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Operator: Good morning, ladies and gentlemen, and welcome to the Remgro Limited Interim Results Presentation. [Operator Instructions] Please note that this event is being recorded. I will now hand over the conference to Chief Executive Officer, Jan Durand. Please go ahead, sir. Jan Durand: Good morning, everybody. Thank you for joining us this morning, and welcome to our interim results presentation for the 6 months period ended 31st of December 2025. Today, we'll unpack our financial performance for the first half of this financial year. And has become our standard approach, we will also spend time on the performance of our key portfolio companies that continue to shape our overall results. With that in mind, the outline of today's presentation will be as follows. Firstly, I will give an overview of the salient features of our performance, including the wins that reflect our focused execution against our strategic priorities. Secondly, our Chief Investment Officer, Carel, will give an update on some of the key corporate actions that are central to our portfolio simplification and optimization journey. Then Neville, our CFO, will take you through the financial results in more depth. And finally, I will turn to updates from our major investments. The CEO of Mediclinic, Ronnie; and the CFO, Jurgens, will speak to Mediclinic's results and progress on strategic priorities. Then after that, the Managing Director of Heineken, Jordi and his newly appointed Chief Finance Officer, Radovan, will together do the same for Heineken Beverages. And then the CEO of Maziv, Dietlof will do the same for CIVH. And finally, the COO of RCL, Paul, will provide highlights of the results they reported on earlier this month. I will then close off the presentation by looking at our areas of focus going forward before opening the floor for questions. This morning, I'm extremely pleased to present interim results that show sustained strong earnings growth across our portfolio. Even more encouraging is that this earnings momentum has translated into strong cash generation at the center, enabling us to return value to our shareholders with a significant uplift in our interim dividend. For this period under review, headline earnings increased by 38.5%. And alongside this, cash earnings at the center strengthened materially with dividends received at the center up roughly about 34%, supporting an interim dividend increase of approximately 80%, a significant return of value to our shareholders. The main drivers of this earnings growth were stronger contributions from Mediclinic, CIVH, Rainbow and Heineken Beverages. Ignoring the distributions over the period, our INAV increased by 1.6% over the period, which is more modest than the growth of our earnings and a function of valuation movement across our listed and unlisted portfolio. But this is a good indication that the increase in the underlying earnings of our company substantially reflect our own valuation models. As I reflected on this marked progress, it is clear that these results demonstrate the resilience of our portfolio, the benefits of disciplined, focused execution and strong partnerships with our various management teams. By the same token, it would be remiss of us not to reflect on the impact of the operating environment, which we and our investee companies continue to operate, which I'm sure this audience is all too familiar with. Global trade tensions, geopolitical instability and muted domestic growth remain persistent headwinds. Although extensively analyzed the speed of changes and the resultant unpredictability make forecasting the impact difficult at this stage. Very importantly, for us, we must not forget about our colleagues of ours that work in the affected regions. Our thoughts are with them in these difficult circumstances, and we applaud them for the resilience and the courage that they show. Instead of dwelling what is outside our control, though, our focus remains where it matters most, managing what is within our control, strengthening the performance of our core businesses, progressing portfolio simplification and maintaining disciplined capital allocations. These have underpinned the gains we are presenting today. On this slide, I want to highlight a few of the positive outcomes that this strategic focus has yielded. I have spoken about the robust growth in earnings and sustained momentum, which we have now seen consistently over multiple reporting periods. This, we believe, speaks to the strategic clarity and disciplined execution. I am pleased with the commitment of our executive teams at the underlying investee companies, which in partnership with Remgro is actively driving performance, which can be seen in the strong contributions from our previously challenged investees. We're especially pleased with the long-awaited implementation of the CIVH/Vodacom transaction, which positions us to capture the growth potential we've articulated for some time. We've also made some strong progress in simplifying the portfolio, including the sale of our remaining interest in BAT, the distribution of our media assets and more recently, the monetization of part of our interest in FirstRand, which has significantly derisked our balance sheet. The proposed restructuring of the Mediclinic -- of the Mediclinic business further aligns this investment to our strategy and simplifies the group further. The results of all of these deliberate efforts can be seen in the cash generation profile I spoke of earlier, with our sustainable dividends received up by almost 34%. In addition to this incredible growth, special dividends received have also further strengthened our balance sheet and offer a strategic optionality to navigate the current volatility, but also in pursuing future growth opportunities. Ultimately, these results are a clear payoff from strategic clarity, focused execution and consistency. Very importantly, whilst we are and must celebrate these wins, performance optimization with a dynamic execution across our portfolio remains key to maintain this momentum, particularly with reference to some of our business that are still facing some challenges currently like RCL, especially regarding regulatory issues and the challenging market dynamics, but Paul will elaborate on this further. We also experienced some sharp focus on the volume pressures through aggressive pricing trends that we see in the overall beverage market that impacts Heineken Beverages. Jordi will also go into that in a bit more detail. Even so, we remain confident in the long-term growth potential of the portfolio. Today's results show that our focus is working, and our job is to remain sustain this momentum. The question of our capital allocation posture understandably featured prominently in all discussions. We think about capital allocation through 3 pillars: strengthening the balance sheet, supporting portfolio growth and delivering value to our shareholders. The strengthened balance sheet of us has created a solid foundation for growth while enabling a meaningful improvement in returns to our shareholders through higher dividends and other value-accretive returns of capital. We continue to consider and evaluate options to crystallize value and including -- that includes share repurchases. We are actively assessing new investment opportunities with greater emphasis on building our new business development pipeline. Key for us is that we view our strong balance sheet as a critical and strategic asset, particularly in this period of heightened volatility. We have been intentionally conservative in our cash preservation posture and believe that this positions us well to act on growth opportunities as they come. I will now hand over to Carel to provide an update on our key corporate actions. Carel Petrus Vosloo: Thank you, Jannie, and good morning, everyone. I wanted to provide an update on corporate actions at 2 of our investee companies. The first one of those is at CIVH, and shareholders would be familiar with the Vodacom transaction that we've been talking about for the last number of years now. So -- as shareholders would remember, Vodacom injected cash and shares into Maziv for a 30% shareholding in Maziv and then also acquired shares at the CIVH level for ZAR 1.8 billion, and that resulted in a pre-implementation dividend from Maziv and then -- from Maziv into CIVH and from CIVH ultimately to shareholders. As Jannie mentioned, we're very pleased to have got this transaction done towards the end of last year. Vodacom brings a very strong strategic partner to our business. It allows us to accelerate the scaling of the network, including to previously underserviced communities, also gives us greater balance sheet flexibility and really pleased to finally have got this done. The second transaction is the second leg of the Herotel acquisition. Again, we remind shareholders that Herotel is a service provider, mostly in secondary towns or secondary cities and rural towns. They've got an incredibly strong management team, a really great recipe for rolling out infrastructure in this segment of the market and a great complement to what we currently have in Vumatel. So again, very excited at the prospect of getting this transaction done. It increases our infrastructure, our economies of scale and improving unit economics. So just to reflect a little bit on the time line for these 2 transactions, where we've come from to where we are. It's now almost 5 years ago when we initially announced the Vodacom transaction at the back end of 2021 and fair to assume it had a fair run-up to get to that point of announcement. So it feels like we've been busy with this for a while. But soon after that, we announced the first leg of the Herotel transaction. So the acquisition of that first 48% that was in early parts of 2022. And then things took a little while, but very pleased in August last year to finally get the approval from the competition authorities for the Vodacom transaction. And then relatively soon after that, at the beginning of December, we implemented that transaction. Just to remind people, when Dietlof here to speak about the results for CIVH, that's up to the end of September. So it doesn't yet include the Vodacom assets in those numbers. But obviously, in time to come, we'll see the impact of that. Back to the time line then in December of last year, we were then also pleased to obtain the competition authorities approval for the second leg of the Herotel transaction. And the only CP that's outstanding there is the Casa approval. And we hope that would be imminently forthcoming. So to remind people what that then looks like in terms of the shareholding structure. Previously, CIVH used to own 100% of Maziv. Vodacom now is introduced alongside CIVH with that 30% interest. They obviously bring their assets and the cash or they brought their assets and cash and in the process of integrating those assets into Vuma and DFA. At the bottom of the slide, you can then also see whether the warehousing vehicle that trust sits as a shareholder in Herotel with a 49.9%. And when that transaction is approved, hopefully, Herotel would end up with 99.9% of -- Vuma would end up with 99.9% of Herotel. Maybe it's a slightly more interesting slide. Hopefully, we -- there are so many moving parts on the valuation of CIVH that we thought we should unpack them separately. And the first part that we thought would be useful to explain to shareholders is just the impact that the Vodacom transaction has on our valuation as existed at the end of last year, so at the end of June, our year-end, June '25. So this is not an updated valuation that you will see later, and Neville will talk to that. But just to give you an impression of the impact of the valuation on our the impact of the transaction on the valuation as it stood. So ZAR 15.8 billion was the INAV value that we attributed to CIVH. If you then add the Vodacom assets and shares that they brought and apply our pre-dilution interest to that, that increases the value by ZAR 7-odd billion. Vodacom rather CIVH then paid a pre-implementation dividend, which was upstream from Maziv. So Remgro's share of that was ZAR 2.66 billion. So that comes out of the value. And then, of course, we diluted by 30% alongside other shareholders for Vodacom's entry. That takes another ZAR 5.7 billion out. And then we applied the discounts that were embedded in our valuation to the Vodacom assets that were added, but we also slightly increased noncontrolling discount to the overall valuation. And after all of that washes out, you will see that the valuation ends up almost at exactly the same place where it started, the 15.8% after you take into account the dividend that's been received and now sits in cash in our hands. So just what remains for CIVH on these, let's call them legacy transactions. On the Vodacom side, investors would remember there was also a 5% option for Vodacom to buy an additional 5% in Maziv effectively directly from Remgro. That transaction, the price for the transaction is a fair market value that will be determined at that point in time, but there is an underpin to that price of ZAR 43.7 billion. That number might not sound particularly familiar, but just to explain that, the transaction value for the base deal was ZAR 36 billion, and that stepped up to ZAR 37 billion for this option. Then you have the ZAR 11 billion of assets and shares that came in from Vodacom less the pre-implementation dividend that came out of Maziv of ZAR 4.2 billion, and that gets you to the ZAR 43.7 billion. So that's the floor value, if you like, for the exercise of this option. We extended the option period to the end of March 2027. Then on the Herotel side, upon approval of the second leg on the acquisition of the 49.9% stake from the trust. CIVH will acquire those shares and then we'll inject those shares into Maziv for additional shares. The price for that, again, would be at fair market value as would be determined at that point in time, but again, with the underpin of ZAR 2.75 billion. Vodacom would likewise bring cash for that same amount. That's ZAR 8.25 million at the full price, and that cash would be upstream from Maziv into CIVH, and that would effectively restore CIVH or rather Vodacom's 30% stake in Maziv. So a few sort of complicated steps, but the only thing to tune into there is the end product would be that Herotel would sit inside or 99.9% of Herotel would sit inside Vuma and CIVH would have an additional ZAR 825 million round of cash. On to the second transaction that we -- or second [indiscernible] want to talk about, which is Mediclinic. Towards the end of last year, we announced the proposed transaction and the in-principle agreement that we reached with MSC to exchange our respective interest in Hirslanden and Mediclinic Southern Africa. So as per the announcement, what we had agreed is that after this exchange, Remgro would end up with 100% of Mediclinic Southern Africa and MSC with 100% of Hirslanden. And that will be done on a value-for-value basis, so basically exchange it for equal value. And we would continue as 50-50 owners of the rest of the business, which is our Middle Eastern business and then also the 29.8% stake that we own in Spire. An important feature of that transaction is that the exchange ratio or the values that we used were arrived at with the balance sheets as they existed at the end of June last year. So to keep the integrity of those valuations, we've got a lockbox in place on both the Southern Africa side and in Hirslanden. And simply what that means is that the value and the cash that accrues in those respective entities are trapped in those entities for the benefit of the future owners. So to the extent that there are dividends that need to flow out or capital injections that need to go into either of those businesses, that would be adjusted and then there would be a sort of cash equalization mechanism to cater for that. The future operating model is in progress, but what will ultimately happen is that the group services will be increasingly decentralized and we'll get to a point where each 3 of those regions can basically operate as independent businesses. We foresee that there would be some limited transitional services that would be provided. But substantially, the businesses will be able to operate on their own. Just to recap on the rationale, which we had set out in the announcement as well. We believe that aligning the shareholding with the markets where the respective shareholders have the deepest understanding and the greatest conviction on strategy that would improve the agility in execution. And certainly, from Remgro's point of view, we think that it aligns with our own investment thesis of having ownership, full ownership of a market-leading asset in our home market that we know and understand. Just to remind the audience what it is about Mediclinic Southern Africa that Remgro finds attractive. It's a large hospital group. We've got 20-odd percent share of the private hospital market, 50 hospitals, 15-day clinics, really strong management team, market-leading EBITDA margins and consistently healthy earnings and cash flow generator. The picture is not particularly complicated of how it will change. You'll see at the moment, our partners, MSC and ourselves own into a vehicle that owns -- that owns 100% of the 3 regions and then also the stake in Spire, as we mentioned, and that will simply change so that those 2 regions, Switzerland and Southern Africa are owned by the shareholders directly. A few more sort of steps and gymnastics to get there, but the picture in the end is quite easy to tune into. Hopefully, a slide that's helpful to for investors just to understand how we get to the answer. There's no new information on this slide. So this is information that is available either in the initial announcement and on the Mediclinic results announcement for September. But we thought helpful perhaps to step people through how one gets to sort of a value equality between these 2 regions. We announced in December that the implied EV/EBITDA multiples for Southern Africa and Switzerland were 6.3 and 9.4%, respectively. So if you apply those multiples to the last 12-month EBITDA as that existed at the end of September, and then you can calculate the enterprise value and just to look at the dollar enterprise values for South Africa, that means just short of $1.6 billion in the case of Hirstlanden that comes to $3.3 billion, almost $3.4 billion. So clearly, Hirstlanden is a meaningfully bigger business if you just look at the enterprise value. But then in the second last column, you can see we overlay the debt and other, which is mostly the noncontrolling interest. And that then reduces the equity value in both businesses to around $1 billion. Again, these are not the exact numbers as per our valuation. The main reason being that this is using balances as of the end of September as we published and also FX rates at the end of September. As I mentioned before, our valuation date was at the end of June. So the actual numbers are slightly different, but we still thought a useful indication to help people just to understand how one would get to roughly equal values. And then lastly, just to say what remains to be done. We're in the process of finalizing agreements and negotiating the final terms. We will hope to get that done as soon as is practically possible. That will obviously allow us to file the regulatory filings and get that process underway and also to continue to work on the separation and finalizing the operating models for the various businesses and then obtain the relevant third-party consents are required, none of which we think would be problematic. So we look forward to updating shareholders again in future on progress. But with that, I'll hand over to Neville to take us through the financial results. Neville Williams: Thank you, Carel, and good morning, everyone.The key message of this interim results announcement is that the earnings growth momentum experienced during the 2025 financial year continued during this first half of this current financial year, culminating in the strong growth in headline earnings. So for the period -- the 6-month period under review, Remgro's headline earnings increased by 38.8% from ZAR 3.7 billion to ZAR 5.2 billion, while headline earnings per share increased by 38.5% from ZAR 6.72 to ZAR 9.31. This graph depicts an overview of the main drivers of the increase in headline earnings and can be summarized as follows. The increase in headline earnings is mainly due to increased contributions due to improved operational performances from Mediclinic up by 55%, their contribution. Rainbow, up by ZAR 280 million, which is more than 100% due to the surge in profitability. CIVH up by more than 100%. And this represents a breakthrough to sustained profitability. And Heineken Beverages also in a positive turnaround phase, up by more than 100% from a low base. Also, there was an increased contribution from TotalEnergies, up by ZAR 330 million, mainly due to a once-off transit pipeline cost refund received during this period. And the increase was -- there was also lower finance costs due to the redemption of the preference shares during the prior period, and that's an increase of around ZAR 95 million. This increase was partly offset by a lower contribution from RCL Foods, down by 31%, largely driven by weaker performance from the Sugar business unit. We will provide more detail on these operational results during the presentation. This graph depicts the evolution of and growth momentum of dividends received at the center since financial year 2021. The bottom line is the interim period and the blue line is the full year momentum. Dividends received from investee companies is the main component of our cash flow at the center. In line with the growth momentum in cash flow and headline earnings during the 2025 financial year, Remgro experienced strong cash flow generation at the center for this period under review, mainly due to a 34% increase in sustainable ordinary dividends received from investee companies amounting to ZAR 2.4 billion. In the previous period, we've received ZAR 1.8 billion from investee companies. And this amount excludes the special dividends related to corporate actions, mainly the CIVH pre-implementation dividend. Just want to emphasize that the Board takes into account a full year view of cash flow at the center when considering the interim and the final dividends for the year. This graph provides an overview of the material changes in the valuations of our unlisted investments as well as the movement in market values of our listed investments during the period under review. Remgro's INAV per share increased by 1.6% from ZAR 292.34 at 30 June 2025 to ZAR 297.3 at 31st December 2025. And they will see the main drivers impacting positively on the growth in INAV includes an increase in net cash, up by ZAR 3.7 billion, increase in market value of our listed investments first rand up by 20% and Discovery up by 6% and Rainbow by 21% as well as increases in valuations of some of our unlisted investments, HeinBev up by 12% and Siqalo Foods up by 9%. These increases were partly offset by a decrease in the market value of OUTsurance, which was down by 8.5% and RCL Foods down by 8.2% as well as the unbundling of eMedia holdings. So if you look at the block there on overall, on average, the material unlisted investments valuations increased by 2.3%, while the listed market values decreased by 3.7% -- if you look at the block, the INAV before net cash and CDT actually decreased by 0.5% and from ZAR 0.5 billion to the ZAR 1.6 billion is the uplift in the cash balance from period to period. The net cash increased by ZAR 3.7 billion, mainly due to the CIVH pre-implementation dividend of ZAR 2.66 billion received upon the completion of the CIVH/Vodacom transaction in December 2025. Total increase in INAV is 3.4% if adjusted for distributions made during the period under review, which include the final dividend of financial year 2025 of ZAR 2.48 as well as the special dividend of ZAR 200 that was paid during this period under review as well as the unbundling of eMedia Holdings. The value was around ZAR 0.75 per share. I want to make a few remarks about our valuation methodology. We use standardized methodologies and apply them consistently ensuring the methodology is aligned to best practice. We continue to use the discounted cash flow methodology as our primary valuation approach and use calibrated peer multiples as reasonability checks of our outcomes. During the 6-month period, discount rates came down, but we were careful to also moderate the terminal growth assumptions to reflect lower implied long-term inflation. We believe the outcome is valuations which are reasonable but conservative and can stand up to scrutiny. The following graphs show the movement of the valuations and implied multiples of the 5 largest unlisted investments in Remgro's portfolio. These investments represent approximately 83% of Remgro's unlisted portfolio. Changes in portfolio valuations reflect a mix of different factors across the various investments. In most cases, changes have mainly been driven by lower cost of capital with some adjustments to financial forecast and a moderation of terminal growth assumptions, as noted earlier. Overall, looking at the multiples, they have remained reasonable when compared to a calibrated peer set. Moving into results overview per pillar. Similar to our year-end presentation and in addition to the INAV and headline earnings disclosure per pillar, we also disclosed the cash dividends received for the 6 months as well as the last 12 months headline earnings and dividend yield for improved transparency. The health care pillar consists of Mediclinic, which is the single biggest investment in Remgro's portfolio and contributes approximately 24% to INAV and approximately 26% to headline earnings. If you look at the valuation of Mediclinic, just remarks on the process. At year-end, we use a third party to perform an independent valuation, which is audited by EY's valuations team. At interim, our corporate finance team prepares the valuation, applying a methodology which is closely aligned with the third parties' methodology. Remgro's valuation of its 50% stake in Mediclinic Group increased by 7.4% in U.S. dollars. That's Mediclinic's reporting currency in the context of improved overall performance resulting from good execution on key business priorities in each region. With the rand strengthening by 6.6% over the 6-month period, that valuation increase translates to 0.2% in rand terms. The valuation is an aggregate of the DCF of the latest business plans for each of the 3 regions. The implied EV over EBITDA multiple is 9.5x, calculated using Mediclinic September 2025 published results. This represents a blend of the multiples of the 3 component parts, each of which we compare to a relevant peer set. Ronnie and Jurgens will unpack Mediclinic results later in the presentation. The consumer products pillar consists of RCL Foods, Rainbow, Heineken Beverages, Siqalo and Capevin and contributes approximately 16% to INAV and 29% to headline earnings. The platform showed mixed performance for the period. RCL Foods, Siqalo and Capevin saw a decline in headline earnings for the period with Rainbow increasing substantially. Dividends contribution also improved due to contributions by RCL Foods, Siqalo and Rainbow compared to the comparative period. RCL Foods contribution to headline earnings decreased, as I said, by 31%, while the underlying headline earnings from continuing operations decreased by just under 22%, largely driven by challenges experienced by the Sugar business unit during the period under review. Paul will elaborate in more detail on RCL Foods results later in the presentation. The contribution by Rainbow increased substantially by 110% to ZAR 535 million from ZAR 255 million in the comparative period. We are very pleased with Rainbow's results for the 6-month period, and Martin and his team do a great job unpacking those results in the recent webcast that is available on Rainbow's website. I would also encourage you to view that there. HeinBev's valuation for its 18%, Rainbow's valuation for its 18.8% interest in HeinBev increased by just under 12% over the 6-month period to ZAR 7.5 billion. In summary, the increase in the valuation is attributed to factors including improved operating margins and decreased cost of capital, offset by reduced terminal assumptions. HeinBev's contribution to headline earnings amounted to a profit of ZAR 155 million, delivering a turnaround from a loss of ZAR 11 million in the comparative period. This solid financial performance was underpinned by margin expansion and disciplined cost management. Jordi and Radovan will elaborate in more detail on Heineken Beverages' results later in the presentation. Siqalo Foods valuation increased by 9.1% over the 6-month period. Siqalo operates in a persistently challenging trading environment, marked by ongoing commodity cost pressures and constrained volume growth. The valuation benefited from a lower cost of capital, offset by slightly moderated financial forecast. The headline earnings contribution amounted to ZAR 237 million, representing a decrease of 6.7%. As said before, the trading environment remained challenging due to constrained economic growth with consumers still under financial strain. Their business volumes remained constrained and decreased by 2.7%, mainly due to the spirits category market volume declining by 2.1% over the last 12 months. The profit margins held steady due to a price increase implemented in March 2025. And by focusing on savings initiatives, the business managed to offset some inflationary costs and increase brand marketing investments. The financial services pillar contributes 21% to INAV, 15% to headline earnings and 17% to dividends received at the center. OUTsurance Group is the most significant investment here. Their contribution to headline earnings increased by 14.3% to ZAR 713 million, mainly due to OUTsurance Holdings normalized earnings increasing by 12.6%. The increase in earnings was driven by strong performance in South Africa and solid organic growth. OUTsurance Group released their interim results on the 11th of March 2026. The valuation of Remgro's 57% stake in CIVH increased by 2.7% from ZAR 15.8 billion at 30 June 2025 to ZAR 16.2 billion. This ZAR 16.2 billion excludes the CIVH pre-implementation dividend of just under ZAR 2.7 billion, which Remgro received. And on a like-for-like basis, including the dividend, the valuation increase is 19.6%. With the implementation of the Vodacom investment into Maziv in December 2025, Remgro's effective stake in CIVH's operating subsidiary, Maziv reduced from 57% to approximately 40%. It is pleasing to see CIVH's potential is now starting to deliver meaningful financial performance with strong structural fiber demand and expanding network and greater penetration, Maziv has delivered good revenue and earnings growth through increased subscribers and average revenue per user. The valuation benefited from a reduced cost of capital, partially offset by an increase in discounts as Dietlof will describe later, including those due to the capital structure changes. Given the valuation date of 31st December 2025, the valuation includes the Vodacom assets at acquisition cost with customary Remgro discounts applied rather than adding a forecast DCF for these assets. The 30 June '26 valuation will be done on a business plan with these assets fully integrated into the respective businesses of DFA and Vumatel. CIVH's contribution to headline earnings amount to a profit of ZAR 123 million, reflecting a sustainable breakthrough into profitability from a loss of ZAR 141 million in the comparative period. And these earnings is accounted for up to 30 September 2025. Dietlof will elaborate in more detail on CIVH results later in the presentation. The industrial pillar companies are mostly profitable on a sustainable basis and consistent dividend payers with high cash conversion ratios as seen in the contribution to headline earnings and dividends received, also with attractive earnings yields and dividend yields. The valuations are also not very demanding. Looking at Air Products valuation increased by 3.1% in the period. The small increase in value is largely as a result of a decreased cost of capital, offset by slightly lower financial forecast, reflecting the tough operating environment. Total Energies valuation reduced by 2.4% in the 6 months. The decrease in value was mainly driven by balance sheet changes, combined with a lower terminal growth rate applied. From a results perspective, Air Products' contribution to headline earnings increased by 11.4% to ZAR 380 million. This increase is due to moderate growth in tonnage and supply chain businesses strong performance in the pipeline business and improved volume and margins in packaged gases, driven by effective commercial management and ongoing cost discipline. TotalEnergies contribution to Remgro's headline earnings increased by more than 100% to ZAR 311 million, but this increase was mainly driven by a once-off transit pipeline cost refund, Remgro's portion being ZAR 218 million in this period and a good marketing performance, partly offset by lower sales due to refinery supply constraints experienced during this period. The net cash at the center increased by ZAR 3.7 billion to ZAR 12 billion over the reporting period and mainly due to the CIVH pre-implementation dividend of approximately ZAR 2.7 billion. In addition, to the FirstRand stake at the market value of -- on 31st December 2025, and that ZAR 6.8 billion is the after CGT valuation. The total liquidity at the center amounted to just under ZAR 19 billion. Since December 2025, ZAR 52 million FirstRand shares have been disposed of for an after CGT proceeds of ZAR 4 billion. I think the gross proceeds was just under ZAR 4.9 billion. As already said, Remgro experienced strong cash flows at the center for the period under review, mainly due to a 34% increase in ordinary dividends received from investee companies amounting to ZAR 2.4 billion. The comparative 6 months, the amount was ZAR 1.8 billion, and this excludes the pre-implementation dividend of ZAR 2.7 billion, which is included in the special dividends received bar of ZAR 2.8 billion. Remgro also sold its portfolio stake in BAT for net proceeds of ZAR 1.1 billion and paid a special dividend of ZAR 2 per share during the period under review, landing at an increase of ZAR 3.666 billion for the period under review. This graphs depict the evolution and steady growth in dividends paid since 2021. That's a low base because that year was impacted by the COVID pandemic. Remgro doesn't have a specific dividend policy, but the general guidance is a payout ratio of approximately 50% of the cash flow at the center or a 2x cover ratio. And that's depending on the specific circumstances impacting solvency at liquidity at the time of declaration and also considering the foreseeable future. You'll see that in 2025, the cover or the payout ratio was 50% -- and I think that conservative posture was at that stage in September when the Board decided on a dividend, the CIVH/Vodacom transaction hasn't yet been concluded. So the interim dividend, Board declared an interim ordinary dividend of ZAR 1.73 per share, up by 80.2% from the ZAR 0.96 per share in the comparative period. The rationale for this increase is that based on the strong liquidity position, the Board has adjusted the dividend cover to approximate 1.5x for the foreseeable future. In addition, also the weighting between the interim and final dividends have also been adjusted towards the interim dividend Therefore, the increase of 80% is more pronounced at this interim stage and is not an indication of future dividend increases. So this brings me to the end of my presentation. I will now hand over to Ronnie and Jurgens to talk through Mediclinic's results. Carel van der Merwe: Thank you, and good morning. Before I start, I would like to just mention that the conflict in the Middle East is top of mind for us at Mediclinic at the moment, and Jurgens will unpack the situation in a few minutes. To position our strategy and key priorities at Mediclinic, we will start by providing a fresh perspective on the market shifts that continue to take place and our strategical and tactical responses there too. Throughout our history and perhaps more importantly, as we move forward, Mediclinic's success will depend on our ability to adapt, evolve and consistently deliver expertise you can trust. That commitment continues to anchor our strategy. In setting our strategy, we consider the following key external pressures that impact on how we define our business. First of all, consumers. In the current and future environment, consumers expect same or next-day health care access, proactive communication and also convenient community-based or virtual care. Second is payers. As a consequence of the rising cost of health care globally for various reasons, payers are increasing tariff pressures and steering care towards lower care settings. And thirdly, competitors. In this dynamic environment, our competitors are consolidating the market and new competitors emerge, leveraging digital channels to capture the front door access to health care. And our response is to defend and strengthen our inpatient core while building a broader, cost-efficient health care ecosystem. In doing so, we aim to, first of all, strengthen our core business by establishing systemically relevant clinical powerhouses that anchors our reputation and also our service offering. Secondly, to expand our clinic -- outpatient clinic and day case networks and deepen our home care services as well as outpatient services, establishing a spectrum of service and operational footprint, also increasing the touch points with clients and driving scale. Thirdly, to invest in superior client experience, ensuring that clinical care is epic center of what we do and embed -- also embed digital solutions to facilitate access to coordinate care, to orchestrate referrals as well and thereby driving lifetime value for our clients. Our North Star remains clear. We aim to be the provider of choice, enhancing the quality of life in every interaction with our clients. Then moving on to progress on priorities. Our key priorities that are aligned with our broader strategy are aimed at focused and decisive execution to sustain growth while improving performance. With reference to the key priorities discussed in December of last year, we continue to make good progress. In our results for the 6 months ended 30 September '25, which we will discuss in more detail later, Jurgens will do that. We've seen strong volume growth across all 3 divisions as well as care settings. This growth has been complemented by a shift in specialty mix towards a higher acuity as well as continued growth across our continuum of care, reflecting in our strategic initiative towards clinical powerhouses as well as growth in related businesses. Alongside growth, we are optimizing performance improvement and driving operating margins through improved efficiency. As communicated before, we are in the process of our operating model review aimed at, amongst other things, driving cost efficiency, empowering our facilities to drive growth and being agile to respond to the market changes. We set ourselves a target of total savings of up to $100 million by the end of financial year '27. To achieve this, each division has set clear objectives through defined initiatives over a 1- and 2-year horizon. Up to the end of September '25, our combined progress reached $63 million of savings. We remain confident in our ability to reach and hopefully even surpass our target savings. Throughout the group and particularly in the Middle East, we are establishing clinical powerhouses supported by digital access to health care services. In September last year, we consolidated Mediclinic Al Noor Hospital and Mediclinic Airport Road Hospital in Abu Dhabi into a single integrated flagship medical powerhouse at an extended Airport Road campus. The consolidated 265-bed facility at more than 74,000 square meters and supported by an additional investment of AED 122 million represents a significant commitment to clinical excellence, advanced infrastructure and superior client experience. In November '25, we launched a new app in the Middle East, which has extended our referral network as well as our virtual platform in the region. Through a combination of growth and efficiency, together with disciplined capital allocation, we've reduced leverage and improved our return on invested capital. With the improvement in earnings, our return on invested capital has now reached 5.1% from 4.2% in March '25, while our leverage ratio has improved in the recent reporting periods to the current 3.1x. And then I'm handing over to Jurgens. Thank you. Jurgens Myburgh: Thank you very much, Ronnie, and good morning, everyone, and thank you for the opportunity. The group delivered pleasing results for the 6 months ended 30 September 2025, driven by underlying volume growth, particularly in the Middle East, a favorable specialty mix and continued implementation of the operating model review, as referenced by Ronnie. Revenue increased by 10% to $2.6 billion and is up 5% in constant currency terms, driven by strong growth in patient activity across all 3 divisions and care settings and a favorable increase in the specialty mix driving average revenue per admission. Adjusted EBITDA increased by 23% to $397 million, up 18% in constant currency terms. The group's adjusted EBITDA margin was 15.5%, supported by a combination of revenue growth and cost efficiencies. Adjusted earnings were up 91% at $159 million, reflecting the strong operating performance, together with the reduced depreciation and amortization and net finance charges. The group delivered cash conversion of 84%, impacted by low collections in Switzerland and Southern Africa, and we continue to target 90% to 100% conversion rate at year-end. Looking at this in more detail by division and starting with Switzerland, revenue was in line with the prior period at CHF 930 million, driven by an increase in underlying volumes, offset by the impact of ongoing negotiations on doctor tariffs in Western Switzerland, affecting our hospitals, in particularly Geneva and Lausanne. Inpatient admissions grew by 0.6% and general insurance mix increased to 53.3%. Adjusting for the impact of Geneva and Lausanne, inpatient admissions grew by 1.8% and the insurance mix was more in line with the prior period. The occupancy rate was 53.4%. Outpatient and day case revenue increased by 7% to CHF 211 million, contributing some 23% to total revenue during the period. As a direct result of the ongoing turnaround project, including the effective management of employee benefit and contractor costs, operating expenses declined by 2% compared with the prior period, delivering a 14% increase in adjusted EBITDA to CHF 122 million. The adjusted EBITDA margin increased from 11.4% to 13.1%. Adjusted earnings increased from a loss of CHF 1 million in 1H '25 to a profit of CHF 31 million in the first half of this financial year. In year-to-date trading, Switzerland continues to be impacted by the volume shortfall in Western Switzerland. This notwithstanding -- as a consequence of good volume growth across the rest of the business and continued progress in our turnaround project, we're targeting marginal revenue growth and stable EBITDA margins in this financial year on the back of what was already a very good second half of the previous financial year. The ongoing tariff disputes exacerbated by the change in outpatient tariff dispensation will impact our cash conversion in the region over year-end. Looking then at Southern Africa, revenue for the period increased by 8% to ZAR 12 billion. Compared with the first half of last year, paid patient days increased by 2% with day case growth exceeding inpatient growth. Occupancy remained stable at 69.9%. Average revenue per bed day was up 5.3% compared with 1H '25, reflecting year-on-year tariff increases and specialty mix changes. Adjusted EBITDA increased by 12% to ZAR 2.2 billion, resulting in an adjusted EBITDA margin of 18.5%. Adjusted earnings increased by 36% to ZAR 861 million. In year-to-date trading, the division has continued to see steady growth in bed days sold and this, together with disciplined cost management, is targeted at delivering revenue growth ahead of inflation and stable EBITDA margins. Finally, then in the Middle East, in trading up to the end of February 2026, the month before the conflict started, the Middle East experienced good revenue and EBITDA growth on what was already a strong comparative period in the second half of the previous financial year. The consolidation of our facilities in Abu Dhabi City has surpassed our expectations. Consequently, we were anticipating revenue growth for FY '26 in the mid- to upper single digits and an incremental improvement in the EBITDA margins. The onset of the conflict in Iran and its proliferation to the broader region has introduced significant volatility in the short term and uncertainty in the medium- to long-term performance of the business. Our primary concern, of course, lies with the safety of our people and patients, and we sincerely appreciate the resolve shown up to now. In the month to date, this is now for March of this year, trading has been extremely volatile with some days materially below and others above expectations and is further obscured by Ramadan and the Eid holidays. In the medium term, over the next 6 months, we're preparing for an impact on volumes due to the at least temporary movement of people out of the region. The longer-term impact on the performance of the business will depend upon the intensity and duration of the conflict indirectly and more directly on its impact on the population of the UAE and the broader macroeconomic environment. Our business in the Middle East is financially and operationally robust, and we will prepare ourselves for every eventuality depending on the outcome of the conflict. In the meantime, we closely integrated with the health care authorities and facilities in both Abu Dhabi and Dubai, seeking to provide care to those who need it and making sure we do so in a safe environment for our patients and staff. With that, I'll hand over to the Heineken team. Jordi Borrut: Thank you, and good morning, everybody. My name is Jordi Borrut, and I'm accompanied -- I'm the Managing Director of Heineken Beverages, and I'm here accompanied by Radovan Sikorsky, who's recently joined as our Finance Director, but who has been at Heineken for nearly 30 years. Moving to the presentation. Before I -- we go into the results, I'd like to highlight the macroeconomic environment and the opportunity for Heineken Beverages in the countries where we operate. If you look at the map, Heineken Beverages is a company that operates in 13 markets across the Southern Africa, as you can see, with the main markets being, of course, South Africa and Namibia, but also important markets like Kenya, Botswana, Uganda, Tanzania. And we have a strong local network of local productions in South Africa and Namibia and Kenya with in-market distributors and commercial operations. And like in some of the more developed markets where we see a muted growth in the alcohol consumptions, in the case of Heineken Beverages, the market and the footprint where we operate still offers a significant headroom for growth. And that's true for the international markets outside South Africa and Namibia because if you look at the key markets, we have a strong population of nearly 200 million inhabitants with a growth of about 2% to 3% per year and a significant headroom for alcohol consumption driven by low per capita of many of these markets. It is true that our main market remains South Africa, but there again, although the per capitas are higher there. As we said, the market remains resilient and continues to grow at about 2% to 3% per annum with significant opportunities for Heineken beverages in some categories like in beer, where our market share is still below 20%. Finally, we've got opportunities driven our multi-category portfolio, which allows us to tap into different consumer occasions segments and price points, leveraging our portfolio that we've now been able to manage and execute in a better way. And we have a capital-efficient organization. As we produce mainly in South Africa and Namibia for the entire African markets, allowing us to leverage the production capacities of this market. Moving to the next slide. I'd like to reflect on the 5 priorities, which if you recall from last year, these are the same priorities we highlighted a year ago. The difference is that post integration since September '23, the main focus for the company was, of course, the integration of the 2 of the 3 entities. And in that side, we focus on Pillar 4 and 5 which was about the efficiency, leveraging the synergies, driving down the fixed and variable expenses and also creating a one company from a people perspective. With that being achieved now with our case fill and service levels having improved significantly, the organization being now stable, our focus has shifted to the top line growth. And that's basically the top 3 pillars in our strategy. And looking at those 3 pillars, I'll start with the first one, winning in beer. This reflects mainly in the South African market, where, as I said, we have the biggest opportunity for growth, and it's the largest category in South Africa. Here, we want to continue to drive growth through our portfolio, mainly in Amstel and Windhoek in the mainstream categories and continue to premiumize Heineken post the shift from its nonreturnable to returnable bottle as well as to optimize the profitability of the category. If you look at the second pillar, build brands with power. This talks about our drive to build strong power brands at national level. We have, as Heineken beverages, more than 60 brands now across the different categories. So we've been very choiceful to select the 12 key brands such as Savanna, Bernini, Amarula, that we really want to drive nationally as power brands. But next to that, we want to complement and we are complementing this brands with local strong regional brands that have a very strong connection with consumers in those markets, such as Richelieu or Viceroy and that's the power of the combination of the strong national with local regional brands. The third pillar talks about customers and consumers and how we want to drive a closer connection with consumers and customers through partnership with our route to markets and retailers. We've been improving significantly our capabilities there with joint business plan with better insights and information, which we want to leverage to offer better propositions to these consumers and customers. Now the focus on this top line growth doesn't mean that we will abandon the 2 other pillars that remain critical to our business. And as you will see, by results explained by Ronnie, has been the main driver of our performance. So we will continue to drive efficiency in variable expenses, and we will continue to drive engagement score. Currently, our engagement score sits at 80%, and that's 12 percentage points better than 2 years ago post integration, which is a testimony of the good work and the unified culture of the company. By the way, we've been ranked the #1 top employer in the FMCG in South Africa recently. Now moving to the next slide, just to highlight on the key commercial activities continuing in the top line growth that we've executed throughout the peak season, specifically in this first half, 6 months. Without going into all the details, I would like to stress that our execution commercially has improved significantly in the last year. And that we measure in the way we execute the campaign compliance execution as well as the number of outlets we visit and execute against. It's important to say that the organization now is organizing channels. And that's reality for South Africa and for Namibia. And that's relevant because different channels have very different roles for consumers in the alcohol segment. The what we call fragmented channel is the most important one, and that's where we have the largest sales force. There, we do flagship activations, but we drive visibility and availability of our brands. Then we have the modern trade channel where -- the drive is to joint business plan with our retailers and drive shelf visibility and in-store execution and leverage the strength and the power of our portfolio. And finally, more than on-premise channel, which is not so relevant from a volume perspective, but it's very important from an image perspective, where our teams are focused on experiential execution and focus on the top-tier on-premise outlets to drive partnerships. With that visibility on the commercial key activities, I'll pass the word to Rado to give us a highlight on the financial performance of these first 6 months. Radovan Sikorsky: Thank you, Jordi. Good morning, everybody. Nice to be here at the Remgro Analyst Conference. Yes. So the result, it's a nice green picture for us, I have to say. We have nice revenue growth of 2% coming to over ZAR 31 million, which is nice to see. We see that the second half, the HBSA, the local South African operation is really coming to the fore. So that's nice to see as well. And if we look at the earnings, a really strong growth, right? So a strong performance overall. Now the margins have expanded very nicely in terms of our mix. But a lot of work has been done on productivity, on the variable costs in terms of driving efficiencies there as well by the supply chain team. And of course, we're getting the leverage of the revenue on our fixed cost which is driving a really strong bottom line performance, as you can see on the slide. In terms of our cash performance, also very strong cash performance coming through really strong in the peak, our cash flow management. So in the seasonality of our business, in the last 3 months, very strong cash flow performance, which has really helped us in terms of improving our net debt performance there as well. So if we go to the next slide, so just overall, a bit more on his summary. You can see in the waterfall, the ZAR 392 million increase in headline earnings, the profit before tax, that is really the underlying part of the business, which is now largely coming through in terms of the total performance of the business, but also in terms of the ZAR 370 million, which is a combination of the equity earnings that we are getting from some of our minority holdings, that's also coming through nicely as well. And we had a few one-offs that we are cycling from the previous year as well. And of course, there is the increase in our taxation with the improved result, bringing us to a reported headline earnings of ZAR 824 million and that adjusted for the IFRS amortization, we come to a total of just over ZAR 1 billion headline earnings for the 6-month period. Jordi Borrut: Thank you, Rado. Now moving to the final slides of our presentation. If you look at the revenue, as Rado explained, our revenue growth at 2%, still below our long-term ambition of revenue. But important to mention that revenue was mainly driven by the beer category, which performed significantly well with Amstel and Windhoek doing well and robust gains beer across the Africa regions in general. Ciders was resilient with Savanna being a resilient brand and Bernini as a standout performance. And then we have negative performance on wine and spirits, specifically on the boxed wine on the value wine and on spirits on the gin and spirits business, although important to reflect that on the brown spirit where we have our strength, we performed much better, brandy and whiskeys. If you look at the next slide, looking at the revenue contribution for market, what you will see is that South Africa remains the biggest contributor of revenue but Namibia has an important role to play in revenue and also in profitability. I want to remind the -- that Namibian breweries is stock listed in the Namibia Stock Exchange. And you can see the full results in their website. And finally, HBI, the international business outside South Africa and Namibia, delivered strong growth in top line. And as we said before, we see huge opportunities in the potential of these markets as we expand our footprint across many of these new opcos. In conclusion, moving to our last slide, the macroeconomic environment remains volatile with a slow economic in South Africa, although we see stabilization. And it's important to mention that the alcohol consumption, specifically in South Africa continues to be resilient, as I said before. And rather than being suppressed, it's shifting to different segments. So we see a consumer shifting to value and more premium. And the good news is we can play in both through our portfolio and price points. Of course, we are monitoring the conflict of Iran. It has a significant an impact in our HBI volume, which is not significant. The volumes we sell in the Middle East from a commercial perspective are not significant, are mainly in the non-beer and they are not very relevant in the scope of HBI and Heineken beverages, but the impact is more in the oil and the transport impact that it will have, it can have in our company and we're monitoring that very closely. Although we don't see any supply chain disruption at this stage and we don't see talking to our partners and suppliers. From an industry, the markets, as I said, continues resilient, but there's a heightened competition, both from the competitors and illicit market that is really affecting us, specifically on the spirits and on the white spirits. But we continue to see many opportunities, first, because of the strength of our portfolio. We have really broad portfolio that allows us to tap into different occasions and price points. Innovation continues to be a pipeline for growth as we have seen in the previous 6 months and we will continue to drive a disciplined cost and capital allocation, as we've shown in the results. Finally, we see a margin recovery, and we expect to continue delivering a margin recovery in the next years. Thank you so much. And now I'll pass on to Dietlof for CIVH. Dietlof Maré: Thank you, Jordi. Good morning, everybody. I would like to do the presentation in 3 steps, a little bit of a strategic overview, then a market analysis, and then the financial update. So I think close to our purpose, we believe in connecting South Africa, changing lives, giving data and abundance to South Africa. And I think with that, we're unlocking the scale and we play a part in this digital future of South Africa. And that's the purpose and our belief, and that's what we believe we must need to actually change our South Africa do business and compete with rest of the world. So if you look at it from a Maziv point of view, the focus was really to increase the free cash flow. And we did that in different ways. We monetize the assets. So we've got very strong consumer Vuma assets. So really looking at penetration rates. We looked at the value of it, we looked at ARPUs, generating as much cash on these assets as possible. Then we also looked at DFA, the enterprise side. We had to really monetize the network. And we took 12 million fiber kilometers of fiber out the grounds, and we rehabilitated the network to monetize basically that asset. The result of that was a 31% increase in free cash flow before CapEx of ZAR 1.5 billion. But I think more important, and we did touch on that was this positive momentum on the headline earnings across the group. And that's what we have to continue, and we obviously have to sustain that going forward. So from a DFA point of view, really the upgrades, the 12,000 kilometers that we replaced in the metros were key for us. We're future-proofing the network. We're getting closer to the end customer, getting closer to the premise of other end customers, giving us the ability to install quicker, to obviously look at the customer experience side and to create value for especially the fibre to the business sector in South Africa. What is very positive is also our fiber to the sites and fiber to the towers, that underpins our cash flow across the group and across the enterprise segment. This is linked to these blue-chip MNO companies, long-term contracts. And we're building the business around this sustainable revenue within the sector. So we still saw a 7% increase in linked growth across the enterprise segment. Although we slowed down a little bit linking stores because we were upgrading and rehabilitating the network a little bit. We had to obviously control that, that impact our revenue a little bit. And it did increase our cost a little bit because we had to do huge amounts of work on the stabilization and rehabilitation of the network. But we future-proof the network. So we've got a new fiber technology in very close on the DUDCs, which is this underground, dry underground cabinets very close to the premise of the businesses and buildings in South Africa. So we believe we'll see the benefit. We will see the short- to medium-term benefit of that. From a Vuma side, really focusing on the penetration rate. We took the penetration up to 44%. We also improved the economics network versus the revenue conversion, seeing a revenue growth of 15% across the group. And really, I mean, we started building because of the holding pattern of not building really under the Vodacom deal. We started slowly building again 200,000 homes over the period. But we slowly, slowly getting the uptake to go and getting the engine to move to obviously address the underserved areas in South Africa. From a massive Vodacom point of view, very positive news for us as a group. It took a little bit long for us to get the deal over the line, but the deal is over the line. I think we're seeing a strengthening of our balance sheet, and that will enable us to accelerate the growth and expand it scale throughout South Africa. What we love is that we've got this untapped, unconnected market in South Africa that we can actually play in with a huge demand for fiber. Enterprise growth, yes, we have to include and integrate the assets from Vodacom into the business as quickly as possible and then monetize on the assets and drive the additional EBITDA that comes in from the deal. I think that's the key focus for us on Vodacom. Really, if you look at the DFA side of the business, stable cash flows underpinned by obviously the fiber to the sites and fiber to the tower businesses. What we see in the market is 5G rollout, really, really accelerating across South Africa. And with 5G and 5G densification comes access to fiber. You can't densify 5G and roll out 5G across South Africa without fiber solution. And that plays into our hands a little bit on the site sides of the business. There's 47,000 sites across South Africa, long-term contracts, blue-chip companies, all the MNOs. And we have got that relationship with those MNOs. So we got 12,600 sites connected to fiber. It's a 1% growth. It's 120 sites that we connected over the time. It's a little bit linked to our metro coverage at this point. But as we expand, as we incorporate some of the Vodacom assets, I mean, that footprint will increase. But what this does is, as you chase towers, you will -- you also open up businesses to fiber-to-the-home, fiber to the business and additional revenue streams as you build out your network from the metros. So very positive segment for me within the DFA, stable at this point. From a business connectivity point of view, this is where we're seeing 400,000 customers across South Africa. And it's broken up in 2 parts. You've got a metro connection side, that's building the access within these metros out. And we're seeing -- even though we didn't connect so much, we were controlling the connections a little bit on driving our network because of the network rehabilitation. We still saw it grow by 4% year-on-year to 6,000 links. But interesting, and more exciting is the fiber-to-the-business connections where we see with modernizing the networks, we saw a growth of 9%, although we were controlling it a little bit. We saw 9% on links to -- just under 55,000 links across South Africa. So we're seeing the strong SME demand for affordability and reliable fiber. And I think that's the thing. Linked to customer experience, this is the critical thing that we believe we should get right to monetize the network from a business and a metro point of view. Vumatel, biggest fiber to the home provider in South Africa. Over 2 million homes passed. Uptake of increase -- uptake 44% across the base. So what we're seeing is very stable growth in the core. We're seeing Reach and Key also growing exponentially. But what we're seeing is there's also this expansion segment that we have to address because the need is there for connected South Africa. So we split that always into the 3 segments. The core segment, 2.2 million homes in that segment. It's quite a mature market. It's penetrated. It's 34% overbuilt. We got a very good market share in this of 41%. You can see there we didn't build a lot of homes as the market is quite penetrated. But we saw a stable 3% to 4% growth in subscribers. That uptake going to blend it across the base at 45%. But what we've seen more positively is that our early adopter areas, the areas that we built right in the beginning is touching 77%, 80% uptake, which is very positive. From a reach point of view, very good markets, 5.6 million homes, very little overbuilt. We got a big market share in this segment. 1.1 million homes we've passed in the segment. You can see we didn't build a lot over the last period, only 3% because we were in the holding pattern because of Vodacom, but we're slowly, slowly now driving that build out because of the stronger balance sheet and then also the deal that was confirmed. Subscribers grew by 21% across the base. And the uptake going to 43%, which is for us, a phenomenal story, which we will just build on monetizing this asset. What we're seeing is Key and Reach areas that's -- the only differentiation there of split there is the household income. That's under 5,000 and a month income in the key markets. But what we see is, as we go into the reach markets, which are becoming a little bit smaller, you're actually touching the key markets as well. So we're going to start combining these markets because if you pass the reach homes you have to connect the key homes as well because they're a little bit interlinked. So really, these are the markets. This is where we're going to expand. This is where we're going to build the 1 million homes that we committed at the commission. And this is where we believe that the future revenue growth will come from -- in the organization. If you look at it from a financial point of view, strong financial results, 11% revenue growth year-on-year, 11% EBITDA growth, but I think back to the headline story earnings story, positive in Vumatel, positive in CIVH, and DFA maintaining a positive headline story. And this is what we want to build on. So if you look at the revenue, 15% in Vumatel, 50% growth year-on-year to ZAR 2.1 billion and EBITDA, 18% up to ZAR 1.5 billion for the period under review. But more importantly, we're seeing very positive movement on operating earnings of 60% year-on-year of over ZAR 1 billion relating then back to a headline earnings of ZAR 254 million for the period, a 287% increase. DFA remained stable, 4% growth, I think, impacted a little bit by the links that we slowed down on a little bit of additional cost in the structure that will normalize going forward, but still a strong 4% growth year-on-year in revenue, 4% EBITDA growth, operating earnings 2% up ZAR 592 million, and then 10%, strong 10% growth on headline earnings to ZAR 219 million. From a CIVH point of view, revenue 11% up to ZAR 3.7 billion, EBITDA, ZAR 2.4 billion, also 11% up, but more positive is obviously the operating earnings 49% up and then a very, very positive movement on the headline earnings to ZAR 216 million for the period under review. So as I said, focused on free cash flow. So really, we saw a strong free cash flow coming in backed up by the EBITDA growth. We saw the 11% growth on EBITDA. But what you also see is cash after tax and interest also growing by 31% year-on-year. And I think that's very, very positive. And then if you look at the additional cash generated of ZAR 256 million year-on-year, giving us then a very positive net cash surplus for the year. If you look at the future, I think for the future, we will continue monetizing the asset, I think, really driving the uptake and the value propositions that we deliver on our current fiber-to-the-home assets. We have to capitalize on the network upgrades and rehabilitation that we do. And the segment that we're going to focus on really is the fiber to the business segment where we were seeing this huge demand of growth going forward. Then we're obviously going to integrate the Vodacom assets into the business quickly and monetize it as fast as possible. That's both metro fiber and the fiber-to-the-home type of assets. And then with a stronger balance sheet, we have to obviously start expanding, again, start building the way we used to build and really making sure that we keep our market share within the fiber-to-the-home space in South Africa. Lastly, I think we must keep executing on this positive headline earning story that we showed in this result presentation. Thank you. P. Cruickshank: Thanks, Dietlof. Good morning, everybody. Just moving into some headlines for RCL Foods. I will focus most of today's conversation on sugar and the dynamics that are playing out in that market and touch briefly on our other business units. But just few very briefly updates on progress against our top strategic priorities, and I'll just call out a few of the more material ones under right growth in Future Fit, which are our 3 strategic pillars. Starting with net revenue management, and that is the frequency and depth of our promotional activity across our brands, with savings exceeding our own internal targets in that space. so progressing well. We have some innovation projects in baking, which have been launched within the period and then also post the period, one being sourdough bread and buns in KZN, and Gauteng more recently, in March, our PIEMAN'S POCKETS innovation launch. And whilst early days in both, early signals are good, and those innovations are gaining traction. Building brand equity in a branded food business is crucial. Our equity scores across our brands have improved in the period. And despite our results, we continue to commit our investment into those brands to ensure that our equity remains strong and grows. And we don't start saving money against our marketing spend. Lastly, to call out as continuous improvements with low inflation and a consumer under significant pressure, which has been touched on in other segments of the presentation. Continuous improvement and savings targets remain crucial to protect the consumer from price increases that may come through. From a numbers perspective, we went through this in our results, but all numbers across the board are unfortunately negative, mainly driven by sugar, which I'll unpack in more detail, including our return on invested capital dropping below 10%. Just EBITDA performance, waterfall, and I'll just focus on the middle section. And the waterfall unpacks most of the reconciling items related to the prior period on the left with the one reconciling item in the current period being IFRS 9, which is immaterial. So EBITDA down 14.9%. Let me start with groceries. Improved performance in groceries driven by margin improvements in culinary, largely a result of continuous improvement in net revenue management activities, which I referred to earlier as well as improved volumes in our pet food business. Baking is a story of 2 halves, milling and breads volume under pressure and down in both of those segments, but being offset by improved performance in specialty and our PIEMAN'S business. and sugar the story that I'll unpack in a lot more detail, ZAR 250 million down on the prior year. Just to unpack the long-term historical performance, and this really is about putting context to the sugar result, but let me start with the gold bars at the bottom, and that reflects the other parts of the business, predominantly made up of groceries and baking. Steady improvement over the last 5 years, with the exception being F24 which was the load shedding year, which impacted our Randfontein plant significantly, but in that context, the other parts of the business continued their steady improvement, but overshadowed by the sugar performance of ZAR 387 million EBITDA for the period. The important context is we consistently said that '24 and '25 were record years, and that has unfortunately played out. But the ZAR 387 million, you can see the impact in context of the prior period, call it, '22 and '23 also significantly down. And I'll talk to you why in a minute. But it does give you a good indication of the volatility of sugar and the impact it plays on RCL Foods' portfolio. Just unpacking the sugar industry dynamics, and there's 2 parts here, the dollar-based reference price and Tongaat. I'll come back to why we talk about a competitor and why it's important in a minute in our results. But let me start with the dollar-based reference price. And effectively, that's the referral to the tariff that is in place to protect the sugar industry. Let me just start with why is the tariff important in sugar? And international sugar markets and prices is effectively a dump price. All international producers exceed their local supply. It's an economies of scale initiative and to make sure that you protect your local production for fluctuations in our agricultural performance, you generally oversupply, have excess supply than your local market. And as a consequence, the international price, which is often referred to in cents per pound is a dump price onto the market. All countries that are invested in sugar have a protection mechanism in place, including ours. Our challenge is ours is currently underwater. So it is cheaper to import because the dollar-based reference price has not moved with inflation since it was implemented in 2019. Detailed on the slide is some of the truing and fraying between ITAC and SASA. What I'll just focus on is that the second bullet ITAC is subsequently declined both applications in January '26 and launched their own investigation, which we think will speed up the review and hopefully arrive at an answer sooner rather than later, and we're optimistic in that regard. Delays have obviously had a significant impact. This has been going on since October '24. And to date, 160,000 tonnes of imports came into South Africa. Deep sea imports as we refer to them, coming through the ports a further 30,000 tonnes has come in subsequent to the 31 December cutoff for the period. And just to explain that, effectively, what happens is that tonnage displaces local sales and forces the industry to export that volume at a significant discount. So your revenue adjustment from the decrease price between local price and exports is effectively what displaces your profit and it flows straight to the bottom line, and that's how [ ZAR 250 million ] is made up. Just to talk about Tongaat and why it's important is that the industry works on a division of proceeds model. So all revenue that is sold, be it local or export is pooled and based on a formula is allocated between the millers and the growers with 64% of that proceeds going to the growers. This mechanism is put in place to ensure that there is fairness between millers and growers and to protect the growers in times of strife like we have now. So that is why Tongaat survival from a commercial perspective is important. They filed for provisional or the Business Rescue Partners filed for provisional liquidation on the 12th of February. That case will be heard in the middle of April, and there is significant activity and counter applications that are in place. So we are not sure at this point how that may actually play out. Just on the final point, I spoke about the commercial reasons for Tongaat to survive but there's also a social reason, and they have significant impact of KZN, particularly in the rural communities. And we are hopeful that a solution will be found as soon as possible. This is also been ongoing for many years, and they went into business rescue in October 2022. And then finally, looking forward, just to touch on one thing that's not on the slide, as we mentioned a couple of times in the presentation is the war in Iran and the impact from a food perspective on fuel and other fuel-related costs, particularly into packaging and supply of raw materials into our plants. At this point, and it's very difficult, almost impossible to control this to fuel supply. There's no indications of concern. We get regular updates and are monitoring that carefully. We do move significant volumes of raw materials around the country and obviously finished product. So it is worrying and it's something that we are monitoring closely. The impact of the oil price and its cost impact will be assessed as we go along with, obviously, price increases being a last resort to mitigate that impact across the group, and we'll monitor that as we go. Just I've spoken about sugar, so I'm not going to touch on that one. I'll just briefly touch on pet, and we refer to restoring service levels in our pet food business and the audience will be aware that subsequent to us reporting our results, we did recall pet product from the market, and we are busy getting our plants back up and running, which will hopefully be fully -- in full production soon. And then we move into a phase of rebuilding our brands and service levels as a consequence of that impact. And I think I'm handing over to Jannie. Jan Durand: Thank you, Paul. Earlier in this presentation, I touched upon the macroeconomic environment which we operate in currently and as you all are aware, Ronnie and Jurgens has spoken about our direct interest in the Mediclinic. And so it's really affecting us as well. And so in February, the global backdrop has become even more volatile with the Iran U.S. conflict now creating a genuine energy market shock, the sharp market swings we've seen reflect growing concern about sustained disruption in the region central to global energy flows and the potential for broader destabilization spill over. And I think nobody knows what's going to happen. I don't even think President Trump knows what he wants to do there exactly. And the degree of volatility seen in the market since reflects a market that is struggling to price the risk of sustained disruption in the region that remains central to global energy flow. You've all seen the chart 20% of oil flow through that. But the indirect impact on fertilizers, the agricultural sector is also a concern for us. This reinforces our concern that the consequences of a prolonged conflict may be broader and more destabilizing than the immediate headlines suggest. In contrast, the South African backdrop continued to improve since December with modest growth momentum, easing inflation and continuous progress in the reform agenda. Nonetheless, household remain -- pressure remains acute and global volatility for [indiscernible] these gains. This is actually the reality of the backdrop against we're actually operating with now. And also we're going to operate within the second half of the financial year. We expect some impact but our strength and fundamentals, consistent delivery and a resilient balance sheet position us well to navigate these uncertainties and challenges. As I round up, I want to pause and remind us