Just great to see the trend down in classifieds again this quarter. And as you look at workouts in progress and you mentioned declining credit costs, is the implication that we could see adversely classified assets continue to fall over the course of 'twenty six? Mark Sager: Hey, Freddie. This is Mark Sager. We absolutely, if the economy stays in the situation that it is today, which we expect, we expect this trend to continue in 2026 and into 2027. We've seen it for the past three quarters now, improvement, and this was a substantive decrease. Ira Robbins: I would just add, Freddie, that the reduction quarter over quarter is a combination of payoffs and net upgrades. So it's both factors that drove that improvement. We would anticipate that to continue. Freddie Strickland: Got it. And then just the loan growth outlook, it seems like you're going to have CRE concentration continue to decline in 2026 if you had higher growth rates of C and I, consumer and resi? Is that the case? Or is it maybe relatively flat as you look to deploy some capital? Travis Lan: I think it's a modest improvement or further decline in the CRE concentration. So if you untangle kind of the loan growth guidance, it's about $1,000,000,000 C and I, $1,000,000,000 of net CRE and a half billion of Resi and Consumer. Now that billion dollars of CRE will be split between owner occupied and regulatory CRE. And the way that we factor it with the capital growth that we anticipate, you'd still see CRE concentration improve throughout the year. Freddie Strickland: Alright. Great. Thanks. That's it for me. Operator: Thank you. One moment for our next question. Our next question comes from the line of Anthony Elian of JPMorgan. Your line is now open. Anthony Elian: Hi. Your adjusted ROE was over 13% in 4Q, which is above your guide of 11% for '25. Ira, I know last quarter, you pointed to achieving the 15% goal by late twenty seven or early 'twenty eight. But any update to that time line just given the tailwinds you have and you outlined on Slide nine for NIM, operating leverage, and provision? Ira Robbins: I don't think we're going to update what that guide looks like. We feel really, really strong about sort of where the lift off is for us in the 2026. And a lot of tailwind for us. We think we're well on our way to achieve that 15% target. Anthony Elian: Thank you. And then on expense, so I get the low single digit guide for the full year. But, Travis, how are you thinking about expense specifically for 1Q, just given some of the elevated items you mentioned around payroll taxes? Thank you. Travis Lan: Yeah. Appreciate it. I mean, I think, as I mentioned, the fourth quarter also included some elevated items. As those normalize and then you typically have about a $7,000,000 or $8,000,000 headwind in the first quarter from payroll taxes, things probably roughly balance out. And so you'd see, I'd say, general stability in operating expenses in the first quarter due to that, whereas normally, it would be kind of a straight uptick. Again, you have some offsets with some of these more onetime items that occurred in the fourth quarter. Anthony Elian: Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Janet Lee of TD Cowen. Your line is now open. Janet Lee: Good morning. Thank you. So you guys said you're neutral to the front end of the curve. And I know there's a lot of fixed rate asset repricing benefits that are flowing through for Valley. Does your... how does your prediction around 15 to 20 basis point NIM expansion change if we assume no rate cuts? Travis Lan: Yeah, Janet. This is Travis. If you assume that, as I said, we are generally neutral. If you assume no rate cuts, you would actually, you know, you'd look at kind of a half percent to a percent of headwind from NII. The reality though is the implied forward curve assumes some modest increase in the the two, five, and ten year points, which are more impact to our margins. So, in a vacuum, no Fed cuts would be a slight, very slight headwind. But, you know, as the rest of the curve plays out, I think we offset that. The other component to think about is we're structurally neutral to the front end of the curve. But we've outperformed our beta assumptions in the wake of Fed cuts. So that's, you know, something that's improved the margin. Janet Lee: Got it. Thank you. And just to follow-up on buyback. Looks like $19,000,000 that's remaining in authorization that expires in April. And with their current capital generation, looks like you could maintain the 4Q pace of buyback while still pretty comfortably staying in that CET1 target range, perhaps even at the higher end. Could you comment around the pace of buyback? I know you're gonna be opportunistic, but just would love to hear your response. Thanks. Travis Lan: Yeah. Absolutely. So if you kind of play out our guidance, CET1 on a gross basis would increase 130 basis to 140 basis points next year. About 50 basis points of that would be used to support loan growth. 50 basis points will be paid out in the dividend. And it would leave you with 30 or 40 basis points of excess CET1 for the buyback. That would kind of back into $150,000,000 to $200,000,000 worth of stock. Which, if you think about the pace of the fourth quarter when we used about $48,000,000 of equity in the buyback, it's pretty consistent. So that's the way that we're thinking about it. To your point, our authorization expires in April, I mean, obviously, we would, you know, plan on re upping that, as we would traditionally. Janet Lee: Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Manan Gosalia of Morgan Stanley. Your line is now open. Manan Gosalia: Hey, good morning. On the strategic growth slide, you have a bullet in there that talks about contemplating geographic expansion. Any specific markets you'd highlight? And, I guess, how should we think about the scale of that build out? Ira Robbins: I think just from a broad perspective, we've had real success as we think about growing into different geographies whether it be through acquisition or just from an organic perspective. On the back end of our Leumi deal, we were able to enter into Chicago and Los Angeles markets and have seen strong growth come out of those areas. We recently expanded our team in the Philadelphia area and have seen real positive momentum and traction out of that. So I think we feel very comfortable, whether it be contiguous to where we sit today or where there's other opportunities in strong markets. Gina, maybe you can comment about... Gina Martocci: Well, I think you phrased that well. We have had some success with our senior leaders that we've hired in bringing in additional producers. And we are really focused on adjacent markets, but also opportunistically on teams that we can... we can bring in and quickly start producing. Manan Gosalia: Got it. Okay. Great. And then as we think about the 3.30 plus NIM guide for FY 2026, how important are loan spreads there? You know, we've heard from some banks that they're seeing more competition on both spread and structure. I guess the question is what are you seeing in your markets, and what are you baking into that guide? Travis Lan: Thanks, Manan. This is Travis. The reality is we hear the same from our bankers on the street. When you look at the data, the spreads have been fairly consistent now. Based on the feedback, we are conservatively assuming modest spread compression in the NII forecast that we gave you. So I think we, you know, we hear it on the ground as well, and we're trying to factor that in appropriately. Manan Gosalia: Got it. So that's already baked in. Thanks. Travis Lan: Yes. Operator: Thank you. One moment for our next question. Our next question comes from the line of Jared Shaw of Barclays. Your line is now open. Jared Shaw: Good morning. Maybe just on the DDA, the non interest bearing deposit discussion, great growth this quarter. Were you saying we should expect average DDA to stay flat but EOP potentially to go down? Or how should we think about the seasonality that you saw this quarter and the seasonality in the first quarter? Travis Lan: Yes. I mean, first, I think it's reflective of a lot of wonderful activity, in terms of our bankers' ability to generate operating accounts and utilize our treasury management platform to generate business. My commentary, though, was that we were at $11,900,000,000 of average NIB for the quarter. And the end of period was $12,200,000,000. I would anticipate that at the end of the first quarter, we're kind of at that $11,900,000,000 level on an end of period basis and generally flat from an average perspective. Jared Shaw: Okay. Alright. Thanks. And then, you know, maybe just credit overall, like you said, is is stable and looks good. Any more color you can give on the growth in the C and I NPLs? Mark Sager: Sure, Jared. This is Mark again. C and I growth was really driven by one credit in the portfolio, a larger credit that we've had within the portfolio for over ten years, an in-market syndicated credit, unique business segment, that's supported by structural payments over a ten year period. Because of the length of of that payback, combined with the recent modification of the loan, we did move that to nonaccrual and established what we feel is an adequate specific reserve on that loan. Jared Shaw: Okay. Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Steve Moss of Raymond James. Your line is now open. Steve Moss: Good morning. Maybe just going back to the loan pipeline here you highlighted, Ira. Just kind of curious good to hear the strong pipeline. And I guess also with the kind of decline in the runoff on on CRE, just curious if you guys are thinking potential upside to your loan growth guidance here or maybe what are some of the offsets you see? Travis Lan: Maybe I'll start, Steve. This is Travis. So our 5%, right, if you took the midpoint of our loan growth guide, it would be 5%. The reality is that also includes $500,000,000 of runoff in our Tier three transactional CRE portfolio. So absent that, you'd be at certainly above the higher end of the range that we gave. So I think there is a lot of good dynamics in the pipeline that Gina can talk about, but wanted to throw that out as well. Gina Martocci: Yeah. We've got a really very strong pipeline. I mean, we finished 12/25 at a billion 2, actually higher than 12/24. And also, since 12/25, we've grown the pipeline by another $300,000,000. And that is despite closing about half a billion dollars worth of loans so far. So we feel very good. It's geographically distributed. It's both CRE and C and I with slight concentration in C and I. So our clients continue to be very confident and we're booking the loans. Steve Moss: Okay. Appreciate that color there. And then just on credit here with the decline in criticized and classifieds, just kind of curious as to how you're thinking about the reserve kind of settling out over time. If we see that come down towards, like, a more normal level, like 4, 5%, could we see a pretty meaningful reserve decline over time? Travis Lan: This is Travis. I think that directionally makes sense. The offset though is C and I will be an increasing portion of the portfolio. So I think that helps balance out the benefit hypothetically that you get from lower criticized and classified. So that's why we kind of guided to general stability in the allowance coverage ratio. Steve Moss: Okay. Great. Appreciate all the color. Thank you very much, guys. Ira Robbins: Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Matthew Breese of Stephens. Your line is now open. Matthew Breese: Hey, good morning. Yeah. I was hoping to get a little bit more color on loan growth this quarter and then the pipeline from a geography perspective? So how much of the C and I and CRE activity is coming from Florida? You know, up here in in in the Mid-Atlantic Northeast, and then from the Leumi lines. And I'm curious if you're seeing any major notable differences in origination trends, activity or spreads across these kind of categories and geographies? Gina Martocci: It's Gina. I'll take that. As I just mentioned, it's really well balanced across the spectrum. There is a pretty good pipeline or a strong pipeline, I should say, in health care. And we saw that last year, and we're seeing it again this quarter. But New York, New Jersey, Florida all are contributing. And then even as Ira mentioned, our Philly market has already built a very strong pipeline. And as far as spread trends, it's pretty consistent across the markets as well. There is a minor bit of compression and competition, but all in all, it's fairly well balanced. Matthew Breese: Got it. Okay. And then Travis, you know, time deposit cost CDs are are still a bit elevated north of 4%. As stuff matures and rolls and maybe you can talk about some of the promotional activity, what is kind of the new blended rate of CDs? And is that a decent proxy for where CD cost could go over the next six, nine, twelve months? Travis Lan: Yeah. I think where our new rates or our rates that are available from a rollover perspective are in the kinda 3.50% range, which would imply some opportunity to reprice lower in the CD portfolio more broadly. And the elements that really keep that average cost elevated continue to be the brokered deposits. And so in the coming year, you know, we have a billion 2 of brokered coming off close to 4.50%. So you know, there's upside there. Matthew Breese: Got it. And do you have the cost of deposits at period end or or more recently so we get a sense of trend? Travis Lan: Yeah. For sure. So the total portfolio spot deposit rate was 2.32. So below the $2.45 average for the quarter. Our core rate is about 2.10 and then brokered is 4.20 or so, give or take. So gives you a little bit more insight into the dynamics there and the opportunity to replace brokered with core. I'd say in the fourth quarter, we originated $1,000,000,000 of new deposit relationships at a blended rate of 2.17. That was, from a balance perspective, pretty consistent with the third quarter, but the third quarter origination was 2.91. So we're seeing some very good tailwinds in terms of the new deposits that we're bringing to the bank at a much lower blended cost. Matthew Breese: Understood. And then just last one. Loans past due, thirty to fifty nine days picked up, think, by about $56,000,000. Is there anything administrative about that timing related? I know end of year can get a little bit hairy. Or is there a sense that that might migrate into NPLs? And that's all I had. Thank you. Mark Sager: Yeah, Matt. It was really driven... there's three loans in their unique situations. We don't view this as a trend at all, but related to three specific loans. One, we have a contract for sale, and we expect that to be completed and be done. We've recently signed a modification for another loan and anticipate interest being current. And the third, where we believe it's gonna linger in delinquency thirty to sixty day bucket, but gradually catch up and potentially be current, in the second quarter. So not seeing a trend really in the portfolio in any means, really just a couple specific transactions. Matthew Breese: That's all I had. Thanks for taking my questions. Ira Robbins: Thanks, Matt. Operator: Thank you. One moment for our next question. Our next question comes from the line of John Arfstrom of RBC. Your line is now open. John Arfstrom: Hey, thanks. Good morning. Ira Robbins: Morning, John. John Arfstrom: Yeah. Just a couple of follow ups. But maybe obvious, but you mentioned you know, CRE growth for the first time in a long time. What changed there? Is it just less runoff on your balance sheet, or are you actually seeing stronger growth and stronger pipelines there? Travis Lan: It's stronger originations, John. Entering 2025, we were turning the CRE origination engine back on, from a very disciplined perspective, both in terms of requiring deposits to come with those loans and obviously, the consistent conservatism on the credit side. But it took a couple of quarters, I think, for the origination engine to fully pick back up. We saw it in the fourth quarter. Origination trends were very strong. Again, as we look forward to 2026, you know, we're contemplating about a billion and a half of new tier one and tier two CRE. That'll be offset by about a half billion dollars of runoff in our transactional CRE portfolio. You net to about $1,000,000,000. And that's, I think, just consistent with the general strong activity we're seeing across our geographies. John Arfstrom: Yep. Okay. And then just some subtleties on expenses. I'm just curious, Ira, how aggressive you wanna be on the commercial banker recruiting efforts. And then also, if you can maybe comment on the branding investments and how much you wanna allocate there? Ira Robbins: Yeah. Look. I honestly believe there's a lot of opportunity within our geographies and as we think about different verticals, for us to enter into as well. So from a hiring perspective, you know, it's a really good market for us. I think, you know, Valley has a very unique value proposition based on the size of organization we are. Our focus on relationship banking. And then when you look across product set and the capabilities that we have, very few organizations our size have breadth of capital markets, FX, and everything else that we do across the entire organization. The treasury platform here, the data and analytics, I mean, it's phenomenal, really on a relative basis. So we have bankers that are really attracted to us, which is a phenomenal place for us to be in. That said, you know, the p and l is very important. And managing the new hires that we bring into the organization to not just blow up the expense basis. Some of that we're very focused on. Obviously, making sure that we provide internal opportunities to really think about where we can reshift expenses across the organization. So it's not just growth in expenses. We think about some of the opportunities. Now we talked in the prepared comments about some of the AI initiatives that we have in place, with regard to machine learning and other things to really focus on the expenses. And we continue to really look at cost to serve across the entire organization. When I took over CEO, we were 3,351 employees and about $20,000,000,000 in size. Today, we're 3,634 and $60,000,000,000 in size. So 280 plus or minus employees and triple the size of the organization. So we've done a really nice job, I think, leveraging technology and thinking about how we can support growth within the organization without bloating on the expense side. And I really do believe we have a great team in place, we'll be able to continue that. John Arfstrom: Mhmm. Okay. And just to comment on branding, how extensive is that? Ira Robbins: It's been a real, long term effort for us, I think, in thinking about who our target client was, especially after what happened with SVB and making sure that we were focused on building a whole relationship, internal branding within our bankers to make sure that we understood what a relationship banker should do across the organization. And we're now, very, very comfortable that we have the right ability to execute with the branding campaign that we put out there. We think it'll really enhance the ability to grow some of the consumer and small business within our geography right now. We hired Patrick Smith to come into the organization during this past year. A really strong, proven leader within that space, and we wanna make sure that we have a branding campaign to complement a lot of what Patrick is able to really bring to the organization. So for me, it's a holistic approach. You can't have branding without the people. And I think what we're doing on the branding side really, really complement what Patrick's able to bring to Valley. John Arfstrom: Okay. Alright. Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Chris McGratty of KBW. Your line is now open. Chris McGratty: Great. Good morning. Travis, just going back to deposit growth beyond... I hear you on the first quarter on the average EOP to NIB. But on the full year, how do you break out the 5% to 7% growth by mix? Like, how much contribution from NIB versus yeah. Travis Lan: Yep. So if you take the midpoint, you're at 6% total deposit growth. We conservatively model NIB growth of 5%. So all of the margin guide that we've talked about and the deposit growth that we're talking about, it's not over indexed on some assumption that NIB significantly outgrows total deposits. It's pretty consistent. So 5% NIB growth, about 7% savings, now, and money market growth, then pretty modest CD growth. Chris McGratty: Okay. And then what's the beta you're assuming on these... I think you talked about 55% in the fourth quarter, what are you assuming for '26 on the betas? Travis Lan: Yeah. We've been consistently assuming 50% total deposit beta. For the full year of 2025, it was actually 60% in terms of the actual result, but we continue to model a 50% total deposit cost beta. Chris McGratty: Okay. Great. And then Ira, last quarter you were asked this kind of about strategic options and long term planning. Is there a scenario where you might entertain buying a bank this year? Ira Robbins: Look. I think M&A is an interesting dynamic as to how you think about sort of where the market looks today. For me, really, there's sort of three levers that you really need to think about. One, it just starts with shareholders. Like, what are you doing for your shareholders, are you really prioritizing your shareholders? I think the second, as you think about M&A, really sticks to what are the financial constraints. We spend a lot of time and a lot of focus across the organization as we've done M&A historically and not diluting the current shareholders. I think M&A, partially, is focused on the target shareholders, which I think is crazy. You have a strong shareholder base and to sit there and solely focus on the target doesn't make any kind of sense in my mind. I think that M&A really then has to be aligned with what the strategic objectives of the organization look like. Travis and his team did a wonderful job on slide eight laying out sort of what the focus is for us in 2026. So if we see an opportunity to accelerate some of those things, based on an M&A deal, that's something we may consider. But to your point, you know, there's an unbelievable organic story that's really unraveling here at Valley. We brought in tremendous leaders across the organization, starting with Gina, Patrick, and a real complement of individuals to help support them. And then we've really been able to continue to bring in people below them. So we feel really excited about the organic. And there would have to be something that would make a lot of sense for us to really divert any kind of attention away from that. Chris McGratty: Okay. Great. Thank you very much. Operator: Thank you. One moment for our next question. Our next question comes from the line of David Smith of Truist Securities. Your line is now open. David Smith: Hey, good morning. On the funding cost side, you know, you've obviously been able to pay down a lot of brokered this year. You mentioned being able to take some FHLB funding lower next year. Is there a minimum level of brokered and borrowings that you would still want to maintain? You know, through the long term or as core organic deposit growth keeps outperforming, do those go more or less to zero over time? Travis Lan: Yes. David, this is Travis. I think the reality is both brokered CDs and FHLB advances play a very important role in terms of interest rate risk management and the certainty that you can get with some of those instruments. And so I don't anticipate that it would go to zero. You know, but there is a level certainly lower than where we are today that that probably makes more sense. David Smith: Thank you. And then, you know, the regulatory backdrop is changing a lot for the banking industry right now, but you can also say that about pretty much any industry. I'm wondering, given that you have some pretty niche industries and commercial clients that you bank, are there any regulatory changes to your client base that you're watching with particular interest either from the risk or opportunity side? Gina Martocci: Hi, it's Gina. I think generally speaking the reduced regulation is driving confidence in our entrepreneurial borrowers. And I think it's increasing their level of confidence and their willingness to invest. But no specific industry, I would say, at least we're pretty well generalists here. David Smith: Alright. Thank you. Operator: Thank you. I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the ConnectOne Bancorp, Inc. Fourth Quarter 2025 Earnings 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the call over to Siya Vansia, Chief Brand and Innovation Officer. Please go ahead. Siya Vansia: Good morning, and welcome to today's conference call to review ConnectOne Bancorp, Inc.'s results for 2025 and to update you on recent developments. On today's conference call will be Frank Sorrentino, Chairman and Chief Executive Officer, and William Burns, Senior Executive Vice President and Chief Financial Officer. I'd also like to caution you that we may make forward-looking statements during today's conference call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings. The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules which have been filed on Form 8-K with the SEC and may also be accessed through the company's website. I will now turn the call over to Frank Sorrentino. Frank, please go ahead. Frank Sorrentino: Thank you, Siya, and good morning, everyone. 2025 was a defining period for ConnectOne Bancorp, Inc., one that demonstrated the strength of our business model, the value of our client-first culture, and our team's ability to execute on all fronts. Looking back, we delivered on a set of highly aspirational goals for the year, culminating in strong returns, backed by solid profitability, efficiency, and asset quality metrics. We seamlessly integrated the largest transaction in our history, completed a full systems conversion within two weeks of their closing, and bolstered our franchise value and competitive position in the New York Metro market. This meaningfully propelled the company beyond the $10 billion asset threshold, a transition ConnectOne Bancorp, Inc. was well prepared for, and we ended the year with $14 billion in assets and a market cap in excess of $1.4 billion. These results directly reflect the strength and dedication of our exceptional team, whose talent and client-focused obsession continue to distinguish ConnectOne Bancorp, Inc. across our markets. The natural alignment of our expanded team drove meaningful progress, strengthening client engagement exemplified by remarkable retention through the merger, all while simultaneously deepening existing client relationships. As William will discuss in greater detail, we closed 2025 with meaningful momentum, delivering strong fourth-quarter performance highlighted by robust core earnings, expanding margin, and accelerated returns. Turning to some of the recent highlights and our near-term outlook, deposit gathering remains a core competitive advantage. During 2025, client deposits increased by approximately 5% on an annualized basis, reflecting strong relationship inflows and a sizable decrease in brokered deposits. Meanwhile, our loan portfolio also grew by an annualized 5% on the strength of strong originations offset by elevated payoffs, in part due to higher refinancing rates for borrowers. We anticipate these portfolio dynamics continuing into 2026. The bank's net interest margin widened significantly over the past quarter and year, and with our liability-sensitive positioning, we expect that positive trajectory will continue throughout 2026. Performance metrics improved significantly this quarter, and we remain committed to building strong capital, driving efficiency, and generating profitable growth with the goal of delivering even higher returns on assets and equity. As capital generation accelerates, we'll have flexibility to support our growth, increase our common dividend, and stand ready for opportunistic stock repurchases. As we move through the year, we will remain focused on further efficiencies, particularly across Long Island, where our team continues to generate opportunities for expansion. In addition, consistent with our branch-light, relationship-driven approach, we've identified five branch locations to consolidate, continuing our branch rationalization efforts. Furthermore, we have a deeply talented and expanded team in place, so we anticipate modest staffing growth going forward that'll also drive improved revenue and operating synergies. In closing, as we enter 2026, ConnectOne Bancorp, Inc. is uniquely positioned to capitalize on client-driven opportunities in some of the best markets in the country. Even with these strengths, we also recognize that competitive pressures, political developments, and broader market sentiment will continue to shape and challenge our environment. Rest assured, we're prepared to meet these hurdles head-on while remaining focused on executing our long-term vision and delivering sustainable value to all our stakeholders. So with that overview, I'll turn it over to William to walk through some of our performance in a little more detail. William? William Burns: Alright. Thank you, Frank, and great to be speaking with you this morning as we deliver another excellent quarter. It was highlighted by improving net interest margin and performance ratios, robust loan originations, and core client deposit growth, combined with the reduction in wholesale deposits, clean asset quality, and healthy capital and tangible book value accretion. Just going back to deposits for a moment, since the acquisition, we have significantly improved the quality of our deposit base, reflecting a substantial increase in the percentage of noninterest-bearing demand, which went from 17% to more than 21% today, as well as a reduction in brokerage, which declined from a high of 12% of total assets to just 6% today. Now for the quarter, our operating PPNR percentage grew sequentially by nearly 10%. That was the fifth consecutive increase. While earnings were further augmented by a lower provision for credit losses and reduced effective tax rate. Putting it all together, operating earnings for the current quarter represent an 18.6% increase sequentially over the third quarter. This drove our quarterly operating return on assets all the way up to 1.24% and a return on tangible common equity to 14.3%. And while we expect these performance metrics to moderate in the first quarter, we anticipate a quick return to an upward trend. Future earnings and performance returns will be driven higher by ongoing margin expansion, improved operating efficiencies, modest loan portfolio growth, and increased noninterest income. Now the margin expansion this quarter stemmed from three key factors. First, we had a decline in our cost of deposits following the Fed rate cuts. Second, the redemption of high coupon subordinated debt late in last year's third quarter was an action that was delayed by the merger. And lastly, our liability-sensitive position rate cuts favorably impact our deposit costs without a reduction in loan yields. 2026 guidance on the net interest margin is as follows. I'm gonna get specific here, but keep in mind, there are many uncontrollable factors that can impact the margin. First, we're likely to be up by five basis points in the first quarter, putting us in the low 330s. Then we should see five basis points of improvement for every 25 basis points of Fed rate cut. Not sure whether it's gonna only be one or two coming in 2026. In addition, we should see five basis points improvement per quarter due to higher loan yields. That is not gonna kick in really until midyear. Now partially offsetting those, we could see five basis points of contraction due to a potential preferred redemption, which would lower margin in the fourth quarter, it would actually improve EPS. Now let me turn to operating expenses. We continue to drive efficiencies related to the merger, and following a detailed review of our footprint, we have decided to close five branches. Due to proactive client engagement, which we always do, we do not anticipate measurable deposit runoff. And while future branch closures are always possible, no decisions have been made for 2026. We also anticipate realizing further synergies by optimizing our staff count over the coming year, even as we strategically hire new talent in revenue-producing and back-office operations. Now for OpEx, specific guidance, including the additional efficiencies identified, the objective I have right now calls for a 4% increase in quarter four of 2026. From the current quarter, and that increase would occur over the course of 2026. Loan originations have been robust all year, and we anticipate this continuing in 2026. Our philosophy focuses on maintaining appropriate risk-adjusted loan spreads and value-enhancing client relationships. So this, combined with a significant portion of our portfolio maturing or repricing in 2026 and '27, leads us to expect higher than typical payoffs. Consequently, we now anticipate a more modest loan portfolio increase in the 3% to 5% range. In regard to growth in noninterest income, I am aware that we have fallen a bit short of my prior guidance, but with the pipeline of loan sales building now, we're pretty confident of more than $4 million in loan sale gains in 2026, and I'll provide updates throughout the year on that. Now turning to the allowance for loan losses. We recorded a relatively low provision this quarter. The reasons for this were multifaceted. First, the CECL model's economic projections improved slightly. Second, we recalibrated loss drivers to align with a new and larger peer group. And finally, we've worked out several PCD loans at values exceeding merger markdowns, and that resulted in favorable reserve releases. There was a slight increase in the nonperforming asset ratio to 0.33% from 0.28% a quarter ago, due to one multifamily loan relationship. Having said that, and not included in the year-end ratio is a multifamily work that occurred in January, which brought total nonaccruals back down to the lower level. Going forward, I don't see any significant change in the level of impaired loans, but as always the case, these levels can vary from quarter to quarter. The thing I can tell you is we always try to get ahead of any issues with conservative valuation adjustments. In terms of the effective tax rate, which I mentioned before, it was adjusted downward for the quarter to 26%. That was due to the true-up of our deferred tax assets largely having to do with the merger. We expect the go-forward rate of 28%. Capital continues to strengthen. Our tangible common equity ratio has steadily increased to 8.62% as of year-end. This strong capital position gives us the opportunity to increase our dividends, reengage in share repurchases, and we're building firepower for opportunistic M&A. I also want to mention that we've always placed a great deal of importance and focus on tangible book value per share. At $23.52, which is where we are at year-end, we anticipate returning to premerger levels within one year of the June merger completion. And before turning it back over to Frank, I too believe we are well-positioned to deliver best-in-class results while continuing to capitalize on prudent growth opportunities. And that, to me, makes our stock one of the most compelling investment opportunities out there. And back to you, Frank. Frank Sorrentino: Thank you, William. With a strong balance sheet, a top-tier team, and expanded footprint, a twenty-one-year track record of strategic execution, and growing market dynamics, we've never been more competitively positioned. Operationally, maintaining rigorous discipline around product pricing and remain diligently focused on managing our balance sheet in a mature and strategic way. That means prioritizing balance sheet optimization while leveraging our size and scale to support sustainable moderate growth. At the same time, we're consistently recognized as one of the most efficient banks in the industry, and that focus remains unwavering. We'll also continue to innovate while maintaining disciplined execution around true relationship-based banking. Collectively, we believe these efforts are driving better financial results generating meaningful shareholder value. And as William highlighted, making us one of the most compelling investment opportunities. As always, appreciate your interest in ConnectOne Bancorp, Inc., thanks again for joining us today. And with that, I'd like to turn it over for your questions. Operator? Operator: Ladies and gentlemen, we will now begin the question and answer session. As a reminder, to ask a question, please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment please for your first question. Your first question comes from the line of Feddie Strickland of Hovde Group. Please go ahead. Feddie Strickland: Hey. Good morning. I guess, you know, just wanted to touch on something you mentioned in your opening comments. William, you talked about maybe the preferred being redeemed later this year. Can you speak a little more broadly about kind of how you view the capital stack today and kind of where you'd like it to optimally be? William Burns: Well, you know, we really do focus on tangible common equity at the end of the day. We've been trying to get that ratio back to 9%. We're getting very close, and at that level, it really opens us up to, as I said before, potential for dividend increases, stock buybacks, and a better position for M&A. Feddie Strickland: And on M&A, I mean, do you view that likelihood as a little greater in 2026 than maybe in the past? How have conversations gone there? And just how do you view that versus other forms of capital return? William Burns: Well, you know, it really depends. As you know, M&A is heating up a little bit out there. There's lots of transactions to look at. We've always been financially disciplined, and, we, of course, take a look at the value, you know, the IRR of a transaction versus the IRR of buying back our stock. So, you know, all the pieces have to fall in line in order for us to do a transaction. I think we've got a pretty good track record there. Frank, if you wanted to add anything to that? Frank Sorrentino: Yeah. I mean, I think it's pretty obvious. There's a lot more activity going on in the marketplace for a variety of reasons, but I don't think that really changes very much the way we look at M&A. That may potentially move, you know, a few sellers into our sights. But overall, you know, we're focused pretty much in market. And, again, looking to be very disciplined around what makes sense for us to do. Feddie Strickland: And just one quick follow-up, off the cash balances piece. Do we see that getting deployed again into loans this quarter, maybe earning assets or a little slower in growth? William Burns: Yes. Exactly. So we'll continue to see more cash transition into loan balances. So higher growth in loans than in assets. Feddie Strickland: Alright. Great. Thanks. Thanks for my questions. Operator: Your next question comes from the line of Timothy Switzer of KBW. Please go ahead. Timothy Switzer: Hey. Good morning. Thank you for taking my questions. William Burns: Hey, Tim. Frank Sorrentino: Hi, Tim. Timothy Switzer: My first one is kind of on the trajectory of the expense outlook. I appreciate the color on 4% year over year by Q4. But, you know, what is the timing of this branch rationalization and the new hires, and was that all mostly Q1, Q2, and then do expenses just kind of move sequentially higher each quarter as we move through the year? William Burns: Yeah. Good question if you're trying to do your model as precisely as possible. That branch closure isn't going to occur until the end of the first quarter. And the staff changes might not take place till, you know, after a quarter, middle of the year. So I would say that the expense increase will step up a little bit more in quarter one and then flatten out. Timothy Switzer: Gotcha. Okay. That's great. And then the other question I had is on sorry. Go ahead. William Burns: No. Go ahead. I'm sorry. Timothy Switzer: The other question I had was on deposit competition. We've been hearing about rising deposit costs and a little bit more pressure. You guys obviously have had pretty good ability to move deposit rates lower, but are you finding that more difficult lately? William Burns: I think we've seen a little bit of that. The competition has heated up. You know, we monitor that very carefully. And to the extent, you know, we're losing if we think we're losing deposits on rates, you know, we'll make adjustments there. So, you know, my margin projection for the year takes that into account. You know? In the best case, our margin could be much higher than it is today. But more likely than not, you know, we're probably in the 335 to 340 range by year-end. Timothy Switzer: Okay. Got it. That's really helpful. Thank you. Operator: Your next question comes from the line of Curtis Franklin of Piper Sandler. Please go ahead. Curtis Franklin: Hey, guys. Good morning. Frank Sorrentino: Hey, Curtis. Good to have you on this call. Curtis Franklin: Yep. Thank you. I guess I was curious. Could you share with us perhaps the size, complexion, and maybe average rate of your loan pipeline? William Burns: Yeah. So which one was the size? We have is this $600 million in yeah. That $600 million is in the pipeline. And that rate, that average weighted rate is 6.2%. Curtis Franklin: Okay. And is it mostly commercial real estate construction, or what does the mix look like? William Burns: It's a real mix similar to what's on our composition today. Curtis Franklin: Okay. And then I was curious, are you seeing much of a difference in terms of the loan and deposit growth activity, you know, between the New Jersey franchise and the Long Island franchise? William Burns: I don't think so. Frank, did you have any thoughts on that? Frank Sorrentino: Yeah. I mean, I would say there may be some, you know, some skewed interest to the Long Island market only because a lot of the products and services that ConnectOne Bancorp, Inc. provides weren't being provided by the First Long Island folks. And so there may be some additional opportunities there within the existing client base. I think once we capitalize on all of that opportunity that's out there, I think you'll see the balance sheet grow relative to the composition we have today across all our markets. Curtis Franklin: Great. And then last thing for me, Mark, we had early gains in deposits at Long Island. So between the closing of the transaction, June 1 and June 30, we had significant deposit increases at Long Island part of the franchise. Curtis Franklin: Okay. And then lastly for me is on the provision. There's obviously a lot of puts and takes and I heard your comments on the call. We've had some volatility in that line related to the deal, etcetera. I mean, based on the pipeline that you have and, you know, your perception that credit is gonna stay strong, should we be expecting provisions in the sort of $4 to $5 million a quarter range, you know, assuming no surprises? William Burns: I'm pretty good with what the street estimates are. Think it might be a little bit higher than that. Four to you said 4 to 5? 