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Simon Hinsley: Good morning, and welcome to ikeGPS quarterly update, where we have the CFO, Paul Cardosi, on the line. We'll have Glenn Milnes, the CEO, join shortly. [Operator Instructions] But Glenn is going to run us through most of the financials as a part of the quarterly first, and then we expect to Glenn to join shortly. Thanks very much, Paul. Paul Cardosi: Thanks, Simon, and good morning and good afternoon to everyone. Thank you for joining our third quarter performance update. We published our results earlier today. So hopefully, you've had a chance to look at the document. We're not presenting slides today. I was actually going to talk you through the handout that's been published on our website as well as the NZX and ASX. Overall, we've had a very strong third quarter, continuing on from the strength that you saw in the second quarter. At a very high level, our subscription revenues continue to grow at a 35% growth pace. You'll see that in some of the slides that we have. We're also seeing continued improvement in gross margins, which creates operating leverage for us as a business. And we do that with a healthy balance sheet that we're investing into new products, which are on track for release later in our calendar year. I'm going to jump to the financial part of the presentation. And it's the section that's titled Performance Summary. I'm going to start with what we call our exit run rate or annual recurring revenue trend. You can see that through the 9 months year-to-date, we finished at NZD 21.1 million, that's an increase 35%. It's actually 36% in constant currency. We had a little bit of an impact from the U.S. dollar, New Zealand exchange rate, that represents about a 39% 3-year annual -- compound annual growth rate. So, subscriptions is where the business is predominantly focused, and you can see that as we continue on that growth trend. One thing of note, we launched a product called IKE PoleForeman in literally 2 years ago, and that product exceeded $10 million of that exit run rate ARR. So really pleased to see the strength of PoleForeman in our numbers continue as we report today. If I go to the next chart, we look at subscription revenue. So this is our recognized subscription revenues, again, 9 months year-to-date. We finished year-to-date at $14.1 million. That's a 38% growth rate over the year-to-date period from the prior year. What's not on this slide is we actually did about $5.3 million in subscription revenue in the third -- our third quarter, which is actually a 43% year-over-year growth rate. So you can see from those 2 slides, subscription revenues continue to grow and the pace is picking up. In the third quarter, we added about $2 million of ARR. A lot of that comes from new logos. We continue to win engineering and utility new logos. We're also expanding significantly the portfolio into our existing customers. So that trend in that business model continues for us. If I go to the third slide, which is the seat license trend, the majority of our sales are sold on an annual per seat basis, an annual per user basis. Seats grew at 30% year-over-year. We're also seeing an increase in our average revenue per unit, and a lot of that has been helped by a recent release of our AI-based PolePilot that sells as part of our IKE Office Pro product line. So, seat growth continues well. The pricing continues well underlying those seats. So continued growth there. If I go to the next slide, it's our transaction or services business. And you can see that we had some weakness there in our services revenue. If you remember from prior calls, a lot of our services customers are broadband communication companies. The U.S. government had a reset on funding for some of those companies. So, a lot of the funding is there, but it's being delayed just through legislation changes, and we're seeing that in some of our service business. So, you can see that in our year-to-date numbers, we're down year-over-year, both on the number of Poles that we count in our transactions. as well as the services revenue. We have made moves to restructure the team that supports this business. We've offshored a lot of the work. So, we are seeing improved gross margins in services, which adds to operating leverage across the company. I'll jump next to the segment revenue. So, you can see the NZD 19.8 million of revenue that we're at year-to-date and how that is broken out. The recurring piece, which is our subscriptions and the reoccurring piece, which is the transaction revenue sits around 90% of our total revenue today. And you can see that for the year-to-date, we grew revenues around 7%. And year-over-year for the quarter, revenues were up around 11%. So continued growth across the revenue. But clearly, the mix is the subscription piece of the business. I'm going to -- before we get into questions or if Glenn joins, I'll just finish with the metrics chart and just make some comments on it. This is the last -- the table at the back. Gross margins continue to improve. You can see 79% versus 68%. The subscription mix helps that. The restructuring we've done in the transaction services business helps that. That creates leverage, leverage that we're using to invest in some new products as well as on our path to EBITDA positive. So that table gives you a sense of not just the overall margin of the business, but how the margins of our product lines stack up. You can also get a sense of our customer counts as well as revenue and margin by segment. So, I'm going to close there with just comments that it's a solid quarter. We see a similar early signs in our fourth quarter, which started in January, and we continue to book business, and we're off to a relatively strong start as we embark on the fourth quarter and the final quarter of our FY 2026. And with that, Simon, I'll hand it back to you. Simon Hinsley: Our first question is from James Lindsay at Forsyth Barr. James Lindsay: Congrats, Paul. And I just wonder if I could just ask a few questions. Firstly, just with regards to, I suppose, the more disappointing performance on the transactional side of things, if there's anything in there with regard to sort of when that could turn around? Paul Cardosi: It's a good question, James. From a macro standpoint, we are hearing that a lot of the companies that got funded had to reapply and are starting to see funding coming through. And also from a sales pipeline perspective, we're starting to get line of sight to some large projects. Timing is unsure at this point. We're thinking March, April time frame. But certainly, we're seeing more deal activity in our pipeline, I would say, in the last couple of months than we've seen maybe in the earlier parts of this year. So early signs that it could start to happen in first quarter. James Lindsay: Okay. And then obviously, the gross margin in that side -- that transactional side of the business has actually been relatively volatile. But for this quarter, it looked to be up a reasonable amount. Is there -- can you give us any sort of headway about why it is so volatile? Paul Cardosi: Part of the volatility is we took some onetime restructuring in the second quarter. So, you would have seen, I would say, relatively low margins tied to some restructuring that we did with the team. And then the third quarter was our first full quarter where the majority of the work in this business has been offshore. So, we had an offshore model for some of the work that we do in services, but the third quarter was really the first quarter that we saw a full quarter of work being done offshore. And it's not just lower cost, it's also more of a variable model in that we only incur costs when we incur the work. So, we have less fixed costs in that model as well. So, you're really seeing the effect of the offshore move that we've made. James Lindsay: Okay. And that's that Mexican team that you're talking about? Paul Cardosi: That's correct, yes. James Lindsay: Yes. Okay. Great. And just with regard, obviously, the balance sheet in a really strong position post the capital raise. And just with regard to the spend that's going on in R&D, can you talk about sort of the mix of what's going on in spend and sort of full year? Will that start to accelerate in the next quarter or so? Paul Cardosi: It will definitely start to accelerate. We've started to onboard some new employees tied to our PoleOS initiative. So, part of what we're driving, I think you know is a fairly significant platform strategy. And we started to onboard some resources engineers, both here in the U.S. and in New Zealand starting in January, and then we've got some additional hires coming in February. So, you'll see the spend tick up, but it's not reflected yet in our third quarter because the headcount came in -- is starting to come in this quarter. James Lindsay: And obviously, well done. I think it looks -- if I look at the numbers right, it might be your third best quarter ever as far as that 25 net customer growth. Just interested in the mix of that and what do you think has driven it? Is that sort of more PoleForeman? Or is it just in core product? Where is that mostly come in? Paul Cardosi: Two areas that I've seen in the third quarter, James. One is the ecosystem of companies that use PoleForeman continues to expand. So, think about a utility not just rolling out PoleForeman in more departments, but also the engineering firms that support those large utilities. So, we're seeing, I would say, kind of a flywheel effect on that in terms of both subsegments, the engineers and the utilities buying more PoleForeman. I would also say that we saw an uptick in Office Pro, IKE Office Pro in the third quarter. PolePilot has helped. We're starting to have customers take the new version with the AI-enabled PolePilot. And we're also seeing -- we run a hardware trade-in program where customers could trade in old hardware and trade up to newer hardware with IKE Office Pro licenses. And so, we're seeing a lot of the benefits from that on the IKE Office Pro side as well. James Lindsay: Right. And you mentioned just PolePilot. Maybe just while you're on that, as far as sort of the customer feedback on that and if there's been any sort of fight back on the increase in price that you're putting into customers for that product? Paul Cardosi: So far, we've had about 30 customers license it with no pushback on the price. And overall, the feedback has been super positive in terms of time savings they're seeing by being able to use that functionality. James Lindsay: And is there anything else in market that's sort of comparable to that? Paul Cardosi: Maybe a Glenn question, but certainly, we haven't seen anything crop up just yet now that we've launched PolePilot in the market. James Lindsay: And just the other thing I was going to ask about the customer base. I know that there's always a very big mix of size potentially there. And maybe when you're saying about the network effect, if it's sort of associated companies to the utilities, it's possible that the size of this, the 25 net new customers is maybe smaller than the average that you've got today. Would that be fair to say? Paul Cardosi: I would run an 80-20 on it, James, and say that 20% of those net new give us, I would say, material size of deal, meaning high 5-figure, high 6-figure kind of ACV, annual contract value deal size. And then the other 80% quantity is maybe smaller -- more of the smaller engineering firms that maybe take a smaller amount of licenses and then expand over time. James Lindsay: Great. And then last one for me. It might be more of a Glenn question as well. Thanks again for the heads up on that sort of 9 months for that Module 1. How long do you think that sort of pilot testing? Have you got any indication about how long pilot testing would take before sort of a market introduction? Paul Cardosi: I know that basing on what we did with PolePilot and the Module 1 is, I would say, it's an adjacency to what PoleForeman does, but it's a different subsegment. I would say that if I follow what we did with PolePilot, it's likely to be a 60- to 90-day beta that we'll put in customers' hands and get feedback on very quickly. So typically, 2 to 3 months is what our beta period is, but we have more development work to do before we get to that. James Lindsay: Great. And you mentioned -- sorry, to carry on, I'll pass it back to Simon shortly. I think in the raising presentation, you talked about around about $11 million, I think, if I recall, for the 2 modules. Is that still on track? Or is there any sort of change in the view about what would need to be spent? Paul Cardosi: The only change that I would say that's material is we're, I would say, fast following in terms of our adoption of artificial intelligence. And I would say that, that is improving the way that we develop and leading to a faster development cycle. We haven't quantified the impact yet, James. But certainly, we're leaning into, I would say, faster AI adoption that could help accelerate the development, which ultimately would lead to lower cost. But I don't have a number that I can give you at the moment. Simon Hinsley: Our next question is from James Bisinella at Unified Capital Partners. James Bisinella: Congrats on the result. Lots of ground covered there. I might just ask a couple. Just on sort of the pipe, you mentioned some strength coming through there. Just keen to hear a bit more color kind of in the potential makeup of that. Obviously, some large deals signed in the past. You do have 8 of the 10 largest IO users at the moment. So, is this a makeup of sort of large deals, a combination of smaller ones? Or just any further color there would be helpful. Paul Cardosi: And just to clarify, James, are you asking for results to date or more of the pipeline that we're seeing as we move forward? James Bisinella: More so the go forward, yes. Paul Cardosi: Yes. I mean, we look at the pipeline constantly. And I would say that, we have very good coverage of the bookings that we need to close to hit that 35% guidance. So we're laser-focused in on the pipeline that we have, the deals that we have in that pipeline. And I would say, we have between 8 to 10 material deals of significant size that make up, I would say, maybe about half the pipeline. So we don't need to close all those deals to hit our 35% run rate. But my point is the deal flow is still -- potential deal flow is still very healthy. And it's -- I would say it's a mix of large 5-, 6-figure deals in the 8 to 10 category and then the rest is smaller deals. James Bisinella: That's great. That sounds very supportive. And then just another one for me, just last one, just on kind of the ARPUs of the new product line that's 9 months away. I think kind of blended ARPUs at around the NZD 2,000 mark. So just looking for any color on ARPUs of this new product and what we could see out of that? Paul Cardosi: We haven't priced it yet. But to give perspective, our PoleForeman ARPU runs around rounded up USD 2,000 is our PoleForeman ARPU. And our feeling is that, the new product has significantly more of a value proposition than PoleForeman. So we haven't priced it, but I would think that it would be well north of the USD 2,000 we have today for PoleForeman. Simon Hinsley: Thanks, James. Next question, congrats on PoleForeman reaching $10 million ARR. How much approximately is the total achievable ARR for PoleForeman just from your existing client base? Is the customer take-up of PoleForeman still accelerating? Paul Cardosi: It's still accelerating through -- I would say that, the revenue potential is still significantly higher. I know that in prior calls, we've shared market penetration and penetration within our accounts. And so, the short answer is in the next 6 to 12 months, I think the potential for PoleForeman is still there. We're not seeing a slowdown. And the pipeline that we have suggests there's still not a slowdown. So, without throwing a number out, Simon, I would say the potential and the upside is still significant for PoleForeman. Simon Hinsley: Thanks, Glenn. Just a question on what circumstances do you envisage that the company might raise more capital in the next few years? Paul Cardosi: I would say, it's based on a strategic direction more than financial need, if that makes sense. So today, we're tracking to get the business to EBITDA positive. And the increased gross margins give us more and more leverage as we grow that margin, we've got more to invest further the strategy. But to me, it would be strategic reasons that would lead to potential capital raise, meaning is there subsegments we could get into through an acquisition as an example. But today, I would say we're heads down executing on the strategy we have, and it would be something strategic that would lead to the need for a capital raise. Simon Hinsley: Thanks, Paul. That concludes the Q&A segment. Thanks so much for stepping in again. And if there's any further questions, details are at the bottom of the ASX and NZX announcement, but I hope you all have a good day. Thanks, Paul. Paul Cardosi: Thank you. Bye.
Operator: Good afternoon. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's Fourth Quarter and Full Year 2025 Conference Call. The slides accompanying today's call are available at investor.cpkcr.com. [Operator Instructions] I would now like to introduce Chris de Bruyn, Vice President, Capital Markets, to begin the conference call. Chris de Bruyn: Thank you, Angela. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ. The risks, uncertainties and other factors that could influence actual results are described on Slide 2 in the earnings release filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on Slide 3. With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; John Brooks, our Executive Vice President and Chief Marketing Officer; and Mark Redd, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q&A. [Operator Instructions] It is now my pleasure to introduce our President and CEO, Mr. Keith Creel. Keith Creel: Thanks, Chris, and good afternoon. We thank everyone for joining us to review our fourth quarter results as well as full-year results and to allow our team to share how we see an exciting 2026 playing out. Now let me start by expressing gratitude and thanks to the 20,000 strong CPKC family, who, through their dedication, hard work and sacrifice allow us to create the results that we're honored to share today. I can tell you this past week, railroading is a demanding way of life, in fact, a consuming way of life. Times like we have navigated through this past week and in fact, navigate on the daily in Canada. Operating in the winter operation reminds me of just how much sacrifice that takes, which I have the deepest amount of respect and appreciation for. So on to the results, for the fourth quarter, revenue of $3.9 billion, which is up 1% versus last year, an industry best operating ratio of 55.9%, 120 basis points of improvement and earnings per share of $1.33, up 3% versus last year. I'm particularly proud of the job the team did in the quarter, in the face of a demanding -- demand softening in a number of areas and how they honored our mantra of controlling what we can control in our cost structure. The team demonstrated exceptional execution that allowed us to produce the results we produced on the operating ratio side, and we are set up and carrying momentum well into 2026. As Mark is going to speak to, I also want to applaud the operating team for producing record results across several of our key operating metrics in the quarter. Most importantly, we produced another year of record safety performance. Our network is running well. It's in a great position to execute on the growth opportunities that we have lying ahead of us. Now let's turn our attention to full-year results. Revenue of $15.1 billion, which is up 4%; volume growth of 4% as well. Operating ratio at industry best at 59.9%, a clear industry best improvement of 140 basis points for the year. Core EPS of $4.61, which is up 8%. On '26 outlook, as we look forward in 2026, the way we see it unfolding, we fully expect to deliver another year of mid-single-digit volume growth enabled by the strength in our bulk business and particularly, the unique growth drivers the franchise has, which John will speak to. We expect to continue improving margins and ultimately deliver low double-digit earnings growth. For clarity, this outlook does not assume that we get much out of the macro. Our growth drivers are unique to CPKC and record grain harvest in Canada and the U.S. provides strong and a differentiating base of business. Our story is about continuing to do what we do best, controlling what we can control and executing our PSR model, which remains key to setting CPKC apart and allows us to shine in times of uncertainty. You saw that in the results in the last quarter, and you'll continue to see that in 2026. On the growth outlook, there are a lot of things to get excited about, uniquely enabled by this network. John will talk about them in more detail, but I'll highlight a few. Grain harvest, an all-time record in Canada, 85 million metric tons versus the previous record of 78 million metric tons, a significant amount of grain to move that's carried into the full year of 2026. That's a record harvest, both in Canada and the U.S. The grain is starting to move now, ingest. And again, we're going to be busy through the balance of this year, moving grain. Continued growth in intermodal, our MMX-180, 181, the fastest and most reliable service in the industry between the Midwest and deep into Mexico, continues to grow and do extremely well. And we're bringing that same model to Mexico and the U.S. Southeast in partnership with CSX and our Southeast Mexico Express service. That business is just getting started to moving with our partners, we see a ton of opportunity for growth over that corridor is we've created an industry best transit time in partnership with CSX from Atlanta to Dallas over the Meridian Speedway and from Atlanta to Monterrey, truck-competitive to Dallas and superior to truck into Mexico. It can't be replicated about truck into Mexico. We're also excited about the Americold business, that's ramping up this year along with the continued growth on the international intermodal side with Gemini and also continued growth in our automotive franchise. On the capital side, we're going to continue to invest to support the growth. Last week, we announced continued investment with our locomotives, 100 new locomotives joining the fleet in 2026 in addition to the 100 that we added in 2025. So with the combination of our strong top line growth, disciplined investment and our continued cost and efficiency improvements, it's put us in an advantageous position to return cash to shareholders, which you just witnessed as we announced a 5% share buyback program for 2026. So in closing, I'm extremely proud of what we produced amidst a ton of volatility in 2025 and we're super excited about the opportunities ahead. I'll remind you that over the past 2 years, this franchise has outperformed the industry in revenue growth, outperformed the industry in earnings growth. We've got an exciting setup to continue to generate industry-leading performance in 2026 as well. So with that, I'm going to turn it over to Mark for some color on the operations. John will give you a little insight on the markets, Nadeem on the financial details, and then we'll open it up for Q&A. Mark, over to you. Mark Redd: Thank you, Keith, and good afternoon. I want to begin by recognizing the operating employees whose commitment to safe, reliable, efficient service continues to drive the strong performance of this network. The operating team did a tremendous job this quarter in delivering these results. Turning to the quarter, our network performed exceptionally well. We achieved record results across a number of key metrics, including train weight, train speed, locomotive productivity and car velocity. These improvements can translate to faster cycle times, greater network capacity and faster, more reliable customer service. One thing I'm most proud of is -- proud to announce that 10 years in a row, CPKC has earned Amtrak's Best Carrier designation with an A+ performance. We're the only railroad with this distinction, and we appreciate the recognition from our valued partner. Taking a step back on progress, we have made substantial operating gains since the merger. When comparing our 2025 operational performance versus the time of merger of 2023, our combined network is 13% faster, locomotive is 13% more product -- productive, our car velocity is nearly 14% stronger. The improvement south of Kansas City is even more pronounced. Looking at 2025 speeds as being over 25% better, locomotive productivity improved roughly 20%. Looking forward, our operating systems, processes aligned across Canada and the U.S., we expect to deliver additional improvement in 2026. The foundation that we have built positions us for consistent execution and reliable service as volumes continue to grow. Now turning to safety for the quarter. FRA train accident frequency was 0.91, which is 12% better. FRA personal injuries of 1.05, a 22% increase. When I look at full year 2025, our FRA train accident was 0.85, 16% better; personal injuries was 0.92, was 3% better. I continue to be encouraged by the industry-leading performance. For the third year in a row, CPKC has led lowest FRA reportable train accident frequency across the Class 1 railroads, building upon CP's legacy of 17 consecutive years, so all in all, it's 2 decades of best-in-class. These results reflect the strength that we have in our Home Safe culture, our investments in technology, which helps prevent failures before they occur. Now turning to labor, we continue to make progress in this space. Earlier this month, we announced 16 5-year collective bargaining agreements in the U.S. were ratified, covering 700 CPKC employees across the 11 states. These agreements reflect constructive collaboration with our unions and provide service with confidence, provide customers with service and reliability for our network. Now turning to resources and capital, we remain well aligned with our growth outlook. In 2025, we supported 4% growth with 1% lower average head count, expect continued strong operating leverage in 2026. From a capital perspective, we did receive the 100 Tier IV locomotives in 2025. We have additional 100 scheduled for delivery this year. These locomotives are improving the efficiency and reliability of our fleet and positioning us for continued profitable growth. In 2026, we will continue our merger-related expansion commitments to the STB. This work includes CTC, additional sidings, Kansas City to Chicago corridor, but this also includes towards Shreveport. These upgrades are improving velocity on the North-South route, which is strengthening our customer service. In closing, the network is performing at record levels. We are properly resourced to handle grain harvest in Canada and U.S. Our investments in capacity, safety and power are driving sustained meaningful performance gains. We're well positioned to execute our operating plan, support our customers and deliver on our commitments throughout 2026. And with that, I'll turn it to John. John Brooks: All right. Thank you, Mark, and good afternoon, everyone. So this quarter showed the resilience of our book of business with growth across key segments and traction from new wins offsetting areas of deepening softness. Despite macro and tariff pressures, we delivered to our customers, we captured synergies, we maintained disciplined pricing and advanced initiatives that will support our growth in 2026. Now looking at our Q4 results. This quarter, we delivered record revenue up 1% on flat RTMs. Cents per RTM was up 1%. Our pricing remained strong with renewals exceeding our long-term 3% to 4% outlook. Mix partially offset the pricing as longer length of haul and higher bulk traffic lowered our cents per RTM. Now taking a closer look at our fourth quarter revenue performance, I'll speak to an FX-adjusted results. Starting with bulk. Record grain revenues were up 4% on 2% volume growth. Our Canadian grain volumes were up 2% on a record harvest. Export volumes, however, lagged expectations as rain impacted the loading of vessels in Vancouver and farmers chose to store grain volumes, tempering the pace of shipments through the quarter. U.S. grain volumes were also up 2%, with growth led by higher shipments to the P&W and down to Mexico. Our network continues to uncover new markets and this is especially visible with record-setting Q4 and full-year grain shipments into Mexico. Turning to the first half of 2026. The North American crop is shaping up to be a record both in Canada and the U.S. As Keith said, estimates points to an 85 million metric ton Canadian harvest, up 20% from last year. We also have a record U.S. corn crop and solid bean production that has recently started to move the market. Finally, we are encouraged by the recent canola trade settlements and new crush capacity coming online in the first half of the year that are going to further support our positive outlook for grain. Potash revenues were down 2% on 2% volume growth driven by higher export volumes through Vancouver. With solid demand fundamentals and Canpotex fully committed through the first quarter, we expect potash to remain a solid contributor to our overall base this year. To round out both, coal revenue increased 2% on a 1% decline in volumes. Canadian coal volumes were lower, largely due to mix impact of lapping last year's work stoppage and maintenance at Westshore which ran from August into November. These declines were partially offset by higher volumes of U.S. thermal coal. Moving to our merchandise franchise. Energy, chemicals and plastics revenue was down 3% on a 5% volume decline. Decline was driven by lower crude and refined fuel volumes to Mexico along with a softer base demand that primarily impacted our plastic shipments. This was partially offset by growth in LPG shipments from Canada to Mexico as we continue to capitalize and grow our land bridge opportunities. Looking ahead, we expect ECP volumes to stabilize as we move through 2026, although the base business in this industrial segment continues to be impacted by the softer macro environment. Forest Products revenue declined 13% on a 12% decrease in volumes. Volumes were pressured by tariffs on Canadian lumber exports to the U.S., along with ongoing macro softness impacting our pulp and paper business. The team remains laser-focused on project development to continue to try to offset base demand softness and also through extending our length of haul. Metals, minerals and consumer products revenues and volumes were up 1%. Growth in this space was driven by industrial development and synergies with new business coming on in cement and other aggregates supporting construction projects across our network. This strength was partially offset by continued impact of tariffs on our cross-border steel business. Looking ahead, we remain focused on a number of industrial development opportunities as we continue to navigate the tariff and macro headwinds. Moving to automotive, revenue was down 3% on 1% volume growth. Our auto franchise delivered volume growth again this quarter despite the impact of production slowdowns along with aluminum supply challenges and a chip shortage, all which contributed a $30 million revenue headwind in the quarter. Looking ahead, despite ongoing certainty with production and auto sales projections, we expect to continue to outperform supported by business secured in 2025 that will benefit us in 2026. Now closing with intermodal. Revenue was up 3% on 4% volume growth. International intermodal volumes were up 5% on growth with our key ocean carrier partners and lapping the impact of last year's work stoppage at the Port of Vancouver. We remain encouraged by the strong performance of the Gemini alliance and the growth opportunities it is creating across our entire network. Comparisons will be more challenging in the first half of the year. However, the team is focused on the development of new product offerings at the Port Saint John and also down in Lazaro to enable share gains and volume growth to our network. Domestic intermodal volumes was up 3% in the quarter. We continue to deliver strong growth on our MMX train, which is up approximately 40% year-over-year. As Keith said, our new Americold business is also gaining traction with good visibility for a strong ramp-up as we continue to move through 2026. I'm also extremely excited about the new SMX product with CSX, connecting Dallas and Mexico to the U.S. Southeast. Like our Midwest Mexico product, the SMX train pairs will formally launch in the coming months and will offer the fastest, most reliable service product in these lanes. In closing, with record grain crops, our self-help initiatives, industrial development projects all coming online, we are well positioned to again offset tariffs and macro headwinds and deliver another year of mid-single-digit RTM growth. We remain focused on execution, disciplined pricing and continuing to capture the full value of our capacity network. With that, I'll pass it on to Nadeem. Nadeem Velani: All right. Thanks, John, and good afternoon. I'm extremely pleased with the team's strong execution in the quarter. While we did deal with temporary demand softness in some areas, the team responded decisively with strong cost control and operational performance, demonstrating the strength and resiliency of our PSR-driven operating model. The ability to optimize assets, control costs and deliver operationally is embedded in our DNA as precision scheduled railroading at CPKC. Now turning to our fourth quarter on Slide 12, CPKC's reported operating ratio was 58.9%. Our core agenda operating ratio improved 120 basis points year-over-year to a CPKC record, 55.9%. Diluted earnings per share was $1.20, and core adjusted diluted EPS was $1.33, up 3% versus last year. Turning to our full year results on Slide 13, CPKC's reported operating ratio was 62.8%, and the core adjusted operating ratio improved 140 basis points to 59.9%. Diluted earnings per share was $4.51 and core adjusted diluted earnings per share was $4.61, up 8% year-over-year. Taking a closer look at our expenses on Slide 14, I will speak to the year-over-year variances on an FX-adjusted basis. Comp and benefits expense, excluding adjustments, was $626 million, flat versus prior year. During the quarter, productivity gains from improved train weights, efficient resource planning and workforce optimization were offset by wage inflation. We expect continued strong labor productivity in 2026 with head count up slightly on mid-single-digit volume growth. Fuel expense was $430 million, down 8% year-over-year. The decline was driven primarily by the elimination of the Canadian federal carbon tax on April 1 along with improved efficiency from increased train rates. Materials expense was $112 million. The year-over-year decline was primarily driven by an increased focus on capital works in the quarter. Equipment rents were $97 million, up 4% year-over-year. The increase was driven by higher intermodal car hire payments, reflecting the ramp-up of Gemini volumes and lapping the prior year's labor disruption at the Port of Vancouver. This increase was partially offset by efficiency gains driven by improved network velocity and car cycle times across the network. Depreciation and amortization was up 7%, resulting from a larger asset base. Purchased services and other expenses, including -- excluding adjustments, was $514 million. The year-over-year decline was driven by productivity and in-sourcing initiatives, partially offset by cost inflation and higher casualty. Moving below the line on Slide 15. Other components of net periodic benefit recovery were $94 million or $103 million, excluding acquisition-related costs. Net interest expense was $230 million or $225 million, excluding purchase accounting. The increase was driven by interest on new debt issued earlier in the year. Income tax expense was $400 million or $407 million adjusted for significant items of purchase accounting. The core adjusted effective tax rate in the quarter came in at approximately 25%, which is a $40 million headwind versus our Q4 2024 rate. In 2026, we expect a core adjusted effective tax rate of approximately 24.75%. Turning to Slide 16 and cash flow. 2025 net cash provided by operating activities increased 1% to $5.3 billion, while net cash used in financing activities was up 40%, driven by the share repurchase program. CapEx was $3.1 billion, above our $2.9 billion outlook, largely due to a pull-forward of maintenance capital projects during the fourth quarter to take advantage of work of weather and network conditions. In 2026, we are reducing our capital outlook by 15% to $2.65 billion. Now turning to share repurchases. Throughout last year, we took advantage of market volatility to reward shareholders, completing our $37 million share repurchase program in late October. Given the strong value that we continue to see in our share price, I'm pleased to announce that our Board has approved a new 5% share repurchase program, allowing us to continue returning cash to shareholders through disciplined and opportunistic capital allocation. Looking ahead, while macroeconomic conditions and trade policy remain uncertain, we are focused on what we can control, operating a safe, efficient and disciplined PSR railroad while capitalizing on our unique growth opportunities. We expect to deliver low double-digit earnings growth supported by another year of mid-single-digit RTM growth. With industry-leading execution, a compelling growth pipeline and strong free cash growth, the future is extremely bright. With that, let me turn it over back over to Keith. Keith Creel: Thanks, gentlemen. Operator, we'll open it up for questions. Operator: [Operator Instructions] Our first question comes from Walter Spracklin with RBC Capital Markets. Walter Spracklin: I'd like to double-click on your volume growth assumption -- or guidance here of mid-single digit. Obviously, last year ended a little weaker, and it hasn't started off well this year. We've got some weather that is going to create perhaps a little bit of leakage. Given that headwind, perhaps, obviously, mid-single digit is industry leading. Can you double-click a little bit on what sectors give you the confidence that you can achieve mid-single digit? And how much of that is the carryover of integration -- or a carryover of some of the wins that you got from last year? And how much is new wins that you're expecting this year? John Brooks: Thanks, Walter. A couple of comments. So really up until last Friday, January was kind of playing out how we expected it to play out. Certainly, we realize we've got tougher comps. We had pull-ahead volumes in international and automotive and such. And frankly, we knew Q1 was going to be a little bit more of a challenge on that front, Walter. Certainly, this weather event was a little bit of a setback. But I'm also pretty optimistic on sort of what we had in our base plan for grain in February and March. And my gut sense and what our customers are telling us is there's a pretty good opportunity for us to exceed and claw back maybe some of that, that we gave away here the last week during that time period. There's no doubt, though, I do believe Q2, Q3, the balance of the year is where we'll see the momentum build. Specifically, I think grain is, as we've talked about, both sides of the border continues to be an opportunity. We've got a strong export potash plan. So our bulks, kind of a similar story to 2025, I think presents a really good opportunity for us. And then we kind of shift to the synergies and self-help initiatives, and that's where we've got to lean in and create our own luck. But I think that's something we've proved we've been able to do. I look at intermodal. We still got a fair amount of growth on our MMX train that we'll be targeting. We're going to be launching the new SMX with CSX here in the coming months. And I can tell you, we're looking at transit times out of Central Mexico into markets of Atlanta, Charlotte, Jacksonville in roughly 4 days or less. This is going to be really fast. As Keith said, better than truck-like service. And the early bidding prognosis, we're looking at current bids of about 80,000 loads a year with one particular client that we're working on. So I'm pretty optimistic around those opportunities. We haven't scratched the surface on really our launch of the Americold building in Kansas City. And in that business, that reefer business, that is just starting to ramp up. And I'll remind you, up in Canada at Port Saint John, Americold will open their second building on us that will open up around the July time frame. So just in the intermodal sector, Walter, there's no doubt there's going to be headwinds and ongoing challenges, but I think we've created enough unique products in the marketplace that I think allow us to go out and sell and do things maybe a little differently than what our competitors do out there. And that gives me some confidence, particularly on those areas. Keith Creel: I think one other point -- Walter, one other point of reference, I think it's important to remember we're going to lap that period of time in the second quarter, first part of third quarter, we implemented the cutover and I think someone classified as our CP [indiscernible] time. When we integrated our IT system. So there obviously were some increased costs responding to that and some lost revenue, we'll lap that period given that the railroads humming and our systems are humming, and we've grown stronger as a result of that. So that's going to be a benefit for us in our '26 results. Operator: Your next question comes from Brian Ossenbeck with JPMorgan. Brian Ossenbeck: So Keith, I wanted to see if you could weigh in on reciprocal switching as it's been proposed right now. Obviously, yourselves and others have kind of grown up with that in Canada. Do you think that's really applicable to the U.S.? Would you be concerned if that were to be extended to the U.S. in terms of how it's proposed right now? And I guess, ultimately, do you expect the industry to have to deal with this, whether or not there is M&A? Keith Creel: Yes, number one, if you do your job and you provide good service, you don't have to worry about it. You don't have to worry about somebody coming in your backyard and being able to do better than you are. That said, what's being proposed now versus what's in Canada, there's still a unique difference. With the inter switch in Canada, you've got the other carrier handling the switch to the interchange location and then you take the line haul to the next destination. What they're proposing is literally what I started with that somebody else coming in and providing service. So again, that said, if it were to happen, we'd respond to it. I don't see it as a threat to us at all. But ultimately, if a customer can't get their service, I agree they should have an alternative. They shouldn't be captive to terrible deteriorating service. I just think that, again, it needs to be fair. It needs to be balanced, and we need to think about the unintended consequences. It's not so complex that kind of what we go through ends up doing more damage to the customer than good. Operator: Your next question comes from Chris Wetherbee with Wells Fargo. Christian Wetherbee: I guess as you're thinking about 2026, I mean obviously, you finished '25 on a very strong note from an operating perspective, sub-56% OR. I guess how do you think about sort of the algorithm? When you're at a mid-single-digit RTM growth, I think pre sort of merger, we thought about the potential for that type of RTM to maybe drive decent OR improvement, potentially very high incremental margins and obviously, earnings power, and you're guiding to that. Kind of curious, how do you think about the OR potential as you move forward here? Obviously, for 2026, but maybe also bigger picture, are you kind of hitting stride? It seems like the network is running well. Just kind of get your thoughts on how you think about it as we move forward. Nadeem Velani: Yes, Chris. I mean, a year ago, we sat here, we talked about sub-60%, first we wanted to get to that level, which we've accomplished now. And beyond that, obviously, the goal isn't to just lower operating ratio but generate earnings and generate long-term return on invested capital. And so our earnings algorithm is kind of in that mid-single-digit RTM growth, layer on strong price and price to the value of our service. And then generate additional kind of value through free cash that's going to help bring it to the bottom line and get kind of that double-digit EPS growth over time. So the operating leverage that I think we're going to get given the strong bulk opportunity we have in front of us, we're coming in, as you said, with a very solid footing as far as Q4 with our cost structure. We've done some things on the workforce side to help us get to a better spot. From a resourcing point of view, we've got new locomotives coming in. I think there's opportunities on the fuel efficiency side and overall efficiency. So I do think kind of getting back into that 100 basis point type of operating ratio improvements per year if you're doing things right, if you are generating strong volumes and strong pricing, that should be how it plays out. So I think over time and kind of our long-term guidance of 100 basis point improvement in the OR is what you should expect from us if we're delivering and executing the way we should. Operator: Your next question comes from Fadi Chamoun with BMO Capital Markets. Fadi Chamoun: Just a couple of things. So on the revenue side, can you help us kind of bridge the volume to revenue? I think last year, you had a lot of mix issues and RTM revenues were kind of aligned. But as we think about this year, what does kind of -- mid-single-digit RTM mean to revenue, what's kind of the mix like as you look at the book of business that you're talking about? And maybe a quick one for Mark. Is the network set up to handle this book of business that John is talking about with current head count level? What are you envisioning on that front from a head count perspective? John Brooks: Yes, Fadi. So I think probably the Q1, Q2, we're probably going to see some of those challenges that you described, yes, given the strong bulk business in those quarters that we're projecting that maybe is a little less natural than what we would normally see, probably does create some of that mix headwind during that time period. Plus I would tell you, we had tariff impacts of north of $200 million, 1%, 1.5% of our revenue in RTMs. And a lot of those tariff impacts were on really profitable, positive cents per RTM business that just is not available to us under this tariff environment. So I expect to see kind of some headwinds earlier in the year and then see that stabilize. I think there's probably a couple of points, if RTMs and revenue matched up even in '25, there's probably a couple of points of upside on the revenue as we're looking towards 2026, if that helps you out. Nadeem Velani: Yes, I would just add, in Q1, we'll lap the initial -- first, the carbon tax. So we got one more quarter of that or a couple more months here from where we are today. So that will be a bit of a headwind to mix. And then the Canadian dollar just continues to appreciate. So I think we're at about $1.35 today at Bank of Canada held. And a year ago, we were closer to $1.43. So that's going to be a headwind. Now it's going to help us on our leverage. It's going to help us overall as far as you think about our balance sheet from that perspective and interest payments and things like that. So there is a net benefit elsewhere, but it will hurt our cents per RTM. Mark Redd: Yes. On the head count, I would say some of my comments on -- the prepared comments was head count will be flat, slightly up. We'll have strong operating leverage as a result. And again, we're going to be focused on train size again. We've got some agreements that we're working through with some of our labor unions that will vest with that as far as head count. So we'll be working through that piece. Nadeem Velani: Yes. And Fadi, like nonemployee head count, contractors and so forth are kind of, for the most part, off the property as well in Q4 as part of our cost focus. So I think overall, I'm going to push Mark as well on keeping that low single digit or keep it closer to flat. So I think we can accommodate it. Operator: Your next question comes from Jonathan Chappell with Evercore ISI. Jonathan Chappell: Nadeem, I hate to be so short-term focused, but you know how it is in this seat. So John pointed out a lot of headwinds in 1Q. We had the weather and now you're talking -- carbon tax is still there, exchange a little bit. So as we think about the path to both the mid-single-digit RTMs, but most -- especially the double-digit EPS, are you thinking about a slower start to 1Q and then kind of a ramp as we go through the year? So not quite a hockey stick, but it does appear that we need to kind of make it up in the second half of the year, back half loaded? Nadeem Velani: Yes. No, Q1 is going to be the toughest quarter of the year, and that's full-on expectation when you think about Liberation Day a year ago, everyone was moving traffic. Some tough compares. But to Keith's point earlier, we going to have some very easy compares in Q2, Q3 and so forth. So yes, it's going to be a tougher start to the year as far as the earnings algorithm. But no, I'm not concerned about that. And the carbon tax, that's net neutral to earnings. So I'm not -- that doesn't create a headwind at all, just it creates a bit of a headwind on cents per RTM, but it actually helps us in our margins overall. Jonathan Chappell: But it won't be a... Nadeem Velani: It will be a natural increase, yes. Operator: Your next question comes from Ravi Shanker with Morgan Stanley. Ravi Shanker: So there's talk of the harbor maintenance tax exemption kind of potentially going away and kind of potential implications there. So I would love to know if you guys have any views on what impact there might be on cross-border volumes if it happens or not. John Brooks: Frankly, Ravi, the cross-border volume business is so small in our book today specific to that. I really don't give it much credence or that much of a concern right now in our book, maybe 4, 5, 6 years ago, where certainly, we saw that volume much stronger. But at this point, I really don't see that being much of an impact if they change some of those fees or regulations. Operator: Your next question comes from Brandon Oglenski with Barclays. Brandon Oglenski: Keith, I'm kind of shot that hasn't come up yet, but I think everyone respects your view on M&A. And obviously, the application was rejected on some maybe technical grounds, maybe not. But nonetheless, maybe get your updated thoughts there and especially in regards to the development that you have with CSX going from Dallas and Texas and Mexico into the Southeast. Really appreciate it. Keith Creel: Okay. Well, I think we say everyone respects that might be true, but I don't think everyone agrees with my views. That said, they remain to be the same. I think that rejection by the STB said loudly what I believe to be true in the first place, the facts are going to matter. This is not a fate to complete. This is a complex merger that has tremendous impact on the U.S. rail network as well as Canadian and Mexico. It's all ultimately one network, but obviously, the STB is seized with making sure they do what's right to protect the strength of the U.S. rail network, which supports the strength and obvious vitality of commerce and the economy in the United States of America. So again, it's not going to matter. I think this is what they're saying about how the applicants may feel, just tell them what the facts are. That's what that said. And that application was short on facts. It had a lot of positives, a lot of aspirational growth projections in there. And I'm not saying they can't be achieved. I'm saying that's a big bar to meet. And given that we're headquartered in Missouri now, I'd say it's the show-me stake. That's what we want. We want to see the facts. We want all the facts to be revealed so we all can opine on those facts and how they impact each of us, and that's railroads, that's customers, that's communities. There's a public interest test that has to be solved to, which includes strongly defined by enhanced competition. Those rules were written after the brakes were put on consolidation. Linda Morgan, who was chairing the STB back in 2001 when that moratorium was issued, she didn't just pump the brakes. She slammed the brakes on. And she went back and looked at what the nation needed going forward from a rail network standpoint. And a lot of people would benefit if they would actually go back and read and study not just what's written in the regulations, but the perspective on that. And if you go back and turn the page to the hearings, the Senate Commerce Committee hearings, it's great waiting on a plane, print them out, it's pretty thick. But you know what, you can get her perspective and how those rules were shaped. And I'm telling you, when you read the regulations, they're not always clearly prescriptive. Sometimes they are, sometimes they're black and white like one of the issues that UP's application got rejected on. But a lot of times, it's the words that are used, it's the comments, it's the context. And if you go back and do your homework, which I think is critically important to do, the perspective, she said it in her own words and testimony. And I'll just give it to you. The new rules encourage enhancement of competition. The old rules actually encourage railroad mergers. The new rules substantially