of our strategic priorities with the execution of up until now has given us enough proof points of success. As you can see on the slide, our priorities remain unchanged. They are not short term. That requires a sustained and deliberate attention and today's results show clear progress in this regard. Looking at the year ahead, I'm excited to continue building on the progress of the current year. We will do this through continued active partnership with our management teams and co-shareholders to drive sustainable performance in our underlying portfolio. We'll keep sharpening and simplifying the Remgro portfolio as we've done now while pursuing disciplined value-accretive capital allocation opportunities in a manner that takes into account the risk posed by the current operating environment. Our sustainability priorities remain a key area of focus, and we are committed to improving disclosure, strengthening the ESG alignment across the group and advancing climate-related scenario analysis. We will be better placed to talk to our progress on this at the year-end. These remain the 3 key priorities for us as a management team, which we believe, done right, will aid our efforts in achieving our goal of crystallizing value for our shareholders. Beyond our portfolio, South Africa's muted GDP growth, strained consumers and high unemployed rates continue to pose challenges. The indirect effects of the current conflict will magnify this impact, the quantum which are difficult to predict right now. As I said earlier, our portfolio is certainly not immune from this impact. We are realistic about the scale of these challenges, but our team is energized, resilient and committed to applying creative solutions where needed. This will enable us to make a positive contribution for the benefit of our shareholders and the wider community in which we operate, and that is also in line with our purpose. I'm grateful for the tireless work of our teams and respective management teams and encouraged by what we've been able to deliver as reflected in today's good results. I really thank you for your time, and I thank you for my colleagues for their time for doing this presentation, and we will now open the floor for questions. Thank you very much. Operator: [Operator Instructions] I will now hand over to Lwanda to go through webcast questions. Lwanda Zingitwa: Thank you, and good morning. Lots of congratulatory messages Jannie and the team on a great set of results and particular excitement about the dividend level. Maybe just to get into some of the simpler questions before we go over to Ronnie and Jurgens on a lot of questions around the Middle East. The -- just on the cash buildup, and this is for you Jannie and Carel, how should we be thinking about the buildup in the group? Is it a question of special dividends to expect in the future? Or are we talking about potentially additional investments in the portfolio, appreciating that it's difficult at this stage to make assumptions around the market. Jan Durand: I think just on the cash buildup, I think in uncertain times, it's the optionality and also the defensiveness of sitting on the cash is quite -- give us some comfort. I mean, not long ago, we were sitting on debt. So we didn't time the war, but I think it's now for the time being, it's good to sit on that cash to have in reserve for what might happen going forward. I think what you will see, as Neville has explained in the dividend payout, we've reduced the cover ratio. And that is what we'll continue to evaluate. If we sit on a significant cash pile that we think is defensive, we might even look -- relook at some of those cover ratios and pay a higher dividends. Doesn't really matter if it's a special or a normal dividend. I mean, from our perspective, a dividend is capital return to the shareholders. But its also does nicely to link the normal dividend due to the underlying cash flow on a yearly basis, what you receive and what you pay out in an investment holding company. So I think we might see some increased dividend, but it depends on the circumstances going forward. And it's quite unsure of what might be happening going forward. I don't know if you want to add anything to that, Carel? Carel Petrus Vosloo: No, Jannie, I think you've covered it. Lwanda Zingitwa: And for you, Carel, can you just talk through the valuation of Capevin and whether there's been any further interactions with Campari on a way forward? Carel Petrus Vosloo: Yes. Certainly Lwanda. So the Capevin, just for context, is ZAR 1 billion, I think, that we're carrying it at roughly that sort of level. So a relatively modest exposure. But to give you a sense, we've taken the value down a little bit. I think we were at around [ ZAR 15.5 ]. Now we're at about [ ZAR 13.5 ]. So it's a bit lower than where it was. That's a long way away from the most recent meaningful transaction in the shares or specifically the Campari shares to get to that question. There's certainly many ongoing conversations with Campari, the fellow board member with us on the Board, so we engaged with them frequently, but certainly not on anything to do with our respective shareholdings. It is -- and now we'll be clear that the values at which we are currently carrying the stock, I don't think resembles at all, but we think the value of this investment is, we are very calm and reassured by very high-quality brands and assets that we have. This is a particularly difficult time for the spirits industry and we will be patient. I can't speak for Campari and their plans, but we're certainly focused on doing the right things for the business in the near term. Lwanda Zingitwa: Thanks, Carel. And while you're in valuations, do you anticipate any changes or material changes in how you think about valuations on the back of changes in bond yields that have taken place since December? Carel Petrus Vosloo: That's obviously something that's an important input into our valuations. So in the last 6-month period, bond yields came down a fair bit I think it was 170-odd bps that the risk-free rate came down. We were very thoughtful and careful not to get over our skis on taking the impact of that straight through the valuations. So we were -- we made sure that we also temper longer-term growth rates to reflect lower long-term inflation assumptions that are now embedded in the long-term yields and also where we thought it was necessary to apply a bit more moderation to forecast, we also did that. So firstly, to say that I think we were careful in not allowing the lower yields to run away with our valuations. Do we expect that, that could be a headwind going forward? So we did have a look at the impact of yields between the year-end and where we are now, and there's obviously been a bit of an uptick not nearly giving back all the gains that were made in the 6-month period. But certainly, some of it was given back. So I expect there will be a bit of a headwind, and we will need to assess that at the end of the year. Lwanda Zingitwa: Thanks, Carel. And Ronnie and Jurgens, I think Jurgens covered some of this in the presentation, but there's quite a number of questions on the Middle East and the impact of the war. And maybe if we group them into 3 themes, 1 being how do we think about the impact from an occupancy perspective? And then secondly, being the impact of your reliance on the expert community on your volumes? And then the last one being supply chain disruptions impacting hospital suppliers that you would ordinarily import into the Middle East? Carel van der Merwe: Thanks, Lwanda. I'm going to start, and then I'm going to hand over to Jurgens. I just want to make 3 broad comments. The first one is, first of all, the safety of our staff and our patients are of utmost important to us. That's priority number one. The priority number 2 is business continuity, which at the moment is a day-to-day affair basically because things change on a daily basis. And then point number 3 is scenario planning for the immediate short and medium term, which is what we're busy with. They have many moving parts currently. But to get into more of the detail of the questions, Jurgen's over to you. Petrus Myburgh: A couple of things. Firstly, when we talk about the significant volatility that we've had in March so far, just to give a little bit of context to that. Firstly, it's been Ramadan, and that in and of itself has a somewhat disruptive impact on the business. That was followed as is the case with the Eid holidays. There was a movement of the spring school break within the month as well. And then, of course, the war and the start of it in the beginning of the month and the continuance of it throughout the month. And so as I indicated when I spoke about this earlier is, obviously, at the start, we saw an impact on particularly our outpatient volumes. But as this has progressed, we've seen some days that are significantly below what we'd expect it to be and some days above where we expect it to be. And so qualitatively, we can talk about this as being a volatile environment and really difficult to predict at this point. And as a consequence, quantitatively saying that what we have in the Middle East is a financially and operationally robust business that's in the process of planning for every eventuality. And that's incredibly important because whatever that eventuality looks like, as Ronnie indicated, short, medium to long term, short term, we do expect people movements to take place, and we do expect that to impact our volumes, let's say, up to the end of what would be their summer to the end of August. But more medium to long term, how do we think about the growth prospects of this business and how does it impact some of our planning and how do we look at the balance between organic and inorganic growth within that context as well. So I think qualitatively, this throws up many considerations and all of which we're currently working through, but just quantitatively difficult to try and be predictive about this given the volatility that we're experiencing. Lwanda Zingitwa: A question for Jordi and Radovan online. Just the performance of Heineken since December, so how trade has been since the peak period and how you think about that in the context of the concentration of public holidays in the month of April? Jordi Borrut: Yes. Thanks. So as you can imagine that the first quarter of the year is difficult still to read, first, because in this first quarter, typically, all the companies increased prices following the excise announcement. And that price increase has changed significantly across different companies. And that has a big impact pattern in the buying of the route-to-market distributors. So there's a very significant change and differences in the price increases and the buying patterns and then Easter hasn't come forward, which means also the buildup of volume for the Easter holidays is also different. So in that sense, it's still a difficult quarter to rate. It would be much better to read it at the end of April. Having said that, what we see overall, the underlying trend is that the market, as I said before, remains resilient, which is good news, and we continue to operate at a trading level, which is in line with our expectations. So I think so far, that's what I would say. Lwanda Zingitwa: Thanks, Jordi. Similar question for you, Paul, on the food side and how trade patterns have been since December. And maybe a second question, while we're at it is whether we can expect sugar prices to rise with the potential rise of commodity prices on the back of the conflict? P. Cruickshank: Thanks, Lwanda. So a similar trend in food consumption demand over the last 2.5 months, which previously has been volatile, 1 month up, 1 month down, and we're seeing that trend continue. Volume remains challenged, and it is a bit of a fight to get to that volume amongst all the food producers. So no real change to what we saw in the first 6 months from a volume perspective. Jordi touched on the switcher Easter that obviously plays out in March in our world because most of the demand and power falls happening now. I touched on pets and that quantum is unknown. And obviously, we haven't been supplying the market fully over the last while. So that is having an impact. Then moving to the second question on sugar. So the international price of sugar has moved up from about $0.14 to $0.1570 per pound, somewhere around there. So that would have an impact on imports into South Africa. We have heard that Brazil is obviously switched to ethanol. That is the luxury that they present themselves with and we've heard that a number of supply contracts have been canceled out of Brazil for sugar. So that will play positively into the import situation in South Africa. Our sugar industry in South Africa has not taken a price increase for 18 months. And obviously, there is a lot of having a significant impact on the ZAR 250 million problem that we have between one period and the other. The price -- will there be a sugar price increase? In my mind, that is dependent on the tariff. Almost entirely, if the tariff comes, we will need to take a PI as industry. And there will be an agreement with that tariff on what that PI will be as there was with Masterplan 1, which was you can do multiple times a year, if you like, but it needs to be within the parameters of inflation. So that's what we expect to be part of that condition. Lwanda Zingitwa: Thanks, Paul. Ronnie and Jurgens, any guidance you can give on the plans to exit Spire as yet? Carel van der Merwe: So Spire has been under strategic review for a while, and there's a possible sale process going on. It was announced over the weekend on Monday that discussions with 2 parties have been -- came to an end or a possible sale, but there are still discussions with other parties going on. So that's on the one hand. On the other hand, we're working closely with management as well as with the Board to look at all sorts of scenarios and the eventualities. So in the instance if there is no sale at the moment, how do we reposition the business? How do we develop the business further from a strategic perspective? And how do we improve the performance of the business, given the current scenario in the U.K. market, where NHS commissioning has dropped significantly. Lwanda Zingitwa: Thanks, Ronnie. And the last question on the webcast, Carel, it would be strange if it didn't come up, but what is it that is holding back buybacks and given that the discount to INAV remains elevated and your cash levels are also elevated on the back of the first when stake sale? Carel Petrus Vosloo: So Lwanda, I think the same answer as Jannie gave earlier. So I think some of the things that we're concerned about and that caused us to be cautioned are things that are playing out in the market. Investors would have heard from -- even our Chairman of the AGM that there's a cautiousness about where we are. And I think that's reflected in our current posture on the capital structure. And that remains. If we had to ask what stands in the way, that's the biggest thing that stands in the way are sort of cautious posture at the moment. But we will obviously assess that as time moves on and events unfold. Lwanda Zingitwa: Thanks, Carel. Can we take questions on the Chorus call, please? Operator: Of course. The first question we have comes from Shane Watkins of All Weather Capital. Shane Watkins: Congratulations on a much improved performance. I must applaud you and your team. I really just wanted to follow up on what Ronnie was saying regarding Spire because the concern that I have is that what is good for the Spire Board may not be the same thing that is good for Mediclinic or indeed Remgro. And if I'm dead honest, it's not clear to me that the Spire board has shown themselves to have good judgment in the past. So I just wonder what you guys can do to clean up the structure and exit this investment. I don't think everyone's interest are necessarily aligned in the situation. Carel van der Merwe: Thank you, Shane. You're correct. Not everybody's interests are aligned of all the stakeholders that are in this situation. However, I just want to mention a couple of things. I think, first of all, as we've always been quite clear. We look at long-term value creation for shareholders in this instance, at Spire as well. We've never been interested in all sorts of short-term actions or activities. If it's not going to be in the long-term best interest of the business, its employees, its patients and its shareholders. So that -- having said that, we're working closely with the Board, with the Chair, the current Chair and with management on figuring out what are -- what's going to be the best way forward for this business, should there be no sale process at this point in time. And those are the things we have control over. So -- or not necessarily control, but we can give strong inputs into that. And that's what we're busy doing and we're making use of our own experiences and insights into health care in general to do so. It's a very difficult trading environment at the moment for all the reasons that have been outlined in the press and what I said about NHS commissioning. Shane Watkins: Ronnie, are the buyers that remain legitimate and serious buyers? And by when do you think the process may conclude either way? Carel van der Merwe: Cannot say. It's a process that we don't have access to at the moment, as you can imagine. Carel Petrus Vosloo: Shane just to add, there obviously very narrow timelines which we can comment on these sort of things. So even to the extent that Ronnie had insights, he might not be free to share those. I think we take that commentary on board, and we'll reflect on that as well. But I think difficult for us to be more specific than that. Shane Watkins: Okay. I mean I think the point that I was just making earlier was that for you, it's not so much important at what price you exit, but rather that the structure is cleaned up where there may be other parties that are more price-sensitive or sensitive as to how their role may change, if the transaction took place. Petrus Myburgh: Yes. Understood. Fair comment, Shane. We take it on board. But as Ronnie -- the operationally a couple of things going on. And then obviously, from a corporate transactional perspective, but then also what other value drivers are there within the business, transformational value drivers that we can pursue that drive sustainable long-term value for the business. And I think in that regard, we're aligned with the Board in how we think about that and the avenues through which we can seek to achieve that. So -- but thank you. Comment taken on board. Shane Watkins: Okay. Well, I just want to conclude by applauding the Remgro team on a significantly improved performance. It's great to see. Operator: At this stage, there are no further questions on the conference call. Jan Durand: If not... Lwanda Zingitwa: There are no further questions. Jan Durand: Nothing on the web. Okay. Then just thank everybody for attending, and thanks to all my colleagues for all the efforts and things that have gone into the results and the presentation. Thanks, everybody. Have a good day. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Good afternoon. This is the chorus call conference operator. Welcome, and thank you for joining the Fincantieri Full Year 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Folgiero, Chief Executive Officer and Managing Director. Please go ahead, sir. Pierroberto Folgiero: Good afternoon, ladies and gentlemen, and welcome to Fincantieri's Full Year 2025 Results Call. We are proud to share with you the outstanding results achieved in 2025, which highlights Fincantieri's ability to capture the opportunities offered by the favorable macro trends in our markets, while maintaining financial discipline and ensuring flawless execution of our backlog. In 2025, we delivered tangible progress in the implementation of our strategy, exceeding expectations and creating significant value for all our stakeholders. This provides an exceptionally strong foundation on which to build the group's growth trajectory set out in the new 2026-2030 business plan. We achieved a double-digit revenue and EBITDA growth a strong margin expansion supported by continued efficiency initiatives and a profitable business mix, leading to the highest net profit in our industry at EUR 117 million, more than 4x higher than 2024. We also recorded a new all-time high in both order intake and total backlog, confirming the strength of our commercial positioning and remarkable growth potential. On the financial front, the group continues to make rapid progress in its deleveraging path with net debt-to-EBITDA up to 2.7x ahead of 2025 guidance provided last February at the Capital Markets Day. And there is more to come with new cruise and underwater orders already secured in early 2026 and a robust defense pipeline expected to translate into major contracts in the coming months. We also recently completed a rights issue of EUR 500 million via an accelerated book building process that allows us to further enhance our financial flexibility and provides optionality to support our selective inorganic growth strategy, also through M&A opportunities as well as to bring forward our deleveraging targets. It is worth noting that this capital increase was approved by the EGM in June 2024, in conjunction with the approval of the EUR 400 million rights issue completed in July 2024. And it's also to be noted that the free float as a result is now up 36%. Let's move to Page 4 for a summary of the financial and commercial highlights of the year. In 2025, we exceeded all targets set out in our guidance, further revised at the Capital Market Day, demonstrating the group's ability to deliver on its commitments and consistently outperform expectations. Revenues increased by 13% year-on-year, reaching approximately EUR 9.2 billion, supported by strong market tailwinds in the Shipbuilding segment and by the rapid expansion of the Underwater business. EBITDA margin grew significantly to 7.4% vis-a-vis 6.3% at the end of 2024. This increase is the result of the structural evolution of cruise into a profitable and cash-generative business and by the increasing contribution of defense and Underwater to revenue mix. The net debt EBITDA ratio improved to 2.7x, well ahead of the guidance provided at the end of 2024 and better than the revised guidance provided in February 2026. Finally, net profit reached the record level of EUR 117 million, demonstrating the remarkable turnaround achieved over the past three years and confirming the structural growth and profitability of the group. These results confirm the remarkable turnaround achieved by the group over the past three years, okay? Our revenues between 2022 and 2025 grew with a compounded average growth rate of 7.3% while our EBITDA increased by 3x over the same period. Our net income is now structurally positive. Lastly, our deleveraging process has been impressive, reaching 2.7x with further significant reduction projected going forward. Turning to Page 6. We delivered an outstanding commercial performance in 2025 with a record high order intake at EUR 20.3 billion and the book-to-bill equal to 2.2x compared to 1.9x in 2024, underscoring the strong demand in our core businesses, especially in building which posted an impressive 42% year-on-year growth. As a result, total backlog reached an all-time high of EUR 63.2 billion, equivalent to approximately 6.9 years of work based on full year 2025 revenues, ensuring strong visibility on the future growth. Let's now move to Page 7 to have a look at our order book. 2025 was also marked by the flawless backlog execution with 24 units delivered. We have a full slate of deliveries scheduled through 2036, with visibility further extended to 2037 thanks to the already mentioned order by Norwegian Cruise Line secured in early 2026. As of year-end 2025, our backlog includes 97 units, 36 in cruise, with the first two jumbo ships scheduled for delivery in 2029 and 2030, 20 in defense, five in underwater and 36 in offshore and specialized vessels, providing solid and long-term visibility for the years ahead. Let's move to Page 8 for an overview of the commercial opportunities ahead. The current macro trend offered significant growth opportunities in all of our business segments, which are actively monitoring as we speak. Of more than 500 commercial opportunities, we have looked at, we have selected a number of these to pursue through our participation in tender processes for an amount of approximately EUR 32.5 billion. In the past months, we have already successfully secured a number of orders, including important orders from NCL, Crystal, Viking and TUI in Cruise, orders in naval from the Italian Navy and ordering offshores for four vessels from Ocean Infinity and the largest order ever for WASS, for Torpedoes from the Saudi Navy. As I mentioned in our Capital Market Day, we also see short-term opportunities in naval in the coming months for approximately EUR 5 billion from the Italian Navy, the DDX, EPC call 2, LSS3 from export countries for frigates, from service contracts for the Middle East countries and from new programs from the United States Navy. Notably, last month, the United States Navy issued a request for proposal for a vessel construction manager to oversee the construction of the new medium lending ship class, identified Fincantieri Marinette our USA subsidiary as one of the two shipyards to be awarded for the construction with initial allocation of four vessels. Moving to our outlook for 2026, we confirm the guidance provided during the Capital Market Day with revenues in the range of EUR 9.2 billion to EUR 9.3 billion, EBITDA of approximately EUR 700 million with an EBITDA margin of around 7.5%. Adjusted net debt to EBITDA ratio at approximately 2x, which equates to 1.3x, including the capital increase completed in February 2026. Finally, net profit is expected to be higher than in 2025. Turning on Slide 10. Let me provide some color on the recent capital increase via ABB we successfully completed in February. As we communicated, the EUR 500 million capital increase is intended to further enhance our financial flexibility and provides optionality to support our selective inorganic growth strategy. Also through M&A opportunities, in particular in relation to unconventional underwater solution, where we see significant opportunities to expand our position. We are looking at the selective number of potential targets, which we will update you on the coming months. Now I will hand over the call to Giuseppe, who will discuss 2025 financial results in more details. Please Giuseppe. Giuseppe Dado: Thank you, Pierroberto. Let's move on, on Page 11, where we can comment order intake. Again, like we said before, EUR 20.3 billion, all-time high with a growth of over 32%. And a book-to-bill ratio well above revenues, 2.2x. This reflects the sustained growth in Fincantieri commercial pipeline that is supported across all segments by strong demand. Shipbuilding among these segments continued to deliver strong order intake reaching almost EUR 18 billion, up 42% compared to last year. Of course, these very strong order intake brings another -- a record total backlog at $63.2 billion, and I'm moving on Page 13, that covers almost 7x 2025 revenues and these results confirms the impressive growth trend already seen in 2024 and further increases long-term visibility of the business. Backlog grew by almost 33% to EUR 41.1 billion, up from EUR 31 billion in 2024. And we also have a very strong soft backlog that increased to EUR 22.1 billion compared to EUR 20.2 billion of 2024. We delivered 24 units from 11 different shipyards, 5 for cruise, 7 for defense and 12 for offshore. On Page 14, financials. Revenues reached almost EUR 9.2 billion, up 13.1% year-on-year with a strong contribution from shipbuilding that posted a 15.1% growth compared to 2024 within shipbuilding. Cruise revenues grew by 12.5% year-on-year. With production levels characterized by capacity saturation on the current shipyard footprint and reflecting the significant backlog acquired. Also, the Defense segment recorded a 20.7% increase year-on-year, partly driven by the finalization on the first quarter of 2025 of the contract for the sale of two PPA units to the Indonesian Ministry of Defense. Those two units were both delivered in the second half of the year. The underwater segment posted as well a sharp increase in revenues, up 88.2% and this comes from the consolidation of WASS submarine systems from January 2025, but also from the very strong performance of Remazel engineering that had a revenue growth of 25% year-on-year. And together with the accelerated advancement of the U212NFS submarine program for the Italian Navy. As with the offshore and specialized vessels and the Equipment Systems & Infrastructure segments, they both were substantially in line with 2024. On the following page, EBITDA. Well, at the group level rose sharply by almost 34% year-on-year to EUR 681 million with the margin up to 7.4% from 6.3% reported in 2024. Shipbuilding EBITDA grew by 29.3% to EUR 451 million with an EBITDA margin of 6.8%, up 0.8 percentage points compared to last year, this comes thanks to very favorable pricing dynamics. And improving efficiency in the cruise business. As a whole, the cruise business has improved also in terms of net working capital, thanks to the better payment terms. And of course, on top of it, there is the increasing contribution of the Defense business. The underwater, as expected, I would say, delivered an EBITDA of EUR 117 million with the margin of 17.6%. And this confirms the sector's premium profitability that we discussed on the Underwater Day in May. The offshore specialized vessel EBITDA reached EUR 72 million with an EBITDA margin growing to 5.3%, consolidating its positive path to margin improvement. The Equipment, Systems and Infrastructure segment delivered a strong contribution to the group's profitability. With EBITDA rising by 33% and EBITDA margin reaching 8.2% versus 6.1% in 2024. Drivers of this growth are, in particular, a significant contribution by the mechatronic business and higher margins in the Electronics and Digital Product cluster. And of course, last, but not least, the infrastructure cluster improved as well. On the following page, net profit for a record level, EUR 117 million the highest ever recorded by Fincantieri and over 4x the results we reached in 2024. This record result reflects the material growth in EBITDA partially offset by the increase in D&A, but this is mainly driven by the purchase price allocation following the acquisition of WASS Submarine Systems completed in Q1 2025. Of course, the effect will diminish throughout the years on this. EBIT increased to EUR 368 million from EUR 246 million in 2024. And last, but not least, thanks to our very strong financial discipline. The group benefited from a reduction in financial expenses. And this, of course, comes partly from the lower average debt recorded during the year. And also a positive contribution was provided by the decrease in the asbestos-related litigation cost, which declined for the third consecutive year. On the following page, the leverage impact and debt maturity profile at the end of 2025, adjusted net debt amounts to roughly EUR 1.3 billion. And of course, in order to ensure full comparability with 2024, these figures -- this figure includes noncurrent financial receivables, notably the loan granted to Virgin Cruises previously included in 2024 net debt and reclassified as noncurrent following the maturity extension agreed in December. Excluding these current -- these noncurrent financial receivable, net debt stands at EUR 1.8 billion roughly. Leverage ratio, net debt over EBITDA improved to 2.7x significantly lower than the 3.3x recorded as of year-end 2024 and further improving on the 2025 guidance provided in the Capital Markets Day, which was 2.8x. The leverage ratio, including noncurrent financial receivables stands at 1.9x EBITDA. As we have previously mentioned, we have generated in 2025 significant cash flow from operations, which, excluding the cash outflow for the purchase of WASS in early 2025, translates into a free cash flow generation of more than EUR 250 million. We have a very well distributed debt maturity profile with no significant long-term debt maturities until 2028, and we can rely on a solid capital structure with no covenants roughly 90% fixed rate liabilities, this is obtained through derivatives. Furthermore, the senior unsecured Schuldschein placement for EUR 395 million completed in July 2025, contributed to extending our maturity profile and reducing our average interest rate. After that, I will now hand the call back to Pierroberto for his closing remarks. Thank you. Pierroberto Folgiero: Thank you, Giuseppe. Let me now summarize our key takeaways on Page 18. During 2025, we have delivered record commercial and financial results with net profit, order intake and total backlog reaching an all-time high. These results provide a strong foundation for the years ahead in the execution of our 2026-2030 business plan. Margins further improved year-on-year, thanks to the structural evolution of Cruise into a profitable and cash-generative business and to the higher contribution of Defense and Underwater to the revenue mix. We benefit from an impressive backlog visibility further extended to 2037. This supports our margin profile through working capital optimization, capacity saturation and improved procurement efficiency. The current global geopolitical environment offers substantial growth in defense, which we expect to translate into new significant orders in the coming months. We are consolidating our position as the leading orchestrator in the underwater domain, expanding both our product offering and business development capabilities also through targeted acquisitions and strategic partnerships. The successful completion of the capital increase last February demonstrates strong market confidence, while providing additional financial flexibility and optionality to pursue the selective M&A strategy. We are only at the beginning of a secular growth trends, and we are ready to capture this opportunity. With that, we are now open to take your questions. Operator: [Operator Instructions] The first question is from Antonio Gianfrancesco of Intermonte. Antonio Gianfrancesco: I have two. The first one is on the year-to-date Cruise orders from Norwegian and Viking. Could you give us some indications on the margin profile of these new contracts compared to the current backlog? And more broadly, even on Cruise business. At Capital Markets Day in February, you indicated the profitability for the Shipbuilding division at 7% for 2026. Could you give us an indication about the evolution of the profitability in the Cruise segment for the coming years? The second one is on the recently announced memorandum of understanding with Navantia on European Patrol Corvette program. Could you please help us to better understand how you see this translating into actual order intake. And in particular, I was wondering if you consider this memorandum of understanding as one of the key building block behind the EUR 5 billion defense pipeline in six months, you indicated at the Capital Markets Day. Pierroberto Folgiero: Thank you for your questions. Cruise orders, NCL and Viking, we are not accustomed to disclose precise margins. We would rather prefer to let you appreciate what is behind this pickup in the percentage margin in this profitability. So basically, as we have been saying and doing and pursuing the Cruise business is going in the direction of saturation, saturation, meaning perfect "absorption of fixed cost" on the one hand, on the other hand, long-term visibility and backlog provides for long-term partnership with supply chain and vendors. So we can achieve, I would say, optimization in the terms and condition pricing, for example, of what we can achieve from supply chain. So the more we go in that direction, the more we see a reinforcement of profitability in the cruise, which is also benefiting from an additional dynamics on the revenue side on the pricing side. So on the cost side, saturation and procurement optimization. On the revenue side, there are positive developments in terms of pricing. So the scarcity effect is allowing us to increase our bargaining power with ship owners and somehow improve our negotiate position. Let me also add that there is a third dynamic in Cruise, which is not again related to the cost, which is not related to the revenues, but it's related to the risk profile. So the beauty of this long queue of order intake has to do with the fact that our not prototype ships but are repetitive ships. So many of the latest announcements, many of the latest awards are repetitive of an existing ship repetitive version of an existing ship, which is a terrific sorts of derisking. And conversely, it increases the possibility to convert contingencies accrued into extra margins at the right moment. So there is a series of concurrent effects that are driving our expectation of Cruise better and better. Let me add the fourth information which has to do with terms and conditions, payment terms and conditions. So we are also succeeding in improving to the maximum possible extent payment conditions in the direction of improving the working capital dynamics accordingly. Which dynamics is, as you may know, already improved by the stabilization of volumes, which is the prerequisite in order not to absorb working capital. So no precise answer. Sorry for that. For commercial regions, for strategic reasons, but as many site information as possible in order for you to appreciate what is behind this enhancement in profitability. Similarly, we believe that the Cruise for the years to come, which was your second question, will continue to improve margins. So the multiple engines I was describing before are expected to gain pace, gain traction, change gear and give us more and more satisfaction in the years to come. So we are definitely convinced that this, I would say, environment is truly healthy for Fincantieri Cruise division. On your second question about Spain about EPC about Navantia, I think it's a very important step, it is not an MOU only. It is beginning of a new, I would say phase in the European cooperation, the EPC program, which is a Corvette is in the process of moving to the second phase, which is the second call from EDF, from European Defense Fund, which is the relevant entity that is supporting with specific grants the development of this European Corvette. Italy and Spain and France are already there. Other nations are expressing interest namely Romania, namely Greece. So it is expected to be, let me say, kind of higher WASS of the sea, which will be remarkably powerful for European demand, but at the right moment also for exports out of Europe. So it's a way to align requirements among different navies with the aim of optimizing costs, the absorption of nonrecurring costs and creating an interchangeable interoperable platform that could be very competitive also at export level. Your question is if the ship is going to be ordered tomorrow morning, which is not the case because the EPC program is going from the initial engineering to the engineering for construction step. What is very important is that all the nations are expected or the founding nations, namely Italy, Spain and France, are expected to soon express their commitment to order their number of ships to this new entity. So very soon, we are going to move this platform from a paperwork to a construction exercise, with commitments, which, by definition, will be for many units with commitments coming from the founders, from the founding nations. I think that's it. Operator: The next question is from Marco Vitale of Mediobanca. Marco Vitale: The first one is on the outlook. If you would provide us some source to say indications in terms of what you expect by divisions. We noted that you say, sales target implies a flattish revenue trend. And I was wondering if you could add some few details on what are the key, say, underlying dynamics across business lines for year 2026 outlook. The next question on the, say, new U.S. program, the LSM that you mentioning, if you could do, we had read some, say, few articles. If you could add some say, details on the potential timing in terms of both order collection and also P&L impact that you expect from the new program. Last question is about, say, more general in terms of supply chain and discussion with the main cruise operator. We noted that the current, say, rise in geopolitical conflicts are also triggering as a side effect, lower tourist volumes for Cruises. I was wondering if -- I mean, if you share any insight in terms of the discussion you had with the main cruise operators could reassure your long-term business pipeline that you have with them? Pierroberto Folgiero: First question about 2026 outlook. Our business is very beautiful because it depends on the backlog. So 2026 revenues are not going to be disclosed by Fincantieri but will be self-disclosed by the deployment of the backlog existing at the end of 2025. So it's -- that's the beauty of being a project-driven company. So with respect to 2026, we have the production curves coming from the backlog we have already secured. And 2026 will be the year in which in terms of expectations, we expect a "kick in" of the defense order intake, which we experienced in 2025, as we experienced in 2025, it's a process of finalization and materialization, which is a little bit bureaucratic, but it is there, it is there. So that's what we -- that's why we expect 2026 to be so visible in terms of order intake. And obviously, it will become revenues accordingly as you deploy a few, I would say, project backlog for the future. So there's nothing weird. There is nothing unclear. It is, I would say, very visible and very -- it's the schedule. It's a schedule of production. And again, 2026 will be, at the same time, very interesting for the rest of the profit and loss. So I believe is already clear that our percentage margin is in the process of improving and also the net result as we have already appreciated 2025 versus 2024, our net profit is showing signs of, I would say, vitality. So I wouldn't call it flattish, revenues, my point, revenue is vanity. It's much more important that you look at what is happening at margins what is happening at the bottom line. And at the same time, what is happening in terms of order intake, which is the most interesting part of my answer. Moving to the geopolitical part of your question. Yes, we are aware that when you talk -- when you discuss, when you elaborate, about tourism, the concept of war, the concept of instability is, I would say, typical case of concern, but never happened. So people continue to travel obviously, not exactly in the overheated place. So obviously, if you have a resort in an overheated place. It is not going to be fully-booked, but the tourism can somehow adjust, I would say, trajectory, itinerary in a way that is smart enough to find beautiful places to go and cruise. So that's my overall elaboration about your point. Practically, we are not experiencing any negative feeling from the side of ship owners. Conversely, we continue to see a lot of energy, a lot of interest in occupying future slots for the sake of a long-term growth. Let me also add that we are securing orders in the Cruise business, which is the "Touristic" business all the way to 2037. So we strongly believe that from that time on the situation will be stabilized. U.S. On U.S., we received as the rest of the market very positively. The announcement of the U.S. Navy procurement with respect to the expected awards of the LSM series of ships to Fincantieri Marinette as one of the two, I would say, dedicated nominated shipbuilders. The process of transforming this announcement into an order is, I would say, expected to be very fast in the very short term. So let me say discussions are happening while we speak. Again, we don't rely in the short term on U.S. for volumes. So the agreement we achieved with U.S. is an agreement whereby we are kept harmless. So for the time being, it is not a business of volumes. So we don't look for volumes there. We don't need volumes there. Having said that, the agreement has multiple legs, one of the legs is the allocation and award of new classes of ships to the shipyard. And the agreement was achieved in the end of 2025, and we are receiving this communication from the Navy so early and so quickly. So let me say, we are very positive with respect to U.S. to U.S. We are very happy that we have created a new baseline, clearing all possible risks of the past. We don't need volumes. We need to procure the already achieved agreement translates with the velocity that we are experiencing together, but that's what we want to see. So we are very positive. And to cut the long story short, we believe that the contractualization is going to happen very, very soon. Operator: The next question is from Emanuele Gallazzi of Equita. Emanuele Gallazzi: I have three questions. The first one is a follow-up on the geopolitical topic. Very clear, your explanation on the ship owner side. I was wondering if you can discuss also on your cost side, which dynamics are you, let's say, seen on your input cost. The second one is on the capital increase or the M&A. You clearly mentioned that you are looking at some opportunity. If you can just discuss a little bit more on your strategy, if anything has changed post the -- or with the capital increase? And should we have to expect say, a big deal? Or are you looking more at small and selective deals adding technologies or know-how to your portfolio? And the last one is on WASS. We have seen two important orders coming from India and Saudi. Can you discuss more on deals? And have you seen an acceleration in the last month of, let's say, negotiation or tenders for WASS and generally speaking, for the whole underwater business. Pierroberto Folgiero: Thank you very much for your question. On your first question, we are in full control of the variables, of the economic variables that can be affected by the geopolitical issues or the famous geopolitical issue in the sense that the energy prices of Fincantieri are fixed for 2026. The same more or less is with gas procurement -- with gas oil procurement. So with respect to energy, we have the coverage in place for 2026 in order not to receive any, I would say, negative impacts. When it comes -- if we move to steel prices, it is the same in the sense that we have already fixed procurement costs, prices for approximately 90% of the quantities. So once again, we are in good shape. So energy and steel are the two major components with respect to which we are covered with respect to which we are continuing to monitor the situation. On your second question on M&A, we are very active. We have many dossier in our hands. We have very clear ideas of what we are looking for. Because we have been testing and shaping the market for this acceleration in the underwater in the last couple of years, all kind of transactions. There are different possible transactions. For sure, we are calling it, naming it selective M&A, meaning that we don't want to -- we are not looking for transformational M&A. So it is not something that is going to change the face of the company, but it's something that will sizably visibly accelerate the expansion in the underwater. So it has to do with the key technological blocks of the underwater, for example, propulsion systems. It has to do with another key component which is the electronics of the underwater. So any kind of software from command and control to telecommunications. And it has to do also with access to markets, including nondefense markets and business models. So we strongly believe that we can put on the table a lot of new technologies, and we are thinking in terms of M&A in order to envisage how to transform as quickly as possible those technology into integrated technologies, so our technology integrated with other technologies and how to accelerate the commercial reach in the direction of clients, not necessarily only on the defense side. So we will get back to you, but we are working hard in that respect. So we have a large business development and M&A team, which is being working and preparing since many months. And now that we have the capital increase ammunitions we will be more than happy to translate all this preparation into execution. On your third question, WASS is doing fantastically as Remazel is doing fantastically. So we are immensely happy of both acquisitions. Both companies are doing better than expected in any respect and are perfectly fitting with the rest of the group, creating synergies on the one hand, and expanding markets and giving access to adjacent market to Fincantieri commercial proposition. With respect to WASS, India and Saudi are very emblematic, are very indicative of the first and most evident item of the defense procurement in a moment like this. i.e., ammunitions. So the world realized that in the last years, many submarines or many naval assets were built, but with very limited, I would say, ammunition warehouses. So the defense expenditure is, first of all, an exercise of replenishment of warehouses. And in this respect, torpedoes are very clear and very evident. We are doing more than that. So we are evolving the product, thinking of how to adapt this kind of product to the world of drones. For example, in this respect, I think that WASS is ahead of the other competitors. So WASS is already able to supply drones with very light torpedoes, which is the new generation of surface drones. So yes, you want them to perform intelligence, surveillance and reconnaissance. That's the way military people call the first task of water drones underwater surface -- sorry, surface drones. But at the end of the day, you need also to go to a second phase, the second step, which is the step where the drone is also armed in order to be able to react on top of detecting the threat. This is what is happening also. So let me say WASS is remarkably centered, remarkably focused in this dynamic and then is working on the ad agencies. So what to do on sonars, how to be very effective on certain kind of sonar applications such as demining, which will be another priority, unfortunately enough, of the world. So it's going very well, and we are very happy with WASS. We are working also in order to expand the production capacity of WASS. So capacity boost is the title of the book for the new Fincantieri business plan and is consistently in a coherent way also the name of the book in WASS. So we are working in order to expand capacity because it's having a lot of demand that we need to increase capacity accordingly. Operator: The next question is from Gabriele Gambarova of Intesa Sanpaolo. Gabriele Gambarova: Just three from my side. The first one is on the SAFE program, the European Safe program, the EUR 150 billion program. I was wondering if you have any update on this program because it seems to me that this is a little bit in delay. This is my personal perception, but I don't know if you have any insight on this? The second demand. Then the second question is again on naval. I saw a slowdown in the top line in the fourth quarter 2025. I know that the backlog is very healthy. So I was wondering if you could give me some more detail on this trend we saw at the end of 2025, if there is an explanation, particular explanation. The second question, this is for naval. The second question regards the reverse factoring. I saw that it grew by EUR 200 million in 2025 to EUR 850 million. So I was wondering what could we assume for 2026, what is embedded in your guidance basically. And the last one regards M&A and the infrastructure. I saw that the business is doing very well is recovering after we closed the Miami, let's say, job order. I was wondering if you consider, if it's something that you would, let's say, assume to sell this business, which is doing well, but I think it's not core business. Pierroberto Folgiero: Very good. Thank you. On the SAFE program, let me disagree with you. Or partially agree with you in the Anglo-Saxon way, in the sense that SAFE is expected to be a fast track process, you know that there is a gate expected for June 2026. And we see all the horses running according to the race. So we don't see a delay. And again, it's for sure, a big rush because June is tomorrow morning. But all the, I would say condition precedents, condition precedent for SAFE to be activated on time out there. So I don't see your point. Again, it's a program that is asking nations to finalize a huge amount of contracts in a very limited time frame. So it is very difficult that you do it in advance. So the deadline is June. On the naval, again, all the production curves driving the revenue recognition not going according to expectations. So this is absolutely physiological. We have to consider that there is a change in the revenue curve of U.S., which is, for sure, to be considered when looking at last part of 2025 and 2026. Again, on the Naval, the point will not be the revenue level as rather the materialization of all the orders that we are expecting. On the factoring, I will leave the floor to Giuseppe, but let me remain with the microphone for an extra minute for infrastructure. So the infrastructure business is a source of satisfaction because of the turnaround we have achieved as a management team. So I think we did very well finalizing the bad experience in Miami, digesting all the tails and at the same time, preserving our reputation delivering impeccably what we had to deliver. So it's a sign of industrial strength, resilience, reliability, which is not obvious at all. The infrastructure business is, therefore, getting rid of Miami tails and therefore, expressing evidencing good margins, thanks to the discipline, thanks to the quality of our people. Let me say that the infrastructure business or at least a good part of it is proving to be, I would say, functional to Fincantieri strategy when it comes to naval basis, when it comes to protection of ports. So Fincantieri Infrastructure is a reality in marine works. And in the era of defense, in the era of expansion of defense infrastructure and in the era of expansion of protection of critical infrastructure to have a group of people that can take care of those jobs as a kind of end-to-end offering is proving to be interesting and successful. So let me say, at least a big part of Fincantieri infrastructure is leaving a second life in a sense, helping defense business of Fincantieri with an end-to-end offering. And at the same time, being the entry point of, for example, Fincantieri Underwater when it comes to protection of ports and protection of key marine and maritime infrastructure. So obviously, we retain all options opened. So we will leave also without Fincantieri infrastructure. It's not a best [indiscernible] component of Fincantieri business model. But as of today, we are very happy of having Fincantieri infrastructure in our group, because we are exploring and pursuing very interesting business model, whereby we integrate end-to-end the ship in the naval base, in terms of infrastructure works and we use them to enter the business of infrastructure protection with Fincantieri NexTech technologies, for example, on ports. On the factoring question, I leave the ground to Giuseppe. Giuseppe Dado: But it's very high. It's very simple. You can easily expect the same amount and the same levels we've reached in 2025. So this factoring is something that we put. It's something that helps our suppliers to finance themselves within their net working capital requirements. We expect to -- we factor in the same levels as of 2025. Operator: The next question is from Lorenzo Di Patrizi of Bank of America. Unknown Analyst: So the first one on Navis Sapiens. So you delivered your first vessel in February. Could you give us more color on the margin difference versus similar past vessels and what we should expect from the Navis Sapiens program in the next one, two years? And then secondly, so on the naval pipeline, actually on the pipeline in general, so you gave this figure EUR 32.5 billion. Can you give us more color on the pipeline outside of the EUR 5 billion in Naval. And also, for example, I'm thinking of India, in particular, is there an update there? And could you give us more details on what the country has in store in the next few years in terms of investments that you could benefit from? Pierroberto Folgiero: Thank you very much for your question. But let me say, Navis Sapiens is a transformational product. So the piece of news is that there is a ship sailing today where we speak which is having on board this new brain, which is a combination of new hardware and new software that is being validated by a ship owner in real life, in regular life. So this is the big news. This is the breaking news. Its transformational in the sense that it gives distinctiveness to Fincantieri offering simply because thanks to this new "instrument", the ship owner will benefit from improvement in the behavior of the ship and therefore, in the cost profile of the ship. So the first effect is that we are positioning Fincantieri product in a different way. So when you buy a Fincantieri ship, you will always buy a ship with a brain, then it will be up to you to leverage on this, and it will be up to you to install over the air, all the new applications, for example, for optimizing roots and consumptions or for optimizing maintenance and other key activities in terms of OpEx and costs. So consider it as a strategic step, which is, let me say, prolong in the future, way ahead in the future, the distinctiveness of Fincantieri product. Then obviously, it represents itself a product for our NexTech which is the technological pole inside Fincantieri organization. You know that we have created a joint venture with Accenture 70/30, which is practically writing the codes of this new system, which is made of a data platform according to the latest architecture laid upon our own automation systems. So in NexTech, we have a company that is taking care of automation system, and this company is now having on top of the layer of the automation system, this platform system. And the business model of NexTech will be to host on this platform as many third-party products as possible on top of selling internally produced internally developed applications to be sold to the ship owners on the platform. So it's a new concept. But the beauty of the story is that this concept is being adopted by one client. And it is on the air and is working very well. And we have in our business plan, some ramp-up of this product. And we have quite an extensive team working on that. And the initial results are very encouraging, and we are very happy with that. Second question is more color about naval order intake. I think there is no secret about the fact that the Italian Navy is expected to move the DDX program from the engineering study into construction. We are working relentlessly with the Navy with Orizzonte Sistemi Navali with Leonardo in order to quickly move forward in this respect. Then there are other initiatives with the same Italian Navy, for example, the LSS3, which is the third of the logistics ship class. And then there are a number of very hot non-Italian Navy prospects on which we are working a lot with respect to which we are very positive. Then obviously, the market is big. There are many opportunities. Again, we have a lot of tenders out in the short term, obviously, it has to be something that is already in the oven. It's ready in the kitchen. But in the surroundings of the kitchen, there are many, many, many opportunities. So it's very important that this good momentum kicks in terms of tangible orders. But again, we are not at all worried about what we're going to do in our naval shipyards. As you may know, we are already working in order to double our capacity. And again, if a couple of things happens, we are already fully booked even after doubling the capacity. India. India is an immense market with a very specific business model, which is the business model of Make in India. We are -- I would say, well known in India because we built two ships for them, two logistics ship for them, something like 10 years ago, more or less. There are many programs. We are in association with many local shipyards. The system is different because the naval construction of ships by law is to be awarded to state-owned shipyards. So it's very important to team up with the relevant ones. That's what we are doing. And then the second peculiarity of India is that in order to provide packages in terms of material, for example, you have to coproduce locally with partners. So this is something we are already doing. We are already working since years in the coal production and coal manufacturing of for example, certain components of propulsion systems. So the business model, it's a business model whereby you sell design packages, you sell material packages and then you cooperate in the construction with a local shipyard with a kind of construction management assistance. There are many programs that are going to be awarded in the next months. There is one that is very, very interesting, which is an LPD, which is a kind of small aircraft carrier kind of big ship. They have a big tender for LPD. But this is just an example of what we have been doing and how we are taking care and looking after the Indian market. Operator: The next question is from Sriram Krishnan of Deutsche Bank. Sriram Krishnan: Perfect. So I've got a couple of questions. The first one is actually on the Equipment division. Particularly the electronics cluster. Okay. So I just wanted to conclude that question which I had. So this question was on the Equipment division, particularly on the electronics cluster and the infrastructure. Clearly, despite modest growth in the top line. I think the margin was very impressive with the electronics business and in a very similar way, even in the infrastructure business, whether top line actually declined. And the margin was pretty impressive. So I wanted to understand, first, if there are any one-off items within this one in 2025. And how should we look at a sustainable margin of both these businesses in 2026 and going forward? That's the first question. The second question is to do with the U.S. order potential, the landing ships related to. We understand that you have received an order for four ships and the potential long term is well over 30. So I wanted to -- can you confirm if there will be only two shipyards involved in this program or there are more shipyards which are likely to be inducted into this? And as a follow-up or a very similar one, can you give us any update on the NGLS program as well in U.S. and which you are competing as well? Pierroberto Folgiero: On the U.S. part of the story, the U.S. Navy announced its intention to award for LSM to Fincantieri USA. And the contractualization is expected to happen according to contracts and negotiations that are going on in these weeks, in these days. As far as we understand, but it's not up to us, the construction strategy of the U.S. Navy is to select two shipyards, simply because according to their long-term planning, the expected number of ships is, if I don't go wrong more than 30, more than 30. So they want to have at least two parallel shipyards working together. Which is good, which is important, because it means that you create specialization, which is deeper requisite for performance and for reciprocal and mutual satisfaction. On the NGLS program, which was part of your second question, can you tell me more, please? Sriram Krishnan: So this is -- I understand I think Fincantieri Canada business apparently has won some sort of design and construction order with regards to the next-generation logistics program. I think overall size of this program is to procure somewhere around 12 to 13 ships in the long term. So I just wanted to understand where this leaves you are the only company who is involved in this one for the U.S.? Or how many ships are you envisaging as an order flow from this contract and so on? Pierroberto Folgiero: Well let me say, United States, we have a shipyard that is concentrated on civilian shipbuilding. And they are very active in barges and in other kind of ships. And then on top of it, we have company in Canada, it's called Vard Canada, which is very good in design packages either for coastal literal ships and for, I would say, commercial ships. So obviously, both entities are engaged in all the possible dynamics and projects in that part of the world. So I can, in general, confirm that there is a lot of action, a lot of movement and a lot of I would say, interest and commercial activity also in that segment, also in that quadrant. On the -- on your first question on electronics, I would rather give the floor to Giuseppe for some more detail. Giuseppe Dado: Yes. Well, I mean speaking of 2025 results vis-a-vis 2024 it's the other way. I mean, 2024 was affected by some one-offs and some write-offs that we did on certain projects. And therefore, the margin that we -- EBITDA margin that we achieved in 2025, 6.9%, is more, let me say, representative of what you're going to see in the coming years and in the business plan. With potentially, of course, some slow, but steady pickup throughout the years, thanks also to Navis Sapiens and all the innovation and deployment of new technologies that we envisage in the business plan. . Sriram Krishnan: And if I may just follow up on that one. How do you envisage the top line for infra business? We understand that things have stabilized a lot. Should we expect some sort of a pickup in business in intra? Or should things be largely stable? Pierroberto Folgiero: I'm sorry, the line is very bad. Can you repeat the question? We really can't hear you very well. Sriram Krishnan: My apologies. Is it any better now? Pierroberto Folgiero: Yes, yes, better. Sriram Krishnan: All right. Sorry about that -- my line. No, I just was following up with the infrastructure part as well. Do you think that this is going to be a largely stable sort of revenue for the info business going forward? Or how -- just wanted to view on the infra business at the top line level? Pierroberto Folgiero: The infrastructure business is having good prospects in France, again, driven by the backlog order intake which is becoming more and more evident. We have projected in the business plan, I would say, disciplined growth in terms of revenues, capitalizing on the, I would say, good returns and stable returns that we are -- that we have experienced in 2025. So the market is there in terms of marine works and other businesses of the company. The company is also focused on the steel fabrication. So steel structures, which are needed for multiple purposes, not only for shipbuilding, but also, for example, for bridges and things like that. So that's the second business of the company, they continue to experience stable demand. And so we are projecting it -- again, it is not where we want to put all our entrepreneurship. Our core business is elsewhere, but we're very happy that they are in good shape. And in particular, we are very happy when we can use them, as I was describing before, in order to increase the end-to-end offering of Fincantieri when we are interacting with the new Navy with an international Navy but also with our Navy. Whenever there is -- there are needed some marine works in order to accommodate the new fleet and also the new, I would say, technological infrastructure on top of physical infrastructure. So sensors, anti-drones, whatever is needed when you enlarge your base, your military base on top of your naval asset. Sriram Krishnan: Thank you so much, and apologies for the bad line. Pierroberto Folgiero: It was very good at the end. Thank you. Operator: Gentlemen, there are no more questions registered at this time. . Pierroberto Folgiero: Thank you very much to all. Goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I will now turn the meeting over to your host for today's call, Ms. Wendy Sun. Senior Director of Corporate Development and Investor Relations of Baozun. Please proceed, Wendy. Wendy Sun: Thank you, operator. Hello, everyone, and thank you for joining us today. Our fourth quarter 2025 earnings release was distributed earlier before this call and is available on our IR website at ir.baozun.com as well as on PR Newswire services. We have also posted a PowerPoint presentation that accompanies our comments to the same IR website, where they are available for your download. . On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Ms. Catherine Zhu, Chief Financial Officer; Mr. Junhua Hao, Director and Chief Strategy Officer of Baozun Group, and Ms. Ken Huang, Chief Executive Officer of Baozun Brand Management. Ms. Qiu will first share our business strategy and company highlights. Ms. Zhu then will discuss our financial outlook, followed by Ms. Wu and Ms. Huang -- Mr. Wu and Mr. Huang, who will share more about our e-commerce and brand management segment, respectively. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the U.S. Securities Act of 1933 as amended, the U.S. Securities Exchange Act of 1934 as amended and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve unknown risks, uncertainties and other factors, of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Exchange Commission and its announcement, notice or other documents published on the website of the Stock Exchange of Hong Kong Limited. All information provided in this call is as of the date hereof and is based upon assumptions that the company believes to be reasonable as of this date, and the company does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. In addition, we may elect to use adjusted in place of nongeneral accepted accounting principle on non-GAAP in order to reduce overall confusion that may arise from our discussion of our financials related to the GAAP brand. You may now turn to Slide 2 for the executive highlights for the quarter. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead. Wenbin Qiu: Thank you, Wendy. Hello, everyone, and thank you for joining us. I'm pleased that Baozun delivered a strong fourth quarter closing 2025 on a high note and successfully completing our 3-year strategic transformation. Over the past 3 years, we have rebuilt our company with focus and intention driving consistent sequential momentum throughout 2025. In the fourth quarter, our revenue increased 6% to RMB 3.2 billion while non-GAAP operating profit grew 91% to RMB 198 million. This was not just about short-term recovery. It was about fundamentally improving the quality and the potential of our business. BEC has become a sustainable cash engine. Through sharper execution and continued cost rigor, BECs are more agile and consistently profitable. We have moved from pursuing scale to focusing on value, prioritizing margin expansion and reliable cash generation. and most importantly, build alignment with BBM. BBM, meanwhile, has reached a defining inflection point. After 3 years of repositioning and localization, our brand management platform achieved its first quarterly breakeven in fourth quarter '25. This milestone validates the sustainability of our model. Importantly, scale is beginning to translate into tangible operating leverage, marking the transition from a turnaround to profitable growth. Our financial profile has strengthened alongside operational progress. Margins have expanded, profitability has improved meaningfully and our balance sheet remains solid. In addition, our operating cash flow more than tripled to RMB 420 million in 2025. These results validate that our business is not only growing. It is growing with better structure and healthier economics. In summary, 2025 marks the successful completion of the initial phase of our transformation. As we enter into 2026, our focus shifts decisively from rebuilding to scaling. Our priority now is to amplify the progress to accelerate in the next 3 years. We will do this by expanding BEC's margin, building scale and operating leverage in BBM and deepening the strategic synergies between BEC and BBM. Our ambition is clear, to drive the group's non-GAAP operating profit growth to RMB 550 million by 2028. With a stronger organization, a proven strategy and a highly focused execution culture, we are entering this next phase with confidence and the momentum. Now I will hand over the call to our team for a deeper dive in our financials and the business performance. Catherine Yanjie Zhu: Thanks, Vincent, and hello, everyone. Now let me provide a more detailed overview of financial results for the fourth quarter and full year of 2025. Please turn to Slide #3. While Group's total net revenues for the fourth quarter of 2025 increased by 6% year-over-year to RMB 3.2 billion. Of this total, e-commerce revenue grew by 2.5% in to RMB 2.6 billion, while Brand Management revenue rose by 24% to RMB 664 million. Breaking down e-commerce revenue by business model. Services revenue increased 3.1% year-over-year to RMB 2 billion. This increase was driven by revenue growth in digital marketing and IT solutions as well as strong performance in the luxury category within our online store operation services. BEC product sales revenue increased modestly by 0.5% year-over-year to RMB 574.5 million mainly driven by growth in Health and Nutrition category, which was partially offset by lower sales in appliance category as we continue to optimize category mix to prioritize profitability. BBM product sales totaled RMB 663.7 million, representing a 24% year-over-year growth. This growth was mainly driven by the strong performance of the GAAP. Please turn to Slide #4. From a profitability perspective, our blended gross margin for product sales at the group level was 36.5%, an expansion of 640 basis points year-over-year. Gross profit increased by 35.9% year-over-year to RMB 451.5 million for the quarter. Breaking this down by our key business lines. Gross margin for e-commerce product sales expanded to 18.4%, reflecting a 760 basis point improvement compared to 10.8% a year ago. This margin expansion was primarily driven by product mix optimization. Gross margin for BBM improved to 52.1% from 50.4% a year ago, reflecting the adaptiveness of its merchandising and marketing initiatives. Now please turn to Slide #5 for a walk-through of our OpEx. Sales and marketing expenses increased by RMB 181 million to RMB 1.2 billion. This included an increase of RMB 136.9 million for BEC which was mainly due to higher spending on creative content and market initiatives onto, in line with the growth in digital marketing revenue. BBM sales and marketing expenses increased by RMB 49.6 million, which was mainly driven by the expansion of offline stores and marketing activities during the quarter. Fulfillment costs for the quarter was reduced by 11.1% to RMB 683.4 million, reflecting ongoing efforts in cost optimization. Technology and content expenses decreased by 20.2% to RMB 116.9 million as we continue to enhance tech monetization efficiency. G&A expenses decreased slightly by 2% to RMB 187.9 million due to the company's continued efforts to implement cost control and efficiency improvement initiatives. Turning to bottom line items, please refer to Slide #6. During the quarter, our non-GAAP income from operations was RMB 197.7 million, an increase of 91.4% from RMB 103.3 million in the same period of last year. BEC's adjusted non-GAAP income from operations was RMB 195.9 million, representing 43% year-over-year increase compared with a year ago. BBM reported a non-GAAP operating income of RMB 1.8 million, a solid milestone as we achieved a very first breakeven quarter for the segment. Let us turn to a quick full year summary. The group's total revenue was RMB 9.9 billion, an increase of 6% year-over-year, of which e-commerce net revenues were RMB 8.3 billion, an increase of 2% year-over-year. BBM net revenues were RMB 1.8 billion, an increase of 25% year-over-year. Our adjusted operating income totaled RMB 126 million, a significant improvement compared with RMB 11 million in fiscal year 2024. As of December 31, 2025, our cash, cash equivalents, restricted cash and short-term investments totaled RMB 2.8 billion. We continue to improve working capital efficiency through back-end process optimization across inventory management, billing and cash collection. As a result, our adding operating cash flow reached RMB 420 million, representing a 315% year-over-year increase. Let me also briefly address our GAAP item recorded during the quarter. We recognized an investment impairment loss of RMB 230 million primarily related to preinvestments in the e-commerce sector as well as impairment provisions for certain equity investments. While these investments have at the time, today's macroeconomic environment, combined with our sharpened focus on developing our brand management business, make it prudent to recognize this impairment. These adjustments reflect our commitment to maintaining a focus and resilience business portfolio. Importantly, our remaining investment will be healthy, and we are confident in their long-term potential. Let me now pass the call over to Junhua to update you on BEC, our ecommerce business. Junhua Wu: Thank you, Catherine, and hello, everyone. I'm pleased to share we've closed 2025 with significant momentum. In the fourth quarter, we delivered 2% revenue growth and a 43% increase in non-GAAP operating profit, capping a year of progression from stabilization to accelerate performance. Throughout the year, we focus on driving sustainable, profitable growth while making strategic investments in high opportunity areas. Now let me quickly walk through some of our operational highlights in the e-commerce segment for the first quarter of 2025. Please turn to Slide #7, highlighting the continued quality improvement of our distribution model. During the quarter, BEC product sales gross profit increased 70.9% despite a largely flat top line. Notably, BEC's gross margin rose to 18.4%, setting a new record since our inception. This improvement was mainly driven by ongoing optimization of our category mix with strong growth from health and nutrition and beauty and cosmetics categories. In addition, our efforts to expand into nonstandard categories and are beginning to show results. Apparel delivered a strong contribution across sales, gross margin and profitability during the quarter. . Turning to Slide #8. Our services revenue grew 3% year-over-year in the fourth quarter, led primarily by strong performance of BBM and IT solutions, which includes 19%. We gained market share in key categories such as luxury, sports and outdoor. Our omnichannel capability remains one of the Baozun's core advantages and a focus of developing on going forward. During the quarter, we received 41 awards in Tmall ecosystem, including the Prestigious 2025 Tmall Ecosystem in Service Award. Douyin we were once again certified as a Douyin e-commerce diamond service partner, the platform's highest tier of accredition. Together, these recognitions affirm our sustained leadership and execution strength across major platforms. We also continue to focus on strengthening our bottom line. Across the organization, we are implementing a series of lean initiatives designed to streamline processes, reduce costs and enhance efficiency. Furthermore, we are expanding the use of artificial intelligence tools across a wide range of employees and business scenarios to enhance productivity. These efforts have significantly improved our profitability. With BEC's non-GAAP operating income increased 43% year-over-year to RMB 196 million in the fourth quarter of 2025. Overall, we are pleased with our performance in the final quarter of the strategic transformation, a period that certified our shift towards the sustainable and profitable operations. Moving forward, we will continue to deepen client engagement and stickiness, innovate our service models and enhance operational efficiency. For 2026, our priorities are clear. Deliver the numbers, deliver the strategy and deliver the talent. Delivering the numbers means maintaining our focus on profitable growth and ensuring that our operational progress continues to translate into strong financial performance. On strategy, we are advancing 3 key initiatives. First, we will expand our apparel distribution business leveraging the synergy between BEC and BBM to unlock the new growth opportunities and strengthen our brand ecosystem. Second, we will further enhance our digital marketing and the traffic acquisition capabilities. helping brands partners capture demand more efficiently across an increasingly complex omnichannel landscape. Third, we will deepen technology empowerment, accelerating the deployment of AI and digital tools to improve operational efficiency and elevate our service capabilities. Finally, delivering the talent remains essential. We will continue strengthening our leadership bench and reinforcing a strong execution culture with the right people and the capabilities in place. we are well positioned to scale the business and deliver sustainable growth in the years ahead. Now I'll pass to Ken for an update on BBM. Ken Huang: Thank you, team, and hello, everyone. Please turn to Slide #9 for BBM's performance in the fourth quarter of 2025. . The fourth quarter marks a defining milestone for BBM as we delivered our first breakeven quarter. This result reflects our structural improvements across merchandising, marketing, store productivity and networking expansion. In Q4, BBM revenue grew by 24% year-over-year to RMB 664 million, supported by a double-digit same-store sales growth and the continued contributions from new store openings. Gross margin improved by 170 basis points from a year ago to 52.1%, leading to a 28% increase in gross profit. Moreover, inventory turnover efficiency improved, reducing our inventory turnover days by 16% to 114 days. Merchandising was the core growth driver for the quarter. We entered the winter season with a balanced assortment architecture, reinforcing Gap's iconic categories, sweatshirts, denim and denim wear while sharpening segmentation across channels and consumer groups. Our partnership with the Forbidden City has maintained a strong sell-through in Q4. More recently, we launched a new IP collaboration with packing Oprah, showing case our ability to blend the Chinese culture storytelling with Gap's global DNA in a commercially effective manner. Since introduced our brand ambassador on September 15, we have collaborated closely to create authentic, engaging content that connects with our audience. We also launched the seasonal products and the limited styling collections aligned with the key moments in the retail calendar. This ambassador-driven initiatives have boosted social buzz leading to higher consumer engagement, increased brand visibility and a strong brand voice. Offline expansion continues to be a strategic priority for us. In the fourth quarter, we opened 7 new stores for a total of 29 new Gap stores in 2025, bringing our total store count to 164 by the year-end. Our new stores continue to outperform older locations, driven by better site selection and enhanced visual merchandising. For instance, our new image stores at Dongguan Min International Trade City and Shanghai Century Link Mall have delivered strong results. The improving in-store experience and the outfit-based presentation have driven a double-digit gain in sales productivity. This early performance indicators are highly encouraging and reinforce our confidence in our store expansion strategy. As a result, we are accelerating our store opening efforts to build on this momentum, and currently plan to open 50 stores in 2026 through a hybrid model that combines direct and partnership stores in line with our asset light approach. With these initiatives in place, we are confident in sustaining double-digit year-over-year revenue growth and achieving operating breakeven for GAAP on an annual basis in 2026. Turning to Hunter. The brand continued to strengthen its premium positioning in Q4, elevated store plantation created lifestyle storytelling are resonating with urban consumers seeking both function and fashion. In the fourth quarter, we launched 5 new Hunter locations and entered our national footprint into high potential Tier 2 cities, including Nanjing, Qingdao, Shenyang and Taiwan. We concluded 2025 with a portfolio of 177 stores under the BBM umbrella. This expanded physical network sets a solid foundation to enhance supply chain efficiency in the future. In summary, Q4 2025 represents a structure inflection point for BBM. We achieved our first breakeven quarter. This validates our strategy, strengthens partner trust and sets the stage for long-term double-digit growth. The direction is clear, BBM is well positioned to become an increasingly meaningful growth engine for Baozun Group. That concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session. Operator: [Operator Instructions] Our first question comes from Chris with Huatai Securities. Chris: I have 3 questions. The first one is about the AI, and with the rapid evolution of AI technology, would the management share that -- what is the current status of our workflow transformation using AI agents? And have we observed any measurable gains in efficiency? The second question is about the AI to our mid- to long-term impact. This is -- what is our perspective on the mid- to long-term impact and opportunities that AI agents present for our e-commerce business and the brand management business? And my third question is about our business outlook to the mid- to long term. And I have noticed that in our report, we stated that in 2028, we will reach RMB 550 million on operating profit. So with the management share, what is the key driver behind this business outlook? Junhua Wu: Okay. This is Junhua. So let me address your first 2 questions regarding AI implementation in Baozun. So the first one is about the AI agent. So we have already leveraged a lot of AI agent technology from the beginning of last year. So most focused on our bottom line. In terms of the digital assets creating and uploading products, digital assets on to different platforms, saving a lot of operating people in terms of doing repeatable kind of works. We have already leveraged a lot of AI agents. . So AI agent technology is more focused on driving our efficiency internally more focus on the bottom line. In terms of the top line, we haven't having any very clear definition about the scenario in business case about how do we leveraging AI technology, increasing our top line. About the AI agent, the agentic platform and technology is very new in this industry. So we realize that in terms of the agentic kind of the technology right now is more focused on the GEO generic search engine optimization. So there is amount -- your DAU among the shopper APP is close to approximately about 850 million. And among them, the DAU of 300 million is on AI and all those apps in terms of the large-scale mode and AI agent APPs. So this is transforming the consumer behavior and reallocate the traffic structure. So we are closely focused on the trend of different big platforms and attracting all those changes of the traffic allocation, and we can share you more in the future quarters. The third one is regarding the business outlook. Wenbin Qiu: Yes. The -- we just talked about the 2028 operating profit goal. That will go to RMB 550 million is our planned target. The main driver for this is that we are -- firstly, is our strategy. We're turning the e-commerce business into a BEC plus BBM plus synergy model. And you can see, firstly, BBM is improving its profitability, especially GAAP, is getting more and more profitable in the coming years. And in the meantime, because we leverage the experience in this kind of apparel industry from BBM, we then add more brands into BEC with a franchise model. So this also expand our margin greatly. So combined by both BBM's growth and also margin expansion of BEC, we can see this result in 2028, but it's not the end of our acceleration. I think in the coming years, even beyond 2028, we can see a more clear sign of this improvement of our profitability. Operator: Next question comes from Alicia Yap with Citi. . Alicis a Yap: My first question is about the latest macro sentiment and would management share some color about latest macro Chinese New Year demand and the March promotional performance. And what is your expectation for 2026?. And my second question is about AI. How do you see generative AI and other advanced AI technology, changing consumer behavior and the e-commerce landscape? Would you elaborate on Baozun's strategy for integrating AI into your operations and service offerings? Are you developing -- are you developing your AI tools or partnering with leading AI firms? My last question is about Gap China. What is the growth expectation for Gap China this year? What is your long-term vision for the Gap business in China? And what do you see as the key growth drivers for the brand over the next 3 to 5 years? Junhua Wu: Okay. This is Junhua. Let me address the first 2 questions. And the first one, I will elaborate from the BEC perspective and Ken can just feedback some new sentiment kind of the forecast, aligned with the third question from the BBM perspective. So yes, we did have a very strong finish on the Chinese New Year campaign and the Queens day campaign on the March 3. So this is definitely very strong. And we had a late Chinese New Year this year. So from the online digital e-commerce growing, that was very promising. And we see the momentum of each category growing a lot, and the platforms are still compensating a lot of kind of coupons to the end consumers to increase the overall GMV growth. And the efficiency of the traffic quality is increasing. So yes, we believe that we had a very good, strong start. And the future quarters will be very promising from the BEC perspective. And the second one is also related to the AI in terms of the GEO and how does GEO really changing the consumer behaviors. Just like I mentioned that GEO is changing the consumer behavior, is changing from the DAU of 850 DAU shoppers from different APPs to 300 million from different kind of apps like, and Changan, those kind of the generating kind of AI large-scale mode. So consumers started to asking questions for their daily lives -- during their daily life and those kind of GEO can smoothly push a lot of information along with some kind of the reference with the brand-oriented right information such as a shopping link or such as a very emotion linkage from the brand's perspective, with the content, with short video clips or with a very comprehensive information. So we can foresee that the change of consumer behavior is slightly changed from the instant shopping category to different categories. So in terms of the instant shopping category, so the AI agent is becoming very promising. You can easily order a bubble tea from, for example, from the AI GEO systems. And -- but from different categories, it's still not in the business scenario. So we are closely tracking all those technology operation and make sure that we can share more in the future quarters. And in terms of the bottom line, so we definitely input a lot of efforts in the AI agent to increase our efficiency, especially those repeatable kind of systems. So those proprietary AI tools, so we're not a partner with any other leading AI firms for now. We still use some kind of the public services with our in-house engineering team to do a lot of Baozun customization for our leading brand partners. . Ken Huang: This is Ken. For the first question about the C&I consumer segment. For GAAP, we also see high increase in February and January in both months. The increased rate year-to-year is over 30% for Gap. So we can forgive actually, we continued our 20 to 30 increased rate in the last quarter and this quarter. . For the third question, the gross expectation for Gap, First, I think for 2026, we will still continue to keep the growth rates. In 2025 our growth rate is more than 20%. So we will keep this around 20% increase in 2026 by both same-store increase and new openings. We plan to open more than 50 stores, and we will also expand our e-commerce sales scale. For the long-term vision of Gap business, in 2027 and 2028, we plan to accelerate our growth rate from 20% to 30% so we'll be 25% to 30% in the next 2 years in the top line. And we were also trying to improve our operating profit from breakeven to 150 basis points increase per year. And the main growth driver for Gap in the next 3 years, I think we're coming from 3 areas. One is the same-store sales increase. driven by our product improvements, our vision merchandising, our store new images, which will, in the end, to improve our in-store traffic and commercial rates. And the second is the scale expansion, both offline and online. For example, offline also plan to open reenter some markets such as Hong Kong and Macau. And the third one is the supply chain efficiency. With the scale increase, we expect to gain our efficiency in our cost management and also in the expenses. That's all. Wenbin Qiu: Here is Vincent. We have some more things to say about the AI because AI application right now is one of the core strategy of the Baozun Corporate. So our goal is quite clear. We want to make the AI utilization and also application as the best practices for both e-commerce and also apparent industry. So we will be the best practiced AI for these two areas. So not only for the sales side, but also the supply side for BBM and also, of course, for the efficiency improvement. So it's quite important for us. And we are confident we'll be in a leading position in utilizing AI capabilities, yes. Operator: Our next question comes from Jiawei Yin with CITIC Securities. Jiawei Yin: I have 2 questions. The first is that we have seen many industry changes such as the compliance of e-commerce tax, the levy of traffic tax and the restriction of competition in the industry, which are generally beneficial to the sales of branded goods and are also accommodated by a narrowing growth gap between platforms. How does Baozun impact of such evolution on operational preference and strategies? And what's the brand's response to this change? And my second question is, has there been any change to Baozun's development strategy for the BBM business in 2026? And how view Baozun balance scale and profit what are your expectation for the growth pace and the long-term vision of each brand? Junhua Wu: Okay. So this is Junhua. Let me address the first question. So those policies really don't really affect our detailed operations and day-to-day because the government has signed up the direction about setting up a different sliding scale in terms of different kind of policies, and none of the term has really changed the allocation of the marketing fee of our existing brand partner, because after the pandemic, so all our brand partners are being very careful and very cautious about spending money, especially into the marketing spending, allocation and the others. So we want to help the brand partner to leverage all those money wisely and to drive a higher ROI as before. So in terms of that, so we are really within the range of all those policies. And in terms of the cutthroat competition in the industry, so Baozun is taking the lead of providing logistics and courier services. So we have already leveraged a lot of kind of the pricing efficiency and the cost efficiency for so many years. So that doesn't really just affect our day-to-day operations. So in terms of the brand repositioning between different platforms, so indeed, the brands are either diversifying view different kind of the strategy for different brands because for some kind of the leading live stream brand, to focus on GMV growth or treat those platform as a content creation platform and let those traffic exceeded to all those traditional transaction platforms is different strategies from different kind of categories. So most -- some kind of the categories of the brands, they choose to drive GMV from both categories, both Baozun platforms and some of the brands that treat the livestream platform as a content creation center and let them exceed all those content building the leakage to the traditional kind of via transactional platforms. So we are helping all those different brands in different categories to diversify their strategy across in different platforms. So there is no unified strategy in general in terms of that question. Wenbin Qiu: Here's Vincent. I will talk about the BBM strategy. I think the strategy is quite consistent with the past years. The only change is about the level of our confidence. We think we are much more confident right now than before that the transformation is already there, we can see the results. So we build a 3-year model. And we believe in the coming 3 years, BBM will grow -- we'll enter into acceleration phase. So we were quite excited about that. . And talking about -- especially for Gap, the biggest brands, we will see a very good trend and also the improvements or the capabilities also promising. For the premium brand like Hunter and others, I think we -- the most important thing for us is to build capability on merchandising and also marketing. So they will be also growing quite fast, but building capability is more important. And talking about the BD of the new brands, yes, I think we are -- now a lot of more brands come to us trying to work with us. It's a good sign. And right now, not only BBM can work with the brands in a very deep relationship and also BEC also have the capability to do more franchise business with brands, so in this case, we -- that's why we think the coming 3 years will be an acceleration phase. Thank you for that. Operator: Our next question comes from Wang with HSBC. Wang: I have 2 questions. The first one is on the growth outlook for 2026. And what are the key upside and downside risks you see based on your expectations? And the second question is how should we think about the capital allocation plan given the AI investment and other investment priorities this year? And can management share our stores how you think about shareholder return going forward? Junhua Wu: Sorry, the first 1 is about the overlook of the business growth in the future 3 years or 2026? Wang: 2026 for the group outlook. Junhua Wu: The group outlook. Okay. Wenbin Qiu: Yes. Maybe I try to say something, maybe Catherine, you can say more about that because it's expectation. Yes. I'd say, firstly, we are trying to make a positive year in terms of net income to ordinary shareholders, and -- so yes, it is quite exciting goal to achieve because that means we have more to contribute to our shareholders and investors. To achieve that, of course, we need to make all the aspects of our operation better than before. Our margin expansion needs to be improved as well. So in this case, we're not only to treat our customer or employee better and also give more return to our investment -- investors. Yes. In terms of numbers, can we share anything or... Catherine Yanjie Zhu: Yes. Okay. Thank you for your question. I think the management are quite confident and -- for the coming 2026. We think it's quite promising. Of course, we are doing a lot of initiatives, including like the easy part and also brand management segment. So regarding the revenue, we are expecting a certain number of increase and like BEC segment. If we split into 2 segments, BEC, we expect a single-digit increase. And for BBM part, we are expecting like a very good number to come. And regarding the non-GAP operating profit, we are also expecting like double the number compared with the 2025. And so we are expecting this -- we are doing all kinds of initiatives like I mentioned in the call, so I think the management are quite confident about that. Wenbin Qiu: And also Vincent here again. Talking about the AI right now, although it is still an initial phase for the industry to adopt the results, the development of the AI, but we are seeing this change very fast. So first we need to keep us very active and agile to keep our pace up to this development. So for us, along with the investment into IT and the internal process improvement every year, we put resources there. And this year, starting from this year, we have more initiatives from the corporate level. We have several very interesting and important initiatives. But doesn't require a lot of investments. So I think talent will be more important than investments. So that's why we are so confident that we will be the best practice for not only e-commerce but also apparel industry in China will be the -- we're quite committed to be the most advanced utilization of AI capabilities. Operator: The next question is from with CMBI. Unknown Analyst: My question is regarding your development strategy for overseas business. And can management share with us the update regarding your overseas strategies? And can management share with that your development plan regarding both International business? Wenbin Qiu: Yes. Let me first address some about the international business. Right now, for the priority, of course, BBM and BEC are contributing the major share of our business and also growth. So these 2 are very important. So that's why we talk more about these 2 sections. For BCI, I think recently, we have a very solid progress, but still, it's a minor contribution to the whole company and the growth. We are consolidated in outside the business outside of China. Hunter is already in Southeast Asia making progress. We have several major e-commerce projects improving and to be profitable in the region as well. We have opportunities in Korea and also South Korea and also several very big projects is going on in Hong Kong, in Taiwan. We are seeing this improving which is a promising future, and we are confident that the growth of the international business will be solid but we are not expecting a big contribution from international business yet in the coming 2 years. Junhua Wu: BBM new brands. Wenbin Qiu: Yes. I think you just talked about the new brands of BBM as well. Right now, I think we are in a very good situation because we are having quite big base of our brands from BEC. So when there's opportunity emerges in the market we'll be the first one to have the opportunity to work with them. Recently, we see a lot, yes. They trust us, and we have such a solid track record for BBM in the coming -- in the past 2 years. So people just want to work with us. But for us, I think we know what we need to have. So at least we will not have a lot more brands in the future. But definitely, during -- in the coming 3 years, I think we will have new brands, carefully selected, better profitable brands to add to our portfolio. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Wendy Sun for closing comments. Over to you. Wendy Sun: Thank you, operator. On behalf of the Baozun management team, I would like to thank you again for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you for joining us again. This concludes the call. Thank you. . Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, ladies and gentlemen, thank you for standing by for Viomi Technology Co., Limited's Earnings Conference Call for the second half and full year of 2025. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Ms. Claire Ji, the IR Director of the company. Please go ahead, Claire. Claire Ji: Hello, everyone, and welcome to Viomi Technology Company Limited's Earnings Conference Call for the second half and full year of 2025. As a reminder, this conference is being recorded. The company's financial and operating results [indiscernible] posted online. You can download the earnings press release and sign up for the company's e-mail distribution led by visits IR section of the company's website at ir.viomi.com. Participating in today's call are Mr. Xiaoping Chen, the Founder, Chairman of the Board of Directors and Chief Executive Officer; and Sam Yang, the Head of our Capital and Investment Department. The company's management will begin with prepared remarks, and the call will conclude with a Q&A session. Before we continue, please note that the company's discussion will contain forward-looking statements. made uncertain safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding statements and other risks and uncertainties is included in the company's annual report on Form 20-F and undergoing a sale with U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required by law. Let's also note that Viomi's earnings press release and this conference call include discussions of noted GAAP financial information as well as unaudited non-GAAP financial measures. In addition, Viomi's press release contains the recognition of not unaudited non-GAAP measures to unaudited most directly comparable GAAP measures. I'll now turn the call over to our founder, Mr. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese followed immediately by English translation. Mr. Chen, please go ahead. Xiaoping Chen: [Foreign Language]. Claire Ji: Thank you, Mr. Chen, and I'll quickly translate our founder's remarks before discussing our financial performance. Hello, everyone. Thank you for joining us today on our earnings conference call for the second half and full year of 2025. In the second half of 2025, amid the phasedown of the national subsidy gain for home appliance trading and the company's strategic investments in overseas market dimensions, new product development and brand building, we delivered total revenue of RMB 951 million and the net income attributable to ordinary shareholders of the company of RMB 21.2 million. For the full year, our core business remained solid, achieving total revenue of RMB 2.4 billion, representing the year-over-year increase in 14.6%. Net income attributable to ordinary shareholders of the company stood at RMB 141.6 million with a net profit margin of 5.8%. Over the past year, our global water strategy has continued to achieve milestones, highlighted by the establishment of a multinational professional team covering North America, Southeast Asia and Europe, empowered by a global perspective across R&D and market expansion. We have constantly achieved technological breakthroughs addressing users diverse drinking water demand. By leveraging AI technology to enhance user experience, we are establishing Viomi as the world-leading water technology company. In the North American market, our Amazon channel delivered an outstanding performance in the second half, achieving triple-digit growth in sales on a sequential basis. During the back Friday promotional season our products ranked 19th in the water purifier category and fourth in under zinc RO segment. Our premium flagship product, the master 1 mine water purifier further enrich our product portfolio. In the Southeast Asia market, we continue to deepen our strategic cooperation with off-line channels in Malaysia through the launch of the compact in mineral water dispenser tailored for the local market and figuring both mineralization and cooling functions. On the brand building front, we are engaged [indiscernible] from different countries to serve as brand ambassadors. The participants in offline launch event and with our facilities, strengthening our brands, technology and health image. In April 2026, we will rebuild our new brand series at WA convention in Mimi showcasing our latest AI technologies and innovation as one of the most influential professional events in the global water treatment industry and presenting our redefined vision of better water to partners in North America and around the world. In manufacturing and R&D, we kept boosting our competitive edge. We achieved a key milestone in the global expansion of Viomi's water purifier Gigafactory, commencing full operations of our overseas premium production line. This production line integrates module functions such as instant heating and cooling and ice making, providing agile supply chain support to meet differentiated needs and the markets in North America, Europe and Southeast Asia. As of the end of 2025, our global patent application has surpassed 1,950, spanning 14 countries and regions. We have built highly competitive technology capabilities in areas such as AI-driven water quality, algorithms, precession mineral control and intelligent self-cleaning made on a solid foundation for the continued expansion of our global business. In terms of shareholder returns, we declared a special dividend of USD 0.088 per ADS in July 2025, in August of the same year. or core authorized a new share repurchase program of USD 20 million by the end of 2025. We had repurchased a total of 1.03 million amounting to approximately USD 2.5 million. In our recently purchased and published earnings release, we declared another special dividend of USD 0.066 per share with an aggregated amount of RMB 31 million for shareholder return as the gesture of gratitude for the long-standing trust and support of our shareholders. We deeply value the journey we take with our shareholders and remain committed to creating long-term value for them. In 2026, we will pursue our global water vision with greater determination, targeting breakthroughs in 4 key areas. First, for overseas markets, we'll deepen our process in core strategic markets, such as North America and Southeast Asia. We are actively expanding into more countries and regions, leveraging the activity of our water purifier giga factory. We will continue to launch new localized production, extending our brand influence into broader markets. Second, to advance our differentiation in the domestic market, we will further strengthen the health-centric positioning of the quant series with its alkaline mineral concept. Third, on the technology front, we will deepen the integration of AI across water purification scenarios, making technological innovation the core engine that enables Viomi to navigate market cycles and achieve sustained growth. Fourth, we will continue to strengthen collaboration with global strategic partners fully leveraged the scale effect of water purifier gigafactory to elevate both scale and efficiency through this committed long-term approach, Viomi will continue to create value for global users and deliver sustainable returns to you, our shareholders. Thank you. And that concludes our founder's remarks. I'll now turn the call over to our Head of Capital and Investment Department, Mr. Sam Yang, to discuss our financial performance. Thank you. Sam Yang: Thank you, Mr. Chen, and Claire. Thank you to everyone for joining us today. Let's take a look at our other financial results for the second half of 2025. We recorded net revenue of RMB 950.6 million, a decrease of 25.9% from RMB 1,282.4 million for the same period of 2024, primarily due to the decrease in the home water systems. Now let's look at the performance across 3 categories. Revenues from home water system were RMB 628.2 million a decrease of 32.1% of RMB 925.7 million for the same period of 2024, primarily due to the decline elution of the for water pure price. Revenues from consumables were RMB 112.2 million, a decrease of 17.9% from RMB 133.7 million (sic) [ RMB 136.7 million ] for the same period of 2024, and primarily due to the decreased sales of water purifiers to Xia. Revenues from teaching appliances and others were RMB 210.2 million a decrease of 4.5% from RMB 220 million for the same period of 2024, primarily due to the reduction in orders from Viomi as well as induction of Viamibrin product in this category. Gross profit were RMB 223.8 million compared to RMB 289.5 million for the same period of 2024. Gross margin was 23.5% compared to 22.6% for the same period of 2024. The slight increase in gross margin was mainly due to the elimination of the impact of one-off costs incurred during the diversement of certain IoT and home business and our assets. Total operating expenses were RMB 248 million revenue, an increase of 12% from RMB 221.5 million for the same period of 2024 due to increased selling and marketing expenses and partially offset by a decrease in G&A expenses. In greater detail, R&D expenses were RMB 76.3 million, an increase of 12.7% from RMB 67.7 million for the same period of mainly attributable to an increase of investment in new product development. Selling and marketing expenses were RMB 148.6 million, an increase of 29.8% from RMB 114.6 million for the same period of 2024, mainly due to an increase in brand promotion investment as well as higher personnel costs resulting from channel expansion. G&A expenses were RMB 23.1 million, a decrease of 41.2% from RMB 39.3 million for the same period of 2024, primarily due to a decrease of employee compensation costs allowances for having those loss. Net income was RMB 21.2 million and the non-GAAP net income was RMB 28.2 million. Additionally, our balance sheet remained healthy. As of December 31st, 2025, the company had cash and cash equivalent of CNY 806.6 million restricted cash of RMB 164.4 million, short-term deposits of RMB 258 million and short-term investment of RMB 82.6 million. Next, let's briefly discuss key financial results and audit for the full year 2025. Net revenues were RMB 2,428.2 million, an increase of 14.6% from RMB 2,119 million for 2024. Revenues from home water systems were RMB 1,686.6 million, an increase of 12.6% from RMB 1,298.4 million for Q4. Revenues from consumables were RMB 235.4 million, a decrease of 14.2% (sic) [ 15.2%] from RMB 277.7 million from 2024. Revenues from kitchen appliances and our orders were RMB 506.2 million, an increase of 47.6% from RMB 342.9 million for 2024. Gross profit was RMB 615 million compared to RMB 548.7 million for 2024. Gross margin was 25% -- 25.3% compared to 25.9% for 2024. Total expense -- total operating expenses were RMB 529.4 million an increase of 24.6% from RMB 424.9 million for 2024. In greater detail, R&D expenses were RMB 165.6 million, an increase of 15.9% in from RMB 142.9 million for 2024. Savings and marketing expenses were RMB 277.7 million, an increase of 31.5% from RMB 211.2 million for 2024. G&A expenses were RMB 86.1 million, an increase of 21.6% from RMB 70.8 million for 2024. Net income attributable to ordinary shareholders of the company was RMB 141.6 million revenue and non-GAAP net income attributable to ordinary shareholders of the company was RMB 155.7 million. Thank you. Claire Ji: Yes. This concludes our prepared remarks. We will now open the call for Q&A. Mr. Chen, our Founder; and Mr. Sam Yang will join this session and answer questions. Operator, please go ahead. Operator: [Operator Instructions] The first question today is from Jane Zhang from CICC. Jane Zhang: Okay. Good evening, welling from the management team, and thank you very much for hosting this earnings call and giving me the opportunity to raise questions. I have 3 questions covering brand development overseas strategy and profitability growth. So first and Poms,could you share the overall performance of the company sell owned brand Viomi in 2025? And additionally, what are the key investment priorities and initiatives for Viomi brand building this year. Thank you. Xiaoping Chen: [Foreign Language]. Claire Ji: Okay. And to answer your question, in 2025, our brand revenue was primarily from domestic online channels. And we have ranked the 10th place among annual brands listed on Jingdong and we overran 19 rate in sales on Amazon U.S., which is a great progress. And moving forward, we will adapt a differentiated strategy in North America by launching distinct brands and positioning on online and offline channels. in particularly, in April, we will participate in the world of coffee fair in San Diego, and we will debut our new brand series at WQA convention in Miami. And this marks the first step into North American off-line market and showcasing the partners across the U.S. and the world, our redefined vision of better water. Thank you. . Jane Zhang: It's very clear. So here, moving to my second question on overseas expansion. So Rami has successfully entered the U.S. and the Malaysia market. So what are the differences in your market strategies between these 2 regions? And what key challenges have you encountered? And how do you plan to mitigate them? And Also, could you outline the overseas expansion goals for 2026. Xiaoping Chen: [Foreign Language]. Claire Ji: And to answer your question, we have built local teams for both United States and Malaysia. And especially in the United States, we launched the Viomi branded under sink water purifiers on Amazon, which is the online channel. And next, we will bring new brands and products tailored for the U.S. off-line market in the second quarter. And this will cover not only the endorsing products, but also the whole health of nutrition systems. And in Malaysia, our focus is offline with countertop units of the main product format, adding features like eye and the cold water that match the local drinking habits and next will expand more offline partnerships and diversify our product lineup. But for the overseas market in total, in the future, there are still plenty of uncertainties overseas. -- and the geopolitical tensions continue to create headwinds. Still, we see strong opportunities globally, and we believe we are well positioned, that's why the global expansion will remain a key part of our long-term strategy. And for 2026, we expect a triple-digit growth in the overseas revenue. Jane Zhang: And so my last question comes to the company's profitability. Will we see the company's profitability improved notably in 2025 after focusing on the water business. So for 2026, or -- and moving forward, like next 2 to 3 years, what are the core pathways for further enhanced profitability and sustain this positive momentum. Thank you. Xiaoping Chen: [Foreign Language]. Claire Ji: Okay, to translate the answers. There are 3 main paths. The first is expand overseas market and accelerate the growth in our Viomi-branded business. Currently, our margin is still on a low level, mainly because our Viomi-branded product still makes up a relatively small part of the business. So by pushing into the international markets and growing the shares of our own branded sales, we can improve the profitability. And the second path is about consumables revenue. The consumable revenue from our own branded products will be a long-term driver of the margin improvement. As more people are using Viomi purifier globally, the consumable revenues will start to kick in about 1 to 2 years after the equipment sale, and we start to see the trend. And third, we will broaden our product lineup, which is adding more countertop options like icemakers multifunctional countertop water dispensers and a higher-margin whole home nutrition systems. These new categories will troubles reach more customers and build a stronger, more complete product portfolio and for the global expansion. Thank you. Operator: We'll now take the next question. This is from Shi Xining from CMS. Shi Xining: [Foreign Language]. Claire Ji: I'll quickly translate the question first. Can you analyze the impact of the national fast reduction on the domestic market, especially when we see in the second half of 2025, the negative impact has caused revenue decline. And can you forecast the future impacts and offer us some guidance? And also, we recently noticed the EMS and the business development. Can you offer some heads-up about the top line contribution of our cooperation with China gas, this kind of business development. Xiaoping Chen: [Foreign Language]. Claire Ji: Okay. I'll quickly translate the answer. As you can see the impact of the national subsidy on water purifier is obvious in 2025. And due to the high base last year, domestic market will face challenges in the first half of 2026. For products like water purifier, however, where penetration is still relatively low. So the customer demand is still growing. We expect the 2026 return to the category's normal growth rate -- growth pace and remain relatively resilient even of consumer spending softness. As we see more and more people are choosing to use water purifiers, and we believe that trend is unreversible and starting in 2026, water purifiers are no longer covered by national subsidies. You may -- you might see some brands still offering 15% of online commerce platforms were destined. We didn't offer that percentage of and we have stayed in our product competitiveness. And to answer your questions about the cooperations with the gas companies, we recently reached a cooperation with the China gas and the ENN Energy companies like the companies like this. And the way we see is we are exploring new partnership models with this company. And their showrooms and service centers across the country, reaching over 50 million household users, and both our products highly relied on the installed elation service support and the production scenario as perfectly with undersink water purifiers and the product categories containment each other. This gives us an efficient way to enter lower-tier markets, and 2026 will be a pilot year for the partnership. This is expected to be a great opportunity for both parties, and we expect it will bring incremental growth. Thank you. Unknown Analyst: [Foreign Language]. Xiaoping Chen: [Foreign Language]. Claire Ji: Okay. I'll quickly translate the answer to a similar question to one of the previous questions. And the first one is we will expand our overseas market scale, especially in the United States and in Malaysia, and we will use more diversified products to entering more channels. For example, for the United States, we will have broad off-line channels for Versa with new brand and new products with higher margins. And the second strategy is to increase the consumable revenues. As you can see, the consumable revenues has very promising guarantee of the improvement of profitability. And we have our own branded water pure visa has increased during the past few years and we see the trend of consumable revenues to kick in after 1 to 2 years after the equipment sales. So this will be a long-term driven factors for the margin expansion. And thirdly is to improve our own brand revenue contribution by both overseas expansion and product portfolio expansion. And lastly, we will have more diversified product lines. As of today, we still -- most of our revenue comes from the under sink water purifier product format and our profit margin is within the industry level. However, we will expand more diversified products with higher profit margins and ASPs like the whole house water nutrition systems and the countertop products equipped with diversified functions like cooling, ice making and so on. Thank you. Operator: We'll now take the next question and this is from Brian Lantier from Zacks Small-Cap Research. Brian Lantier: Most of my questions have already been covered. I just wanted to say I'm encouraged by the move to off-line distribution in the U.S. And then just sort of big picture, looking out the impact of the subsidies is significant, obviously, in your 6-month results, but I think if you look year-over-year, you have a 14% top line growth rate. If I'm looking out over the next 3 to 5 years, is that sort of what you view as the normalized growth rate for the business, 10% to 15% top line. Claire Ji: [Foreign Language]. Xiaoping Chen: [Foreign Language]. Claire Ji: Okay. I will translate the answer to your question. According to our estimation, we see the industry's normal growth rate would be at a high-single-digit level. without the impact of the national subsidy and so on. And while the Viomi brand growth rate will be higher than the industry, mainly because driven by the enhancement of our brand strength and the expansion of our international market growth. However, another major part of our business revenue is our Major clients -- key clients of business, such as Xiaomi. This will be aligned with the key accounts, their business performance. And in the current environment, the growth is precious. So overall, we anticipate that the company has the potential to enter into a nominal growth rate of low-double-digit growth in 2027. Operator: Thank you. And that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments. . Claire Ji: Okay. Thank you once again for joining us today. If you have further questions, please feel free to contact us through the contact information on our website or our Investor Relationship Consultant, PSMT Financial Communications. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Unknown Executive: Good morning, everyone. This is Tracy Lee from Waterdrop Investor Relations. It's my pleasure to welcome everyone to Waterdrop's Fourth Quarter and Facial Year 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, today's conference call is being recorded. Please note that discussion today will come from forward-looking statements made under the safe harbor provision of the U.S. Private Securities and Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include but not limited to those outlined in our public filings with the SEC. The company does not undertake any obligation to update any forward-looking statements, except as required and applicable law. Also, this call includes discussion of certain non-GAAP measures. Please refer to our earnings release for a reconciliation between non-GAAP and GAAP. Joining us today on the call are Mr. [indiscernible], Chairman and CEO; Mr. [indiscernible] GM of Insurance Business; Mr. [indiscernible], Head of Finance Department; and Ms. [indiscernible], Board Secretary. We'll be happy to take some assessments in the [indiscernible] conference call. Now [indiscernible] our CEO, [indiscernible]. Unknown Executive: Dear investor analyst, thank you for joining Waterdrop's fourth quarter and fiscal year 2025 earnings conference call. Looking back at 2025, we executed firmly on our AI [indiscernible] insurance energy, delivering tangible progress in both AI application and business growth. Our financial performance were robust. We saw significant top line and bottom line expansion, further solidify our core fundamentals. For the fiscal year 2025, our revenue reached CNY 3.98 billion, up 43.5%, net profit attributable to ordinary shareholders reached CNY 570 million, registering a year-on-year growth of 54.8%. Notably, we met our guidance to the market and have now delivered GAAP profitability for 16 consecutive quarters. Our Intertek segment was as announced with revenue surging 51.3% and an operating margin of roughly 18%. Furthermore, our LLM integration significantly category. the value of our medical performance platform, our platform has response for 3.68 million patients which is watched and our digital team in client solutions enrolled over 4,000 patients this year. Reflecting the strong performance in the second half of 2025, our Board approved our safe cash dividend of CNY 0.03 per ADS, totaling $10.8 million, this will be paid in later -- late April to early May to shareholders a record as of April 24, 2026 U.S. ET time. Meanwhile, our share repurchase and remains on track with 60.7 million ADS repurchase for about $118 million for [indiscernible]. On technology plans, we are valuing our shift to become an native company. As of the end of year-end 2025, we filed a 72 LLM related patent applications. including [indiscernible] international ones. Throughout the year, we deployed the [indiscernible] and virtual interactions across all core workflows. From acquisition and conversation [indiscernible] and customer service through quality control and R&D. Every stage is now production-ready delivering [indiscernible] operating gains. This capability is unified from under the [indiscernible] AI, our [indiscernible] platform for the [indiscernible] specific agents now also open to the industry partners. Beyond the [indiscernible], we are pioneering open collaboration infractors what is Guardian AI corporate, which is called Cloud [indiscernible] built on a distributed at design our cloud leader enables a different AI agent to autonomously communicate and collaborate. [indiscernible] demos have already validated its core workflow seamless the multi-round dialog and automate to cover between the AI agents. In terms of ESG, we acquired with 19 organizations to launch over 15,500 products earning global recognition forward policy reduction efforts and upgrading our ESG rating to A+. As we enter our 10th anniversary in 2026, our goal is to move beyond using [indiscernible] to becoming truly AI enabled company. We aim to [indiscernible] reconstruct our entire value chain, embedding AI as a several competitive advantage. We expect me to depend the momentum this year with moderately higher [indiscernible] marketing and AI, targeting double-digit growth in both revenue and profit. Now I will pass to [indiscernible] to introduce the development of insurance business. Xiaoying Xu: Thanks, [indiscernible]. In the fourth quarter, our insurance continued its strong momentum, ensuring related income surged to 125% year-on-year to CNY 1.31 billion, while operating profit grew 42% year-over-year to [indiscernible]. On the traffic side, we have sharpened our real-time user amentization leveraging our sales deployed [indiscernible] we can now capture potential user attributes with nearly second profession in high concurrency traffic. This allows for [indiscernible] update and [indiscernible], which has significantly improved the accuracy of our high-quality traffic for future and made a solid condition for our FYP growth. Regarding product supply, our market first [indiscernible] version 2.0 this quarter new 0 deductible features now colored a long-term medical cost and routing the medial centers. Additionally, our pre-existing condition product gained strong action with FY at 7%. While our disability insurance contributed about $100 million app validating our long-term strategy. And most importantly, AI is now invented in every node of [indiscernible] on the user side, our AI Pro insurance engine on the mini-program drove 33% of sequential increase in premium, while our AI medial insurance experts generated over 50 million [indiscernible] 145% quarter-over-quarter. We have also expanded the facility to standard health products, we can generate incremental most premiums of over 1 million. For human agent empowerment, our large banner copilot has cumulated site in over 370,000 [indiscernible] this quarter end. [indiscernible] perform in our fully operational and having completed the fourth quarter without the core module like local agents, batch testing and proactively past figures. This infrastructure powers our [indiscernible] planner deployers, both the share of facial accounts and many programs to handle the product recommendations, business facilitation and user [indiscernible] agent matching, we have even owned this platform to our current insurers to uplist the industry-wide efficiency. In [indiscernible] our AI customer service agent handled over [indiscernible] and our coloscopilot [indiscernible] efficiency to 2.5 that of the many only business. This concludes the insurance business update for the fourth quarter. Now I will pass to Board of Secretary [indiscernible] to introduce the progress of our metering and health services. Unknown Executive: Thank you, [indiscernible]. As of the annual of approximately 490 million people have [indiscernible] a total of $72.3 million to [indiscernible] medical profound platform. In this quarter, while maintaining robust platform governance and user experience with strengthen risk control in 2 key areas: to protect our user privacy, we have fully upgraded our system with large language models total of identifying specific data and applying dynamic [indiscernible] in real time. So critical information, frequently see in their components that either IP members, bank accounts and the medical record IT. We have moved [indiscernible] reduction to automate protection and marketing. And this [indiscernible] leads end-to-end securities for user debt better across our type platform, fundamentally preventing any reason of information staff. Secondly, our simplicity, we deployed a new model combining medical [indiscernible] with a credential validation. This system and cost reference the clinical logic to precisely identify the fabric, ensuring every donation we reached those patients [indiscernible]. On the user service front, we launched a standardized [indiscernible] to our service goal of fee structures and retaining guidelines, these initiatives reinforce our commitment to concurrency and ensure our uses are fully involved. And moving to the Healthcare business, our [indiscernible] platform is in high-quality growth tuner with 224 pharmaceutical companies and [indiscernible] and are enrolled in a record of [indiscernible] patients. initiative 131 new programs. Once again, we set up setting a new quarterly enrollment with record. This quarter, we achieved a major milestone that was proprietary [indiscernible] patient matching technology, the first of this time in China was officially granted a national invention pattern. By combining deep neural networks with major [indiscernible] processing, our technology achieved end-to-end protection matching [indiscernible] and clinical trials [indiscernible] filtering for [indiscernible] results, well analyzing and trusted medical records against that helped criteria to uncover the heating match. The due engine approach [indiscernible] between the weeks of the manually screen workflows down 2 minutes, strongly a [indiscernible] process. And building on this, we significantly expand our accounts. We'll continue to grow our patient base in complex and rare [indiscernible] revenue digital clinical trial revenue related to [indiscernible] 30% this quarter compared to the previous 3 average [indiscernible] ability to pool release and earnings and have made a solid foundation for our sustainable volume growth. And now I will [indiscernible] our Head of Finance to discuss our financial performance in this quarter. Unknown Executive: Thanks, [indiscernible]. Hello, everyone. I will now walk you through our financial highlights for the fourth quarter and fiscal year 2025. Before I go into details, please be reminded that all numbers quoted here will be RMB and please refer to our earnings release for detailed information on our financial performance and both the year-on-year and quarter-over-quarter basis, respectively. In the fourth quarter, our performance of [indiscernible] significantly with quarterly revenue more than doubling year-on-year to RMB 1.41 billion, up 105.5% for the full year 2025 revenue reached RMB 3.98 billion, up 43.5% year-on-year, concluding the year on strong note. By second, the insurance business within a stable client with full year insurance really into approximately RMB 3.58 billion, up 51.3% year-on-year. The other segments are [indiscernible] for about 10.1% of the total revenue with medical performing services at RMB 260 million and [indiscernible] income at RMB 118 million. Operating costs for the quarter reached RMB 680 million. up 109.2% year-on-year, driven by RMB 320 million increase in cost and the referral and service fees and RMB 23.8 million is on S&S, driven by rapid business expansion, opening costs and expenses in the fourth quarter rose to RMB 1.33 billion, up 109.4% year-on-year. For full year operating cost and expenses increased 39.1% from 2024. [indiscernible] the pace of revenue growth. Selling marketing expenses was roughly RMB 510 million at 178.4% year-on-year with significant improvement in customer acquisition efficiency. The company proactively scaled up investments, resulting roughly [indiscernible] year-on-year in place and marketing expenses for third-party traffic channels. G&A expenses were RMB 77.1 million, a modest year-on-year increase of 4.6%, mainly due to a [indiscernible] in allowance of [indiscernible], partially off setted by RMB 6.5 million reduction in personnel call. Research and development expenses were approximately RMB 66.2 million, up 21.9% year-on-year, primarily driven by a RMB 6.4 million increase in personnel costs and a RMB 5.8 million in cross services. [indiscernible] improved significantly year-on-year. Net profit attributed to the company's ordinary shareholders for the quarter was RMB 153 million, up 62.7% in the period. For full year, the net profit attributable to the ordinary shareholders reached about RMB 570 million, up 4.8%. The common maintained ample cash position of about [indiscernible] 2025, providing strong support for our fee growth. And this concludes our financial overview for the fourth quarter and fiscal year conference side. Ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for joining. Have a good time.
Operator: Ladies and gentlemen, thank you for standing by for So-Young's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Mona Qiao. Please proceed, Mona. Mona Qiao: Thank you, operator, and thank you, everyone, for joining So-Young's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today on the call is Mr. Xing Jin, our Founder, Chairman and CEO, and Ms. Hui Zhao, VP of Finance. Before we begin, please refer to the safe harbor statements in our earnings release, which applies today's call as we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under GAAP in our earnings release on our Investor Relations website and filings with SEC. Please also note all figures mentioned in this call are in renminbi or otherwise stated. At this time, I'd like to turn the call over to Mr. Xing Jin. Xing Jin: [Interpreted] China's medical aesthetic industry structural adjustments as upstream capacity expanded and consumers become more value driven. Return to value has become the common theme. For institutions pursuing scaled and repeatable models, this offers a critical window to build long-term edge. In Q4, we continued to improve our investment and make progress in 3 directions. First, delivering scale breakthrough stand and operational improvements in our aesthetic center business; second, reinforcing medical service delivery capabilities to build a long-term trust-driven mode; and third, building our supply chain barriers to enhance brand and seize opportunities. We are pleased to see these choices are reflected in our financial results. The total revenue was RMB 451 million in Q4, up around 25% year-over-year, hitting a record high for quarterly revenue. Revenue from our aesthetic center business reached RMB 248 million, up over 205% year-over-year and about 10% above the high end of guidance. Our aesthetic center business has become our largest revenue contributing segment and growth engine with So-Young Clinic becoming the largest medical aesthetic chain in China by a number of centers. Now let me walk you through our progress in Q4 and our 2026 deployment, focusing on our aesthetic center business. -- our aesthetic center business has recently achieved 2 milestones. The first is our center footprint. By year-end 2025, we have opened 49 medical aesthetic centers, ranking first nationwide among all tiers by center count. The second is the treatment volume. In Q4, verified treatment visits exceeded 125,000, up 178% year-over-year. Verified aesthetic treatment performed exceeded 289,400, up 168% year-over-year. As of December end, our total active users surpassed 170,000. The growth in both treatment volume and user base validates the market demand and ongoing recognition from consumers. As we scale, center level operational efficiency continues to improve. In Q4, 25 centers achieved profitability and 39 centers generated positive operating cash flow. In 2026, we will accelerate the expansion, opening at least 35 new centers. We will deepen density in core cities, including Beijing, Shanghai, Guangzhou and Shenzhen, while also expanding our presence in second-tier cities. As our operations mature, we are confident in further improving profitability while maintaining expansion and driving the overall profitability at an early date. Second, we are enhancing our medical service delivery capability to build a long-term trust-driven mode. In Q4, we enhanced our service across 3 dimensions: physician team, compliance framework and data security. The improvements reinforced the user trust. Year-end 2025, our full-time physician team expanded to 211, up 41% from the end of Q3, ranking first nationwide among our peers by physician count. In terms of quality, all our physicians have a public hospital background and pass our regular internal certification before practicing. Over half of them hold attending physician qualifications or hires. On average, our team possesses over 6 years of clinical experience and those with a year or more and So-Young have delivered over 6,200 treatments per physician, reflecting our solid clinical capabilities. In 2026, we will launch a new physician initiative to accelerate recruitment and build talent pipeline. The program will provide industry-leading hands-on practice, systematic training and clear care path, enabling physicians to quickly achieve top-tier performance and our physician team's expertise deepens and user wordfmouth growth, we expect her physician productivity to grow, driving continued improvement in profitability. On compliance, we established a 6-pillar compliance framework and a regular inspection mechanism. With digital software, we deliver full process traceability of medical services. On data security, So-Young is the first in the industry to obtain the TIA certification, setting a benchmark for the industry. Our ongoing investments are reflected in user behavior. Core members have a quarterly rate of 80% and their average annual spending is around 16,500. The growing user trust is the foundation of our low-cost sustainable growth. we will continue to build on our supply chain, enhance and seize market opportunities. As of Q4, we worked with 18 top-tier domestic suppliers and have procured nearly 1,400 devices. For injectables, we have 42 top-tier upstream partners with a cumulative procurement of over 700,000 units -- in 2025, the upstream supply expanded sharply. The NMPA issued over 50 certificates for Class II medical devices, up over 60% year-over-year. For So-Young, this delivers a broader product portfolio, more durable procurement cost and enhanced user experience. Backed by the China's largest light medical aesthetic chain, we continuously enhance our supply chain layout capabilities. We have also built long-term partnerships with core suppliers and established a volume price linkage mechanism, securing the industry's best procurement prices. On our product layout in Q4, we launched a light version Merle PLLA version 3 printing, which lowers the customers' barrier to trail. We are also the exclusive distributor of [indiscernible] Biopharma's HP solution, now approved for marketing in China, which expands our portfolio. For BPL treatment, we improved bra influence and conversion through IP co-branding and immersive experiences. In Q4, we partnered with [indiscernible] and launched the Youth [indiscernible] Radiant campaign. The campaign leveraged multiple channels and formats, including celebrity treatment experience, pop-up events and in-store visits by bloggers on notes. Our corporate wins generated about 2 million on-site visits and total exposure on that note exceeded 40 million. This online and offline synergy reinforced our brand awareness and lead sales conversion for BBL, aligning brand building with revenue. Our product integration, new products launches and market activities reflect our commitment to the blockbuster strategy. In Q4, this blockbuster products delivered strong results contributing over 37% of revenue with sequential growth and remain a core engine for our aesthetic business. Meanwhile, our brands have been fully validated in off-line scenarios. To date, we have successfully established a presence in high-end shopping malls nationwide including Beijing H1, Guangzhou ICC Mall, Hangzhou Care Center, and so on. These premium shopping malls reinforce our brand recognition and help us reach target customer groups. Finally, let me share our outlook for the future. As the industry gradually shifts back to a regional quality-driven path, value distribution is being reset. We believe that in the long run, the industry will be led by the closest consumers and capable of delivering the most trusted services. For So-Young, 2026 is a turning point. We are moving from scale first to a engine of scale and efficiency. Our aim is not only to open centers, but also to prove the model is profitable as we expand. Our systematic capabilities over the past 2 years give us great confidence that our ambition is to beyond that. As our center network, supply chain and medical service delivery create a flywheel, we will lower access barriers and let more consumers enjoy safe, transparent and inclusive services while delivering sustainable returns to shareholders. We believe companies that create value will earn long-term recognition from the market. Now I'll hand it over to our VP of Finance, Ms. Hui Zhao, to walk through the financial results, followed by the QA session. Hui Zhao: Thank you, [indiscernible], and thank you, everyone, for joining us today. I'm [indiscernible], Vice President of Finance. On behalf of our CFO, I will walk you through our fourth quarter 2025 operating and financial results. For additional details on our fourth quarter and full year performance, please refer to the earnings release we issued earlier today. Unless otherwise noted, all amounts are in RMB. 2025 marked a transformational year for So-Young. The rapid scaling of our branded extent extended network fundamentally reshaped our business profile, and we are pleased with where we are today. Total fourth quarter revenues reached RMB 46.7 million, up 24.8% year-over-year. This was driven by continued expansion of our branded aesthetic center business. As of year-end, our cash position stood at RMB 936.4 million, providing solid runway to fund our expansion plans while preserving financial flexibility. Let me now walk you through performance by business segment. Our branded aesthetic center business sits at the core of our growth with our platform and upstream supply chain businesses serving as complementary dealers. Together, they form an integrated value chain across the medical aesthetics industry. Revenues from aesthetic treatment services reached RMB 248.1 million, up 205.3% year-over-year. This has been our largest revenue segment since Q2 and this quarter, it crossed the 50% revenue contribution threshold for the first time. Also, this marks our third consecutive quarter of exceeding the high end of our segment guidance. This strong performance was driven by both continued network expansion and improving cost center economic. As of December 31, we operated 49 So-Young clinics across 15 major cities, reflecting a net addition of 10 centers during the quarter. Now breaking down revenue by central development phase. Our 17 mature phase centers generated RMB 102.5 million in revenue or roughly RMB 8.4 million per center. Our 19 growth-based centers contributed RMB 89 million or roughly RMB 4.7 million per center. The 13 ramp-up phase centers contributed RMB 16.6 million Notably, average revenue per center nearly doubles as centers progressed from growth phase to maturity. With 19 centers currently in the growth phase, we see a clear built-in revenue growth driver as these centers continue to mature. And for their profitability, 25 centers achieved profitability during the quarter, including 15 mature phase centers generated positive operating cash flow as intense move through their development cycle, profitability has consistently followed. This gives us confidence in the financial trajectory of our newer centers. Turn to other statements. Information and reservation services revenues were RMB 125.7 million, down 26.8% year-over-year, primarily due to a decrease in the number of medical service providers subscribing to information services on our platform. Sales of medical products and maintenance services revenues were RMB 69.3 million down 19.9% year-over-year, primarily due to a decrease in the order volume for medical equipment. Other services revenues were RMB 17.7 million, down 40.7% year-over-year, primarily due to a decrease in revenues from So-Young Prime. I will now walk you through our financials below revenue in more detail. Cost of revenues was RMB 255.9 million, up 67.2% year-over-year, primarily driven by the expansion of our branded aesthetic centers to break this down further. Cost of aesthetic treatment services was RMB 189 million, up 189.9% year-over-year. Cost of information and reservation services was RMB 10.1 million, down 5.6% year-over-year. Cost of medical products sold and maintenance services was RMB 41.6 million down 4% year-over-year. Cost of other services was RMB 15.3 million, down or 7% year-over-year. Total operating expenses were RMB 327.7 million compared with RMB 815.2 million in the same period of 2024. Excluding the impact of goodwill impairment charges in both periods, total operating expenses increased moderately year-over-year, reflecting continued investment in scaling our aesthetic center business. Sales and marketing expenses were RMB 168.7 million, up 25.8% year-over-year. This was primarily driven by branding and user acquisition investments according branded aesthetic center growth. G&A expenses were RMB 101.9 million, up 3.5% year-over-year due to the business expansion of the branded aesthetic centers. R&D expenses were RMB 37.4 million, down 12.4% year-over-year due to improved staff efficiency. We also recorded an impairment of goodwill and longest assets charge of RMB 19.7 million based on our annual [indiscernible] impairment assessment. Income tax benefit amounted to RMB 0.6 million compared with income tax expenses of RMB 2.1 million in the same period of 2024. The net loss attributable to So-Young was RMB 108.8 million compared with RMB 607.6 million in the same period of 2024. Non-GAAP net loss attributable to So-Young was RMB 93.4 million, compared with RMB 53.2 million in the same period of 2024. Basic and diluted loss per ADS improved to RMB 1.08 compared with RMB 5.92 in the same period of 2024. As of December 31, 2025, our cash and cash equivalents restricted cash and term deposits, term deposits and short-term investments totaled RMB 936.4 million compared with RMB 1,253.2 million as of December 31, 2024. The decrease primarily reflects our accelerated investment in brand aesthetic center expansion. Looking ahead, the fourth quarter of 2026, we expect aesthetic treatment services revenue to be between RMB 258 million and RMB 278 million, representing year-over-year growth of 171.2% to 181.3%. This guidance reflects our confidence in the sustained momentum of our branded aesthetic center business. As of today, our standard network has crossed the 50 center milestone. In 2026, we will shift our focus from peer network expansion towards balancing growth with profitability improvement. We plan to add no fewer than 35 new centers in 2026, while leveraging our expanding scale to improve gross margins and drive efficiency gains across the network. This concludes my remarks. Operator, we are now ready for the Q&A session. Operator: [Operator Instructions] Our first question comes from [indiscernible] with Citi Securities. Unknown Analyst: [Interpreted] Let me briefly translate. I'm [indiscernible] from Citi Securities. So firstly, congratulations on the accelerating growth in Q4. And we are glad to see that there is improving gross margins in the aesthetic centers business and service business. So I have a question regarding the gross margin prospects. So could you share more about the gross margin plan and source further margin expansion. Xing Jin: [Interpreted] Thank you for your question. We believe that 3 core factors shape margin performance. The pace of center openings, consumable costs and seasonal promotions. Based on these factors, we have planned to enhance gross margin. First, we will continue optimizing the pace of center openings and the ramp-up efficiency of new centers. Upfront investments to new centers can create short-term margin pressure and license approval timing in our industry is often predictable. Going forward, we aim to adopt a more even cadence throughout the year combined with our integrated operating system. This accelerates each center's path to efficient operations and short-term ramp-up cycle. For 2026, new openings will represent a smaller share of total centers compared to last year. This will reduce margin dilution of concentrated new center investments. Meanwhile, the proportion and profit contribution from mature centers will rise, driving the overall gross margin levels. Second, we will optimize consumable costs. Currently, we have built deep collaborations with upstream partners, including [indiscernible] Biopharma, China Medical System [indiscernible] Farm and [indiscernible] Medical. This guarantees reliable supply and ongoing cost optimization. Looking ahead, we will strengthen empower with our partners and convert more high-quality upstream manufacturers in 2 long-term partners. At the same time, we will continue advancing our broad faster strategy. In the fourth quarter, our 4 major products accounted for over 37% of revenue as our core offering through the procurement cost panties will become more pronounced. Third, we will refine our seasonal promotions. Digital accounting remains a critical channel for user base expansion, customer conversion and building long-term user assets. Going forward, we will optimize our product mix and integrate campaigns more deeply with the membership system, targeting repeat transit among core members. We aim to transform short-term traffic into customers' LTV. This will drive gross margin. Operator: Your next question comes from John Wong with GF Securities. John Wang: This is John Wang from Guangfa Securities. Congratulations to the company on this outstanding performance. My question is about the development of So-Young Clinic in second-tier cities. And I would like to know whether the current operating performance of these centers has met management's expectations. Could management also share some operational updates on the several representative centers? Operator: Ladies and gentlemen, the line for the management has been disconnected. Please stay connected while we reconnect the line for the management. Thank you for patiently holding, ladies and gentlemen. The line for the management has been reconnected. Yes, please go ahead. Xing Jin: [Interpreted] From an industry perspective, while China's medical aesthetic market in second-tier cities have reached relative maturity, they like to have first-tier cities in medical service delivery capabilities and operational standards. We ensure that our centers in second-tier cities deliver the same level of medical service quality as is in first tier cities. Based on our operational track record, centers in second-tier cities are also growing well, both the traffic and per customer treatment are rising, and the revenue per center is close to first tier levels. As of December, mature centers in secondary cities such as Wuhan Tiandi Center and Changshu Center generated an average sales per square meter of RMB 7,000 per month. Among the opening in second-tier cities, [indiscernible] stood out. These centers have maintained robust revenue growth with industry-leading CAGR. For example, goudaSuzhou Su Plaza broke 1 million in monthly revenue with 3 months since opening, proving that our model works in second-tier cities. In terms of profitability, mature centers in second-tier cities enjoyed slightly higher margins due to lower staff payroll and rental expenses compared to the first tier cities. [Interpreted] We believe that the fundamental advantage of a chain model line in reduced transaction costs and enhanced brand trust, scale and accessibility. At present, most players in secondary cities are single center operators without meaningful density. Based on how we involved in both tier cities and So-Young's live trust grows, customers will tend to to push out multiple treatments per visit. Looking ahead, we believe the process improvement, resource synergy and traffic management will drive continued gains in our second-tier centers and economics of scale will take effect across our network. We are confident that this will lead to stronger profitability and market competitiveness in second-tier cities. Maggie Huang: And let me translate my question. This is Maggie Huang from CICC. Congratulations for our excellent performance. And we would like to know whether the competitive advantages in customer acquisition costs has been maintained amid its continued scaled expansion. And could management also share the customer acquisition strategy for 2026? Xing Jin: [Interpreted] Our edge in customer acquisition cost has been preserved and further strengthened. During the quarter, we opened a significant number of new centers and seize the opportunities brought by major shopping campaigns, including Double 11 and Double 12, bringing a new quarterly record for new customers. For the full year, our average CAC remained below 10% of revenue, a highly competitive benchmark in this industry. We sustained this advantage primarily through our customer referral model. Through our membership system and differentiated benefits, we will incentivize existing high-value users to refer new customers. This will not only lower CAC, but also improve the quality and retention rate of new users. Second, we will continue to optimize the mix of our public and private domain customer acquisition channels and enhance their LTV through refined operations. Meanwhile, we will continue to roll out co-branding initiatives with the world's top IP. Recently, we launched co-branding programs with 2 renowned IP, Little Print and Disney. Through brand storytelling, we reached a broader customer base and resonated with users emotionally, further amplifying our brand equity. As our footprint expands and user base grows, we anticipate further reductions in tax. Operator: Your next question comes from the line of David Chang with Haipeng International. David Chang: [Interpreted] I'll translate my question. Thank you management for taking my question. My question is about the user growth and the membership operations, especially for core members. Could management share the specific measures you will take to improve the LTV of core members going forward? Xing Jin: [Interpreted] For our core members, Level 3 and higher members continue to show solid growth momentum. Our user service show that core members still have significant room for growth in their annual medical aesthetic budgets, laying a foundation for us to boost user LTV. This quarter, revenue contribution from core members and their quarterly return rate both exceeded 80% with new core members surpassing 14,000. Consumer performances are shifting towards efficiency and clinical capabilities. Against this background, we will focus on, first, expanding our product portfolio. We will introduce more comprehensive product offerings, including standardized side treatments and mid- to high-end services. We expect this to elevate user value. Second, we will further optimize our membership system by offering differentiated benefits and service touch points so as to realize tiered user segmentation and provide corresponding services. This will strengthen co- members' perception of our brand value, building a positive feedback loop, which will drive their loyalty. These measures will lead to improved presenter profitability and provide strong momentum for our long-term growth. Operator: This concludes our question-and-answer session, and this concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.