4 to 4 to 6? You know? More like 5 to maybe more like $5 to $6 million would be my projection. It's hard to tell. A lot of moving parts. Okay? There was but there was definitely a, you know, part of the reduction was nonrecurring. Okay? Curtis Franklin: Got it. For the quarter. Operator: Thank you. Your next question comes from the line of Daniel Tamayo of Raymond James. Please go ahead. Daniel Tamayo: Thanks. Good morning, Frank. Good morning, William. Frank Sorrentino: Hey, Danny. How are you? Daniel Tamayo: Doing well. Thanks. I guess so is there a chance that deposit growth exceeds loan growth this year given the slower loan growth guide from the payoffs? William Burns: Yeah. I think that that is a possibility, but more likely than not. If I just had to project, it'd be about equal. Daniel Tamayo: Okay. And then I got on late, so I apologize if this was mentioned already, but the deposit declined in the fourth quarter. But I guess you just said that you had some pretty good gains in the Long Island franchise post-close. But so my question was going to be, is related to the acquisition? If not, where what what the deposit decline? William Burns: No. That little anomaly, if you will, has to do with that. We took the client deposits and used it to pay off broker deposits. Daniel Tamayo: Got it. William Burns: We're focused on the quality of our deposit base. And I think that's a big determinant in the evaluation of a bank. The quality of the deposit base. So we are focused on that. Obviously, earnings are important. Right, and growth is important. But we are focusing on, you know, smart, profitable growth, quality of the balance sheet, and return metrics. Daniel Tamayo: Understood. And then I guess a clarification on your margin guidance, which was great, very specific. So I think I get everything except the five basis points from loan yields that you mentioned. Yeah. We should think about that. And I think you said starting kind of midyear or second quarter. Right. Is that that's kind of a gradual build to that overall five basis points. Is that the way to think about that? William Burns: Well, it's about five basis points a quarter for each of the third and fourth quarters where I'm projecting right now. Okay? The amount of loans repricing are skewed towards the latter half of the year. And that's why we are pushing that aspect of the margin increase out. Okay? The second thing is there's gonna be pressure on those repricings. Contractually, the repricings are significant. But contractually might not match market. Contractually might not match borrowers who say don't need to take the loan, but see that the rate higher, and they're just gonna pay the loan off. We've started to see that happen. So the actual contractual that might be in our outcome model doesn't necessarily match or probably overstates what the margin widening will be, and so I've tempered, you know, our margin guidance because of that. Daniel Tamayo: Understood. Okay. I think But directionally, you know, everything is pointing in the right direction. Daniel Tamayo: Got it. Okay. Alright. Well, thanks for the color. Appreciate it, guys. Operator: Again, if you would like to ask a question, please press star 1 on your telephone keypad. Your last question comes from the line of Matthew Breese of Stephens Inc. Please go ahead. Matthew Breese: Hi, Matt. Good morning, Matt. Frank Sorrentino: Good morning. I was hoping we could just touch on the updated loan growth guide. You'd also mentioned some payoff or prepayment activity. You know, what's driving that? Are you seeing, you know, are you seeing spread compression, better offers, for your clients from, you know, the agencies and insurance companies? We've heard quite a bit of that this quarter. And then, William, you had mentioned the pipeline both in amount and rate. How does that look relative to last quarter or a year ago? I guess, I'm trying to get a better idea of why with everything and all the chess pieces where they are, why there's not a little bit better loan growth outlook for the year. William Burns: Yeah. I think it's self-explanatory. You know? The loan rates are a little bit lower than what was it did was before. A lot of it has to do with competition out there. And, you know, we continue to allow loans that are nonrelationship-based to drift off the balance sheet. So I think some of your projections, Matt, probably are, you know, may be overly optimistic in terms of us achieving, you know, contraction repricing. At the maximum amount. And I think it's smarter to temper that a little bit and be a little bit more conservative. On the upside, you what you have, I think, is accurate. Okay? That would be the upside. But more conservatively speaking, more like it is a little bit lower in terms of growth and margin expansion. Matthew Breese: Got it. Okay. Okay. Yep. And then, Frank, you'd mentioned additional efficiencies. I'd love to kind of get your more holistic view on the expense base. There's a little bit of growth, but how are you using, you know, the newer technologies available to you? Have you test run any AI? How productive, how impactful is that, and do you think about operating leverage over the next couple of years? Frank Sorrentino: I think it's gonna be terrific, Matt. We've incorporated, you know, a number of leading technologies in the company going back years. And many of those are taking advantage of AI. I look. I'm not a big fan of talking about, you know, how great we're gonna be at utilizing AI, but the reality is every vendor, every partner we have is incorporating artificial intelligence into their systems, which is just naturally making a lot of the processes better if you're utilizing those types of systems. It also forces us to think in that way and provide for a foundation here at ConnectOne Bancorp, Inc., which is we've always been utilizing technology to replace labor. And so not only are we becoming more efficient internally, but the vendors that we partnered with are also becoming more efficient. So I think we can grow the balance sheet without significant additions other than, you know, revenue-producing people, people who are creating those relationships that we highly value. But all of the back-office functionality and the ability to serve our clients is just getting more efficient in every single thing we do. Now we've made a lot of investments over the years relative to picking those systems that are probably gonna be the winners to allow us to take full advantage of, you know, those types of efficiencies. It's what we're focused on. It's why, you know, we're in the top 1% of all in the country relative to efficiency ratio even after doing, you know, this acquisition with First of Long Island, which dramatically expanded our retail branch presence. As I mentioned on the call, we're looking to rationalize that over time. And be able to provide our clients a first-class experience but be able to do it with, you know, the technological advantages that keep us in the lane of gaining operational leverage and operational efficiencies over time. Matthew Breese: And then one thing we've heard a lot about with these newer technologies is being able to use them to your point on back-office compliance but even BSA, AML, know your customer type applications. Are you seeing the regulators adopt this as well, or are they okay with you all, you know, trying to apply there? Are they on board with that kind of transition? Frank Sorrentino: Yeah. I think they are, Matt. I think they recognize the changes that are taking place. Of course, there's always some skepticism relative to, you know, totally eliminating or, you know, creating what they perceive to be potentially a black box scenario where they can't really understand how something is happening. So there's a fine line there, and I do think that there are some limitations there as to how far we can go at this point in time. But overall, I don't believe we've been stopped or even been curtailed in any effort that we've tried to put forward. So, but I will tell you this. You know, I used to say this just about, you know, technology in general. You know, you just can't buy AI in a box. And just open the box and turn it on and plug it in. It doesn't work that way. There needs to be, you know, for to gain efficiencies and to be able to get that leverage that we're talking about, you got to have a holistic approach across the entire company to have good data, to have systems that speak to each other, to have all kinds of, you know, operational efficiencies that are already built into your system to take advantage or full advantage of some of these newer technologies. And so, you know, I think we're doing a good job of managing that process going forward and being able to extract those types of efficiencies. At the same time, we're able to grow our ability to get in front of more clients. And so, you know, the more we can spend time in the field, meeting with and going back to old world technology, you know, I tell everybody, go out and have 50 cups of coffee. You know, that's what brings in new business. I think the better off we're gonna be. Matthew Breese: Appreciate that. Just last one is, you know, you discussed M&A a little bit. Given your size now at $14 billion, is there a lower bound of deal that just doesn't make sense anymore? And then secondly, maybe you could just speak to what markets or contiguous markets would be interesting to you, or, oppositely, is there something in market that might be more of a financial deal that you'd be interested in? Frank Sorrentino: Yeah. Matt, I think it's hard to set a lower bound. I mean, like, I could envision a really small transaction that could be somehow transformative in a particular line of business we want or there's a group of folks that we want to get. So I don't think we can evaluate opportunities solely based on size. Now, of course, all things being equal, and if all we're doing is adding to the balance sheet, yes, there are some scale issues relative to just wanting to do a deal that's too small and yet takes the same amount of time that something else might take. But again, I think we look at these things on a one-off basis. We try to determine, you know, does this make sense? Will it be additive? Are there synergies going forward? Are there things that, you know, we can create real value moving forward? And that's the basis of being financially disciplined and looking at how we're going to build a better, you know, valuation for the franchise in general. As far as markets, you know, I've been pretty consistent speaking about staying within market. Within market, though, I consider us the New York Metro market, which is a huge market. And to me, that makes the most sense. I really don't want to rule anything else out. There could be something that's compelling that I haven't seen yet or, you know, that we haven't evaluated yet. But mostly, we believe, and we have our roots based in this New York Metro market, which is, as I said, is an incredibly large market. It extends beyond Philadelphia, you know, out to the western part of New Jersey, all the way, you know, along the Long Island Sound on both sides. So it's an enormous market. To me, what makes the most sense is within that 100, 150-mile radius of New York City, you know, about a two-hour drive. That's me driving, you know, real fast. That's the market that I see. And, of course, as I joked before, I consider Southeast Florida to be the sixth borough of New York. So, you know, that I include that within the marketplace. Matthew Breese: Thank you for taking all my questions. I'll leave it there. Frank Sorrentino: Great, Matt. Operator: Your next question comes from the line of Daniel Tamayo of Raymond James. Please go ahead. Daniel Tamayo: Just a quick follow-up here. Yeah. Okay. And it's for you, William. First one, at least. Just wanted to clarify again on the margin, the 335 to 340, base case, I think you called it, for the end of the year by the end of the year. Does that include any rate cuts in that number? William Burns: Yeah. It probably includes one rate cut. Daniel Tamayo: Okay. And then for Frank, just a clarification on the buyback talk. Hear you on the 9% TCE. Is the way to think about that you want to get there before you're gonna do buybacks or are you comfortable with kind of some buybacks with the stock price still low and more gradual uptake at 9%? Frank Sorrentino: Hard to say. Look, I think we're on the trajectory to meet and exceed that 9% number. I feel comfortable, you know, here. I do think we want to see how the year progresses. We want to look at what else is out in the marketplace. What opportunities there really are either for organic growth or any potential M&A activity down the road. So I think we're gonna be very judicious with our capital. I think we've been good stewards of capital over time, and I think you've known us to do the right thing relative to our shareholders. Daniel Tamayo: Understood. Okay. That's all I had. Well, thanks, guys. William Burns: Yep. Frank Sorrentino: Go ahead. William Burns: Matt, Danny, I was just gonna say, you know, with the, you know, continually increased return on equity, a relatively low dividend payout ratio, and, you know, subdued growth on the balance sheet, that ratio is headed up, you know, at a good pace. Capital ratio. Operator: There are no further questions at this time. With that, I will now turn the call over to management for closing remarks. Please go ahead. Frank Sorrentino: Well, I want to thank everyone again for joining us today, and certainly we look forward to speaking with you during our first-quarter conference call. And with that, please have a great day. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect.
Operator: Hello. And welcome to Marsh's Earnings Conference Call. Today's call is being recorded. Fourth quarter twenty twenty five financial results and supplemental information were issued earlier this morning. They are available on the company's website at corporate.marsh.com. Please note that remarks made today may include forward looking statements. Forward looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings including our most recent Form 10 ks, all of which are available on the Marsh website. During the call today, we may also discuss certain non GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. If you have a question, please press 11 on your touch tone phone. If you wish to be removed from the queue, please press 11 again. If you're using a speakerphone, you may need to pick up the handset before pressing the numbers. Once again, if you have a question, please press 11 on your touch tone phone. I'll now turn this over to John Doyle, President and CEO of Marsh. John Doyle: Thank you, Andrew. Good morning, and thank you for joining us to discuss our fourth quarter results which we reported earlier today. I'm John Doyle, President and CEO of Marsh. Joining me on the call are Mark McGivney, our CFO and the CEOs of our businesses: Martin South, Dean Klisora, Pat Tomlinson, and Nick Studer. Also with us this morning is Jay Gelb, Head of Investor Relations. 2025 was another good year for Marsh. We executed well against our strategic objectives, and delivered solid financial results. Total revenue grew 10 percent to $27,000,000,000 with underlying revenue growth of 4%. Adjusted operating income increased 11% to $7,300,000,000. This is on top of 11% growth in 2024. Our adjusted operating margin improved 30 basis points, marking our eighteenth consecutive year of reported margin expansion. And adjusted EPS grew 9%. We generated 25% growth in free cash flow, and achieved our capital deployment objectives. We invested approximately $850,000,000 in acquisitions, and returned significant capital to our shareholders. This included a 10% increase in our quarterly dividend, and $2,000,000,000 in share repurchases—the largest annual amount in our history. We also successfully completed the integration of McGriff, our largest acquisition ever, launched our new brand, and announced the Thrive Program. All of which improve our growth profile in the years ahead. I wanna take a moment to talk about our strategy and the opportunities we see. Marsh is a market leader with a proven track record of growth and exceptional performance. Our success is driven by the unique strengths of our businesses, market leading positions, a data and analytics advantage, and most importantly, the talent and dedication of our colleagues. Looking ahead, we see an opportunity to deliver even greater value to our stakeholders. Our vision is to be the most impactful professional services firm in the world. Not just in insurance, but across risk, reinsurance and capital, health and talent strategies, investments, and management consulting. Our clients face increasingly complex challenges and new opportunities. They rely on our expertise across critical areas where we are market leaders and where our scale and specialization are a distinct advantage. Last quarter, we introduced Thrive, a growth program aligned with our vision and core principles. We expect it to provide greater financial flexibility and organizational agility over the next three years. Thrive is already unlocking the capacity to invest in emerging areas with meaningful economic opportunity such as digital infrastructure, health care, private capital, insurance capital strategies, and energy. It's also enabling us to increase investment in frontline talent and integrated solutions across our businesses. With Thrive, we can more powerfully and efficiently invest in one brand. Two weeks ago, we officially launched the new Marsh, ringing the closing bell at the New York Stock Exchange and introducing our new ticker symbol MRSH. Our new expanded Marsh brand better supports our business strategy and simplifies our value proposition for clients. This was highlighted at the World Economic Forum meeting in Davos last week, where Marsh colleagues met with government and business leaders. Together, we discussed geoeconomic confrontation, AI and digital infrastructure, health and longevity, investment strategies, and resilience and transformation in an uncertain environment. The client and even societal impact that we can have when we bring our full capabilities together under the Marsh brand is a sustainable advantage. Another important part of Thrive is the formation of business and client services. Through BCS, we're building a data and technology ecosystem that harnesses AI and advanced analytics to improve client outcomes and drive operational excellence. While we've improved efficiency through technology and moving workflow to cost effective locations over the years, BCS is a fundamental change in our operating model. And it accelerates expense savings and investment in AI and automation. BCS has introduced dozens of AI driven productivity tools, and we're ramping up adoption to give our colleagues an edge. We're also focused on launching one of a kind technologies, client facing technologies such as Centrisq and AIDA, which I've mentioned on prior calls. We see strong growth potential in client facing technology, virtual agents, and chatbots. I look forward to continue to share our progress on Thrive in the quarters ahead. Turning to market conditions. We continue to see a competitive insurance and reinsurance environment. According to the Marsh Global Insurance Market Index, renewal rates decreased 4% in Q4, driven largely by property. This follows a 4% decline in the third quarter of 2025. As a reminder, our index skews to large account business. Rates in The US were flat. UK, Canada, and Latin America were all down 7%. Europe and Asia declined mid single digits, and the Pacific region had double digit decreases. Global property rates decreased 9% year over year, compared with an 8% decline in the prior quarter. Global financial and professional liability rates were down 4% while cyber decreased 7%. Global casualty rates increased 4%, with US excess casualty up 19% reflecting ongoing pressure in the liability environment. And workers' compensation decreased 1%. In reinsurance, the property cat market continued to soften as reinsurers pursue growth by deploying more capital. Price decreases accelerated at January 1. Cedents achieved double digit rate reductions for non loss impacted cat placements. Demand increased 5% to 10% depending on region and segment, with buyers seeking better risk sharing such as aggregate and other covers. In casualty, we continue to see price increases driven by rising rates in the primary market, which has made it an attractive growth opportunity for reinsurers. The cat bond market had another record year with 86 new bonds issued totaling more than $24,000,000,000 in limits. Dedicated reinsurance capital is projected to increase 9% to $660,000,000,000 at the end of 2025, driven by growth in traditional and alternative capital. With ample capacity, including new casualty sidecars, reinsurers are seeking profitable ways to deploy capital. Turning to health trends, our surveys indicate medical costs are expected to continue to rise in 2026. In The US, we are estimating a 7% increase, while other regions of the world will experience high single to low double digit increases. We continue to help clients balance cost reduction measures with their need to maintain high quality benefit plans. As always, our focus remains on helping all of our clients navigate these dynamic market conditions. Now let me turn to our fourth quarter financial performance and outlook, which Mark will cover in more detail. Consolidated revenue increased 9% to $6,600,000,000 growing 4% on an underlying basis with 2% growth in RIS and 5% in consulting. Marsh risk was up 3%. Guy Carpenter grew 5%, Mercer increased 4%. And Marsh Management Consulting, which was formerly reported as Oliver Wyman Group, grew 8%. Adjusted operating income grew 12%. And adjusted EPS for the quarter was $2.12 up 10% year over year. We also repurchased $1,000,000,000 of our stock in the quarter. Looking ahead, despite headwinds from lower interest rates and decreasing insurance and reinsurance pricing, we're well positioned for another solid year. We expect underlying revenue growth in 2026 to be similar to last year. We also anticipate continued margin expansion and solid adjusted EPS growth. Of course, this outlook is based on current conditions, and the economic environment could change materially from our assumptions. In summary, we're pleased with our 2025 performance. We executed on our strategic objectives and continued our track record of strong results. The Thrive program will drive growth through investments in talent and AI, strengthen our brand, and generate greater efficiency. I would add that this is my fortieth year in the business world. I've never seen such a complex environment for our clients. While we are not facing one global crisis, we are in an era of polycrises. Ground wars, trade wars, culture wars, social unrest, AI disruption, and extreme weather are all creating enormous challenges for businesses. But there's also opportunity in the complexity if clients can anticipate the environment, seize the potential of AI while managing the risks, and have the right advisers to guide them. It's why I'm so optimistic about Marsh's future. Our perspective shaped by one hundred and fifty five years of helping clients build the confidence to thrive sets us apart. Our ability to see the risks and opportunities and support clients with advice and solutions will benefit them and make our relationship invaluable. With that, I'll turn the discussion to Mark for a more detailed review of our results. Mark McGivney: Thank you, John, and good morning. Our fourth quarter results represented a solid finish to the year, reflecting our strong position and execution despite a more challenging environment. Consolidated revenue increased 9% to $6,600,000,000 with underlying growth of 4%, which came despite a headwind from fiduciary interest income. Operating income was $1,200,000,000 and adjusted operating income was $1,600,000,000 up 12%. Our adjusted operating margin increased 40 basis points to 23.7%. GAAP EPS was $1.68 and adjusted EPS was $2.12 up 10% over last year. For the full year, underlying revenue growth was 4%. Adjusted operating income grew 11% to $7,300,000,000. Our adjusted operating margin increased 30 basis points and adjusted EPS increased 9% to $9.75. Looking at risk and insurance services, fourth quarter revenue was $4,000,000,000 up 9% from a year ago, 2% on an underlying basis. Operating income in RIS was $830,000,000. Adjusted operating income was $1,100,000,000 up 11% over last year. And the adjusted operating margin was 27.6% up 60 basis points from a year ago. For the full year, revenue in RIS was $17,300,000,000 with underlying growth of 4%. Adjusted operating income increased 12% to $5,500,000,000 and the adjusted operating margin was 32%. At Marsh Risk, revenue in the quarter was $3,700,000,000 up 10% from a year ago, or 3% on an underlying basis. Marsh Risk's underlying growth in the quarter faced tough comparisons to last year's fourth quarter due to elevated claims activity in our Torrent Flood business, and the renewal of eighteen month policies in Latin America. In U.S. and Canada, underlying growth was 3%, reflecting good new business growth overall and continued momentum in MMA. In International, underlying growth was 4%, with EMEA up 6% Asia Pacific up 2% and Latin America down 4% reflecting the impact of eighteen month policy renewals. For the full year, Marsh Risk's revenue was $14,400,000,000 with underlying growth of 4%. U.S. and Canada grew 3%, and international was up 5%. Guy Carpenter's revenue in the quarter was $215,000,000 up 7% or 5% on an underlying basis. Growth remained solid despite softer reinsurance market conditions, and came on top of 7% underlying growth in the fourth quarter of last year. For the full year, Guy Carpenter generated $2,500,000,000 of revenue and 5% underlying growth. In the Consulting segment, fourth quarter revenue was $2,600,000,000 up 8% or 5% on an underlying basis. Consulting operating income was $483,000,000 and adjusted operating income was $550,000,000 up 10%. Our adjusted operating margin in Consulting was 20.8%, up 10 basis points from a year ago. For the full year, Consulting revenue was $9,800,000,000 reflecting underlying growth of 5%. Adjusted operating income increased 10% to $2,100,000,000 and the adjusted operating margin increased 40 basis points to 21.1%. Mercer's revenue was $1,600,000,000 in the quarter, up 9% or 4% on an underlying basis. Health grew 6%, reflecting continued growth across our regions, especially in international. Wealth was up 5%, led by our investments business. Our assets under management were $692,000,000,000 at the end of the fourth quarter, up 1% sequentially and up 12% compared to the fourth quarter of last year. Year over year growth was driven primarily by acquisitions and the impact of capital markets. Career was down 2%, reflecting continued softness in project related work in The US and Canada, partially offset by sustained demand in international and good growth in our workforce products. For the full year, revenue at Mercer was $6,200,000,000 with 4% underlying growth. Marsh Management Consulting generated revenue of $1,000,000,000 in the fourth quarter, up 8% on both a GAAP and an underlying basis, reflecting solid demand across most regions and sectors. For the full year, revenue in Marsh Management Consulting was $3,600,000,000 an increase of 6% on an underlying basis. Fiduciary interest income was $92,000,000 in the quarter, down $20,000,000 compared with the fourth quarter of last year, reflecting lower interest rates. Looking ahead to the first quarter, based on the current environment, we expect fiduciary interest income will be approximately $83,000,000. We're making good progress on executing our Thrive program. We continue to expect to generate $400,000,000 of total savings, a portion of which will be reinvested for growth, and incur approximately $500,000,000 of charges to generate the savings. Total noteworthy items in the fourth quarter were $210,000,000 and included $112,000,000 of costs associated with Thrive. Interest expense in the fourth quarter was $235,000,000. Based on our current forecast, we expect interest expense will be approximately $240,000,000 in the first quarter. Our adjusted effective tax rate in the fourth quarter was 22.1%. This compares with 21.3% in the fourth quarter last year. For the full year, excluding discrete items, our adjusted effective tax rate in 2025 was 25.3%. Compared with 25.9% in 2024. When we give forward guidance around our tax rate, we do not project discrete items. Based on the current environment, we expect an adjusted effective tax rate of between 24.5% and 25.5% in 2026. Also note that our adjusted effective tax rate in the first quarter last year included a meaningful discrete benefit related to share based compensation. Based on our current estimates, we do not expect to see a benefit in Q1 this year. Turning to capital management and our balance sheet. We ended the quarter with total debt of $19,600,000,000. Our next scheduled debt maturity is in the first half of 2026 with $600,000,000 of senior notes maturing. We generated strong free cash flow in 2025 of $5,000,000,000 up from $4,000,000,000 a year ago. This reflects the underlying strength of our business and discipline in managing working capital. Our cash position at the end of the fourth quarter was $2,700,000,000. Uses of cash in the quarter totaled $1,900,000,000 and included $444,000,000 for dividends, $481,000,000 for acquisitions, and $1,000,000,000 for share repurchases. For the full year, uses of cash totaled $4,600,000,000 and included $1,700,000,000 for dividends, $847,000,000 for acquisitions, and $2,000,000,000 for share repurchases. I want to take a minute to reiterate our approach to capital management. We've consistently followed a balanced capital management strategy that helps us deliver solid performance in the near term while investing for sustained growth over the long term. We prioritize investment in our business, both through organic investments and acquisitions. We favor attractive acquisitions over share repurchases, and believe they are the better value creator for shareholders and the company over the long term. However, we also recognize that returning capital to shareholders generates meaningful returns for investors over time. And each year, we target raising our dividend and reducing our share count. Looking ahead to 2026, based on our outlook today, we expect to deploy approximately $5,000,000,000 of capital across dividends, acquisitions, and share repurchases. The ultimate level of share repurchase will depend on how the M&A pipeline develops. Turning to our outlook for 2026, we are well positioned for another solid year. We currently expect underlying revenue growth will be similar to the level we generated in 2025. We also anticipate another year of margin expansion and solid adjusted EPS growth. With that, I'm happy to turn it back to John. John Doyle: Thank you, Mark. Andrew, we're ready to begin the Q&A session. Operator: Certainly. We will now begin the question and answer session. If you have a question, please press 11 on your touch tone phone. If you wish to be removed from the queue, please press 11 again. If you're using a speakerphone, you may need to pick up the handset before pressing the numbers. Once again, if you have a question, please press 11 on your touch tone phone. And in the interest of addressing questions from as many participants as possible, we ask that participants limit themselves to one question and one follow-up question. One moment, please. Your first question comes from the line of Gregory Peters with Raymond James. Gregory Peters: Good morning, everyone. So for the first question, I'd like to go back to your comments on AI and digital infrastructure. And I guess I'm curious how you think the trends of investment in these areas by your clients could affect the long term revenue outlook for RIS, for the consulting business, and the health business where I guess there could be some potential rising employment volatility. John Doyle: Yeah. Thanks, Greg. We're excited about the investment in the digital infrastructure world. We expect roughly $3,000,000,000,000 of investment over the course of the next five years or so. It's been an area of focus for us for some time. We have a digital infrastructure practice and a global leader and head of it. The investment comes from lots of different parts of the economy. It's not just hyperscalers, of course, and so we've been focused on it. We're quite excited about the investment there. I think you're right, the job market is soft in many labor markets. And so, this is a good area for us to be focused on. And, our focus, of course, is risk advisory, risk financing, but also capital management, workforce strategies, energy solutions, community engagement. There's real complexity to the build out of all this infrastructure. So it is a big opportunity. And maybe, Greg, what I'll do is have our business leaders talk to you a little bit about each area and kind of what we're focused on. Martin, maybe you could talk a little bit about what we're doing at Marsh risk. Martin South: Yes, sir. Marsh Risk has long been a leader in the technology sector, and we continue to build on that legacy with a very strong presence in the digital infrastructure landscape. This includes the fabrication plants, data centers, ancillary