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Alison Griffin: Good day, and welcome to the Dynex Capital, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Alison Griffin, Vice President of Investor Relations. Please go ahead. Good morning. The press release associated with today's call was issued and filed with the SEC this morning, 01/26/2026. You may view the press release on the home page of the Dynex website at dynexcapital.com as well as on the SEC's website at sec.gov. Before we begin, we wish to remind you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words believe, expect, forecast, anticipate, estimate, project, plan, and similar expressions identify forward-looking statements that are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. The company's actual results and timing of certain events could differ considerably from those projected and/or contemplated by those forward-looking statements as a result of unforeseen external factors or risks. For additional information on these factors or risks, please refer to our disclosures filed with the SEC, which may be found on the Dynex website under Investor, as well as on the SEC's website. This conference call is being broadcast live over the Internet with a streaming slide presentation, which can be found through the webcast link on the website. The slide presentation may also be referenced under Quarterly Reports on the Investor Center page. Joining me on the call today are Byron Boston, Chairman and Co-Chief Executive Officer, Smriti Popenoe, Co-Chief Executive Officer and President, Rob Colligan, Chief Financial Officer, T.J. Connelly, Chief Investment Officer, and Mike Sartori, Head of Capital Markets. It is now my pleasure to turn the call over to Byron and Smriti. Good morning. Byron Boston: And thank you for joining us today. As we start 2026, let me anchor where we are in our company's evolution. Since I joined Dynex in 2008, the team and I have always operated and competed with a performance-first mentality and with the ethical stewardship of our shareholders' capital at the core of our decision-making. This focus has created a repeatable and sustainable performance edge, delivering industry-beating returns for our shareholders. Our principles, risk management first, treating liquidity and reputation as a strategic asset, and a culture grounded in learning, kindness, trust, and curiosity continue to differentiate us. What sets our approach apart is not the ability to predict every environment but the discipline to adapt in many environments. Resilience is what ultimately enables Dynex shareholders to enjoy compounding over decades. Our framework gives us the confidence to lean into the right moments of opportunity and endure turbulence without being forced to retreat. You can even advance during periods of dislocation while others pull back. Over time, those small behavioral advantages have compounded into meaningful performance differences, creating the foundation to propel us to this phase of Dynex, at the start of this decade. Smriti Popenoe: Our strong start in 2020 gave us the springboard to create a resilient company at the intersection of capital markets and real estate finance. The decisions we made early this decade to intentionally raise capital in smaller amounts, gradually building our equity base while generating top-tier returns, set the foundation for today's sustained value-creating growth. Our momentum continues to rise as we methodically execute our strategy, and the results speak clearly. Over this decade through 12/31/2025, Dynex shareholders experienced a 67% total return, or nearly 9% annualized with dividends reinvested, outperforming the 8,000 basis points or 700 basis points annually. 2025 was an outstanding year. Dynex shareholders earned a 29.4% total shareholder return, driven by both dividend income and significant share price performance, in a year marked by policy complexity, shifting rate expectations, and geopolitical crosscurrents. As of the end of last week, our total equity market capitalization, including our preferred shares, was $3 billion. In just thirteen months, we have almost tripled the size of our company, creating resilience, strategic flexibility, and scale for our shareholders. Delivering these results required an accelerated significant evolution across the company. We added depth and breadth across the team, building our legal team with a new chief legal officer and our investments team with two senior investment professionals. We planned, commissioned, and delivered two new offices in Richmond and New York City, and we have successfully made a transition to T.J. Connelly as our chief investment officer. To reflect the needs of our growing strategically focused enterprise, we separated the roles of Chief Financial Officer and Chief Operating Officer. Rob Colligan, who held both titles, will take on an expanded CFO function, including the building out of our corporate development capabilities. Today, we welcome Meekin Bennett as our new Chief Operating Officer. A seasoned operator with deep financial and operational expertise from Fannie Mae, Morgan Stanley, and GE Capital, and a US Navy veteran, Meekin brings leadership and discipline to strengthen our platform. She will lead the modernization of our operational backbone to enable scalable, efficient growth for the long term. Looking ahead, we are operating our business in a rapidly changing global landscape. Human conflict remains the key factor, creating surprises that result in policy and market volatility. We have been prepared for the greater possibility of a wider range of outcomes for some years now. We have called this a flat fat-tailed distribution. It has tilted our risk appetite towards liquidity and flexibility. Demographic trends in developed economies are reshaping growth, fiscal capacity, and the cost of capital. For years, low rates and central bank support masked the rising pressures. But in the end, fewer workers, savers, and taxpayers make growth harder to generate and debt more expensive to carry. Policymakers face increasing temptation to use inflation or manage markets as a pressure release, and this pattern is global. In such an environment, government policy can mean simultaneously increased risk and opportunity. This has been true for us since 2020. Our portfolio construction continues to reflect the reality of shifting policy across a variety of factors, including active government intervention in the housing market and monetary policy. On the other hand, the global demand for income continues to rise, and that creates a powerful backdrop for our capital-raising strategy. Investors across the world are searching for stable, repeatable cash flows in an environment marked by demographic shifts, funding gaps, and persistent volatility. Platforms that can deliver high-quality income, with stewardship transparency, liquidity, and disciplined risk management are increasingly scarce. Dynex sits directly in that space, and our ability to generate reliable dividends backed by a resilient portfolio naturally attracts capital that is seeking durable income. At the same time, the continued expansion of passive provides an additional structural tailwind. As passive vehicles grow, they are required to own larger positions in companies with scale and liquidity. Raising capital at accretive levels expands our equity base, improves trading liquidity, and increases Dynex's relevance within these passive strategies. The combination of rising global demand for income and the mechanical bid from passive capital strengthens our shareholder base, lowers our cost of capital, and drives the long-term compounding that we aim to deliver. These factors support the building of Dynex for scale and strength, growing the company in ways that embed resilience into the core of our model, so we can navigate a wider set of outcomes and keep delivering long-term value. We are evolving our business steadily and will continue to fine-tune people, process, technology, and structure to stay aligned with our strategy. The company is well-positioned, and we are prepared for the next phase of our journey, grounded in our strategy, anchored by our core values, and focused on long-term value creation. I'll now turn it over to the team to detail more of how this strategy is being put to work and to share our results for the year. T.J.? T.J. Connelly: Thank you, Smriti. This decade, we have emphasized that government policy is one of the most powerful forces shaping asset returns, often more influential than traditional fundamentals alone. Government policy played a large role in driving returns last year and continues to do so in 2026. In a year that began with an unusual degree of macro uncertainty, our portfolio total economic return was 10.2% in the fourth quarter, and 21.7% for 2025, the highest TER this decade. We entered 2025 mortgages at historically widespread to interest rate hedges, and a high degree of policy uncertainty. This presented an excellent opportunity to raise and deploy capital at higher leverage and wider spreads. And the strength in our results reflects the effectiveness of this strategy. We raised capital methodically and consistently deployed it into assets at wider spreads, supporting compelling future dividends for our shareholders. As we begin 2026, spreads have tightened further, and policy direction in the MBS market has become far clearer. Recent actions and guidance now point toward a more stable and supportive framework for the mortgage market, creating a strong foundation for forward returns and greater confidence in the path ahead for MBS spreads. Our capital raising was led by Mark Sartori, our head of capital markets, and he will give you more details. Mike Sartori: Thanks, T.J. We pursue a distinctive strategic capital-raising approach and partner closely with our brokerage counterparts to execute Dynex's disciplined strategy. In 2025, we executed our capital-raising strategy with precision and intention. We raised capital accretively through the at-the-market program and worked hand in hand across the team to invest and hedge the capital on a real-time basis. This approach allowed us to maintain tight alignment between stronger valuations on our stock and wide mortgage spreads. Over the course of the year, we raised and invested over $1 billion as our price-to-book valuation rose. As we move into 2026, we will continue to follow the same methodical, disciplined playbook. We expect to issue when it is accretive, deploying the capital in investments generating economic returns above our hurdle rate. In the first few trading days of January, we raised nearly $350 million, and share count as of last Thursday was 199,600,000. T.J. will further discuss the year ahead. T.J. Connelly: Thanks, Mike. While MBS spreads are tighter today than they were for much of last year, the overall return environment might be even better, driven by policy support for housing finance, higher liquidity, and an environment with more opportunities to tactically create value. The Trump administration's recent announcement to increase the GSE retained portfolios by $200 billion marks a return to portfolio growth for Fannie Mae and Freddie Mac, providing a meaningful technical tailwind for spreads. For Dynex, this is a positive. It supports valuations, and it will likely reset the spread regime tighter while limiting spread widening. The impact of the GSEs is unique. The backstop bid, especially focused on spreads, allows a host of investors to reassess the amount of spread risk they are willing to take. We believe the impact will return us to a tighter range in spreads with limited spread widening, possibly like that seen before the financial crisis. As you will see on the left-hand side of the spread chart in our earnings presentation on page 12, we expect a return to this type of spread environment would enhance the risk-return profile of the assets we own and provide attractive returns for our ongoing capital deployment. Even before the GSE buying announcement, we expected demand to overwhelm supply in 2026, led by bank demand of over $100 billion. While we expect the GSEs to be price-sensitive buyers, and even for money managers to slowly reduce their MBS overweight as spreads tighten, the supply and demand balance in agency mortgages will likely lean towards higher net demand for many quarters. As the GSE retained portfolios grow, it is unclear how they will hedge. We are also mindful that in past periods of high portfolio growth, the GSEs had active hedging programs, and swaps would be their most likely hedge if they chose to hedge duration. We also expect that GSE convexity hedging would impact technicals in the market for options. The administration appears clearly focused on reducing mortgage rates, and we remain focused on managing and mitigating convexity risk. The fourth quarter prepayment environment reinforced one of the clearest lessons of the year: Security selection remains the most reliable and consistent source of alpha in agency MBS. In a market characterized by low but uneven turnover and periodic spikes in refinancing, avoiding the most prepayment-sensitive collateral was essential for protecting carry and reducing reinvestment risk amid the periodic interest rate volatility. Prepayment dispersion is increasingly driven by micro-level factors that reward granular pool work. Technology-enabled optimization at originators and servicers continues to make refinance and retention outreach more targeted and efficient. The fourth quarter data reaffirmed that generating alpha in agency MBS is not simply about coupon exposure. It is about owning the right pools within those coupons. Our positioning reflects that lesson, avoiding prepayment-sensitive stories and emphasizing structurally more stable collateral. Relative value will also play a larger role in tech asset allocation, not only within coupons but within sectors. Of course, mortgage returns are driven not just by spread risk but also interest rate volatility risk. Given the policy dynamics in today's markets, we expect and plan for periodic bouts of volatility. Our yield curve exposure is more balanced as the greatest clarity on the policy front is for tighter mortgage spreads. As policy and economic data evolve, we will continually evaluate the curve exposures in our hedge. While longer maturity yields currently offer the potential for larger dispersion than shorter maturity yields, we are mindful that changes in Federal Reserve policy or personnel could shift even shorter maturity yields meaningfully. We strategically added options positions in 2025 to reduce the portfolio's exposure to rate volatility and expect that options will continue to be important in the coming quarters to manage risk. While policy can evolve quickly, the agency MBS market looks likely to be supported by a strong tailwind, and the leverage returns for earnings spread income in the best segments of this market remain compelling. Our team at Dynex has a long history of extracting equity-like returns from fixed income in this kind of market regime. We rely on the principle to prepare, not predict. We operate with a flexible mindset, resisting the kind of rigid thinking that could lead us to alter portfolios at exactly the wrong moments. Our scenario planning gives us the confidence to hold exposures through stress and to stay open to opportunities when others are constrained. That flexibility gives us tremendous optionality and helps us avoid the behavioral traps that destroy value, which is why we have been able to deliver differentiated performance across cycles. Now I'd like to turn the call over to Rob, who will give you more details on our outstanding quarter. Thank you, T.J. Rob Colligan: The total economic return in the fourth quarter was 10.2%, consisting of $0.51 of common dividends and a $0.78 increase in book value per share. For the year, our book value increased 75¢, and we declared $2 of dividends per common share, which are paid on a monthly basis. Comprehensive income for the quarter was $190 million and was $354 million for the year. We ended the quarter with leverage of 7.3 times total equity. Our liquidity position remained very strong with $1.4 billion in cash, unencumbered securities at the end of the quarter, representing over 55% of total equity. As mentioned earlier, we have raised $1.5 billion over the last thirteen months, at the most accretive levels in the company's history. Beyond the resilience and stability that a larger capital base provides, we understand that a larger, more liquid company typically earns a better valuation metric. It's important to us as stewards of your capital to keep these factors in mind as we grow. The TBA and mortgage-backed securities portfolio started the year at $9.8 billion, grew to $15.8 billion at the September, and ended the year at $19.4 billion. We continue to add to the portfolio after year-end and currently have $22 billion in TBAs and mortgages. Pools and TBAs we've held and added this year benefited from spread tightening in the second half of the year, which accelerated into year-end and continued into 2026. Our current book value, which has been in the range of $13.85 to $14.05 per share, net of the accrued dividend, is up 3% to 4% from year-end. For our year-end tax disclosure, we're estimating that we have $229 million of taxable earnings, covering all of our preferred dividend and 93% of our common dividend, which will be treated as ordinary income. The remaining 7% is a non-dividend distribution. Our dividend tax reporting will be posted to our company's website by the end of the month. Expenses for the fourth quarter were up as our accrual for performance-related compensation increased, lining up with the strong returns delivered in 2025. Our general and administrative expenses as a percentage of capital are down materially year over year from 2.9% of total equity at the close of last year to 2.1% at the close of 2025. We continue to make investments in people and technology to ensure Dynex is built for the future, and our expense ratio may stay at the year-end 2025 levels until additional growth is delivered and new breakpoints and levels of scale are achieved. With that, I'll turn the call back to Smriti for her closing comments. Smriti Popenoe: Thank you, Rob. As we look ahead, we remain focused on disciplined execution and delivering durable long-term value for our shareholders. We are deeply grateful for the trust you place in us. Trust is a core value at Dynex, and ultimately, the product we work to deliver every day. And as a management team invested alongside shareholders, our interests are aligned with yours. And we are committed to stewarding your capital with integrity, transparency, and care. I will now open the call to questions. Operator: Thank you. If you'd like to ask a question, please signal by pressing If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to signal for a question, and we'll take our first question from Doug Harter with UBS. Please go ahead. Doug Harter: Thanks. Hoping you could quantify where you see incremental investment returns today and how that compares to know, kind of year-end and 09/30 just given the you know, the spread tightening that we've seen? Yeah. Absolutely. Good morning, Doug. Today, we see hedged ROEs in the mid-teens with leverage around seven times. And with targeted leverage in the low eights, we see ROEs in the mid to high teens. So as we get even more clarity on the return environment with the with the you know, return of these native GSE balance sheets, there's scope for modestly higher leverage, I think, in private portfolios. And I guess just how that compares to to say three months ago just given the spread tightening just kind of wanna make sure I understand. You know, how the dynamics changed. Yeah. The dynamic is is roughly it's you know, depending on the coupon between a hundred and fifty and three hundred basis points tighter. Than it was, let's say, at the end of end of last quarter. Or the prior quarter, third quarter that is. Smriti Popenoe: Yeah. I think I think the biggest difference, Doug, is that before the GSE balance sheets were announced, as being active participants, you did have the risk of spreads widening significantly as we saw during periods of volatility in 2022, 2023, during the tariff tantrum last year. And what this does, it it really takes a big part of that tail risk out So, yes, returns are lower, but also the ability for spreads to widen out a whole bunch because of the return on these balance sheets has also improved what I think of as the risk-return profile going forward. The other thing that this does is once you have these native balance sheets back in business, Other investors other than ourselves begin to reevaluate the risk reward. And if don't have that big downside risk from spread widening, this starts to be a really compelling space. Right? These are agency guaranteed assets. You're still earning double-digit returns. So it ends up being actually a pretty good investment environment. Doug Harter: If if I could just push back on the risk reward, I mean, I think, you know, clearly, you know, what you had talked about, you know, in prior past couple calls was given the widespread you know, just how attractive the risk reward was and and clearly, you know, correct given given the spread tightening you seen. So I guess just trying to square that, given the amount of return that you've kind of already generated you know, given the spread tightening, you know, with those comments. So just just wanna make sure I understand that dynamic. Yeah. I mean I mean, risk reward rewarded by Smriti Popenoe: upside as well as downside. Right? One of the things that's been taken out of the picture here if this policy sticks and if this ends up being a situation where GSE balance sheets are here and they're here for the duration. What that does is it limits your downside risk. So the upside risk may not be as high as it was when they weren't around, But taking away downside risk is a meaningful difference in terms of your forward return profile. Operator: So, yes, the the Smriti Popenoe: you know, in in 2022 to 2025, you did have an unusual situation. I mean, we called it a generational opportunity. Right? So you had a generational opportunity to to generate outsized returns. And with the return of these balance sheets, what's happened is that you're downside is much less. Than it was in the last three years. And that's that's when I when I say risk reward, it's it's really the risk goes down relative to the reward. T.J. Connelly: I'll just add to that, Doug. It's all about scenario planning. We are constantly planning for a range of scenarios, especially when it comes to the risk profile of the portfolio, And since the announcement that is very clear that this administration is deeply concerned about mortgage spreads, We have to talk about it as a team and say, look. The probability of going to that widespread again is lower than it was before. And that changes the the risk reward profile that Smriti's talking about. Smriti Popenoe: Alright. Doug Harter: I appreciate the detailed answer. Thank you guys very much. Pleasure. Operator: If you find your question has been answered, you may remove yourself from the queue by We go next to the line of Trevor Cranston with Citizens JMP. Trevor Cranston: Can you guys talk a little bit about you know, how you're thinking about the probability of other you know, sort of politically motivated actions to attempt to improve housing affordability or lower mortgage rates you know, potentially through things like lowering the g fees that Fannie and Freddie are charging and kind of how that plays into how you're thinking about investments right now? Thanks. Smriti Popenoe: Hi, Trevor. Thanks. Good good morning. So, yes, I mean, think I think we are you know, I'll just zoom back a little bit here. Operator: You know, in the nineties and the 2 thousands, Smriti Popenoe: the GSEs were very much a an instrument of of managing housing in The US. Right? Like, these are entities that have been around for a long time. They've been active participants in facilitating liquidity in the housing market. And they've also been directly or indirectly asked to to change the way housing gets gets really implemented in The US. Right? So you can think about affordability goals back in the nineties and February. Those existed back then as well. Right? So the the the history of government intervention or wanting to influence where capital actually gets put That's not new. This is this has been around for some time, and these entities have been around. And and they're they've been made to do exactly this. Right? So so when you have that in the back of your mind, is it is it possible that that the government does use these entities to implement, housing policy that they believe is is, you know, better for Americans in terms of lowering home homeownership costs and so on? Absolutely. Right? So this this is not new. So would you know, will they do lowering of of g fees? We've heard that being talked about. We've heard about loan level pricing adjustments being taken away. All of that is very much real and possible. And I'll let T.J. talk about sort of the impact on mortgage rates and the convexity of mortgages, but we are very much anticipating and prepared for this type of intervention to happen. And what you want to do as an investor is prepare for the impacts of any and all of these potential levers that could be pulled. T.J., why don't you talk about just convexity impacting the market? T.J. Connelly: Right. And I'll just give you a quick sense of the, you know, day to day, Trevor. You know, Byron and Smriti work and and I work very closely with our partners in Washington folks at the Mortgage Bankers Association, for instance. Hearing about these potential proposals that could impact the prepayment profile of the mortgages that we own and how we bid ongoing mortgage for the portfolio as we reinvest. And the day to day is that we're we're hearing about these things, and then we come back model them in our prepayment models, think about how the prepayment both the, you know, turnover component and the prepayment component, refinance component, that is will impact the prepays in our portfolio and what we'll do to the broader mortgage market. And we're taking that feedback back to folks like the Mortgage Bankers Association who are talking with the FHFA and place like that. So it's very much a reflective relationship and we're, you know, constantly modeling out how it might impact the mortgage market. You know, to date, I think most of the it certainly impacts how we think about the most prepay sensitive mortgages that are out there. It continues to create more marginal demand and and result in model valuing a lot of the prepayment protection that we already own even higher than it did before. So I would just I know, as I look at the proposals, it's increasingly hard to find the kind of prepaid protected portfolio that you get with our with our portfolio. Smriti Popenoe: Yeah. I think I think the bottom line is there is is gonna be more negative convexity, and there's also the possibility that other other instruments you know, back in the day, we used to have prepayment protection mortgages. Those are being talked about. You know, we could see the ARM market come back in favor, especially in a steep yield curve environment. So, you know, we we we said this in in the call. Basically, like, you know, government policy can create both risk and opportunity at the same time, and then this is what we're we're ready to be investing in. Trevor Cranston: Yep. Okay. That's very helpful. Then can you give an update on kinda where you've the capital raised in January? T.J. Connelly: Sort of within the coupon stack and and where you guys are finding the best value post the movement that's happened since the GSE bond was announced? Operator: Thanks. T.J. Connelly: Yes. We're finding that the belly of the coupon stack primarily fives, has been the most interesting. But I will say it's been a very dynamic market, much more you know, I've talked for a long time about the the breadth of coupons in which we can invest. And we're finding pockets of opportunities on the specified pool side across bond stacking coupons that, frankly, we hadn't traded in in several quarters. So it's really across the board. If I had to to point to a single coupon, I'd say it's fives in the and five and a halfs to some extent. But, again, seeing opportunities across the stack for, you know, on the specified pool side. coupons that offer durable call protection Operator: Got it. Okay. Thanks very much. We go next to the line of Jason Weaver with Jones Trading. Please go ahead. Jason Weaver: Congrats on capping off a very solid 2025. T.J. Connelly: Okay. Thank you. I wanna start with, you know, effectively growing the company by a huge leap like you said in your prepared comments over the course of the last thirteen months. What's your thinking today around the appropriate size of the portfolio in context with what the current opportunity set is out there? Yeah. Currently, as far as the opportunity set, I'll I'll start there, and and Smriti, you can talk more about just the benefits of scale as a company. When I think about the the opportunity set, it it's growing dramatically for us in terms of like I just said to to Trevor's question, the market dynamics are such that there's more and more opportunities across the coupon stack. This team has operated we have a team that's actually many of us were actually at the agencies in the nineteen nineties. We've operated in this environment for a long time. But it's pretty exciting the amount of alpha that we can produce. Beyond just a a classic spread trade, which is still compelling. The amount of alpha that's available is significant. So when I think of this this portfolio, relative to the size of the market, we can be significantly bigger and still have tremendous opportunities to generate alpha. But I'll let Smriti talk to some of the benefits of the scale as well. Smriti Popenoe: Yeah. I mean, one of the one of the things that we've been able to do is go you know, lean on the back of our performance track record which came without the benefit of scale. And now, you know, investors are getting the larger equity base as as as something that's a real benefit coming straight down to the bottom line. I I still think there's a lot of sense for the company to keep growing, you know, in in terms of resilience, in terms of being able to withstand the types of scenarios that we think are coming up in the future. It makes a lot of sense for us to keep growing. The investment environment, again, it shifts all the time. We might be moving from, you know, what we think of as, like, a a a beta environment where it was just e I'm not gonna say easy, but, know, you could own mortgages. And spreads tightened, then you'd win. Now we're getting in an environment where yes, you have tighter mortgage spreads. You have to be cleverer. In your portfolio management skills to to earn that return. And having said that, look. Our, you know, dividend yields are down. Right? Like, a year ago, you you were being asked to generate 17% return by the market, and we're down to close to fourteen. So that that also helps in that in this situation. Jason Weaver: Got it. Thank you for that. And then just one more maybe for Rob. We saw the G and A run rate bumped up in the fourth quarter. I'm assuming that as to to do with incentive comp. What would you we think about the forward run rate here? Rob Colligan: Yeah. Good question. Thanks. You're exactly right. Good performance sometimes leads to increased incentive compensation accruals, and that's exactly what happened in the fourth quarter. As I mentioned in the prepared comments, we are building scale. So we're thinking of our expenses in the 2% of capital range for now. You know, obviously, as we go through the quarters, we'll give you some updates We do plan on hiring some additional people, adding to the team, the timing of those hires could impact the run rate. But that's what we're thinking at the at the current moment. And then as we grow, I do think we'll have opportunities to hit other layers or levels of scale can reduce a little bit further, but we're not thinking about that immediately in 2026. Jason Weaver: Alright. Thanks again. That's good color. Operator: Our next question comes from the line of Bose George with KBW. Bose George: Hey, everyone. Good morning. Rob Colligan: Just going back to the earlier discussion with Doug on returns, Bose George: in terms of returns going forward, do you see room for more upside from spread tightening? Or is it really more of a stable dividend just given the volatility is should be more muted going forward? T.J. Connelly: Yeah. I think that, you know, when we talk about the spread regime, I'd point you to page 12, both I think there's a really good case to be made that you can return to a tighter spread regime, much more like we saw throughout the late nineties and into the early two thousands. You know? And it's not just because of the GSEs. It's it's it's really, or they're buying, that is. It's really about the the backstop. And the support from the, you know, from the government that you're potentially getting. Allows all investors to take more risks. So, yeah, I I think there's, you know, you know, on a stand-alone basis, the ROEs are compelling. The yield profile that we can garner from this portfolio remains compelling. And there's the potential for significant spread tightening back to that kind of regime. Bose George: And then just to follow-up on, you know, the GOCs. What do you think happens once the GSEs get closer to that $200 billion cap? Do you think it it gets extended? Or how do you see their longer-term role in the market? T.J. Connelly: It certainly seems to me. I've I've never seen before tweets from someone like the f or, you know, a report from someone like the FHFA or any any entity like that in history that focused on mortgage spreads. Not just mortgage rates, but on mortgage spreads. That that is a very different thing, and to me indicates that we are in a a a unique environment. So to your question, it's hard for me to see how $200 billion is necessarily the cap. I I think it could be significantly more, and we know that that it can be changed quite easily by the FHFA and or treasury pretty quickly. Bose George: So okay. Great. Thank you. Operator: We'll move next to Jason Stewart with Compass Point. Jason Stewart: One more follow-up. On levered returns. T.J., just so I'm clear, the mid-teens and high-teens, it's seven and eight times, that's a a carry return. It doesn't incorporate this new spread regime moving tighter, correct? And then just to follow-up on that, if you could address when you're thinking about context of ROEs, how are you thinking about hedging that book? Great. Yeah. The to answer your question, yes. That is a carry ROE. It assumes no additional spread tightening. That's absolutely correct. Those numbers that I quoted. And then the the second part of your question was thinking about the hedge book Two things. One, on the composition of the hedge book, swaps offer a significant amount of carry relative to treasuries by hedging and swaps, that is. Relative to treasuries. So two-three, one-three has been our mix roughly for quite some time. I expect that that will be the case to maybe be slightly biased more towards swaps at points, you know, potentially in the 60 to 80% of range as a as a percent of our total hedge book. On the interest rate swap side of things. Heads interest rate swaps do tend to be a very natural hedge for the portfolio. And when the environment we've talked in the past about the macro factors that impact swaps relative to treasuries. And I think those factors remain supportive of us hedging with with interest rate swaps. In terms of curve positioning, I'll note that our curve position is you'll see it in our scenario analysis. The risk profile slides that are in the deck. Much closer to to home in terms of a little bit less of a steepening bias Longer term, I do expect we will have a a steepening bias in the portfolio. But, you know, as as the yield curve has kind of found a new equilibrium around these levels, we've we've found it prudent to allow the portfolio to be more balanced. Jason Stewart: Okay. Thank you for that. Hey, Smriti Popenoe: shock value I can I just add something just be because it it seems like there's just a a component of this in terms of how much spreads have tightened? In the last year, over the last two or three years. One of the things I just want to remind everyone is that the environment that we just are coming from, that we've just come from, is the unusual environment. To see agency MBS spreads at those levels, one fifty, one sixty, one eighty over treasuries, I mean, those those are unusual environments. And and we have gone out and raised capital and put capital to work. And and and as I said, we call this a generational opportunity. Right? What we're coming back to is really how things have been for most of the time. In in in this in the housing finance system. What we're coming back to is a more normal, quote, unquote, normal world where you have some type of native balance sheet that's that's owning these mortgage assets, acting as a buffer, Right? Spreads are now in a much more, quote, unquote, normalized range, and you have the opportunity to earn returns not just from owning MBS versus a hedge, but you you you have opportunities from relative value. You can do curve positioning, and this idea, this is more normal, and we're coming from an unusual Okay? So that's a perspective I think you know, it's it's it's the unusual environment is is, quote, unquote, over. But we are just coming back to what we see as a very normalized environment. For the GSEs, a lot of people on this team were there when they were Operator: public. Smriti Popenoe: We understand and know this structure. To your question about, you know, happens when the $200,000,000 runs out, they can issue debt They can do lots of things to grow the size of their balance sheet. We we know very well how that process works. So it for us to to be to make money in that environment is actually there are opportunities for us to do that. So that's something I don't want people to miss out on is that, you know, we're just coming back from an unusual period to what is a more normal period. Jason Stewart: Yep. That's good color. Thank you for adding that. T.J. Connelly: Sure. I I just have one other question. You mentioned corporate development capabilities in your prepared remarks. And I was just wondering if you could elaborate on that and whether that had anything to do with potential policy changes, or or maybe you could just take one more step on that comment. Smriti Popenoe: of delivering scale Absolutely. Yeah. Look, I think a big part to shareholders and strategic flexibility to shareholders we have to have the capability to evaluate all types of opportunities. You know, Dynex has been a company that over time we've delivered to shareholders a lot of different clever, diversified strategies through the history of the company. And our job is to always have the ability to evaluate those so that if such options exist and they should be exercised, we're ready to do that. Operator: Right? Smriti Popenoe: So that's a big part of, you know, thinking more strategically about the balance sheet, about the investment opportunities that we have versus others that come up. All of that is in in the in the spirit creating options for our shareholders, which Jason Stewart: I believe is Smriti Popenoe: one of one of the jobs that I have. Jason Stewart: Just one. Okay. Great. Thank you. Yeah. Thanks. Operator: Once again, that is star one to signal for a We turn to Eric Hagen with BTIG. Please go ahead. Eric Hagen: Hey. Thanks for sneaking me in. Appreciate you. So this emphasis on lower interest rates and lower mortgage rates is very real. I mean, do you think this pressure on the Fed to cut rates is good and supportive of the market right now? Do you think it will be effective And do you think it eventually just creates maybe a situation where there's just more interest rate volatility and the the well, the volatility is more one directional anyway. Thank you, guys. Smriti Popenoe: Sure. Hi. Hi, Eric. So one of the things we've been ready for for some time is this idea that there's more and more government intervention. In the market. Right? And in my prepared remarks, talked about you know, when you have fewer savers, fewer taxpayers, it's harder to carry the amount of debt that we have in The US and other places in the world. Debt to GDP, etcetera, etcetera. So it's it's not unusual in in this these types of situations for there to be explicit efforts to to influence monetary policy and other other policy, including you know, what mortgage rates are gonna be. So that's not unusual for us. That's what we've been expecting, and that's what we we plan for. Right? Now how it actually comes to pass in terms of whether, you know, whether it's through personnel changes or whatever else that they that the actual rate gets pegged or or lowered or whatever that is. I don't know. I mean, we can't predict that. But we are prepared for this idea that, you know, front end rates could be influenced by something other than just fundamentals. Right? And you guys have heard us talk about this, this idea of fundamentals, technical psychology. Now we talk about fundamentals, psychology, policy. And a lot of times, fundamentals and policy could be divergent. And when you're sitting in that environment, you have to really be ready for a lot of different things. So, you know, just just from the perspective of can it happen? We believe there's a high probability of of of that happening, and we are preparing for that. Will it happen? How it happens? Very hard to tell. There are benefits, obviously, to the agency MBS market. To the extent that, you know, front end rates are lower. I mean, that makes them more attractive to to hold. But that's that's really not we're not counting on that happening for any of our strategies to work out. I'll let T.J. talk about the mortgage piece because these guys have been really focused on, how just having the mortgage rate move independently of other rates that really creates an interesting dynamic in in the portfolio, and he's these guys have been working on, you know, mitigating that risk for some time now. T.J. Connelly: Sure. Absolutely. Yeah. As, you know, Smriti mentioned, we we have four arrows in our analytics quiver policy, fundamental, technicals, and psychology. That those are the four lenses through which we look at the markets. And as we look at each component of the yield curve, we're thinking a lot about okay, the mortgage rate in isolation, the Fed funds policy rate, SOFR rates in isolation, those sorts of things. So as we isolate those and think about the volatility profile for each component of the yield curve as well as know, each every coupon of the mortgage coupon stack. Policy could implement you know, could impact any any one of those components. So it's something we we spend a lot of time thinking about in terms of our hedge book and the volatility profile of the portfolio. Smriti Popenoe: You know, one of the other pieces here, Eric, is that is that we've been in an environment where the market sometimes don't know how to price a lot of this uncertainty. And so it be it's it's a very it ends up looking calm Right? And then when there is some kind of announcement, you have about a volatility. Right? So it's a very different type of of strategy During the moments of calm, you're able to earn the OAS. You're able to earn, you know, sort of like the carry from shorting options. Right? During the moments of volatility, you'd better have enough liquidity To be able to manage yourself through that scenario. So that is another way to to think about it. Eric Hagen: So, yeah, you guys very much. T.J. Connelly: My pleasure. Eric Hagen: Sorry. I was gonna ask one more just really quickly here. I mean, move for your book value up 4% since year-end. I mean, that's a good move, but maybe we expected it to be up a little bit more. I mean, has your leverage been stable And maybe just, like, the the immediate reaction on that on the back of that 20 or 30 basis points of spread tightening on the back of the announcement? Like, how is that how did that unfold for you guys? Yeah. Obviously, you know, on it and T.J. Connelly: immediate reaction when when book value increases, leverage goes down mathematically. And, you know, I mentioned the seven to eight kind of range when I discussed the ROEs, and and that's generally where we expect this portfolio will will land for the better part of the next several quarters. As the opportunities arise, we take it up and down from there. So you know, our our we feel very comfortable that we can earn the kind of spreads that we are seeking to earn and that our shareholders are expecting to support the dividend. With these ROEs that leverage between seven and eight. Eric Hagen: Great. Thank you guys for the color. Appreciate it. Bose George: Thanks, Eric. Operator: At this time, we have no further signals. I'd like to turn the floor back to our speakers for any additional or closing remarks. Smriti Popenoe: Thank you. Thanks, everyone, for joining us today, and we look forward to updating you on our first quarter results in April. Operator: This concludes today's conference. We thank you for your participation. You may disconnect at this time.