increased the burden of proof for the applicant to demonstrate that the proposed transaction will be in the public interest. It must demonstrate the transaction with enhance competition where necessary to offset the negative effects of the merger. So you can't understand if that's true unless you understand what all the adverse effects are as well. And another comment she made that I think is extremely telling when she was pressed to explain what enhanced competition means. She said Senator simply said this way, the benefits box must be fuller than the harm box. So how can you determine if that's true or not true unless you know the facts that are contained in both boxes. And I tell you, this is a forever decision. This regulatory body, Chairman Fuchs and the members that serve the Chairman Fuchs are going to take this responsibility seriously. Again, it's not going to matter what the applicants think or feel as good as it may be to them, and I believe UP. I believe the Board, I believe Jim Bennett, they believe it's good for the nation. They believe it's good for their shareholders. They believe it's good for their employees. And that can be true. But does that also mean it's true for all the other concerned parties. Is that true for the industry? Does that represent the risk of additional consolidation and something that large being created and the integration risk that it creates for the nation? Because if it fails, we're in trouble. The nation could be brought to its needs with something that large affecting our entire rail transportation system in North America and it affect every shipper, affect every railroad, affect commerce. So they have to get it right. It has to be a fulsome process. Jim, I heard Jim yesterday, he wants all the facts to be heard and known, then let's make them heard and known because that's the only way to get the decision. And in the end, I believe this regulatory body, the regulations require, and I believe they're committed to if their application could demonstrate that the benefits outweigh the harms, then they've got a good chance of approval. That said, for that to be true, in my mind, based on the regulations and based on that definition of enhanced competition, it's going to have to come with concessions -- considerable concessions. To suggest that you're meeting a definition of enhanced competition because you introduce the [ CGP ] proposition, this mechanism that they introduced, if that's the definition, then why does it have an expiry date? And if that meets the definition of a forever decision beyond the expiry date, how can you exclude railroads, I think they deemed it Canadian railroads that originate traffic west of Mississippi and ship to destinations east and vice versa. Those are American-generated shipments going to American locations. That's part of making America great again. And I guarantee President Trump means what he says, he wants what's best for the nation. The STB wants what's best for the nation. CPKC wants what's best for the nation. It's critically important to us and every other concerned stakeholder that's impacted by this decision that the facts prove that, all the facts, not just the ones that support the applicant's view of what's best for the nation. So that's a lot said, but that's the gravity of this. And again, I would encourage people. I know it's very seducing to get wrapped up and drinking this merger cool aid and they wanted to see all these wonderful gains and all these dollars printed that perhaps some are suggesting would be printed in all this amazing shareholder value created, but at what cost? It can't be at the cost of our U.S. rail network. So again, you got to go back and educate yourselves. Listen, I've had lawyers tell me. I've had lawyers disagree with me. I've had other CEOs. I got a little bit of experience in this, one that I think the world of. Pat saw this differently. when they were going through their process trying to get their trust approved in their agreement with Canadian National. He and I had some very active debates. He was influenced by what his regulatory lawyers told him. And he was wrong. I think the [indiscernible] had we were stacked 90% against us, and they were wrong. Again, don't get tied up in emotion, don't get tied up in spin, focus on the facts, read the regulations, get the perspective, go back and read the hearings, and you're going to get right back to where I am today. The facts must prove and show that this is ultimately in the public's interest. That benefit box is going to have to be loaded up heavier than that harm box because, again, this decision cannot be undone. And if it's approved with concessions, it will likely trigger additional consolidation in this industry to create railroads to be in a position to best defend itself and compete against a [indiscernible] that would be created in the UP-NS combination. And I'll say this one last thing. It's not competition that CPKC is concerned about. I'm an advocate for competition. I'm an advocate for single-line service. But again, what I'm not an advocate for is anticompetitive behavior. What I'm not an advocate for is a railroad that has so much size and scale as they have historically, and I would suggest history says a lot about what the future might look like, how they've imposed their will on other railroads, I think that's a dangerous and slippery slope. I think it's critically important that whatever concessions that the STB agrees to and that UP-NS would agree to if they accept the decision, if it's favorable, that they have teeth to them as well. It has to be enforceable to be able to protect the public interest and enhance competition. It can't be something that can just be conveniently ignored because they see it a different way. It's got to be clear and concise and there has to be a mechanism that we can quickly seek relief in that's not the standard go wait in line for 2 years until the STB has time to get through the litany of other complaints and concerns that something of this magnitude likely would create before they could opine and give you a decision like we had to navigate after our merger and that South in rights agreement. Do your homework on that one. Read what was said on that one, read the case of that. That was pure anticompetitive behavior. We said it when UP took the position to try to shut off our Southend rights that were granted to us from previous consolidations to protect competition. We said it then and the STB agreed with us 2 years later. But in the meantime, I guarantee you the customers' interest were not served that were shut out from competing into those marketplaces during record grain harvest. That was in the harm box. That certainly was not in the benefit box. So thanks for the question, probably a bit more than we anticipated, but I hope I cleared some of that up. So we'll wait and see. Let's just let all these facts be developed and heard, and we'll see where this thing comes out. Brandon Oglenski: Love the passion, Keith, and everyone focused on positive outcomes here. Operator: Your next question comes from Tom Wadewitz with UBS. Thomas Wadewitz: Keith, I wanted to get your sense on just high level, how you're thinking about USMCA and kind of risk associated with, I guess, I don't know, renegotiation, whatever you want to call it. You guys have been pretty helpful in kind of defining what you think you've lost from tariffs and Liberation Day. So I don't know -- I mean, it's obviously tough to have a lot of conviction on where tariff-related things come out. But high level, do you think there is significant risk? Where do you think the timing is? Is this something where you've already incurred a lot of the kind of the headwind already from Liberation Day? So yes. Keith Creel: Yes. Let me start with kind of the last question. We've already absorbed a pretty significant hit from all the uncertainty. I think about $200 million of revenue impact, maybe higher. So we felt it on the balance sheet already. I don't have the crystal ball to tell you exactly where the need is going to land. I believe, and I've said from the beginning, President Trump is going to adjust the balance of trade between our 3 nations. He is going to make decisions in that renegotiation, which to his satisfaction and to his view, benefits the United States of America. That said, I think that can be true and a positive renewal on USMCA can be true at the same time because trade between these 3 nations, even if it gets rebalanced a bit is critically important to all 3 nations success. We depend upon each other. That's undeniable. When USMCA was created, trade grew after the fact. After the pandemic, even more critical important about cross-border trade between these 3 nations. So sitting in the seat we're in, we've gone through some choppy waters. They may get more choppier. But at the end of the day, we'll get through the storm. These 3 nations will trade together, and we uniquely because of our network enables it, we connect with hard infrastructure, the rail network that allows that trade to flow Canada to the U.S., U.S. to Canada, Mexico to the U.S., U.S. to Mexico and now because of these trade tribulations, even more so than before, Canada to Mexico and Mexico to Canada. We are the only network that can do that. We truly are a success enabler for North America. We are North America's railroad, heavily committed to the United States, heavily committed to Canada, heavily committed to Mexico. We're going to enable success across these 3 great nations in a trilateral way that allows everyone to succeed, including CPKC. Thomas Wadewitz: Do you have any sense on what the most likely timing might be? Or is it just tough to say as well? Keith Creel: Yes. I'm reading the same things you're hearing. My guess is it's going to really get active this summer. So that's my view. I think in the summer, it's going to get renewed maybe hopefully, I would think before the midterm. Again, that's just me speculating based on the way I'm reading the tea leaves. I don't control the agenda, but that to me would be a possible and a probable outcome. Operator: Your next question comes from Konark Gupta with Scotia Capital. Konark Gupta: Just on the free cash, just wondering a couple of things real quick here. The free cash conversion you guys talked about at the Investor Day, 90% in that context, where do you see things shake out this year? And then for the CapEx, even if we adjust the pull forward of maintenance projects, the CapEx is seemingly down in '26. Where are you cutting CapEx on? And is there some flex? Nadeem Velani: So free cash conversion in the 75% range. I think long term, we talked about 90% part of our guide in 2028 and beyond. And I think the current level of the [ $2.6 billion, $2.7 billion ] CapEx range is something that we can continue to do over the next foreseeable future. So in fact, with a weaker Canadian dollar, that could go -- with the stronger Canadian dollar, that can go even lower. So the CapEx is a bit of a shift in terms of timing of investment. So we pulled forward some of the infrastructure investment. We did a lot of the synergy or the integration-related capital investment the last 3 years, as you can imagine, with the Laredo Bridge, with some of the siding extensions and siding investments that we did to support the integration as well as some of the growth investments, Americold, for example, and Transload investments. So there's just basically a bit of a shift in the spend of CapEx. So we don't have the day in our systems integration anymore. So there'll be some reduced capital there. We don't have as many railcar investments that we have, but we have announced that locomotive investment with Wabtec in progress. So it's a shift in capital overall and that reduction of about 15%, somewhat due to timing, but mainly out of the, I'd say, siding extension, infrastructure investments and to an extent, IS investments overall. Operator: Your next question comes from Benoit Poirier with Desjardins Capital Markets. Benoit Poirier: My question back in November, the Canadian government announced new measure to help the Canadian steel and lumber companies. One of this measure was the government would work with the rail to subsidize freight rates by 50% beginning in spring of 2026. I was wondering if you could give an update on this and whether it could be kind of a volume tailwind in the back half this year. John Brooks: Yes. Thanks, Benoit. Certainly, we've got our GA folks working through still the mechanics of how all this will be accounted for sort of between all the parties, the customer, the government and ourselves. Our analysis says, yes, maybe there is some opportunity, particularly in maybe some long-haul transload type movements across the country. But I'm not looking at sort of needle-moving type numbers there, Benoit. So we'll see. As I said, there's still a fair amount that has to be sorted out. And then we'll see how it sort of ripples through the marketplace. And we're keeping our hands on the pulse of that if there's an opportunity, we'll be right there to try to capture it, but I'm not looking at big numbers. Operator: Your next question comes from Scott Group with Wolfe Research. Scott Group: So one of the other rails was talking about pickup in inflation. How are you feeling about price and just overall price cost this year? And then maybe just along those lines, just given some of the Q1 commentary on, any thoughts about how to think about operating ratio in Q1? Nadeem Velani: We'll stop through a [indiscernible] . I think year-over-year, we'll see a potential for improvement in the operating ratio. I'll keep it at that. From an inflation point of view, we're not seeing that same sort of issue. And again, Canadian dollar does help us in terms of some of our costs and capital investments in U.S. dollar conversion. But overall, our true inflation, like which is locked in with labor, we signed some very unique deals and favorable deals for labor and for management. And those are in that 2.5% to 3% range. So as far as our inflation, you should expect that level of inflation overall, and we're pricing above that. So that spread should be positive and will be part of our benefit to our margins overall. Operator: Your next question comes from Ken Hoexter with Bank of America. Ken Hoexter: Nadeem, just to clarify that 1Q -- I'm sorry, the year-over-year improvement, was that a 1Q specific comment? Or is that a year-over-year comment on the OR? And then just your thoughts on synergy targets, how -- where you think you are and what you still think can add this year and next? Nadeem Velani: Yes. So we'll see year-over-year improvement in Q1 in the operating ratio, and I expect to see year-over-year improvement annually in the operating ratio as well. We talked about Q1 being a little bit more challenging just given volume won't be as strong in Q1, but I still see outside of a major winter event or disruption that we'll see some improvement in the operating ratio given the low cost structure we entered January with. And remind your second part of your question. Keith Creel: Synergy question, yes. So Ken, we exited 2025 at about a $1.2 billion run rate, $1.2 billion. We see an opportunity for another $200 million plus about $1.4 billion as we close out 2026. So well on our way of meeting the commitments we made relative to this integration opportunity. Operator: Your next question comes from Ariel Rosa with Citigroup. Ariel Rosa: So I wanted to ask maybe a little bit longer term. It's been interesting to see there's been quite a bit of convergence here between kind of valuations across the Class I rails. Keith, as we think about the growth prospects for CP over the long term, maybe speak about your level of confidence that CP can continue to outgrow the industry and kind of what are the drivers behind that as we think about 3, 5 years out and particularly how potentially a UP-NS situation could alter that? Keith Creel: Let me start with the last part first. UP-NS, if that comes together with the puts and takes and the concessions we believe that will be required to satisfy enhanced competition, I see that as a net positive as long as we have a fair playing field and we don't have anticompetitive behavior. So that's a qualifier there. And I'm going to take -- I'm going to expect that Jim will commit that that's not going to be true. That said, when it comes to the synergies and our growth algorithm we look forward, think about this. Think about what we're doing today with no macro help. So that's a single-digit RTM growth with the macro working against us. So if you go forward, we're going to continue to have synergies. We're going to continue to create new and unique opportunities. This SMX product that was never contemplated in those initial targets that we put out. You get back to a place where you got a little bit of tailwind with a normalized economy, a little bit of GDP growth and normal shipments. Synergies can come off a little, you maintain price and you still kind of echo the same repeated behavior over the next several years. So again, I think that's a sweet spot. What we do is hard work, it's not easy. It's not a layup, but we've got the network to be able to create these customer solutions that have never been able to be created before, benefit from trade between the 3 nations, benefit from these unique networks, north-south, the Southeast to Dallas, the Southeast of Mexico that, again, a UP-NS can't replicate. And I think that gives us a nice recipe for having confidence in meeting that guidance that we've laid out on the growth algorithm. Operator: Your next question comes from Steve Hansen with Raymond James. Steven Hansen: Just a question on the grain harvest given its size. I think you've already described it as a tailwind for the year. I was a bit surprised you didn't move more in the fourth quarter on the back of the weak harvest. And just curious whether or not you think the normal pattern will evolve this year in the sense we'll move the bulk of the harvest in the first 1.5 quarters or 2 quarters? Or would you think that pattern will extend into the third quarter as well, just given, again, the size of the carryover this year? John Brooks: Yes, Steve. You and I both were surprised. Certainly, the wet weather out there in Vancouver didn't help. And I know we talked about it on the Q3 call, like we were excited about the level of freight that we had sold with the grain companies and gearing up for that. It does feel like maybe there is a little bit of a shift. We'll see if this is unique or not as we get towards harvest next year. I'm not really sure yet. I do believe it sets us up for a very ratable, which we like as a railroad shipment profile of grain. And frankly, with the soybeans not moving very much in the U.S., we're kind of excited about what that might bring as we move through the mid part of the year. So I met with one of our very largest grain customers last week. And they told me they fully expect to be kind of sold out to busy levels right through August in new crop. We got pretty good snow levels up across Canada right now. We exited with pretty decent moisture. And I know we're really in early innings right now, but I can tell you there's already a little bit of bullishness around could there be a repeat. And certainly, the Canadian farmer has built a lot of storage. So they've been able to put this crop away, but I think there's a pretty big confidence that this is going to have to move and move throughout the year. And then we'll see what happens next fall. Operator: Your next question comes from David Vernon with Bernstein. David Vernon: So John, maybe can you talk a little bit about how you're thinking about the tariff environment in terms of building out the mid-single-digit RTM guide? Like are you expecting things to kind of stay volatile, stay the same, get a little better, get a little worse? And then how are you guys thinking about the next iteration of the USMCA and how that might sort of impact some of the opportunities for you guys in the next 3 years? John Brooks: Well, David, we've assumed that this isn't really going to change. So we've planned to sort of build in this headwind into 2026. Now look, we were able to backfill it. I'll give you an example. We -- our land bridge volume that we've talked about really both directions grew by about $140 million year-over-year in those types of opportunities. We see opportunity there to add on to that pretty significantly. So look, it's no doubt, it's frustrating. It was a pretty significant headwind. If we get a break in it positively, certainly, we're going to embrace bringing a lot of that traffic back on, but it certainly hasn't been planned. As I -- what the future holds, I can tell you one thing. We're going to really amp up our sales activity on our Mexico franchise. I think there is a heck of a lot more opportunity down there to sort of feed this broader network. And again, whether it would be land bridge opportunities up into Canada or continuing to feed the American economy. And really, we've really never done it to the extent that you've become accustomed to seeing our sales team across Canada and the U.S. do it. So more to come on that, but I'm looking for a lot bigger things in terms of growth out of our Mexico franchise in the coming years. David Vernon: And anything that Carney and the team are doing to kind of promote trade with other partners that might have an impact on the outlook? I know there's been talk about the Chinese EVs, that kind of stuff. John Brooks: Well, I think certainly, there's a fair amount of work. And actually, we've got some of our ag folks down there in the coming weeks to promote better ag shipments between the 2, eliminate some of the red tape and bureaucracy in terms of the customs movements of those products. I think we're making some headway on those fronts. I can tell you also, as we think about products intermodally moving all the way between Canada and Mexico, David, also, there is an effort to try to streamline some of those customs processes related to those products early. So I do believe there's some momentum there, but we're kind of in the early innings on some of that stuff. Operator: We have reached our allotted time for Q&A. I would now like to turn the call back over to Mr. Keith Creel. Keith Creel: Okay. Thank you, everyone, again for spending your time with us some really good questions. I think some active discussions, certainly a very topical time of change for our industry. We're going to stay close to that as we have stayed close to that, again, to make sure that our facts are heard and understood as well as the industries and as well as our customers, our joint customers. And we'll see how it all shakes out. More to come on that. These next several months will be very telling once that application is resubmitted, and we all have a chance to digest it and comment on that. In the meantime, we're going to focus on our core competencies, which is running a safe and efficient railroad for the benefit of our customers and for the benefit of commerce, which is going to produce a very solid and we think unique value-creating financial outcome for those that choose to invest in our company. We take that responsibility seriously. We appreciate your trust. We look forward to sharing results on the next call. Stay safe, stay warm, and we'll see you out on the rail. Operator: This concludes today's conference call. You may now disconnect.
Parmjot Bains: [Audio Gap] Grant, our CFO. We'll be referring to the 4C quarterly activity report and presentation we lodged this morning with the ASX. The presentation is a summary of the more detailed 4C quarterly activity report. After our remarks, we'll be answering questions. You can lodge questions throughout the presentation using the Investor Hub QA function. So let's begin with Slide 3 with a quick overview of the agenda for today's call. We'll start with a business overview, including key highlights and take you through the updates for the 3 business segments. I'll then hand over to McGregor Grant to present the financials. And to finish off, I'll cover the outlook for the balance of the financial year before commencing the Q&A session. Now turning to Slide 5, we will touch on the key highlights for Q2. We have made a lot of progress as a business to capture the value of SOZO and the new SOZO Pro in 3 large and growing market segments: breast cancer-related lymphedema; heart health; and wellness and weight management. While the rest of world sales were positive. And while U.S. BCRL sales for the quarter were disappointing, we remain very positive about the growth potential due to strong clinical demand, a strong sales team led by Scott Long, a growing emphasis on cancer survivorship and reimbursement now well in place. There are over 700 opportunities in our pipeline that we are focused on converting as well as growing with the extensive conference attendance and direct sales activities underway. In terms of the financials, McGregor will go through the metrics in detail later in the presentation. But clearly, there were some positives and some negatives. The sales metrics are well below where we would like to see them, but the quarter-on-quarter revenue has increased as did customer receipts. And importantly, we saw a significant reduction in operating cash flow, extending our runway. This will continue to be a strong focus for the business. We are very, very encouraged by the increase in reimbursement, now at 93% national coverage. Now more than ever, reimbursement is critical when hospitals are evaluating purchasing decisions. Importantly, SOZO and BCRL are new service line opportunities, not a cost item. National coverage now sits at 93%, representing 323 million covered lives. This is another 5% increase on last quarter and gets us closer to our goal of 100% coverage for breast cancer survivors. In terms of sales, overall unit sales were up on the prior quarter, but U.S. sales were softer than anticipated. Rest of world sales were stronger and on the back of our Australian distributor ordering SOZOs as well as our new SOZO Pros in advance of our expansion into the Australian heart health market. In the U.S., we saw a continuation of what we experienced last quarter. Contracts approvals were being delayed due to budget pressures or constraints in hospitals, but the BCRL opportunities are there and real as evidenced by our opportunity depth and continued discussion and dialogue with clinicians. We remain confident in the BCRL market, supported by the market outlook that operating conditions for U.S. health care providers will stabilize in the coming year. With reimbursement at 93%, SOZO is a profitable service line, and we continue to reinforce this messaging with providers. We are accelerating activities in the growth segments of heart health and wellness and weight management. Over the last 12 months, we have made enormous progress. Our first heart health sales are now actively in progress, and wellness and the weight management team is in place and the go-to-market activities and sales are well underway. Today, we launched a new revamped ImpediMed website and Wellness microsite to support our growth in these areas. On other very positive news, we received FDA clearance this morning for our new bilateral lymphedema algorithm, enabling physicians to monitor the subset of patients who are at risk of bilateral lymphedema. On Monday this week, we also filed a new 510(k) for an expanded body composition offering that better targets that wellness and weight management market as well as cancer survivorship. Turning to Slide 6. The value proposition that the SOZO Digital Health platform provides is becoming more evident as we address now 3 of the fastest-growing healthcare needs across the world, cancer survivorship, GLP-1 therapy and heart failure. The SOZO Digital Health platform is a best-in-class platform, providing valuable patient information for clinicians. The company has made a significant investment over the years in SOZO Pro, and we have now launched this into the market. The in-built scales, the ability to measure patients up to 220 kilos and the removal of the cardiac implantable contraindications better helps us target the heart health and wellness and weight management opportunities that are significant. Clinicians find the device quick and easy to use and in larger hospitals, they continue to add their devices across new departments with different use cases. We're in a unique position. We have the only device of its type, a best device with multiple applications that stand apart from the competition in terms of multiple FDA clearances, accuracy, usability and applicability. We have a platform we can build off to attack these new growth segments with over 600 devices now across the U.S. healthcare system, including SOZOs in 18 of the top 25 U.S. hospitals and 27 master service agreements with major IDNs covering pricing, IT and BAA approvals, which are contract approvals with customers, making it much faster to deploy additional devices. Now let's turn to Slide 7, where we look at this value proposition across these 3 market segments. You're all very familiar with the BCRL value proposition. SOZO offers hospitals a revenue-generating early lymphedema detection program to improve breast cancer survivorship. This is FDA approved, guideline endorsing clinical validation. All of the hard work has been done. We are now executing these into sales. The cardiometabolic health area covers both heart health and wellness and weight management. In wellness and weight management segment, the value proposition is different. In this segment, SOZO is providing objective clinical data to allow clinicians to engage, inform and ultimately retain their customers. This is primarily an out-of-pocket market segment. For heart health, weight is not a reliable indicator of fluid status, particularly in a GLP-1 world where weight can and does change rapidly, both up and down as compliance decreases. SOZO provides a valuable noninvasive fluid and body composition insight to aid clinicians to guideline -- to optimize guideline-directed medical therapy, essentially helping physicians to catch increases in fluid, enabling them to adjust therapies and reduce the potential for readmission, a major drive of U.S. healthcare system costs. Now let's turn to Slide 8, and I'll give some more details about the BCRL operating environment and how we are positioning SOZO. Although we had a sluggish quarter for U.S. BCRL sales, we continue to believe that we are very well positioned, and there are several tailwinds that will drive long-term growth. Clinical demand does remain strong, and there continues to be a growing acceptance for the need for cancer survivorship programs. We have built a strong foundation across many of the top hospitals in the United States. We have guideline support, and we have seen a significant improvement in reimbursement over the last 6 months. And now more than ever, reimbursement is critical when hospitals are evaluating purchasing decisions. As I noted, coverage sits at 93%, representing 323 million covered lives. Since the beginning of the financial year, we have had significant increases in the depth of coverage. States with over 90% coverage has increased fivefold from 7% to 39%. Last quarter, you met Scott Long. Scott has built a strong sales and clinical support team with considerable experience in breast cancer medical devices and has built out our BCRL pipeline with this team. All these factors combined to paint a very positive picture for BCRL. In the short-term, we have seen some headwinds. Hospital budgets are under pressure, wage inflation and the cost of imported products, along with the reduction in grants and funding for Medicaid insurance have impacted hospital budgets. However, we remain confident in BCRL and is supported by the market outlook that operating conditions for U.S. health care providers will stabilize. Importantly, we continue to reinforce the messaging to multiple stakeholders within hospital systems that this is a service line, which strengthens as reimbursement increases. The good news is we have a very strong story to deliver. We are launching SOZO Pro into lymphedema, where in addition, the scales better enable SOZO to fit with the established patient workflow where weight is taken at the start of the patient journey. In addition to improve customer experience and stickiness, we are improving the EHR interface to optimize clinical workflow, and we are also building out AI programs to improve customer responsiveness. Over to Slide 9. I want to touch base a bit on cancer survivorship. One of the areas that we see the potential to increase penetration is medical oncology. This also helps us build program depth, so both in the breast cancer surgeons as well as downstream into the medical oncologists. Although breast cancer care pathway starts with breast surgeons, medical oncologists usually have the long-term relationship with the patient and support survivorship. Cancer survivorship is experiencing a significant upward trend with 5-year survival rates for all cancers combined now reaching approximately 70%, up from 50% in the mid-1970s. Driven by early detection, advanced therapies in an aging population, the number of people living with a cancer diagnosis is at a historic high. This shift treats many cancers as chronic conditions requiring long-term management. Across the U.S., there are now 1,500 commission on cancer centers that require a cancer survivorship program for accreditation. Breast cancer is one of the largest cohorts of survivors with physical issues such as lymphedema, maintaining muscle mass and bone loss in addition to the emotional and social needs that need to be addressed over the long-term. SOZO fits in very well with survivorship, both in BCRL as well as in body composition changes that occur during treatment, tying in with a renewed focus on the positive effects of exercise during chemotherapy. We are actively expanding our messaging on body composition to treat both to breast surgeons as well as medical oncologists with over 3 abstracts accepted at ASBS, news that we found out this morning, which is fantastic. Following a detailed voice of customer survey with medical oncologists, we have refined our body composition offering to these clinicians. And on Monday, we filed a new 510(k) regulatory filing with the FDA to further support this. Now going to Slide 10. Heart health and wellness weight management opportunities are compelling and are a strong fit with SOZO Pro. Heart failure is a substantial opportunity as it poses a significant economic burden in the United States with costs projected to reach $70 billion by 2030. One of the primary guides to determine rapid changes in fluid level in patients, a sign of decompensation has been weight. However, cardiology patients are now indicated to be to use GLP-1s, which basically reduces weight and also potentially causes a rebound weight gain post discontinuation, making weight a less reliable surrogate marker for fluid and additional noninvasive data is needed. Feedback from U.S. cardiologists on SOZO Pro has been very positive. I've been impressed by the clinical utility of SOZO and its ability to monitor fluid levels as well as body composition. We have the first heart health sales in progress, and we are very positive about the potential and have established a lean, dedicated heart health team to build out this opportunity and validate the go-to-market pathway. Now moving to Slide 11, wellness and weight management. Our view on wellness and weight management opportunity only gets brighter as we spend more time with potential customers. In the U.S., there are over 30,000 sites of care have been identified across various market segments, including specialty medicine, exercise oncology and rehab, weight loss clinics, wellness clinics, IV clinics and sports medicine and research. The segments we'll be focusing on directly at the moment have an addressable market size of over $200 million. Wellness and weight management activities have commenced with the appointment of an experienced commercial lead managing a team of 3 dedicated body composition reps in the U.S. This team has already actively identified over 3,000 leads in this space, which they are validating and converting into direct sales. Feedback has been very positive from the first 3 conferences the team has attended with another 6 conferences planned for the second half of the year. With a strong pipeline in place, we're expecting sales to build over the calendar year. Over to Slide 12. We are tailoring our messaging for different market segments, particularly within this wellness and weight management space. This is an example targeted towards lifestyle medicine, which is a more clinical approach. On to Slide 13. We're excited to share that we have launched a new wellness microsite. This is a different look and feel of our wellness offering that's targeted towards the med spa space. As I noted, all of our new sites, including our new ImpediMed website and this wellness microsite have been launched today. Many thanks to our marketing team. We have done a lot of work in getting these ready to go. I'll now turn over the presentation to our CFO, McGregor Grant, to go through the financials. McGregor Grant: Thanks, Parmjot. We'll start on Slide 15. As mentioned last quarter, we expected a substantial improvement in cash outflow this quarter. The result was slightly better than we forecast at $2.9 million and well down on the $5.6 million reported in quarter 1. The improvement was driven by higher cash receipts that rebounded to $3.8 million, nonrecurrence of a one-off payment for long lead time electronic components and the expected receipt of the $1.2 million in relation to the R&D tax incentive. You will notice that staff costs of $5.3 million were slightly above the previous quarter's $4.9 million. This was largely a result of redundancy payments made during the quarter. Financial discipline continues to be a core goal of this business, and the company maintains an ongoing program of cost control as part of the target to reach cash flow breakeven. We continue to adjust our cost base as required. The strengthening Australian dollar relative to the U.S. dollar resulted in further unfavorable impacts on cash as well as affecting items such as ARR. The company's cash balance at 31st December was $18.9 million, equating to 6.5 quarters of operating cash flow. Moving on to Slide 16. TCV for the quarter reduced from $4.7 million to $4.1 million. The reduction was a result of fewer devices sold in the quarter and a smaller number of contracts due for renewal compared with the previous quarter. We continue to be very pleased with the quality of accounts initiated or renewed in the quarter, together with continued solid price increases on renewal, averaging 14% for the quarter. Contracts in place at 31st December 2025 are expected to generate core business annual recurring revenue or ARR of $14.4 million for the 12 months to 31st December 2026. That equates to a 15% year-on-year increase. The stronger Australian dollar reduced the increase in ARR as the FX effects applied to the whole balance. Moving on to Slide 17. Revenue for the quarter was a record at $3.9 million, up 18% year-on-year and 8% on the previous quarter. This was despite the U.S. revenue result being affected by the Australian dollar as we discussed. The strong increase in rest of world revenue, up 67% on quarter 1 was on the back of the company's Australian distributor ordering SOZOs as well as SOZO Pros for our expansion into the heart health market. As forecast, cash receipts from customers rebounded to $3.8 million, up 12% quarter-on-quarter. On to Slide 18. As Parmjot has already discussed the sales, as you can see, patient testing continues to trend upward, up 1% on the prior quarter with a 3-year compound growth rate of 15%. The Thanksgiving and Christmas holidays affects the testing volumes as it has in previous years. I'll now pass back to Parmjot to wrap up before we go to questions. Parmjot Bains: Thanks, McGregor. Over to Slide 20, the outlook for the rest of the financial year and some comments on the company. When we look back at the outlook statement for the first half, we've achieved most of the goals that we've set with a very small -- with a small but very focused team of 75 experts across our business. Sales for the quarter were behind our expectations, but we are confident of growing the business with over 700 validated opportunities in the pipeline that the team is actively working through. These opportunities will continue to grow with the upcoming conference attendance and direct sales team promotion. Improvements in reimbursement were excellent and many thanks to our market access lead who is remarkable. And we continue to focus on expanding coverage with a target of 100% reimbursement across breast cancer-related lymphedema. Heart health and wellness and weight management opportunities are exciting growth opportunities that are being executed with the data and product that we have today. Heart health already has a CPT code, which has extensive coverage. We will continue to validate and refine the offering and the go-to-market pathway with customer feedback as we move into these new market segments. And we do all of this while driving our financial discipline and constantly refining our cost base. Many thank you for your support. I'll open the webinar up now for questions. Unknown Attendee: [Operator Instructions] The first question comes from [ Shane Store ]. And it is, can you describe the clinical settings where the body composition aspect is to be commercialized first? We'd like to understand how this assessment is introduced in a typical GLP-1 patient care pathway, for example. Parmjot Bains: Absolutely. So the body composition, as I noted, has over -- opportunities have over 30,000 sites of care. SOZO is a prescription medical device. So we are targeting areas where there is clinical oversight for the product. In terms of where it's being used, it's basically being targeted towards lifestyle medicine is a key area, an example of that. A number of these hospital systems, many of which were already in have got extensive lifestyle medicine practices. Part of this GLP-1 is being prescribed quite extensive around the United States with over 13 million people having GLP-1s. The SOZO is used both in terms of helping support the baseline body composition for patients. So looking at their muscle mass and fat mass and their weight and then helping them track that and trend that as they go through treatment. And so we've got some great case studies and including on our new website, you can look at patient tracking of GLP-1 use, looking at their fat and muscle mass and then helping both create the patient understanding of their journey. It helps create stickiness for the customers, our customers in terms of clinicians where patients will come back in and get repeat measurements and can be monitored for their care. That -- the other area that we are actually extending the body composition space is really linked around cancer survivorship. And as I noted, we've done some extensive voice of customer research with medical oncologists. And really, they're interested in looking at the body composition outputs, particularly as these patients reduce muscle mass during chemotherapy care. And now exercise oncology is being validated as an outcome as a potential mechanism of helping address muscle mass loss, they are using body composition to help monitor patients kind of muscle mass in that. So the 3 abstracts that were accepted at the ASBS conference, which is coming up in end of April, early May, we've actually got use cases of clinicians that have been using the body composition aspect of our device to help support cancer survivorship. So kind of multiple areas. And right now, there's kind of multiple use cases. What we're really doing is focusing on which ones are resonating the most because we have got a very small team and then which ones we can kind of really focus and target in more depth. Unknown Attendee: The next question comes from [ Jeremy Thompson ]. It is the 2 first half results following the NCCN guidelines released in March 2023 represent a growth rate of approximately 25% year-on-year. Noting the reimbursement coverage progress over the last 2 years, is the revenue growth rate expected to increase above 25% current rate? Parmjot Bains: We have got -- we would hope so. We've got a very strong pipeline in place with over 700 opportunities identified and a new sales team. And so we are kind of confident that this will continue to grow the BCRL business in particular. We were also looking to see growth from those new indications of heart failure and that specific body composition targeting. Unknown Attendee: We have a few questions from [ Andrew Hewitt ]. First one is, if SOZO is a cost benefit to hospitals, why is budget constraints an issue? Parmjot Bains: Because when they first look at making the assessment, the hospitals will always look at what budget is allocated. So it is still there as an issue. And so what we are just making sure we do is reinforcing the message that it's a service line, so i.e., a revenue-generating opportunity towards hospitals. So we just need -- we are continuing to make sure we are very strong in that messaging. That increase of reimbursement up to 93% across many states with multiple states over 90%, it's going to be a really strong reinforcing point in this one. Unknown Attendee: A follow-up from Andrew. What do Australian hospitals see compared to U.S. in the value of SOZO as we have 500 machines servicing 30 million people compared to 300 million people in the U.S.? Parmjot Bains: Yes. I think Australia has actually benefited from a number of KOLs and clinicians led a lot by the alert system and Louise Koelmeyer at Macquarie University and Professor John Boyages, who have really established a very strong model of care in the prevention of breast cancer-related lymphedema. So there is a very strong established ecosystem in Australia that has rebuilt this and it has been a focus for a large number of years in Australia. Australia was really unique and now the U.S. is moving up towards that space. Australia basically was just kind of clinical practice and standard of care. The U.S., fortunately is now moving up to standard of care. But as I noted in previous quarter, we went up into the European market, and it's really not standard of care there. So that's why we're kind of focusing primarily on the U.S. market. And with the NCCN guidelines, NAPPC, healthcare reimbursement, it is now becoming standard of care, but it is just taking time. Unknown Attendee: I have noticed on social media, a biz measuring device that's available to the general market. It looks a little bit like a standard weight machine and you pull bar from the base that's attached to a core. I realize it's not FDA, but what are the competitors in both the medical and cosmetic side of the business? Parmjot Bains: Yes. So in terms of that body composition space, it is highly competitive. So we are not -- so there's a number of these devices. I suspect the one you're seeing maybe the human health one, which my husband also says he's being spammed with. So they are very cheap kind of $200 devices that are primarily targeted into the telehealth space or at home consumer space where patients are tracking body composition. They're not as accurate. We had feedback from clinicians that they're not a device that you put in the home. And so our target space in the weight management space is a device that supports the clinician to generate validated clinical data that enables them to help retain their customers and increase their revenue flow. In terms of that clinical setting, the kind of devices and we've mentioned before is the InBody, Seca, Tanita. So there are devices that are out there in that clinical space, the kind of large established devices that fit within that clinical workflow. I guess maybe just one final point, but our differentiating point within that clinic and it is resonating is the fact that we are the only device that's got that FDA clearance. We are a prescription medical device. That clearance and that accuracy is really resonating with these clinicians. Unknown Attendee: A question again from Andrew Hewitt, but also I'll roll [ Rod W's ] call into -- question into it as well. They're both asking about what the U.S. sales reps are doing in terms of if there's no sales eventuating. And Andrew mentioned that last call, I think it was Scott that suggested that 80 sales per quarter would be a pass. And so looking at this quarter, it suggest that it's significantly lower than that and a failure. And also that there was a number of units were close to sale but missed on the last quarter, if that's the case that the quarter would seem even poorer. Why the fall away? And is there a pent-up demand for the Pro version? And could this be a cause of the delay of purchase in the last quarter? Parmjot Bains: Yes. Okay. So lots of questions there. We have got a new sales team. So Scott has really built a new sales team and a very strong sales team that we do have confidence that they will get up to speed and they will get their sales through. There are a number of large kind of multisystem sales sitting in that pipeline. They have still -- we are chasing that final purchase order signature on a number of these sales. So -- and we acknowledge they were disappointing, right? It was an extraordinarily frustrating quarter, but we are confident and the sales team is confident that these numbers will come up. In terms of SOZO Pro, we haven't actually marketed that proactively previously. But in this last quarter, we have been looking at customers where that SOZO Pro may help get the sale across the line. And I'll give you some examples, particularly in smaller breast surgeon offices, we can use it to replace the scale with the limited space. Basically, SOZO Pro has a built-in weight scale. It can actually fit in kind of better with workflow. And so we are, quite frankly, leveraging every opportunity right now. The market has not been that aware of SOZO Pro, and we've done that on purpose just as we kind of get the SOZO moved out, but we are launching into the SOZO Pro, and it is now being offered into the customers. Unknown Attendee: A couple of device questions. How does SOZO compared to a DEXA scan? Parmjot Bains: Really interesting. Comparable. So we've kind of -- a lot of the data just shows that from a muscle mass perspective, it's comparable, and we are actually working on an output right now, which has got comparability from a bone mineral density perspective, but that's going to require a filing. So we're very confident in that. We're actually better than DEXA at fluid. DEXA does not measure fluid well, and that's really one of the areas that we can differentiate, and we're kind of working on some updating algorithms that actually improve our output with regards to fluid in that space. So kind of DEXA has been established as a bit of a gold standard. So we're confident against DEXA. We actually think in some areas, we're actually better than DEXA. So we see a vision where particularly in that body composition space, we can replace DEXA because we know DEXA causes kind of radiation exposure to patients, particularly those in the cancer space, you want to limit that. And that was one of the points that really resonated with medical oncologists as well. Unknown Attendee: Is it possible to link data from SOZO to patient Apple Health? And is it something that you could look at to create patient stickiness? Parmjot Bains: Yes. We are -- there's a number of -- I think telehealth is growing substantially and this kind of remote wearables and monitoring space. We are actually in discussion with potential partners, particularly around the body composition and heart failure space, both to kind of help manage that patient journey from the clinic into the home. So we are actually exploring a number of these opportunities with some direct and proactive discussions underway, which as we progress, we can bring forward to the market. Unknown Attendee: And a question from [ Grant Percy ]. Will CHF SOZO be placed in hospitals and the home? Parmjot Bains: Primarily hospital, clinical. So SOZO is just by the virtue of its size as SOZO Pro will actually be the device with the cardiac implantable removed, will be in primarily the hospital and the outpatient department as well as private cardiology clinic department. We are not -- we do not have an at-home device, but that's one of those opportunities that we're looking at that collaboration on. Like can we kind of do a follow-up pathway all the way into the home for patients for heart failure. But right now, the focus very much because we're just launching is hospitals. So within the heart failure wards at discharge and then a follow-up care within the outpatient department where we will track -- we can track patients' fluid status and hopefully prevent that decompensation and readmission as well as kind of ongoing private clinic follow-up. Unknown Attendee: That was the final question. There are no more questions. I'll hand back over to Dr. Bains for closing remarks. Parmjot Bains: Okay. Thank you. Thank you, everybody. So just to kind of -- I guess, many thanks often to the team at ImpediMed who has done a lot of work. So this morning, we launched a whole new website. We got an FDA clearance on bilateral. On Monday, we launched -- we submitted a new 510(k). We've got a heart failure -- sorry, a sales team that is out in the market. We've got 19 conferences coming up over the next quarter. There is a lot of work underway. And so we are working very hard on launching into these new spaces and making sure that SOZO gets to those patients that need it. So -- and many thanks to you all for listening. Thank you.