Unknown Executive: Good morning, investors and analysts. Welcome to the 2025 Annual Results Announcement of China Oilfield Services Limited. On behalf of the company, I would like to thank you all for taking the time to attend. First, allow me to introduce the representatives from the Board of Directors and Management attending this event. They are Mr. Zhao Shunqiang, Chairman and CEO; Ms. Chiu Lai Kuen Susanna, Independent Nonexecutive Director; Mr. Sun Weizhou, Executive Vice President and Board Secretary; Mr. Qie Ji, CFO. China Oilfield Services is one of the world's largest integrated oilfield service providers, boasting a comprehensive service chain and a robust fleet of offshore oilfield service equipment as well as a well-established R&D system and service support system. The company focuses on 5 key development strategies: technology-driven, cost leadership, integration, internationalization and regional development. During the 14th 5-year plan period, the company has achieved continuous breakthroughs in key core technologies, significantly enhanced the profitability of its large-scale equipment and continuously strengthened its core competitiveness in oilfield services. The company remains committed to reestablishing its cost advantage and strengthening its cost control capabilities. It is dedicated to deepening its expertise in the marine energy resources sector, firmly upholding the philosophy of creating value for clients. COSL excels at integrating its operations into clients' value chains to generate added value, thereby enhancing clients' investment efficiency and returns. Today's event is divided into 2 parts. First, Mr. Qie Ji, CFO, will present the 2025 annual results and the company's future development outlook, followed by a Q&A session. We now invite Mr. Qie to take the floor. Ji Qie: [Foreign Language]. Unknown Executive: Thank you, Mr. Qie. We will now move on to the Q&A session. [Operator Instructions] The consecutive interpreter will provide interpretation between Chinese and English for both questions and answers. Please allow sufficient time for the interpreter. Thank you. Unknown Analyst: My question is about the Middle East. Right now, we are in the middle of Middle East conflict. So I would like to know how much impact or what kind of impact has that been on your Technology segment and on your Drilling segment? And before the conflict in the Middle East, how many rigs or platforms were operating in the Middle East? And how many of them have been suspended because of the conflict? Unknown Executive: Let me talk about our current operation and equipment being used in the Middle East. So we are now in basically 3 countries in the Middle East. First of all, in Iraq, we have 23 equipment for maintenance and also operations. And then in Saudi Arabia, we have 3 jack-up rigs or platforms; in Kuwait, 2 jack-up platforms. Regarding our 5 jack-up rigs or platforms, there has been no impact on their operations. That means that there is no suspension or no termination of the operation of this equipment. As regards in the landlord site, well, they are still making arrangement in relation to the work and operations, and they are also continuing their payments of fees as well. However, in Iraq, in relation to the repair and maintenance machines and equipment, because in Iraq, basically, the business is integrated business. And so there has been 3 equipment and machines being affected by the integrated equipment suspension. Unknown Analyst: So first of all, my question is, under the current situation about geopolitics, well, how do you see the oil price trend in the year 2026? And also, I would like to know, in these circumstances, so what will be some adjustments or changes to your development plan? Unknown Executive: I believe that the question or issue about oil price is a big issue. And in fact, we are not an expert in this area, but I can still share a couple of points in my opinion. So first of all, in relation to the demand and supply situation, right now, there is still an excess capacity, whereas demand is relatively weaker and softer. Under the influence of geopolitics, there is an imbalance or a lack of balance between demand and supply on a regional basis. And that has led to the volatility or changes in the oil price. But then the overall trend is not really changing. In the future, we are still cautiously optimistic, and we are not going to change our internationalization strategy as a result. And we believe that we will continue to benefit from the insights and experience that we have already accumulated from the previous 5-year plan period. Despite all the geopolitical changes and also fluctuations, so actually, this year, because of that oil price has been affected. So right now, we are in the process of war. We don't know how long this war will last, and we don't know how intense or how severe this war is going to turn out. But then, of course, no country would like to see a war happening. We believe that this war may not really take a very, very long time, but we actually can't tell when it is going to end. So definitely, our internationalization strategy as a whole will stay. But the trend of our internationalization will be subject to some impact, especially during the short term. But in the long term, the direction is going to remain the same. Unknown Analyst: My question is about the drilling rigs. Actually, we have seen that there is an increase in profitability. So I want to understand the reasons behind the profitability growth. And regarding the domestic as well as overseas profit in this segment, how much is the relative contribution from domestic and overseas business? And in the future, in the coming 1 year, what kind of breakthroughs can we expect in this particular business segment? Unknown Executive: Before I answer your question, I would like to share with you 3 big trends. First of all, we have seen acceleration of our internationalization strategy. So this is reflected quite clearly, if you refer to our revenue, our profit and also our management work and efficiency. And the second trend is that the increase in production within our country is continuing. So we have already completed the previous 7-year action plan, and very soon, we are going to see the coming 10-year plan, which is a new one. And we can see that there is strengthening of domestic supply and expansion. And the third trend is that during the 14th 5-year plan period, our company has been increasing utilization of large-scale equipment. And in fact, in the year 2025, all large-scale equipment have been put into use. In the year 2025, there were 2 M&A projects. The first one is between ADS and Shell, and the second one is Transocean and another company. So in relation to the rig and platform operation, we can see that the overall integrated capability and also bargaining power for the larger companies have increased. So it is getting more and more difficult for the smaller companies to survive well. So for the large contractors and companies, we can see that the profit margin is rising. However, for the smaller contractors, many of their rigs and platforms have been suspended. So during the 15th 5-year plan period in relation to large-scale equipment, we believe that it is in a tight balance situation. So we will put in more effort to acquire or integrate with the equipment of the smaller contractors. So in the future, we believe that the oil companies will see quite a lot of difficulties in relation to technical development resources as well as spatial development. So they really need the more competent contractors with more capabilities and expertise to be able to deliver professional and expert services to them. Unknown Analyst: The first question is about the Marine Support segment in relation to the vessels. So all along, it has been based on market -- marketized pricing mechanism. So is there going to be any change to this pricing mechanism? And what will be the trend in the daily rates? The next question is, under the current situation and concern regarding energy security, many big oil companies, including CNOOC, is expanding the work in terms of exploration. So when it comes to offshore oil fields, in the coming few years, how much will be your CapEx? And then the third question is, given the decline in your gearing ratio, in the future, are you going to increase dividend payout? Unknown Executive: So in fact, the questions that you have asked have touched upon the pain points in our operation. Regarding the pricing of vessels, this has been an old issue that has been dwelling for 10-odd years. Well, basically, this is a matter which both parties have to reach an agreement. During the 15th 5-year plan period, we have changed our strategies. And we are of the view that it is better to put higher requirements on ourselves than to making requests with other parties. So first of all, given the current tight condition between demand and supply of resources, what we need to do is to change the structure. So we want to change customer base structure and also the structure of market revenue. We need to also make sure that we can achieve precise asset and resource allocation, and then we have to continue our internationalization strategy. So these are some strategies and measures to tackle this issue. So we are using the certainty of our own work to solve the uncertainty condition in terms of pricing. And then we are also expanding our fleet. We keep on making adjustments to our overall structure, hoping that demand can be used to determine pricing relatively more. So in the future, we can anticipate that the energy autonomy will be a more and more important strategy and policy of our country. So every year, when it comes to consumption of oil, it amounted to 750 million to 760 million tonnes, of which 500 million tonnes are imported. So this is the current situation. Unknown Executive: Let me answer your third question concerning optimization of our debt and liabilities. Basically, we now see 3 major opportunities. First of all, there is a swap in terms of our total existing debt because some of our debts are going to expire. And then the second point is that there is right now a gradual decline in terms of the high interest rates of U.S. dollar. And for RMB, interest rate is relatively lower. So there is a difference -- an interest rate differential. And then thirdly, in terms of the currency mix, in the past, basically, it is mainly about expenses overseas. Because there were some M&As overseas, so foreign currencies were used for these transactions. And right now, actually, domestic expenses account for a bigger percentage. So that is also the third opportunity in relation to optimization of debt. So actually, starting from 2024, we have been making plans and preparation for debt optimization, because in June to July 2025, there was the expiry of USD 1 billion debt. And then actually in mid-March, we had already issued a RMB 5 billion debt at 1.95% interest rate for a tenure of 3 years. So overall speaking, we have decreased the scale of our debt, and financing cost is also coming down. So what we have to do is that we need to continue to reduce the scale of our debt and optimize the structure. During the 15th 5-year plan period, we are going to increase our investment into equipment. And we want to make sure that our gearing ratio will maintain stable and sustainable. So in terms of our debt and liabilities, we will make long term -- we are going to make arrangements by considering our overall long-term development. Regarding dividend, we have to consider the operational needs of our company, the company's future cash position in making decision. And then we also want to make sure that we can seize future development opportunities. But then if you look at our dividend payout in 2025, in fact, it is in a very good position. Unknown Analyst: So my first question is concerning exchange rate gain and loss. So in the second half of the year, there was quite a large impact arising from that. So what are the reasons behind? My second question is about your Technology segment. So in terms of the profit from this segment, so its share has been quite big all along. And last year, in the first half of the year, there was some change to that trend. Is there going to be -- or was there some improvement in the second half of the year? And in 2026, how much will be the profit margin? Unknown Executive: During the 14th 5-year plan period, we have been continuously increasing our R&D expenses, and we have strengthened our R&D system as well. If you look at our R&D expenses every year, for example, in 2021, the amount was RMB 1.6 billion. And last year, it had already risen to RMB 2.2 billion. So it accounted for 4% of our total revenue. And in fact, the input/output ratio in relation to our R&D expenses and investment has been increasing. In 2021, it was RMB 1 to RMB 2.5. In 2025, it was RMB 1 to RMB 3.1. Technology coverage in 2021, it was 59%. In 2025, 86%. So we are strengthening the overall strength of our Technology segment. In the 14th 5-year plan period, our revenue strength and also the contribution into total revenue and profit is also big and increasing. In 2025, from the Technology segment, it accounted for 55% of revenue and 72% of profit. For overseas business, during the 14th 5-year plan, the strength of our Technology segment has also been enhanced. So the contribution to both revenue and profit has risen. In 2021, it accounted for 14% of total overseas revenue, and in 2025, 24%. So if we look at the operating profit margin of the segment in 2025, it was 16%. We are better than other peers in the industry, even though there is some slight decline on a year-on-year basis. However, we also need to exclude the nonoperating gains and losses. So for actually most of the segments, we saw very stable, even slight increased trend with only the exception of the cementing segment. So at the end of last year, we won a contract with our Shenzi with a Thai petrol company. So the total contract value was USD 8 million. So this shows that our self-researched and developed technology has won international recognition. This is because of our R&D investment over the years as well as the work that we have done to strengthen our overall R&D system. Recently, perhaps you are also aware that we have also won a contract from the Kuwait National Petroleum Company. Total contract value was actually RMB 400 million in terms of contract value. So you can see that we have achieved breakthrough in different regions and also different countries with our Technology segment. Our Technology segment is such that our value has been released on a continuous basis and our strength has been improving. We have won more and more recognition from customers. In the future, with our 1+2+N market layout of our company, right now, in terms of our overseas business, we are in the 5 major continents in 13 countries, and we have 120 operation sites. So in terms of both profitability and also revenue and shareholder return, we are seeing future improvements. So in 2025, actually, we have seen fluctuations and volatility in the exchange rate of RMB. Last year, at the beginning of last year, it was in the range of around RMB 7.1. And then in April, it became RMB 7.4. Towards the end of the year, it was at RMB 6.8, RMB 6.9 roughly. So all these fluctuations have caused much impact to our exchange rate loss or gains. During the 14th 5-year plan period, for our exchange rate loss, it was relatively flat. In the year 2022 to 2023, in fact, there was a year when there was a big exchange rate gain, but then there was also another year with a big exchange rate loss. For our country, it is actually trying its best to maintain a reasonable range in relation to exchange rate fluctuations. And in the short run, we believe that there are challenges in terms of exchange rate gain or loss. But then in the long run, we are going to put in more effort to strengthen management of our exchange rate loss and gain and also enhance the position, overall speaking. There's only limited time, so I can only briefly give some explanation to the technical dimension of this question. So on one hand, within Mainland China, the expenses are mainly in RMB. But then when it comes to overseas business and also external payment, the usual habit is for USD to be used. So that's why we will be subject to impact from the fluctuations and volatility. So just now we answered a question about debt structure optimization. So last year, we increased our RMB debt and we used it to repay some of the high interest rate USD debt. As a result, the interest rate has come down because of this swap. Well, for USD debt, the interest rate was 4% and we changed that into RMB debt at an interest rate of 2%. So there is this interest rate differential. But then at the same time, there is also depreciation in interest rates. So these 2 movements are offsetting each other. Unknown Analyst: I have 2 questions. The first question is concerning your rig platforms. Utilization rate has been high. And then we know that there is a tight demand and supply situation concerning the semisubmersible rigs. So do you have any plan to build new semisubmersible rigs? My second question is related to the Technology segment. So we understand from the market that there is overseas development plan for this particular business segment. And now that there is the war and conflict in the Middle East region, so will this plan about achieving breakthrough in the Middle East be affected? Unknown Executive: So first of all, in relation to large-scale equipment, during the 14th 5-year plan, we have seen a rapid development stage. And then we believe that in the 15th 5-year plan, it would be in a tight balance or tight equilibrium position. So we are actually expediting our development and also R&D in this regard, hoping to achieve low-cost construction and highly efficient construction as well. So our principle is one of productization. So we are going to capitalize on our self-developed design, our own R&D, our self-construction in our platform and rig construction work. So we will make sure that we can come up with our own design and own research and development. And we believe that there are a few characteristics of the rigs and platforms that we develop and construct, namely that they are reliable, they are highly efficient, intensive and also there would be a high degree of integration. So we believe that we are able to make quite a lot of improvement in such a way that all such equipment construction work can be replicated and can be further promoted, so that they would be enough to support our future development for the coming 5-year plan period. Unknown Executive: So let me comment on our Technology segment. During the 14th 5-year plan period, we have seen changes in the overseas market. First of all, in terms of regions, we have newly added Uganda, Kuwait, Brazil, Canada and Thailand. And then in terms of customers that we serve, we have also acquired new customers, including Kuwait National Petrol, customers in Saudi Arabia, in France and also in the U.S. As I mentioned earlier, we are operating in the 5 major continents in 13 countries, and we have 120 operation sites. So we have already diversified our market and also our customer mix. This is also a good testimony that our technology and our management is well recognized by our customers. We are even better able to withstand and control risk. During the 14th 5-year plan period, especially at the beginning of that period, we have already established our 5 major strategies, of which the strategy about being technology-driven and also the strategy of integration have helped us enhance our overall competitiveness, especially in our overseas market and overseas development. So these 2 strategies have already accounted for 40% to 50% of our revenue in the 14th 5-year plan period. For these 2 strategies, integration and technology-driven, we have also diversified our businesses. And as a result, we have enhanced our overall competitiveness, and we are able to balance out market risk as well. So we are of the view that the war is going to be temporary in nature and also it is rather local in nature. And we will keep on diversifying our market as well as our customer base. Our direction of technology development is already very clear. Competitiveness is improving. With the market foundation, technology foundation and management foundation that we have already built, we believe that our future development is going to get better and better. Unknown Analyst: The first question is about the optimization of structure. So just now, we heard from your answers that especially for overseas business, there is now industrial integration. And during the 15th 5-year plan period, you are going to increase your equipment resources. So regarding this increase in equipment resources, I would like to know how you are going to do it. Are you going to consider new equipment resources within China or the mature equipment resources, or are you going to consider overseas M&A? I think this is related to the structure optimization between domestic and overseas that you have been talking about. And my next question is that your current business model is already different from your old past business model. You have already got the long-term agreement in place in the North Sea area, and the daily fee rates are sort of fixed. And is there any mechanism for the passing on of the oil price increase back to, for example, the oil companies and other companies, because in the past, costs have been controllable. But now that there has been a big surge in oil price, is there any way that you can pass on such oil price increase impact? Unknown Executive: During the 14th 5-year plan period, as we are increasing our large-scale equipment resources, basically, there are 4 methods for us to do that: leasing, self-construction, transfer, and purchase or acquisition. So right now, we are increasing our development in our internationalization strategy. And as mentioned earlier, the large-scale equipment capability within China is also rising. So earlier, I mentioned the tight balance between resource demand and supply. So we have already commented on the self-construction of equipment. And for the buy or purchase strategy, we will consider that when we see resources with high value for money. And for leasing, it has to be left for a later stage, because right now, we believe that we are going to increase our self-owned vessel fleet in order to support our future development and growth. As regards to the price, pass-through mechanism for North Sea, if such mechanism can be put in place, it is good. But then right now, we believe that our customers also encounter much difficulty. We have got the long-term agreement signed for the North Sea region. It is actually because of the energy management system, we are able to lower cost for the operators. And at the same time, we can enhance efficiency. So it is actually a win-win situation for both the operators as well as ourselves. So this is also one of our key competitiveness when we operate in this particular segment. Last year was the final year of the 14th 5-year plan period, and this year, we will see the start of the 15th 5-year plan period. During the 14th 5-year plan period, our integrated overall capability, our innovation capability and our management capabilities have improved significantly. And we have the confidence that we will be developed into a global energy resources and technology company. So we have a lot of courage and confidence in achieving this goal. During the 15th 5-year plan, we have actually got 4 main points in relation to our overall development. First of all, even though there has been some changes in our strategy, but then we have already consolidated and solidified many of our development strategies. So our future development is going to be centered around all these established strategies. So even though there is a lot of uncertainty in our development environment, but we will still be firmly adhering to our strategy. Secondly, we will rely on the drive from our technology and equipment products and services to continue our business development. The third point is that there would be some solidification and changes in our development methods and approaches. In the past, we focused a lot on the major elements input. And this is going to be changed into a knowledge-based approach. And then finally, we will deepen our reform. Many of our reform initiatives started in the 14th 5-year plan period. And in the 15th 5-year plan period, we are going to refine them. So under the leadership of our Board of Directors, we believe that we will see many friendly customers with very close relationship. We will be focusing on our core strategies and business segments. We will also center around our efficiency improvement and value improvement. So with all these, we believe that we can gradually develop ourselves into a first-rate global energy technology management company. Thank you all for spending time with us today. Unknown Executive: Thank you for all the questions and answers. Thank you, investors, friends for attending COSL's 2025 annual results announcement today. The company will continue to maintain communication with you through various channels. Today's session is now concluded. Should any investors wish to engage in further dialogue, please feel free to contact our IR team. We look forward to seeing you again next time. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Crissa Marie Bondad: Hi, everyone. Good morning. Welcome to the full year results briefing of D&L Industries. To discuss the results, here with us today is Mr. Alvin Lao, President and CEO. I now turn over the floor to Alvin. Alvin Lao: Hi, everyone. Good morning. Thank you for joining us today for the discussion on the full year results of D&L Industries. So the highlights, we did better than we expected. 2025 was not an easy year. So we managed to have net income increase by 10.6% versus the previous year. And very encouraging is, as you see there compared to fourth quarter of the previous year, net income was actually up by 20%. Second bullet point, we did see good growth in volume across almost all segments, and we'll go into more details later. Despite the big surge in coconut oil prices. So we did see margins also starting to improve. Gross margins in the fourth quarter doing better versus the previous quarter. We also saw our CapEx continuing to trend lower. Even though coconut oil prices peaked last year, they have started to ease, and it does give us a lot of room to -- with lower working capital to be able to allow us to be able to reduce debt going forward. So bullet point number 5, of course, we are faced with a lot of things going on outside the country, which is affecting everyone. But we are continuing to look for these silver linings as we always do. And essentially, hopefully, these are opportunities for us, to continue to present ourselves as a solid supplier and partner to work with our customers. So here's a look at the change or how our net income has been over the last couple of years. So you can see there, our net income actually peaked in 2022 at around PHP 3.3 billion and comparing 2024 to last year, they received a 10.6% increase. With -- on the right side there, you can see the breakdown. So Chemrez Group being the biggest contributor of net income, followed by specialty plastics, wood coming 1/3 and consumer products ODM in fourth place. So here's a look at how our Batangas plant has been doing. So it's still profitable. But -- and it is not -- it's not as steady as we hope, but it is still at least keeping its head above water. As we roll out the utilization, we should continue to see improvements in the income from the Batangas plant. Here's a look at the condensed income statement. So there, you can see a very big jump in revenue. But again, just as we have mentioned in previous quarters, a lot of this increase in revenue is tied with higher commodity prices. So a better way to measure our growth, how we're doing is really looking at the volume change. But what we've highlighted there in the green box is really how net income has changed. So year-on-year, up by 11% quarter-on-quarter, up by 15%. And then just fourth quarter year-on-year, up by 20%. So a look at our export sales in the next slide, you can see that our exports did go up, value went up by 16%. But in terms of -- so what's been happening is last year was the first full year of the 3% blend for biodiesel. So that had a very big impact in terms of adding volume to our domestic sales. So it made the growth in exports look smaller. So we actually saw a decrease in exports as a percent of total sales. But it's really more a factor of our domestic business growing much bigger. And so we can see that also here in this slide. So in the previous periods, I remember, I think it was last year and the year before, we would see revenue and net income -- or sorry, gross profits from exports outpacing that for the domestic business. But it wasn't the case for last year. So biodiesel was one factor with this. However, if you take a look at the bottom of the slide, you do see that as far as our profit margins are concerned, the profit margins for exports still do still performed much better than the domestic business, 16.4% versus below 12% for the domestic business. The next slide is our volume, how volume has changed across the different businesses, and then we split it between high margin and commodity. So almost all segments saw increases with the exception of the food commodity segment. So that was down by a little bit down by 2%. Everything else was up. the biggest increase coming from by diesel, which is a 36% increase in volume for Oleochemicals commodities. Overall, for the company, volume increased by 8%. And then overall, high-margin volume was up by 9%. So I would say we did pretty well considering for our Food Ingredients business, the commodity side, that's actually the lowest margin category we have in our business. We will talk about more details with that in the next -- in the upcoming slides. So just looking at high-margin specialty products. So volume for this, as was mentioned in the previous slide, for the year, was up by 9%, although it was down a little bit in the fourth quarter. So comparing fourth quarter 2025 versus fourth quarter 2024 volume was down by 4%. But for the year, it was up by 9%. So the -- even though we did see a slight drop, it was more than offset by the big increases we saw in the first and the third quarters, so that made up for that slightly weaker fourth quarter. Here's a closer look at the high-margin Specialty Products segment. Revenue up by 22%. And on the right side there, you can see Foods, the biggest contributor of revenue for high margins. On the bottom left there, you can see our margins for the last 12 years. And for the year 2025, high-margin specialty products margins were lower compared to the year before, coming in at 18.5%. However, if you take a look at the box in the dotted line there. It's a breakdown of margins across 4 quarters of last year. And you can actually see that there is an improving trend. The fourth quarter margins came in at 20.1%. So versus third quarter, which was at 17.6%. So it's not -- so there is a bit of a silver lining in the sense that there is that improvement as far as the quarterly margins are concerned. Next is the commodity closer look at the commodity segment revenue up by 64%. For the commodity segment, it's much easier for us much quicker to pass on price changes, so you can see that margins dipped a little from 8.7% to 7.5%, but still more or less in that midpoint between -- so the low for commodity margins would come in at around 4% and the high usually comes in at around 10%. So at 7.5%, we're just at that midpoint where we expect commodity margins to be at. So a look at our revenue mix. So there's that increase in the biodiesel blend. So that started October of 2024. So from 2%, it went up to 3%. We were a big beneficiary of that increase. And that is the biggest reason why we did see commodities as a bigger share of our revenues last year. However, we do expect the trend to approach that, meaning before COVID, it was roughly 2/3, 1/3 blend, meaning 2/3 coming from high margin, 1/3 coming from commodities. Long term, we still expect that direction or trend to be what we will see in the business. The next slide. So a couple of things going on here. In the middle, you see our 2 most used commodity raw materials, coconut oil and palm oil. Together, they make up approximately 60 -- roughly 60% of the raw materials that we used as a company. And you can see there on the right, coconut oil prices year-on-year were still up, we're up by about 62% versus palm oil, which is up by just 6%. And coconut oil prices actually peaked in August last year. So not -- you can kind of tell in the chart. So we hit $3,000 a tonne for coconut oil around August of last year. Currently, we're at roughly 2,3 -- between $2,300 and $2,400 versus the low -- so from this chart, you can see that the low is roughly at around $1,000 a couple of years ago. So it has been very volatile period for coconut oil prices. Below that, of course, is the dollar-peso exchange rate. So we ended the year at PHP 57.63. But of course, we're at the PHP 60 level today. So that has also been affecting our costs. But above that, you see there the change in margins don't so much reflect what's happening in the prices of our raw materials. And it's actually more a closer pattern to the change in our product mix that we showed in the earlier slide. So it's really the product mix that's driving our margins much more than the changes in the underlying prices of our raw materials. Next slide, our condensed statement of cash flows. So with coconut oil prices up by 62% and with coconut oil making up, I think still over -- sorry, over 30% of the raw materials we used. That's another big effect on our working capital. So more cash tied up in inventory and receivables even more than last year, up close to PHP 6 billion, as you can see. So -- but you also see that CapEx is lower versus the previous year. But we're still ending the year with negative free cash flow at negative PHP 1.2 billion. But as I mentioned earlier, coconut oil prices have been trending lower and it doesn't look like it's going to hit the high that we saw last year. So assuming working capital is much steadier this year because of steadier raw material prices, then that should be a very big change in -- not just our working capital, but in our free cash flow as well for 2026. So this slide, this is our -- how our CapEx has been. So end of 2018, we started construction of our Batangas plant, CapEx peaked in 2022 and since then, has been trending lower. So we ended the year at PHP 767 million in CapEx. So that -- I would say that's pretty close to the stable CapEx level, we would have going forward, meaning not much costs -- not much CapEx anymore tied to the big construction in Batangas. It's really more things like maintenance CapEx and upgrading of a couple of lines, but not as big compared to what we saw in the last couple of years. So this will be another factor, which will contribute to better cash flows for the group as well. So this is jump into more details into each segment. So here, you can see the contribution for each of our 4 major divisions in terms of revenue as well as net income. So in terms of revenue, food is still our biggest followed by Chemrez, third specialty plastics, fourth consumer products ODM. But in terms of net income contribution, Chemrez was #1, followed by Specialty Plastics. Both at or over PHP 1 billion in net income. Food ingredients at #3 and Consumer Products ODM at #4. So dive into our Food Ingredients business. So we saw volume up by 4% and revenue up by 34%. However, a lot of changes happening, especially. So first of all, we did see volume growth across all the high-margin segments in food. So -- in the 4 boxes that you see at the bottom, especially fats and oils, specialty ingredients, food safety. These have been our high-margin performers for food. It's only that second box, refined vegetable oils, which is low margin. As you can see, they're coming in at 4.8% gross profit margins. So in terms of revenue coming in at the same level of revenue increase as the overall food segment at 35%. But you can see there the volumes started to drop. Volume is actually down by 2%. And this is 1 segment that grew a lot during COVID. For those of you who have been following us for the last couple of years, during COVID, we saw a massive jump in our commodity refined vegetable oil segment because it was really a market share gain. A lot of our competitors were not active in this category. And so it was just an opportunity for us. We had the facilities. We have the access to our suppliers, so we were able to gain market share. However, we are starting to give a lot of that market share back. So you will -- so we did see volumes drop in this segment last year. You will continue to see volumes drop in this segment. The overall effect on margins and profits is not as big because it is -- the margins in this segment are quite low at below 5%. So you should see overall margins for this segment go up in the next couple of years as we trim that volume or that market share in the commodity segment. For the next slide, so that's Chemrez. And the big driver of change in this segment is really coming from biodiesel. So 2025 was the first full year of a 3% blend. We only had 2% -- sorry, we only had 2 months of the 3% blend in 2024 because it really started October. But in 2025, it was a full 12 months of the 3% blend. So there, you can see the big jump in volume, revenue as well as net income. Overall, margins were lower because biodiesel is a lower-margin business compared to the other businesses of Chemrez. But still, overall, Chemrez, the biggest contributor of net income for the group for the year. In terms of more details of the -- just a little bit of history. So the law, the biofuels law passed in 2006, 1% blend started in 2007, went up to 2% in 2009. It was only 15 years later that the blend increased to a further 3%. So that was in October of 2024. We do not know yet when the next increases will happen and our attitude even before, it's something we don't really price in or we count on our projections. It's just a bonus if it does happen. But what we have seen in the past, every time there is an increase in the blend, Chemrez does benefit. So here specialty plastics. So this segment -- it's the steady eddy of our business, doing -- continuing to do well. Even if volume was flat, revenue was up by 4%. Net income was up by 9%. And margins were higher as well by 0.6%. And this is a segment that doesn't really cater much to single-use plastics. It's really the plastic materials that we see replacing more materials that we use in our lives, everything from cars, cabling in buildings, appliances and so on. So still a lot of development going on, and we believe still a lot of growth coming going forward. And then fourth, Consumer Products ODM. So this was a business, especially personal care that really suffered during COVID. I remember it was just something that just looked like it fell off a cliff 6 years ago when COVID started. So it's still continuing to make a comeback. We have also started to see exports in this segment as well. So still a relatively small business, but now I believe it's contributing 8% of net income for the group. So becoming relevant. Next page. So our asset-light model. So on the left side, you can see there -- the group -- if you look at the balance sheet, it doesn't own a lot of fixed assets. So things like property, warehouses, barges and so forth. These are not -- D&L doesn't have any of these in the balance sheet. It's all leased from affiliate companies. So that cost usually comes in at between 1% and 2% cost and expenses. And then -- so these are related party expenses. On the right side, you see there D&L as a service company to the group performs a lot of what we call management and shared services. So everything from HR, admin, accounting and finance, legal, IT, and so it charges the sister companies and that charge is really the party income for D&L. So helping to offset the related party expense. Next slide, cost structure. So our biggest cost by far is still raw materials. So for 2025, it was 84% of costs and expenses just coming in from raw materials. Number two, is labor; number three, depreciation and rental. So our fixed costs are pretty much labor depreciation and rental and maybe some of the utilities and maybe half of others. So a little over 10% of our costs classified as fixed, almost 90% of our costs classified as variable. This is something which makes us very different from almost every other manufacturing company. It makes us -- in terms of our business model, this is what allows us to survive and be nimble every time there's a crisis. On the right side there, you can see the breakdown of raw materials. So coconut oil at almost 40%, palm oil, 22% together, 61%. And there, the text on the right side, roughly 31% of the raw materials we use are important. So if you do the math, you can kind of figure out that our -- the amount in terms of raw materials we use is almost exactly the same as the dollar amount of our exports. In fact, I believe our exports are already slightly ahead of our importations. So that means on a net basis, we're not a dollar user anymore. We are adequately hedged and over time, as our exports increase, we will likely be a dollar -- a net dollar earner already. Bottom left, you can see there, technology spend, so this R&D as well as IT and this is something that we have seen increasing gradually over time. So we are continuing to invest in R&D and technology. Next slide. So our balance sheet. So we did have to bring on more debt to finance the higher working capital needs. So that was in the cash flow slide that we showed earlier. So debt ratios have gone up. But in terms of book value per share, return on equity as well as return on invested capital, we have seen increases as well versus the previous year. Next slide shows you capital structure. So the yellow bar there is debt, so that has gone up. Net gearing is now at 96%. So still not -- I would say it's not -- we're not heavily geared. Interest cover is at 3x. Net debt is at PHP 21.9 billion. Average cost of debt at roughly 6%. This includes the cost of documentary stamp tax. And then the next slide. So this is our effective interest rate and net debt as well as interest cover over the last 10 years. Next slide is our working capital cycle. So big improvement from 139 days in 2024, we're down to 110 days, inventory at 74 days, an improvement over the previous year's 107 days. Payables is at 9 days. So this is something we are continuing to work on because it was 21 days the year before. We also saw an improvement in receivables. So 45 days now for our AR days. Okay. Next slide. So the family has been continuing to buy back shares. Even in 2026, we have bought back shares. So since the IPO, we've bought back roughly 9% of the company. So every time we saw the price drop to a level where we felt it was a good bargain, we would buy. We have stopped buying the last few days because we're in a trading ban because we are disclosing our results today, but once the trading ban is lifted, you can be assured as that price stays low, the family will continue to buy back. Okay. Next, so we are continuing to participate in various conferences, both domestic as well as internationally. And the previous one was with the PSE last week at the Grand Hyatt. And yes. So one reason why we like buying our shares back is just we know that the dividends are coming in pretty good. And yes, that's it in terms of what I wanted to present. So we're open to Q&A. Crissa Marie Bondad: Okay. Thank you, Alvin. [Operator Instructions] I have a couple of questions lined up here. So let me just meet them. Okay. The first question comes from Dan Brian. Okay. First question, what is your outlook on palm and vegetable oil given the recent surge in petroleum prices? Second question, how are your F&B related orders currently amidst the oil prices? Third question, how are your nonfood-related orders currently amidst the oil crisis? And he has a follow-up question, which I would also read now. Could you please remind us what products encompass the food commodity segment? Alvin Lao: Okay. So first question, outlook on palm and vegetable oil. Typically, there is a correlation. So the way it works normally from what I understand, crude oil, meaning petrochemical crude oil usually affects soybean oil prices in the U.S. because soybean oil is fuel substitute. And then the effect on soybean oil has the domino impact on palm oil and then eventually, it reaches coconut oil as well. So crude oil prices have gone up a lot. But from what I can see so far, coconut oil prices have not gone up that much. Crissa I'm not sure if you have a recent slide to show. Crissa Marie Bondad: We do have. Let me just... Alvin Lao: Sure. So okay. So while Crissa is pulling that up. So thank you. There you go. So this is as of, I think, a couple of days ago. Yes, okay. So as you can see there, there is a slight uptick but it's not as significant as what we saw happening with crude oil. And I think a big factor here is that we're still near extremely high price levels for coconut oil. We're not at high levels for palm oil. But from what I understand, there's no -- there's really no shortage in terms of supply for both of these oils. So with prices having -- especially for coconut oil peaked in August of last year at $3,000 a ton. It just went up too much. And so -- so the outlook is they may go up, but not as much as what's happened with petrochemical crude oil. So that's the first question. Second question was how our F&B related orders are currently amidst the oil crisis. I would say it's too early to tell because the war in Iran started 25 days ago on February 28. But I have been hearing from business owners that they have seen a decrease in business. So not just F&B, hotels and other nonessential, non like travel and so forth. Volume seems to be lighter in the month of March. That's what I have been noticing. What I heard was that January and February for the hotel. So the hotel industry is actually one industry that has been lagging in terms of recovery from COVID. So the lockdowns ended in 2022, but our international arrivals in the Philippines was only at around the 6 million level last year, 6 million, 6.5 million versus -- it's still down 20%, 30% versus the peak we saw in 2019 before COVID. So we were supposed to see continued recovery for international arrivals, especially for the hotel industry. January and February were supposed to be really good. March may not have done as well, we'll see. But in general, it's usually the case. Every time prices go up, especially for crude oil, that really sets the pace it affects everything -- the price of everything. And so there will likely be a dampener effect on the economy. That is very typical. And the F&B and even nonfood, we will see some impact as well. It's just how the way it is when costs go up, people spend -- they're not able to spend as much because more of their disposable income is tied up with essential goods. So that's question 2 and 3. Question 4 products at Encompass, food commodity segment. So that would be -- so we do trade coconut oil as well as palm oil, refined coconut oil, refined palm oil. Biodiesel is also a commodity. But when it comes to just food ingredients, it's really just what we call straight oils. So yes, you can see here in the slide more details. Refined usually means RBD. That means refined, bleached, deodorized and could be palm oil and other variants also as coconut oil. Crissa Marie Bondad: Okay. Next question comes from Dario Actually, he has 3 questions. First question for the commodities business is interest expense a cost pass-through with clients? Second question for Batangas plant. Could you elaborate more on why net profit had been trending down over the past few quarters? What has been performing above expectations? And what has not been performing quite up to expectations? Last question, I believe you touched on this, but in case you want to add something else. So how do you see higher oil prices impacting the business? Alvin Lao: So first question about commodity business. Yes, we do pass on interest expense to our customers. So every time we price a product for sale, we look at all of the costs, logistics, cost of money, insurance, so on and so forth. And interest expense is part of that. In terms of the Batangas plant, so yes, the income has been trending lower. I would say it's really a function of us varying the production between the Batangas plant and all the other plants. So Batangas plant is our biggest plant, but it's just 1 of 7 plants that we have. And it's normal for a company to tweak what we make across the different plants. Well, the other factor here is that -- we don't make any biodiesel in the Batangas plant. And with the Batangas -- sorry, with biodiesel being our biggest volume driver last year, it's -- we just saw more profits coming from the biodiesel plant, but Batangas didn't benefit from that. So that's another factor. But yes, that's -- I would say -- since the plant has already been operation for 3 years, maybe we don't need to focus so much on how the Batangas plant is doing, I mean at least not focusing so much on the income from the plant. I think what we've been able to show is that we reached profitability earlier than we projected, and it's already accretive to our business. And I think that's the most important point. In terms of how higher oil price is impacting us. So it's actually not just higher -- of course, higher prices for oil impacts everything eventually. That means our costs go up. But for us, since we do price pass-throughs, the effect is we're able to pass it on. I think a bigger worry for a lot of companies, including us, is with the closure of the Strait of Hormuz and the closure of a lot of petrochemical producing assets in the Middle East, will that reduce supply? And that, I would say, is probably the bigger worry a lot of companies have. And I am aware the government has been making a lot of statements to reassure everyone, not to worry about supply, but it is a common discussion point across many industries, many companies, many countries I would say that is as big a factor, not just price. Crissa Marie Bondad: All right. The next question comes from Martin [indiscernible]. So you mentioned margins are more driven by product mix than raw material prices. Can you quantify mix impact versus raw material price impact in full year 2025? If mix is the key driver, why did margins still compress significantly during the coconut oil spike? Alvin Lao: If you overlay this chart, so this is our product mix chart. If you overlay this against the -- I think it's the next slide, with the margins, there you go. You can really see the trend. So of course, the product mix is not the only factor affecting our margins. The high price of coconut oil last year, I mean we definitely are able to pass on price changes. If not, you would see much bigger volatility and fluctuation in our margins compared to what's shown here. I mean coconut oil prices going from $1,000 to $3,000 a tonne. That's a huge change. And I don't care what business you're in, if your raw material price goes up by 3x, your margin is going to be impacted. But -- so there is a change, but we're not seeing that level of volatility. I guess the other factor here is that when prices change, we do see a lag for commodity, which is roughly half of our business now, the general rule, when prices change in the market, our selling price changes immediately. But for our high-margin product, there is usually that 30- to 45-day lag because our customers typically order between 30 to 45 days ahead, we agree on the volume, but we also agree on the selling price. And we fix that price. What happens is when the raw material price goes up, we tend to lose out because prices went up. But after that 30-, 45-day period, we can adjust. So it's not a perfect pass-through, but effectively, it still is a pass-through, it's just a lag. I'd say, though, again, looking at where coconut oil prices were, looking at how prices peaked last year, hitting $3,000 a tonne level. And I'd say one big -- so let's compare coconut oil to how not just crude oil has moved. Let's go with jet fuel, for example. For those of you who track crude oil prices, you probably -- you're aware, there is no one benchmark crude oil price. The 2 most quoted are West Texas Intermediate, WTI, which is the U.S. benchmark and then Brent, which is the benchmark in Europe. But the Philippines actually doesn't use WTI or Brent for its pricing. It uses Dubai. You've got -- then you've got jet fuel price as well, which is another benchmark altogether. I mean -- so jet fuel from what I saw yesterday is at or around $200 a barrel. So that's I believe that is why yesterday, we were hearing news about the possibility that the Philippines and other countries might have issues as far as refueling planes. So compared -- the reason I bring this up, if you look at how coconut oil has moved, however, it's probably moved less than 10% from the [ $200, $250 ] level, it's now at [ $230, $280. ] So what's that, maybe a 5% change. It's not -- they're just I think it's accepted in the market, the prices really went up too much. So -- so that is, I would say, positive for us. It's good for our margins going forward. It's also good for our cash flows going forward. Crissa Marie Bondad: All right. Next question comes from Rainier Yu. Given current events, any risk for the biodiesel blend to be pulled back to 2%? Also, any supply challenges in resins? Alvin Lao: So for people who don't see the breakdown of how our pump prices are calculated, it's very tempting to just drop everything that's more expensive. So you've got excise tax that is actually bigger. I believe that at 12% -- I mean you can do the math. It's huge. Excise tax, I think, is at PHP 6 per liter. Biodiesel, I think, it's maybe PHP 1 effect currently or maybe less actually with pump prices as high -- I believe the DOE yesterday's guidance was as high as PHP 134 per liter for diesel. That's actually higher than the price of biodiesel now. So I don't think it would make sense to reduce the blend of biodiesel because it's actually a cheaper fuel compared to regular diesel now. So actually, it would make more sense to increase the blend. So I'd say there's a lot of knee-jerk reaction, drop the price because we don't want prices as high now because it has so much negative effect. But I believe we need to look at the details more closely. It's not as simple as just dropping everything. Sorry, and then the other question was about supply challenges in resins. Definitely, there are supply challenges. I mentioned earlier with shutdowns and blockages, it affects supply. And that is a concern we have. Crissa Marie Bondad: Okay. Next question comes from Clark. Is the lower inventory days due to lower volume stock for raw materials? If so, which raw materials? Alvin Lao: Lower inventory base is -- well, so we saw -- when we saw prices of coconut oil, not just coconut oil, almost everything prices went up last year. And when things are more expensive, it's more expensive for us to carry them. So it's just part of our efforts to be a more efficient company to try to reduce the cash that's stuck in inventory. So I would say that's the bigger factor. It's not -- and I think there was no worry about supply before February 28. So it was really a price game. You could buy as much as you wanted. You just have to pay the price. I don't think that's the case anymore. There is -- I don't think there's a lot of commodities now that's in unlimited supply. Things are not as fluid in terms of supply now for a lot of industries. Crissa Marie Bondad: Okay. Next question comes from Peter Wang. So coconut prices seem to stabilize at still a high level about $2,500 per metric ton. How will this impact our margins going forward, especially for a supposedly high-margin business segment like food ingredients. And by the way, in the last quarter, had the profit after tax for food ingredients turn around from losses in the past quarters? Alvin Lao: Good observation, Peter. I thank you for continuing to follow us very closely. So yes, our Food segment is doing better. And it did better in the fourth quarter compared to the previous -- to the second and the third quarter. Are margins going forward? So I did touch on this earlier, but I don't mind repeating this. When prices of raw materials go up, our capability to pass on price changes is something that we've been able to -- because that's really our business model. That's really how we are as a company. And it is something we can do. But -- if you look at the breakdown of what we sell -- the bulk of what we sell is not petrochemical related. So Crissa, could you go back to the breakdown of revenue by the 4 major divisions? There you go. So what's petrochemical-related here? So that's 100% of specialty plastics to 6%. Consumer Products ODM, you've got packaging let's just assume everything there is petrochemical-related even if it's not, but it's not food, okay. Then you've got everything else, 91%. So part of Chemrez is petrochemical related, but a big chunk of it is biodiesel as well as oleo chemicals. And -- so we've got probably 75% or 3/4 of our business in non petrochemical. I guess this is the benefit of being a kind of diversified company being in several different segments. So petrochemical margins will be challenging definitely. But as I mentioned earlier, it's really supply that's a bigger worry because if you have supply, you can really dictate prices. And that's something we saw in previous crisis. So our company has been around since 1963. We've been through the first oil crisis in 1973, the second oil crisis in 1979. I don't think Crissa was born yet then, but I was already around, but I was still in short pants in grade school. But I've heard the stories. I -- and other crises as well in the '80s, in the '90s, in the 2000s, and of course, we had COVID recently. And then when Russia attacked Ukraine, I think we're still going to be okay just because we do have that business model that allows us to survive. So yes, our high-margin segments should still be okay. And again, our worry is not really the margins because most of what we sell is actually not petrochemical based. And the costs are not going up as much. The bigger worry we have is really making sure we can maintain supply. And of course, on what's happening with the economy, that would be, I would say, the bigger worry. Crissa Marie Bondad: All right. Next question comes from Denise Joaquin. How exposed is B&L to supply chain disruptions from the war and which raw materials or inputs are or could be the most affected? Second question is management looking to provide an earnings guidance for the year? Alvin Lao: So I can go to that second question because it's easier to answer. All our budget forecasts that we made last year, having thrown up the window because things have just changed so much. All our assumptions, interest rates, dollar peso exchange rate, price of crude oil, economic growth, nothing is the same anymore. So we are not in a position to forecast net income or earnings guidance. What we can say is that we have seen a lot of crises before. And -- like if you look at how we did in 2022, when Russia attacked Ukraine, that was actually a record year in terms of net income. Of course, you had other factors like the reopening of the economy and so forth. But if you look at how we did in past crisis, I'd say we didn't do too badly. So it's just how our business model is and how we are as management in terms of how we run the ship. So your original question, how exposed are we to supply chain disruptions in the war and which raw materials or inputs are affected. It's not as -- so what I'm hearing from -- so luckily, we have a lot of people in the company who still remember what happened in the '70s. So I've been interviewing them. And I've been reading reports as well from what I understand, Things have not gotten as bad compared to -- in the '70s, I heard there was rationing, people were literally pushing their cars to the gas station because the cars didn't have gas anymore. You had coupons. So to buy gas at the pump, you need a coupon, things like that. We're not there yet. So things are not that valued. I think -- what's happened is access to media, especially social media, the day it happened, we saw videos of Dubai airport smoke coming out. We saw buildings, exploding and things like that. Media just has accelerated that fear that we have. I would say that's been the biggest impact so far, and that's what's driving all the sentiment. But we're nowhere at least from the conversations I've had with various people, we're nowhere near the effects that we saw from a lot of the past crisis. So yes, I'd say it's still early days. There will be impacts, but I think everyone is just pricing everything in now even in stock prices. It's just how the market is at the moment. Crissa Marie Bondad: Okay. Next question comes from Brian. What percentage of revenue or how much of revenue is coming from Batangas plant? So I can actually take this around 25%. Okay. I saw someone earlier raising his hand. Let me just check. Okay. I think this question has been answered already. I don't see anyone raising his hand. Okay. That's all the questions that I can see from my end. [Operator Instructions]. Okay. I got a question here from Peter Wong. Among the 4 business segments. In terms of profitability, which segments you will be most bullish on and vice versa. It seems to me that the profitability for specialty plastics will be significantly impacted by the war. What about the other major 2 business segments? Alvin Lao: Great question. That's something we have been discussing a lot in the last few weeks. Unfortunately, war, if things don't improve, it will really impact all our businesses. There -- I don't think any of our segments will be spared. And it's not just lack of supply. It's not just expensive raw material costs. It's really the effect on the overall economy. Our company provides a lot of very basic essential raw materials to industry in the country. If the economy does slow down, we're just going to be impacted. That's really how we are positioned as a company. So still early, but I don't think there's any probability that any of our businesses will not be impacted. Yes. Crissa Marie Bondad: All right. Thank you, Alvin. I don't see any more questions from my end. So if no more questions, that concludes our full year briefing. Again, if you have further questions later on, you can always reach out to us. So thank you very much for attending our full year briefing, and we'll see you next quarter. Alvin Lao: Thanks, everyone. Good morning.
Operator: Good morning, and welcome to Reed's Fourth Quarter and Full Year 2025 Earnings Conference Call for the 3 and 12 months ended December 31, 2025. My name is Joelle, and I will be your conference call operator for today. We will have prepared remarks from Neal Cohane, Reed's Interim Chief Executive Officer and Chief Operating Officer; and Doug McCurdy, Reed's Chief Financial Officer. Following their remarks, we will take your questions. Before we begin, please take note of the company's cautionary statements. Today's call will include forward-looking statements, including statements about Reed's business plans. Forward-looking statements inherently involve risks and uncertainties and only reflect management's view as of today, March 25, 2026, and the company is under no obligation to update them. When discussing results, the presenters may refer to non-GAAP measures, which exclude certain items from reported results. Please refer to Reed's fourth quarter and full year 2025 earnings release on Reed's investor website at investor.reedsinc.com and its annual report on Form 10-K for the 2025 fiscal year for the period ended December 31, 2025, expected to be available on the website soon for definitions and reconciliations of non-GAAP measures and additional information regarding results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. I will now turn the call over to Mr. Cohane. Neal Cohane: Thank you, Joelle, and appreciate everybody joining us today for the call, the fourth quarter and full year 2025 results. Before diving in to our results, I'd like to briefly address the leadership transition. As announced in our earnings press release, Cyril Wallace has stepped down as CEO. I will assume the additional role of Interim CEO while continuing as Chief Executive Officer -- as Chief Operating Officer, and I will also join Reed's Board of Directors. On behalf of the entire Reed's team, I want to thank Cyril for his contribution and wish him all the best in his future endeavors. I'm honored to step into this role at an important time for the company. Reed's is a strong brand with long heritage, a loyal consumer base and robust operational foundation. Having spent many years with the business and recently returning as COO, I have a clear understanding of both the opportunities ahead and the work required to improve execution and performance. The Board has initiated a search for a permanent CEO. And in the interim, I am focused on advancing the operational priorities necessary to support profitable growth. Let's turn to our results. We made important strides during the fourth quarter to stabilize the business and reinforce the operational framework needed to support sustainable growth. We also saw sequential improvements in net sales, gross margin and net loss, which we view as early indicators that the actions we have taken are starting to gain traction. We saw encouraging sequential sales improvements across several channels, including natural specialty, grocery, mass and e-commerce. This was driven by a combination of increased sales velocity and seasonal product launches during the quarter. A couple of the retailers helping to drive this growth with Sprouts, Costco, Walmart and our Amazon and Shopify business. While we're still early in the process, these results reflect meaningful progress in improving execution. We are rebuilding and expanding distribution relationships, strengthening our presence on the shelf and driving greater efficiency across our supply chain and product portfolio to support more consistent performance over time. From a production and supply chain standpoint, we're making meaningful progress in driving efficiencies and reducing costs across the business. This includes optimizing our manufacturing network, improving plant productivity and implementing tighter operational controls to better align production with demand. We're also enhancing our sourcing strategy by leveraging scale, renegotiating key supplier relationships and improving procurement discipline. At the same time, we are actively identifying additional opportunities to lower our per unit cost structure, including packaging optimization, freight and logistics efficiencies and SKU rationalization. As we continue to streamline the supply chain and improve throughput, we expect these initiatives to expand margins, improve service levels with our retail partners and position the business for more scalable and consistent performance over time. Looking ahead in 2026, we are focused on expanding our presence in under-penetrated channels, particularly food service and convenience, which represent meaningful white space opportunities for the Reed's brand. These channels are highly complementary to our core retail business, enabling us to reach consumers in new consumption occasions and drive incremental trial and brand awareness. I'd like to share a few updates on our product portfolio. First, we are launching the Reed's -- new Reed's Ginger Ale Cranberry and Blackberry in Q2 2026 as a line extension to our #1 selling SKU, which is the Reed's Ginger Ale. The core item, the Reed's Ginger Ale, remains the #1 premium ginger ale in total U.S. and continues to grow and is plus 13.7% in dollar sales over the past 52 weeks. Second, we are expanding into high-growth adjacent categories with the launch of nonalcoholic mixers in early Q3 2026, providing incremental sales opportunities in the back half of the year. Third, we are amplifying visibility at the digital shelf. In March 2026, we went live across Instacart, walmart.com and albertsons.com, reaching over 4 million targeted shoppers monthly through sponsored search, sponsored product and banner advertising. Finally, we launched a social media strategy in Q1 2026, targeting over 100,000 viewers per month. We partner with recognizable talent, including a retired NFL player, Hayden Hurst, alongside a network of high-reach influencers. This approach is designed to authentically integrate Reed's into our culture, driving awareness, engagement and trial in a scalable, cost-efficient manner. Overall, these initiatives reflect a deliberate multipronged growth strategy, building on our core and expanding into high potential agencies and fully supporting the brand through digital and cultural relevance. Now let me take you through a couple of the fourth quarter operational highlights. During the quarter, we continued our efforts to evaluate and manage finished goods inventory, including actions to address slower moving and obsolete product as part of our effort to simplify the portfolio and focus on higher-performing items. On the logistics and supply chain front, we continued executing our rebalancing initiatives to optimize inventory placement across regions and improve overall delivery efficiency. These efforts are focused on reducing freight distances, enhancing service levels and minimizing out of stocks in key markets. We are beginning to see the tangible benefits from these actions with delivery and handling expenses declining 35% year-over-year in the fourth quarter. While still early in the process -- while still early, the process reinforces that we are moving in the right direction, and we remain focused on further refining our logistics network to drive continued efficiency gains and cost reductions over time. We continue expansion into the Asian market and we'll be exhibiting at the sugar and wine trade show in Chengdu, China, one of the biggest food and beverage trade events in the world. We will be launching our latest take on new modern energy drink called [ U Oxygen ], Reed's U Oxygen. U Oxygen will be making its debut for the first time, introducing innovative flavors to key industry retailers and distributors. Reed's U Oxygen builds on Reed's natural ginger base and innovatively integrates the classic eastern herbs of astragalus and ginseng to deliver clean, balanced energy for today's health-conscious consumer. During the fourth quarter, we completed a $10 million underwritten public offering and uplisted our shares to the New York Stock Exchange American, marking a significant milestone in the evolution of Reed's. This transaction strengthens our balance sheet and enhances our financial flexibility providing additional capital to support key growth initiatives across the business, including distribution expansion, brand investment and continued operational improvements. Additionally, uplisting to the New York Stock Exchange American meaningfully elevates our visibility within the investment community and broadens access to institutional investors while improving overall trading liquidity for our shareholders. As we continue to execute against our strategic priorities, we believe this enhanced capital markets platform, combined with our stronger financial foundation, provides Reed's to accelerate growth and drive long-term value creation. Looking ahead, our priorities remain centered on improving overall operating performance and driving more consistent, profitable growth. We see a clear path to margin expansion through a combination of more disciplined trade spend, improved pricing and promotional effectiveness and continued operational efficiency gains across our supply chain and organization. We're also continuing to invest in our international expansion in Asia, where we see a significant long-term opportunity to extend the reach of Reed's brand and capture incremental growth. We believe the combination of these initiatives will enable us to execute our growth and profitability objectives ahead. Before wrapping up with closing remarks, our CFO, Doug, will cover financial highlights and fourth quarter and full year in more detail. Doug? Douglas McCurdy: Thank you, Neal. Turning to our results. All variance commentary is on a year-over-year basis, unless otherwise noted. Net sales for the fourth quarter of '25 were $7.5 million compared to $9.7 million in the year ago quarter. The decrease was primarily driven by lower volumes with recurring national customers and higher promotional and other allowances. Gross profit for the fourth quarter of 2025 was $1.5 million compared to $2.9 million in the year ago quarter. Gross margin was 20% compared to 30% in the year ago quarter. The decrease in gross margin was primarily driven by inventory write-offs and higher cost of goods sold. Delivery and handling costs were reduced by 35% to $1.1 million during the fourth quarter of 2025 compared to $1.7 million in the year ago quarter. As a percentage of net sales, delivery and handling costs were 14% or $2.46 per case in Q4 2025 compared to 17% or $3 per case in the year ago quarter. Selling, general and administrative expenses were reduced by 19% to $4.0 million compared to $4.9 million in the year ago quarter. The decrease was primarily driven by lower contract proceedings and asset impairments. Net loss during the fourth quarter of 2025 improved to $3.8 million or negative $0.44 per share compared to $4.1 million or negative $1.33 per share in the year ago quarter. EBITDA was negative $3.6 million in the fourth quarter of 2025 compared to negative $3.1 million in the year ago quarter. For the fourth quarter of 2025, we used $3.8 million of cash from operating activities compared to cash used of $3.9 million in the year ago quarter. As of December 31, 2025, we had approximately $10.4 million of cash and $9.3 million of total debt, net of capitalized financing fees. This compares to $10.4 million of cash and $9.6 million of total debt, net of capitalized financing fees at December 31, 2024. I will now turn the call back to Neal for closing remarks. Neal Cohane: Thanks, Doug. Our fourth quarter reflects important strides in stabilizing the business and reinforcing the operational foundation needed to support sustainable growth. While there is still work to do, we are encouraged by the sequential improvement in several key financial metrics and remain focused on executing against our priorities to drive profitable growth for our shareholders. With that, Joelle, we're ready to open the line for any questions. Operator: [Operator Instructions] Your first question comes from Aaron Grey with Alliance Global Partners. Unknown Analyst: This is [ John ] on for Aaron. So how best is it to think about the cadence of distribution gains in 2026 and whether the spring resets have presented any opportunities? Neal Cohane: John, thanks for the question. I think we have some work to do when it comes to getting placements right now. We're working on it as we speak. We have the sales team aligned. We're bringing on people to help and support, picking up and gaining more placements, and we're also working on velocities, to improve velocities at store level. So we're going to be completely focused in 2026 on the customer and on our distributors. And it's going to be all about velocities and increasing shelf placement. Unknown Analyst: Okay. Great. And how should we think about the path to profitability and some of the margin initiatives you have in place starting to flow through the P&L? Neal Cohane: The path to profitability is -- Doug and I have been meeting extensively on this. And we're looking at a couple of things here. It's one, we're looking to reduce expenses, which we are doing year-over-year, quarter-over-quarter, we're reducing expenses. But at the same time, we're driving -- we're going to be driving growth this year. So I think what you see today is going to look a lot different than in, say, Q4 of this year. But it's going to be a combination, like I said, of reducing expenses and driving volume at store level. Unknown Analyst: Okay. Great. And then just lastly, is there any additional detail you can provide on the timing of the Smarter Soda (sic) [ SodaSmarter ] launch or color on learnings from the past launch to improve the product, flavor, packaging or otherwise? Neal Cohane: On which launch, I'm sorry? Unknown Analyst: The SodaSmarter. Neal Cohane: Yes. The SodaSmarter launch right now is -- that is one of the first things that I spoke with our flavor house that helps us with launches as I want to improve flavors. But at the same time, we're launching our new mixer line. And our new mixer line, which I think is going to be a great addition to what we're all about as a Reed's brand, we're working on that line and that launch at this moment. And then we're coming back to the SodaSmarter, and we're going to be looking at improving flavors, improving formulas, and then we're going to improve execution on that at the same time. Operator: There are no further questions at this time. I will now turn the call over to Mr. Cohane for closing remarks. Neal Cohane: Well, thank you, everybody. I appreciate everybody joining today. We appreciate your continued interest in Reed's. We look forward to updating you on our progress, and we'll do that on further calls. We have a lot of work to do, and we're getting it done. But thanks for everybody and their time today. Operator: Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect your lines.