Operator: Good day. And welcome to the Steel Dynamics Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's remarks, we will conduct a question and answer session, and instructions will follow at that time. Please be advised this call is being recorded today, 01/26/2026. Your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to Mr. David Lipschitz, Director, Investor Relations. Please go ahead. David Lipschitz: Thank you, Eli. Good morning, and welcome to Steel Dynamics' fourth quarter and full year 2025 earnings conference call. As a reminder, today's call is being recorded and will be available on our website for replay later today. Leading today's call are Mark Millett, chairman and chief executive officer of Steel Dynamics, Theresa Wagler, executive vice president and chief financial officer, and Barry Schneider, president and chief operating officer. The other members of our senior leadership team are joining us on the call individually. Some of today's statements, speak only as of this date, may be forward-looking and predictive, typically preceded by believe, expect, anticipate, or words of similar meaning. They are intended to be protected by the Private Securities Litigation Reform Act of 1995 should actual results turn out differently. Such statements involve risks and uncertainties related to integrating or starting up new assets, the aluminum industry, use of estimates and assumptions in connection with anticipated project returns, and our steel metal recycling and fabrication businesses as well as to general business and economic conditions. Examples of these are described in the related press release as well as in our annually filed SEC Form 10-Ks under the headings Forward Looking Statements and Risk Factors. Found on the Internet at www.sec.gov and if applicable, in any later SEC form 10-Q. You will also find any reference non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday or this morning entitled Steel Dynamics reports fourth quarter and full year 2025 results. And now I'm pleased to turn the call over to Mark. Mark Millett: Super. Thank you, David, and good morning, everyone. I hope you're all a little warmer than we are in the Midwest in Indiana here, Fort Wayne. But nonetheless, we appreciate you taking the time to join us for our fourth quarter and full year 2025 earnings call. As you've seen, our teams achieved a solid 2025 financial and operational performance in what was a challenging market environment through the year. This is a testament to our diversification, the scale, and circular manufacturing business model that we have. The highlights were record annual steel shipments of 13,700,000 tonnes, cash from operations of $1,400,000,000, and adjusted EBITDA of $2,200,000,000, and most importantly, we had another strong year in terms of safety. At Sinton, consistent operational execution has been achieved. The downstream value-add coating and pre-paint product quality has matured. At Aluminum Dynamics, we have produced and shipped finished aluminum flat-rolled products for the industrial and beverage can markets as well as hot band for the automotive sector. Although there's still work ahead, the team has strong momentum positioning us well as commissioning continues and operations ramp. As always, I'm extremely proud of the entire Steel Dynamics team. They are the foundation of our company. And there's no doubt their passion, innovative spirit, and commitment drive our success, and they inspire me each and every day. I'm also very excited to welcome our new team members joining us through the final acquisition of New Process Steel, which occurred this past December. We are certainly excited to grow with you. As I mentioned, the most gratifying achievement was having a strong safety performance. Our world-class safety culture continues to evolve, and our team's dedication to take control of safety philosophy is extraordinary. I'm continually inspired by the commitment they have for one another. They consider themselves family and challenge the status quo each and every day. That said, we will never be satisfied though until we achieve a zero-incident environment. Before I transition the call to Theresa and Barry, I'd like to provide some perspectives arising from the press release investor presentation we posted on Monday, January 5, related to the proposed BlueScope transaction. During the past five years, we have focused on strategic organic investments in steel and aluminum products. The associated additional free cash flow generation is meaningful and as you know, very close at hand. We are well positioned with substantial liquidity, low leverage, and significant expected free cash flow generation to support the continuation of our consistent, disciplined, and balanced capital allocation strategy. Our criteria for growth has not changed. We grow to differentiate our product offerings, supply chains, and to create value for all our stakeholders. A long-standing track record of best-in-class return on invested capital and other return metrics is testament to our disciplined approach to both greenfield and acquisition growth. We have a well-deserved reputation for excellent execution, clear long-term strategy, a business model that enables strong cash flow generation through market cycles, and a culture second to none. Our actions are intentional and strategic, not opportunistic. We pay fair value for good businesses that enhance value for all constituents. In December 2025, we submitted an offer to purchase BlueScope together with our Australian partner, SGH. The offer proposed SGH acquire 100% of BlueScope on an all-cash basis for the subsequent on-sale of the used US assets to Steel Dynamics, providing all BlueScope shareholders with a tax-effective cash realization opportunity. The proposal was the most recent in a series of constructive approaches to provide BlueScope shareholders the opportunity to unlock the trapped value of the North American businesses. To find the right home for their businesses in Australia, New Zealand, and Asia. That home is clearly with us and SGH, given their track record of value creation across the industrial space, which closely mirrors the focus on delivery, capital allocation, and free cash flow generation of SDI. The offer is compelling, reflecting the value of BlueScope's business appropriately, and is significantly higher than the value its shares have ever realized in over fifteen years. The deal construct is simple and straightforward. We request the customary, but short, thirty-day due diligence period, which provides the opportunity for an effective and speedy process. However, our offer was rejected by the BlueScope board without any engagement. The commentary within BlueScope's subsequent public releases regarding the proposal has to be seen as very disappointing. The premise for the board's rejection was principally based on insufficient value. Yet they provided shareholders with no reasonable executable alternative strategy that would provide the same certainty of similar shareholder return. Our cash offer is certain, immediate, and tax-effective, with no financing contingency. It eliminates the significant execution risk and hopes that financial improvement might come from improved market spreads and currency exchange rates that are far from predictable. We agree that the North American assets and their operating teams are of quality. As we know them well. In fact, for many years, our steel operators have frequently worked closely with the BlueScope teams, exchanging best operating practices and safety initiatives. The BlueScope North American asset teams and senior leadership are not the problem. Rather, BlueScope's long-term financial and share price underperformance is the result of conservative, incomplete growth strategies. As a case in point, NorthStar BlueScope and the recently acquired coating businesses are at severe structural disadvantages. The steel mill is essentially a stranded asset and does not have the physical structural capability to provide the necessary value-add products required to supply the geographically disparate coil coating operations. There are missing essential equipment. At a minimum, cold rolling and galvanizing. The required investment today could be as much as $1.5 to 2,000,000,000 Australian dollars. Not to mention the years of waiting on equipment and the construction risks. In February 2024, BlueScope publicly discussed an associated plan to invest at that time $1,200,000,000 US dollars, about 1,800,000,000 Australian dollars today, for a greenfield project to achieve a similar outcome. Yet they officially deferred the project a year later in February 2025, due to market uncertainty. And the pivot to acquisitions. Recently, BlueScope wrote down the asset value of nearly a half 1,000,000,000 Australian dollars associated with its recent 2022 acquisition of the North American coatings business, noting that the business was not achieving expectations. More recently, rather than investing for long-term growth, the Board announced a one-time tax-ineffective nonrecurring, unfranked special dividend of 453,000,000 Australian dollars providing no recurring long-term benefit to shareholders. We would suggest the North American BlueScope strategy isn't working. Steel Dynamics' operational interactions with the BlueScope organization spanned over twenty years. Discussions with senior leadership have explored various value-creating concepts along the way. We have both enjoyed considerable business interaction through the sale of scrap, coated coil, joists, and construction products to the BlueScope business. And we purchased substantial steel from NorthStar BlueScope. Suffice it to say, we have a unique and clearly qualified perspective on BlueScope's North American strategy and business model, along with the associated earnings capability of their assets. Our respective leadership teams have long understood the industrial logic of combining our businesses. Our proposal to purchase BlueScope along with SDH is not an opportunistic foray to acquire assets on the cheap. It represents a long-standing desire to maximize shareholder value for all stakeholders. Our investment premise is straightforward. SDI is the logical owner of the North American assets as we can unlock the latent value. Currently, North Star BlueScope is a stranded commodity-centric single-site steel mill. It will be pressured by additional hot rolled coil production capacity coming online in the US within the next twenty-four months. Product diversification is critical for it to sustain earnings power and an imperative for the desired value creation within their acquired coating business. These challenges are self-evident from the recent massive asset write-down that I mentioned earlier. The scale, supply chains, and business model of SDI would provide immediate resolution. Additionally, BlueScope is publicly emphasized the monetization of industrial and rural land located in remote regions of Australia and New Zealand. We believe there are likely significant zoning and environmental challenges not to mention development timelines spanning what could be decades. BlueScope's plan for earnings uplift will take considerable time to realize with substantial execution and market risk. So for us, Steel Dynamics, our pipeline for growth investments is robust. Our track record of delivering profitable growth is without comparison. The acquisition of BlueScope North America makes sense for Steel Dynamics strategically, but we will be led by our focus on value creation. And will be guided by rationale and not hope. And we will remain disciplined as always. With all that said, given the public nature of how this is about, we won't be making any further comments or taking questions related to the BlueScope transaction after our commentary. And we thank you for appreciating and respecting that request. With all that said, love to talk about the exciting things going on within Steel Dynamics. So, Theresa? Theresa Wagler: Thank you, Mark. Happy New Year, everyone. Thanks for being on the call. I am going to be brief with my comments today. In 2025, we achieved operating income of $1,500,000,000 and net income of $1,200,000,000 or $7.99 per diluted share. Cash flow from operations was $1,400,000,000, and liquidity remains strong at over $2,200,000,000 as we continued strong shareholder and near the completion of a significant organic growth phase with the associated cash flow close at hand. For the fourth quarter, specifically, our net income was $266,000,000 or $1.82 per diluted share. As some of you noted, our effective tax rate benefited the quarter by approximately $15,000,000 due to state adjustments and other benefits related to certain reserve items. Fourth quarter 2025 revenue was $4,400,000,000, and operating income was $310,000,000. Lower than sequential third quarter results driven by lower realized steel pricing and lower volume. For the full year 2025, operating income from our steel operations was $1,400,000,000 versus prior year income of $1.6 billion. Record steel shipments, as Mark mentioned, of 13,700,000 tons were more than offset by compressed flat rolled steel metal margins. In the fourth quarter, our steel operations generated operating income of $322,000,000 sequentially lower driven by seasonally lower shipments combined with planned maintenance outages at our three flat rolled steel mills. Barry will provide more context regarding the outages in a moment. For those of you tracking the flat rolled shipments for your models, fourth quarter hot rolled shipments were 942,000 tons. Cold rolled, 122,000 tons, and coated products were 1,395,000 tons. For the full year 2025, operating income from our metals recycling operations was $97,000,000 almost 30% higher than 2024 results based on improved pricing and volume and gains the team continues to achieve in operating efficiencies. For the fourth quarter, operating income actually declined about $13,000,000 from a sequential basis based on lower pricing and seasonally lower shipments. Our metals recycling platform provides a significant competitive advantage for our steel, aluminum, and copper operations. Using innovative new separation technologies and growing supplier relationships to support their customers and our growing internal needs. For the full year 2025, earnings from our steel fabrication platform were $407,000,000 representing a solid year yet lower than the prior year earnings as average realized pricing and volume declined. However, pricing and metal margins actually moderately expanded in the fourth quarter, as our steel fabrication team achieved operating income of $91,000,000. Our steel joist and deck demand remains solid, with good order activity. December was one of the strongest activity months in 2025, setting up 2026 very well. We're incredibly excited for our aluminum team's operational and commercial progress. Mark will provide specifics later on this call. But as planned, the team was EBITDA positive in December based on 10,000 metric tons of shipments and improving cost structures. True achievement as there's still ongoing construction and equipment commissioning in various parts of the operation. For the full year and fourth quarter 2025, we generated cash flow from operations of $1,400,000,000 and $273,000,000 respectively. Of note, there was a structural increase in working capital related to our new aluminum investments, which reduced full year cash flow by approximately $50,000,000 and fourth quarter cash flow by approximately $155,000,000. Our cash generation is consistently strong based on our differentiated circular business model and highly variable low-cost structure. At the end of the year, we had liquidity of over $2,200,000,000. On 11/21/2025, we did issue $800,000,000 in investment-grade unsecured notes. Comprised of $650,000,000 of 4% notes due 2028, and $150,000,000 of 5.25% notes due in 2035. The net proceeds from the notes were used to redeem our $400,000,000 notes due 2026 and for other general corporate purposes. During 2025, we invested $948,000,000 in capital investments. We currently believe capital investments for 2026 will be in the range of $600,000,000. Some of the aluminum CapEx did shift from the fourth quarter into the quarter, just from a timing perspective. We also completed the purchase of the remaining 55% equity interest in New Process Steel effective December 1, as Mark mentioned. And I also want to welcome the team. In 2025, we purchased $900,000,000 of our common stock or over 4% of our outstanding shares and $240,000,000 during the fourth quarter. At December 31, we still had $81,000,000 remaining authorized for share repurchases. These actions reflect the strength of our capital foundation and consistently strong cash flow generation capability, and the continued optimism and confidence in our future. Our capital allocation strategy prioritizes high return growth, with shareholder distributions comprised of a base positive dividend profile that's complemented with a variable share repurchase program. While we remain dedicated to maintaining our investment-grade credit designation. Our free cash flow profile has fundamentally changed over the last five years. From an annual average of $540,000,000 per year for the five-year period 2011 to 2015 to $2,200,000,000 for the most recent five-year period. And if you exclude the recent investments in Sinton and aluminum, it actually would be $3,200,000,000 per year. And there's still more coming. We've invested over $5,000,000,000 in three primary organic growth investments. These projects have estimated through cycle annual EBITDA capability of approximately $1,400,000,000. We've placed ourselves in a position of strength to have a sustainable capital foundation that provides the opportunity for meaningful strategic growth and strong shareholder return. While maintaining investment-grade metrics. We are squarely positioned for the continuation of sustainable optimized long-term value creation. Thank you. Barry? Barry Schneider: Thank you, Theresa. Our steel fabrication operations performed well in 2025 achieving strong earnings. The end of the year, our steel joist and deck order backlog was solid with December being the third strongest bookings month of the year. The backlog extends through 2026. We continue to have high expectations for this business this year, due to the positive customer sentiment and quoting activity, moderating interest rates, continued manufacturing onshoring, and public funding for infrastructure and other fixed asset investment programs. The uplift from this macro environment could be considerable. Steel fabrication platform provides meaningful volume support for our steel mills critical in softer demand environments, allowing for higher through cycle steel mill utilization compared to our peers. Also helps mitigate the financial risks of lower steel prices. Our metals recycling operations also performed well this year increasing operating income by almost 30%. Congratulations to the team. The North American geographic footprint of our metals recycling platform provides a strategic competitive advantage for our steel mills and for our scrap generating customers. In particular, our Mexican locations competitively advantage our Columbus Sinton raw material positions. They also strategically support aluminum scrap procurement for our flat rolled aluminum investments. Our metals recycling team is also partnering even more closely with both our steel and aluminum teams to expand scrap separation capabilities through process and technology solutions. This will help mitigate potential prime ferrous scrap supply issues in the future. We'll also provide us with a significant advantage to materially increase the recycled content for our aluminum flat rolled products and increase our earnings opportunities. Steel team had another solid year with record shipments of 13,700,000 tons. During 2025, the domestic steel industry operated at an estimated production utilization rate of 77%. While our steel mills operate at 86%. We consistently operate at higher utilization due to our value-added steel product diversification. Our comprehensive differentiated customer supply chain solutions, and the support of our internal manufacturing businesses. This higher through cycle utilization of our steel mills is a key competitive advantage supporting our strong and growing cash generation capability and best-in-class financial metrics. Operationally, did have some downtime in the fourth quarter related to planned outages at our three flat rolled steel mills. There were some additional delays which inhibited production by 140 to 150,000 tons. Regarding the flat rolled steel markets, prices have recently improved. Supported by stable demand and lower imports. Lead times have extended, and customers remain optimistic about the outlook. Long product steel markets were a highlight throughout 2025. And we expect another solid year as demand and pricing remain strong particularly in structural steel and railroad rail. Regarding the steel market environment, North American automotive production estimates for 2026 are expected to be similar to 2025. Automotive dealer inventories continue to remain below historical norms and actually declined further in December. Our specific automotive customer base has not only remained stable, but have provided opportunities for growth. We have become a supplier of choice for many US-based European and Asian automotive producers due in part to our lower carbon content capabilities. Nonresidential construction should benefit from ongoing onshoring activity. Recently announced domestic manufacturing projects and continued infrastructure spending. In the energy sector, oil and gas remained steady, with solar continuing to be very strong. Overall, we remain optimistic concerning demand for our diversified value-added steel products in the coming year. With that, back to you, Mark. Mark Millett: Super. Oh, thank you, Theresa. Thank you, Barry. I think everyone can appreciate sustaining such positive results don't just happen. They result from the strategies implemented and executed by the teams over time. We have invested strategically to provide scale, product and market diversification, unique customer supply chains, and linked operating platforms to optimize market opportunities throughout market cycles. Combined with our performance-driven culture, we consistently achieve at the highest levels. We optimize cash generation, allowing for a consistent and balanced cash allocation strategy that has delivered strong shareholder returns. And our disciplined investment approach continues to support a strong and growing through cycle cash generation profile, while maintaining the highest return on invested capital among our industrial peers. In aluminum, we just grew more and more excited each and every day. As we watch the aluminum teams execute. Moving from construction through commissioning to serving the customers with high-quality products. I believe we enjoy a unique market environment. There is a significant domestic supply deficit of over 1,400,000 tons for aluminum sheet and this deficit is forecasted to grow along with demand. In 2024, that deficit was supplied through high-cost imports. Which are now even higher cost as the tariffs increased from 10% in '24 to the current 50% level. We've seen that there's clear alignment with many of our SDIs core competencies. Our construction capabilities have once again been proven, both Columbus and San Luis Potosi a state-of-the-art facility. We're using our deep operational know-how in combination with the technical expertise of aluminum industry experts that have been joined us. And our proven performance-driven culture will drive higher efficiency and low-cost operations as compared to our peers. We believe we have an advantaged commercial position. Two-thirds of our existing carbon flat rolled steel customers also consume and process aluminum flat rolled sheet. Our growth in the automotive sector will complement our existing steel position and provide customer material optionality. The beverage can market provides countercyclical market diversification. And a more stable earnings profile within the aluminum space will further enhance the consistency of our through cycle cash generation. Our raw material platform will facilitate higher recycled content. We're the largest North American metals recycling, which includes aluminum, and that team has done an incredible job successfully developing new separation technologies allowing us to have both more access to usable aluminum scrap and at a lower cost. Production today, even in its early stages, is already confirming our expected earnings differentiation. Through cycle EBITDA expectation remains clearly at $650,000,000 to $700,000,000 for the mill itself. Plus another 40 to $50,000,000 for the omni platform. As we spoke in the past, the four key areas of advantage being labor efficiency, the higher recycled content, a higher yield through the process, and optimized logistics. All of which are driven by our low-cost culture. The strategic investment is a cost-effective and high-return growth opportunity providing SDI with additional countercyclical diversification. Further stabilizing and growing our cash generation capabilities. As the industry already knows, the 650,000 metric ton project is no longer a vision. It's clearly here clearly having a positive impact in the industry. The customer base is excited to have a new market entrant that is known to be innovative, customer-focused, and responsive to their needs. For us, business relationships are long-term, founded on trust with a continuous goal of creating mutual value. And that's not just simply financial value, new supply chain solutions, new products, better quality, and better service. And we are seen to react with surprising speed. Many customers have seen that with recent supply chain side challenges in the aluminum flat rolled products market. Timing of our ramp-up has been fortuitous, allowing us to help the market while accelerating our material qualifications. Donuts have the challenges, and I would like to thank our customers for their patience as we fine-tune our operations. Today, those customers have been very very responsive and thank you for that. We have received certification from many customers for industrial and can sheet finished products. And for automotive aluminum hot band. This accelerated certification should allow us to shift our product mix to a higher margin mix in 2026, reaching optimization sometime in 2027, as compared to our earlier expectation of 2028. Three of the four melt cast houses are fully commissioned, and have produced all three, five, and 6,000 series ingots for industrial can sheet, and automotive sectors. For rolling mill commissioning, product development, and commercial shipments. And the team there is doing an absolutely phenomenal job. Actually, as they are through the whole mill, I guess. The hot mill is completely commissioning, having run three zero three fifty fifty two industrial, thirty one zero four can sheet, fifty seven fifty four, fifty one eighty two automotive grade material. The code reversing mill is successfully producing. Three double o three, fifty fifty two, and thirty one zero four. The first tandem mill is in commissioning and starting to produce. The second tandem cold mill and the first of two cash lines are on schedule to be operating before the end of the first quarter 2026. The team is incredibly excited with the earlier than anticipated product certifications for sure. It's a testament to the phenomenal talent we have embedded in the team. And there's so much great energy and momentum throughout the mill. We're extremely excited by the physical production and quality of the mill this early in the startup. And are focused on achieving optimal consistency. We ended the year shipping 10,000 tons in December, which is about 20% of our capability. Eventual capability. And our confidence will be exiting 2026 at a rate approaching 90% capacity. We're impassioned by our current and future growth plans as they will continue to drive the high return growth momentum we have consistently demonstrated over the years. The earnings growth of these new projects is compelling. The capital spending for Sinton, the four value-add lines, and aluminum dynamics is largely spent with a projected future through cycle EBITDA contribution of over $1,400,000,000. I'm excited as investors to recognize the power and the consistency of our strong cash generation, combined with our disciplined high return capital allocation strategy. It is our belief that the steel industry has undergone a paradigm shift in recent years supported by a pervasive sense of mercantilism. That will provide a level playing field through continued and appropriate trade mechanisms. Fixed asset investment will continue to grow which directly correlates with increased metal products demand. Continued reshoring. AI and cloud computing will support nonresidential construction. And decarbonization will materially steepen the global cost curve providing Steel Dynamics with a huge competitive advantage. To gain market share and increase metal spreads. Our highly diversified value product capabilities provide us with a very unique advantage to leverage this evolving metals business environment. And will amplify our relative earnings capability. In closing, as I always say and always believe, our people and our foundation I thank them, some 14,000 of our teammates, and when you include the partners in life, the spouses, and the children, there are 63,000 people in the SDI family. I thank each and every one of them. For their passion and their dedication. And we're committed to them. Now remind those listening today that safety for yourselves and your families and each other is the highest priority. I'd be remiss not to thank our loyal customers many of whom have supported us since our inception. These partnerships are based on trust on doing what we say we will do, and creating new solutions to enhance the value proposition. And our new aluminum partners will experience the same. And as I said earlier, I appreciate their patience as we work together to get Columbus up and running. And finally, to our suppliers and service providers who we value and trust, and thank you. We can't do what we do without you. We look forward to creating new opportunities for all of us. Today and the years ahead. And with that, Ali, we would love to take questions. Operator: Thank you. To ask a question, please signal by pressing the star key followed by the digit one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off. To allow your signal to reach our equipment. If you pressed star one earlier, during today's call, please press star one again to ensure our equipment has captured your signal. Also, we ask that you please limit yourself to one question to facilitate time for everyone. Any additional questions can be addressed upon reentering the queue. Our first question today is coming from Katja Jancic with BMO Capital Markets. Your line is live. Katja Jancic: Hi. Thank you for taking my questions. Starting on the aluminum rolling mill. Mark, I think you said that the mill is expected to reach 90% utilization by the '26. Is that correct? Mark Millett: That's correct. But we think that's a little sooner than we we've, I think, talked in the past. But what we're seeing from the team and from the equipment it's given us a strong confidence that that can be achieved. Katja Jancic: And then given that the mill reached or was EBITDA positive in December, and when looking at the current aluminum and the Midwest premium environment, how should we think about the profitability over the next few quarters? Mark Millett: Well, I would help me. Anticipated that that positive EBITDA profile will continue through the year. Theresa Wagler: So there's still as Mark mentioned on his opening remarks, we're still commissioning and constructing some of the downstream facilities, if you will. And so that will have an impact on the first half of the year. But we do expect to remain and be improving EBITDA throughout the first half of the year, and then the second half of the year really is about product mix optimization. Katja Jancic: Okay. Thank you. Operator: Our next question is coming from Lawson Winder with Bank of America Securities. Lawson Winder: Thank you very much, operator, and good morning, Mark, Theresa, and Barry. Thank you for today's update. Mark Millett: You're welcome. Lawson Winder: What I'd like to do is just kinda ask a question along the lines of investment with and not necessarily M&A, but into growth too. When you think about your balance sheet and the amount of debt that could potentially take on, whether for some sort of acquisition or for a major investment into new capacity. Where do you kinda see the upper limits of your comfort level? Theresa Wagler: Thanks for the question, Lawson. So we do have a balance sheet that actually has a considerable amount of capacity. When we look at where we'd like to be on a through cycle basis, we're very direct about being less than two times a net realized basis, and we're well under two times today as we set from a liquidity and debt perspective. So there is room to move. And that is also in light of the fact that our structural EBITDA is actually improving. So that $1,400,000,000 that we talk about associated with aluminum and Sinton and four value-added lines, hasn't really begun to be realized in any meaningful way yet. So all of that is adding extra capacity to the balance sheet as well. We are incredibly committed to the investment-grade markets but there's a lot of room in our ratings to be able to add that capacity. So I won't talk about necessarily a top range. I'll just say on a through cycle basis, we definitely will remain under a two times levered basis. Lawson Winder: Okay. Thank you for those comments, Theresa. Operator: Thank you. Our next question is coming from Tristan Gresser with BNP Paribas. Your line is live. Tristan Gresser: Yes. Thank you for taking my question. Just a quick follow-up on the aluminum. If you expect to reach kind of targeted utilization rate by year-end, and I understand your product mix might not be fully optimal by then. But given the current pricing environment, is it fair that by year-end this year, you should get to your at least to your targeted margin profile? Theresa Wagler: Referring to the through cycle $650,000,000 to $700,000,000 EBITDA estimate. Is that what you're trying to... Tristan Gresser: Yes. Theresa Wagler: So what we've said in the past is that, actually, the margins that we're achieving not achieving today. The margins on a market basis that are available today, are actually higher than what we projected on a through cycle basis. For the investment itself just given where the Midwest transaction price is, etcetera. So there is that opportunity, I think, more quickly. Yet we're still working through start-up. We're still working through, you know, all of those items. So we're not prepared today to talk about what profitability might look like. In the fourth quarter of this coming year, but all the market factors are positioned to actually give us a significant advantage over what we had modeled on a through cycle basis. Tristan Gresser: Alright. That's clear. If you allow me a quick follow-up, just on Sinton, if you can give us an update. I think there were press reports of some incidents in January and if you could talk a little bit about the volume of into Q1 for the steel business, that would be also appreciated. Thank you. Barry Schneider: Lawson, this is Barry with regards to the incident here, of the year, we did have a transformer failure at the Sinton facility. It was one of the voltage transformers in the yard. This was an original transformer. And I think as we talked about publicly, we had some transformer issues at that facility we're starting up. We believe this transformer was subjected to some of that stress on the system early. We had been monitoring it. We took the opportunity a couple of years ago to actually go out and buy significant amounts of other transformers that we have engineered into the system. So we don't have any concerns of ongoing problems. We believe we've rectified the original engineering and vocational challenges we had down there. So all in all, it was a great job by the fire department. It was rather demonstrative, the failure, but nobody was injured. The damage was limited to the transformer itself, and operations resumed shortly after, the plant was safe, which was within the twelve hours or so of the incident. So we don't expect any ongoing concerns, and the team has done a good job of getting the backup resources very difficult to get transformers in this world, so they acted quickly a couple of years ago to make sure we had the stuff spared and installed. So we feel good about where we're going and it was unfortunate, but onward, upward with Sinton. Operator: Thank you. Our next question is coming from Timna Tanners with Wells Fargo. Your line is live. Timna Tanners: Yeah. Hey. Good morning. Regarding the $1,400,000,000 structural contribution, I feel like we talked about aluminum. But just can you give us any updated thoughts on the status of the four value-add lines have been ramping up and, just remind us, where Sinton is. I know it's still the slide nine shows us that it's still running a little lighter than the rest of your operations. When can we expect that to maybe converge? Thanks. Theresa Wagler: Yes. Thank you. It's good to talk to you again, Timna. So from the perspective of the 1.4, I'm just to outline where that is on a through cycle basis, Sinton represents $475 to $525,000,000 of that. As we mentioned. Aluminum is $650 to $700. And then generally on the value-added lines, we think about it more like maybe $50,000,000 per line. So that would be, like, around $200,000,000. So the value-added line slash year for the whole year were operating each one differently, but around 60% of their capability, the four lines. And then as far as Sinton still had a lot of the additional costs to product quality embedded in 2025 that have since been resolved kind of in that fourth quarter, first part of this year time frame. So Sinton really has the capability now like all of our other facilities, to operate wherever the market will drive it. Barry Schneider: Teresa, if I could add a little color to that. The four value-added lines, two galvanizing lines, and two paint lines, are actually operating very well. As you are aware, we had the core cases that we had filed a couple of years ago. Those core cases were against the corrosion-resistant steels that were being dumped into this country. Ten different countries were at play. We won a substantial awards against those countries that will continue to limit the ability for those countries to just dump material into the United States. And the new process lines really were pressured because of that dumped material. We had excess of a million tons that have already been removed from the market that had been coming from these ten countries around the world. So as we've ramped through that, we've fine-tuned our quality, and we've made sure that the customer base is excited about the product they're receiving from those lines. They are operating full at this point in time. And because of our supply chain, being able to take bands, hot rolled coil, and convert them into galvanized and painted coils. It's really structurally helped respond quickly as markets change. Our supply chain was the innovation with painting, and it remains our strength. And the quality and innovation of the product. So, we're really excited about what those lines will do now for us. That we aren't competing with the dumped tons from all across the world. Timna Tanners: Got it. Thanks, Barry and Theresa. Operator: Thank you. Our next question is coming from Bill Peterson with JPMorgan. Your line is live. Bill Peterson: Yeah. Hi. Good morning. Thanks for taking the questions, and thanks for all the details we've heard. I guess I'd like to follow-up on an earlier question on Sinton that broadened out a little bit. It sounds like the Sinton impact here in the current quarter was fairly modest in terms of impact. But there may have been some other outages in your network in the late fourth quarter. Just trying to get a sense, can you help us quantify the impact on outages and maybe more broadly, is there any planned maintenance in the first quarter that may impact your shipment profile? Barry Schneider: Bill, this is Barry. Our outages we're really good in making a priority to take care of our equipment. And as you can imagine, our major flat roll mills are of different ages with Butler at 30 and Columbus around 20 and Sinton brand new. There's different things we do at all these plants. It's part of our long-term strategic plans to take care of our assets. Some cases, we add capabilities. Other cases, it's just good old-fashioned maintenance. It just coincided that all three of these the three big flat rolled mills had outages in the fourth quarter. We don't we typically do one or two outages a year depending on what our projects have. So, quarter one, we don't have anything on the table for us. We're looking more towards, the second quarter right now for our planning. So, we got a lot of good work done. A lot of that is, as I said, it's making sure that we continue to make state-of-the-art products for our customers and that the machines are running as well as possible. So outside of that, nothing structurally different for what we do. Operator: Thank you. Our next question is coming from Philip Ross Gibbs with KeyBanc Capital Markets. Your line is live. Philip Ross Gibbs: Hey, good morning. Mark Millett: Morning, Phil. Philip Ross Gibbs: Hey, Mark. I understand you don't wanna talk further about the BlueScope deal. It obviously appears very compelling, but curious if you're prohibited from buying back stock for any reason given there's now a potential deal that's been publicly disclosed. Theresa Wagler: There's nothing that is regulatory or in place, Phil. No. Philip Ross Gibbs: Okay. And then just a follow-up just on kind of the energy cost wildness we've seen. I know you don't use a lot of natural gas relative to electricity, but you know, perhaps there is a little bit of a knock-on effect on electricity as well. I know it's been ramping in some parts of the country, at least for consumers. So just curious in terms of how you're thinking about your energy cost basket heading into the early stages of the year here? Barry Schneider: Phil, this is Barry. I think with energy, we have very unique contracts everywhere. Even here in Indiana, have three different electrical contracts. We try to be a good response in the market. So we buy smart. We take market signals. For when we buy, and sometimes we do take small downtime to help the system grids. With regard to electricity, we really haven't seen anything meaningful. There are times of the day. There are times of week that it might get expensive. Many of our operations don't see that short term. Some do, and they plan for that. With regard to natural gas, we typically don't you know, we take positions future buys, and we make sure that what we're doing is responsible. When we see cold weather coming, we make sure we buy our transportation. So that we can't be interrupted. And, typically, as we get into the winter where it's prudent, we'll make sure more of that product is prepaid and prebought. So we don't see huge swings, with energy. We do see local impacts, but in general, we have good relationships with our providers. And as you I'm sure you know, the Minnie Mill process, we use considerably less natural gas per ton because, in the flat roll mills when we cast, it goes directly into a rolling mill, shortly after it's cast. So that's the efficiency we get, which helps us with energy quite a bit. Philip Ross Gibbs: Thank you so much. Mark Millett: And Phil, just to add on there, just to sort of calibrate where our energy cost or percentage of energy cost is. It's running around about 10% of our production cost. Both that's gas and electricity. So even some fluctuation isn't a material impact to us. Operator: Thank you. Our next question is coming from John Tumazos with John Tumazos Very Independent Research. Your line is live. John Tumazos: Thank you very much. I do. I'm unfamiliar with what are hot rolled aluminum automotive products. I'm sort of asking an innocent question. I don't wanna make it sound like I'm skeptical. I'm just unaware. What are finished applications on a car for hot rolled aluminum? And is it possible that you're also selling hot rolled aluminum to another aluminum roller whose cold rolling capacity is bigger than their hot rolled capacity. And or who for whom you have quality specs they can't make. Mark Millett: Your question is, as always, is on point, John, and I wouldn't say it's naive. In any way shape or form. There's not a real market for direct hot band aluminum going into an automobile. It does get converted. That conversion is being done by others today. Because we don't have the full downstream capability and we don't have the cash line. So others in the industry are converting that. And I think it's important to just a great sort of entrance into the whole aluminum market itself. Obviously, that market has been challenged. On the supply side. And we have gone out and wherever we can we're helping the industry generally. And part of that is supplying hot band to folks. John Tumazos: When will you excuse me, Mike. When will you have all the capabilities to code and cold roll the automotive aluminum to sell the final product 100% on your own? Mark Millett: The restriction is essentially the cash line, and the first cash line is due to be operational at the end of the first quarter. John Tumazos: And cash stands for what? What is the acronym name? Me. Barry Schneider: Continuous anneal surface hardening. John Tumazos: Oh, okay. It's a final heat treatment. So that it can be the right strength when it goes to the mill. John Tumazos: I thought we took cash from the bank, but you will. Mark Millett: Yeah. Well, John, in my time. So in my naivety, I thought it was c a c h e for the longest. John Tumazos: Congratulations. Mark Millett: Sounds great. Operator: Thank you. Our next question is coming from Lawson Winder with Bank of America Securities. Your line is live. Lawson Winder: Oh, thank you, operator, and thank you for taking the follow-up, guys. Wanted to get your sense when you look at the aluminum market today and the success you've had so far with the start-up, mean, and you look out maybe a couple of years, do you see the potential for Steel Dynamics to add additional aluminum rolling capacity? Mark Millett: There's absolutely no doubt. That aluminum will be a growth platform for us going forward. And that's not to substitute or replace growth opportunities in steel or any other businesses. And just well, just in general, you gotta compliment or I compliment our team. They do a phenomenal job ensuring that we've got a pipeline of really effective value-add opportunities. And so yeah, we will continue to expand in steel and obviously aluminum is a new platform for us. And given the kind of the profile of that industry. There's a lot of and the supply-demand dislocation. There's certainly phenomenal opportunities there for us. Lawson Winder: Fantastic. And if I could also just ask on your thoughts or prescriptions for the dividend. This year. You would normally, look to update your thinking on the dividend in March. At this point, do you see any other investment considerations that might constrain the extent to which the dividend could be increased this year, particularly when thinking about this very significant positive free cash flow inflection that's anticipated at Steel Dynamics in 2026. Theresa Wagler: So, Lawson, the capital allocation strategy that we use for shareholder distributions is to keep the dividend growing as we have structural growth in cash flow. We have increased the dividend very significantly. Already for the advent of Sinton starting up, etcetera. So as we have further structural changes, we will increase the dividend appropriately. So aluminum could be part of this year or maybe it's next year, but we'll let you know. In the absence of that, we definitely lean in with the variable share repurchase program. Lawson Winder: Thank you all very much. Operator: Thank you. Our next question is coming from Philip Ross Gibbs with KeyBanc Capital Markets. Philip Ross Gibbs: Thank you. You mentioned aluminum expected to be running at 90% by year-end 'twenty-six. I think your previous view was 75%. What's given you the added confidence to, I guess, say that this morning and meaning and also meaning kinda what's changed? Mark Millett: Well, I think given our experience in Sinton, we've been sort of retaining a more of a conservative position, I would say. So that on top of down in Columbus doing phenomenal things. What I see as a phenomenal team with an absolutely amazing piece of kit. Barry, I think, has said it in past calls. But just the nature of the aluminum process and production sort of steps or units. It's a lot more forgiving from a start-up standpoint, you know. We explained it in the past. A thin slab or, you know, steel mill such as a Sinton or a Butler or whatever. Because the whole mill melt through refining through casting, through rolling, it's just one continuous thing, one hiccup in one spot, can take you down. And it sort of compounds itself through the system. Whereas in aluminum, you know, we have just at Columbus, we have the four melt cast units. You got the hot mill, you got the we will have you know, three co rolling units just a lot more forgiving. So giving all that, we just see... Theresa Wagler: It's the redundancy in it in the system. Mark Millett: That's right. And so we just have a high high confidence level. Philip Ross Gibbs: Just a follow-up to that. Can you give us an idea of where you're running at right now? I know there's a lot of trials and things going on and you may not wanna, you know, double count stuff that's not purely commercial, but trying to just understand where you are from a capacity utilization standpoint. Thank you. Mark Millett: I would prefer not to be that specific. I would say that our shipping rates are not necessarily a reflection of the production rates. You know, it just evolves. We're ramping up because of the quality that needs to be refined and optimized. It's getting optimized almost on a weekly basis. But the actual physical capability of the equipment is very sound. Philip Ross Gibbs: Thank you. Good luck. Operator: Thank you. Our next question is coming from Carlos De Alba with Morgan Stanley. Your line is live. Carlos De Alba: Yes. Thank you very much. Hopefully, you can hear me. But just maybe, Theresa, can you comment a little bit on working capital? How do you expect that to move throughout the year given that you will continue to ramp up the Ali business? And then CapEx beyond 2026, any comments there? Theresa Wagler: Yeah. Thanks, Carlos. I think I got both questions. From a working capital perspective, a majority of the bill that was required for aluminum given the current pricing dynamics of aluminum, the met just the pure metal itself, most of that has been captured already in 2025. There'll be some slight fluctuations between now and the end of the year. Nothing that I think would be material enough to be noted. First quarter, however, just remember that we actually pay our profit sharing to all of our employees in that first quarter time frame. So, generally, that has some pressure on the working capital and the cash flow. Otherwise, everything looks like it's pretty steady. For the year. As it relates to capital expenditures beyond 2026, as a reminder, our maintenance or what we refer to as our sustaining capital really is fairly low. It's generally around, you know, $250,000,000, maybe upwards of $300,000,000 now. And beyond that, we haven't really named any specific material projects at this point in time. Carlos De Alba: Thank you. All the best. Theresa Wagler: Thank you. Operator: This concludes our question and answer session. I'd like to turn the call back over to Mr. Millett for any closing remarks. Mark Millett: Super, Ernie. I appreciate that. And for those remaining on the call, again, thank you for your support. And for your time today for sure. Our teams aspire to create that shareholder value creation that we seem to be able to do. Year in, year out in 2025 was a reflection of that. Most importantly, to our employees that might be on the line, you've all done an absolutely phenomenal job. You continue to do absolutely phenomenal job. And what you do each and every day that execution drives our success and it drives that in the as well. So thank you, and each and every one of you, be safe. For yourselves, for each other, and for your family. So thank you very much. A great day, everyone. Bye bye. Operator: Once again, ladies and gentlemen, that concludes today's call. We thank you for your participation. And have a great and safe day.