Tony Sheehan: I'm Tony Sheehan and I'm joined by Tom Russell, Executive Director. So similar to our webinar format Tom and I will run through a presentation. And then take Q&A at the end. As a reminder, if you have any questions, please submit them through the chat function on the webinar. So what do we do at Change Financial? Many of you who have been on our webinars before will have seen this slide, so we will keep it pretty brief. But for those of you who are new to our webinars or new investors, I'll go through it pretty quickly here. So what do we do? We provide innovative and scalable payment solutions for over 150 clients across more than 40 countries. We are a B2B business with 2 core products. The first 1 is Vertexon, which is our payments as a service or PaaS offering, which provides card issuing, card management and transaction processing. Vertexon supports prepaid debit and credit card issuing and there are 2 main models under Vertexon. The first 1 is processing only under this model Change provides the technology, which is a card management system to clients to run their card programs, so the clients hold the necessary scheme, typically Visa or all Mastercard and regulatory licenses to issue cards. Processing only is available globally and supports all the major schemes and we have clients using Vertexon in Southeast Data and Latin America, including 2 of the largest banks in the Philippines running over 45 million cards on the platform. The second model is processing and issuing. So this is only available in Australia and New Zealand. And under this model, clients utilize Vertexon for processing capabilities and also leverage Change's regulatory. So we have an AFSL in Australia, and we are a financial service provider in New Zealand and scheme licenses. So we're a MasterCard principal issuer, and they leverage our issuing capabilities for the card. So under this model changed the card issuer of record, and we provide treasury, fraud and compliance services. Vertexon has generated 85% of the group's revenue year-to-date. Our other core product is PaySim, which is software, which enables end-to-end testing of payment platforms processes and scheme rule compliance. The PaySim software is based on global messaging standards and can be sold globally. You do not need any licenses to sell PaySim. So PaySim is the default testing standard for FPOS in Australia and has a blue chip client base, including 5 of the top 10 global digital payments companies globally. PaySim contributed 15% of the group's revenue year-to-date. Importantly, both Vertexon and PaySim are proprietary payments technology platform. So they are owned and developed in-house by Change. So it's really important from a value and control perspective for the company that we own our technology. In terms of key highlights for Q2. So another really strong financial performance in the quarter. So with Q2 delivered record quarterly revenue result of USD 4.7 million. That's up 34% on prior year. Year-to-date revenue is up 29% on prior year with 70% of revenue derived from recurring sources. That provides a really solid base of revenue to grow from. Our one-off revenue being licenses and professional services are still really important drivers of overall financial performance, and they have been key contributors to the strong financial performance during the half. Our rolling 3-year revenue CAGR of 31 December is now 25%, and we are on track to have doubled the size of changes in revenue over the last 3 years by the end of FY '26. Underlying EBITDA for the quarter was $900,000, so taking total underlying EBITDA for H1 to USD 1.8 million. So as a reminder, and for context in FY '25, we delivered our maiden positive underlying EBITDA result for the whole year, which was $200,000. So you can see the operating leverage pull through that we've been talking about, and that's the combination of revenue growth and a stable fixed cost base driving materially improved bottom line performance. The cost out from the U.S. exit are also making a material difference. So as a business, and we've talked about this before, we are scaling, we're not at scale. So we want to continue to drive operating leverage moving forward to generate that bottom line margin expansion. PaaS is a key driver of our growth, and we have seen strong growth in the PaaS metrics across the board, which I'll talk more about on the following slide here. So on our PaaS metrics, we now have more than 110,000 cards active in Australia and New Zealand. So the increase in cards was driven by the Sharesies debit card program in New Zealand, which launched in October. And also significant growth in 1 of our existing fintech clients in the prepaid card space. It's just worth noting prepaid cards as a portion of our active cards has increased from 20% at June 2025 to 41% at December 2025. And why is that important? It's well, generally, debit cards drive higher transaction activity, enhance revenue as they are often used for everyday purchases. So there is a different sort of profile, revenue profile, usage profile between prepaid cards and debit cards. We will continue to drive revenue growth through new clients already signed. We're currently onboarding 2 clients and further client wins. As a business, we are laser-focused on growing the PaaS platform to drive scale benefits. So we have the product and team in place to add significantly more clients and volume without having to increase our fixed cost base. I won't go through the PaaS revenue source in detail. We have covered this 1 previously, but happy to take any questions if there are any at the end. On our PaaS time line, so looking at the time line, you can see that steady cadence of new client wins and a significant shortening of time frames between signing clients and launching programs we've been signing clients. Before we had the platform fully live and operational, and we continue to sign clients. You can see on the top right of the slide, Sharesies launch in early Q2, which has started to contribute monthly revenue during the quarter. We also have those 2 more PaaS clients that are currently onboarding and they will contribute monthly revenue once the program's launch. As I mentioned on the previous slide, a key focus for the business is new client wins and particularly in Australia, given the size of the market. So we want to increase the number of new client wins, onboard them quickly and get them transacting to drive volumes and revenue across the business. Thanks, Tom. I'll hand over to you. Thomas Russell: Thanks, Tony. So again, we've had another great revenue quarter, which Tony touched on USD 4.7 million or USD 7 million for the quarter, which is up 34% on Q2, FY '25. PaaS revenues from our Australian and New Zealand clients are up 19% on a quarter 12 months ago, so that's good to see. We've had Sharesies going live, which we're getting a lot of questions about as we come to those at the end, and we can answer them specifically. But these programs when they go live, they can take a little while to build to a meaningful revenue and transaction volume. So Sharesies without giving out too much specific information about the client. They had about 40,000 people on their wait list. I believe that was public information. They've sent cards now to the people. They've fully released that wait list. They only did that a couple of weeks before Christmas. And they've sent physical cards out to the people of that wait list that wanted them. They've got a little bit over sort of 10,000 active cards now. A lot of those have gone active very recently or very late in the quarter. So it takes time for those cards to actually get into people's hands and then for them to start transacting. So that's why there's a bit of this -- the lead indicator is the active cards, but the transactional revenue is transactional volumes, sorry, and therefore, the revenue is not literally aligned to the active cards. The other part, which Tony also mentioned was the prepaid card amount has increased, and it's a different revenue model, if we can talk about all at the end. We're also currently ongoing 2 additional already contracted PaaS clients. One of which will go live in the next month or so and has an existing program. So that's the embedded finance client, and we'll talk more about that maybe in the next quarter once they've gone live. We also continue to see the benefits of our recurring revenue base, which we've been building, our PaaS and support and maintenance revenue -- for the quarter, our recurring revenues totaled USD 3.3 million, which is approximately 70% of our revenue. In terms of the nonrecurring revenue, we continue to generate from professional services and licenses. During the quarter, we delivered $1.4 million in one-off revenue -- over the last couple of quarters, we've flagged, we've had a very strong focus on this revenue and a significantly -- a significant growing pipeline of those opportunities. And again, we've seen those efforts from the sales team where those deals are dropping through our teams delivering them and then we're also refilling the pipeline. So we've had our best half in the history of the business in H1, which we'll talk about in a second as well in terms of one-off revenue, and we still maintain a strong pipeline into H2, but we do need to unlock that revenue as we go into timing and that can be a little bit difficult. That does help us build confidence in our guidance we've provided by the way. In terms of EBITDA, very pleasingly after delivering a main positive result last year of a $200,000. We've now delivered 2 consecutive quarters of USD 900,000. So $1.8 million for the first half. So we're at a key inflection point as we've been flagging for EBITDA and profitability in the business. Cash receipts for the quarter are up -- up 4% to $3.9 million versus the prior corresponding period. That cash payments operating activities were broadly in line with Q2 last year, up only 5%, which was driven by an increase in COGS from increased transactional activity and revenue and payment of bonuses attributable to FY '25 performance. As we say every update, we have the key roles and staff in place to add significant revenue without a lot of new hires. CapEx has also remained steady as expected, and capitalized software development is tracking in line with FY '25. We have a healthy cash position of $2.6 million and hold an additional $1.4 million in cash -- in cash back security deposits. We also have a very healthy accounts receivable look at the end of the quarter, so USD 3 million, which is about $900,000 higher than it was the same time last year. And that's due to a number of client payments that were collected like the days before Christmas and New Year 12 months ago have fallen into January this year around the festive season. This half is the first time in the history of the company that we've been cash flow neutral in H1. And as we see in previous years, H2 from a cash flow perspective, given the billing cycle of some of our larger on-premise Vertexon clients and PaySim clients. Cash flow is typically significantly improved in H2, let alone any other growth, and we expect that to be the case in FY '26 as well. Back to you, Tony. Tony Sheehan: Thanks, Tom. So just looking at our outlook. So on the back of the strong H1, we have upgraded our guidance for FY '26 earlier this week. So revenue now expected to come in between $17.5 million and USD 18.5 million. So the increased quantum of recurring revenue provides a very solid base for the business. We talked around that the 70% of our revenue coming from recurring sources. We want to continue to increase that. But as we've mentioned, we also had a very strong one-off revenue half as well. So that's also important to continue to drive our revenue. Underlying EBITDA now expected to come in between USD 3.1 million to $3.8 million. So that's a 15% increase at the midpoint compared to our previous guidance. Tom mentioned before, we've maintained around our cash. We've maintained our guidance of being cash flow positive for the year. Historically, that sort of stronger cash flow in the second half of the year, we expect that to be the case in FY '26 as well. Overall, a really great start to FY '26. We're really pleased as a team as to where the business is. Our focus which I'll reiterate, which is what we've been really drilling in across the business here is on growing the business and executing on our operating plan to deliver on our targets for the year. Tom, I think that's the end of our sort of formal presentation. There are some questions that have come in, so we might open that up now for Q&A. Thomas Russell: Yes, I'll start reading those out, Tony. So as I said before, we -- and I'll touch on it just again because we've had a few questions here around the difference in active cards and volumes and why aren't transactions scaling with new cards -- can you explain the large difference between the card growth and transaction volumes? Is this related to Sharesies and when they were delivered, how many Sharesies cards went out. So yes, it is. So again, prepaid cards, just to reiterate, less transactional activity, a slightly different revenue model and usage case to our debit cards. Sharesies is a debit card. They're trying to drive their customer base to not use whatever bank they might be using and come over and use their Sharesies cards their everyday card -- that will take time. Again, a lot of those cards went out late in the quarter. They were physical cards because Sharesies rolling out the digital pays, Apple and Google Pay as well this quarter, I believe, is their plan. So those sort of things will help give access to that particularly millennial and sort of more tech-driven client base as well. So that's probably answers that, I think. And next question here. Customer receipts of $3.9 million, up 4% versus revenue up 34%, any issue of collecting those receivables? No, no issues collecting it. It's just a lot of those payments. So November and December are very, very large invoicing months for us relative -- and you can see that throughout the history of the business. What happened last year, there's a few clients actually paid earlier than they usually paid. So it made last year's quarter 2, sort of a high cash collection quarter than usual, and you can see that in the trend. Have you seen slowing of growth from existing card issuers? No, we haven't. Our financial institutions are -- they're a lower growth profile. They've got a very sort of stable base of cardholders that use their cards religiously every day. But Credit Unions and sort of building societies, as you would know, are not fast-growing organizations, the fintechs, such as Sharesies and the embedded finance company that will be going live in the next couple of weeks, they're fast-growing fintechs that can really add volume and we can scale with them. Does the new fintech client have an existing card program? Yes, it does, and we'll relate some more details on that when we can. Tony Sheehan: And Tom, just on that as well, those -- that those existing card programs are across Australia and New Zealand as well. Thomas Russell: They are. Yes, good point. So there's a lot of questions here in 1 go. The company also entered into an additional BIN sponsorship, strategic partnership with the global processor payment. Can you provide a little more detail and explain a little further what this means. Tony I'll throw that 1 to you. Tony Sheehan: I'll take that. Thanks, Tom. So we provide in sponsorship services as part of our offering. So we can be the processor and issuers. So we provide the technology. We provide the card issuing capabilities. There are some instances where you've got clients that are based overseas entering into Australia, they might use a processor that is a global processor from overseas that needs card issuing capability. So what we decided to do was to offer the BIN sponsorship capabilities where we are the card issuer of record, but they are using another process technology. So for us, it's actually broadening or expanding the pie of opportunities that we can actually provide card issuing capability. So we always talk around that scale game in payment. So it's more volume for us. Our preference where we really generally target as a business is to be a processor and issuer, but we are also more than happy to provide BIN sponsorship capabilities to clients entering the market as well. So those partnerships are important to us to sort of expand our reach in market. Thomas Russell: Thanks, Tony. There's another question from this person around transaction volumes in cards. I think we've answered that one, so I'll leave that. Can you please describe the client regions of the license and professional services contribution. Tony, do you want to take that 1 as well? Tony Sheehan: Yes. So most of that, I would say, and Tom keep me -- correct me, if you've got a different view on that, I would say that probably 75% of that would come from -- would have come from Southeast Asia during the quarter. We picked up some licenses and professional services from Latin America as well and a little bit in the Oceania region, but the vast majority of that has come from clients in Southeast Asia. A lot of that is on the Vertexon side. And then we've got some PaySim clients as well. Thomas Russell: Which can be global, but not a material as the Vitexon thing, obviously. Thank you. I'll hook first 1 to you as well. Can you expand on what the pipeline looks like in each of Australia and New Zealand for PaaS? Tony Sheehan: Yes. So look, we often get a lot of questions around the sales pipeline. I'll tie that in with another question that has -- that I've seen that's come in around when can you expect to -- I think it was when can you expect to sign another large client to move the share price. So I think as a business, we've demonstrated over the last few years that we continue to sign PaaS clients. I think we've signed probably 12-plus PaaS clients, since launching the platform and going live. We've got a pipeline of opportunities there. Do we want to accelerate the sort of velocity of how many clients we're in? Absolutely. That's a key focus. I mentioned that in the presentation there is to sign more clients and get more volume onto the platform. What we are seeing is in terms of our sales pipeline, the Australian pipeline is continuing to build given our focus with our new BDMs in that region. So there's some really good deals that are progressing through that pipeline and moving down to the bottom of the funnel. They're still going to go through to get finalized, obviously, which is so still a way to go before they sign. But the top of the pipeline has continued to expand. That is progressing through the pipeline. We're very pleased with where that is at the moment. New Zealand is going well as well. We've seen that with the launch of Sharesies, which is a great program, late last year in October. And we also have that fintech client that has their existing programs. that are moving over to us in Australia and New Zealand as well. So some really good clients and some great volumes coming across to us. In terms of that pipeline, we're comfortable, we're very happy with where it is. We just want to be signing more of those clients. There is some lead time as a B2B business. There is sort of quite a lengthy sales cycle as well. So with those changes that we've made in the sales team as well, we're seeing those deals progress through the funnel. Thomas Russell: And it is a bit of a snowball just to add to that. You've seen it in New Zealand where we signed those first clients and then we sign in other Credit Union, another Credit Union and then we signed a large a fintech, large Sharesies. People are starting to come to us in New Zealand as the top of mind option for card issuing. We're probably not quite there yet in Australia, but we've signed a couple of deals now, the client that's going live this quarter, when we're able to say who that is they're a meaningful client from a brand perspective with big growth aspirations. And I think that, that reputation that settling every day, that goes a long way to just building the momentum. And as Tony said, B2B sales are lumpy, and this business has the ability now and always has to sign big clients like we signed Credit Union a couple of years ago now, but that was a big deal for a small business and the business can sign those kind of deals at any point. We just can't -- we're not going to sit here and tell you they're coming next week or whatever else that take time to come through. Another question, Tony. What about potential customers switching from Visa to MasterCard. Does it take longer to onboard them? Tony Sheehan: Yes. So good question. Generally, the market is -- it doesn't really matter whether you're a Visa or a Mastercard. And I think most of the people on this webinar kind of probably got a Visa and Mastercard card in their wallet. I think in terms of switching where we've switched 1 of our major Credit Union clients in New Zealand over to Mastercard a couple of years ago. So that sort of -- they were on a different scheme moved over to Mastercard. That went smoothly. There's generally that people fairly open in terms of the different schemes. We have it down, we have the process down pat pretty well. We'll have another client that we can swap them over quite easily between the different schemes. I think part of the sales cycle in terms of talking to financial institutions as well as they are with the alternate scheme being Visa, and we want to try and swap them to Mastercard. There's obviously more conversations because they're more familiar with that certain scheme as opposed to Mastercard, even though a lot of the functionality is very similar between the 2. So -- it doesn't really take any longer to onboard them. Sometimes, particularly in the financial institution space, there's probably more conversation that needs to be had, if there is a scheme switch involved. Thomas Russell: Okay. I have -- I'm not -- the end of the question that I've seen here, Tony. Tony Sheehan: That's right. I'm just checking another screen time. I've not seen any other -- I think we've answered most of those. I think we've answered them all actually that have come through. Thomas Russell: Perfect. All right. Well, thank you, everyone, for joining again. We really appreciate you taking your time to jump on the results webinar for the quarter, and we will have our half year out as well at the end of February. So we hope to see you all again when we do the webinar for the half year. Tony Sheehan: Thanks, everyone. Thanks for taking the time.
Operator: Good day, and thank you for standing by. Welcome to the Q4 2025 BXP Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Helen Han, Vice President, Investor Relations. Please go ahead. Helen Han: Good morning, and welcome to BXP's Fourth Quarter and Full Year 2025 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on Form 8-K. In the supplemental package, BXP has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy, these documents are available in the Investors section of our website at investors.bxp.com. A webcast of this call will be available for 12 months. At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Although BXP believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be a change. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in yesterday's press release and from time-to-time in BXP's filings with the SEC. BXP does not undertake a duty to update any forward-looking statements. I'd like to welcome Owen Thomas, Chairman and Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During the Q&A portion of our call, Ray Ritchey, Senior Executive Vice President, and our regional management teams will be available to address any questions. We ask that those of you participating in the Q&A portion of the call to please limit yourself to 1 and only 1 question. If you have an additional query or follow-up, please feel free to rejoin the queue. I would now like to turn the call over to Owen Thomas for his formal remarks. Owen Thomas: Thank you, Helen, and good morning to all of you. BXP had a very strong year of performance in 2025 in all areas critical to our business, namely leasing, asset sales, development starts and deliveries, financing and client service, notwithstanding our below reforecast FFO per share outcome for the fourth quarter. We remain on track, if not ahead, in executing the detailed business plan we outlined for shareholders at our investor conference last September. This morning, I'll review our progress toward achieving the critical components of this plan, which are leasing and growing occupancy, asset sales and deleveraging external growth primarily through new development, capital raising for 343 Madison Avenue and increasing focus on urban premier workplace concentration. Though Doug will provide details on BXP's leasing activity, in summary, we had a strong fourth quarter and full year of leasing and our forecast occupancy gains have commenced. We completed over 1.8 million square feet of leasing for the fourth quarter and over 5.5 million square feet for the full year 2025, well above our goals for the year. As we've explained on prior calls, leasing activity is tied to both our clients' growth and use of their space. We have every reason to be confident that the positive environment we are experiencing for leasing will continue into 2026 as earnings for companies in both the S&P 500 and Russell 2000 indices, a proxy for our client base are expected to grow at double-digit rates, an acceleration above 2025 growth levels. Return to office mandates from corporate users continue to grow and take effect. Placer.ai's office utilization data indicates December 2025 was the busiest in office December since the pandemic and showed a 10% increase in office visits nationwide from December 2024. Concerns and speculation about the impact of AI on job growth and by extension leasing activity are not supported by the actions of our clients, many of which are growing their footprints, upgrading their space, and/or executing long-term leases. In fact, we're experiencing accelerating demand from AI companies, particularly in the Bay Area in New York City. The near-term negative impacts of AI on jobs are more likely in support functions, which are generally not occupying premier workplaces. Providing further support for our leasing activity is the consistent strength and outperformance of the premier workplace segment of the office market where BXP is a market leader. Premier workplaces represent roughly the top 14% of space and 7% of buildings in the 5 CBD markets where BXP competes. Direct vacancy for premier workplaces in these 5 markets is 11.6%, 560 basis points lower than the broader market, while asking rents for Premier Workplaces continue to command a premium of more than 50% over the broader market. Over the last 3 years, net absorption for Premier Workplaces has been a positive 11.4 million square feet versus a negative 8 million square feet for the balance of the market, which is nearly a 20 million square foot difference. Given these positive supply and demand market trends and our strong leasing in 2025, we believe our target of 4% occupancy gain over the next 2 years remains achievable and more likely than when we made the forecast last September. Our second goal is to raise capital and optimize our portfolio through asset sales. During our Investor Day, we communicated an objective to sell 27 land, residential and nonstrategic office assets for approximately $1.9 billion in net aggregate sale proceeds by 2028. We are off to a strong start. So far, we've closed the sale of 12 assets for total net proceeds of over $1 billion, $850 million in 2025 and $180 million this month. In addition, we have under contract or agreed to terms the sale of 8 assets with estimated total net proceeds of approximately $230 million in 2026. In total, we have 21 transactions closed or well underway with estimated net proceeds of roughly $1.25 billion. As of now, dispositions estimated for 2026 aggregate over $400 million, and we will be exploring additional sales. For the $1 billion in dispositions that have been closed, there are 7 land sales for $220 million, 2 apartment sales for $400 million and 3 office lab sales for $400 million. We have been able to achieve attractively valued land sales by creatively positioning our office land for other uses. To date, we have sold or are in the process of selling land to a corporate user, a municipal user, a light manufacturing developer, a utility and most importantly, developers for residential use, both apartments and for-sale townhomes. Across Lexington, Waltham and Westin Massachusetts, Montgomery County, Maryland, Fairfax County, Virginia, Santa Monica, California and West Windsor Township, New Jersey, we have received or are pursuing entitlements for over 3,500 residential units which is creating significant value for shareholders and will be the backbone of both our apartment development and land sales activity going forward. We sold 2 high-quality apartment buildings, which we built in Reston Town Center in Cambridge, Massachusetts for approximately 4.6% cap rates both were profitable developments for BXP. Lastly, on office sales, we elected not to participate in a debt restructuring at Market Square North and sold our interest to our partner for our share of the existing debt balance. We sold 140 Kendrick Street, our only asset located south of the I-90 interchange on Route 128 in suburban Boston at a relatively high cap rate of 9.5%. However, we maximized its income potential, having leased the building to 96%, and the local market is not strategic to BXP given our lack of scale. Lastly, we sold our 50% interest in Gateway Commons to a strategic buyer that has significant scale in South San Francisco for a 6.2% cap rate and the property is 63% leased. Though we think South San Francisco is an attractive life science market longer term, given high vacancy rates and low net absorption, it will take some time to capture the upside and we received a reasonable price from a logical buyer. With this deal, we have exited the Life Science business on the West Coast, but remain committed to the sector through our substantial life science holdings in the Boston region. Supporting our disposition efforts, office transaction volume in the private market continues to improve as more equity investors become constructive on the sector, and financing is available at scale, particularly in the CMBS market, with tightening credit spreads. In the fourth quarter, Significant office sales were $17.3 billion, which is up 43% from the third quarter of 2025 and up 21% from the fourth quarter of the prior year. The transaction most relevant to BXP's portfolio that occurred in the fourth quarter was the sale of a 47.5% interest in 101 California Street in San Francisco, for a 5.25% cap rate and $775 a square foot. The building is a market leader in San Francisco, comprising 1.25 million square feet and is 88% leased with attractive property level financing through 2029. The third goal is to grow FFO through new development selectively with office given market conditions and more actively for multifamily with an equity partner. For office, we continue to allocate more capital to developments than acquisitions because we're finding very high-quality development opportunities with pre-leasing that we believe will generate over 8% cash yield upon delivery, which is roughly 150 to 250 basis points higher than cap rates for debatably equivalent quality asset acquisitions. Additional advantage as new buildings generally have longer weighted average lease term and limited near- and medium-term CapEx requirements. The trade-off is timing as developments obviously takes several years to deliver. This past quarter, we created a second preleased premier workplace development in the Washington, D.C. CBD market. Following our success at 725 12th Street, we were approached by Sidley Austin to find them a new Washington, D.C. headquarters. We identified 2100 M Street as an attractive site with frontage on New Hampshire Avenue and 21st Street. We simultaneously negotiated a purchase of this site for $55 million or $170 a square foot and executed a 15-year lease for 75% of the to-be built not yet designed 320,000 square foot premier workplace. The total development budget is estimated to be approximately $380 million, and the forecast unleveraged cash yield upon delivery is in excess of 8%. Though we have closed on the site, construction will not commence until 2028 and building delivery is expected in 2031. For multifamily, we have 3 projects with over 1,400 units under construction and are in various stages of entitlement and/or design for 11 projects totaling over 5,000 units, one of which will commence in 2026. We expect to continue to capitalize new development starts with financial partners owning the majority of the equity. We continue to advance our development pipeline with 8 office, life science, residential and retail projects underway, comprising 3.5 million square feet and $3.7 billion of BXP investment. We expect these projects will deliver strong external growth both in the near term with the delivery of 290 Binney Street midway through the year and over the longer term. Our final goal is to introduce a financial partner into 343 Madison Avenue, our leading premier workplace development in New York City, given its location with direct access to Grand Central Terminal and state-of-the-art design and amenities. We finalized a lease commitment with Starr for 29% of the space in the middle bank of the tower and are negotiating a letter of intent for another 16% of the building located just above Starr. We have committed to nearly 50% of the construction costs and our projections remain on track for a stabilized unleveraged cash return of 7.5% to 8% upon delivery in 2029. We are in discussions with several potential equity partners for a 30% to 50% leverage interest in the property and also have had constructive discussions with several construction lenders for financing at attractive terms. Our leasing, construction and capital markets execution continues to derisk the 343 Madison investment, and we intend to complete this recapitalization in 2026. We are making strong progress with our strategy for BXP to reallocate capital to premier workplace assets in CBD locations. We recently launched new developments at 343 Madison Avenue in New York City and 725 12th Street in Washington, D.C. We plan to launch construction of 2100 M Street in 2028 and the majority of the office and land assets we are selling are in suburban locations. We continue to evaluate additional premier workplace development and acquisition opportunities but remain disciplined about quality, pricing, and the result in leverage and earnings impacts. In conclusion, our clients are, in general, growing, healthy and more intensively using their space, creating increasingly positive leasing market conditions concentrated in the premier workplace segment of the market. New construction for office has virtually halted leading to higher occupancy and rent growth in many submarkets where BXP operates. Debt and equity investors are becoming constructive on the office sector, resulting in more availability of capital at better pricing. BXP is very much on track executing our business plan as outlined last September, which we believe will deliver both FFO growth and deleveraging in the years ahead. And I'll turn it over to Doug. Douglas Linde: Thanks, Owen. Good morning, everybody. So filling in some details on our leasing progress. When we made our presentations at our Investor Day, we had all of our regional executives on the dias and they described a very constructive and an improving environment for our portfolio across each of our markets. Our remarks last quarter reinforced that outlook. Our leasing results this quarter continue to affirm the sentiment. As you read last night, the fourth quarter total leasing volumes were strong and exceeded our expectations, and our occupancy jumped about 70 basis points, with about 35% of that gain stemming from improvements in the portfolio leasing and the other parts from reductions to the portfolio size, aka, the asset sales. We are excited to announce our new development leasing and those investments are going to drive net operating income growth from 29% to 32% but we are in the here and the now. It's our in-service vacant space leasing and covering near-term lease expirations that will drive our occupancy improvement and same-store revenue growth in '26 and '27. In the fourth quarter, we completed about 500,000 square feet of vacant space leasing, which included about 70,000 square feet of leases that were expiring in the fourth quarter, and we executed leases on 550,000 square feet of '26 and '27 expiring space. In the full year '25, we executed leases totaling over 1.7 million square feet of vacant space and we start 2026, with 1.243 million square feet of executed leases on vacant space that have yet to commence. Calendar year '26 expirations have been reduced down to 1.225 million square feet. The bottom line is that if we were to do no additional leasing in '26, our occupancy would remain flat for the year. The good news is that we have lots of activity, and we are going to doing lots of leasing and we have begun to execute leases. We expect to complete 4 million square feet of leasing in 2026, which is consistent with what we suggested during our Investor Day presentations. We have 1.1 million square feet in negotiations today, including more than 750,000 square feet of currently vacant space and 125,000 square feet associated with 2026 expirations. On top of that, our discussion pipeline currently sits at about 1.3 million square feet and includes more than 700,000 square feet of vacant space. This is about 10% larger than the pipeline from the third quarter call. We've made significant progress on residential entitlement work, as Owen described, across a number of our assets, and some of this work is going to allow us to take out of service and demolish suburban office buildings and then redevelop those parcels into higher-value residential uses consistent with our portfolio optimization strategy. In Waltham, our rezoning efforts have reached a point where we have removed 1000 Winter Street, a 275,000 square foot office building from the in-service portfolio this quarter. Next quarter, as leases expire, we will be removing 2800 28th Street, a 115,000 square foot office building and 2850 28th Street, a 146,000 square foot office building, both in the Santa Monica Business Park from the in-service portfolio. We've submitted our project application in mid-December for 385 units on the site of our 2800 28th Street office building, which is about 50% leased today. We will be relocating many of these existing tenants and hope to be under construction in early '27 on the first residential project in Santa Monica. We've also reached an agreement with an institutional partner to commence development at Worldgate in Herndon, Virginia, where we purchased 300,000 square feet of office space with plans to re-entitle and demolish it. These buildings were never in service. The entitlements are nearing completion, and we anticipate starting during the second quarter. As Owen said, we also received our zoning approvals to build 100 townhomes, which we are actively marketing and 200 apartments in Weston Mass on unentitled land and are moving forward with site plan approval. As Owen discussed, we sold a number of assets at the end of '25 and in January, we completed 2 more transactions. On a combined basis, these sales reduced our portfolio by 2 million square feet and the assets were 78% leased. The in-service portfolio as we sit here today, is 46.6 million square feet. Owen mentioned our expected property sales for '26. Based on the transactions in documentation today and the removal of the 2 buildings at SMBP, the portfolio is expected to be reduced by another 1 million square feet by the end of the first quarter. We ended the year with in-service occupancy of 86.7%. I said we are negotiating leases on 750,000 square feet of vacant space. We expect 600,000 of that to be in occupancy in the fourth -- by the fourth quarter of '26. Again, we're also negotiating leases on 125,000 square feet of '26 expirations. This 725,000 square feet of leasing on a portfolio of 45.6 million square feet will add 160 basis points of occupancy by the end of '26. We will sign additional leases on vacant space and/or renew '26 expirations and thereby achieve 200 basis points of occupancy improvement by the end of the year, ending the year at about 89%, just as we stated in September. The overall mark-to-market on leases signed this quarter was flat on a cash basis, though the regional variations were pretty meaningful. We had a 10% increase in Boston, New York and D.C. were essentially flat, and the West Coast was actually down 10%. Boston was led by strong markups in the Back Bay portfolio. New York was very space sensitive. In other words, we had 1 lease at the General Motors Building that was up 9%, along with another lease in the same building, same elevator bank that was a negative 13%. In our West Coast portfolio, in particular in Embarcadero Center, the structure of the leases made a big difference. For example, we had 2 leases in Embarcadero Center Four in close proximity that had a $20 square foot difference due to 1 lease having a very small TI allowance and no free rent and the other having a full build in the year. This quarter, we executed a number of large leases. Excluding the 2 development property assets, we signed 17 leases over 20,000 square feet, with the largest at about 115,000 square feet. 44% were involving renewals, extensions or expansions and 56% were with new clients. Existing client expansions encompassed about 162,000 square feet of the activity. We also had about 100,000 square feet of clients that renewed but contracted. The second generation rents in the leasing [ statistics ] this quarter represent about 900,000 square feet and the gross rents were down about 3%. The DC number reflects the reality of 10 years of 2.25% to 3% annual escalation on top of operating expense increases. As I've said in prior calls, almost every DC area lease has a cash roll down of upon expiration. In San Francisco, the statistics include only 57,000 square feet and just 23,000 square feet of that was CBD office. The change in the office portfolio rent was a decline of about 9%. Before I pass the call to Mike, I want to make a few comments on our individual markets. In the BXP portfolio, Midtown New York, the Back Bay of Boston and Western Virginia continue to have the tightest supply and therefore, the most landlord favorable market conditions. And this quarter, the most significant improvements we've seen were at -- in the Park Avenue South submarket in Midtown and the [ South of Mission ] Market in San Francisco. In the Boston CBD, where we are 97.5% occupied we completed another early renewal and extension in the Back Bay portfolio. We executed a 115,000 square foot lease, which included an 18,000 square foot of expansion that involved BXP freeing up space from other clients in the building. When you're 97.5% occupied, it's hard to lease vacant space. We completed a second large transaction in the Back Bay that was a 57,000 square foot renewal of a 95,000 square foot block. The client had sublet the remaining space in '24, and we're negotiating a lease with a current subtenant to go direct for 10 years when the prime lease expires in 2027. Again, an indication of the tightness in the market. In our Urban Edge portfolio, we signed another life science client at 180 CityPoint, actually done yesterday, which brings that building to 92% leased. Our remaining first-generation life science availability from the Urban Edge is now limited to 27,000 square feet at 180 and 113,000 square feet at 103, totaling 140,000 square feet. In our view, the macro issues around life science bottomed at the beginning of '25. Nonetheless, demand for wet lab space has not recovered. There are a few users actively touring but the requirements from early-stage clients continue to be limited. Construction at 290 Binney Street in Cambridge is nearing an end. Rent is going to commence in April and we expect to deliver the building into occupancy in June. In New York, the most significant change in our activity has been in the Midtown South portfolio. On January 1st, '25, we had signed leases of just over 100,000 square feet at our 450,000 square foot 360 Park Avenue South development. We executed leases on 4 floors in the fourth quarter, which brought the total leasing in the building to 262,000 square feet or 59%. We are negotiating leases on an additional 6 floors that should bring the building to 90% leased during the first quarter. We will have 2 floors available in the building. And across Madison Square Park, we leased an additional 32,000 square feet at 200 Fifth in early January, leaving us with a total of 33,000 square feet of availability where we had 350,000 square feet vacated in 2025. Starr is currently a tenant in 240,000 square feet at 399 Park. We expect their relocation to 343 Madison will occur in the third quarter of 2029. We have already received inquiries about their space. At each of our properties, at the 53rd Street campus, the average in-place fully escalated rent is less than $110 a square foot, which is significantly below the current market. As a case in point, we signed a lease of 599 Lexington Avenue in the fourth quarter of 2024. We are documenting a lease on an adjacent floor in the building today with a starting rent that is 25% higher. In San Francisco, the most significant change in the portfolio is at 680 Folsom and 50 Hawthorne. You will recall that in late October, about 90 days ago, I described the strong interest we were seeing at the building, where we had 208,000 square feet of vacancy and 63,000 square feet of expirations in June 2026, but no leases in negotiation. Today, we have executed 2 leases totaling 69,000 square feet and are negotiating leases for an additional 132,000 square feet. All of these leases agreed to terms during the last 60 days of 2025. While the AI demand has not translated into commensurate growth in ancillary professional service tenants in high-rise assets in the markets, overall, non-AI client activity is also improving. This quarter, we completed almost 200,000 square feet of leases at Embarcadero Center and 535 Mission, which is almost double what we did in the third quarter. Many of our asset sales were on the Peninsula of San Francisco. Our remaining in-service assets are in Mountain View. Client tours continue to accelerate in this market as well, and we have signed an LOI for a 52,000 square foot building at Mountain View Research. Finally, D.C. Activity in D.C. continues to be concentrated in Reston Town Center. This quarter, we were able to manufacture 43,000 square feet of expansion space for a growing defense contractor by doing an early termination with a client that was acquired not using their space and had a 2032 expiration. We also completed 195,000 square feet of additional transactions with 15 clients. Any leasing pause associated with the government shutdown from the fall is fully recovered. That wraps up my comments, and we'll turn it over to Mike to talk about guidance for 2026. Michael LaBelle: Great. Thanks, Doug. Good morning, everybody. So this morning, I plan to cover the details of our fourth quarter and our full year 2025 performance. I'm going to spend most of my time, though on our 2026 initial earnings guidance that we included in our press release, with additional details in the supplemental financial package. For 2025, we reported total consolidated revenues of $3.5 billion and full year FFO of $1.2 billion or $6.85 per share. Our fourth quarter FFO was $1.76 per share, and it came in short of the midpoint of our guidance by $0.05 per share due primarily to higher-than-anticipated G&A expense and noncash reserves for accrued rental income. Our G&A expense for the quarter was $3.5 million or $0.02 higher than our projection. $0.01 per share of this was from higher compensation expense and $0.01 was from higher legal expenses that were related to the elevated leasing activity that we saw in the quarter. We also recorded approximately $6 million or $0.03 per share of credit reserves for the accrued rent balances for 2 clients in the portfolio. One is a 60,000 square foot firm that provides educational services to federal employees in Washington, D.C. and the other is a 10,000 square foot restaurant in New York City. Both clients remain in occupancy today, and we fully reserved their accrued rent balances due to our concerns of future rent collection. In aggregate, the rental obligation at our share is relatively small at $4 million annually. The balance of the portfolio performed in line with our expectations with revenues modestly above budget and higher expenses, largely driven by elevated utility costs in the Northeast due to colder-than-normal weather. We also reported gains on sale in the quarter of $208 million on $890 million of asset sales. Gains on sale are not part of our FFO, but they are part of net income and EPS. We received net proceeds from the sales activity of $800 million that has increased our liquidity and will be used to reduce debt. We currently have $1.5 billion in cash and cash equivalents, a portion of which will be utilized in February to redeem our $1 billion bond that expires this quarter. With that, I will turn to our 2026 guidance. We are introducing 2026 FFO guidance with a range of $6.88 to $7.04 per share, which is within consensus estimates. The midpoint of our guidance for FFO was $6.96 per share, and it represents an increase of $0.11 per share from 2025. At a high level, our 2026 guidance can be summarized as follows: internal growth in NOI from higher occupancy in our same-property portfolio, external growth in NOI generated by our development deliveries, lower interest expense from utilizing the proceeds of asset sales to reduce debt. These are partially offset by a reduction in NOI from executing asset sales in 2025 and 2026 that is consistent with our strategic asset sales plan that we described at our Investor Day. Noncash amortization of our new stock-based outperformance plan, which is designed to align management incentives with long-term shareholder value creation and a reduction in NOI from taking buildings out of service for future residential development, positioning them for higher value creation. To get into details, I will start with the expected growth in our same-property portfolio. Doug did a great job describing the ramp-up in occupancy from both signed leases that have not yet started and our active leasing pipeline. As he described, we expect occupancy to climb from 86.7% at year-end 2025 to approximately 89% by the end of 2026, which is a meaningful increase. We expect first quarter occupancy in the same property pool to be relatively flat, followed by improvement with average occupancy during the year of between 87.5% to 88.5%. As a result, we expect our same-property NOI growth to build throughout the year. Our assumptions for 2026 same-property NOI growth are between 1.25% and 2.25% from 2025. Based upon our same-property NOI of $1.88 billion, this equates to approximately $33 million or $0.19 per share of incremental NOI at the midpoint. On a cash basis, our results will be impacted by several terminations that we have proactively manufactured to accommodate either growing existing clients or new clients, like the one Doug described. In each of these cases, we will have new clients taking occupancy with free rent periods during 2026, so we are effectively trading cash rent for GAAP rent in the near term to accommodate growing clients, and we're getting valuable additional lease term. One of these occurred in the fourth quarter, resulting in $8 million of cash termination income in 2025. Our 2026 guidance assumes termination income of $11 million to $15 million, A portion of this is from 3 additional terminations that we're negotiating. The incremental increase in termination income in 2026 is approximately $2 million or $0.01 per share at the midpoint of our guidance. Even though termination income is cash income, we do exclude it from our same property guidance, and the impact is muting our cash same-property growth in 2026. Our assumption for 2026 cash same-property NOI growth is 0% to 0.5% from 2025. Our assumption for termination income at the midpoint would equate to an additional 70 basis points of same-property cash NOI growth. As Doug described, we're taking 3 buildings out of service for redevelopment into future residential sites and are in varying stages of entitlement. We are not doing any new leases in these buildings and expect to relocate existing clients to other buildings. The reduction in NOI from these buildings in 2026 is $13 million or $0.07 per share. Turning to our development portfolio. In 2025, we delivered 3 new properties totaling 700,000 square feet and $518 million of total investment. These properties include 1050 Winter Street in Waltham and Reston Next Phase II, which are 100% and 92% leased, respectively. We also delivered 360 Park Avenue South, where we're 59% leased today. And as Doug described, we have leases under negotiation to bring it to around 90%. We expect to have occupancy of all of this space by the year-end 2026, and we will have a full year of revenue in 2027. The most meaningful development that will impact 2026 is our 573,000 square foot 290 Binney Street life science project in Cambridge that is 100% leased to AstraZeneca. We own 55% of this project, and it will deliver at the end of June with a total investment of our share of approximately $500 million. In aggregate, we project that the contribution from our developments will add an incremental 2026 NOI of $44 million to $52 million. And at the midpoint, the developments are projected to add $0.27 per share of incremental NOI to 2026. As we described at our Investor Day, we have embarked on a disposition program that will fund our development activities and optimize our portfolio of premier workplaces. To date, we have closed $1.1 billion in 12 transactions and generated net proceeds of $1 billion. Our guidance assumes an additional $360 million of sales in 2026 that are either under contract or in negotiation, which we expect will generate net proceeds of approximately $230 million. The financial impact of our sales activity is expected to result in a reduction of portfolio NOI from 2025 to 2026 of $70 million to $74 million. Investing the sales proceeds to reduce debt results in lower net interest expense in 2026. We expect the net impact of sales on our 2026 FFO will be dilution of $0.06 to $0.08 per share, which is in line with the guidance that we provided at our Investor Day in September. Overall, we expect our net interest expense will be $38 million to $48 million lower in 2026 versus 2025. A portion of this is in our unconsolidated joint venture portfolio where we anticipate lower interest expense at our share of $11 million to $14 million that is primarily from the repayment of secured mortgages. Our guidance assumes our share of joint venture interest expense of $60 million to $63 million in 2026. We expect a reduction in our 2026 consolidated interest expense net of interest income of $25 million to $37 million from 2025. And that results in a 2026 range for consolidated net interest expense of $581 million to $593 million. Our guidance includes refinancing our $1 billion bond issue that has a GAAP interest rate of 3.5% and expires on October 1st of this year. We currently expect to refinance it at maturity with a new 10-year unsecured bond. Our current credit spreads for 10 years are in the 130 to 140 basis point area. So a new 10-year bond issuance today would price between 5.5% and 5.75%. We have not incorporated into our guidance the likely changing capital structure of our 343 Madison development. As Owen mentioned, we're having active discussions with prospective private equity capital partners for 30% to 50% of the project, which would reduce our funding needs. We've also started the process of construction financing for approximately 50% of the cost or about $1 billion, the response to date has been excellent, and the banks we are working with are active lending to high-quality sponsors and projects and are excited to participate. The closing will likely occur late in the year, and I expect the financial impact on our 2026 earnings will be modest. Turning to our G&A. We project total G&A expense in 2026 of $176 million to $183 million. That is an increase from 2025 of $13 million to $20 million or $0.09 per share at the midpoint. $0.07 per share of the increase is noncash and is comprised of amortization of the imputed value of our recently announced outperformance compensation plan. While there is an annual noncash expense related to the plan, it is completely aligned with growing shareholder value and only results in a payout through additional share issuance if our dividend adjusted stock price rose at between 35% and 80% from our current price over the next 4 years. Lastly, we anticipate that our development and management services fee income will be $30 million to $34 million in 2026, which is a decrease of $3 million to $7 million from 2025. The decline year-over-year is from a reduction of development fee income from completing several joint venture developments, like 360 Park and 290 Binney, and lower property management fees from selling joint venture properties as part of our asset sales program. So to sum all this up, our initial guidance range for 2026 FFO is $6.88 to $7.04 per share representing an increase of $0.11 per share from 2025. At the midpoint, the increase is comprised of higher same-property portfolio NOI of $0.19, incremental contribution from our development pipeline of $0.27, lower net interest expense of $0.24 and higher termination income of $0.01. The increases are partially offset by a reduction of NOI from asset sales of $0.41, the removal of properties from service of $0.07, increased G&A expense of $0.09 and lower fee income of $0.03. 