Eric Lakin: Good morning, everyone, and welcome to our full year results presentation for 2025. I'm Eric Lakin, CEO, and I'm joined today by our interim CFO, Richard Webb. Very happy to be with you all again for my first full year announcement at TT. 2025 has been a year of transition for TT Electronics. It was a year where we faced clear operational challenges, but also one in which we took swift action to address them. Our focus has been on restoring operational control, strengthening our balance sheet and creating a solid platform for future growth. While there is a lot of work still to do, I'm pleased that we have delivered a stable performance and we enter 2026 with a much stronger operational and financial foundation. Let's start with a look at the headlines for the year. Despite the macro headwinds we faced, we delivered results in line with expectations with momentum notably strengthened in the second half. We saw improved operating profit, margins and cash flow, driven by better execution and strict cost discipline across the group. Notably, our cash generation was very strong. We have significantly reduced our net debt and strengthened the balance sheet, which Richard will detail shortly. We have successfully restored operational control following the conclusive actions we took earlier in the year, particularly at the Plano and Cleveland sites, and I'll cover this in more detail later. Performance was mixed by region, but for clear reasons. Europe performed strongly, driven by structural growth in aerospace and defense. Meanwhile, North America materially improved, and we have ceased production at Plano, as we complete the closure of that site. Asia was impacted by softer macro driven demand in EMS, but we view the region as better positioned operationally as we enter 2026. The next slide breaks down the specific actions taken during the year to build the stronger platform. First, Plano, production is ceased and the site was closed according to plan. We saw a benefit in the second half from last time buy activity, but importantly, the closure removes a significant drag on our earnings going forward. Second, Cleveland optimization. We deployed specialist operational support to the site and results are clear. We have improved yield, productivity and customer service levels, including quality and on-time delivery. The site is now stabilized and on track to return to profitability, more on this shortly. Third, our components review. We conducted a strategic review, which concluded that the components business could potentially be worth more under different ownership. So we'll be testing that. We have separated its management to ensure more focus and oversight, and the Board is currently evaluating a value-led disposal process, but it is not a commitment to divest as it is subject to market conditions. This is a solid business. And with the changes implemented, we are confident that it will be a positive contributor to the group. And finally, balance sheet stability. Working capital discipline has materially improved, and we delivered strong cash conversion in part due to successful inventory reduction initiatives in 2025. This work culminated in a significantly reduced year-end net debt and leverage positions. Focusing specifically on our Cleveland site on the next slide. In 2025, we launched a business improvement project targeting operational performance with a focus on rework hours and productivity, and I'm pleased with the progress made. As the charts illustrate, we have seen sustained improvement with overall productivity levels now consistently above our higher target levels and rework much better than expectations. On-time delivery, yield and cost of poor quality have also all improved. Crucially, the Cleveland site is stabilized and its financial and operational performance has materially improved throughout the second half. There is still opportunity to drive further improvements and the current focus is on the sales growth from existing and new customers to utilize the capacity available and further absorb overheads. Turning now to our next phase. As we look to the year ahead, our focus shifts from stabilizing the business in 2025 to a more proactive agenda for value creation. On this slide, we have outlined the four clear priorities that will define this next phase. We have established a disciplined framework designed to drive sustainable growth and margin expansion built around four key pillars, which are: one, a realignment of the business to focus on divisions as opposed to regions. Two, a targeted cost reduction program, delivering material savings. As announced this morning, we expect to deliver approximately GBP 3 million of net benefit in 2026 and annualized savings of double this figure to deliver significant benefit in future years. Third, a sales transformation plan to upgrade our commercial capabilities. And fourth, portfolio optimization to improve synergies and margins across the group. I will take you through each of these in turn in more detail later. But for now, I will hand over to Richard who will talk you through our financial results. Richard Webb: Thank you, Eric, and good morning, everyone. I'll now take you through our 2025 financial results. Starting with our group performance. Against the backdrop of mixed market conditions, we have delivered a resilient financial performance that highlights the benefits of the operational actions Eric just outlined. Revenue and profit figures are presented on an organic basis. This reflects performance at a constant currency and with the impact of the quarter 1 2024 Project Albert divestment removed from the prior year comparative. Revenue for 2025 was GBP 481.4 million, down 2.7% organically, reflecting the strong growth in European Aerospace & Defense, which largely offsets the softer demand we saw in the EMS markets for North America and Asia. Despite the lower revenue, adjusted operating profit increased by 2.2% to GBP 37.2 million, demonstrating in large part the success of the turnaround actions undertaken in North America. Consequently, our adjusted operating margin expanded by 30 basis points to 7.7%. This margin progression was driven by the turnaround in North America gaining traction, continued progress in Europe and tighter cost controls across the group, more than offsetting the decline in Asia. Adjusted profit before tax is up 5.5% to GBP 28.7 million benefiting from the lower interest costs associated with our reduced debt levels. Adjusted EPS is 6.9p, down 37.3% year-on-year, reflecting the impacts of the higher effective tax rate of 57% as we cannot currently recognize a deferred tax asset for the U.S. On a normalized basis, if we had been able to recognize deferred tax assets, the adjusted effective tax rate would have been 25.4%, and the adjusted EPS would have been 12p. Finally, we significantly strengthened our balance sheet reducing leverage to 1.1x from the 1.8x this time last year, driven by net debt being reduced by almost GBP 30 million. Turning to the revenue bridge and focusing on the organic performance in the year. Europe was the standout performer, delivering robust growth. This was driven by sustained demand in aerospace and defense, where we're seeing structural shifts that are supportive to the business. This was offset by North America and Asia, where we faced volume reductions. In North America, the decline mainly reflects the EMS and components end market softness. In Asia, the reduction was primarily due to ongoing geopolitical uncertainty impacting customer order timing, particularly for the automation and electrification sector. Now turning to operating profit. The operating profit bridge tells a positive story of execution. Despite revenue headwinds, adjusted operating profit increased to GBP 37.2 million, up 2.2% year-on-year. Overall, we delivered GBP 0.8 million of net organic profit growth. This is the result of operational gearing in Europe, where higher volumes and favorable mix dropped through to profits and the turnaround actions in North America where the stabilization of Cleveland and the elimination of losses from Plano were critical. These actions allowed us to return the region to profitability in the second half. Plano, which was significantly loss-making in the first half, generated around GBP 3.5 million of profit from last-time-buys in half 2 and contributed approximately GBP 1 million to the group adjusted operating profit for the full year. Revenue at the site was GBP 13 million in 2025. Production ceased at the end of the year, and this contribution will not repeat in 2026. The progress in North America helped offset the impact of lower volumes and transition costs in Asia, where we have been investing to support the transfer of production from China to Malaysia. Now I'd like to focus on the balance sheet, which is the highlight of these results. We've delivered a strong cash performance this year. Free cash flow increased to GBP 29.9 million, up 7.9%. This was driven by a significant step-up in cash conversion, achieving 150% compared to 117% last year. The primary driver here was our disciplined focus on working capital, specifically inventory reduction. We have successfully executed inventory initiatives across the group, resulting in a GBP 14.8 million contribution to cash flow. When combined with the GBP 12.8 million inventory reduction in 2024, that reflects the very pleasing GBP 27.6 million reduction over the last 2 years. This strong cash generation has directly strengthened our financial position as we've reduced net debt by almost GBP 30 million to GBP 50.3 million and leverage down to 1.1x. Balance sheet discipline will continue to be a key focus. Earlier this month, we extended the expiry dates of our revolving credit facility to June 2028 and reduced the size from GBP 162 million to GBP 105 million. This facility is only drawn by GBP 10 million currently and in the next few months will be completely undrawn. Before I move into the regional performance, I will reiterate that from our next set of results, we'll be moving to a divisional reporting structure, which better reflects how we manage the business. This means a realignment away from regions into 3 clear divisions, Power, EMS and Components. Eric will talk about this in more detail shortly. And you can also find pro forma revenue and adjusted operating profit under this new structure for 2024 and 2025 in the appendix. Turning now to regional performance and starting with Europe. Europe performed well during the year, continuing to be a structural growth engine for the group. Revenue grew 7.4% organically to GBP 144.4 million, driven by our sustained demand in our aerospace and defense markets. Adjusted operating profit increased 13.9% to GBP 22.1 million, with strong operational leverage, expanding margins by 90 basis points to 15.3%. We are seeing strong order intake across A&D, and the trends are set to continue into 2026. Turning to North America. Revenue declined 3.7% organically to GBP 173.1 million. This reflects the volume reduction both at Cleveland and in the Components businesses. However, operational performance improved during the year and the region returned to profitability. Adjusted operating profit was GBP 1.2 million compared to a loss of GBP 2.7 million in the prior year. Margins recovered to 0.7%, a 220 basis point improvement. The operational turnaround was driven by 2 main factors. As Eric highlighted earlier, actions taken to stabilize Cleveland, improved yield, productivity and execution, materially reducing losses in the second half. In addition, production at the Plano site ceased at the end of '25, removing a structurally loss-making site from the group with last-time-buy activity, also supporting regional profitability during the year. We entered 2026 with a recent operational base in North America, which positions the business in this region for further improvement. And finally, to Asia. Revenue declined 9.2% organically to GBP 163.9 million. This was due to ongoing reduced demand from EMS customers in the health care and A&D sectors with continued geopolitical uncertainties, delaying customer ordering. Operating profit fell to GBP 21.6 million, with margins compressing to 13.2%. This performance reflects lower volumes and some transition costs as we transferred a major customer from our facility in China to Malaysia, which is now complete. Completing this transfer strengthens our resilience against geopolitical uncertainty, better positioning the region moving forward. On the next slide, we have broken down revenue by our end markets. Aerospace & Defense was the standout, growing 12% to GBP 152.8 million. This highlights our increasing exposure to structurally attractive markets where defense spending continues to rise. Automation & Electrification softened by 13%, reflecting the macro intrapolitical uncertainty that caused customers to be cautious with order placement. Healthcare was down modestly by 4.3%, primarily reflecting reduced U.S. research grants and funding though our pipeline in medical and life sciences is healthy, and this remains an attractive market for TT. Distribution declined 4.7%, which was expected as component demand continues to normalize post-COVID. Overall, the strong growth and positive structural trends we are seeing in aerospace and defense give us confidence. Whilst other end markets have not performed as well as we would have liked, this largely relates to macro-driven softness of demand. We entered 2026 in a better, more stable position. Thank you, everyone, and I'll now hand back to Eric. Eric Lakin: Thank you, Richard. I think we can all see there is an improving picture and a stronger financial base for TT. I will now return to the 4 priorities for our next phase before touching our customer base and finally, look at the outlook for 2026. First, our divisional realignment. As we have mentioned, from this year, we are shifting how we organize and present the business away from our current regional structure managed as Europe, North America and Asia, to a product-led divisional structure. The group will be aligned around 3 clear divisions, Power, EMS and Components. Why are we doing this? It aligns us better with our customers' capabilities and markets. It enables us to develop and deliver more coherent strategies aligned to divisions that have different technologies, characteristics and routes to market. It also creates clear accountability for product development, sales and planning. As part of this reorganization, we will devolve further responsibilities to the operating companies to enable a more agile business with faster decision-making being made by those closest to the customer. This also facilitates a simplification of the organization structure including an element of delayering and increasing the accountability of performance to the sites. As mentioned, pro forma divisional breakdowns are available in the appendix. Second is our cost reduction program. To support this leaner operating model, we have initiated a targeted cost reset to permanently reduce our structural overheads. We expect this program to deliver around GBP 5 million of gross benefits in FY 2026, which will be a net benefit of approximately GBP 3 million after implementation costs. Looking further out, we anticipate annualized savings to be around double this year's level. This is a program that directly supports our margin progression goals, and we will share more information as the year progresses. Third is sales transformation. We're upgrading our commercial capabilities and bench strength, particularly in North America and Asia, and investing in business development talent, tools and processes aimed at delivering improved pipeline, order intake and pricing discipline. In particular, there is a renewed focus on new customers and new product introductions with these activities already bearing fruit as there's been a significant increase in new business wins in recent months, especially in North America. And finally, portfolio optimization. And as a management team, we continue to review the group's portfolio on an ongoing basis to ensure it remains aligned with our strategic priorities and areas of competitive advantage. Our strategic review of the components business is now complete. The Board is actively evaluating a range of options, including a value-led disposal process. But as mentioned earlier, we are not committed to a sale. Our current focus is on improving margin quality and returning the business to being a value accretive part of the group. Looking further out, we have restarted early-stage prospecting activity for targeted strategic bolt-on acquisitions that strengthen our core capabilities and reach, especially in the power electronics sector in which we have developed a strong capability and market position. All in all, we see these 4 priorities as being key to the next stage of TT's growth and delivering value for all our stakeholders. I would like to spend a bit of time looking at some of our customer relationships. During my first year at TT, I've been able to see our client relationships in action and understanding the significance of these relationships gives me great confidence. We serve some of the world's most respective and demanding companies across our core markets. And these companies choose us because we operate in the mission-critical space. Whatever the requirement, our customers rely on TT for precision, reliability, engineering capability and production excellence. These are not transactional relationships. They are deep multiyear engineering partnerships we seek to solve customer needs typically in regulated markets for demanding specialist applications. This diverse blue-chip customer base provides us with resilience against market cycles and is a foundation upon which we will build our future growth. I want to highlight what one of our partnerships looks like in practice on the next slide. So Edwards is a customer we have supported for more than 15 years. They supply solutions to the semiconductor capital equipment market and we provide a full tier EMS solution spanning PCB assembly through to complex high-level assemblies and specialist testing for vacuum technology. They operate in a highly demanding sector where precision and reliability are nonnegotiable. By providing everything, from comprehensive test development support to supply chain transparency, we give Edwards the confidence to meet their own commitments. It is this level of deep rooted reliability that allows us to grow alongside our most specialist global clients. I recently met with the team at Edwards, and they conveyed the importance of our ongoing relationship to their success and the future growth of the business. As this example illustrates, our partnerships with customers go well beyond the supply vendor dynamic, and we are deeply integrated with their processes to help create value over the longer term. Finally, turning to outlook. TT enters 2026 on a firmer operational and financial footing. We have taken swift action to improve operational performance and are aligned on a clear strategy moving forward underpinned by the growing strength of our balance sheet. We have high exposure to the A&D market, which supports growth and margins across Europe and North America in what will now become a significant portion of our Power division. While we do expect some continued softness in EMS markets, I remain mindful of the ongoing geopolitical uncertainty. Our focus is firmly on what we can control. The operational and cost actions we have taken are expected to continue driving margin improvement and better execution across the group. The North America turnaround is now becoming a tailwind with losses in the first half turning to profits in the second half. The significant improvement in the region, together with the cessation of production at Plano, give us a cleaner, more stable earnings base moving forward. Cash generation also remains a key priority. We will continue to focus on working capital discipline and operational efficiency to support strong cash conversion. With leverage now reduced to 1.1x and our financing facilities extended, we have significantly strengthened the balance sheet and increased our financial flexibility. So we expect 2026 revenue and adjusted operating profit to be in line with current market consensus. And this reflects a more stable, higher quality and more resilient business following the actions taken during the year. 2026 is about consolidating the operational progress we have made, maintaining margin discipline and continuing strong cash generation as we build a stronger platform for a return to growth better placed to capitalize on opportunities as they appear. While there is still more work to do and the remain external factors and market uncertainties, we entered the year with a more focused business, a stronger financial position and the greater confidence in our ability to deliver further progress. So thank you very much for your time this morning. I hope you'll agree that this is an exciting time for TT, and we are looking forward to showing our progress moving forward. Richard and I are now very happy to take any further questions you might have. Mark Jones: Mark Davies Jones from Stifel. A few things, please. On the change in divisional structure, does that effectively get us back to where we were before the move to the regionals? Or is there a difference in what allocation you do between those divisions? And if you're devolving more responsibility to the operating units, are there implications for the divisional management teams? Are you retaining the current team and new people coming in? And then the other one is the step-up in sales investment. Does that consume some of the benefits of the cost savings plans? And what sort of investment financially does that involve? Eric Lakin: Thanks, Mark. I'll take those 3. The new divisions are very similar to but not identical to the previous divisions. I think there's a couple of differences. For example, Sheffield is power, not components as it was before. And Fairford is also power not part of EMS, which it was before or GMS in the previous name, but broadly similar. But the divisional structure we've got now is really designed to put all the sites with similar characteristics together. And so it's much more coherent. And the Components division is, therefore, what we've separately been running internally already, but without the Plano production. Mark Jones: So the whole scope of that is within the review. Eric Lakin: Correct. correct. And in terms of the impact of what was the regional teams, I mean, in fact, it's part of -- the cost reduction program is separate, but partly facilitated or enabled by the divisional reorganization. So for example, with the executive team, we've gone effectively from 4 regions, so 3 components to 3 divisions. So that's 4 to 3. And the divisional teams will be significantly smaller than what was previously regional teams. So there's that element of delayering. So it puts a point around putting more responsibility to the site teams and leaders. Much of the saving is around what was previously the group functional costs. So support, particularly in the sort of non-primary functions, supporting what was the regions and the teams, those responsibilities are covered affected by the sites, and so there's been a lot of reduction in that area. And then your... Mark Jones: The cost of the investment on the sales? Eric Lakin: Yes. So I think there is some net increase in cost for BD. It's really important that we don't -- with all the short-term benefits of cost cutting, we don't forget really, our mission is to grow the top line and drive profitable growth. There are some -- so I mean overall, the actual change in the business development function, including sales, commercial teams won't be materially different from prior year because we've also had some evolution of the sales team. So part of the sales transformation is a high-performance culture. And so as you expect in that culture of sales team, there will be some people coming in, some people going out. There'll be a net increase in head though. And so there'll be a modest absorption of some of the net savings, but it's quite small compared to the headline savings. And it certainly should pay for itself. Andrew Simms: It's Andrew Simms from Berenberg. Just a couple of questions around pricing initially. I mean you talked about sales transformation. It would be good to get maybe a little bit of a feel for where you're seeing the benefits of pricing coming through? Maybe some examples of how that's coming through there, that would be great. And then following on from that, in terms of new business, in terms of new logos as well, how should we think about gross margins and that business coming through, how that supports medium-term operating margin ambitions? Eric Lakin: Thanks, Andy. On pricing, there's 2 parts to it. It's existing contracts and new contracts. So with the former, we've done a review of a large customer and contract margins, in particular, around Cleveland. So we did customer product profitability analysis covering close to 100 different contracts and that was quite insightful. And that revealed really, so you can pareto these things, a handful of opportunities where the margins are not what we need or expect and some are very low in a couple of cases, actually negative. There's a legacy there and part of it is getting the right standard cost and rigor around bids. With the visibility we have in some of these cases, a contractual ability to increase prices with existing contracts, particularly in the aerospace and defense, we've got the right to have a transparent cost review and apply appropriate margin. So we've had 2 quite significant successful price negotiations and outcomes at the back of last year, which will have ongoing benefit this year. So that's been helpful. And it actually shows -- these aren't easy discussions to have, but the customer chose their value and need our ongoing support. Going forward, it's a point around sort of bid and pricing discipline. We've got a good -- a rigorous bid, no-bid structure in place. And so we make sure that we make the right decisions. And it's much about pushing the highest prices. For components, for example, we had a sort of a particular mandate, not accepting margins below x percent. And actually, we turned away some business that would have been contributing to our bottom line. So in some cases, by exception, we take a different view for certain contracts where it's making a positive contribution. You certainly want to cover at least all the variable costs, direct costs, and actually and get some scale and cover the overheads. So it depends on the circumstance. But overall, we're tracking that and there's a big important part of it. In terms of new logos and the impact on margin, I mean, it varies, I mean, particularly some EMS contracts. I mean overall, the margins will never be as high as, say, in other parts of the business. And you'll see that come through in the new divisional structure, and that is the nature of it. I mean you look at our peer groups, typically in EMS margins, and they're typically mid- to high single-digit percent. And as we get new logos, we're still pricing them to ensure we get profits from day 1. We're not doing any sort of cost entries. A couple of examples recently. We've got our first new logo in North America in agricultural drones, another one in data centers. And we are quite well aligned to meet their needs and make profits. There is business out there. We could win, but we'd lose money out. And we've been very disciplined to focus on profitable growth, not just top line. Alexandro da Silva O'Hanlon: Alex O'Hanlon from Panmure Liberum. Just a couple of questions from me. Firstly, just on the Cleveland productivity improvement. It's a good chart that you have in the deck, and you can see how that's progressed over the year. It's interesting to see that the improvement has tracked the, I guess, better targets throughout the year. Are we at the target level that you want to see now? Or is there further progress to go? And the second question is just on capital allocation. You mentioned the possibility for bolt-on acquisitions in the future. I was just wondering, on the dividend, what do you still want to see in terms of progress before you're reinstated? Eric Lakin: Thanks, Alex. In terms of productivity improvements, I mean, right, it's very pleasing when you implement initiative and you can see the evidence of that. And so productivity, I mean, the way we define it is, it's total hours spent on a product divided by total standard hours expected. And you're always going to have -- we set it at 75%, we're excess of that, which is good. I mean in practice, the way that is measured, you're always going to have some element of training time, vacation, what have us. So the similar measures of efficiency, and it's equivalent to that as more like 90% or so. So it's where we expect it to be. Could we push it harder? We're always trying to do more and more. And by getting higher productivity, that manifests itself improved profits by either having more capacity to do more or we can reduce headcount. So I think it's where I'd like it to be. I think if we're; going to sustain at that level, it'll be a good outcome because there's many other factors as well, including quality and the ability to also -- there could be a period where we have a slight impact. So we're bringing in new product introductions, and that has an impact as we get the standard costs delivered. And then in terms of capital allocation, I mean, look, a priority last year was absolutely a focus on balance sheet strength, resilience getting the gearing down and the refinancing. And Richard and team and Kirsty is here with us as well, Head of Tax and Treasury, done an excellent job resolving that. So it's nice to be getting these questions now. Looking forward, I think we're very mindful, obviously, a lot of uncertainty at the moment, are very mindful of maintaining a strong balance sheet. So the dividend position, the Board will continue to review that going forward, and we may well have an update at the interims and make sure we're making the right decisions in the medium to long term as well for shareholders. So I mean there's other options available, of course, whether it's share buybacks or acquisitions. On the acquisition point, it's too early. We need to be good stewards of the business, prove that being more reliable and consistent in our delivery against promises and prove we are a good owner of businesses. But it's also true cultivating targets can take a long time. So we're right to start that now. And there's definitely a runway of opportunities out there that could be additive to our business. So it partly depends on opportunities that arise and then we make the best decisions at the time. Mark Jones: Sorry, can I come back for one more, which is around the moving parts of this year and the guidance you're giving, because obviously, there's a lot of underlying progress. But the guidance you sort of stood behind this morning, the top end of that is flat year-on-year in profit terms and the bottom end of it is obviously a step down. So you've got a GBP 1 million headwind in terms of the full year contribution from Plano, you've got strong growth in Europe in the A&D business ongoing. You've got presumably better underlying performance in the U.S. we should have year-on-year, and we've done the big transfer in Asia. So can you talk through the other headwinds? Is it just volume in EMS? Eric Lakin: Yes, Richard, do you want to pick that one? Richard Webb: So one aspect is margins in Europe is now power. So there was -- there's some beneficial mix within 2025 that won't repeat in 2026. There will be some softening of power margins as we go into next year. But yes, the ongoing softness in EMS continues to be an area where we're being cautious for the 2026 outlook. That is the kind of primary driver of why you don't see 2026... Mark Jones: And it could be by end market within the... Eric Lakin: I mean I'd just add, big picture, there's obviously a lot of uncertainty. And it's too early to call what the impact would be with the current situation in Middle East. There's likely to be some level of inflationary impact. We've not yet seen any constraints on raw material and supply chain, but they might occur and they could have an impact. Obviously, we've got energy price rises, which could ultimately impact some of our fabrication costs, particularly where we use furnaces and so on. But it's early days. We don't know, and it's unclear what the impact would be in terms of customer demand patterns as well. But I think there's a broader caution around inflation and the impact of that on the business, which we're obviously taking countermeasures to that with the cost reduction. I mean, by division, the components business, we're two months in, so it's early, we're showing signs of good resilience, which is encouraging, but the lead times there are quite short, so we don't get the visibility of that division as we get for power or EMS. But in terms of end markets, we're seeing clearly ongoing strength in A&D. I think we have good growth in '25, I think sort of continued growth in '26. But we're not -- a lot of the very large contracts we won last year, a multiyear contract, so it's just temper enthusiasm we're talking. Single-digit growth in '26, not necessarily double digit. And look at the various markets across EMS. Health care remains somewhat subdued, and we're expecting, hopefully, to pick up towards the second half of the year, particularly around health care spend and that feeds into R&D and specific programs. Semiconductor CapEx is a very interesting one. That was down last year, which might be surprising, given the trend in that sector, but there's two elements to that. One, specifically to us, there was some additional safety stock ahead of the transition from Suzhou to Kuantan. So that had an impact year-on-year for '24 to '25. And actually, our customers who provide equipment for fabrication facilities. It's a little bit of a soft market because it's really about upgrade to new facilities rather than the production itself rate of semi chips. But we are seeing signs of improvement in that sector with the conversation we're having now with a couple of our customers encouraging. So we should see a pickup in that. Obviously, it starts with pipeline and then orders and then that feeds into revenue. So I'd be interested how that pans out through the course of this year. And then other general industrials, it's a mixed bag, whether you're looking at specialist industrials, rail and a number of other sectors we have we serve in EMS. It's sort of a mixed bag. But a key point around EMS because I think we would -- overall, we're not expecting to see growth in EMS this year. But this pivot to regional supply chains and moving and investing in regional and domestic sales is looking like it will pay off, particularly for China, regional sales. So we'll see, hopefully, as we progress that through the year, but we're sort of cautious at this point in the year. Kate Moy: We've got a question from online from Joel at Investec. Can you quantify the costs associated with the customer transfer from China to Malaysia impacting the APAC division? Is that process now complete? And are there any signs that the rate of APAC revenue decline is stabilizing or are you planning on it being lower in 2026? Eric Lakin: Do you want to cover the cost base? Richard Webb: Yes. So the overall cost was around about GBP 1 million to OpEx and then some limited CapEx investment as well, and that transfer is now complete. Eric Lakin: Thanks for your question, Joel. And I think it's complete. We've had success. It was a crucial project last year for a large customer and all of the first article inspections have gone through well. So we're now in the process of spinning up volume production. So that will be key next stage of that process this year. I think overall, we still expect for APAC region a reduction in the decline we saw in '25. So as I mentioned earlier, we're not expecting a return to growth this year because APAC is really driven by the EMS market. But we're seeing a level of stabilization as in anticipating a reduced decline this year. And crucially, the lead indicators we have is what does the order intake look like in pipeline to drive growth, certainly beyond this year and potentially see that coming through in the second half. But overall, we're being conservative around our forecast assumptions for '26. Kate Moy: Thank you. There are no further questions from the webcast. So over to you for any closing remarks. Eric Lakin: Okay. Well, look, thank you all for coming. It's good to see a full room. Thank you for your interest and time, and appreciate it, and look forward to seeing you all at the interims, if not before. So thanks very much. Have a good day.
Operator: Greetings, and welcome to the EDAP TMS Fourth Quarter and Year-End 2025 Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the call over to Louisa Smith from Gilmartin Group. Thank you. You may begin. Louisa Smith: Good morning. Thank you for joining us for the EDAP TMS Fourth Quarter and Full Year 2025 Financial and Operating Results Conference Call. Joining me on today's call are Ryan Rhodes, Chief Executive Officer; Ken Mobeck, Chief Financial Officer; and Francois Dietsch, Chief Accounting Officer. Before we begin, I would like to remind everyone that management's remarks today may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those anticipated. We direct you to the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2025, to be filed with the Securities and Exchange Commission as well as our other filings with the SEC for a description of factors that may cause such differences. These statements speak only as of today's date, and we undertake no obligation to update or revise them, except as required by law. Additionally, this call is being recorded and constitutes a public disclosure under Regulation FD. I would now like to turn the call over to EDAP's Chief Executive Officer, Ryan Rhodes. Ryan? Ryan Rhodes: Thank you, Louisa, and good morning, everyone. 2025 was a transformative year for our company, highlighted by 39% revenue growth in our core HIFU business and record commercial performance for Focal One. Importantly, much of this growth was driven by accelerated adoption in the U.S., where we delivered record system placements and strong procedure growth. As our installed base continues to expand, we are also seeing increased utilization across hospitals, emphasizing the positive recurring revenue opportunity created by each Focal One system placement. Today, we will begin with our fourth quarter results, then reflect on our achievements, including our financial performance, and we will close the call by outlining our strategic priorities for 2026. The fourth quarter was the strongest quarter in the company's history for HIFU revenue, representing an increase of 34% over the same period last year. This growth was led by capital sales and treatment-driven revenues, which continue to be the driving force of our ongoing commercial success. We achieved a record 15 Focal One placements worldwide, including 14 cash sales, representing our strongest quarter-to-date in both placements and cash sales. Performance was driven by the U.S. market, which delivered 10 cash sales, its highest quarterly total on record. Beyond the headline numbers, the profile of our customers continues to be led by the expanding adoption of Focal One amongst leading academic centers in major community hospitals. Notably, we achieved our first Focal One placement in the state of Wisconsin at Aurora St. Luke's Medical Center, part of Advocate Health, a major integrated health care delivery network spanning 18 hospitals across the states of Wisconsin and Illinois. In total, we achieved 4 new Focal One placements in the state of Pennsylvania during the quarter, further strengthening our presence in this region. The University of Pennsylvania, a member of the National Comprehensive Cancer Network and a National Cancer Institute designated Comprehensive Cancer Center, converted their existing HIFU program to Focal One. With the addition of University of Pennsylvania, Focal One now has been adopted by 55% of NCCN member institutions. The University of Pittsburgh Medical Center, UPMC, a Society of Urologic Oncology Approved Fellowship program was also added to our Focal One installed base this quarter, bringing our penetration to 63% of the prestigious SUO group of teaching hospitals in the U.S. Of noted importance after the recent placements at 2 additional Cleveland Clinic hospitals in the U.S. during the fourth quarter, there are now 5 Focal One systems within the global Cleveland Clinic Hospital network. As hospitals see increasing patient demand, they are expanding across multiple locations. We now have 10 leading U.S. health care systems with 2 or more Focal One programs. We also continue to see existing competitive HIFU programs converting to Focal One technology. During the quarter, 3 major focal therapy programs converted from use of legacy HIFU technology to Focal One, including the University of Pennsylvania, Penn State Health as well as Lakewood Ranch Medical Center in Florida. Notably, at Lakewood Ranch Medical Center, Dr. Stephen Scionti, a high-volume focal therapy expert, has transitioned to the Focal One i platform. Dr. Scionti is widely recognized as one of the most experienced HIFU experts in the U.S., having treated 2,000 prostate cancer patients in over 20 years using a legacy HIFU platform. His decision to adopt our latest technology further validates our strategy of ongoing innovation and reflects Focal One i's advanced imaging and robotic precision. Internationally, our Focal One capital sales momentum also continues to expand in existing regions as well as new emerging markets. During the quarter, we achieved 4 cash sales outside the U.S., including the first Focal One system in India and the first Focal One system in Argentina. The sale to Ruby Hall Clinic, a top-tier institution in Pune, India, represents a key commercial milestone in a large and underpenetrated market. Additionally, the sale at the Argentinian Institute of Diagnostics and Treatment in Buenos Aires expands our South American footprint, adding to other existing Focal One sites in Brazil and Chile. Finally, our momentum continues to build across Southern Europe with additional new Focal One system sales in both Italy and Spain. While we were encouraged by this strong momentum, we believe we are early in the overall adoption life cycle of Focal One Robotic HIFU in this large and growing addressable market. Turning our attention to utilization. U.S. Focal One procedure volumes reached the highest quarterly level, growing 28% as compared to Q4 2024. This procedure growth is driven by a combination of newly launched programs as well as increased patient demand with existing programs. This was consistent across the different geographic market segments to include hospitals in large metropolitan statistical areas as well as hospitals in smaller communities. Complementing our commercial success, we achieved an important regulatory milestone during the fourth quarter. On November 20, we received FDA clearance for the latest evolution of Focal One Robotic HIFU, introducing advanced ultrasound imaging and streamlined treatment planning. This next-generation ultrasound imaging engine provides real-time visualization and supports the future development of AI-driven algorithms designed to assist surgeons with tissue ablation visualization and treatment evaluation. These combined advancements along with the launch of Focal One i earlier in 2025, further strengthens our leadership position in focal therapy while providing incremental sales momentum into 2026. Turning our attention to reimbursement. The landscape continues to move in a favorable direction for Focal One. TMS finalized the 2026 outpatient prospective payment system rule awarding a national facility payment average of $9,671, representing a 4.6% increase versus 2025. This new rate went into effect January 1. As it relates to the physician payment, Focal One is also supported by favorable economics. In the 2026 final rule of the physician fee schedule, TMS has set the total facility RVUs at 26.33 for the HIFU procedure. This compares favorably to alternative ablative treatments for prostate cancer for a single urologist under the same setting and patient conditions. In short, the Focal One HIFU procedure provides a physician from 28% to 67% higher RVUs than an alternative ablative treatments in 2026. Beyond prostate cancer, we continue to advance our clinical strategy to expand new indications with use of the Focal One Robotic HIFU platform. As endometriosis awareness month comes to a close here in March, we continue our commitment to advance new innovative treatment options while raising visibility on the unmet need for a new noninvasive treatment option for women suffering from this highly debilitating condition. Claude University Hospital in Lyon, France is treating patients and hosting training programs for leading European endometriosis specialists, including physicians from Cleveland Clinic London, who recently observed Focal One procedures. Regarding BPH, our combined Phase I/II study continues in Europe according to our outlined protocol. Simultaneously, we initiated a new clinical trial in South America in collaboration with the Mount Sinai Health System in New York with several patients already treated in early March by a team of local and U.S. BPH experts. This represents another positive step towards broadening the addressable market for use of Focal One Robotic HIFU. Transitioning to surgeon education, our activities continue to build growing awareness across the urological community. We recently attended the 41st Annual Congress of the European Association of Urology in London, U.K. This is the second largest scientific meeting dedicated to urology in the world with more than 12,000 attendees from 124 countries. In front of this year's EAU meeting, we collaborated with Cleveland Clinic London to host a sold-out urology peer-to-peer educational event dedicated to learning and understanding the clinical value and applications delivered by Focal One Robotic HIFU in the treatment of prostate cancer. This coming weekend, the world-renowned urology team at NYU Langone in New York City, we will host the first international symposium on robotic focal therapy. This large inaugural event entirely dedicated to Focal One will offer attendees lectures, hands-on training, detailed video case reviews and semi-life Focal One procedures led by top U.S. and international experts. I will now turn the call over to Ken, who will review our financial results. Ken Mobeck: Thanks, Ryan, and good morning, everyone. Before I begin, I want to note that all 2025 figures are reported in euros, our functional and reporting currency. For conversion purposes, our average euro-dollar exchange rate was $1.16 for the fourth quarter 2025. Beginning with our Q1 2026 results, we will report in U.S. dollars, reflecting our transition to a domestic issuer. Turning to full year 2025 performance. EDAP set a calendar year record for HIFU revenue in 2025. HIFU revenue for the full year 2025 was EUR 33.1 million, an increase of 39% as compared to HIFU revenue of EUR 23.8 million for the full year 2024. The increase in HIFU segment revenue versus the prior year was due to a 59% increase in the number of Focal One system units sold and a 19% year-over-year increase in treatment-driven revenue. Total revenue for full year 2025 was EUR 62.4 million, a decrease of 3% compared to EUR 64.1 million for the full year 2024. The year-over-year decrease was driven by a 27% decline in our noncore distribution and ESWL businesses, which offset the 39% growth in core HIFU business, as I just outlined. This is consistent with our strategy of focusing resources on the higher-margin HIFU business while managing the legacy businesses through their natural decline. Now turning to the fourth quarter. Q4 2025 was a record quarter for HIFU revenue. HIFU revenue was EUR 11.7 million, a notable increase of 34% as compared to HIFU revenue of EUR 8.8 million for the same period in 2024. The increase in revenue was due to continued significant strength in our Focal One HIFU business driven by 14 Focal One capital sales in the quarter versus 11 capital sales in the prior year period as well as a 22% year-over-year increase in Focal One treatment-driven revenue. As mentioned earlier, Focal One procedures in the U.S. grew 28% year-over-year. Total revenue for the quarter was EUR 18.9 million, a decrease of 7% compared to EUR 20.3 million for the same period in 2024. The decrease was primarily driven by a 38% decline in our noncore distribution and ESWL businesses in the quarter versus Q4 2024, offsetting the 34% year-over-year growth in HIFU business. We continue to expect our noncore segments to decline as a percentage of total revenue over time, consistent with our strategic focus. Regarding gross margin, gross margin for the quarter was EUR 8.1 million compared to EUR 9.1 million for the same period in 2024. Gross margin on net sales was 42.6%, down from 44.8% for the same period in 2024. This decline was primarily driven by 2 items: tariffs on imports of finished goods from France and an inventory reserve related to legacy parts. Excluding these items, underlying gross margin performance was in line with the prior year. We continue to actively monitor the tariff environment. Operating expenses were EUR 13.2 million for the quarter compared to EUR 12.8 million for the same period in 2024. The increase in operating expenses was primarily due to focused investments in our HIFU business. Operating loss for the quarter was EUR 5.2 million compared to an operating loss of EUR 3.7 million in the fourth quarter of 2024. Net loss for the quarter was EUR 8.2 million or EUR 0.22 per share as compared to a net loss of EUR 1.9 million or EUR 0.05 per share in the same period a year ago. The increase was driven by 2 items below the operating line, a EUR 2.5 million noncash charge related to warrants and interest expense on the European Investment Bank Tranche A drawdown and a EUR 2 million negative currency impact versus the prior year period. Turning to the balance sheet. Inventory decreased to EUR 10.9 million at quarter end as compared to EUR 13.8 million at the end of Q3. This reduction was driven by the high volume of capital system sales in the quarter and disciplined inventory management. Total cash and cash equivalents were EUR 17.4 million at quarter end, up from EUR 10.6 million at the end of Q3, primarily reflecting the EIB Tranche A drawdown. Finally, on to our 2026 outlook. As previously announced in January, we expect core HIFU revenue to be in the range of USD 50 million to USD 54 million, representing 34% to 45% growth over 2025. Combined noncore revenue is expected in the range of USD 22 million to USD 26 million. This guidance reflects our confidence in the capital placement momentum Ryan described, our expanding installed base and the continued ramp of procedure volumes across our growing network of Focal One programs. I would like to now turn the call back to Ryan for closing comments. Ryan Rhodes: Thanks, Ken. In closing, 2025 was a year of record performance, expanding clinical validation and technological advancement. As we enter 2026 with accelerating commercial momentum, we are executing with discipline against 3 high-impact priorities designed to drive durable growth and long-term shareholder value. First, commercial execution. We are expanding our penetration across leading academic centers, community hospitals and integrated delivery networks with significant runway ahead as we remain early in the adoption life cycle of this large underpenetrated market in prostate cancer. Second, clinical indication expansion. Beyond prostate cancer, we are unlocking incremental growth opportunities for Focal One across new indications. We are making meaningful progress on our BPH clinical and regulatory pathway and accelerating commercialization in endometriosis. Third, technology and innovation. We are advancing AI-driven treatment planning and next-generation imaging capabilities to strengthen Focal One's leadership as the most advanced robotic focal therapy platform in the market. The combination of these priorities, commercial execution, indication expansion and continued technology innovation and leadership underpins our confidence in our 2026 outlook and beyond. In closing, we are confident in our ability to deliver sustainable growth and create long-term shareholder value. With that, I will now turn the call back over to the operator for questions. Operator? Operator: [Operator Instructions] We'll take our first question from Mike Sarcone with Jefferies. Michael Sarcone: I guess just to start, can you give us a little more color? I know you're reiterating the 2026 guidance, but particularly on the HIFU side, any color on kind of splitting out growth in procedures versus capital sales would be helpful. Ryan Rhodes: Yes, Michael. So again, we see pipelines building and being strong both in the U.S., but importantly, also in the outside U.S. markets. We continue to execute around global regions. So as we've talked about in the past, pipeline development and a growing pipeline in the U.S., but equally in the outside U.S., and some of that was demonstrated certainly with our results here at the end of the year as -- and we're already into 2026. Procedure growth, again, we saw a notable increase Q4, 28% over prior year. We see double-digit growth from quarter-to-quarter if we measured ourselves Q4 versus Q3 of last year. And I think we're, again, seeing more and more centers actively looking to expand to a broader audience of patients. Again, each program ramps differently. But I think overall, we look outward and see a strong year for us, both in terms of capital sales as well as procedure growth. Ken Mobeck: And Michael, as we move forward to, as Ryan referenced, with 35 Focal One sales in 2025, that is going to lead down the road to procedure growth as well as service growth when those expire. With our installed base now at 165 units, that's also going to lead to disposable sales growth and service growth as well. Capital sales will lead the way again on a percentage basis, but we do see the procedure and service revenue volumes picking up as a total percentage of revenue for HIFU. Michael Sarcone: Great. That's all very helpful. And then maybe just my follow-up. What have you seen so far 1Q to date in terms of procedures in the U.S. and globally? And particularly in the U.S., have you seen any impact from some of the storms in the Northeast and along the East Coast? Ryan Rhodes: No impact that I can point to. I would say, generally, we see a nice ramp developing. We came off of Q4, a strong quarter. But again, Q1 is ramping as planned. Nothing holding us back from growing appropriately per the guidance we've given in procedure growth and revenue. Operator: We will move next to Joseph Downing with Piper Sandler. Joseph Downing: Yes. So I guess the HIFU guide was reiterated here. And I'm just thinking how should investors be thinking about the first half, second half split within the HIFU guide given the seasonality with 4Q? And then specifically, what's a reasonable baseline for 1Q HIFU revenue given typical hospital CapEx sensitivity? And then just at a higher level, are you embedding any cushion for lumpiness throughout the year of the capital sales line? Do you think that should kind of flatten out a little bit over the course of this year? Or should we expect more of the similar from the previous few years there? Ken Mobeck: Yes. So thanks for the question. So when we look at this year's revenue 2026, we're going to see the following patterns, very consistent with prior years. We anticipate Q4 to be the highest growth quarter, revenue-wise and our biggest dollar-wise quarter. And the lowest quarter will be in Q3. That's very consistent with Q4 capital budgets spending and Q3 summer slowdowns. So we see a little less than 50% of the business in the first half of the year, and I'd say a little more on the second half. Joseph Downing: Great. I appreciate that, Ken. And then just on the noncore wind-down trajectory, obviously, implies another step down from last year's figure in 2026. Curious if you could just break out how much of that is ESWL versus the distribution business? And then at what point does noncore revenue effectively reach a de minimis level? I guess, said a little differently, when does the revenue mix shift kind of become clean enough that investors should evaluate EDAP purely on HIFU metrics? Ken Mobeck: Yes. So when you look at the noncore, ESWL is roughly 20% to 25% of the noncore okay? And the way we're looking at the business going forward is as follows, okay? Our ESWL business now is service-only business, okay? So we're going to continue to serve that and look at ways to monetize that business. And the way to look at the distribution business going forward, it's just like I explained last year. When these agreements expire, our annual distribution agreements, we're taking a look at each agreement. Is it material to revenue and is it accretive to gross margin? And then we're making executive decisions on should we ramp that business going forward. So I would still see that business sticking around in the short term. Operator: Our next question comes from Swayampakula Ramakanth. Swayampakula Ramakanth: This is RK from H.C. Wainwright. A couple of quick questions for me. The first one being on the margins, you cited a normalized margin of 46.9%. I understand some of that is being hit by the Section 232 tariff stuff. What percentage of your revenue gets impacted by that? And then what's the strategy going forward if this -- if there is stickiness to that 232 tariffs? Ken Mobeck: Yes. So RK, as you know, we manufacture our product in Lyon, France. So the pieces of the business that are impacted are when we ship the finished goods from Lyon, France to the United States. So it's basically our U.S. revenue that's an impact to those dollars today. We're monitoring the situation closely. We have budgeted about $2.5 million in tariffs in 2026 to be conservative, and we're just going to continually monitor what everything is happening from the government regarding those. The offset to the tariff is we do have our new ultrasound engine. As we anticipated and told you last year, we were transitioning to this engine. It's going to have better functionality and also lower cost. So that will help offset some of the tariff impact. Swayampakula Ramakanth: Okay. Then Ryan, just about a high-level thought here. I know for quite a bit of '24 and the early part of '25, you are concerned about cash sales. You closed out 2025 with 14 cash sales and 1 lease. So does that mean some of those concerns regarding cash sales have mitigated quite a bit. And so you're comfortable going into '26. And also, if there was any price increase taken in early part of 2026, just trying to understand what could be the potential levers or the full push on the revenue guidance that you just gave us? Ryan Rhodes: Yes, RK. So again, as I tell people, we sell a clinically necessary strategic revenue-enhancing service line in the #1 diagnosed cancer in men. So it puts us in a position to be strategic in nature. And with that, hospitals need to invest in the technology, and that means purchase the technology. So we've been leading with the cash sale. We believe our platform is best-in-class in the market. It brings immediate tangible value when we launch our programs. So a cash sale makes total sense, plus the reimbursement that's in place today. So cash sales will be our lead theme going forward. In the past, we have offered some time-based operational leases or bridge to budget or bridge to purchase. We don't need to do that as much anymore. I think people realize that Focal One is a key anchor point to their overall focal therapy program. So we showed excellent sales and cash sales here in Q4. Our theme going forward will be leading with cash sales as notably. In terms of a price increase, we took a price increase last year with the launch of Focal One i. And as you heard in the past, we made notable advancements in this new platform, both hardware and software. And we're not done. We will continue to innovate on the platform. We've made improvements in a number of areas, and we're never satisfied. So we have a price increase that went in place last year. We haven't changed our pricing strategy at the beginning of this year, and we see our average selling prices tend to hold or even slightly increase. So I'm proud of the work our commercial teams are doing in the field. Operator: And at this time, there are no further questions in queue. I will turn the meeting back to Ryan Rhodes for closing remarks. Ryan Rhodes: I want to thank everyone again for joining us on today's call. We look forward to seeing you in Washington, D.C. at the upcoming Annual Meeting of the American Urological Association in May and our important Investor Day being held in New York City on June 1, along with the Jefferies Healthcare Conference also taking place in New York City at the beginning of June. Thank you, everyone. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Andean Precious Metals Fourth Quarter and Year-End Conference Call and Webcast. [Operator Instructions] Thank you. I would now like to turn the call over to Amanda Mallough, Director of Investor Relations. You may begin. Amanda Mallough: Thank you. Good morning, everyone, and thank you for joining Andean Precious Metals Conference Call to discuss our financial and operating results for the 3 and 12 months ended December 31, 2025. Our press release, MD&A and financial statements are available on SEDAR+ and on our corporate website at andeanpm.com. Before we begin, I would like to remind listeners that today's discussion will include forward-looking statements. Please refer to our cautionary language in our filings. Joining me on the call today are Alberto Morales, Executive Chairman and CEO; Yohann Bouchard, our President; Juan Carlos Sandoval, our Chief Financial Officer; and Dom Kizek, our Vice President of Finance and Corporate Controller. Following prepared remarks, we will open the line for questions. And with that, I'll now turn the call over to Alberto. Alberto Morales: Thank you, Amanda, and good morning, everyone. 2025 marked a step change for Andean where we delivered focused financial -- record financial results and fundamentally strengthened our balance sheet. We achieved record revenue, adjusted EBITDA and net income alongside with strong free cash flow generation and exited the year with a record $167 million in liquid assets. This level of cash flow generation fundamentally changes our positioning as a company. We entered 2026 with a strong balance sheet and the financial flexibility to fund growth initiatives and evaluate opportunities to expand our asset base. Operationally, both assets contributed to this performance. At San Bartolome, the operation delivered consistent production and strong margins, supported by efficient processing and strong silver prices. At Golden Queen, production strengthened into the fourth quarter, supporting higher consolidated gold production and contributing to our record financial results. For the year, we maintained a balanced production profile with approximately 57% of revenue coming from silver and 43% from gold. Looking ahead, we expect several important milestones in 2026, including our planned New York Stock Exchange listing and the updated technical report at Golden Queen. Overall, 2025 demonstrated the strength of our platform, a business capable of generating meaningful cash flow, maintaining strong margins and positioning itself for the next phase of growth. With that, I will turn it over to Yohann. Yohann Bouchard: Well, thank you, Alberto, and good morning, everyone. For the fourth quarter, Andean produced 27,777 gold equivalent ounces, bringing full year production slightly below 100,000 gold equivalent ounces. While production finished near the low end of guidance, both operations delivered strong cost performance and margin generation, supporting record financial results. At San Bartolome, the operation continued to perform consistently. For the year, the operation delivered 4.5 million ounces of silver, contributing to a total of gold equivalent production of 53,854 ounces. Operational performance remained strong for the full year with cash gross operating margin of $16.11 per silver ounce and gross margin ratio of 42.75%. These results reflect continued efficiency in ore sourcing, stable throughput and strong realized silver prices. At Golden Queen, the operation produced 45,311 gold equivalent ounces in 2025, comprised of 41,627 ounce of gold and 331,000 silver ounces. Production improved into the fourth quarter, supporting stronger consolidated results. For the year, cash costs were $1,698 per gold ounce and all-in sustaining cost was $2,194 per gold ounce. The operation continued to focus on optimizing stacking, blending and recoveries, which are expected to support improved performance going forward. From an operational perspective, both assets are well positioned heading into 2026 with stable production and strong margins. Production is expected to be weighted approximately 45% in the first half of the year and 55% in the second half, driven by mining sequence at Golden Queen and ore delivery timing at San Bartolome. With that, I will turn it over to J.C. Juan Sandoval: Thank you, Yohann, and good morning, everyone. From a financial perspective, 2025 was a record year across all key metrics. In the fourth quarter, we delivered strong results across the board, including revenue of $134 million and adjusted EBITDA of $47 million. For the full year, revenue reached $359 million, adjusted EBITDA was $133 million, and net income was $118 million or $0.78 per share. Free cash flow totaled $36 million in the fourth quarter and $59 million for the year, reflecting strong cash generation. Our balance sheet strengthened significantly over the year. Total assets increased to $434 million, while total liabilities declined to $170 million, reflecting debt repayment and strong cash generation. We ended the year with $167 million in liquid assets, a record for the company. This was comprised of $79 million in cash and cash equivalents, $38 million in treasuries and money markets and $49 million in strategic equity investments. During the year, we fully repaid our legacy credit facilities and established a new $40 million revolving credit facility with National Bank further enhancing our financial flexibility. This positions the company with strong liquidity and financial flexibility moving into 2026. With that, I'll turn it back to Yohann for an update on our exploration programs. Yohann Bouchard: Thank you, J.C.. Our exploration programs are focused on extending mine life and supporting long-term production across both operations. At Golden Queen, exploration remains focused on expanding known mineralization and supporting mine life extension. In 2025, we completed 47 core drill holes aiming at extending the existing mineralized zone. While the drilling program met our expectations, turnaround times at the independent assay lab were longer than anticipated. Consequently, we have decided to postpone the release of the technical report by a few months to include this new information. Looking ahead to 2026, our primary objective is to advance infill drilling to convert inferred resources into the measured and indicated categories. Our second objective is to follow up on the zone drilled in 2025 with additional infill drilling, which is intended to further extend mineral reserves along the trend of the existing mining areas. Postponing the release of the technical report by a few months ensure the market receives a clearer and more complete picture of the asset long-term value. At San Bartolome, exploration is focused on securing additional oxide resources to support long-term plant feed. We continue to advance exploration across multiple targets with the objective of increasing available resources and maximizing utilization of the plant capacity. Overall, these programs are designed to enhance production, extend mine life and support long-term value creation across both operations. With that, I will turn it back to Alberto, who will talk to the 2026 guidance. Alberto Morales: Thank you, Yohann. As we look ahead to 2026, we have already provided detailed production, cost and capital guidance to the market. We expect consolidated production to be in the range of 100,000 to 114,000 gold equivalent ounces, with production expected to be weighted approximately 45% in the first half of the year and 55% in the second half, reflecting mine sequencing and ore delivery timing. At Golden Queen, we expect cash cost between $1,500 and $1,800 per gold ounce and all-in sustaining costs between $1,850 and $2,150 per gold ounce. At San Bartolome, we expect cash gross operating margins between $20 and $35 per silver ounce and gross margin ratios between 35% and 45%. Overall, this positions the company to continue generating strong margins and cash flows across the range of a commodity price environment. Our capital program for 2026 is aligned with our strategy of driving long-term value while maintaining financial discipline. We expect sustaining capital of approximately $17 million to $24 million and growth capital of approximately $21 million to $30 million. At Golden Queen, capital will focus on leach pad expansion, development and infrastructure, equipment additions supporting mine life extensions. At San Bartolome, capital will be directed towards processing improvements, plant optimization initiatives and sustaining infrastructure. Overall, 2026 plan is designed to enhance operational flexibility, support mine life extension and positions the company for continued free cash flow generation and long-term growth. To close, 2025 marked a significant step forward for Andean. We delivered record financial results, generated meaningful free cash flow and transformed our balance sheet. As we move into 2026, we are focused on delivering against our guidance, continuing to generate strong margins and cash flow and advancing key initiatives across both of our operations. We are entering 2026 from a position of strength with a clear path to continue scaling the business and delivering long-term value for the shareholders. With a strong balance sheet, a clear operating plan and upcoming catalysts, including our planned New York Stock Exchange listing, we are well positioned to execute on the next phase of growth. Thank you, everyone, for your continued support. And operator, I would like to please open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Justin Chan with SCP Resource Finance. Justin Chan: Congrats for cash generating year. Just my first question is on the, I guess, the timing of the updated resource at Golden Queen. I guess maybe can you give a bit more color on -- will you be doing more drilling in the first -- I guess, will drilling from the first quarter of the year go into the update? Like what's the cutoff for data going into it? And then if you could give us kind of the flow of timing from cutting off drilling data and then when you expect to release it? Yohann Bouchard: Yohann here, and thanks for the question. So the main reason for postponing by, say, 3 to 4 months, the technical report is really to make sure that we include all of the information from 2025, which is pretty exciting. I mean we got 47 holes that we drilled in the extension, and we believe that everything can make its way into resource, but -- and we feel that by rushing the report, I mean, we're not giving full value to that report basically. I would say postponing the report has very little to do with drilling that we're doing in 2026. We're going to try to include some of those holes if we can, but this is not the end game here. The end game is really to include all the information that we have drilled in 2025, which is meaningful, I think, for the operation. Justin Chan: Understood. Got you. So it's not like you need to do any more infill. It's just a matter of enough time to actually model up the data you already have. Yohann Bouchard: Absolutely. We are very satisfied with the drilling of 2025. Again, I mean, this is out of our control. I mean, the lab was quite busy, and we had some delay with that. And I believe that everybody is winning by postponing a little bit and providing something that can give a clearer picture to the market. Justin Chan: Got you. And then I have a question on just the marketable securities. And I guess there was some movement overall, I'd say, especially this quarter in terms of the FX impact on your cash and also, I think, quite a bit like about $10 million worth of revaluation of the marketable securities. Could you give us a bit more color on -- it sounds like you have a mix of treasuries and also or money market, let's call it, debt instruments, but also equities. I'm just curious, I guess, how that revaluation might work in future periods. Juan Sandoval: Yes. Thank you, Justin. It's J.C. So yes, as you know, as part of our cash management strategy, we hold 3 things: cash, marketable securities, which is mostly composed of treasuries, whether it be short term or up to 3 years and then our strategic equity investments, right? Yes, as you -- as we have seen over the last few weeks, there has been more volatility, especially in mining companies. So yes, we've seen a reduction in the valuation of our equity investments. However, we believe that when we present our first quarter numbers, we will compensate some of that loss that we have seen on the market overall. Justin Chan: Got you. And just -- and the equities themselves, they're accounted for as part of the marketable securities short and long term. Is that right? Juan Sandoval: Yes, that's correct. Justin Chan: Okay. Got you. And then just the last one, and I'll free up the line. I mean I would expect less impact given where your operations are, but just, I guess, good housekeeping that I've been asking on other calls. Given the volatility in global supply chains, oil prices, et cetera, I'd imagine your locations are less impacted, but can you just flag any impacts that we should consider? Juan Sandoval: Yes. So obviously, everyone is being impacted. If oil prices remain above $100 per barrel, it will have an impact. We are working on that. But yes, as you say, at least in the U.S., it will be less of an impact compared to the international markets. But yes, I mean, right now, we don't really know where it's going to end up, but it's -- again, if oil prices continue to be where they are, yes, it will have an impact on our overall bottom line. Justin Chan: Okay. Got you. But it sounds like it's limited to more just the price of oil as opposed to like supply of any consumables or anything else? Alberto Morales: Energy-driven inflation basically. Juan Sandoval: It's mostly diesel and fuel, but some of the consumables might also be affected as well. But it's mostly fuel and diesel, Justin. Justin Chan: Yes. And it's a pricing rather than availability issue? Juan Sandoval: Correct. Yes, absolutely. Operator: Your next question comes from the line of Ben Pirie with Atrium Research. Ben Pirie: Congrats on another strong quarter and closing out 2025. Just going -- piggybacking off Justin's question there with the resource. Can you just confirm -- so now this is being pushed to the end of Q2, early Q3? Or is it 3 months further than that? Yohann Bouchard: The way I see it, I mean, there's going to be pushed towards the end of Q3. Ben Pirie: Okay. Okay. Understood. And then at the Golden Queen, can you just touch on the increase in costs between Q3 and Q4 of 2025? And then going beyond that, we're looking at the AISC guidance, $1,850 to $2,150 for 2026. Can you just touch on what's sort of going to change from Q4 '25 to bring those costs back down to that range and just sort of give investors some confidence around the cost going forward here? Dom Kizek: Ben, it's Dom here. This is the question. Q4, we had some catch-up costs, including some inventory adjustments there. But going forward, we have reiterated our guidance. So we do expect those costs to be within that guidance as of today. Juan Sandoval: And all-in sustaining costs increased as well during Q4 because if you look at the CapEx, we accelerated some CapEx in that fourth quarter. So that's why for that fourth quarter, all-in sustaining costs did increase a bit, but it was mostly related to that CapEx allocated during the fourth quarter. Ben Pirie: Okay. Understood. And then just, I guess, lastly, I don't have too much. But on San Bartolome, can you just talk to us about how the volatility in the gold price over the last couple of months might impact margins just given it is a margin business? Juan Sandoval: Yes. So bear in mind, Ben, that we have a processing facility, right? Part of our feed is coming from long-term contracts and part of it is coming from spot purchases. On the spot purchases, yes, we are paying ore at market prices, obviously, higher prices. But as we've mentioned in our guidance, we have a very profitable margin. And then on the fixed contracts, well, it's a fixed price per ton. So on those contracts, we are more exposed to commodity prices. So in this high price environment, we're -- it's becoming more profitable. But the combination of both, as I have said, still make it a very profitable business, but less risky overall because on the spot purchases, we have sort of like a natural hedge, right? Ben Pirie: Yes. And so in a sharp sort of decline like we saw with gold over the last couple of weeks bouncing back this morning, there's a little bit of a margin compression in that environment. But again, the trend has been up and to the right for the gold price has been benefiting you with this business as of late. Juan Sandoval: That is correct. Ben Pirie: Okay. Great. Well, again, congrats on a strong year and that's all I have today. Operator: There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Eric Lakin: Good morning, everyone, and welcome to our full year results presentation for 2025. I'm Eric Lakin, CEO, and I'm joined today by our interim CFO, Richard Webb. Very happy to be with you all again for my first full year announcement at TT. 2025 has been a year of transition for TT Electronics. It was a year where we faced clear operational challenges, but also one in which we took swift action to address them. Our focus has been on restoring operational control, strengthening our balance sheet and creating a solid platform for future growth. While there is a lot of work still to do, I'm pleased that we have delivered a stable performance and we enter 2026 with a much stronger operational and financial foundation. Let's start with a look at the headlines for the year. Despite the macro headwinds we faced, we delivered results in line with expectations with momentum notably strengthened in the second half. We saw improved operating profit, margins and cash flow, driven by better execution and strict cost discipline across the group. Notably, our cash generation was very strong. We have significantly reduced our net debt and strengthened the balance sheet, which Richard will detail shortly. We have successfully restored operational control following the conclusive actions we took earlier in the year, particularly at the Plano and Cleveland sites, and I'll cover this in more detail later. Performance was mixed by region, but for clear reasons. Europe performed strongly, driven by structural growth in aerospace and defense. Meanwhile, North America materially improved, and we have ceased production at Plano, as we complete the closure of that site. Asia was impacted by softer macro driven demand in EMS, but we view the region as better positioned operationally as we enter 2026. The next slide breaks down the specific actions taken during the year to build the stronger platform. First, Plano, production is ceased and the site was closed according to plan. We saw a benefit in the second half from last time buy activity, but importantly, the closure removes a significant drag on our earnings going forward. Second, Cleveland optimization. We deployed specialist operational support to the site and results are clear. We have improved yield, productivity and customer service levels, including quality and on-time delivery. The site is now stabilized and on track to return to profitability, more on this shortly. Third, our components review. We conducted a strategic review, which concluded that the components business could potentially be worth more under different ownership. So we'll be testing that. We have separated its management to ensure more focus and oversight, and the Board is currently evaluating a value-led disposal process, but it is not a commitment to divest as it is subject to market conditions. This is a solid business. And with the changes implemented, we are confident that it will be a positive contributor to the group. And finally, balance sheet stability. Working capital discipline has materially improved, and we delivered strong cash conversion in part due to successful inventory reduction initiatives in 2025. This work culminated in a significantly reduced year-end net debt and leverage positions. Focusing specifically on our Cleveland site on the next slide. In 2025, we launched a business improvement project targeting operational performance with a focus on rework hours and productivity, and I'm pleased with the progress made. As the charts illustrate, we have seen sustained improvement with overall productivity levels now consistently above our higher target levels and rework much better than expectations. On-time delivery, yield and cost of poor quality have also all improved. Crucially, the Cleveland site is stabilized and its financial and operational performance has materially improved throughout the second half. There is still opportunity to drive further improvements and the current focus is on the sales growth from existing and new customers to utilize the capacity available and further absorb overheads. Turning now to our next phase. As we look to the year ahead, our focus shifts from stabilizing the business in 2025 to a more proactive agenda for value creation. On this slide, we have outlined the four clear priorities that will define this next phase. We have established a disciplined framework designed to drive sustainable growth and margin expansion built around four key pillars, which are: one, a realignment of the business to focus on divisions as opposed to regions. Two, a targeted cost reduction program, delivering material savings. As announced this morning, we expect to deliver approximately GBP 3 million of net benefit in 2026 and annualized savings of double this figure to deliver significant benefit in future years. Third, a sales transformation plan to upgrade our commercial capabilities. And fourth, portfolio optimization to improve synergies and margins across the group. I will take you through each of these in turn in more detail later. But for now, I will hand over to Richard who will talk you through our financial results. Richard Webb: Thank you, Eric, and good morning, everyone. I'll now take you through our 2025 financial results. Starting with our group performance. Against the backdrop of mixed market conditions, we have delivered a resilient financial performance that highlights the benefits of the operational actions Eric just outlined. Revenue and profit figures are presented on an organic basis. This reflects performance at a constant currency and with the impact of the quarter 1 2024 Project Albert divestment removed from the prior year comparative. Revenue for 2025 was GBP 481.4 million, down 2.7% organically, reflecting the strong growth in European Aerospace & Defense, which largely offsets the softer demand we saw in the EMS markets for North America and Asia. Despite the lower revenue, adjusted operating profit increased by 2.2% to GBP 37.2 million, demonstrating in large part the success of the turnaround actions undertaken in North America. Consequently, our adjusted operating margin expanded by 30 basis points to 7.7%. This margin progression was driven by the turnaround in North America gaining traction, continued progress in Europe and tighter cost controls across the group, more than offsetting the decline in Asia. Adjusted profit before tax is up 5.5% to GBP 28.7 million benefiting from the lower interest costs associated with our reduced debt levels. Adjusted EPS is 6.9p, down 37.3% year-on-year, reflecting the impacts of the higher effective tax rate of 57% as we cannot currently recognize a deferred tax asset for the U.S. On a normalized basis, if we had been able to recognize deferred tax assets, the adjusted effective tax rate would have been 25.4%, and the adjusted EPS would have been 12p. Finally, we significantly strengthened our balance sheet reducing leverage to 1.1x from the 1.8x this time last year, driven by net debt being reduced by almost GBP 30 million. Turning to the revenue bridge and focusing on the organic performance in the year. Europe was the standout performer, delivering robust growth. This was driven by sustained demand in aerospace and defense, where we're seeing structural shifts that are supportive to the business. This was offset by North America and Asia, where we faced volume reductions. In North America, the decline mainly reflects the EMS and components end market softness. In Asia, the reduction was primarily due to ongoing geopolitical uncertainty impacting customer order timing, particularly for the automation and electrification sector. Now turning to operating profit. The operating profit bridge tells a positive story of execution. Despite revenue headwinds, adjusted operating profit increased to GBP 37.2 million, up 2.2% year-on-year. Overall, we delivered GBP 0.8 million of net organic profit growth. This is the result of operational gearing in Europe, where higher volumes and favorable mix dropped through to profits and the turnaround actions in North America where the stabilization of Cleveland and the elimination of losses from Plano were critical. These actions allowed us to return the region to profitability in the second half. Plano, which was significantly loss-making in the first half, generated around GBP 3.5 million of profit from last-time-buys in half 2 and contributed approximately GBP 1 million to the group adjusted operating profit for the full year. Revenue at the site was GBP 13 million in 2025. Production ceased at the end of the year, and this contribution will not repeat in 2026. The progress in North America helped offset the impact of lower volumes and transition costs in Asia, where we have been investing to support the transfer of production from China to Malaysia. Now I'd like to focus on the balance sheet, which is the highlight of these results. We've delivered a strong cash performance this year. Free cash flow increased to GBP 29.9 million, up 7.9%. This was driven by a significant step-up in cash conversion, achieving 150% compared to 117% last year. The primary driver here was our disciplined focus on working capital, specifically inventory reduction. We have successfully executed inventory initiatives across the group, resulting in a GBP 14.8 million contribution to cash flow. When combined with the GBP 12.8 million inventory reduction in 2024, that reflects the very pleasing GBP 27.6 million reduction over the last 2 years. This strong cash generation has directly strengthened our financial position as we've reduced net debt by almost GBP 30 million to GBP 50.3 million and leverage down to 1.1x. Balance sheet discipline will continue to be a key focus. Earlier this month, we extended the expiry dates of our revolving credit facility to June 2028 and reduced the size from GBP 162 million to GBP 105 million. This facility is only drawn by GBP 10 million currently and in the next few months will be completely undrawn. Before I move into the regional performance, I will reiterate that from our next set of results, we'll be moving to a divisional reporting structure, which better reflects how we manage the business. This means a realignment away from regions into 3 clear divisions, Power, EMS and Components. Eric will talk about this in more detail shortly. And you can also find pro forma revenue and adjusted operating profit under this new structure for 2024 and 2025 in the appendix. Turning now to regional performance and starting with Europe. Europe performed well during the year, continuing to be a structural growth engine for the group. Revenue grew 7.4% organically to GBP 144.4 million, driven by our sustained demand in our aerospace and defense markets. Adjusted operating profit increased 13.9% to GBP 22.1 million, with strong operational leverage, expanding margins by 90 basis points to 15.3%. We are seeing strong order intake across A&D, and the trends are set to continue into 2026. Turning to North America. Revenue declined 3.7% organically to GBP 173.1 million. This reflects the volume reduction both at Cleveland and in the Components businesses. However, operational performance improved during the year and the region returned to profitability. Adjusted operating profit was GBP 1.2 million compared to a loss of GBP 2.7 million in the prior year. Margins recovered to 0.7%, a 220 basis point improvement. The operational turnaround was driven by 2 main factors. As Eric highlighted earlier, actions taken to stabilize Cleveland, improved yield, productivity and execution, materially reducing losses in the second half. In addition, production at the Plano site ceased at the end of '25, removing a structurally loss-making site from the group with last-time-buy activity, also supporting regional profitability during the year. We entered 2026 with a recent operational base in North America, which positions the business in this region for further improvement. And finally, to Asia. Revenue declined 9.2% organically to GBP 163.9 million. This was due to ongoing reduced demand from EMS customers in the health care and A&D sectors with continued geopolitical uncertainties, delaying customer ordering. Operating profit fell to GBP 21.6 million, with margins compressing to 13.2%. This performance reflects lower volumes and some transition costs as we transferred a major customer from our facility in China to Malaysia, which is now complete. Completing this transfer strengthens our resilience against geopolitical uncertainty, better positioning the region moving forward. On the next slide, we have broken down revenue by our end markets. Aerospace & Defense was the standout, growing 12% to GBP 152.8 million. This highlights our increasing exposure to structurally attractive markets where defense spending continues to rise. Automation & Electrification softened by 13%, reflecting the macro intrapolitical uncertainty that caused customers to be cautious with order placement. Healthcare was down modestly by 4.3%, primarily reflecting reduced U.S. research grants and funding though our pipeline in medical and life sciences is healthy, and this remains an attractive market for TT. Distribution declined 4.7%, which was expected as component demand continues to normalize post-COVID. Overall, the strong growth and positive structural trends we are seeing in aerospace and defense give us confidence. Whilst other end markets have not performed as well as we would have liked, this largely relates to macro-driven softness of demand. We entered 2026 in a better, more stable position. Thank you, everyone, and I'll now hand back to Eric. Eric Lakin: Thank you, Richard. I think we can all see there is an improving picture and a stronger financial base for TT. I will now return to the 4 priorities for our next phase before touching our customer base and finally, look at the outlook for 2026. First, our divisional realignment. As we have mentioned, from this year, we are shifting how we organize and present the business away from our current regional structure managed as Europe, North America and Asia, to a product-led divisional structure. The group will be aligned around 3 clear divisions, Power, EMS and Components. Why are we doing this? It aligns us better with our customers' capabilities and markets. It enables us to develop and deliver more coherent strategies aligned to divisions that have different technologies, characteristics and routes to market. It also creates clear accountability for product development, sales and planning. As part of this reorganization, we will devolve further responsibilities to the operating companies to enable a more agile business with faster decision-making being made by those closest to the customer. This also facilitates a simplification of the organization structure including an element of delayering and increasing the accountability of performance to the sites. As mentioned, pro forma divisional breakdowns are available in the appendix. Second is our cost reduction program. To support this leaner operating model, we have initiated a targeted cost reset to permanently reduce our structural overheads. We expect this program to deliver around GBP 5 million of gross benefits in FY 2026, which will be a net benefit of approximately GBP 3 million after implementation costs. Looking further out, we anticipate annualized savings to be around double this year's level. This is a program that directly supports our margin progression goals, and we will share more information as the year progresses. Third is sales transformation. We're upgrading our commercial capabilities and bench strength, particularly in North America and Asia, and investing in business development talent, tools and processes aimed at delivering improved pipeline, order intake and pricing discipline. In particular, there is a renewed focus on new customers and new product introductions with these activities already bearing fruit as there's been a significant increase in new business wins in recent months, especially in North America. And finally, portfolio optimization. And as a management team, we continue to review the group's portfolio on an ongoing basis to ensure it remains aligned with our strategic priorities and areas of competitive advantage. Our strategic review of the components business is now complete. The Board is actively evaluating a range of options, including a value-led disposal process. But as mentioned earlier, we are not committed to a sale. Our current focus is on improving margin quality and returning the business to being a value accretive part of the group. Looking further out, we have restarted early-stage prospecting activity for targeted strategic bolt-on acquisitions that strengthen our core capabilities and reach, especially in the power electronics sector in which we have developed a strong capability and market position. All in all, we see these 4 priorities as being key to the next stage of TT's growth and delivering value for all our stakeholders. I would like to spend a bit of time looking at some of our customer relationships. During my first year at TT, I've been able to see our client relationships in action and understanding the significance of these relationships gives me great confidence. We serve some of the world's most respective and demanding companies across our core markets. And these companies choose us because we operate in the mission-critical space. Whatever the requirement, our customers rely on TT for precision, reliability, engineering capability and production excellence. These are not transactional relationships. They are deep multiyear engineering partnerships we seek to solve customer needs typically in regulated markets for demanding specialist applications. This diverse blue-chip customer base provides us with resilience against market cycles and is a foundation upon which we will build our future growth. I want to highlight what one of our partnerships looks like in practice on the next slide. So Edwards is a customer we have supported for more than 15 years. They supply solutions to the semiconductor capital equipment market and we provide a full tier EMS solution spanning PCB assembly through to complex high-level assemblies and specialist testing for vacuum technology. They operate in a highly demanding sector where precision and reliability are nonnegotiable. By providing everything, from comprehensive test development support to supply chain transparency, we give Edwards the confidence to meet their own commitments. It is this level of deep rooted reliability that allows us to grow alongside our most specialist global clients. I recently met with the team at Edwards, and they conveyed the importance of our ongoing relationship to their success and the future growth of the business. As this example illustrates, our partnerships with customers go well beyond the supply vendor dynamic, and we are deeply integrated with their processes to help create value over the longer term. Finally, turning to outlook. TT enters 2026 on a firmer operational and financial footing. We have taken swift action to improve operational performance and are aligned on a clear strategy moving forward underpinned by the growing strength of our balance sheet. We have high exposure to the A&D market, which supports growth and margins across Europe and North America in what will now become a significant portion of our Power division. While we do expect some continued softness in EMS markets, I remain mindful of the ongoing geopolitical uncertainty. Our focus is firmly on what we can control. The operational and cost actions we have taken are expected to continue driving margin improvement and better execution across the group. The North America turnaround is now becoming a tailwind with losses in the first half turning to profits in the second half. The significant improvement in the region, together with the cessation of production at Plano, give us a cleaner, more stable earnings base moving forward. Cash generation also remains a key priority. We will continue to focus on working capital discipline and operational efficiency to support strong cash conversion. With leverage now reduced to 1.1x and our financing facilities extended, we have significantly strengthened the balance sheet and increased our financial flexibility. So we expect 2026 revenue and adjusted operating profit to be in line with current market consensus. And this reflects a more stable, higher quality and more resilient business following the actions taken during the year. 2026 is about consolidating the operational progress we have made, maintaining margin discipline and continuing strong cash generation as we build a stronger platform for a return to growth better placed to capitalize on opportunities as they appear. While there is still more work to do and the remain external factors and market uncertainties, we entered the year with a more focused business, a stronger financial position and the greater confidence in our ability to deliver further progress. So thank you very much for your time this morning. I hope you'll agree that this is an exciting time for TT, and we are looking forward to showing our progress moving forward. Richard and I are now very happy to take any further questions you might have. Mark Jones: Mark Davies Jones from Stifel. A few things, please. On the change in divisional structure, does that effectively get us back to where we were before the move to the regionals? Or is there a difference in what allocation you do between those divisions? And if you're devolving more responsibility to the operating units, are there implications for the divisional management teams? Are you retaining the current team and new people coming in? And then the other one is the step-up in sales investment. Does that consume some of the benefits of the cost savings plans? And what sort of investment financially does that involve? Eric Lakin: Thanks, Mark. I'll take those 3. The new divisions are very similar to but not identical to the previous divisions. I think there's a couple of differences. For example, Sheffield is power, not components as it was before. And Fairford is also power not part of EMS, which it was before or GMS in the previous name, but broadly similar. But the divisional structure we've got now is really designed to put all the sites with similar characteristics together. And so it's much more coherent. And the Components division is, therefore, what we've separately been running internally already, but without the Plano production. Mark Jones: So the whole scope of that is within the review. Eric Lakin: Correct. correct. And in terms of the impact of what was the regional teams, I mean, in fact, it's part of -- the cost reduction program is separate, but partly facilitated or enabled by the divisional reorganization. So for example, with the executive team, we've gone effectively from 4 regions, so 3 components to 3 divisions. So that's 4 to 3. And the divisional teams will be significantly smaller than what was previously regional teams. So there's that element of delayering. So it puts a point around putting more responsibility to the site teams and leaders. Much of the saving is around what was previously the group functional costs. So support, particularly in the sort of non-primary functions, supporting what was the regions and the teams, those responsibilities are covered affected by the sites, and so there's been a lot of reduction in that area. And then your... Mark Jones: The cost of the investment on the sales? Eric Lakin: Yes. So I think there is some net increase in cost for BD. It's really important that we don't -- with all the short-term benefits of cost cutting, we don't forget really, our mission is to grow the top line and drive profitable growth. There are some -- so I mean overall, the actual change in the business development function, including sales, commercial teams won't be materially different from prior year because we've also had some evolution of the sales team. So part of the sales transformation is a high-performance culture. And so as you expect in that culture of sales team, there will be some people coming in, some people going out. There'll be a net increase in head though. And so there'll be a modest absorption of some of the net savings, but it's quite small compared to the headline savings. And it certainly should pay for itself. Andrew Simms: It's Andrew Simms from Berenberg. Just a couple of questions around pricing initially. I mean you talked about sales transformation. It would be good to get maybe a little bit of a feel for where you're seeing the benefits of pricing coming through? Maybe some examples of how that's coming through there, that would be great. And then following on from that, in terms of new business, in terms of new logos as well, how should we think about gross margins and that business coming through, how that supports medium-term operating margin ambitions? Eric Lakin: Thanks, Andy. On pricing, there's 2 parts to it. It's existing contracts and new contracts. So with the former, we've done a review of a large customer and contract margins, in particular, around Cleveland. So we did customer product profitability analysis covering close to 100 different contracts and that was quite insightful. And that revealed really, so you can pareto these things, a handful of opportunities where the margins are not what we need or expect and some are very low in a couple of cases, actually negative. There's a legacy there and part of it is getting the right standard cost and rigor around bids. With the visibility we have in some of these cases, a contractual ability to increase prices with existing contracts, particularly in the aerospace and defense, we've got the right to have a transparent cost review and apply appropriate margin. So we've had 2 quite significant successful price negotiations and outcomes at the back of last year, which will have ongoing benefit this year. So that's been helpful. And it actually shows -- these aren't easy discussions to have, but the customer chose their value and need our ongoing support. Going forward, it's a point around sort of bid and pricing discipline. We've got a good -- a rigorous bid, no-bid structure in place. And so we make sure that we make the right decisions. And it's much about pushing the highest prices. For components, for example, we had a sort of a particular mandate, not accepting margins below x percent. And actually, we turned away some business that would have been contributing to our bottom line. So in some cases, by exception, we take a different view for certain contracts where it's making a positive contribution. You certainly want to cover at least all the variable costs, direct costs, and actually and get some scale and cover the overheads. So it depends on the circumstance. But overall, we're tracking that and there's a big important part of it. In terms of new logos and the impact on margin, I mean, it varies, I mean, particularly some EMS contracts. I mean overall, the margins will never be as high as, say, in other parts of the business. And you'll see that come through in the new divisional structure, and that is the nature of it. I mean you look at our peer groups, typically in EMS margins, and they're typically mid- to high single-digit percent. And as we get new logos, we're still pricing them to ensure we get profits from day 1. We're not doing any sort of cost entries. A couple of examples recently. We've got our first new logo in North America in agricultural drones, another one in data centers. And we are quite well aligned to meet their needs and make profits. There is business out there. We could win, but we'd lose money out. And we've been very disciplined to focus on profitable growth, not just top line. Alexandro da Silva O'Hanlon: Alex O'Hanlon from Panmure Liberum. Just a couple of questions from me. Firstly, just on the Cleveland productivity improvement. It's a good chart that you have in the deck, and you can see how that's progressed over the year. It's interesting to see that the improvement has tracked the, I guess, better targets throughout the year. Are we at the target level that you want to see now? Or is there further progress to go? And the second question is just on capital allocation. You mentioned the possibility for bolt-on acquisitions in the future. I was just wondering, on the dividend, what do you still want to see in terms of progress before you're reinstated? Eric Lakin: Thanks, Alex. In terms of productivity improvements, I mean, right, it's very pleasing when you implement initiative and you can see the evidence of that. And so productivity, I mean, the way we define it is, it's total hours spent on a product divided by total standard hours expected. And you're always going to have -- we set it at 75%, we're excess of that, which is good. I mean in practice, the way that is measured, you're always going to have some element of training time, vacation, what have us. So the similar measures of efficiency, and it's equivalent to that as more like 90% or so. So it's where we expect it to be. Could we push it harder? We're always trying to do more and more. And by getting higher productivity, that manifests itself improved profits by either having more capacity to do more or we can reduce headcount. So I think it's where I'd like it to be. I think if we're; going to sustain at that level, it'll be a good outcome because there's many other factors as well, including quality and the ability to also -- there could be a period where we have a slight impact. So we're bringing in new product introductions, and that has an impact as we get the standard costs delivered. And then in terms of capital allocation, I mean, look, a priority last year was absolutely a focus on balance sheet strength, resilience getting the gearing down and the refinancing. And Richard and team and Kirsty is here with us as well, Head of Tax and Treasury, done an excellent job resolving that. So it's nice to be getting these questions now. Looking forward, I think we're very mindful, obviously, a lot of uncertainty at the moment, are very mindful of maintaining a strong balance sheet. So the dividend position, the Board will continue to review that going forward, and we may well have an update at the interims and make sure we're making the right decisions in the medium to long term as well for shareholders. So I mean there's other options available, of course, whether it's share buybacks or acquisitions. On the acquisition point, it's too early. We need to be good stewards of the business, prove that being more reliable and consistent in our delivery against promises and prove we are a good owner of businesses. But it's also true cultivating targets can take a long time. So we're right to start that now. And there's definitely a runway of opportunities out there that could be additive to our business. So it partly depends on opportunities that arise and then we make the best decisions at the time. Mark Jones: Sorry, can I come back for one more, which is around the moving parts of this year and the guidance you're giving, because obviously, there's a lot of underlying progress. But the guidance you sort of stood behind this morning, the top end of that is flat year-on-year in profit terms and the bottom end of it is obviously a step down. So you've got a GBP 1 million headwind in terms of the full year contribution from Plano, you've got strong growth in Europe in the A&D business ongoing. You've got presumably better underlying performance in the U.S. we should have year-on-year, and we've done the big transfer in Asia. So can you talk through the other headwinds? Is it just volume in EMS? Eric Lakin: Yes, Richard, do you want to pick that one? Richard Webb: So one aspect is margins in Europe is now power. So there was -- there's some beneficial mix within 2025 that won't repeat in 2026. There will be some softening of power margins as we go into next year. But yes, the ongoing softness in EMS continues to be an area where we're being cautious for the 2026 outlook. That is the kind of primary driver of why you don't see 2026... Mark Jones: And it could be by end market within the... Eric Lakin: I mean I'd just add, big picture, there's obviously a lot of uncertainty. And it's too early to call what the impact would be with the current situation in Middle East. There's likely to be some level of inflationary impact. We've not yet seen any constraints on raw material and supply chain, but they might occur and they could have an impact. Obviously, we've got energy price rises, which could ultimately impact some of our fabrication costs, particularly where we use furnaces and so on. But it's early days. We don't know, and it's unclear what the impact would be in terms of customer demand patterns as well. But I think there's a broader caution around inflation and the impact of that on the business, which we're obviously taking countermeasures to that with the cost reduction. I mean, by division, the components business, we're two months in, so it's early, we're showing signs of good resilience, which is encouraging, but the lead times there are quite short, so we don't get the visibility of that division as we get for power or EMS. But in terms of end markets, we're seeing clearly ongoing strength in A&D. I think we have good growth in '25, I think sort of continued growth in '26. But we're not -- a lot of the very large contracts we won last year, a multiyear contract, so it's just temper enthusiasm we're talking. Single-digit growth in '26, not necessarily double digit. And look at the various markets across EMS. Health care remains somewhat subdued, and we're expecting, hopefully, to pick up towards the second half of the year, particularly around health care spend and that feeds into R&D and specific programs. Semiconductor CapEx is a very interesting one. That was down last year, which might be surprising, given the trend in that sector, but there's two elements to that. One, specifically to us, there was some additional safety stock ahead of the transition from Suzhou to Kuantan. So that had an impact year-on-year for '24 to '25. And actually, our customers who provide equipment for fabrication facilities. It's a little bit of a soft market because it's really about upgrade to new facilities rather than the production itself rate of semi chips. But we are seeing signs of improvement in that sector with the conversation we're having now with a couple of our customers encouraging. So we should see a pickup in that. Obviously, it starts with pipeline and then orders and then that feeds into revenue. So I'd be interested how that pans out through the course of this year. And then other general industrials, it's a mixed bag, whether you're looking at specialist industrials, rail and a number of other sectors we have we serve in EMS. It's sort of a mixed bag. But a key point around EMS because I think we would -- overall, we're not expecting to see growth in EMS this year. But this pivot to regional supply chains and moving and investing in regional and domestic sales is looking like it will pay off, particularly for China, regional sales. So we'll see, hopefully, as we progress that through the year, but we're sort of cautious at this point in the year. Kate Moy: We've got a question from online from Joel at Investec. Can you quantify the costs associated with the customer transfer from China to Malaysia impacting the APAC division? Is that process now complete? And are there any signs that the rate of APAC revenue decline is stabilizing or are you planning on it being lower in 2026? Eric Lakin: Do you want to cover the cost base? Richard Webb: Yes. So the overall cost was around about GBP 1 million to OpEx and then some limited CapEx investment as well, and that transfer is now complete. Eric Lakin: Thanks for your question, Joel. And I think it's complete. We've had success. It was a crucial project last year for a large customer and all of the first article inspections have gone through well. So we're now in the process of spinning up volume production. So that will be key next stage of that process this year. I think overall, we still expect for APAC region a reduction in the decline we saw in '25. So as I mentioned earlier, we're not expecting a return to growth this year because APAC is really driven by the EMS market. But we're seeing a level of stabilization as in anticipating a reduced decline this year. And crucially, the lead indicators we have is what does the order intake look like in pipeline to drive growth, certainly beyond this year and potentially see that coming through in the second half. But overall, we're being conservative around our forecast assumptions for '26. Kate Moy: Thank you. There are no further questions from the webcast. So over to you for any closing remarks. Eric Lakin: Okay. Well, look, thank you all for coming. It's good to see a full room. Thank you for your interest and time, and appreciate it, and look forward to seeing you all at the interims, if not before. So thanks very much. Have a good day.