Krissy Meyer: Good morning, and thank you for joining Bank of Marin Bancorp's earnings call for the fourth quarter ended December 31, 2025. I am Krissy Meyer, corporate secretary for Bank of Marin Bancorp. During the presentation, participants will be in a listen-only mode. After the call, we will conduct a question and answer session. Joining us on the call today are Bank of Marin President and CEO, Tim Myers, and Chief Financial Officer, Dave Bonaccorso. Our earnings news release and supplementary presentation, which were issued this morning, can be found in the Investor Relations section of our website at bankofmarin.com, where this call is also being webcast. Closed captioning is available during the live webcast as well as on the webcast replay. Before we get started, I want to note that we will be discussing some non-GAAP financial measures. Please refer to the reconciliation table in our earnings news release for both GAAP and non-GAAP measures. Additionally, the discussion on the call is based on information we knew as of Friday, January 23, 2026, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion on these risks and uncertainties, please review the forward-looking statements disclosure in our earnings news release, as well as our SEC filings. Following our prepared remarks, Tim, Dave, and our Chief Credit Officer, Masako Stewart, will be available to answer your questions. And now I'd like to turn the call over to Tim Myers. Timothy Myers: Thank you, Chrissy. Good morning, everyone, and welcome to our quarterly earnings call. We are very excited that our execution in the fourth quarter across a number of key areas resulted in continued positive trends for core profitability metrics, loan and deposit growth, effective expense management, and improved credit quality. We completed a balance sheet restructuring during the quarter that did result in a net loss, but meaningfully improved net interest margin and net interest income while we maintain strong capital levels due to a targeted approach to security sales and a successful subordinated debt. Before Dan goes into more detail about the restructuring and its benefits, I'd like to discuss our fourth quarter highlights related to loan and deposit growth and asset quality improvements. During the quarter, our total loan originations were $141 million, including $106 million funded, with over 90% of that activity in commercial loans. This was one of our strongest quarters in the past decade. Our originations were a more diversified and granular mix across commercial banking categories, geographies, industries, and property types, and we are seeing a healthy increase in commercial real estate loan demand that meets our disciplined underwriting standards. Our overall loan growth, although quite robust, was offset moderately by $50 million in payoffs during the quarter, predominantly within non-owner occupied commercial real estate and residential real estate. For the full year, we originated $374 million in new loans, including $274 million funded, which was 79% higher than the prior year. Our banking team continues to develop attractive lending opportunities and bringing new deeply rooted relationships to the bank, including in key growth markets such as the Greater Sacramento area. While we continue to navigate a competitive market environment on pricing and structure, we have attracted a significant amount of new client relationships while maintaining our disciplined underwriting and pricing criteria. Our total deposits increased during the fourth quarter due to a combination of increased balances from long-time clients as well as continued activity bringing in new relationships. The rate environment remains competitive, and clients do remain rate sensitive. However, they continue to bank with us for our service levels, accessibility, and commitment to our communities, allowing us to continue reducing our cost of deposits by 10 basis points while growing our deposit base. Proactive credit management led to improved credit quality trends this quarter, driven by borrower upgrades, reflecting strong financial performance and successful targeted loan workout efforts. Classified loans declined 35% quarter over quarter, decreasing to 1.5% of total loans from 2.4% in the prior quarter. Non-accrual loans also improved, declining 14% to 1.3% of total loans compared with 1.5% in the prior quarter. Past due loans decreased significantly as well in the quarter, reaching the lowest level since 2023. With that, I'll turn the call over to Dave Bonaccorso to discuss our financial results in greater detail. Dave Bonaccorso: Thanks, Tim. Good morning, everyone. As Tim mentioned, the balance sheet repositioning we completed in the middle of the fourth quarter is performing as expected, with contributions to profitability metrics already flowing through during the quarter. On a twelve-month basis from the time of execution, we expect approximately $0.40 of earnings per share accretion and 25 basis points of net interest margin lift. Regarding the structure of the repositioning, while we transferred the entire held-to-maturity portfolio to available-for-sale, we only sold 74% of the legacy held-to-maturity portfolio as we sought to optimize the level of incremental income on reinvestment relative to the realized loss on the securities sale, which impacted our capital ratio. Through this optimization, we were able to replenish capital using only subordinated debt, which avoided the dilution to earnings per share that a common stock issuance would have created. As a result of the losses on security sales, we had a net loss of $39.5 million in the fourth quarter, or $2.49 per share, which was attributable to the $69 million loss that we recorded related to the securities portfolio repositioning in the fourth quarter. On a non-GAAP basis, excluding the loss in the securities portfolio repositioning, our net income was $9.4 million or $0.59 per share. Non-GAAP pre-tax pre-provision net income increased 31% over the quarter and 51% over the year. Our net interest income increased from the prior quarter to $31.2 million due to balance sheet growth as well as higher investment security yields and reduced deposit costs. Loan yields also benefited from $667,000 of recovered interest from the payoff of a non-accrual relationship. Based on current market expectations for 25 to 50 basis points of easing the Fed funds rate during 2026, we will remain prepared to make targeted deposit cost reductions, which we believe will continue to contribute to margin expansion. Moving to non-interest income, setting aside the securities losses, most areas of fee income were relatively consistent with the prior quarter. Our non-interest expense increased by $100,000 from the prior quarter. While salaries and employee benefits declined in the fourth quarter due to incentive bonus and profit-sharing accrual adjustments, in the first quarter, we expect this category to be elevated due to seasonal salary and benefit accrual resets, including payroll taxes, incentive compensation accruals, and 401(k) matching. Similar to last year, in the first quarter, we also expect to complete the majority of our annual charitable giving. Due to the improvement in asset quality in our loan portfolio and the substantial level of reserves we have already built, we had just a minor provision for credit losses in the fourth quarter, and our allowance for credit losses remains strong at 1.42% of total loans. Given the continued strength of our capital ratios, our Board of Directors declared a cash dividend of $0.25 per share on January 22, the eighty-third consecutive quarterly dividend paid by the company. With that, I'll turn it back over to you, Tim, to share some final comments. Timothy Myers: Thank you, Dave. We continue to see relatively healthy economic conditions in our markets, and our credit quality continues to improve. Our loan pipeline remains strong amid healthy demand, and we expect to generate solid loan growth in 2026 while also continuing to grow deposits through the addition of new relationships and expansion of existing client relationships, although we do expect to see the seasonal outflows that we typically experience in the first half of the year. In closing, we successfully executed on balance sheet restructuring and growth initiatives as anticipated, achieving the expected net interest margin and balance sheet expansion. Our expanded earnings stream enhances our ability to further invest in people and initiatives that we believe will help support the continued profitable growth of our franchise. With that, I want to thank everyone on today's call for your interest and support, and we will now open the call to your questions. Operator: If you would like to ask a question, please click on the raise hand button at the bottom of your screen. Once prompted, please unmute your line and ask your question. We will now pause a moment to assemble the queue. Our first question will come from Matthew Clark with Piper Sandler. Please unmute and ask your question. Matthew Clark: Hey. Good morning, Tim and Dave. How are you doing? First one for me, just on the loan side, really good production. Can you give us a sense for how much or what percent of that production came from, you know, recent hires and maybe how much they account for the current pipeline as well? Timothy Myers: Yeah. Thank you. I would say a significant part. I don't have the exact percentage for that particular group. I mean, they're becoming less recent hires. But I would say a lot of the production is predominantly oriented towards them. I think the pipeline's a little more diverse than that, but those teams that are contributed the most of that growth, those new people are on those teams. Matthew Clark: Okay. Dave Bonaccorso: And on the deposit cost side, I see the average deposit cost of $2.08 in December. I think $2.09 in November, so only down a basis point. And given the December rate cut, do you happen to have the kind of the end of period, the December 31 spot rate? Or I know there's some lag effect in your cutting the deposits, but would have thought that number would have been a little lower. In December. So December spot rate for interest bearing was $2.08. And for total was the December 31, I should say. And total was $1.17. And we're roughly in the same place as of last week. Okay. But there's an expectation, I guess, given the kind of, you know, what you allude to or mention in the deck about kind of a lag effect. I assume those will drop more meaningfully in January or first quarter. I think a big chunk has already occurred. I mean, we put through a lot of the rate reduction late in December. So there's some residual effect, but that should be captured mostly in the spot rates. Matthew Clark: Okay. Okay. Dave Bonaccorso: And then just the increase in special mention this quarter, any color there? Timothy Myers: I would say the biggest contributor to that was the downgrade of a wine industry credit. That's Yeah. I'm sorry. Dave Bonaccorso: And also upgrades from sub sub Timothy Myers: Yeah. We well, I'm sorry. That's right. So we while we don't normally do this, we upgraded a couple from substandard to special mention from a conservative approach. For example, we have one commercial property that had been 100% vacant, an issue from the pandemic down in the Palo Alto area that is now 100% leased. The cash flow is sufficient to upgrade to pass, but those tenants have yet to take occupancy. So in the meantime, we upgrade to special mention. When they take occupancy, we'll go upgrade that to pass. Then we did have a downgrade of a wine industry credit from past the special mention or from watch the special mention. So it was those were the two big contributors. So there's half of that's a positive. For a good portion. Matthew Clark: Okay. Great. Thank you. Timothy Myers: Welcome. Operator: Your next question will come from David Feaster with Raymond James. Please go ahead. David Feaster: Hey. Good morning, everybody. Timothy Myers: Morning, David. David Feaster: You know, it sounds like Andrew Terrell: you know, just kinda going back to the loan growth side, I mean, it's really encouraging you guys have been able to do, and obviously, originations have improved pretty materially. It sounds like I mean, you alluded to some improvement in demand, but, you know, the new hires are really, you know, having a lot of success. I'm just curious. How do you think about new hires today? I mean, are you seeing opportunities across the footprint? And where are you looking to add talent? Timothy Myers: We are seeing opportunities. I will say one thing back to Matthew's question too. I mean, these people come in and sort of set a new standard, you start to see the tide rise and all the other boats start to rise with it. We are seeing improved behavior from, you know, other folks within the lending team. So I don't want to just give them all the credit. We are going to continue to look to hire people to come in and really move the needle on new loan originations. I would say we're less geographically sensitive to where that is. For example, if you look at the teams that did the best, the North Bay still is far and away the biggest producer. Or the biggest producer, a lot of those assets and borrowers are in other parts of the Bay Area. And so as we make hires that were with bigger banks, that might not be so geographically constrained within the regional convey commercial banking offices, we're not seeing a direct correlation between where they're domiciled and where the deals they are. And that, you know, that's giving us a better approach to the market overall. So we'll continue to look for those hires. You know, continued hiring in Sacramento, the East Bay. And or San Francisco, depending on, you know, where they're at and what markets they cover. You know, we want to continue to our production was much better dispersed across regions by teams this quarter than we've seen in a long time, and we want to continue to take advantage of that. So I'm not trying to be an evasive question. It is all over the place. But we are seeing better activity in virtually every market. Andrew Terrell: That's great. And then maybe just switching gears to deposits. I mean, your deposit trends have been really impressive. I mean, the amount of NIV growth that you're able to put on and, you know, continuing to grow deposits while reducing deposit costs is no easy feat. I'm just kinda curious. You know, could you just touch on I guess, first of all, the receptivity of your clients to reducing deposit rates at this point. And if you've seen any attrition, if at all. And then just how do you think about deposit growth and where are you having the most success today? Timothy Myers: So I'll start with the latter on the deposit growth. So we open almost another thousand accounts, about 45% of those are new to the bank. And that's been a relatively consistent trend over the last four or six quarters. But that has a higher percentage of interest-bearing as we bring in new customers to the bank. Opening consumer accounts. You know, they're gonna have a different mix. But our continued success on the commercial banking side are bringing deposits. That being said, the quarterly fluctuations in our deposits are generally driven by movements within our large deposit, in some cases, deposit-only customers, and that continues to be the case. We did have some money that came in during the third or fourth quarter last year that we knew was gonna flow out. It was an outcome of a real estate transaction. So we'd already moved that off balance sheet, but it is hard to predict, you know, how those large account fluctuations, whether they be, you know, public, fiduciary type, or contractor funds, many with government contracts. Can have some volatility to them, and that is where we tend to see the fluctuations. Remind me of the very first part, David. Sorry. Andrew Terrell: Yeah. Just the how have your clients been, you know, receptive to, you know, deposit cost reductions at this point? In any attrition. Timothy Myers: Yeah. We've tried to be very targeted in how we've approached that over the last few quarters. We've sort of segmented where we can target next. In terms of having those conversations, and we've tried to have those decreases be moderate. And, you know, you can never I wouldn't pretend to argue that people enjoy that, but I think we do a really good job of understanding the market's at and do our best to drive value and have the conversations in a way that eases that. And so the only real transition or runoff we've had or expect to have are people that were more rate shoppers that will, you know, then go chase a four and a quarter percent rate at a CD somewhere. And we're just not gonna grow, you know, our deposit base via that mechanism. So, you know, we'll probably see some, you know, some outflows that won't necessarily move the needle. But we will continue to balance that rational approaching model versus, you know, potential runoff. But you know, every quarter, we'll see a rate shopper respond in that way, and that's their prerogative. But we want to maintain the exact profile that you described. Andrew Terrell: Okay. And then maybe last one for me. Just kinda switching gears to the margin side. I mean, you know, obviously, there's been a lot of moving parts with the balance sheet restructuring. Maybe brought forward a little bit of the margin that expansion. Looking at the slides, you screen as modestly asset sensitive. But they I mean, obviously, there's still huge back book repricing. Potentials. And kinda Dave, hearing your commentary about able to reduce deposit costs and still drive margin over the course of the year even with a couple cuts. Is that the right way to think about it? Could you just help us think through maybe pace of margin expansion and, you know, Scott, any thoughts on the trajectory? Dave Bonaccorso: Sure. So I think variety of angles here as usual. So one angle is just looking at the monthly NIMs that we've had. And when you take out the loan the non-accrual loan interest recovery in October, you know, the adjusted NIM for that month was $3.12. The adjust and the actual NIM for December was $3.42. So you have 30 basis points of expansion during the quarter that sort of validates what we did with the repositioning. Also, includes the benefits of some targeted deposit cuts along the way. So one thing to think about as a launch point from December is a good chunk of our loan growth in Q4 was skewed to the last certainly the last month, if not the last two weeks, if not the last three or four days of December. So you have a lot of momentum coming out in terms of the loan growth that we had there. Then you think about the instruments beyond that. I mean, starting with loans, though, we continue to think there's the back book repricing you talked about. A year ago, that might have been 30 basis points of yield pickup on a monthly basis, you know, over a twelve-month period. Probably closer to 20 now, but there's still opportunity there, no doubt. Certainly, as you alluded to, security side, we pulled forward some of the benefits there. There are about $25 million, let's say, of non-repositioned bond cash flows that occur each for each of the next two years with yields in the low threes. So there's still some opportunity from that perspective. And then on the deposit side, you know, as we've done the last couple years, it's been, let's say, bigger cuts aligned with Fed funds rate cuts and more targeted cuts away from that. And so there's that opportunity this year, you know, with markets looking for one to two twenty-five basis point rate cuts. You know, we have all the tools in place to make cuts appropriately there while also balancing retention and deposit growth. Andrew Terrell: Okay. Dave Bonaccorso: And just Timothy Myers: yeah, Andrew Terrell: Yeah. Go ahead. Timothy Myers: Yeah, David. I just wanted to add one point to your question. I think this and the prior one and maybe Matthew's is as we're bringing in this new granularity and deposit base, if you look at page nine of the investor presentation, you know, the average weighted cost for those interest-bearing accounts that proportion was 1.9. So there is, you know, some impact of improving granularity, but we continue to think whether it's from the standpoint of uninsured deposits or just, you know, the concept of strategically being more granular, that's important. So that's always gonna have some offset to, you know, our work on our large interest and noninterest bearing customer balances. Dave Bonaccorso: And I'll add a couple things too. I assume you're referring to page five of the presentation that has the traditional rate shock parallel cuts. And I think we screen probably a little bit more sensitive there than we have in recent quarters. But on a ramp basis, I would say rates down, we still continue to see some benefits. Kinda depends on the time horizon you're talking about, but more on a ramp basis for about six quarters, we benefit from rates down. Then as more of the back book reprices, we benefit more from rates up. So our sensitivity is a little bit nuanced. It's probably oversimplifying just looking at the disclosure on that page. We other way of thinking about it is we have little over three times the amount of floating rate assets relative to floating rate liabilities. So as long as we continue to reprice our non-maturity interest-bearing deposits at, you know, a 33 or better beta, we win in the near term. And cycle to date, we've been 36%. So just a variety of ways to think about it. Andrew Terrell: Just stay on the margin. You know, pre-pandemic, you guys were, you know, at a plus 4% margin. Just given the strength of your deposit base, is that I mean, obviously, you're not gonna get there this year, but is that still a reasonable target over time? Timothy Myers: Yeah. Dave Bonaccorso: When you think about the incremental new pieces of business we're putting on, I don't see any reason why that wouldn't be. It certainly would take time as the back book particularly in loans now, reprices. But yeah, that I don't see any structural impediments to that over the medium to like you said, not a 2026 then. Andrew Terrell: Yeah. Okay. Everybody. Timothy Myers: Thank you. Operator: Your next question will come from Jeff Rulis with D. A. Davidson. Please go ahead. Jeffrey Rulis: Thanks. Good morning. Timothy Myers: Morning, Paul. Jeffrey Rulis: Tim, on the just wanted to kinda get into the loan growth and appreciate kinda some of the seasonal outflow headwinds to start the year. But, I mean, originations at decade highs here, I wanna try to get a sense for and I know you're not gonna guide to it, but I'm trying to think about a net loan growth figure for the year. You've been working at, you know, new team hires and getting that up. But it seems like a brighter year than you've had in the years past. Any kind of expectations of a kind of a mid-single-digit or better net growth for the year where do you guys see that sort of settling in? Timothy Myers: Well, I think you just you did a great job answering your own question, Jeff. I think we are continuing to target a much more consistent mid-single-digit production. That being said, we have the opportunity depending on how payoffs behave, to hit a number higher than that. You know, we continue to be faced with a number of payoff reasons that are largely out of our control. I've said this before, but you know, that you know, as the rate environment continues to get more prolonged, you know, that gets a little bit harder. A lot of the, you know, loans that were higher rates before before later in their maturity life, you know, paid off. But, you know, our biggest components to the asset to the payoffs were still asset sales and cash deleveraging. We have purposely continued to exit some credits that I would call, you know, structural imbalances there relative to the pandemic. And so about $10 million of the past in the quarter, from us working those out. They weren't horrible credits. One of the largest one there was paid off by a bank, but it is, you know, deals that we're always gonna kinda languish in, you know, an area that causes a lot of time. And so it's a cost-benefit analysis. So, you know, the goal is to continue to focus on the things we can control, keep those originations higher. The pipeline's about 30% higher. Right now than it was last year at this time despite all the closings. So, usually, with end of fourth quarter, particularly very end of fourth quarter, production like that you tend to see a really big drop off in the pipeline and it's bigger. So, you know, it'll be, again, continuing to control the payout side where we can. But also and I would say a significant amount of our payoffs last year were also came from the residential mortgage portfolio that we purchased the prior year to help with the yield on the reinvestment of the AFS sale proceeds. And those had a much higher prepay rate than and much lumpier than we anticipated. And, again, that was not something we control. So, you know, we continue to believe if we control the things we can, a lot of the headwinds on the payoff side will continue to moderate. And it'll be much easier to hit that consistent mid-single-digit. Jeffrey Rulis: Appreciate it. And then one other question or topic would just be on the credit side. You know, I can you could view that special mention move as somewhat of a silver lining in that. And then other upgrades and payoffs in the classified bucket. What would you sort of assign? Is there some rate relief going on, the macros better, but just an overriding thought on the credit trends that you're seeing, it certainly seems more positive by the quarter. Timothy Myers: Yeah. No. I would say none of that I mentioned has anything to do with rate relief. Some of this has just been an ongoing recovery of the real estate market in the Bay Area. So the one I mentioned where special mention went up because we upgraded from classified was that was a 100% vacant property in an area where that had probably never happened, and it took some time. But that property is now fully leased with multiple tenants at above market rates, and we're just waiting for all those tenants to occupy the property. Before we upgrade the pass. So we continue to see positively upward trends in some of the other areas impacted. You know, office real estate continues to improve the overall economic environment, and San Francisco continues to improve, sorry, So we, you know, continually see improvement some of the key areas that were causing the downgrades in the first place. And certainly, the wine industry downgrade, that industry is going through its own struggles right now. Contain continue to maintain an active and proactive approach working with our clients, but, you know, you can read almost anywhere about the decline in whether it's wine sales visitation to tasting rooms, etcetera. We have a fairly limited exposure to that overall industry. But we are gonna continue to be proactive in our risk rating based on trends. Jeffrey Rulis: Thanks, Tim. Timothy Myers: You're welcome. Operator: Your next question will come from Woody Lay with KBW. Woody Lay: Morning, Woody. Woody Lay: Wanted to start on expenses. A couple moving pieces in the fourth quarter then sound and then I know we get some seasonality impact in the first quarter. I was just hoping you could give some clarity on how you're thinking about the run rate going forward. Dave Bonaccorso: Sure. So, yeah, setting aside the seasonality, components, and I can beat them quickly means some benefits in Q4 for personnel-related items and then some reversion of that in Q1. Then also in Q1, the contribution cycle, we get a big chunk of what we do there on an annual basis. So that's the near term. I'd say, you know, as we talked about the repositioning, of course, communicated the benefits to net interest income. We also talked about some additional investments in the company, and I think that's what we'll probably end up seeing more of this year is, you know, additional investments in people initiatives, systems, etcetera to further generate growth both in interest income and non-interest income. We think there's some opportunities to improve fee income. So there is a cost to that. And so I would say we had four and a half percent expense growth in 2025. You know, I think a reasonable assumption would be there plus the additional investments we're looking to make. To further generate revenue and growth. Timothy Myers: And, you know, those investments will have a commensurate income. To help offset. Woody Lay: Got it. That's helpful. And then last for me on capital. It looks like capital levels came slightly better than what you were projecting. But it you know, it's obviously lower than historical levels, but it's a testament you were able to reconfigure the balance sheet without having to raise any additional capital. So how do you think about current capital levels and thoughts on potential excess capital deployment? Timothy Myers: Well, I would start with saying we just execute on the balance sheet restructure, and so we want to obviously, wanted to see how that played out. Before making any longer-term decisions on capital. While the capital ratios, as you noted, Woody, are lower than historical levels, we think they're more than adequate relative to the risk profile of our sheet. We talked already about a lot of the cleanup we've done on problematic credits. We expect further continued improvement in that category. And so we certainly feel good from that standpoint. You know, we do have a board authorization for a share repurchase that we'll continue to look at. Obviously, you know, a continued improving valuation, our stock price, you know, makes the idea of M&A, you know, a little bit more feasible. We get a better currency. So we want to continue to keep our options open now. And so no current plans, but similar to all my other answers around this topic, we continue to maintain all those options. Woody Lay: Alright. I appreciate the color. Thanks for taking my questions. Timothy Myers: Thank you. Operator: As a reminder, if you would like to ask a question, please use the raise hand button at the bottom of your screen. Our next question will come from Andrew Terrell with Stephens. Star nine will allow you to unmute. Andrew, you may now unmute and ask your question. Okay. Well, we have no further questions at this time, so I'll hand back to Tim Myers for closing remarks. Timothy Myers: I appreciate all the questions. Thank you all for being a part of this. You have any additional ones, obviously, please let Dave or I know. Thank you for your interest and attention.
