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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.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Precigen, Inc. Full Year 2025 Financial Results and Business Updates Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Wednesday, 03/25/2026. I would now like to turn the conference over to Steven Harasym. Please go ahead. Steven Harasym: Thank you, operator, and thank you to all those joining us. For our fourth quarter and year-end 2025 update call. Joining me today are Helen Sabzevari, our President and CEO; Phil Tennant, our Chief Commercial Officer; and Harry Thomasian, our CFO. Before we begin our prepared remarks, I remind everyone that we will be making certain forward-looking statements. These statements are based on our current expectations and beliefs. We encourage you to review the slide in the presentation and in our SEC filings, which include risks and uncertainties that could cause actual results to differ from today's forward-looking statements. With that, I will now turn the call over to Helen. Thank you, Steven. Helen Sabzevari: I would like to extend a warm welcome to all those joining us for our update call today. In the short time since the early and full approval of Pap smear in August, the standard of care first-line treatment for adults are our peak We are seeing a tremendous progress with the first ever therapeutic commercial launch in RRP. These substantial advancements constitute a pivotal milestone for all stakeholders impacted by RRP including patients, their families, healthcare providers, and the RRP Foundation. As we commenced commercial sales in Q4, Precigen, Inc. has completed the transformation from an R&D company to a product revenue-generating commercial biotech company. Phil will detail the specifics of the launch progress later in the call. But I wanted to highlight the accelerating trajectory we are seeing in the revenue growth. We do not plan to provide the revenue guidance on a regular basis, but instead focus on indicators we believe are important for gauging progress of the launch trajectory from a long-term perspective. That said, as we are only a few days away from completion of Q1, which is the first full quarter of Papzimia's commercial sales, we think it is helpful to provide investors with color on the Pap smear itself ramp up. As reported in our 10-K, net product revenue for Q4 2025 was $3.4 million with shipments commencing in November. As prescribers at major medical centers and community practices continue to add Pap smear to their practice, we are seeing a strong momentum in Q1. As a result, based on the commercial activity to date, we expect revenues in Q1 to exceed $18 million. This is a clear sign of the enthusiasm we are seeing from patients and physicians alike, leading to a robust uptake in the therapy. I will now provide a brief recap on the reasons we believe we are seeing such a strong interest in Pap smear. Papzimias received full FDA approval with a broad label for adult RRP with no restriction based on the number of prior surgeries. This reflects the truly transformative clinical data including unmatched efficacy, a strong and durable ongoing responses, and a pivotal study powered by prospectively defined primary endpoint of complete response rate. Thanks to its mechanism of action, Tapsinis also offers the potential for redosing if needed which is being evaluated in the clinic now. With the full approval powered by unmatched efficacy, we have significantly raised the bar for any future competitor entering the adult RRT space. Let's examine the key facts which led to FDA's approval. Proximus directly addresses the root cause of RRP by eliciting a targeted immune response against HPV 6 and 11. To be clear, we enrolled and treated more severe RRP patients and achieved an unmatched complete response rate with an impressive durability of responses with more than three years of follow-up, which is echoed and appreciated by physicians in the field. It not only surpassed the highest statistical bar using the most rigorous efficacy endpoint ever evaluated in RRP but produced the strongest data demonstrated in the field to date. Given the underlying cause of RRP, these results readily extrapolate to less severe patients as reflected in the FDA's broad label approval for Pap smear. In contrast, extrapolating results from a less severe population to a more severe cases is far more challenging and less reliable. What I just detailed has been supported by landmark consensus paper sponsored by the RRP Foundation, and authored by 16 leading U.S. physicians specializing in RRP published in Laryngoscope, a top peer-reviewed journal in the field. The paper recommends Papsimians as the first immunotherapy which is the newest standard of care and preferred first-line treatment for adults with recurrent respiratory papillomatosis, or RRP. These developments represent a pivotal advancement for the RRP community, prioritizing medical therapy over repeated interventions to improve patient outcomes. I will now turn the call over to Phil for details around our commercial launch. Phil? Thank you, Helen, and hello, everyone. Phil Tennant: I'm delighted to share the most recent highlights of our launch efforts with comments on Q4 results, but also bringing everyone up to speed on the exciting progress we are making with the PapSimius launch in Q1 of this year. As mentioned earlier, we made great progress in Q4 in setting the platform for accelerated brand uptake. This included continued progress in expanding payer coverage, further activation of accounts across the country, and the initial prescriptions for Papsenius. As we speak today, I can give you more granularity on some of the leading indicators of strong launch performance. Our patient numbers continue to grow. As of J.P. Morgan in mid-January, we had over 200 patients in the Precigen, Inc. patient support hub. As of today, that number is well over 300, indicative of the pent-up demand for the new standard of care for adults with RRP. Payer coverage continues to expand. In early January, we had approximately 170 million lives covered which has now increased to approximately 215 million including nearly all major payers across commercial, Medicare, and Medicaid. Including regular Medicare and Medicaid fee-for-service lives means that we now have approximately 90% of insured lives covered in the U.S., which is phenomenal progress for a rare disease drug like Pap smear. Brand utilization is accelerating across the country in both the large institutions and academic centers as well as in the community setting. Pleasingly, we are seeing utilization across a range of patient severities, which speaks to the broad label of the brand. And finally, as Helen mentioned, the publication in January of the expert consensus paper clearly positioning patsymia as the first choice for adult patients with RRP is a significant statement of intent from the KOL community and a testament to the strong efficacy and safety profile of the drug. The significant increase in revenues anticipated in Q1 that Helen mentioned clearly shows how the healthcare system is embracing the first and only approved medicine to treat adult RRP. We are very pleased with the momentum we are seeing and will, of course, provide final revenue numbers during our Q1 earnings call later next quarter. In terms of outlook, we expect these trends to continue, assisted by the assignment of the permanent J-code from April 1, and supported by the continued durability of response that we are seeing in patients. We expect continued institutional activation as well as significant utilization within community practices. We look forward to sharing further progress with you at the Q1 call as we continue to drive this fundamental transition of a debilitating condition that has been surgically managed for over 100 years into one that is now therapeutically managed. I'll now turn the call over to Harry for an overview of our financials. Harry? Thanks, Phil. Harry Thomasian: We sure are exciting times for both Precigen, Inc. and the RRP community as a whole. I want to spend a couple of minutes discussing our results for the year ended 12/31/2025 and our financial position as of that date. Revenue for the year totaled $9.7 million versus $3.2 million in 2024, resulting in an increase of $5.8 million or 149%. This increase was primarily driven by the commencement of Pepsimio's product revenue which totaled $3.4 million in 2025. It should be noted that the first sale of Pepsimios was recorded in November 2025, thus revenue for the year only reflects a partial first quarter of the Pepzymyos launch. While speaking of revenue, I do want to reiterate that the 2026 is showing a tremendous ramp of Papzymyos revenue from the 2025. As Helen mentioned, based on our commercial activity to date, we expect revenue for 2026 will exceed $18 million. We're thrilled with the early launch results and encouraged by the launch trajectory. I also want to repeat that we do not plan on providing forward-looking revenue projections in the future. Due to the timing of our year-end earnings call being close to the first quarter end, which provides us an understanding of where we believe first quarter revenue is trending, we feel we can provide this guidance as a help to our investors' understanding of the Paximios launch trajectory. Continuing with expenses on our statement of operations. Research and development expenses decreased by $11.7 million, or 22.1%, compared to the year ended 12/31/2024. The decrease was primarily driven by a $9.4 million reduction in costs as a result of the strategic prioritization of the company's pipeline announced in 2024. In addition, the company, upon FDA approval of Pepsimios, began classifying manufacturing-related costs to inventory, which ultimately will be recorded as costs of products and services when the related inventory is sold. Manufacturing costs related to Papsimios were recorded as research and development expenses prior to the FDA approval of Pepcimios. Selling, general, and administrative expenses increased by $28.8 million, or 69.8%, compared to the year ended 12/31/2024. This increase was primarily due to a $27.3 million increase in costs incurred related to Pepsimio's commercial activities. Our net loss attributable to common shareholders was $429.6 million, or $1.37 per share, for the year ended 12/31/2025. These results include two large noncash items related to our preferred stock-related warrants in 2025. In 2025, the preferred stock was converted to common shares and the warrants were reclassified to equity. Thus, such items will not recur in the future. These noncash items hold $318.5 million, or $1.02 per share, of the $1.37 loss per share reported. Turning to the balance sheet. We ended the year with $100.4 million of cash, cash equivalents, and investments. Based on our current projected business plans, we believe that these funds plus anticipated cash to be received from Pepsimio sales will fund operations through cash flow breakeven, which we currently expect to occur by the 2026. For more information on our financial statements, I refer you to today's press release and our 10-Ks which were filed with the SEC after market closed this afternoon. With that, I'd like to turn it back to Dr. Sabzevari. Helen Sabzevari: Thank you, Harry. I wanted to briefly provide other portfolio updates. Are actively advancing plans to commence a papillomial clinical trial in pediatric RRP population. We hope to have this initiated in the fourth quarter of this year. Additionally, we have begun efforts for geographic expansion. This is seen with the validation of the marketing authorization application to the EMA for Papsenia. Of note, we are seeing positive feedback from thought leaders in Europe on the prospects of a new medical standard of care. To that end, we are also pleased to announce that we will be sponsoring activities around the third annual RRP Awareness Day in June. This will present another opportunity to help spread global awareness of this disease and the newest standard of care for its treatment. Other than capsidium, we continue to advance the platform with PRGN-2009. This program utilizes the same AdenoVerse technology as pap smears. PRGN-2009 is designed to activate the immune system to recognize and target HPV 16 and 18, the root cause of HPV-associated cancers such as head and neck and cervical cancers that represent almost 5% of all global cancer. Patients. PRGN-2009 is currently being investigated in combination with pembro in multiple Phase 2 clinical trials in head and neck cervical cancer. I'm very excited about the prospects of this program and look forward to updating you in our upcoming Q. With that, I will now turn the call over to the operator for Q&A. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the and answer session. Should you have a question, please press the star key followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star key followed by the number two. One moment please while we assemble the queue. Your first question comes from Jason Butler of Citizens Bank. Your line is now open. Jason Butler: Hi, thanks for taking the questions and congrats on the progress. Specifically, really thanks for giving the 1Q guidance. That's really helpful. Two questions for me. First, can you help us think about how you guys are planning the flow of patients from the hub to receiving reimbursed drug? Do you expect the majority of the 300 patients to ultimately get reimbursed treatment? And then what kind of time frame, understanding it's still early in the launch? And then second question, are you now at the point where patients are starting to get their second dose in the treatment regimen? And can you give us any color about, like, you know, the proportion of patients that are that are eligible or are getting the second treatment? Thank you. Helen Sabzevari: Hi, Jason. Thank you for the questions. And definitely, I think for the first question, I'm going to defer it to Phil. Phil, maybe you can go through that. Phil Tennant: Yeah. Well, obviously hi, Jason. We are obviously very pleased about the continued recruitment of patients into our hub. And just a reminder that that is not the complete picture because we are seeing significant conversion of patients from our hub, but we are also seeing utilization from patients that are not in our hub as we have talked about previously. That is not the complete picture, the Precigen, Inc. support hub. So we are pleased that we are seeing patients being treated from both sources. In terms of that conversion speed, you know, clearly the patients that are in our hub, that is a clear intent from the market that those patients are in need of treatment. And we want to make sure that the vast majority, if not all of those patients, are converted onto treatment. That is obviously our goal. In terms of the speed at which that is being that will happen and the patients will be converted, it really will vary by patient by patient and institution by institution. What we have done in the fourth quarter and continue to do in the first quarter is get all the pieces of the puzzle in place. In particular, the payer coverage and obviously the identification of patients. Now it is really up to the IDNs to continue to be activated. And once you have all of those things in place, the actual prior authorization with the payer should only take a matter of weeks. But really it is about the activation of the IDNs, and that is, for some patients, the rate-limiting step. But we have made great progress throughout Q4 and into Q1 in terms of converting those patients. I was just going to make another point about the hub because, obviously, we mentioned we will have the permanent J-code as of April 1, and that will streamline and smooth the whole process by which patients pass through from our benefit verification, institutional readiness, and then prior authorization with the payers. So that is going to be a help as we go into Q2. Helen Sabzevari: RHOP, clearly, the patient keep coming in, and you are absolutely correct that they are converted. And but this is a continuous process for the hub. It is not a onetime thing that the patient comes as patients get basically prepped and treated, then new patients are entering to our hub. But it is very important to stress what Phil mentioned. That our hub is not the only source for the patients. There are a number of other hubs that, for instance, large centers, they have their own hubs. And they can be entering, and we have seen that for the enrollment. In regard to the second question that you had as far as have the patient moved from the first treatment to second, absolutely. The patients are moving through all their treatments, and some of them that have started last year, for instance, they have moved through their last treatments. So this is, as I mentioned, is a very fluid momentum in the hub that patients enter. They get prepped, and Phil can speak further to that. And as they go through their treatment, other patients walk in. Jason Butler: Great. Thanks again and congrats again on the quarter. Helen Sabzevari: Thank you. Operator: Your next question comes from Swayampakula Ramakanth of H.C. Wainwright. Please go ahead. Swayampakula Ramakanth: Thank you. Good afternoon, Helen and team. It's great great to notice that not only the launch is going well, but certainly this year this year or this quarter, actually has ramped up quite bit. Having said that, just trying to understand a little bit more of of the of the nuances. Especially with the you know, with with the flow of patients. Through the through the hub into the into the conversion And, also, how is the J-code you know, how how is that helping out in terms of adding more patients? You know, not only in the in the the in in this quarter, but also getting them up for the next quarter. I would think that it takes a certain amount of time between the patient coming into the into the clinic and then getting the the therapy. Phil Tennant: Okay. Thanks for the question. So it is Phil here. The J-code really does simplify the workflow and billing process from both provider perspective and a payer perspective. We are looking at some analogs of rare disease launches that some payers have been hesitant to take on the financial risk and you know that accords with our experience. But now with the permanent J-code, that sort of disappears, and it is a streamlining of the administrative process and it increases certainty and, of course, speed at which these patients should be processed. Helen Sabzevari: Yeah. And maybe I can add that RK. This is not specific to Papsenius. This is for any drug that is out there, including all the checkpoint inhibitors. There is always that transition. And then it would be the streamlining and making it easier on some of the centers to do that. And I think this is the trajectory that we see which we are extremely excited to go from Q4 to Q1 exceeding, as we have said, $18 million. It is very important in the preparation that the team did at the early onset of approval after approval. And really, appreciating the number of the payers that the team got in the first in beginning of the fourth quarter. Because as we all know, for patients entering to the hub and even in the other hubs, the reality of the situation stands with the payers, making sure that all of the elements for getting treated is there, and big part of that was the payers' approval. And now with more than 200 million lives covered, which is an amazing amount. This is why you are seeing the trajectory of very fast acceleration from the Q4 to Q1 going from where we were in Q4 to excess of $18 million in Q1. And I think this is quite exciting, and we are having now all of the components of the commercialization in place the payers, the hubs, the institute coming in, and finally, the J-code. This just makes it for the next trajectory as we move to the Q1, Q2, and Q3, and Q4. Swayampakula Ramakanth: Perfect. No. I certainly sense the excitement and what you are experiencing. Thinking about the MAA and also the European potentially, European launch. You know, in terms of your discussions with the with the regulatory body there, you know, where are things now? And do you do you expect the approval you know, in the '27, or should we assume it is going to be later? And also, in terms of of of the launch, you know, so should we send the Phil back to Europe and, you know, get that launch going over there? Helen Sabzevari: Yeah. So as, you know, we had submitted our EMA application as we shared with the market last year. And it has been the application is under review. So we are excited about that. And I think from for instance, what we are receiving, from physicians across Europe. And, we just had a presentation at UroGen, which is one of the major conferences in the field of HPV and especially on RRP. There has been a tremendous enthusiasm from the physicians, really looking forward to having this first line and a standard of care of therapy, which is now at the U.S., also to be applied in Europe. So we are looking forward, obviously, as the CLA undergoing review in Europe, and we obviously will not it will be I think, your assumption around the time. It is it perhaps is a good guess, but we will leave it to the European authorities when they have decision and they communicate we will definitely share with market. So we look forward to that as well. Thank you. Thanks for taking my questions. Sure. Operator: Your next question comes from Brian Cheng of J.P. Morgan. Please go ahead. Brian Cheng: Hey, guys. Thanks for taking our questions this afternoon. A couple from us. Can you clarify on the 18,000,000 revenue guidance here? Is the 18,000,000 guidance inclusive of collaboration and service revenues? In addition of Pepsi news product revenue. It's 18 only referring to Pepsi meals product revenue? Harry Thomasian: Hey, Brian. This is Harry. Good to talk to you. Yeah, that $18 million which you said, we expect revenue to exceed includes only FAFSAM. No other Brian Cheng: Okay. And can you talk about the 18,000,000 projection Is there a stocking effect that accounts into the projection compared to patients that have received Pepsi meals. And then maybe just on top of that, can you talk about the number of doctors that are now actively prescribing a Pepsi And how effective is the conversion rate from your patient hub compared to the academic hub? Yes. Thanks, Brian. Phil Tennant: In terms of the stocking, so there is very little stocking that we see. We do see a range of orders in terms of the vials that are ordered. Remember, each institution can order one vial at a time. Or they can do all four vials at a time. We do see some fours and twos, but predominantly, it is ones, but we do see a mix. So but very little stocking as such from the institutions. In terms of the number of doctors, I mean, obviously, the number of prescribers is increasing and we have all for all the reasons that we have talked about and we see that increasing momentum as we hit in Q1. We have obviously still got more work to do and more prescribers to bring on board, but we are very excited by the response that we are getting from the institutions and the prescribers. And that number is increasing consistently. Helen Sabzevari: Yeah. And maybe what I can add, Brian, to this is clearly the consensus paper is really has now make it very clear that pap smear is is the first and only standard of care for RRP and for all adult RRP, which is actually very interesting because we see the enrollment of the patient or treatment of the patient across the severity of the disease. And this is another important point that we have said according to the label that was given to Pap smear which is for broad RRP patients regardless of severity, and that is exactly what we are seeing as far as the treatment is concerned and how the physicians are taking up this treatment. Phil Tennant: Hey, Brian. Just your question on hub versus versus versus non hub. I mean, what I would say there is that we are seeing conversion from both sides. And, you know, patients that are in our hub and patients who are not in our hub, and we are seeing, you know, a significant contribution from both. Brian Cheng: Thank you. Operator: Your next question comes from Michael Dufour of Evercore. Please go ahead. Michael Dufour: Hi, guys. Thanks so much for taking my questions and congrats on the obvious products progress you have had in the launch. Two questions for me. You called out community uptake as a pleasant surprise, like I know it is early, but as the community channel develops, what have you learned about what different differentiates community sites that become repeat prescribers versus those that adopt more of a wait and see approach? And I a follow-up. Phil Tennant: Yes. Thanks, Michael. It is Phil here. Look, we always had community in our sites. That was an obvious part of our strategy. I think what we saw when we were soon out of the blocks after the approval was the extreme interest from the community in utilizing Atsymeos. And we have various mechanisms in place so that we can for a low cost, provide them all the logistics they need to use an uptake the drug. So we actually think the community is going to be a significant contributor to our overall business as we go forward for those reasons. And the initial experience is very positive. Rutul Shah: And I can add this is Rutul, Mike. I can add to it. As Phil pointed out, what we have done is in in addition to our end-to-end cold chain validated logistics in place, as Phil pointed out, we have multiple solutions now available for community practices who may not have cold chain storage to acquire them at very low cost as well as just-in-time shipments to essentially completely avoid need for the cold storage. So that is also aiding in our efforts to get them on board and continue to prescribe, Papadimias. Michael Dufour: I see. Very helpful. And my last questions are, if there is any color you could add on the current channel mix of U.S. payers and how we should think about gross to net cadence for the balance of the year? Thanks. Phil Tennant: Yes. I will let Harry talk to gross to net. In terms of the payer mix, it is pretty much as we expected and we communicated prior to launch, which was about 60% to 65% commercial. And that is indeed what we are saying. Then the rest Medicare, Medicaid and it is on the government channel. So, yeah, 65% or so is commercial. Harry Thomasian: Hey, Mike. This is Harry. On the gross to net we have historically guided and we continue to guide. We anticipate the gross to net will be in the high teens, low twenties. And we have seen those play out as we have seen revenue to date. Michael Dufour: Excellent. Thank you. Operator: There are no further questions at this time. I will now turn the call back over to Dr. Saba Zavari. Please continue. Helen Sabzevari: Thank you again for joining us for our year-end 2025 update call. As you can see, we are making tremendous progress on the pepsinius commercial launch. We are looking forward to providing the full Q1 results and detailed commercial progress in May. Have a good evening. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Navan, Inc. Q4 fiscal 2026 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Ryan Burkart, Vice President of Investor Relations. Please go ahead. Ryan Burkart: Thank you, operator. Good afternoon, everyone, and welcome to Navan, Inc.'s fourth quarter fiscal 2026 earnings conference call. With me on the call today are Ariel Cohen, our Chief Executive Officer and Co-Founder; Aurelien Nulf, our Chief Financial Officer; and Michael Sindosich, our President. Before we begin, during the course of today's call, we may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks and uncertainties described in our earnings press release, our quarterly report on Form 10-Q filed with the SEC on 12/15/2025, and our other filings with the SEC. In addition, on today's call, we will refer to non-GAAP income and loss from operations, non-GAAP operating margin, non-GAAP gross margin, and free cash flow, which are non-GAAP financial measures that provide useful information for investors. Reconciliations of these non-GAAP financial measures to their corresponding GAAP financial measures, to the extent reasonably available, can be found in our earnings press release. With that, it is my pleasure to turn the call over to Navan, Inc.'s CEO and Co-Founder, Ariel Cohen. Ariel Cohen: Hi, thanks everyone for joining. I hope that you had the time to read our prepared remarks. And I have one thing to say, we are doing it. We just closed a very good Q4 and a year with incredible results. Our NPS in Q4 is at 47. This is an all-time high. Our CSAT is at 96 and maintained very high, and this is a proof point for meeting our mission: to make travel easy for every traveler by being the best travel agency on the planet. The 35% Q4 year-over-year revenue growth and the non-GAAP operating profit in the quarter are demonstrating the leadership position that we are at. We are executing very well on both our motion and our PLG motion. So if you think about it, in Q4, we signed net new GBV that is over 50% more compared to Q4 in the previous year. This is a huge growth rate. We are displacing legacy players because we offer great user experience, real savings, and proven AI value to date. This also brings us very close to the rule of 40 for the first time in our history. And the icing on the cake, we actually turned free cash flow positive for the first time in our history, and a year ahead of our plan. Now I want to take a step back and talk about AI because as an AI leader in the travel space, I am getting a lot of questions. What does it mean for travel, for the space? So I want to really take the moment and explain. So first of all, we, Navan, Inc., are a travel agency. It means that we care about every step of the travel experience, from the moment that you are planning your trip, while you are on the go and something happens, until you return home and you need to expense the trip. We care about travel for travelers, for the executive assistant that needs to support you, for the business travel managers that are managing the entire travel program in an organization, for CFOs, for accountants, for everybody that is involved in travel. Travel is a huge part of the OpEx, and it means that a lot of people will care about it. And Navan, Inc. is the best solution for you. So that is the first thing. Second, we have created in the last ten and a half years the best real-time travel infrastructure on the planet. We call it Navan Cloud, and it is our connectivity to everything in the travel world through software. It requires global licenses, suppliers' contracts, and massive financing for the payments business. And then the most important part is our agent orchestration platform. When you interact with us, we seamlessly orchestrate an AI agent that can book your trip, change your trip, get your money back, give you any information about your trip with human agents. In fact, we basically married human intelligence and judgment with artificial intelligence to create the best experience for our customer. The proof points are in our high NPS and CSAT, ongoing gross margin expansion, and the acceleration of gaining market share. The reason and the most exciting release of Navan Edge, our latest breakthrough in agentic AI, is bringing the power of a hyper-personalized executive-level travel assistant to the unmanaged travel market, which we estimate at $57,000,000,000 of TAM. The bottom line here is only we are a leader in the AI travel space, and it is very clear that we and our customers are a huge beneficiary of AI. We also recently announced the migration of the Reed & Mackay customers to our AI platform, so they will be able to enjoy the benefits of both worlds: their really amazing high-end VIP service that can step in when you are stuck in an airport, with everything that our AI platform is creating. For FY 2027, we are going to focus on high growth, scaling in all channels, and with all of our offerings, accelerating our innovation, which means that we will continue to invest in AI and to release new products and capabilities using our AI platform, and we will continue to demonstrate financial discipline. And with that, before I turn over the call to Aurelien, who will talk about our results, I am actually very excited to have Aurelien as part of the team. I have been working with Aurelien in the last three weeks, and it was just amazing. And I am actually happy that he has the opportunity to talk with you on this historic quarter for us. So thank you. Aurelien Nulf: Awesome. Thank you. Thank you so much. Ariel, it is such a great privilege for me to join Navan, Inc., the Navan, Inc. team. Such a great moment. Such a great momentum in the business. As you know, I saw the power of our platform firsthand when I was a customer myself. And I know it is not just a layer on top of an old tech. It is clearly a clean-sheet redesign that addresses a huge market of $185,000,000,000. Looking at the numbers, Q4 revenue was $178,000,000, up 35% year over year, while our GBV reached $2,300,000,000, up 42% year over year, a growth acceleration driven by an incredible go-to-market momentum and faster than expected enterprise onboarding and ramps. Addressing the GAAP figures, this was mainly driven by a strategic one-time move. You will notice our GAAP operating margin was negative 50% in Q4. We decided to retire the Reed & Mackay brand for new sales, resulting in a $36,200,000 non-cash amortization charge. As Ariel just mentioned, this is a very intentional move that will ultimately deliver the power of the Navan, Inc. platform to the Reed & Mackay customers. Our non-GAAP operating margin was breakeven, a remarkable 1,100 basis points improvement over last year. We are driving leverage across the board, with our non-GAAP operating expenses being down as a percentage of revenue, even as we invest in more product innovation and our incredible go-to-market strategy. We ended the year with a very strong balance sheet: $741,000,000 in cash and short-term investments against just $125,000,000 in debt, mainly related to our expense business. We expect this great momentum to continue in fiscal 2027. And from a guidance perspective for the full year 2027, we expect revenue between $866,000,000 and $874,000,000, or 24% growth at the midpoint, and a non-GAAP operating profit between $58,000,000 and $62,000,000, a 7% margin at the midpoint. For Q1 fiscal 2027 specifically, we expect revenue between $204,000,000 and $206,000,000, which represents 30% growth as we head into a seasonally strong spring, with non-GAAP operating profit expected to be in the range of $4,500,000 to $5,500,000. Navan, Inc. is proving that we can grow fast when we are becoming a disciplined and engine, have an incredible mission, the right product, and the right team to execute. And with that, we will open it up for questions. Operator: Thank you. As a reminder, to ask a question, please press. To withdraw your question, please press 11 again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up. And our first question will come from the line of Steven Enders with Citi. Your line is open. Steven Enders: Okay, great. Thanks for taking the questions here. I guess just to start, I want to get a better understanding for the bookings momentum that you are seeing in the business. I think you called out 50% growth in bookings there. Just how do you view the sustainability of that growth and what you are seeing in the sales pipeline? And I guess as we think about that 50% number, I mean, I guess, it kind of implies an acceleration versus the 42% GBV growth we saw this quarter. So just how should we think about the potential for overall GBV growth to excel further from here? Aurelien Nulf: Great. Hi, Steve. I am going to tag in with Michael on this one, but I am going to start with highlighting the 42% GBV growth we saw in the fourth quarter, right? So incredible momentum. And Michael is going to speak to why we are seeing this momentum with our customers so far. But, clearly, this acceleration of our booking growth is very, very exciting. What I just want to really clarify here is the 50% I mentioned is the new signed GBV. So the new signed GBV is something we are looking at internally. It is a data point we are looking at internally; it is the total annual travel spend that we exchange from new customers that we just signed during the quarter. So it is what we know is going to fuel our revenue going forward, and we are seeing great momentum there. So we believe we are going to keep seeing very strong booking growth going forward. Michael Sindosich: Yeah, and maybe I will give a little bit of color on what we are seeing. First of all, I do not know how many people on the call here have been in sales before. But what I can say is it feels so damn good to be able to walk into any room at any size of customer around the globe and believe in our bones that we can support their travelers better than anyone else on the planet. And so we take that energy into these customers, and we really explain what we deliver. And when we think about what matters to our buyers, first of all, we deliver 15% median savings off of your current travel budget compared to whatever you are currently using. That is huge. Travel budgets are big, and at a time now, people are really focused on being able to save money. Next, if we can tell you that through AI and through our products, we can book in seven minutes or less on average, compared to forty-five minutes. Think about how many travelers are booking day in, day out. They are really employees that need to go win customers or drive the business forward. And we are saving a ton of time. More than 70% of our expenses are automated. We just launched the Expense AI agent where you can just drop in your receipt and it will automatically code your expenses. And then, you know, we have a saying internally: when it rains, Navan, Inc. shines. We just had massive storms. There are wars going on. And your employees or customers' employees are typically waiting on hold or sending emails to get a hold of their travel agent, when 50% of our support is completely automated with Ava. And then you can also call in 24/7/365 in a bunch of different languages. Ultimately, it is a really high NPS. It is really high feedback. Showing really new AI capabilities that are actually launched and deployed that travelers are using every single day. And then everyone loves the system, so they use it. You can actually manage from a duty-of-care perspective. And when things are crazy, the thing that you need is visibility on where your employees are and then people who can support them. So I think that is kind of why we win. And then we see a lot of tailwinds in the industry. We eliminate frankly cobbled-together solutions, legacy booking tools, legacy TMCs. We have our customers that are happy talking in back rooms and really sharing why they are buying Navan, Inc. because people would rather listen to their friends; they do not want to listen to our sales team, so that is a big tailwind for us. And then lastly, there is a lot of consolidation in the space. We have seen that consistently over the last couple of years. And so there is a lot of turmoil, while we are steady. We are growing fast. We have happy customers. And all those things ultimately result in our RFP volumes increasing hundreds of percent, which we saw and told you earlier. So I think that is the confidence that we use when we walk into a new sale. Steven Enders: Okay. That is great to hear. I guess just to follow up, you mentioned some of the uncertainty out there, conflict, war out there. Just maybe what impact has that had on what you are seeing from bookings activity or from the impact that is having on the business? And I guess on the other side of that, just how are you incorporating that ongoing conflict into the outlook here? Aurelien Nulf: Yeah. It is a great question. So far, we have seen very minimal impact. We have a very, very low volume exposed to the Middle East. In fact, low single-digit volume exposed to the Middle East. So we are not seeing any significant impact at this point. It is very hard for me to sit here today and say that I can predict everything that is going to happen in the world. But what I can tell you is during our Q4, we saw actually a lot of disruption to travel. When you think about the winter storms on the East Coast, we had this war in the Middle East, TSA also has been disrupted recently. And that is exactly what Michael just mentioned. That is when our platform really stands out as being the right tool for people to use. But what I would say from a guidance perspective, our forecast today assumes what is a typical amount of disruption we are expecting to see in the world. Nothing more, nothing less. Disruption is part of the business. That is something we know and manage very, very well. Yeah, that is the color I can provide. Steven Enders: Okay. Perfect. Appreciate you taking the questions. Steven Enders: You bet. Thank you. Operator: One moment for our next question. That will come from the line of Samad Samana with Jefferies. Your line is open. Samad Samana: Hi, good evening. Thanks for taking my questions. Great to see the strong close to the fiscal year and the strong outlook for fiscal 2027. Just a couple of things. Maybe first, on the Reed & Mackay transition, can you help us maybe think through what the benefit of that will be going forward beyond the branding component? Should we expect maybe better unit economics there? Should we think about that it makes it easier to sell so that you are not describing it separately? Just help us think about both the financial impact and then the selling impact there. And then I have one follow-up question. Ariel Cohen: Yeah. Hi, Samad. So first of all, we actually always, always, always in Navan, Inc. work it back from our customer. So the main reason for accelerating the integration of Reed & Mackay into the Navan, Inc. platform is that that is what our customers want. We have endless discussions with customers that are telling us on one side, I do want to have the ability to sometimes talk with an agent and a really, really, really good travel agent, especially if I am stuck, especially if it is an extremely complex trip. Sometimes I just want to offload the entire thinking to somebody else. I am actually willing to pay for it. So that is on one side. On the other side, I see a lot of things in your platform that I cannot get with a travel agent. For example, the level of access to content that we have: different types of airlines, low-cost carriers that even VIPs want to use when they are in Europe, the ability to change stuff instantly, to book stuff immediately. These are things that we are hearing from our VIP customers, the C-level, the executive assistants that they want to see. So basically, bringing a solution that marries the two together, we see it as a huge upside. We see it as an upside for the sales organization, for our sales organization to upsell Reed & Mackay for all of our 12,000 customers. So definitely an upside. And there is another upside here: the economics of our AI platform—gross margin, unit economics—are completely different than the economics of the Reed & Mackay platform. The Reed & Mackay platform, think about it as very, very similar to any kind of travel management company that you are familiar with, while in the Navan, Inc. platform, it is really an AI-driven platform. So there are mainly two benefits here. On the top line, we will see more people using our VIP offering. And then from a unit economics perspective, it is definitely a higher gross margin business. Aurelien Nulf: And maybe some financial color that I can add here. You can see in the prepared remarks that we just published that the Reed & Mackay business is roughly 20% of our total revenue for FY 2026, and they had a growth rate that was significantly lower than the core Navan, Inc. platform. In fact, the core Navan, Inc. platform grew in the high forties from a GBV perspective and just above 40% from a revenue perspective. So there is clearly a very, very different dynamic there. And what I would say, to wrap on this topic, is the net revenue retention rate for Navan, Inc. overall in 2026 was 107%. So it was slightly lower than 110% we have seen in the past, and it was fully driven by the Reed & Mackay dynamics, because the core Navan, Inc. platform’s net revenue retention was 110%, very stable there, and if you add the ramp of our new customers, it was even above 120%. So we are seeing very strong retention in our core business, but it was a little bit offset by this dynamic within the Reed & Mackay business. It is the reason why we are very excited about migrating those customers to the Navan, Inc. platform. Samad Samana: Really helpful. And then maybe just as a follow-up, if I unpack the fiscal 2027 guidance, very good growth. Just can you help us get some context around how you are thinking about GBV growth versus usage yield, especially given the context of the usage yield in the fourth quarter was much better than investors were expecting? Thanks again for taking my questions. Aurelien Nulf: Yeah. Absolutely. So we guided to 24% revenue growth. We are seeing a lot of acceleration in the business right now, and the platform is growing very, very nicely with a great momentum Michael just described with our customers. But it is very, very early days in the year, and so we have a prudent approach to our guidance with those 24%. I am expecting bookings to grow slightly faster than revenue. So that means we may see a 30-basis-point year-over-year change in 2027 versus what we saw in 2026. And that will be mainly driven by the Reed & Mackay dynamic that we just described, but also a mix across the different channels and across the different customers. We now have a very diversified base of customers and they all have different characteristics. The enterprise business has a slightly lower yield than a smaller company for many different reasons we discussed. But we have a lot of opportunities to also optimize this yield percentage with our payment business, with meetings and events. And so, I am very excited to see the momentum from a bookings perspective and this great guidance we are able to share on the revenue side as well. Operator: Thank you. One moment for our next question. And that will come from the line of Gabriela Borges with Goldman Sachs. Your line is open. Noah: Hi, this is Noah on for Gabriela. Thanks for taking the question. Given the expense control, cash expense control that you guys have managed to show, we were wondering if that impacts at all your strategy for payments. You noted in the prepared remarks that financing that you have for that side of the business, that is a moat that you have versus some of the nascent companies. So we were just wondering are you more willing to move into that space in terms of the terms you offer and things like that? Thank you. Aurelien Nulf: Yeah. We are growing the payments business. In fact, we were up 19% year over year in Q4. So there is meaningful growth here. What I would add to that is that coming out of our IPO, we have a very, very clean balance sheet. We have a very strong balance sheet with $741,000,000 of cash, cash equivalents, and short-term investments, and small debt, and that is going to help us over time grow this business as we are upselling customers. This is a huge opportunity for us, and frankly, I think we are only scratching the surface of what we can do with this business. So you should expect us to keep being very aggressive from the SaaS perspective there, and really lead to more upsells in the marketplace. Noah: Great. Thanks. Thank you. Operator: One moment for our next question. And that will come from the line of Sitikantha Panigrahi with Mizuho. Your line is open. Sitikantha Panigrahi: Great. Thanks for taking my question. I want to go back to the fiscal 2027 guidance to understand the factors you have embedded into it. We see a lot of different factors. You know, airlines, mainly Delta, talked about strong corporate travel momentum for this year, and then we see some kind of offset with the war. And also, internally, you are seeing a lot of strong momentum. I am just wondering what are the puts and takes you have embedded into your guidance? Aurelien Nulf: Yeah. That is a great question. As we have said, we are seeing great momentum in the business. Again, 42% GBV growth in Q4, very strong momentum. We have not seen any impact from any geopolitical tensions right now in our business. In fact, we believe historically, business travel has been pretty resilient. It is a category where you see people traveling; they need social interactions with their customers, with their coworkers. So people are really craving those in-person interactions, and so we keep seeing corporate business travel to be a very strong category. In fact, the GBTA index right now is showing growth in mid- to high-single digits year over year, way faster than the TSA checks, which are more in the low single-digit range of growth. So we think corporate travel will be very strong. But on top of that, we are getting share. Our bookings are growing fast; they are accelerating. And so no matter what happens in the industry, we are getting share. And so we are seeing a lot of momentum—more customers joining our platform, onboarding faster than ever. And so we believe that the combination of a very strong industry, very strong dynamics, and the momentum we have in our business right now is going to help us grow the business very significantly in 2027. Ariel Cohen: I want to add something to this. You should think about the two storms that we had in January, which really created huge interruptions in the eastern part of the U.S. Business travelers obviously cannot travel when the airport is closed. There is no question about that. But they will travel the week after. And if you support them well during the storm and really help them to reschedule the trip, this trip is going to happen. This is why you actually do not see any impact on our business when these things are happening. This is how much business travel is way more stable than any other type of travel. And to add to what Aurelien was talking about, the SLG channel, we just gave you a number of 50% growth year over year in one quarter. This feeds our system for the next years to come. So that is one thing. PLG—this is people coming to us from Instagram, from TikTok, and starting to be a customer—is going extremely fast. And we have just released a very important release that is based on our agentic platform, which is Navan Edge, which we have huge expectations for. And although it is early, we see really good signs there. So we are actually very, very confident about our forecast. And we are very aware of the various interruptions that are out there. Aurelien Nulf: And we are prudent, right? As I said, it is very early days. We know we just grew our revenue in Q4 by more than 30%. We guided to a 30% growth in Q1, 24% for the year. But we are prudent; very early days. Sitikantha Panigrahi: Yeah. That is great. And I was going to ask this Navan Edge question. And specifically on the demand side that you are seeing right now, are you seeing travelers from your unmanaged market that are signing up now independently, or is this primarily from your existing Navan, Inc. corporate customers, where they are extending that usage to their employees for unmanaged travel? What kind of trends are you seeing on the Navan Edge side? Ariel Cohen: Yeah. It is actually an amazing question. So first of all, Navan Edge targets non-Navan, Inc. users and customers. So that is the targeting there, and everybody that is using the platform right now are non-Navan, Inc. customers and users. So that is basically a completely new market for us. And we are only targeting that market, and we see better signs than what we thought we were going to see. But again, very early days, but very, very, very promising. So that is one side. On the other side, because we are running on an agentic platform—and what does it mean, agentic platform? You have capabilities. This is our connect to everything that happens. And then all of the knowledge. Some of the knowledge is in our actual code. Some of our knowledge is in a travel agent’s head, and the ability to capture these skills and marry them together with capabilities and deliver it as an agent. We are an agentic platform. That is what we have been building here in the last three years. So once you see an agent—an AI agent—that is doing something extremely well in the Navan Edge platform, let us take booking a restaurant for you, we are actually taking this agent and providing it in the main Navan, Inc. platform. So our customers are actually benefiting from the development of agents in the Navan Edge and in the Navan main platform. So both are benefiting from it. The platforms are feeding each other with different AI agents, and different human agents, by the way, in both platforms. But the target from a go-to-market perspective and the users on the Navan Edge platform are only non-Navan, Inc. customers from the unmanaged segments. Operator: Thank you. One moment for our next question. And that will come from the line of Scott Berg with Needham. Your line is open. Scott Berg: Hi, everyone. Really nice quarter here. I guess, two questions for me. I guess in the shareholder letter that was written there, the prescripted remarks, you talked about adding restaurant bookings to the platform. That is obviously new to the Navan, Inc. platform. How should we think about the economics, maybe the inventory that is available there? And any implications in terms of your guidance from that new offering this year? Ariel Cohen: Yeah. So the way that we are thinking about Navan, Inc., and think about it also where everything is going. People really care about meeting face to face, about being there. But they also care about their experiences. So it is no longer just a transaction: I need to book a trip. When I am planning the trip, I want to feel that you know who I am, you know how I am thinking about this trip, what kind of hotel I want to be at, the type of airline that I like, who I am loyal to. My loyalty is a really, really big component in travel. But then I am arriving, and I am taking my Lyft, my Uber, my black car, and I am getting to the hotel. And now it is night, and I can have a business dinner. I can meet with a coworker. We see this as part of the trip. In fact, in Navan, Inc., we see every aspect of being there as part of the entire journey. Part of this is obvious: you book stuff. Part of this, we really care to match what you want and what you need with our platform, and then how you pay for it. So this is the payment business. This is the expense management business, and so on. So basically from every direction. So getting into restaurants was a very obvious move for us, and this is actually when AI is important. We can build an endless amount of things. Travel is endless. You can think about it as Amazon. Ariel Cohen: It is just endless. You can sell flights, you can sell cars, you can sell hotels, but there are red flags, so experiences while you are on the go—it just ends it. And because AI is so powerful, we are actually accelerating our roadmap across the board. So you are going to see us releasing more and more offerings—basically AI agents—to our customers across the board; restaurants is one of them. Aurelien Nulf: And I would add, since you asked about the economics, Navan Edge is not a significant contributor to our 24% year-over-year revenue guidance. It is early days. It is a new category that we want to redefine here. We have a completely new product. We are very, very excited. We are ahead of our expectations from an acquisition perspective and a conversion perspective, but it is still early days. Although it is the biggest part of our addressable market—$56,000,000,000 is the size of the addressable market, what we call the unmanaged market—so very, very exciting. Scott Berg: Understood. Thank you. Very helpful. And then from a follow-up perspective, the new premium offering that is going to replace Reed & Mackay there, what is different about that, whether it is experience or maybe some of the products offered there? Help us understand if there are really any differences or if it is going to be something similar. Ariel Cohen: Yeah. We first of all call it now Navan Pro. So that is part of the change of the brand, and it is part of the Navan, Inc. platform. And it is really, as I talked about at the beginning, this focus on orchestration of when we deploy AI—when we are actually having a really good, highly personalized discussion with you with an AI agent—and when we are deploying a real agent. And all of us, I am sure, have experienced them both in their life. And you have this thing that there is a point that you are starting to yell at the voice representative. And that is not the experience that we have created here. The experience here is so amazing. It is so seamless. The seats are there, the satisfaction is almost the same as a human being, and in a lot of cases, people will prefer it because it is faster and never makes mistakes. So this is an AI platform and the benefit from that. But when you marry it with really the best, most experienced VIP agents that you can think of, and you marry the two together, you are getting a really, really good experience when you plan your trip, when you are at the airport, when you are coming back, and that is really what we are doing here. I have mentioned AI earlier. I can do today way more things with our engineering department, with our product department, with our designers. And that is why you will see us accelerating delivery of stuff to our customers in the years to come. That is what you are going to see from Navan, Inc. Operator: Thank you. One moment for our next question. And that will come from the line of Jed Kelly with Oppenheimer. Your line is open. Jed Kelly: When we listen to the airlines on recent conferences and everything, they are really leading with how corporate travel is leading the results and driving a lot of their growth. Is there something they are doing with direct investment with NDC and leaning into corporate travel and then that is benefiting? And can you just explain how you are benefiting from some of the growth we are seeing with the benefit of corporate travel for the airlines? Ariel Cohen: Yeah. 100%. First of all, Navan, Inc. is the leader in that, which means that we connect to airlines, sometimes, actually a lot of the cases, directly through the NDC protocol. We are also using GDSs. We will sometimes connect to airlines with GDSs. As I said earlier, we took the decision eleven years ago to connect to everything, and it is about trust. It is about the trust with our travelers, with our customers, to tell them that 100%, if it is out there, you are going to see it in the platform. What NDC gives you is the ability to merchandise, to take it farther, to buy stuff together. I do not know how many of you have stepped in an airplane and suddenly you do not have the Wi-Fi, and you need to kind of in a very slow way buy Wi-Fi for the flight. So that is an example of something that you can attach if you are going through NDC. You can attach it at the time that you are buying the ticket, when you are selecting the seat, and so on. And it is just one example of merchandising, of assuring the right price at that moment, the right class, etcetera. So the experience that NDC is giving to our customers is extremely good. It is part of what I was talking about earlier, Navan Cloud. And when you are marrying that ability to connect to the airline directly with the knowledge of what to book for you—that is basically the skills of the agent—you are creating a really, really good experience for the traveler, but also for the company, because you are assuring the right price. Therefore, you are making sure that nobody is overspending on the travel expense. Jed Kelly: Great. That is helpful. And then just as a follow-up, we recently saw OpenAI pull back from within their app, and Walmart cited that they were not seeing great results. Are there any parallels to what we saw with OpenAI and just the complexity of all the underlying travel technology and just how hard it is to complete travel transactions, even if you think in just a normal LLM AI experience? Thanks. Ariel Cohen: 100%. The reason that I took the time at the beginning of this discussion to explain our platform—the first complexity when you are a travel agency is not just to connect to stuff. Obviously, we are connected to everything. And, by the way, there is no travel agency on this planet that took the time, the effort, the money to connect to everything globally. I am talking in China, in India, obviously in Europe, in the U.S., everywhere in the world. So that is the first thing. But connectivity is just one thing. It is about knowing the airline rules about everything that you do. There are various internal classes. What happens when you cancel a trip? How exactly you are going to get the credit back? How you are going to apply it later? It is actually very complex per airline, per hotel, per any type of inventory that is out there. And what I have just described, this is I would say a third of what our platform does. Then there is all of the knowledge. The knowledge means that when you want to book this flight, I know exactly what type of airline class I will book for you. What type of room—there are endless amounts. You think a hotel that has 100 rooms, there are 100 rooms. The amount of permutations there is endless, which means that there are a lot of skills that you need to marry with that. And we have said it time and again, we are basically creating a seamless orchestration between people—real live agents that sometimes are working in the back, sometimes are talking with you—with AI agents. The reason is travel is so complex, and business travel is even more, but payment is extremely complex. So the complexity level here requires a combination of AI—and we think that we are one of the leaders in this space—when it comes to travel with the agreements that I have talked about earlier, the airlines’ agreements, the licenses that you need to get, the amount of money that you need to raise in order to provide credit in the credit card business, and so on. So the level of complexity here is huge. And I have been saying it in the past: everybody can create nice demos. To actually doing it—the only one that is doing it in the AI world is Navan, Inc. Operator: One moment for our next question. And that will come from the line of Keith Weiss with Morgan