2026 represent a return to FFO growth for BXP. We expect our quarterly FFO run rate to consistently improve through 2026, leading us to a strong base for 2027 and our portfolio is well positioned for additional occupancy growth in 2027 as we see improving trends in our leasing markets, combined with very low rollover exposure. That completes our remarks. Operator, can you open the lines up for questions? Operator: [Operator Instructions] And I show our first question comes from the line of Steve Sakwa from Evercore ISI. Steve Sakwa: I guess maybe it's a combination for the 3 of you, but it sounds like you've had good success on the disposition front and maybe even accelerated the timing. I'm just curious, Owen, if you've kind of taken a harder or a sharper pencil to the portfolio and thought about maybe more dispositions to really tighten up the portfolio. And to the extent that you have I guess, how do you balance that in terms of Mike's comment about FFO growth? And I guess, are you willing to sell more to kind of sharpen the portfolio even if it has kind of negative FFO consequences in the short term? Owen Thomas: Steve, our original goal that we outlined in September last year was $1.9 billion of sales for over the 3 years from September and I think at this point, I'd say we're sticking with that forecast. That all being said, we have a list of assets that we'd like to sell. And if we get a price that we find attractive, we will execute on it. . We are paying attention to the dilutive impacts to earnings. One thing that we have repeated over and over, and I think it's important for everyone to understand. One thing that's helping us with this is a lot of the sales that we're doing are land, and those are completely accretive because they're not generating any income. I'm not sure they're being valued in the public market, and we're using the proceeds to reduce debt. So -- and we're going to continue to sell land assets. I described 3,500 residential units that we're currently getting entitled on land that former office development sites or buildings out of service. And when we go to sell that land, that will be accretive sales. But it will be balanced out with some additional office. I gave some an example, the 140 Kendrick was an example this quarter, which was a little bit of a higher cap rate, which is an offset. So net-net, the answer to your question is we're sticking with our forecast, we might sell more. We're paying attention to the dilutive impacts, but we're also paying attention to optimizing our portfolio and deleveraging and creating capital for our development program. Michael LaBelle: I would just add one thing. I mean, of the $1.9 billion that we discussed -- that Owen just discussed, we're off to a great start. Owen Thomas: Yes. Michael LaBelle: And I would say the pace of the first $1.1 billion that we've got kind of closed is slightly ahead of where we anticipated. So when you look at the $0.06 to $0.08 of dilution I just described, it is within the range that we gave at the Investor Day. The range of the Investor Day was $0.04 to $0.09. It's a little bit at the higher end. And the reason for that is that a couple of the office sales occurred more quickly than we anticipated, which is great. Douglas Linde: Yes. My only additional comment, Steve, is that -- so Owen described all this residential activity we had. I'm just sort of putting an order of magnitude on it, there's probably somewhere between $200 million and $300 million of land value there. And assuming a portion of it is just going to be sold as townhome sites that we will not have an equity interest, and we'll just sell away. But assume a majority of it is going to be residential. We're -- I assume we're 20% of that. And then our 20% is going to be added to our development pipeline, right? So we're going to take cash off the table and make incremental investment in development as we do that on a going forward basis. So there's a little bit of dilution on a relative basis, but there's actually accretion because we're going to be making what we believe to be highly accretive investments relative to what the residential yields will be. Operator: And I share our next question in the queue comes from the line of Michael Goldsmith from UBS. Michael Goldsmith: Doug, I think you said you had 1.1 million square feet in negotiations and 1.3 million square feet in discussions. What conversion rate are you underwriting for this pool? How is that maybe compared to the last couple of years? And the historical conversion rate during prior improvement cycles. . Douglas Linde: Yes. So Michael, on the 1.1 million, it's actually now at 1.2 million as of late last night of deals that are in "lease" negotiation, I think our conversion rate is like 95%. We rarely see something drop off there. And then on our sort of pipeline of things, I'd say the conversion rate there is somewhere in the 0.5 million square feet, plus or minus, but it keeps growing, right? So as I said to you before, we're going to lease 4 million square feet of space. And so we've identified as of today about 2.3 million square feet or 2.4 million square feet of space. We will probably have identified 5 million square feet of space to get to that 4 million square feet at the end of the year. Operator: And I show our next question comes from the line of Anthony Paolone from JPMorgan. Anthony Paolone: You mentioned in your commentary that you didn't feel that AI was cannibalizing any space needs in the portfolio. So can you maybe talk in a little bit more detail about how you're tracking that, if you think that, perhaps, it's cannibalizing other types of space that's not in your portfolio? Or just any more color on that would be helpful, I think. . Owen Thomas: Tony, I'll kick it off, and Doug and Mike may also have comments on this. This is incredibly hard thing to forecast. I think all of you on this call realize that. The points that we can only make to you right now is what we're experiencing, which is accelerating leasing activity. And I just -- Doug described it, I described it, our clients are -- they're growing more than they're shrinking. They're taking better space, they're signing longer leases. And in fact, I would say AI so far for BXP's footprint has been a net plus, not a negative because we've had very significant AI leasing not only at BXP but maybe more importantly, in the Bay Area, which is an important market. It's been a very important driver of net absorption there. So that's what we're seeing today. Our instinct on this is as we think about AI, and we use it in our own work is that it's much more likely in the near term to dislocate more repetitive tasks and support jobs. And those kinds of positions generally are not resident in premier workplaces, which is substantially our portfolio. But again, I'd just go back to -- this is hard to forecast. This is what we're seeing right now. Douglas Linde: I guess I'm going to ask -- I will ask Rod and Hilary to sort of make some comments on their markets because I think that they're emblematic of what is going on. And Rod will, I assume, talk about just the growth in technology jobs in the form of AI companies and AI "sort" of vertical and/or horizontal business structures that are coming. And Hilary is going to describe what's going on with not only technology but with sort of the financial services and professional services sectors that are so much and so important to New York. So Rod, why don't you start? Rodney Diehl: Yes. Thanks, Doug. So I think if we're talking about the cannibalization. I don't know that I can speak to that specifically. But with respect to the demand that we're seeing in San Francisco and the Bay Area in general, from AI, it's just been tremendous. We've been talking about it on calls in the past, and that definitely now is showing up in the statistics. The overall tenant demand in San Francisco right now sits just around 8 million square feet and 36% of that is from AI or AI-related technology companies. So that's pretty -- it's a lot. And every time we turn around, there's another deal that's being talked about or getting signed. So there's the big ones, the OpenAI, the Anthropics of the world, and then there's a lot of small ones, too, that keep getting [ informed ]. So I just -- it's definitely a wave of demand that we're taking advantage of. We spoke about 680 Folsom and the tenant demand down there. And it's happening. So that's all positive as far as we're concerned for our portfolio. Douglas Linde: Hilary? Hilary Spann: Thanks. We are seeing real strength in the financial services sector. We continue to see companies having a difficult time securing space that they need for expansion or simply if they're trying to locate in Manhattan for the first time. I heard a statistic the other day that there is only one space that is direct with a landlord above 100,000 square feet in the premier buildings in Midtown. And I think that's a pretty telling statistic. So we've continued to see demand from our existing clients wanting to expand. We have seen stronger interest from tech and media in Midtown South, which is reflected in the statistics that Doug mentioned regarding our lease-up at 360 Park Avenue South, which is approaching 90% when we complete the leasing that's underway now. Many of those tenants are either AI-powered or have an AI component to their business. And then we still are leasing to more traditional financial services businesses, and those have come down -- some of them have come down from Midtown to Midtown South as they're seeking premier workplaces. The other thing I would mention, and Rod referred to Anthropic, there was an article out last week that Anthropic is seeking between 250,000 and 450,000 square feet in New York City. So there's definitely an expansion of AI businesses in New York. And I think that, that is driving some of the demand pickup in Midtown South and the Flatiron District. But for Midtown proper in the Park Avenue submarket and the Plaza District and premier workplace, very heavily dominated by financial services industries who continue to expand. Douglas Linde: So just to sort of you may get -- come to a conclusion, I think that both things can be true. You can have job displaced from artificial intelligence products, but you can also have growth in certain submarkets and certain cities in the country. And as Owen said, we happen to be in those places where we're seeing the growth. So is there going to be less overall job growth because of AI over the next decade? Maybe, but we're not seeing it impacting our portfolio. Operator: And I show our next question in the queue comes from the line of John Kim from BMO Capital Markets. John Kim: I wanted to go to Mike's comments in his prepared remarks about quarterly FFO consistently growing throughout the year as occupancy improves, which sets up for a strong '27. Should we interpret that as the fourth quarter '26 being the quarterly baseline run rate for next year? Douglas Linde: You mean for '27, John? Michael LaBelle: Yes. I mean I think that's a good start. I think that we provide guidance for the first quarter of '26, which is always seasonally our lowest quarter because of the vesting for G&A. And we also expect that our kind of in-service occupancy from the same-property portfolio will be flat in the first quarter, and then the occupancy will build after that. And we'll see consistent growth. I would say there's more in the back half than the first half, that will lead to 2027 growth as we get a full year of some of this occupancy growth in '26. And then given the low rollover we have, we anticipate that we're going to have higher occupancy in '27. Owen touched on again the 400 basis points that we expect, and we still anticipate seeing that. So I can't give you 2027 guidance right now, but we're feeling really optimistic about where we stand. Douglas Linde: Yes. So John, my comment would be, I sort of gave you a lot of numbers in my remarks, which you can go back and read if you have the time. But big picture, right, what I said was our lease expirations in 2026 have been covered by the leases that we've already signed that have yet to commence, and we are going to lease more vacant space. We are also going to lease more space that's rolling over in 2027. It would not be a surprise for me to be talking to you in January of 2027 and saying, "Oh, by the way, we've already covered the vast majority of our exposure for 2027. So any occupancy increases that we get are going to be driving to the bottom line, AKA, what we're seeing in '26 is going to happen in '27. And obviously, we're getting in '25 to '26, the improvements from our development portfolios, which Mike described, in '27, we're going to have full year from an occupancy perspective on 290 Binney Street, and we're going to have all of this occupancy that is going to be in the portfolio in 2026 driving 2027. So that's why we were pretty bullish about both the growth in our earnings from our same-store and our growth in our development assets coming online as when we talked to you in September in Manhattan when we did our Investor Day. We just -- and we're just as bullish today as we were then. Operator: And I show our next question comes from the line of Alexander Goldfarb from Piper Sandler. Alexander Goldfarb: Sort of building on Steve and John's question, Owen, certainly appreciate the focus on minimizing dilution for earnings and Mike, your comment on FFO acceleration on a quarterly basis. As you guys think about leasing, is there a way to reimagine leasing? I'm not talking about development, but I'm talking when you have existing space to shorten the downtime, meaning I don't know if there's a better way to do the build-out, the demolition or how leases are structured. But one of the frustrating things that we see in REIT land is just the amount of time, like 2 years or whatever between a tenant moving out and a new one moving in. And I didn't know if there's a way to shorten that. So from an earnings perspective, all the good stuff that you're doing takes effect sooner versus waiting the 2 years or so that we often have to wait for office. Douglas Linde: So Alex, you're sort of asking, is there an accounting solution to the fact that you have turnover. And I think the answer is not really. I think as we've said in the past, the condition of our space is what matters. And what I would say is that the one thing that I think we have done, which doesn't help in the short term, but certainly decreases the amount of downtime is that we've been doing more turnkey builds and when we're doing a turnkey builds, we're kind of controlling the date when the space will get completed, and we're reducing the free rent component of the deal so that when the tenant comes in, instead of having free rent, they're having much less free rent. And so that's sort of truncating that. And wherever possible, we are trying to deliver space in its current condition. And if we're able to deliver space in its current condition, we can start recognizing revenue when the space is accepted by our next client, if it's a move. But I would say we're -- our focus always is on trying to reduce downtime. And so we look at lots of different levers to do that, but I don't think we're going to be able to eliminate it in a material way. Michael LaBelle: Yes. I would just add, Alex, I mean, we provide these tools to our leasing teams on things that they can do to structure leases so that we can recognize revenue more quickly regarding how the build-out is completed and who's doing the build-out and things like that. Ultimately, it's a negotiation with the client, though, because the client has an opinion as well on how they want that completed. So there's just a negotiation that has to occur. And obviously, ultimately, getting the transaction completed is the most important thing. Operator: And I show our next question comes from the line of Johnson Zhu from Scotiabank. Nicholas Yulico: This is Nick Yulico. So a question on -- in terms of -- I know the focus has been a return to FFO growth. Clearly, there's leasing that's a big aspect of that. But can you just talk about a couple of the other ways to sort of help that process, whether it's on the G&A side, are you able to find any better efficiencies through AI or other venues? And then also on the development side, how you're thinking about kind of managing the size of the pipeline and also bringing in equity stakes earlier to projects kind of like what you're talking about with 343 Madison as a way to sort of manage dilution from development, which for you guys can take a while. I guess I'm also wondering on like 121 Broadway, if you're considering any sort of partner there in relation to that. Douglas Linde: Okay. So you asked like 6 questions there. And I'm going to speed answer a couple of them, and then I'll let Owen to hit the last one. So with regarding to sort of how we're going to accelerate our FFO growth, the first, the second and the third thing that we can do is lease vacant space. That is by far the largest opportunity set. And we're doing that, and you're going to see that quarter after quarter after quarter, we believe, I'm accelerating in terms of the value from that. Second, on the G&A side, we are spending as much time as any organization thinking about whether or not there are ways to "reduce" our overhead costs relative to using tools from artificial intelligence. I will tell you that my view right now is that we're in AI 1.0, which is, I would say, unquantifiable productivity enhancement tools as opposed to cost reduction tools for a business that's the size of BXP. And so we are being thoughtful about how we deploy those things. So net-net, not much in the way of where you're going to see reductions in G&A. And obviously, our G&A as a percentage of our revenues is de minimis and a significant portion of our G&A, you don't see because it's embedded in our properties and it's part of our operating expenses. So there's not much impact on FFO that would occur from that other than when leases roll over and we have a gross lease. On the capital side relative to development, I'll let Owen answer that one. Owen Thomas: Yes. So Nick, I would break the portfolio into 2 pieces. One is the future residential and then the office developments. So on future residential, we intend to bring a partner in for everything. So if you look at the last deals that we've done, Skymark, 17 Hartwell, we have 80% partners on those, and we're working on another one right now at Worldgate, where we also have, we think, an 80% partner. So I think you should expect that to continue to be the case for the residential. On the office, this is core to the company, and we think the developments that we're putting together are very profitable. I mean we think delivering these premier workplaces at over an 8% yield, yields great profits for shareholders. So we're reluctant to share. But we are sharing because we're focused on our leverage. So we're starting with 343 Madison, as you heard from Mike and I, that's an important goal to recapitalize that project this year. And then in terms of bringing in partners on additional office developments, it's going to depend on what our leverage profile looks like and how many additional new developments we're able to identify and secure. Operator: And I show our next question comes from the line of Blaine Heck from Wells Fargo. Blaine Heck: Can you talk about the cadence we should expect for FAD or AFFO over the next several quarters? And I guess, how we should think about the impact of higher concessions associated with the lease-up of the office portfolio? Should we expect FAD to be down year-over-year given those increased costs driven by leasing successes? Michael LaBelle: So on AFFO, I actually expect it will be up slightly. We have less rollover to deal with. We are going to increase our occupancy. So we will have additional leasing that will commence for that. But net-net, having less rollover exposure is going to help us. Our expectation on leasing costs are pretty much in line, somewhere between $220 million and $240 million or $250 million a year, depending on what the transaction costs are. And our CapEx is somewhere between $100 million and $125 million, I would say. So if you look at the midpoint of our FFO, I think our AFO -- AFFO will probably be somewhere in the $4.40 to $4.60 range, something like that, which is, I think, a little bit higher than it was this year. So we feel pretty good about where that is. And I think that on the cadence-wise, it will follow the FFO. Although one thing to point out is that as we're gaining occupancy, a lot of these leases have free rent in the beginning years. So I think that the AFFO will lag a little bit the FFO because those deals will be in free rent. And if you looked at our free rent guidance for next year, it's $130 million to $150 million, which is higher than it was last year. So that's a little bit of an offset. But that will -- in 2027, that free rent will turn into a cash rent. So the AFFO should increase. Operator: And I show our next question comes from the line of Jana Galan from Bank of America Securities. Jana Galan: A question on 343 Madison. Great to hear about the additional 16% in negotiations. Can you talk a little bit more about the demand and touring activity? And then as New York City market rents for trophy increases, how does that relationship work for potentially higher rents for an asset 3 years out? Douglas Linde: Sure. So I'm going to let Hilary give you the specifics on this. I'd just make a couple of comments. So the first is I'm pretty sure that we're the only building that's going to be delivering new construction before 2029, which is a unique position relative to timing of the demand that Hilary is seeing. And second, we're going to be more, I would say, thoughtful about whether we want to lease the top portion of this building because it's probably some of the more valuable real estate in our -- in the BXP portfolio. And we think that getting closer to the ability to deliver that space to smaller tenants will inure to us. But Hilary, why don't you talk about in general, the demand that we're seeing for 343, particularly from medium-sized companies? Hilary Spann: Sure. So I would say that we have very strong demand in financial services tenancies from tenants that are about 150,000 square feet. That is very typically an asset or wealth management business or in some instances, more of a foreign bank type tenancy. And they continue to come through at a pretty decent clip, looking at space in the podium of the building as the mid-rises and sort of upper mid-rises now more or less spoken for. And so I think that we feel very good about where rents are trending for the building, and we will meet the market for rents, whatever that is. And we've had no trouble whatsoever meeting our pro forma on the terms that we're negotiating with existing and prospective clients. So there was some indication earlier in the call, I think Doug said it that rents are going up across Midtown, the Plaza District and Park Avenue, and my observation is that rents have gone up around 15% over the last 12 months. Now 343 Madison is at the top of the market in terms of rents. There are only a couple of other buildings in Midtown that are asking and receiving similar rents. So that market is a little bit in its own stratosphere with regards to the tenants and the demand for it. But I think demand continues to accelerate, and therefore, that will continue to put pressure on pricing from the tenant side, and that will inure to our benefit as we go forward. Operator: And I show our next question comes from the line of Seth Bergey from Citi. Seth Bergey: I guess I just wanted to ask maybe a little bit of a bigger picture question here. But you mentioned rents in New York are up around 15%. In the opening comments, you kind of mentioned the regional variation in the cash mark-to-market with Boston 10%, New York, D.C. flat, West Coast down 10%, just kind of understand that different markets are on a different recovery trajectory, but how do you kind of balance some of the rent improvements with the decline of rents from premarket levels? Just trying to get at a little bit of kind of what's the overall mark-to-market in the portfolio? And then as you kind of maybe start to lap some of the COVID rent roll downs or pre-COVID rent roll downs, kind of when does that kind of turn more into a headwind. Michael LaBelle: In the next couple of years. Douglas Linde: So you asked a really hard question to answer with a simple number. The way we think about things is we look at all of the space that we have that is currently occupied. So we're ignoring the space that's vacant because the mark-to-market on vacant space is 100%, right? I mean there's -- it's from a 0. And so the mark-to-market on space that's currently occupied across our portfolio, we sort of go through on a building-by-building basis every quarter, and we make sort of a guesstimate as where we think the market terms would be for that space. And I would say, as of today, across the entire portfolio, it's somewhere in the, call it, high 4s to low 5% range. And that's, I'd say, a meaningful jump from a year ago and a modest jump from where we were a quarter ago. And why is it only a modest jump? I think it's only a modest jump because where we've seen the biggest improvements have been in the Back Bay of Boston, where our rents have gone up and in our Manhattan portfolio where rents have gone up and at the tops of our buildings on the West Coast, in particular, where rents have gone up. But we're seeing still sort of, I'd say, a stability in terms of not -- no real movement in rental rates, and again, I'm ignoring concessions for a minute in sort of the bases of buildings on the West Coast, and our Washington, D.C. portfolio, where, as I said, the issue on a cash basis is the structure of leases in D.C., and I blame Jake Stroman for this, is that he gets these relatively significant annual increases in the rents and he leaves us with this problem where the cash rent upon the expiration of the lease is higher than what the market rent is, right? Because you just -- it's really, really hard to -- over 10 or 15 years, every single year have a 3 plus or minus percent increase. So that's kind of the sort of the makeup of the portfolio. And then within each of the individual markets, I think that we are in a position where we will see a modest amount of gains in our revenues from roll-ups or -- and mitigating roll-downs across the portfolio, but a much more meaningful impact from the occupancy gain, which is why, honestly, we focus on the occupancy gain and not really on what the mark-to-market is. And I think that's going to be the case at least in '26 and '27. Operator: And I show our next question comes from the line of Richard Anderson from Cantor Fitzgerald. Richard Anderson: So kind of by design at BXP, there's always sort of a lot going on, good solid real estate decisions that nevertheless can be disruptive in the short term to growth. So you're getting more than 200 basis points of occupancy gains in 2026 per your guidance, and that results in, call it, flattish same-store NOI growth for this year. Doug, you kind of alluded to occupancy falling more to the bottom line in 2027 sort of matriculating to the bottom line just because of all the work that's being done today in this year. Do you foresee sort of a less noisy 2027 so that the next 200 basis points of occupancy gains can be something more representative at the same-store NOI line something in the mid-single-digit type of number. I'm not asking for guidance, but I'm just wondering if you're trying to get ahead of a lot of this work so that you have a cleaner story to tell next year. Douglas Linde: Yes. I mean I think the answer is yes. I mean, I don't want to suggest that we're not going to let our regional executives find really interesting things for us to do that might put us in a -- take us slightly off that. But based upon our business in front of us today, we see -- I think, Mike, what was your same store was 1.5% to 2.5%? Michael LaBelle: 1.25% to 2.25%. Douglas Linde: 1.25%, 2.25%, and my expectation is that we'll -- that will be better next year than it is this year because of the nature of the vacancy that's being pulled up and the fact that so much of it is in the back end of the year. Michael LaBelle: Yes, I think that's an important point. And we went through this at our Investor Day with the graph we showed of the buildup in occupancy, where the first and the second quarter of '26 is not going to have as meaningful of increases as the back half of '26 based upon when we anticipate -- when we have the signed leases starting and when we anticipate the pipeline leases starting. And then that occupancy will build on itself into '27, right? So for '26, our average increase is only up about 100 basis points. By the end of the year, it's a little over 200 basis points, and then you get a full year of that in '27 plus the incremental occupancy we should get in '27. So it should continue to build on itself and improve. Operator: And I show our next question comes from the line of Caitlin Burrows from Goldman Sachs. Caitlin Burrows: Just maybe more specific question on 290 Binney. You mentioned that rents are going to commence in April and you expect to deliver the building into occupancy in June. So I was just wondering if you could clarify when does GAAP NOI start to be recognized? And when does capitalized interest come off? Does that happen at the same time? And is it early April, late June or something in between? Michael LaBelle: It does happen at the same time. And the way this transaction was structured is we had a hard rent start date, but the tenant improvement design and costs have taken a little bit longer than the original expectation based upon some design changes that were made by the client. And so those tenant improvements are not going to be complete and get a CLO until sometime probably late in June. And our revenue recognition rules are that we can't start revenue recognition until it's done. So we have to wait until the end of June to start revenue, and then we will stop capitalizing interest also on that. And just as a reminder, we're capitalizing interest at 100% of the cost because it's a consolidated joint venture, even though we only own 55%. That was something we talked about at our Investor Day. And it's just important because it impacts our net interest expense guidance. It's embedded in the guidance that I provided. So cash rent will start in April. It will be prepaid rent on the balance sheet. And then in June 30th, all that cash rent will come in and be straight-lined through the full lease term starting in June. Operator: And I show our next question comes from the line of Floris Van Dijkum from Ladenburg Thalmann. Floris Gerbrand Van Dijkum: My question was sort of philosophical on your outlook for tenant improvements. And you mentioned in one of your earlier prepared comments that some of the spreads that you reported were negative because you didn't provide TIs. What is happening in your opinion on TI packages? And maybe talk a little bit about -- because obviously, it depends a little bit on markets as well and market specifics, which markets are seeing improvements as one of your peers called out the fact that I think New York office TI packages, they expect to come down in '26. So maybe if you could talk about that a little bit, that would be useful. Douglas Linde: Sure. So I'll just sort of go around our [indiscernible] big picture. So I would tell you that our tenant improvement concession in our downtown portfolio is getting stronger, meaning it's becoming a lower number. Our tenant concession package in our Urban Edge portfolio is pretty stable. In our Greater Washington, D.C. portfolio, our concession package in our CBD assets is stable. Our concession package in our Northern Virginia assets is getting slightly lower. In our Midtown portfolio, we are pulling back on the concessions that we're offering by a modest amount. And on the West Coast, I would say the concession packages are still not going down. They're not going up the way they went up in 2024 to '25 and '25, but they're still pretty elevated, and that's largely just due to the overall availability of space. Operator: And I show our next question comes from the line of Brendan Lynch from Barclays. Brendan Lynch: Congrats on all the leasing momentum. We have, however, seen a number of announcements from Fortune 500 companies suggesting they will be shrinking headcount. How should we think about that impacting your portfolio? And maybe I could see it from 2 perspectives. One, they might need less space, but conversely, it could also be driving more return to office for the employees that are retained. So any thoughts on those dynamics would be helpful. Owen Thomas: That's a hard one to answer. Look, when we see announcements for job losses, it's obviously can't be a positive per se for us. But we -- as we've described, hopefully, very clearly on this call, we're just not seeing weakness in our leasing activity from our clients. We track our clients that we renew, are they growing or shrinking? And over the last several years, our indicator is that they've been growing. So it's just not our experience. We try to read into these layoffs and what exactly is going on. It feels in some of these cases, like it's business units that are being closed and things like that. So we're just not seeing the impact of it in our leasing activity. Operator: And I show our next question comes from the line of Vikram Malhotra from Mizuho. Vikram Malhotra: I guess just maybe a bigger picture, longer-term question for either -- anyone in the team or all of you, I guess. Given the momentum, you're talking about 88% going into '27 building further. I guess, would you venture whether it's like 3 years or 5 years, like what do you think BXP's kind of structural peak occupancies for the portfolio that you keep refining versus, say, pre-COVID or pre-GFC? And then can you link that to rent spreads or rent growth in your buildings, particularly maybe expand upon San Francisco? Thanks. Douglas Linde: So Vikram, what I would say is that getting above 93% on a portfolio with an average lease length of 8 to 9 years is probably attainable, but will be hard to surpass. And with regard to San Francisco, that's where we have the most opportunity for improvement. San Francisco obviously had the most difficult time of it from pre-COVID through COVID and now the recovery is obviously happening. And so I would say there, we have the most significant amount of upward opportunity. There, from a rollover perspective, I think we're going to -- on the overall portfolio of spaces that are currently in occupancy, we're probably modestly rolling down over that portfolio, and that's largely because the rents in the basis of the building have not kept up with the increases in the rents at the tops of the building. We are seeing positive mark-to-markets on the top 20% to 30% of every one of our towers in San Francisco. And when Salesforce Tower ultimately starts to roll over, we'll have significant positive mark-to-market. In the short term, the rollover that we have in Embarcadero Center, which is lower down in EC 1, 2, 3, there's probably a modest roll down that will occur there. Michael LaBelle: And I think it's clear that rental rates are directly linked to occupancy. And that's why we're feeling in the Back Bay of Boston and in Midtown New York, where the occupancy has tightened and rents are accelerating. So clearly, as we get the portfolio better leased, there's going to be less space for us to lease. We can be more choosy and charge more for those spaces. And then we also look for opportunities to work those spaces early like we are now with some of the terminations that we talked about where we're trying to take advantage of opportunities where there's not enough space in a building and trying to accommodate growth from our clients and grow our revenue stream. Operator: I show our next question comes from the line of Dylan Burzinski from Green Street. Dylan Burzinski: I guess just maybe sort of paralleling the question that was asked, I think, 2 questions ago about just job growth and that sort of not being as strong with layoffs going on. And maybe sort of adding the fact about return to office that I think you mentioned at the beginning of the call, Owen, I think a lot of what's going on is just pent-up demand driving a significant amount of leasing activity given, call it, lease [indiscernible] that's been happening over the last several years. Are you able to talk about sort of how long -- how much longer you guys would expect this sort of return to office movement to continue driving leasing activity? Is this sort of a 12-month phenomenon, 18 months? Just sort of curious where you guys think we're at as it relates to this return to office normalization driving pent-up demand. Owen Thomas: Well, I think there's room to go. I gave you the office visits. We try to come up with indices that help us understand what's going on. I've quoted the Placer.ai data. I think that we've got some additional improvement that could happen. The questions that were -- that you all are giving us are around these layoffs and jobs. The other side of it is, historically, our leasing activity has been tied to earnings growth because when companies are making money, they lease, they take risks, they go into new businesses, they hire people and they lease space. And if you look at the forecast for broad indices of U.S. corporations, earnings are projected to be higher in 2026. The job -- the earnings growth is projected to be higher in '26 than it was in '25. These layoffs that are going on, are they office using jobs? Are they jobs that are in premier workplaces, so front office jobs. There's lots of data that you need to have in addition to a press release to understand what the impact is of these layoffs are on office usage, particularly in the premier workplace segment. Douglas Linde: And Dylan, I'll give you my perspective on sort of what we're seeing in our portfolio and juxtapose that to what you read about from a job announcement. So one of the shipping companies has announced 48,000 job losses. My assumption is none of those jobs are being lost in any office space in Manhattan, Boston, Washington, D.C. or on the West Coast of California, in San Francisco, Seattle or West L.A. And when I look at the portfolio makeup in terms of where the growth is coming from and where the demand is coming from, what I would tell you is that our financial service clients, and I'm using that and asset management sort of in the same venue, those companies are just growing. Those -- this is not about we need more space because our people weren't showing up. They're basically hiring more people for various strategies associated with whatever their business plan is, and therefore, they need more space. It has nothing to do with return to work. Any of the expansion from our legal firms, I don't believe is about return to work. It's about, I think, our firms are hiring more attorneys because they have desires to grow their businesses and they're finding -- they're poaching from other organizations that may be losing. And because of that, they need another office for those people. I don't think they're saying, and now you have to come back to work 5 days a week and you're only coming back to work 1 day a week, and therefore, we're changing our makeup. I just don't see a lot of that going on. And then when I think about our portfolio in Northern Virginia, which is really more corporate America, and I'll let Jake sort of talk about where that demand is coming from. I don't think any of it is about, well, we now need more space because we "have more people" coming to the office every day. And Jake, you can sort of comment on where all of our expansion has been and our demand has come from in Northern Virginia and how that's all working. Jake Stroman: Yes, sure. Thanks, Doug. Yes, Dylan, what I would just say is that, in particular, in Reston Town Center, between the defense and cybersecurity industry, it's really a who's who of corporate campuses. And most of the employees of these organizations are tech-related, usually former military background, folks that are in their 30s that have a home and want to have a house and kids and white picket fence and so they typically live in Reston Town Center, Western Fairfax County and Loudoun County. And with Reston Town Center, it's really the first stop for those groups as it relates to where that talent rest its head every night. Operator: And I show our next question comes from the line of Ronald Kamdem from Morgan Stanley. Ronald Kamdem: A lot of my questions have been asked, but just wanted a quick update, just looking at the data for San -- excuse me, L.A. and Seattle and some of the occupancy moves there and the market has been going in the wrong direction. Obviously, smaller markets for you all, but just a quick update on the market and sort of the strategy there on the ground for the few assets you have. Douglas Linde: Sure. Rod, do you want to take that one? Rodney Diehl: Yes, sure. So just starting up in Seattle. I mean, we have our 2 assets in the CBD. And we've actually had really good demand from some of our in-place tenants that have expressed some growth needs. So we're accommodating that. I don't think when you compare Seattle to the demand that we're seeing in San Francisco, it hasn't quite mirrored that yet, but it's starting to. And historically, Seattle has kind of lagged San Francisco, call it, a year to 18 months. And so I expect this year, we're going to see some continued demand -- increasing demand up there. So we're optimistic that we're going to capture some of that. Down in L.A., it's a little different story. Remember, we're just in West L.A. out in Santa Monica, we have 2 projects there. And I think that market is still kind of recovering still from many things, COVID being one of them, but then just the contraction in the entertainment business and the consolidation of that is affecting us in terms of demand down there. But that being said, we've actually started the year with some good activity. We've got a couple of proposals we're chasing. So we think that things have picked up there maybe as well. But it's been slower than we're seeing in the Bay Area. Douglas Linde: And Ron, I mean, I said it and Owen said it, I mean we're taking 2 Santa Monica Business Park buildings out of service totaling about 260,000 square feet of space. We're going to build high-value, very accretive, exciting residential multifamily projects there because we think that there's much more value in that asset class at that location than there is in hoping for a recovery in the office market in the short term. And so that's -- those are the decisions we're making. And we think that over time, we may see more and more of that going on in that particular asset. And that's a 30-acre asset, which could have an awful lot of residential use over the next decade or two. Operator: And I show our last question comes from the line of Michael Lewis from Truist Securities. Michael Lewis: I feel almost guilty asking another question. My question is about leasing capital. So we saw this $128 a square foot on the TIs and LCs this quarter. It sounds like from your comments, that's probably unique to the leases in the quarter, and you're not seeing more pressure on leasing capital. I was going to ask if you're able to share how much leasing capital you have committed but not spent yet? Because I would guess as you're leasing up and improving occupancy, maybe that pool of capital is building significantly more than you normally see. So I don't know if you have any comments around that. Douglas Linde: So I think you're asking how much of -- how much leasing have we "provided" to our clients that they have yet to spend, right? That's the question you're asking? Michael Lewis: Yes, that's right. Michael LaBelle: I do not have that number in front of me right now. And we do disclose that number in every Q and every K, however. Michael Lewis: Yes. Is that an interesting trend to look at? Or do you think that's kind of off base on thinking about the pool of capital that might be building? Michael LaBelle: I don't know how much it's necessarily building. I mean it is a significant number because many of our clients do take a long time to actually ask for the money or spend the money. So there is an amount of dollars out there that is in the hundreds of millions of dollars that will be spent sometime over the next few years as those clients complete that work. I have not seen it trend significantly higher. I think if you look at our transaction costs over time, you're right that this quarter is a definite outlier. They've really ranged between kind of $85 a square foot and a little over $100 a square foot as every quarter, which is a mix of renewal and new and includes leasing commissions and tenant improvement costs. So when I look at our AFFO projections, right, I'm not assuming $128 a square foot, but I am assuming somewhere around $100 a square foot on a going-forward basis based upon kind of where we are in the market right now. Douglas Linde: Yes. The other thing, Michael, just about the stuff that's in our supplemental is that those leasing costs are based upon leases that are having "a revenue event this quarter. And so it's typically a backward-looking portfolio. So there are leases that may have been signed in late 2023, early 2024 that are just starting to move into that revenue recognition change. And so over time, we would expect to see that trending slowly coming down as the market improves as well. Operator: That concludes our Q&A session. At this time, I'd like to turn the call over to Owen Thomas, Chairman and Chief Executive Officer, for closing remarks. Owen Thomas: Thank you all for your questions. I'm not sure there's much more we could possibly say. Have a good rest of the day. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to the GBank Financial Holdings, Inc. Q4 2025 Earnings Call. [Operator Instructions] Also as a reminder, this conference is being recorded today. [Operator Instructions] We appreciate you joining our earnings conference call. With me here today are Ed Nigro, Chairman and CEO; and Jeff Whicker, Chief Financial Officer of the company. The related Q4 earnings press release was filed with the U.S. Securities and Exchange Commission today and is available on the News and Media section of our website, www.gbankfinancialholdings.com. Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statements in our earnings press release. All comments, expressed or implied, made during today's call are subject to those safe harbor statements. Any forward-looking statements made during this call are made only as of today's date, and we do not undertake any duty to update such forward-looking statements, except as required by law. Additionally, during today's call, we may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release. I'd now like to pass it over to Ed Nigro, Chairman and CEO. Edward Nigro: Well, welcome, everybody. I'm Ed Nigro, and it's a pleasure to have the fourth quarter and some year-end numbers for you for today GBank Financial Holdings Report. I almost feel like I have to do some disclosures like I'm live, this is not prerecorded, I'm not a bot, and I'm capable of making all kinds of mistakes. However, I hope today to avoid all of that and give you some insights into what has been going on in our world at GBank. Jeff is going to follow me with some of the more specifics and details, but I'm going to take us through some initial discussions, particularly in our Gaming/FinTech arena and some of our core banking processes, particularly SBA. But I want to focus today very much on what's been going on in Gaming/FinTech. And my first comments are going to be focused around the credit card, because it seems to be drawing the most attention, and it has had the most fluctuation in the last several quarters. And I wanted to give you some insight on things that we've already listed or discussed at some length, but maybe not to the depth I want to go in today, so you can have a good understanding of what we're doing and where we believe that we are headed. First, I had reported that we had stopped our application process. We had 2 major events going on: we had an application automated product that wasn't working well, and actually, our users were getting lost in the process, and applications were being dropped; and then we had another direct mail piece, massive application process going on from a contract that I've always said in the past should have not been entered into, but it was, and this was a direct mail piece that went out to 700,000 recipients. Well, between the 2, the app not working and all of a sudden these massive applications coming in that were not designed or geared towards our primary gaming user, we were underwater very quickly with our entire app process. We shut it down, actually, and had to do what I call the redesign, development, engineering, and execution. And that took us until almost the end of October in the fourth quarter. And then we were able to gradually open up our application for real applicants. Naturally, this stopped all of our marketing. So we had to accelerate it up to around $130 million in transactions for the second quarter and then in the third quarter and the fourth -- excuse me, in the third quarter, but we stopped it because we were accelerating quickly, but not with the controls we wanted in place. The fourth quarter you've just seen settled in around $99 million in transactions, but that was to be expected. It was to be expected by us, anyway, and I know we may not have given guidance that it was going to decline some. But when we had these enormous fraud applications, we really shut down all applications to our credit card. We then relaunched it, and we relaunched it with some amazing KYC and fraud prevention metrics in place where we engaged Plaid, we now do fraud prevention with Neuro ID and Precise ID, and multiple verifications of who you are to avoid fraud. We also learned, interestingly, that in the application process, bots are now becoming very active in loading these apps. But there is a way to determine a difference between a bot and a human. I suppose one day that's going to become more important than many other things. But in credit card, it's become a big issue. As an example, over Memorial -- over, excuse me, the Martin Luther King holidays, we got bombarded with about 10,000 applications just over the weekend; 6 were approved, and all the others were fraud. Not one fraud has gotten through. Not one fraud has penetrated our app process in the last 60 days, so that is an accomplishment. But we also found the use by our customers to be problematic in the sense that we had high-volume users, we had an ACH payment process, which was how most of our credit card players were paying off their card. They were paying it off with ACH. And for those of you who may be exposed to ACH, there's a delay, sometimes up to 3 business days in ACH clearing. There are also consumer rights on ACH that extend often out to as much as 60 days in terms of was that an authorized transaction. Well, our ACH, when it was launched, for our credit card was launched with a vendor through our processor, i2c. We determined very quickly that this ACH process must be brought inside GBank. We do ACH processing for our commercial clients, but to do it through a processor like i2c, with our [ ledger ] process and the batch processing, and also to be the ODFI for this process, it became a significant undertaking. However, we brought on the technology and payments experts in order to implement it, and we are very close to launching our own ACH transactions for our credit card players. Why this is important is that when you're doing $100 million a month or more in transactions, there are a lot of times the credit card is paid off multiple times through the month, and they're paid off by ACH. Question, do we give that client instant credit for the payment of the ACH? Do we have that client wait 3 days? Do we put a 7-day wait on that client? We have experienced some very valued clients that are deserving of instant credit for ACH and others who are not. Well, when we saw some fraud penetrating ACH, and we knew we had to get control of our ACH payments, we also, in the fourth quarter, for a period of time, stopped and reduced transactions significantly, and waited and watched ACH clearance patterns without giving more instant credit to some of our better users. Well, this caused a decline in our transactions, and we knew it would, but it was more important to verify our client base and verify that no fraud users had penetrated our user base, and we did. But it took time to do that. We have since relaunched, and of course, as I said, we're going to soon have the ODFI for all of our consumers that own our credit card, and we are ready to relaunch right now, again, our marketing, which we stopped as well. It was very important that we do this right. We have high-volume users, but that has the potential, you've seen the growth patterns that we can have. And those growth patterns can, we believe, be reinstituted, but they are going to be reinstituted with our new KYC, our new fraud prevention, and our new payment systems. And we feel that we really have very good and very direct involvement with our customers. We've even started new host-style loyalty programs, meaning we look at our higher users and treat them with special premium offers. We contact them. We make sure their account's being managed properly. We make sure that they're getting the results they want when they want their card paid off. We have direct contact with them, and this is very important as well. And we have also instituted our own AI system for answering calls, and we've moved all calls away from a processor to ourselves. And this has been a transition process, indeed, for us, but it's working, and we're getting closer to our customers and our customers know us. And we think that -- and not only think -- we believe that we have a strong foundation now that we can scale, and we can begin to rescale. And I think you'll be seeing that in the not-too-distant future. There have been another couple of headwinds in the credit card business. Some of you may have noticed that DraftKings, about 60 days ago or so, stopped all credit cards. And FanDuel just announced they're going to stop all credit card -- direct loads with credit cards, because both of them have realized or have situations where some states do -- there are about 7 states right now that do not allow credit cards to -- direct credit cards to load these sports betting apps. And we know DraftKings has got a fairly substantial fine from Massachusetts, and we know, we've read that FanDuel also got a fine, and I believe, it comes from the state of Iowa. So rather than face these, they're deciding to not do credit cards. Well, that's their decision. But we know that there are at least 20 -- we have about 28 apps, sports betting -- legal sports betting apps across the country. Our customers use 20 of them right now. And when FanDuel announced they're going to stop credit cards in the month of March, most of our players have already moved off of FanDuel that want to use their credit card. So credit card people will find a place to use their credit card for loading these apps, because it is a legal process in almost all the states, and it is a very successful way of moving funds. I think that there's interesting note here, and we knew this some time ago, but I had to refresh my memory. Credit cards right now today account for about 30% of all our payments in this country, in the United States, which is about $6 trillion a year. It is by far the single most in payments systems in the country alone. Now that's excluding ACH, because ACH is towards everybody, but I'm talking about a payments method, and it's growing. So it's not to be ignored if you want an interesting market share, and we know that there will always be competition for market share, and those that will be able to follow the law and make sure they don't compromise loans in certain states. Our customers are very smart, and they know how to move their apps, again, join different apps, and take advantage of apps that will accept our credit card. And of course, that's direct credit card. Now there's indirect credit card acceptance, too, which, of course, debit card -- someone says if you use a debit card, but you can load a debit card with a credit card. You can load many payment systems with a credit card. So it's a system that is widely used. Some of the direct applications, of course, change from time to time. And our players and our customers know where to go and know where they're welcome. And we have not seen -- while we saw when DraftKings did it abruptly, caught many of our players off guard, and it took them a week or 2 to realign with other apps and set up their accounts, but they did. And we saw the resultant volume pick right back up from those customers. So I wanted to give you that insight on where we had been with the credit card, because you saw rapid growth, and you saw slow, and then you saw a decline, and now we feel very comfortable with where we're heading. And we're going to relaunch our marketing. And as a matter of fact, if you haven't seen Mike Tyson yet, we did an announcement on that, but you will be soon. I'd like to move on and talk next a bit about our BoltBetz and our PPA. It's a very important part of our Gaming/FinTech operations. BoltBetz got licensed on November 21, 2025. They have received 2 approvals. The first one was for BoltBetz, and the second one from Gaming was for Distill Taverns, authorizing them to use BoltBetz. The interesting thing is the BoltBetz license from Gaming, they are [ licensed ] as what's called an Associated Equipment Provider. It's interesting because it's described as a software solution that allows players to create and fund a wagering account via a mobile app. And that's what was licensed -- that's how they were licensed as an Associated Equipment Provider. The second part, the license was required by the gaming operator to use BoltBetz. So Distill Taverns had applied, and this will become a more routine application for other gaming operators, any system they might use that touches any of their gaming platforms, they have to tell Gaming about it and get their acknowledgment and approval that it's an okay process. And of course, this will be an okay process for whoever applies because BoltBetz has its Associated Equipment Provider license. The Distill Taverns license was interesting because the license went on to say how they are approved to use BoltBetz. And it went on further to say directly that GBank will be holding all the funds and not Distill, and as such, a reserve account is not necessary. Now this is quite, I think, remarkable in that Gaming understands that all the funds that are used to play slot or to go to the wagering account, to be used to connect to Konami's Casino Management System, are being held by GBank. And that is held by our Pooled Player Account, which is a patented system that BCS developed that is under agreement utilized by GBank. Also, as you know, GBank Financial Holdings owns 32.99% of BCS. But having said that, what those funds do in GBank, GBank now -- those funds go to a subledger account at GBank, and GBank reconciles them, sells them, and distributes them. So all the transactions that would have taken place at the gaming operator now take place at the bank. So no longer must a gaming operator with slot machines face the issue of managing cash, because the bank will just pay them weekly all their wins. So it's a very, very -- it's actually a very good system for the gaming operators, because the gaming operators, the bricks-and-mortar operators are unlike the sports betting apps. Gaming operators have always paid a lot of money to have their cash managed, because cash is something that is a necessary evil. Well here, for the first time, they're not going to have to manage cash in slot machines. There's a history here I thought was pretty interesting, and why we as a bank have many people, I'm one of them, that understand gaming. But I was involved in gaming when the system and slot machines was coin in, coin out. It's a very simple system. Machines were mechanical, you put your coins in, you hit a jackpot, and the coins came clanging into the tray. As a matter of fact, a little side story. I remember when Steve Wynn opened the Golden Nugget downtown, he put the coin noises over the loudspeakers. So when you walked in the casino, everybody would think everyone was winning, because the coins were dropping into the trays. It was pretty good marketing. But then -- and then it changed when suddenly the digital machines, and they were first the poker machines were put out by IGT, International Gaming Technology, which was founded by Si Redd. And Si started this -- but also on these machines, these receptacles took cash. Now you put a $5 bill on, a $20 bill on, and it would accept and give you credits on the machine. And when you were done playing, it gave you a slip. And you took that slip to the casino cage and you cashed it in. You couldn't -- and that was a process that existed for some time until the early '90s. And then another thing came to change the world. It's called TITO, Ticket-in, Ticket-out. And TITO was actually created by MGM. And MGM sold it to IGT for a lot of money because IGT saw it and said, this is going to change the world. Instead of getting just a receipt to go to the cage, and you get cash, and then you went and took that cash to go to a different machine, this gave you a ticket. But that ticket, you go to the machine next to it and put it in and get in some credit, whatever was on that ticket. So it's called Ticket-in, Ticket-out. And you can play all the time, as long as you had credits on that ticket. And then when you were done, you went and cashed it out at one of the kiosks or at the cage. In 1990, Si Redd said, "We're going to change the world. Everyone is going to have TITO." And everyone laughed at him. What is TITO? We have cash. People love cash. People are never going to get away from cash. Well, TITO still involves cash, but only cash-in and not cash-out. And lo and behold, TITO took over the whole world. TITO is everywhere, Ticket-in, Ticket-out. Well, now comes BoltBetz and our PPA. No longer does cash go to the machine. Cash goes to the bank. No longer does the casino even touch the cash. It goes to the bank. And now everyone is licensed. The app is licensed, the gaming operator is licensed, and the bank needs no license. We're a bank. We're a federally insured, state-chartered bank. And we have a system to manage billions of transactions, which we will be quite capable of doing. And holding -- imagine holding all of the funds that are currently in slot machines, which we'll distribute them weekly because the gaming operator will want their funds, the player will be able to move funds instantly, and there is a management, the settlement distribution that will be at the bank. And that's why we're excited. We think that this is one of those moments. It was coin in, coin out. It was cash in and slip out, it was TITO, and now there's GBank. Pretty interesting in BoltBetz and the PPA system. So I wanted to give you that -- a little bit of background on where we think and what is happening with them because right now, we know that our second operator, and in Distill, the operations were just launched, and they're going to launch it at all Distills, which has not been done yet, but it's on its way. Each Distill has to be trained, staffs have to be trained. And by the way, the app is approved by Gaming, where it even has a process where you can tip the bartender right from the app. Pretty amazing. And that's important for a lot of taverns where the slot machines are built into the bar. And we know that Terrible has had meetings to start their process and believes that they'll be launching in the second quarter. And they're making their application to the Gaming Control Board, as Distill did, to be able to use the BoltBetz app. So that is all in process. Now this is a process, and it's going to take integration with the players, and there's a pipeline of users that we'll be announcing in the future. But remember, the state of Nevada has 150,000 machines. So that's a big industry for us to tackle a little bit at a time with this process. But across the country, there's another 800,000 licensed slot machines [ amongst ] when we start looking at all of the tribal gaming casinos and all of the other casinos and all the other states. Now we are talking about bricks-and-mortar casinos, not digital casinos or apps. This is real slot machines across the country, and we think it's going to be a great market, and we are anxious to see this process grow. So I've covered a bit about BoltBetz and hopefully brought you up to speed and I'll be able to answer questions on both of them. And I want to close with some of my comments on our core banking and our gain on sale and our noninterest income because [ you're ] going to see our noninterest income, that's where our interchange fees drop. And you'll see where they went up about $7 million this last year alone just from the interchange activity of the credit card. But you're also going to notice our SBA gain on sales this year in particular, because we've changed an entire process there, where before when we sold the guaranteed portions, the guaranteed portions were sold to the market, and the market would pay based on the spread. Well, our spread wasn't something that was being focused on, on the basis of the incentive plans for our BDOs, our business development officers, and we changed that. We said, hey, we have to focus on the fact that the bank, sometimes this last year, our GAAP gain on sale, which means the gross price we were offered versus the price we realized after expensing the loan cost, was dropping below 3%. And that's quickly becoming a place where the value in selling the loan is questionable. 4% is where we like to live. So now we've changed our entire incentivization program where the spread is critical. And if we sell loans at above 1%, at least 1.25% spread to prime, the GAAP gain is much larger. So we also took and put an incentive program in that started in January where we're going to reward -- the rewards would depend on the spread. And the commissions would depend on the spread. But we wanted the spread to be at least 1.25% or higher, because we didn't want the 75 basis points or 100 basis points spread. Now I wanted to share something with you, a little forward-looking. It's not forward-looking. It's actuals in January, which I can tell you today, because we're on the call. We've sold 12 loans in January for about $32 million. Of the 12 loans, 8 were 1.25% spread or higher. Our GAAP gain has jumped significantly, and it will be a minimum or more than 4% every month now, and not dropping below 3%. So that's a significant, I think, occurrence. But one other thing came up that I want to share with you when we're talking about SBA. We put in our report -- after the quarter closed, we closed on sub debt of $11 million. And we did that because we wanted to pay off the $6 million of sub debt that was due in January, and the rates were going to go very high. So we raised $11 million to pay off that $6 million, and have a little leftover. But one of the important things that came up when some of the other banks were asking us about our sub debt and our ability to repay, we said, do you have a concentration in the hotel industry. And I would respond on several calls, yes, and we love it. Oh, you do? And I said, yes. I said, let me give you a little risk analysis we did for you, because we were getting this question. So we went back to, let's see, we went back to June 2015, when we did our first SBA 7(a) loan. Since June of 2015 through the third quarter, I have it. I just didn't update my numbers for the fourth quarter. But for the third quarter of 2025, we originated $2.473 billion in hotel loans, 7(a) hotel loans. We love them because of the collateral. The total number of loans we did since announcement was -- since commencement was 1,002 loans. The total hotel loans in default since the beginning, now default -- remember, I said on one other investor call that when we have a loan that looks as if we're going to have to foreclose on it, we buy back the guaranteed portion. That's why our NPAs tend to jump up because when we buy back, the loan immediately goes to 4x the value that's been on our books. So we buy back that so we can sell the asset and handle the closure. We have a great division within our SBA division that handles these. Well, of all the 1,002, we had a total default of 12 loans since our history began that we've resold. We bought back and we sold. Of those 12 loans, the total charge-off after asset sale and payment of all the guaranteed portion since inception has been $2.8 million. That's right, $2.8 million. So when we were asked about our concentration and why we don't mind it is because of the collateral and the way we have in our broker assistance in liquidating collateral that sometimes we have to [ repossess ]. Currently, as of the third quarter last year, we had 592 active hotel loans. We had $1.622 billion current principal balance on and off balance sheet. We had $860 million hotel loans off balance sheet. We have over $1 billion in loans off balance sheet that we manage right now. So I guess we're really a $2.4 billion [ to date ]. So to date we have $761.6 million of current principal balance on balance sheet, of which $243 million is guaranteed. And also, we have $10.5 million reserved for the loan loss reserve for those hotel loans. For those loans we've had $2.8 million in losses since inception. I just thought I'd give a little color on that because some people ask us about our hotel business, and I love it. It's the 7(a) business with collateral, and we're going to see our participation in that grow. We're staying within our risk profiles very well with our capital. And I just wanted to give you that update because the things we're doing in our Gaming/FinTech, the things we're looking to replace with deposits, I want to replace as soon as we can $400 million in deposits that we paid for. And $400 million at no cost is a big change. But then when we convert that to more SBA originations and more guaranteed loan sales and a portfolio that operates this strong, we think we have -- and we're also looking at our CRE and our own bank individual loans, and we just -- the other day, [indiscernible], but we just approved it. And I can tell you that we increased our individual borrower to 70% of our legal limit for the bank, which now goes to $32 million to any one borrower. So we're moving, and we're moving in anticipation of the kind of growth we believe we can have and the way we can manifest it in our core bank. With that, I want Jeff Whicker, our Chief Credit Officer -- oh, and there's just one last point, though, Jeff, excuse me, since this isn't recorded, and I told you I would mess up, we have been investing a great deal in people and reorganization. We've reorganized in the last 4 months our entire credit card operations, new leadership, and of course, I spend a great deal of time on it. We've also engaged our new General Counsel and Corporate Secretary, and she has joined us -- we had a press release about Hilary. We also have engaged a new Chief Technology Officer. We had a press release regarding Jason. We also have engaged a new Payments Technology Director to help us get through this payments. Remember the ACH I was talking about? She's leading that effort. She's very talented and rated in ACAM and PCI ratings as well, or accreditations, and it's very important to us. I think you're going to see that the manner in which we're moving and the way we want to grow our technology capabilities, and the way we want to accomplish our internal payments processes, and the way we want to grow our deposits and grow our Gaming/FinTech, our plate is full, but we love it. We're working diligently towards those objectives. And Jeff, fill us in on more of the specifics. Jeffery Whicker: Thank you, Ed, and good afternoon, everyone. The company reported record quarterly earnings of $7.4 million, or $0.52 per diluted share. This is an increase of $3.1 million compared to the prior quarter earnings of $4.3 million. This includes record levels of net revenue and $247,000 in net onetime expenses. The onetime items include the tail end of the marketing campaign for the credit card that began in the third quarter, which have now all been satisfied and the program has been closed out. Net of the unusual and onetime items, the bank would have produced a diluted earnings per share of $1.66 for the year, up from $1.37 in the prior year. The bank continues to grow with a compound average growth rate of 28.3% over the last 8 years while maintaining top-tier earnings. In addition, as described by Ed, the company continues to develop the digital bank and payments products that will allow us to drive higher future revenue. We anticipate that one of the largest drivers of this will be related to the BoltBetz PPA product that is now launched and is becoming -- and is beginning to gather steam. We anticipate that this will significantly grow our noninterest-bearing deposits, resulting in an improved net interest margin, which was 4.33% for 2025 compared to an industry average of approximately 3.7%. SBA had a record year for production, which wasn't easy given the recent government shutdown, and we continue to see strong year-over-year growth in loan production and have a healthy pipeline going into the new year. In addition, the company has implemented several changes that Ed addressed that will lead to improved gain-on-sale income in the future. We're currently seeing the impacts of these changes as the GAAP gain-on-sale increased from 3.24% to 3.98% in the fourth quarter. And as Ed alluded to, we anticipate that to trend up above 4% in 2026. The credit card program is continuing to develop as most of the system changes are now implemented. Transaction volumes for the last 2 quarters has been relatively flat, while we have worked to correctly identify weaknesses in the system, and we are seeing much better results related to onboarding customers as these new systems have been able to withstand all of the recent fraud attacks that continue to plague the industry. The most interesting thing about the credit card program is that despite the issues we have had related to credit and fraud in the last couple of quarters, the program is positively contributing to the bottom line of the bank on a consistent basis. This is very unusual for a program that's this young. You can see that the provision expense came down during the current quarter. As discussed in our previous calls, we have seen a cresting in the nonperforming assets over the quarter and have been able to make significant progress in working through the existing accounts, including the resolution of one of the nonperforming assets in the first weeks of 2026, reducing the total balance by $3.6 million. In addition to the work that Special Assets is doing to resolve the credit issues, recent rate reductions by the Federal Reserve Bank have allowed our customers with variable rate loans to see some relief from the unusual upward swing in rates that occurred from June 2022 to July 2023, and this results in improved credit quality overall. The bank sold off about $52 million in investment securities during the quarter, which included both available-for-sale and held-to-maturity investments. Recent interest rate changes have tightened the spreads and impacted the long-term impacts of these securities on the bank's asset sensitivity, and management determined that it is in the best interest of the organization to move into securities that will better protect the organization in the rates-down environment. As a note, all of the held-to-maturity investments were included in the sale, resulting in no on-balance sheet adjustments to AOCI related to the remaining securities. The AOCI was $17,000 as of December 31. Subsequent to year-end, the bank did announce a redemption of $6.5 million of subordinated notes, as Ed talked about, that we would have repriced from -- that would have repriced from fixed to variable rate in January. This would have led to a rate increase of 350 basis points on the debt, resulting in a cost of over 8%. In addition, the bank issued $11 million of additional subordinated debt with an 11 -- with a 10-year life and a fixed rate for the first 5 years of 7.25%. This provided additional potential capital for the bank while reducing costs. As the bank continues to work to develop new lines of business, the core bank continues to be one of the top-performing organizations in its peer group. The balance sheet remains strong with above-average liquidity and capital, and this provides the needed support to fund our growth initiatives as we move further into the digital bank and payments industry. While we have experienced a few hurdles along the way, bank continues to be a top performer, while we develop the new products and services to enhance shareholder value in the future. And with that, I will turn it back over to you, Ed. Edward Nigro: Well, thank you. And I believe we've covered everything that we wished to on the call, and we'll take questions at this time. Operator: [Operator Instructions] The first question will come from Brett Rabatin with Hovde. Brett Rabatin: Can you hear me? Edward Nigro: Yes, Brett. We can. It's Ed. Brett Rabatin: Can we maybe just start -- and it might not be fair just given, I'll call it, the fits and starts of the programs that have meaningful potential. But I know we've talked about some fairly big numbers around credit card and what that platform could look like in 4 to 6 quarters. Can you maybe give us an idea, and I guess this would presume that the fraud -- all of the fraud detection and all the stuff around fraud might be in the rearview mirror, which was my understanding from your conversation. But can we talk about credit card and what the potential for interchange might be this year and volumes as you see it? And if you don't want to give specific guidance, that's fine, but just directionally and volume-wise, as you see the year developing? Edward Nigro: Well, I think that when we look at the year-over-year growth that we just had, even with all of the breaks we've had in place, by breaks, I mean the stoppages we had, we went up to $400 million this year from about -- what were my numbers last year I had...? Jeffery Whicker: $73 million. Edward Nigro: $73 million. So you can see that that's what 500% growth. But I'm not placing 500% growth on $400 million. But we feel that -- and while I'm not going to be giving too much forward guidance today in any specific numbers, but if I were trying to put some projections on it, I think that we would probably... Jeffery Whicker: I think we could at least grow on that same trend... Edward Nigro: If we don't double it, I mean, I think we would not be doing it justice, but that's -- but when you talk about going from $400 million to $800 million in originations a year to where we -- that means by the end of the year, we've got to be doing $60 million -- $40 million or $50 million -- $60 million a month, we see some good growth. We know we now have the capability to handle that kind of growth, and we don't see that as an unreasonable number of cards to expand to get there as long as we have -- and don't have the process of user fraud, or user abuse, and we've managed to eliminate that. So we think there's quite a pathway here. Now the other side is some of the big platforms like FanDuel and DraftKings not accepting any credit cards. It will be remained to see, because some of the others we know have seen significant increase in credit card use. So is that volume they want, and the volume that is worth getting, we look at their public announcements, and it's pretty significant. So we think there is opportunity for some substantial growth. And of course, the interchange fees will be very important to us. And I hope I've answered your question without sounding too evasive. Brett Rabatin: No, you've added some good color to kind of what the year might look like. So appreciate all that. And then the other thing as we think about SBA, maybe an easier business to forecast, given that that's a much more mature piece of your platform, and some of this will depend on the market, but would you anticipate trying to grow volumes from here? And then I know last quarter you did, we'll call it, a revitalization or reorganization of that platform. Should we expect continued improvement in gain-on-sale margins, et cetera, from that platform from here? Edward Nigro: Well, I think you'll love this, because we've incentivized our team more with stock options than we have -- than with some cash bonuses, and again, because we want the materialization of a higher GAAP gain on sale for the bank, and the materialization that will selling at higher spread be more difficult. Well, it's always more difficult to sell a higher spread. But there are other factors involved. We have the most amazing broker network on earth, I believe, because our key brokers are all significant shareholders of ours, and reside in Chicago, New York, North Carolina, and Florida. And I mean, they're amazing. So yes, we expect that growth pattern to continue with what it has been in the past. So you can sort of project that out. But we really believe that we can sustain that kind of continued growth. And with the lower interest rates, we think you're going to see more hotel deals out there. Brett Rabatin: Okay. And if I could just ask one last quick one, just around provisioning for the fourth quarter. You had a little higher nonguaranteed NPAs, but chargeoffs were lower. The negative reserve, was there any change in the Q factor for the ACL or anything else that drove that negative provision? And then is there anything that you see kind of changing with the criticized asset list? Jeffery Whicker: Yes. This is Jeff. There actually was a little bit of change in that analysis that we did on the SBA loans. So for the beginning of the SBA program, we've always kept a little higher reserve on SBA because of the concentration, and we call it a concentration risk. But with the analysis that we did on the SBA program from the beginning of time, it doesn't really support us holding additional reserves on that portfolio anymore. So we actually did have some adjustments to the Q factors that did impact that number in the quarter. Edward Nigro: Yes. I think you saw the reserve I mentioned was so high based on our historical analysis. Remember the old days when we did our reserves only on historical analysis, CECL [indiscernible], but I think this is one of the demonstrations of how different it would have been. Brett Rabatin: I'll let the other guys ask about BoltBetz, but I'm sure that'll be addressed too. Operator: Our next question will come from Matthew Erdner with JonesTrading. Matthew Erdner: Can you hear me all right? Awesome. So I'd like to kind of touch on the slot opportunity and kind of rehash some things from the prior quarter just to see if they stack up in today's environment. So previously per 100 slot machines were about $2.5 million in deposits. Does that still jive with what you guys are seeing as you start to onboard some of the clients? Edward Nigro: The danger in that, and let me express that, that's a mature-- that's about 50% penetration of a mature market. So what that means is in order to generate those numbers, the customer base has to be there for the particular gaming operator. So let me give you an example. Let's suppose you're a gaming operator with 100 slot machines, okay? And your customer base that utilizes those 100 slot machines, you have a customer base of about 10,000 or 15,000 people -- players that come more than once a month to play your slot machines. So if you do have that customer base, this analyzes your total drop, and then it analyzes your customer base, it analyzes a 50% penetration in your customer base, and then comes up with a number. So that means that of their customer base, half of them have to be users of the app. How long it's going to take us -- what we didn't give you was, okay, how long is it going to take from the time we sign up a gaming operator until that deposit is realized. And that's how long does it take the gaming operator to onboard his customers. That's an unknown. And it's not going to be instant, like right now with -- and particularly right now with, as an example, Distill. This is brand new. And they have to train their clients, they have to train their employees, they have to train their bartenders, they have to train -- and then they have to sign up and use it. The interesting thing that I didn't say is that we hope that one of the preferred loads, and because we're marketing it right with it, is going to be our credit card. So that's moving side by side with some of this. So what I can't tell you is how fast it ramps up to that. So we'll be having more and more information as quarters go by, and we have some history under our belt, but it's going to take some time. Remember, I told you about TITO? It took time. It wasn't something that was done overnight. I joked with somebody the other day when I was saying to someone, when Thomas Edison invented the light bulb, I wonder who the analyst was who asked him, well, how many lightbulbs are you going to sell next quarter? So I think it's analogous in the sense that this has never been done before. It is new. The apps that are out there just don't work, and many customers have just said, I'm not paying, those apps don't work. So you got to reeducate some and you got to spread it. But what we do know is this works amazingly. And then once they get on it, we've seen amazing feedback already. They love it. So I guess as we get a few quarters under our belt, we'll be able to tell you more about how the growth is going. But for right now, the number of machines are relatively small, the transition is going to take place, but the market is dramatic. I said in our state, we have 154,000 slot machines, and across the country, there's another 800,000, Matt, that are legal machines. And the primary providers of that machines, Konami, is one who has 300,000 machines alone -- excuse me, 140,000 machines alone. Several of the others that are going to be seeing this app have a lot more. So we know there's a good market out there. It's up to the gaming operator as well as the slot manufacturer like everyone to participate to get their players to use the app. But we think that the app is going to be very convenient for the player, a very convenient wallet. Matthew Erdner: And I guess as a follow-up to that, around the current deposit mix and net interest margin, would we expect there to kind of be an inflection point on that net interest margin as these slots are started to more frequently get onboarded and really drive that increase in the noninterest-bearing? Edward Nigro: Well, I think the slots is a great opportunity and a great [ path ], and we're starting to see the pipeline of some very interesting players. But remember, our bank has 16 other PPA clients onboarded right now. And many of them are startups and many of them have new programs, and some of them deal with the sports apps, but others deal with -- we're dealing with one that's dealing with 2 big state lotteries. So there are other avenues for our PPA as well. And of course, sports betting is -- we still believe that one day a sports betting app will say we don't want to hold the cash anymore, that we do want to see -- we do -- and we'd appreciate a system where we get the cash or this liability off our balance sheet. Right now, as they start to make more money, the cash management is going to become more of a headache. When everybody was a startup, everybody wanted to hold all the cash because they liked the float, they liked it in their operational accounts. But will that change and if that changes, we have the solution for them. We have a solution. If the first sport app that goes under and costs the consumers some money, they're going to be looking at us because we protect the consumer where no matter what happens to the app, no matter what happens in bankruptcy or anything else, our consumers' money is protected because it's guaranteed by the FDIC, and we hold it, not the app. It can't be mixed with their funds. It can't be mixed with, oh, we don't know where that money is, believe me, because one of the things banks are pretty good at it is knowing where the money is. Matthew Erdner: And then one last quick one, and then I'll step out. As it relates to the SBA business, what impact did the government shutdown have on your fourth quarter origination numbers? And then as we're kind of staring down another government shutdown, what impact do you think that's going to have for the first quarter of this year until that's resolved? Edward Nigro: Let me tell you -- that's a great question, because it was a little insidious for our SBA division because we saw the closing coming, so we went and got as many PLPs as we could get preapproved as possible. So we spent all our effort getting our loans in front of them for our PLPs for our applications. And then once they reopened, we did our entire number of sales in the fourth quarter in December that we did. So our sales for the fourth quarter were, what, 9 -- but what happened is our originations for the fourth quarter dropped way down. And why the originations dropped way down, and I talked to our brokers directly, is because of the unknowns out there, and the customers were not sure whether [ they're going to ] apply for a loan because they knew the government was shut down, they knew they couldn't get it approved, so they said, well, we'll just wait and see. So deals didn't get done. And when deals don't get done, originations go down. And our originations went from $200 million plus in third quarter to less than $100 million in the fourth quarter. Jeffery Whicker: 118. Edward Nigro: What? Jeffery Whicker: $118 million. Edward Nigro: $118 million. And our sales for the first time in our history -- in the fourth quarter, our gain on sales were less than the third quarter, and it had never been that way before. So we figured that there was probably a couple of million dollars left on the table in gain-on-sales. But I believe that we're already [ porting ], if you will, PLPs on the prospect of another shutdown. And the news we received from our association, which is NAGGL, which is the National Association of Guaranteed Government Lenders, they believe the shutdown is going to happen. Jeffery Whicker: So if you think about the year as a whole, the government shutdown, I mean, should come out awash because if somebody -- I mean if somebody's working on a loan today, they're not going to [ knock you ] the loan at some point. So even if volumes were to go down a little bit in the first quarter, they would have to rebound in the second quarter. Edward Nigro: Yes, we'll catch up this year. It was the fourth quarter last year, we had no catchup. We could do it. Jeffery Whicker: There was no time to catch up. Matthew Erdner: Yes, I just wanted to get that across and get your guys' thoughts. But I appreciate all the comments, guys. Operator: Our last question will come from Tim Coffey with Janney Montgomery Scott. Timothy Coffey: So I guess my first question has to do with the SBA. Let's follow up on the last one. So you sold more SBA originations in 4Q than you had pretty much all year. Was that a function of the government shutdown or the change in incentives for originators? Edward Nigro: Wait a minute. We had our most originations last year in Q3, which was [ 270 ]. Timothy Coffey: Well, no. In the fourth quarter, you sold about 3 out of every 4 loans you originated in SBA. The previous 3 quarters is about, say, 1 in 2. So I'm trying to figure out, was the increase in the selling of your originations related to the government shutdown and the market being closed? Or was it the change in incentives for the originators? Edward Nigro: I don't understand the question or the numbers. Do you? Jeffery Whicker: Well, yes. So what you're talking about is that we sold 1 in 2 loans in the fourth quarter, and we are a little more than that in the fourth quarter. We weren't that high in the previous quarters. Are you talking about as a percentage? Timothy Coffey: Yes. Your loans sold as a percentage of your originations were about 73% in the fourth quarter. Previous it was closer to 50%. Jeffery Whicker: Yes. That's the government shutdown because we could continue to originate loans in the third quarter during the government shutdown -- I mean, during the government shutdown, but we couldn't sell any loans. Edward Nigro: Well, we couldn't [ void ] the loans, so we couldn't execute the loans because even though the loans -- when we say originating, let's understand that as a defined term. When we talk about originating, we've talked about executing loans on our -- that we have in place here and approved by the SBA, approved -- they have to be approved by the SBA to be boarded. Then they have to be approved by the SBA to be sold. So when we say originations, I don't mean the pipeline out in the field. I mean, ones that are -- that have been underwritten and processed and signed and executed with a deposit and ready for the SBA approval and then funding. Once -- that's why after our originations, the time between our originations and sales is very short. We don't have and hold loans a long time that are ready to sell. But there is also something to consider in our SBA originations, because our SBA originations include pari-passu loans, okay? Now a pari-passu loan is an SBA loan of $5 million plus the remaining part of the loan. Let's say it's a $10 million loan. It's a good example for pari-passu. We count the 10 -- we count the pari-passu -- we count the entire loan as an SBA origination, that whole $10 million. Now of that whole $10 million, we can only sell $3 million of it or whatever the 75% of $5 million is. The rest becomes the nonguaranteed portion and then the balance over the $5 million is just a straight CRE commercial loan with us that's on our books. So when we look at loan originations, if you figure that 75% of them are guaranteed, it's a wrong calculation. It's not that way. If you want to run some average statistics, we sell about 64% of our total originations end up selling, okay? Because some of them are pari-passu. And we're doing -- we did what $65 million in pari-passu last year? Jeffery Whicker: Yes. Edward Nigro: And we're going to do more this year. We like the pari-passu loans. They're [ higher up ] and hotel. And they're usually a total of around $8 million to $10 million loan. Well, SBA loans only go up to $5 million. And then only 75% of that can be sold. So for every -- we got to reduce out all the pari-passu loans from our origination. And then also in our originations, we have some other loans that have 90% guarantees or 80% guarantees, some of the smaller ones. So it's a slippery slope, Tim. But I think that when you're looking at the relationship of the loans sold to the loans [ on originated ], and it depends upon the day of the month that the loans were originated. If we had a high volume in the last week of the month or the quarter, it could distort the quarter, so. Jeffery Whicker: Yes. To that point, September, we had a whole lot of things go in our favor, and it actually was a very big origination month for us. Edward Nigro: That's huge. Jeffery Whicker: And all those originations would have gotten sold in the fourth quarter. So that relationship got a little skewed because of that one relationship. So we had great growth throughout the year, but September had this unusual growth that was just -- I mean, all our cylinders hit that month [indiscernible]. Edward Nigro: Yes. That's true. That timing was really weird because I remember that last week in September, we were bombarded. And then October 1, the government was shut down. So it really skewed a lot of things, Tim. Jeffery Whicker: And it might have been just people prepping for the government to get shut down [indiscernible]. Edward Nigro: No, that's what -- that's exactly what it was. We had all those originations because they wanted their loan approved before the government shutdown. So while we got the loan approved, we couldn't get the sale approved. Timothy Coffey: Switching over to the credit card. GBank did about $330 million in transaction volume in the third quarter. How long do you think it takes you to get back to those levels? Edward Nigro: Oh, we think it can happen rather quickly once we get our marketing started again, because remember what I told you, we also reduced the ability of our players to pay off their credit card on a fast basis because they don't want any debt on the credit card. You know what, it's interesting, Tim, is that we did $400-some-million in transactions and the entire credit card balance is averaging around, what, $9 million? Jeffery Whicker: $10 million. Edward Nigro: $10 million. So you can see that everyone wants to pay it off. No one wants a balance. And of the $10 million, there were some cards that are nongaming cards. So when you -- when we talk about increasing our volume, it's strictly adding the players. And most of our players have come through certain influencers, and we just have to turn the switch on, and we will start to gain players again. Timothy Coffey: Okay. And then on noninterest expenses. Jeff, what's kind of the starting point for 1Q? I mean there's been a lot of noise in the last couple of quarters. So what's kind of the you think the starting point might be for that? Jeffery Whicker: That's a good question. I'm not sure I can give you an absolute number, but I would say that we'd probably be looking pretty similar to this quarter. I don't see a lot of increase in the first quarter right now. I think some of the onetime items will offset a little bit of the salaries increase that we're going to probably see. So I would say very similar to what we saw last quarter. Timothy Coffey: Okay. And just kind of listening to the things you've been talking about, Ed, I would think that your kind of expense growth rate for this year might not be that different than '25. Is that reasonable? Edward Nigro: I didn't hear the question. Timothy Coffey: Just the growth rate for the... Jeffery Whicker: Anticipated growth rate. Edward Nigro: Well, yes, I think that when we look at our noninterest expenses, our -- yes, when we look at our noninterest expenses, we see some significant increase there because we're investing in our growth, but a lot of them are relative to our growth. And I believe... Jeffery Whicker: So there's a significant amount of expenses that are variable based on transactions. So as the transaction volume goes up with our credit cards and also the number of accounts that we hold, we're going to see a lot of those variable rate and variable expenses go up. I would say there would be an increase through the year on expenses. Edward Nigro: Yes. We can't stay flat when our credit card -- if our credit card growth, we talked about doubling as an example, went from 440 to 850 or something like that. Every transaction and every -- has a cost to it. It has an influencer cost of so many basis points. It has transaction costs, interchange fees that we pay to Visa. It's just that while our direct cost in the office for staff may not increase as dramatically, those direct costs of transactions are something we all have. Timothy Coffey: Right. Yes. I remember talking about that last quarter. So thanks for reminding me. And then, Jeff, what's kind of the margin outlook if we get 2 rate cuts this year? Jeffery Whicker: Question is, what kind of volume are we going to be able to do in noninterest-bearing deposits. And depending on where you forecast that, I would say that the margin should -- that offset should decrease -- I mean, should offset -- the increase should offset the Fed decreases. So I would say that we should at least see a very similar net interest margin this year that we saw last year. And we're anticipating a couple of rate decreases in our forecast. Operator: This completes the allotted time for questions. I will now turn the call back over to Ed Nigro, Chairman and CEO, for any closing remarks. Edward Nigro: Okay. Well, thank you. I just wanted to thank everyone for their questions. We're looking forward to an exciting year of growth. And we'll talk to you in another -- if not before, if I don't see you at a conference, I think I'm going to the Janney conference in Arizona at the beginning of February. So I may see quite a few of you there, and [ Tim ] will have a chance to sit and go through some stuff as well. But thank you for the calls. And if I don't talk to you sooner, we'll talk to you in April. Good day. Operator: Thank you for joining the GBank Financial Holdings, Inc. Q4 2025 Earnings Call. You may now disconnect.