Michael O'Leary: Good morning, ladies and gentlemen, and welcome to the Ryanair Q3 Results Conference Call. I'm Michael O'Leary, Group CEO. And as always, I'm joined by Neil Sorahan, the Group CFO. This morning, as you'll see, Ryanair reported a Q3 profit after tax of EUR 115 million, pre-exceptional. [indiscernible] As traffic rose 6% and fares in Q3 rose 4%, and an EUR 85 million exceptional charge has been made in the accounts. It's a provision of approximately 33% for the utterly baseless Italian AGCM fine, which was announced on Christmas Eve, which both we and our Italian lawyers are confident will be overturned on appeal. The highlights of the third quarter include traffic growth of 4% -- of 6% to $47.5 million. Revenue per passenger up 3%, very strong cost control as a result of which unit costs are flat in the quarter. We have 206 million -- 206 Gamechangers in our 643 aircraft fleet on the 31st of December. The last 4 aircraft will be delivered in February. We have announced 3 new bases and 106 new routes for summer '26, and these are already on sale. Fuel is 80% hedged for FY '27 at $67 a barrel, resulting in a very significant 10% saving in our fuel costs next year. And we'll touch briefly on the Italian AGCM baseless fine, which was levied and which we're confident will be overturned on appeal. Touching briefly on a couple of highlights. With almost all of our Gamechangers now delivered, other income in Q3 dipped due to the absence of delivery delay compensation in the prior year Q3. For Q4 of FY '26, our fuel is 84% hedged at about $77 a barrel, but we've now locked in hedging for FY '27 with 80% of our jet fuel requirements hedged at $67 a barrel. This will deliver significant cost savings next year. Over the last 3 years, Ryanair has generated a total shareholder return in excess of 150%, which puts Ryanair comfortably in the top quartile of the Stoxx Europe 600 Index TSR performers. I believe the group will continue to deliver disciplined and consistent capital allocation, and this is underpinned by our strong balance sheet as traffic grows to 300 million passengers by FY '34 with the benefit of our 300 MAX 10 order. Touching briefly on fleet. We have said we expect to receive the final 4 Gamechangers, bringing the total number of game changers to 210 in the fleet before the end of February. Because we're getting these aircraft deliveries early, this facility is facilitating slightly higher traffic growth this year, and we're now raising this year's traffic to 208 million what was previously 207 million. But it also means that we have all of the fleet in place in time for the Summer schedule, and that will allow us, we think, to deliver 4% traffic growth to 216 million passengers next year, FY '27. Boeing expect that the MAX 10 certification will take place this Summer, and they're increasingly confident. In fact, I was very confident they will meet their contract delivery dates to Ryanair for the first 15 MAXs in the Spring of 2027. And we -- that will be the first 15 of 300 of these very fuel-efficient aircraft, which have 20% more seats, but burn 20% less fuel and will enable us to grow profitably out to March 2034. This winter, we've allocated Ryanair's scarce capacity to those regions, countries and airports who are cutting aviation taxes and incentivizing traffic growth, such as Albania, regional Italy, Morocco, Slovakia and Sweden. And we're switching flights and routes away from high-cost uncompetitive markets where they have unjustified aviation taxes like Austria, Belgium, Germany and in regional Spain. This trend of this churn will continue into Summer 2026 as we operate over 160 new routes on sale, and -- we're opening 3 new bases in Rabat in Morocco, Tirana in Albania and Trapani in Italy. Touching briefly on Italy. In late December, the Italian AGCM Competition Authority levied a baseless EUR 256 million fine against Ryanair for our direct distribution to consumers policy in Italy, a policy that we've adopted all over Europe. This fine, we believe, will be overturned it in appeal as it ignores and indeed contradicts the Milan -- the precedent Milan Court of Appeal ruling in January 2024, which ruled that Ryanair's direct distribution model in Italy, one, undoubtedly benefits consumers by leading to lower fares; two, is economically justified in terms of containing operating costs and eliminating costs associated with distribution and ticket sales and the court ruled it contributes to a direct channel of communication for any possible need for information and updates on flights to consumers. And yet the AGCM 18 months later, comes up with this mythical fine alleging that Ryanair is abusing a dominant position when we're not dominant in Italy. Both we and our Italian lawyers are very confident that the Italian courts will overturn this manifestly wrong and baseless AGCM ruling on appeal. And that's why unusually, we normally provide 50% provision in our accounts for legal appeals. In this case, we have lowered that to 33%, which we think is reasonable. In fact, we could just as easily provide nothing for this given the -- our confidence that this ruling will be overturned. In terms of outlook, we now expect FY '26 traffic to grow 4% to almost 208 million passengers due to strong demand and these earlier-than-expected Boeing deliveries. We continue to expect only modest full year unit cost inflation as our Boeing Gamechanger deliveries, fuel hedging and effective cost control helps to offset the increases in ATC charges, higher enviro costs in Europe and the roll-off of last year's modest delivery delay compensation. While Q4 won't benefit from Easter, fares are trending modestly ahead of prior year, and we now believe that the full year fares will exceed our previous plus 7% growth guidance by maybe another 1% or 2%, 8% or 9%. At this stage, we're cautiously guiding full year profit after tax pre-exceptionals in a range of EUR 2.13 billion to EUR 2.23 billion. However, the final FY '26 outcome will remain exposed to adverse external developments in Q4, including conflict escalation in Ukraine or the Middle East, macroeconomic shocks and any further impact of repeated European ATC strikes and mismanagement. And with that, I'm going to ask Neil to take us through the slide presentation. Neil, over to you. Neil Sorahan: Thank you, Michael, and good morning, everybody. Ryanair has the lowest fares and the lowest cost of any airline in Europe, and our cost gap advantage continues to widen. We're #1 for traffic and are now increasing traffic targets to 208 million passengers this year, which is a 4% increase on last year. Thanks to our strong on-time performance and reliability, we've seen our customer satisfaction scores rise to 89% in the year-to-date, and we continue to be highly rated by all of the ESG rating agencies. With our 300 MAX 10 order book starting to come in from next year, this will underpin a decade of growth to 300 million passengers by FY '34. And that, of course, as always, is underpinned by our financial strength, our lowest costs, and this makes us the long-term winner in our sector. This is a snapshot of where we stand at the moment, including 3 new bases for Summer of 2026. So 208 million passengers in the current year, 300 million passengers by FY '34. Our costs, as I already said, continue to improve, continue to get better with a strong performance in Q3. And over the next number of years, with 300 MAX 10s coming in with 20% more seats, 20% more fuel efficiency, this advantage is only going to get better. On the quarter itself, we saw traffic increase by 6% to 47.5 million passengers at flat 92% load factors. Average fare rose 4%, thanks to a strong midterm break in October, but more importantly, close-in bookings for Christmas and the New Year also were strong. Revenue as a result, up 9% to EUR 3.21 billion in the quarter to the end of December. On costs, excluding the AGCM provision, which Michael has gone into in some detail, we saw unit costs remain flat or total costs increased by 6% to EUR 3.11 billion. And profit after tax, pre-exceptional, down 22%, primarily due to the absence of Boeing delivery compensation tanks and catching up on their order book. So coming in at EUR 115 million profit in the quarter and EUR 30 million after that AGCM fine provision for the 33% that Michael referred to earlier on. Balance sheet remains rock solid, a fortress balance sheet, BBB+ a strong investment-grade rating from Fitch and S&P, uniquely, almost 620 Boeing 737s fully unencumbered on the balance sheet. Liquidity remains very strong with EUR 2.4 billion gross cash and EUR 1 billion net cash at the end of the quarter. And that puts in a very, very strong position now as we move into the next financial year in April to pay down our final bond, the EUR 1.2 billion maturing bond in May 2026 from our own cash resources, effectively making the Ryanair Group debt-free. I'd just like to briefly focus on our total shareholder return. Over the past 3 years, we've delivered a TSR up 153%, which puts us firmly in the upper quartile of the Euro Stoxx 600. In fact, we're in a small club of 3 companies in Europe, which can boast a net profit in excess of 15%, investment-grade ratings, net cash and TSR over 150%, while at the same time, investing in growth, delivering consistent and disciplined returns to our shareholders. And we expect this model to continue for the years to come. With that, maybe, Michael, you will take us through current developments, please. Michael O'Leary: Okay. Thanks. So as we've set out, we expect FY -- we're raising slightly FY '26 traffic, up 4% to 208 million, thanks to the earlier Boeing deliveries and strong demand. We are using our constrained capacity to engage in more churn. So we're switching scarce capacity to those airports and regions who cut taxes and fees to grow. Our full FY '26 schedule is on sale from the end of March with 3 new bases and 106 new routes. Most exciting is the fact that we're -- we've hedged 80% of our fuel for FY '27 at just $67 per barrel, a 10% saving. There's an interim dividend of just over $0.19 per share payable in late February. And as Neil has said, we've completed 46% of the EUR 750 million buyback by the end of the third quarter. We are ready and have the resources to repay the final EUR 1.2 billion bond in May. Thereafter, we're essentially debt-free. And we are actively planning for the MAX 10 entry into service in the spring of 2027, and we now believe that Boeing will hit those delivery dates. And the critical thing about those aircraft is that they allow us to engage in a decade of low fare profitable growth of over 50% to 300 million passengers by FY '34. In terms of the Boeing numbers, as I said, we've already covered this off, with 206 Gamechangers in the fleet, 4 more coming in February, Boeing expect the MAX 10 certification to take place in late summer of 2026. We expect now to get the first 15 MAX 10s in the spring of '27. And that, as I said, gives us a decade of growth out to 2034. In terms of outlook, Neil, do you want to finish on that? Neil Sorahan: Yes. Thank you, Michael. So as Michael said, traffic marginally ahead of where we previously guided. So 208 million passengers, 4% increase on last year, primarily due to the earlier delivery of those MAX 8-200 aircraft and strong demand in the business. Fares now look like we'll be ahead of the 7% fare growth that we previously guided, possibly 1% or 2%, which is well ahead of the minus 7% fare decline that we suffered last year. So fully recovered and then some growth on top of that. Unit costs have performed well year-to-date. So we're sticking with our modest unit cost inflation for the current financial year. We'll continue to see the benefits of our fuel hedging offset rising ATC environmental and indeed, the unwind of the Boeing compensation with no Boeing compensation in the second half of this year. So putting that all together, we're now cautiously guiding profit after tax pre-exceptionals for the full year in a range of EUR 2.13 billion to EUR 2.23 billion. Beyond that, we're now in a very strong position to deliver 216 million passengers next year. That's a 4% increase. We'll see the benefit of our fuel hedges, 10% savings coming through on the jet price help offset some of the rising environmental costs. And importantly, with the MAX 10 now due to join the fleet in the spring of 2027, we're ramping up for a decade of growth to 300 million passengers over the next number of years. Thank you very much. Unknown Analyst: Michael, Neil, starting with your results. Ryanair reported Q3 PAT of EUR 115 million, pre-exceptional, down 22%. What were the key drivers? Neil Sorahan: With a strong operating performance in the business, we did, however, not have any Boeing delayed compensation in this quarter, having had it in the prior year comp. That's down to Boeing catching up on the deliveries and effectively no need for compensation. But if we look at the operating performance, very strong traffic up 6% to 47.5 million passengers at 4% higher fares, driven by strong midterms in October and strong close-in bookings for Christmas and the New Year. Ancillaries, as has been the trend all year, put in another solid performance, rising 7% or up 1% on a per passenger basis. And I'm particularly happy with the cost performance where we delivered flat unit costs pre-exceptional charges in the quarter. Unknown Analyst: You provided for 33% or EUR 85 million of the Italian AGCM fine. Will you provide for the balance of this fine in Q4? Michael O'Leary: No. In this case, normally, our policy is to provide about 50% for these kind of legal fines when they're under appeal. However, in this case, with the benefit of the Milan Court of Appeal precedent ruling, which was just less than 18 months ago, our lawyers and ourselves in Italy are highly confident that this AG -- manifestly wrong AGCM ruling will be overturned on appeal. In fact, we could, given the strength of the advice we have not made any provision at all, but I think that would have been a bit too ambitious. It seems to both me and the Board that it's sensible to provide about 33%, and we don't expect to be making any other provisions. In fact, we expect to be writing back that provision to the P&L sometime in the next year or 2, which is how long we expect the appeal will take. Unknown Analyst: Can you update on your hedging position? Neil Sorahan: Yes, we continue to be very well hedged. In the current quarter to the end of March, we're about 84% hedged at $76 a barrel. But more importantly, when we look into next year, we're 80% hedged on our jet fuel at $67 a barrel. So that's about a 10% saving. On operating expenditure, the euro-dollar exposure, we're locked in now for next year at about EUR 1.15, which compares favorably to EUR 1.11 in the current year. And we recently jumped on dips -- weakness in the dollar to extend our MAX 10 hedging from up to 40% on a euro-dollar rate of EUR 1.24. Unknown Analyst: How is Q4 trading? Michael O'Leary: Demand is good. As I said with the earlier Boeing deliveries, we're seeing -- we expect traffic to be modestly -- rise slightly faster than we had originally expected. So we expect to do 208 million passengers for the full year as opposed to previously 207 million. Pricing in Q4 is modestly ahead of the prior year despite the absence of any impact of Easter on Q4. But nevertheless, as we've always said, the final outturn is heavily reliant on there being no disruptions as we move through February and March. Unknown Analyst: Can you give any color on Summer trading and FY '27 costs? Neil Sorahan: It's a bit too early for that. We're still working through our budget. So it will be another month or 2 before the Board sign off. What I can say at this stage, however, is with all of the Gamechangers expected to be in the fleet by the end of February, we're now targeting traffic next year of 216 million. So that's marginally up on the 215 million that we had previously guided, 4% increase. And of course, we'll see the benefit of our fuel hedges coming through next year as well. Unknown Analyst: Moving to the balance sheet. What are the main callouts of your strong balance sheet? Michael O'Leary: I pretty much the same as it has always been. So we have a BBB+ credit rating. We have an unencumbered fleet of almost 620 737 aircraft. Strong liquidity, EUR 2.4 billion gross cash at the end of December, almost EUR 1 billion of net cash, which leaves us very well positioned to repay the remaining bond debt in May this year from internal resources. And it's that financial flexibility that widens our cost gap with most of our competitors in Europe who are heavily exposed either to the aircraft leasing costs or financing expenses. Unknown Analyst: What's FY '26 and FY '27 CapEx guidance? Neil Sorahan: At this stage, I think we'll finish FY '26 with CapEx somewhere close to EUR 2 billion. So that's marginally down on the EUR 2.2 billion that we had previously guided where we're seeing some timing issues with a couple of projects moving out 1 or 2 years. And then next year, not much hugely different to what we had previously said, now it depends on the final budget. I think it will come in close to EUR 2 billion, possibly just below EUR 2 billion. Unknown Analyst: How will you finance the MAX 10s? Michael O'Leary: As we've always done, we'll use a strong balance sheet and be opportunistic. I would expect mostly it will be from internally generated cash, but we'll also use bond or bank markets when it's opportunistic or low cost to do so. Unknown Analyst: Shifting to shareholder returns, how is the EUR 750 million buyback progressing? Neil Sorahan: Yes, it's going well. I mean this buyback is scheduled to run out to the end of the current year. So we're about 46% of the way through it at the end of December. Put that in context, that's about 13.1 million shares bought back at an average price of EUR 26 per share. All of those shares canceled. So about EUR 340 million spend up to the end of December. Unknown Analyst: When is the next dividend payable? Michael O'Leary: There's an interim dividend of just over EUR 0.19 per share. That's payable by the end of February. Unknown Analyst: Ryanair's TSR performance is market-leading. Has focus shifted from investing in growth to shareholder returns? Neil Sorahan: Well, you're right. It is. It's a phenomenal return of 150% over the past 3 years and putting us firmly in the upper echelons of the Euro Stoxx 600 TSR index. But no, our focus hasn't shifted, and we have no plans to shift our focus. We'll continue to invest in growth. The plans are to have 300 MAX 10s in the fleet and 300 million passengers by FY '34. We've got a very simple capital allocation policy in here. We will retain a strong investment-grade balance sheet. We'll continue to invest in growth. As I said, the MAX 10s, jumping in opportunities like we did last June where we were able to buy 30 spare LEAP engines at the right price, good use of capital for our shareholders. And indeed, we'll invest in engine shops over the next number of years to help widen Ryanair's cost base. But at the same time, as we've done in the past, if there's surplus cash, we'll return that. We already have a 25% payout of prior year PAT regular dividend program. And the Board have and will continue likely to deliver buybacks and ad hoc dividends from time to time over the next number of years. Unknown Analyst: On fleet in growth, when will you receive your final Gamechangers? Michael O'Leary: The final 4 Gamechangers will deliver in February, well ahead of the end March launch of the Summer '26 schedule. Kelly Ortenberg, Stephanie Pope and the team at Boeing are doing a great job at catching up those delivery delays, which is why we've seen a significant drop in supplier compensation in the Q3 numbers. But those earlier deliveries mean we can now facilitate 4% growth to 216 million passengers in the year to March 2027. Unknown Analyst: What's the latest update on MAX 10 certification? Neil Sorahan: Yes. Boeing are still talking about certification in the Summer of 2026, possibly in Q3 calendar. So that's the July, August, September time frame. And they're increasingly confident, as Michael already said, that we will be taking our first 15 MAX 10s in the spring of next year. Unknown Analyst: What's your views on European short-haul capacity? Michael O'Leary: It will continue to be very heavily constrained right out to at least 2030. The drivers are the huge backlog and delivery delays being faced by -- challenges being faced by Boeing and Airbus. The Pratt & Whitney engine repairs continue to be devil the Airbus short-haul fleet here in Europe, that will run on through our competitors, say that will run on into '26 and '27 as well. And industry consolidation, most recently, Lufthansa's acquisition of it, and it looks like TAP will be next, which is causing capacity withdrawal certainly in short-haul and domestic markets in Europe, as Lufthansa pivots the likes of Alitalia to feeding people into Munich and Frankfurt, but away from keep competing with Ryanair in the short-haul domestic and Italian domestic market. Unknown Analyst: Where is Ryanair most focused on growing? Neil Sorahan: Yes. We've been very clear. We've got limited growth. We're only growing by 4% this year, and we only plan to grow by another 4% next year. And so we're very focused on rewarding and giving growth to regions that are reducing aviation taxes, airports that are stimulating growth. And if you look at our summer 2026, the new bases are in places like Tirana in Albania, Trapani in Sicily as well and Rabat in Morocco. At the same time, we're pulling capacity out of markets where they're actually increasing taxes or at least not bringing them down the likes of Austria, Belgium, Germany, regional Spain. And we'll continue to do so while capacity remains constrained. Unknown Analyst: What's the latest update on your engine shop project? Michael O'Leary: Going well. We expect to announce the first of 2 sites pretty soon. I'd say we'll make an announcement before the end of March or April. Negotiations for spare parts and tooling to fit out those engine shops are at advanced stages. In fact, again, we expect to be signing contracts on those before the end of, I would say, the first quarter or the end of April. And we hope and expect to have the first shop operational overhauling or repairing Ryanair engines by late 2028, early 2029. The second shop will be opened probably in the early 2030s. And this will give us another point of cost differentiation between us and our competitors. While our competitors will be having their engines maintained in very scarce supply third-party engine maintenance facilities. We will have surplus capacity and I think a significant advantage in -- cost advantage in maintaining our engines over those of our competitors. Unknown Analyst: Lastly, on outlook, what's the group's FY '26 outlook? Neil Sorahan: Yes, we expect traffic now to finish at about 208 million passengers, 4% growth on last year, thanks to the earlier delivery of the Boeing aircraft and strong demand. On fares, we think we're in a position where we'll recover not only all of the 7% that we saw decline last year, but another 1% or 2% on top of that. So ahead of our previous guidance. On costs, performance has been good year-to-date. So we're sticking with our modest unit cost inflation for the full year, where we'll see the benefit of our fuel hedges continuing to offset air traffic control charges, increasing environmental costs and indeed, the roll-off of Boeing compensation with no delayed compensation in the second half of this year. So putting all of that together, profit after tax, pre-exceptional, the AGCM fine provision, profit after tax should be somewhere in the range of about EUR 2.13 billion to EUR 2.23 billion. And then beyond that, 4% traffic growth again next year to 216 million passengers. You see the benefits of our lower fuel hedging coming through. And then, of course, with the MAX 10 aircraft starting to deliver from the start of 2027, we'll have another decade of growth to 300 million passengers by FY '34. Michael O'Leary: Thanks, Neil. As you know, it's the Q3 results, so we're not having a formal roadshow, but there is an analyst call at 10:00 -- later this morning at 10:00 a.m. Dublin time. Everybody is welcome to dial in. And if you have any further follow-up questions, please put them to us during that call or feed them into the IR team here led by Jamie Donovan or through Neil and the finance team. Thank you very much. We look forward to seeing you all again.
Operator: Good morning, and a warm welcome, dear ladies and gentlemen, to the analyst and investor web conference regarding the Stabilus results in the first quarter of fiscal 2026. [Operator Instructions] Let me now turn the floor over to your host, Dr. Michael Buchsner. Michael Büchsner: Hello, and welcome to our quarter 1 results call of the Stabilus Group. As always, you have our CFO, Andreas Jaeger; and myself, Michael Buchsner, being the CEO of the Stabilus Group in the call. And I'm happy to lead you through our results for the first quarter. And then for sure, we'll also have a Q&A session at a later stage. Yes, in a nutshell, I would say we hold our course in a very difficult market environment, as you can imagine, in the Automotive and also in the Industrial space. However, we had a very strong cash generation. If you compare that to the prior year, we've been doing particularly well and we've been doing particularly well in terms of our operational management of the cash flow. Our cash flow came out with EUR 23.9 million. And yes, like-for-like, last year comparison, we've been at EUR 8.9 million. So very positive development in that [ term ]. Our EBIT margin stayed strong with 10.1 percentage points. And as you all know, it's pretty much back-end loaded this year around because towards the second half of the year, our efficiency program and the new launches kick in. That's why the year will be for us back-end loaded in terms of the margin development and loaded on the second half of the year. Also, a good highlight was the EBIT margin we had in China. As you can imagine, and we always talked about it, the environment in China is getting tough, tougher in terms of competition. And this is why we also took the decision not to hunt for each and every business, but to concentrate also in these difficult times on the EBIT margin development, and we had an outstanding result. If you compare that also to the prior quarters and even the prior years, we had in the first quarter, a record EBIT margin in China of 18%. However, I said at the beginning already, we, for sure, are in a challenging market environment. And you see that forefront in our revenue for sure because the revenue was on EUR 291 million, which at the end of the day is 7% change versus the quarter 1 prior year, and it's becoming softer. So the first quarter is particularly kind of an impact we saw in predominantly China due to the fact that this consumer sentiment was particularly low. Then on the other hand, we also are -- as we are represented predominantly in the upper segment cars in the electromobility like Tesla, we also feel the market environment. On the other hand, there is a big FX impact of negative 3.7% year-over-year which at the end of the day is unfavorable for us. However, as I said before, the margin generation in China was particularly good and also the cash flow generation was on a very good level for us overall. And the EMEA and Americas region stay very strong in terms of organic development. The region we currently focus on is Asia Pacific, as you know. Our overhead reduction program is well on track. We started, as you know, this transformation program in the first quarter. So starting with October, we've been concentrating on cutting down costs on a second step in the overhead structure. You know that over the course of the past 2 years, we always have already concentrating on the reduction of our costs predominantly on the operations side. We've been doing automation projects in Koblenz, which materialize throughout this year and the years to come. And now as you already have been informed about quarter 1, means starting October last year, we started also to cut down on overhead costs. And this transformation program is basically a boost for us for the second half of the year and the years to come. And we're basically taking out already in 2027, EUR 19 million in terms of fixed costs on our P&L. And this is something which gradually kicks in, in the next quarters ahead of us. Net leverage ratio, it's important for us to stay around 3x. We have 4.5x as a covenant, but we want to stay well below that with our net leverage ratio. And we've been in the range of 3x, so 3.04x this time around as of December. And I would say, as I said at the beginning, we at the end of the day, start in a market environment, which is soft and challenging with a strong and good position predominantly on the cash flow. So with that, we will go into the next page, and I would like to draw your attention a bit more on the technical stuff, the growth drivers for here and now, the months, quarters to come and also the next years. We invested in the past years, as you know, on the Industrial Powerise. Why is that particularly important for us? We started the same thing with Gas Springs, right? We are a leading company for Gas Springs. We brought the Gas Spring on a very good position, nice quality, excellent cost into the market also for all kinds of industrial applications. So you find them everywhere. So now we are doing the same with Industrial Powerise, right? We started in the Automotive side, are producing on highest quality and best cost position, the Powerise now for the industrial space. We've been having revenues beyond EUR 5 million in the first 12 months of our doing last year. So it grows double digit. And this basically receives a lot of interest of our customers. It receives a lot of technical support by our customers, and they love this project -- product because it's very robust. It's built on automotive lines to a very nice cost position. And as I said, we already started after the market introduction, which happened early last year with EUR 5 million we've been generating in terms of revenue on a very exceptionally high margin. As you can imagine, Industrial Powerise, part of the industrial space and industrial business enjoys good margin at this point in time. Second position is here as a growth driver for us, the door actuation. Door actuation, a wonderful product to be a next generation of vehicle comfort, right? It opens and closes doors automatically. It's a must-have for all kinds of cars with autonomous driving, self-parking, but also it enjoys exceptionally good growth rates in China these days. So we are in Geely, in Korea, we are in Hyundai. Actually, we start Li Auto this year. And there is not a single customer who's not interested in this next-generation vehicle comfort. And this takes off in the second half of the year as our customers, predominantly BMW, but also Tesla once more and also Li Auto to Xiaomi will fill their pipeline for the upcoming launches, and we enjoy also good business wins there. And as I said before, yes, currently in China, the consumer sentiment is on a decline. We saw that October, November, December, but this technology enjoys very nice growth rates, and it basically goes off in the second half of this year and will greatly help us in terms of sales. Last not least, also the third growth driver for us is our automation and the automation synergies. As you can imagine, over the course of the last years, we've been working a lot on synergy generation in terms of sales and technology with our Destaco portfolio. And now here, I would like to highlight first time that we are working already also on humanoid robots and industrial robotics systems. We have not only gripping systems, which we tailored now to humanoids and to industrial robots, but also we are with one of our OEMs where we're already in a strong business relationship in the automotive side, who decides to produce or decided to produce humanoid robots big scale, U.S. company, U.S.-based company. We are working on electromechanical solutions for the hinges of humanoid robots. And this is a development project which we recently entered. And this project, along with industrial robotics, gripping systems, the opportunities we see also for us in the automation space materializes as we speak and helps us a lot also throughout the year to generate additional highly profitable margins business. So the 3 growth drivers, the growth sentiment remains unbroken and unchanged. The big growth drivers, Industrial Powerise, automation technologies, doors actuation, they are kicking in. And as you can imagine, along with the program we are driving to do a reorganization and restructuring on the overhead side, we take and use these days and times of softer business to actively shape our future. So that's the strategic points we've been achieving over the quarter, of the quarter 1, October, November, December. However, I would like to also go into the details of the financials with you before I hand over to Andreas for the details on the regional view. Overall, revenues, as I said, EUR 291 million in terms of euros. Organic growth was soft, minus 7%. FX impact around, about 4%. And then we see here this China impact, predominantly Europe, North America growing well. In China, consumer sentiment, upper segment cars, when inflation hits the fan, people decide to go for lower segment cars in difficult days. We are with our products predominantly on the top segment cars, and this leaves its marks for sure. But we assume that being a short-term effect, which at the end of the day, will recover in the second half of the year from our perspective. Destaco synergies well on track with EUR 1.7 million at this point in time. Our target this time around is EUR 10 million for a year. We will achieve that. Our forecast shows that. As I said, there is several elements in the pocket like the production of gripping systems for humanoid or other elements for autonomous and robotic systems. In terms of EBIT margin, our EBIT margin came in with EUR 29.3 million, so it's 10.1%, predominantly supported by a very strong industrial business, but also by China because we decided in China to go for EBIT margins, not necessarily grabbing all the businesses around there, well knowing that the door actuation business at the end of the day has a higher margin to begin with, we said we rather focus on the high-margin products and the door actuation systems in order to generate good margins for us, and this strategy materializes. It's basically an 18% EBIT margin in China, overall 10.1%. And this, at the end of the day, will also improve over the course of the year as our effects of our restructuring projects kicks in. For sure, Destaco cost synergies are still on track, and we monitor them on a quarterly basis, EUR 0.5 million. Here, the target is for the year, EUR 4 million, and this is absolutely what we will achieve. Net profits are impacted for sure by FX, FX losses. But however, also here, FX and tax expenses, they are kicking in early in the year. This is something which you will see develop positively over the course of the year. And then last not least, our free cash flow, which is exceptionally good. The free cash flow is on EUR 23.9 million. We already got a question beforehand, whether this be driven by programs we did on the financial structure, but this is basically a good management of the operational side, a good cost control, good control on the forecast all levels on the operations side, which drives that and less financing programs. So with that, I would hand over to Andreas for some details by region. Andreas Jaeger: Good. Thank you very much, Michael, and a very warm welcome also from my side. I go directly into the region, and I would start with Americas. In Americas, we see in euro, a minus of 5.7% in the revenue. But if we consider the FX or the effect from foreign exchange rate translation in America, the organic growth was only minus 0.5%. The EBIT margin at 4.7%, we are not really satisfied, and Michael already mentioned it briefly, and I will come back to that on the next slide. In EMEA, also in reporting currency, the revenue minus 1.4%. And if you also factor out here the FX impact, we are only 0.3% negative. The margin at a solid 10.8% and considering the slightly lower volume, we could even increase the EBIT margin by 1.9 percentage point that shows on one hand that we really took out fixed costs and that we also worked on flexing our cost basis. In Asia Pacific, in the reporting currency, minus 30.6% year-on-year. Michael already mentioned it, predominantly in China with a challenging market environment in automotive. But the EBIT margin, clearly the highest with 18.1%, and considering all the challenges and the lower volume, we could almost maintain the EBIT margin and in percentage point, it went down only by 1.3 percentage points. If I then go now more into the details for Americas, you see again on the revenue, the minus 0.5%. We grew organically in Automotive Gas Spring and in Powerise. And if we compare that slight growth in Automotive Gas Spring and Powerise with the latest S&P data from automotive, they were slightly negative. They told us minus 0.8%. So also, if we take the market as a benchmark, a solid development of the revenue. On the EBIT side, we are not fully satisfied with what we achieved in there. On one hand, we saw the volume impact. We also saw and we informed you at the year-end presentation already that we changed the allocation and the recharges of the intellectual property right. So that had a negative impact on the EBIT. But then also the challenges we had in Mexico, in the U.S. Gas Spring operation, where we had a higher turnover in the workforce and that drove additional cost for training and also hampered the efficiency in the operation. If we then move on to EMEA, we can show a different picture. In EMEA, we are almost at prior year level, if we look at the organic growth, we saw a slight decrease in Automotive Gas Spring and Industrial Automation. On the other hand, we grew in Automotive Powerise. Also, if we here, benchmark ourselves with the information that we received from the S&P automotive market with a minus 2.2%, we delivered better numbers than the S&P number told us. If you look at the EBIT, slightly lower volume, but it's clearly higher EBIT margin and even in absolute numbers, an increase of the EBIT that shows we really took out fixed cost in Europe, and we could also flex to the volume our production cost. The last region then that I will cover is then APAC. In APAC, we already saw the decline that Michael at the beginning told us, the major impact we saw in this minus 24.9% comes from China. It's a challenging market, as Michael already said. If we then look at the development of the EBIT, yes, in absolute number, it went down, but we maintained a very solid margin of 18.1% in a very challenging environment. If we then look at the development of the business segment by market segment on the next slide, you saw that we slightly could reduce our portion from automotive with 54%. In Q1, we were at 57%. And however, most of the segment showed a negative development. If I then continue with the net leverage and the net financial debt on the next slide. You see since 2024, we could decrease the net financial debt by 7.5%. And if you compare that what we achieved in Q1 '26, we could reduce the net financial debt by EUR 13.3 million and reducing the debt and bringing down the leverage ratio is a clear priority. And we also said we will bring it to 2.0 within the next 2 years. On the net working capital, Michael mentioned it at the beginning, and we talked about the cash generation. You see during the last 3 periods, the net working capital came clearly down, and we are now at EUR 218.6 million or if you compare it to the ratio and comparison to the revenue, it came down again to 17.3%. The investments, you see them year-over-year and then the first quarter, the first quarter was with EUR 18.1 million, a little bit on the lower side, if you look at the investment. However, this has more to do with the seasonality. For us, it maintains a priority to invest in the future and develop new and interesting product technology, smart door actuation, electric grippers and also the automation of our production facility remains a priority. And with that, I would give back to Michael for the outlook. Michael Büchsner: Thank you, Andreas. Yes, we -- as you know, and we know clearly and our main focus for the second quarter is to work on our restructuring project to continue to do the rollout, basically to manage our overhead costs, but also to further improve us on the operational side. And this is something which at the end of the day, will lead us into February and March, right? Over the first half of the year, we said we'll roll that program out. And then at the end of the day, we will harvest that fruit starting in the second half of the year. And this is something which at the end of the day helps us in terms of sales initiatives, right? Door actuation, continue to win business in terms of business on the Industrial side, it's Automation and the Industrial Powerise. That's what we're currently working on. And as Andreas said, also in the second quarter, we'll continue to work on improving our North American plant in order to deal with the fluctuation we had on hand, which drove a negative performance there. Overall, with all these measures, our forecast is still on track, right? Our forecast, and we confirm it will be at EUR 1.1 billion sales, up to EUR 1.3 billion sales for the year in euro. The EBIT margin will be in the range between 10% and 12%. And also the adjusted cash flow is on track with EUR 80 million to EUR 110 million free cash flow after all. So that are basically the points we are currently working on. And if we go on the next page, actually, here, a brief summary for you. The -- actually, we are impacted for sure by the market environment, no doubt about that. However, with the initiatives we have on hand, we clearly know what to concentrate on in the second quarter and thereby, the guidance is confirmed. For sure, with whatever we do, we work and continue to work with strong team efforts on our STAR 2030 initiatives, right? Andreas mentioned it as well. Our main priorities remain there to invest in new technologies. We have had great achievements in the first quarter, we have been winning door actuation business, Industrial Powerise businesses and also even up on the Automation side, to contract development contracts for humanoid robots. That's what we're working on currently. And yes, in the second quarter, you will see development in the restructuring program. Next quarter, we will give an outlook about where we stand, what we achieved and which further points are necessary in terms of cost management, right? It's -- we've been managing the big and low-hanging fruit, which for us is now the restructuring program rollout. It has been starting very well. But also the cost management, it is very, very important to us in all the different regions. And we will also put a strong focus on the improvement of the operations