Stanley. Your line is open. Keith Weiss: Sitting in for Christopher Quintero. Congratulations on a really solid quarter. Maybe two questions, if I may, bringing Aurelien Nulf into the conversation, it is always very interesting to hear from a CFO when they first join the company. I think CFOs look at companies very similar to how we and investors do. And particularly at this point in time when there is so much uncertainty and so much investor concern around software companies broadly, including Navan, Inc. So maybe what was it that got you comfortable and got you excited about joining Navan, Inc. as CFO at this point in time? And maybe that will help us get more comfortable with the durability of this story. Aurelien Nulf: Yeah. That is a great question. First of all, I would say I do not see ourselves as a software company, so maybe that helps answering that question a little bit. When Ariel and I discussed me taking the role, we really discussed how we can transform an industry. We are a travel agency, and we are doing it very, very well because we are leveraging very cutting-edge technology, which is obviously something that got me excited. But really, the mission—people are mission-driven here. And when you walk in the door, like day one, I met a lot of people that are very passionate about our travelers and how they can make their traveling experience seamless and frictionless. So that is super important to me—joining a company of people that are so excited about what they are doing and their mission is obviously super important. The size of the addressable market is huge—$185,000,000,000—huge opportunity. I think we are only scratching the surface today, although we are getting share and we see so much momentum in the business, it was very clear to me that given the quality of the sales team, the quality of product, the quality of our marketing, and the passion of the team, we had something very, very special here that we can take pretty far. So I would say those are the different things that I have been really looking at. And then on top of that, a clear vision of how we are going to drive profitability, generate free cash flow, etcetera, is also top of mind for us as a company, and I think it is something that got me very, very excited. Keith Weiss: Got it. And maybe a follow-up on that. Earlier in the commentary, you guys talked about approaching rule of 40, not quite there yet. As we are modeling out the company over the next couple of years, should we be thinking about that as a north star in terms of how we should be looking at where Navan, Inc. is going to be heading? Aurelien Nulf: I would not say it is a north star. I think it is a good benchmark that people have been using across many different industries. Honestly, I do not see that as a limiting factor. We have a lot of ambition. And when we see, again, the momentum in this business and how differentiated our platform is versus what our competition is offering, I do not see that as a ceiling, to be very clear. We have guided to strong growth for next year. As I said, we are prudent and it is very early in the year. We also guided to margin expansion, which is pretty awesome given the level of growth we have seen in the business. We are extending our margin. And on top of that, we turned free cash flow positive one year earlier than we initially anticipated. So I think the rule of 40 is interesting and is a good benchmark. But clearly, that is not a ceiling for us. Operator: And one moment for our next question. That will come from the line of Patrick Walravens with Citizens. Your line is open. Patrick Walravens: Oh, great. Thank you, and congratulations on all the success. Ariel, I have three trips I need to book after this call, so I hope I can do them all in seven minutes on Navan, Inc. My question is about the RFPs. Michael, you were talking about, I forget exactly what you said, but I think you said hundreds of percent. So I was wondering if you could just give us more details about what you are seeing in the RFPs, where you are seeing them from, how that is different from maybe a year ago, and whether being public is helping drive those inbound inquiries. Michael Sindosich: Yeah. Great question. And by the way, you will definitely book your trips in less than seven minutes. So let me know if you cannot. But really, thank you so much for being a customer. It really means a lot. When I think about RFPs—so who runs an RFP? It is typically a larger company. So our commercial segment and our lower mid-market segment, oftentimes we can make a switch without going out to an RFP, but the larger and more global the company, they will typically run an RFP to do that. So to answer your question directly, where do we see the acceleration of the RFPs? It is upmarket. That does not mean it is not an indication of the increased demand downmarket as well. As Ariel mentioned, the PLG segment is growing extremely fast. And 50% growth in new GBV from our SLG market includes commercial, mid-market, and enterprise. So we see it across all segments. And RFPs come from larger customers. Patrick Walravens: Cool. And does being public—are you noticing that make a difference? Michael Sindosich: Yeah. Yes. Sorry, I was just going to answer that. Thanks. We do. There are a lot of smaller travel agencies or expense management platforms or payments platforms that are not public today. And that level of transparency is something that we see as an advantage because it means that we are durable. It means that we are not hiding anything. When we were private before, we would have to talk about questions about revealing our finances and things like that. And today, we are at a state where we can say, hey, just go listen to the last earnings call or look at our press release. So I think it is giving a lot of confidence, one, on our numbers, but then, two, on the durability of us. When we engage in an enterprise deal, typically, they might have been on their incumbent for twenty years. And when we are pitching someone, we want to be their incumbent for the next twenty years and beyond. And if you think about a couple hundred thousand employees, travel and expense, it is not just a feature that you launch to some subset of the employees. It is a full rip and replace globally for all employees. And so while we do the implementations extremely fast, it is something that requires change management; someone does not want to switch in two years, if that makes sense. Ariel Cohen: Yeah. Great. Thank you very much. Operator: Thank you. One moment for our next question. And that will come from the line of Andrew DeGasperi with BNP. Your line is open. Ari Friedman: Hey, this is Ari Friedman sitting in for Andrew. I just had one question. In terms of investments, we are noticing a meaningful uptick in hiring in your salesforce. What is the typical ramp for a sales rep before they are fully productive? And do you guys know how much more productive approximately a fully ramped rep is? Thanks. Michael Sindosich: Yeah. It is a good question. So we are hiring across our different go-to-market channels. So the ramp time is usually pretty correlated to the segment that the rep is starting at. We have a lot of SDRs, which are the ones that are pipeline generation. They are doing a lot of cold calls and emails for the sales reps. They get promoted into the commercial segment. And if someone is internally being promoted, we see that ramp time a little bit faster because they know the company, they know the system, the value props, etcetera. So that is a pretty fast ramp. And then if we were to hire from the outside someone like an enterprise rep, you start thinking about those deal cycles, which can be relatively long. So a big enterprise company—maybe it is a six-month sales cycle. And then with the whole RFP, and then it is an implementation and a launch a little bit later. So it can extend from, let us call it a year until really ramped in all the knowledge, to a couple of weeks down-market for us. So that is how we think about it, and we are growing across all the different segments. Operator: One moment for our next question. And that will come from the line of Blair Abernethy with Rosenblatt Securities. Your line is open. Blair Abernethy: Just wanted to ask you, as we are entering 2027, how are you thinking about the expense management subscription business and driving further penetration into your base, and how you are looking at driving new customer adoption going forward. Ariel Cohen: Yeah. First of all, we are actually thinking about it as an end-to-end solution. So customers that are using our expense management business as well as the payments business basically see better results in terms of an ability to understand what is their total travel and expense budget, how much they are spending, are they spending it correctly, can they save money there, etcetera. Also their employees—and if you think about who is traveling, the employees that are traveling are usually the most important employees in the organization. This is your enterprise sales team. This is your corporate team. This is your entire C-level. So saving their time is critical. When you use our payments and expense business, you swipe a card and that is it. Nobody else needs to do anything. On top of this, nobody needs to sit in the finance team and reconcile. And from a saving money perspective, you get immediately the feedback—was that in policy or not, was this expense exaggerated or not, and so on. It is actually really part of our offering and really what supports our end-to-end solution. We have mentioned in the past that we had some constraints in this business because of our payments business. And the IPO actually unleashed this constraint, and you can see that we returned to growing in these two businesses: the payments business and the expense business. And remember that in all of our businesses, there is some lag between sales and what you are actually seeing. So we are extremely bullish on the expense business. We are extremely bullish on the payments business. But we really see it as an end-to-end solution for our customers. And we just think that they will benefit more if they are using the entire suite. Blair Abernethy: That is great. Thank you. Operator: One moment for our next question. And that will come from the line of Dan Jester with BMO Capital Markets. Your line is open. Dan Jester: Great. Thanks for taking my question. And maybe just a follow-up on that last one. Are you seeing at time of initial sale, are you seeing customers take more offerings as you release innovation in the expense management space, as you release innovation around meetings and events? Are you seeing customers take those at the beginning, or are these still things that we should expect will be cross-sold over time? Ariel Cohen: I will take the beginning of it, and then Michael, who is in the field all day long, will continue. The first thing that I would say—and I kind of alluded to this earlier—once we move to be an agentic platform, it actually allows us to develop faster. So that is really, really important. But the second thing, we can reuse. I will give you an example of a feature that we recently released on the expense management side. There is an expense agent there that if you did not use our credit card, you just did it manually with your own credit card, you have a manual expense. You can actually take 20, 30, 100 receipts, put them in an upload to the system, which takes less than, I do not know, ten seconds. We automatically analyze the entire thing. We reconcile each for you. We reconcile it for the finances. It looks like magic. I do not think that anybody in the expense management world is doing something that is even close to that level of technology. But that was developed in the expense management team. And we think that that kind of capability, this agent, is actually relevant all over our platform. In fact, we even think that it is relevant in Navan Edge. So you will see this functionality coming across the board. I can say the exact same thing about our focus on meetings and events. Meetings and events was an off-platform service, and you saw that we recently announced our BoomPop integration to actually allow meetings to be on-platform. So what you will see from us from a technology and product perspective is that the offering is becoming stronger and stronger by coming together. And I will let Michael maybe provide more color, but the reasons that we are doing it are driven by the requests and what we are seeing in the field. Michael Sindosich: Yeah. And to answer your question, are we selling more products at the time of the first sale for the customer? The answer is yes. So we approach our sales in a couple of ways. One is, we have a sales rep that goes and finds a new customer, and we understand what products they need and want us to supply to them. That might be just travel. That might be travel and payments. It might be travel, payments, expense, meetings and events, VIP, all the suites that we have. And then they go and they launch and they have a great experience. We also have an upsell team. And so that upsell team is working very, very closely with the account management, who are constantly talking to the customers every single day, week, or month, or even during quarterly business reviews with the account. And then we bring those solutions to those as well. So we do see us attaching more products at point of sale, but we also see a lot of success in upselling the various solutions that we have for the customer. Dan Jester: Great. Thank you very much. Operator: One moment for our next question. And that will come from the line of Mark Schappel with Loop Capital. Your line is open. Mark Schappel: Hi. Thank you for taking my question. Ariel, could you discuss the legacy displacement opportunity, which appears to have accelerated this quarter, and maybe where you are seeing the strongest traction? Ariel Cohen: Yeah. Definitely. I think generally, we see this growth accelerating on all channels. So this means when we displace—that is what we call the managed segment—but also in our PLG channel, when we are new, when it is the first time that this customer is managing travel. I think the best person to describe exactly how we see it in the field is Michael. So Michael, maybe you can take it. Michael Sindosich: Yeah, if I caught the question correctly, you are saying the acceleration in the legacy space—is that correct? So, I kind of described it earlier. We walk into a room almost confused why the customer has not come to Navan, Inc. yet. And usually, the customer starts to see that once we are talking to them. If we are going to save you 15%, we are going to have you book in less than seven minutes versus forty-five. We are going to deliver this NPS and the CSAT and all the things that we have talked about before. Usually, it is about making sure that we prove that we have reached a scale to support that customer and that we are global enough to do that. And we have done a lot of work to continue to expand upmarket and globally using acquisitions that we have made around the world, and we have built partnerships to be able to support these customers. And so what do we see on the other side that is driving customers to us? There was a big acquisition with CWT, which is a big player in the space. There used to be three big travel agencies: Amex, BCD, and CWT. So CWT was acquired. And then you saw Egencia, which is more of the online booking platform that was built out of France, was also acquired. And then, I am sure you can read headlines, but there are other companies that are having some turmoil. And so we think that has created quite a lot of tailwinds for us. People are saying, oh, let me go check out this new Navan, Inc. platform. By the way, my CEO and everyone on my board is telling me to start using AI in my platform, and I want parity in my company, and I want to start transforming my finance operations to be more efficient. And so if we can prove the savings and the time, we can prove that we are global and we can support customers, and we can give them five references to go talk to that are similar to them—that they have made the transition to Navan, Inc. and they will never look back. It is a really compelling story. And I think that is why we are winning specifically in the legacy managed space. Mark Schappel: Thank you. Operator: Thank you. And today’s final question will come from the line of John Roberts with Feet Partners. Your line is open. John Roberts: Hi, guys. Thank you for taking my question. Just to start, I wanted to ask a quick one. What was net revenue retention for you guys exiting or just for the fiscal year 2026? I did not see that in the presentation. And then just regarding product attach, can you maybe stack rank which of these three additional products are most commonly being attached? And then maybe how long on average is it taking for customers to get to this level? Just any commentary here would be super helpful. Thank you. Aurelien Nulf: Sure. Hey, John. This is Aurelien. So on net revenue retention, I just mentioned on the call earlier that it was 107% for 2026. So we are seeing very stable revenue retention on the Navan, Inc. platform side—stable at 110%—which is even above 120% when we include the ramp of the new customers joining the platform. But it was 107% for 2026, and that slight contraction is mainly due to the Reed & Mackay dynamics that we discussed on the call. Maybe Ariel or Michael, do you want to take the second part of the question? Ariel Cohen: Yeah, sure. So I can take it. I think the question was around attach and then stack ranking. Michael Sindosich: So the product that we have first and foremost and is attached everywhere is our travel. So our transient travel product, which is the employees traveling for the company. Then the next product is we see a big attach into what we call leisure. So a lot of people are booking personal travel on our platform. It is a separate experience. It does not show up in the admin dashboard. You cannot use the company card. But what you can use is the rewards that we give the traveler. So we actually pay the traveler rewards when they save the company money, which is part of how we get to that 15% savings. And so if I am going on a work trip to New York and I want to stay for the weekend, I can actually book that leisure trip in the Navan, Inc. platform, which we see good attach there. The next we build into is actually our travel payment. So this is getting into our payments product. I can put a Navan, Inc. corporate card, log into the platform. It is actually not one card, but we create a unique credit card number—16 digits—for every new booking, and it perfectly reconciles your travel bookings and those expenses for your admins, and a traveler will never have to do an expense report for a flight or a hotel or a rail that was booked in our platform. So we see a lot of adoption there. That then naturally leads into our expense platform. You can then buy our expense platform, and now we own the entire context whether someone is traveling or not. We actually see more than 70% of employee expenses are in some way, shape, or form tied to a trip. I am either booking that trip, or I am on the trip and I am at a restaurant or a taxi or however you spend the money. So we expand into that product. Then there is also the VIP product, which Ariel talked about as part of our Navan Pro offering with Reed & Mackay. So that is a product that we would upsell or sell at the point of sale to the C-suite or people who need VIP level of support. And then the last product that I can think of at least right now is our meetings and events. So as we gain that customer, we manage their corporate travel. A lot of times, they might have an exec off-site or an FKO or a customer conference, and they will leverage our meetings and events services. So off the top of my head, I am pretty sure that is the exact order of the penetration and the percent of adoption that we have of the various products. Operator: Thank you all. This concludes today’s program. You may now disconnect. Goodbye.
Operator: Good afternoon, ladies and gentlemen, and thank you for your patience; your conference will begin shortly. Once again, thank you for your patience; your conference will begin shortly. Good afternoon, and welcome to WidePoint Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Matthew, and I will be your operator for today's call. Joining us for today's presentation are WidePoint Corporation's President and CEO, Jin Kang, Chief Revenue Officer, Jason Holloway, and Chief Financial Officer, Robert George. Following their remarks, we will open the call for questions from WidePoint Corporation's publishing analysts and major investors. If your questions were not taken today and you would like additional information, please contact WidePoint Corporation's investor relations team at wyy@gateway-grp.com. Before we begin the call, I would like to provide WidePoint Corporation's Safe Harbor statement that includes cautions regarding forward-looking statements made during this call. The matters discussed in this conference call may include forward-looking statements regarding future events and future performance of WidePoint Corporation that involve risks and uncertainties that could cause results to differ materially from those anticipated. These risks and uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission. Finally, I would like to remind everyone that this call will be made available for replay via a link in the Investor Relations section of the company's website at https://www.widepoint.com. Now I would like to turn the call over to WidePoint Corporation's President and CEO, Jin Kang. Sir, please proceed. Jin Kang: Thank you, operator, and good afternoon, everyone. Thank you for joining us today to review our financial and operational results for the fourth quarter and full year ended 12/31/2025. To begin, I would like to immediately address the topic that is top of mind for all stakeholders, provide some clarity, and reaffirm WidePoint Corporation's competitive positioning for the Department of Homeland Security CWMS 3.0. As many of you are aware, the timing of the CWMS 3.0 award has experienced continued delays that are out of our control. It is important to emphasize that these delays are entirely the result of broader federal government headwinds over the past several months, including government and DHS shutdowns, funding disruptions, and DHS leadership changes, and are not indicative of any change to WidePoint Corporation's competitive standing or prospect for our work. Competitive strengths we offer DHS continue to distinguish us from other competitors in the award process. Some of our competitive advantages include our FedRAMP authorized status, robust past performance, ITMS being the command center platform and system of record for DHS, small business classification, facility security clearance, alignment across a new statement of work, and the best value to government. Our confidence and positioning remains unchanged, and we firmly believe WidePoint Corporation is the most qualified partner for DHS. As discussed during last quarter's call, we received a six-month extension under the CWMS 2.0 contract, consisting of a two-month base period followed by four one-month option periods. This extension provides DHS flexibility to select the CWMS 3.0 award winner or issue an additional extension. When all current and pending task orders are considered, approximately $80 million in contract ceiling remains under the CWMS 2.0 contract. As such, we expect to see some form of an update from DHS by the middle of the second quarter, whether it be the CWMS 3.0 award announcement or another extension period under the CWMS 2.0 contract. We believe WidePoint Corporation is well positioned under either outcome. An extension would allow us to continue performing our work under this existing CWMS 2.0 contract with no material impact on our day-to-day operations. If an award decision is announced during the quarter, we continue to believe WidePoint Corporation is the best positioned to win the recompete. In the meantime, WidePoint Corporation will continue to operate business as usual. Rest assured, we will remain fully engaged and proactive in supporting DHS, and CWMS 3.0 will remain a top priority for our organization as we navigate these uncertain times. WidePoint Corporation's operation and business continuity remains resilient, as we successfully weathered the government shutdown in late 2025 and the current DHS shutdown. With the current DHS shutdown, we are still seeing activities ongoing for operations and administration at DHS. Invoices are still being processed, contracts and task orders are continuing to actively be modified, and we have not seen any material slowing of administrative activities. While we have no insight into how long this current shutdown will persist, WidePoint Corporation remains well equipped to adapt. Moving on to some Q4 highlights. We ended on a high note following some of the headwinds experienced during 2025. As outlined in our Q3 earnings call, the strategic steps taken to stabilize our cost structure while maintaining staff levels and continuing to invest back into the business position us to deliver stronger results during 2025. Q4 revenues were $42.3 million, adjusted EBITDA was approximately $460,000, and free cash flow was $335,000, representing the 34th consecutive quarter of positive adjusted EBITDA, ninth consecutive quarter of positive free cash flow, and growth on a sequential basis. Sequential growth is a trend we expect to continue, especially as we begin to recognize revenue under the SaaS carrier contract and begin to land our DaaS opportunities in the pipeline. Q4 presented a glimpse into our robust margin-accretive contract pipeline. Back in November, we were awarded a $40 million to $45 million SaaS contract to deploy our ITMS platform for a major mobile telecom carrier. We are progressing through the implementation process at this stage, and we continue to remain on track to begin recognizing the margin-accretive SaaS revenue under this contract starting in 2026. As we begin to scale the number of devices managed under this contract, we expect to see notable quarterly enhancements to our margin profile and growth across our bottom-line results. Additionally, last October, we announced a managed mobility contract with the U.S. Customs and Border Protection under the CWMS 2.0 contract. This award has a period of performance of one base year and one option period, extending through December 2026, with total task order ceiling exceeding $27.5 million. We are pleased to announce superior performance under this contract started in October, which has supported our Q4 results and will continue to do so for future quarters. We remain confident in CBP eventually extending the period of performance beyond the one-year base period. An important development over the past several months has been our initiative to transition select existing clients towards an as-a-service model. Jason will expand on the strategy behind this initiative, but we are pleased to share that we are currently working to migrate two IT MSP clients to our DaaS model, which we expect will enhance revenue visibility. While delay in contract award can be frustrating, they are typical in working with large enterprises that are prospective customers for WidePoint Corporation. However, we recognize that these processes can take time, often longer than expected, and we remain flexible and responsive as we work to meet our potential future customers' needs and requirements. We remain hopeful and cautiously optimistic about landing a number of opportunities in our pipeline throughout 2026. We are fully committed to working through any potential headwinds, whether timing-related delays or other external headwinds, and demonstrating to our shareholders the strength and depth of our pipeline. With that, I will now hand the call over to Jason, who will provide additional insight into our sales and marketing initiatives. Jason? Jason Holloway: Thanks, Jin, and good afternoon, everyone. Over the past several quarters, we continue to highlight the depth and quality of WidePoint Corporation's commercial and government pipeline. As we have discussed, the SaaS contract with one of the three major carriers awarded in Q4 served as a major accomplishment and shows the types of opportunities currently in our pipeline. Implementation under this agreement continues to progress. We recently completed a portion of the minimum viable product, or MVP, functionality testing and are currently awaiting additional datasets from the carrier to complete further functionality testing. Overall, progress remains very positive, and we expect material growth under this agreement over time. Device as a Service continues to present immense upside potential, and we believe will deliver a compelling ROI as these opportunities materialize. Q4 marked the official opening of our DaaS facility in Columbus, Ohio. Since then, we have begun supporting large mobile equipment configuration and accessory sales, depot maintenance for IT as a Service customers, and device recycling activities. We are pleased to have the infrastructure in place and ready to execute, and we are now awaiting final approvals from the prospective client to move forward and begin contract performance. As we have consistently emphasized, these discussions are with large commercial and government enterprises, including several Fortune 100 organizations. While timelines can be extended, we remain cautiously optimistic that a number of these opportunities will convert, which will allow us to finally demonstrate the scale and potential of our DaaS offering. Additionally, WidePoint Corporation's DaaS offering has the potential to play a role in the upcoming LA 2028 Olympic and Paralympic Games. We are actively in discussions with CDW regarding how WidePoint Corporation can support their efforts as a subcontractor for this large-scale event. As a longtime strategic partner, WidePoint Corporation recently supported CDW's activities at the Winter Olympics in Italy, and our solutions align seamlessly with their needs. We look forward to continuing to build on this longstanding partnership and supporting LA 2028 when called upon. We remain confident that our DaaS pipeline will materialize, especially given the value that our solutions provide. Mobile Anchor continues to grow with a number of clients. Specifically, HUD OIG is entering into its second year and expanding our WidePoint Corporation-derived credentials. We are also in a Mobile Anchor pilot with the DOJ to upgrade their derived credentials to WidePoint Corporation's capabilities. Phase one of the pilot is for 1,000 credentials with a goal of growing up to 130,000 credentials by 2027. Mobile Anchor is close to getting another pilot with Treasury, duplicating the same scope as the DOJ, with the potential for 120,000 derived credentials. We are progressing nicely with the FAA with the goal of getting to 90,000 credentials. Additionally, we are in early discussions with the Department of Energy, consisting of multiple national labs and technology centers. Stay tuned for additional updates. Lastly, as Jin mentioned, we have begun engaging select clients to begin shifting them towards an as-a-service delivery model. We are receiving very positive feedback