services, builders, designers, communities, beyond that, power and energy and supporting operations. Over the next five years, it's estimated that between 2,000 to 3,000 data centers will be constructed worldwide. We're already well on the way to establishing our preeminence in this ecosystem as a trusted partner. From our calculations, in '25 alone, Marsh US had the leading market share of the $205,000,000,000 in data center construction value. In Asia, we're the clear leader serving six of the largest foundry businesses, the four largest memory IDMs, and the largest semiconductor tool manufacturers' plants. As a trusted risk adviser, our capabilities support clients with builders risk, property insurance, and ongoing capital facilitation. We're supporting clients with asset revenue contracts, what we're calling our life cycle work, supply chain issues, assessing revenue streams, and reviewing contractual obligations. We recognize that insurance capacity is a critical factor in supporting growth. And to address this, we're collaborating with Guy Carpenter and insurers to develop innovative capacity solutions. For example, the Nimbus facility, which just this week doubled its capacity to $2,700,000,000. All of this underscores our preeminence in the digital infrastructure space and our commitment to helping clients manage the risk in one of the most dynamic and fast growing sectors globally. We see tremendous possibilities ahead and are very well positioned to capitalize on them. John Doyle: Thanks, Martin. Dean, how are you supporting the effort at GC? Dean Klisora: Thanks, John. Greg, as Martin said, I think this is a significant new business opportunity in 2026 for both cedents and reinsurers. There's been estimates of up to $10,000,000,000 of new premium entering the market in 2026 because of these opportunities. And the market needs more capacity. No cedent's gonna put up billions of dollars of capacity for a single location risk. So that's a real issue. All of our clients want to write data centers across 10 plus products globally, but they require additional reinsurance protections. Everybody's concerned with accumulations in portfolios and we're solving that right now for our clients. And I think we need to bring new capital to the market. It's not gonna just be traditional reinsurance capital. The introduction of third party capital and securitizing some of these risks via sidecars and other vehicles is gonna be critical. And these are gonna have to be deep pocketed investors given the size of these risks. But we think this is the single biggest new business opportunity in 2026. John Doyle: Yep. Thanks, Dean. Pat, how about at Mercer? What are we doing there? Pat Tomlinson: Yeah. Thanks, John, and thanks, Greg. I appreciate the way you asked the question and how it had to do with employment and talent. On the data center infrastructure side in that ecosystem, what we're seeing is employers needing to think really strategically about their talent to be able to drive these large programs. Unique skills involved are evolving fast. Critical talent is in limited supply. So things that we're doing are workforce planning projects, skills assessment and development, global mobility, rewards, and health care plan designs—all on top of clients' minds out in the field right now. Martin had mentioned Asia specifically, and I will say that's an area where there's heavy focus on this. A couple of examples: we're working in the semiconductor industry around large global mobility policy redesigns to enable overseas expansion. As the ecosystem goes global, Asian companies are thinking about how to get people with the right skills to projects all over the world. We've also done some really large technical skills design projects for clients to assess and develop the skills they'll need in the workforce. And that goes across the ecosystem, not just the data centers themselves—manufacturers of supplies, gases, raw materials—we're seeing projects across the spectrum there. John Doyle: Thank you. And, Nick, how about at Marsh Management Consulting? How are we helping our clients? Nick Studer: Yeah. I think it's well covered by my colleagues, but maybe just put a wrapper around it. Our portfolio is totally unique, both in terms of the advisory businesses that exist across all four of our businesses but also the strength and depth of Marsh Management Consulting, within which sits Oliver Wyman and Marsh Business. We have the ability to be very integrative, not just in the construction of new data centers, but in the 90% of existing data centers that are needing to become AI enabled. So we're working with colleagues across our businesses to help manage that transformation, integrate strategy, risk, and execution planning. We're also seeing strong demand in our energy practice around power, grid strategy, supply chain resilience, and the navigation of regulation. And one of our biggest capability practices is around cost; most of the cost work we're doing at the moment is being done to fund investments in growth, resilience, and in AI. So we really bring a uniquely integrated set of capabilities. John Doyle: Thanks, Nick. So sorry, Greg. That was probably a little longer than you expected, but we're excited about the space. We have a unique breadth of capability and we see it as a real meaningful opportunity going forward. Do you have a follow-up? Gregory Peters: I absolutely do. And that was good detail. I guess I'd like to zero in on the headline in reinsurance in particular, in property more broadly speaking, where we're seeing some pretty strong rate reductions. And, of course, that's excellent news for your clients. But on the other hand, when we're sitting back here on the outside looking in, that looks kinda scary from the potential of organic revenue growth. I'm mindful that you talked about increased demand, but I'm hoping you can just reconcile the moving parts as we process these pretty dramatic rate decreases in reinsurance. John Doyle: Yeah. No. I'll ask Dean to talk a little bit about it. Obviously, we don't guide by business, but we had a decent finish to the year and a good year overall at Guy Carpenter in what was a soft market last year. And so, we expected a challenging market into 2026. And certainly, the first of the year would indicate that we're getting kind of what we expected. As you mentioned, it's good for our cedent clients, which is terrific. We have seen demand pick up in some spots which we didn't see much of last year. So, we're excited about that, but we're also focused on some different areas to advise clients on in the reinsurance and capital space. Dean, maybe you talk a little bit about what you're seeing. Dean Klisora: Yeah. Thanks, John. And, Greg, you touched on the headlines. Property cat pricing rate environment will certainly be a headwind as we move through 2026. In addition, the interest rate environment. That said, I remain really upbeat on the fundamentals of our business with our talent and capabilities. Our data and analytics platform is a key differentiator. We continue to attract top talent at GC; we've grown our headcount for five years in a row and made some really big time hires that are making an impact. Despite all this, Greg, we had record new business in 2025 and a really strong fourth quarter of new business, and we feel good about that momentum. I would highlight a couple things. We're seeing a lot of diverse areas of new business. I've spoken in the past about capital and advisory; our investment banking group has never been more impactful for our clients giving the flow of third party capital into the marketplace right now. I highlighted that in data centers. We're winning impactful engagements from our clients around M&A advisory, raising third party capital, and fairness opinions. You've read a lot about sidecars; billions of dollars of new capital flowing into the market for the creation of casualty sidecars—we're right in the middle of that. Lot of client interest around Lloyd's platforms and structured solutions, obviously a red hot cat bond market. More broadly, we think the casualty market now is a clear growth opportunity for brokers and reinsurers. Even though renewal outcomes were in line with expectations, we think this is a true area of growth. Martin talked about 19% rate increases in casualty in the fourth quarter; that's flowing straight through to quota share contracts in our portfolio, which is the majority of our portfolio. We think we have plenty of sources of new business growth and opportunities that maybe didn't even exist a year ago. John Doyle: Thanks, Dean. So lots for us to work on there, Greg, and we will have headwinds, obviously, from the pricing market in property cat, but lots of areas of growth for us to get focused on. Andrew, next question, please. Operator: Our next question comes from the line of Mike Zaremski with BMO. Mike Zaremski: Hey, great. Good morning. Maybe back to thinking about all your good commentary, both today and in the past about AI and expense initiatives, including Thrive. When we think about Thrive, what would you say that encompasses? A lot of the new AI technologies that you all are deploying? Or should we expect more to come? You've had a number of companies specifically guide to how AI could change their headcount numbers. So just curious if there's overlap there or maybe you'd expect something separate in the coming quarters or years. John Doyle: Well, Thrive is, as I mentioned, Mike, a growth program. It'll certainly fuel efficiency and help us with margin expansion, but it's also gonna enable us to accelerate investment in market facing talent that will help us continue to grow our company. But bringing BCS together, our operations and technology teams under the leadership of Paul Beswick, and exploring the best technologies that have existed in each of our businesses, bringing them together to get scale benefits, will accelerate the path that we're on. We're excited about that path on AI. We've introduced dozens of productivity tools to our colleagues; we're an early mover on this. Paul and team have done a terrific job. We'll continue to introduce new tools, but also, we're quite focused on ramping up on production. We need more of our colleagues to become power users, and that will drive further efficiency for us. And then on the growth side, we're excited about that too. I mentioned Centrisq and AIDA during 2025, two market facing tools. We have others in development that are SaaS-like models that will drive revenue growth for us over time. In terms of jobs, clearly, there are job families that will be more impacted than others, but for the most part, these tools are gonna make our people better and more efficient and able to serve clients in a better way. Mike Zaremski: Okay. That's helpful. My follow-up is on your organic growth comments for the coming year. If we look at the current quarterly organic trend line, should we expect consulting to lead the pack on organic while maybe risk runs a bit lower given the backdrop in P&C? Or would your enthusiasm about data centers offer upside as 2026 progresses? John Doyle: Look, obviously, we had a slower growth in the fourth quarter in RIS than we did earlier in the year, but it's a quarter. We had a good year of growth overall. Marsh Risk is a 155 year old business, maybe more relevant than it's ever been; we had 15% GAAP growth last year and 4% underlying growth. We know how to grow our businesses. Every year creates its different challenges and opportunities. I wasn't trying to guide to strength in one area; we see good opportunity across all of our businesses. For 2026, as I said, I see a similar environment to 2025. It's an uneven economy. We talked about digital infrastructure, health care, energy, and private capital. We will see headwinds from pricing and interest rates—we expected that. Less than a couple of weeks in, we knew 2026 wasn't gonna be calmer geoeconomically. But we've all built muscles around navigating those environments. I'm optimistic. MMA is strong. We've got the team from McGriff that makes us better and stronger. Thrive again is that capacity engine to drive earnings growth and sustain our growth over time. We have a strong balance sheet and M&A is a core competency with a strong pipeline. So there's a lot for us to get after in 2026. Thank you, Mike. Andrew? Operator: Our next question comes from the line of David Motemaden with Evercore ISI. David Motemaden: Hey. Thanks. Good morning. John, you spoke last quarter just about the talent situation. Some teams that have left, and I'm wondering if we're seeing any of that impact in the results this quarter specifically within U.S. and Canada? And then how we should think about that in 2026, but also thinking about some of the teams that it sounds like you guys are gonna be hiring. What are some focus areas to offset those headwinds? John Doyle: Thanks, David. Overall from a talent perspective, we have an excellent brand in the market. We're 95,000 people strong and growing. Our colleague retention remains strong—it's above historic norms. Our engagement scores are exceptional. Our talent strategy is all about making our colleagues be their best inside our company. I'm very confident that we have the best and deepest teams on the field. We have a culture that sets us apart—collaborative and team based. We're not a place for mercenaries. We added market facing talent in the aggregate last year. The team dynamics that happened over the course of last summer aren't helpful, of course, but they're not material to our results. It becomes a bit of a distraction, but given our brand, we're able to get back at it. We added talent last year, and we're going to add market facing talent again. So I feel good about how we're positioned. And, I would also note that, if there are folks out there that are either gonna violate their covenants or steal information from us, I'm gonna call you out and do everything I possibly can to hold you accountable. Do you have a follow-up, David? David Motemaden: Yeah. I do. Thanks for that, John. Then, just on the data center construction values—I heard $205,000,000,000 that Marsh US handled the leading market share in 2025. It didn't look like that had a meaningful impact on the results with the call it 3% underlying growth for the year. Is that something you think is going to have a material impact on the growth in 2026, or is it just going to get offset somewhere else? I'm trying to square those comments with the stable underlying revenue growth outlook. John Doyle: Look, David, it's hard to look that far ahead given all the things that have happened just in the last thirty days. But we're excited about the investment in digital infrastructure broadly. We believe we're the market leader in it. Some of the investment happened last year and we're at 4% underlying growth in all our businesses. It was a factor in our results, but there's much more in front of us than is behind us in that build out. We think we're well positioned to help clients invest in a wise way. Andrew, next question. Operator: Thank you. And our next question comes from the line of Brian Meredith with UBS. Brian Meredith: Yes, thanks. I was hoping you could talk a little bit about the insurance budgets for clients looking into 2026. Are they looking to increase coverage given price breaks in property, or is there more uncertainty? John Doyle: Brian, it's an uneven economy. Growth excluding digital infrastructure is not inspiring. Our clients are all over the map in terms of what they're ready to spend. Broadly, pricing relief in the market is welcome after several years of increases, but it's quite clear that the cost of risk is continuing to rise. Excess casualty liability costs are going up, and more of the economy is exposed to extreme weather and rising health care costs. Eventually, those costs will have to catch up with inflation. We're advising our clients to buy more coverage, particularly in casualty given nuclear verdicts and litigation funding. But many don't—many are looking to harvest the savings if they're in an industry in a lower growth mode. Brian Meredith: That's very helpful. And then going back to AI—I'm hearing that for the management consulting business, formerly Oliver Wyman, there could be some project related work that goes the way of AI and becomes a headwind. Is that true? What are potential revenue losses you could see there? John Doyle: Oliver Wyman had a terrific year and demand is strong. But, Nick, maybe you could talk a little bit about Outlook and also the impact of AI in our business. Nick Studer: Yeah, for sure. Over the last five years, it's been a volatile environment, but I'm tickled that we just registered our first billion dollar quarter. Five years ago, we were just over $2,000,000,000 for the year, so 75% growth over that period. We think the outlook is robust. We've had three of our best ever sales months over the last five months. Regarding AI, what we see in our business is that the use of AI tools has had a significantly positive effect on productivity. We have leveraged our consulting teams better, but frankly, we're not really being paid for things that AI can do at this stage—we're paid for helping clients deliver outcomes rather than for assembling third party information. Within the business, maybe 30% of our work draws on advanced analytics and AI. We launched our DNA business (data analytics) and our Quotient platform which delivers AI transformation for clients in partnership with hyperscalers—that is the fastest growing part of Oliver Wyman. Regarding our own delivery model, AI is replacing some tasks, but at the moment I expect to hire the same or more junior staff because they are AI literate and use these tools well. Finally, we're doing a lot of work on performance transformation and cost work driven by the need for firms to fund investments in growth and AI. So, we aren't experiencing revenue headwinds because of this at the moment. John Doyle: Thanks, Nick. Andrew, next question, please. Operator: And our next question comes from the line of Jimmy Bhullar with JPMorgan. Jimmy Bhullar: Hey, good morning. John, you mentioned you expect organic growth in '26 to be similar to last year. My question is specifically on the Marsh Risk business. You've seen a slowdown in growth over the last three, four quarters. It seems from your comments that you're not expecting an incremental slowdown from here. Is that correct? John Doyle: Good morning, Jimmy. Again, we were at 4% for the year at Marsh risk. I cautioned in the past not to over index on any single quarter. 15% GAAP growth for the year at Marsh risk. We feel good about that despite a tougher environment. We're adding to the talent on the team and using AI to boost productivity and make our producers better. We're optimistic about our prospects next year. MMA is a huge part of our business now and is executing very well. Jimmy Bhullar: Do you have a follow-up, Jimmy? Jimmy Bhullar: Yeah, just on buybacks. You did a lot more than you've done in a on a quarterly basis. Maybe just give us some insight into why the buyback amount was as high as it was. John Doyle: Returning capital to shareholders is an important part of our approach. Mark, maybe you can talk about the buybacks in particular. Mark McGivney: Hi, Jimmy. We did ramp up buybacks in the fourth quarter purely as a function of the M&A pipeline. We had an active year on the M&A front completing 20 transactions, but they were all relatively small, so we only deployed about $850,000,000. My script reiterated our approach because there has been no change in strategy. As we think about the $5,000,000,000 we're gonna deploy this year, our bias is toward high quality accretive acquisitions and our pipeline is very active. We did three acquisitions in Hawaii that closed December 1. Pipeline is strong and we're excited for 2026. Operator: Our next question comes from the line of Meyer Shields with KBW. Meyer Shields: John, big picture question. Obviously, there's been news about team lifts. Are you seeing any increase in the cost of brokerage talent? John Doyle: Mayor, thanks for the question. I don't see broadly any more pressure in terms of inflation for compensation related to this. What we've seen over the last year is some PE backed businesses using, in my view, unethical and often illegal practices to build their businesses out. It's an unfortunate thing. I love to compete broadly, and mobility for talent in the industry is a good thing. But let's compete in a fair way. The best thing for us is to focus on our clients and a colleague value proposition that makes us the most attractive place to work. Meyer Shields: Okay. And another pricing question. We've seen a significant deterioration in the valuation of publicly traded brokers—how long does it take before that filters into M&A multiples? John Doyle: That's a good question. The market has changed a bit as public company comps have come down over the last six to nine months. I would say the bid-ask gap has probably grown. High quality assets are still insisting on higher multiples, which probably contributed to a little less deal flow overall in our sector last year. It will be interesting. Strategic buyers versus financial sponsors is generally where the gaps fall out. We're excited about our reputation and the relationships we've developed. John Doyle: Andrew, we need to bring this call to a close. I wanna thank all of our colleagues for joining us this morning and for their dedication to Marsh, to one another, and to our clients. Thank you all, and we look forward to speaking to you again next quarter. Operator: This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to Group 1 Automotive, Inc.'s Fourth Quarter and Full Year 2025 Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Pete DeLongchamps, Group 1's Senior Vice President, Manufacturer Relations and Financial Services. Please go ahead, Mr. DeLongchamps. Pete DeLongchamps: Thank you, Nick, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results we will refer to on this call for comparison purposes have been posted at Group 1 Automotive, Inc.'s website. Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive, Inc. are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing, volume, inventory supply, conditions of markets, successful integration of acquisitions, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services. Those and other risks are described in the company's filings with the Securities and Exchange Commission. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, the company provides reconciliation of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating with me on today's call are Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl. Daryl Kenningham: Thank you, Pete, and good morning, everyone. In 2025, Group 1 Automotive, Inc. achieved record revenues across all major business lines and record growth gross profits in parts and service and F&I, underscoring the strength and resilience of our diversified business model and our relentless focus on operational excellence. During the quarter, we delivered impressive parts and service results and strong F&I performance in both the U.S. and the UK. Parts and service continue to be a differentiator for Group 1 Automotive, Inc., providing both growth and stability while we leverage our scale and execution flexibility to further build out our used vehicle business. Our F&I teams have done an outstanding job maintaining gross profit discipline while driving higher product penetrations across nearly all categories. For the full year, we generated an all-time high gross profit of more than $3.6 billion, including record parts and service gross profit of nearly $1.6 billion. We sold 459,000 new and used vehicles in 2025, another record. In the U.S., new vehicle PRUs moderated by just $62 sequentially, reflecting a slower pace of normalization. Throughout the year, we remained focused on deploying capital toward the highest and best use for our shareholders. 2025 was a great example of that strategy. In the U.S., we acquired outstanding brands in growth markets: Lexus and Acura of Fort Myers, Florida, and Mercedes-Benz dealerships in Austin, Texas, and Atlanta, Georgia. In the UK, we acquired three Toyota and one Lexus dealership. We expect these acquisitions to generate approximately $40 million in annual revenue. At the same time, we disposed of 13 dealerships comprising 32 franchises, which had generated approximately $775 million in annualized revenue. In addition, we repurchased more than 10% of our outstanding shares in 2025. In the UK, the macroeconomic environment remains challenging, with weak economic growth, persistent inflation, increased competition from new entrants, and margin pressure from the BEV mandate. In response, we've reduced headcount by an additional 537 positions in 2025. And during the quarter, we continued to execute on our previously announced restructuring initiatives, including working with a number of interested parties on the exit of the JLR brand. We also completed our UK systems integration, which we expect will improve visibility, operational consistency, and data-driven decision-making across the business. In addition, we consolidated 10 customer contact centers into two and fully onshored our transactional accounting operations. We continue to focus on opportunities to further shape our UK portfolio and improve operations, consistent with the playbook we have successfully executed in the U.S. We are seeing the positive impact of our U.S. operating practices in the UK, particularly in aftersales. On a same-store basis, we increased our technician headcount by 9.5% in the UK, reducing customer wait times and driving a nearly six percentage point increase in customer pay mix and higher fixed absorption. We've made changes to our service pricing to move more closely to the aftermarket. At the same time, we've eliminated diagnosis fees in many brands. Daniel McHenry will speak to the positive results that these initiatives are having on our RO count. In F&I, PRU increased 13% in the UK, or $123, largely through better adoption of all of our products. Our focus in the UK remains on driving this type of operational improvement across the entire business. We realize there is still more work to do. In the U.S., the macroeconomic environment remains dynamic, with volumes and GPUs continuing to normalize from post-pandemic highs, particularly in the luxury segment. While the policy and trade uncertainty we saw last year has largely subsided, as macroeconomic conditions evolve, we remain vigilant and focused on staying nimble. In response, our teams remain disciplined and agile, sharpening execution at the dealership level, managing our costs, and prioritizing the areas of the business that generate the most durable returns. We believe this focus on controlling what we can control, from inventory and pricing discipline to aftersales performance, capital allocation, and costs, positions Group 1 Automotive, Inc. to navigate near-term challenges while continuing to build a stronger, more resilient platform for the long term. I'll now turn the call over to our CFO, Daniel McHenry, for an operating and financial overview. Daniel McHenry: Thank you, Daryl, and good morning, everyone. In 2025, Group 1 Automotive, Inc. reported revenues of $5.6 billion, gross profit of $874 million, adjusted net income of $105 million, and adjusted diluted EPS of $8.49 from continuing operations. Starting with our U.S. operations, fourth-quarter performance was strong across all lines of business, with a slight decline in new vehicle sales. New vehicle unit sales declined both on a reported and same-store basis. Average selling prices continue to increase, and consumers are increasingly concerned about affordability. While new vehicle GPUs continue to moderate from the highs of the past few years, we have maintained strong operational discipline through effective cost management and process consistency. Our used vehicle operations performed well, holding volumes basically flat versus the comparable year quarter while increasing revenues approximately 41% on an as-reported and same-store basis. GPUs declined approximately 8% on a same-store basis, reflecting higher costs to acquire used inventory. We continue to leverage our scale and operational flexibility to strengthen used vehicle acquisition while executing disciplined sourcing and pricing in an increasingly competitive market. Our fourth-quarter F&I GPUs grew nearly 3%, or $67 and $65 on a reported and same-store basis versus the prior year comparable period, respectively. The disciplined performance by our F&I professionals and improvements to our virtual finance operations have helped grow GPUs while driving higher product penetration across nearly all product categories. Aftersales again stood out as a major contributor. Gross profit continues to benefit from our efforts to optimize our collision footprint, shifting collision space opportunistically to additional traditional service capacity, and closing collision centers where the returns do not meet our requirements. Revenues from customer pay and warranty increased approximately 511%, respectively, and gross profits from customer pay and warranty increased over 813%, respectively. Our technician recruiting and retention efforts continue to pay off, with same-store technicians up 2.3% year over year. Overall, our U.S. business continues to perform exceptionally well, demonstrating both the resiliency of customer demand and the effectiveness of our disciplined, process-driven operating model. Wrapping up the U.S., let's shift to SG&A. While U.S. adjusted SG&A percent of gross profit increased 200 basis points sequentially to 67.8%, higher employee expense was the primary driver. We continue to focus heavily on resource management and technology investments to try to maintain SG&A as a percent of gross profit below pre-COVID levels as vehicle GPUs continue to normalize. Turning to the UK, results reflected the ongoing challenge of the UK operating environment. However, same-store revenues grew almost across every business line. New vehicle same-store volumes declined 8.2%, and local currency GPUs moderated 3.2% versus the prior year quarter, leading to an 11% decline in local currency same-store new revenues. Used vehicle same-store revenues were up over 9% on a local currency basis, with volumes up nearly 8%. Same-store GPUs declined almost 19% on a local currency basis, leading to a decline in used vehicle GP, reflecting the ongoing challenging used market in the UK. Aftersales and F&I delivered year-over-year growth in both revenue and gross profit on an as-reported and same-store basis. The aftersales business remains an important stabilizer within UK operations, and along with F&I, it's a key area of focus as we work to enhance profitability. We saw an outsized uplift in RO count of nearly 36% year over year as we bring best practices from the U.S. Same-store technicians are up 9.5%, reflecting significant capacity to our shops. Customer pay revenue was up 9% year over year. Same-store F&I PRU reached $1,060, with an as-reported and same-store PRU increasing over percent year over year. On expenses, SG&A declined from the prior year, reflecting cost improvements despite significant headwinds from inflation and cost increases, some of which is government-imposed through payroll tax and related charges. While we've executed targeted restructuring initiatives to improve efficiency and return the business to more sustainable cost levels, the environment remains difficult. During the quarter, we incurred modest nonrecurring restructuring costs tied to our restructuring efforts. We are executing additional restructuring plans in future periods as we exit select OEM sites. We are continuously taking decisive actions in the UK to control costs, strengthen operational efficiency, and position the business for improved returns as market conditions stabilize. Turning to our balance sheet and liquidity, our strong balance sheet, cash flow generation, and leverage position continue to support a flexible capital allocation approach. As of December 31, our liquidity of $883 million was comprised of accessible cash of $537 million and $346 million available to borrow on our acquisition line. Our rent-adjusted leverage, as defined by our U.S. credit facility, was 3.1 times at the December. Cash flow generation year-to-date 2025 yielded $699 million of adjusted operating cash flow and $494 million of free cash flow after backing out $205 million of CapEx. This capital was deployed in the same period through a combination of acquisitions, share repurchases, and dividends, including the acquisition of $640 million of revenues through December 31, $555 million repurchasing approximately 1.3 million shares at an average price of $413.05, and $26 million in dividends to our shareholders. Subsequent to the fourth quarter, we repurchased an additional 71,750 shares under a Rule 10b5-1 trading plan at an average price per common share of $394.20, for a total cost of $28.3 million, resulting in an approximate 0.6% reduction in our share count since January 1. We currently have $350 million remaining on our Board-authorized common share repurchase plan. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to our news release as well as our investor presentation posted on our website. I will now turn the call over to the operator to begin the question and answer session. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and 2. We ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Rajat Gupta: Great. Thanks for taking the question. Just one clarification. Could you give us a sense of, you know, what the impairments were tied to this quarter? I know we had a large one last quarter. But were there any significant assets or brands that the impairment was tied to this quarter? And I have a follow-up. Thanks. Daniel McHenry: Hi, Rajat. It's Daniel. We do an annual impairment for all of our assets within quarter four on an annual basis. The impairments related virtually totally to the U.S. business as the impairments in quarter three were related to the UK business. You know, the principal brand, I guess, that we had impairments within was within the Audi brand. And, you know, we've had various discussions on that on previous calls. You know, other impairments, the Maryland stroke DC market has been a difficult market, I think, for both us and the other consolidators this year, and there was an impairment taken within that market. Rajat Gupta: Understood. That's very clear. Maybe, you know, a bit of a broader question, you know, as we go into 2026, around SG&A. I know you've talked about a lot of initiatives in the UK, just both of the productivity side and, you know, some of the cost action. But curious, you know, are there any specific productivity type actions that you might be undertaking in the U.S. today that could meaningfully move the meter especially with, you know, more and more AI tools like you get deployed. I'm curious, like, where do you see the opportunity? Are you already working on some? And how should we, you know, think about, you know, the impact to the SG&A to gross? Daryl Kenningham: Rajat, we are using AI in every part of our business, both customer interface as well as in our back office. And we're also deploying productivity tools in a number of areas. Like, as an example, when you look at our aftersales growth this quarter, it's 6% up, 5% up on a same-store on customer pay, and nine on warranty. We only added two and a half percent to our technician base. Our technicians are more productive now. One of the reasons is because our turnover is down 10 points when our technician population, which we've been working on. We've talked to you about the investments and things like air and things like that in our shops. And so we're seeing tangible results, which is resulting in less turnover and more productivity and takes the pressure off of all the hiring to do on technicians. So that's a productivity gain for us. Initiatives like virtual F&I, which we've got in a ton of stores now. We're rolling that out nationwide. We're seeing lower cost per transaction on virtual F&I across our footprint. Wide adoption there. And we are using AI in our sales operations with lead management and CRM control. We're using it in parts and service and in marketing and reaching out to customers and using more predictive analytics in that area. And so as we've made investments especially in marketing where we're now owning our own data, managing our own customer data, it's going to allow us to be much more efficient with how we reach customers and what our costs are and we hope in a more productive way than in the past. So the answer is yes. We're using it. We're using it in a number of areas. Offline. Be happy to talk to you more specifically about it. Operator: The next question will come from Bret Jordan with Jefferies. Please go ahead. Patrick Buckley: Hey, good morning, guys. This is Patrick Buckley on for Bret. Thanks for taking our questions. As we look at the UK restructuring plan, spoke a bit about recent progress there. Could you talk a bit more about what inning that's in and how long of a process do you expect that to be? And I guess, is there a lot of front-loaded progress there? Or is there more of a steady schedule of work to be done? Daryl Kenningham: There's more work to do. We don't see it's a dynamic environment, especially Europe. And so we adjust, you know, every quarter with our expectations. And we will get us to a place where it has to be to make that business at an acceptable profit level for us. So I would say we're in the earlier innings, not the later innings. And Daniel has some thoughts too. Daniel McHenry: Brett, you know, the one thing that I would add was, you know, the cost came out in 2024 over the year. It wasn't all really front-loaded into, you know, quarter one, let's say, of 2025. So as we roll into 2026, we should see the benefit of those costs that have been taken out throughout the year, you know, fully baked in for the year in 2026. Patrick Buckley: Got it. That's helpful. And I guess staying on the UK here, could you talk a bit more about the dynamics between the broader economy headwinds versus increased penetration from Chinese OEMs? Any way to quantify the headwinds between the two? Daryl Kenningham: Well, the Chinese OEMs are their Q4 share leveled off at around a little under 12%. You know, they had a big spike from Q4 2024 to Q4 2025 that leveled off a bit. They're not slowing down. I don't mean to make that sound that way, but we're not expecting they will. But it appears that it's leveled off. When we look at the brands we're in, we feel like we're well-positioned because we're heavy luxury, which typically the Chinese aren't in at this point. And so it's something we're continuing to watch, and I expect we'll continue to make moves to try to offset that specific impact. I mean, their market share, I think, speaks the most. And, you know, they're using a dealer model, which is, you know, I think good news for dealers. So as long as there's a viable model there, we're looking at that business. Patrick Buckley: Great. That's all for us. Thanks, guys. Operator: The next question will come from John Sager with Evercore ISI. Please go ahead. John Sager: Hey, guys. Thanks for taking my question. Obviously, a lot of focus on the portfolio management in the UK. Can you give us a sense of the magnitude of restructuring as you see it today? Or are we talking, you know, anywhere near the $28 million that we saw this quarter? Daniel McHenry: It's Daniel. I don't see it as being anything like that this quarter or this year, 2026. You know, we've done significant work. You know, Daryl talked about it in the call earlier today. Around what we've done around our DMS, what we've done around our property portfolio. You know, the JLR, you know, the decision that we took to dispose of those stores over the next period. You know, a lot of that heavy lifting and cost has gone effectively. In terms of restructuring, that was restructuring costs that were taken in 2025. John Sager: Okay. Makes sense. And then, you know, post-restructuring, what's a good trend or range going forward for used GPUs and also SG&A as a percent of GP? Could you give us a sense of a range there and then the timing that it will take to get there? Daryl Kenningham: Is that the UK specific or U.S.? John Sager: Both. But I guess, primarily, I was focused on the UK there. Daryl Kenningham: Well, you know, our used GPUs in the U.S. are higher today for pre-COVID. They're lower than they were a year ago. We'd like to see some improvement in this, and we definitely know we have some upside in UK GPUs in pre-owned. We're trying to instill a different level of discipline in our pre-owned business in the UK. And we expect the output of that to be better GPU performance. On SG&A, what we've talked about historically in the UK is 80% on a long-range basis. It will be higher than that in the non-plate change quarters and will be hopefully lower than that in the plate change quarters. So those are kind of round numbers what we've targeted. Daniel McHenry: In terms of the U.S., you know, you would think, you know, mid to high 60% for the U.S. on an annualized basis. So, you know, some are below seventy. John Sager: Okay. Thanks, guys. Operator: The next question will come from David Whiston with Morningstar. Please go ahead. David Whiston: Just looking at your store disposal activity last year, I mean, by definition, there's always going to be, say, a bottom 10% or bottom quartile. But by divesting these stores, you are raising that the low end of the bar, so to speak, higher and higher. So do you see the need to do a lot of divestitures every year or do you think '25 is more of an outlier year? Daryl Kenningham: I think '25 was more of an outlier to your I'll say it. You know, much of our disposition work was in the UK. Around underperforming stores, around consolidation efforts in concert with our OEM partners. There will be some more of that in '26, but on a long-term basis, it won't be nearly that active. In the U.S., we're still, you know, we still dispose of some stores that are in markets that aren't favorable for us or are underperforming. We had relatively few in 2025 in the U.S. But we will always want to have that discipline to review our portfolio and stores that don't help us on SG&A leverage or don't help us on EPS contribution are subject to us disposing. David Whiston: Alright. Thanks. And on capital allocation for this year, any strong preference between acquisitions, buybacks, or perhaps reducing leverage below three? Daniel McHenry: Let's go from the leverage first. You know, our preference is to keep our leverage below three times, and we're going to continue to work to that. You know, in terms of capital allocation, we really want to grow the company and continue to grow the company through acquisition. We are not going to, however, buy stores that aren't instantly accretive to us as a company in terms of EPS, and we're not going to overpay for acquisitions whenever you look at the valuation of our company. In terms of where it's currently sitting. We were very active in terms of buybacks last year, buying back over 10% of the company. You can see in the first quarter so far, we bought back, you know, 0.6% of the company in, you know, circa twenty days. And we will continue to be aggressive in both terms of acquisitions and buybacks as and when the time is right. David Whiston: Okay. Thank you. Operator: The next question will come from Jeffrey Lick with Stephens Inc. Please go ahead. Jeffrey Lick: Good morning. Thanks for taking the question. Daryl and team, was wondering if you just take 2025 as your baseline year, obviously, was an awful lot that went on this year with tariffs, the EV tech credit expiration, the UK and whether it was the road tax, Chinese OEMs. You look at 2025 as your base year and you think about working through 2026, maybe just talk about how you see the year progressing in terms of GPU, you know, lapping the EV tax credit, you know, where do you see kind of the easier part of the year versus the harder part of the year? Daryl Kenningham: Well, I think on the EV question, last quarter, our EV mix was 1.3%. That's down a little, I mean, we were 3% ish before that. So for us, the EV impact, just given our footprint in the United States anyway, is not that big. The margins on EVs are not bad now, you know, compared to where they were a year ago when they were a disaster. So, hopefully, that is a tailwind a little bit. It's on a very small part of our volume, though. On the rest of it, you know, yeah, plenty of uncertainty out there. Obviously, and you know, what we try to focus our teams on is stay focused on what we can control. Because there's plenty of distractions and plenty of things that can lead you to focus on things outside of what we can affect. You know, what we're hoping for is to build on 2025 to try to get to your question, Jeff. We want to build on 2025. We want to grow. If that's organically growing, we feel like there's opportunity at Group 1 Automotive, Inc. to organically grow, especially in the UK. But we still have opportunities in our business in the U.S. too. As well as we perform in aftersales and F&I. You know, there's still opportunities in our used car business and so we and in our cost structure. So we're continuing to feel like there's opportunity in 2026 almost in the U.S. Jeffrey Lick: And then just a quick follow-up. This year, we're going to see a lot of lease returns actually. You know, percentages could be, you know, pretty big as we get into the back half. Curious, Daryl, in your career if you've seen anything similar to this. I mean, we're going to be talking about lease returns in excess of 30, 40%, you know, what that's going to mean for your business, you know, both in terms of ups and also in terms of your potential used car supply? How big of a deal do you view this? You know, am I thinking about it maybe, you know, in two grandiose terms? And if, you know, any kind of historical context would be very helpful. Daryl Kenningham: Well, I think two things will happen this year, which will help the use of our business. One is the uptick in lease returns, which a good solid controlled source of premium used cars is really great. If you look at the kind of used cars we sell today compared to what we sold pre-COVID, we're selling a much richer mix of pre-owned cars. And the profits are good on those cars. So I hope and expect that that will help us later in the year. Another thing is there's a lot of discussion around the tax returns and tax refunds in the first and second quarter. And what kind of impact will that have on the used car business. And we're hopeful it buoys it, you know, and how much I don't know. But there's plenty of optimism around that. So we'll see how that affects us. We continue to focus heavily on sourcing, especially organic sourcing out of our service drives. And out of our trade processes with appraisals and capture, and we continue to put a ton of focus on that using technology to try to increase that as well. Jeffrey Lick: Well, thanks so much for taking my questions, best of luck this year. Daryl Kenningham: Thank you, Jeff. Operator: The next question will come from John Babcock with Barclays. Please go ahead. John Babcock: Hey, good morning, and thanks for taking my questions. Just firstly on the used vehicle market in the U.S., at least the indicators that we've seen seem to show that volumes have been pretty good to start the year. But I'm just kind of curious, what are you guys seeing? And what are your expectations for the year? And particularly as we, you know, as you remember, like last year, there were the tariffs that impacted timing in March and April, kind of curious how you're thinking about the cadence of that demand and whether you think it's sustainable from current levels? Pete DeLongchamps: Sure. John, this is Pete DeLongchamps. I'll take that question. So we, certainly bullish on the used car opportunity this coming year. And you're correct. January, as traditionally does start off well because you get the nice trades from November and December that you can work with. And then, you know, you're ready for the spring selling season, which kicks off about President's Day through March. So I think the volumes are sustainable, and I think that what we're really focusing on is disciplined acquisition, whether that's service to sales coming out of the lane. We've got to be smarter this year. We're using AI to know exactly what cars to buy from the auction, not just based on personal preference. So there's things that we've put in place that we think that will continue to help our used business grow. But, you know, all in all, you always have to remember this is a, you know, 38 to 40 million car market, and we talk about SAR 16 and retail at 13 for new. But the used car market is continually a great source for our company's revenue and gross profits. John Babcock: Okay. Thanks for that. And then, just my last question. Just on GPUs, they were down in 4Q and I think at least most of the people I talked to expected a recovery in the quarter. Obviously, luxury demand was a little bit soft and, you know, I had heard that there was some increased competition at least among dealers just given the broadly softer volumes. I'm just kind of curious, were there any other factors that were missing that maybe we should be paying attention to? And what should we be mindful of in terms of thinking about GPUs in 1Q and 2026 more broadly? Daryl Kenningham: Is your question on new car GPUs or used car? Sorry. John Babcock: Yeah. New car specifically. Daryl Kenningham: You know, we saw some softening on the luxuries in the fourth quarter. GPUs, and that was, you know, affected us more than normal. You know, I would think that we'll see some moderation of that. I don't know that they'll stay where they were. And the Mercedes of the world, their inventory is in much better shape today than it was a year ago. And BMW's inventory is in really good shape with some new products coming out this year. So I believe that we'll see, you know, firming of the luxury. And the mass market GPUs are holding up pretty well. I mean, our big brand is Toyota held up pretty well. John Babcock: Okay. Thanks. Operator: This will conclude our question and answer session. I would like to hand the call back over to Mr. Daryl Kenningham for any closing remarks. Daryl Kenningham: Thank you. In summary, we remain committed to our strategic initiatives. We focus on our local customers' operating excellence, differentiated aftersales, and disciplined capital management. We'll continue to build on the strong operating results in the U.S. The UK remains a priority as we execute on restructuring initiatives, improving operating discipline, and shaping the portfolio to drive better returns. We believe consistent execution against these priorities positions Group 1 Automotive, Inc. to navigate near-term challenges while continuing to build long-term value for our shareholders. Thank you all for joining the call. Operator: This will conclude our pardon me. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Celestica Q4 2025 Financial Results and Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute when called upon. I will now hand the conference over to Matthew Pilotta, head of investor relations. Please go ahead. Matthew Pilotta: Good morning, and thank you for joining us on Celestica's Q4 2025 financial results conference call. On the call today, we have Rob Mionis, president and chief executive officer, and Mandeep Chawla, chief financial officer. Please note that during the course of this call, we will make forward-looking statements, including statements relating to the future performance of Celestica, our business outlook, guidance for 2026, our 2026 annual outlook, and anticipated trends in our industry and their anticipated impact on our business. These are based on management's current expectations, forecasts, and assumptions, including that there are no material changes to tariff or trade restrictions compared to what is in effect as of January 28. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations, and their potential impact on our results cannot be reliably predicted at this time. For identification and discussion of the material assumptions, risks, and uncertainties, please refer to our public filings with the SEC and on SEDAR plus, as well as the investor relations section on our website. We undertake no obligation to update these forward-looking statements unless expressly required to do so by law. In addition, during this call, we will refer to various non-GAAP financial measures. We have included in our earnings release found in the investor relations section of our website a discussion of those non-GAAP financial measures and a reconciliation to the most comparable GAAP measures. Unless otherwise specified, all references to dollars on this call are to US dollars. All per share information is based on diluted shares outstanding, and all references to comparative figures are a year-over-year comparison. Let me now turn the call over to Rob. Rob Mionis: Thank you, Matt, and good morning, everyone, and thank you for joining us on today's call. We delivered very strong results in the fourth quarter, driven primarily by growth in our CCS segment across both our communications and enterprise end markets. This led to revenue and adjusted EPS both exceeding the high end of our guidance ranges, while adjusted operating margin of 7.7% once again marked the strongest performance in company history. I'd like to briefly review our performance for this past fiscal year. Overall, 2025 was another exceptional year for the company. For the full year, we achieved revenue of $12.4 billion and adjusted EPS of $6.05, representing growth of 28% and 56% year-over-year, respectively. Our adjusted operating margin of 7.5% marked the second consecutive year of a 100 basis points improvement, driven by growth in AI-related demand for data center technologies, strong operational execution, and improved operating leverage. We surpassed our annual outlook for each of our key financial metrics, further building on our positive momentum generated over the last several years. Looking back, our financial results reflect a consistent progression marked by a sustained annual improvement across revenue, adjusted operating margin, and adjusted EPS. As we look ahead, we anticipate the strong momentum to continue with revenue growth expected to accelerate in 2026. Furthermore, our optimism continues to strengthen regarding the significant pipeline of growth opportunities that lie ahead for our businesses, particularly in our CCS segment, which we believe will sustain this growth trajectory in 2027. Before I provide an update on an annual outlook for each of our businesses, I would like to hand the call over to Mandeep to discuss our financial performance during the quarter and our guidance for 2026. Mandeep, over to you. Mandeep Chawla: Thank you, Rob, and good morning, everyone. In the fourth quarter, revenue of $3.65 billion was up 44% and above the high end of our guidance range, driven by very strong demand in our CCS segment. Our non-GAAP operating margin was 7.7%, up 90 basis points driven by strong margin improvement in both of our segments. Our adjusted earnings per share was $1.89 in the fourth quarter, exceeding the high end of our guidance range and an increase of $0.78 or 70%. Moving on to some additional metrics, adjusted gross margin was 11.3%, up 30 basis points driven by higher volumes and stronger productivity. Our adjusted effective tax rate for the quarter was 19%. And lastly, as a result of strong profitability and disciplined working capital management, we achieved adjusted ROIC of 43%, up 14 percentage points versus the prior year. Moving on to our segment performance, revenue in our ATS segment for the quarter was $795 million, 1% lower and in line with our guidance of a low single-digit percentage decline. The decline in revenue was driven by lower volumes in our capital equipment business and previously communicated portfolio reshaping in our A&D business, partly offset by stronger demand in our other end markets. Our ATS segment accounted for 22% of total company revenue in the fourth quarter. Revenue in our CCS segment was $2.86 billion, up 64% driven by very solid growth in both our communications and enterprise end markets. The CCS segment accounted for 78% of total company revenue in the fourth quarter. Revenue in our communications end market increased by 79%, above our guidance of a high sixties percentage growth, primarily driven by strong demand and ramping programs for 800G networking switches across our largest hyperscaler customers. Our enterprise end market revenue was higher by 33%, which was above our guidance of a low twenties percentage increase, driven by the acceleration in the ramping of a next-generation AIML compute program with a large hyperscaler customer. Our HPS business generated revenue of $1.4 billion in the fourth quarter, representing growth of 72% and accounted for 38% of total company revenue. The strong growth was driven by ramping volumes in 800G switch programs with multiple hyperscaler customers. Moving on to segment margins, ATS segment margin in the quarter was 5.3%, up 70 basis points primarily driven by improved profitability in our A&D business. CCS segment margin in the fourth quarter was 8.4%, an improvement of 50 basis points driven by strong operating leverage. During the fourth quarter, we had three customers that each accounted for at least 10% of total revenue, representing 36%, 15%, and 12% of revenue, respectively. For the full year 2025, we also had three customers that accounted for at least 10% of revenues, at 32%, 14%, and 12% of revenue, respectively. Moving on to working capital, at the end of the fourth quarter, our inventory balance was $2.19 billion, a sequential increase of $141 million and higher by $427 million compared to the prior year, as we support continuing revenue growth in our CCS segment. Cash cycle days during the fourth quarter were 61, an improvement of eight days versus the prior year and was four days better sequentially. Turning to cash flows, in the fourth quarter, we generated $150 million of free cash flow, resulting in total annual adjusted free cash flow of $458 million in 2025, which was an increase of $152 million compared to the full year in 2024, and above our most recent annual outlook of $425 million. Our capital expenditures for the fourth quarter were $95 million or 2.6% of revenue, bringing our total capital expenditures in 2025 to $201 million or 1.6% of revenue. Since we last spoke at our investor and analyst day in October, we have continued our discussions with key customers in our CCS segment in order to align on long-term capacity planning. As a result of these discussions, we are meaningfully increasing the scale and scope of our capital investment plans in 2026 and 2027 in order to build out the revenue-enabling capacity required to support the strengthening demand we see ahead. We now anticipate that our capital expenditures for 2026 will be approximately $1 billion or 6% of our current annual revenue outlook. Importantly, we anticipate being able to fully support this increase in capital expenditures through operating cash flow. The investments we are making in new capacity, which we expect will come online throughout 2026 and 2027, are a response to record bookings, accelerating growth in the scale of our existing engagements, and meaningfully improved long-term demand visibility with our hyperscaler customers. We view our investments in new capacity as highly strategic, aligning our global footprint with the multiyear capacity roadmaps of our key customers in support of their large-scale investments in data center infrastructure and AI capabilities. These investments will include a combination of new customer-driven investments in the United States and upgrades to manufacturing capabilities, including investments in power. We are undertaking significant new investments in Texas in support of growing customer demand for US capabilities in the areas of R&D, manufacturing, and advanced assembly. At both our Richardson campus and new site in Fort Worth, we are adding a total of over 700,000 square feet of footprint with expanded power availability. This incremental capacity is expected to come online in 2027. Also, in order to facilitate greater engagement on R&D and design, we plan to establish a new HPS Design Center in Austin. Our CapEx plans also include large-scale investments in our manufacturing capacity and capabilities across the rest of our global network. In Thailand, we continue to add new capacity to support very strong demand from multiple customers. We are adding over 1 million square feet in additional footprint, with upgrades including expanded power availability, advanced liquid cooling manufacturing, and testing capabilities. We expect this new capacity to come online towards the end of 2026 and into 2027. Elsewhere in our network, we are upgrading and retooling sites to add new manufacturing lines in locations such as Mexico and Japan in support of customer demand for greater geographic diversification, allowing them the flexibility and optionality to de-risk their global supply chains within our network. We are also excited to announce our plans to establish a new HPS Design Center in Taiwan. Overall, we are very encouraged by the strong alignment and close collaboration on capacity planning we have with our customers, which underpins our confidence in making these investments. Turning to our balance sheet and capital allocation, at the end of the quarter, our cash balance was $596 million. Our gross debt was $724 million, resulting in a net debt position of $128 million. We had no draw outstanding on our revolver at the end of the quarter, leaving us with approximately $1.3 billion in available liquidity. Our gross debt to non-GAAP trailing twelve-month adjusted EBITDA leverage ratio was 0.7 turns, an improvement of 0.1 turns sequentially and 0.3 turns versus the prior year period. As of December 31, we were in compliance with all financial covenants under our credit agreement. During the fourth quarter, we received regulatory approval to launch our new normal course issuer bid, which permits us to, at our discretion, purchase up to approximately 5% of our public float until November 2, 2026. We will continue to be opportunistic towards share repurchases as our approach remains unchanged. During the quarter, we repurchased approximately 132,000 shares under our normal course issuer bid for $36 million. For 2025, our repurchases totaled 1,360,000 shares at a cost of $151 million or an average cost of approximately $111 per share. Now moving on to our guidance for 2026, first-quarter revenue is projected to be between $3.85 billion and $4.15 billion, representing growth of 51% at the midpoint. Adjusted earnings per share are anticipated to be between $1.95 and $2.15, representing an increase of $0.85 at the midpoint or 71% growth compared to the prior year. Assuming the achievement of the midpoint of our revenue and adjusted EPS guidance ranges, our non-GAAP operating margin for the first quarter is expected to be 7.8%, representing an increase of 70 basis points. We expect our adjusted effective tax rate for the first quarter to be approximately 21%. Finally, let's review our revenue outlook for each of our end markets. In our ATS segment, we anticipate revenue to be down in the low single-digit percentage range, as growth in our health tech and industrial businesses are being offset by market-related softness in our capital equipment business and portfolio reshaping in our A&D business. In our CCS segment, we anticipate revenue in the communications end market to grow in the low sixties percentage range, primarily driven by ongoing ramps in multiple 800G programs with our hyperscaler customers. In our enterprise end market, we expect very strong growth in the high teens percentage range, supported by the progression in the ramping of a next-generation AIML hyperscaler compute program. With that, I will now turn the call back over to Rob for an update on our 2026 annual financial outlook and to provide additional color on the latest developments in our business. Rob Mionis: Thank you, Mandeep. Given the strengthening demand forecast across our portfolio, we are raising our 2026 annual financial outlook. We are increasing our revenue outlook to $17 billion and raising our adjusted EPS outlook to $8.75, representing year-over-year growth of 37% and 45%, respectively. This represents our high-confidence view for 2026, which we will continue to refine and update as the year progresses. We are also maintaining our free cash flow outlook of $500 million. This demonstrates the inherent cash-generating power of our business, allowing us to organically fund a significant increase in capital investments while continuing to generate cash to fund other investment opportunities. Since our investor and analyst day this past October, the velocity and scale of awarded programs and growth opportunities for Celestica continue to expand. As Mandeep discussed, we have responded by significantly increasing our capital investment plans in order to grow our global footprint in alignment with our customers' multiyear requirements. These investments are intended to provide us with the necessary scale to support the accelerated growth we anticipate in 2026 and which we believe will be sustained in 2027. In undertaking these investments, we have closely collaborated on demand planning with our largest customers, which has informed our decisions on the location, capabilities, and scale of the new capacity we are developing. These investments are targeted to strategically support our customer base and their program-specific requirements over the long term. On this note, we are proud of our decade-long partnership with Google and are excited to continue supporting the acceleration of leading AI data center architecture. Celestica remains closely aligned with Google on the development of complex data center hardware and systems. As a preferred manufacturing partner for Google's Tensor Processing Unit, or TPU systems, Celestica is committed to making long-term investments in both capacity and capabilities both in the United States and across our global footprint, which includes our planned investments to expand manufacturing capacity in 2026 and 2027. These investments are designed to support the scaling of production for current and future generations of Google's custom silicon TPU systems, as well as leading-edge networking technologies. Based on our latest outlook, we anticipate full-year revenue growth of approximately 50% in our CCS segment, supported by strong demand and new program ramps across both end markets. In communications, demand from hyperscalers is driving strong volumes for our 800G programs, while 400G remains highly resilient. We continue to expect mass production for our first 1.6T switching programs to begin ramping in the latter part of the year. Over the past ninety days, we have continued to add to our pipeline of newly won business in networking, adding to an already robust view of demand into 2027. We are pleased to announce that we have secured the design and manufacturing award for the 1.6T networking switch platform with a third hyperscaler customer. This HPS engagement is expected to ramp production beginning in 2027, with design work already underway. This new program award, along with strengthening demand forecasts from our largest customers and a significant funnel of opportunities, gives us confidence and optimism regarding the growth trajectory of our networking businesses. In our enterprise end market, demand signals remain solid. As anticipated, we saw a meaningful ramp in our next-generation AIML compute program with a hyperscaler customer during the fourth quarter, and we continue to expect that volumes will accelerate into 2026. Looking towards 2027, we continue to anticipate strong demand from our hyperscaler and digital native customers, driven by ramps in next-gen AIML compute programs. Now moving on to our ATS segment, we are maintaining our outlook for revenues to remain approximately flat to up in the mid-single digits percentage range for the full year 2026, consistent with the targets we shared at our investor and analyst day in October. We continue to expect growth in our industrial and health tech business, supported primarily by the ramping of new programs. We anticipate this growth will be at least partially moderated by lower volumes in our capital equipment business in the near term. As we progress through 2026, we anticipate overall ATS revenues to be higher in the second half of the year, led by a recovery in capital equipment volumes as broader market growth tailwinds come into effect. We also expect year-over-year growth to improve as we lap the impact from the strategic portfolio reshaping activities we undertook in A&D during 2025. Overall, we expect 2026 to be another year of progress in the growth and evolution of our business. We are experiencing an unprecedented level of demand, supported by the sustained large-scale multiyear investments from our largest data center customers. We believe our company is uniquely positioned as a critical enabler of the AIML revolution, helping to solve the most difficult challenges in the data center, from advanced liquid cooling solutions throughout the rack to the transition to next-generation networking platforms. It's our ability to deliver these complex system-level solutions that allows us to win new mandates and solidify our leadership in the technologies of tomorrow. Today, our team is intently focused on our operational execution as we scale our global footprint to meet this growing demand. With that, I will now turn the call back to the operator to begin the Q&A session. Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please raise your hand now. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute when you're called upon. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ruplu Bhattacharya from Bank of America. Your line is now open. You might have to unmute. Ruplu Bhattacharya: Sorry. Can you hear me now? Mandeep Chawla: Yes. Hi, Ruplu. Alright. Welcome back. Hi. Good morning. Thanks for taking my questions. Ruplu Bhattacharya: So it looks like you've taken up both the top line and the bottom line guide for fiscal 2026. If we take the midpoint of the guidance literally, then there seems to be a slowdown coming in the fiscal second half. Also, some loss of operating leverage. I mean, the revenue guidance is 51% year-over-year for fiscal Q1. The full year is 37%, so implying some slower growth in the remaining three quarters. Likewise, in EPS, it's 71% for the first quarter, but the full year is 45%. EPS is definitely growing faster than revenue, and there is leverage in the model. It looks like some operating leverage decline in the remaining three quarters. Can you just clarify for us, is there something specific that's causing this slowdown? Or should investors just chalk this up to conservatism in the guidance? Mandeep Chawla: Good morning, Ruplu, and first of all, welcome back. We're always very happy to work with you. So thank you for the coverage. Look, we're very confident in our 2026 outlook. And as we said in our commentary and Rob mentioned, it's our high-confidence view. Our customer forecasts right now for 2026 are higher than the $17 billion that we are guiding. And also really nice to see right now is that the demand outlook with our customers is actually extending beyond sometimes our typical four-quarter outlook. You know, similar to past outlooks that we've had, we're taking a pretty pragmatic view. Our views on next quarter and the quarter after that are typically going to be very much dialed in, and we're going to share with you what that visibility exactly looks like. But when we look beyond the two quarters, we're just being pragmatic. We're focusing on securing supply. We have no concerns at this time, but we just want to make sure that the supply base can also ramp as fast as we are ramping. Then we take into account the macro, which, as you know, there's a lot of them. But as we go through the year, we are working towards a higher number. And we'll look to be updating the numbers as we go. Ruplu Bhattacharya: Okay. Thanks for the details there. If I can ask a quick one about risk management. So, you know, you obviously have a lot of opportunity in both your white box switching business and the custom ASIC server business. One thing you've mentioned is you're increasing CapEx to fund the growth. Can I ask if you're concerned about any potential funding for future AI-related projects? And is there any risk to programs materializing, and have you taken that into account? Also, you've kept free cash flow at $500 million, you know, given that the CapEx is going up and you're probably going to need more working capital to support revenue growth, can you just tell us, like, you know, is there a risk to the story here? And what is giving you confidence to maintain the free cash flow guide? Again, congrats on the quarter. Thanks for taking my questions. Rob Mionis: Thanks, Ruplu. I'll start off, and I'll let Mandeep finish up. With respect to programs materializing, the build-out that we're doing is based on booked business. We had a record bookings year in 2025, and we're really just building out to support those bookings. So there's very little risk in those programs materializing. They've been in the development cycle right now, and we're doing proof of concepts with respect to validation testing. And they're well underway to ramp in 2026. In terms of risks to the entire story, Mandeep talked about it. We view it more as uncontrollable, like geopolitical risks. Always an opportunity of tightening supply chain, but frankly, our suppliers realize now that we have a lot of leverage these days given our scale. We're also a design agent, which is giving us some leverage in the supply chain. We also have a lot of opportunities, as Mandeep mentioned. Demand continues to well outstrip our ability to provide it in the very short term. We have very strong demand in networking with respect to 400G, 800G, and the 1.6T ramps that are happening later on this year. And on top of this, we have some very strong demand for AIML compute. And within the enterprise market, we're also seeing signs of very significant growth. So overall, we see more opportunities than risks at this time. Mandeep Chawla: Sorry. Go ahead. We're going to talk about cash generation. Look, we're very comfortable with our ability to invest, and, frankly, we're willing to invest even more as we go through the year. That's what's in front of us. We think we'll generate at least $500 million of free cash flow this year. That's after paying for a billion dollars of CapEx. I know that on the call already are aware of this. We generated positive free cash flow every quarter for almost seven years now. And it's because we are very focused on generating strong positive free cash flow every quarter. And so with the growth plans that we have in front of us, we don't see that being at risk. And, you know, this is even going beyond the fact that we have an incredibly healthy balance sheet. And so we think that we can fund these with cash generation and not have to even use the balance sheet. Thanks for your question. Ruplu Bhattacharya: Thank you. Rob Mionis: Thank you. Operator: Your next question comes from the line of Samik Chatterjee with JPMorgan. Your line is now open. Samik Chatterjee: Hi. Hopefully, you can hear me. Thank you for taking my question. Maybe if I can start with the CapEx investment and the ramp here. I know you provided us an update at the Investor Day, and you mentioned that activity really ramped with customers again. Since then, engagement did ramp. I'm trying to think, like, when you are sort of going ahead and doing these investments, should we think of this as something that drives revenue in 2027 itself, or are these sort of programs as well as the ramps sort of more to address customer demand in 2028, 2029? Trying to get a sense of what kind of program visibility customers are giving you already to drive this significant investment from you? Just trying to get a sense of that, and I will follow up. Thank you. Rob Mionis: Hi, Samik. Yeah. The capacity that CapEx that we're investing in now, as I mentioned earlier, is based on booked business. With respect to 2026, we do have the capacity to grow beyond our current heightened confidence outlook. The investments we're making are enabling additional capacity for 2027, and it's 2028 based on booked business. Now as we continue to win in the marketplace, we'll further evaluate our capacity expansion plans, and then there will be an opportunity to expand our revenue outlook for '27 and to '28. But right now, the investments we're making in '26, which also will have a follow-on effect into 2027, is really just on the backlog of business that we have right now. Samik Chatterjee: Gotcha. Good. Okay. And then maybe for the follow-up, of the outlook that you're sharing for CCS to maintain these sort of strong growth rates into 2027, just wondering, does that sort of incorporate the digital native customer and the ramp with that customer? Any updates in terms of over the last sort of ninety days, anything any updates in relation to either timing or sort of how you think about the magnitude of that in ramp in 2027? Thank you. Rob Mionis: Yeah. Good morning, Samik. So we are seeing accelerating growth happening within CCS. If you go back to our commentary from three months ago, versus today, you know, three months ago, we were saying that when you break down the numbers, that 2026 CCS would be growing by about $3.5 billion in '26. And then when we put a 40% growth rate on that, it was implying about a $5 billion of CCS growth in 2027. We're now updating those numbers and going off of a higher base. So now what we're implying is that 2026 CCS will grow probably closer to $4.5 billion. So about a billion dollars higher than what we talked about three months ago. And because we're saying that we're seeing a very strong trajectory continuing, we're now seeing CCS grow close to $7 billion in 2027. And that's off of a higher base. And so the demand outlook is very robust. To your question on the digital native customer, that continues to progress just as we would have expected it to. We still expect it to be a meaningful contribution in 2027. We are actively working on the design aspects of the program. And we do believe that that program will still ramp in '27, and that's included in the numbers that we're sharing. Samik Chatterjee: Great. Thank you. Thanks for taking my questions. Rob Mionis: Thank you, Samik. Operator: Thank you. As a reminder, please limit yourself to one question. Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets. Your line is now open. Thanos Moschopoulos: Hi. Good morning. Can you speak to how we should think about the margin trajectory just given the mix shift dynamic where you've got enterprise becoming a larger part of the CCS mix? Would that imply that there might be some compression in CCS margins as the year progresses and into '27, or are there offsets to that? Thanks. Rob Mionis: Morning, Thanos. Yes. We're seeing a tremendous amount of growth happening right now in enterprise. We are really pleased with the trajectory that's already underway. You saw that we had a very nice growth number in the fourth quarter, and that's accelerating as we go into Q1. We expect that program to continue to grow all through 2026. And then just as a reminder, we've already won the next generation of that program. And so we would expect those programs to actually ramp into 2027. So our outlook for enterprise remains very healthy. We are seeing very strong operating leverage, and so we don't necessarily expect a large fixed headwind, if you will, from growing up the enterprise business. We do make more money on networking, in general. But with the leverage that we're getting and the very disciplined cost management, we still think that the enterprise business is going to be able to generate very strong profitability. So for that reason, it's embedded in our numbers. For 2026, we're giving an outlook right now where margins expand by 30 basis points. What I would just say is that that's the floor of our expectations. We would be looking to do better than that, hopefully, as we go through the year. I would also add, Thanos, that networking is also very strong in 2026 and going into 2027. In 2026, we see 400G as very resilient. We see 800G as very strong, and we see 1.6T ramping in the back half of the year. So we have all three major programs running concurrently, which is helping operating leverage and also helping the mix. Thanos Moschopoulos: Thank you, and congrats on the strong quarter. Rob Mionis: Thanks, Thanos. Operator: Next question comes from the line of Michael Ng with Goldman Sachs. Your line is now open. Michael Ng: Great. Thank you so much for the question. Good morning. My question is just around the CapEx. Encouraging to hear about all the visibility your partners are giving you. I wanted to ask whether the capital intensity in the business has changed at all or, you know, does the $1 billion CapEx support, you know, two to two and a half percent revenue over time, implying a path to $40 to $50 billion of revenue over time. Is that a fair way to think about it? Or has the capital intensity in the business changed at all? Thank you. Mandeep Chawla: Good morning, Michael. I'm not going to help you back into that number. But I completely understand the way that you looked at it. What I would say is this. We have, in the last number of years, been investing the majority of our CapEx dollars into growth CapEx. We spent probably $70 million to $80 million on maintenance. And that's not going to change very much. And so as a percentage of revenue, we expect that our maintenance CapEx is going to be very predictable and not a huge driver. And so, therefore, the delta is really on growth CapEx. To the point that Rob made, we are making this sizable investment to tie to programs that we've already won that are going to be generating, we believe, material revenue in 2027 and 2028. Should those wins continue, and we would expect that they would, we have no hesitation in increasing our CapEx. You almost want to think of it almost like at a project level. We are building these or making these investments to support specific wins at this time. At a certain point, we would expect the CapEx to moderate because, again, the vast majority of it is growth, so when we get back to a maintenance level, we would be back to what we normally expect. Michael Ng: Great. Thank you, Mandeep. That's very clear. Mandeep Chawla: Thanks, Michael. Operator: Thank you. Your next question comes from the line of Karl Ackerman from BNP Paribas. Karl, your line is now open. Karl, your line is now open. You may have to unmute. Karl Ackerman: Yes. Can you hear me okay? Rob Mionis: Yes. Hi, Karl. Karl Ackerman: Hi. Okay. Hi. Sorry about that. So I know you have deep engagements on the 400G and 800G switch programs, but could you speak to the opportunity you have to address multi-rack scale-up XPU networks such as optical circuit switches and co-packaged optics-based switches, perhaps in terms of the breadth of customer engagements? Thank you. Rob Mionis: Yeah. Sure. So we see increasing activity and increasing R&D expenditures. Some of it's a little premature to talk about now. But to do more AI, ML, and networking integrated fully integrated systems, both supporting scale-up and scale-out fabrics. You know, based on our proof point, we're our digital native and some other early engagements that we have with other providers, we see this as a major growth driver for our business moving forward. As these AI models continue to grow, and GPU to GPU interconnects become more and more important, scale-up will be as much of an opportunity as scale-out. We see this as a major growth opportunity for us. And we're well underway in capturing a lot of that growth opportunity, and we hope to have more to share with you in the coming months. Mandeep Chawla: Karl, what I would just add to Rob's comment is that when you look at the 1.6T wins that we've already had to date, they are both being used for scale-up and scale-in. And with the funnel of opportunities that we have in front of us, that diversification continues. And we would expect that we would continue to grow in that area. In addition, I think, the question that you raised on co-packaged optics, we are starting to see conversations with our customers increase in this area. We still believe that in terms of mass adoption, it's going to be more towards 3.2T, which are programs that we're working on in our R&D group. But we haven't seen customers looking for mass adoption of CPO as of yet. And so that's pretty similar to what we said a few months ago. Karl Ackerman: Thank you. Operator: Thank you. Your next question comes from the line of Tim Long with Barclays. Your line is now open. Tim Long: Thank you. Hopefully, you can hear me. I did want to just talk about, you know, a few comments on the call you guys made about new programs and new program wins. Could you talk a little bit about kind of you talked about some strong backlog and visibility and wins, as well as obviously the capacity expansions. You obviously got a lot of large switching and AIML and digital native rack wins. Can you talk about the outlook for the next few years? What we should expect to see from newer programs? Where they could be centered? Would this more be around new switching customers or new applications or use cases from some of the existing customers? Anything you could give us on that would be helpful. Thank you. Rob Mionis: Yeah. The visibility, Tim, that we're seeing with our customers at this stage is unprecedented. We're totally into '27, and many customers were talking into 2028. Our customers now are viewing us less as a supply chain partner and more as a technology leader. And part of that process is aligning on our technology roadmaps, which is informing our investment decisions. And these investment decisions are enabling and informing all the future products moving forward, and those products are more in the lines of fully integrated rack systems, both supporting scale-up and scale-out. Also staying on the leading edge of switching, 3.2T samples are due probably towards the end of 2026, and we're already starting to work on that. Mandeep alluded to some of the proof of concepts that we have on co-packaged optics, so we're only going to be ready for when that hits the 3.2T cycle as well. So broadly speaking, our portfolio is getting broader and deeper with our customers. Tim Long: Okay. Thank you very much. Operator: Your next question comes from the line of David Vogt with UBS. Your line is now open. David Vogt: Great. Thanks, guys. Can you hear me? So I have a question about sort of the scope of work and the economics of the digital native customer. Can you kind of update us on where we stand in terms of what that looks like as we go into '26 into '27? And then, Mandeep, on the CapEx numbers, that billion dollars, can you help us parse through how much of that growth CapEx is tied to sort of the existing customer base and the expansion of programs and projects with your largest customers versus incremental customers like the digital native or any other incremental customers that you see in the pipeline for '26, '27? Thanks. Rob Mionis: Yeah, I'll start off. With respect to the digital native customer, we have a very high engineering-driven relationship with our customer. In 2026, we're going to be shipping them largely samples and getting ready for the ramp that should be starting in the early parts of 2027. At this stage of the game, though, the program is on track, we're just getting ready for the ramp, working with them and the silicon provider and all the ecosystem partners. But it's a relationship, it's a solid relationship. Mandeep Chawla: Yeah. And just to add on to that, in terms of your question for CapEx and how it's going to be allocated, so geographically, now you're aware of how we're allocating it. We're putting in significant investments in areas like Thailand, Richardson, Texas, as well as Fort Worth. And it's really to support multiple customers. And so we are largely investing in programs that we've won across the major hyperscalers. Those are very, we have a high-confidence view. We've worked with these customers, sometimes for well over a decade. With our digital native customer, we are willing to make investments as well. And so some of the investment is going towards enabling the ramp in 2027. I would say the vast majority of the expenditures are tied to programs with our hyperscalers. David Vogt: Thanks, guys. Rob Mionis: Thank you. Operator: Your next question comes from the line of Paul Treiber with RBC Capital Markets. Your line is now open. Paul Treiber: Yes. Thanks, good morning. Just a question. Just in light of the new program win momentum that you're seeing, can you speak to how the returns and expected returns in those programs compare against existing programs? And really, you know, what I'm going to add is also are you seeing competition changing the returns on new programs versus what you saw in the past? Mandeep Chawla: Yeah. Morning, Paul. Just to I'll take the first part of the question, and I'll let Rob talk about the competitive intensity that's happening in the marketplace. Look, the approach that we take when we make investments with our customers is really a holistic view. We look at it on a global basis. We want to ensure that we're generating, you know, strong profitability. But more importantly, we want to make sure we're supporting our customers in the geographies that they need. And so we will look at investments at the customer level on a global basis, but, of course, we want to ensure that, you know, specific investments tie out on their own as well. I know you know this, which is we're a very ROIC-driven company. We're focused on strong profitability, but just as much we're focused on a very disciplined level of investment. And so we'll make sure that business cases hold. And so from a returns perspective, what I would just say is that we continue to focus on expanding our ROIC, continue to focus on expanding our margins while generating very strong top-line growth. And so those are always factors whenever we're looking at business cases. Rob Mionis: In terms of competitive intensity, I would say as time goes on, the programs that we're bidding on and winning are becoming more and more complex. In many cases, some of the business that we decided not to play the pricing game on in 2025 have come back to us in 2026 because others could not execute on it. So when we look at our, you know, competitive moat, we have some fantastic engineering to be able to design these complex products. But even more so, very few of our competition can produce these products at scale. And when you combine those two together, it's really giving us a lot of tailwinds in '26 and also moving into 2027. That combination has proven to be very powerful for us. Paul Treiber: Okay. Thank you for taking the question. Rob Mionis: Thank you. Operator: Your next question comes from the line of Ruben Roy with Stifel. Your line is now open. Ruben Roy: Thank you, Rob. Maybe we can follow up where you left off there. And I had a question on the 1.6T win, the new win at a new hyperscaler. Are you seeing a shift towards HPS, design-led solutions and away from cost-plus? You've got the design center that you talked about in Austin. Just wondering if that's something that's happening as you move towards these more complex switching technologies and how you see that playing out from a margin perspective as you think about the 2027, '28 time frame? Thank you. Rob Mionis: Yes. Certainly, thanks for the question. At 1.6T and even as we move into 3.2T, the complexity that's required, the engineering complexity that's required on these things is moving more towards HPS engagement. So on the networking side, we see that increasing over time. And the density and the complexity is only going to increase at every node. On the AIML compute side, we like to play really on the HPS and the JDM design-oriented AIML compute. We also see that as that gets more and more sophisticated, there'll be more opportunity for us to play in that area, and we have several projects in the pipeline to improve those engagements on the HPS side as well. Ruben Roy: Great. Thank you. Operator: Thank you. Your next question comes from the line of Steven Fox with Fox Advisors. Your line is now open. Steven Fox: First of all, congrats on reaching the point where people are complaining about 37% growth. Thought that was great. In terms of my question, there's been a bunch of confusion around with your largest customer. How the supply chain works on those AIML compute programs and where you're sort of positioned versus, you know, there were other suppliers. Can you just sort of clarify, you know, how you're playing there? You know, what kind of competition you see? And then it looks like you're also expanding directly to support some more programs on that. So anything on that would be helpful. Thank you. Rob Mionis: Certainly. Yeah. I would chalk this up to you can't believe everything you read. What I can emphatically say is that our partnership with Google has never been stronger or more integrated. We have absolutely no indication there are new entrants into that market. As you know, these are very complex products to manufacture, especially at scale, and we have been doing it for a very long time with this family of products. As a preferred partner with Google on these leading-edge compute programs, we have a joint commitment to each other moving forward, not just for the current generation but for future generations of their TPUs. And, you know, we've been supporting this technology for generations, and we hope to continue to do so going well into the future. Which is why I think a portion of the investor report. And I would also add that the class expansion that we're making certainly is in support of Google, but it's also in support of growth from other hyperscale and digital native customers. Steven Fox: Great. Thank you very much. Operator: Thank you. Your next question comes from the line of John Chao with TD Cowen. Your line is now open. Please go ahead. John Chao: Yes, good morning. Thanks for taking my question. So within your guidance, how much do you bake in the price increase of key components or materials? At this point, are you still comfortable with the supply chain? Do you think this is going to be any source of potential margin compression given, right now, we're getting this inflationary environment in the supply chain? Thank you. Mandeep Chawla: Yeah. Good morning, John. So we factored in inflation and pricing into the numbers that we've already shared. Just as a reminder to everyone on the call, when we have networking, we have it on a turnkey basis, which is our typical approach, meaning it includes the silicon. Where on the compute side, it typically does not. So where there is a lot of price inflation that's happening on the silicon side, you're not going to necessarily see our growth in our enterprise numbers being driven by that. On the networking side, we're growing in terms of overall volume. But, yes, there is inflation happening on the silicon side, which we're able to pass on to our customers. And so are we seeing margin compression? No. Not right now. But if silicon becomes a much larger part of the filler material, then perhaps it will, but that's not in our line of sight at this time. But there is a little bit of contribution in our revenue growth year-over-year coming from just the fact that ASPs are going up. But the vast majority of the growth is due to units. John Chao: Thank you again. Operator: Thank you. Your next question comes from the line of Todd Coupland with CIBC. Your line is now open. Todd Coupland: Great. Thanks. Good morning, everyone. I wanted to ask about the 1.6T programs in the second half of the year. And at this point, what are the range of outcomes and gating factors for those programs to start to ramp this year? Just talk about that a little bit. Thank you. Rob Mionis: Yeah. We have 10 active 1.6T programs in the pipeline right now. And about five of them will start ramping in the back half of the year and so into 2027, and several of the balance of them are in the development pipeline and will be ramping later in '27 into '28. The gating factor is really just completing the development cycle as planned, and things are on track. Silicon is on track, so I just think it's business as usual in terms of supporting our customers around. Mandeep Chawla: I'd just like to maybe add to that. When we look at our overall switching demand that's out there right now, what we're really encouraged by is there's been a tremendous amount of growth happening in 800G that happened in 2025, and that's continuing in 2026. And 400G continues to hold. So 400G will be a strong contributor in 2026, 800G will continue to grow. Then you've got 1.6T coming on as well towards the end of the year. And so the dynamic that's really been playing out in the last couple of years is that the next-generation technology is not necessarily cannibalizing the previous generation. And so this is one of the reasons that we have a lot of optimism in the networking space, exiting '26 even and going into '27. Todd Coupland: Thank you. Operator: Your next question comes from the line of Atif Malik from Citi. Atif Malik: We got a couple of questions from investors on this yesterday. Your press release, you called out Google or TPUs as the preferred manufacturer partner versus sole source? Is that a new disclosure? And then just as a follow-up, if some of your hyperscalers were to adopt more TPUs, do they all go through you guys, or are there other entities like Broadcom and others that can participate in the CPU rack or trade business? Rob Mionis: On the first one, no. I don't think it's a new disclosure. We're not sole-sourced or single-sourced on the TPU programs, nor have we, frankly, nor have I think we've ever said that. For BCP purposes, most, if not all, of our hyperscaler customers remain a second source. But we are the primary source for them on the TPU programs and continue to do so. With Google and with all of our hyperscalers, share is largely awarded on performance. Our performance has been very strong, and as a result, they make the decisions accordingly. Mandeep Chawla: And then to the question that you were raising about as Google's TPU gets adopted beyond just Google itself, how does that play out? Right now, our view is that that increased level of demand for their types of products will flow through their supply chain. And as their preferred manufacturing partner, we would expect to be able to support that. With that. And so right now, it's wonderful to see that their product is being adopted in the marketplace. And we do expect to be able to support them with that growth. Atif Malik: Thank you. Operator: And your final question comes from the line of Robert Young with Canaccord Genuity. Robert, your line is now open. Robert, your line is now open. You might have to unmute. Robert Young: Hopefully, you can hear me now. On the third hyperscaler, 1.6T win, how was this one? Was it an extension of 800G? Was it tied to your Tomahawk ASIC experience? And, like, is it part of a rack integration with another outside vendor, or is that being done by the hyperscaler? Just some context around that. And then if you could also talk about how you expect operating margins to evolve as you move into 1.6 terabytes programs and how that might differ between, I think you have two full rack and then two standalone if I understand the large programs. Now how would the margin structure differ and evolve? Rob Mionis: Sure. Hi, Rob. Yes. On the third 1.6T, so with this hyperscaler, we were a predominant share on the 400G. We were a predominant share and won on the 800G, and this is just an extension of going to the 1.6T. The engagement started with a design win. They were happy with the performance with this switch based on the 400G to 800G. And we were awarded the mass production for this switch as well. Mandeep Chawla: And then in terms of the margins, Rob, good morning. What I would just say is that we approach our switching portfolio in a similar way as we go into the next generation. We typically make more money during the ramping and the development cycle of a program, and then as it gets to mass production, we try to offset that pricing with operating leverage. And so we do expect a 1.6T program to be, you know, as profitable as we've seen on some of our past switching programs. But one interesting dynamic, though, is that more and more of our switching portfolio should be moving toward the HPS. We have some of our switching portfolio today in EMS, just typically as we embed more of our engineering, that leads to better printing. And so we are happy with the way that the margin profiles look like for 1.6T products. Robert Young: And is there any context on between the full rack deployment and standalone? Mandeep Chawla: Yeah. It's integrated. And so we take a look, whole holistically when we are doing this for our customers. We guys, as you mentioned, it's integrated, so there's 1.6T switches, but then it's also compute, and then there's the integration activities where we do testing for them. And then at certain points, we may be able to do services as well. We look at it on a holistic basis, you know, and we ensure that the value that we're bringing on the switching side, which has the most engineering that we have, is getting captured in the overall price. Robert Young: Yeah. Thanks. Rob Mionis: Thanks, Rob. Thank you, Rob. Operator: Thank you. There are no further questions at this time. So I will now turn the call back to Rob Mionis, CEO, for closing remarks. Rob Mionis: Thank you, and thank you again for joining us this morning. 2025 was an exceptional year for Celestica, characterized by record financial results. We're excited to build on this momentum in '26, and as we raise our annual revenue outlook to $17 billion, the strategic investments we are making provide us with the capacity to support our customers' multiyear AI roadmap, and our deep partnership with industry leaders like Google and our expanding global footprint in Texas and Asia reinforces our confidence that our growth trajectory remains strong into 2027 and beyond. We look forward to updating you on our continued progress next quarter, and thank you again for joining the call. Operator: This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good morning, and thank you for standing by. Welcome to Sempra's Second Quarter Full Year twenty twenty six Earnings Follow-up. I would like now to turn the conference over to Meredith Byrnes, Vice President of Investor Relations. Please go ahead. Meredith Byrnes: Thank you, Michelle, and thank you, everyone, for joining us. With us today are Robert Keane, our Founder, Chairman, and Chief Executive Officer and Sean Quinn, our EVP and Chief Financial Officer. We appreciate the time that you've dedicated to understand our results, commentary, and outlook. This live Q and A session will last about forty five minutes or so, and will answer both pre submitted and live questions. You can submit questions live via the questions and answers box at the bottom left of the screen. Before we start, I'll note that in this session, we will make statements about our future. The actual results may differ materially from these statements due to risk factors that are outlined in detail in our SEC filings and the earnings document we published yesterday on our website. We also have published non GAAP reconciliations for our financial results on our IR website. We invite you to read them. All right, and now I will turn things over to Robert. Robert Keane: Thanks, Meredith. Thank you to our investors for joining us today. Before Sean goes into his review of the Q2 financial results, I will discuss the progress we've made on the strategic and the operational themes that we covered in detail in my annual letter to you of July 29 and at our September Investor Days. So I spoke about the following four themes last quarter. First, elevated products are driving a step function improvement in our per customer lifetime value. In other words, the wallets share we have with small business customers. For example, variable gross profit per customer at reported currency rates grew 9% year over year, a continuation of the long trend that Vista keeps putting up in terms of earning in terms of increased wallet share with especially higher value customers. Second, MTP enabled us to pursue cross SymPres fulfillment or XCF. And that's helping us drive manufacturing efficiencies, and accelerate new product introduction. In Q2, we continue to make significant progress as we continue to optimize our production footprint building up focused production hubs, and drive innovation in new product introductions in elevated categories. Doing so does involve a period of elevated capital expenditures, largely for manufacturing equipment which we gave examples of at Investor Day. There are many aspects of the work we're doing across Sympress that is exciting. But this particular area of focus of manufacturing competitiveness is really core to our competitive advantage. I'm very proud of the innovation, the sophistication, and the velocity in which our teams are moving forward to drive manufacturing excellence and advantage the benefit of our customers and our shareholders. The third area I'll bring up is shared technology. That means organizational delayering and the artificial intelligence that our tech is allowing us to do. And that's constraining operating expenses and opening up for future efficiencies even as we improve customer value. For example, we recently announced that we are deepening the collaboration between Vista, National Penn, and Build A Sign to share product development, sourcing, performance marketing, telesales, direct mail, and manufacturing while maintaining separate focused brands. We expect this is gonna drive meaningful efficiencies while also enabling growth. These same capabilities also support the customer experience when something beyond our operational control impacts our operations. And an example of that in the past quarter was a devastating hurricane that hit Jamaica. We have had huge challenges for our care team members in that location. But we were able to mitigate the impact by quickly shifting call volumes to care teams in other regions and within Jamaica because each of National Penn, Build A Sign, and Vistaprint had facilities to shift people to the facilities that were least impacted. And finally, we've been able to increase use of AI chatbots through increasingly sophisticated uses with shared technology. Fourth, we do have a strong financial future. As noted in last night's earnings document, we're increasingly confident on our path to fiscal 'twenty eight EBITDA of at least $600,000,000 coupled with a very significant delevering of our balance sheet. All of the efforts I just mentioned and more are part of our road map to that FY twenty eight financial target. We expect significant efficiencies across our profit and loss statement with the most meaningful benefits in cost of goods, technology, and marketing. Additionally, the advancements we've made over the last couple of years and the investments we've made, including technology modernization, product expansion, manufacturing supply chain, have positioned us to evaluate a healthy pipeline of tuck in M and A and potential partnership opportunities that we believe in the aggregate positively impact our results in future years as part of our road map to delivering those FY '28 targets. So to sum up, halfway into fiscal 'twenty six, we remain confident in our multiyear plans. Our past investments have enabled us to increase the pace at which we have improved customer value, and it helps us increase our competitive advantage, our innovation, and increase our efficiency. So now I'll turn it over to Sean to discuss financial results for the quarter and our outlook. Sean Quinn: Thanks a lot, Robert, and thanks, everyone, for joining us on the call today. Q2 marked a milestone for CIMPRESS. We exceeded $1,000,000,000 in quarterly revenue for the first time ever. With organic constant currency growth of 4% through the half of the year, which was ahead of the annual guidance range that we had previously provided of 2% to 3%. And year over year adjusted EBITDA growth in the first half of the year that is equal to the full year dollar growth that was in our prior guidance, we are raising our annual guidance for revenue, adjusted EBITDA, and for free cash flow, and I'll go through those all in a moment. For the quarter in Q2, revenue grew 11% on a reported basis and 4% on an organic constant currency basis, with revenue growth across all of our segments. Reported revenue was aided by a tuck in acquisition in our Print Brothers segment as well as the benefits from currency. In Vista, organic constant currency growth of 5% was up from 3% in the prior year quarter, and that continued to be supported by growth in promotional products, apparel and gifts, and packaging and labels, each grew double digits. We've covered this before, but just as a reminder, and Robert alluded to this as well, our elevated product categories help us to serve and retain high value customers that make up our most profitable customer deciles. In terms of our legacy products, business cards and stationary declined 1% for the quarter. That's consistent with Q1 and also an improvement from last year's decay rate. Geographically, while we had growth across all markets in Vista, strong performance in North America was the main driver of the acceleration in growth versus the prior year quarter. Turning to our other segments. Upload and print customer and order count increased and fueled combined organic constant currency revenue growth there of 6%. The tuck in acquisition that we completed in the quarter contributed $18,000,000 to the Print Brothers segment reported revenue, which grew 26% this quarter and 6% if you exclude that tuck in and also currency benefits. The Pixartprinting Group, National Pen, and Build A Sign continue to increase their cross impress fulfillment volumes as they act as a fulfillment partner on behalf of Vista. And National Penn revenue also benefited from some tariff related price increases. Turning to profitability. Adjusted EBITDA increased by $6,000,000 year over year. Q2 profit dollars increased 8% on a consolidated basis from growth in our higher value elevated product categories, and also supported by favorable currency movements. Gross margins declined a 110 basis points and most of that was from the tariff impacts at National Penn, both the tariff cost, but also the offset of tariff pricing. In Vista, segment EBITDA improved 10% or approximately $10,000,000 resulting from revenue strength, but also stable gross profit margins and currency benefits. Robert referred to this earlier, but I'll say it again. Vista's variable gross profit per customer grew 9% year over year. A continuation of a trend that we've seen for some time and a strong indication of our continued strategic progress. Profitability at Vista was negatively impacted by about $2,000,000 associated with the hurricane that hit Jamaica in October that Robert talked about, a portion of which may be recoverable through insurance in future periods. Profitability was also dampened by 1 and a half million dollars of production start up costs for expansion of our North American production network and also $1,000,000 of tariffs net of pricing increases. We do expect that that impact of tariffs should lessen in future quarters as supply chain remediation continues to ramp up. And lastly, currency provided a $4,100,000 benefit to EBITDA this quarter. That should be a source of some continued year over year favorability in the second half and also as we look ahead to next year as well. Adjusted free cash flow declined $9,200,000 to an inflow of $124,000,000. We had lower net working capital inflows this year versus last year. This is normal timing. And as we've guided, capital expenditures were higher as we invest in the expansion of our North America production network, but also we invest behind efficiency and the expansion of our production capabilities for elevated products. From a balance sheet perspective, net leverage at the end of Q2 was 2.97 times trailing twelve months EBITDA. That's calculated under our credit agreement. That's down sequentially from last quarter despite allocating over $25,000,000 to share repurchases in Q2. Our cash position ended the quarter at $258,000,000 and we continue to have $250,000,000 remaining on our credit facility that is undrawn at the end of the quarter. Turning to our guidance. As I said before, we've raised our expectations for fiscal twenty six based on the strong results from the first half of the year. We now expect revenue growth of 7% to 8%, 3% to 4% organic constant currency revenue growth. We expect net income of at least $79,000,000 and adjusted EBITDA of at least $460,000,000, up from the previous $450,000,000. We expect operating cash flow of approximately $313,000,000 and adjusted free cash flow of approximately $145,000,000. That's up from previously $140,000,000. And we continue to expect net leverage to decrease slightly by the end of fiscal twenty six from the FY twenty five level of 3.1 times. We also, as Robert said, we remain confident in our ability to deliver on our fiscal twenty eight targets, which, again, I'll reiterate as 4% to 6% organic constant currency growth in fiscal twenty eight, $200,000,000 in net income, adjusted EBITDA of at least $600,000,000, adjusted EBITDA to free cash flow conversion of approximately 45%. And from a leverage perspective, we expect to exit fiscal twenty seven with net leverage of approximately two and a half times as we begin to expand profitability more significantly and then exit fiscal twenty eight with net leverage below two point zero times subject to capital allocation choices such as share repurchases. With that, Meredith, why don't we open it up for questions? Meredith Byrnes: Thanks, Sean. As a reminder, you can submit questions during this webcast via the questions and Answers box at the bottom left of the screen. We had a good number of pre submitted questions on a range of topics. Where there are thematic overlaps, I will combine some questions to make sure that we're addressing what's on people's mind. So let's take our first question. Sean, this one's going to be for you. How would you characterize the holiday season that just concluded for VISTA? Did it go as planned, better, or worse? What worked and what did not? And are there any trends within holiday cards or mentioning, either regarding the industry, your market share, or