in North America and on top of the sales initiatives. Because there are 2 things which are important for us this year, it's the cost management and the sales initiatives in order to prepare for a continuous success in our industry. Yes, with that, we would hand over to you for questions. Operator: [Operator Instructions] So the first question is from Akshat Kacker of JPMorgan. Akshat Kacker: Akshat from JPMorgan. I have 3 questions, please. The first one starting on your China business. As you mentioned in the first quarter, the market environment wasn't supportive. We have seen organic growth declines of 20% to 30% across your business segments in the first quarter. Could you just give us more details in terms of a rough split between volumes and pricing? And in terms of how this year plays out, when do you expect volumes to start stabilizing in China, please? That's the first question. The second question is on the North America margin. You did talk about some operational inefficiencies, higher personnel and training costs. Could you give us an idea on what kind of impact can we expect on the business for this fiscal year? And how quickly can you turn around things in North America, please? And the third one is on your assumption of a second half recovery. I completely understand that you talked about new launches and benefits from underlying cost actions that you have taken over the last year. And also keep in mind, Q1 always has a seasonality for your business in terms of higher revenues and margins in China. So could you just give us some sense on how much of a pickup do you expect in the business second half versus first half this year, both from a revenue and margin perspective? Michael Büchsner: Thank you very much, Akshat, for your questions. I give it a start and then for sure, I hand over also to Andreas. Talking about the first quarter in China, which is an exceptional good EBIT margin of 18%. Your question was in terms of sales, how were sales developing and what were the pricing impact. You know out of the last year, over the year, we had 8% pricing kicking in. That's just a given. If you compare now last year's first quarter with this year's first quarter, you for sure see this 8%. We've been always talking about it that this 8% are exceptionally high. Typically, in the automotive industry, we can deal with 4%, 4.5% maximum in China because in China, also technical changes are easier to introduce. However, the big topic we saw last year is that the competitor for front engine did basically set new target prices. And this was something, and you mentioned it, was visible throughout the year in terms of the margin development in China in a very firm way. And this is something which we've been constantly working on. So the impact was 8% pricing out of the revenue decline because we kind of -- you have this carryover effect. And if you compare quarter-to-quarter, first quarter to first quarter, basically, the first quarter last year was October, November, December '24. This is when the pricing discussions start at bigger scale. And now this delta, as I said, is around, about 8%. As stated, we are able to deal with 4% typically. And now we have to take extra actions to improve our profitability. This is why you also see the profitability of China still being on a decent level this year around with wonderful 18% because apparently, we can deal with this, but it has a time delay until we can deal with such margin deteriorations or pricing pressure in the industry. So these were the first 8%. Then we had an FX impact, a couple of percentage points. And I'm sure Andreas will talk about that. I think it was in the range of 3% to 4%. And at the end of the day, then something in China -- in China, our business staggering is we have half of our business Western world OEMs, half of the business Chinese OEMs. So we are balanced very well. There is this consumer sentiment of China going down, which makes up around, about 4%, right? So the consumer sentiment after all went down 4. This is following the studies of market developments in China, where we have access to, and this is something which will lead us into the second half of the year. That's the strong belief of economists in China in a nutshell. And then there was, for sure, the impact that we, as Stabilus Group are operating on the top segment cars in both China's OEMs and Western world OEMs. And when there is high inflation and people feel financial pressure, they decide on a shorter term because we saw that in the past as well, on a shorter term to concentrate on buying lower segment cars where typically the fitment rate of electromechanical devices is less. So in a nutshell, coming back to your first question, the answer to that, 8% was pricing around, about. There was an FX impact of 3% to 4%. Then you see a consumer sentiment for the business of 4% and then the remainder is then something which goes in line with the different segment of the cars have been produced like the upper segment cars, which, by the way, we saw in all regions. But in Europe and North America, we've been better flexing that with industrial business as our industrial business position is bigger on a bigger scale than in China. This was more difficult this time around in China. And that's why particularly the Asia Pacific region was impacted by that. So that's your first question. Then North America. In North America, the performance-related points, they are basically affecting our 2 automotive plants. It's the one in Mexico, and it's the one in Gastonia. And these 2 plants basically did lose around, about EUR 2 million last quarter, I would say, plus or minus on the efficiency side. And this is something which we're currently working on. There will be an impact also in the second quarter. We expect that in the third and the fourth quarter, we have things back under control. And this is something that was, as Andreas said, people fluctuation related. So we lost some people predominantly in the workforce, concentrating on direct labor, but also maintenance people. And as you know and can imagine, maintenance people are basically the lubricant in the transmission and gearbox of such a plant, right? Because the maintenance people, they guarantee that the uptime of the lines is sufficient to serve the demand of the customer. Then you see a complete chain reaction, right? You lose some of the maintenance people, then you have less output, then you get into the mode of some premium freight, quality is impacted as well. And this is something which we've been working on. We took sufficient measures. We will get out of this position, but it actually takes a couple of months to get there. So this basically is what we're working on for the second half of the year. You will see out of the improvements of the restructuring program, 1 percentage point improvement in the second half of the year on our EBIT margin. And then fixing the operational issues in North America will add another percentage point. And this is something which then lift us in terms of EBIT margin so that we're getting closer to the margins we had last year and also getting us within our guidance ballpark. So Andreas, from your side, I mean I've been explaining intensively now the root causes and percentages, how they move up and down with our operational points. Because actually, it's very important to us that we have a clear picture of where we are suffering and how we're impacted by the current market circumstances. That's why it's important to talk about all these details. I understand that very well. But Andreas, are there any points you'd like to add? Andreas Jaeger: If I look at the 3 questions, I would say they are all covered, but we can double check that with Akshat. Did you receive what you were looking for? Akshat Kacker: Yes, that's very clear. Operator: The next question is from Klaus Ringel of ODDO BHF. Klaus Ringel: I actually have 2 and would take them one by one. One would be a bit more detailed coming to Akshat's question about the business momentum. If you can already share a bit of light on your expectation for Q2. I mean margins shall improve over the course of the year, but regarding top line, can we also already expect some pickup in Q2 versus Q1? Or shall we rather expect something going sideways? This would be the first one. Michael Büchsner: So in terms of revenues, our expectation that in the second quarter, it moves rather sidewards. Why is that? In the second quarter, there is the Chinese New Year, which for sure is something which we have in our budget and are planning already, and it's considered in the guidance. And in terms of North America and Europe, we see a rather flat business out there. We see in the automotive industry, not too much movement. And on the industrial side, typically, the time when you get directionally a better view on how business develops is the spring time because this is when the orders kick in for new launches and other stuff, that's too early to say. So I would say January, February, March is moving rather side from our business. But however, this is how we build our business plan this year. We said the first 2 quarters will be rather on the soft side. And then in the second half, it will be picking up. And then similarly, in the margin, and this is why at the end of the day, also, we confirm for sure our guidance because that's what we've been planning for to begin with. Klaus Ringel: Okay. Second one is on the additional point you're talking about humanoid. And I really appreciate that you also start talking about this. Some other players, yes, a bit more, much more vocal for a couple of months now. So I would be very interested how immediate this potential really is. I mean you have this big U.S. customer in automotive, which also has obviously big ambitions in the humanoid robots. Is this really a couple of, I don't know, hundreds, thousands or millions of revenues over the course of the next 12, 18 months? Or is it less? Is it more? So this would be great. And also in terms of margin, is it fair to assume that you can achieve a kind of industrial margin in this area? Michael Büchsner: Yes. Thank you very much for this question. First of all, you mentioned at the beginning of your sentence that some already -- some people already have been talking about humanoid robots and automation in a broader scale in a different way than we do. The point is, for sure, in this humanoid robots, this is a customer which we also have on the automotive side. And there, sometimes it's not kind of allowed to talk about such movements. On the other hand side, if I talk about the stake of volumes, sometimes there is restriction by governments to openly talk forefront about it because we need to meet all the regulations to deal with this in the first place, but also it's then, in many cases, restricted in terms of communication because it's military service. That's to begin with. But we will disclose as much as we can for sure, not jeopardizing our business model with basically infringing any agreement we have with our OEMs. That's something which we very strictly kind of meet. So -- and then the impact, there is 2 areas. There's electromechanical devices, which we're currently working on for hinges and stuff for humanoid. That's something which is in the development phase. You will not see sales -- too much sales this year. There's difference in terms of the gripping systems, which we do for humanoid and also for end-of-arm tools for cobot systems. This is a new development with Destaco with basically a smart gripping system. And these gripping systems, they are in place already, and this is a couple of hundred thousand already in the first half of the year, which we deliver to the customers, and we expect that this goes up because there are new solutions with electrified version plus also feedback from the parts. So it's basically intelligent gripping system, which we did offer to the market here lately, and that's perceiving very good feedback. These are the 2 elements which are leading to that business opportunity for us. I hope that answers your question. Operator: So the next question in the queue is from Yasmin Steilen of Berenberg. Yasmin Steilen: So first, coming back on the price erosion in China. So we have seen the headwinds in Q1. However, you stated during the last call that you expect price erosion in China to ease a bit. So what is your current view on the overall price headwinds in China for Powerise in FY '26? That's my first question. Then with regards to the door actuation -- door actuators, you just stated that the ramp-up should happen in H2. So can you provide more color on the expected sales volumes to impact the second half? And how should we think about the profitability here in the ramp-up phase? And the last one on Destaco. I might have overseen this in the interim report, but could you share any comments on the profitability, please? Michael Büchsner: So thank you very much for your questions. In terms of pricing in China, the pricing in China is in the range of 4% to 5%. That's what we assume this year. This is the pricing levels which we are used to. As I said before, last year, we saw this exceptional pricing of twice as much in the range of rather 8%. This year, we see that continuing with 4% to 5%. And that's something which we are in a better way, able to deal with because that's the typical price reductions you get out of efficiency and you get out of your bill of material with your normal doings in the business, and that's something which we definitely can deal with in a given business year. How do we do that? We take our suppliers and do supplier negotiations because in absolute terms and volumes, for sure, the volumes go still up. It's a pricing-related reduction. So the volumes go up. And then at the end of the day, we negotiate with the suppliers in a better way, and we get their contribution to our success in the first place. Then the second thing is that our operational efficiencies in the plant are main point of our concentration in terms of our improvements. So that's something we saw over the course of the first quarter and second quarter already happening that the price reductions for this year will be in the range of 4% to 5%. The second question you had, the door actuation system, the profitability and the launches. Actually, the launches in the second half of the year, they are filling the pipeline for main customers like BMW. There is also Tesla involved, there is Xiaomi involved and some others smaller scale. This is business which we, at the end of the day, won a couple of years back and the launches are planned this year. And the profitability is on good levels. It's comparable or even slightly higher than our margins on the Powerise side. This is driven predominantly by the good launch performance we already drove in Asia Pacific. In Asia Pacific, specifically with our customers in China and Korea, we could establish a good position to also be leading in the price negotiations with the suppliers. Because at the end of the day, we've been winning over the course of the past years in the range of 40, so 4-0 percent of all businesses out there in door actuation. And due to the fact that we invested a lot in not only capacity because we have in all the different regions now aligned. We also invested heavily in the area of building up our supply base and technology. So we are basically frontrunner in terms of developing the right software, integrating the sensorics, having the radar systems on hand and so forth. So that's very beneficial for us. And at the end of the day, I would also come back to Klaus' question because Klaus asked the profitability of humanoids and profitability on industrial elements. I did forget to mention that this is for sure, average and slightly above industrial margins to basically close also the question we had from Klaus before. And then last not least, you were talking about Destaco profitability. Destaco holds the profitability very good. There is 2 things to keep in mind. One thing, and this is something which also with Andreas, we can go in detail, there is a reshuffling of overhead costs in the organization due to the fact that now we distribute the complete overhead costs to the complete business we have. This is first time that we also burden Destaco with the company overhead rate across the board. So that means the like-for-like comparison at the end of the day is something which can be explained in detail, but it accounts for basically 2%, 2.5%, which we burden on the Destaco profitability. Other than that, the businesses we are taking in, considering the current industry weakness, we are absolutely fine with. I hope that answers your question. Yasmin Steilen: Yes. That was very clear. And the last one on the -- sorry, on Destaco. Michael Büchsner: Excuse me? Yasmin Steilen: So in terms of Destaco profitability, how should we think about it going forward? Michael Büchsner: This is what I meant. They're very stable in terms of the profitability. We did distribute first time this year to the Destaco business also the overhead costs. That means in the financial numbers, you will see now 2 effects. You will see a burden of the overhead -- related overheads to the Destaco business, which accounts for 2.5% around, about. And then you will also see that it's now coming together with other businesses like the synergy business we have on hand. And this is basically also impacting the position of Destaco. But overall, it remains on a very good level for us. So it basically holds the course, except this burden of the overhead rates, which we first time basically also distributed now to the Destaco business. Yasmin Steilen: Okay. So just to clarify, so the former indications you gave about 19% to 20% was ex-overhead costs? Michael Büchsner: This was without allocation of the overhead costs, indeed, yes. Operator: At the moment, there are no questions in the queue. [Operator Instructions] As of now, there seem no more questions to be on the line. Michael Büchsner: Yes. If there are no further questions, then thank you very much. One point is very important. We know exactly what to work on in the second quarter. It will be continuing the restructuring program, watch costs and for sure, use the drive levers we have to boost sales, which at the end of the day will kick in second half of the year, like our wonderful door actuation system where we have the launches coming in the second half of the year on the industrial side, the Industrial Powerise and then the automation system predominantly in the space of automation, but also humanoid robots, which we are in a long run working on. With that, thank you very much. I wish you a nice and successful week. Bye, everybody. Andreas Jaeger: Thank you. Have a good week. Bye.
Michael O'Leary: Good morning, ladies and gentlemen, and welcome to the Ryanair Q3 Results Conference Call. I'm Michael O'Leary, Group CEO. And as always, I'm joined by Neil Sorahan, the Group CFO. This morning, as you'll see, Ryanair reported a Q3 profit after tax of EUR 115 million, pre-exceptional. [indiscernible] As traffic rose 6% and fares in Q3 rose 4%, and an EUR 85 million exceptional charge has been made in the accounts. It's a provision of approximately 33% for the utterly baseless Italian AGCM fine, which was announced on Christmas Eve, which both we and our Italian lawyers are confident will be overturned on appeal. The highlights of the third quarter include traffic growth of 4% -- of 6% to $47.5 million. Revenue per passenger up 3%, very strong cost control as a result of which unit costs are flat in the quarter. We have 206 million -- 206 Gamechangers in our 643 aircraft fleet on the 31st of December. The last 4 aircraft will be delivered in February. We have announced 3 new bases and 106 new routes for summer '26, and these are already on sale. Fuel is 80% hedged for FY '27 at $67 a barrel, resulting in a very significant 10% saving in our fuel costs next year. And we'll touch briefly on the Italian AGCM baseless fine, which was levied and which we're confident will be overturned on appeal. Touching briefly on a couple of highlights. With almost all of our Gamechangers now delivered, other income in Q3 dipped due to the absence of delivery delay compensation in the prior year Q3. For Q4 of FY '26, our fuel is 84% hedged at about $77 a barrel, but we've now locked in hedging for FY '27 with 80% of our jet fuel requirements hedged at $67 a barrel. This will deliver significant cost savings next year. Over the last 3 years, Ryanair has generated a total shareholder return in excess of 150%, which puts Ryanair comfortably in the top quartile of the Stoxx Europe 600 Index TSR performers. I believe the group will continue to deliver disciplined and consistent capital allocation, and this is underpinned by our strong balance sheet as traffic grows to 300 million passengers by FY '34 with the benefit of our 300 MAX 10 order. Touching briefly on fleet. We have said we expect to receive the final 4 Gamechangers, bringing the total number of game changers to 210 in the fleet before the end of February. Because we're getting these aircraft deliveries early, this facility is facilitating slightly higher traffic growth this year, and we're now raising this year's traffic to 208 million what was previously 207 million. But it also means that we have all of the fleet in place in time for the Summer schedule, and that will allow us, we think, to deliver 4% traffic growth to 216 million passengers next year, FY '27. Boeing expect that the MAX 10 certification will take place this Summer, and they're increasingly confident. In fact, I was very confident they will meet their contract delivery dates to Ryanair for the first 15 MAXs in the Spring of 2027. And we -- that will be the first 15 of 300 of these very fuel-efficient aircraft, which have 20% more seats, but burn 20% less fuel and will enable us to grow profitably out to March 2034. This winter, we've allocated Ryanair's scarce capacity to those regions, countries and airports who are cutting aviation taxes and incentivizing traffic growth, such as Albania, regional Italy, Morocco, Slovakia and Sweden. And we're switching flights and routes away from high-cost uncompetitive markets where they have unjustified aviation taxes like Austria, Belgium, Germany and in regional Spain. This trend of this churn will continue into Summer 2026 as we operate over 160 new routes on sale, and -- we're opening 3 new bases in Rabat in Morocco, Tirana in Albania and Trapani in Italy. Touching briefly on Italy. In late December, the Italian AGCM Competition Authority levied a baseless EUR 256 million fine against Ryanair for our direct distribution to consumers policy in Italy, a policy that we've adopted all over Europe. This fine, we believe, will be overturned it in appeal as it ignores and indeed contradicts the Milan -- the precedent Milan Court of Appeal ruling in January 2024, which ruled that Ryanair's direct distribution model in Italy, one, undoubtedly benefits consumers by leading to lower fares; two, is economically justified in terms of containing operating costs and eliminating costs associated with distribution and ticket sales and the court ruled it contributes to a direct channel of communication for any possible need for information and updates on flights to consumers. And yet the AGCM 18 months later, comes up with this mythical fine alleging that Ryanair is abusing a dominant position when we're not dominant in Italy. Both we and our Italian lawyers are very confident that the Italian courts will overturn this manifestly wrong and baseless AGCM ruling on appeal. And that's why unusually, we normally provide 50% provision in our accounts for legal appeals. In this case, we have lowered that to 33%, which we think is reasonable. In fact, we could just as easily provide nothing for this given the -- our confidence that this ruling will be overturned. In terms of outlook, we now expect FY '26 traffic to grow 4% to almost 208 million passengers due to strong demand and these earlier-than-expected Boeing deliveries. We continue to expect only modest full year unit cost inflation as our Boeing Gamechanger deliveries, fuel hedging and effective cost control helps to offset the increases in ATC charges, higher enviro costs in Europe and the roll-off of last year's modest delivery delay compensation. While Q4 won't benefit from Easter, fares are trending modestly ahead of prior year, and we now believe that the full year fares will exceed our previous plus 7% growth guidance by maybe another 1% or 2%, 8% or 9%. At this stage, we're cautiously guiding full year profit after tax pre-exceptionals in a range of EUR 2.13 billion to EUR 2.23 billion. However, the final FY '26 outcome will remain exposed to adverse external developments in Q4, including conflict escalation in Ukraine or the Middle East, macroeconomic shocks and any further impact of repeated European ATC strikes and mismanagement. And with that, I'm going to ask Neil to take us through the slide presentation. Neil, over to you. Neil Sorahan: Thank you, Michael, and good morning, everybody. Ryanair has the lowest fares and the lowest cost of any airline in Europe, and our cost gap advantage continues to widen. We're #1 for traffic and are now increasing traffic targets to 208 million passengers this year, which is a 4% increase on last year. Thanks to our strong on-time performance and reliability, we've seen our customer satisfaction scores rise to 89% in the year-to-date, and we continue to be highly rated by all of the ESG rating agencies. With our 300 MAX 10 order book starting to come in from next year, this will underpin a decade of growth to 300 million passengers by FY '34. And that, of course, as always, is underpinned by our financial strength, our lowest costs, and this makes us the long-term winner in our sector. This is a snapshot of where we stand at the moment, including 3 new bases for Summer of 2026. So 208 million passengers in the current year, 300 million passengers by FY '34. Our costs, as I already said, continue to improve, continue to get better with a strong performance in Q3. And over the next number of years, with 300 MAX 10s coming in with 20% more seats, 20% more fuel efficiency, this advantage is only going to get better. On the quarter itself, we saw traffic increase by 6% to 47.5 million passengers at flat 92% load factors. Average fare rose 4%, thanks to a strong midterm break in October, but more importantly, close-in bookings for Christmas and the New Year also were strong. Revenue as a result, up 9% to EUR 3.21 billion in the quarter to the end of December. On costs, excluding the AGCM provision, which Michael has gone into in some detail, we saw unit costs remain flat or total costs increased by 6% to EUR 3.11 billion. And profit after tax, pre-exceptional, down 22%, primarily due to the absence of Boeing delivery compensation tanks and catching up on their order book. So coming in at EUR 115 million profit in the quarter and EUR 30 million after that AGCM fine provision for the 33% that Michael referred to earlier on. Balance sheet remains rock solid, a fortress balance sheet, BBB+ a strong investment-grade rating from Fitch and S&P, uniquely, almost 620 Boeing 737s fully unencumbered on the balance sheet. Liquidity remains very strong with EUR 2.4 billion gross cash and EUR 1 billion net cash at the end of the quarter. And that puts in a very, very strong position now as we move into the next financial year in April to pay down our final bond, the EUR 1.2 billion maturing bond in May 2026 from our own cash resources, effectively making the Ryanair Group debt-free. I'd just like to briefly focus on our total shareholder return. Over the past 3 years, we've delivered a TSR up 153%, which puts us firmly in the upper quartile of the Euro Stoxx 600. In fact, we're in a small club of 3 companies in Europe, which can boast a net profit in excess of 15%, investment-grade ratings, net cash and TSR over 150%, while at the same time, investing in growth, delivering consistent and disciplined returns to our shareholders. And we expect this model to continue for the years to come. With that, maybe, Michael, you will take us through current developments, please. Michael O'Leary: Okay. Thanks. So as we've set out, we expect FY -- we're raising slightly FY '26 traffic, up 4% to 208 million, thanks to the earlier Boeing deliveries and strong demand. We are using our constrained capacity to engage in more churn. So we're switching scarce capacity to those airports and regions who cut taxes and fees to grow. Our full FY '26 schedule is on sale from the end of March with 3 new bases and 106 new routes. Most exciting is the fact that we're -- we've hedged 80% of our fuel for FY '27 at just $67 per barrel, a 10% saving. There's an interim dividend of just over $0.19 per share payable in late February. And as Neil has said, we've completed 46% of the EUR 750 million buyback by the end of the third quarter. We are ready and have the resources to repay the final EUR 1.2 billion bond in May. Thereafter, we're essentially debt-free. And we are actively planning for the MAX 10 entry into service in the spring of 2027, and we now believe that Boeing will hit those delivery dates. And the critical thing about those aircraft is that they allow us to engage in a decade of low fare profitable growth of over 50% to 300 million passengers by FY '34. In terms of the Boeing numbers, as I said, we've already covered this off, with 206 Gamechangers in the fleet, 4 more coming in February, Boeing expect the MAX 10 certification to take place in late summer of 2026. We expect now to get the first 15 MAX 10s in the spring of '27. And that, as I said, gives us a decade of growth out to 2034. In terms of outlook, Neil, do you want to finish on that? Neil Sorahan: Yes. Thank you, Michael. So as Michael said, traffic marginally ahead of where we previously guided. So 208 million passengers, 4% increase on last year, primarily due to the earlier delivery of those MAX 8-200 aircraft and strong demand in the business. Fares now look like we'll be ahead of the 7% fare growth that we previously guided, possibly 1% or 2%, which is well ahead of the minus 7% fare decline that we suffered last year. So fully recovered and then some growth on top of that. Unit costs have performed well year-to-date. So we're sticking with our modest unit cost inflation for the current financial year. We'll continue to see the benefits of our fuel hedging offset rising ATC environmental and indeed, the unwind of the Boeing compensation with no Boeing compensation in the second half of this year. So putting that all together, we're now cautiously guiding profit after tax pre-exceptionals for the full year in a range of EUR 2.13 billion to EUR 2.23 billion. Beyond that, we're now in a very strong position to deliver 216 million passengers next year. That's a 4% increase. We'll see the benefit of our fuel hedges, 10% savings coming through on the jet price help offset some of the rising environmental costs. And importantly, with the MAX 10 now due to join the fleet in the spring of 2027, we're ramping up for a decade of growth to 300 million passengers over the next number of years. Thank you very much. Unknown Analyst: Michael, Neil, starting with your results. Ryanair reported Q3 PAT of EUR 115 million, pre-exceptional, down 22%. What were the key drivers? Neil Sorahan: With a strong operating performance in the business, we did, however, not have any Boeing delayed compensation in this quarter, having had it in the prior year comp. That's down to Boeing catching up on the deliveries and effectively no need for compensation. But if we look at the operating performance, very strong traffic up 6% to 47.5 million passengers at 4% higher fares, driven by strong midterms in October and strong close-in bookings for Christmas and the New Year. Ancillaries, as has been the trend all year, put in another solid performance, rising 7% or up 1% on a per passenger basis. And I'm particularly happy with the cost performance where we delivered flat unit costs pre-exceptional charges in the quarter. Unknown Analyst: You provided for 33% or EUR 85 million of the Italian AGCM fine. Will you provide for the balance of this fine in Q4? Michael O'Leary: No. In this case, normally, our policy is to provide about 50% for these kind of legal fines when they're under appeal. However, in this case, with the benefit of the Milan Court of Appeal precedent ruling, which was just less than 18 months ago, our lawyers and ourselves in Italy are highly confident that this AG -- manifestly wrong AGCM ruling will be overturned on appeal. In fact, we could, given the strength of the advice we have not made any provision at all, but I think that would have been a bit too ambitious. It seems to both me and the Board that it's sensible to provide about 33%, and we don't expect to be making any other provisions. In fact, we expect to be writing back that provision to the P&L sometime in the next year or 2, which is how long we expect the appeal will take. Unknown Analyst: Can you update on your hedging position? Neil Sorahan: Yes, we continue to be very well hedged. In the current quarter to the end of March, we're about 84% hedged at $76 a barrel. But more importantly, when we look into next year, we're 80% hedged on our jet fuel at $67 a barrel. So that's about a 10% saving. On operating expenditure, the euro-dollar exposure, we're locked in now for next year at about EUR 1.15, which compares favorably to EUR 1.11 in the current year. And we recently jumped on dips -- weakness in the dollar to extend our MAX 10 hedging from up to 40% on a euro-dollar rate of EUR 1.24. Unknown Analyst: How is Q4 trading? Michael O'Leary: Demand is good. As I said with the earlier Boeing deliveries, we're seeing -- we expect traffic to be modestly -- rise slightly faster than we had originally expected. So we expect to do 208 million passengers for the full year as opposed to previously 207 million. Pricing in Q4 is modestly ahead of the prior year despite the absence of any impact of Easter on Q4. But nevertheless, as we've always said, the final outturn is heavily reliant on there being no disruptions as we move through February and March. Unknown Analyst: Can you give any color on Summer trading and FY '27 costs? Neil Sorahan: It's a bit too early for that. We're still working through our budget. So it will be another month or 2 before the Board sign off. What I can say at this stage, however, is with all of the Gamechangers expected to be in the fleet by the end of February, we're now targeting traffic next year of 216 million. So that's marginally up on the 215 million that we had previously guided, 4% increase. And of course, we'll see the benefit of our fuel hedges coming through next year as well. Unknown Analyst: Moving to the balance sheet. What are the main callouts of your strong balance sheet? Michael O'Leary: I pretty much the same as it has always been. So we have a BBB+ credit rating. We have an unencumbered fleet of almost 620 737 aircraft. Strong liquidity, EUR 2.4 billion gross cash at the end of December, almost EUR 1 billion of net cash, which leaves us very well positioned to repay the remaining bond debt in May this year from internal resources. And it's that financial flexibility that widens our cost gap with most of our competitors in Europe who are heavily exposed either to the aircraft leasing costs or financing expenses. Unknown Analyst: What's FY '26 and FY '27 CapEx guidance? Neil Sorahan: At this stage, I think we'll finish FY '26 with CapEx somewhere close to EUR 2 billion. So that's marginally down on the EUR 2.2 billion that we had previously guided where we're seeing some timing issues with a couple of projects moving out 1 or 2 years. And then next year, not much hugely different to what we had previously said, now it depends on the final budget. I think it will come in close to EUR 2 billion, possibly just below EUR 2 billion. Unknown Analyst: How will you finance the MAX 10s? Michael O'Leary: As we've always done, we'll use a strong balance sheet and be opportunistic. I would expect mostly it will be from internally generated cash, but we'll also use bond or bank markets when it's opportunistic or low cost to do so. Unknown Analyst: Shifting to shareholder returns, how is the EUR 750 million buyback progressing? Neil Sorahan: Yes, it's going well. I mean this buyback is scheduled to run out to the end of the current year. So we're about 46% of the way through it at the end of December. Put that in context, that's about 13.1 million shares bought back at an average price of EUR 26 per share. All of those shares canceled. So about EUR 340 million spend up to the end of December. Unknown Analyst: When is the next dividend payable? Michael O'Leary: There's an interim dividend of just over EUR 0.19 per share. That's payable by the end of February. Unknown Analyst: Ryanair's TSR performance is market-leading. Has focus shifted from investing in growth to shareholder returns? Neil Sorahan: Well, you're right. It is. It's a phenomenal return of 150% over the past 3 years and putting us firmly in the upper echelons of the Euro Stoxx 600 TSR index. But no, our focus hasn't shifted, and we have no plans to shift our focus. We'll continue to invest in growth. The plans are to have 300 MAX 10s in the fleet and 300 million passengers by FY '34. We've got a very simple capital allocation policy in here. We will retain a strong investment-grade balance sheet. We'll continue to invest in growth. As I said, the MAX 10s, jumping in opportunities like we did last June where we were able to buy 30 spare LEAP engines at the right price, good use of capital for our shareholders. And indeed, we'll invest in engine shops over the next number of years to help widen Ryanair's cost base. But at the same time, as we've done in the past, if there's surplus cash, we'll return that. We already have a 25% payout of prior year PAT regular dividend program. And the Board have and will continue likely to deliver buybacks and ad hoc dividends from time to time over the next number of years. Unknown Analyst: On fleet in growth, when will you receive your final Gamechangers? Michael O'Leary: The final 4 Gamechangers will deliver in February, well ahead of the end March launch of the Summer '26 schedule. Kelly Ortenberg, Stephanie Pope and the team at Boeing are doing a great job at catching up those delivery delays, which is why we've seen a significant drop in supplier compensation in the Q3 numbers. But those earlier deliveries mean we can now facilitate 4% growth to 216 million passengers in the year to March 2027. Unknown Analyst: What's the latest update on MAX 10 certification? Neil Sorahan: Yes. Boeing are still talking about certification in the Summer of 2026, possibly in Q3 calendar. So that's the July, August, September time frame. And they're increasingly confident, as Michael already said, that we will be taking our first 15 MAX 10s in the spring of next year. Unknown Analyst: What's your views on European short-haul capacity? Michael O'Leary: It will continue to be very heavily constrained right out to at least 2030. The drivers are the huge backlog and delivery delays being faced by -- challenges being faced by Boeing and Airbus. The Pratt & Whitney engine repairs continue to be devil the Airbus short-haul fleet here in Europe, that will run on through our competitors, say that will run on into '26 and '27 as well. And industry consolidation, most recently, Lufthansa's acquisition of it, and it looks like TAP will be next, which is causing capacity withdrawal certainly in short-haul and domestic markets in Europe, as Lufthansa pivots the likes of Alitalia to feeding people into Munich and Frankfurt, but away from keep competing with Ryanair in the short-haul domestic and Italian domestic market. Unknown Analyst: Where is Ryanair most focused on growing? Neil Sorahan: Yes. We've been very clear. We've got limited growth. We're only growing by 4% this year, and we only plan to grow by another 4% next year. And so we're very focused on rewarding and giving growth to regions that are reducing aviation taxes, airports that are stimulating growth. And if you look at our summer 2026, the new bases are in places like Tirana in Albania, Trapani in Sicily as well and Rabat in Morocco. At the same time, we're pulling capacity out of markets where they're actually increasing taxes or at least not bringing them down the likes of Austria, Belgium, Germany, regional Spain. And we'll continue to do so while capacity remains constrained. Unknown Analyst: What's the latest update on your engine shop project? Michael O'Leary: Going well. We expect to announce the first of 2 sites pretty soon. I'd say we'll make an announcement before the end of March or April. Negotiations for spare parts and tooling to fit out those engine shops are at advanced stages. In fact, again, we expect to be signing contracts on those before the end of, I would say, the first quarter or the end of April. And we hope and expect to have the first shop operational overhauling or repairing Ryanair engines by late 2028, early 2029. The second shop will be opened probably in the early 2030s. And this will give us another point of cost differentiation between us and our competitors. While our competitors will be having their engines maintained in very scarce supply third-party engine maintenance facilities. We will have surplus capacity and I think a significant advantage in -- cost advantage in maintaining our engines over those of our competitors. Unknown Analyst: Lastly, on outlook, what's the group's FY '26 outlook? Neil Sorahan: Yes, we expect traffic now to finish at about 208 million passengers, 4% growth on last year, thanks to the earlier delivery of the Boeing aircraft and strong demand. On fares, we think we're in a position where we'll recover not only all of the 7% that we saw decline last year, but another 1% or 2% on top of that. So ahead of our previous guidance. On costs, performance has been good year-to-date. So we're sticking with our modest unit cost inflation for the full year, where we'll see the benefit of our fuel hedges continuing to offset air traffic control charges, increasing environmental costs and indeed, the roll-off of Boeing compensation with no delayed compensation in the second half of this year. So putting all of that together, profit after tax, pre-exceptional, the AGCM fine provision, profit after tax should be somewhere in the range of about EUR 2.13 billion to EUR 2.23 billion. And then beyond that, 4% traffic growth again next year to 216 million passengers. You see the benefits of our lower fuel hedging coming through. And then, of course, with the MAX 10 aircraft starting to deliver from the start of 2027, we'll have another decade of growth to 300 million passengers by FY '34. Michael O'Leary: Thanks, Neil. As you know, it's the Q3 results, so we're not having a formal roadshow, but there is an analyst call at 10:00 -- later this morning at 10:00 a.m. Dublin time. Everybody is welcome to dial in. And if you have any further follow-up questions, please put them to us during that call or feed them into the IR team here led by Jamie Donovan or through Neil and the finance team. Thank you very much. We look forward to seeing you all again.