from our current customer base that are wanting to make the switch. With WidePoint Corporation opening its DaaS logistics facility, this gives us several additional offerings that are once again being very well received by the current customer base. Stay tuned for additional information on future calls regarding this exciting extension. With that, I will now turn the call over to Bob to discuss our financial results. Bob? Robert George: Thanks, Jason, and thanks to everyone for joining us today. I am pleased to share the details of our financial results for the fourth quarter and the full year ended 12/31/2025. Total revenue for the quarter was $42.3 million, an increase of $4.6 million, or 12%, from the $37.7 million reported for the same period last year. Our full year revenue was $150.5 million, an increase of $8.0 million, or 6%, from the $142.6 million reported last year. I will now provide a further breakdown of our fourth quarter and full year revenue. Our carrier services revenue for the quarter was $26.8 million, an increase of $2.2 million compared to the same period last year. Carrier services revenue for the year was $91.9 million, an increase of $5.1 million compared to last year. The increase was primarily due to a new task order we received in the fourth quarter from Customs and Border Protection, or CBP, for 30,000 new lines of service. Our managed services fees for the quarter were $10.5 million, an increase of $1.1 million from the same period last year. This increase was also partially driven by the new CBP task order. For the year, our managed services fees were $39.1 million, an increase of $3.3 million from last year. The increase was primarily a result of implementing a new commercial contract for a U.S. government end customer late in 2024, compared with a full twelve months reflected in 2025, and the task order with CBP in 2025. Billable services fees for the quarter were $1.1 million, and for the year, $5.4 million, both relatively consistent with 2024. Reselling and other services in the fourth quarter was $3.9 million, a $1.2 million increase from last year. The increase reflects underlying growth partially offset in the prior year by nonrecurring adjustments. For the year, reselling and other services were $14.2 million, a decrease of $728,000 from the same period last year. The decrease was driven by a partial termination of a software resale contract by a customer. The company has since received a corresponding vendor credit for the refund issued to the government customer. Reselling and other services are transactional in nature, and the amount and timing of revenue may vary significantly from period to period. Gross profit for the fourth quarter was $5.8 million, or 14% of revenues, compared to $4.8 million, or 13% of revenues, in the same period in 2024. Gross profit for the year was $21.0 million, 14% of revenues, compared to $19.0 million, or 13% of revenues, in 2024. The higher gross margin as a percentage of revenues is related to increased gross margin experienced in our managed services. The more significant metric of gross profit percentage excluding carrier services was 38% in the fourth quarter compared to 36% in the same period last year. For the year, gross profit percentage excluding carrier services was 36% compared to 34% last year. Our gross profit percentage will vary from period to period based on our revenue mix. Sales and marketing expenses in the fourth quarter were $747,000, or 2% of revenue, compared to $560,000, or 1% of revenue, in the same period last year. Sales and marketing expenses for the year were $2.7 million, or 2% of revenue, compared to $2.3 million and 2% of revenues last year. We expect to see further dollar increases here as we continue to invest in sales and marketing efforts, though we expect sales and marketing to be lower as a percentage of revenues in the future. General and administrative expenses in the fourth quarter were $5.2 million, or 12% of revenues, compared to $4.3 million, or 11% of revenues, in the same period of 2024. General and administrative expenses for the year were $19.7 million, or 13% of revenue, compared to $17.6 million, or 12% of revenue, last year. The dollar increases primarily relate to increases in employee compensation and health insurance costs. We expect general and administrative expenses to increase as our business grows but to remain constant or lower as a percentage of revenue. In the fourth quarter, depreciation expense was $648,000 compared to $233,000 in the same period last year. This was driven by a catch-up adjustment identified through a routine asset review where we determined that certain items previously classified as construction in process should have been placed in service earlier, so we aligned depreciation timing accordingly. As a result, the fourth quarter is not indicative of our ongoing run rate and should not be annualized when modeling 2026 depreciation. Depreciation expense was $1.3 million for the year 2025, compared to $1.0 million last year. Adjusted EBITDA, a non-GAAP measure, for the fourth quarter was $460,000 compared to $631,000 for the same period last year. Adjusted EBITDA for the year was $1.1 million compared to $2.6 million last year. The decrease in adjusted EBITDA compared to last year is primarily a result of sales pipeline opportunities shifting to the right. While most of the significant items in the pipeline were ultimately realized, free cash flow for the quarter, which we define as adjusted EBITDA minus capital investments, was $335,000 compared to $593,000 in the same period last year. Free cash flow for the year was $814,000 compared to $2.5 million in the same period last year. Net loss for the quarter was $849,000, or a loss of $0.09 per share, compared to a net loss of $356,000 and a loss of $0.04 per share for the same period last year. Net loss for the year was $2.8 million, a loss of $0.28 per share, compared to a net loss of $1.9 million and a loss of $0.21 per share in the same period last year. Our annual adjusted EBITDA and free cash flow results were impacted primarily by 2025, during which we experienced headwinds as several SaaS and DaaS opportunities were pushed to the right. As Jin and Jason have discussed throughout the call, while we have encountered timing-related delays, these opportunities remain firmly present within our pipeline and have the potential to materially impact adjusted EBITDA, free cash flow, and ultimately position WidePoint Corporation to achieve positive EPS over time. In response to these delays, we took deliberate steps to stabilize our cost structure while maintaining staffing levels and continuing to invest in the business, which drove a meaningful improvement in both adjusted EBITDA and free cash flow during the second half of the year. For context, during the first six months of 2025, adjusted EBITDA and free cash flow totaled $276,000 and $155,000, respectively, as compared to adjusted EBITDA of $804,000 and free cash flow of $659,000 in the second half. Additionally, we are encouraged by the continued implementation progress under our carrier SaaS contract. While there will be a ramp-up period, our goal is to be fully scaled by 2026. As Jin mentioned, revenue recognition on this contract is expected to begin during 2026, where we expect to see positive impact toward our margin profile. Lastly, moving to the balance sheet. We ended the year with $9.8 million in unrestricted cash. We also have additional liquidity options available with our revolving line of credit facility providing us with $4.0 million in potential borrowing capacity, although we do not anticipate having to rely on this facility. In addition, WidePoint Corporation has plans to file a prospectus to establish an at-the-market offering program, or an ATM. This step is a strategic measure designed to enhance financial flexibility and to provide optionality as we continue to execute our growth initiatives. Importantly, we have no current plans to utilize an ATM program at prevailing market valuations, which we believe do not fully reflect the company's long-term prospects. Further, the establishment of an ATM should not be interpreted as an indication of near-term capital use. Any potential use of the program would be evaluated carefully and undertaken only in connection with clearly defined, value-accretive opportunities that support our long-term strategy and enhance shareholder value. This completes my financial summary. For a more detailed analysis of our financial results, please refer to our Form 10-K, which was filed prior to this call. With that, I will turn the call back over to Jin. Jin Kang: Thank you, Bob, and thank you, Jason. To close out the call, I would like to outline where we will continue to invest time and resources in, which we believe will serve as a key catalyst for future growth. Our near-term focus will continue to remain centered on CWMS 3.0. As DHS operations eventually resume, funding disputes are resolved, and ultimately, as the award is announced, we remain confident that WidePoint Corporation will be called upon for the third time. CWMS 3.0 carries a $3.0 billion contract ceiling over ten years. This offers the potential for significant revenue visibility over the next decade. In the interim, we will continue to support DHS under the CWMS 2.0 contract, including any additional extension periods that may be issued should the CWMS 3.0 award be delayed. Additionally, our ultimate goal is to further improve our margin profile. We believe our SaaS and DaaS pipeline will play a significant role supporting this objective, and through our new initiative to expand as-a-service delivery model within our existing client base, we are proactively driving future margin expansion. In the near term, continued progress on the implementation of our carrier SaaS contract will be critical. Our team remains optimistic about what 2026 may hold for us and will diligently work to showcase exactly what our pipeline holds for WidePoint Corporation. This concludes our prepared remarks. We will now open for questions. Operator, will you please open the call for questions? Operator: Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you are listening on speakerphone to provide optimum sound quality. And once again, if you have any questions or comments, please press 1 on your phone. Your first question is coming from Barry Sine from Litchfield Hills Research. Your line is live. Barry Sine: Hello. Good evening, gentlemen. Jin Kang: Hi, Barry. Good to hear you. Go ahead. Likewise. Barry Sine: Couple questions, if you do not mind. But the first, I want to clarify what you have been talking about on the transition on the DaaS awards, and just clarify in, you know, straightforward language. What exactly are you doing? Looks like you have built a new warehouse in Columbus, Ohio. What were you doing previously for those customers? What are you doing in the future? The other question I have on that is the press releases; you have begun proactively engaging with existing clients, and I thought in the script you said that you have already begun the conversion process with two clients. So I am a little confused on a couple of points on that. Jin Kang: Sure. No problem. I will address those points here. In terms of what we are doing with DaaS, we have a lot of opportunities in our sales pipeline that are very close, but they have pushed to the right. We thought several of these we were going to capture in 2025, which is now pushing into 2026. One of the big ones that we talked about is the LA 2028 Olympics and the Paralympics. That is a large opportunity for us with our partner CDW. While we are waiting for these opportunities to close, we are in the process of converting some of our IT as a Service customers to a Device as a Service customer. And what that means is that we will be able to smooth out the revenue streams so that we can have better visibility into those streams as well as making them more predictable, also making them a little bit more profitable. So we are doing that. And the reason why we are able to do that is because we have invested in our logistics space, our DaaS space that we leased out in the beginning of last year, and we have now, you know, phase one, which is getting all of the construction done and all of the electricity and the computer systems in there, and moved our logistics department into that facility. And we finished that, and we had a ribbon-cutting ceremony at the end of last year. And now we are prepared to start doing all of the depot maintenance, all of the logistics services, software configuration, imaging, recycling; all of those things are now moved into that facility. And so we are converting some of our existing customers to the DaaS model to, one, get more predictability in revenue, as well as making them more profitable. Barry Sine: So just to drill down a little bit more, previously, when it was IT as a Service, it was purely software licensing, and so there was nothing physical involved. Now it will actually be physical devices provisioned out of your Columbus warehouse. Is that correct? Jin Kang: Sort of. So, the IT as a Service did include hardware, but a lot of the hardware was like a single purchase, very lumpy devices that we had actually purchased on behalf of our customers, and we implemented them, we managed them, and maintained those devices. But now what we are doing is that we have this depot maintenance capability and have all of the hardware, and so we are managing 360-degree support services for all of the hardware that we now will provide for our IT as a Service customer. Barry Sine: And is that lower margin or higher margin now that you are handling more devices? Jin Kang: It will be higher margin, slightly higher. And it will be more predictable because we are not doing tech refreshes on, you know, like, every 12 months or every 18 months. We will do these tech refreshes on behalf of our customer, and we will maintain those devices, and we will not have that lumpiness in our hardware sales. Barry Sine: Okay. My second question is around Spiral 4. You won a major, major contract. You were one of several carriers with the United States Navy. That was some time ago. We did not hear too much about that in today's earnings call. Could you give us an update where we are on Spiral 4? Jin Kang: Yes. We did win that major contract, the Spiral 4 contract. And since then, we actually captured eight contracts, eight new task orders underneath it. I believe the total contract value is $3,031,000,000 in top line. So we are in the performance on that, and we are in various stages of various task orders that we put proposals in. So we are bullish that we will capture more task orders in 2026. Barry Sine: And they are still coming in at a, you know, a somewhat regular basis? The task orders? Jin Kang: Yes. As an IDIQ contract, as old contracts expire, they will put it out for bid, request for quotes, and then we will put in our quotes against other winners. I think that there were six other winners, and so we will put our proposals in when those RFQs come out and, many times, hopefully, we will win more contracts than our competitors. Barry Sine: Okay. And shifting gears, my last question is more around the balance sheet. You seem to have a high-class problem, that you have got almost too much cash. You are almost at $10 million in cash on the books. On a per-share basis, that is pretty high. My, you know, you obviously you are not going to do a draw on the ATM, which is a very smart idea at the stock price. My guess would be uses of cash either acquisition; you have done acquisitions in the past, but you have been pretty cautious on pulling the trigger. Or buybacks. Am I, you know, it does not sound like this one. It sounds like capital expenditures are going to go down, so we can kind of rule that out. What should we think about the cash? How can we turn that asset on the balance sheet into value for shareholders? Jin Kang: Yes. So we do have a reasonable amount of cash, and we have been sort of slightly increasing our cash balance over the years. And, as you say, we did do an acquisition of ITA back in 2020 with cash that we generated from operations. As you know, the federal government has a tendency to shut down every now and then. And so what we have been able to do is to weather those shutdowns by having, you know, what I think Jamie Dimon may have said before, a fortress balance sheet, if you will. And so what we want to do is we want to make sure that we have enough working capital, and I think we do. We have not had to draw down on our line of credit in recent memory. But if there is a protracted shutdown of the federal government, or if there is a slowing of invoice payments as a result of that, we may need the cash. But you are right. We are not going to be using our capital like drunken sailors. We will be, excuse me, we will be judicious about our capital and how we spend it. In terms of, you mentioned ATM, we do not have any plans to go out and execute any of the sales under that plan because, exactly as you say, we have plenty of net working capital. And we put that out there as a good housekeeping item in case that we can be opportunistic. When certain catalytic events happen, we want to be prepared to be able to raise capital for purposes of acquisition or building a fortress balance sheet. Barry Sine: It sounds like you got an angry phone call from a drunk sailor with that comment. The last question is cash flow during a government shutdown. Do you still get paid? I know you are still providing the services, and they are extending you. But does cash flow in, or is that what you are getting at when you are saying you want a fortress balance sheet? Jin Kang: Yes. During government shutdowns, sometimes the nonessential personnel—and that usually equates to some administrative staff or people that are processing invoices—and sometimes there is a slowing of the invoice payment. Although we have not experienced that. You know, Bob, did you want to add anything to that? No. It is good. Robert George: Pretty much say what you said, Jin. I mean, we have not seen—I mean, we are monitoring cash daily, and we are seeing the same level of inflows there. You know, we are just being really careful because you never know if somebody ends up not going to work and not processing something. So it is a pretty long cycle, right, in terms of creating a bill and sending it. So it could have a downstream effect, so we are just being really careful. Jin Kang: Yes. We want to make sure we can weather any of these slowdowns from the government. Barry Sine: And just continuing on the cash balance, it seems to me in the past what you have said is that you are still expecting that there may be another large acquisition, so you want to keep your powder dry for that. And you have not been as aggressive on share buybacks. Is that posture still correct? Jin Kang: Yes. I mean, the first order of business is making sure that we have enough working capital. Two, we want to keep our powder dry in case there is an accretive acquisition that we need to act quickly upon. And I think being prepared for those headwinds in terms of various government shutdowns, we want to be prepared for that. We want to be resilient, and hopefully, we will be able to continue to add to that balance as we continue to operate here. As we close on some of these new opportunities, we should be able to put more cash onto our balance sheet. And we are looking around for potential acquisitions, but they are far and few in between. So, Bob, you want to add? Robert George: I would also add, you know, growth takes working capital. Right? So, I mean, we do not want to be hamstrung if, when some of these large DaaS opportunities come, there is not a huge amount of initial investment, but, you know, just the general working capital drain on growth. We want to make sure we are prepared to deal with that. Barry Sine: Okay. Thank you very much, gentlemen. Those are my questions. Jin Kang: Great. Thank you, Barry. Always a pleasure. Operator: Thank you. Your next question is coming from Casey Ryan from WestPark Capital. Your line is live. Casey Ryan: Good afternoon, gentlemen. Pretty good update for what felt like maybe a little bit of a treacherous quarter. Activity. So I just wanted—carrier services popped up quite a bit, and maybe there were some one-time items, Bob, that you were laying out. But I just wanted to ask about why it was a little bit bigger in the quarter, and it seems like a positive. But I just wanted to understand that number a little bit better to start off with. Robert George: Yes. A lot of the quarter was driven by CBP. And, you know, there is a command services component and a carrier services component. So, you know, that is—I do not know the exact number, but most of that sequential growth is CBP. Casey Ryan: Okay. Great. Jin Kang: Yes. Customs and Border Protection. Yep. Yep. Casey Ryan: Right. And just for those of us who are trying to be good civic students, where does CBP fall? I know it is part of DHS, I think, but is it part of ICE, or no, it is separate? Jin Kang: No. Customs and Border Protection is a separate component of DHS, and their mission is to handle various customs-related issues versus immigration issues. Casey Ryan: Got it. Okay. Thank you. I also, just going through the 10-K as we are looking, commercial revenues looked strong in the quarter, and, you know, it did grow 6% year over year in total. That is an exciting metric, and I think, obviously, it is sort of—that is the category where we see these higher-margin contracts flowing going forward, I think. Is that the right way to think about that line item, sort of commercial? Jin Kang: Yes and no. I mean, our efforts have been continuing to increase our revenues on the commercial side, but at the same time, we are also looking at growing the revenues on the federal government side. So as we said in the past, we have now paid for our fixed costs. So any new customers that we add on as we go forward are going to be that much more profitable. Like the carrier contract that we signed with one of the big three, that will be all commercial revenue, and it will be fairly high margin as well. We are also adjusting some of our rates on our federal government customers as well to adjust for the various inflationary things that happened over the last four or five years. And so as we add on new customers, we will be that much more profitable. Our gross margins—our goal has always been, for non-carrier services revenue, to get to near 50% in gross margins. And so it was good to see that our gross margin went from, you know, 33 and change to, like, 38%, I believe, in Q4. So we are continuing to make progress towards that. Casey Ryan: Yeah. Well, no. And that is kind of, I guess, what I am really focusing in on. It is really tremendous progress. So if we track this commercial revenue line, do you feel like 2026—not to put guidance out there—but it feels like if some of these things break your way, it could be a pretty strong growth year for that revenue line, commercial revenue specifically? Jin Kang: Yes. And Bob just reminded me that the commercial line is one of these large integrators that we are doing our identity management for. And so we should see more of that as Jason mentioned about the Mobile Anchor opportunities. And those things will be—some of them will be—commercial. Of course, all of the carrier contracts that we have are going to be commercial. So we should see continued increase in our commercial revenues. And, of course, we have got the CWMS 3.0 that, again, if that happens this year—hopefully, it will happen in the next couple, three weeks—hopefully, the DHS will be back, they will be fully funded, and, you know, the award announcement made. And if that happens as well as some of these DaaS opportunities, it will be a great 2026. Casey Ryan: Yeah. Well, I mean, certainly, just playing with Excel, we can get ourselves in trouble, but we can see that the margin contributions will be very positive. Right? Jin Kang: Right. Casey Ryan: So just to be quick, if the government shutdown ends—I know in the past you guys have tended to put out annual revenue guidance and sort of backed away from that just given the uncertainty around this—but if it all settles down, then we get back to a more normalized period. Do you think it would be your preference to kind of reinstate that at some point, say, Q1 or Q2, to sort of offer out sort of a full-year annual guidance number? Jin Kang: Yes. That is a great question. And our normal process had been to provide guidance in our Q1 call, usually May, middle of May. We are planning to do so, and we are hopeful that by May, Congress would have acted and would have approved the DHS full funding for DHS. And then the CWMS 3.0 award announcement will be made, and we will be able to provide a pretty accurate guidance. But, in absence of that, we may have to delay full-year guidance until, you know, perhaps after Q1. And so, but we are hopeful to provide guidance, as I said, in our Q1 call. Casey Ryan: Okay. Okay. Great. And then, sorry for the long list of questions. I just wanted to ask actually about a press release you guys put out—I think it is dated February 18. It was for a bottler, but it was for managed services, sort of enterprise hardware and software contract. I just wanted to ask about that and see. Is that sort of for mobile devices only, or is that sort of broader and more inclusive? Because I thought it was a real exciting commercial type win. Jason Holloway: Hey, Casey. No. It is not for mobile devices. That is under our IT MSP, or as-a-service group. So it is a mix of a number of things. And as we said in our prepared remarks, we are going back, and we are actually trying to get some of these folks to make the switch over to the Device as a Service. So we are very excited about that opportunity, and we have a lot of momentum in that area. But, yeah, so just stay tuned because that particular account is scheduled to grow in the second half of 2026. So we are cautiously optimistic that it is moving in the positive direction. Casey Ryan: Okay. Terrific. And, sort of the contract award in this segment, is that kind of a one-year, or is it a type? Just so we understand what the duration is like. A lot of your government contracts, right, are sort of much longer in duration, but maybe on the commercial side, it is just one year, or maybe it is three years. I do not know. Jason Holloway: No. This particular contract is a one-year, but our typical commercial contracts are anywhere between three or five years. But this particular one is a one-year, and, like I said, we hope to grow this in the second half. And if we do, then that will turn into a multiyear award. Casey Ryan: Yeah. Well, it is just a great proof point over on the commercial side for what you guys are able to do. So I just thought it was worth digging into a little bit. It seems very positive. Jin Kang: Yes. We are making—that is one of our priorities—to continue to grow our commercial side, so that as we diversify our revenue sources from commercial and government, when there is a shutdown or some other things that happen on the federal side, we can weather those things a little bit better. And so we made a conscious effort to continue to push to grow the commercial side as well as grow on the government side. Casey Ryan: Yeah. Well, thank you for taking my questions. I think with all the headwinds, it is a really super quarter. I mean, the outlook looks very positive for 2026. So thank you. Jin Kang: Great. Thank you, Casey. Operator: Thank you. At this time, this concludes our question and answer session. If your question was not taken, please contact WidePoint Corporation's IR team at wyy@gateway-grp.com. I would now like to turn the call back over to Mr. Jin Kang for his closing remarks. Jin Kang: Thank you, operator. We appreciate everyone taking the time to join us today. As the operator mentioned, if there were any questions that we did not address today, please contact our IR team. You can find their full contact information at the bottom of today's earnings release. Thank you again, and have a great evening. Operator: Thank you for joining us today for WidePoint Corporation's Fourth Quarter and Full Year 2025 Conference Call. You may now disconnect.