Tomás Lozano: Good morning, everyone. This is Tomas Lozano, Head of Investor Relations, Corporate Development Financial Planning and ESG. Welcome to Grupo Financiero Banorte's First Quarter Earnings Call for 2026. Our CEO, Marcos Ramirez, will begin today's call by presenting the main results of the quarter and the year, highlighting the positive trends observed across our portfolio and profitability indicators and the main macro expectations that will drive our operations throughout this new year. Then Rafael Arana, our COO, will go over the financial highlights of the group, providing details on the margin evolution and cost of funds provisions. I will mention some reporting highlights related to the accounting of Tarjetas del Futuro and Banorte. He will conclude presenting our 2026 guidance. Please note that today's presentation may include forward-looking statements that are subject to risks and uncertainties, which may cause actual results to differ materially. On Page 2 of our conference call deck, you will find our full disclaimer regarding forward-looking statements. Thank you, Marcos. Please go ahead. José Marcos Ramírez Miguel: Thank you, Tomas. Good morning, everyone. I hope this new year brings you all the best, and thank you for joining us today. As I always say, I consider myself an evidence-based optimist. Despite a challenging operating environment, marked by a sluggish economic growth and a trade and regulatory uncertainties, we closed the year delivering on the commitments we set to the market showing solid and resilient performance across our key structural metrics. After the strong fourth quarter results and overall throughout 2025, I have a constructive view of these New Year's operating momentum and our ability to keep capturing market shares. On the macro front, we expect GDP to end 2025 in line with our initial expectation of 0.5%. Looking ahead, we anticipate a recovery in Mexico economic activity in 2026, reaching 1.8% GDP growth, supported by stronger private consumption. We expect incremental tourism stemming from the FIFA World Cup to up 40 to 50 basis points in GDP growth, together with a rebound in construction and investment. Exports should remain a key driver of growth, particularly due to the fundamental USMCA trade negotiations taking place with the U.S. We expect dialogue to remain constructive, and we believe current global conditions point toward greater integration of value chains between both countries enable the opportunity to strengthen the development hubs under plant Mexico, boost investment and reinforce Mexico role as a strategic North American partner. On monetary policy after the Mexican Central Bank cut of its reference rate by cumulative 300 basis points in 2025, closing the year at 7%, we believe it is now nearing the end of its easing cycle. For 2026, we anticipate inflationary pressures to reach 4.4%. Therefore, we forecast 2 additional 25 basis points cuts in the first half of the year, bringing the policy rate to 6.5%, which we expect to be the eternal rate for the current cycle. On the fiscal side, the government is expected to maintain its consolidation efforts in 2026, in line with the budget approved by the Congress. Finally, we expect the exchange rate to remain stable in 2026, supported by a weaker U.S. dollar, lower risk premiums under global liquidity and favorable macro commissions for the Mexican peso thus expecting a year-end level of MXN 18.1 per dollar. Now starting off with the group's overall financial performance on Slide #3. We closed the year with a fairly strong quarter reported by a solid operating trends with lending and fee activity expanding, driven by healthy private consumption, declining cost of funds and higher seasonal transaction volumes. Margin performance was supported by our continued efforts to minimize our balance sheet sensitivity, the strong risk metrics and optimize funding costs, which fully offset the impact of declining rates of the loan portfolio. Capital generation remains strong and continues to support high-value returns for our shareholders. We closed the year with a 20.1% capital adequacy ratio. Widely surpassing the TLAC requirements of 18.34%, which is now fully implemented after a 4-year ramp-up period and the CET1 of 12.6% aligned with our management target after the distribution of the extraordinary dividend at the end of the last year after delivering an 88% payout ratio in 2025, we still hold close to MXN 11 billion at the holding company available for organic growth alternatives. Before moving into profitability, as you know, from our material event at the end of the year, we finalized the acquisition of Tarjetas del Futuro. Therefore, we have deconsolidated the legal entity from the group's and the bank's financial statements and integrated its operations into Banorte. With this, Tarjetas del Futuro was recognized as a discontinued operation and the reclassification was met retroactively up to 2024 as per the accounting norms. This step enhances our value propositions by building on the scale and operational capabilities that we already have, allowing us to evolve from a single-product business into a multiproduct platform, boosting profitability and creating larger opportunities for growth. Now continuing with profitability on Slide #4. Reported net income for the quarter reached MXN 15.9 billion, up 22% sequentially. This marks a strong recovery of the quarter impacted by isolated Stage 3 loan phase, as you know, showing solid performance across our core businesses, a well-protected balance sheet, healthy risk metrics and the offset of the [indiscernible] expense seasonality. With accumulated figures, net income reached MXN 58.8 billion, fully in line with our guidance and 5% higher than in 2024, driven by the diversification of our revenue streams and disciplined expense management. ROE for the quarter stood at 24.2%, 411 basis points higher compared to the previous quarter. For the full year, ROE stood at 22.8%, up 36 basis points in the year and very close to the upper end of our guidance. Analyzing results by subsidiary in slide 5 the banks reported net income of MXN 12.5 billion in the quarter and MXN 46.5 billion in 2025, with sound core banking operations driven by healthy lending growth especially in the fixed rate portfolio, neutralization of balance sheet sensitivity, optimized cost of funds and a strong fee revenue. Altogether, these results driven a 29% ROE for the bank in 2025, 5 basis points above 2024. Notably, December ROE reached a very strong 36.8% confirming the positive trend where we ended the year and enter 2026. Rafa will provide more details later in the presentation. The insurance business grew 23% compared to 2024, driven by higher premium issuance, mainly in the Life segment and additional business generation related to the bank lending. These factors helped offset higher fees from the bancassurance operation. The annuities business is slightly contracted by 1% versus 2024 and 7% quarter-on-quarter, laterally explained by a base effect from the last period release of technical reserves despite higher business volumes. As for the pension fund businesses, cumulative positive results were driven by higher yields on financial products and increasing fees on larger base assets under management despite growing expenses from commercial efforts aimed at attracting customers from different demographics. Finally, the brokerage sector reported double-digit growth, boosted by larger transaction fees. On Slide #6, loan portfolio growth was in line with guidance, expanding 8% with the year and 9% excluding the government portfolio. Commercial and corporate portfolios grew 5% and 8%, respectively still driven by short-term working capital requirements. As I mentioned before, due to the uncertainty surrounding the USMCA renegotiation, both segments decelerated during the year. However, we remain confident that a positive outcome will lead to a rebound in the second half of 2026. Moreover, these portfolios were also impacted by exchange rate fluctuations in the dollar book which currently represents 14.5% of the total portfolio. On the other hand, our government book rose 1% in the year and 19% quarter-on-quarter. This year acceleration was mainly related to resuming activity with the states and municipalities despite large prerepayments for [indiscernible] during the quarter. We reiterate our appetite for government lending, and we are constructive in the collaboration we can have with the government to develop the country with infrastructure with projects as planned Mexico evolves. Turning to Slide #7. Overall consumer lending remains the main growth driver of the loan expansion, increasing 12% in the year, supported by resilient consumption trends and employment levels and effective cross-sell strategy tailored to each client's needs and the continued scaling of our hyper personalization model. The mortgage book rose 7%. Thanks to an improved origination process, strategic alliances and a disciplined risk approach. We anticipate a reactivation of the sector's demand as the reduction in the reference rate is transferred to customers' pricing. Auto loans posted a strong 32% increase for the year, supported by our commercial alliances for lending car dealerships and higher overall activity in the sector. We continue to grow a robust network that ensures our availability and the competitiveness of our offering with the [indiscernible] brands. Looking ahead, we expect low to moderate into the high teens in 2026 following higher base. Regarding credit cards, this business rose 14% year-over-year, driven mainly by a good promotions, enhanced rewards and loyalty programs for existing clients along with tailored marketing campaigns, allowing us to fully capture the seasonal increase in transactions. Finally, payroll loans also displayed solid growth, up 11% versus 2024. This reflects our fresh product offering designed to meet short-term liquidity needs, combined with process improvements and greater availability to digital channels while also driving additional demand deposits that help optimize funding costs. On Slide #8, we maintained top level asset quality with an NPL ratio of 1.4% at year-end. Despite the nonsystemic case in our commercial portfolio discussed last quarter and continued growth across all portfolios. Cost of risk stood at 1.8%, fully in line with our guidance for the year. It is also worth noting that so far, we see no signs of sectorial or geographical deterioration in our books, and we expect this indicator to continue normalizing throughout 2026 as consumer lending continues to expand. On Slide #9, this grew 20% sequentially and 5% for the full year. The sequential increase reflects higher transaction activity driven by seasonal factors. For the year, stronger volumes in consumer products and mutual funds together with the effect of prioritizing efficiency and profitability to digital and related businesses drove these positive results. However, this was slightly offset by a larger fees pay on credit origination to an external sales force. These results reflect the strength of our operating model supported by the continued evolution of our digital capabilities, disciplined risk approach, process improvement efficiencies and our ability to deliver hyperfunctional offerings tailored to our customers' needs. This combination has strengthened operational efficiency, enhance service quality and customer experience and reinforce our execution consistency. Importantly, these capabilities enable us not only to mitigate the impact of limited economic growth in the country, but also to strengthen customer preference for loyalty. Making Banorte standout and capture opportunities as the competitive landscape evolves. On the ESG front, on Slide #10, I would like to highlight the environmental pillar where we made relevant progress in lowering our energy and weather construction from our operations during the year. In our branch network, we obtained the EDGE sustainable certification for the first 48 branches and we will go for more in 2026. We completed the installation of electric vehicle chargers in all our corporate buildings, supporting sustainable mobility for our employees. And now, more than 30% of the energy that we use consoles. Furthermore, as I mentioned earlier, auto loans had a relevant growth during the year and more than 23% of them were hybrid and electric vehicles. Regarding our commitment to plant 1 million trees by 2030, we not only met but exceeded our 2025 target, planting more than 240,000 trees across Mexico. On this social front, as every year, we participated in Mexico financial innovation with, providing workshops and comprehends to more than 6,000 somen and young professionals as part of our responsibility to help our clients make the best use of the products and services that we provide. Finally, before I pass it over to Rafa, I would like to address some concerns about our competitive landscape. We know we operate in an environment with intense competition for clients, for talent and investor capital. This drives us to constantly review our processes, our technology and value proposition so that will remain the top choice for our customers, the best developer of talent for our people and the most attractive investment for our shareholders. As I mentioned before, looking ahead to 2026, we will keep expanding our digital capabilities and delivering hyper-personalized solutions while maintaining solid fundamentals, disciplined risk management and strong profitability and growth metrics. With these priorities, we are confident but Banorte is well prepared to capture opportunities and navigate challenges in an evolving market competing effectively with both incumbents and digital players aligned. Now I pass the word to Rafa to cover the main financial results as well to discuss our guidance for the year. Rafa, please go ahead. Rafael Victorio Arana de la Garza: Thank you, Marco. Thank you all for attending the conference. The first part that we would like to look at is how the NII really move into the year. But you can see on the table, basically, if we look -- we saw a very strong growth in NII basically on the loan and deposits. We will explain why the funding cost is trending down on a strong growth in the consumer side that allow us to get a better yield on the portfolio. There was also something that needs to be relevant for the comparison about the possibilities and the potential of the bank. When you look at the FX, the FX affected us by MXN 2.1 billion that is really something to consider because we never put that on the budget, and these are really a deduction of the -- it affects several lines that we will see on the next pages. But I think it was a really an unexpected hit MXN 2.1 billion, and we end up delivering the results. On the annuities, you see a very slight FX by the [indiscernible] nothing really relevant. The NII for the total NII for the quarter was 8%, and for the year was 6%, but it's relevant to notice what I mentioned before, how the loans and deposits are really moving forward at a 14% year-on-year basis. The net interest income for the quarter was on the low side, but for the year was 85% year-on-year. Premium income grew 24%, and there was -- I will discuss in a bit the effect that we have on what happened on the claims and the insurance company. Claims went up 8% on a year-to-year basis. But the insurance company, we will see in a moment had a very, very, very strong year. Moving then to the net interest margin. We continue to deliver a very resilient NIM for the bank. It moved to 6.8% for the year. And basically, you see a 13 basis points growth on the year-to-year basis. So net fees also was a very good story. Net fees grew 22% year-on-year. And basically, we continue to see a very, very strong activity on every single one of the channels that we serve the clients. If we move then to the sensitivity, you will see a slight pickup on the sensitivity to MXN 418 million that if you look at the local sensitivity on the NII, it's really less than 0.2%, 0.3% on the dollar and the peso book and the effect that happened in December was that the government book finally pick up in December. As you know, you have a very rapid growth on the lending side but at the same time, the funding side really grew and a very, very fast paid also. So even if you see a movement on sensitivity, you would also see a pickup on the margin because that assets were funded with a very low funding cost, okay? So the balance sheet on the foreign currency, basically, we try to be stable on that. As you know, on the foreign currency, we don't have fixed rate assets that we have on the peso book and we continue to build up the peso group, obviously, to continue our strategy and adaptive to the trending number on the rates. If we go to the profitability of the bank we basically see that net income, but a very good growth in net income for the bank, 16% we have a very strong or very strong fourth quarter because the momentum and the dynamics of the lending funding as fees continue to be very, very aggressive, much better than previous years. The bank return on equity ended up around 31.8%. And I will show you in a minute what was the effect on December and the ROA continues to be a solid 2.7% on the hour. If we move, I would like to move into a graph that shows exactly how we are managing the asset side of the book and the liability side of the book. The graph that you see on the top side, which shows exactly what is the rate that we are charging on the asset side. That's the overall rate for the asset side. Then the next graph is which is like a blue collar line that really shows how it has been a decrease in the official rate for the asset side. And then you see at the bottom of the page, a red line that really shows the funding cost. And you see a very continuous decrease on the pace of growth on the funding cost ended up at 3.8% and the most important graph is the one that is there is the darker one that really shows that we have been continuing to be able to manage the return on the book at 8.3%. So what you -- that means that the spread of the book continue to holds pretty steady even though the decrease in the rates. That is what is really sustaining the margin in a very, very steady pace. On the next slide, you see our continuous effort to continue to go to the levels that we would like to have the funding cost -- the funding cost ended up at 44.1% at the end of the year, basically because as you saw, the noninterest bearing deposits grew 12%. So we continue to grow our noninterest-bearing deposits. The mix has evolved to 70% to 30%. So we continue to be quite attractive to be a bank that basically supports most of the operations in the retail, in the SME and the transaction of banking fees and on the government side. So that allow us to have along with the payables, a continued source of cheap funding that we continue to grow. Basically, if we move next to the cost of risk, you will see that the cost of risk is trending now to a much more normal levels that we used to have based upon the effect that we have on the third quarter. You continue to see also on the graph the write-off that continue to be very disciplined and very, very steady. Credit provisions now are down again to the level that we like to have and that we expect it to have on the budget. And I would like to really guide you to something that is going to confuse you guys booking a bit based upon the integration of Tarjetas del Futuro. And also, as you know, that Tarjetas del Futuro was not part of the overall processes and procedures that we have at the bank even we try to advance the most that we can, but there was obviously not the same [indiscernible] and processes on that. And a very good example of that was exactly how the provision side on the TDF was being built. So when we integrate TDF, obviously, we put all the processes and procedures that we have at the bank. There was a release of provisions on TDF that now seems when you integrate all the numbers at the bank, that was a huge drop in the cost of risk. I would like to ask also Gerardo on that. But to be very clear, the cost of risk that after you do all the numbers and things. It's really much more close to 1.92%. That I think is the number that we feel comfortable after all the integration procedures, [indiscernible] and that. And I would like Gerardo to please continue to explain on this. Gerardo Salazar Viezca: I'm Gerardo Salazar, Chief Risk and Credit Officer of Banorte. Regarding this issue, I will tell you that although Tarjetas del Futuro adopted a regulatory style of framework as a conservative market benchmark given Tarjetas del Futuro monoline business model, limited customer interaction beyond credit and elevated observed annualized net credit losses were approximately 28%. Tarjetas del Futuro management apply a significant management overlay, resulting in an allowance of roughly 30% of the outstanding portfolio to ensure adequate short-term loss absorption. Following the integration of the loan portfolio of Banorte's Group, the portfolio was recognized and subsequently managed under the bank's IFRS9-compliant expected credit losses framework consistent with the methodology applied across the bank retail credit portfolios. This resulted in a removal of TDF's conservative overlays and the recalibration of loss default assumptions based on Banorte's historical performance, recovery experiences and servicing capabilities. And to be more specific, when you take into consideration Banorte managing this portfolio, Banorte has better collections, infrastructure, more effective early warning systems stronger legal recovery processes and broader restructuring tools. That is the probability of default of this portfolio remains the same. That has not changed but loss given the false declines, and that justifies a lower provisioning for in this case. Rafael Victorio Arana de la Garza: Thank you, Gerardo. Now we move to another line that was affected because of the integration, that is the expense growth. As you remember, we committed at the beginning of the year to have a single-digit growth on the expense line. And we achieved that, but it needs some explanation because of also the integration of [ tariff ], TDF and Bineo. Basically what you see on the graph is that let's concentrate on the overall numbers, that is the non-interest expenses, that is MXN 52.2 billion in 2024 that moves to MXN 57.7 million in 2025. That's an 11% growth. And the result for that 11% growth is that based upon the accounting rules, you have to [indiscernible] from the base, the Bineo and the TDF expense line. So it seems that expenses grow in a more important way than in reality, when you put those expenses back again on the base, really, the expense growth was only 9% that is in line but we but we're committed to the market. So that 9% is the one that we -- that is the real number once you put again on the base, the numbers that are basically the same ones that were in 2024. So also, we achieve on that. And you saw that in a much more explanation on the graph. But when you go to the graph that is basically the efficiency ratio that shows what we call the jaws of it continues to expand at a very good pace. Revenue continues to grow nicely. Expenses are much more under control and that will continue to be the case for Bineo and for TDF. Let me be very clear on one thing. On the Bineo side, we currently have an expectation of the around MXN 1 billion of expenses for the year in the case that the sale doesn't get completed in the full year. If the sale gets completed before the full year, then you have reduction of that MXN 1 billion that we see on expense line on that part. And on TDF also, you will see that also our expectation is to reduce the expenses around MXN 500 million, close to MXN 800 million, MXN 900 million that were in the past. So additional efficiencies will come in from those 2, but we have to go from the timing of the activities on the Bineo side and taking very good care of TDF, Tarjetas Del Futuro to be able to really keep the clients that we have been built in the company that are close to 600,000 clients, 60% of those lines profitable brands that have the capability to be cross-sell once we integrate everything in Banorte and if that was going to be the case. So TDF, we will continue to be a very important provider of clients of a segment that was not in the past an objective of Banorte. So once we clear the expense line, I would like to go now to capital and liquidity. There was also some comments about what is the liquidity ratio, the liquidity ratio continues to be hold and efficient. We were at a point in time when the things were not very clear. We have an additional surplus on liquidity. We feel very comfortable with 162 liquidity ratio. And when you go to the capital ratio, it is the first time that you see the -- 12.6% on the core Tier 1. But if you look at the holding company, the holding company still basically is managing MXN 10 billion more that is part of this capital that has not been assigned to the bank. So you will continue to see that based upon the momentum of the bank and the subsidiaries are very, very good growth on the capital base to be again at the 13% in the first quarter. The TLAC that have now been fully adjusted is 18.34%. We are 20.1% so we feel very comfortable with that. With this based upon the momentum of generating capital that we have at the institution. And another thing to be relevant about this is also that our AT1s have been obviously been affected by the FX that we have. Now let's see what was the effect of the commitment for 2025. The loan growth ended 8% inside the guide, ex government 9%. Net interest margin for the group 6.3%. Net interest margin for the bank, 6.6%. Expense growth, as I mentioned to you before is a 9.4% taking into account and putting again the basis to be comparable about the effort that we have on the expense line. The efficiency, 35.8%. Efficiency is a number that we need and we would like to continue to lower down. There will be years that we need to invest more in order to keep the trade with our competitors on this. And this year, it seems to be the case, but we will do a lot of efforts to really grow the revenue base in order to reduce the efficiency ratio. Cost of risk in line, as I mentioned to you, we -- Gerardo explained it, we are not fooling around that about the deconsolidation and consolidation and the effect that we have on the extraordinary situation that we have through TDF. The real cost of risk that we do is around 1.8% and it ranges from 1.8% to 1.84%, that's case. Remember that Tarjetas Del Futuro really became, again, installed at the bank in December '26. And before that was eliminated line by line on the group. When you go into the page of the financial results on page 6, you will see that our discontinued operations have the full effect of that, that is around MXN 2.1 billion. So there's no effect of all these numbers in the net income. I would like to make that very, very clear. All these movements start up because of accounting rules, but no effect on the net income of the bank. You will see that on the consolidation of operations in the financial [indiscernible] that we have on Page 6, okay? The net income, the tax rate, it was at 27%. Net income was in line 58.8%. And I would like to because I don't want to be, let's say, jumping around about this number, but 50.8% is including the effect of Bineo, the effect of TDF, the effect of FX and all that at the same time. So really, the performance of the bank was on the group was really, really very, very strong. Return on equity for the group 22.8%. So that's the number that we would like to have around the 23% on a recurring basis. Return on equity of the bank is at 29.1%. And just an effect that have -- and we don't like to play this game, but based upon the payment of dividends that we have in December and a very strong month that we have in December, the return on equity for the bank at the month of December was 37% return on equity, okay? So return on assets is 2.3% right in the middle of the guidance. Now I would like to move if Marcos and move to the... José Marcos Ramírez Miguel: Yes. Just the guidance. Rafael Victorio Arana de la Garza: The guidance for 2026, as you can see on the loan growth, 8% to 11%, and without the government book 10% to 12%. Net interest margin for the group, 6.2% to 6.5%. Net interest margin of the bank, 6.4% to 6.8%. Let me explain why there's this range on the bank. If we grow the government book, I expect that is expected because it seems that there's now a lot of movement concerning infrastructure and things like that. If that happens, you will see a very accelerated pace of growth on the loan book. But since those loans are very thin on the margin, you will see maybe or to trend more to the mid of the NIM of the bank, that is around 6.5%. If that is not the case, the number will be very close to the 6%. Expenses, and I would like to be clear here on the expense line. And the first time, we are also trying to put a number in pesos in order to try to avoid all the deconsolidation and consolidation for you to be able to really follow the expense growth. The expense growth, as you see on the recurring from 5 to 6 and in addition, organic growth and investment because obviously, we are investing a lot in -- we have been investing for many years in artificial intelligence, but now that part has accelerated a lot, and we have to reinforce the teams on that part. We don't need to buy more technology, but we have to use more of the technology that we have and that's required to really as we create more people on the application... On the non income tax rate, 27% to 29%. Net income is MXN 62 million to 64 million and taking into consideration other things that is included here. As you know, there's a lack of utility impact of the loan book that is affected around MXN 1.2 billion for the year. So that is already included on that part. So the return on equity for the group 22% to 24%. Our return on equity for the bank 28% to 30% return on assets 2.2% to 2.4%. And as you can see, there's a slight pickup on the cost of risk to 1.8% to 2.1% not because the wrong reason because of the right reasons because of the rapid pace of growth on the consumer group that really requires much more provision than at the beginning of the cycle. So we are based upon our economists -- our chief economist, GDP of 1.4% to 1.8%. Inflation rate 4.2% to 4.6% and Mexico reference rate, 6.5 percentage for the year. I will also add that we expect the FX to move much more close to the MXN 18 per dollar at the end of the year, but we think that there will be more strengthening of the peso in the coming months. So that will also not have the full effect that we have last year to MXN 2.1 billion, but still will be something that we have to manage. And let me also tell you about the effect that we have on the FX that was not mentioned before. If you take because of the 14.5% that we wrote on the dollar book, the dollar book was affected by the FX when you convert to pesos. If that was not the case, the commercial and the corporate group was really growing around MXN 20 billion more. That was the effect of the FX. So with that, I end my comments and I pass to... Tomás Lozano: Now we will go to our Q&A session. [Operator Instructions] We'll start with Jorge Kuri from Morgan Stanley. Jorge Kuri: Everyone. Congrats on the numbers, and thanks for the conference call. A quick question on the guidance. Would you mind double-clicking on the credit growth assumptions. What are the different expectations for the compositions of loans, consumers, mortgages, government and commercial, et cetera, and how do you think that sensitivity of your guidance is relative to economic growth of USMCA is negotiated favorably early on in the year, and we get an economy that is closer to 2%. How do you see that translating into your loan growth expectations. José Marcos Ramírez Miguel: Thank you, Jorge. In commercial, we are -- the guidance is between 8% and 10%. The corporate is also between 8% and 10%. Government is from 0% to 4%. Consumer is from 10% to 14%. Mortgage is from 8% to 10%. Credit card is from 14% to 18%. Auto loans, 15% to 20% and payroll 10% to 12%. That's if you breakdown the numbers. And now I will pass to Alex, the economy. Alejandro Padilla: Thank you, Marcos. Thank you, Jorge. Alejandro Padilla, Chief Economist. Let me just walk you through our 1.8% GDP or this range between 1.4% to 1.8% of GDP for 2026. What we think is that this year, all the engines of the economy will try to level -- last year, we observed that consumption grew less than 1%. For this year, we are expecting 2% of growth -- this is supported by the World Cup, as Marcos was mentioning. We think that given tourism and also private consumption in Mexico, we can have additional 30 to 50 basis points there. Also, I think it's important to take into account that last year, investment declined around 7%. We are expecting a mild recovery, only 0.7% in our models. This is supported by additional spending, especially in infrastructure. When you see the budget for 2026, the government will deploy 1.2 percentage points of GDP in key infrastructure projects. And in addition to that, nearly 25% of the budget is going to states and municipalities, so we think that, that should push a little bit this investment figure. And the other one is exports. Exports last year grew around 7%. It was a very positive year. Why? Because when you see the average tariff rate that Mexico is paying is around 4.5%. The world is paying 16.8%. So there is in relative terms, a competitive advantage that Mexico will likely hold throughout 2026. As you were mentioning, Jorge, this is an important year, given the review process of the USMCA. So far, regardless of how this process will take place. We think that Mexico will continue to be a key ally for the U.S. in terms of trade. We are surveyed in 2025, and we think that it will continue in 2026. So that's the way we are analyzing GDP. That's a range between 1.4% to 1.8% and just let me close with one thing. The fourth quarter of 2025 closed with a better momentum than in the third quarter, that will help inertial GDP for Mexico in 2026, where calculating that this inertial GDP will at least give you 60 basis points. That 60 basis points is more than what the entire economy grew in 2025. So that's why we are more constructive in terms of GDP dynamics. And the other one is that we expect that the U.S. will grow more this year than the previous year. We have 2.4% of growth supported by consumption in the U.S., but also by investment and I think this is key, taking into account that in our studies, 56% of the Mexican economy is highly dependent on the U.S. economy. So that's the way we are calculating this range between 1.4% to 1.8%. That's Rafael mentioned before. Tomás Lozano: Next question is from Renato Melone from Autonomous. Renato Meloni: Congrats on the result. So just wanted to pick up here on your earlier comment, credit card growth and payroll growth. We saw some NPL increases this quarter. I wonder if you can comment a little bit of the dynamics here and if you expect asset quality to stabilize and enable this growth. And then also related to this, your coverage ratio has been declining and it's at the lowest level now since 2019 at 134%. So I'm curious to know what level you feel comfortable in operating. José Marcos Ramírez Miguel: Renato, I will pass to... Gerardo Salazar Viezca: Thank you, Marcos. I will tell you, Renato that in payroll lending, the deterioration is attributable to the loss of payroll dispersion from our large clients, resulting in a very temporary statistical effect. Notwithstanding this impact underlying asset quality trends remained solid as the remainder of the portfolio continues to exhibit improved performance and declining risk metrics. In red cards, the increase is partially explained by the consolidation of a higher risk portfolio Tarjetas Del Futuro. And additionally, in December, delinquency ratios was distorted by a denominator effect as the strong origination growth reported in November to retail -- was offset by a significant but expected repayment in December. We see this seasonality effect every year. Within Banorte credit card portfolios, are behaving very well and also the payroll loans have very good risk metrics. Regarding the coverage ratio, I will say that asset quality is generally improving, early-stage delinquencies are also declining and vintage curves show better performance from recent originations. I will tell you that we have to take into consideration that although this reserve coverage ratio is declining. We have a very high degree of capital strength. We have a high CET1 total capital ratios and strong pre-provision operating profit in that regard. Even if reserves are lower, loss absorption capacity remains very robust. When -- I will tell you as Renato that you should worry when the reserve coverage ratio declines due to several factors that are not present in Banorte. Among them is NPLs rising, but reserves are flat or falling. It's not the case. I have to remark this. Also, you should be worried if early delinquencies are accelerating. That's not the case in Banorte. And you should be very worried if growth is driven by looser underwriting, we're not doing that. We are -- we remain very strong with the underwriting standards up to this point. Rafael Victorio Arana de la Garza: And if I just may add, Renato, on the credit part, don't be surprised it on the first quarter, you continue to see a slight pickup on credit card, very, very slight and then churning down in a very, very positive way in the second quarter. Because as Alejandro explained, we have a very strong prepayment part. You have a pretty. You continue to grow the book in a very fast pace. We placed close to 890,000 cards last year. Maybe this year, we can reach the 1 million cards but we have very, very strong placement. No first payment defaults are not present on the group. All the facilities are being served and follow in a very close way. So as Gerardo mentioned, I don't think this is a matter of concern. It's a matter of seasonality that will flow into the first quarter but spending in a very important way into the second quarter. Tomás Lozano: Thank you. Now we'll continue with Brian Flores from Citi. Brian, please go ahead. Brian Flores: Rafa, Marcos, Tomas and team I wanted to see how sustainable is the savings on the funding side. Rafael, we know Nubank and also I think now other fintechs like Revolut are joining the system. So we're very curious as to work -- or how low can this funding costs go. We have been very impressed positively on the results from Banorte. I think your cost, as you were mentioning in the presentation is now at 44.1%. How sustainable is this with obviously these pressures that could come from newcomers and if I may, just a very quick follow-up, a quick question to Alejandro on [indiscernible] because I was checking Banxico survey. I think at the medium point, is expecting 1.2 in terms of GDP growth. So just checking if maybe he thinks there is some enthusiasm from the World Cup that is missing on consensus numbers. Rafael Victorio Arana de la Garza: For the second one... Unknown Executive: Yes, for sure. Thank you, Brian. I think that we might start observing some adjustments in the market consensus regarding GDP especially given the figure that will be released this Friday that is the 2025 preliminary GDP because then I think that the market can recalibrate inertial GDP. But yes, I think that consensus, it's not taking into account some of the figures that could be important in terms of the World Cup. Just to put some examples, there are some expectations from FIFA about how many tourists can come to Mexico and how much money can they spend. And when you see the figures of tourism in Mexico, I think that even those assumptions are very conservative. I think that we can have a positive effect in terms of tourism. But it is not only tourism, let's take into account that private consumption, especially consumption from Mexico during World Cup is steered by purchases of screens, obviously, services, restaurants, bars, and all of the things that usually when there is a World Cup increases. So that's how we think that GDP can be benefited by this 30 to 50 basis points. Rafael Victorio Arana de la Garza: I think your question is a key one about how the dynamics in the market are moving. I think if you look at the numbers that are present on public numbers from most of the fintechs, what you see is a huge capability of gathering funding at a very high cost and then a limited part of deploying those funds into the asset side that create a very deep imbalance on the process. And I would like to say when you say how you have been able to really lower the funding costs and grow noninterest-bearing deposits above 12%. I think the fact is that Banorte really competes on the value proposition per client, we don't compete like product. I think that if there's 2 ways to compete in the market. One is playing the liability side, bringing up a lot of liabilities into the bank, and then you have through cost, the liquidity cost and the cost that you have to really finance that overpayment that we have. If you don't have the assets to deploy that. And when you look at the asset side, we can play the game to have a very high cost on the asset side for the clients. And then you have another imbalance because you are basically a factory of generating nonperforming loans and sending people to credit bureau. I think that the way that Banorte competes in the market and you see that in the activity at the branches and on the digital space is that we have a very strong digital foundation a very, very, very strong digital analytic foundation and the hyper personalization that we have at the bank takes into account the value per client, the present value of the client, the potential value for clients and also what is the business that this client has with other banks. And then we offer them, I will really a very comprehensive offer that take into account all those things. So when you monetize all the offer that Banorte has, is a much more powerful offer to the client. So the value added that we put in the hands of the client is not just a very high liability price for a very good full relationship that allows them to have a very balanced asset cost side and a very reasonable funding price on the funding side. And also you will see on the coming months more and more Banorte moving into a much more hyper personalization processes and being able also to attract young players into the market in a very reasonable way, not to try to overshoot the funding side and have a very reasonable and practical approach to really develop the clients that we have. That has been the approach that we have on the noninterest-bearing deposits is playing right the service that the branches provide the capabilities that we have on the digital and the surprises that where the client receives when they see the hyper personalization, that they receive is really what is allowing us to have a very good relationship with the client. When they monetize their relationship with Banorte is a much more profitable relations that they can have with the fintechs. That's the reason. Tomás Lozano: Now the next question is from Pablo Ordonez from GBM. Pablo Ordóñez Peniche: Marcos and Rafa, congratulations on strong results. My question is on the fee side and on the regulatory outlook. More than looking beyond the interchange fees, what should we expect in terms of digitalization and any boost to [indiscernible], should we expect any radical changes here? Any color that you can give us from the meeting yesterday with the government. And with this, how should we -- what should we expect in terms of the fee performance after a very strong year in 2025? José Marcos Ramírez Miguel: I will start with the meeting yesterday with President. We participated in the meeting, as you know, with President on the Mexican banking sector, the discussion was conservative and reported [indiscernible] openness to engage with the private sector. We welcome the government's collaborative approach to fostering conditions for stronger growth and sustainable investment as well as its forward-looking agenda to enhance Mexico competitiveness [indiscernible] Banorte, we value these dialogues,and it's important to step towards aligning efforts in support and Mexico long-term development. That's what happened yesterday. It was a good reunion. And now, Rafa, the... Rafael Victorio Arana de la Garza: I would say that the fee side has always been a very attractive point for the regulators to see. But if you look at the evolution of Mexico and you compare the interchange fees on the debit side and on the credit side, Mexico is quite competitive on that. So we don't have a -- I think the Mexican Banking Association have a constant dialogue with the authorities in order to put all the numbers in clear in order to because if this is going to sound a little strange, but this kind of price controls, obviously, they benefit the larger banks and they really uptake on the smaller banks. So that's something that I don't think is right for the market. I think the market has been behaving pretty, pretty good. And on the digital evolution on everything, I think the banks are fully prepared to really deploy the digital capabilities that the bank has even using CoDi or Movil and all the infrastructure that the bank has. I think what Marcos mentioned about also with the meeting yesterday is that it seems that now the digital approach to the Mexican economy is a real one. And I think the banks will be key players on deploying that part. So I'm not worried about the fees evolution, I think there would be a reasonable part trying to protect basically the mid and the small banks, not the large ones. Pablo Ordóñez Peniche: And a quick follow-up on this. What growth rates in terms of the guidance, should we expect in a few months... Rafael Victorio Arana de la Garza: We can't hear. Pablo Ordóñez Peniche: What growth rates should we expect for the fee income in... Rafael Victorio Arana de la Garza: 20% for the last year was really a very strong one. I think this will be above the loan growth. I think 4, 5 percentage points above loan growth. That's what we expect to see because we continue to see a lot of transactionality flowing into the bank, the transactional banking on the corporate commercial and the government and in the retail side, continue to be quite active. Just to give you a number that shows you that I think the new opening -- let me just go into the difficult part, the branches. We are now opening 5 to 6, 7 new accounts per branch per day when we used to have around 3. So that momentum continues to be and the number in digital you can multiply that number by 5 or by 6, but still the balances that come through the branches are much, much higher than the ones that come from digital. Tomás Lozano: Now we'll continue with Carlos Gomez-Lopez from HSBC. Carlos, please go ahead. Carlos Gomez-Lopez: Congratulations on the results. I want to ask about the fintech strategy. Now you are integrating at Tarjetas Del Futuro and Bineo. So what are going to be the -- how are you going to compete with the new fintechs? Are you going to have any new initiatives are you going to launch something which is different, which is a different brand? Or do you think that Banorte.com is where you want to be. Also accounting-wise, you had a charge in the quarter, I think, MXN 6.3 billion directly to equity from the integration of Tarjetas Del Futuro. Is it done? Is there anything else that we need to expect from Bineo and from the Tarjetas Del Futuro. And did you complete the sale of the license to [indiscernible]? Rafael Victorio Arana de la Garza: Carlos, for the last one, that's all. There's nothing more common. But what you have to see and you can look at that number in the discontinued operations there will be a flow in the reduction of the expenses and basically on the timing of the selling of the Bineo brand, but no additional costs will come to that. On digital, I would like to be very, very, very careful with this because Banorte never stays put. And as you say, Tarjetas Del Futuro will be a key element to continue to provide a flow of clients into Banorte, but now we can cross-sell them. So that will be a plus for the clients and for Banorte that they were a mono product in the past, and it was difficult really to make profit -- a reasonable profit from those relationships. I think we can offer a very good set of products, those clients that could bring additional benefit for them and a reasonable profit for us. So that will be the movement of Tarjetas Del Futuro. It's going to be fully integrated into Banorte. So all the scale of Banorte will be playing into Tarjetas Del Futuro but they will still have the individual attractiveness for that part of the market that will continue to be a permanent flow to bring into Banorte new clients. And also more and more, our clients seems to demand based upon the experience of Tarjetas Del Futuro that we have a much more, let's say, amicable approach to digital with the joint generation and from universities and that. And I think what we learned about Tarjetas Del Futuro there will be a very good evolution of Banorte into that part of the business. And you will see that in a very -- in the very short term. So we feel very confident in digital. I think Banorte is prime in digital. And you will see that expanded approach to try to integrate more and more clients into a digital offerings into the market. Carlos Gomez-Lopez: Would that strategy include any high-yielding account? We see that Revolut is offering 15%. Are you planning to compete with those offers? Or that's not part of your strategy? José Marcos Ramírez Miguel: We will manage a new way and create one, not in that way. Rafael Victorio Arana de la Garza: I think, Carlos, if I go with you and I say, okay, I'm going to give you 15% here. By the way, what are you going to charge me on the credit card, then you do the math, and maybe that's not a very good offer. And I respect a lot. And I think it creates a lot of good dynamics into the market, at least as companies come into the market and bring more clients into the banking system, my main way is to really take care of those clients and not over lend to those lines and really evolve with them all the financial, I would say, we needed for those guys to be sufficient in the way they manage their finance. I think Banorte will surprise the market pretty soon in a very reasonable offer to compete not in a way about price. I don't think that has been very -- always a very reasonable one, but sometimes you have to attract the attention of the market because of the price and things because you don't have anything else. You just have an idea. But Banorte, I think have a very, very, very present and reasonable offering to the markets that will evolve in a very intelligent way to really compete with this -- with the fintechs in the very short future. Tomás Lozano: We'll take the next question from Yuri Fernandes from JPMorgan. Yuri Fernandes: Marcos, Gerardo, Tomas, everyone connected. I have a question regarding the majority equity evolution of Banorte. When we go to the majority equity this year, it was mostly flat year-over-year, around MXN 249 billion, despite the net income -- I get you have some dividends, the AT1s. But what caught my attention here was a MXN 6 billion hit this quarter from Tarjetas Del Futuro, like the acquisitions you had. So my question is, what explains this hit on Tarjetas Del Futuro if you can provide a little bit of more color on this? The explanations on P&L and provisions from Gerardo they were very good, but this on the equity side was not clear for me. José Marcos Ramírez Miguel: Rafa, please go ahead. Rafael Victorio Arana de la Garza: Yes, Yuri, thank you for your question. And it seems -- remember that when we started with Tarjetas Del Futuro, we put down $50 million that was basically for the price of our total price of $250 million. When we try to really put the capital down that was around $200 million, there was a restriction on the authorities. So we needed to build up what is called a convertible loan that eventually will be converted into shares. At that point in time, if you're going to the premium on the equity side, we see that we have been building that part on the premium side. So there was a convertible loan here, but there was a premium on the equity side. So when you see the reduction on the equity side was basically when we do convert and we bought the company and we convert the convertible loan into really permanent investment into shares that was basically when we pulled out of that part of the capital based on the premiun and then we build capital into the company. On the other hand, the company has a loan that was basically guaranteed by a trust that owns the book of the company, okay? So the movements that happened in Tarjetas Del Futuro was basically the conversion of the convertible loan into shares to put capital because the company didn't have any capital at all, a commitment that we did when we bought the company that we were unable to do because of the regulations and then a guaranteed loan that was on a trust that was basically owning the loans of the company. So when you -- when we do all the integration of Banorte, we convert the loan into shares -- so now that the company does that capital that was always belonging to that company. So now it's on the capital part. And also, now you will see on the coming months started October 1, that all the loans now will be passed as Gerardo mention of the portfolio of the credit cards of panel and the additional cross-sell that we can give to them. So basically, what you see, Yuri, and thank you for bringing that out is that, that convertible loan was basically converted into shares using the brand that we will be saving at the equity side. Yuri Fernandes: Got it. So basically, [indiscernible] capitalized Tarjetas Del Futuro a few years ago, you convert the bond now. And this is just a onetime right half, we should not see this hit again. Rafael Victorio Arana de la Garza: We will not be touching the capital base because of Tarjetas Del Futuro. It will have a running rate like any product that we have, the provisions and everything, but basically on the running rate of the business, no additional capital noticed on anything. I think last year, believe me, was a lot of moving parts on this part. Finally, we are out of that. The only pending part is when Bineo is going to be sold. If we never sold in the -- as soon as that is being sold, the less we need to continue to spend on the expense side, but no more on the equity side, anything on the equity side. Yuri Fernandes: No, super clear, Rafa. And it was a mess here for us also to read it. If I may, just an easy one and a quick one here, just on margins. I think the guidance implies in a flattish margins for you, like 6.3%, 6.35%. But guidance for loan growth is for consumers to grow faster. So just trying to understand if there is any chance that maybe margins can go higher, like maybe to the high end of the guidance, given your top mix and the good funding cost. Rafael Victorio Arana de la Garza: No, I agree with you. We are really penalizing the margin, taking into account what Marcos mentioned that if we see an important acceleration on the government book, because infrastructure and things, those loans basically are not very rich in margins, but are very rich in fees and other things. So we are trying to cover the low end. But if you ask me, I think we will be more in the mid to the high end of the -- on the margin side because we continue to have very good funding cost, very reasonable fixed rate loans that really sustained the margin on a continuous basis. Yuri Fernandes: Super clear. . Tomás Lozano: I will continue with Ernesto Gabilondo from Bank of America. Ernesto María Gabilondo Márquez: Marcos, Rafa, Thomas, Gerardo, Alejandro, all have connected. Congrats on your results. I have a follow-up on your guidance. So should we expect seasonality in the guidance? Should we expect growth to accelerate in the second half? Or should we expect consistent growth throughout the year and also on your ROE guidance, how much dividend payout ratio are you assuming for this year? And also, considering your new guidance, should we expect this guidance to reflect Banorte's sustainable ROE for the group in the long term? And then I just have a very quick question also related to the fintech competition. We have asked several young people in Mexico if they are served by a financial institution. And we were surprised that most of them have a new bank account, but they don't have a BBVA or a Banorte account. We were surprised about this because the next generation using financial services without going to branches so just wanted to hear your thoughts on how is Banorte positioning to be on the mind of the next generations. And also how do you expect to monetize those younger generations, which tend to be [indiscernible] José Marcos Ramírez Miguel: Okay. The first one, yes, in the guidance, it's not a line that will always open up. It will accelerate at the end of the year. Everything is -- as you know, we are talking about the agreement with the U.S. and everything will accelerate as soon as we sign that agreement. So that's -- we think that that's going to happen at the end of the year. The second -- the ROE, the dividend that we are giving as always, 50% dividend and then we'll see if there is some extraordinary but these numbers, we are guiding to a 50% dividend. The guidance to reflect [indiscernible] sustainable ROE for the group in the long term should be, as we say always, [indiscernible], and the idea is to continue with the [indiscernible] that where everybody is talking around and use, but it's a good number. And the last one, we are working very hard. You are right. We need to do something with these young clients. And we are working and I don't know if the next quarter or maybe the other one, but we will issue something like we will see with you. And I don't know if you -- to say something about it, Rafa. But you will be, I hope, surprised that the word that we can use that. Internally, we will do something talking about exactly what you say, now the young people that they don't use branches, Banorte should be in the line of this young generation. So let's keep in touch. Rafael Victorio Arana de la Garza: And just remember, Banorte is very, very, very clear. And we expect very much -- the thing is that we have in Mexico, like Nubank, like Clara, like Stori, like Uala because they have really brought in to the table something that we were kind of in a comfortable way because we were growing nicely the digital evolution and basically attracting clients that were profitable for us, profitable for them on that but I think when you look at the offer of Nubank, I'm not talking about the products but I'm talking about the experience. I think we can really do a lot more about the experience to attract the plans that we have. And what we are really working as Marcos says, is the capabilities of Banorte in analytics and artificial intelligence to really flow the needs of the client and the emotions of the clients, not just the needs but the emotions of the clients are going to be very soon present into the market. You will see that. But thank you for the refelection about this because we have been working in a very, very important way. And we are really, really I would say, happy about what we can really deliver into the market. Tomás Lozano: The next question is from Tito Labarta from Goldman Sachs. Daer Labarta: Congrats on the strong results. I guess another follow-up just on the competitive environment. Particularly on payroll, right, because I think one of the things all these fintechs are getting banking licenses for is to try to compete on payroll and get some principality. I mean and you mentioned there were some losses there on some payrolls. So just how do you think about potential competition for that? Can the fintechs really compete for payroll once they get the banking license and is that a risk at all to sort of keep in mind? And also along those lines, another sort of incumbent with Banamex getting spun off of city potentially becoming more competitive? Just any risk that you see from there as well. José Marcos Ramírez Miguel: As I stated I don't know the environment is very competitive. So we are expecting that, and that's why we need to move faster than the others. But you are right. They are here and we are 52 banks now and competing and we need to do something spectacular. That's what we are working on. Rafael Victorio Arana de la Garza: And I would say just to add what Marcos mentioned is that the competitiveness on the payroll, I mean, the payroll that we lost was not for young people, it was really for civil servants. So -- but what you and I challenge you all to see the value proposition that Banorte has on the table. I think we have the strongest value proposition in payroll. It provides credit cards, it provides credit cards with a very, very reasonable rate -- it provides insurance, it provides savings, it provides everything that you need to link to your payroll with a lot of benefits linked because of the relationship that we build on the payroll. So I really do challenge to see the offer that we have on the payroll side that I think is the most comprehensive offer into the market and the most attractive on price-wise and functionality for the clients. So payroll is going to be a battlefield. It's already a battlefield. But now the battlefield is going to move into the new entrants into the banking system and that's where we think we can play a very, very key role. Gerardo Salazar Viezca: Yes. If I might add, Rafa, I will say that up to now, with a tremendous respect with these players fintechs are winning transactions. And banks like Banorte are winning because we're building ecosystems for the employer and for the employees. And that's a very different competition, just try to keep that in mind. Tomás Lozano: Now we'll continue with Marcelo Mizrahi from Bradesco. Marcelo, please go ahead. Marcelo Mizrahi: So my question is regarding the efficiency ratio going forward. So we are seeing this integration of Tarjetas Del Futuro. So it's -- we want to understand the mindset of you guys looking not just this year but -- in a long-term view. So what's the efficiency ratio that Banorte will target in the next few years. José Marcos Ramírez Miguel: We were discussing 34% or 35%. It's going to be 34%. Rafael Victorio Arana de la Garza: Our goal is to reach again the 34% -- not for the next year. We will try to be there. But I think we feel comfortable from 34% below and below. And I think with all that we are doing in digital and things, and the implementation of artificial intelligence bank-wide that will help us to deliver that. Marcelo Mizrahi: These levels that we will see in this year, that's an impact of the integration process.? Rafael Victorio Arana de la Garza: Exactly right, Marcelo. Marcelo Mizrahi: Okay. So after that, so we will -- so it's possible to see already in this year, the ratio started to come down. Rafael Victorio Arana de la Garza: Exactly right. I think '25, '26 will be and in between years, but a lot of the base to continue to drop to 34% will be set up in '26 because it will be the deploy of our bank-wide artificial intelligence push and also the integration of Bineo, the selling of Bineo, the integration of TDF. All that is potential benefits, but it will take time to realize through the year -- maybe at the end of the year, we will be very close to the number that we were trying to reach. Marcelo Mizrahi: I have another question. Can I do another question? So we -- you guys were talking about a better performance on corporate credit on the fourth quarter. So my question is regarding why do you -- so if you guys -- so you have an explanation. So we saw a better environment and growth to corporate side -- on the corporate side already on the fourth quarter. So we were expecting that just in the second half of this year, but it's already started to be better. José Marcos Ramírez Miguel: I will ask Rene Pimentel to answer that question. Are you there, Rene? René Gerardo Ibarrola: Yes. Thank you. Well, basically, during the fourth quarter, we closed a lot of the transactions that had been in the pipeline throughout the year. I think that this year, of course, we will continue to focus on our core sectors in which we have been focusing, which are growing faster than the economy. But also, we will start looking at new segments in which Banorte has not been clear before and that we believe that we have the product and services to offer a good offering to our clients. So we believe that this growth will continue throughout the year. And we have a good pipeline for the second half of the year. So we'll continue to see growth in the range that was already mentioned by Marcus, the 8% to 10%. Tomás Lozano: The next question is from Daniele Miranda from Santander. Unknown Analyst: Marcos, Rafa and everyone connected from the team. Just a very quick one from my side. You mentioned consumer lending will continue to be the main growth engine. Has this been driven or will it be driven by new customer acquisition or by deeper penetration and higher loan balances among already existing claims. Just trying to assess here how much more risk you are taking while expanding consumer exposure and how difference during this segment? José Marcos Ramírez Miguel: Thank you, Daniel. It's going to be both. We still want to grow operational way. And also, as we were talking about the hyper personalization, we still supplies that they need more products from now. So you will see that we will go in both lines and growing eco. Tomás Lozano: Now we'll take our last question from Federico Galassi. Federico Galassi: Two or 3 questions, if I may. The first one is, Rafa, you mentioned that you are thinking in 18 for the Mexican peso at the end of the year -- do you have any sensitivity? Is the currency continue to appreciate and finish, I don't know, 17, something like that. José Marcos Ramírez Miguel: Rafa, please go ahead. Rafael Victorio Arana de la Garza: I would say the really hard effect was last year because of the drop on the peso rate. I think -- we have some sensitivity on that part, but I don't think we are not going to play that game because it's a short-term basically strengthened of the peso. I think we are convinced and Alejandro is also convinced of that by the end of the year, the peso will be in a much more reasonable price around the MXN 18 per dollar. So no, we are currently doing this because it's a very -- it will be like follow the [indiscernible] will be up and down, so we will better fix on the end term of where the -- to be that is around MXN 18. Federico Galassi: Okay. Perfect. Fair enough. The other question is related with the insurance business, in particular in auto cars with the change in the regulation with the VAT. Do you -- what we are thinking to -- do you thinking to increase premiums? How do you think toward this year to keep up to at least maintain the rise of the last year. José Marcos Ramírez Miguel: Okay. We were discussing this in the morning and yesterday, and we will absorb part of this increase. And also a little bit will pass to the client. The competition is huge. It's not only banks, the insurance companies, but we think that it's going to be [indiscernible] going to come from for the banks and other for the clients. We will see the result in the next months. Rafael Victorio Arana de la Garza: And Frederico remember that Banorte has evolved not for a single price for the clients. We do price the insurance based upon the, I would say, the quality of the risk of the client. So that will allow us to have, as Marcos mentioned, a much more flexibility instead of just have a fixed price. So if you are really a low-risk line maybe we will absorb everything on that part. And if you are not a low-risk line, maybe you will get the full heat of the [indiscernible]. Federico Galassi: Perfect. And the last one, I don't know if you mentioned before, but do you have any news or something to mention about the pickup of fees -- on fees that was mentioned last year. José Marcos Ramírez Miguel: No, we don't have anything new there. Tomás Lozano: Thank you very much for your interest in Banorte. With this, we conclude our call. Thank you very much.