Unknown Executive: Good morning, investors and analysts. Welcome to the 2025 Annual Results Announcement of China Oilfield Services Limited. On behalf of the company, I would like to thank you all for taking the time to attend. First, allow me to introduce the representatives from the Board of Directors and Management attending this event. They are Mr. Zhao Shunqiang, Chairman and CEO; Ms. Chiu Lai Kuen Susanna, Independent Nonexecutive Director; Mr. Sun Weizhou, Executive Vice President and Board Secretary; Mr. Qie Ji, CFO. China Oilfield Services is one of the world's largest integrated oilfield service providers, boasting a comprehensive service chain and a robust fleet of offshore oilfield service equipment as well as a well-established R&D system and service support system. The company focuses on 5 key development strategies: technology-driven, cost leadership, integration, internationalization and regional development. During the 14th 5-year plan period, the company has achieved continuous breakthroughs in key core technologies, significantly enhanced the profitability of its large-scale equipment and continuously strengthened its core competitiveness in oilfield services. The company remains committed to reestablishing its cost advantage and strengthening its cost control capabilities. It is dedicated to deepening its expertise in the marine energy resources sector, firmly upholding the philosophy of creating value for clients. COSL excels at integrating its operations into clients' value chains to generate added value, thereby enhancing clients' investment efficiency and returns. Today's event is divided into 2 parts. First, Mr. Qie Ji, CFO, will present the 2025 annual results and the company's future development outlook, followed by a Q&A session. We now invite Mr. Qie to take the floor. Ji Qie: [Foreign Language]. Unknown Executive: Thank you, Mr. Qie. We will now move on to the Q&A session. [Operator Instructions] The consecutive interpreter will provide interpretation between Chinese and English for both questions and answers. Please allow sufficient time for the interpreter. Thank you. Unknown Analyst: My question is about the Middle East. Right now, we are in the middle of Middle East conflict. So I would like to know how much impact or what kind of impact has that been on your Technology segment and on your Drilling segment? And before the conflict in the Middle East, how many rigs or platforms were operating in the Middle East? And how many of them have been suspended because of the conflict? Unknown Executive: Let me talk about our current operation and equipment being used in the Middle East. So we are now in basically 3 countries in the Middle East. First of all, in Iraq, we have 23 equipment for maintenance and also operations. And then in Saudi Arabia, we have 3 jack-up rigs or platforms; in Kuwait, 2 jack-up platforms. Regarding our 5 jack-up rigs or platforms, there has been no impact on their operations. That means that there is no suspension or no termination of the operation of this equipment. As regards in the landlord site, well, they are still making arrangement in relation to the work and operations, and they are also continuing their payments of fees as well. However, in Iraq, in relation to the repair and maintenance machines and equipment, because in Iraq, basically, the business is integrated business. And so there has been 3 equipment and machines being affected by the integrated equipment suspension. Unknown Analyst: So first of all, my question is, under the current situation about geopolitics, well, how do you see the oil price trend in the year 2026? And also, I would like to know, in these circumstances, so what will be some adjustments or changes to your development plan? Unknown Executive: I believe that the question or issue about oil price is a big issue. And in fact, we are not an expert in this area, but I can still share a couple of points in my opinion. So first of all, in relation to the demand and supply situation, right now, there is still an excess capacity, whereas demand is relatively weaker and softer. Under the influence of geopolitics, there is an imbalance or a lack of balance between demand and supply on a regional basis. And that has led to the volatility or changes in the oil price. But then the overall trend is not really changing. In the future, we are still cautiously optimistic, and we are not going to change our internationalization strategy as a result. And we believe that we will continue to benefit from the insights and experience that we have already accumulated from the previous 5-year plan period. Despite all the geopolitical changes and also fluctuations, so actually, this year, because of that oil price has been affected. So right now, we are in the process of war. We don't know how long this war will last, and we don't know how intense or how severe this war is going to turn out. But then, of course, no country would like to see a war happening. We believe that this war may not really take a very, very long time, but we actually can't tell when it is going to end. So definitely, our internationalization strategy as a whole will stay. But the trend of our internationalization will be subject to some impact, especially during the short term. But in the long term, the direction is going to remain the same. Unknown Analyst: My question is about the drilling rigs. Actually, we have seen that there is an increase in profitability. So I want to understand the reasons behind the profitability growth. And regarding the domestic as well as overseas profit in this segment, how much is the relative contribution from domestic and overseas business? And in the future, in the coming 1 year, what kind of breakthroughs can we expect in this particular business segment? Unknown Executive: Before I answer your question, I would like to share with you 3 big trends. First of all, we have seen acceleration of our internationalization strategy. So this is reflected quite clearly, if you refer to our revenue, our profit and also our management work and efficiency. And the second trend is that the increase in production within our country is continuing. So we have already completed the previous 7-year action plan, and very soon, we are going to see the coming 10-year plan, which is a new one. And we can see that there is strengthening of domestic supply and expansion. And the third trend is that during the 14th 5-year plan period, our company has been increasing utilization of large-scale equipment. And in fact, in the year 2025, all large-scale equipment have been put into use. In the year 2025, there were 2 M&A projects. The first one is between ADS and Shell, and the second one is Transocean and another company. So in relation to the rig and platform operation, we can see that the overall integrated capability and also bargaining power for the larger companies have increased. So it is getting more and more difficult for the smaller companies to survive well. So for the large contractors and companies, we can see that the profit margin is rising. However, for the smaller contractors, many of their rigs and platforms have been suspended. So during the 15th 5-year plan period in relation to large-scale equipment, we believe that it is in a tight balance situation. So we will put in more effort to acquire or integrate with the equipment of the smaller contractors. So in the future, we believe that the oil companies will see quite a lot of difficulties in relation to technical development resources as well as spatial development. So they really need the more competent contractors with more capabilities and expertise to be able to deliver professional and expert services to them. Unknown Analyst: The first question is about the Marine Support segment in relation to the vessels. So all along, it has been based on market -- marketized pricing mechanism. So is there going to be any change to this pricing mechanism? And what will be the trend in the daily rates? The next question is, under the current situation and concern regarding energy security, many big oil companies, including CNOOC, is expanding the work in terms of exploration. So when it comes to offshore oil fields, in the coming few years, how much will be your CapEx? And then the third question is, given the decline in your gearing ratio, in the future, are you going to increase dividend payout? Unknown Executive: So in fact, the questions that you have asked have touched upon the pain points in our operation. Regarding the pricing of vessels, this has been an old issue that has been dwelling for 10-odd years. Well, basically, this is a matter which both parties have to reach an agreement. During the 15th 5-year plan period, we have changed our strategies. And we are of the view that it is better to put higher requirements on ourselves than to making requests with other parties. So first of all, given the current tight condition between demand and supply of resources, what we need to do is to change the structure. So we want to change customer base structure and also the structure of market revenue. We need to also make sure that we can achieve precise asset and resource allocation, and then we have to continue our internationalization strategy. So these are some strategies and measures to tackle this issue. So we are using the certainty of our own work to solve the uncertainty condition in terms of pricing. And then we are also expanding our fleet. We keep on making adjustments to our overall structure, hoping that demand can be used to determine pricing relatively more. So in the future, we can anticipate that the energy autonomy will be a more and more important strategy and policy of our country. So every year, when it comes to consumption of oil, it amounted to 750 million to 760 million tonnes, of which 500 million tonnes are imported. So this is the current situation. Unknown Executive: Let me answer your third question concerning optimization of our debt and liabilities. Basically, we now see 3 major opportunities. First of all, there is a swap in terms of our total existing debt because some of our debts are going to expire. And then the second point is that there is right now a gradual decline in terms of the high interest rates of U.S. dollar. And for RMB, interest rate is relatively lower. So there is a difference -- an interest rate differential. And then thirdly, in terms of the currency mix, in the past, basically, it is mainly about expenses overseas. Because there were some M&As overseas, so foreign currencies were used for these transactions. And right now, actually, domestic expenses account for a bigger percentage. So that is also the third opportunity in relation to optimization of debt. So actually, starting from 2024, we have been making plans and preparation for debt optimization, because in June to July 2025, there was the expiry of USD 1 billion debt. And then actually in mid-March, we had already issued a RMB 5 billion debt at 1.95% interest rate for a tenure of 3 years. So overall speaking, we have decreased the scale of our debt, and financing cost is also coming down. So what we have to do is that we need to continue to reduce the scale of our debt and optimize the structure. During the 15th 5-year plan period, we are going to increase our investment into equipment. And we want to make sure that our gearing ratio will maintain stable and sustainable. So in terms of our debt and liabilities, we will make long term -- we are going to make arrangements by considering our overall long-term development. Regarding dividend, we have to consider the operational needs of our company, the company's future cash position in making decision. And then we also want to make sure that we can seize future development opportunities. But then if you look at our dividend payout in 2025, in fact, it is in a very good position. Unknown Analyst: So my first question is concerning exchange rate gain and loss. So in the second half of the year, there was quite a large impact arising from that. So what are the reasons behind? My second question is about your Technology segment. So in terms of the profit from this segment, so its share has been quite big all along. And last year, in the first half of the year, there was some change to that trend. Is there going to be -- or was there some improvement in the second half of the year? And in 2026, how much will be the profit margin? Unknown Executive: During the 14th 5-year plan period, we have been continuously increasing our R&D expenses, and we have strengthened our R&D system as well. If you look at our R&D expenses every year, for example, in 2021, the amount was RMB 1.6 billion. And last year, it had already risen to RMB 2.2 billion. So it accounted for 4% of our total revenue. And in fact, the input/output ratio in relation to our R&D expenses and investment has been increasing. In 2021, it was RMB 1 to RMB 2.5. In 2025, it was RMB 1 to RMB 3.1. Technology coverage in 2021, it was 59%. In 2025, 86%. So we are strengthening the overall strength of our Technology segment. In the 14th 5-year plan period, our revenue strength and also the contribution into total revenue and profit is also big and increasing. In 2025, from the Technology segment, it accounted for 55% of revenue and 72% of profit. For overseas business, during the 14th 5-year plan, the strength of our Technology segment has also been enhanced. So the contribution to both revenue and profit has risen. In 2021, it accounted for 14% of total overseas revenue, and in 2025, 24%. So if we look at the operating profit margin of the segment in 2025, it was 16%. We are better than other peers in the industry, even though there is some slight decline on a year-on-year basis. However, we also need to exclude the nonoperating gains and losses. So for actually most of the segments, we saw very stable, even slight increased trend with only the exception of the cementing segment. So at the end of last year, we won a contract with our Shenzi with a Thai petrol company. So the total contract value was USD 8 million. So this shows that our self-researched and developed technology has won international recognition. This is because of our R&D investment over the years as well as the work that we have done to strengthen our overall R&D system. Recently, perhaps you are also aware that we have also won a contract from the Kuwait National Petroleum Company. Total contract value was actually RMB 400 million in terms of contract value. So you can see that we have achieved breakthrough in different regions and also different countries with our Technology segment. Our Technology segment is such that our value has been released on a continuous basis and our strength has been improving. We have won more and more recognition from customers. In the future, with our 1+2+N market layout of our company, right now, in terms of our overseas business, we are in the 5 major continents in 13 countries, and we have 120 operation sites. So in terms of both profitability and also revenue and shareholder return, we are seeing future improvements. So in 2025, actually, we have seen fluctuations and volatility in the exchange rate of RMB. Last year, at the beginning of last year, it was in the range of around RMB 7.1. And then in April, it became RMB 7.4. Towards the end of the year, it was at RMB 6.8, RMB 6.9 roughly. So all these fluctuations have caused much impact to our exchange rate loss or gains. During the 14th 5-year plan period, for our exchange rate loss, it was relatively flat. In the year 2022 to 2023, in fact, there was a year when there was a big exchange rate gain, but then there was also another year with a big exchange rate loss. For our country, it is actually trying its best to maintain a reasonable range in relation to exchange rate fluctuations. And in the short run, we believe that there are challenges in terms of exchange rate gain or loss. But then in the long run, we are going to put in more effort to strengthen management of our exchange rate loss and gain and also enhance the position, overall speaking. There's only limited time, so I can only briefly give some explanation to the technical dimension of this question. So on one hand, within Mainland China, the expenses are mainly in RMB. But then when it comes to overseas business and also external payment, the usual habit is for USD to be used. So that's why we will be subject to impact from the fluctuations and volatility. So just now we answered a question about debt structure optimization. So last year, we increased our RMB debt and we used it to repay some of the high interest rate USD debt. As a result, the interest rate has come down because of this swap. Well, for USD debt, the interest rate was 4% and we changed that into RMB debt at an interest rate of 2%. So there is this interest rate differential. But then at the same time, there is also depreciation in interest rates. So these 2 movements are offsetting each other. Unknown Analyst: I have 2 questions. The first question is concerning your rig platforms. Utilization rate has been high. And then we know that there is a tight demand and supply situation concerning the semisubmersible rigs. So do you have any plan to build new semisubmersible rigs? My second question is related to the Technology segment. So we understand from the market that there is overseas development plan for this particular business segment. And now that there is the war and conflict in the Middle East region, so will this plan about achieving breakthrough in the Middle East be affected? Unknown Executive: So first of all, in relation to large-scale equipment, during the 14th 5-year plan, we have seen a rapid development stage. And then we believe that in the 15th 5-year plan, it would be in a tight balance or tight equilibrium position. So we are actually expediting our development and also R&D in this regard, hoping to achieve low-cost construction and highly efficient construction as well. So our principle is one of productization. So we are going to capitalize on our self-developed design, our own R&D, our self-construction in our platform and rig construction work. So we will make sure that we can come up with our own design and own research and development. And we believe that there are a few characteristics of the rigs and platforms that we develop and construct, namely that they are reliable, they are highly efficient, intensive and also there would be a high degree of integration. So we believe that we are able to make quite a lot of improvement in such a way that all such equipment construction work can be replicated and can be further promoted, so that they would be enough to support our future development for the coming 5-year plan period. Unknown Executive: So let me comment on our Technology segment. During the 14th 5-year plan period, we have seen changes in the overseas market. First of all, in terms of regions, we have newly added Uganda, Kuwait, Brazil, Canada and Thailand. And then in terms of customers that we serve, we have also acquired new customers, including Kuwait National Petrol, customers in Saudi Arabia, in France and also in the U.S. As I mentioned earlier, we are operating in the 5 major continents in 13 countries, and we have 120 operation sites. So we have already diversified our market and also our customer mix. This is also a good testimony that our technology and our management is well recognized by our customers. We are even better able to withstand and control risk. During the 14th 5-year plan period, especially at the beginning of that period, we have already established our 5 major strategies, of which the strategy about being technology-driven and also the strategy of integration have helped us enhance our overall competitiveness, especially in our overseas market and overseas development. So these 2 strategies have already accounted for 40% to 50% of our revenue in the 14th 5-year plan period. For these 2 strategies, integration and technology-driven, we have also diversified our businesses. And as a result, we have enhanced our overall competitiveness, and we are able to balance out market risk as well. So we are of the view that the war is going to be temporary in nature and also it is rather local in nature. And we will keep on diversifying our market as well as our customer base. Our direction of technology development is already very clear. Competitiveness is improving. With the market foundation, technology foundation and management foundation that we have already built, we believe that our future development is going to get better and better. Unknown Analyst: The first question is about the optimization of structure. So just now, we heard from your answers that especially for overseas business, there is now industrial integration. And during the 15th 5-year plan period, you are going to increase your equipment resources. So regarding this increase in equipment resources, I would like to know how you are going to do it. Are you going to consider new equipment resources within China or the mature equipment resources, or are you going to consider overseas M&A? I think this is related to the structure optimization between domestic and overseas that you have been talking about. And my next question is that your current business model is already different from your old past business model. You have already got the long-term agreement in place in the North Sea area, and the daily fee rates are sort of fixed. And is there any mechanism for the passing on of the oil price increase back to, for example, the oil companies and other companies, because in the past, costs have been controllable. But now that there has been a big surge in oil price, is there any way that you can pass on such oil price increase impact? Unknown Executive: During the 14th 5-year plan period, as we are increasing our large-scale equipment resources, basically, there are 4 methods for us to do that: leasing, self-construction, transfer, and purchase or acquisition. So right now, we are increasing our development in our internationalization strategy. And as mentioned earlier, the large-scale equipment capability within China is also rising. So earlier, I mentioned the tight balance between resource demand and supply. So we have already commented on the self-construction of equipment. And for the buy or purchase strategy, we will consider that when we see resources with high value for money. And for leasing, it has to be left for a later stage, because right now, we believe that we are going to increase our self-owned vessel fleet in order to support our future development and growth. As regards to the price, pass-through mechanism for North Sea, if such mechanism can be put in place, it is good. But then right now, we believe that our customers also encounter much difficulty. We have got the long-term agreement signed for the North Sea region. It is actually because of the energy management system, we are able to lower cost for the operators. And at the same time, we can enhance efficiency. So it is actually a win-win situation for both the operators as well as ourselves. So this is also one of our key competitiveness when we operate in this particular segment. Last year was the final year of the 14th 5-year plan period, and this year, we will see the start of the 15th 5-year plan period. During the 14th 5-year plan period, our integrated overall capability, our innovation capability and our management capabilities have improved significantly. And we have the confidence that we will be developed into a global energy resources and technology company. So we have a lot of courage and confidence in achieving this goal. During the 15th 5-year plan, we have actually got 4 main points in relation to our overall development. First of all, even though there has been some changes in our strategy, but then we have already consolidated and solidified many of our development strategies. So our future development is going to be centered around all these established strategies. So even though there is a lot of uncertainty in our development environment, but we will still be firmly adhering to our strategy. Secondly, we will rely on the drive from our technology and equipment products and services to continue our business development. The third point is that there would be some solidification and changes in our development methods and approaches. In the past, we focused a lot on the major elements input. And this is going to be changed into a knowledge-based approach. And then finally, we will deepen our reform. Many of our reform initiatives started in the 14th 5-year plan period. And in the 15th 5-year plan period, we are going to refine them. So under the leadership of our Board of Directors, we believe that we will see many friendly customers with very close relationship. We will be focusing on our core strategies and business segments. We will also center around our efficiency improvement and value improvement. So with all these, we believe that we can gradually develop ourselves into a first-rate global energy technology management company. Thank you all for spending time with us today. Unknown Executive: Thank you for all the questions and answers. Thank you, investors, friends for attending COSL's 2025 annual results announcement today. The company will continue to maintain communication with you through various channels. Today's session is now concluded. Should any investors wish to engage in further dialogue, please feel free to contact our IR team. We look forward to seeing you again next time. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Andean Precious Metals Fourth Quarter and Year-End Conference Call and Webcast. [Operator Instructions] Thank you. I would now like to turn the call over to Amanda Mallough, Director of Investor Relations. You may begin. Amanda Mallough: Thank you. Good morning, everyone, and thank you for joining Andean Precious Metals Conference Call to discuss our financial and operating results for the 3 and 12 months ended December 31, 2025. Our press release, MD&A and financial statements are available on SEDAR+ and on our corporate website at andeanpm.com. Before we begin, I would like to remind listeners that today's discussion will include forward-looking statements. Please refer to our cautionary language in our filings. Joining me on the call today are Alberto Morales, Executive Chairman and CEO; Yohann Bouchard, our President; Juan Carlos Sandoval, our Chief Financial Officer; and Dom Kizek, our Vice President of Finance and Corporate Controller. Following prepared remarks, we will open the line for questions. And with that, I'll now turn the call over to Alberto. Alberto Morales: Thank you, Amanda, and good morning, everyone. 2025 marked a step change for Andean where we delivered focused financial -- record financial results and fundamentally strengthened our balance sheet. We achieved record revenue, adjusted EBITDA and net income alongside with strong free cash flow generation and exited the year with a record $167 million in liquid assets. This level of cash flow generation fundamentally changes our positioning as a company. We entered 2026 with a strong balance sheet and the financial flexibility to fund growth initiatives and evaluate opportunities to expand our asset base. Operationally, both assets contributed to this performance. At San Bartolome, the operation delivered consistent production and strong margins, supported by efficient processing and strong silver prices. At Golden Queen, production strengthened into the fourth quarter, supporting higher consolidated gold production and contributing to our record financial results. For the year, we maintained a balanced production profile with approximately 57% of revenue coming from silver and 43% from gold. Looking ahead, we expect several important milestones in 2026, including our planned New York Stock Exchange listing and the updated technical report at Golden Queen. Overall, 2025 demonstrated the strength of our platform, a business capable of generating meaningful cash flow, maintaining strong margins and positioning itself for the next phase of growth. With that, I will turn it over to Yohann. Yohann Bouchard: Well, thank you, Alberto, and good morning, everyone. For the fourth quarter, Andean produced 27,777 gold equivalent ounces, bringing full year production slightly below 100,000 gold equivalent ounces. While production finished near the low end of guidance, both operations delivered strong cost performance and margin generation, supporting record financial results. At San Bartolome, the operation continued to perform consistently. For the year, the operation delivered 4.5 million ounces of silver, contributing to a total of gold equivalent production of 53,854 ounces. Operational performance remained strong for the full year with cash gross operating margin of $16.11 per silver ounce and gross margin ratio of 42.75%. These results reflect continued efficiency in ore sourcing, stable throughput and strong realized silver prices. At Golden Queen, the operation produced 45,311 gold equivalent ounces in 2025, comprised of 41,627 ounce of gold and 331,000 silver ounces. Production improved into the fourth quarter, supporting stronger consolidated results. For the year, cash costs were $1,698 per gold ounce and all-in sustaining cost was $2,194 per gold ounce. The operation continued to focus on optimizing stacking, blending and recoveries, which are expected to support improved performance going forward. From an operational perspective, both assets are well positioned heading into 2026 with stable production and strong margins. Production is expected to be weighted approximately 45% in the first half of the year and 55% in the second half, driven by mining sequence at Golden Queen and ore delivery timing at San Bartolome. With that, I will turn it over to J.C. Juan Sandoval: Thank you, Yohann, and good morning, everyone. From a financial perspective, 2025 was a record year across all key metrics. In the fourth quarter, we delivered strong results across the board, including revenue of $134 million and adjusted EBITDA of $47 million. For the full year, revenue reached $359 million, adjusted EBITDA was $133 million, and net income was $118 million or $0.78 per share. Free cash flow totaled $36 million in the fourth quarter and $59 million for the year, reflecting strong cash generation. Our balance sheet strengthened significantly over the year. Total assets increased to $434 million, while total liabilities declined to $170 million, reflecting debt repayment and strong cash generation. We ended the year with $167 million in liquid assets, a record for the company. This was comprised of $79 million in cash and cash equivalents, $38 million in treasuries and money markets and $49 million in strategic equity investments. During the year, we fully repaid our legacy credit facilities and established a new $40 million revolving credit facility with National Bank further enhancing our financial flexibility. This positions the company with strong liquidity and financial flexibility moving into 2026. With that, I'll turn it back to Yohann for an update on our exploration programs. Yohann Bouchard: Thank you, J.C.. Our exploration programs are focused on extending mine life and supporting long-term production across both operations. At Golden Queen, exploration remains focused on expanding known mineralization and supporting mine life extension. In 2025, we completed 47 core drill holes aiming at extending the existing mineralized zone. While the drilling program met our expectations, turnaround times at the independent assay lab were longer than anticipated. Consequently, we have decided to postpone the release of the technical report by a few months to include this new information. Looking ahead to 2026, our primary objective is to advance infill drilling to convert inferred resources into the measured and indicated categories. Our second objective is to follow up on the zone drilled in 2025 with additional infill drilling, which is intended to further extend mineral reserves along the trend of the existing mining areas. Postponing the release of the technical report by a few months ensure the market receives a clearer and more complete picture of the asset long-term value. At San Bartolome, exploration is focused on securing additional oxide resources to support long-term plant feed. We continue to advance exploration across multiple targets with the objective of increasing available resources and maximizing utilization of the plant capacity. Overall, these programs are designed to enhance production, extend mine life and support long-term value creation across both operations. With that, I will turn it back to Alberto, who will talk to the 2026 guidance. Alberto Morales: Thank you, Yohann. As we look ahead to 2026, we have already provided detailed production, cost and capital guidance to the market. We expect consolidated production to be in the range of 100,000 to 114,000 gold equivalent ounces, with production expected to be weighted approximately 45% in the first half of the year and 55% in the second half, reflecting mine sequencing and ore delivery timing. At Golden Queen, we expect cash cost between $1,500 and $1,800 per gold ounce and all-in sustaining costs between $1,850 and $2,150 per gold ounce. At San Bartolome, we expect cash gross operating margins between $20 and $35 per silver ounce and gross margin ratios between 35% and 45%. Overall, this positions the company to continue generating strong margins and cash flows across the range of a commodity price environment. Our capital program for 2026 is aligned with our strategy of driving long-term value while maintaining financial discipline. We expect sustaining capital of approximately $17 million to $24 million and growth capital of approximately $21 million to $30 million. At Golden Queen, capital will focus on leach pad expansion, development and infrastructure, equipment additions supporting mine life extensions. At San Bartolome, capital will be directed towards processing improvements, plant optimization initiatives and sustaining infrastructure. Overall, 2026 plan is designed to enhance operational flexibility, support mine life extension and positions the company for continued free cash flow generation and long-term growth. To close, 2025 marked a significant step forward for Andean. We delivered record financial results, generated meaningful free cash flow and transformed our balance sheet. As we move into 2026, we are focused on delivering against our guidance, continuing to generate strong margins and cash flow and advancing key initiatives across both of our operations. We are entering 2026 from a position of strength with a clear path to continue scaling the business and delivering long-term value for the shareholders. With a strong balance sheet, a clear operating plan and upcoming catalysts, including our planned New York Stock Exchange listing, we are well positioned to execute on the next phase of growth. Thank you, everyone, for your continued support. And operator, I would like to please open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Justin Chan with SCP Resource Finance. Justin Chan: Congrats for cash generating year. Just my first question is on the, I guess, the timing of the updated resource at Golden Queen. I guess maybe can you give a bit more color on -- will you be doing more drilling in the first -- I guess, will drilling from the first quarter of the year go into the update? Like what's the cutoff for data going into it? And then if you could give us kind of the flow of timing from cutting off drilling data and then when you expect to release it? Yohann Bouchard: Yohann here, and thanks for the question. So the main reason for postponing by, say, 3 to 4 months, the technical report is really to make sure that we include all of the information from 2025, which is pretty exciting. I mean we got 47 holes that we drilled in the extension, and we believe that everything can make its way into resource, but -- and we feel that by rushing the report, I mean, we're not giving full value to that report basically. I would say postponing the report has very little to do with drilling that we're doing in 2026. We're going to try to include some of those holes if we can, but this is not the end game here. The end game is really to include all the information that we have drilled in 2025, which is meaningful, I think, for the operation. Justin Chan: Understood. Got you. So it's not like you need to do any more infill. It's just a matter of enough time to actually model up the data you already have. Yohann Bouchard: Absolutely. We are very satisfied with the drilling of 2025. Again, I mean, this is out of our control. I mean, the lab was quite busy, and we had some delay with that. And I believe that everybody is winning by postponing a little bit and providing something that can give a clearer picture to the market. Justin Chan: Got you. And then I have a question on just the marketable securities. And I guess there was some movement overall, I'd say, especially this quarter in terms of the FX impact on your cash and also, I think, quite a bit like about $10 million worth of revaluation of the marketable securities. Could you give us a bit more color on -- it sounds like you have a mix of treasuries and also or money market, let's call it, debt instruments, but also equities. I'm just curious, I guess, how that revaluation might work in future periods. Juan Sandoval: Yes. Thank you, Justin. It's J.C. So yes, as you know, as part of our cash management strategy, we hold 3 things: cash, marketable securities, which is mostly composed of treasuries, whether it be short term or up to 3 years and then our strategic equity investments, right? Yes, as you -- as we have seen over the last few weeks, there has been more volatility, especially in mining companies. So yes, we've seen a reduction in the valuation of our equity investments. However, we believe that when we present our first quarter numbers, we will compensate some of that loss that we have seen on the market overall. Justin Chan: Got you. And just -- and the equities themselves, they're accounted for as part of the marketable securities short and long term. Is that right? Juan Sandoval: Yes, that's correct. Justin Chan: Okay. Got you. And then just the last one, and I'll free up the line. I mean I would expect less impact given where your operations are, but just, I guess, good housekeeping that I've been asking on other calls. Given the volatility in global supply chains, oil prices, et cetera, I'd imagine your locations are less impacted, but can you just flag any impacts that we should consider? Juan Sandoval: Yes. So obviously, everyone is being impacted. If oil prices remain above $100 per barrel, it will have an impact. We are working on that. But yes, as you say, at least in the U.S., it will be less of an impact compared to the international markets. But yes, I mean, right now, we don't really know where it's going to end up, but it's -- again, if oil prices continue to be where they are, yes, it will have an impact on our overall bottom line. Justin Chan: Okay. Got you. But it sounds like it's limited to more just the price of oil as opposed to like supply of any consumables or anything else? Alberto Morales: Energy-driven inflation basically. Juan Sandoval: It's mostly diesel and fuel, but some of the consumables might also be affected as well. But it's mostly fuel and diesel, Justin. Justin Chan: Yes. And it's a pricing rather than availability issue? Juan Sandoval: Correct. Yes, absolutely. Operator: Your next question comes from the line of Ben Pirie with Atrium Research. Ben Pirie: Congrats on another strong quarter and closing out 2025. Just going -- piggybacking off Justin's question there with the resource. Can you just confirm -- so now this is being pushed to the end of Q2, early Q3? Or is it 3 months further than that? Yohann Bouchard: The way I see it, I mean, there's going to be pushed towards the end of Q3. Ben Pirie: Okay. Okay. Understood. And then at the Golden Queen, can you just touch on the increase in costs between Q3 and Q4 of 2025? And then going beyond that, we're looking at the AISC guidance, $1,850 to $2,150 for 2026. Can you just touch on what's sort of going to change from Q4 '25 to bring those costs back down to that range and just sort of give investors some confidence around the cost going forward here? Dom Kizek: Ben, it's Dom here. This is the question. Q4, we had some catch-up costs, including some inventory adjustments there. But going forward, we have reiterated our guidance. So we do expect those costs to be within that guidance as of today. Juan Sandoval: And all-in sustaining costs increased as well during Q4 because if you look at the CapEx, we accelerated some CapEx in that fourth quarter. So that's why for that fourth quarter, all-in sustaining costs did increase a bit, but it was mostly related to that CapEx allocated during the fourth quarter. Ben Pirie: Okay. Understood. And then just, I guess, lastly, I don't have too much. But on San Bartolome, can you just talk to us about how the volatility in the gold price over the last couple of months might impact margins just given it is a margin business? Juan Sandoval: Yes. So bear in mind, Ben, that we have a processing facility, right? Part of our feed is coming from long-term contracts and part of it is coming from spot purchases. On the spot purchases, yes, we are paying ore at market prices, obviously, higher prices. But as we've mentioned in our guidance, we have a very profitable margin. And then on the fixed contracts, well, it's a fixed price per ton. So on those contracts, we are more exposed to commodity prices. So in this high price environment, we're -- it's becoming more profitable. But the combination of both, as I have said, still make it a very profitable business, but less risky overall because on the spot purchases, we have sort of like a natural hedge, right? Ben Pirie: Yes. And so in a sharp sort of decline like we saw with gold over the last couple of weeks bouncing back this morning, there's a little bit of a margin compression in that environment. But again, the trend has been up and to the right for the gold price has been benefiting you with this business as of late. Juan Sandoval: That is correct. Ben Pirie: Okay. Great. Well, again, congrats on a strong year and that's all I have today. Operator: There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the AGI Fourth Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions] Before we begin, we caution listeners that this call may contain forward-looking information and discussion and that actual results could differ materially from such forecasts or projections. Further, in preparing the forward-looking information, certain material factors and assumptions were used by management. Additional information about the material factors that could cause actual results to differ materially from the forecast or projections and the material factors and assumptions used by management in preparing the forward-looking information are contained in our fourth quarter MD&A and press release, which are available on the AGI website. I would now like to turn the conference over to Paul Brisebois, Interim President and CEO of AGI. Please go ahead, sir. Paul Brisebois: Thank you, operator, and good morning, everyone. I'm pleased to be speaking with you today from our corporate headquarters in Winnipeg. Our CFO, Jim Rudyk, is here with me, and we are eager to use this call as a kickoff to a new era for AGI. Before getting into a more detailed discussion on the quarter as well as other relevant business and corporate updates, I would like to first introduce myself and share a few more details on my professional background. I've spent my entire career, which spans nearly 30 years in the global agriculture business with a strong foundation in sales leadership, marketing, business development and operations. I've been an executive with AGI since 2012, played a large part in the growth that we have accomplished going from a $300 million company to a $1.4 billion company, most recently leading our North American Farm and Global Portables businesses. That role has kept me close to our customers and provided a clear view of the operating levers that drive performance across AGI. Agriculture is a compelling industry. People must eat and global demand continues to grow, but it is also cyclical, shaped by factors such as weather, geopolitics, interest rates and government policy to name a few. While I've seen significant change over the years, the fundamentals remain constant. Crops are grown every season and grain must move from the field to storage to processing and ultimately to end markets. The industry generally follows a predictable seasonal rhythm and understanding that rhythm is essential to understanding our customers, what matters, what's urgent and where they need the most support. As the leader of the company, having decades of hands-on operating experience is particularly important as we navigate a cyclical North American market while managing through significant change internally. To support the pace of change and provide the appropriate level of strategic input, governance and oversight, AGI has also made several important changes to the Board of Directors in recent months. Led by our Board Chair, Dan Halyk, the Board now collectively brings a strong mix of hands-on operating experience, deep agriculture sector experience, restructuring and value creation knowledge, capital markets expertise, deep institutional knowledge from AGI's formative years in addition to meaningful shareholder representation. Overall, this is a Board that is well positioned, well equipped and well aligned to support a renewed focus on operating fundamentals, improving shareholder returns and enhancing return on invested capital metrics. I look forward to working closely with our Board as we execute on our corporate priorities and strategies. Before getting into more detail on our current strategic priorities and recent restructuring activities, I'll provide some brief comments on our fourth quarter results, which Jim will expand on later in the call during his prepared remarks. Fourth quarter revenue increased 4% year-over-year to $396 million, supported by strength in our Commercial segment, particularly in international markets, offset by continued softness in the North American Farm segment, Canada in particular. However, adjusted EBITDA decreased to approximately $48 million, down 38% and our adjusted EBITDA margin compressed to 12.2%, roughly 830 basis points year-over-year. Given the extent of margin compression in the quarter, it's important to be direct about the drivers of this result. First, within our Farm segment, lower volumes for permanent storage and handling, especially in Canada, reduced overhead absorption and impacted profitability. Second, within our Commercial segment, we experienced execution-related cost pressures on various traditional equipment-only projects in Brazil, including cost overruns, warranty charges, remediation expenses and bad debt write-offs. For clarity, when we refer to our traditional Brazil operations, this includes everything other than the large-scale projects we've recently engaged in. Third, in our North American commercial business, a combination of product mix and production efficiency issues weighed on margins. Taken together, these items contributed to the bulk of the fourth quarter margin outcome. They also reinforce why we initiated a new phase of restructuring early in 2026. As we move forward in 2026 and beyond, we have three key guiding principles, which taken together shape our actions and priorities. The first is simplification. We will continue to streamline layers, clarify accountability and standardize core processes among other activities in a concerted effort to structurally reduce the overall complexity of how we operate. We are simplifying the organization end-to-end from the high-level organizational structure to how decisions are made day-to-day. The objective is to move faster with better discipline. The second is customer focus. We are refocusing resources on what matters most to customers from quoting through delivery and how we manage key accounts. The objective is to make customer-first thinking a core part of our culture and day-to-day operations. The third is reducing debt and managing cash flow more broadly. We are operating with tighter financial discipline to improve cash generation and conversion. Outside of managing debt through operating cash flows, we are reviewing our options and alternatives to help accelerate debt repayment. As we work through 2026 in consultation with our Board, we will continue to calibrate our strategy and priorities with greater precision and through the lens of ROIC metrics. Given the amount of change underway, we believe it's important to share our current direction as of today, so stakeholders understand the priorities guiding execution and resource allocation in the near term. In our renewed commitment to enhance the AGI customer experience and simplify operations through the start of 2026, we have begun and are continuing to undertake a comprehensive strategic restructuring initiative. This process focuses on streamlining our operations and aligning our decision-making processes more closely with our customers' needs. By simplifying our business structure, we aim to empower our teams to respond more swiftly and effectively to customer feedback and market demands, ensuring a more agile and customer-focused approach. These actions include four main changes. First, we restructured the top level of the company, what we call the executive operating team, going from a team of 17 down to a team of 8 to facilitate accelerated decision-making and improved execution. Second, we implemented a significant overhaul of the North American business to simplify the leadership structure and reduce layers of siloed functions. The objective is to strengthen day-to-day execution and improve the speed of effectiveness of our response to customers and changing market conditions across North America. As part of this alignment, several smaller business units, including feed, food and digital are being integrated into the broader North American organization, all of which will now operate under a single regional leader. Third, a streamlining of certain corporate functions and leadership capabilities to our Winnipeg headquarters, consolidating activities previously managed elsewhere. And finally, after careful consideration and evaluation of our current operational landscape, we have made the strategic decision to terminate our ERP implementation. The ERP implementation has been challenging, delayed, resource-heavy and ineffective to date, raising concerns on the realization of expected benefits. Our executive team reviewed the ERP decision through the lens of simplicity, customer focus and cash flow management, coming to the conclusion that we must cease implementation and refocus on other priorities. In addition, we have also suspended the dividend going forward effective immediately. The objective of all of these actions are straightforward. They are aligned with our strategic focus areas of simplifying our business, increasing customer focus and managing cash flow to reduce debt. Collectively, these actions will drive annualized SG&A cost savings of at least $20 million. In addition, terminating the ERP will enable about $20 million of cash cost avoidance over the next two years. Further initiatives to help remove cost and simplify the organization are under review. Stepping outside of these immediate actions, we have also made some other targeted refinements to our corporate strategy, including a decision to halt any new large-scale projects that include general contracting and financing elements in Brazil or elsewhere until balance sheet capacity improves, while continuing to pursue equipment-only opportunities in Brazil that are aligned with the company's traditional operating model and a comprehensive internal review of our alternatives to reduce leverage and accelerate debt repayment. In addition, we are placing an increased focus on metrics such as return on invested capital to guide strategic decision-making alongside updates to corporate compensation structures, both of which are aligned with the objective of improving shareholder returns. Moving to some comments on order book and overall market conditions. We ended the year with an order book of $543 million, down 26% year-over-year, primarily reflecting the execution of several significant projects in our International Commercial segment. In the Farm segment, areas of North America have shown some early signs of improvement, notably in our year-end early order program for 2026. With this provides some cautious optimism for 2026 Farm segment results could show an improvement over 2025. It is still early in the year and visibility remains limited. We'll need to get further into the season for additional validation of the demand picture and how to place 2026 within the broader agriculture cycle. In commercial, order intake softened in late 2025 and into early 2026, reflecting longer customer decision-making and project review cycles. Finally, an important note on the underlying makeup of our 2025 results so we can be clear for listeners, analysts and shareholders as they set expectations for 2026. Our full year results in 2025 benefited from significant revenue connected to large-scale projects in Brazil, which included general contracting and financing components. That said, backfilling this volume of revenue with traditional commercial business projects to replenish the order book to 2025 levels will be challenging. Overall, the demand environment remains an issue in the near term, but we're leaning in, keeping opportunities in our pipeline moving forward, staying close to customers and simplifying the organization so we can execute better and be ready to capture growth opportunities as conditions improve. To wrap up, I'm grateful and genuinely honored to be in the position to lead AGI through this next chapter. We see both challenges and opportunities ahead, and our team is ready to execute. We are firmly committed to strengthening alignment with shareholder returns and recognize that this is an area where improvement is required. Enhancing value creation for shareholders is a core priority, and we are taking deliberate steps to better align our strategic decision-making, capital allocation and incentive structures with this objective. We are fully aware and aligned on the need for action to drive consistent, measurable improvement in shareholder returns and alignment. Jim, over to you. James Rudyk: Thanks, Paul, and good morning, everyone. I'll begin with a brief review of Q4 results and then discuss other key financial metrics. Starting with Farm. Farm segment revenue declined year-over-year in the fourth quarter, reflecting continued challenging market conditions across North America, including soft crop prices and ongoing uncertainty related to trade and tariff policies. Revenue decreased 8% to $123 million, with the decline concentrated in Canada. Canada Farm revenue decreased 34% year-over-year, impacted by slow demand across both portable and permanent grain handling equipment and declining, though still elevated dealer inventory levels alongside an overall cautious approach to purchasing behavior by farmers and end users. In contrast, U.S. farm revenue increased 11%, reflecting improved volumes versus prior periods, particularly in portable grain handling equipment, and early signs of potential stabilization across certain portable and permanent categories. That said, demand remains below historical norms and visibility into sustained improvement remains limited entering 2026. International Farm revenue increased 36% year-over-year, led by strong demand in Australia, though the overall contribution from international regions remained modest in relative terms. Adjusted EBITDA for the Farm segment declined 39% to $19.8 million and margin compressed from 24.1% to 16%, driven primarily by lower volumes and margin pressure on permanent handling and storage solutions in Canada. Now turning to the Commercial segment. Commercial segment revenue increased year-over-year in the fourth quarter, driven primarily by large-scale comprehensive projects in international markets with Brazil again delivering a strong quarter and complemented by solid contributions from our EMEA region. Overall segment revenue increased 10% to $273 million, with international commercial revenue up 18% to $206 million, reflecting the mix of large projects, notably in Brazil. In North America, U.S. commercial revenue increased 9% on continued execution of projects secured earlier in the year, while Canada commercial revenue declined significantly as the prior year period benefited from substantial project wins. And in Q4 2025, a few major projects were pushed from Q4 into Q1 2026. Adjusted EBITDA for the Commercial segment declined 39% to $33 million and margins compressed from 21.6% to 12%. The decline was driven primarily by execution-related pressures on traditional projects in Brazil that led to cost overruns, warranty charges and remediation expenses as well as product mix and production efficiency issues in our North American commercial business. While we are executing a plan to mitigate the margin pressure, we do expect some of these margin challenges to persist for both the Brazilian and North American commercial businesses into 2026. Moving on to adjusted EBITDA and a few comments on specific line items within that reconciliation. Some of the key items to note include transactional, transitional and other representing a mix of legal accruals, asset disposal costs and personnel expenses. A meaningful component this quarter of transactional expenses included a $21 million purchase of the interest of related parties for some of the large-scale Brazilian projects. This represented the purchase of our Brazilian construction partners' equity interest in three of the large-scale projects. While this would normally be recorded as an equity transaction, it was expensed due to the timing of when the transactions close. Another key item is our ERP implementation costs, which will soon be removed given the strategic decision to terminate this activity going forward. Finally, I'll provide a few comments on a few of our focused financial metrics, including free cash flow and leverage. Free cash flow in Q4 was negative, driven mostly by temporary working capital requirements associated with large-scale international commercial projects in Brazil. Improving cash flow is a paramount objective for both management and the Board. Of the negative $111 million of free cash flow in 2025, a very significant portion of this was tied to these large-scale projects in Brazil. As we monetize existing receivables and halt further investment, the cash flow pressure related to large-scale projects in Brazil should subside. From a leverage standpoint, our net debt leverage ratio was 4.7x at year-end compared to 3.9x at quarter-over-quarter and 3.1x year-over-year. We recognize that leverage is elevated and improving free cash flow generation and reducing leverage are key priorities. It is worth noting that our syndicate remains highly engaged and supportive. In Q1, we finalized an amendment agreement with the majority of our lending group that extends our senior credit facility maturity date out to 2030. One key element of our deleveraging plan is the investment vehicle established in Brazil to monetize financing receivables provided by AGI. To date, this vehicle has generated $7 million of inflows, and we have made progress on securing additional inflows in the near term. This structure is designed to relieve working capital, support delivery of large projects, improve cash conversion and strengthen leverage metrics over time. We are working through some of the detailed administrative aspects of the monetization process, and we expect meaningful progress on the long-term accounts receivable monetization efforts shortly. For clarity, it is worth reiterating that following our strategic choice to stop pursuing large-scale projects in Brazil, which require general contractor and financing components, we will refrain from entering new customer or project agreements that would increase our long-term receivables or otherwise use our balance sheet. When our balance sheet improves, we may revisit, but for now, the priority is on reducing debt. In closing, our go-forward focus is clear: improve execution, restore margin performance, strengthen cash conversion and reduce leverage. With that, I'll turn it back over to the operator. Operator: [Operator Instructions] The first question today comes from Gary Ho with Desjardins Capital Markets. Gary Ho: I want to start off with the Commercial segment. It was fairly weak. I think it was mentioned execution-related pressures in equipment-only projects in Brazil, mentioned cost overruns, higher warranty and remediation expenses and also comments around North American production inefficiencies. Can you elaborate on these items? And also related, maybe for Jim as well, of your $48.3 million reported EBITDA, it looks like you didn't back out some of these onetime items, they are commercial or otherwise like bad debts, et cetera. Can you maybe quantify these nonrecurring items that's in your Q4 EBITDA? Paul Brisebois: Gary, it's Paul here. Thanks for the question. I'll answer the first question, and then I'll turn it over to Jim. With regards to the execution-related cost overruns, about half of that of the issues were in cost overruns, warranty charges and then half was in bad debt write-off. To be honest, when we look at our Brazil business, the pace of growth in our Brazil operations outpaced our capabilities to execute, and that creates challenges in the business, and that's why we had the cost overruns, warranty charges and unfortunately, a couple of customers from a bad debt perspective. We've installed a new business leader in our Brazilian business. We're focused on technical accounting review on large-scale projects, and a full review of project management and procurement practices going forward. So we feel that all of these are addressable in our Brazil business as well as in the North American commercial business when we talk about product mix and production efficiency issues. We had lower margin product that we were selling in Q4 and then inevitably had some production efficiency issues, which led to lower margins. James Rudyk: And Gary, just on your follow-on there, no, we did not back these out. These are our operating costs. We've got a number of initiatives to address them. We're working hard to ensure they are not recurring, but they were not backed out. We do expect to still have some challenges, particularly in Q1 as we work through our restructuring plan, but we thought it made sense to leave them in just our normal cost of goods sold or SG&A as opposed to backing them out. Gary Ho: And sorry, Jim, are you able to kind of quantify what those could have been if it was? James Rudyk: Well, so in terms of specifically the Brazil costs or are you talking about all in general? Gary Ho: Yes, all in general. James Rudyk: Yes. So of the overall impact on our margins, about 1/3 of them are attributable to each of the three categories. So lower farm volumes, the Brazil impact and then North America commercial, they'd be about 1/3 each of them of the total dollar impact year-over-year. Gary Ho: Okay. Great. Okay. And then maybe I'll just move on just one other one for Paul. You listed kind of four operational initiatives in your prepared remarks. Can you elaborate kind of what's been achieved up to today? Are the leadership streamlining and unifying of North American ops complete? Or should we expect some noise throughout this year? I just want to hear the time line for these initiatives. Paul Brisebois: Yes, you bet, Gary. So we have restructured our executive team going from 17 down to 8. So that's been done. David Postill, who is leading our North American business is in the process of restructuring that business. And so that will happen within the next 30 days. Many of the activities in terms of looking at offices and relocating roles have been -- taken place already and will continue to in the next 30 days. And we're trying to do this as efficiently as possible, as quickly as possible and keeping in mind a focus on the customer to make sure that nothing is impacted in a negative way in terms of our customer experience. And we believe through our restructuring and getting closer to the customer in terms of removing layers of the business will benefit us with regards to execution going forward. Operator: The question comes from Steve Hansen with Raymond James. Steven Hansen: Look, I understand the desire to level set expectations here, and I think that makes sense. But I think you're going to have to give us a little bit more in terms of what you expect for the margin profile here given how radical the move has been to the downside. I know you suggested some of these margin challenges are expected to persist. Does that mean we should account for similar margin profile for the next couple of quarters? I mean, how do we -- do we get back to a normalized level where we were before? I mean some degree of directional support here would be useful because, frankly, getting punched in the face like this is a little bit unexpected. So just a bit more clarity around where we're going from a margin perspective would be the first point, and then I'll get to free cash flow. Paul Brisebois: Yes, you bet, Steve. And I'm familiar with getting punched in the face. I'm a hockey player as well. And this was a tough quarter. So Q4 was tough and we had challenges. We believe that those challenges are all addressable. Q1, we believe will be -- continue to be tough as we work through this. We're not satisfied, obviously, with that margin outcome. The restructuring that we've put in place is designed to improve our execution, restore our margin and strengthen our cash conversion. And the target is to get back to historical margins going forward. So Q4, Q1 tough and driving towards more historical margins after that. Steven Hansen: Okay. Helpful to a degree. Maybe just on free cash flow then, we've had -- I think you cited at just over $110 million of negative free cash in the year. All the actions that you're taking seem to make logical sense. But when can we actually expect to see positive free cash flow in the coming period here? And then I understand, again, on a related note, your banks and syndicate have been supportive here, but are we at risk of any sort of covenant-related breaches at some point in the future? James Rudyk: Yes. Thanks, Steve. Yes. So free cash flow, you probably -- as you read through the press release and our comments, obviously, is elevated, it's very serious. We're taking it very serious, big focus on it. A lot of the initiatives, the restructuring plans, all the things that we're doing are focusing on free cash flow. From a -- if you look year-over-year, the bulk of it of the negative has to do with our investment in these large turnkey projects. And I'll just speak quickly on that. So we did monetize some of it in Q4, a small amount, $7 million. We talked about this in the past, where it's administratively very slow and burdensome process in Brazil to get all of the steps necessary to then get the cash. The cash is in motion. Progress continues. We have calls every couple of days focusing on it. And as we've mentioned in the past, we expect to monetize between $80 million to $100 million shortly within -- by H1. That will make a big difference to our free cash flow. Q1 will still be tough, though. We expect negative free cash flow in Q1, candidly. And then as the funds come in from the monetization of the Brazil business, that will turn things around. But make no mistake, there's still challenges as we work through the restructuring plan, but our focus is on generating positive free cash flow going forward. In terms of your covenant question, as you know, the bank covenants exclude our debentures. And so we are in compliance. And we have a great group of banks, 11 banks in our syndicate. They're very supportive. We just extended the maturity date. So no concerns on the covenants. Operator: The next question comes from Tim Monachello with ATB Capital Markets. Tim Monachello: First question here, just a clarification. You lumped in the dividend cut and some of the restructuring efforts. And I just want to be clear here, is that dividend included in the $20 million of cost savings you're expected? Or I would assume it's not... Paul Brisebois: No, good question, and it's not included in the $20 million of cost savings. And just for context, Tim, our Board reviews our dividend each period in the context of the business and where we're at. And given our priorities to manage cash and pay down debt, a decision was made to postpone it, to hold on. Tim Monachello: Okay. Great. And then second question, I just want to dive into what you're seeing on the ground in the Commercial segment, understanding that your -- so the breadth of opportunities that you're looking at in Brazil, in particular, has shrunk with, I guess, the change in your offering around general contracting and financing options. But you also mentioned a slowdown in, I guess, the commercial order cycle. So maybe you can elaborate on what you're seeing on the ground in terms of demand and the market outlook in the commercial side of the business relative to how you had described it in past quarters? Paul Brisebois: Yes, you bet. So I'll talk about the broader commercial business, North America. First, we're seeing good quote activity, but we're not seeing customers move forward on that quote activity at this time. So everybody is a little bit cautious and not pulling the trigger with regards to projects at this time. Now that could open up. We're very happy to see the quoting activity happening. So that's a good sign. When we look at our EMEA business, Rest of World, it had a fantastic year in 2025 with a lot of execution on those projects happening and getting finalized in 2025. We see a smaller order book. And we've started to see a little more traction. That being said, there's been some small projects that have been impacted in the Middle East because of the conflict there and -- but it won't have any kind of material impact. And then when we look at the Brazil business, a challenge for us will be to replace the $183 million of revenue that we did in large-scale projects in 2025 that were financed. And so we've made a decision that we are no longer doing those projects going forward with regards to financing. We will participate with regards to equipment sales. And that decision is made from a cash flow perspective to ensure that we're getting cash as we do the projects and getting paid as those projects are finalized. So with that, we believe that the challenge going into 2026 for Brazil, in particular, will be to fill that gap of the $183 million that we accomplished in 2025. Tim Monachello: So the slowness in, I guess, order cycling that you've seen or I guess, the willingness of customers to actually place orders is mostly outside of Brazil? Paul Brisebois: That's right. Tim Monachello: Okay. And then just the $180 million of large project revenue in Brazil in '25, how does that compare to total commercial revenue in Brazil? And how much of those large projects are still in backlog for '26? James Rudyk: Yes. It's a significant amount, Tim. It's -- '25 in particular, was a big year for the turnkey projects. So it's more than half of the amount. Tim Monachello: And how much do you expect to process of those large projects in '26? James Rudyk: In '26 -- so yes, good question. So there is -- 2 of the projects still have some work being done in 2026. We'll complete them through this year. It's a big gap that we need to fill, let's put it that way. Operator: The next question comes from Michael Tupholme with TD Cowen. Michael Tupholme: So it's clear that a lot of these efforts are intended to improve free cash flow and in turn, improve the balance sheet. Jim, wondering with the leverage ratio where it is now, how we should think about that evolving over the course of the year, where you think that can be come the end of the year? And as part of that, also wondering how you're thinking about refinancing or repaying the senior unsecured debenture that comes due at the end of this year. James Rudyk: Yes. Thanks, Michael, for the question. Yes. So leverage ratio is high, 4.7x. It must improve, no doubt about it. And if you look at our initiatives, we're really, really focused on those -- getting those -- and we're going to improve it through a number of ways. You've got improving our earnings, so SG&A savings that we've called out, delaying the ERP implementation that will free up quite a bit of cash flow over the next couple of years. A big part is our decision to pause any of the financing opportunities with some of these large customer opportunities. That will free up quite a bit of working capital. So we expect to have some meaningful improvements in that leverage ratio through 2026. In terms of the refinancing, you're right, we have a debenture that's due in December. We expect to refinance that debenture likely with a similar type instrument, but that will be something that we'll likely pursue and try to get done Q2, Q3 time frame. Michael Tupholme: Okay. Related to the question here about improving the balance sheet. I guess there was mention in the release of reviewing the portfolio of assets with the intent of refocusing on core business lines. I guess the sort of two part here. So first thing is where is that portfolio review at and how material could the proceeds from that be? Just trying to understand if this is something we really need to be focused on or if this is sort of more marginal in terms of the potential impact. Paul Brisebois: It's a good question. So we have gone through an extensive review of all of our available options to reduce debt. We've looked at it from our priorities of simplifying the business, having a customer focus and cash flow to reduce debt. We've identified the most actionable options and are focused on this goal for the coming months. So there is some low-hanging fruit. And when I say that, we have facilities that are not operating right now that we could sell for cash. We have land that's available to sell for cash. And then we have other assets within the portfolio where we're looking at it that can range from either smaller but more actionable to large opportunities that can have a significant impact on our debt reduction. And we're taking all of those into account with a focus on debt reduction. Michael Tupholme: Okay. That's helpful. And maybe just to clarify though. So nothing has actually been finalized yet. You've got sort of a good set of opportunities here that things you could act on, but nothing has been completed to this point. Paul Brisebois: That's correct. The internal review has been done, and we're actioning things that are in the queue. Operator: The next question comes from Maxim Sytchev with National Bank. Maxim Sytchev: My first question, I guess, pertains to the rollback of the ERP implementation. And I guess as you commented in your prepared remarks around getting closer to the clients and sort of more agility, et cetera. I'm just wondering how do you balance these kind of competing priorities around presumably less data over time while trying to sort of accomplish operational priorities. James Rudyk: Yes. Thanks, Max. So the ERP project, it's been ongoing for quite a while. It's extremely resource heavy. It does consume lots of cash. And importantly, too, it's a distraction to a lot of people, especially in the time when we're trying to simplify the business, focus on the customer and get back to basics. And so with our extreme focus on freeing up free cash flow, we decided that it made sense to stop this project. We need to focus on execution. We need to conserve cash. This will -- is a good mechanism to free up some of that cash. And now in terms of your -- what does that mean in terms of the future? I think that who knows? I mean we've got systems. We've operated for a lot of years with our current systems. Once we get our execution done, figure out our processes, get that streamlined, things will get reassessed. But for now, this has made the most sense to do. Maxim Sytchev: Okay. And then in terms of -- recently, we're seeing fertilizer pricing obviously spiking. I'm just curious to see what you may be seeing closer sort of on the ground? Because I mean, you made a comment around commercial, but maybe anything farm related, that would be helpful. Paul Brisebois: Yes, you bet. So we were pleasantly surprised actually with our order book through our early order program that happens in Q4. We saw an uptick with regards to that order book versus 2024, which was a positive sign. So we remain cautiously optimistic on our farm business. The reality is the reason we remain cautiously optimistic is it really is dependent now on when farmers go into planting season which will happen in the next month or so, depending on region. And as they see their crops come up and obviously, with input prices, as you mentioned, with fertilizer prices going up, they're putting -- they put all of their resources into that first. And then once they see their crops come up and if they are looking good and commodity prices are decent, then we'll have an opportunity to maybe get more optimistic or less optimistic about the second half. But right now, we feel pretty good with regards to that order book and better than what we anticipated going into 2026. Operator: The next question comes from Jacob Efrosman with Strive Global Holdings. Jacob Efrosman: The question is for Paul. I was wondering as it relates to offloading some of your assets to free up your balance sheet. Was there any manufacturing assets that would be based in Canada or North America that you'd be looking at offloading in the next few months? Paul Brisebois: Thanks for the question. We're reviewing all of our global assets. So we haven't determined what that looks like on a North American basis at this time. Operator: We have a follow-up from Steve Hansen with Raymond James. Steven Hansen: Two quick follow-ups, if I might. Paul, maybe too early, but I mean, how are you thinking about the tariff situation as we move into CUSMA renegotiations? I'm thinking about the bin side in particular. I don't seem to be too worried about the Auger portable side, but the bin side is one where there might be more risk to the portfolio. How do you plan and adapt for that as we move into that process? Paul Brisebois: Yes. That's a great question, Steve. 