Operator: Good evening, and welcome to Dyadic International, Inc. Full Year 2025 Conference Call. Currently, all participants are in a listen-only mode. As a reminder, this conference call is being recorded today, 03/25/2026. I would now like to turn the call over to Mrs. Ping Wang Rawson, Dyadic International, Inc.'s Chief Financial Officer. Please go ahead. Ping Wang Rawson: Thank you, operator. Good evening, and welcome, everyone, to Dyadic International, Inc.'s full year 2025 conference call. I hope you have had the opportunity to review Dyadic International, Inc.'s press releases announcing financial results for the year ended 12/31/2025. You may access our release and Form 10-Ks under the Investors section of the company's website at dyadic.com. On today's call, our President and Chief Operating Officer, Joseph P. Hazelton, will review our full year 2025 business and corporate highlights, and provide a commentary on the strategic direction of the business. Our CEO, Mark A. Emalfarb, will provide an update on our biopharmaceutical programs. And I will follow with a review of our financial results in more detail, after which we will hold a brief Q&A session. At this time, I would like to inform you that certain commentary made in this conference call may be considered forward-looking statements, which involve risks and uncertainties, and other factors that could cause Dyadic International, Inc.'s actual results, performance, scientific or otherwise, or achievements to be materially different from those expressed or implied by these forward-looking statements. Dyadic International, Inc. expressly disclaims any duty to provide updates to its forward-looking statements, whether because of new information, future events, or otherwise. Participants are directed to the risk factors set forth in Dyadic International, Inc.'s report filed with the SEC. It is now my pleasure to pass the call to our President and COO, Joseph P. Hazelton. Joe? Joseph P. Hazelton: Thank you, Ping, and thank you everyone for joining. Since I stepped into the President's role in June 2025, our focus has been very clear: to accelerate Dyadic International, Inc.'s transition from a development-stage platform company into a commercial, product-driven biotechnology business with multiple paths for revenue. Over the past nine months, we have made significant progress executing against that strategy. We have completed a corporate rebrand to Dyadic Applied Biosolutions, aligned the organization around commercialization, strengthened our technological capabilities through CRISPR licensing, secured manufacturing through our expanded partner Fermox partnership, and most importantly, we began moving products into the market. And I want to emphasize this point upfront. Our reported revenues today still reflect the company in transition; the underlying business has clearly advanced towards commercialization. In less than one year, we have matured from early-stage product development to commercial product launches, distribution agreements, initial product sales and multiple revenue-generating partnerships. Life sciences is our most advanced business, with the clearest near-term product revenue and repeat purchasing. We are building a portfolio of recombinant animal-free proteins for use in cell culture media and molecular biology workflows. These are not speculative markets. They are large, established and growing markets that support biologic manufacturing, cell and gene therapy, cultivated meat, as well as diagnostics and research. These markets are rapidly shifting away from traditional animal-derived inputs towards state-of-the-art recombinant, high-quality, consistent, and scalable alternatives, which aligns directly with our production platform. I want to highlight recombinant albumin as our leading example of progress in life sciences. Albumin is one of the most widely used proteins in biotechnology, critical for stabilizing biologics, supporting cell growth, and improving formulations across diagnostics, therapeutics, and research. Traditional human and animal-derived sources introduce variability and supply limitations. However, through our partnership with ProLiant Health and Biologics, we are now producing recombinant human albumin which was commercially launched in early 2026. The Prolyte product, recombinantly produced using Dyadic International, Inc.'s production platform, delivers consistent, high quality, and scalable supply while avoiding the risks associated with animal-derived products. The Proliant collaboration is a profit-sharing arrangement in which Dyadic International, Inc. participates directly in commercial success as ProLiant expands commercial sales through their already established global sales channels. This is our first example of a Dyadic International, Inc. platform-enabled product reaching commercial scale with recurring revenue potential driven by our partner’s sales growth. Now turning to our animal-free recombinant transferrin. Transferrin is a critical component of serum-free cell culture media, delivering iron essential for cell growth and viability. It is widely used across biopharmaceutical manufacturing, cell and gene therapy, and cultivated meat. We are developing both bovine transferrin for cost-sensitive, high-volume markets like cultivated meat, and human transferrin for higher-spec applications, such as cell and gene therapy and biopharmaceutical production. A high-value recurring consumable, transferrin demand scales with customer production, directly linking their growth to our revenue. We have further advanced our commercialization capability through an OEM distribution agreement with IVT BioServices, enabling global sales of our animal-free recombinant products, such as DNase I and transferrin, through IVT's established distribution channels. This accelerates market penetration while supporting both near-term revenue and positioning us for long-term volume growth as products are adopted into customer workflows. DNase I is a widely used, high-value enzyme with applications across bioprocessing and molecular biology workflows. DNase I is used to remove residual DNA and is essential in areas such as cell and gene therapy manufacturing, biologic production, RNA workflows, and research and diagnostics. We have completed production validation and, together with Fermox, launched recombinant RNase-free DNase I as our first product commercialized under our expanded partnership with Fermox. As adoption grows, we expect progression from sampling to qualification to routine purchasing, driving steady volume growth. We are also advancing growth factors, specifically fibroblast growth factor, or FGF. FGF stimulates cell growth and is a key cost driver in cell culture systems, particularly in cultivated meat and advanced therapeutic applications. In 2025, we achieved our first sales of FGF, an important milestone reflecting technical validation and initial revenue. Growth factors are typically among the higher-value inputs in cell culture systems, and as a result can generate meaningful revenue even at modest volumes. We view this as the start of a broader portfolio targeting both high-volume, cost-sensitive markets like cultivated meat and premium applications such as cell and gene therapy. Our life science development has evolved into a multiproduct portfolio serving large, recurring end markets with multiple revenue channels, including direct product sales, distribution partnerships, and profit-sharing arrangements. These are markets where product adoption typically progresses from sampling to follow-up and into scaled use, and we are now entering the early stages of that curve. As these products move into routine use, we expect to see increasing repeat orders and revenue growth through 2026 and beyond. Turning to Food and Nutrition. This segment represents a significant opportunity driven by the global shift towards sustainable animal-free proteins and functional ingredients. Our strategy here is to leverage our DAPIBUS platform for large-scale, cost-effective production of proteins that replicate the nutritional and functional properties of traditional dairy and food ingredients, while partnering with companies that have established market access and application expertise. Another important development in 2025 was our agreement with RigBio to develop and commercialize animal-free recombinant bovine alpha-lactalbumin for global health and nutrition markets. Alpha-lactalbumin is a key whey protein naturally present in human breast milk, which is essential for early childhood development due to its high nutritional value and amino acid composition. Demand is increasing for scalable, non-animal-produced recombinant alpha-lactalbumin to better replicate the benefits of human milk. This program includes funded development, milestone payments, and revenue participation, which aligns with our capital-efficient model of near-term funding and long-term royalties in a large, growing market where even modest market penetration can translate into meaningful revenue, given the scale of global demand. We are also advancing our human lactoferrin program where we have established a stable production strain and are now optimizing yields and performance. Lactoferrin is a high-value functional protein used in infant nutrition, dietary supplements, and wellness products due to its antimicrobial and immune-supporting properties. Compared to traditional sources, recombinant animal-free offers improved consistency and scalability. We see potential for both direct sales and partner-driven revenue as we move towards commercialization. Another product approaching commercialization is recombinant bovine chymosin with our partner, Incyte, targeting the 2026 launch. Chymosin is a key enzyme in cheese production, enabling the coagulation of milk proteins into curds. To date, we have received upfront access fees and milestone payments with potential royalties during commercialization. This program reflects our capital-efficient partnership model of generating upfront fees and milestones while building long-term royalty streams without assuming downstream commercialization risk. More broadly, our Food and Nutrition pipeline continues to expand across non-animal dairy proteins and food enzymes, supported by growing demand for sustainable and functional ingredients. As these programs advance towards commercialization, we expect increasing milestone achievements and product launches with more meaningful contribution from recurring revenues beginning in 2026. In the Bioindustrial segment, our focus is on scaling our technology into large-volume applications through strategic partnerships with an emphasis on capital efficiency and manufacturing leverage. A key component of this strategy is our expanded collaboration with Fermox Bio, which provides access to commercial-scale manufacturing and additional product development opportunities in multiple markets. This enables faster commercialization without investing significant capital in our own large-scale infrastructure, an important advantage in cost- and volume-driven markets. One example is N3xi, an enzyme cocktail produced using our DAPIBUS platform that converts agricultural residues into fermentable sugars for biofuels and other industrial applications. Fermox has fulfilled its first large-scale order and is expanding sampling and commercial activity, including in the Asia Pacific region, demonstrating both performance and scalability in industrial settings. From a business model perspective, our collaboration with Fermox is structured around participation in product economics, typically through profit-sharing arrangements. This provides exposure to high-volume markets with scalable revenue potential while limiting our capital exposure. More broadly, our DAPIBUS platform is being applied across industrial segments including biomass conversion, pulp and paper processing, sustainable materials and bio-based manufacturing, such as microcrystalline cellulose and advanced nanomaterials. These markets are increasingly focused on efficiency and sustainability, where enzyme performance and cost profile are key drivers of adoption. We are also leveraging the platform's advantages of speed, yield, and cost efficiency from the bio within biopharmaceutical applications through partner-funded programs, enabling continued development without impacting near-term commercial execution. With that, I will now turn the call over to Mark A. Emalfarb, Dyadic International, Inc.'s CEO, to provide an update on these collaborations. Mark? Mark A. Emalfarb: Thank you, Joe, and good evening, everyone. We continue to advance our partner-funded biopharmaceutical collaborations applying our C1 platform into vaccines and antibody development through a non-dilutive, capital-efficient model. Across multiple programs, including infectious disease vaccines and monoclonal antibodies, we are seeing consistent expression, proper protein folding, and functional activity, supporting performance comparable to mammalian and insect cell production systems. To highlight a few efforts, our Gates Foundation collaboration continues to progress, with approximately $2,400,000 received to date under a $3,100,000 grant. Early data shows C1-derived monoclonal antibodies targeting RSV and malaria are comparable to CHO-produced material, supporting further development. In our CEPI collaboration, with the Fondazione Biotecnologie Senese, we are advancing recombinant vaccines, including scale-up towards GMP manufacturing, with an H5 avian influenza antigen currently in preclinical evaluation. We are also working with leading domestic and international organizations, including the NIAID, NIH, the Scripps Research Institute, Oxford University, UVAX Bio and NVAC, and the European Vaccine Hub, supporting a growing number of vaccine and antibody programs. These collaborations continue to generate an expanding body of data that not only validates the performance of our C1 platform across diverse targets, but also reinforces the scalability and broad applicability as we move into our product development and commercial execution. Within these efforts, we are advancing respiratory vaccine antigen programs, including ongoing RSV work with UVAX Bio, and separately, we have initiated a new collaboration with the Scripps Research Institute focused on pre-fusion antigens and multivalent vaccine candidates targeting RSV, human metapneumovirus (hMPV), and parainfluenza virus type 3 (PIV3). Early preclinical studies indicate that C1-produced RSV pre-fusion antigens performed comparably to mammalian-produced antigens while demonstrating potentially improved neutralizing antibody responses relative to insect cell production-based systems. These respiratory indications represent a large global vaccine opportunity where scalable manufacturing remains a key constraint. Our C1 platform is designed to address this through high-yield expression and efficient production of complex pre-fusion antigens, potentially enhancing efficacy while also improving cost efficiency and shortening overall development timelines. Overall, these collaborations continue to validate our C1 technology while building value through potential licensing, milestone payments, and royalties, which is incremental to our near-term product-driven revenue model. With that, I will now turn our call over to Chief Financial Officer, Ping Wang Rawson, who will walk through our full year 2025 financial results. Ping Wang Rawson: Thank you, Mark. I will now go over our key financial results for the year ended 12/31/2025 in more detail. You can find additional information in our earnings press release and Form 10-Ks which we filed earlier today. For the year ended 12/31/2025, total revenue was $3,090,000 compared to $3,500,000 in 2024. The decrease was primarily driven by lower R&D collaboration activity and reduced license and milestone revenue, partially offset by a $1,860,000 increase in grant revenue from the Gates Foundation and CEPI. Cost of R&D revenue declined to $600,000 compared to $1,200,000 in 2024. Gates and CEPI grant-related costs totaled $1,720,000 in 2025 compared to $0 in 2024. Internal R&D expenses increased modestly to $2,160,000 in 2025 from $2,040,000 in 2024 as we continue to invest in advancing our internal product pipeline towards commercialization. G&A expenses decreased to $5,760,000 in 2025 from $6,130,000 in 2024, driven by lower compensation and insurance costs. As a result, loss from operations was $7,190,000 in 2025 compared to $5,900,000 in the prior year. Net loss was $7,360,000, or $0.23 per share, compared to a net loss of $5,810,000, or $0.20 per share, in 2024. We ended the year of 2025 with approximately $8,600,000 in cash, cash equivalents, restricted cash, and investment-grade securities. Our net cash used in operating activities was approximately $5,700,000 in 2025. Looking ahead to 2026, we expect disciplined cash usage while prioritizing high-impact R&D programs and grant-funded activities. We also anticipate growth in product revenues across our life sciences, and food and nutrition markets, driven by new product launches in cell culture media while maintaining operating expenses generally in line with 2025 levels. Based on our current operating plan, we believe our existing cash resources provide a runway into 2027. However, we will continue to evaluate additional capital resources, including strategic partnerships and capital market activities, to further strengthen our balance sheet and support long-term growth. Next, I would like to briefly address the rationale for establishing an ATM facility. This is primarily about flexibility. The ATM gives us the ability to access capital opportunistically, depending on market conditions, pricing, and trading volume, rather than being forced into a larger, more dilutive transaction. It is also a more efficient financial tool used by the majority of micro-cap biotech companies with lower cost, narrower risk, and less market disruption. Importantly, putting an ATM in place now allows us to be proactive and prepared if favorable market windows open. That said, this does not mean we will use it. The ATM simply provides optionality and we will only access it if and when it makes sense. Overall, it is a common and flexible tool that complements other financing and partnership opportunities, and we intend to use it prudently with a focus on shareholder value. With that, I will now ask the operator to begin our Q&A session. Each caller will be allowed one question and one follow-up question to provide all callers with an opportunity to participate. If time permits, the operator will allow additional questions from those who have already spoken. I will ask the operator to begin our Q&A session, after which Joseph P. Hazelton will provide closing remarks. Operator? Operator: Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Matt Hewitt with Craig-Hallum. Please proceed. Matt Hewitt: Obviously, a very successful start to the year given the number of new partnerships and collaborations that you have announced. I am just curious, as we think about some of these product launches, how should we be thinking about the timing and kind of how the ramp of product revenues will progress over the course of this year, and quite frankly, more importantly, as we get into 2027 and 2028. Joseph P. Hazelton: Hey, Matt. It is a great question. And it is kind of a balance, right? It is a balance of how much inventory do we try to produce versus what the current needs are in the market. Obviously, having distribution agreements set up through IVT, and we are pursuing others, we are trying to balance the needs we have currently with the market expectations that we anticipate later this year. So we do, I guess, look at it as a slow ramp because the products do need to be into the market and qualified for use in the workflows that they are being ordered for. So while some, if it is like a research type of a use, that is usually a quicker pickup and a quicker conversion than something in the cell and gene therapy. So it kind of depends on use case as well. Right now, I would anticipate it is kind of a slower start, but as these companies get used to the products and as they get into the market and get established in the workflows, you can see that significantly start to pick up. And obviously, our goal is to sign more distribution agreements, so we can have larger product volume opportunities rather than just with individual companies. Matt Hewitt: Got it. And on the license front, obviously, and you just noted this, that you are looking to sign more collaborations. Do you anticipate that those collaborations, those new agreements, would incorporate some type of an upfront license fee? Or is it more important to get the correct distribution and having the agreement in place than necessarily getting upfront cash? Joseph P. Hazelton: That is another great question because I hate to give this answer because I always hate when I get it, but it depends. It depends on the product. And it also depends on the market. In certain cases, with alpha-lactalbumin, when we have existing strains that we have characterized at least to a certain extent, we do expect and drive for some upfront revenues. There are other markets that are a little more exploratory in the food nutrition space or in the bioindustrial; maybe we do not have a strain already developed. In those cases, it may be dependent on how far along we are in the progress of the product. But typically, we try to push for larger upfront access fees when the products are further along in their development phase. Those that are a little bit earlier in the development phase are a little more difficult because the customer has to fund additional work in development, which makes them a little reticent to provide larger upfront fees. We are trying to accelerate some of that through our own internal R&D development like transferrin. We are moving that through rather rapidly in terms of doing cell proliferation assays and other technical validation of the product that we feel will enable us to maintain or even drive some of those higher revenues. But every product is a little bit different. Every market is a little bit different. The further along we can take them, I mean, it is the same thing in biopharmaceutical, right? If you get to Phase 1, the product is worth more than preclinical. Phase 2, it is worth even more. It is similar in this; it is just you can achieve those milestones a little quicker. We can get them to technical validation a lot faster in the research and diagnostic space than we can with, just say, the GMP space. Matt Hewitt: Got it. All right. Thank you. Operator: Thank you. Our next question comes from the line of John D. Vandermosten with Zacks. Please proceed. John D. Vandermosten: Great. Thank you. So you guys have announced several new expansions of existing agreements and new arrangements since the last quarter's report. How are you making changes internally, I guess, to manage that with internal sales and marketing function? My next question is on pricing. How much control does Dyadic International, Inc. have over pricing with all of the various arrangements that you have signed? And I guess I am thinking of that in two ways. One, is that maybe these are just market prices and it is take it or leave it. And then secondly, perhaps how competitive can you be since you have a lower cost structure than some of the other products out there? Joseph P. Hazelton: John, first of all, another great question and thanks for being on tonight. The key thing for us is that the expansion of partnerships actually increases our own capabilities in some cases. Fermox has a dedicated business development team. They obviously have dedicated manufacturing. IVT, same thing. They have a designated sales team that supports their products across their distribution channels in the markets. So every time we do a deal, we do try to evaluate what other capabilities these partners bring into the mix and, like I said, Fermox expands our own capabilities. And then obviously, something like IVT gives us additional kind of boots on the ground, which is important for us as well because we do not have that. And then you have deals like with ProLiant. ProLiant, and I do not know if you have seen some of what they have been putting out, but they have done a very good job of putting a good data package around their recombinant albumin product which is Albufree DX. And as you can see, they have not only just a large media presence, but they also have a large infrastructure presence in terms of a global distribution and customer network that has now been engaged. So all of our partners we try to evaluate based on what else they can bring to the table and how quickly they can help us commercialize and accelerate these products. Another great question. In our partner programs, obviously, we have some visibility into that process, but it is partner-led. But in things like the distribution agreements, we obviously built our margins in ahead of time. So regardless of what the product ends up being in the market for, we have already made our money on that and made our revenue. So again, depending on the segment we are looking at or partner you are looking at, at times we have more control, like through a distribution agreement or through the growth factors that we are selling into, but it also depends on the market. So when negotiating with cultured meat companies, they are obviously much more price-sensitive than someone looking at using our transferrin for cell culture media applications in cell and gene therapy. So we have flexibility in terms of the markets that we are going into. We have greater flexibility with products that we control. But obviously, in certain cases, like with albumin, it is not as price-sensitive of a market right now. It will be increasingly so, as every market ends up being. But for the most part, they do tend to be market-driven. But the ones that we are able to control further are the ones that we have the greatest opportunity to improve our margins on. Mark A. Emalfarb: Yes. Well, John, think also that there is a big drive in all these industries and these applications for animal-free proteins. And as you can see from ProLiant and the data, as Joe talked about, they are comparing the natural albumin to the animal-free product that they are putting out, and the data is quite compelling. So, you know, the regulatory agencies and these industries like pharmaceuticals, even food and nutrition, there is a drive towards removing animal components both in the media and as the final product. So we are seeing a big push in that direction. And in some of the strains, as Joe talked about, we have very hyper-productivity and a lot of margin to play with. But we are not going to give up margin if we do not have to. In the snow-wash industry way back, we made something for $1, sold it for $8, obviously became more competitive as it did, we had the margin to reduce the price but still be competitive for the long term. So I think those are the things that you need to think about, and the market in general; animal-free proteins are exploding on a worldwide basis. John D. Vandermosten: Okay. Thank you, Joe. Thank you, Mark. Operator: Our next question comes from the line of Louis Titterton, a private investor. Please proceed. Louis Titterton: Hi guys, how are you? Good. How are you? Good. Good. This is probably an impossible question to answer, but in your planning, your financial planning, when do you think you might hit breakeven? Joseph P. Hazelton: That is always the million-dollar question. And you are right, it is not something I can answer definitively. The short answer is obviously we want to do it as quickly as possible. But we also have to be realistic and feasible in our approach. We do not want to make bad decisions that seem like maybe they can help us in the short term, but ultimately may not be in the best interest of the organization. And I will give an example of something like transferrin. Transferrin, we know it is an extremely valuable product. And while if we did something rather drastic sooner, we could bring in probably a nice chunk of money, it is not what is best for the company in the long term. The longer we continue to control these products, the better off we are going to be. But the goal, obviously, is to be as revenue-positive as quickly as possible. And I think the products that we have give us the ability to do that. We just need more of them. We need to get them commercialized and into the system. But as you look out into the future, I do not think it is going to be an extremely long time, but I cannot give you a definitive answer. Louis Titterton: No problem. Thank you very much. Appreciate it. Thank you. Operator: Our next question comes from the line of Tony Bowers with IntroAct. Please proceed. Tony Bowers: Hi, Joe. It is probably difficult to know at this point what a sustained higher energy environment might mean. I can see it could make cultured food much more attractive versus farm-raised. But do you feel any buzz about that when you were at recent conferences? And then the second question for Mark. On the biopharmaceutical programs. Great that you have so many people engaged now. If they get comfortable with the benchmarks, is the result that they just put this on the shelf and wait for a pandemic to hit? Or do you see opportunities to actually start making at least some seasonal vaccines? Joseph P. Hazelton: Sure. So it is actually interesting you say that, but there are actually a lot of different factors that are pushing this drive in the food space and not just energy. But obviously there is a larger push on the regulatory and the consistency aspect. I think that is probably the larger push, Tony, in that space. There has been greater variability in, just say, naturally produced products than there has been previously. And I do not know whether that is due to just differences in the process or if it is that they are trying to make too much too quickly. But the biggest topic that was at this conference was really the regulatory scrutiny around plant- and animal-derived products because the FDA, as well as other regulatory organizations, are looking into how you are extracting these resources from both animals and plants and the materials that go into it. So there is obviously an energy component to that, but there is also a regulatory component in terms of safety. And I think that is probably the bigger one that I see moving the food nutrition category. As well as the ability to have specialized nutrition. So, like you are seeing in the biopharmaceutical space, they talk about individualized medicine. That is now starting to be talked about in these alternative protein conferences as, can we make things obviously specifically geared towards elderly patients with diabetes or children with certain genetic ailments. It is very interesting. I think we are still miles away from seeing those on the market. But we definitely do see a shift towards these more efficiently scalable non-animal proteins for these uses. Mark A. Emalfarb: Well, I think if you think about it, alpha-lactalbumin and lactoferrin are made in such small amounts from milk. So even if you wanted to make it, it is not affordable. It is not accessible. And so somehow it has got to be made in an alternative manner if you want to have infant formula with the nutritional benefits or an adult health drink since we all age, right? So those are great opportunities where the margins—if we can produce these at the right levels at the right cost with DAPIBUS—the gates are just wide open for applications. Now it is going to take time from a regulatory perspective for some of those things, like an infant formula, to get put on the market. But as Joe pointed out, just like with ProLiant, so many partners we have, they have been in these industries for decades. They have the application knowledge, experience, the market access. So if we hit these things at the right yield and right cost with DAPIBUS, we are right in the game. On the biopharmaceutical side, it is not about just pandemic preparedness. People are now waking up and recognizing that, for example, the work we did with UVAX on the RSV and the pre-fusion, they have a better structure of the complexity of the antigen design. Same thing with Scripps with the other RSV, the hMPV, and the PIV3 potential trivalent. These things are huge needs out there in the world. And if we can just get the funding to move those forward, not just with Scripps and these institutes; there are people out there that we are talking to that potentially can fund some of these things. These are multibillion-dollar opportunities. So it is not just about pandemic. The pandemic gave us the opportunity to get into humans to show safety, efficacy, and tolerability in the vaccine space, or in the non-human primate space. So all these things, whether it is Gates, CEPI, they are opening the gates and the doorways to future products. It could be shingles, it could be HPV, there are all kinds of opportunities out there to drive these things forward. And those are all being funded independently. And the same technologies and those benefits not only apply to pharma; we will be able to use some of that for DAPIBUS to make even a better production strain for higher productivity and vice versa on both sides of the equation. Tony Bowers: That is great. Question for Ping on the recognition of grant revenue. Is it straight-line recognition or does it become a little bit more profitable at the end? Ping Wang Rawson: It is not a straight line, Tony. It is basically based on GAAP that we are recognizing the revenue as a percentage of the cost incurred for the entire project. So, basically, it is really a percentage of completion if you are into how it is calculated? Tony Bowers: Got it. Thank you. Operator: Our next question comes from the line of John D. Vandermosten with Zacks. Please proceed. John D. Vandermosten: So Joe, bigger picture, what is the utilization rate right now for manufacturing in the United States? And I know it was tight a few years back and then with tariffs and onshoring, and probably some new builds as well, has it changed materially? Joseph P. Hazelton: As far as capacity in the U.S. versus ex-U.S.? John D. Vandermosten: Correct. Yeah. Joseph P. Hazelton: I think you are right. I have not seen a drastic shift, but it is shifting. Not just the onshoring, but obviously the safety components and obviously tariffs and the political environment is driving some of that. But obviously not having to ship very expensive products worldwide is also attractive. And if you can make them here at home—I mean, ProLiant, obviously, is a great example, right? If they can manufacture here in the U.S. where they do their upstream rather than somewhere else, you obviously lower your risk in terms of bringing that product into the country. So I definitely have seen an uptick. There is definitely a lot of new things going in. We actually talked with a CDMO that is not even complete yet, but has a three-year wait in terms of manufacturing capacity. So I think the need is there. The question for me is going to be, can we ever hit true cost metrics to produce some of these GMP products here in the U.S. at the price point that these other countries will be? Like if you are producing it in the U.S., could you actually meet some of the cost metrics in Europe that you are going to need to hit? And that, I do not know. I do not know if it is going to change whether or not the whole reason that there is not a lot here today is just the cost. And I do not know if that is going to really change just because we have more capacity. Hopefully, it will drive the cost down, but I still do not know. Mark, do you have any thoughts on— Mark A. Emalfarb: Well, I think the efficiencies with a cell line that can pump out more product and yields can help drive the, let us say, difference between the costs because it is not labor intensive. And with AI and all these process optimizations, you could get to the point where really in the U.S. you could produce things at very near the same cost you can overseas because you are taking labor out. So to be honest with you, I think that we are heading in the right direction. Not only from a government regulatory perspective on pursuing onshoring the supply chain. And one of the things that we deal with all the time, for example, with BARDA recently, and there are a couple of conferences coming up, is the supply chain disruption. It was just not—you could see it with oil, right? Now it is constantly occurring and it is rearing its head. It is in the fertilizer, it is in the oil. It was in the pandemic. So people are realizing now that we have to have onshore capacity. Again, we are global. To be honest with you, we can pop our strain in India, could be China, it could be Europe, it could be in South Africa, could be in Bangladesh, it could be in America. But with AI and automation, that difference is going to just close the gap. So we will not have, per se, the gap that we have had in the last 20, 30 years with India and China; we are going to close that gap through innovation. That is why people are looking at faster-growing cell lines that can produce more for less, with cheaper media. John D. Vandermosten: Okay. Thank you. Operator: Thank you. There are no further questions at this time. I would like to pass the call over to Dyadic International, Inc.'s President and COO, Joseph P. Hazelton. Joseph P. Hazelton: Thank you. As we close, I want to take a step back and put our progress into context. Over the past year, we have made a definitive transition from a development-focused organization to one that is now executing on commercialization. We have restructured the business, secured manufacturing, expanded our partner network and, most importantly, began launching products and generating early revenue across multiple channels. While our reported financials today still reflect that transition phase, the underlying business has changed meaningfully. We now have commercial products in the market, manufacturing and distribution in place, a growing number of opportunities moving from sampling into qualification and toward repeat purchasing. Looking ahead, our focus is execution. We are focused on scaling product sales in life sciences, advancing partner-led programs in food and nutrition, expanding our bioindustrial footprint through Fermox, and continuing to leverage our platforms to create additional revenue opportunities. As these efforts progress, we expect to see increasing conversion and product sales, repeat orders, and a broader base of recurring revenue through 2026 and beyond. We believe the foundation is now in place, and our priority is to build on that foundation to deliver sustained revenue growth and long-term value creation. Thank you for your continued support and we look forward to updating you on our progress. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Zhihu Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] Today's conference is being recorded and webcasted. At this time, I would like to turn the conference over to you, Yolanda Liu, Head of IR and Capital Markets. Please go ahead, madam. Yolanda Liu: Thank you, Hadi. Hello, everyone. Welcome to Zhihu's 2025 Fourth Quarter and Full Year Financial Results Conference Call. Joining me today on the call from senior management team are Mr. Zhou Yuan, Founder, Chairman and Chief Executive Officer; and Mr. Wang Han, Chief Financial Officer. Before we begin, I'd like to remind you that today's discussion will include forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. As such, actual results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in our public filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Additionally, the discussion today will include both GAAP and non-GAAP financial results for comparison purpose only. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to our earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our IR website at ir.zhihu.com. Today, Victor Zhou, an AI agent, representing Mr. Zhou Yuan, will deliver prepared remarks in English on his behalf. As Victor is still being refined, we appreciate your understanding. Victor, please go ahead. Yuan Zhou: Thank you, Yolanda. Hello, everyone, and thank you for joining Zhihu's fourth quarter and full year 2025 earnings call. I am Victor Zhou, and I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, Founder, Chairman and CEO. In 2025, we achieved our first ever full year non-GAAP profit. This historic milestone validates our strategic transformation and underscores the structural durability of our operational leverage. Full year 2025, adjusted net income reached RMB 37.9 million, on a substantial turnaround from the adjusted net loss of RMB 96.3 million in 2024. Our community engagement continues to thrive. In Q4, average daily time spent per user increased to over 41 minutes on the platform. Our ecosystem of trusted creators remains vibrant, consistently delivering authentic and high-quality content across diverse fields. At the same time, we accelerated AI integration within our community. The synergistic evolution of our high-quality content times the expert network times AI capabilities continuously strengthened Zhihu's competitive mode in the AI era. In 2025, we successfully optimized our business structure. With a healthier commercial ecosystem, total revenue trend improved meaningfully in the fourth quarter, driven by a double-digit sequential increase in marketing services. Entering 2026, amid the surging AI adoption, we are leveraging Zhihu's unique advantages to scale AI-driven commercialization, including rapidly building industry-leading export data solutions and deploying AI productivity tools to accelerate IP monetization of our Yan'an Stories franchise. These initiatives will unlock new commercial opportunities for Zhihu. These efforts are anchored by a robust self-sustaining ecosystem. The powerful synergies between high-quality content, our expert network and expanding AI capabilities have created a positive feedback loop, driving heightened community, activity and interaction. In the fourth quarter, our data engagement metrics strengthened significantly. Average daily time spent per user increased sharply both year-over-year and sequentially to over 41 minutes. Substantial year-over-year growth in positive user interactions also drove notable improvements in both short- and long-term new user intention. High-quality content on our platform continues to surge. In Q4, daily creation of high-quality content rose by over 20% year-over-year, contributing to over 31% growth for the full year. Notably, professional AI-related content increased by over 30% year-over-year. As the global AI landscape has shifted from capability races to architectural innovation and system integration, Zhihu remains a leading forum for prominent researchers and frontline engineers to share insights, unpack complex topics and debate key issues. At the vanguard of the AI revolution, our community hosted extensive high-level discussions on key topics such as DeepSeek's Engram architecture, Qwen's new RIF's winning mechanisms, and the continuous iterations of Kimi and Zhipu. The conversation has moved from stronger models to effective system deployment, emphasizing tiered agent architectures and workflow redesign in products like Open Cloud and Cloud Co-Work. The debut of Unitree Robots at the Spring Festival Gala, together with Tesla and the figures progress towards a mass-producing humanoid robots have filled a critical analysis of embodied AI road maps as founders and the employees from leading AI enterprises personally engaged on Zhihu to answer questions and address concerns. Our platform remains attractive space where AI innovations are first explained, validated and responsibly disseminated. We continue to leverage AI to upgrade our community governance and content mechanism. By replacing many operations with algorithm-driven automated workflows, we enhanced community governance ,efficiency and precision. We introduced new metrics for trustworthy contents recognition and promotion ,while integrating user feedback into our evaluation framework. These measures effectively reduce system noise, dynamically suppressing low-quality content and elevating the overall user experience. Professional creators remain the backbone of Zhihu's expert network. In the fourth quarter, daily active high-tier creators grew by double digit year-over-year. A number of verified honored creators rose by nearly 30% as we continue to strengthen incentives for top-tier creators while supporting their efforts to expand industry influence. Our Zhihu 2025 annual review highlighted exceptionally robust high-tier creator engagement. In AI and technology, leading AI companies, including DeepSeek, Moonshot, Tongyi Qianwen, ByteDance Seed, Zhipu and StepFun actively engaged on our platform through their official accounts. Creators with frontline industry and R&D backgrounds consistently shared cutting-edge insights on our platform, contributing to major industry discussions. For the full year, AI-focused creators grew by approximately 16%. In fundamental sciences such as astronomy and chemistry, high-profile creators actively joined our flagship online and offline science programs. Their authoritative content sparked a widespread discussion beyond our community, driving higher search interest for related topics. On the product side, Ideas remains the primary channel for high-frequency knowledge sharing by professional creators, while Circle facilitates engagement around common interest. For the full year, average daily content volume on Ideas grew 73.5%, and the average daily interactions doubled. This momentum persisted in the fourth quarter with double-digit sequential growth across both metrics. We also increased support for mid-tier creators during the quarter, fostering a dynamic growth-oriented ecosystem. Leveraging AI agents, we significantly improved our efficiency in identifying and nurturing talent. In Circles AI-powered proms and standardized tools lowered creation variants and enhanced content distribution. As a result, average daily content creation in Circles surged over 100% sequentially with daily views up 72%. Beyond the AI-driven efficiency gains in content operations, creator support and ecosystem management, Q4 also saw accelerated advances in our foundational AI capabilities enhancing experiences for both creators and the users. In search, creation and consumption, we continue to deepen the integration of AI into the Zhihu community experience. In search, we completed an AI upgrade to our integrated search in December, introducing cross topic content aggregation and hot trend summarization to create a new entry point for high-quality content discovery. We also tailored the answer formats to different query types, which drove a double-digit increase in click-through rates for our AI direct answer cards and meaningfully increased average AI search interactions per user through more multi-turn conversations. In creation, AI is increasingly becoming a practical tool for creators on Zhihu. Since the fourth quarter, we have rolled out features such as content publishing and one-click enhancement powered by intelligent editing, automated formatting and image pairing capabilities. These tools lower the barrier to creation, improve readability and distribution efficiency and help creators turn ideas into shareable content more efficiently. We are also introducing multimodal capabilities such as AI-generated illustrations and image summarization to make long-form content more visually engaging and improve user conversion in the feed. In consumption and circulation, AI is helping Zhihu content transcend traditional community boundaries through external ecosystem partnerships, we are extending our content capabilities into more intelligent assistant scenarios. Within the community users are beginning to use AI in common thrives for fact checking and professional explanation, which supports more authentic interaction and follow-up discussions. Meanwhile, our AI reading panel on PC has improved the efficiency of long-form reading through one-click summarization and terminology explanation and is beginning to generate more valuable interest signals for future recommendation and monetization. Now turning to commercialization. Our efforts to optimize our commercial structure have yielded notable results. With a healthier business ecosystem, total revenue has entered a recovery phase, reaching RMB 643.5 million in the fourth quarter as the pace of sequential decline continued to narrow. This shows a clear top line recovery trajectory. At the same time, we are exploring new scalable AI-powered monetization avenues with an unwavering focus on long-term value and operational excellence. Let's take a closer look at our performance by segment. In the fourth quarter, marketing services revenue reached RMB 234.8 million, up 24% sequentially as our adjustment cycle bottomed out. Disciplined execution in optimizing client mix and upgrading commercial products capitalizes momentum, strengthening our appeal to high-value clients. We elevated the overall client quality, deepened industry penetration and accelerated new customer acquisition. In the fourth quarter, ARPU rose significantly among clients in high-value verticals such as technology and e-commerce. We also reached the new segments in sectors such as automotive and health care. In December, we hosted the Electric Club New Knowledge Technology Conference, which brought together automotive engineers, autonomous driving specialists and leading tech experts from the Zhihu community to explore NEV safety and intelligent upgrades. The event drove 140% year-over-year increase in participating clients enabling industry leaders like BYD, Mitsubishi and Voyah to articulate their technological strength and the safety value through targeted engagement and build trusted content assets. On commercial product upgrades, we leveraged our trusted content and expert network to expand the community-driven monetization and amplify the commercial value of our key IPs such as Zhihu Science Season and Zhihu Reviewers Jewelry. Revenue from IP-related projects increased 21% year-over-year, supported by deeper brand collaborations across our IP portfolio. At the same time, our Idea Plus solution gained strong momentum during the quarter. By offering a lightweight precisely targeted format, Idea Plus extended our native advertising capabilities into short-form content, significantly shortening the path from discovery to purchase, capitalizing on 106% year-over-year increase in daily ideas, interactions. Idea Plus achieved a 62% sequential increase in client numbers and 200% sequential growth in average daily client spend. In 2026, supported by a healthier commercial ecosystem, we aim to drive continued recovery and sustainable long-term growth in marketing services. Next, turning to the business we currently report on the paid membership, which we increasingly see evolving into a broader content and IP operations business. Paid membership remains a revenue contributor of this segment. In the fourth quarter, average monthly paid members reached 12.2 million, generating RMB 333.5 million in revenue. Short-term membership fluctuations aligned with expectations as our structural adjustments prioritize fundamental improvements in service experience and profitability to support a smooth transition during this phase, we are exploring new growth drivers, initiatives to improve member retention and ARPU are yielding results. Q4 average ARPU increased by 1.4% sequentially and overall quarterly renewal rates improved by 2.7 percentage points. Beyond the paid memberships, we are maximizing content IP's value across media adaptations and licensing. IP monetization revenue, which is currently recognized in other revenues grew more than fivefold year-over-year in the fourth quarter and doubled for the full year, underscoring the significant growth potential of this business. The monetization potential of our Yan'an Stories IP continued to translate into tangible results. In December, 2 adapted short dramas Fang and Xia, and The Seventh Year Of Secret Love For My Childhood Friend premiered on Tencent Video, quickly ranking among the platform's top releases. Fang and Xia set all-time popularity record for vertical short dramas on the platform, while Seventh Year Of Secret Love For My Childhood Friend topped the charts and sparked widespread discussion across social media. These results demonstrate our IP's strong adaptation potential and mainstream appeal. During the quarter, we released our short story influence list for the third consecutive year recognizing 62 outstanding works and 20 authors. The selection includes both mature IP already adapted into film and television as well as a pipeline of high-quality titles with strong multi-format development potential. Together, these initiatives highlight our scalable pathway for long-term value creation, cultivating high-quality content, structuring an IP portfolio and extending it across multiple formats to unlock compounding growth. Looking ahead, rapid advances in multimodal AI and the rising industry productivity are expected to further expand monetization opportunities for Yan'an Stories IP creating new growth potential for our content and IP operations business. Building on this, we are exploring a new format for IP development, AI-powered comic dramas and emerging formats driven by demand for lightweight content and improved generative model efficiency. Positioned upstream, Zhihu leverages a dense network of high-quality creators and rich content assets giving us a natural advantage as a stable source of premium IP. Strategically, we will pursue a dual-track approach of IP licensing and in-house incubation. We will also collaborate with platforms and studios to unlock mature IP value, while building in-house AI production capabilities. Turning to other revenues. Beginning in the third quarter to improve profitability, we consolidated our vocational training and the new initiatives into other revenues, which totaled RMB 75.2 million in Q4. We believe 2026 will mark another leap in AI productivity complemented by rapid expansion of real-world applications. Leveraging Zhihu's unique strength we are accelerating exploration of AI-related monetization. We also see growing potential in export data solutions as competition among other ends, increasingly shifts from scale alone to alignment, quality and real-world generalization, high-value, traceable and structured data is now the core driver of model performance. With our long-standing expert network and authentic discussion scenarios, Zhihu is well positioned upstream in the supply of high-quality knowledge and insights and we believe we can be among the earliest platforms in China to systematically define and commercialize high-value data solutions. To support this opportunity, we are developing our export data solution capabilities. At the same time, we are also exploring how to engage experts more deeply in data construction and labeling processing that supports model training and alignment. In summary, achieving full year non-GAAP profitability in 2025 marks a pivotal milestone for Zhihu, validating the resilience of our strategy and the strength of our execution. In 2026, we remain committed to prioritizing disciplined operations, while accelerating AI integration across our community and commercial models. We are sharpening our strategic focus and optimizing resource allocation. In our established businesses, we will continue to prioritize ecosystem health and the user experience, leveraging AI to drive efficiency gains and elevate content quality. At the same time, we are doubling down on AI-driven monetization innovations to cultivate new scalable growth engines. We are confident that 2026 will usher in a new era for high-quality growth for Q4, defined by the further realization of our unique AI capabilities and monetization potential. With that, I will hand the call over to our CFO, Wang Han, whose remarks will be delivered through his AI voice agent. Han, please go ahead. Wang Han: I will now go over our fourth quarter financials for a complete overview of our results, please refer to our press release issued earlier today. 2025 represents a structural upgrade in Zhihu's financial profile. As Victor noted, we achieved our first full year non-GAAP profitability milestone. Financially, this progress was driven by sustained cost discipline, improved operating leverage and tighter expense control, while maintaining healthy gross margins. For the full year, we recorded non-GAAP net income of RMB 37.9 million, and our non-GAAP operating loss narrowed by 33.6% year-over-year. These results reflect the cumulative impact of our multi-quarter structure optimization and provide a strong foundation to build on as we enter 2026. Now turning to the fourth quarter. Our total revenues for the quarter were RMB 643.5 million compared with RMB 859.2 million in the same period of 2024. The year-over-year decrease continue to reflect our ongoing efforts to optimize revenue mix and focus on sustainable, high-quality growth. Notably, the pace of sequential decline continued to narrow, reinforcing a clear top line recovery trajectory. Our marketing services revenue for the quarter was RMB 234.8 million compared with RMB 315.9 million in the same period of 2024, while the year-over-year decline reflects our proactive refinement of service offerings, the sequential trend was notably positive. Marketing services revenue grew 24% sequentially, marking a clear inflection point in our recovery. This momentum was driven by stronger client quality, deeper industry penetration and the successful ramp-up of new commercial products. Paid membership revenue was RMB 333.5 million compared with RMB 422 million in the same period of 2024. Average monthly subscribing members were 12.2 million. The year-over-year decline in membership was expected and reflects our deliberate prioritization of unit economics over scale. That said, we delivered sequential improvements in both ARPPU and renewal rates during the quarter, which we view as early validation that our retention initiatives are gaining traction. Other revenues were RMB 75.2 million compared with RMB 123.1 million in the same period of 2024. The decrease primarily reflected the strategic refinement of our vocational training business, partially offset by growth of revenues generated from our intellectual property derivatives business. Our gross profit for the quarter was RMB 344.8 million, compared with RMB 540.7 million in the same period of 2024. Gross margin was 53.6% compared with 62.9% in the same period of 2024. The decrease in gross margin was primarily due to our ongoing efforts to broaden and enhance content offerings for all users. Our total operating expenses for the quarter were RMB 608.7 million compared with RMB 528.8 million in the same period of 2024. The increase was primarily due to a onetime non-cash goodwill impairment charge of RMB 126.3 million, which was primarily associated with our prior acquisitions, mainly driven by lower valuations amid the current market conditions. Excluding this item, underlying operating expenses continued to decline year-over-year as we further streamline spending across key areas. Selling and marketing expenses decreased by 13% to RMB 275.2 million from RMB 316.2 million in the same period of 2024, driven by more disciplined marketing spend and lower personnel-related expenses. Research and development expenses decreased 16% to RMB 123.1 million from RMB 146.6 million in the same period of 2024. The decrease was primarily driven by ongoing improvements in our research and development efficiency. General and administrative expenses were RMB 84 million compared with RMB 66 million in the same period of 2024, primarily due to higher share-based compensation expenses. Our GAAP net loss for the quarter was RMB 210.8 million compared with RMB 86.4 million in the same period of 2024. On a non-GAAP basis, adjusted net loss was RMB 39.4 million compared with adjusted net income of RMB 97.1 million in the same period of 2024. As of the 31st of December 2025, we held RMB 4.5 billion in cash and cash equivalents, current and non-current term deposits, restricted cash and short-term investments compared with RMB 4.9 billion as of the 31st of December 2024. As of the 31st of December 2025, we repurchased 31.1 million Class A ordinary shares on the open market for an aggregate value of USD 66.5 million. In addition, throughout 2025, we repurchased a total of 16.6 million Class A ordinary shares through the company's trustee for an aggregate value of USD 23.4 million, representing 6.29% of the total issued ordinary shares. Looking ahead, we will further enhance earnings quality and scalability by prioritizing higher-margin, more capital-efficient revenue streams. We will continue to strengthen our monetization capabilities and explore new AI-powered revenue models, while leveraging Zhihu's core strength, high-quality content, a respected expert network and advanced AI capabilities, coupled with disciplined capital allocation, including share repurchases. These actions will reinforce our financial resilience and support sustainable long-term value creation. Operator: [Operator Instructions] We will take our first question. Your first question comes from the line of Xueqing Zhang from CICC. Xueqing Zhang: [Foreign Language] Thanks management for taking my question. And my question about your financial outlook. So firstly, what's the earnings outlook in 2026 and how to balance the investment with the cash flow and the profitability? Wang Han: [Foreign Language] Unknown Executive: [Interpreted] This is from Zhihu CFO, Wang Han. So first, 2025 demonstrated that Zhihu can achieve profitability. But more importantly, we believe, given our unique assets and positioning Zhihu's opportunity set in the AI era is meaningfully larger than what we current scale reflect. So we are not pursuing a single path of delivering profitability this year, more profitability next year. And then turning to dividends. At our current scale, that would not generate a particular meaningful level of returns for our shareholders. So what we want to do instead is stay focused on the opportunities created by AI and invest behind them. At the same time, this does not mean we will abandon the bottom line discipline that we worked hard to achieve or return to the old model of burning significant cash for growth. We will be disciplined in selecting new initiatives concentrating our investments on areas with visible ROI potential and a strong fit with Zhihu's core strength. In other words, we want to deliver growth in new AI-driven revenue stream. At the same time, to keep the overall bottom line on a healthy and responsive track. Thanks for the question. Operator: Thank you. We will take our next question. Your next question comes from the line of Daisy Chen from Haitong International. Kewei Chen: [Foreign Language] I'll translate it myself. As of current stage, what is your strategy in terms of our commercialization? And what are the company's core priorities for 2026? Wang Han: [Foreign Language] Unknown Executive: [Interpreted] So thanks for your question. I will get started with my answers. This is from Zhihu CFO, Wang Han. So in terms of the priority and the strategy in 2026, these are mainly centered on 2 tracks. First of all, in our core community business, we want to continue using AI to improve efficiency and deliver a better product experience for our users and the content creators. At the same time, to maintain stable revenue and a healthier level of operating profitability. In other words, we want to -- our core business to maintain steady, while becoming increasingly AI-enhanced and financially stronger over time. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] At the same time, we want to fully leverage Zhihu's unique assets to develop new AI businesses. As I mentioned earlier, the new initiatives we choose will not be built around aggressive cash burn. We will focus on areas where we can see a path to a healthy cash flow. Right now, we are mainly focused on 2 areas. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] The first is AI-enabled short-form drama and comic adaption. As text to video and image to video models continue to evolve. The production chain is becoming increasingly streamlined. In that process, the scarce asset is high-quality upstream IP, and that is not something that can be acquired overnight, simply by spending heavily. Zhihu's advantage is not only that we have accumulated a large library of high-quality copyrighted content, but also that we have a highly active creator ecosystem that continue to generate new ideas and new IPs. More importantly, AI-generated short drama and the comic style content have already shown that users are willing to pay for this type of AI content. So we believe this is one of the most promising areas where focused investment could generate meaningful and scalable AI revenue for us. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] The second area is data -- AI data services. At a time when many AI applications are still operating with heavy cash burn, there are only a few categories in the ecosystem that can capture structurally attractive economies. One, of course, is represented by companies like NVIDIA. Another on a relatively smaller but still very attractive scale is high-quality data area. In U.S. companies such as Scale AI, Surge AI and McClure has grown rapidly within just a few years by providing high-quality data services to leading LLM developers, while also demonstrating a healthy cash flow characteristics. So with our strong export network and depending on understanding of high-quality model data, we believe Zhihu is well positioned to provide differentiated data solutions for all of these AI developers. At the same time, our community can continuously service new areas of expertise, emerging knowledge, and involving capabilities that LLMs have not yet fully covered. This gives Zhihu a very differentiated advantage in this field. And we believe this is also a business with a clear opportunity to generate positive cash flow. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] So in a word, what we want to deliver is a stable core business that continue to upgrade through AI with improving product capability and a healthy financial profile. Alongside new AI revenue streams that can grow in a disciplined way. The goal is not to pursue growth through excessive spending, but also -- but to build a new AI business with visible monetization potential and a path to positive cash flow. Thank you for the question. Operator: [Operator Instructions] We will take our next question. The question comes from the line of Vicky Wei from Citi. Yi Jing Wei: [Foreign Language] So could management share some data that will help us better understand the impact of AI on the Zhihu community? And additionally, with regard to product upgrades and user experience enhancement in the coming year, what new initiatives does Zhihu have in place? Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreted] Thanks for your question. I will take this question. This is from Zhihu CEO, Zhou Yuan. So first of all, the impact of AI on our community has not been passive. Over the past few quarters, we have been actively driving this accelerating and deeper integration between AI and the Zhihu community with a clear focus on improving such as content consumption, creator experience and so on. Broadly speaking, the positive changes from AI adoption can be seen across 2 groups: our core retained users and our new users. Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreted] Starting with our core retained user, AI is helping users and creators better understand and connect with each other, which further strength the social nature of a real human interaction on our platform. In 4Q, both the coverage and frequency of the positive user interactions on the platform increased year-over-year. We are also seeing users actively call on AI capabilities, aka Zhida. In the comments section for things like fact checking, explaining professional topics and the following training discussions. Importantly, this is happening without disrupting the community atmosphere. Instead, it is helping drive -- is helping drive more interaction and the follow-on discussion among real users. More recently, we launched AI reading panel on PC, with features such as one-click summaries and explanations of professional terms. It has meaningfully improved the reading efficiency of long-form content and significantly enhance the deep reading experience for our core users. Yuan Zhou: [Foreign Language] Unknown Executive: As we mentioned earlier, daily newly added high-quality content in the community grew by over 20% year-over-year in 4Q. But beyond content volume, while we are more -- what we care more about is a positive shift in user and the creators' behaviors. So through like AI capabilities, such as intelligence editing and multi-model associated creation, we're continuing to lower the barrier. So we can see like in the per user's interaction improved significantly in this quarter. Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreter] For new users entering the community, AI is also lowering the barrier to content discovery, joining discussions and participating in interactions. In 4Q '25, the direct MAUs of Zhihu Zhida continued to grow by more than 260% year-over-year, while next month's retention improved by about 83% year-over-year. In February '26, average daily search queries per DAU increased by more than 16% compared with November '25. Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreter] As we shared previously, we mentioned that we completed another upgrade of AI capability within Zhihu's main search to further integrate Zhida with our broader search experience and making it a new entry point for high-quality content for our users. So we see this happened in December. And after this upgrade, search can present more suitable answer formats based on different types of queries. Since launch, user coverage of a AI Zhida cards have increased meaningfully. CTR, click-through rate saw double-digit improved and average AI searches per user also increased noticeably. Yuan Zhou: [Foreign Language] Operator: Continue to standby, the conference will resume shortly. [Technical Difficulty] Unknown Executive: [Interpreter] Okay. I will continue to deliver answers from our CEO, Zhou Yuan. So for the looking forward perspective, our plans are focused on 2 areas. First, we will continue investing in the experience gains we are already seeing from AI, both in terms of enabling more social interaction and efficiency for core return users and new users. So this direction here is already quite clear, and we have been building toward it step-by-step. On top of that, we are preparing to upgrade the Zhida's core capability from AI search towards an agent-based experience. We believe this could bring broader product experience upgrades to users across community. Although there is still an innovation and execution process ahead of us, and we will continue to work through that rollout. So this is from Zhihu CEO, Zhou Yuan. Thanks for your question again. Operator: Thank you. That concludes today's Q&A session. I will now turn the call back to Yolanda for additional or closing remarks. Yolanda Liu: Thank you once again for joining us today. If you have any further questions, please contact our IR team directly or Christensen Advisory. Thank you. Thank you all. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, and welcome to the Worthington Enterprises Third Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] This conference is being recorded at the request of Worthington Enterprises. If anyone objects, you may disconnect at this time. I'd now like to introduce Marcus Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin. Marcus Rogier: Thank you, Regina. Good morning, everyone, and thank you for joining us for Worthington Enterprises Third Quarter Fiscal 2026 Earnings Call. On the call today are Joe Hayek, our President and Chief Executive Officer; and Colin Souza, our Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made during today's call are forward-looking in nature and subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information on these risks and uncertainties, please refer to our earnings release issued yesterday after the market closed, which is available on the Investor Relations section of our website. Additionally, our remarks today will include references to non-GAAP financial measures. Reconciliations of these financial measures to the most directly comparable GAAP measures can also be found in the earnings release. Today's call is being recorded, and a replay will be available later on our website at worthingtonenterprises.com. With that, I'll turn the call over to Joe for opening remarks. Joseph Hayek: Thank you, Marcus. Good morning, everybody. Welcome to Worthington Enterprises Fiscal 2026 Third Quarter Earnings Call. We performed very well in Q3 and generated strong earnings growth, which is a reflection of the tremendous effort that our team exhibits every day. Our colleagues all over the world continue putting our customers first and our solutions and approach are resonating, helping us to grow. In Q3, in market conditions that continue to be mixed, we delivered strong year-over-year growth in revenue, adjusted EBITDA and earnings per share. Revenue in Q3 was up over 24% from last year, while our SG&A expenditures declined by 70 basis points as a percentage of sales. Our adjusted EBITDA grew by 15% year-over-year. And in the last 12 months, our adjusted EBITDA is now $297 million, up $54 million from a year ago, and adjusted EBITDA margin was 22.4%. This growth is driven by our teams as they optimize and grow our business by developing and launching new products, expanding production capacity in key value streams, providing excellent customer service and through strategic acquisitions. We believe we are very well positioned to capitalize on our strengths and continue to grow our market share as end markets improve. Q3 is a great example of how we leverage the Worthington Business System and how it shows up in our financial performance. As we grow our top line and profitability, we're leveraging the WBS and its 3 growth drivers: innovation, transformation and M&A to maximize both our near- and long-term success. Innovation is a big part of our growth strategy. Our ASME water tanks used for liquid cooling and data centers are a great example, and our pipeline is rapidly growing as data centers increasingly utilize liquid cooling solutions. In addition, innovation and new products have led to new store placements for Balloon Time, driving growth in our consumer business. Transformation has been a cornerstone of our operating strategy for some time. As new technologies emerge and we conceptualize and implement new tools that help transform our business, we're always focused not on how we did things yesterday, but on how we can do them better or more efficiently tomorrow. Our 80/20 initiative is a good example of that thinking, and we're very happy with our progress to date and excited about how we can continue to leverage that discipline. AI is now embedded across many of our applications, and our focus is shifting from experimentation to operational impact, deploying AI in specific workflows where it can drive measurable efficiencies, not just individual productivity gains. We also continue investing in automation as we gain efficiencies and create elevated opportunities for our colleagues. We're focused on acquiring companies in niche markets with sustainable competitive advantages. And in January, we completed our acquisition of LSI. LSI is a leading U.S. manufacturer of standing seam metal roofing clips, components and retrofit systems that enhances our position in engineered building systems. LSI's products are engineered into OEM certified roof systems, creating meaningful requalification requirements and high switching costs. We're very happy the LSI team is now part of Worthington. Our integration efforts are off to a good start, and we're excited about the growth prospects that we have together. At the core of the WBS and at the core of Worthington is our culture and our philosophy. Our company is founded and grew up embracing the notion that people are our most important asset. Today, as visibly as ever, our people power our success. Part of our opportunity and our obligation as a U.S. manufacturer is to invest in and develop the workforce of the future. This year, we launched our largest career accelerator program to date. where high school seniors spend 10 weeks developing career readiness on the shop floor and in the classroom. When these young men and women complete the program, they'll have a certified manufacturing associate credential and a full-time job offer from us. Our teams do not seek recognition for its own sake, but it is gratifying when we are recognized by others. For instance, Newsweek recently named us one of America's greatest workplaces for culture, belonging and community for 2026. We're also named one of the world's most productive companies by LNS Research. While these awards do not independently drive our success, they reflect a group of talented individuals and teams doing things well and the right way. Teams like that are the kind you build around and that make you proud to come to work every day. Global events seem to be unfolding daily and consequently, economic growth forecasts are cloudy. But we believe our value propositions continue to improve and resonate with our customers that demand in our end markets is steady and will grow as market conditions improve. Our strategies are solid, and we're executing well. As we approach the end of our fiscal year, we believe we're very well positioned to continue growing Worthington Enterprises and creating meaningful value for all of our stakeholders. I will now turn it over to Colin, who will take you through some details related to our financial performance in the quarter. Colin Souza: Thank you, Joe, and good morning, everyone. We delivered strong financial results in Q3, reporting GAAP earnings of $0.92 per share compared to $0.79 per share in the prior year period. The current quarter included $0.06 per share of restructuring and other nonrecurring items, primarily related to acquisition costs and the noncash amortization of a portion of the inventory step-up associated with our recent acquisition of LSI. The prior year quarter included $0.12 per share of restructuring and other expenses. Excluding these items in both periods, adjusted earnings were $0.98 per share, up from $0.91 in the prior year quarter and marking our sixth consecutive quarter of year-over-year growth in adjusted EPS and adjusted EBITDA. Consolidated net sales for the quarter were $379 million, up 24% compared to $305 million in the prior year quarter. The increase was driven by higher overall volumes in both building and consumer products, combined with the impact of recent acquisitions, which contributed $32 million in net sales for Q3. Excluding the impact of acquisitions, net sales increased $42 million or 14% over the prior year quarter. Gross profit increased to $109 million from $89 million in the prior year quarter. Gross margin was 28.9% compared to 29.3% a year ago, with a modest contraction primarily reflecting the purchase accounting impact of the inventory step-up at LSI. Adjusted EBITDA increased to $85 million from $74 million in the prior year quarter, with an adjusted EBITDA margin of 22.3%. On a trailing 12-month basis, adjusted EBITDA increased $54 million or 22% to $297 million compared to $243 million in the prior year TTM period. This performance reflects the strength of our differentiated portfolio and the positive impact of the Worthington Business System, supporting improved operating discipline and sustainable earnings growth, both organically and through acquisitions. Turning to our cash flow and capital allocation. Our focus remains funding growth through acquisitions and reinvesting in our business while returning excess cash to shareholders via dividends and share repurchases. Capital expenditures totaled $14 million in the quarter, including $4 million related to our facility modernization projects in consumer products. We returned capital to shareholders through $9 million in dividends and the repurchase of 100,000 shares of our common stock. Our joint ventures continue to deliver strong cash generation, providing $35 million in dividends during the quarter, representing 113% of equity income. Operating cash flow was $62 million in the quarter and free cash flow was $48 million. On a trailing 12-month basis, free cash flow is now $164 million, representing a 95% free cash flow conversion rate relative to adjusted net earnings. Our free cash flow reflects elevated capital expenditures associated with our facility modernization projects, which totaled roughly $27 million over the TTM period. We have roughly $25 million of modernization spend remaining. The modernization project is on track and on budget, and we expect to complete it by mid-fiscal year 2027. After this investment is complete, capital expenditures should return to more normalized levels, supporting continued healthy free cash flow conversion over time. Turning to our balance sheet and liquidity. We closed the quarter with net debt of $306 million, resulting in a net debt to trailing adjusted EBITDA ratio of approximately 1x. Our leverage remains conservative, and we maintain ample liquidity with $495 million of availability under our revolving credit facility at quarter end, providing significant financial flexibility. Yesterday, our Board of Directors declared a quarterly dividend of $0.19 per share payable in June of 2026. Let me now turn to our segment performance. Building Products delivered another solid quarter, reflecting the quality of our business and the efforts of our teams. We are pleased to close the LSI acquisition in mid-January, expanding our offering in the building envelope and are excited to welcome LSI's team to Worthington. Q3 net sales grew 36% year-over-year to $224 million, up from $165 million in the prior year quarter. Growth was driven by higher overall volumes and contributions from acquisitions, which contributed $32 million in net sales. Excluding acquisitions, net sales increased 16% year-over-year, reflecting strong organic growth across multiple value streams, in particular, our water and cooling construction businesses. Adjusted EBITDA for the quarter was $59 million compared to $53 million in the prior year quarter, with an adjusted EBITDA margin of 26.3%. The $6 million increase was driven by improved performance in our wholly owned businesses, including approximately $5 million from recent acquisitions, partially offset by lower combined equity earnings from our joint ventures. WAVE continues to perform well, delivering year-over-year growth and contributing $27 million in equity earnings, while ClarkDietrich results were lower year-over-year in a challenging nonresidential construction environment. ClarkDietrich contributed $6 million compared to $9 million last year and improved modestly sequentially from Q2. Our integration plans for Elgen and LSI are on track, and the Building Products team remains well positioned to continue to deliver value as we move forward. Consumer Products achieved strong sales and earnings growth in the quarter, driven by the strength of our brands, disciplined execution and continued demand across key categories. Net sales in Q3 were $155 million, up 11% over the prior year quarter, driven by improved volumes and higher average selling prices. Balloon Time continues to perform well, showing its agility with expanded retail placement paired with innovations like the Balloon Time Mini. Adjusted EBITDA margin increased -- or sorry, adjusted EBITDA increased to $35 million from $29 million in Q3 a year ago, with margins expanding to 22.9% from 20.5%. The consumer team is poised to continue delivering value-added solutions that strengthen our customer relationships and position the business for sustainable growth moving forward. We delivered strong financial results in Q3. Our differentiated product solutions and disciplined execution, leveraging the Worthington Business System are driving stronger operations, solid cash flow and returns and resilient earnings growth, both organically and through acquisitions. At this point, we're happy to take any questions. Operator: [Operator Instructions] Our first question will come from the line of Dan Moore with CJS Securities. Will Seddon: This is Will on for Dan. 14% organic revenue growth in the quarter, very strong. Can you talk about volume versus price? Was price much of a factor for either building products or consumer products? Colin Souza: Yes. Good question, Will. So we're very pleased on the organic growth rate overall, 14% organic, which you mentioned, Building Products was up 16%. Organically, that's the second quarter in a row. Building Products is up 16% organically. Consumer was up 11%. It was a mix of different factors there across the different value streams. Volume played a key role. Pricing played a role as well there. But overall, we continue to think about where we're heading organically in terms of the margins. We're trying to get to 30%, and we've been in the high 20s over the past couple of quarters. We continue to try to make progress towards that 30% gross margin range. And then just as important is making sure we control our SG&A and getting that below 20% as a percent of sales. So a number of value streams were up from a volume and then some were up from a pricing standpoint. I talked about in consumer products, just volume and higher average selling prices. So the pricing factor was there more than others. Joseph Hayek: Yes. And Will, it's Joe. The only thing I would add is that volumes are definitely increasing. At the same, as Tom mentioned, there are some pricing dynamics in there as well. What sometimes gets lost is the benefits from the new products and NPD that we're seeing in the organic growth side. We talked about Balloon Time. Their store count is up 64% from a year ago. They're in 55,000 stores. That's driving a lot of growth. And we talked about the ASME tanks in data centers. That's just not us raising price or having more value of the same thing. That's having new products that are available to either defend our existing businesses to increase the moat around our businesses or candidly to appeal to new customers, and we're having success with all 3, which makes us pretty happy and pretty optimistic about the future. Will Seddon: That's super helpful. And looking forward, can you add some color on the type of organic growth you're expecting to generate in Q4 and over the next few quarters? And if you could break it out by building products and consumer products in the JVs? Joseph Hayek: Yes, that sounds suspiciously like giving guidance, Will. So we're not going to be able to do that. But we do believe that a lot of the trends that we have been seeing will continue. We're always mindful in our businesses that there are pockets of strength. One of the things that really makes us feel good about our business is that we do have businesses and end markets that are influenced by different things. We're not over-indexed to a certain vertical or a certain industry. And so yes, we'll continue to drive organic growth as we optimize and grow the business, and we're certainly always looking for opportunities to grow through acquisitions as well. Operator: Our next question will come from the line of Brian Biros with Thompson Research Group. Steven Ramsey: This is Steven Ramsey on for Brian. The comments on the tank business in data center, certainly an interesting topic and one that our channel checks point to a stunningly bright picture for this segment over the next year or 2 at least. I'm curious on 2 fronts there. Number one, how the pipeline is forming and your visibility into that demand for new data centers? And then secondly, is there much opportunity now or that's coming in the retrofit side of existing data centers? Joseph Hayek: Steven, it's Joe. Great question. For a lot of our value streams, data centers are an important and a growing end market, WAVE, ClarkDietrich, Elgen, LSI and Amtrol, which is our water business, to name a few. Specifically, on that water side, on the ASME side of the business, the ASME cooling tanks that we provide are gaining significant traction as data centers increasingly embrace liquid cooling and there are lots of things for chipsets and things like that, that are driving that dynamic. For us, our business this year will probably triple. Importantly, next year, we see additional incremental growth. And we honestly don't think it's a year or 2. We think it's several years. We also don't think it's all coming at once because when you look at the announced data centers and the announced changes, there is a lag between those announcements and then when things get built and certainly when our solutions become part of the overall construction project. And so visibility-wise, we continue investing in people and process and engineering capabilities. And so we feel really good about that business for the foreseeable future. It's not just in the tank side of the business. I mentioned we have lots of other businesses that are benefiting from exposure and solutions to the data center. We also don't want to over-index to data centers either. it's not like this is half of our revenue, but it is growing, and we feel really good about it, and we feel good about the investments that we have made that have led to our success thus far and that we're continuing to make. Steven Ramsey: That's great color and all makes sense. Maybe a follow-on question on the same topic. How do you feel about your capacity producing all the various products that go into data centers? And how do you think about managing that capacity given the outlook for multiple years is so bright? Joseph Hayek: Yes, that's a great question. And certainly, we're not the only company that needs to sort that out that the entire supply chain and ecosystem around data centers continues to be pretty dynamic. From our perspective, we continue to feel like we have capacity and we can grow and we have the ability to continue to think about the best ways to make sure that we are engineering these products and getting them into the hands of our customers on an efficient basis. Steven Ramsey: Okay. That's helpful. And then last quick one for me. One of the topics from the recent war issues is helium shortages. I'm curious if this is any impact for you guys? Joseph Hayek: Yes. it's a great question. In the near term, as a domestic sort of supplier of what we do, our sources of helium are also domestic. And so never say never, but for right now, I think we're in good shape. Operator: Our next question will come from the line of Walt Liptak with Seaport Research Partners. Walter Liptak: Great quarter guys. I wanted to do some follow-ons to the data center question that was just asked. You ran through a couple of businesses, WAVE, LSI, Amtrol, and I think there might have been another one that have exposure to data center. I wonder if you could maybe talk about them collectively, how much revenue is there today? How much -- how -- what's the growth rate on all of those? And what do you think your best opportunity is from those multiple spots where you can go after data center projects? Colin Souza: Walt, so as Joe mentioned, we play in a number of different verticals, different businesses to support the growth there. With WAVE, it's more of the structural grid and then containment, and they have really solid teams in place and capabilities to capture the demand that they're seeing there, which is fast and growing and feel really good about that. ClarkDietrich, more on the structural side, the products that they provide, they're seeing increased volume there, and they're able to capture that and feel really good there. On Elgen, we've talked about it with HVAC components and then strut products. They've seen big increases in their demand over the past couple of years related to data centers. And then on LSI, the metal roofing clip. So they're all growing quickly within each of these businesses. I mentioned last quarter, it's less than 10% of each of these businesses individually. But in all cases, it's the fastest-growing area of these businesses. So I would expect that to continue moving forward based on what we can see. Each of these businesses in different ways, they're either making small investments in just resources to help capture the demand and in some cases, small investments in equipment to make sure we can capitalize on the solutions that these data centers need. So Joe talked about our water business with Amtrol, and we're excited about that opportunity. And our teams are just setting up their strategies to make sure we can capitalize on this moving forward. So we feel really good about that and touches a number of businesses and the teams are focused there for sure. Walter Liptak: Okay. Great. Okay. I'll change gears here and go into -- maybe just one, the -- during the quarter, we had the situation in the Middle East change with U.S. Iran. It didn't seem like it had much of an impact that was negative because the results were really good, especially the organic growth. But did you see any customer behaviors change in February, March? And how are things trending towards the end of March? Joseph Hayek: Sure. So Middle East specifically, well, things are pretty fluid at the end of last week, things looked a certain way. And this week, they look a bit more optimistic from the standpoint of getting the straight formulas open and getting goods and oil flowing to the world. It's a little difficult to forecast any tangible impacts that a prolonged closure would have beyond the obvious, which is that interruptions of global shipping are inflationary. That is what it is. And specifically, energy costs are up, including oil, diesel, natural gas, other derivatives, that's true globally. This will have an impact on everybody, whether it's trucking, ocean freight or anything else. There are other inputs that come out of the Middle East, but those will be impacted. And then specifically to us, our European LPG business has some customers in the Middle East. And right now, we're unable to ship to those customers. So we're certainly hopeful that the situation gets resolved sometime in the near future. But I would say, first of all, we're not at all over-indexed to the Gulf for oil prices generally since we're predominantly a U.S. manufacturer, but we will take steps to mitigate potential headwinds or price increases with fuel if or as they present themselves to us. Walter Liptak: Okay. Great. And then kind of along those same lines in the Consumer Products segment, they -- it looks like a really nice quarter. I wonder if you could talk about inventories market share. You talked already about the selling price increases, but it seems -- did they take their inventories down too low and they're just coming -- bringing them back up to a normal level? And you mentioned Balloon Time market share gains. Are there other market share gains as a U.S. manufacturer that's helping the organic revenue? Colin Souza: Yes, Walt. So as you said, consumer had a fantastic quarter. They were up 11% growth organically and a number of factors there. The celebrations business, our Balloon Time business, volume was up there as we've continued to gain share, gain new placements and layer on innovation. So a lot of initiatives working well there and compounding on each other for good results on the celebrations category. Our outdoor business, volumes were up, and we were able to capitalize on demand there. The tools businesses continue to perform okay, not up significantly, not down significantly. And we talked about some of the demand drivers within kind of repair and remodel activity that are key factors there. But margins for consumer, they were up 240 basis points year-over-year versus the prior year quarter. That was factors I mentioned, higher volumes, improved pricing, favorable mix and a really good Q3 overall. Q3 and Q4 are seasonally strongest quarters in consumer products. We don't see any sign of overstocking from an inventory perspective at our retailers. So we feel good about just the demand dynamics there and things to come. Q3 being our strongest quarter typically. Operator: Our next question will come from the line of Susan Maklari with Goldman Sachs. Susan Maklari: Can you hear me okay? Joseph Hayek: Yes. Susan Maklari: Okay. Perfect. I wanted to talk a bit about the state of the consumer. With everything that has happened and going on in the world, have you seen any change as you think about the spring and just how you're thinking about inventories and positioning, especially around the new products and all of that momentum that you're seeing? Joseph Hayek: Sure. So state of the consumer