Operator: Ladies and gentlemen, good day, and welcome to the Q3 FY '26 Earnings Conference Call hosted by Larsen & Toubro. [Operator Instructions] I now hand the conference over to Mr. P. Ramakrishnan from Larsen & Toubro. Thank you, and over to you, Mr. Ramakrishnan. Parameswaran Ramakrishnan: Thank you, Dorvin. Good evening, ladies and gentlemen. A warm welcome to all of you to the Q3, 9 months FY '26 Earnings Call of Larsen & Toubro. The earnings presentation was uploaded on to the stock exchange and on our website at 6:45 p.m. I hope you have had a chance to take a quick look at the numbers and the presentation details as well. I will first walk you through the important highlights for Q3 FY '26 in the next 20 to 25 minutes or so, post which we will take questions. Please note that when the Q&A session starts, I will also have with me our Deputy Managing Director and President, Mr. Subramanian Sarma. Before I begin the overview, the disclaimer from our end. The presentation, which we have uploaded on the stock exchange and our website today, including the discussions we may have on the call today, may contain certain forward-looking statements concerning L&T's business prospects and profitability, which are subject to several risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. I would request you to go through the detailed disclaimer, which is available in Slide 2 of our earnings presentation that we have uploaded a while ago. I will start with a brief overview on the economic conditions in India and the Middle East, which are key markets for the company, especially for its projects and manufacturing businesses. The Indian economy continues to demonstrate resilience, supported by steady growth conditions and easing inflationary pressures. The Q2 GDP growth printed at 8.2%, a 6-quarter high and underpinned by robust performance in the projects and manufacturing and the services sectors. The full year real GDP growth for FY '26 is projected at 7.3%. The inflation dynamics have also improved with CPI easing materially. The RBI now anticipates CPI inflation at 2.9% for Q4 FY '26. The continued emphasis on capital outlays remains likely with indications of calibrated reallocations towards strategic sectors such as defense. Additional funding support for urban redevelopment and infrastructure modernization is anticipated, reflecting the government's broader focus on strengthening urban capacity and service delivery. Private CapEx in India through 2025 remains supported by residential and commercial real estate activity, increasing investments into digital infrastructure, data centers and the power sector that including renewables as well. Semiconductors are emerging as a new age CapEx theme, supported by policy initiatives and announced project pipelines. Within manufacturing, CapEx continues in sectors such as cement, broadly reflecting domestic demand and capacity requirements. CapEx in iron and steel and other base metals continues to be influenced by capacity expansion and modernization plans and a supportive medium-term demand outlook. The global economy is entering calendar 2026 with growth expected to remain modest at roughly the 3% range. The United States is anticipated to continue outperforming other major advanced economies, supported by relatively accommodative financial conditions, though some moderation in momentum is likely as fiscal support gradually tapers off. The growth in the Euro Area and Japan is expected to remain measured. Turning on to the GCC region. The growth is expected to remain relative buoyant in 2026 with real GDP expansion projected in the 4% to 4.5% range. In Saudi Arabia and the UAE, capital deployment remains oriented towards priority transformation agendas, including large-scale investments in digital and AI-enabling infrastructures such as data centers and cloud capacity alongside ongoing urban development and infrastructure initiatives. The region is also seeing sustained investment momentum in gas and renewable energy projects, reflecting long-term energy diversification goals. Having covered the macro landscape, let me now share a few important highlights for the quarter with respect to L&T. Number one, L&T Realty. The parent Larsen & Toubro has initiated a transfer of its Realty business undertaking to L&T Realty Properties Limited, a wholly owned subsidiary through a slump-sale under a Scheme of Arrangement subject to regulatory approvals. This marks the start of a phased consolidation of all real estate assets into a unified platform, positioning L&T Realty for greater scale, agility and financial strength to capitalize on India's real estate growth. Point number two, the Precision Engineering & Systems business of the company entered a strategic partnership with General Atomics Aeronautical Systems to manufacture Medium Altitude Long Endurance, Remotely Piloted Aircraft Systems, RPAS in India. Under this partnership, L&T will participate in the upcoming 87 MALE RPAS program of the Ministry of Defense, where L&T will be the prime bidder and General Atomics, the technology partner. Point number three, the Heavy Engineering business of the company has signed a memorandum of understanding with the U.S.-based nuclear energy solutions provider, Holtec International Asia to offer design and build solutions for heat transfer equipment. This collaboration is intended to provide advanced solutions for nuclear and thermal power plants worldwide, with a particular emphasis on heat transfer technologies for conventional power plant islands and balance of plant systems. Number four, data center business. The data center business has announced the rebranding of its business as Larsen & Toubro-Vyoma. The brand will spearhead L&T's expansion into hyperscale data centers across key Indian metros, including Mumbai, Chennai and Bangalore with facilities designed to support high-performance computing and advanced data storage requirements. Point number five, the company has earned the coveted honor of being the only Indian corporate featured among the top 200 environmental firms globally in the latest list of Top Environmental Firms published by the New York-based Engineering News-Record. Lastly, the company's MSCI ESG ratings was upgraded from BBB to A in November 2025. I will now cover the various financial performance parameters for Q3 FY '26. We witnessed our highest ever quarterly order inflows in Q3 FY '26 of INR 1,356 billion, recording a 17% growth year-on-year, led by a strong ordering momentum witnessed across both India and overseas markets. Out of the total order inflows in Q3 that I just now stated of INR 1,356 billion, the Projects & Manufacturing order inflow constituted INR 1,164 billion, up by 18% on a Y-on-Y basis. Of this INR 1,164 billion of order inflows of the Projects & Manufacturing segment, the domestic orders were at INR 620 billion, up 30% and international orders constituted balance INR 544 billion, up 7%. The group revenues grew 10% Y-on-Y, led by steady progress across most of the businesses. The project execution levels remain broadly in line with expectations, barring a few sector-specific challenges. The Projects & Manufacturing portfolio margin improved by 50 basis points Y-on-Y to 8.1%. As of December 2025, the net working capital to revenue ratio improved to 8.2%, reflecting an improvement of 450 basis points on a Y-on-Y basis. Our recurring PAT at INR 44 billion reported a strong growth of 31% Y-on-Y. The reported PAT for Q3 FY '26 was at INR 32 billion, down by 4% Y-o-Y, owing to a onetime impact of INR 11.9 billion arising from the new Labour Codes legislation. Our return on equity as on 31st December 2025 is at 16.5% and is up 40 basis points Y-o-Y. The return on equity includes an impact of almost 110 basis points arising from this onetime provision on account of Labour Codes. Now I move on to the individual performance parameters. During the quarter, our group order inflows stood at INR 1.36 trillion, registering a Y-on-Y growth of 17%, driven by the sustained traction across our key businesses. Within this, the Projects & Manufacturing portfolio crossed the INR 1 trillion order inflow marked for the first time, with order inflows of INR 1.16 trillion, up 18% Y-o-Y, underscoring a broad-based demand environment across both domestic and international markets. The growth in the P&M portfolio was driven primarily by strong domestic inflows, which grew 30%, as I said earlier, and international inflows up 7% Y-o-Y. The increase in domestic order inflows was led by Hydrocarbon, CarbonLite Solutions and the Buildings & Factories businesses. The growth in international orders was supported by the Renewables and Power Transmission & Distribution subsegment. During the current quarter, international orders accounted for 47% of the Projects & Manufacturing portfolio compared to 52% in the corresponding quarter of the previous year. Now moving on to the prospects pipeline. Our prospects pipeline is at INR 5.92 trillion for the near term vis-a-vis INR 5.51 trillion at the same time last year, representing an increase of 7% on a Y-on-Y basis. The increase in the prospects pipeline is mainly led by CarbonLite Solutions and the Precision Engineering & Systems businesses. The broad breakup of the overall prospects pipeline for the near term is as follows: Infrastructure, INR 4.02 trillion, which is almost in line with the previous year number of INR 4 trillion. Hydrocarbon segment, INR 1.26 trillion vis-a-vis INR 1.44 trillion last year. CarbonLite Solutions, INR 0.40 trillion vis-a-vis less than INR 0.01 trillion last year. The Hi-Tech Manufacturing segment is at INR 0.42 trillion as compared to INR 0.07 trillion last year. Moving on to the order book. The order book is at INR 7.33 trillion as on December '25 and up 30% as compared to December '24. In terms of composition, approximately 92% of the total order book is from the Infrastructure and the Energy segments. While in terms of geographic mix, 51% of the order book is from domestic market and 49% relates to international jobs. The breakdown of the domestic order book of INR 3.76 trillion as of December ' 25 comprises central government jobs share being 12%, state government and local authority share at 22%, PSU or state-owned corporations at 30% and private sector at 36%. It is worth mentioning here that the private sector share has risen meaningfully from 21% in March 2025 to 36% in December 2025, supported by strong traction in the thermal power sector, storage systems, residential and commercial real estate and emerging opportunities for building capacities in ferrous and nonferrous space. Out of the international order book of INR 3.57 trillion, around 75% is from the Middle East. With respect to additional details on our order book, around 10% of the total order book is funded by bilateral and multilateral agencies. In addition, as of December 2025, slow-moving orders constitute roughly 3% of the overall order book, while INR 10 billion worth of orders were deleted during the quarter. Further details are available in the accompanying presentation slides. Coming to revenues. Our group revenues for Q3 FY '26 stood at INR 714 billion, registering a Y-on-Y growth of 10% with international revenues constituting 54% of the total group revenues during the quarter. The growth in the Hi-Tech Manufacturing, Energy projects and the IT&TS businesses drove the overall revenue growth. The revenues from the Projects & Manufacturing business for Q3 FY '26 is INR 523 billion, up 11% over the corresponding quarter of the previous year. Moving on to EBITDA margin. Our group level EBITDA margin, excluding other income for Q3 FY '26 is 10.4% as compared to 9.7% in Q3 of the previous year. The improvement in EBITDA margin is primarily driven by operational efficiencies across businesses. The EBITDA margin in the Projects & Manufacturing business portfolio for Q3 FY '26 is at 8.1% and shown an improvement almost by 50 basis points from 7.6% in Q3 of the previous year. This progress is in line with our assessment at the start of the financial year. The details will be covered when I elaborate on the performance of each of the segments. Our recurring PAT for Q3 FY '26 at INR 44 billion was up by 31% on a Y-on-Y basis. The increase in recurring PAT is reflective of improved activity levels, operational efficiencies and efficient treasury management. Reported PAT for Q3 FY '26 is at INR 32 billion, down by 4% over Q3 of last year due to this onetime material increase in provision for employee benefits on account of the new Labour Codes legislation. The group performance P&L construct, along with the reasons for major variances under the respective function debt is provided in the presentation. Coming on to working capital. Our NWC to sales ratio has improved from 12.7% in December '24 to 8.2% in December '25, mainly due to an improvement in the gross working capital to sales backed by strong customer collections during the last 12 months. Our group level collections, excluding the Financial Services segment for Q3 FY '26 is INR 642 billion vis-a-vis INR 591 billion in Q3 of the previous year. With continued focus on customer collections, our cash flow from operations, excluding Financial Services in Q3 FY '26 was at INR 79 billion as compared to INR 21 billion in Q3 of the previous year. Our group cash flows, excluding Financial Services, has been given in the annexures alongside the reported cash flows for the entire group to enhance the clarity on the cash flow movements. Finally, trailing 12-month return on equity for Q3 FY '26 is 16.5% as compared to 16.1% in Q3 of the previous year, an improvement of 40 basis points. The trailing 12-month ROE, excluding the impact of this onetime Labour Codes provision stood at 17.6%, broadly in line with the target of 18% that we have set ourselves to during this last year, that is FY '26 for the Lakshya plan. Very briefly, I will now comment on the performance of each business segment before we give our final comments on our outlook for FY '26. We start with the Infrastructure segment. The infrastructure order inflow grew 26% in Q3 FY '26 on a Y-on-Y basis, driven by strong domestic private sector demand, spanning residential and commercial buildings, semiconductor fab plants, data centers, minerals and metals, solar PV plants and transmission lines. These together account for nearly 55% of the domestic orders for the quarter. The order book of this segment is at INR 4.24 trillion as of December '25. The book bill for Infra is around 26 months. Like I mentioned earlier, our order prospects pipeline for Infra for the near term is INR 4.02 trillion, similar levels as compared -- similar levels as the same of December '24. This Infra prospects pipeline of INR 4.02 trillion comprises of domestic prospects of INR 2.61 trillion and international prospects of INR 1.41 trillion. The subsegment breakup of the total order prospects in Infra is -- comprises of Transportation Infra share at 19%, Heavy Civil Infrastructure share of 19%, Water & Effluent Treatment share of 18%, Buildings & Factories at 15%; Power Transmission & Distribution, 11%; Renewables, 9%; and Minerals & Metals, 9%. The revenue for the quarter for the Infrastructure segment registered a modest growth of 5% on a Y-o-Y basis. The domestic market saw subdued progress due to slowdown mainly in the Water & Effluent Treatment projects business. However, the execution momentum remains strong in the international portfolio. Our EBITDA margin in this segment was at 6.1% in Q3 FY '26 as compared to 5.5% in Q3 FY '25, with the uptick largely driven by stages of completion across projects. Moving on to the next segment that is Energy Projects, which primarily comprises of Hydrocarbon and the CarbonLite Solutions business. The order inflows in this segment were robust at INR 460 billion in Q3 FY '26 compared to INR 388 billion in Q3 of the previous year, supported by ultra-mega orders across both Hydrocarbon and CarbonLite Solutions. During the quarter, the Hydrocarbons Offshore wind business secured an ultra-mega order to supply offshore HVDC converter stations to a leading European renewable energy operator. In the CarbonLite Solutions business, we have received letter of award intent for an ultra-mega order from a major Indian private sector utility operator. The order book of this Energy segment is at INR 2.48 trillion as of December '25, with the Hydrocarbon order book at INR 1.83 trillion and the CarbonLite Solutions order book at INR 0.65 trillion. We have an order prospects pipeline of INR 1.66 trillion for this Energy segment for the near term, comprising of Hydrocarbon prospects of INR 1.26 trillion and CarbonLite Solutions prospects of INR 0.40 trillion. The CarbonLite Solutions order prospects are largely domestic, whereas the Hydrocarbon prospects are largely from outside of India. The Q3 FY '26 for the Energy segment stood at INR 127 billion, reflecting a steady 15% growth and underscoring execution progress on a larger order book. The Energy segment margin in Q3 FY '26 is at 5.9% as compared to 8.3% in Q3 of last year. The margin decline in the Hydrocarbons business is primarily due to cost overruns in a few competitively priced domestic and international projects. As highlighted in previous earnings calls, these projects are in their terminate execution phase and are expected to conclude over the next few quarters, during which margins will remain soft. This is already factored into our PM margin guidance for FY '26. The CarbonLite Solutions margin is reflective of a significant share of revenues from jobs, which are yet to cross the margin recognition threshold. Moving on to the Hi-Tech Manufacturing segment, comprising of the Precision Engineering & Systems and Heavy Engineering businesses. The order inflows in Heavy Engineering moderated due to project deferrals. In the PES business, the decline in order inflows was primarily on account of a high base in the previous year. The order book of this segment is INR 379 billion as of December '25, with the PES order book at INR 315 billion and Heavy Engineering order book at INR 63 billion. Our order prospects pipeline for the near term in this segment is INR 237 billion, comprising of INR 190 billion of Precision Engineering prospects and the remaining INR 46 billion from Heavy Engineering business. The segment revenue at approx INR 33 billion registered a strong growth of 34% Y-on-Y, driven by execution ramp-up in the PE Systems business. During the quarter, favorable job mix and operational efficiencies in the Heavy Engineering aided segment margin improvement. Moving on to the next segment, which is the IT and the Technology Services segment, which this comprises largely of the two listed entities LTIMindtree and LTTS and as well as our newly incubated businesses of digital platforms, data centers and semiconductor design. The revenues for this segment is INR 135 billion in Q3 FY '26, registering a growth of 12% on a Y-on-Y basis. Operational efficiencies and the ForEx tailwinds drives the segment margin improvement. I will not dwell too much on this segment as both the companies in the segment are listed subsidiaries and the detailed fact sheets are already available in the public domain. We move on to L&T Finance Limited, which is forming part of the Financial Services segment. Here again, the detailed results are already available in the public domain, but very briefly, the Q3 witnessed the highest ever quarterly retail disbursement and improved collection efficiency and as well as asset quality. The Financial Services business has achieved 98% retailization of its loan book in December 2025. The return on assets remained healthy at 2.31% for Q3 FY '26 and adequate capital is available in the balance sheet to pursue growth in the medium term. Moving on to the Development Projects segment. This segment includes the L&T Hyderabad Metro and the Power Development business comprising of the 1,400-megawatt coal-based power plant at Nabha in Punjab. Within L&T Hyderabad Metro, the higher average fares following the May '25 fare hike contributed to the revenue growth and margin improvement with the average fare per passenger rising from INR 38 in Q3 FY '25 to INR 47 in Q3 FY '26. The average daily ridership during the quarter stood at 4.14 lakh passengers as compared to 4.45 lakh passengers in the same period of last year. As a result of this, L&T Hyderabad Metro reported a net loss of INR 1.85 billion in Q3 FY '26 as compared to a net loss of INR 2.03 billion in Q3 of the previous year. As mentioned in the previous earnings call, L&T has reached an in-principle understanding with the government of Telangana for the acquisition of its entire stake in L&T Hyderabad Metro. Under the proposed terms, the government of Telangana will pay INR 2,000 crores towards L&T's equity investment and assume the Metro's entire debt of around INR 13,000 crores. The decline in revenues of Nabha Power was mainly on account of lower power demand, while the margin improved due to cost efficiencies. I move on to the last segment, which is Others. This segment largely comprises Realty, Industrial Walls, Construction Equipment and Mining Machinery and Rubber Processing Machinery. The segment witnessed robust order inflows during the quarter with L&T Realty recording its highest ever presales in a quarter of approx INR 50 billion. During this quarter, L&T Realty had a successful launch of its L&T Green Reserve Noida project, which recorded a presales of more than INR 40 billion in its first week of launch. The segment revenue at INR 25.9 billion recorded a 55% Y-on-Y growth, primarily driven by higher handover of residential units in the Realty business, which also led to segment margin improvement. Before we conclude, let me cover the guidance on the various parameters for FY '26. On order inflows, our 9 months order inflow has seen a strong growth, 30% Y-on-Y based on a strong CapEx momentum. Basis the 9-month performance and the healthy prospects pipeline for the near term, we will be exceeding the 10% order inflow guidance for FY '26. On revenue, the group revenue grew by 12% in 9-month FY '26 and is broadly in line with our estimates. We expect the customary ramp-up in project execution during Q4 and are reasonably confident of achieving our full year revenue growth guidance of 15%. On margins, our Projects & Manufacturing EBITDA at 7.9% for 9 months of the current year is in line with the target that we have set ourselves at 8.5% for the full year FY '26. Lastly, on working capital, we had earlier guided the net working capital revenue of 12% by March '26. However, with stronger collection intensity and improved contractual terms, our net working capital revenue has improved sharply to 8.2% as of December '25, and we expect to close the year with a revised target of around 10%. With this, I complete. Now we can take Q&A. I also -- as I indicated to you earlier, our Deputy Managing Director and President, Mr. Subramanian Sarma, will be also there in the call. It would be good that if you can put all the strategic questions before this call and take advantage of his presence. Any bookkeeping questions, you can maybe take it towards the later part or you can connect independently with me or the IR team. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Mohit Kumar from ICICI Securities. Mohit Kumar: Congratulations on another stellar quarter. My first question is on the Kuwait. At the beginning of the fiscal, we are very, very positive on the Kuwait prospect side. We understand that the few orders have got canceled. The question is, are you still positive for the next fiscal for Kuwait or coming quarters? Do you think -- the second related question is that even if this project comes back, do you think this will come at a much lower scope and size? Subramanian Sarma: Okay. This is Sarma here. First of all, I think as we clarified in our earlier communication, the Kuwait orders were not part of our order book. So I think let me clarify that. So nothing changes in terms of what is there for our quarter 4 order inflow prospects, pipeline, et cetera, et cetera. Having said that, yes, it is a bit of a disappointment that some of those projects where we had participated in the competitive bidding and where L1 have been sort of canceled for a simple reason that the budget they had for each of these projects, we always knew that when we are bidding that we are far above the budget. Something has gone wrong in their system, and they were trying to get the additional funds, but I think that was becoming difficult for them. So they have canceled it. But these projects cannot be canceled because these are strategically important projects. These are very important for maintaining their production as well as for meeting their targets. So they will come back. They have already started working on it. There will be some minor tweaks, but this will come back. And I think we are very positive that -- all of these tenders will be out this year -- this calendar year, and they'll get awarded this year. And since we have demonstrated our competitiveness in the previous bidding, I am positive that we will maintain our competitiveness in the forthcoming bid also. So nothing really lost, except that we have lost some time. Mohit Kumar: Understood. My second question is on the revenue growth guidance. I think at the beginning of the year, we had given 15% revenue growth guidance. And given that the 9-month our revenue growth is slightly around 10%, 12%. Do you think we still -- are you still holding on the 50% revenue growth guidance? Parameswaran Ramakrishnan: So Mohit, I think -- while I was concluding my presentation, I gave an update on the revenue guidance itself. Q4 has always been the most busiest quarter for the Projects & Manufacturing business portfolio. So we continue to retain our guidance of 15% for the full year, and we are reasonably confident that Q4, the way we have planned, the execution momentum will be at a fast forward space, both for the Infrastructure -- for all the segments in the Projects & Manufacturing space. That is baked in. Operator: Our next question comes from the line of Sumit Kishore from Axis Capital. Sumit Kishore: Exceptionally strong performance on order inflows and the working capital improvement is also quite remarkable. My first question is with oil hovering around $60, $65, what is your outlook on Middle East, if oil prices remain at these levels? If it persists at this level, do you foresee any prospects getting pushed out? And also the second part of the question is, if you can comment on the execution that we have seen in the quarter, specifically in Hydrocarbons with such a large order backlog, maybe 11% for the quarter appeared a bit low. I know you shouldn't look at quarterly numbers, but still it appeared a bit low. And how long can the margin pressure in Hydrocarbons, specifically persist? While you have called out that it will be weak in second half of the fiscal, but how long can this persist based on your evaluation of the Hydrocarbon order backlog? Hello? Hello, am I audible? Subramanian Sarma: Yes, yes, yes. You are audible, sorry. Sarma here again. I think -- yes, I was talking about oil prices globally, whatever is happening, I think it's good that oil prices have held their price range around $60, $65, which is a positive development in my view. And from every conversation I'm having with the senior executives of all these national oil companies. I think everyone believes that the oil will be priced range bound in that $60 to $65. And as such, the capital allocation for the projects, which are of interest to us will remain unaffected. Because if at all there is a drop in oil prices, it will have an impact on some non-essential projects. But our projects which are important for maintaining production and enhancing the production, they are pretty much well on track. So I don't see any impact of the oil prices. I mean, as such, it is stable. And even if there is a slight drop, I don't expect any significant impact on the pipeline of opportunities. That is one part. Second thing is that margins, yes, I think there is some -- like we have said, it's a portfolio of projects. Sometimes some projects is facing issue as well as some projects sometimes have some challenges. I expect Hydrocarbon business to come back on full strength maybe 2 or 3 quarters from now. Parameswaran Ramakrishnan: So Sumit, just to add, I did emphasize that the margin guidance of 8.5% remains the effort for taking into account that we have had a good 9 months despite the fact of Hydrocarbon margins having moved southward this year. As I stated earlier, as Mr. Sarma also reiterated that we expect some of these, I would say, stressed projects to get closed in the near term and margin should move northward hopefully next time after some quarters. Sumit Kishore: Yes, that was very clear. My second question is in relation to the subdued performance in the domestic Infra segment in terms of growth, mainly dragged down by water, as you have pointed out. So is there any clarity on what is happening in water? How long can this drag sort of continue for the domestic Infra business on growth? The next DFC is not going to get awarded anytime soon. The next high-speed rail is not going to come anytime soon. So what is the outlook for the domestic Infra business? Parameswaran Ramakrishnan: So I did mention, Sumit, that the order prospects pipeline as we typically talk about is only for the balance period of the year. So as it stands now, the prospects pipeline for Infra, which is for another 3 or 4 months, still is at the same level. And the more important thing, it comprises of domestic prospects of INR 2.61 trillion. And I reiterate the important thing in the prospects pipeline, especially for domestic is concerned, is that we are now slowly looking at a higher share of private sector prospects. Of course, there are certain large projects of the government, which possibly should get announced maybe after the budget session is all done. But we are fairly certain that this year has been a good mix of both public and private order inflow in the domestic side that has helped us, and that is something we believe will should continue into the near term. Coming to the first part of your question as far as water is concerned, yes, certain projects which have been under the central plan funded, some of these projects have faced headwinds in terms of fund allocation. And to that extent, I would say we have also calibrated our execution momentum in this segment to the extent of funds that we receive. Had this fund allocation been normalized, had we witnessed the growth of revenue in the Infra segment would have been more. Operator: Our next question comes from the line of Amit Anwani from PL Capital. Amit Anwani: Again, hopping on the water business. So what was the kind of growth in Infra as we can understand it was 5% for Q3 also because of the impact of water. If we adjust that, what kind of growth was there in the ex of water business in Infra for 9M to 9M. And I can see there is still water opportunity you have highlighted in the prospects for Infra, roughly about 18%, which is 65,000 to 70,000 more. So are we looking for more conversion and all these orders, which we are including in the prospects, how the terms are different than what currently we are executing and calibrating. Parameswaran Ramakrishnan: So I think you had two questions, Amit. So let me put it from a statistics perspective that suppose if the water segment was not there as part of the Infrastructure portfolio, then the revenue growth that we have demonstrated at 5% on a growth would have been actually a little more higher to almost 8% to 9% growth, because we have consciously because of the projects not getting funded, so the execution momentum has come down. And because of that, the growth in revenue has been modest at the overall segment level. As far as the order prospects is concerned, I did talk about INR 720 billion of order prospects, which is there for the near term. Depending on the type of projects and the underlying funding, we will be bidding according to what we feel should be the right way. But due care is being taken to ensure that we don't get into blocked into working capital because of absence of funding. And also one more point I wish to add. And in fact, internally also, we have split the water business into domestic and international. And we are now putting a lot more focus on the desal plants and water transmission projects that are coming up, opportunities that are coming up in the Middle East largely. And we do believe that in the near term, some amount of international water projects also would come up as an ordering opportunity for us. Amit Anwani: Sir, on P&M margin, which you guided for 8.5% and you did highlight it that we have already factored in the cost pressure for a few legacy orders. So is it the correct understanding that we can be eyeing for -- once these orders complete, as you said, 3, 4 quarters, we'll be eyeing for a meaningful margin improvement since these orders would be out and new orders getting executed. So some color on medium-term margin since we saw some improvement this quarter. But since legacy orders will be out, what is the things lying ahead in terms of margin? Parameswaran Ramakrishnan: So Amit, I think it has been always our practice that we give guidance for all the major parameters for the year, okay? And Mr. Sarma alluded to the fact that the Hydrocarbon margins being subdued in the current year is because of two, three projects, both domestic and international. I also wish to assure you that these projects are at the final stages of completion. And hopefully, the margin uptick would be seen sometime maybe after 2 or 3 quarters into the next year. But how much of that will add up to the margin segment, kindly wait until we close FY '26 and taking the assessment because the budgeting for all the company will start in the next month or so, we should be in a better position to give you a guidance for FY '27 and beyond sometime in May. Amit Anwani: Right, sir. And lastly, sir, on the media article of Chinese player probably getting allowed for the BTG orders. Any assessment you guys have done in terms of impact it could have if this is really happening? Subramanian Sarma: No, I think it is a little bit misplaced that concern because as we understand from the policymakers, the allowance of -- or allowing Chinese players is not for the full equipment. It is only for certain components. In fact, we had done that advocacy also to allow us to import some of the special alloys which are required for the thermal power plant, which was not earlier allowed. So that I think is permitted. So in reality, I think it does not affect. In fact, it still protects us, and we see a good positive opportunity unfolding in the next subsequent quarters with the thermal power plant, with BTG being manufactured in India. Operator: [Operator Instructions] Our next question comes from the line of Aditya Bhartia from Investec. Aditya Bhartia: Sir, just wanted to understand about the TenneT order. How many packages have you already recorded until now? And how should we think about the opportunity going forward? Parameswaran Ramakrishnan: Can you repeat that question, Aditya, please? Aditya Bhartia: Sir, about the TenneT order, I think there are 6 packages of that. Just wanted to understand how many packages would we have recorded until now? And is it fair to assume that all 6 packages would be coming to us as a replacement contractor? Or could others be also involved in this? Subramanian Sarma: See, we have -- Sarma here again, we have a framework agreement. And like you said correctly, we have 12 gigawatts, that means 6 packages of 2 gigawatt each. Currently, what we have included in our order inflow and which will then generate revenue is two of those. And then we are in discussion with the third and fourth with the customers, and we'll have to see when it happens, when they call up, then we will advise you, and we will include that in the order flow. So as and when they get called out, we will include that in our order inflow, but we have a potential for all 6, yes. Aditya Bhartia: Understood, sir. So does that mean that it is almost kind of confirmed that we'll be getting third or fourth packages? Or is there some negotiation that is how does it work? Subramanian Sarma: No, it means that we have been selected for the whole program, right? So -- but then there are certain -- timing-wise, the customer has to decide when he wants to call up which project. So we'll have to wait. So -- but I think when they call up, then we'll have a secured position. But until he calls off, we are -- as a prudent policy, we are not counting it. Aditya Bhartia: Understood, sir. Understood. And my second question is on the margin erosion that we have seen on the Hydrocarbon side. You mentioned that there are certain orders wherein we are seeing cost overruns. Just want to understand roughly which -- when would we have won these orders? Is it that competitive intensity was very different at that time and it has subsequently improved? So how are you seeing the whole scenario out there? Subramanian Sarma: Yes, yes. I mean, see, most of the projects which are part of the legacy projects in the portfolio have been secured during the COVID time or post-COVID time. And then we had a huge Ukraine war issue and then we had a bunching effect. And I think -- unfortunately, I think many things kind of coincided. And we are getting through those. I mean, I think one by one, we are handing over. Like I said before, I mean, 2, 3 quarters, we should be out of it. Aditya Bhartia: Understood, sir. And just one last question. We are now getting some orders like metro contract that we announced today. Some of the other orders are also of really large size. So is it fair to assume that execution time lines going forward would be longer than what we have seen historically? Subramanian Sarma: Generally, this -- I mean, we cannot generalize this because every project will have its own time line. And I mean, they are in the range. So I think it depends upon the complexity of the project. Some of them have too much of tunneling and boring. So then it will be longer and depends on how much the land has been already acquired. So there are various parameters to look at. I don't think it will be appropriate to generalize, but they are all in the typical range. Parameswaran Ramakrishnan: Just to add to what Sarmaji just now spoke, I did comment that the book-bill infra order book is 26 months. That includes today's press release of an order that was secured in the previous quarters, okay? The average order book execution period for Hydrocarbons is around 29 months. For the CarbonLite Solutions, it is around 48 months. Operator: Our next question comes from the line of Mohit Pandey from Citi. Mohit Pandey: My question is on margins for the international portion of E&C in light of the commodity price movement. I understand steel is the most important commodity for us, which has not seen as much price movement. But for the other commodities, how should one think on the impact on the fixed price international orders that we have on the backlog? Subramanian Sarma: Generally speaking, like you rightly said, I think our biggest exposure is on steel in terms of commodity, mostly on the international project. And steel, fortunately, has been pretty stable. There has not been much volatility at all -- if at all, there has been a little bit of a downward pressure, not upward pressure. And our risk is generally between the time we submit the bid till award. I mean that is the place -- that is the time period where we are a little bit exposed. Otherwise, after we secure the job, we try to one way or the other hedge either by placing the order quickly or doing some pre-engineering and placing the orders or having some prebid agreements. So I'm not expecting major exposure to the commodities, except copper and nickel has been a little bit volatile. But then again, we'll have a policy of hedging as quickly as possible. And we also allow some contingency in our estimates, we know how the fluctuation is. Unless like Ukraine kind of thing, Ukraine, Russia war kind of situation happens, I think rest of the volatility, we are able to manage. Mohit Pandey: Understood, sir. And specifically on the renewables in the Middle East, given silver tends to be an important part there, how to think about that... Subramanian Sarma: No, renewable contracts, I think most of the price risk we have already naturally hedged, we have passed it on to the customer. We had one issue a couple of years back. After that, we have taken a very, to say, practical approach or a prudent approach. We have passed on that risk to the customer. So all our renewable projects, we are subjected to very limited risk in terms of commodity... Parameswaran Ramakrishnan: On the execution -- no material price. Subramanian Sarma: Yes, yes. Mohit Pandey: Understood, sir, sir. And secondly, just a clarification. So the 3% slow-moving parts... Subramanian Sarma: And also I think some of the large contracts we secured from Qatar and all, has also got designated items, which means that some of the price risk is with the customer. Even in international contracts, we are seeing a trend where the customer is willing to accept some amount of price risk, for not all items, but for certain items, which are more like what I would say, volatile. Mohit Pandey: Understood, sir. Sir, secondly, a clarification on the slow-moving parts of the backlog, the 3% that was mentioned, that would be primarily water projects. Is that understanding right? Parameswaran Ramakrishnan: Yes, it's a combination of largely water projects. Of course, there are certain projects that we secured last year, but the right-of-way, clearances has not been provided. Consequently, they have been classified as slow moving. But I wish to tell you it is not a source of worry at this juncture. Operator: [Operator Instructions] Our next question comes from the line of Puneet Gulati from HSBC. Puneet Gulati: Congrats on great numbers. My first question is on the Middle East order book. Assuming oil prices remain where they are, do you foresee a potential for higher project offering into this year, calendar '26 and this fiscal '27? And also, how do you think about your market share in Middle East? Do you see more room for it to grow from where you've already reached? Subramanian Sarma: Generally speaking, I think the overall atmosphere is quite positive. There is a strong pipeline of opportunities in various countries within the Middle East, like with this be it Saudi, Qatar, UAE and also in Kuwait will come back again, as I spoke earlier. So we are -- yes, we are seeing like there's a good momentum there, and we have a good presence. And I think in terms of market share, we are ourselves a bit selective depending upon the type of projects and our competitiveness, and also the terms of the contract. Overall, we are maintaining a decent share. Puneet Gulati: Okay. And on the private sector orders, which have increased, do you foresee higher margins and better working capital control there? Subramanian Sarma: Generally, I think, yes, private sector by -- if you in comparison to public sector are more favorable to working capital. Payment terms are always a little bit more favorable. There's more flexibility when we are negotiating. Parameswaran Ramakrishnan: Short-term milestone event. Operator: The next question is from the line of Bharani V. from Avendus Spark. Bharanidhar Vijayakumar: Am I audible? Operator: You are audible, sir. Bharanidhar Vijayakumar: Yes, Yes. So on this domestic prospect of INR 2.61 trillion, how much would private be part of it? Parameswaran Ramakrishnan: Sorry, can you repeat that question? Bharanidhar Vijayakumar: Of the domestic prospects we mentioned now of INR 2.61 trillion, how much will be private? Parameswaran Ramakrishnan: Roughly around 35%. Bharanidhar Vijayakumar: Okay. Related to domestic prospects and overall Infrastructure prospects, which has been flat, we have been strong in the past in segments like Heavy Civil, of course, Water and even Transportation Infra. But right now, of course, water is slowing down, and we are not very confident on the domestic prospects on Transportation Infra, Heavy Civil, et cetera. So what is our likely outlook for these segments for FY '27? Of course, we will continue to do well on private and on Middle East, but just your thoughts on FY '27 outlook and order inflow from our traditional stronghold areas, especially in India? Parameswaran Ramakrishnan: So Bharani, if you track the domestic order inflows in last year also, actually, we had a drop, okay? But I think that's the credit of our business model that if certain segments for whatever reason, there is a pause, okay? There are other segments which we cater to is showing a revival. Insofar as Infrastructure segment is concerned, domestic, we have seen sustained traction coming back in B&F and Minerals & Metals. So if there has been, of course, water projects, prospects are there, but given the payment terms and the conditions and all, we have been a little more careful in pursuing those opportunities. But the fact is that there are two other segments, which are seeing a clear case of revival. And we feel that this revival will potentially have a, I would say, will offset some of the muted or subdued opportunities in very large Heavy Civil and Transportation Infra projects. But we do believe that the government in the -- maybe in the 1st February budget announcement will kickstart the growth momentum back into taking large projects, and that will hopefully compensate for the subdued business conditions insofar as CapEx is concerned. But private sector is showing distinct revival in many sectors, which I also highlighted during my earnings presentation. Bharanidhar Vijayakumar: Okay. My second question is on the new ventures like electrolyzers, data centers, batteries and semiconductors. Can you update on what has been the CapEx so far in each of these segments? And what more would happen or in some sense, what is the total CapEx expected and how much we have already done in these subverticals? Parameswaran Ramakrishnan: Okay. So as of now, we have almost 32 megawatts of capacity of data center, out of which 14 megawatts is up and running, another 18 megawatts will get commissioned by the end of this fiscal year. The total CapEx investment in the data center is roughly in the range of INR 1,000-odd crores, okay? And so far as semiconductor is concerned, most of the spend that we are doing is still on what you call the investments into creating design-led semiconductor chips, okay? We are in touch with the multiple sectors in this particular segment, customers. And whatever spend is happening, most of that is actually getting washed through the P&L itself for both semiconductors. And as far as electrolyzer is concerned, we have already actually made a perfect design of more or less 100% indigenous 4-megawatt stack. We are now slowly upgrading it to 8-megawatt, 10-megawatt stack. And we do expect a lot of opportunities to come in the near term. Operator: The next question is from the line of Atul Tiwari from JPMorgan. Atul Tiwari: Congrats on great set of numbers. Sir, just one question on thermal power opportunity. Over the past 1 year, obviously, your orders have also benefited a lot from thermal power project. So as of now, over next 2, 3 years, how many gigawatts of the total market size you see in the pipeline from states and the central and the private entity? Subramanian Sarma: Yes. I mean I think the -- yes, it's a bit of a pleasant surprise for us also that how the market is developing in the thermal power plant. And it's been good news for us, and we booked quite a bit of orders. And going forward, we believe that overall, I think the country will still add about maybe 15 to 20 gigawatts in the next 2 years or so. We still see 4 to 5 gigawatt opportunity for us as a minimum in the coming years. Atul Tiwari: Okay, sir. And sir, what proportion of your total order book today will be at fixed price? And what proportion will have price variation clause of some kind or other? Hello? Operator: Sir, if you are speaking, you are not audible at the moment. Parameswaran Ramakrishnan: Sorry. What I meant is that the fixed price constitution of our order book is in the range of 55% to 45%. 55% is fixed price, 45% is variable. Operator: Our next question is from the line of Priyankar Biswas from JM Financial. Priyankar Biswas: Congratulations to the team. So my first question is, sir, what I understand is that you have previously highlighted there was a significant -- like in the past call as well that there was a significant drag down due to the monsoon, particularly extending even well into the 3Q as well. So had it been, let's say, a relatively normal monsoon and leaving the water part aside, so what could have been -- what is the amount of work that you may have lost in the domestic space, so in terms of execution? Parameswaran Ramakrishnan: So Priyankar, in fact, in the month of October itself, I did mention that October also could see some amount of slippages given the fact that the monsoon in some parts of the country where we are having projects got extended, correct? I think I clearly remember this. But I wish to tell you, Q4, we believe -- I mean, I don't think there are any events that -- climatic events that are disruptive. So consequently, we do see a normative Q4 for almost all the segments, be it domestic or international. Priyankar Biswas: Sir, what I meant is like because of this, let's say, monsoon drag, so let's say, had it not been there in this Q3, what sort of growth maybe we could have achieved? If you can give some color? Parameswaran Ramakrishnan: It's extremely difficult, Priyankar, to talk about 5% growth that we had in Infra segment for Q3, whether how much that would be. I don't think it's not possible to put a number to that. Priyankar Biswas: And sir, if I just squeeze one more in. So like I understand that two packages for offshore HVDC were booked in this particular quarter. So what would be the rough quantum of that? Parameswaran Ramakrishnan: It's ultra mega. So ultra mega for us is more than INR 15,000 crores... Priyankar Biswas: Okay. Okay. So -- and like since you have given the prospects as well for Hydrocarbons, so like for this three and fourth, which you are in discussions, are it there in this year's prospect? Or should we be thinking of it more from a next year prospect? That's my... Parameswaran Ramakrishnan: Next year, next year. Nothing in Q4. It can happen earlier next year. Operator: Our next question is from the line of Amit Mahawar from UBS. Amit Mahawar: Sarma sir, I just have two quick questions. First is on Middle East. Now we basically, by far, have the best competitive position that we had in the last more than 15, 20 years in Middle East. Do you think next 2 years, cyclically, the competition in Korea, in particularly Europe, strokes U.S. can come back? Any color there? And if you can help us understand next 2 years on the P&M and core share of Middle East is going to be more than maybe 50% in the next 2 years? That's first, sir. Subramanian Sarma: Competition, we see, we have been operating in the same environment for the last few years. Chinese are there, Koreans are there, Europeans are there. Sometimes even for smaller contracts, we have the local. So I think the landscape in terms of competitiveness is not changing much. On the contrary, I would say that we have established ourselves quite well. The customers prefer us to win the jobs and sometimes even the competitors are coming and seeking partnership with us. So I don't think nothing has -- much has changed. It will remain pretty much the same. If at all, it will be a little bit positive for us in the next 2 years. What was the second question you said? Amit Mahawar: The share of core top line P&M... Subramanian Sarma: I mean it's very difficult to put a number because it depends on what happens in the Middle East in relation to what happens in the domestic. I mean I think the good news is that I think we are growing well, and we'll continue to grow. I think we are very confident about it. Amit Mahawar: Very fair. And second quick question is, if the current slowdown in some segments in domestic market, particularly water, transportation, sustain for the next 1, 1.5 years, do you see the risk of not exactly like the COVID risk, but the time cost delays, which are difficult to pass on next year. If it improves, I understand, but if it sustains for the next 1 year, we will have to evaluate it sharper, sir? That's it. Subramanian Sarma: We do not think that water thing will last that long. I mean this should get resolved. It is a bit unfortunate that there has been some kind of suspension of the work in those areas because of the payment issues. But we are continuously in dialogue with the government. And maybe within a quarter, that should get unlocked and things should start moving. So I don't think we should draw any different conclusions from that. Operator: Our next question is from the line of Pulkit Patni from Goldman Sachs. Pulkit Patni: So my first question is, I understand the impact of a depreciating rupee on your services business. How should we understand the impact of a depreciating rupee on your core EPC business in light of margins? I mean just some broad guidelines would be helpful. That's question number one. Parameswaran Ramakrishnan: So should I take it now? Or are you going to put another question also? Pulkit Patni: Okay. My second question is, similarly, while we understand that you hedge commodities, et cetera. But even in the commodity market, the movement has been quite drastic in the last couple of months. So are we able to hedge all of that? Or we could expect some bit of negative impact of that in the next, say, couple of quarters or so? Those are the two questions. Parameswaran Ramakrishnan: Okay. So the first part, I will respond. As far as FX risk is concerned, Pulkit, I think you never heard from us, at least I can recall, never ever commented that our margins are up or down because of exchange rate variations, because it is -- because of the very proactive and timely hedge practices that we do to ensure that project risks are covered at least for financial risk part that is on the exchange rate side, okay? So as and when the projects are secured and if the international projects or even domestic projects having a lot of ForEx outflows, we have a mechanism by which we are able to cover the contracts at the rates at which they were estimated by bidding for the project. And that is how it is being done. So we have not -- in fact, even for the ITTS companies, some part of the exchange rate depreciation has flown into their P&L. But also I would like to say they also have a layered hedging process, and that process has been consistently followed to ensure that the margins are not substantially impacted by adverse exchange rate movements. The same applies for the project part of the business as well. Now coming to commodity prices, Mr. Sarma did allude to steel and other places, but I think he will respond. Subramanian Sarma: Yes. I mean I think like I said, see, you have to understand that when we are bidding for these jobs, we do quite a bit of substantial amount of pre-bid engineering work. So we have a reasonable amount assessment of the quantities. So like I said, I think our open exposure is only for the bid submission to bid award date, I mean, if we are successful. And so once we are awarded, then we -- based on the different commodities and their volatility, we go and hedge those commodities based on the estimates we have already done. Now what could be left unhedged portion could be maybe 5%, 10% as part of the engineering development. I mean -- but that is not very significant because that gets covered through contingency. Pulkit Patni: Sure, sir. So these high commodity prices right now is something that you are not that worried about? Subramanian Sarma: No. Operator: Our next question comes from the line of Aditya Mongia from Kotak. Aditya Mongia: I limit it to one question. Mr. Sarma, you talked about certain projects that you win are more strategic in nature. If I were to be kind of thinking through your entire overseas ordering that has happened, let's say, in the last 1 year, how much of those would you classify into areas which are more strategic for your customers? I'm just trying to get a sense of what part is then remaining which is at risk in case, let's say, crude moves further down. So just trying to get a sense of your exposure to strategically important large projects during the last 1 year on the overseas side. Subramanian Sarma: Actually, in fact, if you look at it, what we have won, I mean, most of the international projects are in the oil and gas sector. It is in the renewable sector and some of them are now in the critically important Infrastructure, like data centers and things like that. And I would classify them, all of them are very strategically important. I mean -- and they are not going to be sort of impacted by the oil prices, because oil and gas projects, as I said, will continue regardless of where the oil prices are. And renewable projects is -- and the data center projects are deliberate plan of all these countries to gradually invest to prepare themselves for the energy transition. So I think they are also building up their alternative energy portfolio in a very calibrated way. So all of them are very strategic. We are not in those -- see only those non-strategic projects are some highway projects, some motorway projects, some beautiful building, some aspirational building or some tourists under development. We are not involved in any of those. Operator: That was the last question, ladies and gentlemen. I would now like to hand the conference over to Mr. P. Ramakrishnan for closing comments. Over to you, sir. Parameswaran Ramakrishnan: Thank you, everyone, for attending this call at a late hour. It was a pleasure to interact with all of you. Good luck and wishing you all the very best. Thank you. Subramanian Sarma: Thank you. Operator: Thank you. On behalf of Larsen & Toubro, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.