Operator: Good morning, and a warm welcome, dear ladies and gentlemen, to the analyst and investor web conference regarding the Stabilus results in the first quarter of fiscal 2026. [Operator Instructions] Let me now turn the floor over to your host, Dr. Michael Buchsner. Michael Büchsner: Hello, and welcome to our quarter 1 results call of the Stabilus Group. As always, you have our CFO, Andreas Jaeger; and myself, Michael Buchsner, being the CEO of the Stabilus Group in the call. And I'm happy to lead you through our results for the first quarter. And then for sure, we'll also have a Q&A session at a later stage. Yes, in a nutshell, I would say we hold our course in a very difficult market environment, as you can imagine, in the Automotive and also in the Industrial space. However, we had a very strong cash generation. If you compare that to the prior year, we've been doing particularly well and we've been doing particularly well in terms of our operational management of the cash flow. Our cash flow came out with EUR 23.9 million. And yes, like-for-like, last year comparison, we've been at EUR 8.9 million. So very positive development in that [ term ]. Our EBIT margin stayed strong with 10.1 percentage points. And as you all know, it's pretty much back-end loaded this year around because towards the second half of the year, our efficiency program and the new launches kick in. That's why the year will be for us back-end loaded in terms of the margin development and loaded on the second half of the year. Also, a good highlight was the EBIT margin we had in China. As you can imagine, and we always talked about it, the environment in China is getting tough, tougher in terms of competition. And this is why we also took the decision not to hunt for each and every business, but to concentrate also in these difficult times on the EBIT margin development, and we had an outstanding result. If you compare that also to the prior quarters and even the prior years, we had in the first quarter, a record EBIT margin in China of 18%. However, I said at the beginning already, we, for sure, are in a challenging market environment. And you see that forefront in our revenue for sure because the revenue was on EUR 291 million, which at the end of the day is 7% change versus the quarter 1 prior year, and it's becoming softer. So the first quarter is particularly kind of an impact we saw in predominantly China due to the fact that this consumer sentiment was particularly low. Then on the other hand, we also are -- as we are represented predominantly in the upper segment cars in the electromobility like Tesla, we also feel the market environment. On the other hand, there is a big FX impact of negative 3.7% year-over-year which at the end of the day is unfavorable for us. However, as I said before, the margin generation in China was particularly good and also the cash flow generation was on a very good level for us overall. And the EMEA and Americas region stay very strong in terms of organic development. The region we currently focus on is Asia Pacific, as you know. Our overhead reduction program is well on track. We started, as you know, this transformation program in the first quarter. So starting with October, we've been concentrating on cutting down costs on a second step in the overhead structure. You know that over the course of the past 2 years, we always have already concentrating on the reduction of our costs predominantly on the operations side. We've been doing automation projects in Koblenz, which materialize throughout this year and the years to come. And now as you already have been informed about quarter 1, means starting October last year, we started also to cut down on overhead costs. And this transformation program is basically a boost for us for the second half of the year and the years to come. And we're basically taking out already in 2027, EUR 19 million in terms of fixed costs on our P&L. And this is something which gradually kicks in, in the next quarters ahead of us. Net leverage ratio, it's important for us to stay around 3x. We have 4.5x as a covenant, but we want to stay well below that with our net leverage ratio. And we've been in the range of 3x, so 3.04x this time around as of December. And I would say, as I said at the beginning, we at the end of the day, start in a market environment, which is soft and challenging with a strong and good position predominantly on the cash flow. So with that, we will go into the next page, and I would like to draw your attention a bit more on the technical stuff, the growth drivers for here and now, the months, quarters to come and also the next years. We invested in the past years, as you know, on the Industrial Powerise. Why is that particularly important for us? We started the same thing with Gas Springs, right? We are a leading company for Gas Springs. We brought the Gas Spring on a very good position, nice quality, excellent cost into the market also for all kinds of industrial applications. So you find them everywhere. So now we are doing the same with Industrial Powerise, right? We started in the Automotive side, are producing on highest quality and best cost position, the Powerise now for the industrial space. We've been having revenues beyond EUR 5 million in the first 12 months of our doing last year. So it grows double digit. And this basically receives a lot of interest of our customers. It receives a lot of technical support by our customers, and they love this project -- product because it's very robust. It's built on automotive lines to a very nice cost position. And as I said, we already started after the market introduction, which happened early last year with EUR 5 million we've been generating in terms of revenue on a very exceptionally high margin. As you can imagine, Industrial Powerise, part of the industrial space and industrial business enjoys good margin at this point in time. Second position is here as a growth driver for us, the door actuation. Door actuation, a wonderful product to be a next generation of vehicle comfort, right? It opens and closes doors automatically. It's a must-have for all kinds of cars with autonomous driving, self-parking, but also it enjoys exceptionally good growth rates in China these days. So we are in Geely, in Korea, we are in Hyundai. Actually, we start Li Auto this year. And there is not a single customer who's not interested in this next-generation vehicle comfort. And this takes off in the second half of the year as our customers, predominantly BMW, but also Tesla once more and also Li Auto to Xiaomi will fill their pipeline for the upcoming launches, and we enjoy also good business wins there. And as I said before, yes, currently in China, the consumer sentiment is on a decline. We saw that October, November, December, but this technology enjoys very nice growth rates, and it basically goes off in the second half of this year and will greatly help us in terms of sales. Last not least, also the third growth driver for us is our automation and the automation synergies. As you can imagine, over the course of the last years, we've been working a lot on synergy generation in terms of sales and technology with our Destaco portfolio. And now here, I would like to highlight first time that we are working already also on humanoid robots and industrial robotics systems. We have not only gripping systems, which we tailored now to humanoids and to industrial robots, but also we are with one of our OEMs where we're already in a strong business relationship in the automotive side, who decides to produce or decided to produce humanoid robots big scale, U.S. company, U.S.-based company. We are working on electromechanical solutions for the hinges of humanoid robots. And this is a development project which we recently entered. And this project, along with industrial robotics, gripping systems, the opportunities we see also for us in the automation space materializes as we speak and helps us a lot also throughout the year to generate additional highly profitable margins business. So the 3 growth drivers, the growth sentiment remains unbroken and unchanged. The big growth drivers, Industrial Powerise, automation technologies, doors actuation, they are kicking in. And as you can imagine, along with the program we are driving to do a reorganization and restructuring on the overhead side, we take and use these days and times of softer business to actively shape our future. So that's the strategic points we've been achieving over the quarter, of the quarter 1, October, November, December. However, I would like to also go into the details of the financials with you before I hand over to Andreas for the details on the regional view. Overall, revenues, as I said, EUR 291 million in terms of euros. Organic growth was soft, minus 7%. FX impact around, about 4%. And then we see here this China impact, predominantly Europe, North America growing well. In China, consumer sentiment, upper segment cars, when inflation hits the fan, people decide to go for lower segment cars in difficult days. We are with our products predominantly on the top segment cars, and this leaves its marks for sure. But we assume that being a short-term effect, which at the end of the day, will recover in the second half of the year from our perspective. Destaco synergies well on track with EUR 1.7 million at this point in time. Our target this time around is EUR 10 million for a year. We will achieve that. Our forecast shows that. As I said, there is several elements in the pocket like the production of gripping systems for humanoid or other elements for autonomous and robotic systems. In terms of EBIT margin, our EBIT margin came in with EUR 29.3 million, so it's 10.1%, predominantly supported by a very strong industrial business, but also by China because we decided in China to go for EBIT margins, not necessarily grabbing all the businesses around there, well knowing that the door actuation business at the end of the day has a higher margin to begin with, we said we rather focus on the high-margin products and the door actuation systems in order to generate good margins for us, and this strategy materializes. It's basically an 18% EBIT margin in China, overall 10.1%. And this, at the end of the day, will also improve over the course of the year as our effects of our restructuring projects kicks in. For sure, Destaco cost synergies are still on track, and we monitor them on a quarterly basis, EUR 0.5 million. Here, the target is for the year, EUR 4 million, and this is absolutely what we will achieve. Net profits are impacted for sure by FX, FX losses. But however, also here, FX and tax expenses, they are kicking in early in the year. This is something which you will see develop positively over the course of the year. And then last not least, our free cash flow, which is exceptionally good. The free cash flow is on EUR 23.9 million. We already got a question beforehand, whether this be driven by programs we did on the financial structure, but this is basically a good management of the operational side, a good cost control, good control on the forecast all levels on the operations side, which drives that and less financing programs. So with that, I would hand over to Andreas for some details by region. Andreas Jaeger: Good. Thank you very much, Michael, and a very warm welcome also from my side. I go directly into the region, and I would start with Americas. In Americas, we see in euro, a minus of 5.7% in the revenue. But if we consider the FX or the effect from foreign exchange rate translation in America, the organic growth was only minus 0.5%. The EBIT margin at 4.7%, we are not really satisfied, and Michael already mentioned it briefly, and I will come back to that on the next slide. In EMEA, also in reporting currency, the revenue minus 1.4%. And if you also factor out here the FX impact, we are only 0.3% negative. The margin at a solid 10.8% and considering the slightly lower volume, we could even increase the EBIT margin by 1.9 percentage point that shows on one hand that we really took out fixed costs and that we also worked on flexing our cost basis. In Asia Pacific, in the reporting currency, minus 30.6% year-on-year. Michael already mentioned it, predominantly in China with a challenging market environment in automotive. But the EBIT margin, clearly the highest with 18.1%, and considering all the challenges and the lower volume, we could almost maintain the EBIT margin and in percentage point, it went down only by 1.3 percentage points. If I then go now more into the details for Americas, you see again on the revenue, the minus 0.5%. We grew organically in Automotive Gas Spring and in Powerise. And if we compare that slight growth in Automotive Gas Spring and Powerise with the latest S&P data from automotive, they were slightly negative. They told us minus 0.8%. So also, if we take the market as a benchmark, a solid development of the revenue. On the EBIT side, we are not fully satisfied with what we achieved in there. On one hand, we saw the volume impact. We also saw and we informed you at the year-end presentation already that we changed the allocation and the recharges of the intellectual property right. So that had a negative impact on the EBIT. But then also the challenges we had in Mexico, in the U.S. Gas Spring operation, where we had a higher turnover in the workforce and that drove additional cost for training and also hampered the efficiency in the operation. If we then move on to EMEA, we can show a different picture. In EMEA, we are almost at prior year level, if we look at the organic growth, we saw a slight decrease in Automotive Gas Spring and Industrial Automation. On the other hand, we grew in Automotive Powerise. Also, if we here, benchmark ourselves with the information that we received from the S&P automotive market with a minus 2.2%, we delivered better numbers than the S&P number told us. If you look at the EBIT, slightly lower volume, but it's clearly higher EBIT margin and even in absolute numbers, an increase of the EBIT that shows we really took out fixed cost in Europe, and we could also flex to the volume our production cost. The last region then that I will cover is then APAC. In APAC, we already saw the decline that Michael at the beginning told us, the major impact we saw in this minus 24.9% comes from China. It's a challenging market, as Michael already said. If we then look at the development of the EBIT, yes, in absolute number, it went down, but we maintained a very solid margin of 18.1% in a very challenging environment. If we then look at the development of the business segment by market segment on the next slide, you saw that we slightly could reduce our portion from automotive with 54%. In Q1, we were at 57%. And however, most of the segment showed a negative development. If I then continue with the net leverage and the net financial debt on the next slide. You see since 2024, we could decrease the net financial debt by 7.5%. And if you compare that what we achieved in Q1 '26, we could reduce the net financial debt by EUR 13.3 million and reducing the debt and bringing down the leverage ratio is a clear priority. And we also said we will bring it to 2.0 within the next 2 years. On the net working capital, Michael mentioned it at the beginning, and we talked about the cash generation. You see during the last 3 periods, the net working capital came clearly down, and we are now at EUR 218.6 million or if you compare it to the ratio and comparison to the revenue, it came down again to 17.3%. The investments, you see them year-over-year and then the first quarter, the first quarter was with EUR 18.1 million, a little bit on the lower side, if you look at the investment. However, this has more to do with the seasonality. For us, it maintains a priority to invest in the future and develop new and interesting product technology, smart door actuation, electric grippers and also the automation of our production facility remains a priority. And with that, I would give back to Michael for the outlook. Michael Büchsner: Thank you, Andreas. Yes, we -- as you know, and we know clearly and our main focus for the second quarter is to work on our restructuring project to continue to do the rollout, basically to manage our overhead costs, but also to further improve us on the operational side. And this is something which at the end of the day, will lead us into February and March, right? Over the first half of the year, we said we'll roll that program out. And then at the end of the day, we will harvest that fruit starting in the second half of the year. And this is something which at the end of the day helps us in terms of sales initiatives, right? Door actuation, continue to win business in terms of business on the Industrial side, it's Automation and the Industrial Powerise. That's what we're currently working on. And as Andreas said, also in the second quarter, we'll continue to work on improving our North American plant in order to deal with the fluctuation we had on hand, which drove a negative performance there. Overall, with all these measures, our forecast is still on track, right? Our forecast, and we confirm it will be at EUR 1.1 billion sales, up to EUR 1.3 billion sales for the year in euro. The EBIT margin will be in the range between 10% and 12%. And also the adjusted cash flow is on track with EUR 80 million to EUR 110 million free cash flow after all. So that are basically the points we are currently working on. And if we go on the next page, actually, here, a brief summary for you. The -- actually, we are impacted for sure by the market environment, no doubt about that. However, with the initiatives we have on hand, we clearly know what to concentrate on in the second quarter and thereby, the guidance is confirmed. For sure, with whatever we do, we work and continue to work with strong team efforts on our STAR 2030 initiatives, right? Andreas mentioned it as well. Our main priorities remain there to invest in new technologies. We have had great achievements in the first quarter, we have been winning door actuation business, Industrial Powerise businesses and also even up on the Automation side, to contract development contracts for humanoid robots. That's what we're working on currently. And yes, in the second quarter, you will see development in the restructuring program. Next quarter, we will give an outlook about where we stand, what we achieved and which further points are necessary in terms of cost management, right? It's -- we've been managing the big and low-hanging fruit, which for us is now the restructuring program rollout. It has been starting very well. But also the cost management, it is very, very important to us in all the different regions. And we will also put a strong focus on the improvement of the operations in North America and on top of the sales initiatives. Because there are 2 things which are important for us this year, it's the cost management and the sales initiatives in order to prepare for a continuous success in our industry. Yes, with that, we would hand over to you for questions. Operator: [Operator Instructions] So the first question is from Akshat Kacker of JPMorgan. Akshat Kacker: Akshat from JPMorgan. I have 3 questions, please. The first one starting on your China business. As you mentioned in the first quarter, the market environment wasn't supportive. We have seen organic growth declines of 20% to 30% across your business segments in the first quarter. Could you just give us more details in terms of a rough split between volumes and pricing? And in terms of how this year plays out, when do you expect volumes to start stabilizing in China, please? That's the first question. The second question is on the North America margin. You did talk about some operational inefficiencies, higher personnel and training costs. Could you give us an idea on what kind of impact can we expect on the business for this fiscal year? And how quickly can you turn around things in North America, please? And the third one is on your assumption of a second half recovery. I completely understand that you talked about new launches and benefits from underlying cost actions that you have taken over the last year. And also keep in mind, Q1 always has a seasonality for your business in terms of higher revenues and margins in China. So could you just give us some sense on how much of a pickup do you expect in the business second half versus first half this year, both from a revenue and margin perspective? Michael Büchsner: Thank you very much, Akshat, for your questions. I give it a start and then for sure, I hand over also to Andreas. Talking about the first quarter in China, which is an exceptional good EBIT margin of 18%. Your question was in terms of sales, how were sales developing and what were the pricing impact. You know out of the last year, over the year, we had 8% pricing kicking in. That's just a given. If you compare now last year's first quarter with this year's first quarter, you for sure see this 8%. We've been always talking about it that this 8% are exceptionally high. Typically, in the automotive industry, we can deal with 4%, 4.5% maximum in China because in China, also technical changes are easier to introduce. However, the big topic we saw last year is that the competitor for front engine did basically set new target prices. And this was something, and you mentioned it, was visible throughout the year in terms of the margin development in China in a very firm way. And this is something which we've been constantly working on. So the impact was 8% pricing out of the revenue decline because we kind of -- you have this carryover effect. And if you compare quarter-to-quarter, first quarter to first quarter, basically, the first quarter last year was October, November, December '24. This is when the pricing discussions start at bigger scale. And now this delta, as I said, is around, about 8%. As stated, we are able to deal with 4% typically. And now we have to take extra actions to improve our profitability. This is why you also see the profitability of China still being on a decent level this year around with wonderful 18% because apparently, we can deal with this, but it has a time delay until we can deal with such margin deteriorations or pricing pressure in the industry. So these were the first 8%. Then we had an FX impact, a couple of percentage points. And I'm sure Andreas will talk about that. I think it was in the range of 3% to 4%. And at the end of the day, then something in China -- in China, our business staggering is we have half of our business Western world OEMs, half of the business Chinese OEMs. So we are balanced very well. There is this consumer sentiment of China going down, which makes up around, about 4%, right? So the consumer sentiment after all went down 4. This is following the studies of market developments in China, where we have access to, and this is something which will lead us into the second half of the year. That's the strong belief of economists in China in a nutshell. And then there was, for sure, the impact that we, as Stabilus Group are operating on the top segment cars in both China's OEMs and Western world OEMs. And when there is high inflation and people feel financial pressure, they decide on a shorter term because we saw that in the past as well, on a shorter term to concentrate on buying lower segment cars where typically the fitment rate of electromechanical devices is less. So in a nutshell, coming back to your first question, the answer to that, 8% was pricing around, about. There was an FX impact of 3% to 4%. Then you see a consumer sentiment for the business of 4% and then the remainder is then something which goes in line with the different segment of the cars have been produced like the upper segment cars, which, by the way, we saw in all regions. But in Europe and North America, we've been better flexing that with industrial business as our industrial business position is bigger on a bigger scale than in China. This was more difficult this time around in China. And that's why particularly the Asia Pacific region was impacted by that. So that's your first question. Then North America. In North America, the performance-related points, they are basically affecting our 2 automotive plants. It's the one in Mexico, and it's the one in Gastonia. And these 2 plants basically did lose around, about EUR 2 million last quarter, I would say, plus or minus on the efficiency side. And this is something which we're currently working on. There will be an impact also in the second quarter. We expect that in the third and the fourth quarter, we have things back under control. And this is something that was, as Andreas said, people fluctuation related. So we lost some people predominantly in the workforce, concentrating on direct labor, but also maintenance people. And as you know and can imagine, maintenance people are basically the lubricant in the transmission and gearbox of such a plant, right? Because the maintenance people, they guarantee that the uptime of the lines is sufficient to serve the demand of the customer. Then you see a complete chain reaction, right? You lose some of the maintenance people, then you have less output, then you get into the mode of some premium freight, quality is impacted as well. And this is something which we've been working on. We took sufficient measures. We will get out of this position, but it actually takes a couple of months to get there. So this basically is what we're working on for the second half of the year. You will see out of the improvements of the restructuring program, 1 percentage point improvement in the second half of the year on our EBIT margin. And then fixing the operational issues in North America will add another percentage point. And this is something which then lift us in terms of EBIT margin so that we're getting closer to the margins we had last year and also getting us within our guidance ballpark. So Andreas, from your side, I mean I've been explaining intensively now the root causes and percentages, how they move up and down with our operational points. Because actually, it's very important to us that we have a clear picture of where we are suffering and how we're impacted by the current market circumstances. That's why it's important to talk about all these details. I understand that very well. But Andreas, are there any points you'd like to add? Andreas Jaeger: If I look at the 3 questions, I would say they are all covered, but we can double check that with Akshat. Did you receive what you were looking for? Akshat Kacker: Yes, that's very clear. Operator: The next question is from Klaus Ringel of ODDO BHF. Klaus Ringel: I actually have 2 and would take them one by one. One would be a bit more detailed coming to Akshat's question about the business momentum. If you can already share a bit of light on your expectation for Q2. I mean margins shall improve over the course of the year, but regarding top line, can we also already expect some pickup in Q2 versus Q1? Or shall we rather expect something going sideways? This would be the first one. Michael Büchsner: So in terms of revenues, our expectation that in the second quarter, it moves rather sidewards. Why is that? In the second quarter, there is the Chinese New Year, which for sure is something which we have in our budget and are planning already, and it's considered in the guidance. And in terms of North America and Europe, we see a rather flat business out there. We see in the automotive industry, not too much movement. And on the industrial side, typically, the time when you get directionally a better view on how business develops is the spring time because this is when the orders kick in for new launches and other stuff, that's too early to say. So I would say January, February, March is moving rather side from our business. But however, this is how we build our business plan this year. We said the first 2 quarters will be rather on the soft side. And then in the second half, it will be picking up. And then similarly, in the margin, and this is why at the end of the day, also, we confirm for sure our guidance because that's what we've been planning for to begin with. Klaus Ringel: Okay. Second one is on the additional point you're talking about humanoid. And I really appreciate that you also start talking about this. Some other players, yes, a bit more, much more vocal for a couple of months now. So I would be very interested how immediate this potential really is. I mean you have this big U.S. customer in automotive, which also has obviously big ambitions in the humanoid robots. Is this really a couple of, I don't know, hundreds, thousands or millions of revenues over the course of the next 12, 18 months? Or is it less? Is it more? So this would be great. And also in terms of margin, is it fair to assume that you can achieve a kind of industrial margin in this area? Michael Büchsner: Yes. Thank you very much for this question. First of all, you mentioned at the beginning of your sentence that some already -- some people already have been talking about humanoid robots and automation in a broader scale in a different way than we do. The point is, for sure, in this humanoid robots, this is a customer which we also have on the automotive side. And there, sometimes it's not kind of allowed to talk about such movements. On the other hand side, if I talk about the stake of volumes, sometimes there is restriction by governments to openly talk forefront about it because we need to meet all the regulations to deal with this in the first place, but also it's then, in many cases, restricted in terms of communication because it's military service. That's to begin with. But we will disclose as much as we can for sure, not jeopardizing our business model with basically infringing any agreement we have with our OEMs. That's something which we very strictly kind of meet. So -- and then the impact, there is 2 areas. There's electromechanical devices, which we're currently working on for hinges and stuff for humanoid. That's something which is in the development phase. You will not see sales -- too much sales this year. There's difference in terms of the gripping systems, which we do for humanoid and also for end-of-arm tools for cobot systems. This is a new development with Destaco with basically a smart gripping system. And these gripping systems, they are in place already, and this is a couple of hundred thousand already in the first half of the year, which we deliver to the customers, and we expect that this goes up because there are new solutions with electrified version plus also feedback from the parts. So it's basically intelligent gripping system, which we did offer to the market here lately, and that's perceiving very good feedback. These are the 2 elements which are leading to that business opportunity for us. I hope that answers your question. Operator: So the next question in the queue is from Yasmin Steilen of Berenberg. Yasmin Steilen: So first, coming back on the price erosion in China. So we have seen the headwinds in Q1. However, you stated during the last call that you expect price erosion in China to ease a bit. So what is your current view on the overall price headwinds in China for Powerise in FY '26? That's my first question. Then with regards to the door actuation -- door actuators, you just stated that the ramp-up should happen in H2. So can you provide more color on the expected sales volumes to impact the second half? And how should we think about the profitability here in the ramp-up phase? And the last one on Destaco. I might have overseen this in the interim report, but could you share any comments on the profitability, please? Michael Büchsner: So thank you very much for your questions. In terms of pricing in China, the pricing in China is in the range of 4% to 5%. That's what we assume this year. This is the pricing levels which we are used to. As I said before, last year, we saw this exceptional pricing of twice as much in the range of rather 8%. This year, we see that continuing with 4% to 5%. And that's something which we are in a better way, able to deal with because that's the typical price reductions you get out of efficiency and you get out of your bill of material with your normal doings in the business, and that's something which we definitely can deal with in a given business year. How do we do that? We take our suppliers and do supplier negotiations because in absolute terms and volumes, for sure, the volumes go still up. It's a pricing-related reduction. So the volumes go up. And then at the end of the day, we negotiate with the suppliers in a better way, and we get their contribution to our success in the first place. Then the second thing is that our operational efficiencies in the plant are main point of our concentration in terms of our improvements. So that's something we saw over the course of the first quarter and second quarter already happening that the price reductions for this year will be in the range of 4% to 5%. The second question you had, the door actuation system, the profitability and the launches. Actually, the launches in the second half of the year, they are filling the pipeline for main customers like BMW. There is also Tesla involved, there is Xiaomi involved and some others smaller scale. This is business which we, at the end of the day, won a couple of years back and the launches are planned this year. And the profitability is on good levels. It's comparable or even slightly higher than our margins on the Powerise side. This is driven predominantly by the good launch performance we already drove in Asia Pacific. In Asia Pacific, specifically with our customers in China and Korea, we could establish a good position to also be leading in the price negotiations with the suppliers. Because at the end of the day, we've been winning over the course of the past years in the range of 40, so 4-0 percent of all businesses out there in door actuation. And due to the fact that we invested a lot in not only capacity because we have in all the different regions now aligned. We also invested heavily in the area of building up our supply base and technology. So we are basically frontrunner in terms of developing the right software, integrating the sensorics, having the radar systems on hand and so forth. So that's very beneficial for us. And at the end of the day, I would also come back to Klaus' question because Klaus asked the profitability of humanoids and profitability on industrial elements. I did forget to mention that this is for sure, average and slightly above industrial margins to basically close also the question we had from Klaus before. And then last not least, you were talking about Destaco profitability. Destaco holds the profitability very good. There is 2 things to keep in mind. One thing, and this is something which also with Andreas, we can go in detail, there is a reshuffling of overhead costs in the organization due to the fact that now we distribute the complete overhead costs to the complete business we have. This is first time that we also burden Destaco with the company overhead rate across the board. So that means the like-for-like comparison at the end of the day is something which can be explained in detail, but it accounts for basically 2%, 2.5%, which we burden on the Destaco profitability. Other than that, the businesses we are taking in, considering the current industry weakness, we are absolutely fine with. I hope that answers your question. Yasmin Steilen: Yes. That was very clear. And the last one on the -- sorry, on Destaco. Michael Büchsner: Excuse me? Yasmin Steilen: So in terms of Destaco profitability, how should we think about it going forward? Michael Büchsner: This is what I meant. They're very stable in terms of the profitability. We did distribute first time this year to the Destaco business also the overhead costs. That means in the financial numbers, you will see now 2 effects. You will see a burden of the overhead -- related overheads to the Destaco business, which accounts for 2.5% around, about. And then you will also see that it's now coming together with other businesses like the synergy business we have on hand. And this is basically also impacting the position of Destaco. But overall, it remains on a very good level for us. So it basically holds the course, except this burden of the overhead rates, which we first time basically also distributed now to the Destaco business. Yasmin Steilen: Okay. So just to clarify, so the former indications you gave about 19% to 20% was ex-overhead costs? Michael Büchsner: This was without allocation of the overhead costs, indeed, yes. Operator: At the moment, there are no questions in the queue. [Operator Instructions] As of now, there seem no more questions to be on the line. Michael Büchsner: Yes. If there are no further questions, then thank you very much. One point is very important. We know exactly what to work on in the second quarter. It will be continuing the restructuring program, watch costs and for sure, use the drive levers we have to boost sales, which at the end of the day will kick in second half of the year, like our wonderful door actuation system where we have the launches coming in the second half of the year on the industrial side, the Industrial Powerise and then the automation system predominantly in the space of automation, but also humanoid robots, which we are in a long run working on. With that, thank you very much. I wish you a nice and successful week. Bye, everybody. Andreas Jaeger: Thank you. Have a good week. Bye.