anything else and what was the percentage change in cost per click in US consumer this year? Sean Quinn: Okay. Overall, it was a strong quarter for Vista, and I said this in my earlier remarks, but I would highlight North America as the source of strength compared to last year. I think on the Q1 call, I talked a little bit about our approach for the holiday season and what gave me optimism. And one of the things is that we had an evolved approach to the holiday season this year with just a more, I would say, more balanced approach leaning into the things that have been working for us, including elevated product. And being intentional about not shifting as much resource to consumer specific messaging. And I would say we're happy with how that was executed. Team did a great job, and, you know, it's a strong result overall. In the release, we didn't get into too many specifics on consumer growth, etcetera, but I'll give you a few data points. And the question, I think, was quite focused on the US and also holiday cards. Volume and holiday cards and calendars in the US was flat year over year. And in Canada, it grew double digits. So I think those are good data points. And I think some of that's because of what we're comping, especially in Canada. There were a few things last year. But I think that data point coupled actually with the improved decay rate in business cards from last year, I think that shows that these legacy products are still relevant, but also that we can continue to influence these trends through our experience selection, the merchandising, other things in our control. In Europe, we had a tougher comp. Last year was quite a strong holiday quarter for consumer in Europe. And in Europe, consumer was down a little bit year over year in Q2. So I'd say that was the weak spot if I was gonna name one. But, again, it was the tough comp. As we look at things like data on Google search volumes and such, it would suggest that we took share this quarter. Some of that data is, you know, a little fuzzy in terms of how precise that is with market share, but directionally, I think that would be the case. Year to date, just from a consumer perspective, consumer's flat year to date in constant currencies in Vista with a little bit of gross profit growth. So yeah, we do continue to expect to see a little bit of consumer growth outside of the holiday peak, in particular from elevated products we've launched with consumer use cases. With respect to the question on cost per click, those aren't details that we get into in any specific market. But I would say just in general, in terms of, certainly on the performance marketing side of things, I would just say that our channel mix continues to evolve. And that was the case in Q2. It has evolved quite a bit. And that won't be the case just for Q2. I would say that in general, it's an exciting area, you know, we're looking forward to continued progress there. Meredith Byrnes: Thank you, Sean. I'm gonna stick with you for the next question. So strong Q2 results represent a continuation of trends observed from Q1 and led you to raising your guidance. Can you talk about the biggest areas of outperformance versus your initial FY 'twenty six guidance? Sean Quinn: Yeah. Sure. There there weren't really any big areas of outperformance. I would say it was really a solid quarter of execution really across the board. And, yeah, that was the case in Q1 too. And, yeah, there was, of course, a few unexpected things as well. Robert talked about the hurricane in Jamaica. There were a few others, but we were able to overcome those operationally. And then, we did have some help from currency too. On the revenue side, I think, in terms of how we're tracking to our plans, I would say we're basically on track. When we set our guidance, if you go back to the words we put around that, we did note that we factored in potential uncertainty. And I think, for revenue, we're now confident increasing because of what we've been able to deliver in the first half of the year. The reported growth also factors in now about a 100 basis points of growth from the acquisition that we did in Q2. And then, yeah, you could see currency continues to be a tailwind, and so that's factored but pretty consistent with the impact that we had included for the original annual guidance. From an EBITDA perspective, again, I would say we're delivering to our plan almost exactly on our plan for H1. And, you know, now we've already attained the full year EBITDA dollar growth that was implied in our original annual guidance. And so we've updated that. You may recall Q1 was a record Q1 for us from an EBITDA perspective. And Q2 is always a seasonally really important quarter. So with the solid Q2 now behind us, and, you know, having had a record Q1, we now feel comfortable raising our EBITDA guidance for the year. And, through the first half of the year, I would say Vista's on track. Upload and print, overall has been strong. Those are our two biggest sources of EBITDA and the operational themes that are driving those results are all very consistent with what we shared at our investor day and Robert started the call with today. One other thing that has helped to support adjusted EBITDA growth is currency. I mentioned this in my remarks as well. With the euro and the pound strengthening, that's favorable for our results both from a revenue and EBITDA perspective. And, yeah, that has been a little bit of ahead of our plan. That should continue to be the case with some of the year over year benefit in H2. And then as we lock in our hedges looking out past FY '26, we have visibility to continued EBITDA favorability from currency as well. So that was one of the bridge items that we had in our path to our fiscal twenty eight targets, if you can recall the slide that we used at our Investor Day. And I would say there, we feel good about where we're at, based on what we've contracted and then also recent further strengthening in the euro and the pound. Meredith Byrnes: Thank you, Sean. Alright. We're gonna move along to a question for Robert. At VISTA, you called out that promotional products, apparel, gifts, and packaging along with labels all grew at double digit clip during the quarter. How are the underlying trends progressing for these customer cohorts? Robert? Robert Keane: Sorry. I had put myself on mute. So the strong growth you're talking about really does demonstrate how we've been driving our wallet share with SMBs, thanks to the past and the ongoing investments. So those investments especially in elevated products and manufacturing capabilities that allow us to be very competitive in elevated products have really played a part. Now in our investor day, we had a slide and we showed that the top 2% of our customers at Vista generate just about as much total variable gross profit as the bottom 80% combined. And it's really that top two and the top 10, 20% of our customers in that level of spend, which represents our future. So they play a big role in our results. And the trends that we see in those portions of our new cohorts are very, very healthy. To your question more specifically, the underlying trends we're seeing are progressing very well. Starting last quarter, we began discussing the variable gross profit per customer as a way that you, as an investor, can evaluate our progress in serving these higher value customers and growing wallet share. So that includes everything I've just talked about for your question. Just to recall, in Q1, that growth was 7%. And in Q2, it was 9%. So we like what we see there. It's very consistent with our strategy. There's still a lot of opportunity in elevated categories and amongst all customers who are in markets that are less penetrated from an ecommerce perspective. And there are large addressable markets that we are addressing that we have not done so much so in the past. We're investing behind this with CapEx, with expanded capabilities, and fundamentally lowering the cost of production, for example, through focused production hubs, so that we can push further into these categories like packaging, like apparel, etcetera, serving customers with great products that they need at great prices with beautiful quality and delivery times. So that's where cross SIMPRESS collaboration is playing a role and an increasing role. XCF, cross enterprise fulfillment, is already something we're doing to lead new product introductions and lower cost. The increased collaboration we just announced between Vista, Build A Sign, and National Pen is gonna accelerate XCF, but also other types of collaboration in promotional products, in packaging, as well as in signage, which I'll get back to the drivers of the underlying trends in your question. Meredith Byrnes: Thank you, Robert. Let's stick with you here for the next question. Can you talk about the North American business for the Print Group? How have things trended versus your initial expectation? And how do you view the opportunity ahead for the business? Can you quantify its contribution in the quarter? And how do you think about its growth going forward? Robert Keane: Great. We're on track. As planned, we're focusing on building out the production capabilities. We have revenues in this unit, but they're still small. I think it was about 3,000,000 for the first half, but growing quarter over quarter at a fast clip. That being said, from a revenue perspective, we're just getting started, and we have fixed costs that are weighing down on our overall EBITDA and CapEx, but that is very consistent with our plans and how we think about this. We've not yet started putting any ad spend against Pixartprinting.com or our US site other than small tests. We like the opportunity ahead, but we wanna make sure we have everything right from a production and delivery perspective. In the near term, the bigger opportunity is really growing the volume as a fulfiller through cross enterprise fulfillment for Vistaprint in multipage small formats and labels and other products. Now Pixartprinting has always been very strong in manufacturing innovation around those areas amongst other areas. So we have taken the investments that we've made in Europe in the past multiple years and are exporting that capability into North America for these products where we really don't today have focused production hubs like we do in Europe for those particular product lines. And we are coming... we believe in doing so, we're going to be the low cost producer in North America that we can scale those categories through Vistaprint as well as the Pixartprinting brand. But a little bit analogous to what we're doing with National Pen and Build A Sign, we see that a big part of that production operation can be volume that goes to the Vistaprint brand in North America. Again, we're quite excited about Pixartprinting in North America as a brand, but it will be part and parcel of a broader entry that we're planning. Meredith Byrnes: Thank you, Robert. So you just mentioned the close collaboration between Vista, National Penn and Build A Sign, so we do have a question on that. It seems that in bringing National Pen and Build a Sign closer together, there will be a lot of capability sharing. Product development sourcing, performance marketing, direct mail, and manufacturing were all quoted in the January 13 release as part of the collaboration. What will remain separate and why? Robert Keane: So we are gonna keep the brands separate and focus on integrating what I'll call the back end capabilities of National Pen and Build A Sign to drive growth and drive profitability at Vistaprint in North America. I'm actually in Europe as well with Penn as National Penn is strong in Europe and is doing great collaboration already with Vistaprint and our upload and print businesses. So it's really the brands that will stay separate and more and more collaboration will happen on the back end. We're doing that because we continue to believe that it is advantageous to have multiple brands in the market both from a search perspective where it shows up in front of the customers, but also in being able to vary our value propositions into different brands. But on the back end operations, all of these investments we've been making over the past years in technology platforms, manufacturing, and other areas are allowing us to take synergies or drive synergies and importantly drive customer value by sharing those capabilities. I'll give you a couple examples. We talk a lot about cross and press fulfillment. We accelerate the benefit of focused production hubs, which still remain decentralized because teams who are very close to that market focus on not only what the customer needs are, but how to best produce the product, but we are incentivizing volume to flow to the most efficient highest quality production operations we have. And over time, there's a lot of benefits to that. It increases profitability, increases product introduction. We get better capacity utilization and so on. On the tech replatforming, that creates opportunities obviously in our technology investments to do two things. First of all, take the best in class or, and certainly at a very minimum, the best in CIMPRES capabilities and share that across different brands. But secondly, to share the cost and therefore drive efficiencies in our software development and other technology investments. So that recent announcement about Vista, National Penn and Build A Sign, we expect to extend this to other areas. Now why this... what's the reason that these businesses are doing this? Generally speaking, they're serving similar types of customers and customer use cases. The other thing that is common between these is they have a higher spend in advertising as a percentage of revenue if you were to compare them to our upload print businesses. So with access to the same product catalogs via MCP and cross enterprise fulfillment that makes the sharing possible and we can optimize our advertising spend across those different brands that all may show up in the same Google search or other areas and make sure we're getting the best ROI across the board for all of CIMPRES, not an individual brand. So there's things that will still be unique about these businesses and they will remain with their respective specializations. But we do believe, as I've just described, there's a lot that we can share. Meredith Byrnes: Thanks, Robert. I'm gonna stick with you for one more question for now. How do you view the opportunity ahead for cross CIMPRESS fulfillment to continue to drive down COGS, and how much headroom do you think there is ahead? Is there a certain level of cross net press fulfillment activity per business that you would like to achieve? Robert Keane: Okay. I've already mentioned a lot of this in today's call, but in summary, cross enterprise fulfillment is a big opportunity. It's another example of past and current investments that are driving both top line and bottom line growth. It's part of our execution plan to achieve the EBITDA expansion to at least $600,000,000 by fiscal twenty eight. So that's how we view it. Now we're still early in the opportunity for cross enterprise fulfillment, but it's growing fast. It was a little over $40,000,000 in the first half of FY '25, and now it was over $80,000,000 in the first half of this year. So it basically doubled within a year. We believe that last year, that delivered about $15,000,000 of gross profit increase as a result of that. Again, that was for fiscal twenty five ending June. Our scale based manufacturing advantages that we've always talked about for decades in mass customization typically happen on a product by product basis. So we have through these focused production hubs the opportunity to lower cost, improve quality, improve speed, expand our product lines, increase utilization of invested capital by aggregating all this volume into these focus production hubs. And I think beyond that, but very closely related to cross enterprise fulfillment with the announcements we've mentioned with National Penn and Build A Sign, but similar things that we're doing in Europe with our upload and print businesses, we have great very strong teams who are experienced in the product category launch process, the new product introduction process for specific areas, just like we do at Vistaprint. And we're able to have teams specialize in the areas they're strongest at. So as to what level of cross impress fulfillment we'd like to achieve, we don't disclose that specifically. But we do expect this to grow strongly for some time. To your question, there's a lot of headroom ahead. Meredith Byrnes: Thank you, Robert. Alright. Sean, let's take a technical question. In the quarter, it looks like the company allocated $22,600,000 for the purchase of non controlling interest. What position did the company buy? Any details you can share would be appreciated. What noncontrolling interests remain outstanding? Sean Quinn: There are two transactions that make up that little bit more than $22,000,000. Both of them were in our Print Brothers segment. $11,000,000 of that was a mandatory redemption that required us to purchase the remaining shares from minority holders that sold a portion of their equity interest to us in fiscal twenty three. And then the other one was the remaining $12,000,000 of that 22,000,000 or so that relates to minority equity holders in a smaller business within Print Brothers that exercised the put option to sell their shares. In terms of other noncontrolling interests that remain outstanding, there's nothing material; you can see this on the face of the balance sheet. We have $6,000,000 of redeemable noncontrolling interest outstanding at the end of the quarter. We don't have anything in terms of anything mandatorily redeemable. And I'll just maybe add that those two transactions in the quarter were contractual. All of the minority shareholders that were part of these transactions remain active in our business and we are in active discussions with them on buying back into the respective businesses with a long term horizon, and so we look forward to concluding those conversations. Meredith Byrnes: Thank you. Alright. Next question, on M&A. We got some live questions on M and A too. We'll definitely cover the answer to those in the next couple of questions. Robert, the company did a tuck in acquisition for $10,400,000 in the quarter. And you noted in your earnings document that the company has a healthy pipeline of potential tuck in M and A opportunities. How much capital is the company willing to allocate here? Also, I believe in the past, the company used 15% hurdle rate for any tuck in m and a deal. I assume the fiscal Q2 tuck in deal clears this hurdle. But any financial details you can provide would be interesting. Robert Keane: Your assumption is absolutely right. It very easily clears the hurdle. But let me give you a little more detail about this particular tuck in. We purchased an Austrian printing group with annual revenues of about $70,000,000 and annualized EBITDA of about $5,000,000 prior to synergies. We have very significant synergy opportunities ahead. The enterprise value we paid wasn't just the $10,400,000. It included debt. But if you take the equity plus debt, that enterprise value relative to the pre-synergy EBITDA we paid was comfortably below 5x. Now inclusive of synergies, we expect that multiple to be much lower. And we expect the return on this investment to be very comfortably higher than 15%. The purchase price was also done at a very attractive multiple of after-tax cash flows relative to the cash we deployed there. Strategically, it really positions us in Austria to grow faster in elevated products like multi page products but also importantly to through cross enterprise fulfillment, use those Austrian production capabilities especially in Germany, and use some of our German production operations to expand products into the acquisition. That is one of many examples of the synergies we see before us that will lower our post-synergy multiple. Now this is a tuck-in acquisition, which brings both customer relationships and vertical integration, has fast payback, and a very clear path to deliver profitability and cash flow now and over the coming years. Importantly, we have a strong leadership team in Austria who's doing very well at Pixartprinting... that's part of Print Brothers. They've been with us for years. They sourced the deal. They proposed the deal. Once it was approved, they led it. They're taking full accountability for it and they're managing this. And so I think all those things I just talked about exemplifies what we're looking for in tuck-ins: Strategic fit against our goals of elevated products and manufacturing supply chain. Importantly, also with strong CIMPRES leaders on the front lines who sponsor and lead the deal, with strong cash-on-cash returns to the capital we put there. With high IRR and capabilities that either complement or accelerate our existing capabilities. Now your question, I think, was how much capital we'd be putting into other tuck in M&A. That, frankly, is gonna be depending on other capital allocation opportunities. We'll be looking at the relative return and risk versus buying back our own shares, the investments we're making internally that we've been talking about a lot in this call that are driving cash flows through production operations, our commitment to delever our balance sheet, and then, of course, these types of deals. So it's hard to say what it will be specifically. We don't see this as a fundamental, you know, singular or even top three driver of how we're going to get to our FY '28 goals, but as I think we've talked about since the September Investor Day, we do see it as a part that's consistent with strategy, which has good returns to capital and will be part of that overall path. Meredith Byrnes: Thanks, Robert. So there is a follow-up question here I think you can touch on pretty quickly because you've talked a little bit about this. But the question is: my understanding is that the company measures any potential M and A deals or any capital allocation decisions against the returns from repurchasing shares. With the stock trading at a low valuation, especially if the company achieves its fiscal twenty twenty eight target, does this imply that tuck in M and A deals in the pipeline potentially exceed a 15% hurdle rate? Robert Keane: Absolutely. Yes. Meredith Byrnes: I love it. Shortest answer ever. Alright. We're gonna move on to Sean. Another capital allocation question. On capital allocation, share repurchases stepped up during the quarter and net leverage fell below three times. How should investors be thinking about the magnitude of repurchases in the back half of the year? And Sean, one thing that I want to add to this, just because we got a live question of somebody asking us basically what our position is on our valuation at this time. Sean Quinn: Okay. Yeah. Well, there's still some level of repurchases that we can do in the second half of the year within the net leverage guidance that we gave. So yeah, we left some room for that. Of course. And Robert just touched on this too, but any of our capital allocation is always dependent on a lot of factors, including other opportunities. But in this case, you know, share repurchases are always price dependent. But I would say, listen, we are really happy to allocate a little over $25,000,000 to repurchase in Q2. We did that at an average price that was below $70. Still believe it's a very good use of capital at recent price levels. So I still would expect some in the second half of the year. Probably a bit less in terms of intensity overall in the second half of the year relative to certainly where we're at in Q2. But, again, always price dependent. In terms of... I mean, I guess I kind of implicitly covered the other one. I mean, listen, we just ramped up the repurchases that we did in Q2. As you said, we feel that that was a very good use of capital buying back below 70. And as I just said too, like, we would still view that as very attractive at current price levels, and we have room to do repurchases in H2. And so we would put dollars behind them. Meredith Byrnes: Great. So this next question is basically getting at the math behind what we might do in the back half of the year. What's left in terms of capital allocation the remainder of the year? The leverage guidance for the end of the year is to be slightly below 3.1 times, which is essentially where the leverage level is currently. EBITDA will be increasing by at least $10,000,000 and the business is expected to generate incremental adjusted free cash flow which includes working capital for the remainder of the year. Is there specific planned share repurchases or M and A that's driving the guidance? Sean Quinn: So, yeah, all that math is right. Our free cash flow, as you can see, we reported in the first half of the year was a $107,000,000. So, versus the $145,000,000 in the guidance, that implies $38,000,000 of free cash flow in the second half of the year. That does already include the higher CapEx that we've also assumed in our guidance. And then we have $10,000,000 of EBITDA growth implied in the guidance in the second half of the year as well. Yeah, we don't provide specific guidance on other capital allocation that we do in the normal course because again, as I just said, it depends on a lot of factors, including price, but also relative opportunities, etcetera. But with the free cash flow and the EBITDA that I just outlined and you've outlined in the question, yes, there is some room for other capital allocation on top of any organic investments that were already included in the plan. That includes for repurchases and still allowing us to end the year slightly below 3.1 times. So, we have provided some room for that. Meredith Byrnes: Thanks, Sean. Alright. We're gonna take a break for a second from financial questions. Can you talk a bit about how you view the opportunity for you in Agentic Commerce? How are you or are you in talks with any LLM provider today? How far away are you from being able to integrate into ChatGPT or Gemini? Robert Keane: Alright. So it's something that I think the entire world will move towards, and we certainly have been investing in that at the highest levels. Myself and our CTO, the entire CIMPRESS executive team, are spending time specifically on these subjects. I won't go into very specific discussions. But, yes, agentic commerce is coming. We are working on that. And again, we feel comfortable that we will be at, if not in the lead baton thrower, but very much at the front of the parade. Meredith Byrnes: So next question for Sean. Could you please help us bridge or provide color around the difference between the all time high trailing twelve month EBITDA of $469,000,000 from FY '24 to the trailing twelve months EBITDA today of $451,000,000? TTM gross profit has increased by $79,000,000 over the same period, and contribution profit has increased by 52,000,000 while EBITDA has decreased by $18,000,000. This is some heavy math on the fly here. Sean Quinn: I'll cover this high level. And I do think it's a good question. And I think, stepping back, we've actually used a similar framing as we look to architect what we need to hit in fiscal twenty eight. But, you know, looking back two years and saying, what needs to be true for us to make sure that we're having more EBITDA flow through? And we have a large cost efficiency component that we've talked about in our targets going out to FY '28. And part of it is we'll address kind of what is, in the end, this bridge between what was our prior highest ever EBITDA in fiscal twenty four, which is the base that you referenced in the question, and where we're at today. The... there's a few things. Again, I'm gonna go high level because I don't have all the math in front of me. I think that one of the big things is that if you look at FY '24, we had about $12,000,000 of nonrecurring benefits in that quarter, which supported the full year. So that's relevant for your question, but it's also kind of a good data point as you look back just for Q2 we just reported versus two years ago. So that didn't repeat. So that's a bigger one in the math. In fiscal twenty four, that was the year where we were coming off of... we were basically supply chains were normalizing, input costs were kinda normalizing as well and coming down. So we had pretty sizable reductions in input cost that year, but still kind of favorable pricing. There's some net benefit to that in gross profit which is kind of already covered in your math. We also... it was after that that we had starting in FY '25 started to see some overall declines in business cards and holiday cards. You know, those are more stable this year, but that has some impact on the math too. We do also have start up costs this year for plant expansion, and we didn't have that before. And then really the remainder, and other than the nonrecurring items, probably the biggest impact is just the remainder is in OpEx with technology cost being the largest driver. And, again, I connect that back to where and why we need to drive efficiency as we march to the FY '28 targets. One of the things that offsets that in the other direction is currency is a little bit more favorable in the current TTM versus where we're at back in fiscal twenty four. So that's high level, but, hopefully, that hits on the key drivers. Meredith Byrnes: I'll stick with you for the next one as well. On FY '28 targets. So should we be thinking about the bridge to FY '28 a bit differently than what was communicated at the Investor Day? Is 40,000,000 of organic incremental benefits still the target? And is $10,000,000 from tuck in M and A still the target? Sean Quinn: Okay. This is a great question. Thank you. The bridge that we... so the question reference is this bridge that we did at Investor Day. And in that bridge, the objective of that bridge was to show what we needed to get to at least $600,000,000 in EBITDA in fiscal twenty eight. So it wasn't necessarily for each of the pillars in there, it wasn't a target per se. Importantly, the last pillar was what EBITDA contribution we needed from organic growth to get to 600,000,000, and that was the 40,000,000 plus. So that wasn't to say that that was necessarily the target, but that was the math you needed. And the whole point of that bridge is kinda what you need to believe, especially from organic growth. So we'll update that bridge at the end of the year. I think it's a helpful framing and hopefully, gives gives all of you confidence as well. But the pillars in that bridge, they're still the right ones. And maybe I'll just I'll run through them quickly just to give you a little bit of commentary because it is a really important topic. So the first thing in that bridge—I'm just looking at it on my screen here—was our fiscal twenty six growth and now we've increased that by $10,000,000 based on our guidance update today for fiscal twenty six. That's been updated. That's been increased by 10,000,000. And so, yeah, that's an improvement relative to the original bridge. We still feel good about the 78 to $80,000,000 of cost savings. And that's the... we use the midpoint there in the bridge, 75,000,000. And you heard today about some of the areas that we're focused on to drive that. The next one is the runoff of plant start up cost. That is, frankly, that is just massive, so we feel good about that. Tuck in M&A has been a source of some questions today. That was the next one in the bridge. And, again, we feel good about that as well. We've covered that. The next one was currency benefits. I touched on that earlier too. We have good visibility to what's in that bridge based on what we're already contracted. So I feel good about that. Then the remainder is the organic growth needed to bridge to the at least 600,000,000. And that 40,000,000 plus, you know, that represents two years. That's 40,000,000 of organic growth flow through for two years. And, again, that's just what you have to believe to get there. So as we get... as we're able to provide all of you with increased confidence on the other pillars, and make that more tangible, that will serve to also make that last element of the bridge more tangible and likely lessen over time in terms of what we need to believe. So that's how I think about it. And like I said, we'll update more specifically on that bridge as we get to the end of the year. But, hopefully, that's helpful in terms of kinda overall commentary. It's super important. And I just would add the these FY '28 targets have all the attention of the management team, all the focus of the board, and so we're laser focused on this and it's driving a lot in terms of our day to day focus of the management team. Meredith Byrnes: Thanks, Sean. We have one more live question that came in, just asking for a comment on the current state of our operations in Jamaica following the hurricane. I don't know which one of you wants to answer it. Robert Keane: I'll jump in and say that I wouldn't say we're back at a 100% of what we have. We are doing some renovations. But the teams are back at their desks and we also where we don't have full capacity, we definitely have capacity in our service centers in Tunisia and the Philippines, which all stepped up big time in terms of helping out in the moment of the hurricane. So we're fine. I'd overlay that with... unfortunately, the hurricane hit right a week or two before our peak period, Black Friday, Cyber Monday—kind of the worst time of year to hit in terms of a peak season capacity. Besides having built back capacity, the volumes we have going through service centers in all parts of our business are lower now than they are in the peak period at the end of November, early December. So we're fine. Sean Quinn: And then maybe I could just add two things. One is the... this hurricane devastated Montego Bay. And so our team members suffered devastating impact, and we've done a lot to try and help them. But it frankly... these... I said this multiple times internally, made me proud to be part of this team seeing the response to help them, but also the response to help make sure that our operations were running smoothly to support customers too. And I just wanna make sure it's clear that in terms of the impact financially from an operational standpoint, things are stable. And we don't expect continued impact in terms of higher cost or lost gross profit in terms of how we support customers. Yes, operationally we're back to a stable place. Things continue to improve a little bit, but we're stable. We will continue to have some cost of just getting the office back to where it needs to be—the normal kind of remediation—that's where we do expect to have coverage from an insurance perspective. And so, I would not expect this to be of any significance in terms of any drag on results in the second half of the year. And in fact, as we noted, we'll pursue opportunities to recover some of the costs we've already incurred in the second half of the year. It's unknown when exactly we would recover that—that could stem into next fiscal year—but that process is very accurate. Meredith Byrnes: Thank you so much, both of you. So that's it for the live and pre submitted questions that came in, so I'm going turn things over to Robert to wrap up the call. Robert Keane: Hey. Thank you, Meredith. The critical takeaways from the announcement we made last night and the conversation today are that halfway through fiscal twenty six, we are on track to deliver better financial results compared to our initial guidance for the year. The reason that's the case is because we are consistently executing and progressing in all the key areas that I've discussed today that are very consistent with what we talked about in July, in September, and I would say even in the years before that. These are elevated products that drive a step function improvement to our per customer LTV, measured as gross profit per customer; MCP and the manufacturing capabilities that reduce cost of goods and OpEx by sharing overhead; increasing the velocity of new product introductions and user experience improvements; leveraging AI and other technologies to drive efficiencies; and as someone just alluded to in the last question, I would say also revenue opportunities as we get into things like agentic commerce in the future; increasing cross collaboration via XCF, but also via broader collaborations as exemplified by the announcements we made with Vista, National Pen and Build A Sign. All these together give us confidence on our path to FY '28 EBITDA of at least $600,000,000 and approximately 45% free cash flow conversion, coupled with, as we've said many times, significant reductions in our net leverage. So I'll wrap up by saying thank you to our investors for joining the call and thank you for continuing to entrust your capital with us. Have a great day. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Thank you for standing by. My name is JL, and I'll be your conference operator today. At this time, I would like to welcome everyone to the First Financial Bancorp. Fourth Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Scott Crawley, Corporate Controller. You may begin. Scott Crawley: Thanks, JL. Good morning, everyone, and thank you for joining us on today's conference call to discuss First Financial Bancorp.'s fourth quarter and full year financial results. Participating on today's call will be Archie Brown, President and Chief Executive Officer; Jamie Anderson, Chief Financial Officer; and Bill Harrod, Chief Credit Officer. Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.bankatfirst.com under the Investor Relations section. We'll make reference to the slides contained in the accompanying presentation during today's call. Additionally, please refer to the forward-looking statements disclosure contained in the fourth quarter 2025 earnings release as well as our SEC filings for a full discussion of the company's risk factors. The information we provide today is accurate as of December 31, 2025, and we will not be updating any forward-looking statements to reflect facts or circumstances after this call. I'll now turn it over to Archie Brown. Archie Brown: Thanks, Scott. Good morning, everyone, and thank you for joining us on today's call. Yesterday afternoon, we announced our fourth quarter and full year financial results. I'm very pleased with our record earnings performance for the quarter. Adjusted earnings per share were $0.80, leading to an adjusted return on assets of 1.52% and an adjusted return on tangible common equity of 20.3%. The net interest margin, which declined slightly from the third quarter, has proven resilient as reduction in funding costs negated most of the impact of short-term rate reductions by the Federal Reserve. Balance sheet trends were solid for the quarter with loan growth of 4% on an annualized basis. Total average deposits increasing by approximately 7% on an annualized basis, excluding the impact from the Westfield acquisition. I'm especially pleased with our robust noninterest income for the quarter. Total adjusted fee income was $77 million and increased 5% compared to the linked quarter. Wealth management and foreign exchange income both increased by double-digit percentages, while leasing and mortgage income also remained strong. While adjusted noninterest expenses increased by 6% from the linked quarter, most of the increase was driven by the Westfield acquisition. Asset quality was relatively stable for the quarter and provision expense was in line with our expectations at $10.1 million. Nonperforming assets increased slightly to 0.48% of assets and classified assets declined slightly to 1.11% of assets. Three loans drove the increase in NPAs, while net charge-offs were 27 basis points, which was within our range of expectations. Turning to the full year. 2025 was another great year for First Financial. On an adjusted basis, our net income was $281 million or $2.92 per share. Adjusted return on assets was 1.49% and adjusted return on tangible common equity was 19.3%. We are pleased with the performance of the net interest margin for the full year. While the margin did decline year-over-year from 4.05% to 3.98%, we were able to offset most of the impact of short-term rate decreases through the diligent management of deposit costs. Adjusted noninterest income increased by 16% to a record $280 million, led by growth in wealth management, foreign exchange and mortgage income. The result was record revenue for the company of almost $922 million, an 8% increase over 2024. Similar to the fourth quarter, asset quality was relatively stable for the year. Provision expense declined 21% from 2024. Net charge-offs as a percent of average loans declined 5 basis points to 25 basis points, and our ACL coverage increased by 6 basis points to 1.39%. Capital levels remained strong during 2025. While the acquisition of Westfield negatively impacted our capital, our strong earnings drove increases to tangible book value per share of 11% from $14.15 to $15.74. I'll now turn the call over to Jamie to discuss these results in more detail. And after Jamie talks, I'll wrap up with some additional forward-looking commentary and closing remarks. James Anderson: Thank you, Archie, and good morning, everyone. Slides 4, 5 and 6 provide a summary of our most recent financial results. The fourth quarter was another outstanding quarter, highlighted by record earnings, a strong net interest margin, organic growth in both loans and deposits and the acquisition of Westfield Bank. Our net interest margin remains very strong at 3.98%. Funding costs declined 15 basis points from the linked quarter, while asset yields decreased 19 basis points. Loan balances decreased (sic) [ increased ] $1.7 billion, including $1.6 billion acquired in the Westfield transaction. Organic growth was $131 million or 4% on an annualized basis and was driven by Summit and C&I. Total deposit balances increased $2 billion, including $1.8 billion acquired in the Westfield transaction. Organic growth was $264 million with increases in the majority of our deposit types. We maintained 21% of our total balances in noninterest-bearing accounts and remain focused on growing lower cost deposit balances. Additionally, we issued $300 million of subordinated debt during the fourth quarter. These notes have a 10-year maturity and carry a 6.375% interest rate. Turning to the income statement. Adjusted fourth quarter fee income was a record, led by leasing, foreign exchange and wealth management. Noninterest expenses increased from the linked quarter due primarily to the impact of the Westfield acquisition. Our ACL coverage remained relatively unchanged during the quarter at 1.39% of total loans despite a large increase in the ACL balance. Most of that balance change was due to the Westfield acquisition. In addition, we recorded $10.1 million of provision expense during the period, which was driven primarily by net charge-offs and loan growth. Asset quality trends were relatively stable as net charge-offs increased 9 basis points from the third quarter and classified assets as a percentage of total assets declined 7 basis points. Net charge-offs were 27 basis points on an annualized basis, while NPAs as a percentage of assets were 48 basis points. From a capital standpoint, our ratios are in excess of both internal and regulatory targets. Tangible book value was $15.74, while our tangible common equity ratio was 7.79%. Slide 7 reconciles our GAAP earnings to adjusted earnings, highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $77.7 million or $0.80 per share for the quarter. Noninterest income was adjusted for $12.6 million of losses on the sales of investment securities, while noninterest expense adjustments were primarily related to acquisition activity. As depicted on Slide 8, these adjusted earnings equate to a return on average assets of 1.52%, a return on average tangible common equity of 20% and a pretax pre-provision ROA of 2.14%. Turning to Slides 9 and 10. Net interest margin decreased 4 basis points from the linked quarter to 3.98%. Asset yields declined 19 basis points compared to the prior quarter. Total deposit costs declined 15 basis points, partially offsetting the impact of lower asset yields. Slide 12 illustrates our current loan mix and balance changes compared to the linked quarter. Loan balances increased $1.7 billion during the period. As you can see on the right, $1.6 billion was a result of the Westfield transaction. Absent the impact from the acquisition, organic loan growth was $131 million or 4% on an annualized basis. Organic growth was driven by C&I and Summit. Slide 14 shows our deposit mix as well as the progression of average deposits from the linked quarter. In total, average deposit balances increased $1.4 billion, including a $1.2 billion impact from the Westfield transaction. Organic growth during the quarter included increases in the majority of our product types, while some were seasonal in nature. Slide 16 highlights our noninterest income. Total adjusted fee income increased to $77.3 million, which was the highest quarter in the history of the company. Bannockburn and Summit both had strong results. Wealth had a record quarter, while mortgage and deposit service charge income also increased from third quarter levels. Noninterest expense for the quarter is outlined on Slide 17. Core expenses increased $8.6 million during the period. This was driven by the impact from the Westfield acquisition. Turning now to Slides 18 and 19. Our ACL model resulted in a total allowance, which includes both funded and unfunded reserves of $207 million. This includes $26 million of initial allowance on the Westfield portfolio. We recorded $10.1 million of total provision expense during the period. At December 31, the ACL was 1.39% of total loans, which was up slightly from the linked quarter. Provision expense was primarily driven by net charge-offs and loan growth. Additionally, our NPAs to total assets increased slightly to 48 basis points, while classified asset balances as a percentage of total assets decreased to 1.11%. Finally, as shown on Slides 20 and 21, capital ratios remain in excess of regulatory minimums and internal targets. During the fourth quarter, tangible book value and the TCE ratio were negatively impacted by the Westfield acquisition. Tangible book value was $15.74 and the TCE ratio was 7.79% at the end of the period. Our total shareholder return remains strong with 40% of our earnings returned to shareholders during the period through the common dividend. We maintain our commitment to providing an attractive return to our shareholders, and we'll evaluate capital actions that support that commitment. I'll now turn it back over to Archie for some comments on our outlook. Archie? Archie Brown: Thank you, Jamie. Before we conclude our prepared remarks, I want to comment on our outlook for the first quarter, which can be found on Slide 22. Excluding the impact from Bank Financial, we expect payoff pressure to ease in the coming quarter, resulting in a low single-digit organic loan growth on an annualized basis during the first quarter. And for the full year, as originations ramp up, we expect loan growth to be in the 6% to 8% range. We expect core deposit balances to decline modestly in the near term due to seasonal outflows of public funds. Our net interest margin remains among the highest in the peer group, and we expect it to be in a range of between 3.94% and 3.99% over the next quarter, assuming a 25 basis point rate cut in March. We expect first quarter credit costs to approximate fourth quarter levels and ACL coverage to remain stable as a percentage of loans. We expect fee income to be between $71 million and $73 million, which includes $14 million to $16 million for foreign exchange and $19 million to $21 million for leasing business revenue. This range includes the impact from both Westfield and Bank Financial. Noninterest expense is expected to be between $156 million and $158 million and reflect our continued focus on expense management. This range includes the impact from both Westfield and Bank Financial, which should approximate $11 million and $10 million, respectively. While we remain confident that we will realize our modeled cost savings, we expect those savings to materialize later in 2026 once both banks have been fully integrated. To conclude, we're very proud of our overall performance in 2025. In addition to outstanding financial results, we successfully launched our Western Michigan banking office in Grand Rapids and acquired 2 banking companies, which strengthened our core funding and provides us with a platform for growth in 2 of the largest metropolitan markets in the Midwest. We received our second consecutive outstanding CRA rating, demonstrating our commitment to creating opportunities for lower income communities in our footprint. And we were one of only 70 companies worldwide to be recognized by Gallup as an exceptional workplace. Finally, I want to recognize and thank our associates for their hard work and commitment. It's due to their efforts that First Financial consistently delivers industry-leading performance. And with that, we'll now open up the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Daniel Tamayo of Raymond James. Daniel Tamayo: Maybe starting on the fee income guidance, I mean, fourth quarter was a good quarter. The guidance was a little bit below where I was looking for. Within that, FX looks like it's going to be down and then leasing over the last couple of quarters has trended down. So just curious if you can kind of walk us through where you're seeing the path for the rest of the year in those 2 line items and then more broadly, the fee income path for the rest of the year. Archie Brown: Sure, Danny. As you said, the fourth quarter was a great quarter all around and FX certainly shined. I think they had their best quarter ever. There's a little bit of seasonality in Q1. And they have added quite a bit of talent where some nonsolicits will burn off after the first quarter, which I think is going to create more opportunity for them as they go forward. But with that, I'll have Jamie maybe talk about fees, you can talk about FX or go beyond that and maybe fees more broadly for the year. James Anderson: Yes, Danny. So for the fourth quarter, obviously, you saw we had a record quarter, huge revenue quarter for Bannockburn on the foreign exchange side. And we do see some seasonality to that business in terms of the revenue coming in. The fourth quarter is -- the back half of the year is typically large. And so we do see that coming down in the first quarter, but then ramping up as the year moves on. And some of these teams that we've brought on over the past year. Again, Archie mentioned the nonsolicit starts to wear off on those, and we start to see some impact from those teams. And then just -- I would say the big difference is just overall seasonality from the fourth quarter to the first quarter across really all the lines. And so as you look out into the back half of '26 or even the second quarter -- second, third, fourth quarter, you start to get into that $75 million to $80 million range of fee income as the year moves on. Daniel Tamayo: Okay. All right. That's helpful. So I mean, I guess, the FX business would -- you would expect growth year-over-year for that businesses as we look for kind of overall '26 and then leasing, is that business slowing the growth rates? Or are they slowing you think? Archie Brown: Yes. On FX, we do expect, as Jamie said, Jamie, for it to keep growing. If you look at it, we acquired it in 2019. I think their compound annual growth rate is probably close to 14% or 15% a year over that time, and they're still going to grow probably low double digit over the next few years. So we think foreign exchange will continue to grow in capital markets overall at nice clips. In the case of Summit, I mean, their origination numbers were up last year. They'll be up some more this year. It's sometimes more of a question of what the mix is. And they're probably doing more finance leases and a little bit less operating leases as a percent of the mix. That's probably why you're seeing that number maybe a little bit on the flatter side. James Anderson: Yes. And Danny, it's Jamie. So I think we were seeing growth in that. On the leasing side in past years in that 10% to 15% range. And I would say, it's more high single digits. We're just -- we're starting -- that portfolio is starting to become seasoned. We acquired it, that company 4 or 5 years ago. The leases generally have terms in that range. And so you're starting to see things kind of churn at this point in that portfolio. Daniel Tamayo: Okay. That's helpful. I appreciate it. And then, maybe one bigger picture here for you, Archie, just on the plan for growth in Grand Rapids. You mentioned that in your commentary and in the release. Just curious what you have in place there and what you're planning to do in terms of investments there? Archie Brown: We brought a team over -- it was not all at once, but we brought a team over throughout most of the first quarter last year, and they've ramped up nicely. I mean they're not quite at, but close to $100 million in commitments on the loan side. I think $20 million to $30 million range in deposits. We've added other -- some other banking team members on the wealth side, in particular, private banking. We're looking to add -- we've a full banking office up there this year, add in some mortgage as well. So we're going to keep building it out. And we think -- we don't have anything yet, Danny, but we think there's more opportunities in Michigan, especially with some of the larger M&A that's going on with some of the banks. We think that's going to potentially create some opportunity for us to do some add-on in that market over the years. So we think it is close to a home run in terms of investment that we can make. Operator: Your next question comes from the line of Brendan Nosal of Hovde Group. Brendan Nosal: Maybe just to circle back to the loan growth outlook, I think you guys said 6% to 8% growth for the full year. Just want to confirm that, that's on an organic basis and not including Bank Financial, which closed earlier this quarter. Archie Brown: Yes, I think that's right, Brendan. Maybe a little more commentary on loans overall. We had an incredible origination quarter in Q4. It was our best quarter by a lot in 2025. I think it was up 36% over the linked quarter in terms of our fundings. But what we also saw in Q4 was a record level of payoff activity. I think it was up 56% over Q3 last year and by far, our largest quarter of payoffs. And so Q1 tends to be a little bit of a lower point from an origination, just more seasonality and then it ramps up. Pipelines look healthy as that more -- probably more than even last year look healthy. And we think originations will certainly come in strong as the year goes on. And we think payoffs, while they won't hit a low point in Q1, but they're going to come down from where they were. So we think we'll eke out a little bit of growth in Q1 and then it will ramp up, but we are projecting out 6% to 8% for the year, and that would be the legacy bank. James Anderson: Yes, yes. So that would exclude any of the acquired balances. Brendan Nosal: Okay. Perfect. Perfect. Maybe turning to the margin outlook for the first quarter, that 3.94% to 3.99%, can you break out the estimated purchase accounting accretion number with Bank Financial coming in and a full quarter of Westfield? PAA is I think 4 basis points this quarter. What does that look like in the guide for 1Q? James Anderson: Yes. So the -- so the 4 basis points for Westfield should pretty much hold. We don't see a big impact in terms of purchase accounting from the Bank Financial deal for one -- for a couple of reasons. For one, that they just don't have a lot of -- they didn't have a lot of loans to begin with. And we are selling a big chunk of their -- the multifamily portfolio like we announced with the deal. So they have about $700 million in loan balances that we acquired. We're selling about $450 million. And so really, I would -- so they're going to have $200 million to $250 million of loan balances that carry over. So you can imagine the purchase accounting isn't going to be significant for that. So if you look at Westfield, it was 4 basis points in the fourth quarter. So -- and we had them for 2 months. So you can kind of look at like a 5 or 6 basis point purchase accounting impact from the deals. Brendan Nosal: Okay. Okay. That's really helpful. One more from me, just staying on the topic of margin. Like outside of short-term rate cuts, just kind of walk us through the major driver of margin over the course of 2026. Like if there's no more cuts, is there a natural drift in the margin one way or the other? Or is it really just dependent on what the short end does? James Anderson: I would say it's really dependent on what the short end does for us. Now if we do not get any cuts, what we will see -- I mean, our margin we're showing for '26 is staying relatively level. We do get some impact now from the rate cuts. And we are forecasting -- in our forecast, we have rate cuts in -- 2 rate cuts, 1 in March, 1 in June. And our margin for the year goes down slightly kind of in the low 3.90s -- 3.90% to 3.95%. So there is some impact if we have those rate cuts. If we don't, it essentially stays flat at just a higher level. Brendan Nosal: Fantastic. I really appreciate the color and the commentary. Archie Brown: Welcome. Thanks, Brendan. Operator: Your next question comes from the line of Terry McEvoy of Stephens. Terence McEvoy: It really feels like a Friday morning, not a Thursday morning. You kind of threw me off this quarter. I'm going to be I'll run that by the boss. Just a question, the quarterly expenses, the $156 million to $158 million, where does that trend through the fourth quarter once you achieve the cost savings? I'm just trying to get a better sense for the quarterly trajectory. James Anderson: Yes. So Terry, it's Jamie. So we have a couple of things going on there that kind of go, I would say, in opposite direction. So we have -- so for the 2 deals, for Westfield, we have the major conversion, major event happened in March. So we'll start to realize much more of the cost savings for that deal after that. We've already achieved some of that, but not the big amount that you typically get. And then in June, we have the conversion for Bank Financial. And so that will come a quarter later. And again, we'll start to see cost savings off of that. However, like we were mentioning, I think it was Danny's question about fees. What we then see in the back half of the year is a pickup in foreign exchange revenue, which we will then -- which then ramps up commissions and whatnot related to that, the variable comp related to the -- of not only Bannockburn, but also a few of our other fee businesses. So that partially offset some of the cost savings that we will get. But obviously, then we have the revenue to -- on the other side. So when we are -- when we look out kind of in the back half of the year, we're kind of in the low $150 million range, $150 million of -- on the expense side. Archie Brown: And I think, we're kind of looking at like conversion plus 90 days. You get -- you say convert Westfield in March. By June, pretty much all the expenses run out that we're going to get out of that integration. And then Bank Financial happens in June, conversion. And then 3 months later, we've got some employees that are contracted to stay with us 90 days after. So once we get to 90 days after conversion, that's when all the expenses burn out. Terence McEvoy: Perfect. Great color there. And then maybe as my follow-up, what are the plans in Chicago, the $1.2 billion that comes from Bank Financial? It's a massive market. And what's the strategy to grow? Is it de novo hiring bankers? Or is that an M&A market for you potentially? Archie Brown: Yes, Terry, this is Archie again. It's a little -- we'll focus on what we control, which is we're going to do organically. And we have a commercial banking team in the market that we had already put in prior, 1.5 years ago or 2 years prior to the Bank Financial closing. We'll be adding to that team a little bit. We'll be adding wealth bankers in the market, wealth private banking in the market. They did not do mortgage banking. We'll be adding mortgage bankers in the market. And then we're going to retool what they're doing in their retail centers. They really weren't originating lending in the retail center. So we're training and retooling that so we can originate. We're a pretty strong HELOC lender. So we're going to ramp that up. So a little bit of organic and then adding a little bit of talent in some spots where we need it. There's a couple of folks that they had doing smaller -- kind of smaller CRE that we've retained. They had a leasing team doing a few things on the leasing side that kind of filled in some holes that we had, and we're going to -- we're bringing them over. We think there'll be some expansion of that business as a result. A little bit of both. As far as M&A in Chicago, we do think there's opportunity for add-on there. And if the right thing happens, maybe so, but that's not really our focus at the moment. Operator: [Operator Instructions] Your next question comes from the line of David Konrad of KBW. David Konrad: Just a follow-up question on the expenses. Just wondering how the efficiency ratio will trend through the year. It feels like it's going to be like very low 50s based on your commentary. James Anderson: Yes, David, this is Jamie. It sounds sick. I'm sorry about that. David Konrad: I'm trying to be great. James Anderson: Yes, sorry. We got a good front. Yes. Yes, so on the back half of the year, when the -- again, that will be kind of when we start to realize what I would call full cost savings for the 2 deals. When you look out, it's more -- it's not quite low 50s. It's kind of in that mid-50 range, 55%, 56% range. A couple of things that like kind of nuance with our efficiency ratio. One of those is the impact from Summit and the equipment leasing side, the way you account for operating leases. And it's a pretty good sized chunk of our fee income and also on the expense side. So you get the rental payment in. The rental payment is a -- goes into fee income and then you depreciate the asset on an operating lease. And that kind of isolated efficiency ratio for that business there is about in the mid- to high 60s. And so that skews our efficiency ratio a little bit, maybe by a couple of hundred basis points. So absent that, it would be kind of in that -- what you're talking about, that 52%, 53% range. David Konrad: Got it. Okay. And then trust, really strong quarter there. How much did Westfield add? And what are you looking for, for the first quarter? Archie Brown: Yes, David, Westfield didn't have a wealth private banking team. That's more on the banking side. So we're actually adding -- and we already hired one wealth adviser in the market. We're adding a second one here soon to try to grow wealth -- kind of the wealth management assets in Northeast Ohio, but they didn't have any when we acquired them. But they did have a great quarter, and it was a combination of just continue to bringing in new assets and growing overall assets under management. And then we do have our M&A, small M&A advisory unit in that group and that group had a strong Q4, which added to their number. Operator: Your next question comes from the line of Brian Foran of Truist. Brian Foran: Just going back to the loan growth commentary, 2 things I wanted to check. So one, would you expect total earning assets to kind of generally follow loan growth this year? Or is there anything we need to be mindful of as we're kind of penciling in cash and securities? James Anderson: Yes. So, Brian, this is Jamie. The -- so when you look at it, we are getting a big influx of liquidity cash in on the Bank Financial deal. So what we will do is put that money to work kind of mindful of cash flow off of the securities portfolio. So the securities portfolio might get a little bit bloated for us in terms of size. We typically like to keep the securities portfolio somewhere around 20% of assets. So you'll see that peak maybe around $5 billion, so a little bit higher than what we would historically run on a percentage basis because at that point, we'll be around $22 billion in change in assets. So what we will do then as loan growth kind of ebbs and flows, we will bring the securities portfolio down. And really, if you kind of want to look at kind of maybe a rule of thumb for that, it would be loan growth and about half of that would come off of the securities portfolio. So we will bring that down, yes. Brian Foran: And then just on the timing of loan growth improving, I guess, was it more tied to getting through elevated paydowns in 1Q? Or is it more tied to getting through the conversions and we should see the strengthening more in the back half of the year? I just -- maybe you could just revisit the catalyst for the step-up and the best guess of when we would start seeing it. Archie Brown: Brian, it's probably a couple of things. One, there is just a lower -- typically a little bit lower origination quarter in Q1 for us than you would see as the year ramps up, a little bit of seasonality, I guess, is what I'm saying. Summit, for example, our leasing group tends to have a really strong back half and the early part of the year tends to be a little bit lower than the back half, although we think they'll do a bit more this year. But some seasonality is a piece of this. We think the Westfield team, for example, in Northeast Ohio is already running strong. So we'll be ramping up more resources and FTE in the Bank Financial markets, and that will -- in the back part of the year, also add more assets -- earning assets in our loans. So seasonality combined with bringing on some more people in the Chicago market over the year. Operator: With no further questions, that concludes our Q&A session. I'll now turn the conference back over to Archie Brown for closing remarks. Archie Brown: Thank you, JL. I want to thank everybody for joining us today. We are really pleased with the year and the quarter. Look forward to another great year in 2026, and look forward to talking to you again next quarter. Have a great day. Operator: This concludes today's conference call. You may now disconnect.
Desiree: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carpenter Technology Corporation's second quarter fiscal year earnings call. 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press the star one. I would now like to turn the conference over to John Huyette. You may begin. John Huyette: Good morning, everyone, and welcome to the Carpenter Technology Corporation Earnings Conference Call for the Fiscal 2026 Second Quarter ended December 31, 2025. This call is also being broadcast over the Internet along with presentation slides. For those of you listening by phone, you may experience a time delay in slide movement. Speakers on the call today are Tony Thene, Chairman and Chief Executive Officer, and Timothy Lain, Senior Vice President and Chief Financial Officer. Statements made by management during this earnings presentation that are forward-looking statements are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Carpenter Technology Corporation's most recent SEC filings, including the company's report on Form 10-Ks for the year ended June 30, 2025, Form 10-Q for the quarter ended September 30, 2025, and the exhibits attached to those filings. Please also note that in the following discussion, unless otherwise noted, when management discusses the sales or revenue, that reference excludes surcharge. When referring to operating margins, that is based on adjusted operating income excluding special items and sales, excluding surcharge. I will now turn the call over to Tony. Tony Thene: Thank you, John, and good morning to everyone. I will begin on slide four with a review of our safety performance. We ended the 2026 with a total case incident rate of 1.4. We saw improvement over the last quarter. And as a result of the actions in this area, I expect to see continued progress going forward. As always, we remain committed to our ultimate goal, a zero injury workplace. Let's turn to slide five for an overview of our second quarter performance. Second quarter performance continued our earnings momentum and sets us up for a strong second half to fiscal year 2026. Let me highlight the four major takeaways for you. One, record earnings. In the second quarter, we generated $155 million in operating income, exceeding our previous record set in the prior quarter. And it is a 31% increase over our 2025. Another meaningful step up year over year. Our consistent earnings growth continues to be the result of our solid execution, strong market position, and unique capacity and capabilities. Two, expanding operating margins. The SAO segment continued to expand margins, reaching an adjusted operating margin of 33.1% in the quarter. This margin compares to 28.3% a year ago and 32% the prior quarter. Keep in mind that there are lots of factors that impact what our operating margins can be in any given quarter. Most notably the mix of our products. So going forward, we may see some quarters that are flat or slightly lower but their overall trajectory is anticipated to continue upwards. With that being said, our current outlook calls for increasing SAO margins over the next two quarters of fiscal year 2026. As in the past, the positive trend will continue to be driven by increased productivity, product mix optimization, and pricing actions. As a result of the expanding margins, the SAO segment recorded $174.6 million in operating income. An increase of 29% year over year and another all-time record for the segment. Three, strengthening market demand. Especially in the aerospace and defense end-use market. As we continue to see strengthening demand signals in terms of OEM production and order intake rates. Our customers are keenly aware of these demand signals. And are positioning themselves accordingly. In the quarter, bookings for the aerospace and defense end-use market increased 8% sequentially. However, it is important to note that defense submarket orders were down materially in the quarter. Due to the government shutdown and uncertainty in terms of the defense budget. Most importantly, commercial aerospace bookings were up 23% sequentially. This is the fourth consecutive quarter of sequential order intake increases for the aerospace and defense end-use market. Seeing such strong bookings in a quarter that's usually quieter due to the holidays, is a good indication of the accelerating demand for our materials. And four, pricing continues to be a tailwind. Given the strong demand outlook, our customers continue to be focused on securing their supply and our pricing continues to increase. As evidence of this, we completed three additional long-term agreements with aerospace customers with significant price increases during the quarter. These long-term agreements represent good value for us and our customers. As they look to secure their material needs going forward. Let's turn to Slide six to have a closer look at second quarter sales and market dynamics. In the 2026, our total sales, excluding raw material surcharge, were up 8% over the 2025 and down 2% sequentially. Net sales were as we expected and the result of multiple factors, including available operating days, and customer closure schedules. Items which we see at every calendar year end which I noted in last quarter's earnings call. As we enter our third quarter, these factors are not in play, and we expect a sequential increase in net sales. Let me briefly review some of the key markets. Starting with aerospace and defense. Sales in the aerospace and defense end-use market were down 1% sequentially and up 15% year over year. While down modestly on a sequential basis the aerospace and defense end-use market net sales represented our second best quarter on record. And activity with our aerospace and defense customers continues to increase. I will mention two important data points from the aerospace engine and structural submarkets. Order intake in the quarter for our aerospace engine materials was up 30% sequentially. Signaling continued growing strength in demand. And very importantly, our aerospace structural customers are moving off the sidelines, and ramping up order placement. Many of them recently placed their first large orders with us in several quarters. And are already preparing the next round of orders. Which they anticipate being larger and even more urgent. Moving on to the medical end-use market, Our sales were down 7% sequentially and 22% compared to the prior year second quarter. The decrease is isolated to certain titanium products for a specific set of medical distribution customers. And all within our PEP segment. Clearly, this has impacted the earnings of the much smaller PEP segment. But the impact is not material to total Carpenter Technology Corporation results and not material to our overall earnings outlook or our ability to deliver on such outlook. Outside of these distribution customers for Titanium, we do see bright spots in other areas of the medical end-use market. There's to our orthopedic and dental submarkets remain strong. Both near an all-time record. Our advanced solutions, are ultimately used to support improved patient outcomes and are critical to trends like minimally invasive surgery, metal sensitivities, and robotics. Remain highly valued by our customers. Shifting to the energy end-use market, Sales were down 10% sequentially and up 19% year over year. As I've said many times, sales in the power generation submarket will fluctuate quarter to quarter, due to the frequency of orders and our practice of strategically slotting them into our production process. Power generation demand continues to accelerate. Driven primarily by the immense energy needs of data centers. We remain in close coordination with the power generation customers, across multiple platform types and OEMs. To plan for their future material needs. Altogether, we are operating in a strengthening demand environment across the high-value end-use markets that we believe will drive meaningful growth in both the near term and long term. Now I will turn it over to Tim for the financial summary. Timothy Lain: Thanks, Tony. Morning, everyone. I'll start in the income statement summary. Starting at the top, sales excluding surcharge increased 8% year over year on 5% higher volume. Sequentially, sales were down 2% on 4% higher volume. The improving productivity, product mix and pricing are evident in our gross profit, which increased to $218.3 million in the current quarter up slightly sequentially and up 23% from the same quarter last year. Selling, general and administrative, or SG&A, expenses were $63.1 million in the second quarter, flat sequentially and up $4.5 million from the same quarter last year. The SG&A line includes corporate costs, were $26.2 million. This is flat sequentially and up $2.6 million from the 2025. For the upcoming 2026, we expect corporate costs to be about $25 million. Operating income was $155.2 million in the current quarter, which is 31% higher than our 2025. And up slightly from our recent first quarter. As Tony mentioned earlier, this represents another record quarterly operating income result. Breaking the previous record that last quarter. Moving on to our effective tax rate, which was 19% in the current quarter. This quarter's effective tax rate was lower than anticipated primarily due to discrete tax benefits associated with the exercise of certain equity awards in the current quarter. For the balance of the fiscal year, we expect the effective tax rate to be between 22% to 23%. For the full fiscal year 2026 the effective tax rate is expected to be on the low end of the full year guidance we previously provided, of 21% to 23%. Finally, the adjusted earnings per diluted share was $2.33 for the quarter. The adjusted earnings per share excludes the impact of the debt refinancing we completed in the quarter, I'll talk about that shortly. Now turning to more detail on each of the segments, starting with our SAO results. Net sales, excluding surcharge for the second quarter, were $527.3 million. Compared to the same quarter last year, sales were up 10% on 5% higher volume reflecting the impact of product mix optimization, and pricing actions. Sequentially, sales were down 1% on 5% higher volume. We recognize there is a significant focus externally on our reported sales and volume each quarter, and ultimately, the selling price per pound of our products. Particularly in our SAO segment as an indicator of pricing changes. As we've stated before, the selling price per pound in any given