2025 was challenging to say the least with regards to tariffs. It did have an impact on our overall margins on the farm business, particularly on the storage side throughout the year. And I'd say not only on the cost of the tariff, but the inefficiencies that it created when it was on again, off again, what we were shipping, where we were shipping. So that was a big challenge. And we are constantly thinking about that as we move forward, trying to understand what the future looks like with whether there's a USMCA in place or not. We happen to have our bin manufacturing equipment still available to us packaged up in Grand Island. And we are looking at all available options to ensure that we can be competitive on a North American basis in the storage business going forward. So I'll leave it at that, Steve. We're definitely considering what our options are going forward under a regime where it makes it difficult to participate in the U.S. business from our Canadian facility. Steven Hansen: Okay. Helpful. And just maybe one last one on a more positive note. I just wanted to go back to perhaps the green shoots in the portable business in the U.S. That was actually a pleasant surprise. And I know you've spoken to the order book improving. But I mean, are you seeing broad-based support there, Paul? I mean, how do you think about pricing? What do you think is driving that sort of earlier stage sales cycle? I'm just trying to get a sense for how real this improvement is out there because it has been the bigger drag for the past, frankly, two years. Paul Brisebois: Yes. Yes, absolutely. Good point. So 2024 was a challenging year for the U.S. portable business. We put in -- we had a lot of inventory, retail inventory. We put in programs -- rebate programs to support our dealers to help move product to the farm. And those rebate programs essentially went on for 14 months to really focus on it. We had all of our sales team focused on inventory counts to understand, and we typically do historical inventory counts of our retail network. So watching that closely was really critical for us. And what we saw was our inventory was coming down. And we saw in Q4 a good reduction of that retail inventory in the U.S. in particular, which facilitated better early order program. And I think the dealers themselves were pleasantly surprised with regards to the sales that they achieved in Q4, and that's why we saw a better early order program. And we just -- we had some market share information results that just came through. And we've been successful in terms of maintaining our share where we have large share and successful in gaining share where we had lower share of the business. So it's been positive the work that the team has done in a difficult market. And so just to wrap that up, U.S., it's coming around. Canada, obviously, was a big challenge, and that's why Q4 was impacted. And we see that we'll probably be in a position in Q4 of '26 where Canada feels the same thing in terms of coming around. And I guess, -- the goal and what we're working towards is that Q4 '26 shows marked improvement going forward into 2027. Operator: We have a follow-up from Michael Tupholme with TD Cowen. Michael Tupholme: Yes. So maybe just building on that last answer you provided, Paul. It does sound like you're sort of encouraged about some of the things you're seeing within Farm. I guess on a full year basis, anything further you can help us with in terms of how to think about from a top line perspective, progression of Farm and where that puts you at the end of the year on a year-over-year basis? And similarly, on the commercial side, just there seems to be sort of more moving pieces there and difficult comps. But you still do -- notwithstanding the fact that the order book is down, there's still some -- presumably some orders that come in or some activity, pardon me, on the commercial that flows in, in the first half of the year. So just anything on the top line you can help us with on the two segments beyond what you've already kind of provided would be helpful, if possible. That's the first one. I have one other one after that. Paul Brisebois: Yes. Difficult to kind of give any concrete numbers on that. So -- and not comfortable at this time really giving any guidance as it relates to top line or bottom line in terms of margin that we're doing. Our team really right now is just focused on simplifying our business, focusing on our customers, paying down debt, doing everything that we need to do to drive the business forward and want our team just to continue to focus on it. So I don't want to speculate on what the numbers could look like. Michael Tupholme: Okay. Understood. The second follow-up is just around the cost savings you expect, just to be clear. So the $20 million of annualized savings, does that kick in at that level of annualized savings beginning in the third quarter, so sort of $5 million a quarter starting in Q3. Is that how to think about this? Paul Brisebois: I think that would be a decent way to think about it. We're going to try and do things faster than that. But to be cautious on it, I would say, managing that through Q3 going forward is a good way to look at it. Michael Tupholme: Okay. And then -- sorry, just as an extension of that, like with everything you're doing now, if you go back to some of the past commentary around margins, I mean, this year, there was an expectation of some -- before today, there was some expectation even then about some things that would weigh on the margins a little bit, particularly the mix between farm and commercial. But I guess there have been some commentary about longer term, like an 18% to 20% EBITDA margin within the business. Does everything you're doing today allow you to get back to that plus something even higher? Or is the effort here just to kind of get back to even that kind of a level? Just trying to understand kind of the longer term and what all of these initiatives are likely to do as far as profitability. Paul Brisebois: Yes. It's a good question. We want to get back to historical margins. I would say getting to 20% is probably pretty difficult at this time. The changes that we're making are absolutely focused on improving our margin. But at this time, I think it's difficult to really say how long it will take to get back to higher teens. We'll see that over time in terms of the progression with regards to the strategy by simplifying our business, taking cost out of the business, getting closer to the customer. If that turns into driving more sales in a more efficient way, then obviously, we'll see some margin improvement. But right now, we're just targeting to get back to historical margins as the first point versus stretching ourselves in that 18% to 20% range. Operator: We have a follow-up from Tim Monachello with ATB Capital Markets. Tim Monachello: I've got a few, but they're quick. On the ERP cost savings for $20 million, how does that relate to -- I think you're looking for around $15 million per year of costs in '26, '27 related to that implementation, so roughly $30 million. So is that delta, the $10 million, I guess, cost that will be incurred to in-house some of the capabilities that you're thinking about that? James Rudyk: Yes. Thanks, Tim, for that clarifying thing. Yes. No, there's just some costs that we've incurred to date through the year that obviously need to be paid. And then there's just some wind-down costs. Tim Monachello: Okay. And that ERP, like anything that has been implemented to date that is useful? Or is everything getting rolled back and you're basically have to start from scratch on it? James Rudyk: We've learned a lot. I mean we have a big team that has been involved. We've learned a lot about processes that we need to follow, approaches that we need to follow. So a lot of knowledge that we benefited from that will be retained as we move forward. Tim Monachello: Okay. Within the restructuring initiatives, I don't see anything really that relates to capital spending. So can you talk a little bit about how you're thinking about CapEx this year and maybe next, where we should be thinking about that? Anywhere you can say about CapEx? Paul Brisebois: Yes, you bet. So obviously, maintenance CapEx is a priority across all of our facilities. And then as it relates to incremental CapEx beyond maintenance, we'll be looking at that through an ROIC lens and making decisions that make sense and drive our return on invested capital as much as possible. So we'll be keeping a close eye on it, and it will need to hit defined metrics to be able to get approval moving forward. Tim Monachello: Do you want to provide any guidance on what should be a range where we think CapEx will come in '26? James Rudyk: No. So still early days. I think if you look back at what we spend from a maintenance perspective and intangibles, those will be similar. And then from what we've categorized as a growth bucket, those will be limited. And as Paul mentioned, we're very aligned in terms of prioritizing what we spend on, and we'll only move forward on anything if the return on invested capital is greater than our WACC. Tim Monachello: Okay. And then the onetime costs of $20 million in H1 '26, should we expect that to be spread evenly in Q1, Q2? Or is that going to be front-end loaded? James Rudyk: Probably close. Tim Monachello: Okay. And then how are you guys thinking about the longer-term leverage target now? I think 2.5x is the old target. There are a lot of things in earnings we've seen lately, so it could be confusing. Is that still the range you're thinking of? Or are you thinking lower now? James Rudyk: No, still working to get to the end of that 2.5x as quickly as possible, a little detour in the last year. But as you can tell by the initiatives we put in place, massive focus on getting that down as quickly as possible. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Paul Brisebois for any closing remarks. Paul Brisebois: Thanks, Chloe. I appreciate it. Everyone, I just want to comment on -- obviously, a lot of change. Q4 was a difficult quarter. Q1, we believe, will be a difficult quarter as well. And as we do this change, I want to reiterate our focus areas. It is around simplifying the business, making our business more streamlined, empowering our employees across AGI to do good work and feel like they've been successful every day in their role when they come to work. And that's what the whole goal of our restructuring is around simplification. And that's to get closer to the customer. And so that's driving our customer focus. And the goal is that by the end of 2026, our customers tell us that we've substantially improved from our quote to delivery execution and improved our quality going forward. And if we accomplish that where we have employees that are engaged closer to our customers, customers that feel like we've been successful, then we'll achieve our goal with regards to cash flow and debt reduction. And the goal there would be that shareholders really see stabilized margin performance going forward, improved cash flow and tangible progress on our debt reduction. So I just want to be clear with those that are listening or that will listen later. That is our goal, and that's what the executive team here at AGI, eight of us are focused on as well as the broader employee group across AGI. So I want to thank all of our employees that are going through the change and looking forward to working with them in terms of achieving the goals that we've set out. Thank you, everyone. Operator: This brings a close to today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. Any member of our team will be happy to help you. Operator: Good morning, and welcome to Paychex, Inc.'s third quarter fiscal 2026 earnings call. Participating on the call today are John B. Gibson and Robert Lewis Schrader. Following the speakers’ prepared remarks, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press 2 on your telephone keypad. As a reminder, this conference is being recorded. Your participation implies consent to our recording of this call. I would now like to turn the call over to Robert Lewis Schrader, Paychex, Inc.'s Chief Financial Officer. Robert Lewis Schrader: Thank you for joining us to discuss Paychex, Inc.'s third quarter fiscal 2026 results. Our earnings release and presentation are available on our Investor Relations website and we plan to file our Form 10-Q within a couple of business days. This call is being webcast live and will be available for replay on our Investor Relations portal. Today’s call includes forward-looking statements that refer to future events and involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ from our current expectations. We will also reference non-GAAP financial measures. A description of these items, along with the reconciliation of non-GAAP measures, can be found in our earnings release. I would now like to turn the call over to John B. Gibson, Paychex, Inc.'s President and CEO. John B. Gibson: Thanks, Bob. Hello, everyone. I will cover this quarter's operational highlights, and Bob will come back and discuss our financial results and outlook, and then we will open it up for your questions. We delivered a strong quarter with revenue up 20% and adjusted operating income up 22% year over year, driven by effective execution and progress advancing our strategic priorities, most notably the Paycor integration and acceleration of our transformational AI initiatives. In this very dynamic environment, financial strength is important, and our free cash flow generation continues to be robust, as Bob will highlight later. Amid a dynamic macro backdrop, our clients’ workforce levels remained stable, supported by our solutions that help manage costs and source talent in a tight labor market. In a highly regulated industry, our compliance depth, advisory expertise, and award-winning platforms provide a clear competitive advantage in navigating a constantly changing and complex regulatory environment. As we embed AI into our expert-enabled technology, we are strengthening that advantage by leveraging our vast data to scale our expertise, enhance productivity, and elevate client outcomes. As you all know, we operate in HR, benefits, and payroll, some of the most mission-critical aspects of a business. And we are honored that 800,000 clients rely on us for trusted support and advice. For many of our clients, we effectively serve as their HR department, managing a foundational part of their business. Their people. Errors paying employees, withholding taxes, and administrating benefits carry significant regulatory and reputational risk, driving demand for trusted compliance solutions where accuracy matters most. Demand for our comprehensive advisory and benefit solutions remains strong, differentiating us from the tech-only providers. Clients are increasingly turning to our HR professionals for strategic advisory expertise and assistance over routine transactional support. Robust revenue growth in retirement, ASO, and PEO highlights the durability of our model and reinforces our expectations of a long secular growth runway for these businesses. Our ASO and PEO worksite employee growth continues to outpace the industry, reflecting our value in navigating regulatory complexity and ensuring compliance, often for clients with no or, as I said, limited HR support. Our PEO business remains strong with high-single-digit worksite employee growth, driven by robust demand and record retention rates. Our PEO solution empowers small businesses to offer competitive benefit packages on par with Fortune 500 companies, aiding talent attraction and retention in a tight labor market. January enrollment in our at-risk 40 MPP medical plan went well and in line with our expectations, helping drive sequential revenue growth. We received positive feedback on the new AI-driven benefits intelligence we embedded in the enrollment workflow this year. It leverages employee-specific data to recommend plan choices and streamline benefits selection. We continue extending our SMB benefit leadership with Paychex Perks, our award-winning digital marketplace offering affordable, transferable benefits to our clients’ employees. Perks is a compelling growth opportunity that empowers our clients to offer meaningful benefits with no added cost to the employer or administrative burden. In the first 18 months, Perks has grown to over 25 benefit offerings, with purchases from nearly 350,000 unique employees, creating a direct end-user relationship with portable benefits that they can keep if they change employers. By bringing enterprise-level benefits down market, we are enabling our clients to better compete for talent and addressing a historically underserved market. The Paycor integration continues to progress well. We remain on track to exceed our fiscal 2026 synergy targets we discussed last quarter. Leading indicators such as bookings and broker referrals have reaccelerated to pre-acquisition levels, and we are adding sales headcount to capture the demand we see. We are gaining momentum cross-selling Paychex, Inc. ASO, PEO, and Retirement Solutions to Paycor's clients, and we continue to win larger-than-expected ASO deals and broker-referred PEO opportunities. This momentum reflects the hard work and alignment of our teams and positions us well going into fiscal year 2027. Our Paychex Flex and Paycor platforms were recognized as industry-leading HCM solutions with two 2026 Lighthouse Tech Awards. This achievement underscores our commitment to empowering businesses with modern AI-powered solutions that simplify HR processes and drive business outcomes. Integral to our growth strategy, we continue to accelerate embedding AI into our workflows. This amplifies our expertise with human-in-the-loop oversight and strong governance. We now have over 500 AI-powered capabilities and agents that can drive higher productivity and smarter decisions and outcomes. Our generative AI-powered employment law and compliance platform processed tens of thousands of inquiries this quarter, helping clients and Paychex, Inc. HR experts navigate complex and always-changing wage and employment law. Internally, we are expanding AI use cases to enhance the client experience and sales effectiveness. Following successful pilots last quarter, we are scaling the use of our voice and email agents for payroll processing, enabling service teams to focus on proactive higher-value advisory support. We also expanded our agentic AI sales and service tools to the entire sales team with a goal to drive revenue growth and efficiency. AI agents orchestrated real-time information across service and product systems, equipping thousands of service personnel to support clients more effectively. This agent swarm architecture really removes prior friction and serves as a foundational capability to future agentic developments. Our strategic AI investments are bolstering our leadership in HCM innovation. We are moving from insight and efficiency tools to proactive agents that leverage our vast and growing dataset to complete work to drive business success. Payroll and HR, as we know, are mission critical and highly regulated functions where accuracy and compliance matter more than automation alone. We believe Paychex, Inc.'s proprietary payroll data, regulatory expertise, and advisory relationships create a sustainable advantage that will enable us to responsibly embed AI into our solutions while maintaining a durable competitive moat. In our business, trust is critical. It is not just what you do, but how you do it that matters to prospects, clients, partners, employees, and key stakeholders. That is why I am proud that Paychex, Inc. was once again named one of the World’s Most Ethical Companies by Ethisphere for the eighteenth time. This rare achievement highlights our unwavering commitment to ethical operations and corporate responsibility. Supporting communities is also integral to our identity, and I am pleased that Paychex, Inc. was recognized as a leading corporate partner by United Way Worldwide, reflecting our commitment to making a positive impact where we live and work. Lastly, I would like to thank our team for the exceptional hard work during this busy year-end season and through a very, very challenging year of integration. The work that they have done to support our clients to come together is truly exceptional and I think really is positioning us well as we move into fiscal year 2027. I will now turn the call over to Bob to discuss our financial results and outlook. Robert Lewis Schrader: Thank you, John. I will start with our third quarter financial results, then provide an update on our outlook. Total revenue increased 20% over the prior year to $1.8 billion. This represents an acceleration in the organic growth of the business relative to the first half of the year. Management Solutions revenue grew 23% to $1.4 billion driven by product penetration and price realization. Paycor contributed approximately 19 percentage points to growth. PEO and Insurance Solutions revenue increased 9% to $398 million, driven primarily by strong growth in the number of average PEO worksite employees as well as an increase in PEO insurance revenues. Interest on funds held for clients increased 33% to $57 million, largely due to the addition of Paycor balances. Total expenses increased 24% to just over $1.0 billion, primarily driven by the Paycor acquisition. Excluding Paycor, we estimate that expenses grew in the low single digits during the quarter. Operating income margin was 43.8%, and adjusted operating income margins increased approximately 80 basis points to 47.7% driven by increased productivity and cost discipline while increasing our investments in AI. Diluted earnings per share increased 9% to $1.56 per share, and adjusted diluted earnings per share increased 15% to $1.71 per share. Our financial position remains strong with cash, restricted cash, and total corporate investments of $1.8 billion and total borrowings of approximately $5.0 billion as of the quarter close. Our cash flow generation continues to be a strength of our model. Operating cash flows were nearly $2.0 billion year to date, and our free cash flows increased 27% year over year. After the quarter closed, we repaid the initial $400 million tranche of debt from our Oasis acquisition that matured in March. Our recent $1.0 billion stock repurchase authorization underscores our commitment to delivering long-term shareholder value. We returned $463 million this quarter and over $1.5 billion year to date to shareholders in the form of cash dividends and share buybacks, and our 12-month rolling return on equity remains robust at 41%. Shifting to our guidance for FY 2026, which is based on current market conditions, we reaffirm our prior fiscal 2026 outlook except for raising our interest on funds held for client expectations. Interest on funds held for clients is now expected to be in the range of $200 million to $210 million. All other guidance metrics remain unchanged. Turning to the fourth quarter to provide you a little bit of color, we would anticipate fourth quarter growth to be approximately 12% with an adjusted operating margin of 41% to 42%. The fourth quarter growth rate reflects a couple of dynamics. First and foremost, I think most of you know we anniversary the Paycor acquisition during the quarter, and to a lesser extent Q3 benefited modestly from the timing of certain items relative to Q4. However, our second half outlook remains consistent with our expectations and the organic revenue growth acceleration we saw in Q3. We believe Paychex, Inc. has never been better positioned to succeed in the AI era of HCM to deliver shareholder value. Our business fundamentals remain strong. As the best operators, we have unrivaled operating and free cash flow margins with an opportunity for further expansion. Our financial strength and the durability of our business model are evident in our consistent performance as a Rule of 50 company. We are committed to returning capital to shareholders and confident in our ability to deliver sustained value through continued revenue and earnings growth. I will now turn the call back over to John for questions. John B. Gibson: Thank you, Bob. We will now open the call to questions. Operator: Thank you. If you would like to ask a question, press 1. To leave the queue at any time, press 2. We do ask that you limit yourself to one question and one follow-up. Once again, that is 1 to ask a question. And our first question comes from Bryan C. Bergin with TD Cowen. Your line is now open. Please go ahead. Bryan C. Bergin: Hi, guys. Good morning. Thank you. Bob, can you put some finer points, just first on the level of organic growth in the third quarter and then bridge that forward to your commentary on the fourth quarter. If you can kind of unpack that 12% growth across the business, I think that would help. Robert Lewis Schrader: Yeah. Bryan, I think consistently, even if you go back to Q4 of last year, the organic growth of the business has been a bit weaker. I think a lot of that had to do with comparability issues, particularly in the PEO business with our MPP plan in Florida. But if you go back to Q4 of last year, I think we have seen sequential improvement each quarter in the organic growth of the business. So if you look at first half total revenue organic growth, it was roughly 4% and that improved from Q1 to Q2. And then when you look at the back half, whether it is Q3 or Q4 combined, we would expect it accelerated in Q3, and we would expect to see similar organic growth performance in Q4. And so you are now getting to a back half organic growth rate that is closer to 6%. And then when you put the two of those together, it is roughly 5% on a full-year basis. And so again, I think there are a couple drivers of it. One, to be fair, is the easier compare on the PEO business. I mean, I think you will see that the headline PEO number sequentially went from 6% last quarter to 9%. There are some timing things there, but there is certainly a strength in the underlying operating performance of the business, particularly in the PEO, and we can get into that probably in maybe some later questions. But we did anniversary the headwind from the MPP enrollment. So that is why you are definitely seeing the combination of an easier compare and stronger operating performance driving accelerated organic growth in the back half of the year. Bryan C. Bergin: Okay. As far as the 4Q exit rates that are implied, as we think forward into fiscal 2027, any important considerations that you want to share? Robert Lewis Schrader: Yeah. I will maybe head off the question that I am probably going to get. As it relates to next year and guidance, we are in the early stages, I would tell you, of our operating plan and are going to finalize that over the next six to eight weeks. And I know we kind of established a precedent coming out of COVID in providing maybe some more details around what we were thinking for the year. I think we needed to do that given some of the uncertainty in the environment back then. Our preference now is to build the plan, come out in Q4 like we historically did and consistent with what our competitors do, and provide guidance at that point in time. That being said, we obviously have visibility to what is out there in the models and FactSet. And when I look at that, I really do not see any reason that I need to steer you in one direction or another. I am fairly comfortable with what is out there. And I think, Bryan, what you will see is the organic growth rate, whether it is Q3 or Q4—we are really looking at the back half because there are some timing differences, particularly in the PEO, between Q3 and Q4—when we look at the organic growth rate in the back half of this year, it pretty much aligns with what is assumed from a consensus standpoint for next year. Operator: Thank you. And we will take our next question from Mark Steven Marcon with Baird. Your line is now open. Mark Steven Marcon: Thanks for taking my questions, and nice performance this quarter. I am wondering if you could talk about a couple of things. One, you did mention that Paycor was seeing new broker engagements or a renewal of some of the broker engagements and that pipeline. I was just wondering if you could talk about new sales, generally speaking, during the core selling season. What did you end up seeing this year, and how would you describe the competitive environment, win rates, etc.? John B. Gibson: Hey, Mark. This is John. I would say the competitive environment is stable and the same. It is competitive. I would not say I have seen much change there. From a sales perspective, I am very pleased with our performance in Q3, not only in line with our expectations but, quite frankly, we were accelerating PAR and bookings growth in the third quarter. And we have kind of seen that sequentially as we come out of the disruption, as you know, at the start of the year with the integration of teams, continuing to grow there. PEO, double-digit bookings; Paycor, double-digit bookings as well. We actually see bookings in the PAR referral continuing to accelerate back to pre-acquisition levels. We are actually adding headcount in the enterprise space. Again, remember, Paycor for us is a brand for the enterprise market, 100 plus, and we think that is a great opportunity for our HR outsourcing services as well as technology solutions. And so we are going to continue to go after that as well. So we continue to gain momentum, I think, across the board, and we feel good about where we are positioned going into 2027, both in terms of our competitive positioning and our headcount. And I think you really look at it. We are entering 2027 with all of the integration work behind us that we did early in the beginning of this fiscal year, and we are entering with not only an aligned team, but really the most comprehensive and, I think, flexible and innovative set of solutions in the marketplace, and so I feel good about where we are. Mark Steven Marcon: That is great to hear. And then I thought the gross margin performance was particularly impressive. You know, when we take a look before defining gross margin as revenue minus the direct costs, and part of that was obviously the higher interest income off of the float. But beyond that, it looks like it is doing extremely well. How much of that is related to some of the AI initiatives that you have put in place in terms of embedding AI across your service infrastructure and making them more productive versus, you know, other initiatives that you put in place in terms of perhaps shifting some of your costs to lower-cost labor markets like India, and how much more can we do there? Because it has been fairly impressive. I am wondering if this is basically setting us up for, you know, continued margin expansion for multiple years. John B. Gibson: Mark, I think that we have a long track record of being able to drive, as the best operators, margin expansion as we grow revenue in the business. And I think you are going to continue to see that. We use every lever imaginable to do that. I think that when you look at AI, as you know, we have been using AI in predecessor-type models for many, many years, since I have been here. And now with this new technology that almost every day something new is coming out, what we are seeing is pretty impressive. It is pretty incredible. Some of the things we are doing in terms of generative AI models, which we have now released to scale after the pilots—doing voice payroll, doing email payrolls. What we are seeing early stages in our beta groups in sales using our sales guru tool and what we are seeing from a service perspective. So I feel good about what the opportunities are. Look, if we grow the top line, we are going to be able to grow margins and expand margins over time. Then when you look at these new tools that we can put in our arsenal, as the best operator I really feel good about where we are. And I would say that on 2027, we are just getting in. That is a big debate right now. I think that is the big question—how do you begin to quantify the real positive impact from sales productivity, the way we are using it in marketing, what the potential is from a service perspective. So I can assure you we are going to have some very lively discussions next week during our planning sessions about exactly the potential that this technology has both to drive the top line but also to continue to expand margins. So I think there is more room ahead. And every year, something new comes out. And we are innovators in that regard. We are going to grab every tool we can to continue to drive efficiency. Thank you. Operator: We will go next to Tien-Tsin Huang with JPMorgan. Your line is now open. Tien-Tsin Huang: Hey, thanks. Hi, John and Bob. I wanted to ask on the advisory work that you talked a little bit about. I think that is probably underappreciated in terms of what Paychex, Inc. does there. How AI-proof is the advisory side of the business? You know, because I get the question quite a bit that, you know, can rules-based advice from AI come in and supplant what Paychex, Inc. does on the advisory side? But I am guessing that a lot of your advisory work is centered around compliance and very complex data issues that only Paychex, Inc. has. Can you maybe elaborate on that? John B. Gibson: Yeah. Look, Tien-Tsin, I think this is something I think is extremely interesting for people to understand. For the vast majority of our clients, we are their HR department. Right? So not only do we provide them the advice, we literally are talking to them and holding their hand when they are making some of these decisions and supporting them. You look at our PEO, the most comprehensive part of our model, we are actually in a co-employment arrangement. We are actually helping represent them and deal with their employee situations, which are numerous, I may add, in today’s world. And so we are actually doing so much more that there is no way that I think technology is going to replace that, at least that I see in the short term. Now to your point, we actually own the patent on using agentic AI in a mesh form and structured and unstructured data to answer HR and compliance status. Why is that? Because we have a huge compliance regulatory team that is constantly keeping that system up to date. What I will tell you is the changes in Akron, Ohio are not automated. Someone has to go onto Akron’s website, has to look at it, has to interpret it, has to watch what is going on in Ohio courts to understand how it is being interpreted, and then put that into a system to be able to respond to a client who is asking a question about whether or not they can terminate a client in Akron, Ohio or not. So I think that part of it—both the AI-embedded tools, now we have actually launched those tools inside of our HR generalists—we are actually seeing pretty significant productivity improvements since we have done that. Our clients—we are embedding that into our platforms so our clients can gain access to that. I think that is going to drive more efficiency. But at the bottom line, for most of our clients, and increasingly upmarket, we are becoming the HR department and HR partner for helping people manage people. So as long as our clients have people, they are going to need Paychex, Inc. holding their hand and helping them understand how to work with those people, in my opinion. Tien-Tsin Huang: Yeah. Well, I will say your opinion is very important, John. That is why I am asking. And so thank you for going through that. Maybe just as a follow-up, thinking about these agents as they get deployed and, as you said, the proprietary data that you have, does this get monetized through your normal way—pricing that you typically would put through in the spring—or do you think of this as a new monetizable opportunity for Paychex, Inc.? John B. Gibson: Well, I think we have been monetizing our data and providing insight going back to the early days. We won the 2022 best use of AI in HCM with our retention insights. That was before all this AI madness fell us. And the fact of the matter is that we have been doing that. We monetize that with our clients and actually provide them insights about how to retain their clients. I think what you are seeing today is we are applying it into our products and services to improve the user experience. We are putting it in there to be able to improve insights that we can provide in other areas such as benefits. We mentioned what we are doing in the PEO, which was just phenomenal—the way the tool helped advise clients’ employees on what benefits package was right for them. So I think you are going to continue to see us use it to really drive better outcomes. And you made a critical point. In order for AI to work, you have to have a large, robust dataset. And the other thing that we have learned, particularly when we are building the agentic AI models for payroll, you had to have a constantly moving set of data. And so the way I look at it is this flywheel effect. Now that we are capturing every interaction that we have from an HR, payroll, and compliance perspective with our clients through every form of communication, every interaction we have with them or one of their employees adds to our dataset. And with our tools constantly looking and doing the analysis around what are common trends, we are getting more insights. And those insights are allowing us to be more proactive with our clients. So as the transactional work gets automated, it frees up our time to be able to gain more insights, and then the system is proactively giving our HRGs a list of insights that they can then call clients and make recommendations on, whether that is compensation, whether that is retention, whether that is workplace trends that we are seeing in specific geographies that they need to be aware of. So I think it is just going to continue to improve the value that we have, and I think it is also going to improve the outcomes that our clients see. Operator: Thank you. We will move next to Brian Keane with Citi. Your line is now open. Brian Keane: Yeah. Hi. Good morning. Was hoping you guys could just talk a little bit about the strength of PEO insurance. It jumped above the range at 9%. Can you talk a little bit about some of the drivers and some of the sustainability as we head into the fourth quarter? Robert Lewis Schrader: Yes. Maybe I will start and then John can add some color. I think it is twofold, Brian, as I alluded to earlier. Think strength in the underlying operating performance of the business. So we saw double-digit demand for PEO. We continue to see record WSE retention in PEO. We saw high-single-digit worksite employee growth. You know, this business is all about worksite employees, and we continue to outpace the competitors in that space with our ability to drive worksite employee growth. So the underlying operating performance is strong. January is the big annual enrollment, so we anniversary two things. We anniversary the tougher compares from the prior year when MPP was down. We got through that annual enrollment. And I would tell you, enrollment in our MPP is up modestly. So you have an easier compare, we drove the enrollment. And then when you zoom out a little bit, and you look at medical enrollment across all the PEO—not just the at-risk business in Florida, but across the entire PEO space—our medical enrollment was up high-single digits, near double digits, as we went through this annual enrollment period. And I think that is the strength of the PEO value proposition: the ability for us to offer to our small business clients the ability to offer medical insurance and workers’ comp insurance, leveraging our scale to be able to offer affordable benefits to them. You know, we had a pretty good year-end enrollment related to that. So it is really a combination of all those factors. I would also just say, and I have alluded to this a little bit, on the agency side we had some timing benefit. You get some timing between Q3 and Q4 between carrier bonuses. SUI revenue can be a little bit stronger in Q3, a little bit weaker in Q4. And so relative to our expectations, there was a little bit of timing that came into Q3, but all in all, really strong performance and pretty much what we planned in the back half of the year, and it is nice to see that coming to fruition. John B. Gibson: Yeah. I just want to add to this. I mean, the PEO performance is amazing, outpacing the industry, I think, rather significantly. Double-digit revenue growth, double-digit bookings, seeing success upmarket. I think this is another point—again, I will make it. It is going to be interesting. We are having success with the Paycor sales team into the broker channels positioning PEO upfront. So this is one of those what I call revenue geography problems. So a Paycor rep is out and they are talking to a broker. What would have normally been, because all they have was HCM to sell, an HCM sale— all of a sudden, the discussion comes about what the problem is, and we have got multiple solutions. And now we are selling a PEO. And we had some, and it is larger deals than what we typically would see coming in. So in January, that was another big positive that, quite frankly, I think is going to continue to help us and move forward. I would also say, because I do want to say this, look, the agencies were certainly still a drag in the quarter to the segment. But we saw sequential improvement. And I would actually say even in bookings, which is the precursor to revenue moving, we actually saw solid bookings there in the quarter. And so I am pleased with the teams—made a lot of changes there. We have made some changes in the agency. We are trying to be more innovative because the market is the market. Health care issues are health care issues. Soft workers’ comp is soft workers’ comp. We are building strategies to work around those situations, and the team is making some progress there. So that also contributed a little bit as well. Other thing that I think is that I would point out for you guys to go back and look at, and I think it is probably a story that we plan on duplicating in the enterprise space. If you go back and look at our PEO success, and you go back to 2020 to 2025 and look at those five years, I think you are going to find that our CAGR of worksite employee growth is in the double digits and far surpasses any of the other providers that I am aware of, both public and private, in terms of growth. Now what was the setup for that? 2018, we make an acquisition of Oasis. Prior to that, we made a decision that strategically we were going to position the company as an HR advisory company, that we believe there was more than technology that our clients were going to need and want. We started to really grow our business organically. We then went and made an acquisition. One year after that acquisition, we are growing that business at industry, and we are gaining share in that industry. I think that is exactly what you should expect us to try to do, and we are doing, with the Paycor acquisition. We saw the opportunity to take HR advisory solutions upmarket. We wanted more capability to be able to do that, more distribution. And now we are a year into it, and I think we are well positioned to duplicate the story that we did in PEO in the enterprise space. Brian Keane: Got it. Got it. And just a quick follow-up, Bob. The 12% revenue growth you called out for Q4, I think that is a point below the Street. Yeah. But it sounds like some timing—maybe there was a slight benefit, some of the stuff you just talked about, obviously, in the PEO business from Q3 to Q4. But organically, the organic growth does not move much. Maybe just talk about some of the benefit maybe if Q3 should be stronger organically than Q4. Robert Lewis Schrader: No. I think you would probably see a slight uptick, a continued acceleration in the organic growth of the business in Q4 relative to Q3. So we should see sequential improvement there. And I mean, as you guys know, we do not give quarterly guidance. I am trying to give you some color each call to help you with your models going forward. I would tell you, we were intentionally conservative last quarter when we kind of provided some color on Q3. Obviously, Q3 is a big quarter for us. You have year-end. You have selling season. We have our year-end processing fees, which is a lot of money and margin that hits in the month of January. We had our large enrollment in the PEO. So we were intentionally conservative. I would tell you Q3 was in line and a bit better than our expectations. And as I mentioned, there were some puts and takes between Q3 and Q4, and largely the back half of the year was in line with our expectations. And again, you will continue to see some sequential improvement in the organic growth of the business, assuming we deliver the forecast and guidance. You will continue to see some sequential improvement in the organic growth of the business, which I think positions us well, as John mentioned, as we move into FY 2027. Operator: Thank you. We will move next to Andrew Owen Nicholas with William Blair. Your line is now open. Daniel Jester: Hi, guys. Good morning. This is Daniel on for Andrew today. Thank you for taking my questions. Real quick, just turning back to the revenue timing. It sounds like that was mostly concentrated in PEO. Is there any way you can size how large that was, and looking forward, can sequential growth in PEO specifically continue into the fourth quarter off of that? Robert Lewis Schrader: Yeah. I think the growth rate in Q4 will be lower because of some of those things. I do not have the exact percentage. And I think, again, if we look at it, the two quarters combined, Daniel, you will see a sequential—or if you look at back half—because of some of those puts and takes between the quarters, you will see a fairly significant lift in the organic sequential growth of the PEO and Insurance in the back half relative to the first half. But the overall growth rate, I think, when you start doing the math, you will see that the math is going to show you that the growth rate is going to be a little bit lower in Q4 than Q3. But when you put the two of them together, it is a fairly big step up in the sequential organic growth relative to the first half of the year. Daniel Jester: Great. And then for my follow-up, going back to the mention of a reacceleration of referrals and bookings to pre-acquisition levels. Can you add any incremental detail on specific areas of momentum there and maybe just level set, after a few quarters of integration, where the lion’s share of the synergy opportunities now sit, whether that is on the revenue or the cost side. John B. Gibson: Yeah. Yeah, Daniel. What I would say is very pleased with the acceleration we have seen each quarter. As we came through the first quarter when we did all of the reorganization, as we talked about, we made a conscious decision when the deal closed almost a year ago now—April a year ago—that we were going to get the hard work out of the way. And we saw the opportunity rather than dragging it out. So we took—we did that. And, of course, from the time you announced the deal in January of last year to the time that we closed the deal in April, as you can imagine, a lot of competitive noise in the market, a lot of questions from brokers about what is going to happen, and we could not say much. As we have gotten our story out there and gained momentum, continued to build momentum each of the quarters. And as we said, we have gotten ourselves back to where we were pre-acquisition, both in terms of bookings volume—was double digits, again, year over year—and broker engagement. So I would say it is getting back to kind of where we were, except for now we have the cross-sell opportunity. So I would say expense synergies are pretty much behind us at this point in time. We have taken those actions. We have exceeded the expectations that we laid out. Part of the deal model. Now you are in what I call normal DNA, best operators, continuing to improve the model of both companies and look for opportunities. Where the opportunity is now, and we continue to build momentum, is around the cross-sell inside the client base—401(k)s, ASO, PEO, all of our other products and services. You will be seeing us putting our Perks product into the Paycor ecosystem as well. So that is where we see the opportunity as we roll into fiscal year 2027. Operator: Thank you. We will go next to Kevin McVeigh with UBS. Your line is now open. Kevin McVeigh: Great. Thank you so much. Hey, I wonder, can you just remind us what the initial Paycor revenue and expense synergies were and where we are today on those? Because it seems like you have been doing a nice job on the integration. But just remind us what, again, the revenue and expense synergies were—I guess we are bumping up on a year. I think that that would help. Robert Lewis Schrader: Yeah. Kevin, if you go back to, I think, when we originally announced the deal—and now I am kind of losing track of the quarters—but at one point in time, I think the expense synergies were in the $80 million to $90 million range. I think the last update that we gave was that we expected those to be in the $100 million range. And as John said, now we are kind of moving into BAU. We will continue to look for opportunities, and we have not stopped even though we kind of exceeded our target. And I think we have ideas, certainly in areas around procurement and things like that. I think there are additional opportunities. But that was kind of the last update on the expense synergy. And then I think the update we gave on revenue synergies was a current-year update. We expected it to contribute 30 to 50 basis points of growth this year. I would say we are probably on the high end of that. And as John said, we are building momentum. And really, listen, I think that the expense synergies are not why we did the deal. I think they probably justified the purchase price, but really the value creation opportunity longer term with this deal is the cross-sell. We know we are extremely effective and have driven a lot of growth in our model selling and expanding the share of wallet within our existing client base. When we look at where that growth has come from—our higher-value solutions, ASO, PEO, retirement solutions—those, as John mentioned, play well more upmarket. And so, listen, I think we are excited about the opportunity. Paycor average client size is quite a bit larger than ours, and those clients are more apt to have some of the needs that those solutions meet. We are trying to be intentional and cautious and thoughtful in going after the opportunity. We know that we are extremely effective at doing it. It might not always be the best client experience, and so we are trying to go after it the right way, and we are building a lot of momentum there. And as we move forward, we expect to continue to be able to capitalize on that opportunity. Kevin McVeigh: Helpful. And then just a real quick follow-up. John, you had some great commentary on AI opportunity. As you think about AI across a 100-person client as opposed to an 8, is the go-to-market strategy on that different in terms of the consumption patterns, or how are you positioning for—because, obviously, you serve a terrific market from kind of micro to medium. Just any thoughts on the shift in the go-to-market through an AI lens? John B. Gibson: Well, I think, Kevin, I will take a shot at it. As I said, for the vast majority of our clients, we are their HR department. And you mentioned the eight-man company—they do not have an HR director. Right? Probably do not have any payroll person. I think the thing that you find with our ASO and our PEO business is that a lot of the clients are foregoing building that capability. Right? So what they are saying is, why would I build a department when I can leverage Paychex, Inc. at scale—their technology, now you get their datasets and our insights and our HR expertise and depth of knowledge—and, oh, by the way, we have actually employment lawyers on staff that support those people. So you are getting a lot more capability. So people are avoiding building HR departments. So I think the value proposition there is I am going to leverage something at scale. And AI really makes—if you are a scale player—really makes a big difference, is what I will tell you. Because I have a lot more insights about what restaurants are paying in Rochester, New York or San Francisco. I have got that data. I can bring that together and now present it in a way to give you advice. If you had your own HR director, you are not going to get that. So those are things we can do. When you get into 100 plus, and I would actually say even larger than that, what has been a pleasant surprise to us as we have had more conversations with the Paycor client base is how much they are looking for our support. So now you are talking at a 250- or 500-person company that does have an HR department that is probably understaffed and underequipped, and we can bring our expertise, our technology, our additional support staff, and begin to augment their HR organization and allow their people to spend more time on strategic HR activity. So I think when you start looking at companies trying to figure out how do I become more efficient, what I think you are going to find companies ask themselves is, yeah, do I apply AI into my HR department and try to make it a little more efficient? Or should I really radically think about my HR department differently? Right? Should I go and leverage someone who can provide both the tools and the people and have the breadth of the data we have to provide the insights? Is that a better alternative? And that is a, you know, traditional enterprise HR outsourcing value proposition. I think AI allows us to do that at scale. And do it at all sizes of market. So one of the things we have actually begun to introduce at Paycor that they have is a managed payroll and a managed benefit offering. So now, you know, where typically the tech players say, here is the tool, knock yourself out, we are now—and we are getting clients that are asking us—would you mind doing it for us or doing it with us? And so now we are approaching that market with either you can buy our tech and get technical support, or you can come and we can do it for you. So I am really excited about the opportunity here. And I think at scale, AI takes large datasets. We have large datasets, and I think we can add value to our clients and their HR departments regardless of whether they are eight people or 100 people. Operator: Thank you. Our next question comes from Samad Saleem Samana with Jefferies. Hi, good morning, and thanks for taking my questions. Samad Saleem Samana: Good to hear it sounds like trends are getting pretty good. You had mentioned recently that maybe the initial land per client was a little bit smaller than historical or fewer add-on modules at the point of sale. I am curious if you have seen that trend change as well. Was that a onetime kind of occurrence—what you saw last quarter—and if that has improved. And then I have one question. Thank you. John B. Gibson: Yes. So I would say that the market has been relatively stable in that regard. I think we probably had higher expectations going into the year about the number of modules that we would be able to add, and I would say that did not change much in Q3 selling season from what we saw before. Samad Saleem Samana: Understood. And then in the PEO business, I think that as we all try to figure out what is happening under the hood in terms of different verticals and what the employment outlook looks like there. Can you remind us what the kind of vertical exposure inside of the PEO business is broadly speaking versus, let us call it, white collar, blue collar? And then related, just as you think about that high-single-digit PEO WSE growth, how much of that is driven by net new deals versus headcount growth within the installed base? Thank you again. John B. Gibson: Yeah. So on the industry thing, again, as big as we are, we take every—we are very broad in terms of where we are. Now I would say that when you look at our aggregate business, because we did an analysis on this, and you look at the actual job codes of our employee bases across the business, I would say there is not a major variance in the PEO business. We skew a little bit more towards the blue and gray than what you would see in the general workforce. Again, some of that has to do with your large enterprises are more white collar. So get above 5,000-10,000, you have more white-collar type of jobs. So a little bit more blue and gray across the business, and I think that applies to the PEO. We had good net new client and worksite employee gain in the PEO. Robert Lewis Schrader: I would say that is the entire driver. I mean, headcount within the installed base has been relatively flat, and it is most years. I mean, it is driven by the double-digit demand that we talked about, Samad, as well as the record retention. So it really is net new that is driving the growth in worksite employees. Operator: Thank you. We will go next to Ramsey El-Assal with Cantor Fitzgerald. Your line is now open. Ramsey El-Assal: Hi. Thank you for taking my question this morning. I wanted to ask about something you mentioned, which was that Paycor bookings had reaccelerated to pre-acquisition levels. How should we think about the bookings conversion to revenues for Paycor relative to legacy Paychex, Inc.? Do the larger clients translate into sort of a slower conversion process or not so much? John B. Gibson: Yeah. It is a little longer than what we are used to. I think that that is a fair—so there is a couple-quarter lag, as near as I can tell. Again, just what I see in the data is a couple quarters. Obviously, depends on the size of the client, but it is much longer than ours where you could sell them and implement them in the same day, same week. So yep. Ramsey El-Assal: And is that the same for—I mean, I would understand that would be the case for sort of a new client implementation, but does that also apply to cross-sell or new product attach? Or is that something that you can kind of turn on more quickly? John B. Gibson: Yeah. That is far more quickly. I mean, again, those cadences—if you recall, one of the things again that we did is to drive all the disruption upfront. And we integrated all of our ancillary products within, I think it was probably the first quarter post the acquisition. So those things are very similar to the legacy Paychex, Inc. Operator: Thank you. Our next question comes from James Eugene Faucette with Morgan Stanley. Your line is now open. James Eugene Faucette: Great. Thank you very much. I wanted to ask a quick macro question and I guess tie it to a margin question. You mentioned that you still see kind of a tight labor environment. Just wondering if you can provide any anecdotes or color on that comment. And then as it relates to margins, I know you said that you expect there is some margin expansion to go. Just wondering how we should think about the Paycor integration and how that matures and, you know, getting past some of these acquisition-related costs because they still look elevated. Just looking for a little color on the timing around those couple things. Thanks a lot, guys. John B. Gibson: Okay. Well, I think on the macro side, what we said is and what we see is that it has been relatively stable. It is really a low-fire and a low-hire type of environment right now. We have not seen a significant change in this fiscal year in terms of the small business index that we report. And, again, I think we are in a dynamic environment right now where, again, what we hear from clients—particularly in the small end of the market, less than 50—is continued inability to find qualified people for the jobs that they have open. We are doing a lot of things to try to support them there. Then I think you have got a degree of potential hesitancy to add in this uncertain environment as you move upmarket. But, again, when we look across the business, it has been relatively flat in payment levels. Robert Lewis Schrader: Yeah. And just on the integration-related stuff question as it relates to margin, James. I mean, we are backing a lot of stuff out, so that is really not included in the adjusted operating margins. You know, I think if you were to look at our margins from a GAAP standpoint, they are still pretty high, probably in the 40% range. But I think John hit on it. I think we still think there is room as we move forward as we continue to embed AI in all of our processes across the company. We feel like there is still plenty of room to expand margins. That is certainly part of our DNA, and we are always trying to make that trade-off of trying to find ways to be more productive and more efficient so we can expand margins, continue to deliver the strong earnings growth that our investors have become accustomed to, and at the same time make sure that we are investing back into the business, which is a priority for us to make sure we have a sustainable model as we move forward. So, you know, we will continue to—that has been our model. That is how we go about our business here. And I think today, adjusted margins are high from a non-GAAP standpoint, but given some of the advancements in technology, we feel like we still have a runway to be able to shuffle all those different priorities and expand margins. James Eugene Faucette: Thanks so much, John. Thanks, Bob. Operator: Yep. Thank you. Our next question comes from Daniel Jester with BMO Capital Markets. Your line is now open. Kyle Aberastri: Hey, good morning. This is Kyle Aberastri on for Dan Jester. Thank you for squeezing me in here. Just a quick one from me. I was wondering if you guys quantified how much impact the annual form filing revenue had on the business in the quarter? Thank you. Robert Lewis Schrader: How much impact they had? I mean, it is always a large number in Q3. I would say probably consistent with maybe where it was in prior years. Obviously, it is pretty high-margin revenue, so that is why you see the higher margins in Q3 relative to the rest of the year. I would say the one comment related to the year-end filing, definitely saw a little bit better price realization. The discounting on that was better than what we had seen historically and certainly a little bit better than what we had assumed in our forecast. That is a lever that sales reps can use, particularly as they are getting towards the end of the calendar year and selling new deals. That is kind of a discounting lever that they use. And we fly a little bit blind in finance because we do not really know how that is going to come through until it actually bills in January. I would tell you that the discount on it and the price realization was a bit better than what we assumed. But not a big growth driver year over year and similar performance probably to what we have seen in past years. Operator: Thank you. Our next question comes from David Grossman with Stifel. Your line is now open. David Grossman: Good morning. Thank you. I think last quarter, your bias was the low end of the revenue growth range. And I am just wondering, in reiterating the guide, are we still favoring the low end? Or just given some of your commentary about the third quarter and going into the fourth quarter, are you feeling better about the business and feeling maybe we are better than the low end? Robert Lewis Schrader: Yeah. I think we would stay where we are at, David. That is why we reiterated, as we mentioned. Listen, I think we were a little bit conservative in what we guided towards in Q3. There were some puts and takes. I mean, obviously, we feel good about the business. We felt good about the business last quarter as well. It is nice getting through Q3 and putting up the quarter that we had. John mentioned a lot of positive momentum. I would have to say it is probably one of the stronger selling seasons that I have seen in a while, and we have a lot of momentum in a number of businesses. So we feel good. Obviously, that translates into the P&L further down the road, particularly when you are talking about the enterprise space. And so I would say largely the back half, as I mentioned, is in line with our expectations, and that is why we are kind of leaving it where we had said it was going to be last quarter. David Grossman: Got it. And sorry to kind of stick on the financials here, but just—you did make a general comment about a certain level of comfort with where consensus was for next year. And I know you do not want to make any specific comments about next year, but is there anything now that you are a combined company about how we should think about pays or pricing in Management Solutions going into next year? Particularly given now that we have got Paycor in the base? I know it sounds like pays look like they are, you know, pretty stable, but I thought I should just ask the question. Anything you want to call out there in either pays or pricing? John B. Gibson: No. David, I do not think there are any changes that we are making in any of our assumptions. I think, as you know, we had clients of all sizes before we had Paycor. We have added more upmarket. But I think relative to our assumptions and what we are expecting, we are expecting a very similar macro environment that we are seeing right now in a very uncertain time. And that is the other thing that I am sure Bob and I are going to be having a lot of conversations about. And by the time we consult with the board in a few months, and we come back to you, hopefully, we have even more certainty about the external environment and what the risks are going into 2027. So we are trying to be prudent here. As you can imagine, this is a very unique time on a macro basis. And every day something could change that could impact where we are. Right now, we feel in good shape. What we are seeing is a stable macro environment, no signs of recession in any of our data or indicators—nothing that would indicate that we would change what we are thinking in terms of pays on any of our segments at this point in time. Operator: Thank you. Our next question comes from Jacob Smith with Guggenheim Securities. Your line is now open. Jacob Smith: Quick one—just, you are a second company in the mid-market through Paycor really talking about expanding headcount to capture opportunity. Just what are you seeing out there that is giving you conviction? John B. Gibson: Well, I think the key thing is going into that, we have a list of—we know who the clients are and prospects are, and we have territories, and we have open territories that we want to fill. And we are continuing to expand that. I think before we bought Paycor, they were expanding headcount because they saw more opportunity. And we believe now with our comprehensive offerings that we have, the opportunity has expanded. And so that is what gives us confidence to be able to expand the headcount and go after and capture the upmarket not only for HCM, but as I said, really bringing our entire HR advisory value proposition to the enterprise market. Jacob Smith: Great. Thanks for taking my question. Operator: Thank you. Our next question comes from Ashish Sabadra with RBC Capital Markets. Your line is now open. Ashish Sabadra: Thanks for taking my question. I was wondering if you could provide some color on the year-on-year growth in Paycor in the quarter. And if you could quantify the contribution for form filings for Paycor in the quarter? Thanks. Robert Lewis Schrader: Yeah, Ashish. I mean, I think as we have talked about in the past, the lines are somewhat blurred and have become increasingly blurred between what is Paycor and what is Paychex, Inc., based on our early-on decision to integrate those two businesses. And so I think if we look at it, our best estimate is if you were to look at the organic growth of the Paycor business, it was consistent in Q3 with what we saw in the first half of the year, which is in that upper-single-digit range. I would tell you what is less blurred—and this is how we will talk about the business as we move forward—is when we look at our enterprise business. So when we look at our client base above 100, irrespective of which sales organization sold it, which platform that it was on, that business has been growing. I would tell you in the first half of the year, it was growing upper single digits. And in Q3, it grew around 10%. And so that is how we are managing the business. That is how John and I are thinking about it. That is how we are going to market. And as we move forward, after we anniversary the acquisition and we provide color on the different areas of the business and how they are performing, that is how we are going to be looking at it. And, again, I think that is similar and maybe not too different than what the other assets in that space are growing at. And our expectation would be that we would prospectively be growing at or above the other assets in that segment of the market. And that is currently where that space performed in Q3. Ashish Sabadra: That is very helpful color. I was just wondering if you had some initial thoughts on pricing for next year and how does that trend compare to your historical range? And also maybe a quick one on discounting. You made some comment around discounting was much lower—I think that was specifically for forms filing. I was wondering if you could comment on discounting for ASO in general. John B. Gibson: Thanks. Yeah. So I want to say this. We are going into our budget meeting. This is where we discuss competitively how we want to position ourselves going into the next market. We have a tradition of being able to drive value to our clients and get price accordingly. So I am not going to make any comments on how we are going to set pricing going into next year at this time. So I do not want to give anybody a heads up. But I think our model and our long-term model is still in existence and viable. But we are not going to talk about the exact ranges we are looking at. Operator: Thank you. Our next question comes from Scott Darren Wurtzel with Wolfe Research. Your line is now open. Scott Darren Wurtzel: Hey, guys. Thanks for squeezing me in. I will limit it to one. Just going back to the PEO—I mean, it sounded like your commentary on enrollment sounded pretty positive. And I remember, I think, you guys made some changes to benefits offerings and everything. But I also wonder, is there any element of—you think that employees are maybe just sort of adjusting to this higher health care premium inflation environment, and that could also be, you know, kind of helping to drive some of this enrollment growth that we have seen as well? Thanks. John B. Gibson: Yeah. Yeah, Scott. I think everyone is adjusting. I think we adjusted our plan designs. I think employees are adjusting in terms of what they are going to do, and employers are adjusting how they are going. You know, I mentioned the use of AI. I will say this. In tests where AI was used and where it was not, the choices that employees made, I think, improved their outcomes and improved our outcomes. So what do I mean by that? As you know, you can immediately go to the cheapest plan. But given your circumstances or what you spent last year or changes that may have happened in your life relative to dependents, that may not be the most economic plan for you to participate in. These AI tools’ ability to model that for you—to maybe make the middle plan choice versus the lower plan choice—is, like I said, a better outcome for the participant and, of course, that impacts benefit for us as well because it is a higher-priced plan. Scott Darren Wurtzel: Great. Thanks, guys. Operator: Thank you. Our next question comes from Kartik Mehta with Northcoast Research. Your line is now open. Kartik Mehta: John, you talked about Paycor revenue synergies as we go into FY 2027 and the opportunity to really take advantage of that. I am wondering how the Salesforce alignment is going because I am guessing that is part of the revenue synergies that you would be able to capture. John B. Gibson: Yeah. So on the alignment question, just so everyone is kind of clear, Kartik—and this is, I think, the challenge and that, you know, hopefully, we do not talk about Paycor anymore going forward—because Paycor for us is a brand that we are using to go and target the enterprise market, as we are designing 100 plus. And we have taken all the assets of the company regardless of where they were, and we have placed them in that business unit for that unit to focus on that particular market. We are doing marketing there specifically for that target segment. So now we are spending marketing money in that segment. We are putting sales reps into that segment to go after that segment. And we are going to capture as much of the market as we can at 100 plus. Now once, let us say, a lead comes in digitally from marketing spend at Paycor, and we look at that lead and we go, hey, that looks like a great PEO opportunity, we are going to move that over to the PEO. Right? And so now all of a sudden, you have got an expense that is on the Paycor side of the equation. Same thing is happening with our reps as well. So we have got this segment—if this is your question—the segmentation of the Salesforce is clear. How we are going to market from a brand perspective is clear. And then what we are doing is, both in terms of using our AI and also our incentives for all of our sales reps, making sure we