Operator: Good day, and thank you for standing by. Welcome to the Bank of Hawaii Corporation fourth quarter 2025 Earnings Conference Call. At this time, all after the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press 11 on your telephone. You'll then hear a lot of in messages by being a hand raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I'd like to hand the conference over to your first speaker today, Chang Park. Please go ahead. Good morning, and good afternoon. Chang Park: Thank you for joining us today for our fourth quarter 2025 earnings call. Joining me today is our Chairman and CEO, Peter Ho, President and Chief Banking Officer, James Polk, CFO, Bradley S. Satenberg, and Chief Risk Officer, Bradley Shairson. Before we get started, I want to remind you that today's conference call will contain some forward-looking statements. And while we believe our assumptions are reasonable, the actual results may differ materially from those projected. During the call today, we'll be referencing a slide presentation as well as our earnings release. Both of these are available on our website, boh.com, under the Investor Relations link. And now I would like to turn the call over to Peter. Peter Ho: Thanks, Chang. Good morning or good afternoon, everyone. Thank you for your continued interest in Bank of Hawaii Corporation. We recorded yet another set of strong results in the fourth quarter. Fully diluted earnings per share was $1.39 per share, 63% higher than results from a year ago, and 16% higher than last quarter. Net interest margin improved for the seventh straight quarter, up 15 basis points to 2.61%. Return on common equity improved to 15%. Loans and deposits both grew modestly in the quarter. Importantly, noninterest bearing demand deposits grew 6.6% on a linked basis. Credit quality remained and remains pristine. I'll now touch on some operating highlights. Brad Shairson will briefly update you on credit quality, and Bradley S. Satenberg will dive a little deeper into the financials. As you know, Bank of Hawaii Corporation has a unique business model that creates superior risk-adjusted returns by leveraging our unique core Hawaii market, our dominant brand and market position, and our fortress risk profile. Our market-leading brand position is largely the driver of our market share outperformance, giving us both a robust and durable competitive franchise advantage. Our brand advantage is built on our 125-plus year history in the island, our physical branch system, and increasingly our digital service, marketing, and commerce capabilities. Over the past twenty years, Bank of Hawaii Corporation has delivered market share growth nearly four times greater than that of our next closest competitors. The market share growth continued in 2025, advancing another 40 basis points. We are the clear deposit market share leader in Hawaii. Interest bearing deposit costs improved by 20 basis points, and total cost of funds improved 16 basis points in the quarter. Also in the quarter, we remixed $659 million in fixed rate loans and investments from a roll-off rate of 4% and into a roll-on rate of 5.8%, helping to improve net interest margin. As I mentioned, Q4 was the seventh consecutive quarter of NIM expansion. In early 2025, we had a goal of achieving a 2.50 NIM by year-end based on fixed asset repricing, improving deposit remix, and rate cuts. We were gratified to see NIM result for Q4 well exceeding that goal. We believe NIM by the 2026 could come in near the $2.90 range. Our Fortress Credit position is a long-standing strength of Bank of Hawaii Corporation. The portfolio is diversified by product type, predominantly secured and possessing superior long-term loss experience. We dynamically manage our credit portfolio, actively managing off loan categories that we find not to meet our stringent loss standards. And now let me turn the call over to Brad Shairson, who will provide a brief overview on credit. Brad? Bradley Shairson: Thanks, Peter. I'll begin with an overview of our credit portfolio, and conclude with asset quality metrics. And as you will see, our performance has remained strong, consistent with prior quarters. Turning to our lending philosophy, the Bank of Hawaii Corporation is dedicated to serving our local communities, lending primarily within our core markets where our expertise allows us to make informed and disciplined credit decisions. Our portfolio is built on long-tenured relationships with approximately 60% of both our commercial and consumer clients having been with the bank for more than ten years. Geographically, our loan book is concentrated in markets we know well. Approximately 93% of loans are based in Hawaii, with 4% in the Western Pacific and just 3% on the Mainland, primarily supporting existing clients who operate both locally and on the Mainland. Our loan portfolio remains well balanced between consumer and commercial exposure. Consumer loans represent 57% of total loans, or approximately $8 billion. Within the consumer portfolio, 86% consists of residential mortgage and home equity loans with a weighted average LTV of 48% and weighted average FICO score of 799. The remaining 14% of consumer loans are comprised of auto and personal lending. Credit quality in these segments also remain strong, with average FICO scores of 730 for auto loans and 761 for personal loans. Turning to commercial lending, the portfolio totals $6.1 billion, representing 43% of total loans. 73% is secured by real estate with a weighted average LTV of 54%, reflecting our ongoing emphasis on collateral protection. CRE remains the largest component of commercial book, totaling $4.2 billion or 30% of total loans. And in Oahu, the state's largest CRE market, a combination of consistently low vacancy rates and flat inventory levels continue to support a stable real estate market. Across industrial, office, retail, and multifamily property types, vacancy rates remain below or close to their ten-year averages. Total office space on Oahu has declined by approximately 10% over the past decade, driven primarily by conversions to multifamily residential and lodging. This structural reduction in supply combined with the return to office trend has brought vacancy rates closer to long-term averages and well below national levels. Our CRE portfolio remains well diversified with no single property type exceeding 8.5% of total loans. Conservative underwriting practices continue to be applied consistently with weighted average LTVs below 60% across all CRE categories. In addition, diversification within each segment remains strong, supported by modest average loan sizes. Scheduled maturities are also well balanced, with more than 60% of CRE loans maturing in 2030 or later, reducing near-term refinancing risk. Looking at the distribution of LTVs, there isn't much tail risk in our CRE portfolio. Only 1.6% of CRE loans have greater than 80% LTV. C&I accounts for 11% of total loans. This portfolio is diversified across industries characterized by modest average loan sizes with very little leveraged lending. Turning to asset quality, credit metrics continued to perform exceptionally well. Net charge-offs totaled $4.1 million or 12 basis points annualized. That's up five basis points from linked quarter and two basis points higher year over year. Nonperforming assets declined to 10 basis points, down two basis points from linked quarter and four basis points year over year. Delinquencies increased to 36 basis points. That's up seven basis points from linked quarter and up two basis points year over year, and criticized loans increased to 2.12% of total loans, up seven basis points from linked quarter and two basis points higher year over year. Notably, 86% of criticized assets are real estate secured with a weighted average LTV of 54%. And as an update on the allowance for credit losses on loans and leases, the ACL ended the quarter at $146.8 million. That's down $2 million from the linked quarter. The ratio of our ACL to outstandings dropped two basis points to 1.04%. I will now turn the call over to Bradley S. Satenberg for a discussion of our financial performance. Bradley S. Satenberg: Thanks, Brad. For the quarter, we reported net income of $60.9 million and a diluted EPS of $1.39, an increase of $7.6 million and $0.19 per share compared to the linked quarter. These increases were primarily due to the continued expansion of our net interest income and our net interest margin. As Peter mentioned, this is the seventh consecutive quarter that we've expanded both our NII and NIM, and this quarter's expansion of $8.7 million and 15 basis points represents the most significant improvement during that stretch. Driving this expansion is the successful repricing of our deposits, a $200 million securities repositioning that we executed in early October, as well as the deposit mix shift, which is a positive $100 million this quarter. This is the first time since 2022 after the Fed started raising rates that the mix shift had a positive impact on our earnings. As a reminder, the mix shift represents deposits shifting from noninterest bearing and low yielding deposits to higher cost deposits. Mix shift peaked at $967 million in 2023 and has moderated since then. During the year, the average quarterly mix shift was $25 million compared to $340 million in 2024. During the quarter, the yield on interest earning assets declined modestly by one basis point. As floating rate assets repriced down in response to rate cuts during the latter half of the year. The impact of these rate cuts was almost entirely offset by the positive impact from our fixed asset repricing. While the yield on interest earning assets dipped modestly, the cost of our interest bearing liabilities improved by 19 basis points or 9% compared to the linked quarter. And was driven by the successful repricing of our deposits which declined by to 1.43% a 16 basis point reduction from the third quarter. In addition, our deposit beta improved from 28% to 31%. And I remain optimistic that we will ultimately achieve a beta that at least 35% after Fed funds hits its terminal rate. It's also important to point out that we ended the quarter with a spot rate on our deposits of 1.3%. Or 13 basis points lower than our average cost during the quarter. Based on the spot rate, I anticipate another solid improvement in the cost of our deposits during the first quarter. Additionally, our CD book continues to reprice down, and during the fourth quarter, the average cost of our CDs declined by 22 basis points to 3.18%. During the next three months, 52% of our CDs will mature at an average rate of 3.1%. The majority of these CDs are expected to renew into new CDs at rates ranging from two and a quarter to 3%. We made no changes to our interest rate swap portfolio during the quarter. We finished the year with an active pay fixed receive flow portfolio of $1.5 billion at a weighted average fixed rate of 3.5%. $1.1 billion of these swaps are hedging our loan portfolio, while $400 million are hedging our securities. In addition, we have $500 million of forward starting swaps at a weighted average fixed rate of 3.1%. $300 million of these forward swaps will become active during the 2026 while the remaining $200 million will become effective during the third quarter. At the end of the year, our fixed float ratio remained stable at 57%. I believe that we are well positioned for any interest rate environment. Noninterest income was $44.3 million during the quarter compared to $46 million during the linked quarter. As I discussed last quarter, noninterest income in the fourth quarter was impacted by an $18.1 million gain on the sale of our merchant services portfolio which was largely offset by a $16.8 million loss incurred in connection with the repositioning of our investment portfolio. The current quarter also includes a $770,000 charge related to a Visa conversion ratio change while the linked quarter includes a similar Visa charge. The third quarter also includes approximately $3 million of merchant services fee income that will not recur following the sale of that business. Adjusting for these normalizing items, noninterest income was essentially flat. My expectation is the first quarter normalized noninterest income will be between $42 million and $43 million. Noninterest expense was $109.5 million compared to $112.4 million during the linked quarter. Included in noninterest expense this quarter is a $1.4 million reduction in our FDIC special assessment as well as a nonrecurring $1.1 million donation to our Bank of Hawaii Foundation. The linked quarter includes a severance charge of $2.1 million and approximately $2.2 million of nonrecurring merchant services expenses. Compared to my previous forecast, actualized actual normalized noninterest expense was higher than expected mainly due to additional incentives that were recorded during the period. 2026, I am forecasting that expenses will increase by between three and three and a half percent from our 2025 normalized expenses. And I anticipate that our first quarter normalized noninterest expense will be approximately $113 million. The first quarter generally tends to be elevated as compared to the rest of the year, to seasonal payroll taxes and incentive related charges. During the quarter, we also recorded a provision for credit losses $2.5 million which is unchanged from the linked quarter resulted in a coverage ratio of 1.04%. Further, we reported a provision for taxes of $17 million during the quarter, resulting in an effective tax rate of 21.5%. I anticipate that our tax rate will be closer to 23% in 2026 due to the impact from forecasted discrete items. Our capital ratios remained above the well capitalized regulatory thresholds during the quarter with Tier one capital and total risk based capital improving to 14.5% and 15.5% respectively. And consistent with the linked quarter, we paid dividends of $28 million on our common stock and $5.3 million on our preferreds. Plus, we resumed our stock repurchase program in the fourth quarter and approximately $5 million of common shares at an average price of $65 per share. I'm currently planning to increase the level of our repurchases next quarter. At the end of the year, $121 million remained available under the current plan. Finally, our board declared a dividend of $0.70 per common share that we paid during the first quarter. Now I'll turn the call back over to Peter. Peter Ho: Thanks, Brad. This concludes our prepared remarks. Now we'd be happy to take whatever questions you might have. Operator: Answer session. As a reminder to ask a question, you'll need to press 11 on your telephone and wait for your name to be announced. Withdraw your question, please press 11 again. Now first question comes from the line of Matthew Clark of Piper Sandler. Your line is now open. Matthew Clark: Hey, good morning, everyone. Good morning. Just want to start on the noninterest bearing deposit growth this quarter. Good to see some strength there. Sounds like less mix shift, people seeking higher rate probably some seasonality too, but just you just drill down on that those balances there at the end of the year, whether or not that's sticky and what you're what your outlook is for growth, this year. Peter Ho: Yeah, Matt. I think I think the fourth quarter might be a bit outsized. I mean, it was a 6% pickup in an IBD, but I think directionally, we've seen growth in in that category for a few quarters now. And that's coming from a pretty balanced grouping of of business segments participating. So commercial, our consumer folks are doing a good job bringing in sticky low cost deposits. So we would anticipate this probably continuing would be my sense, but probably not at that same clip of six, you know, six plus percent. That's probably little bit overstated. And I think there's probably some seasonality in there as you as you to. Matthew Clark: Okay. Great. And then on the loan side, pretty much in line. Anything you're seeing there in the pipeline that would suggest any you'd you know, ideally like to get back to mid single digits? I don't know if that's realistic this year or not, just want to get a sense for the pipeline and your outlook there too. Peter Ho: I'll let Jim cover that too. Yeah. I I I feel generally better about where our pipelines are at, but until we can get both consumer and commercial kind of both contributing to to growth, I think we'd probably stick in the mid single you know, in the low single digits at this point. But I think there's opportunity to, improve as we work throughout the year. Yeah. But, I mean, I think to be clear, the you know, '25 was basically it it was a flat year from a end of period standpoint year on year. So I think that '26 at least from our forward vision into at least the first quarter, feels like it's going to be more of a kind of a mid single digit type of year for us. So, you know, a bit of an improvement, but still, you know, we we still love to see growth accelerate there, obviously. Matthew Clark: Okay. Great. And then just last one for me. Do you happen to have the your special mention in classified balances at the end of the year? Bradley Shairson: I will take a look and see if I can get that for you. I don't have that offhand. Might come back to you in a minute or so on that. Matthew Clark: Great. Thanks. Operator: We're going for our next question. And our next question comes from the line of Jeffrey Allen Rulis of D. A. Davidson. Your line is now open. Jeffrey Allen Rulis: Thanks. Good morning. A couple of questions on the margin. I just want to confirm that kind of update on the margin to reach near the two ninety range. That's a kind of end of year, not fourth quarter average of two ninety million Is that Is that correct? Peter Ho: That that's the way we're thinking about it, Jeff. That's right. Jeffrey Allen Rulis: Okay. And and do you happen to have the December margin average? Bradley S. Satenberg: Yeah. We we finished the year at, $2.67 so about six basis points above where we we, you know, finished the fourth quarter in. Jeffrey Allen Rulis: Great. And and just on the sensitivity, it seems like that margin has been almost absent fed hasn't really impacted. It's kind of a mechanical increase. Would you say the same sensitivities or or lack thereof? It it's a pretty from from your seat, looks like a pretty extended increase I guess, regardless of of rate. Rate moves. Upcoming. Peter Ho: Yeah. I I would agree with that. I mean, I would say that any rate cuts that we see as long as they're orderly and sort of telegraphed, I think, we'll see a benefit from that. And then also, you look at the mix shift. And to the extent that we can keep that either moderated at, you know, breakeven or even positive, I think that'll actually contribute to to margin as well. Peter Ho: Yeah. Let me let me just add a little bit to that, Jeff. I think you know, what what you saw in the quarter was the convergence of of a number of things that were supportive of the margin expansion. Obviously, as you pointed to, the fixed asset repricing is mechanical. I mean, we just have assets coming off at lower yields than they're going back onto, which is a good thing, obviously. But you know, rate cuts did have a positive impact for us to the extent we get rate cuts moving forward. Think that's going to continue to be a positive for us. And then also in the quarter, we had very strong as as as you know, we had strong deposit remix characteristics. So we're able to grow out the lower yielding NIVD in particular deposits. And if that if that continues to persist, that'll be another tailwind for us. And then finally, I'd say that I think that you know, certainly, effectively, there have been two you know, rate cut periods, twenty four and twenty five, I'd say that our ability to manage deposit pricing with the 25 vintage was materially better than 24. So I think team's gotten better at managing you know, a little more of a a rate reduction cycle. And that's coming through on our on our betas. Jeffrey Allen Rulis: Got it. Nice backdrop. If I could squeeze one more in just on the on the credit side with the ACL decline linked quarter, I I wanna read much into it, but is there any sort of indication of a mix change or macro improvement? You kind of outlined the CRE firming up, but I just wanna touch on credit and and potentially that reserve release if if we should take anything from that. Bradley Shairson: Sure. So and I will answer your other question as well. Related to special mention. Special mention, I'll start off with that and just say that special mention end of the fourth quarter was $63.4 million. That's actually a year over year change down $46.8 million. From the fourth quarter 2024. And then our total classified at $298.5 million. And, you know, as as Peter mentioned earlier, credit quality remains pristine. During the quarter, I will mention that we had a charge off of of just over $1 million related to a previously identified nonperforming asset. And as a result, you you can see our NPA is the declined while net charge offs experienced a modest uptick. This was obviously a idiosyncratic resolution rather than any sort of reflection of a a broader credit stress. That's very clear. Absent this charge off, our credit quality metrics would have been pretty much, very similar to last quarter's performance. We do continue to see very strong underlying portfolio performance overall. And our we have stable trends across delinquencies, criticized assets, and any early stage indicators. And in addition to answer your second question, you know, the most recent UHERO economic forecast for the state of Hawaii reflects an improved outlook for 2026, and that's really what supports that reduction in the ACL coverage during the quarter. So we feel really good about how we're positioned right now. Peter Ho: Well, an improved outlook coming off of what we previously had forecasted down Exactly. So they revised their downturn numbers up. Bradley Shairson: That's right. Yeah. Jeffrey Allen Rulis: Sounds good. Thank you. Peter Ho: Great. Let's see you, Jeff. Operator: Thank you. One moment for our next question. Comes from the line of Jared Shaw of Barclays. Your line is now open. Jared Shaw: Thanks. Good morning. Peter Ho: Morning, Jared. Jared Shaw: Hey. Maybe just sticking back with the the growth in DDA, it's a great quarter. Can you just give a little color on market share gain that you think from that versus just sort of improving customer backdrop? And then if we look at you know, the slide that shows the strength of sort of the market share gain over the last year and the last twenty years, is there a natural ceiling for that? Or do you think that you know, Bank of Hawaii Corporation can continue to you know, sort of take significant share here. Peter Ho: I'll I'll address the second part of the question first. I I like to believe that our historic performance is an indicator of what's possible for the future. We're you know, we we think of Hawaii as our core and primary market. And we're always trying to figure out ways to serve our clients better whether it's on the consumer side or the commercial side. That's been met with with pretty handsome market share pickups. So I I just I don't really see a condition that would lead me to believe that that's going to retard at all. Into the future. I mean, it's a competitive world. Things are changing. Products change. Consumer demands and sentiment changes. And today, we've been pretty good at understanding how that plays through here in this marketplace. And I'd I'd hope that continues to continue on. As relating to the demand deposits growth from the past certainly this quarter and the past couple of quarters, prior I I think it's this market feels like it's, you know, stable but not growing tremendously. So I don't know a lot of our operating deposits have come from just better economic outcome. That feels reasonably flat to me. I do think there's some cyclicality into the fourth quarter. And and I think, frankly, it's it takes a while for you know, the teams to really focus in on you know, whatever categories you're sending them to to focus in on. And, you know, DDAs and deposits and DDAs in particular is an area that we have obviously put a lot of emphasis into as as Fed funds has given that a good amount of profitability. I think we'll be able to see kind of the fruits of our labor there. Jared Shaw: Okay. Thanks. Appreciate that color. Yes. Shifting maybe to the other side of the balance sheet. Talking about the low single digit loan growth opportunity, Could you just give a little color on what you're seeing in terms of commercial pipelines and what sort of the backdrop on the residential mortgage side could look like? Sure. Jimmy, you wanna cover that? James Polk: Yeah. So maybe I'll start with commercial. You know, we've seen the pipeline build nicely through Q4. I think that's sets us up really, you know, in a more positive fashion in Q1. The activity's been on the commercial real estate side in our large commercial real estate business, but we've also seen some good growth in the pipeline in our middle market businesses. So I think it's it's more robust than just one area. We feel pretty good about that. On the resi side, you know, we had a really solid Q4 that was driven in part by an increase in overall purchase activity. Aided by, a couple projects that closed out during the quarter. Pipeline remains pretty good going into Q1. And so I think, you know, as I said earlier, I think we feel better about overall loan activity. And, you know, I think we see the opportunity to to move into the middle mid single digits as we work through the year. Jared Shaw: Great. Thank you. Operator: Thank you. One moment for our next question. And our next question comes from line of Andrew Tyrrell of Stephens. Your line is now open. Andrew Tyrrell: Hey, good morning. Peter Ho: Hey, Andrew. Andrew Tyrrell: If I could just start on the the margin, obviously, you know, another sounds like another year of a a really good margin expansion. I'm just curious. Is that mostly fixed asset repricing driven? Do you do you assume or contemplate any securities restructuring within there? And then you know, as we look out beyond just, you know, the fourth quarter or 2026, does the fixed asset repricing benefit continue in 2027? Or starts to diminish somewhat? Peter Ho: I'll let Brad touch on that. Yeah. I mean Generally, yes, but I'll let Brad once. Bradley S. Satenberg: Yeah. I mean, just to start with the fixed asset repricing, I we we we believe we've got couple years at least, of that. I mean, you know, we think we'll still see an impact of it. It may start start to diminish slowly, but, we'll continue to see that, you know, continue to have an impact over the next couple of years easily. As far as this quarter, I mean, did have fixed asset repricing and the securities repositioning, obviously. Had an impact, and then the rate cuts obviously, had an impact as well on the the decrease in our cost of deposits. And so looking into the first quarter, I mean, I think we're continuing that momentum. I think you'll see the NIM expand, maybe not to the same extent as you saw in the fourth quarter, but I I still think we'll see a nice expansion with the, you know, the spot rates and our cost of deposits and then the December NIM, you know, going into January at $2.67. You know, I think we'll continue to see some good momentum with our NIM. Andrew Tyrrell: Yep. Okay. And then just on the topic, do you have the the the total NI impacts of the the swaps in the fourth quarter inclusive of the terminated hedges? I think you guys terminated last quarter. Bradley S. Satenberg: The the impact on our net interest income. The it was about Yep. Just over a million dollars for the quarter. And that includes the impact of the amortization of the termination costs. Andrew Tyrrell: Got it. Okay. Thank you. And then last one for me, just sounds like you know, interested in in picking up the buyback a bit here in the in the first quarter, but growth also sounds a little stronger as well on the loan side. Just remind us for comfortable at from a capital standpoint. And then just on the repurchase front, should we expect that becomes a more more consistent part of the capital return story moving forward? Peter Ho: I think as as long as growth remains kind of in the in the tepid range, call it, We're gonna be looking to deploy capital into buybacks. We like you know, kinda where the price is from a from a purchase standpoint at least. So we were 5,000,000 last quarter I would anticipate that we'll be closer to the 15 to $20 million range moving forward per quarter. Andrew Tyrrell: Great. Nice quarter. Thanks for taking the questions. Peter Ho: Thank you. Take care. Operator: Thank you. One more for next question. And our next question comes from the line of Kelly Ann Motta of KBW. Your line is now open. Kelly Ann Motta: Hey, good morning. Thanks for the question. Most most of mine have been asked and answered at this point. But, one area I did wanna touch on was these. You mentioned on your October earnings call about on the potential opportunity in wealth and ahead. And I appreciate the Q1 guidance of forty two to forty three. As you look ahead, can you perhaps share a bit about the opportunity on the fee side and and kind of the cadence of potential pull through with that? Thank you. James Polk: Sure. Should we wanna touch on that? Yeah. Sure, Peter. So, you know, as we've mentioned, we've spent the last couple years really building into our wealth opportunity. We've started to see some, good traction in internally, educational wise, participation wise, calling wise with our clients. We're doing a number of different engagement activities with clients just from a seminar type of perspective, and I think those things are really starting to to to help us to build the overall momentum. You can look at, you know, quarter over quarter, we had a little over 2% growth in fees on a linked quarter basis. And so I think that, production in Q4 was one of our highest levels in a while. Pipeline remains, very strong from an investment perspective. So know, I think as we as we move forward getting into that 10 range, I think that was the guidance that we provided at the last call, even higher as we have more time to build into the opportunity. Think, you know, we feel pretty reasonable about that. Kelly Ann Motta: Got it. That's that's, that's really helpful. And then on the expenses, just a minor housekeeping question. On the three to three and a half percent increase, I just wanna make sure I'm using the right normalized expense base to have you at about $4.41 in 2025. Is that Is that the right number to kind of build off of given that there's been a couple onetime items, especially here in the second half? Bradley S. Satenberg: Hey, Kelly. This is Brad. Yeah. That's that's about right. I mean, I look at it somewhere between 40 $4.40 and $4.41. Kelly Ann Motta: Got it. Thank you so much. Peter Ho: Take care. Operator: You. I'm showing no further questions at this time. I'd like to turn it back to Chang Park for closing remarks. Chang Park: Thank you, everyone, for joining our call today. Thank you for your continued interest in Bank of Hawaii Corporation. As always, please feel free to reach out to me if you have any additional questions. Bradley Shairson: Thank you so much. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Baker Hughes Company Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Chase Mulvehill, Vice President of Investor Relations. Sir, you may begin. Chase Mulvehill: Thank you. Good morning, everyone, and welcome to Baker Hughes Fourth Quarter and Full Year Earnings Conference Call. Here with me are our Chairman and CEO, Lorenzo Simonelli; and our CFO, Ahmed Moghal. The earnings release we issued yesterday evening can be found on our website at bakerhughes.com. We will also be using a presentation with our prepared remarks during this webcast, which can be found on our investor website. As a reminder, we will provide forward-looking statements during this conference call. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings and website for factors that could cause actual results to differ materially. Reconciliations of adjusted EBITDA and certain GAAP to non-GAAP measures can be found in our earnings release. With that, I will turn it over to Lorenzo. Lorenzo Simonelli: Thank you, Chase. Good morning, everyone, and thanks for joining us. First, I'd like to provide a quick outline for today's call. I will start with our strong fourth quarter and full year results, highlight key awards and discuss the macro environment. Following this, I will walk through the progress we are making as we further scale our power systems portfolio and capture growing demand in this space. I will then hand it over to Ahmed, who will present an overview of our financial results, followed by an update on the progress we are making on Chart integration planning. To conclude, I will summarize the main points before we open the line for questions. Let us now turn to Slide 4. We continued to execute at a high level, delivering another quarter of strong results. Adjusted EBITDA totaled $1.34 billion, surpassing the midpoint of our guidance range and contributing to a record full year adjusted EBITDA of $4.83 billion. This achievement demonstrates sustained momentum from our Business System and ongoing positive performance in Industrial & Energy Technology, which more than offset continued macro-driven softness in Oilfield Services & Equipment. Adjusted earnings per share rose to $0.78, resulting in a full year adjusted EPS of $2.60, a 10% increase from 2024. Adjusted EBITDA margins for the fourth quarter rose 30 basis points year-over-year to a record 18.1%. While OFSE margins declined due to prevailing market conditions, IET margins increased by 160 basis points to 20%. For the full year, company adjusted EBITDA margins increased by 90 basis points to a record of 17.4%. OFSE margins remained resilient even though revenue declined by 8%, while IET margins demonstrated another year of meaningful expansion, increasing 170 basis points to a historical high of 18.5%. Turning to orders. IET delivered strong fourth quarter order bookings of $4 billion, contributing to a record full year total of $14.9 billion, exceeding the high end of our guidance range. For the second consecutive year, non-LNG equipment orders represented approximately 85% of total IET orders. This performance highlights the end-market diversity and versatility of our IET portfolio, led by growth in power generation and New Energy alongside continued strength in energy infrastructure and LNG. IET achieved a record backlog of $32.4 billion at year-end, while book-to-bill exceeded 1x. During the fourth quarter, we generated robust free cash flow of $1.3 billion, contributing to a record annual free cash flow of $2.7 billion. This represents a free cash flow conversion rate of 57% in 2025, above our 45% to 50% target range. This strong performance was driven by enhanced working capital efficiency and higher customer down payments, which contributed to free cash flow for the year exceeding expectations. Now turning to Slide 5. As I highlighted, we maintained robust order momentum in IET throughout 2025. In LNG, we delivered another strong quarter of equipment orders, providing critical liquefaction technology for Train 5 at NextDecade's Rio Grande LNG facility and Commonwealth LNG's export terminal. In 2025, we booked $2.3 billion of LNG equipment orders. Looking ahead to 2026, we expect similar levels of LNG awards, including material orders outside of the U.S. Building on these achievements, we are further strengthening the durability of our life cycle model through major aftermarket service awards. This includes long-term service agreements for Cheniere’s Corpus Christi Trains 8 and 9 as well as iCenter remote monitoring and diagnostics for NextDecade's Rio Grande Trains 1, 2 and 3. In power systems, orders increased significantly to $2.5 billion in 2025, including $1 billion tied to data center applications, reflecting accelerating demand and growing customer confidence in our solutions. Capitalizing on this strong momentum in power systems, 2025 marked a milestone year for our NovaLT industrial gas turbines, booking approximately 2 gigawatts of orders across oil and gas, industrial and data center markets. In addition, during the fourth quarter, we secured a large slot reservation agreement for approximately 1 gigawatt of NovaLT capacity to support data center applications, which we expect to convert into a firm order in 2026. Additionally, our power systems business secured a major contract to supply over 40 BRUSH generators for gas-fired utility-scale power plants, which will collectively deliver approximately 7 gigawatts of reliable power and enhance grid resilience, highlighting the critical role our technologies play in strengthening U.S. energy infrastructure. We also continue to capture synergy opportunities across our power systems and compression businesses, highlighted by a significant award to supply an integrated solution for the Tengiz Gas Separation Complex in Kazakhstan. This project underscores the value of our integrated portfolio in delivering complex, large-scale infrastructure solutions. Further, we are seeing increased commercial synergy potential across the enterprise by combining complementary surface and subsurface OFSE technologies with our extensive IET portfolio, we are unlocking growing synergy opportunities across field management, offshore production, geothermal and CCS. This is most evident in New Energy, booking $434 million of orders in the quarter and a record $2 billion for the full year, well above our $1.4 billion to $1.6 billion target. During the quarter, notable New Energy awards included the supply of critical turbomachinery equipment for a blue ammonia project in the U.S., along with continued strength for geothermal orders in U.S. and Hungary. Looking forward, we are targeting $2.4 billion to $2.6 billion of New Energy orders in 2026. IET's Cordant solutions sustained robust momentum in 2025, achieving double-digit order growth for the third consecutive year and a 20% increase in software orders. During the quarter, the business continued to scale its digital software offerings, reinforcing recurring revenue and life cycle pull-through across our equipment installed base, while also increasing penetration of non-OEM equipment. As the global installed base of critical equipment continues to expand across energy, industrial and power sectors, we are unlocking additional pull-through opportunities for Cordant leveraging our comprehensive solutions to drive greater value for our customers. In OFSE, we continue to see strong customer demand across deepwater and Middle East markets, driven by brownfield and OpEx-led developments that leverage our digitally enabled production portfolio. These solutions directly lower operating costs and support recurring, production-led spending for our customers. During 2025, we secured approximately $3 billion of Production Solutions awards in the Middle East, including approximately $1 billion of multiyear contracts in the fourth quarter from Kuwait Oil Company, Petroleum Development Oman and ADNOC. The awards with KOC and PDO cover the deployment of advanced ESP systems and Leucipa in over 1,000 wells. In addition, the ADNOC contract includes the deployment of our AccessESP system in the offshore Umm Shaif Field, along with continuous digital monitoring services that support recurring revenue over the life of these assets. Momentum has also continued across subsea markets, driving a near record order quarter for Subsea & Surface Pressure Systems, with bookings of $1.1 billion and a book-to-bill of 1.4x. During the quarter, we were awarded a multiyear frame agreement for subsea production systems and services for the Coral North LNG project offshore Mozambique. Now turning to the macro on Slide 6. Despite the ongoing geopolitical and trade-related uncertainty, the global macro environment remained resilient through 2025. While these headwinds are expected to persist, we anticipate modestly stronger year-over-year GDP growth in 2026, supported by continued investment in generative AI, easing inflation and a supportive fiscal backdrop in several major economies. This economic resilience is mirrored by the evolving landscape of global energy demand. Long-term energy demand continues to rise driven by population growth, rising living standards and accelerating electrification. At the same time, digital infrastructure, AI and data centers are adding a new and durable layer of energy demand, reinforcing the need for reliable, scalable and dispatchable power. Industry estimates suggest that AI infrastructure spending totaled more than $500 billion in 2025 and is expected to approach $1 trillion annually in the late 2020s. Resilient power supply has emerged as a key bottleneck, which creates a significant opportunity for Baker Hughes as data center build-out increases demand for behind-the-meter power solutions, providing speed, reliability and scale. Against this backdrop, we now expect to book approximately $3 billion of data center-related orders between 2025 and 2027. Given its abundance, cost-effective reliability and comparatively lower emissions profile, natural gas continues to play a central role in powering data centers. Looking ahead to 2040, we expect global natural gas demand growth of approximately 20%. This strong growth in natural gas underpins accelerating investment in gas and power infrastructure, which we expect to represent an increasing share of our $40-plus billion IET order target during Horizon Two. For LNG, demand continues its strong growth trajectory, increasing by approximately 7% in 2025. Looking forward, LNG demand is expected to increase by at least 75% by 2040, driven primarily by growth across Asia. Reflecting this strength and near-term order visibility, we expect to exceed our 2024 to 2026 LNG FID outlook of 100 MTPA after reaching FID on 83 MTPA of projects over the last 2 years. This further reinforces our long-held view of 800 MTPA installed base by 2030 and advances progress toward our 950 MTPA outlook for 2035. Turning