quarter is highly dependent on the mix of products that we ship in any one quarter. As we saw this quarter, our product mix was influenced by the planned maintenance activities and holidays. As a result and as expected given these dynamics, our reported net sales excluding surcharge per pound were down slightly sequentially and up year over year. Most importantly, SAO's adjusted operating margin continued to increase and, in fact, hit record levels. Reaching 33.1% in adjusted operating margin. This marks the sixteenth consecutive quarter of margin expansion. As a result, SAO reported operating income of $174.6 million in the second quarter, a new all-time high for the segment. In addition to mix and price benefits, the record performance reflects the SEO team's ability to actively manage our production schedules. Increase productivity at key work centers, manage costs, execute thoughtful planned maintenance activities, Looking ahead to our 2026, we anticipate SAO will generate operating income in the range of $105 million to $200 million. This implies a healthy 12% to 15% increase from SEO's second quarter record results. Now turning to Slide 10 and our PEP segment results. Net sales, excluding surcharge in the 2026, were $77.2 million, down 11% sequentially and down 10% from the same quarter a year ago. As Tony mentioned earlier, the decline was primarily driven by titanium sales, which were heavily impacted by lower demand from specific medical customers. As a result, PEP reported an operating income of $900,000 in the current quarter, compared with $9.4 million in the 2026 and $7 million in the same quarter a year ago. The year over year improvement in operating margin reflects increasing sales in our additive business driven by demand. As well as the cost benefits of actions we took last year to reduce structural costs in this business. We currently anticipate the PEP segment's operating income for the upcoming third quarter to be in line with the 2026. Before we move to cash flow, I just wanted to pull together the pieces that make up our outlook for operating income for the 2026. We anticipate total operating income of $177 million to $182 million. This includes SAO at $195 million to $200 million, PEP at roughly $7 million, and corporate costs of $25 million. Now turning to the next slide to talk about our cash generation and capital allocation priorities. In the current quarter, we generated $132.2 million of cash from operating activities, and spent $46.3 million on capital expenditures which resulted in adjusted free cash flow of $85.9 million. As I mentioned last quarter, we expect capital spending will accelerate in the 2026. As construction activities related to the brownfield capacity expansion project broaden equipment delivery and installation begins in earnest. As we look ahead, we expect to generate at least $280 million of adjusted free cash flow in fiscal year 2026. Our free cash flow generation is important as it enables us to deploy a balanced capital allocation. As we've discussed before, our primary focus areas for capital deployment are investing cash in attractive and accretive growth projects, and returning cash to shareholders. In that regard, we continue to execute against our share repurchase authorization and repurchased $32.1 million of shares in the current quarter. This brings the total to $183.1 million spent to date against the $400 million authorization that we announced in July 2024. In addition to the buyback program, we also continue to fund a recurring and long-standing quarterly dividend. That brings us to investing in growth. As noted, the brownfield expansion project construction activities are ongoing and rapidly progressing. The project is currently on budget and on schedule. Finally, our ability to deploy capital is also supported by our healthy liquidity and strong balance sheet. In the current quarter, we took actions to strengthen both our balance sheet and liquidity. Namely, we completed the refinancing of our long-term debt to extend the maturity of our notes to 2034 while reducing the interest rate. In addition, amended and restated our revolving credit facility primarily to increase our credit facility from $350 million to $500 million and extended the term to twenty third. As of the most recent quarter end, our total liquidity was $730.8 million including $231.9 million of cash, and $498.9 million of available borrowings under our credit facility. Our credit metrics remain very strong. With our net debt to EBITDA ratio remaining well below one times. Altogether, we believe our strong balance sheet and outlook for significant cash generation positions us well to fund continued growth and deliver significant shareholder returns. With that, I will turn the call back to Tony. Tony Thene: Thanks, Tim. Each quarter, important themes emerge that become the focus of attention in the investment community. As I did last quarter, I will address them in detail to make sure Carpenter Technology Corporation's position is clear. First, the ongoing discussion concerning the strength and acceleration of the aerospace demand environment. With a focus on current and anticipated build rates. On last quarter's earnings call, I spent a lot of time providing details of positive momentum the aerospace demand environment. Without repeating everything, I will just state again that the aerospace market is in the midst of one of the largest build ramps ever. To meet the unprecedented demand projections. Let me provide a couple new positive data points that have appeared over the last quarter. Notably, Boeing achieved the milestone of building forty-two 737s in the month of December. On their earnings call earlier this week, Boeing reaffirmed their intention to increase build rates in calendar year 2026. And most notably, they emphasized that builds would be increasing much higher than deliveries. Given that finished plane inventory has now been depleted and their intent to build some 737 ahead of delivery in 2027. While citing an expected 10% increase in deliveries, Boeing noted that build activity would have to increase much more to account for the factors I just mentioned. In light of this, our aerospace customers can to report increasing demand in the supply chain, to support the build rate ramp. This, in turn, is accelerating confidence in the aerospace outlook across each of our submarkets. Our aerospace engine customers are full steam ahead. The engine OEMs are asking us whether the supply chain has ordered enough material to support part builds. And our direct customers are focused on getting orders placed against, in many cases, recently signed long-term agreements. Importantly, and as I mentioned previously, we continue to see meaningful sequential increases in order intake for our aerospace engine materials. Up 30% sequentially. I will also repeat my statement from earlier that our aerospace structural customers are moving off the sidelines and ramping up order placement. This is an aerospace submarket that has been lagging to others and the recent placement of their first large orders with us in several quarters is an encouraging sign of strengthening confidence in the aerospace ramp. We are also working closely with our aerospace fastener customers to ensure they get the materials needed as they are projecting big increases for calendar year 2026. Altogether, we are clearly in the midst of an acceleration of aerospace demand. Our sophisticated customers understand the accelerating demand dynamic. And we continue to work with them to ensure they have their orders in place so they are not last in line. Our customers also understand that nickel-based superalloys will be in short supply with only a few qualified producers globally. That point leads to the second topic to discuss, nickel-based superalloy industry supply. This could be a difficult topic to understand and to quantify, as there are numerous complex nickel-based superalloys that are supplied into aerospace engines and other critical areas of the aircraft such as landing gear, avionics, and structural. Before I address supply, it is important to understand the demand projections for nickel-based superalloys into the aerospace supply chain. As we have detailed in our investor event about a year ago, the aerospace industry is targeting build rates of 2,100 plus airplanes per 30% higher than the pre-COVID high calendar year 2019 when the industry was effectively sold out of nickel-based superalloys. But aerospace OEM demand is not the only area that competes for scarce nickel-based superalloys. As the installed fleet of planes continues to grow and ages, MRO demand is projected to be at significantly higher levels going forward versus today. Defense demand is increasing rapidly. Driven by the increased number of platforms and by the need of even more advanced capabilities. Both of which mean higher demand for specialty material solutions. Demand for specialty materials used in space has also been increasing. With one driver being that the number of commercial satellite launches continues to increase. As the space economy grows. And lastly, power generation demand is increasing substantially. This has been widely discussed. With news articles on this topic nearly weekly. And it is driven by the need for power to support their growing data center build out as well as increasing needs from developing economies. It's important to include the power generation demand in this discussion because in many cases, it competes for time on the same assets used to produce aerospace nickel-based superalloys. Taking into consideration increasing demand from several areas, it becomes clear that macro trends support accelerating explosion of demand for nickel-based superalloys. Now let's address the supply of these alloys. Since the pre-COVID year of 2019, there has been no meaningful increases in overall qualified nickel-based superalloy supply. Other than from internal productivity improvements from the current suppliers. Since that time, Carpenter Technology Corporation has been the only company to formally announce any investment in capacity expansion in this specific area. As we did recently at our February 2025 investor update. For those who are unfamiliar, we are investing in a brownfield capacity expansion focused on primary mill. Specifically a new vacuum induction melting furnace which is a critical piece of equipment in the manufacturing process of high purity specialty alloys. In total, this project plans to add 9,000 additional tons roughly a 7% increase over our 2019 shipments. While this is meaningful to the financials of Carpenter Technology Corporation, it is not a meaningful increase for the industry. Remember, Carpenter Technology Corporation is one of three players participating in the high-end nickel-based alloy market. And we are only adding a modest 7% additional capacity versus our 2019 shipment levels only. Taking into consideration the significant projected increase aerospace OEM builds, combined with the projected demand increases for aerospace MRO, defense, space, and power generation applications our capacity increase may account for only a small single-digit percentage of the total projected supply-demand deficit. Of course, there could be other incremental capacity announcements on the horizon, given the demand environment. But they too will likely be minimal in terms of their impact on closing the projected gap in supply. Keep in mind, this type of capacity is highly specialized difficult to operate, costly, and takes significant time to build install, develop, and qualify. It is this persistent supply-demand gap that is driving the current pricing environment particularly in the nickel-based superalloy market and we don't see that changing materially. This leads to the third topic, nickel-based superalloy pricing. Similar to the aerospace demand environment topic, I also spent a lot of time providing details of our pricing and customer contractual arrangements on last quarter's earnings call. Again, all of that commentary still holds true. I will note again to support our view of the pricing dynamic for our materials, that in the quarter we completed negotiations on three long-term agreements with aerospace customers with significant price increases. It is also important to note that in turn, our customers also benefit greatly as they are getting surety of supply of our products. Which is highly valuable to them in an extraordinarily high demand environment. Final point on this topic. We have communicated publicly many times and state again today that we believe pricing actions will continue to be a positive tailwind into the future due to the supply-demand imbalance that exists today and is expected to intensify in the future for nickel-based superalloys. Lastly, we continue to receive questions about our confidence in our earnings guidance. As you have come to understand, our earnings guidance philosophy is very structured and well thought out. We believe in establishing challenging targets we have line of sight to achieving. With disciplined action plans in place. We have earned the reputation of achieving exceeding our targets. At the start of fiscal year 2026, we projected operating income for the current fiscal year of $660 million to $700 million. Given the supply-demand dynamics I just covered, and the visibility, have for the second half of the fiscal year 2026 we are raising our guidance to $680 million to $700 million. This range for fiscal year 2026 represents a 30% to 33% increase over our record fiscal year 2025 earnings. As you recall, we established fiscal year 2027 guidance of $765 million to $800 million almost a year ago. In February 2025. At that time, we stated our belief that the targets for fiscal year 2026 and 2027 were the highest earnings growth trajectory among our industry peers. And we still believe that to be true. However, let me be clear. As this aerospace market continues to accelerate, our focus is not on achieving fiscal year 2027 guidance. The focus is on exceeding that target. As we continue to fine-tune our outlook, I would expect in the next few quarters, we will be updating the fiscal year 2027 guidance as well as adding longer-term annual guidance. Now let's turn to the final slide, to summarize this great story. Let me close as I did last quarter with why I thank Carpenter Technology Corporation is a compelling story for existing and potential shareholders. Let's take a look at the three major areas most important to shareholders. One, we have an enviable market position in the industry. We are in the midst of a significant acceleration in demand. Especially in the aerospace and defense end-use market. With accelerating build rates driving higher demand for our materials, a fundamental supply-demand imbalance in nickel-based superalloys will tighten even further. Our world-class collection of unique manufacturing assets and related capabilities are difficult, if not impossible, to replicate. Our leading capacity and capabilities are further differentiated by stringent qualifications necessary to supply advanced materials for aerospace and defense and other key end-use market applications. Two, we are committed to a balanced capital allocation approach. We have a healthy liquidity position and a strong balance sheet. Combined with an impressive free cash flow generation outlook. We are focused on returning cash to shareholders via a long-standing dividend and a robust share repurchase plan. In addition, our strong performance enables us to invest in highly accretive growth projects. Like our recently announced brownfield expansion. That accelerates earnings growth but will not materially impact nickel-based supply-demand imbalance. And three, we have delivered impressive financial results with a strong earnings outlook. We have just completed another record quarter of profitability, driven by significant margin expansion our SAO segment. Our increased guidance for fiscal year 2026 implies a 30% to 33% increase over a record fiscal year 2025. And we are well on our way to achieving and even surpassing the earnings target for fiscal year 2027. I don't know if anyone in our industry who can say they have a stronger earnings outlook than Carpenter Technology Corporation. Of course, fiscal year 2027 is not expected to be our peak. We have plans and line of sight to further earnings growth beyond 2027. In summary, we believe Carpenter Technology Corporation checks every important shareholder criteria box. We have created significant shareholder value to date but we are only at the beginning of this growth journey. The best is still to come. As always, we remain focused on supporting our customer needs operational execution, and living our values as we drive to exceptional near-term and long-term performance. Thank you for your attention. I will now turn the call back to the operator. Desiree: 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 and join the queue. If you are called upon to ask your question and are listening via speakerphone in your device, Please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press 1 to join the queue. Our first question comes from the line of Gautam Khanna with TD Cowen. Your line is open. Gautam Khanna: Yes, thanks. Good morning, guys. I was wondering Tony, if you could elaborate on how broad-based you're starting to see the airframe customers participate in ordering. And is this kind of Boeing specific stuff where you were previously experienced a bit of a destock post the strike? Over at Boeing. Tony Thene: Hey. Good morning, Gautam. Hope you're doing well. Yes. I think two really important points that I made in the prepared remarks. I will say at a high level across all of our aerospace submarkets, whether that be engine fastener, structural, we're seeing increased activity with, you know, increasing forward demand. Specifically, though, in this quarter, the two things that stood out the most or or that you had engine orders continue to increase sequentially. 30% this quarter. That's significant. Maybe you could argue even more significant is what our structural customers did in the quarter. And you rightly said, Gautam, the impact of Boeing really put them on the sidelines. Prior to those issues, they had been probably the top submarket in terms of ordering quantity. So they they had a lot of inventory. To see them now come off the sidelines and two things, not only one place some significant orders, but then immediately come back to us and say, there's more coming. And they're gonna be bigger and more urgent that's a big positive sign. And I would agree with you that least on the structural side, that that was primarily driven by the confidence in Boeing, not just in what they believe they can do, but what they've actually you know, achieved in this last month. Gautam Khanna: Okay. That's very helpful. And you mentioned the defense submarket saw a bit of a government shutdown impact. Do you have any visibility from customer customers in that submarket as to how they expect to kind of put in orders over the next couple quarters? Tony Thene: Yeah. We've already seen that come back. I mean, quite frankly, they would have liked to have been placing orders during that time but weren't able to do so, weren't allowed to do so because of the government shutdown. So you've got some pent up you know, order demand there. So we see that coming back very rapidly. Gautam Khanna: Okay. And last one for me just on you mentioned the mix in the quarter itself. So the basic message, I think, is that overall pricing saw no reduction. This is purely a mixed dynamic pricing still trending, as you've said, for the last couple of years. Higher. For longer. Is that right? Tony Thene: Well, it's a 100% right. Maybe if you allow me to to speak more about this. This is something that we've talked about a lot. In fact, we signaled this on the last call where we said based on some of the planned maintenance that that we're going to do testing equipment at the back end. That allow the the higher priced aerospace needs to go through. That that would impact that. Alright? So I've talked about that quite a bit. And I think that if there's some belief that a small sequential price decline, which we've said could happen, multiple times, is somehow a red flag. I don't think it can be any more wrong than that. I mean, we just talked about it, Gautam. Aerospace only bookings up 23%. Aerospace engine bookings up 30%. Just completed three aerospace engine LTAs at substantial price increases. I can tell you very clearly, we are not or we did not discount premium airspace products in the quarter. There's absolutely no reason to do so. And and I've repeated this many, many times. And we said it probably several times over the last year. That we see pricing actions continue to be a positive tailwind. For us going forward. And I and I would just say, quite frankly, this should be obvious. Due to the supply demand imbalance that exists today. And that's only expected to intensify. So there is no issue with what happened in this in this quarter in terms of a slight you know, price per pound decrease, and you'll see that continuing to go up. Over the next several quarters. Hopefully, that's helpful. Gautam Khanna: Very much, though. Thank you, Tony. Tony Thene: Thank you, sir. Desiree: Our next question comes from the line of Scott Deuschle with Deutsche Bank. Scott Deuschle: Hey, good morning. Tony, I'm gonna I'm gonna take a shot at a question. I'm not sure if you'll be able answer. But for the aerospace LTAs that have renewed over the last six months, can you say whether the average price increase is more or less than 30%? Tony Thene: Scott, I think you already know the answer to that. I mean, these are substantial price increases going forward. 30% is not substantial. Scott Deuschle: And these are post-COVID LTAs? Tony Thene: There are there have been one or two that that are longer, you know, that that that were signed prior to COVID, but per primarily, these are ones that are that have come due again since that time. Yes. Scott Deuschle: Okay. And 30% is not substantial for this? Tony Thene: I agree with you. Scott Deuschle: Okay. Tony, just to deliver this strong SAO guide for the third quarter, should we expect volume, price per pound and EBIT per pound to all move up sequentially? Tony Thene: Yeah. You know, Scott, I I would say yes to that. I don't manage at that level of detail. Like, I know I am sitting on a gold mine here. Right? Doing something that very few people in the world can do. So I'm gonna supply all of those customers to the best of our ability to maximize the profitability. If one quarter, my margin goes down a half a percentage point, Scott, That that's not an issue. Right? The overall trajectory is going forward. And I think we get very hung up with this fact of quarter over quarter, you have some of these small movements basically, because you've got a complex production system that that's making a thousand different types of alloys. In any one quarter. Right? So I I wouldn't get so hung up on slight movements to that. Quarter over quarter. I will say year over year, absolutely. You will see increases in price per pound and and earnings per pound. There is no doubt. It's impossible for us not to deliver that based on the overall market dynamics going forward. Does that make sense? Scott Deuschle: Okay. Thank you. Absolutely. And just last question. The medical channel, is there any real sizable revenue left in that channel that you're shipping this past quarter? Or I'm just trying to think, is there still downward pressure potential there? Or is it basically completely bottomed out and and near zero? Tony Thene: Well, I can tell you that the good news in January from a booking standpoint that we solve that specific area come back and have the highest order intake than it had of any month in 2025. So that would suggest that I agree that, yes, you're right that it's probably hit the bottom. And I think the big piece here is that's very impactful to the PEP segment. As you all know, Scott, you cover us very closely. It's not material to overall Carpenter, and and it doesn't impact what I say about my guidance whatsoever. I I wanna see that bounce up, and I think when it But it's not something I rely on to when it does here in the next couple quarters, it'll be a tailwind for us. to hit my guidance numbers. Thank you. Scott Deuschle: Thank you. Desiree: Next question. Comes from the line of Joshua Sullivan with Jones Trading. Your line is open. Joshua Sullivan: Hey. Good morning. Good morning, Josh. Tony, you made an interesting comment there. You said jet engine OEMs are asking you if their own supply chains have ordered enough materials to to meet projected build rates. was your answer? You kinda left us on a cliffhanger there. You know, we'll Guess, how is the how are those conversations translating to the expectations of their suppliers? Tony Thene: Well, I mean, the answer can be different depending on the customer I would say that in many cases, our answer to that is no. They're not ordering quick enough. There needs to be more orders in the system based on the demand that that or the build rate that you want to achieve. So I would say and that's a positive thing for me to say is that there needs to be more orders to hit this build rate projection that's out there. We just talked about specifically on the structural side There hesitation to place orders and wanting to see more and more evidence of prolonged performance from the airframers, specifically Boeing. You're starting to see that. So you see them now coming off the sidelines. I've said that phrase several times now. And placing more large orders. So I've talked about this, Scott, more than once about there is not going to be a gradual increase in orders. You're seeing it now, and then you're gonna see a significant hockey stick. That's the way it's happened in the past. Believe that's the way it'll happen again this time. And I think the structural customers with the activity they had in this last quarter is one of the leading indicators to that. Joshua Sullivan: Got it. And, actually, that that dovetails nicely into just the conversation on the long-term agreements you highlighted. You know, what's your calculus or your mindset on, you know, committing to those versus leaving spot capacity open as you've talked about in the past? I got the golden goose. Just curious on your thoughts there. Tony Thene: Well, I don't I mean, that's another you know this. I mean, the words matter to me. Don't have spot pricing. Right? I don't have I don't have a generic alloy sitting on the shelf waiting for the highest bidder to come get. Right? relationship with my customers. My LTAs are based on a mutual beneficial You have a lot of volume. I'm gonna give you surety of supply. So I'm not here trying to be the riverboat gambler trying to say, let's keep it all you know, speculative. That's not what I'm trying to do. But I do understand the value of my product. As do my customers. When there's that beneficial relationship to say, let's enter into a an LTA, with increasing prices. That's that's good for both of us. So I think, Josh, you know this. I'm not sitting on the sidelines waiting for somebody to bid on my my products. I'm I'm pretty sure that's not what you were trying to allude to anyway. Joshua Sullivan: No. Was just curious on the long term. And and and I guess just relatedly, just outside of aerospace, are you seeing more interest in those types of relationships as you talk about IGT and some of those other markets? Are you seeing similar levels of interest, so the capacity might not be there. Okay. Tony Thene: Absolutely. Primarily on the power generation side. Because as you well know, in many cases, they use the same assets. But we also see some of that on the medical side as well. Primarily on the FAO business. You know? Because there's times that there can be overlap on some of the production assets between some of those, alloys. So you see more interest in those specific alloys for medical customers. Because in many cases, we're the sole supplier. And have a proprietary alloy there. So in both nondistribution medical and especially in power generation, we see some of the same dynamics as far as the openness or the willingness or wanting to have a LTA with us in those areas. Joshua Sullivan: Great. Thank you for the time. Tony Thene: Thank you. Desiree: Next question comes from the line of Bennett Moore with JPMorgan. Your line is open. Bennett Moore: Good morning, Tony and Tim. Congrats on yet another impressive quarter. Yep. Thank you. Quick. I wanted to you know, thank you for all the color, and commentary on the bookings. But could you also comment on how engine and fastener sales trended during the quarter and year over year? And also what lead times look like for structural products relative to engine alloys? Tony Thene: Yeah. It's a good question. You know, our overall aerospace, you saw our sales were relatively flat quarter over quarter, basically, because of the number of operating days you've you've written about this. As well as the holidays. So aerospace engine sales are relatively flat, down a couple percent. Engine fasteners was flat, I think, up 1%. So all of the submarkets inside of aerospace were you know, plus or minus one or two. On a sequential basis, certainly on a year over year basis all of them up. Quite substantially as you would expect. The second part of your question was on lead times. You're also very well aware, you know, that lead times isn't a universal indicator of of demand increasing just because we limit we cap lead times. But I can say that in that in that area, you have seen them extend across all the areas inside of aerospace. And I think, you know, we'll be pushing right back up to that same level that we were before in a in very short order. But, yes, we did see some we did see expansion of of lead times. Bennett Moore: And I guess in the context of your you know, positive commentary around structural customers moving off the sidelines, is it just fair to assume that lead times generally for the structural alloys are you know, shorter than the engine alloys so we could see that benefit sooner? Tony Thene: Yes. I think in general, that is a true statement. Bennett Moore: Great. And then real quick, I I just wanted to ask the additive business and you showed strong growth during the quarter. Is this lumpy or are you seeing improved adoption in this space and you remind us how the margin profile compares for these products? And if this is a space Carpenter would look to grow into into the future? Tony Thene: Yeah. I think the second part of your question is the right way to look at We see it as something that that could be a tailwind from us for us in the future. We've been inside the additive business for quite some time. This is a higher adoption rate And it's been, you know, some increased activity with some very large customers that we bring proprietary alloy in that in that area. So it's still relatively small in the whole scheme of things. Bennett. But, yes, I think it's something we wanna stay in. And I think going forward, we'll see continued growth in that area. So I'm very happy, quite frankly. The performance of additive. Again, relatively small from an earnings standpoint, but very happy with the way they've been performing. Over the last couple of quarters. Bennett Moore: Great. Tony, team, thank you for all the comments. Best of luck. Tony Thene: Thank you, sir. Desiree: Next question comes from the line of Andre Madrid with BTIG. Your line is open. Andre Madrid: Hey. Good morning. Tony Thene: Good morning, sir. As, as we look at the LTA signed in the quarter, I mean, are any of these first-time customers? On an LTA basis? And, I mean, how should we expect the mix of LTAs to trend in the quarters and years to come? Tony Thene: Well, it's gonna be it there's not a there's not a trend. There are they're all at at different times. It seems like we're always working on on some type of LTA and and let's take it to the first part of your question. These were these are long over term. Customers, so not not new. Andre Madrid: Got it. Got it. And then we've been hearing a lot of chatter from recent conversations with customers about, you know, potentially exploring capacity expansion that they help fund. I mean, is that something that you guys would ever look into? Tony Thene: Maybe if something became more than just chatter that that I could that I could comment on that. So we we have already made our position known. We have gone out there and announced capacity expansion in a very professional manner. We told you exactly what the pounds will be. We've told you when it will come online. We've told you exactly what the equipment will be and we've told you exactly what the impact will be not only to Carpenter Technology Corporation financials, but the overall supply-demand dynamic. So we've been very very clear and professional on what that would be. So we've told you already how we would react, and we were able and willing to fund that a 100% ourselves. Andre Madrid: Got it. Got it. That's clear. And then if I could sneak one more in. I mean, can you just maybe break down a little more clearly where the orders are exactly coming from? I mean, jet engine versus airframe, OEM versus MRO. Like, is there a split that you can provide? Tony Thene: Well, I mean, we're having orders are up across the board. I mean, I I give you a couple of examples. Engines were up 30%. That's significant. Right? So, I mean, we have order intake increasing across all of the submarkets. The one I called out, you know, is from from a sales standpoint. You obviously saw a bit of a a dip in defense. A sales standpoint, but now you see orders you know, I think will start picking back up again. So know, we have order intake increase across all of that. Markets. And, again, you know, Andre, that shouldn't be a surprise. Look what you have out there. Look what look what Boeing and Airbus and MRO and what all that is doing. That's increasing significantly. Of course, orders are going to have to increase also. Andre Madrid: Yeah. No. I I agree completely, and I I see it, though. I appreciate the color, Tony. I'll hop back in. Thanks. Tony Thene: Alright. Thank you, sir. Desiree: And our next question comes from the line of Philip Gibbs with KeyBanc Capital Markets. Your line is open. Philip Gibbs: Hey, good morning. Hey, Phil. Good morning. Tim, can you give us a review of the CapEx this year again just in terms of how much you expect to spend overall and how much of that is going to fiscal twenty seven? the new project and how much carries over into Timothy Lain: Yeah, Phil. I'll break that into pieces, and then then you can follow-up if you want to. The full year guidance for total CapEx was $300 million to $315 million. That includes the $175 million to $185 million the brownfield capacity expansion. I also said that, you know, given where we are, we spent about a little over $80 million through the first half. We said that we expect brownfield capacity expansion spending to increase pretty rapidly in the second half. As activity ramps up. There's a lot there there's a fair amount of assumptions there. I'm like, look. It's a big capital project complex The timing of those capital expenditures may vary. I mean, we're making assumptions about progress payments, when the equipment gets delivered, payment terms, So we'll we'll we'll provide an update in the next quarter, but I mean, the the guidance out there still holds true for now. And that's incorporated in into our free cash flow guidance. Philip Gibbs: Thank you. And Tony, any of the LTAs that you signed have they have they been with with PowerGen? Manufacturers at all? Tony Thene: Well, the three that I mentioned on the call here were all aerospace. Philip Gibbs: But none of the prior five five, for example, that you mentioned last quarter? Tradition traditionally, that's not been an area that's been LTAs for us, but it's an area I think it was to Josh's question earlier, It's an area that we're now exploring that the customers in that in that submarket would like to enter into an LTA, and that could be something that we're interested in as well. But, traditionally, that has not been for us because of the size. It's been relatively small. To the rest of the the business. It's becoming obviously much much bigger now. And then lastly, know it's a small business for you all. Philip Gibbs: Relative to s a excuse me, relative to SAO and and PEP, but what what surprised you just just relative to the outcome? Because I know you expected to do better. I know you had mentioned I know you had mentioned outright medical, but usually, you have pretty good visibility within a given Yeah. Given quarter. So Tony Thene: You mean you're you're you're speaking yeah. You're speaking specifically of that that sub market in of medical. Philip Gibbs: Oh, I'm just saying in general for the seg segment, you know you expected to to do better a few months ago, and and you usually have Yeah. Very good quarter visibility. So I'm just saying kinda what surprised you. Tony Thene: Yeah. In the PEP segment. Correct? Yes. Yeah. Yeah. I mean yeah. I Listen. I I think that's a fair question. I think we do usually have pretty good visibility. This one on medical distribution, quite frankly, has been a little elusive. For us to get a handle around that, quite frankly. I think that's a fair comment. But a good point is that you know, the order intake for that specific submarket was the highest in January he had been in any month in 2025. So, Phil, I'm hoping that on that for for the PEP segment that that's hit the bottom. But as you can see with our guidance, we're we're still remaining fairly fairly cautious in that area. And as you said, again, doesn't impact our overall guidance. But it's important to us to to do the best we can as far as forecasting what we think PEP can do as well. So a little bit of a little bit of you know, conservatism maybe or a little bit of let's wait and see to make sure we can get Philip Gibbs: Thank you so much. Tony Thene: Yeah. Thanks, Phil. Desiree: That concludes the question and answer session. I would like to turn the call back over to John Huyette for closing remarks. John Huyette: Thank you, operator, and thank you, everyone, for joining us today. For our fiscal year 2026 second quarter conference call. Have a great rest of your day. Desiree: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.