Operator: Good afternoon, and welcome to the Hargreaves Services plc Interim Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Gordon Banham. Good afternoon to you, sir. Gordon Frank Banham: Yes. Good afternoon. Good afternoon, everyone. Pleased to have such a high attendance. Thank you for taking the time to listen on how the story is developing at Hargreaves. Quite a lot to tell you about today. I think most of you know me after the last 20 years. I think, again, some of you have known Stephen as Group FD. And obviously, we've got Simon, my successor, who has been with us nearly 12 months now, just under. So we'll talk about that in a bit more detail through the presentation. So I'd just like to hand over to Stephen, who will just talk through the financial highlights in the last 6 months. Stephen Craigen: Thanks, Gordon. First slide here really talks through the key highlights of the last 6 months, and it's been a really busy and exciting period of time at Hargreaves. First thing to pick out on here is we sold the first tranche of Renewables back in October. This is something we've trailed for quite a while. We highlighted -- we realized value of these Renewable energy assets, and we've done so. First tranche sold for upfront cash of just under GBP 9 million with a trail of additional payments coming out through September 2029 of up to -- anywhere up to GBP 5 million. This is in line with the valuation we got from Jones Lang LaSalle and that Renewables tranche sale has helped us to end the period with high cash, GBP 37 million in the bank as at the end of November. I would highlight that number is somewhat swelled by some beneficial working capital movements and that is not our normal cash levels. That high level of cash and the Renewable sales led us -- led the Board to make the decision to return up to GBP 15 million back to shareholders by means of a tender offer that will be tendered at between 12% and 15% premium to share price, and we expect to make that transaction in April. So doing what we said we would do, returning capital back to shareholders once we complete these sales of Renewable assets. Elsewhere in the group, the services business has traded exceptionally well, 41% growth in revenue, improvement in PBT. We've seen good growth across our work at HS2 and Sizewell and other major infrastructure projects and tellingly also AMP8 is starting to ramp up, which has seen increased revenues across our water services businesses. That's collectively led us to improve our forecast for FY '26, the current year we're in and next year, which are reflected in broker notes. This improvement in profitability and cash flow has led the Board to increase the dividend over and above what we had out in the market. So 5.5% increase to the dividend, getting it up to 19.5p for the half year, an intention for that to be 39p for the full year. So beating inflation on our progressive dividend. And last but by no means least, we announced the succession of the CEO. So Gordon, who you'll hear from later and have already heard from and many of you know very well, has been with the business over 20 years, led the business, been integral to this story thus far and is stepping away from his role as CEO and stepping off the Board, leaving the business in good health for Simon Hicks to take over. Simon is our current Chief Operating Officer, and he will take over from Gordon on the 1st of August this year. The great part of this news, though, is Gordon is not leaving the business. He remains employed by the group, and it will lead the German joint venture and importantly, the group's new zinc processing plant investment, and Gordon will talk about that in a lot more detail in a future slide. The next slide is just a reminder really of what the group's strategy is. So the group is organized into 3 main pillars: services, Land and our investment in HRMS. So the focus on services is growth, growth into our investment into the infrastructure market more generally, particularly within the U.K., focusing on high-quality contracts that are inflation-resistant with blue-chip clients. That's seen us be successful over the last 5 to 6 years of growth. And in the current year, we've seen revenues growing by over 41%, maintaining margins at 7%. This is really the engine of what we do. This is where everyone is employed, delivering the dividend for shareholders. In terms of the Land pillar, we've got GBP 80 million of cash tied up in Land, all in at historic book costs. And the strategy behind this is to realize particularly the larger schemes and deliver off cash of between GBP 60 million and GBP 80 million, run that business to a smaller, leaner strategic land and specific Land Development Business, delivering between GBP 3 million and GBP 4 million of PBT per annum for that GBP 20 million cash remaining. And then in terms of HRMS, the focus is to repatriate cash up from Germany for that business. In the current year, we've received a GBP 4 million dividend from them thus far. That's a partial payment, and we expect that to be up to GBP 7 million by the year-end. And that business continues to trade reasonably well and Gordon will focus on the exciting opportunity in zinc in a future slide, as I've said before. So if we focus on the specifics of the numbers for the last few years, I think certainly, with the news of Gordon stepping away, it's quite a nice time to reflect on where the business has been and where it's come to because you can often lose sight of that. And whilst that doesn't look forward, it's important to see the trajectory. So all of these graphs are moving in the right direction. We're going upwards. Dividend per share, as I said, has increased by 5.5% in this period. And when I wrote this slide, it was a 6% yield. We've had a good result for the share price thus far. So that will come down somewhat. But nevertheless, an improving and progressive dividend beating inflationary growth. Our return on capital employed is up at 7.5% currently. The services business on its own is higher than that, but the group in general still has high capital in the Land business and HRMS, which suppresses the overall group's return on capital. But nevertheless, over the last 5 years, significant improvement on that front. And then for services revenue and services profitability, we've seen growth year-on-year for the last 5 years, revenue growth of 25% per annum and profit growing at nearly 40% per annum. So not only are we growing our volume, we're also improving our margins within that services business over that time which takes me now to the current year. What have we seen in the first half? Well, we've seen an increase in services revenue from GBP 121 million to GBP 171 million, 41% growth. What's driven that? Several things. First of all, increased presence on major infrastructure projects, but particularly at Sizewell, but not just delivering earthmoving, which we've done on HS2, we're also bringing other skills to that project, particularly aggregate sourcing, low-carbon aggregate sourcing and civil engineering, which is a subcontracted service. Additionally, I mentioned previously the water services business has improved as AMP8 has come on stream. So that's all led to that revenue growth. In terms of the margin for the services business, we were at 7.3%, we're now at 6.8%. So broadly in line. The reason why it's ever slightly down is because the aggregates work and the subcontracted civils has a lower margin, just the risk profile of that operation. So we're still very happy those margins are above or certainly in upper quartile for the sectors in which we operate in. In terms of Hargreaves Land, the revenue has gone from GBP 4 million to GBP 12 million. That's reflective of the first sale we made at Blindwells this financial year. Those of you who were tracking our sale of the Renewable energy assets might wonder why the revenue is not higher. And that's because the sale of the renewable assets was a fixed asset disposal and doesn't affect revenue, but it does affect profit. And if you look further down there, you'll see profit from Hargreaves Land of GBP 4 million compared to a loss of GBP 1.4 million last year. Last year, we didn't have any major sales in the first half. This year, we've had 2 major sales, one at Blindwells, plus the sale of the Renewable energy assets, which yielded a profit of GBP 3 million on its own. Moving down, profit after tax for HRMS, which is our German joint venture, has improved from what was a breakeven position to a nice little GBP 1 million profit in the first half. I'll touch on how that breaks down between the trading side and the DK Recycling side in a moment. Corporate costs are slightly increased, but broadly in line, brings us to a profit before tax of GBP 14 million. After tax, that's a profit for the year of GBP 11 million and an EPS of 33p. The dividend I've already touched on, but one thing I would highlight is the EBITDA has increased by 23%, demonstrating the cash generative nature of this business. Just over the page, quick review of the balance sheet. If I take it from left to right, just to show where the cash is allocated. The services business overall, equity invested there is only GBP 0.5 million. I would stress this is not a normal level. The working capital, as I mentioned earlier, we received a payment just before the half year, which really suppressed that. A more normal level is somewhere between GBP 10 million and GBP 15 million in terms of total capital employed. If you compare that balance sheet, though, to the equivalent balance sheet from the year-end or the prior half year, you'll notice that the fixed assets, this is plant and machinery increased up to GBP 62 million and the leasing debt, finance lease debt has also increased up to GBP 43 million. That investment is what has driven the growth in the revenue and therefore, the growth in the profit within that services business. In terms of Hargreaves Land, the capital employed is GBP 84 million, just under, and it's laid out there as to where that's sitting. The top line relates to our renewables assets and another long-term investment we have up in Scotland. That renewables asset value has come down because of the first sale of the Tranche 1 renewables. Elsewhere in the balance sheet, the other big number is the inventory, which includes GBP 45 million in relation to the Blindwells site. Blindwells site, we sold a plot earlier this year, and we have another plot that we expect to sell in the second half, all built into broker numbers. So the scheme is where we want it to be, and we'll see cash realizations coming from that scheme over the next 3 to 4 years as we run that down to a GBP 15 million to GBP 20 million capital employed business, delivering GBP 3 million to GBP 4 million of PBT from strategic land and specific developments. In terms of HRMS, total capital employed has increased from GBP 68 million to GBP 72 million. That's just a reflection of the profitability that's been made in that business plus a bit of a movement on FX. The reason why it hasn't come down is because the dividend they paid us, they didn't pay until January 2026. So whilst we received the cash, it wasn't in time for the half year. So it's merely a timing thing, and we've got the money in the bank now. On the unallocated column, not really anything to pick up other than to just remind everybody, the group has no bad debt. We have no debentures and that GBP 37 million worth of cash was in the bank at the half year. Moving onwards. Just a quick reminder for those who are fairly new to the story of Hargreaves around some things to look at when considering valuation. So a sum of the parts feels appropriate given the different nature of the 3 strands of the business. Services business on the left there, high contract bank, contract selectivity, good visibility, good pipeline, some sort of multiple is a sensible place to start, and we've listed revenue, EBITDA there as in line with broker forecasts. So take your choice out of those. In terms of Lands, as I said earlier, GBP 80 million in the balance sheet is historic cost. There's no profit built into that number whatsoever. As we realize that value over time, there will no doubt be a profit that comes out of those assets. And then we've also flagged previously the renewables uplift. So the renewable assets of which we've sold, the first tranche has a hidden profit in there of around about GBP 20 million, some of which we've realized already and have yet to return to shareholders, but we will do in April. And then on HRMS joint venture, book value is GBP 70 million. I think historically, we've said just treat that as book value, although Gordon will give you reasons to think why we could get better, the zinc project being one of those reasons. However, in the meantime, we're getting paid a dividend of between GBP 6 million and GBP 7 million per annum, all of which paid from the trading entity, and we've received GBP 4 million thus far this year. If I move on to the cash flow, this is the simplest one that I've ever had to present in terms of the cash flow. We started the year with GBP 23 million in the bank. We had an EBITDA of GBP 18 million, which was on the previous slide, fairly straightforward. Working capital, slight movement inflow of GBP 2.2 million, negligible movement on interest and taxation. And then we've got net CapEx, which is an inflow of GBP 9.3 million, and this is because of the sale of the first tranche of the renewable energy assets which brought in just under GBP 9 million and a few other small modest sales. All CapEx has been funded by leasing debt, which doesn't affect our cash position. The lease payments of GBP 10.4 million neatly match off with the GBP 10.6 million depreciation, which is exactly what you'd expect if we're depreciating in line with the term of the finance lease, which is what we should be doing. So that nets off. And then we've got the dividends paid, which reflects the final dividend from FY '25 of GBP 6.2 million, which brings us to the closing position of GBP 37 million. And then the final slide for me, just we've had this a few years in a row now relating to a bit more detail on HRMS because it's a joint venture, you don't get that visibility necessarily from the statement. So the dark blue line highlights the revenue in the HRMS trading business. Revenues in there are down GBP 20 million. This is predominantly due to volume reductions as Germany continues to be a bit of a difficult trading environment. But despite that, they will be able to obtain positive commodity pricing and in general, has put an extra EUR 1 per tonne on to their margin, which has meant that in the lighter green box, you can see HRMS has maintained its PBT despite the reduced revenue. So margins on that have increased as a percentage. Turning to DK, which is the steel waste recycling facility. Revenue is broadly in line, but what we're seeing is the loss before tax has actually improved by GBP 2 million -- apologies, EUR 2 million. That has improved as a result of an improvement in zinc pricing and also securing good quality and lower prices of input materials such as coke, which we've seen previously. You might ask what is made a loss in the first half. Why is that a positive thing? Well, DK would typically make a loss in the first half of the year due to the seasonality of it. Within the summer months, we have a shutdown where it's nonproductive and therefore, loss-making during that period. It's profitable in the second half of the year. So we expect DK to come back full year to be a small profit for the full year, which would be an improvement on the breakeven position it had last year. And with that, I will hand over to Simon to talk you through services. Simon Hicks: Thank you, Stephen. If we can just flip to the next one for me, Hargreaves Services, a business providing contracted services into infrastructure and industrial assets. What's key, and this is a quick reminder of our operating model that we introduced into the Capital Markets Day back end of last year, November, for me, it's about getting the right people in the right place, doing the right things at the right time. So we've got it under 3 pillars: inspire our people, which means getting more people and investing in our own people and developing that talented pipeline of skilled individuals are going to deliver for our customers. Back end of last year, I think it was in October, we brought Rachel Ovington into the business as our Chief People Officer. She's going to be driving that work stream forward so that we make sure we've got the right folk in the business, and we're investing in our folk. Shaun Hager, who you met at the Capital Markets Day, he's going to be driving the excellence stream that it's getting the right standards, enhancing our reputation, which is already very good in the marketplace, starting to innovate and develop different services and different solutions for our customers. And that positions us right square and center into the market where we'd like to win, which is in connecting people, delivering clean energy for the country and the environment. If we flip over to the next slide. Let's not forget that we're building off a very firm strong base here. We've got a base of 70-plus relationships and contracts that we've built up over the last 15, 20 years, some really long-term relationships with some blue-chip customers. What does that mean? It means we can be selective in how we enter into new contracts. We can make sure that we're not taking unnecessary risks. We can make sure the business and contracts we pick are inflation resistant. They give us limited credit exposures and that top line revenue, which is the driver of the EBITDA is resistant, and that gives us that opportunity to grow. In the first half, we're very pleased to see the margin is holding up 7% in the services business, really strong free cash flows and an excellent return on capital employed. The markets we're focused on connectivity, as I said, connecting people, which is ports, airports, rail, roads and indeed data centers. Across our footprint, we're active in many places in Asia where we're moving into operating on projects potentially in the airport, connecting people there. In the East Coast, we're operating ports and terminals, really good presence there. And in the infrastructure space, HS2 still there. We keep saying another 2 seasons. That keeps moving forward. You'll notice I'm going to come on and talk about a little bit about Lower Thames Crossing and our position there and Heathrow coming towards us and the government's recent announcements for Northern Powerhouse Rail. So connectivity, we still see a build there. In the clean energy space, we're building the temporary construction area supporting Sizewell in that construction with our earthmoving business. We can see SMRs and nuclear fusion coming towards us as we clear the ash fields at West Burton. And we've got a very strong presence supporting the energy from waste operators, not only supporting them in operating their existing assets, but also moving the waste into the plants using our logistics business and our environmental business, which supports in sourcing waste and diverting waste and blending that waste to make sure it's suitable to go into energy waste assets. So Renewables, we'll talk about in the Land business and energy storage, we'll talk about in the Land business and things like carbon capture and the great grid coming to waters. And of course, since we last spoke, the government announced Wylfa and Hartlepool as investments. Environmental space, Lincs and Fens reservoirs, we've already done some trial pits on the Lincs reservoir, and we'll be doing the other one in the spring. AMP8, we're now starting to see that move. It's taken a little bit of time to get that moving for the water companies, but we're starting to see that move, and we're having good conversations over the strategic reservoir for Thames talks about our waste management services, really strong land remediation business up in Scotland, where we're taking biosolids, and Sean talked you through this at the Capital Markets Day, how we're taking waste biosolids up to Scotland to remediate our land bank. And our minerals business has seen some good progress in finding secondary aggregate projects to take into some of these infrastructure projects. What we thought we'd do now is show you how that flows out in terms of time. At the left-hand side, the projects we're active in. We're active in the AMP8 cycle. Our land remediation process is moving forward and will continue for a number of years, and we're actively looking for -- to increase that land bank to extend that project there. As I said, we've started some trial digs for reservoirs, and we've been on the enabling works at Sizewell for some time now. Carbon capture coming towards us, great grid upgrade coming towards us. Lower Thames Crossing, I'll talk about on the next slide. Heathrow and Luton a bit further ahead and HS2, we're on and continue to see those volumes moving forward. And beyond that, of course, Northern Powerhouse Rail. So I think for me, if you look at where we are now, 2025, 2026, move forward to the late 2020s, 2030s, real strong pipeline of opportunities in infrastructure for us to take advantage of. Lower Thames Crossing, the roads north of the Thames in the Southeast of England. We've been working with main client there since 2024 on some of the advisory services. We believe the first works will commence very shortly into quarter 2 2026, and we are in agreed terms. We haven't signed a contract yet, but we're in an agreed position with Balfour Beatty on those enabling works. The future of that project moves forward. We'll see potentially if we're successful in this space, 150 items of our plant deployed and up to 200 personnel from Blackwell, our earthmoving business. So a really exciting project for us to be part of. It suits us in terms of timing, really works well as we come off HS2 and move down to lower terms crossing. So we're really well placed for that and really enthusiastic. And really importantly for us is the credentials on ESG for this project. It's our first scale deployment of battery electric heavy earthmoving equipment, which is driving us in that direction towards carbon-free earthworks. By 2040, and we're sourcing low-carbon primary aggregates to support that project. So really positive direction in ensuring that we're delivering against that pipeline of opportunities. In the next slide, what we've tried to do here was demonstrate to shareholders the strength and depth of our customer base. So if you look at this, we've got really a strong base of customers. Our customer concentration, as you would expect with those scale infrastructure projects is a top 5 of our customers account for 65% of those top line revenues contracted in long-term contracts with high-quality customers. If you move across to the top 20, that covers 80% coverage, and that's delivering around about 70% of our revenues, but a long, strong tail of customers underneath that, delivering that core business. So a good long tail of 30 customers delivering the balance of those revenues, those 30% revenues. Another interesting thing to look at, especially proud of for us is the length of the relationship we have with customers. So if you look at those that we've known for 3 years or more, 2/3 of our business is long-term relationships with customers that we've known for 3 years or more, and they typically award contracts an average duration of 4 years, 3.9 years. So we're seeing strong secured customer base from which we will build. And looking into FY 2026, we've got a 90% order coverage on what we have on our books and into 2027, FY '27, 55% coverage. And really importantly, as we've mentioned before, we've said this a few times, we thought we'd put a number to it, 94% of those contracts provide us with inflation protection. So a really strong base of customers and a good outlook for this business, which is testament to all the hard work that our teams are putting in across the land. So on that, I'll hand back to Gordon. Gordon Frank Banham: Thank you very much, Simon. So as everyone knows, Simon is coming to drive the Services Business I think, to be honest with all of you, as shareholders, I think he'll do a much better job than I do. That's what he's good at. I've transitioned us from coal to this point in time. And therefore, I think it's right that it will take, and it will be really fascinating to see how he develops the business from this platform. But in the meantime, the two other areas of the business I want to focus on are Hargreaves Land and Germany. Both have very clear strategies, very clearly measured deliverables. So remember, the first one is Hargreaves Land. So let's talk about that. So Hargreaves Land effectively has 2 parts -- well, 3 parts actually, if you can Renewables. So there's -- we've been this master developer, tied up a lot of capital. We've done bespoke commercial development. And that's where you can see in the balance sheet that Stephen mentioned earlier, about GBP 80 million of cash tied up. We've said to people though, the plan is to move that to much more your planning promotional work. Now that will have about GBP 20 million of capital employed, making about a 20% return on capital. So we're moving to that. What does that mean? Well, that means that you've got GBP 20 million left in, let's say, 5 years' time. So we're going to throw off GBP 60 million of cash from the land business plus the profits because remember, all that land is just held at cost. So as shareholders, you'll see GBP 60 million of cash is our plan over the next 5 years coming to you plus the profits. And then we'll be to a planning promotion business with about GBP 20 million tied up, delivering about 20% ROCE. Alongside that sits the renewables, and I have a separate slide to talk about that, and I'll pick that up in a second. So this next slide, these key events. So we did sell that first renewables tranche. Important point, we sold it at the value that was in Jones Lang LaSalle, so that should reassure you. We got upfront the nearly GBP 9 million, GBP 5 million deferred out to 2029. So we did what we said we were going to do. We are in negotiations to look at selling the next tranche, and we're hoping to deliver something to shareholders in the current calendar year. Blindwells, this is a big site now, over 450 people living there. It's a place where people want to live. It's just on the outskirts of Edinburgh. And again, as it builds out, you'll get your cash coming back, and that's part of this flow of GBP 60 million. Now this is the project pipeline. And this is really just a KPI for you to understand that, yes, it's easy to see how you're releasing all that cash, but are you getting that pipeline of GBP 20 million tied up that's giving you a return of about 20%. And this shows that, that pipeline has grown by 17%. So hopefully, it reassures you that not only will we harvest all the cash from the business that we promised to do, but then we'll be able to deliver this GBP 20 million of cash tied up, delivering about a 20% ROCE. People have said to me, God, why did you do Blindwells? Why did you do that master development? Why did you tie up capital? Well, if you think about it, we had to prove concept that we were good at this. It's now very credible to talk to people about developing their own land banks, having done the exemplar projects we've done. For instance, when we talk about Blindwells, it's the first new town in Scotland since 1966. So our skill sets are there. They're very credible. And we're now very much an established property developer. So that's really pleased to see. So Renewables, remember, Renewables is a finite resource. So when we talked this time last year, we'd have said GBP 28 million was the valuation. We've got that GBP 13 million for you, so tick, okay, some of it's deferred. And there's GBP 15 million left to go at. And we're having a go at getting that turned into cash for you over the next few years. We hope to announce something in this calendar year. But below that sits another 800 megawatts of assets that are being built on our sites if they get planning. So they're in the process, they're probably 5 or 6 years away. Their book value is negligible now because we've taken all the book value out on the previous assets. So some people are attributing a value of -- but remember, it's 6 or 7 years away of about GBP 15 million or further. Look, they've got to get planning. So let's be clear. But if they do and they get developed, then there's another potential upside, which isn't in the books. So when you add all of land together, you're going to end up with a GBP 20 million business delivering a ROCE of about 20% and then you're going to get cash of GBP 60 million plus the profits plus the renewables realizations. So I think that's quite exciting, and that's the business you'll end up with a much smaller land business, and it's a land services business. So I'm very confident that it will integrate very well into the business that Simon has. So Germany, so I think most of you know us, but again, we're getting followed by a lot of people who haven't seen us before, two businesses, DK Recycling and the Trading business. They work in combination. So we trade lots of material and we trade around that asset, but I'll talk about each individually. So the first one is the Trading business. Fantastic team that I've worked with over 15 years. Now I have been told, will this carry on forever. The trading team I've known personally, I trust them very much. But when they retire, my suggestion to the Board is we then close the business down, liquidate the balance sheet. Now they haven't told me when they want to retire. Simon jokingly said, if you're over there in Germany a lot, they'll probably want to retire earlier. But the plan is that I will work alongside that team, keep the checks and balances. They're a great team. When they decide to close, as I said on the Capital Markets Day, they usually have about 3 months inventory in flight. So let's say, we decided on the 1st of January to close it down. There'll be 3 months of inventory, which isn't in the books. That has, as you can see, about EUR 1 million a month profit that would deal with all of the closure cost redundancy. And then you just liquidate the stock in that process. So you can see very easily that you get your money back from that business. So the next side of it is DK Recycling. So most of you again know this, but for new people, we take coal and coke, iron ore. We combine it with steel dust. Now steel dust is getting less over time because as they close the blast furnaces in Europe, there'll be less and less dust. So that's one driver. We're okay at the moment. But longer term, it's a pressure. The opposite side was pig iron, zinc and energy. So energy means we produce our own energy from our own power station. So we're insulated from spikes in energy. Zinc prices are very good. We hedge it, very happy with the proceeds we get for our zinc concentrate. But pig iron has been on the floor, all to do with Trump and tariffs, et cetera. But we believe it's reached the bottom. And actually, we said to everyone, we'll start to see prices move on, driven by 2 things, which I explained at the Capital Markets Day about CBAM and the embargo on Russian imports. We're now starting to see the prices move up. For every -- so today, let's say, pig iron has a price of EUR 450. For every EUR 10 increase, you add EUR 2.5 million to the bottom line. So we're now starting to see the uptick. So this business is getting back to where it should be. Key issue, of course, is always a blast furnace. So you always got to manage that correctly. So there's operational challenges, but the markets we work in have reached the dip and now they're moving back up. So we think the outlook is quite positive, except for the slight caveat of there will be less and less dust over time, which takes us over the page. So really fascinating this area, and this is the reason that I decided to step down to spend the time in Germany because my job is to deliver value. As I said earlier, Simon is much better at running the services business than I am delivering a lot of value. So I will step down, but I will report to Simon. So my job is to commercialize this Zinc Recycling. Now the Zinc Recycling Project is going to cost us as shareholders about EUR 18 million. But fortunately, German government has already given us a EUR 2 million free grant. They've also agreed to give us a state guarantee, which we're just negotiating, which is another EUR 4 million. So as shareholders, the maximum risk is if this all blows up in our face, it's going to be EUR 12 million is going to cost us. And that's it. Nobody is going to put any more in. We're not going to run the risk. It's -- that's the number that I've agreed with the Board that we will get to. So we spend that money. When do we start spending it? We start spending it in March when we start building the building. And we've made it very transparent. So this is consolidated into the group's numbers. It's 86% owned by the PLC, 14% by local management. And Stephen and Simon, after July, we will keep reporting on this every 6 months to tell you on progress. This is a very exciting opportunity. So the risk of the downside, you know, it's EUR 12 million. There is no recourse to the rest of the PLC on the state loans or anything else. So that's your downside. Your upside, if it works, is that this plant takes zinc from electric arc furnaces, blends it with well, chemicals, the leaching process that's patent pending and you get out zinc oxide and waste dust. Now it's very fortunate because the low barrier to entries, we're building it on the DK site, so we've got all the permits, et cetera, et cetera. With the decarbonization of steel, there's some huge electric arc furnaces being built, which I did explain in the Capital Markets Day. And there they're producing a dust, which is 8% zinc, too high for DK, which runs on typically 3%, but too low for the technology for existing electric arcs, which are called voltaic kilns. So this sits in the sweet spot. And if it works when we turn it on, and I can guarantee you the first day we turn on, it won't work because these things never do. But if it does work and we make a success of it, we can not only deal with the new electric arcs of which we have a queue of customers want to fill our capacity but also I can deal with existing ones. And that gives us a business which conservatively, we're saying a 20% ROCE. So you do the math and you go, okay, you're spending EUR 18 million. So it's going to make EUR 3 million to EUR 4 million is what we think once it's running, subject to it working. We've been working on this project for 3 years. So we've had it stress tested by Imperial. We've had it stress tested by professors. We've had it stress tested. We run it through a pilot plant. It's now all about -- so the chemistry works, will it work at scale? I've now recruited the guys who are going to run the plant. I trust them very much. I'm going to be working very closely with them. It's going to be a lot of late nights and spanners and fixing things when we start it. But if we can prove concept, we will then have to very quickly build 2 more plants because we have a pile of customers, and then this can be taken to other parts of the world as well. So it's a really exciting opportunity. And to be honest, and I've always prided myself, I've been honest with you as shareholders, this is a moment for you to think about, if it goes wrong, and it might do, I disappear with the damp squib and it costs you EUR 12 million, cost me personally 8% of that number. If it succeeds, people have given indicative valuations of GBP 100 million or significantly higher of that. So that's your risk profile. I believe it's the greatest opportunity to in front of the group in the short term. So that's why I made the decision to step down our focus. So my focus will be here where I think I can deliver best value and Simon will do a much better job than I do in the U.K. So just let's tell us what we're doing. So next, Stephen, thank you, outlook. So hopefully, and I always welcome the opportunity to engage with retail shareholders, please, you're just as important as the people we meet in the city. So you can always contact Stephen, Simon and myself for any feedback even outside of this. So please don't sit there and wonder about something, ask us and if we're allowed to tell you, we will. So group outlook, I think I jokingly say at the start of this presentation, you saw 3 smiley faces. I think you understand why there was 3 smiley faces at the start. We have a very strong outlook. This is the start of the cash repatriation. It's GBP 15 million of cash. But if you do the math on what I've said, if everything executes as planned, there's about GBP 150 million to come over the next 5 years. So significant opportunity to repatriate cash to the shareholders. Dividend is important to some of you. So remember, when we do this tender offer, that will reduce the number of shares in issue, which will concentrate up the dividend. But as Stephen has already said, we've got this progressive dividend where we plan to beat inflation for you as we deliver that, hopefully, GBP 150 million of cash. Services, every faith in Simon, I'm backing in with my own money. Land, remember, as I said, you've got the GBP 80 million turning into GBP 20 million. You've got the renewables profit, you've got the profit on the sale of the land, easy. And it's on a 5-year time horizon, we've set a target. In Germany itself, we think the moving up of pig iron prices will help the U.K. the really interesting thing is DK zinc. One of the things I didn't mention earlier is it then produces a waste product, which can go into DK. So it helps replace some of the steel dust that may disappear in the next few years. So I think that's a great opportunity and exciting. So finally, again, for new people really, you have an experienced Board. You will still have me as a shareholder, and I will still maintain my 8% share because I believe in this business. So that's a strong message to you. I will be reporting to Simon, but I'll still be here. So I'm not running away. And one of the joking things I do say to shareholders down here is, if I appoint -- if I appoint Stephen as the CEO, you'd have many problems as he jokingly said. But Simon has come in and looked at the business and said he's happy with what's there. So again, you're not going to have that transition when the new CEO comes in and goes, oh, it's a part of rubbish and we have a reset. We've unfortunate -- or I have unfortunately put him in a position where he's had the opportunity to cry wolf. He hasn't found anything hidden anywhere. So I think that should reassure you that everything is clean in our balance sheet. And on that note, I would close and hand over for questions, which will come through Stephen. So Stephen, if you could pass the questions to us. Thank you. Stephen Craigen: Thanks, Gordon. We've got a handful in. There's one pre-submitted one, which I think we answered in the statement, but I'm going to read out anyway for completeness. What's the plan for the return to shareholders of the proceeds from the recent renewables disposal? That was sent through to us yesterday before the announcement went out this morning. So I hope we've cleared that up. In the announcement. But for completeness, GBP 15 million tender offer back to shareholders in April is what we are doing to deal with that one. Next question is from Peter. He's asking about the Unity scheme. Given that Unity is one of the largest infrastructure schemes in the U.K., why has there been so little mention of it by Hargreaves in the last 12 to 18 months of announcements? Gordon Frank Banham: [indiscernible] you take that do you want to take it? Stephen Craigen: I'm happy to take it. Gordon Frank Banham: Yes, of course. Stephen Craigen: I think on Unity, the reason we haven't announced too much is because we haven't completed too many sales in there, to be honest with you. And Gordon talked about in his slide, although you saw of skipped over a bit on the market outlook. Whilst the market for real estate has improved somewhat. It's not back to where it was. We've seen success in Blindwells in particular on sales, but Unity has been a little bit quieter. But in terms of what's happening at Unity, we have a website and LinkedIn feed, so you can see progress there. We've recently seen the opening of a McDonald's, a new McDonald's has opened there. There's construction starting on Starbucks, both of which were sales made by the joint venture. And we made a sale 3 or 4 years ago to TJ Morris, who are currently building out a large distribution warehouse there. So if you do drive fast, you'll see that going on there. So in terms of RNS and market adjusting announcements, we haven't made many. But in terms of the website and updates the general productivity we have done. So focus on the future is around getting residential interest in the site. We've seen an element of that, but it hasn't hotted up in the same way as we've seen at Blindwells. Positive thing about Unity is it's not going anywhere. The land is still there. It's on our books, net book value is around about GBP 5 million or GBP 6 million. So scalability, it's not the same scale as Blindwells, but it is still sizable and something that we're looking to realize. No concerns from the Board over realization. It's just a little bit slower than maybe it had been, and it's indicative of the market more generally, I would say. Gordon Frank Banham: And I think my comment to yourself would be one of -- you know how big that site is, and it's only on -- half of it's on our books at GBP 5 million to GBP 6 million. So I think you know that there's some problem coming when it moves. We're not in distress. We have cash. So we're not going to give it away. We're going to harvest the money when it's appropriate, yes. Stephen Craigen: So the next question is from Christopher, which I'll take this one. Thanks for the results for the foreseeable future. Are you committed to the AI market? The short answer to that is, yes, we are. There's no discussions currently, no ideas to shift marketplacing at all. AI has been good to us. It's allowed the business to grow, transition, as Gordon has outlined, from where we were to where we are now and giving us a really solid platform for growth in the future. So the Board sees no reason to move at the moment and remains committed to the market. Next question, I think, Simon, it's probably one for you from David. Can you comment on how landfill tax and the government's habit of increasing landfill taxes at intervals impact upon the business? How do we try and manage this? Simon Hicks: So landfill tax, of course, is the government and regulator trying to avoid putting stuff to landfill, which for me, having been involved in this sector for many years is the right direction of travel. What does it mean for us? We do quite a lot of movement of waste. We do movement of sewage sludges. We do movement of hazardous waste. We do movement of materials that are difficult to deal with unless they go to landfill. And the more increasing landfill taxation becomes, the more it pushes customers, our customers to solve those problems and more it pushes us as Hargreaves to help and support them find solutions. We're already on that journey. We're investing in pieces of equipment, particularly in the central belt of the country where we can provide things like a bail and wrap service or a shredding service or blending service where we can use material that's pushed out of landfill and blend it in and make sure that it goes to the right home, it's disposed of in the right way, some will go to incineration or indeed driven up in terms of recycling. And some of the co-products we're getting into our aggregates work stream is material that's being recovered from those lines of waste that would have ordinarily gone to landfill. So I think personally, it's the right direction of travel for the industry and Hargreaves are there to support and provide solutions in the long term for the customers that are impacted by that. Stephen Craigen: The next two questions are from Ilvana, both sort of related. I think you joined the session a little bit late, which is why you've asked the questions, but they're quite long. First one is around about the Renewables in terms of the price that we achieved. So you've asked what price did we get versus what the independent valuation is and what do we expect future valuation to be. So if I can just quickly cover because we have already done that. We received valuation -- the cash we received is in line with what the third-party valuation is, albeit some of it is deferred over the next 4 years. And then in terms of future valuation of the remaining near-term Renewable schemes. We've got an independent valuation of GBP 15 million on that, which is in a previous slide. Given our past experience, no reason to believe we won't achieve at least that, not in a position to say we'll do better than that at the moment. And then you're also asking around timing. We will time it when we're able to maximize or optimize the value. I'd expect the next tranche, as Gordon mentioned previously, to occur within the next 12 months or so, but we'll maximize value for shareholders rather than grabbing the cash as quickly as possible. And then Eldar has also asked where -- what the source of the GBP 150 million cash is. So again, some of it is the land sales. I think Gordon outlined GBP 60 million to GBP 80 million coming out of the Land business. And then the remainder of the, I guess, the other GBP 70 million to GBP 80 million is coming out of the German business. So effectively realizing the land assets and then realizing the HRMS investment, which is either through an organized wind down or a disposal of some sort in the future would be what generates that return of cash. So next question is possibly for you, Simon, from Brian. Good to see sustainability piece at place in the current business. What are the plans of the management team to move into the next phases having North Sea Wind, Alliance, biofuels, green methane, ammonia, hydrogen, et cetera? Simon Hicks: I guess we provide -- particularly in our services, we provide the service to our customers who are investing in many of those things. It's important for us to be across that providing a service when it's necessary and following ESG of decarbonization of our customers or being ahead of it. For example, we run biofuel vehicles in the Northeast for moving one of the County Council's waste around. We've got renewable assets on our facilities. We're moving petroleum coke around for P66, which goes into batteries and into EV cars. So we're following other people's decarbonization journey. What we're encouraging in the teams is to anticipate that and innovate and provide solutions in advance. So if biofuels for instant biosolids can't continue to go to land as we talk about landfill, it's up to Hargreaves to work with itself and its partners to find solutions for our customers so that they can modify or invest in their assets. Absolutely, lots going on in that space, and we're across lots of it. So that's where we add the value in a sustainable way to our customers. Stephen Craigen: And we've only got one more question left, which is from Jagdish. Why not do share buybacks rather than a tender offer? I'm happy to take. The challenge is we have such a wide shareholder base. Some shareholders want a buyback, some would like a tender offer, some would like a special dividend. So we have to land at some sort of a balance. The benefits -- the challenge of doing a buyback with the shares in Hargreaves, we have a challenge around liquidity, which you may or may not have noticed in the market, getting hands on Hargreaves shares. If we do a buyback, what we risk hoovering up some of those liquid shares and parking them and further damaging liquidity. So the view is the tender offer gives all shareholders the opportunity to equally participate rather than us hoovering up loose shares in the market. So on balance, the Board felt the tender offer was the fairest approach, but we're not doing that in isolation. Don't forget, we've also increased the dividend by more than inflation and more than brokers had in their forecasts. So we're trying to treat shareholders as equally and fairly as possible whilst acknowledging we have quite a wide base of shareholders. So that's the main reason we kept that decision. Operator: That's great, Stephen, Gordon, Simon, if I may just jump back in there as you have addressed all those questions from investors today. So thank you very much indeed for that. And of course, the company can view all questions submitted today, and we will publish those responses on the Investor Meet Company platform. But Gordon, before we redirect investors to provide you with their feedback, which is particularly important to the company, could I please just come back to you for some final comments? Gordon Frank Banham: I'd just like to say, look, thank you to all the people that have supported me and the company over the years. We've had an interesting journey, I think, for those that have been with us long term. I welcome new people to the story because obviously, that's important. We are a very approachable management team. We see the value in retail investors. So please feel free to contact us any time. In terms of -- I think it's really exciting. I think with Simon's leadership, we've got some great opportunities to take forward. I will still be here at the full year because I'm responsible for this year, we're delivering the numbers. So I hope to go out on a high and hand over in a good place to Simon, but then I also hope to come back some time and go out on a high for you with the zinc project. But I'm sure everyone will keep you aware of progress on that over the next couple of years because in a couple of years, it will either be going or it won't. So it's going to be a big focus for me. But look, thank you for taking the time to listen to us, and have a good evening. Operator: Fantastic. Thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the Board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Hargreaves Services plc, we would like to thank you for attending today's presentation, and good afternoon to you all.
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