have every sales rep in the market looking and representing the entire capabilities of the company. And so that goes back to every rep is representing the comprehensive capabilities of the company, whether that is technology, whether that is the platform, whether that is do it yourself, do it for you, or do it with you. We are offering every rep in every market the capability to do that, if that makes sense. Kartik Mehta: Yeah. And then just a follow-up question, Bob. And this might be crazy considering it is Paychex, Inc., but I thought I would ask anyway. Any thought about potentially using a little bit of leverage to buy back stock considering the stock price is? Robert Lewis Schrader: Yeah. I mean, Kartik, listen. I think you saw—we just recently announced a new share buyback authorization significantly larger than what we have had in the past. And when you look at—you know, there is obviously, at least in my opinion, a disconnect between the underlying fundamentals of the business and the valuation, and that obviously, you know, I was always taught to buy low and sell high. And so you have seen us be a little bit more opportunistic there. I would tell you, I do not think we have necessarily changed our overall philosophy around share buybacks, but we know we are going to have to buy shares back in the future to offset dilution. And we have done more of that this year than what we normally would have, as you guys can see in some of the disclosures. So, you know, I do not ever want to say never. Our leverage is pretty low. That is obviously a board-level decision. And as you can imagine, I am assuming a lot of CEOs and CFOs in this market are having these conversations with their board on a regular basis, and John and I are certainly doing that. And so we will continue. We have lots of priorities from a capital allocation standpoint. Certainly, we want to continue investing in the business. But we will continue to have those conversations. So I do not want to say never, but it is something that we will continue to evaluate. Operator: And our next question comes from Jason Alan Kupferberg with Wells Fargo. Your line is now open. Jason Alan Kupferberg: Thanks, guys. Good morning. I wanted to ask about Management Solutions specifically. I think the organic growth was 4% in the quarter. I think that is the same as we saw last quarter. Do we expect that to accelerate in Q4? And if so, is that because you will start to lap Paycor during the quarter? Or would there be other accelerants we should be considering? Thanks. Robert Lewis Schrader: Hey, Jason. Yes. I would say, you know, I think it was 4% in Q2 and 4% in Q3. I would tell you, one was around up and one was probably around down. So you are also seeing sequential improvement in the organic growth of Management Solutions as well. Part of it is when you get to Q4, we would expect that to continue and maybe accelerate a little bit. To the point that you are making, you are anniversarying the acquisition, so now we have a scale business that is growing faster than the overall growth of the business. So that would be accretive to the organic growth. And then we are continuing to build momentum on the synergy opportunity, and I think that showed up in the Q3 selling results, and that will eventually make its way into the P&L. And so you should see improvement in Management Solutions organic growth as we move into Q4 as well. Jason Alan Kupferberg: Okay. Understood. And then just a clarification. I know we are not changing EPS guidance, but we did up interest income guide a little bit, which I would have thought would have lifted the EPS—I do not know—maybe a percent or so. I mean, there is only a quarter left in the year. So just curious, is it just some conservatism there leaving the EPS guide as is? Or are you going to reinvest some of that upside? Slight combination of both? Robert Lewis Schrader: I think we are certainly going to look for opportunities as we move through the balance of this year to invest. We want to get out of the gate strong when we get into next fiscal year. So it is always balancing those trade-offs, Jason. You know, John and I will manage through that as we go through the quarter and see where the opportunities are. But it is really a combination of maybe a little conservatism and where we may potentially want to take advantage and make some investments as we end the year. John B. Gibson: Yes. The great position we find ourselves in is we have plenty of opportunities for investment coming out of the third quarter that have the opportunity to both accelerate growth and accelerate margin expansion. And that is—you know, we have got a lot of decisions to make over the next couple weeks as we go through our planning process. And anything that we are thinking is a good investment in the first quarter in 2027, I do not think we want to wait to make that investment. So we are certainly trying to contemplate that as we go into our planning session next week. Operator: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to John B. Gibson. John B. Gibson: Okay. Well, thank you, everyone. Just to highlight, we delivered strong double-digit revenue and earnings growth, continuing to reflect, I think, very strong execution and focus of the teams. I do want to call out, you know, we are approaching a one-year anniversary mark of the acquisition of Paycor. And I want to call out the Paycor team in particular. The group has been through a lot. If you think back a year ago this day and what we were starting to prepare for and take the organization through, and I think the way that we have responded and the way we have continued to come together and build momentum at this fiscal year has come together has been just really impressive. I said it a year ago: we will be better together. And we are better together. And, you know, I point you to the example of what we did in the PEO industry and how we focused on that strategically many years ago. I think that is a good model for us to replicate as we go into fiscal year 2027 and beyond in the enterprise space. So I think Paychex, Inc. has never been better positioned than it is today. I think we have differentiated ourselves in the marketplace repeatedly. I think in this new AI era, our scale, our breadth, our capabilities from an expertise perspective, and the fact that we are dealing in mission-critical type of work where errors are costly—I think that you are going to continue to find more and more clients of all sizes turn to Paychex, Inc. to be their HR department and to provide them leading-class technology and advisory solutions in the years ahead. So I like where we are positioned, and I want to thank you for your interest in Paychex, Inc. Thank you. Operator: This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Epsilon Energy Ltd. 2025 Year-End Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity for questions and answers. Please also note today's event is being recorded. At this time, I would like to turn the floor over to J. Andrew Williamson, CFO. Please go ahead. J. Andrew Williamson: Thank you, Operator. And on behalf of the management team, I would like to welcome all of you to today's conference call to review Epsilon Energy Ltd.'s full year and fourth quarter 2025 financial and operational results. Before we begin, I would like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause Epsilon Energy Ltd.'s actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliations of non-GAAP measures. With that, I would like to turn the call over to Jason P. Stabell, our Chief Executive Officer. Jason P. Stabell: Thank you, Andrew. Good morning, everyone, and thank you for joining us. With me today are J. Andrew Williamson, our CFO, and Henry Nelson Clanton, our COO. We will be available to answer questions later in the call. Epsilon Energy Ltd. delivered a standout year, growing adjusted EBITDA 75% and production 54% year over year. In the fourth quarter, we closed the acquisition of the PEEP companies, bringing us new production, more than 100 net high rate of return drilling locations, largely held-by-production undeveloped acreage, and a highly experienced Powder River Basin operating team. Through a combination of development drilling and the Peak acquisition, we achieved 69% growth in proved developed producing reserves, and an 86% increase in total proved reserves. The Board recently declared our seventeenth consecutive quarterly dividend and renewed the share buyback program covering up to 10% of shares outstanding, underscoring our commitment to returning capital to shareholders. Looking at 2026 to date, our portfolio is performing exceptionally well. In late January, we realized extremely favorable gas pricing in Pennsylvania, generating over $4,800,000 in net natural gas sales in a single week, including sales one day at over $66 per MMBtu. Our current PDP production is approximately 60% hedged for the rest of the year. But importantly, the incremental oil volumes we expect to add through the drill bit starting in the second quarter are unhedged, providing meaningful upside exposure. I would like to add that our past commentary on the acquired Powder River Basin assets has focused on the very attractive high rate of return Parkman inventory. But I need to remind investors that we also acquired several hundred locations in the Niobrara and Mowry formations that are the focus of activity for most of our offset operators in the basin. While the average expected returns in these formations are currently below the Parkman, this inventory represents a material wedge of value that we acquired at less than $250,000 per location. We expect the returns on this inventory to improve dramatically as we scale operations and extend lateral lengths, particularly if oil prices remain at levels above $70. Epsilon Energy Ltd. is now positioned as a unique multiyear organic growth story with strong visibility into per-share growth in EPS, EBITDA, and production over the next few years, while maintaining a fixed dividend and targeting an average annual leverage ratio below 1.5x. Thank you for your continued support. I will now turn it over to Andrew and Henry for additional comments. J. Andrew Williamson: Thanks, Jason. I will start by elaborating on the Peak closing that occurred on 11/14/2025, with the release of the contingent consideration occurring a few days later on the 20th. The BLM permitting issues on the acquired acreage in Converse County were resolved right around closing, and the BLM resumed their approval of drilling permits in the affected area. As it stands now, we have seven approved drilling permits that provide access to that acreage, which we believe holds some of the best inventory we have in the basin. We plan to start to develop there next year with some front-end facilities work this year. Now on to the year-end results. Jason mentioned the year-over-year growth in production and cash flow, which was primarily driven by higher volumes, up 65%, and better pricing with realized prices up over $1 per MMBtu year over year in the Marcellus. With wells coming online in the first quarter that were paid for the prior year, our operator has additional development planned this year and again in 2027 and 2028 at an accelerated pace. We expect the vast majority of these volumes will flow through the Auburn Gathering System when developed, driving strong capital-efficient cash flow growth on our midstream asset over that period. We have several one-off items that impacted earnings this year: transaction costs from the Peak acquisition, which were $6,900,000 in total, although half of these were expenses assumed from Peak that were unrelated to the deal and were adjusted for in the share consideration issued at closing. Also impacting the year were some impairments on our wellbores in Canada and New Mexico. The drivers were the oil strip we were required to use at 12/31/20, which was sub-$60 WTI; downward reserve revisions due to a frac hit in New Mexico—note the New Mexico interests are small with 10% in two wellbores—and, finally, well underperformance in Canada. In Canada, we have spent $11,000,000 over the past two years, including approximately $4,500,000 to earn into a large acreage position of over 100,000 net acres that we believe has great option value, although based on the results observed to date, the area does not currently compete for capital in our portfolio. The major adjustment was the loss on our sale of the Oklahoma assets. We also had a large tax basis there; when you combine cash received at closing with the cash tax savings, the deal generated over 8x the expected cash flow from those assets in 2026, so very accretive on a multiple basis. Also, we had no plans to allocate capital there; with the portfolio we have, it made sense to clear the decks and use those cash proceeds to pay down our debt balance, which we did in the first quarter by $5,000,000. Adjusting for the items I just described, the company earned $92 per share in 2025. We are doing a couple of things to increase liquidity over the next few months given the capital program this year across the portfolio. We are in the market selling an overriding royalty interest package in the Marcellus. We believe we can transact at an accretive multiple. We also have the Colorado office building we acquired with Peak under contract for $3,000,000. Overall, this is an exciting time for the company with several value-enhancing developments that are in progress or will be in the next 12 to 18 months. These include our operated high-return Parkman development in the Powder River Basin, accelerated Barnett development in the Permian, and steady development in the Marcellus with expected increases in gas production and midstream throughput in the 2027–2028 timeframe. We show the potential cash flow impact of some of these things in our first quarter 2026 corporate presentation, which is available on our website. Now to Henry for more detail on our investment plans this year and a look ahead to the next few years. Henry Nelson Clanton: Thank you, Andrew, and good morning to everybody. I would like to share more detail on our development plans for 2026. Beginning with our newly acquired operating assets in the Powder River Basin in Wyoming, we have initiated completion operations of two two-mile Niobrara DUCs, 0.7 net working interest to Epsilon Energy Ltd. The net CapEx for these two completions is expected to be approximately $6,000,000. This includes the pre-construction buildout of the production facilities to be ready to put the wells into service after flowback. The frac is currently scheduled for Q2. As Jason mentioned earlier, we are focused on the Parkman drilling inventory, with plans to drill three two-mile laterals, 2.8 net, beginning in Q3 with production online in Q4. Net capital for these three wells is expected to be approximately $22,000,000. In preparation for our 2027 and 2028 development plans in the Parkman in Converse County, Wyoming—12 gross wells—we will be building out a water supply and impoundment facility to support this program and drive development costs down. In our Permian Barnett asset, project management and operatorship has changed. Based upon discussions with the new operator, the project development will transition to three-mile laterals with four wells per pad development along a development corridor. In addition to the drilling program, the new operator informs us that planning is underway for a multi-well production battery and a water recycling facility within the main development corridor. We are aligned with the operator and support these changes to the development plan and the facility approach, which is expected to drive cost savings on the wells moving forward. This month, the first three-mile Barnett well was drilled on the position. The completion planning is in progress, and we expect the well online close to midyear. Net CapEx for the drilling and completion of this well is expected to be approximately $4,000,000. Based upon preliminary discussions with the new operator, an additional three wells, 0.75 net, are planned in the second half of the year. We expect this to include two Barnett three-milers offsetting our recently drilled well to minimize parent-child impacts. The third well is expected to be an appraisal test in the Woodford interval. A successful result there will increase our inventory meaningfully. Moving to the Marcellus, development activity is restarting. We have received well proposals for the drilling of five wells, 0.4 net, beginning in early Q2. Completions are currently scheduled for the second half of the year. Net CapEx for these five wells is expected to be approximately $4,000,000. We have also begun LOE optimization efforts in Wyoming. This program includes downsizing gas lift compressors—12 planned—focused efforts to reduce the treating cost per barrel from the production chemicals program, and reducing and optimizing power usage in the field. These efforts are expected to remove fixed costs and improve variable costs without impacting production. Monthly savings for these initiatives are estimated to be $50,000 to $100,000 gross per month. Currently, no 2026 activity is planned in Canada. And finally, to add to what Jason mentioned earlier, the company's total reserves increased to 156 Bcfe due primarily to the 78 Bcfe of additions related to the acquisition of the Powder River Basin assets. For those interested in more details on the year-over-year changes, I would refer you to the detailed reserves reconciliation information provided in the 10-K press release. Now I will turn it back to Jason. Jason P. Stabell: Thanks, guys. Operator, we can now open the lines for questions. Operator: At this time, we will begin the question-and-answer session. To withdraw your questions, you may press star then 2. Please pick up your handset prior to pressing the keys to ensure the best sound quality. Our first question today comes from Anthony Perala from Punch & Associates. Please go ahead with your question. Anthony Perala: Hey, morning, guys. Thanks for taking the question here. Just wanted to ask on looking at some of the details you gave around the Peak acquisition timing, and I think you had referenced a $65 oil level for returns and IRRs. Just curious, if we are looking at it through a lens of today—whether it is the kind of front month or even going back to you—the curve is in the mid-seventies going through the back half of 2026. Just curious what returns look like under those oil assumptions rather than $65. Jason P. Stabell: Anthony, Jason here. Thanks for the question. I will let Andrew address that one. J. Andrew Williamson: Yes. Thanks for the question, Anthony. So yesterday's forward averaged $77 through year-end 2027. We run price sensitivities on our type curves in $5 increments. So at $75 WTI, returns for our oil-weighted inventory increase meaningfully. I am going to add the Permian stuff alongside the question on the Powder. Barnett three-mile at $65, as mentioned in our corporate presentation, is a 45% IRR with a two-year payout, roughly 3.0x multiple on invested capital. And at $70, those move into the 60% range, with approximately 18-month payouts and 3.5x on the multiple. In the Powder, starting with the Parkman—and that is the focus of our development in the basin over the next 18 to 24 months—again, in the presentation, we talk about the Parkman split into two, the inventory across the two counties. So in Converse, which is the best stuff, a 150% return, 10-month payout, 2.5x. The Campbell County Parkman is in the 45% to 50% range with 20-month payouts. And at $75, those increase for Converse to over 200%, eight-month payouts, 3.0x, and in Campbell, increases to 80%, less than 18 months on the payout and over 2.0x. The largest component of the inventory in the basin in the Powder is the upper Niobrara. We are, at $65, in the 25% to 30% range, three-year payouts and 2.0x. At $75, that increases to 40% to 45%, two-year payout, and 2.5x. And we have 46 net locations there in the Niobrara. Anthony Perala: That is really helpful. Interesting, I guess. Between those you can see, but obviously the Parkman stands out. I am curious—it is a good problem to have—but just curious on how you guys look at how capital kind of competes with the variance of you controlling your own destiny with the Parkman and PRB locations, and then having the non-op working interest and kind of dealing with the operator in the Barnett, the new operator. Jason P. Stabell: Yes. I mean, it is going to go highest and best use. Right now, kind of looking at the portfolio, Anthony, we think about it as about 50% of our investment over the next two years is going to be Powder-focused, and then the remainder split between Marcellus and Barnett. So I think, with pricing doing what they do, I do not see a huge change to that. As we mentioned on the call, we are excited about the new operator that we have in the Barnett oil play. It is a large, scaled private operator that has pretty aggressive plans for ramping this year, but really stepping up next year. So we think, in addition to the PRB, that that Barnett asset is going to be a nice source of liquids growth for us. And as Andrew quoted, the returns, in a world $65 plus, those Barnett investments are quite attractive. And I think we get more excited thinking about a three-mile lateral world in the Barnett. We had our first well drilled there that we are going to complete, as we mentioned, mid this year. So I think it is all shaping up how we would have liked. We have got options. We have got our operated position that we can flex up and down depending on macro. We have got a lot of inventory there, Parkman-focused certainly. But as I mentioned, we want to remind people we have also got this pretty deep Niobrara inventory, which is where most of the industry in the PRB is currently focused its capital. Anthony Perala: So, yes. It is kind of funny looking back on when you first took the role, the difference in just investment opportunities—from primarily the Marcellus to now having a lot of different plays that compete for capital. On that Niobrara piece, which, as you lay out, it is probably 2028 before that really competes for capital given just the Parkman inventory. I am curious—like you had said—it seems like people are getting more active there, and it is being proved out more by larger scaled operators. I am curious what you are seeing and hearing from those that are really committing capital to the Niobrara and Mowry right now in the PRB. Jason P. Stabell: Sure. I will start maybe with some general comments, and Henry can fill in anywhere that he sees fit. Yes, around us in Campbell and Converse, there are a number of rigs right now. The big operators—and I will just name a few—Devon, EOG, Continental, Oxy—they are really focusing their capital on the Niobrara. I think what you are seeing there is similar to what you are seeing in other basins. We are going from a two-mile lateral world to—the standard right now in the Niobrara, I think, for this year and forward—is three- to 3.5-mile laterals, which enhances economics quite a bit. We even have an offset operator that we know is planning a four-mile lateral in the Niobrara, or a DSU of four miler. So I think the economics there, as you start to extend laterals, batch drill wells, you are going to see that the Niobrara in the PRB is competing for capital in much larger portfolios of the companies I mentioned. So we are encouraged by that. As we said, we are watching closely. I think our near-term focus is going to remain the Parkman, probably over the next two years. We will have some non-op opportunities in some of these Niobrara wells in some of that offset acreage as well that I think we would be interested in. So I will stop there and let Henry add. Henry Nelson Clanton: Yes. The only thing I could add to that is, we have got 12 rigs running in Campbell, Converse, and Johnson County around our acreage position, and 10 of those 12 are Niobrara-focused. So that gives you some color on how focused the big guys that Jason mentioned are in allocating their capital. Anthony Perala: Great. Thanks, Henry. That is very helpful. Just one final one for me here. If you could add a little bit more color—you had mentioned you are in the market looking at selling an overriding royalty package on the Marcellus assets. Just if you could give some more color to that and just how best to think about that for potential proceeds. Jason P. Stabell: Yes. I am not going to guide on proceeds, but it is a small amount of production. So we are talking somewhere, I think, less than 1,000,000 cubic feet a day of production. It represents a pretty small overall piece of our production. It sits outside of our core Auburn area. These are some overrides we have picked up over the years due to acreage trades with some other area operators. There is pretty robust interest, as we understand it, for override mineral interests, so we are doing a market test to see. We believe, as Andrew mentioned, we are going to have an opportunity to potentially sell it at a pretty attractive multiple. Nothing is locked in there until we get some bids next month and decide if it is something of interest to us or not. But just kind of pruning around the edges on the portfolio. As we talked, we moved the Anadarko assets last year. There was some cash we brought on the balance sheet, but also had some positive after-tax impacts for us. That office building that came in the Peak deal, we thought it made sense to explore sale of that, and as Andrew said, that is $3,000,000 that we have got under contract. So I expect that will close in the second quarter. So, just as we have expanded the portfolio, we are trying to make sure that it is optimized as best as possible, and we are creating opportunities to reinvest in what we think are our best sources of inventory. Feel good about it. Anthony Perala: That is great. Thanks for the color. I will get back in the queue. Operator: Thanks, Anthony. To withdraw your questions, you may press 2. It is showing no questions at this time. I would like to turn the conference call back over to Jason for any closing comments. Jason P. Stabell: Nothing to add, Operator, other than to thank everybody for joining us today. And as always, if people have additional questions, feel free to contact us here at the Houston office. Everybody have a good day. Thank you. Operator: With that, ladies and gentlemen, we will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good afternoon, and welcome to LogicMark, Inc.'s fourth quarter and full year 2025 conference call. The speakers today are Chia-Lin Simmons, Chief Executive Officer, and Mark J. Archer, Chief Financial Officer. During this call, management will make forward-looking statements, including statements regarding LogicMark, Inc.'s future performance, operational results, and anticipated product launches. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information about these risks, please refer to the risk factors described in LogicMark, Inc.'s most recently filed Annual Report on Form 10-K, subsequent periodic reports filed with the SEC, and the press release issued in connection with this call. The information discussed on this call is accurate only as of today, 03/25/2026. Except as required by law, LogicMark, Inc. undertakes no obligation to update or revise any forward-looking statements. It is now my pleasure to turn the call over to Chia-Lin Simmons. Please go ahead. Chia-Lin Simmons: Good afternoon, everyone. Thank you for joining us. To review our financial and operational results and discuss the outlook for our company and industry. 2025 was a year of progress for LogicMark, Inc. as we translate the product innovation into measurable financial gains. We delivered continued momentum across our core product lineup, maintained strong gross margin, and ended the year with a healthy balance sheet that supports our growth aspirations. These results reflect disciplined execution and a clear alignment between our technological investments and commercial outcomes. In the fourth quarter, revenue increased 36%, gross profit increased 43%, and gross margin improved by 340 basis points compared with the prior-year period. Most importantly, quarterly revenue has increased year-over-year in six of the last seven quarters. For the full year, revenue increased 15% to $11.4 million, gross profit improved to $7.6 million, and gross margin remained strong at 66.8%. We also ended the year with $9.5 million in cash and investments, and no long-term debt. Our performance in 2025 shows continued momentum across our core product lineup. Fourth quarter growth was driven by strong demand for Freedom Alert Mini and the upgraded Guardian Alert 911 Plus. For the full year, revenue growth was driven primarily by higher sales of the Freedom Alert Mini. We believe this progress shows that product innovation is turning into commercial success. Before turning to our go-to-market strategy, I want to briefly explain what is different about LogicMark, Inc. today. Over the past several years, we have been working to evolve LogicMark, Inc. from a traditional hardware provider into a larger, broader connected care platform. That evolution includes a more diversified product portfolio, stronger software and data capabilities, and a deeper intellectual property foundation. We are encouraged not only by the growth itself, but also by the consistency of demand across channels. We are seeing Freedom Alert Mini increasingly adopted as a first-time solution for families navigating aging-in-place decisions. At the same time, Guardian Alert 911 Plus continues to resonate with customers seeking simplicity and reliability. That pattern reinforces our view that our portfolio is aligned with the market evolution. A less obvious but essential component of the LogicMark, Inc. story is our intellectual property portfolio. Since June 2021, we have implemented a deliberate strategy to protect the technology we are building, and today, our portfolio includes more than 45 issued or pending patents. These expanded innovation foundations are being built over a relatively short period and in a highly strategic manner, reflecting the strength of our R&D team. A significant milestone in 2025 was a patent grant covering the core architecture of our Care Analytics Management Processor, WCAMP. This intelligence layer powers our Caring Platform as a Service, or CPaaS. We have also filed under a Patent Cooperation Treaty, which preserves our ability to seek patent protection in more than 150 countries as we evaluate broader market opportunities. Building on that foundation, our LogicMark, Inc. Digital Twin technology creates AI-powered behavioral mirrors that can help predict falls and other risks before incidents occur. These capabilities underpin our activity metrics features, an important element of our differentiation in proactive senior care, which is also helping us further expand our subscription service revenue. Just as important is what this portfolio represents strategically. We are no longer simply a hardware company with software wrapped around it. We are building a defensible, software-defined platform grounded in proprietary AI-powered monitoring, token-based data privacy, and connected IoT ecosystems. We believe these investments will further position LogicMark, Inc. to compete on the strength of its products and technologies. This platform strategy is now reflected directly in the products we are bringing to market. In 2026, we continue to prioritize sales growth in the B2B channels across government and healthcare sectors. There are also opportunities to expand into the consumer channel. From a sales perspective, LogicMark, Inc. is transitioning from reinventing a new technology roadmap and sustainable business models to building the commercial required to monetize these capabilities. The additions to our business development team strengthen our leadership at an important point in our evolution. They bring deep healthcare and government sales experience, as well as connectivity market expertise, to enhance our ability to scale distribution, expand partnerships, and support our transition to a broader, connected care platform. From a product perspective and standpoint, in government care, our renewed five-year GSA contract enhanced access to federal procurement opportunities and, together with our long-standing work with the VHA, strengthens our ability to service and capture additional revenue. We are also taking steps into senior living facilities by leveraging our newly expanded team's decades of experience in additional areas such as behavioral health and rehabilitative therapy. Products such as our Freedom Alert Max now integrate medicine reminders and proactive activity metrics, supporting our broader strategy to move from reactive alerting to more proactive, data-driven care. These features eliminate the need for separate smartphone applications. Caretakers can schedule detailed dosage information through LogicMark, Inc.'s Freedom Alert Caretaker app. Should a user fail to confirm that they have taken their medication, the system logs this data for analysis to identify potential falls or emergency risk. Together, these proprietary features strongly incentivize the adoption of bundled monitoring and switching services, helping to develop a highly scalable recurring revenue base. We are also excited to share that LogicMark, Inc. continues to drive innovation and develop new solutions in 2026. Our product pipeline includes a wearable watch expected to launch in the third quarter. The watch includes features we believe should be standard for aging loved ones, including fall detection and geofencing, as well as LogicMark, Inc.'s flagship capabilities such as activity tracking and medication reminders. For the wristwatch solution, we plan on introducing a new feature: advanced biometric data. Second, we are in a beta testing phase of our connected home hub with assisted living, senior living, and independent living partners. The system integrates our CPaaS platform, predictive cloud services, caregiving apps, and a proprietary AI-powered fall detection technology that operates without wearing wearable devices at home. This is especially helpful in bathrooms, where slips in the shower can be fatal. The hub connects with other systems and environmental sensors to enhance safety, enabling us to partner with connected home and health tech providers to offer a more comprehensive aging-at-home experience. These team and product investments are intended to deepen customer engagement and broaden our mix of monitored and connected care revenue opportunities over time. We are expanding our monetization beyond one-time device sales to include multiple subscription levels, connected care services, and select licensing opportunities. Turning to the broader market outlook, we continue to see a favorable demand environment, supported by aging in place, growing preference for at-home care, increasing technology adoption among older adults, and wider use of connected monitoring and data-driven insights. A recent Berg Insight industry report estimated that approximately 6.5 million people in North America were using telecare or medical alert solutions at the end of 2025. The report also estimates that the market value of medical alert solutions in North America will grow from approximately $3.7 billion in 2025 to $5.6 billion in 2030. We believe LogicMark, Inc. is well positioned to capture additional share of this growing market through a portfolio that spans no-monthly-fee devices, monitored mobile solutions, and connected care and connected home offerings designed to meet evolving customer needs. Across healthcare, housing, and consumer technology, the shift toward home-based care continues to accelerate. Families increasingly want solutions that help their elder adults remain independent while staying connected to caregivers. Driven by demographic trends and a growing demand of the sandwich generation, families are adapting homes for aging relatives through safety upgrades and living arrangements such as in-law suites or backyard cottages, alongside growing use of connected health tools outside traditional clinical settings. At the same time, rising technological progress is increasing expectations, particularly around the ease of use for older adults and their caregivers. As AI-enabled health platforms, wearables, and smart devices become more common, families are looking for solutions that fit naturally into daily life without adding complex or cognitive burden. This further distinguishes general consumer safety products from trusted, purpose-driven systems like ours that are designed for real-world caregiving needs. In this environment, solutions that emphasize reliability, simplicity, and caregiver peace of mind are becoming increasingly important. We believe that allows LogicMark, Inc. to play a meaningful role in the evolving home care ecosystem. As you will hear from Mark, we have continued to invest thoughtfully in sales, product development, and supply chain resilience, balancing near-term revenue opportunities with actions that strengthen the platform for long-term growth. With an expanded sales and business development team, and multiple monetization pathways, including potential IP licensing, we believe LogicMark, Inc. is equipped to drive revenue growth, improve profitability, and play a meaningful role in a growing care economy. I will now turn the call over to Mark J. Archer. Mark J. Archer: Thanks, Chia-Lin. I will start with our fourth quarter results, then cover full-year performance. Starting with the fourth quarter, revenue was $3.1 million, up 36% from $2.2 million in the prior-year period. Gross profit increased 43% to $2.1 million, and gross margin improved to 69.8% from 66.3%. The improvement reflected higher volume, higher margins on our upgraded Guardian Alert 911 Plus, and a favorable product mix. Total operating expenses were $3.8 million compared to $3.7 million in 2024. The increase primarily reflected higher selling and marketing expenses to support growth, partially offset by lower general and administrative costs. Net loss for the quarter improved to $1.6 million from $3.7 million a year ago. Diluted loss per share was $1.96 compared with over $1,000 per share in the prior-year period, and the per-share figures reflect the October 2025 reverse stock split and related retroactive adjustments in share counts. Now switching to the full year, revenue increased 15% to $11.4 million from $9.9 million in the prior year. Gross profit improved 15% to $7.6 million, and gross margin remained essentially flat at 66.8%. The increase in annual revenue was primarily related to sales of Freedom Alert Minis. Full-year operating expenses were $15.5 million, up from $14.3 million in 2024. The year-over-year increase was primarily driven by higher selling and marketing expenses, including increased compensation costs for the sales team and one-time recruitment costs for new sales leaders. In addition, we incurred increased research and development consulting costs tied to the relocation of certain contract manufacturing from China to Taiwan, which will help us minimize our risk of punitive tariffs going forward. We also incurred higher legal fees to protect our IP portfolio. Lower advertising expense partially offset these changes. One additional point worth highlighting is expense discipline. Operating expenses increased by approximately $100,000, or 3%, in the fourth quarter and 9% for the full year. This reflects continued investment in growth while maintaining control over the broader operating cost base. Net loss for the full year improved to $7.5 million from $9.0 million in 2024. Net loss attributable to common and preferred stockholders was $7.8 million, or $13.06 per basic and diluted share, compared with $9.3 million, or, again, over $1,000 per basic and diluted share in the prior year. As with the quarterly per-share figures, the yearly comparisons reflect the reverse stock split that we completed in October. Now quickly turning to the balance sheet and liquidity, we ended the year with $9.5 million in cash and investments, $9.7 million in net working capital, and no long-term debt. During 2025, cash used in operating activities was $5.1 million, and we invested approximately $1.4 million in product and software development. Financing activities provided $12.1 million of net cash during the year, including $14.4 million of gross proceeds from our February 2025 registered secondary offering. We remain focused on disciplined execution, efficient investment in people and technology, and continued progress toward improved operating performance. We expect ongoing expansion of subscription monitoring and digital care features integrated into the company's AI-enabled care and analytics platform, further strengthening the recurring revenue base. Finally, with 2026 almost concluded, we expect revenue to be up in the 10% to 15% range compared with 2025. We will now open for questions. Operator: Thank you. If you would like to ask a question, please press 11 on your telephone. You will then hear an automated message advising your hand is raised. If you would like to remove yourself, press 11 again. We also ask that you wait for your company name to be announced before proceeding with your question. One moment while we compile the Q&A roster. First question that I have coming for today is Marla Marin of Saks. Your line is open. Marla Marin: Thank you. So you have had some very strong results this quarter and for the past few quarters, really nice revenue increases. As you continue to expand the portfolio and into your target market in terms of new demographics, how are you getting the word out that this is not the same company that it was just a couple of years ago? Mark J. Archer: You want to take that, Chia-Lin? Chia-Lin Simmons: Yes. Hi. Thank you, Marla, for the question. Yes, we understand what you are asking, which is, you know, we have done quite a lot in terms of, you know, shoring up revenue and, you know, in the process of launching some amazing new products. And so we have actually also invested in, you know, a lot more PR and more visibility for the company as well. I mean, we, you know, are more of a B2B company with that focus, and so from that respect, we have spent more time, for example, in the past year and will continue to do so in 2026, attending the numerous sort of trade shows that, you know, are basically applicable to the B2G world as well as the B2B world. And so we have had, in the one that we have done thus far in 2026, some tremendous sort of feedback on the products that are in the pipeline as well as the products we already have in our portfolio. So we are very excited to get some of those direct buyer feedback, and as mentioned, you know, we are also in part getting some of this word out, doing early beta testing with senior living and independent living facilities for our new connected home hub product as well. Marla Marin: Okay. Thank you. And Chia-Lin, I think you mentioned, you know, the concept of aging in place, and I have been reading a bit about it, and it seems to me that that sort of creates a little bit of a positive tailwind for what you are also trying to accomplish. Can you give us a little bit more color on exactly what you see there in terms of people increasingly wanting to age in place? Chia-Lin Simmons: Yes. So the stats do not lie. I mean, they are incredibly, I think, positive for the sort of direction where we are heading in the company today. If you look at a survey of, you know, people 50 and over, 90% of them want to age at home. And so that puts more of a larger tailwind behind us in terms of the kind of solutions we are providing, especially as we are launching and looking at beta testing a new product that is a connected home solution. You know, the reality is that, you know, of course, we are very focused on mobile on the go, and you can, you know, see that in terms of our investments into the wrist wearable products, right? But, you know, providing a potential beta and, assuming all sort of goes well with our beta and as we are sort of getting feedback from, you know, potential clients such as, you know, assisted living and independent living facilities, that gives us that capability to sort of get a better feel for what else and the other features we need to build out for this connected hub product. Many, many, many falls in the home happen when people are not wearing their wearable device because they are in the shower. As much as our products are IP67 and, you know, waterproof for that solution, most people do not want to wear a wristwatch or a lanyard product into the shower. That just does not happen, but yet so many falls occur in the bathroom and shower where privacy should be guaranteed, and a solution that does not involve wearing a sort of wearable should be in place. And so we are very bullish on, you know, what we are seeing in terms of the beta trials as it is going on. And so what that brings into the forefront is that very few people today in the world that are living in the medical alert business are trying to connect not just a sort of, you know, home-based, you know, fall detection—like whether that is, you know, radar, LiDAR, millimeter wave, whatever they are using to sort of look at tracking movement or some type of connected home solution—but that connection and solution also is tied to a wearable device because you are not going to, you should not have to, deal with two separate solutions just because you are aging at home. You should be able to have a solution when you are in a shower that connects to the same solution that you are going to, you know, get up and, while your device is charging—wearable device is charging—you are using the bathroom at night, will still be protected. And as you strap on that wristwatch and go out to the world and go shopping at Safeway, and you are walking there and you fall, all of those things should be connected to one ecosystem and one experience, right? Your caretaker should not have to use two or three different types of ecosystems and apps and services to basically help keep you safe. And that is where we think that, directionally, things should be going. Not everybody is sort of focused on one small slice of the solution, and what we are really trying to do is build an ecosystem where everybody could, like, participate so that people aging in place, of which there are a ton of, you know, are able to do so in a smooth, easy, simplified way versus trying to sort of hack together two or three different systems, which I think is much more difficult to do. Marla Marin: That makes sense. And does that mean that, in terms of your goal to, over the long term, potentially license out some of the technology that you are developing and that you are also protecting via patents, the licensing component of the strategy will become increasingly more important over time to provide a whole, you know, holistic solution like that? Chia-Lin Simmons: Yes. Absolutely. I mean, we have been extremely thoughtful since I joined the company in June 2021 to build a really strategic interlocking IP portfolio so that we can really build something that would keep out our competitors but also build the ecosystem that can be inclusive. So if you think about sort of a connected home environment today, even the connected home we live in today, your ecobee does not really want to oftentimes talk to, you know, the connected lock thing, which does not want to talk to something else. And then there is the Apple solution, and there is X solution and Y solution. So our interest is to try to build something that, for lack of a better word, is a senior-proofing of your home. Just like when people have a baby, they have nine months to plan for baby-proofing their home, making sure everything is safe. How do we provide a sort of plug-and-play experience that allows people to sort of set up immediately to have that comfort, right? And that means the inclusion of partners working in areas that we do not really have strength in. I mean, I am never going to build a blood pressure monitor product. That is difficult, and, you know, but that data today is often unconnected, and it sits in a pod of data. And so, in order to decipher whether or not, you know, there are patterns of change in your blood pressure, it has to go into a whole another sort of app and service and then maybe through another service where you maybe have to do some sort of analysis as a human to sort of look at that, and maybe you will not be able to compute the data out of, like, six months’ worth of data that is fluctuating day to day, right? I think human brains have really great capacities, but looking for minute day-to-day changes on a longitudinal sort of perspective is very difficult. But you can imagine us partnering with, potentially, a blood pressure monitor company to help sort of, you know, feed that data to the caretakers because the caretakers have an app that is basically tracking the daily monitoring of falls. So it is an easy opportunity for us to sort of share that data as well, you know, so that they have reassurance. But you could also imagine then, because we have geofencing for people with Alzheimer’s and early memory care issues, that perhaps we want to connect our connected home hub to a connected lock company. Because before you start roaming out of that, like, half-mile radius from your home, perhaps the early pattern is that you open your door at 3 AM at night, and then you step out into your yard. You do not know why you are there. You go back in again. And so that actually becomes an erratic pattern that then starts happening more and more frequently before you even run outside of that geofencing that we set up with you. So imagine that we are able to try to get ahead of that and see some of the potential behavioral changes and patterns, partner with folks such as in all of these different categories where we do not have strength. We have no experience in connected door lock, or back. Partnership and IP licensing and all of those can actually help bring, again, a turnkey solution for somebody who is looking to age at home and give their caregivers that reassurance that all of these things interplay well together. Marla Marin: Okay. That sounds like an incredibly interesting roadmap. So now I am switching gears a little bit. Mark, you know, you mentioned a disciplined approach to operating expenses. Should we think that, going forward, you will continue to focus on containing costs wherever you can, and then balancing, obviously, some of the investments that you want to make in order to grow the company? Mark J. Archer: Yes, you should very definitely plan on that. And, you know, the big pivot for us was 12 to 18 months ago where we switched from investing so much in new product development to investing in sales and marketing, commercializing the products that we developed. And I think we are in a pretty good situation with the team now. We did add some additional people in 2025, so the goal is to keep that growth as near to single digits as possible going forward. And there is a real effort in the company to be aware of where we are doing that. We are also looking at AI as an opportunity to take costs out of the business, and we have already implemented a couple of programs on that end. Marla Marin: Okay. Great. That is good to know. And then two last questions, mostly housekeeping. One, you had a very strong fourth quarter, and I am wondering, you know, do you anticipate that there will be some seasonality over time, even as you continue to sort of, you know, expand your target addressable market and your product portfolio? Are you thinking there will be some seasonality? Mark J. Archer: So I think as to the core VA business, there is some seasonal aspect to it. Not a lot. There is some seasonal aspect. As we have started focusing on B2B sales, I think, you know, there will be a ramp-up of that, and I think that will affect the quarterly results, not so much from a seasonal standpoint but from a ramp standpoint. And we also have started an initiative to license our intellectual property, and so that will also impact quarterly results, but, you know, not on the smooth, more on an opportunistic basis. Marla Marin: Okay. Thanks so much for taking my questions. Mark J. Archer: Thank you. Operator: At this time, this does conclude the Q&A session. I would like to turn the call back over to Chia-Lin for closing remarks. Please go ahead. Chia-Lin Simmons: Thank you. Let me close by highlighting a few key points from today's discussion. LogicMark, Inc. entered 2025 with a clear plan and executed against it. That combination of revenue growth, margin strength, and liquidity provides us with momentum in 2026. The work we have done to expand the platform, broaden distribution, and strengthen our intellectual property is not just about this quarter or this year. It is about making sure that, as this market grows, we have the right foundation, product roadmap, and channel strategy. There is more work to be done, and the building blocks are in place. Improving operational leverage, scaling monitored and connected care revenue, and continuing to convert research and development investments into commercial outcomes are priorities for this team in 2026. We are grateful for the support of our shareholders, partners, and team. We look forward to updating you on our progress throughout the year. Thank you. Operator: This does conclude today's program. Thank you so much for joining. You may now disconnect.
Operator: Good afternoon. Thank you for attending GCT Semiconductor Holding, Inc. fourth quarter and full year 2025 financial results call. Joining the call today are John Schlaefer, GCT Semiconductor Holding, Inc.'s Chief Executive Officer, and Edmond Cheng, Chief Financial Officer, to discuss our fourth quarter and full year 2025 results. During this call, certain statements we make will be forward-looking. These statements are subject to risks and uncertainties, including those set forth in our safe harbor provision for forward-looking statements that can be found at the end of our earnings press release and also in our Form 10 that will be filed today, which provide further detail about the risks related to our business. Additionally, except as required by law, we undertake no obligation to update any forward-looking statement. I will now turn the call over to John Schlaefer. John Schlaefer: Thank you, and thanks everyone for joining us today for our fourth quarter and full year 2025 earnings call. I will begin by discussing the operational milestones we achieved during the year as we executed on our strategy to transition the company toward full 5G commercialization. Following my remarks, our CFO, Edmond Cheng, will walk through the full year financial results in greater detail. 2025 was a defining year for GCT Semiconductor Holding, Inc., as we reached several key milestones in the transition from our development to commercialization of our 5G chipset. Over the past year, we have focused on bringing our 5G chipset technology to commercial readiness while expanding our ecosystem of partners and customers who are preparing to deploy and integrate our 5G platform across a growing set of applications. After the launch of sampling with lead customers in June, in the fourth quarter, we shipped more than 1,900 5G chipsets for commercial use. These shipments represent early commercial volumes that support initial deployments and customer testing programs and mark continued progress toward our broader production ramp. While still small in scale relative to the long-term opportunities ahead, these shipments demonstrate that our production pipeline is now actively supporting real-world deployment and preparing for high volumes as customers move through their rollouts. We expect this momentum to continue generating sequential growth in 5G chipset shipments throughout 2026. Speaking of customer rollouts, another important milestone achieved during the quarter was Gogo’s new broadband 5G air-to-ground service powered by GCT Semiconductor Holding, Inc.'s 5G chipset. As our first network operator to bring a live network to market using our technology, this milestone validates the performance and reliability of our 5G platform in one of the most demanding wireless connectivity environments and demonstrates the readiness of our chipset technology to support real-world commercial deployments. The launch also underscores the growing demand for GCT Semiconductor Holding, Inc.'s 5G solutions and reinforces our positioning for broader 5G commercialization and market penetration. As additional customers advance through testing, certification, and deployment phases, we expect the success of Gogo's launch to serve as a strong validation point for other customers evaluating our technology and to support further adoption in 2026 and the years ahead. In parallel with these developments, we continued expanding our strategic partnerships to broaden the applications and markets for our semiconductor solutions. During the quarter, we signed a licensing agreement with one of the world's largest satellite communications providers, under which our 4G and 5G chipsets will integrate into the partner's user equipment to support global, resilient, and high-bandwidth connectivity across both satellite and terrestrial networks. This integration will enable direct-to-satellite applications across the partner’s rapidly expanding network, creating new 5G chipset sales opportunities for GCT Semiconductor Holding, Inc., while positioning us at the intersection of terrestrial wireless infrastructure and satellite connectivity. Shipments for this program are expected to begin as early as 2026. More broadly, this collaboration places both companies at the forefront of emerging 5G-to-space networks designed to extend connectivity worldwide, including in underserved regions, and supports the industry's transition toward more integrated terrestrial-satellite infrastructure. By combining our advanced 5G semiconductor technology with a global satellite footprint, we are helping enable a new era of always-on connectivity that is more resilient, flexible, and accessible than ever before. We also announced a partnership with Skylo to expand seamless global satellite connectivity for next-generation cellular-to-IoT devices. As part of this collaboration, our teams are working jointly toward chipset and module certification that will enable ubiquitous connectivity across satellite-enabled networks for a wide range of IoT applications. This initiative further demonstrates the flexibility of our architecture and the growing number of connectivity environments our platform can operate in. Collectively, these partnerships reflect our broader strategy to position GCT Semiconductor Holding, Inc. at the intersection of several major technology trends, including the expansion of 5G networks, the rapid growth of connected devices, and the increasing integration of satellite connectivity with terrestrial wireless infrastructure. In addition to these commercial developments, we also took steps to strengthen our financial flexibility and ensure we have the resources necessary to support the upcoming production ramp. During the fourth quarter, we entered into a $20 million convertible note facility with an initial $1 million advance. This financing provides us with additional optionality to support working capital requirements, production readiness, and strategic growth initiatives, while minimizing dilution at the current stock price for shareholders. Taken together, the progress we achieved throughout 2025 reflects a company that has successfully transitioned from the development phase of its 5G program toward the early stages of commercialization and volume production; expanded our ecosystem of partners; advanced multiple customer programs through evaluation, design, and optimization phases; and began supporting live network deployment using our chipset platform. As we look ahead, our focus is on scaling operations to support the commercialization of our 5G chipset. This includes aligning our supply chain partners, strengthening production readiness, and continuing to support customers as they move from evaluation to deployment. We believe the groundwork laid over the past year positions us well for the next stage of growth as production volumes increase and additional network operators begin featuring GCT Semiconductor Holding, Inc.-enabled 5G devices. I will now turn the call over to Edmond to discuss the full year results. Edmond? Edmond Cheng: Thank you, John. While 2025 represented a transitional year for our financial performance, it also reflected the deliberate investment required to bring our 5G chipset platform to commercial readiness while managing our capital allocation and optimizing our cash flow. As we have discussed in prior quarters, the transition from our legacy 4G product cycle to our next-generation 5G platform created a temporary gap in revenue while customers completed development and integration efforts. We believe this transition reached its trough during 2025. We are now at the inflection point as commercialization progresses. Reflective of this, total revenue in the fourth quarter increased 76% sequentially from the third quarter, demonstrating early momentum as our 5G programs begin contributing to the top line. We expect this sequential improvement to continue into 2026 as additional deployments roll out and production volumes ramp. With that context, I will now review our full year 2025 financial results. Further details can be found in the 10-Ks that will be on file with the SEC. Net revenues decreased by $6.3 million, or 69%, from $9.1 million for the year ended December 31, 2024 to $2.9 million for the year ended December 31, 2025. The change was due to a decrease of $3.6 million in product sales and a decrease of $2.6 million in service revenues. The lower product sales were driven by lower 5G reference platform sales as we continue transitioning into 5G, while service revenue decreased due to the completion of a substantial service project during the prior-year period. Cost of net revenue increased by $0.6 million, or 16%, from $4.1 million for the year ended December 31, 2024 to $4.7 million for the year ended December 31, 2025, largely due to additional production overhead costs. Our gross margin for the year ended December 31, 2025 was negative. This primarily reflects the current level of product revenue, which is not yet sufficient to fully absorb our production overhead cost and therefore is not fully indicative of the underlying profitability of our products and services. We expect margins to improve as product volumes increase, particularly as our 5G chipset sales begin contributing more meaningfully to revenue later in 2026 following the commercial launch in 2025. Research and development expenses decreased by $3.3 million, or 19%, from $17.3 million for the year ended December 31, 2024 to $14.0 million for the year ended December 31, 2025, largely due to the completion of a 5G chip project, which resulted in a $3.3 million reduction in professional services from Alpha. This reduction was partially offset by a $0.9 million increase in personnel-related costs due to our higher engineering headcount, a $0.3 million increase in stock-based compensation expense due to the issuance and vesting of share-based awards, and a $0.4 million increase in preproduction and engineering supply related to our 5G initiative. Sales and marketing expenses were relatively flat year over year, totaling $3.9 million for the year ended December 31, 2024 compared to $4.2 million for the year ended December 31, 2025. General and administrative expenses increased by $5.7 million, or 53%, from $10.8 million for the year ended December 31, 2024 to $16.5 million for the year ended December 31, 2025. The increase was primarily due to changes in our credit loss estimate for receivables, which resulted in a $2.8 million expense in 2025, compared to a $0.4 million benefit in 2024, resulting in a $3.2 million net increase to G&A expenses. Stock-based compensation expense increased by $3.2 million from $2.0 million for the year ended December 31, 2024 to $5.2 million for the year ended December 31, 2025. The increase was primarily due to the issuance of equity-classified common stock warrants to investors in 2025. Personnel-related costs increased by $0.6 million. These increases were partially offset by a $1.2 million decrease in professional services and other costs due to lower transactional activities during the year. Turning briefly to liquidity, we closed the year with cash and cash equivalents of $0.6 million. We also had net accounts receivable of $2.6 million and net inventory of $0.9 million. Subsequent to year-end and as of February 2026, we had cash and cash equivalents of $9.4 million. In addition, we maintain access to our at-the-market equity program of up to $75 million and have ample capacity on the remaining $125 million of our $200 million shelf registration statement, which was effective since April 1, 2025. These capital resources provide us with flexibility to support working capital needs and execute on our commercialization strategy as we scale production. Looking ahead, we expect sequential growth in both revenue and 5G chipset shipments throughout 2026, as additional customers move into commercial deployment phases. As this transition continues, our financial priorities remain focused on maintaining operational discipline, preserving capital flexibility, and supporting the production ramp necessary to convert our growing customer pipeline into meaningful revenue. With this, I will turn it back to John. Thanks, John. John Schlaefer: 2025 represented a pivotal year for GCT Semiconductor Holding, Inc. as we transitioned from development to commercialization of our 5G platform. We began supporting live network deployments, expanded our ecosystem of strategic partners, and initiated commercial 5G chipset shipments that marked the early stages of our production ramp. While our financial results still reflect the transitional nature of this period, we believe the foundation established over the past year positions us well for the next phase of growth. Our focus moving forward is on executing efficiently as we support customer launches, expand production volumes, and convert the growing demand for our technology into sustained revenue growth. I would like to thank our employees, partners, and shareholders for their continued support and commitment. As we enter this important next chapter for the company, we are encouraged by the progress we have made and look forward to building on this momentum during 2026. I will now turn the call over to the operator, who will assist us in taking your questions. Operator: Thank you. We will now open for questions. To remove yourself from the queue, you may press 11 again. Our first question comes from the line of Craig Ellis of B. Riley Securities. Your line is open, Craig. Craig Ellis: Guys, congratulations on getting the 5G chips starting to ship for revenue in the fourth quarter. John, I wanted to start with one with you, and it takes off on that point and some of your comments that you are engaging with more partners and programs and a priority this year as scaling. Can you just talk a little bit on two fronts? First, on fixed wireless access, can you talk a little bit more about the visibility that you have from customers for ramps through the year and how material you think things might be, not looking for guidance, but just help give us a sense for what you are seeing. And then given that there has been so much success with the company, and the way you are engaging with satellite and ground-to-air programs, just help us understand as you look at 2026, when revenues there could start to materialize and to what extent? Thank you. John Schlaefer: Yeah. Thank you, Craig. So, yeah, FWA is still a really important vertical for us, and we are focused there strongly. The lead customers that we are working with there are focused on that area. So we expect that we will be shipping more into that market this year, and we will have some growing backlog as early as in Q2 for the lead customers. And then on the satellite front, we already have some product that is shipping for NTN applications. We are expecting that this new partner that we just talked about will be shipping into that in the second half of the year, and we think that is going to be a very important second vertical for us that we have gotten a lot of attention for, for 5G products as well as pairing with some of our 4G products as well. Craig Ellis: And I will give it a shot, although I am unsure if you can speak to this specifically. But can you help us size the trajectory of revenue as we go through this year, John? I know the company has its eye on $25,000,000 since that is the level where I think it would look for adjusted EBITDA breakeven and profitability. But any sense on how these different contributors add up and layer in for specific revenues as we hit the middle of the year and then the end of the year? John Schlaefer: Yeah. It is a little hard to lay them all in right now because their schedules are still a little vague to us. We are thinking that the point that you just mentioned would be probably in the Q1 period. And, yes, Q1 next year, so 2027. But we are going to have to see how that actually lays in. It could happen faster, but we are really waiting for some visibility that will come in the Q2 time frame for us as we start seeing some backlog for these programs lay in. Craig Ellis: That is helpful. And then, Edmond, I will switch it over to you, then I will jump back in the queue. First, nice to see gross margins coming in at 32% in the quarter. As you see revenues rising sequentially through the year, how should we think about gross margins? And then as a follow-up, operating expense was a little bit higher in the fourth quarter than what we were looking for, but you also noted some special charges on a calendar year basis. Can you just talk about what drove the sequential increase in operating expense quarter on quarter in addition to gross margin? Thank you. Edmond Cheng: First of all, related to your question about the gross margin, we do not think that this year's gross margin is representative of what we can achieve in 2026 going forward because of the low volume of our product revenue. From that sense, we believe that going forward, our gross margin should be in the range of maybe the high 30s to low 40s when our product becomes more mature and our product revenue ramps to a level representing the normal level of revenue. In terms of operating expenses, this year our OpEx is higher, as we explained, that there are two areas of which we feel will be one-off type of situations for this year, which will not continue into next year. One is refocusing on cleaning up our balance sheet, looking at, basically, some risk management, looking at the receivable part of it, so in a way that we feel that this part of it is under control. This is cleaned up from that perspective, and we know it will not continue into this year from that perspective. The second portion of it is a special situation: this year we issued warrants to some investors which we account for as a G&A expense, and this portion we do not expect to continue into 2026. So we expect the G&A running expenses to be going back to a normal run-rate level which is very similar to what you experienced in the 2025 run rate, maybe adjusted to some normal inflation rate. Other than that, it all depends on whether our next development programs continue on our product roadmap and our R&D expenses, and that is something that we constantly monitor in terms of the revenue ramp and how much we can afford to spend on the R&D side to continue on our product roadmap. Craig Ellis: That is really helpful, Edmond. And if I could just jump back for one more for John. John, given that we are at an early stage with 5G and you have a couple of customers that have taken product, can you just help us understand as you interact with those customers, what are you hearing from the customers about the product, its strengths, how they plan to use it, etcetera? Thank you so much, guys. John Schlaefer: Yeah. So they are happy. Happy with the product, happy that they have been able to roll out their unique solution. They have also been telling us that our level of support for their unique applications is actually very good. So it is an enabling device for their particular application and as well as it gives them options on their future road map. So it is all positive, and we think that we are going to see additional revenue and volume going forward as their volumes increase. Craig Ellis: Thanks, John. Thanks, Edmond. Operator: Thank you. Our next question comes from the line of Lisa Thompson of Zacks Investment Research. Please go ahead, Lisa. Lisa Thompson: Hi. Thanks for the call. And you have answered a few of the questions I have, but I still have some more. So can we first go back to the satellite communications company that you just signed a license with? Is there some way you can quantify the potential for that business? Have you sized up how much they could possibly take from you? John Schlaefer: Yeah. We think it can be actually quite large. We are talking about in the million-unit-plus type of quantities. And, yeah, so we are very optimistic about it, and it will have a large position going forward. Lisa Thompson: Is that an annual number or a total number? John Schlaefer: That right there is, I would say, the low end of their annual number. Lisa Thompson: Nice. And are you sole supplier, or are you one of some others? John Schlaefer: This particular application, it looks like we are the sole supplier, but I would expect that they would have—you know, that volume that I am talking about would be our volume. I would like to be a sole supplier for as long as I can be, but I have to believe that everybody is doing what they can to de-risk their supply chain. But we are providing some unique customization that makes the product sticky, and we will try to add as much value as we can as we go forward. Lisa Thompson: Very nice. So good stuff about the customers. How many customers did you ship to in Q4, and what does it look like in Q1? John Schlaefer: The quantities in Q4 were three. But as far as the production or the commercialization part of that, that was one main customer. And then we would think that for Q1, that would be in the range of three to five. Lisa Thompson: Okay. So it is starting. Let me just clarify what, Ed, what you said about expenses. Are you saying that Q1 G&A would be around $3 million? Or is it not coming down that fast? Edmond Cheng: Yeah, Lisa. I am looking forward to the OpEx. There are some special charges in Q4, but the normal run rate should be around $8 million to $8.5 million per quarter going forward. Lisa Thompson: Okay. And that includes Q1? Edmond Cheng: Yes. Okay. Lisa Thompson: Alright. Let us see. What else I have here? At some point, we had a conversation, and you said you were supply limited in Q4. What was that about? Is that still a thing? John Schlaefer: Well, in Q4, that was really just where the wafers were and what we could actually produce in the quarter. That is a standard issue we have to deal with when we are ramping anything. In the Q4 time frame, I think it was mainly a result of the fact that testing was not as optimized as it could be and the throughput was lower. So in Q1, testing throughput has increased significantly, and so that automation, which we will be optimizing going forward even more because we want to squeeze as much yield out of our products as we can, is pretty much in place. Lisa Thompson: Okay. Great. Well, that is good. I think that is all my questions for now. Thank you. Operator: Thank you, Lisa. Thank you. To ask a question—there appear to be no further questions in queue. Ladies and gentlemen, thank you for joining us. That concludes our fourth quarter and full year 2025 conference call. A replay will be available for a limited time on our website later today.