to oil. Against the backdrop of dynamic geopolitical risks, oil prices have remained somewhat volatile in recent months as markets weigh potential supply disruptions against rising OPEC+ and offshore production. We believe further reduction in idled OPEC+ supply, alongside more constructive oil supply and demand balances, is required before a broad inflection in oilfield services activity emerges. That inflection is likely a 2027 catalyst for the sector and may mark the beginning of an upcycle. Taking current macro factors into account, we expect low single-digit declines in global upstream spending in 2026. In North America, spending is expected to decline at a mid-single-digit rate as operators maintain both capital discipline and inventory preservation. However, our production-weighted exposure positions us to outperform the market. International spending is expected to be slightly down, with resilience in the Middle East and Africa offset by continued softness in other regions. Longer term, the outlook remains constructive, particularly internationally and offshore, where significant investment will be required to sustain production growth and meet rising global oil demand. We also see continued growth in OpEx-driven upstream investment, as operators focus on enhancing recovery rates and extending the life of existing assets that will leverage our differentiated Well Construction and Production Solutions portfolio. Moving to Slide 7 and 8. I want to discuss how Baker Hughes is positioned to capture a significant growth opportunity in global power infrastructure spend and how our power systems portfolio is enabling reliability, efficiency, flexibility and long-term decarbonization for customers. This portfolio builds on decades of aeroderivative and heavy-duty gas turbine technology development, complemented by deliberate organic investment in our NovaLT gas turbine platform, our acquisition of BRUSH Power Generation and the pending acquisition of Chart. Together, these actions have created differentiated capabilities that span power generation, grid stability and energy management. Looking ahead, we plan to continue advancing our power systems portfolio, with a clear focus on expanding our solutions offering across these 3 capabilities. These strategic efforts positions us strongly for what lies ahead. We believe that global power demand is entering a multiyear cycle. By 2040, global demand is expected to double to approximately 60,000 terawatt hours. This increase implies a compounded annual growth rate of over 4%, with gas-fired power generation playing a significant role in this expansion. These developments are being driven by several long-term structural trends that are transforming global power markets. First, digitization (sic) [ digitalization ] and AI-driven compute are fundamentally reshaping power demand. Data centers are rapidly growing source of energy demand, requiring uninterrupted and highly dependable power supply. Estimates project that data center power demand will increase by a 12% compounded annual growth rate through 2040 as AI workloads increase in scale. Second, the ongoing transition toward electrification in both transportation and industrial sectors is contributing to a structural increase in electricity demand. The adoption of electric vehicles is rising rapidly, with projections indicating that the global EV fleet will approximately triple by 2030 and increase nearly ninefold by 2040. Additionally, industrial companies are advancing their decarbonization initiatives by transitioning from fuel-based processes to electrically driven alternatives. This includes adopting advanced heat pump technologies and integrating electrified equipment into their industrial operations. Also, renewable integration, hydrogen production through electrolysis and carbon capture systems all require significant incremental power, even as they reduce overall emissions intensity. Collectively, these factors are expected to contribute to a prolonged period of growth in power demand, reinforcing the need for reliable, flexible and energy-efficient power solutions. This trend will drive continued investment across generation, distributed power and grid resilience and it highlights the requirements for mission-critical power systems solutions that can deliver both reliability today and transition ready capability for the future. This is where Baker Hughes is uniquely positioned. Through our power systems portfolio, which is highlighted on Slide 8, we sit squarely at the intersection of the key megatrends driving global power demand. Our strategy is deliberately built around fuel flexibility, electrification, digital integration and portfolio expansion, enabling us to deliver full life cycle power solutions across industrial, data center, grid, renewable and oil and gas markets. The portfolio addresses an annual market opportunity projected to exceed $100 billion by 2030 with solutions that are either currently available or under development, supported by ongoing organic investments. Let me briefly walk you through our power systems portfolio and how it differentiates Baker Hughes as we capture accelerating growth in global power infrastructure spending. Our power systems business is built around 3 core capabilities: power generation, grid stability and energy management, with digital, integrated systems and aftermarket services spanning across all 3. For power generation, we offer solutions across simple and combined cycle configurations, alongside clean power offerings that include geothermal, flex-fuel and our developing industrial-scale oxy combustion solution. This portfolio brings together a broad range of aeroderivative and heavy-duty gas turbines for the oil and gas sector, alongside industrial gas turbines, steam turbines, turboexpanders and generators that address a wide spectrum of power generation applications across diverse end markets. We are seeing the strongest growth in our NovaLT industrial gas turbines, engineered for distributed and behind-the-meter applications. The NovaLT is hydrogen-ready and capable of operating on natural gas, blended fuels and up to 100% hydrogen, with development plans in place to enable ammonia fuel flexibility. Its high efficiency, fast-start capability and low NOx performance make it particularly well suited for power generation across data centers, industrial facilities and the oil and gas markets as well as the mechanical-drive applications. Our core oil and gas markets also continued to drive strong demand for power generation. In 2025, we secured orders of approximately 3 gigawatts for oil and gas power applications, supporting distributed power across LNG facilities, FPSOs, refineries, petrochemical plants and oilfields. Beyond gas turbines, we bring differentiated capabilities in steam turbines and turboexpanders, supporting geothermal, biomass, waste-to-energy and pressure-recovery applications. With an installed base of more than 700 steam turbines and turboexpanders globally, we have proven our experience in delivering reliable, efficient power across both renewable and industrial markets. We continue to advance our leadership in geothermal, highlighted by a recent order to supply the 5 Organic Rankine Cycle power plants at Fervo's Cape Station power generation project, which is expected to deliver 300 megawatts of clean, reliable and affordable power to the grid. In addition to the surface scope, Baker Hughes is also providing differentiated subsurface expertise, reflecting our ability to integrate subsurface capabilities with surface power generation. By combining these capabilities, we are uniquely positioned to enable scalable, repeatable geothermal developments, delivering firm, renewable baseload power with attractive project economics for our customers. Through our BRUSH Power Generation brand, we also provide generators, electric motors and synchronous condensers, supported by life cycle services and digital remote monitoring. These capabilities are increasingly critical as grids become more reliant on intermittent power and require greater inertia, voltage control and resilience. Our controls, power electronics and digital platforms, including Cordant, enable real-time optimization, emissions monitoring and system-level reliability that enhance our power systems value proposition to customers. We also offer industrial heat pumps and grid-stabilization technologies, supporting electrification and decarbonization across industrial and power applications. Looking ahead, the pending acquisition of Chart will add differentiated thermal-management capabilities, further complementing our power generation portfolio and enabling the development of integrated trigeneration solutions for customers. To summarize, Baker Hughes offers a broad power solutions portfolio with capabilities spanning generation, grid stability and energy management that positions us to meet the diverse needs of customers across data centers, industrials, power, renewables and traditional energy markets. As global electricity demand accelerates and energy infrastructure evolves, Baker Hughes is delivering solutions that drive long-term growth, operational resilience and low carbon readiness, positioning us exceptionally well for the next phase of growth in the global power market. Before turning the call over to Ahmed, I want to reiterate the strength of our 2025 results. Despite macro-related headwinds in OFSE and tariff-related trade friction, we delivered 90 basis points of margin expansion driven by continued execution of the Baker Hughes Business System and a disciplined focus on pricing optimization and productivity enhancements. At the same time, the breadth and versatility of our portfolio supported a record year of IET orders, underscoring the durability of our strategy. These results demonstrate that Baker Hughes continues to execute and deliver for our customers and shareholders. With that, I'll turn the call over to Ahmed. Ahmed Moghal: Thanks, Lorenzo. I'll begin on Slide 10 with an overview of our consolidated results and then speak to segment details before summarizing our first quarter and full year outlook. As Lorenzo mentioned, we delivered very strong orders in the fourth quarter, with total company orders of $7.9 billion, including $4 billion from IET. Adjusted EBITDA of $1.34 billion increased by 2% year-over-year, driven by continued IET growth, while OFSE results were impacted by macro-driven headwinds. Adjusted EBITDA margins expanded by 30 basis points year-over-year to 18.1%, exceeding 18% for the first time. GAAP diluted earnings per share were $0.88. Excluding $0.10 of adjusting items in the quarter, diluted earnings per share increased 12% year-over-year to $0.78. We generated free cash flow of $1.34 billion for the quarter, supported by strong collections, customer down payments and results from our ongoing working capital efficiency efforts. Turning to capital allocation on Slide 11. Our balance sheet remains strong, with cash increasing to $3.7 billion, net debt-to-adjusted EBITDA ratio decreasing to 0.5x and liquidity increasing to $6.7 billion at year-end. In 2025, we returned $1.3 billion to shareholders in dividends and share repurchases. Our near-term priority is to maintain the strength of our balance sheet in preparation for the closing of the Chart acquisition. With regulatory reviews still underway in certain jurisdictions, we currently expect closing in the second quarter, understanding that the timing may evolve as those processes progress. As previously stated, our objective is to achieve a net debt-to-adjusted EBITDA ratio of 1 to 1.5x within 24 months following the close of the transaction. This reduction will be accomplished through a combination of ongoing free cash flow generation and proceeds from continued portfolio management initiatives, which are anticipated to yield $1 billion of incremental proceeds. Consistent with our portfolio management and capital allocation framework, we announced earlier this month the completion of the sale of the Precision Sensors & Instrumentation business as well as the formation of the Surface Pressure Control joint venture with Cactus. These strategic transactions have generated approximately $1.5 billion in gross cash proceeds, subject to customary closing adjustments. These actions reflect our disciplined approach to portfolio management and our commitment to maximizing long-term value creation for shareholders. We would like to express our sincere gratitude to the employees of PSI and SPC for their dedication and hard work and wish them continued success going forward. In parallel with these portfolio actions, we are making progress on our comprehensive evaluation. We are also executing incremental targeted cost-out initiatives with quick cash paybacks that are expected to support durable margin expansion as we move through 2026. As we further advance our comprehensive evaluation, our top priority remains closing the Chart transaction and executing a seamless integration, where we see compelling strategic and financial benefits. We're focused on delivering our integration priorities and capturing identified synergies, while positioning the combined companies to enhance customer value, strengthen our industrial portfolio and support sustainable, profitable growth. From an integration standpoint, we have now moved into high-level day 1 operating model design, placing strong emphasis on culture, integration and execution planning. Our 2 companies share significant commonalities, particularly in our highly complementary portfolios, which together enhance our solutions offering and deliver greater value for customers across the equipment life cycle. Let's now turn to segment results, starting with IET on Slide 12. During the quarter, we booked strong IET orders of $4 billion, primarily driven by continued power systems and LNG order momentum. For the full year, IET achieved a record $14.9 billion of orders, resulting in a book-to-bill of 1.1x and a record RPO of $32.4 billion. Notably, this marks the sixth consecutive year of IET RPO growth. Our fourth quarter results reflect outstanding performance in IET, with revenue of $3.81 billion exceeding the high end of our guidance range due to strong project execution and favorable project timing. EBITDA increased 19% year-over-year to a record of $761 million, resulting in significant margin expansion of 160 basis points to 20%. This exceptional performance was driven by strong backlog pricing, productivity gains and continued execution of the Baker Hughes Business System, reinforcing the operating leverage in the segment. For the full year, IET revenue increased 10% to $13.4 billion, while EBITDA rose 21% to $2.5 billion, with margins increasing 170 basis points to 18.5%, historical highs for all 3. This meaningful margin improvement was driven by strength across both Industrial Solutions and Gas Tech Equipment. In 2025, the recently divested PSI business contributed $374 million of revenue and $48 million of EBITDA. Turning to OFSE on Slide 13. We delivered another strong quarter of orders, with SSPS bookings of $1.1 billion. This was led by continued strength in subsea project bookings, where we captured approximately 25% of the global subsea tree market in 2025. As a result, SSPS orders increased by 13% year-over-year to $3.5 billion in 2025, with a strong book-to-bill of 1.1x, driving increased visibility and reflecting broadening customer penetration. Our fourth quarter OFSE performance reflected ongoing macro-related headwinds, while continuing to demonstrate solid execution and cost discipline. Revenue totaled $3.57 billion, and the segment delivered EBITDA of $647 million, resulting in 40 basis points of sequential margin decline to 18.1%, with all metrics effectively in line with the midpoint of our guidance range. Results were impacted by seasonal declines in the North Sea and Asia Pacific, continued softness in Mexico and weaker year-end product sales as customers remained cautious with capital deployment. These pressures were partially offset by improving activity in Sub-Saharan Africa, Brazil and Saudi Arabia, reflecting pockets of resilience across our international portfolio. For the full year, revenue fell 8% to $14.3 billion, while EBITDA of $2.62 billion resulted in resilient margins of 18.3%, effectively flat year-over-year despite the meaningful top line decline. This margin resilience reflects continued cost discipline and structural actions to remove duplication across the segment, preserving profitability through cycle downturns. In 2025, SPC contributed $627 million of revenue and $137 million of EBITDA. These results will be deconsolidated in 2026, with our 35% minority ownership accounted for as an equity investment. Next, I would like to provide an update on our outlook for the first quarter and full year 2026. The detailed guidance can be found on Slide 14, where both the ranges and midpoints are presented. For clarity, I'll focus on the midpoint of our guidance figures. Please note these figures exclude the recently divested PSI business and account for the deconsolidation of SPC results as both transactions were completed on January 1. Also, all references to organic metrics exclude the results of businesses that have been divested, deconsolidated or acquired since the beginning of 2025. Specifically, the results of PSI and SPC as well as the recently acquired Continental Disc Corporation business, are excluded from organic references provided below. This approach ensures that organic metrics accurately reflect the company's ongoing operations and provide a clear comparison by excluding the impact of such transactions. Following the closing of the Chart acquisition, full year guidance will be updated to reflect our outlook for the combined business for the remainder of the year. Starting with full year guidance, we anticipate company revenue of $27.25 billion and adjusted EBITDA of $4.85 billion, implying organic adjusted EBITDA growth rate in the mid-single digit range. Free cash flow conversion is expected to approach 50%, underscoring our progress to drive more durable free cash flow through cycles. The effective tax rate is projected to fall within the range of 22% to 26%, and we continue to pursue initiatives aimed at further optimizing our tax rate beyond 2026. In IET, we expect orders to remain at robust levels through this year, supported by continued momentum in LNG, a stronger year of FPSO and gas infrastructure awards and sustained strength for power systems. Against this favorable backdrop, we project $13.5 billion to $15.5 billion of IET orders in 2026, which is flat at the midpoint on an organic basis and would mark the fourth consecutive year with at least $13 billion in orders. We also remain confident in achieving our 3-year Horizon Two target of more than $40 billion in IET orders. Importantly, these anticipated orders will provide significant backlog visibility for our equipment businesses while also underpinning years, if not decades, of high-margin services growth. This outlook reinforces the durability and long-term value creation that is embedded within the company. Supported by record backlog levels, we expect full year IET revenue of $13.5 billion, reflecting steady organic growth. Additionally, we project EBITDA of $2.7 billion, positioning IET to achieve its 20% margin target this year. This margin outlook is supported by ongoing productivity improvements, disciplined cost management in Industrial Products and the conversion of higher-margin backlog within Gas Tech Equipment. For OFSE, we anticipate revenue to be slightly lower year-over-year, but flat on an organic basis. This stability is primarily driven by robust growth in our SSPS business which is anticipated to offset slight declines within the OFSE portfolio. Based on our current outlook, we expect $13.75 billion in revenue and EBITDA of $2.475 billion. When adjusted for the impact of the SPC transaction, this guidance implies relatively flat organic margins year-over-year. This resilient margin outlook is underpinned by ongoing productivity enhancements and continued efforts to rightsize our cost structure, which deliver quick cash paybacks. These cost actions are expected to offset higher tariff-related costs, unfavorable product mix and pricing variability across different markets. Notably, our disciplined approach to cost optimization is fully aligned with our ongoing comprehensive review, with each initiative prioritized to drive structural margin improvement and enhance long-term competitiveness. Now turning to first quarter guidance. We anticipate total company revenues of $6.4 billion and adjusted EBITDA of $1.06 billion. For IET, we expect results to demonstrate strong year-over-year EBITDA growth, led by Gas Technology. Overall, we expect IET EBITDA of $600 million. The major factors driving our guidance ranges for IET will be the pace of backlog conversion in GTE, the impact of any supply chain tightness, foreign exchange rates and trade policy. For OFSE, we anticipate results to reflect typical seasonality. Accordingly, EBITDA is expected to be $540 million for the quarter. Factors driving our guidance ranges for OFSE include execution of our SSPS backlog, near-term activity levels, trade policy, foreign exchange rates and pricing across more transactional markets. In summary, we are extremely pleased with the company's operational performance in 2025. IET once again delivered record results, while OFSE margins demonstrated exceptional resilience despite a challenging macro environment. Together, these results clearly demonstrate that the Baker Hughes Business System is driving execution, productivity and profitability across the organization. We remain firmly committed to structurally improving free cash flow and margins while also capitalizing on market opportunities through our differentiated solutions portfolio, with line of sight to our 20% company adjusted EBITDA margin target by 2028. All of this is focused on delivering sustained, long-term value for our shareholders. I'll turn the call back to Lorenzo. Lorenzo Simonelli: Thank you, Ahmed. To close, we delivered an exceptionally strong quarter and an outstanding year in 2025, highlighted by record performance in IET, resilient margins in OFSE, record free cash flow and consistent execution across the company. Looking ahead to 2026, we expect organic adjusted EBITDA to grow in the mid-single digit range, led by another year of solid margin expansion. These achievements reflect the significant progress we are making towards structurally improving margins, strengthening the durability of our cash flow and driving operating leverage through the Baker Hughes Business System. Further, the outlook for global energy infrastructure investment remains positive, particularly in key areas such as gas, LNG, power generation and industrial energy systems. Rapidly increasing demand from digitization (sic) [ digitalization ] and electrification is reinforcing the need for reliable, scalable and lower-carbon energy solutions. Baker Hughes is uniquely positioned to capitalize on these market dynamics, providing differentiated power systems and energy infrastructure solutions that meet the evolving needs of customers. Against this favorable market backdrop, we remain confident in achieving our 3-year IET orders target of at least $40 billion. As part of our comprehensive review, we have initiated further cost-out programs across the company that will result in quick paybacks and drive further margin expansion through 2026 and beyond. We have also made meaningful progress enhancing our portfolio, demonstrated by the 3 recently closed transactions and the pending Chart acquisition. As we move forward, our primary focus is on closing the Chart transaction and ensuring a seamless integration process. We continue to make substantial progress in integration planning for the Chart transaction and are increasingly confident in our ability to achieve the $325 million cost synergy target. Our commercial synergy initiatives are also moving forward, with the potential to generate incremental value over time. As the company moves into Horizon Two, these portfolio actions are positioning Baker Hughes to evolve into a stronger, more industrialized energy solutions company. This evolution is underpinned by an increasingly OpEx levered business mix and a differentiated life cycle portfolio, which are driving reduced cyclicality and enhanced cash flow durability. Accordingly, we remain confident in our ability to continue driving returns and margins higher for the company, with a path to achieving 20% company adjusted EBITDA margin by 2028. In closing, I would like to thank the entire Baker Hughes team for consistently delivering outstanding results. As we look to the future, we are energized by the opportunities that lie ahead and remain committed to our customers and employees, with a disciplined focus on creating long-term, sustainable value for our shareholders. With that, I'll turn the call back over to Chase. Chase Mulvehill: Operator, we can now open up for questions. Operator: [Operator Instructions] Our first question comes from Arun Jayaram from JPMorgan Chase. Arun Jayaram: Your prepared remarks underscored Baker's power systems capabilities across a broad range of end markets. You mentioned you booked $2.5 billion of power systems orders in 2025. I know the business has been a strategic focus, thinking back to the BRUSH acquisition and your organic growth opportunities from the NovaLT gas turbine line. Can you elaborate on your strategy for further enhancing your current capabilities or sustaining growth from power systems on a go-forward basis? Lorenzo Simonelli: Definitely, Arun, and thank you very much. And let me just start by reiterating that we believe that we're in a global power demand multiyear growth cycle. In fact, a demand decade, as we said last week, and we're very much in the early stages of that trend worldwide and in the United States. If you look at current projections indicate that power demand will double by 2040 driven by the factors such as data centers, digital infrastructure, artificial intelligence, widespread adoption of EVs, also the transition of industrial processes from fuel-based to electric power solutions, HVAC cooling across the board, a huge increase in demand. And this really is a critical need that then manifests itself for reliable and scalable energy systems. And we think that, in particular, on AI infrastructure, we expect to see a doubling in the investment and it's going to reach $1 trillion by the end of this decade, which presents a substantial opportunity for Baker Hughes. As you saw from the prepared pages, we've identified a market opportunity of $100 billion annually for power systems by 2030. And we've got a range of solutions available and also in development. And in 2025, power systems orders totaled $2.5 billion with $1 billion directly linked to data center applications. So you look at also what we laid out, we now see data center orders to total $3 billion between 2025 and 2027. And it represents over 150% growth compared to last year's power systems orders, which is a clear indication of the acceleration that we're seeing and also the customer adoption. So there's a large broad addressable market that is significant. And it goes beyond just the NovaLT, it really focuses on core capabilities around power generation, grid stability and energy management. And so as you look at some of the other things that are taking place, we also secured orders of 1.3 gigawatts for aeroderivative gas turbines within the oil and gas, including upstream gas infrastructure, FPSOs, refining, which demonstrates, again, the aspects of good prospects for distributed power solutions in our core market. Also, geothermal, as you look at the order with Fervo, 300 megawatts Organic Rankine Cycle unique position with ourselves as being the geothermal subsurface and surface power generation capabilities, the 40 BRUSH generators for gas-fired utility-scale power plants and collectively delivering approximately 7 gigawatts of reliable power. Synchronous condensers technology that address the multibillion-dollar market that is projected to grow as renewable energy integration increases. And so we're seeing lots of new opportunities as well as energy storage being able to leverage our turboexpander and generate a portfolio as we look to see more integrated power solutions, as you also saw in the Tengiz project in Kazakhstan. And not to forget also in the nuclear space where we provide steam turbine generators to support the small modular reactor projects and, on the overlay, the Cordant digital hardware and software solutions and the aftermarket service business. So you've got a lot of range of applications, end markets. And as we look to Chart, that's going to further strengthen the power portfolio by adding thermal management capabilities and deliver integrated trigeneration power solutions. So very excited. And I think in summary, you're looking at a multiyear cycle. It's driving long-term growth, operational resilience, low carbon readiness, and we've got a versatile portfolio that's going to add significantly growth for Baker Hughes going forward. Operator: Our next question comes from Scott Gruber from Citigroup. Scott Gruber: Lorenzo, you offered a very robust $14.5 billion IET order intake guide for '26. Can you walk through some of the moving pieces within that guide? Which segments are seeing some growth which may be down some? Sounds like LNG will be stable, but what are the moving pieces? And then inbound exceeded your initial expectations last year, what could drive upside this year? Would that most likely come from the power vertical? Lorenzo Simonelli: Yes, definitely, Scott. And again, I think as you look at the 2026 order outlook, it reflects the underlying strength that I mentioned previously as well across the broad and versatile IET portfolio. And it's really a strong start to achieving the 3-year $40-plus billion target for Horizon Two between 2026 to 2028. And I think if you take a step back and just reflect on the prior few years of Horizon One, that order strength has been highlighted as we've gone through the years of '23, '24 and '25. As you look at LNG being strong in '23, then in '24, gas infrastructure and last year, power systems. And since 2023, our non-LNG equipment orders have delivered a compounded annual growth rate of over 20% and really represent about 85% of the total IET orders for both 2024 and '25, which again further demonstrates the breadth and diversification of our offerings. Looking at 2026, again, it's going to be the aspect of strong pipelines in power systems. We see our $2.5 billion orders from last year as a foundation for further growth, also taking up our data center intake. And as you see from the 3-year data center order outlook going to $3 billion, reflecting a healthy and growing pipeline. Gas infrastructure, as you continue to see the growth in gas, we see continued increase in natural gas production to meet the global energy demands. As you look at new energy, we set a record in 2025 with $2 billion in orders and expect this trajectory to continue led by CCUS, flex-fuel power and geothermal solutions. And we've got a forecast for $2.4 billion to $2.6 billion and excited about geothermal as you heard from the Fervo example in '25 with our technology that we feel is very well positioned as well as then the legacy geothermal as well. And as we go forward, strength in really being able to seamlessly integrate subsurface expertise with subsurface power generation and the top side as well. So as we look at 2026, again, feel good about that. And overall, another robust year and there's potential to continue to have some upside. We've given our order guidance at the midpoint. There's a number of projects that, again, will materialize in '26, '27 and feeling good about that $40-plus billion over the 3-year order target. Operator: Our next question comes from Saurabh Pant from Bank of America. Saurabh Pant: If you don't mind, I want to pivot to the margin side of things a little bit. Clearly, very resilient margins, especially on the OFSE side of things. Ahmed, I think if I got you right you were talking about practically flat margins SPC consolidation, right. That's better than what I was thinking. And that's despite all the headwinds between mix and pricing and tariffs, if you don't mind just stepping through that and how it's cost out helping that? And if you don't mind, just the moving pieces on the IET margin outlook as well, please. Ahmed Moghal: Yes, for sure, Saurabh. Look, I find this always easier to build it up by segment. So starting with IET, the team's done a great job on the margin front, and we expect this trajectory to continue into 2026. So achieving 20% margin in 2026 would represent about 150 basis points year-over-year increase. And for context, of course, this is 500 basis points improvement since 2023 and that really has been driven by the success of both our commercial and operational efforts and as we continue to scale our business system across IET. So just breaking it down in terms of how we expect to drive towards that 20%, it's a few key drivers. First, I would say, is just the continued conversion of our higher-margin Gas Tech Equipment backlog. So that's going to be a foundational component. Growth in Gas Tech Services, we expect to outpace the broader segment. And then, Cordant, you saw the robust order momentum. We'll enter the year with higher margin backlog, and that business can drive quite a bit of operating leverage. And look, we're also going to continue to optimize cost in IET, in areas where we know margins have lagged, so there's opportunity there. And then just to round out this piece, the net impact of PSI and CDC, they're just very modestly accretive to margins in 2026. So with that context, I feel with the strong backlog visibility and the continued productivity actions we're going to drive, we're confident in achieving the 20% for IET in '26. So that's IET. So when you look at OFSE, the '26 outlook we gave really reflects a theme that you've seen, which is a resilient margin profile despite the headwinds on a macro scale. So at the midpoint of our '26 guidance and when you compare that actually to peak '24 results, our 2026 outlook actually implies only about 50 basis points of margin decline on roughly 10% declining revenue, and that's on our organic basis. So we've been able to achieve that through what you've seen us systematically do around cost actions, quick cash paybacks and structural changes to how we operate, which has resulted in that durability. So for '26, the modest year-over-year decline with organic margins expected to be flat. The major components, I'd say is, first, increased tariff costs, as you mentioned, impacting margins. That's going to be annualized impact carrying from '25 into '26. The second is a slight change in revenue mix with SSPS growing organically, while our higher-margin OFS business is projected to decline slightly. And the last thing I'd say is what I mentioned around overall market pricing variability in different markets, and that will have a modest impact. And just to round out, similar to PSI and CDC and IET for SPC, the deconsolidation will be modestly dilutive to OFSE margins in '26. So all of this, what we're doing for OFSE specifically is just to address the headwinds, just ongoing productivity, supply chain optimization, that's going to be very key and just those overall efforts, all with a line of sight to quick cash paybacks. So that will help us position OFSE in a very strong manner as market conditions improve later this year or into '27. So to round out total company, our guidance implies nearly 18% in 2026, which then implies 200 basis points improvement in achieving the 20% target by 2028. And we're confident in the strategy to reach this milestone, and that's driven by performance across both segments. So hopefully, that gives a bit of color, Saurabh. Operator: Our next question comes from James West from Melius Research. James West: So I was wondering if you could provide an update on the progress of your comprehensive strategic evaluation and beyond the targeted cost-out initiatives that you've mentioned, are there additional aspects of the evaluation that you can discuss kind of at this time? And then maybe additionally, can you elaborate on what investors, and we should expect from Baker Hughes in the near future regarding this announcement? Lorenzo Simonelli: Yes, James, I want to emphasize our comprehensive evaluation is a disciplined, ongoing process really designed to ensure Baker Hughes continues to create sustainable long-term value creation for shareholders. And the evaluation represents a strategic, operational and financial assessment through which we are considering a broad range of strategic options. The comprehensive evaluation remains closely aligned with our key execution priorities. These include the closure and integration of Chart, driving operational performance improvements, optimizing our portfolio and disciplined capital allocation. And these strategic priorities, combined with the evolving market conditions and the broader strategic landscape, help shape the Board's perspective of the company's long-term direction and the available strategic options. As we continue to advance our comprehensive review, our immediate focus is on completing the pending Chart acquisition and subsequently ensuring a disciplined value creative -- accretive integration. And in summary, I think our ongoing comprehensive evaluation is focused really to position Baker Hughes for stronger returns, sustainable growth and the creation of long-term value for our shareholders. And as we progress the evaluation, we'll provide timely updates. Operator: Our next question comes from Marc Bianchi from TD Cowen. Marc Bianchi: Could you describe your opportunity in Venezuela? Lorenzo Simonelli: Yes, definitely. And obviously, a lot happening in Venezuela at the start of the year with some of the political changes and the opportunity for incremental production out of the country. Unlocking that is going to require new investment in the country's oil and gas sector, and we're taking a prudent long-term view as we continue to evaluate opportunities and also the activity we have in the market. To give you a historical context because Venezuela is not new to us. And as you look at Baker Hughes, both from the oilfield services and equipment as well as the industrial energy technology segment side, we've generated in the past in 2012 as a reference point, $0.5 billion of revenue in Venezuela, and we've had a large presence in the country. We're one of the only American service companies that's maintained the ongoing presence in Venezuela, supporting the licensed operators with activities as they've gone forward. And we've got a large technology base and the largest installed base of oilfield power generation and more than 1,200 oil production systems as well as flexible pipe and other energy infrastructure. And as you think about Venezuela's production decline and aging infrastructure, we expect moderate production increases will require substantial investment in well integrity, off-grid power generation, equipment replacement, upgrades and services. And there's a significant ramp in oil production would provide opportunities across Baker Hughes enterprise on the oilfield services as well as the industrial energy technology standpoint. And as we go forward, we're obviously working with the authorities. Main consideration is the safety and being able to ensure the safetiness of our employees and the operating conditions and having also the clarity on legal and regulatory framework as we go in for the long-term aspects. And the incremental opportunity of revenue is significant, and we'll be obviously programmatic as we go back and there's a lot of work in progress, and we'll evaluate as we get clearer line of sight. And we look forward to the continued conversations as the opportunity emerges and we see the activity increase. Operator: Our next question comes from David Anderson from Barclays. John Anderson: A lot to digest today, Lorenzo. I wanted to focus on the NovaLT, if we could. You've now doubled your 3-year data center order target to $3 billion. Does this also mean you've expanded NovaLT capacity as well? I think it was about a year ago you announced a doubling of initial capacity. So are you sold out for '27 deliveries? And is this further capacity expansion? Is this related to that 1 gigawatt for the slot reservation for new data center that you showed in the presentation this morning? Ahmed Moghal: Dave, yes, it's -- I'll give some color on this. So as you said, we are on track to double our Nova capacity by the first half of '27. And the way to think about it is really as you include those planned capacity additions, our Nova slots are effectively full through 2028, which reflects, obviously, that strong and diversified demand you've seen across multiple end markets, including behind-the-meter power applications. So that incremental capacity will come online in the first half of '27 and will support the 2 gigawatts of Nova orders that we booked to backlog during '25. But going forward, we continue to monitor the market closely through our dynamic planning process. So you can be sure that any decision to further expand Nova capacity beyond the current doubling will be based on a disciplined assessment that we would carry out on medium- to long-term supply and demand fundamentals and, of course, guided by very clear return thresholds. So to sum it up, really, our current and planned NovaLT capacity is fully committed through '28, but we are prepared to respond quickly if market conditions and customer demand warranted. Operator: That was our last question. I will hand you back to Mr. Lorenzo Simonelli, Chairman and Chief Executive Officer to conclude the call. Lorenzo Simonelli: Thank you to everyone for taking the time to join our earnings call today, and I look forward to speaking with you all again soon. Operator, you may now close out the call. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Have a great day.