generally, for us, consumer -- for our consumer business, we're not broadly correlated with overall consumer trends that a lot of people focus on. Many of our consumer products are actually geared towards contractors or professionals. And in those value streams, demand is actually more akin to what you might see in building products, which is stable, steady conditions with a little bit of growth. In the more traditional consumer-focused value streams, our products are a lot of times used to elevate the experiences that people are having as they replace more expensive experiences. And so our demand tends to be a bit more resilient than in other categories that you might see in consumer. From an inventory perspective, we're relatively steady. We approached the winter season with camping gas in a pretty good spot, and we partnered really well with our retail customers, and they exited Q3 in a pretty good spot, and we don't believe that they're kind of over-indexed or that the channel is overly full. But the one other dynamic, Susan, I'd point out is that we do continue to benefit from the innovation engine. We have opened new doors and gaining share. We've talked about the things that are happening with Balloon Time. It's also true in the tools business. And overall, we've got a lot of things that probably won't launch in the next quarter. But over the next year, we've got a number of new products that are also coming to market that we feel pretty good about. Susan Maklari: Okay. That's great color. I want to talk a bit about the JVs. It seems like, obviously, with the macro coming through, you're still seeing some of those pressures in ClarkDietrich. But can you maybe give us an update on how things are moving there and also within WAVE, how you're seeing the dynamics and [indiscernible] that part of the business? And anything as it relates to steel versus the pricing that you put earlier this year? Joseph Hayek: Sure. So Susan, I think I understood your question. You're echoing quite a bit, but I think what your question is around the JVs and a lot of the dynamics there. And so I'll give it a shot, but if I miss anything that you're asking about, make sure you remind me. But take ClarkDietrich first. It's a great business. They are a market leader, but they're operating in a pretty tough environment. That environment will improve over time as market conditions allow. They improved sequentially in Q3. We do expect them to be relatively flattish to that number in Q4. But as we kind of look out and we think about interest rates and uncertainties and the headwinds, this is a time period where the team at ClarkDietrich is operating exceptionally well. And they have leaned out their processes. They have learned an awful lot about how to deal with different challenging environments that their customers are having. There -- I think their customers are feeling better about them than they have in quite a while, and they really prioritize doing business with ClarkDietrich. And so we've got one more, I think, challenging comp for ClarkDietrich, but thereafter, we expect them to continue to do all the things that they're doing, and they'll increasingly contribute to EBITDA growth over the course of time and certainly getting into fiscal '27. And WAVE, as you know, continues to be a great business with the commercial market being having less opportunities to grow, although we are starting to see some green shoots there. We continue to see strength there in data centers and health care and education. The verticals -- and people talk a lot about data centers and their data centers generally are representing a lot of the growth that's available in consumer -- sorry, in commercial. But that will ultimately change. And so when those markets turn and get better, the entire industry, I think, is poised to grow. They continue to do a fantastic job on their own with NPD. That's a great management team and a great leadership team and our partner at Armstrong. We're very happy with WAVE and all the work that continues to go in there. And in a relatively flattish demand environment, they continue to do a fantastic job. Susan Maklari: Okay. That's great color. I'm just going to squeeze one more in, is there any impact from the weather on building products in the third quarter? Joseph Hayek: Okay. Great question. And so in Q3, weather is actually a little bit of a mixed bag for us. So the cold and the storms that the eastern half of the country experienced really starting in December, did drive demand for our camping gas and our other heating products. Those are used for emergency and supplemental heat and cooking fuel in cases of emergency or lost power. At the same time, the cold and the storms caused some delays on construction sites, which has an impact on a number of our businesses. We actually lost several production days in our building products facilities in the Northeast and a couple in the Midwest because of those storms. And in some cases, you can make up some of that production and shipping with some expensive overtime. Sometimes you simply lose those days in a roughly 60-day shipping quarter, those kinds of disruptions aren't needle moving by themselves, but they do matter, and they can put some pressure on manufacturing and conversion costs. So overall, I would say that the weather as is seasonally normal was a modest positive for us overall. Operator: [Operator Instructions] Our next question is a follow-up from the line of Dan Moore with CJS Securities. Will Seddon: This is Will on again. Just one more follow-up that I don't think was asked yet. Can you provide maybe more color and update on the LSI acquisition? How is performance and synergy realization tracking relative to expectations? Colin Souza: Yes, Will, thanks for the follow-up. So really excited about LSI. We closed it midway through the quarter. So there's really just about 6 weeks of results in the quarter, but meeting expectations so far. We're in early days of integration, but really, really excited about that business. And the more we spend time with that team, the more it's validating and our conviction increases for what we can do together. As a reminder, they're a leading player in commercial metal roofing clips. This was an attractive niche driven by the reroofing cycle. And really strong margin profile and opportunities for us to really capitalize on coming together and making this business better under our ownership. So really excited about that. And lastly, the team there is such a good cultural fit with ours. So we enjoy spending time with them and look forward to the things we can do together. Operator: Our next question will come from the line of Brian McNamara with Canaccord Genuity. Brian McNamara: I'm going to ask about tariffs and tariff advantages. So I'm curious where you guys stand in your tariff advantage product relative to peers on a market share basis or however kind of way you want to posit it. I remember last quarter, you guys said you needed to hire 40 more people at your plants to kind of meet increased demand for those products. And I think that partly drove part of the gross margin degradation last quarter. So where are we as it relates to kind of tariffs and kind of your perceived advantage there? Joseph Hayek: Sure. Brian, a lot has changed, but there has not been a lot of resolution around tariffs in the last couple of months. But from our perspective, we still think that we're a net beneficiary of the tariffs that are announced and in place. And as you know, in a lot of our value streams, we are the only domestic manufacturer of certain products. And so potential foreign competitors need to navigate the Section 232 tariffs, which was not an issue with the Supreme Court. So a level playing field is always a good thing for us. We believe we have taken market share in multiple value streams, and we did absolutely chat in December about the fact that we have added some manufacturing colleagues to meet demand in those businesses. And so we continue to feel like our solutions are resonating and that the competitive dynamic is such that we have the opportunity to compete on the merits and the value that we bring to our customers, and that makes us feel really good. We've talked about this, but we do have some tariff impacts that are negative to us, whether it's commodity costs or certainly in the consumer business that products that are manufactured overseas. And so the 3 mitigants that we always leverage are asking our suppliers to partner with us and offset some of those additional costs. We continue to try and leverage tools and take cost out of our own supply chains everywhere we can. And then if we need to, we contemplate pricing actions. And we do feel like we're where we need to be in all 3 of those areas right now. And so if you think about aluminum and brass, there's also been talk of these various potential refunds and things like that. We actually don't think that those are going to happen anytime soon. It's just me personally, I'm not sure that the government is going to readily suggest that they want to give a couple of hundred billion dollars back. And so there have been some states or some companies that have actually filed suits. But from that IEPA dynamic, we're going to wait and see how that plays out. But we continue to think about our business and what we can control, and our teams are doing a phenomenal job there. And actually, Brian, if you think about it for a second, when we talk about our strategy in action, there are a few numbers that might help to tell the story. In the 9 months ended in Q3, we've grown our top line by $175 million in between increases in our gross margin and a decrease in our SG&A as a percentage of sales in that same 9-month period, our adjusted EBITDA margin is up 220 basis points in the wholly owned businesses. And so you've got a little bit of a decline contribution from the JVs. But overall, I think that's -- if you think about what our strategy really is, which is to optimize and grow our businesses and to keep our SG&A flat as we grow, as Colin mentioned, that's what we're seeing. And then the environment, back to your tariffs question, the environment that we're in, we believe it's steady and it's likely to continue this way unless something unforeseen. And look, there's a lot going on in the world. But based on what we can see right now, we think steady as she goes from a demand perspective with some green shoots in some places. So it makes us pretty optimistic. Brian McNamara: Great. That's really helpful. I appreciate the color on the data centers. It's becoming a bigger topic for you guys and obviously, the market in general. I think when you guys split, it was a pretty small part of your business. I was hoping you guys could contextualize kind of where you are. I understand if you don't want to quantify per se. I think Colin mentioned it's less than 10% of some of your business lines. But like how big is it today on a qualitative or quantitative basis? How big do you think you can get over the next couple of years? Colin Souza: Yes, Brian. So I'll start there and appreciate the question. I mean it's I think all we can say there is it's helping grow a number of our businesses and offsetting some softness in other markets. And then we're doing our best to develop strategies to support this demand. It's unique in each of these value streams. And so I mentioned earlier, whether it's people or equipment or capabilities or partners, we are leveraging all of those tools to develop the best solutions to capture this demand. It is a focus of ours because we see the growth opportunity. But to Joe's point, we're not over-indexed to it by any means. So we're trying to be smart about how we spend our time and resources, but it is an opportunity to capture more incremental growth for us. And if things play out as we expect, the percentage share across these businesses will increase to data centers as we move forward. And that's the best way we could characterize it on top of what Joe shared specifically about our water business. Joseph Hayek: Yes. And Brian, I mean, Colin did a really nice job of kind of trying to frame size-wise what this is for us. I do think it will be bigger a year from now than it is right now. We have made investments. Our solutions are resonating, and we are developing -- in some places, these are buildings and buildings need certain things. In other environments, these are very purpose-built buildings that need very specific things. And so our solutions have been customized in a lot of cases. The other thing that people sometimes focus a lot on data centers, but data centers are, in fact, representing a lot of commercial construction. And so as commercial construction improves, generally speaking, right, volumes in a lot of these spaces will go up because commercial conditions normalize and you still have the data center growth that really we expect to continue for 5-plus years. That will -- I think that will add a lot of specific activity around construction and retrofit. Operator: This concludes our question-and-answer session. I will now turn the call back over to Joe Hayek for closing comments. Joseph Hayek: Thanks, everybody, for joining us this morning. We appreciate your time. Have a great week. We look forward to speaking with everybody again soon. Operator: This concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Aebi Schmidt Group Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Simone Grancini, Investor Relations Director. Please go ahead. Simone Grancini: Thank you, Sharon. Good morning, and welcome to the Aebi Schmidt fourth quarter and full year 2025 earnings call. I'm Simone Grancini, the company's Investor Relations Director. Joining me on the call today are Barend Fruithof, Group CEO, who will provide the fourth quarter and full year highlights, outlook and concluding remarks. Steffen Schewerda, CEO, North America; and Henning Schroder, CEO, Europe and Rest of World, who will detail the performance in the respective segments; and Marco Portmann, Group CFO, who will provide a financial overview. Before I turn the call over to Barend, I remind you that today's comments include forward-looking statements subject to the safe harbor language contained in this morning's press release and in Aebi Schmidt's filings with the SEC. And with that, I hand the call over to Barend. Barend Fruithof: Good morning, everyone. 2025 was a historical year for Aebi Schmidt, marked by the acquisition of the former The Shyft Group and our listing on NASDAQ. I'm extremely proud of our fourth quarter performance. As we see on Page 5, our order intake increased 46% in the fourth quarter versus 2024, and we ended 2025 with a record high order backlog. Our adjusted EBITDA increased 31% year-over-year for the fourth quarter, delivering a significantly higher adjusted EBITDA margin of 9.1% versus 7.4% in the prior year. And our strong cash flow enabled us to reduce our leverage to 2.8x, strengthening our balance sheet heading into 2026. I thank our employees for their exceptional contribution and our customers for their continued trust. On Page 6, I provide you with some more details on these outstanding achievements. Our exceptional order momentum was driven by strong orders in airport and municipal and especially by a recovery in the walk-in-van orders. We believe this reflects a structural recovery in demand. On the other hand, we expect a continued softness in truck body and commercial markets with only a slow recovery in 2026. In terms of net sales, our fourth quarter grew 6% versus prior year. A 5% decline in legacy shift was more than offset by the rest of the group. Europe and the Rest of the World was a strong contributor to this performance with substantial organic growth in almost flat market. We also accelerated and increased the cost synergies from the acquisition of Shyft with an additional procurement and revenue synergy expected to materialize in the second half of 2026. Ultimately, our adjusted EBITDA improved by 31% in the fourth quarter 2025 compared to the fourth quarter of 2024. Europe contributed to this with an outstanding 234% increase year-over-year. Continuing on Page 7, we look at the foundations we have built that will deliver our 2026 growth path. First, our M&A strategy continues to deliver, and this goes beyond The Shyft acquisition. Both our smaller acquisition, LWS in the U.S. and Ladog in Germany continue to provide outsized growth to the group, and we see further opportunities for small bolt-on acquisitions. Second, we have launched multiple new products. This includes the first service body jointly developed by Monroe and Royal presented last week at the NTA. The launch of new compact airport products to enlarge our addressable market, and we are exploring to design a more cost-competitive offering of our Blue Arc truck. Finally, we opened new locations and secured major first-time customers, which will support revenue and profitability in the second half of 2026. Let's also briefly look at our brands on Page 8. We're simplifying our brand architecture, sharpening our market presence and sending a clear signal that we are one powerful group. This makes it easier for our customers to navigate the group's broad range of solutions, simplifies customer engagement and allows us to communicate in a more meaningful and cost-effective way. And now I turn the call over to Steffen. Steffen Schewerda: Thank you, Barend. And good morning, everybody. Thanks for having me. We're on Page #10. So to put it in one sentence, 2025 was an outstanding year, especially in terms of order momentum. Our airport business is seeing very strong order entry, also supported by the launch of our new products. These products are gaining really nice traction and first deliveries have been made to customers already. On the walk-in-van side, we see a recovery of the market, combined with what we believe is market share growth. On the commercial side, we see some softness, which we are able to partially offset by stronger fleet demand. And our Municipal segment shows very strong quoting and order entry. That confirms our strategy to expand our geographical footprint. Slide 11, please. As you can see, our backlog increased by 25% in the fourth quarter versus prior year. That was driven by a 63% increase year-over-year in order entry. Net sales and adjusted EBITDA in Q4 was slightly below the fourth quarter in 2024. This was mainly driven by the softness in walk-in-van and truck bodies and included ramp-up expenses for walk-in-van production and additional locations. And looking at these KPIs, it is clear what the focus points for 2026 are. It is order conversion and profitability, and I will explain this a little bit more in detail on the next Slide #12. So based on our strong backlog, we are positioned to deliver growth in 2026, which we expect to accelerate throughout the quarters. On the market side, we expect that we will continue to realize strong order entry. This is driven by market recovery, market share expansion and also the introduction of new products. On the sales conversion side, our new location in Chicago is now fully operational. We are starting to deliver the first municipal snow and ice trucks to a major DOT starting in April. Two new upfit centers in Minneapolis and Toronto are also gaining traction. And on the walk-in-van side, we are already starting to increase output, which we expect to accelerate in the second quarter. And on the profitability side, we are executing on vertical integration in our Commercial segment. In addition, we expect to realize material cost savings in the second half of the year, and our cost structure is being aligned as we speak. Our increased output will also result in higher plant efficiencies, of course. And on top of that, we are planning to consolidate some of our warehouses in the Midwest to gain efficiencies in logistics and net working capital. And with that being said, thank you, and I hand it over to Henning. Henning Schroder: Good morning. I describe 2025 as a landmark year for Europe and the Rest of the World in terms of order intake growth and strong profitability development throughout 2025. As written on Page 14, our markets are gaining strong traction, particularly in airport, municipal complex sweepers and agriculture. The Airport segment is entering a pivotal year with multiple large tenders expected, fueled by rising defense budgets, driving military-related demand and increasing local content requirements. The municipal sector continues to be powered by complex sweepers, delivering double-digit growth for our core products in 2025. Ladog products have exceeded expectations. We are accelerating our capacity expansion plans, while winter products show a mixed performance due to limited snowfalls across many European countries. Agricultural Products showed strong momentum in 2025, growing more than 30% versus 2024, supported by the rollout of the new generation of Aebi Combicut motor mowers. Slide 15, please. In Q4, we sustained growth in order intake and delivered a significant 25% year-over-year sales increase, driven by airport, municipal and spare parts. I'm especially proud of the team for delivering an exceptional 234% year-over-year increase in profitability, an outstanding achievement powered by strong volumes, solid gross margin performance and disciplined OpEx control. Proceeding to Page 16, our strong 2025 performance provides the foundation for positive year-over-year quarterly and sequential improvement throughout 2026. On orders, we expect to leverage our expanded dealer network to accelerate the Europe-wide Ladog rollout, build on strong Municipal and Agricultural momentum, following successful product launches and capitalize on our centralized airport tender team to secure large global deals and increase win rates. On sales margin, we expect to implement factory efficiency programs and finalize production relocations to reduce material costs. We will utilize our EU pricing engine to optimize margins in spare parts and realize the benefit of implemented price increases across new business and aftermarket segments. On cost control, we expect to capture the benefits of regional back office consolidation, further leverage our Eastern Europe corporate center and convert disciplined OpEx management into tangible cost savings. That concludes my comments, and I turn it over to Marco. Marco Portmann: Thanks very much, Henning, and good morning, everyone. As you have heard already, 2025 ended with significant order momentum as we captured many market opportunities following the acquisition of the former The Shyft Group. On Page 18, we see this exceptional order performance resulting in a very healthy order backlog of over $1.2 billion, up 21% year-over-year and providing good visibility into 2026. And we expect to see significant improvement in net sales materializing in the second quarter and especially the second half of 2026 out of that backlog. On the topic of seasonality, our demand cycles generally lead to a strong year-end with a comparatively slow start into a new year. For 2026, we expect this quarter-by-quarter seasonality throughout the year to be even more pronounced than in an average year, more on this later by Barend. Moving on to Slide 19. Net sales in the fourth quarter reached $528 million, representing a 6% year-over-year increase and bringing full year sales to $1.9 billion, a 2% increase compared to 2024. Looking at our fourth quarter net sales in a bit more detail. Sales in North America decreased 2% versus the fourth quarter 2024 due to the pronounced weakness in the acquired Shyft businesses with a 5% decline, which could not be fully compensated by the 2% growth in the legacy Aebi North American businesses. Sales in Europe and the Rest of the World increased by a notable 25%, contributing to over 1/3 of total net sales in the fourth quarter. Looking at profitability on Slide 20. On a full year pro forma basis, we turned a 2% net sales increase into a strong 13% increase in adjusted EBITDA year-over-year, delivering $156 million in full year 2025 or an 8.2% adjusted EBITDA margin. In our fourth quarter specifically, we converted a 6% net sales increase into an impressive 31% growth in EBITDA versus prior year fourth quarter, delivering $48.1 million of adjusted EBITDA in that fourth quarter 2025, equal to a 9.1% margin. North America's EBITDA margin was flat on the back of that 2% net sales decrease, while Europe and Rest of the World delivered a significant EBITDA growth with over 600 basis points improvement. Finally, having a look at our balance sheet on Slide 21. Net working capital decreased by $29 million or 6% since September to $423 million as of December 2025. This decrease was driven by a $38 million lower inventory, reflecting both improved efficiency and the seasonal decrease at year-end. On the back of a strong cash flow in the fourth quarter, our net debt decreased to $437 million as of December 31, 2025, a decrease of $32 million compared to September. With this, we have also delivered a first significant step to reduce our leverage, improving almost half a turn to 2.8x as of year-end 2025 with our communicated target to improve to below 2.0x by year-end 2026. That concludes my comments, and I hand it back to Barend for closing remarks. Barend Fruithof: Thanks, Marco. Let me start my concluding remarks with a summary of the key achievements in 2025 shown on Page 23. We're outperforming on synergies, expecting to deliver over $40 million versus our initial $25 million to $30 million target. Our intake increased by 22% versus 2024 and adjusted EBITDA improved by 13%, reflecting strong operational execution. At the same time, we launched new products and opened new locations, further strengthening our foundation and positioning the company for sustainable growth. Continuing on Page 24. Looking at 2026, we expect a pronounced quarterly seasonality, mainly driven by market conditions and geopolitical uncertainty. Q1 will start slow as our strong walk-in-van orders will convert into revenue beyond the quarter, while the commercial market remains very soft despite some signs of recovery. In Q2, we expect order conversion to accelerate, supported by our ramp-up of production and upfitting capacity. By Q3, we expect improving market conditions in the commercial and fleet markets and the realization of procurement synergies. And finally, in Q4, we expect to benefit from the usual seasonal strength, especially in Europe and the rest of the world. Moving on to Page 24 for the outlook. Let me conclude with our 2026 guidance and priorities. We expect net sales between $1.95 billion and $2.15 billion and adjusted EBITDA between $175 million and $195 million, and the leverage at year-end 2026 at or below 2. To deliver this, we expect to maintain strong order momentum and accelerate backlog conversion into net sales through better production efficiency. We expect to drive profitability through efficiency gains at legacy Shyft, optimized footprint utilization and delivering our synergies. And at the same time, we will maintain our strong focus on leverage and balance sheet. In short, our 2026 focus is on disciplined execution to sustain and build on the strong momentum achieved in 2025. That concludes our presentation. I now turn it over to our operator to open up the line for questions. Operator? Operator: [Operator Instructions] And the first question comes from the line of Greg Lewis from BTIG. Gregory Lewis: I was hoping you could talk a little bit more. I mean, clearly, it looks like we got finished and started with some order momentum in the walk-in-van market. Kind of as you see that playing out, like what's kind of some of the things that customers are talking about and driving that? One of the things that we had heard last week was around just, hey, the fleet is just -- it's just time for some renewal. Any kind of sense for how much of this is renewal? How much of this is demand? How much -- like how can you kind of frame that just given your confidence in the potential increases in walk-in? Steffen Schewerda: Right. Greg, good morning. This is Steffen. I'll take that question. So what we are seeing and believing is that it is both. We are entering a phase of renewal at this point in time and one market participant is buying more than the other one. I mean we know who the big -- two big players are. But we believe it is a combination of renewal and additional demand. And we see this going forward, not just a blip here over 1 or 2 quarters. When we talk to the customers, that is structural and sustainable demand here. Gregory Lewis: Okay. And then I was hoping you could talk a little bit about the backlog. You mentioned -- you called out that the backlog points to about 15 -- is spread out over 15 months. Is that something where the backlog is? Is the duration of the backlog increasing, decreasing versus maybe where it was a year ago, is part of that a mix of what is being ordered? Barend Fruithof: Greg, thank you very much for this question. So I mean, we were able to increase our backlog on a pro forma basis if you compare it with 2024. And there is a bit of a mixed picture. So we have a very strong backlog in our municipal business as well as in our Airport business, for example. We were also able to increase our backlog in Europe versus previous year, which is a very good development given the market circumstances. And at the same time, we were also able to massively increase our backlog in the walk-in-van business. We're having some challenges in the commercial market as well as in the truck body market. So there we need to do some more work. And we expect that the market will improve, and we see already first signs in that area. Operator: We will take the next question, and the question comes from the line of Mike Shlisky from D.A. Davidson. Michael Shlisky: Some of your truck body comments that you made, you mentioned that it's been slow, but there was so much excitement about the new truck bodies that you're introduced in -- at the NTA show last week. Do you think that your truck body business will outperform the broader market in '26 just on that new product? And just tell us about how it may have been received at the show. What are customers telling you about the new product there? Steffen Schewerda: So Mike, this is Steffen. I'll take that one. So what we introduced on the show was a new service body on the commercial side. Basically, that is part of our committed integration here, more vertical integration. We talked about this in numerous occasions here. So the service body on the commercial side has very, very good feedback. On the truck body side, the new product we showed was -- you could see this on the Isuzu stand. This is a cooperation together with Isuzu. It's called the Advantic. We are the exclusive partner for Isuzu getting this into the market. To answer your question, I do not really believe that we will outperform the market here in 2026, but I truly believe that we will put a strong foundation here into place over the next quarters then to accelerate in 2027. Michael Shlisky: Great, great. Secondly, a large e-commerce company has announced in the last couple of days that they plan to scale back or stop using the USPS for a lot of their deliveries. They're USPS' biggest customers. I presume they're going to have to take some of that delivery volume in-house as well as farming out to the other large delivery providers. If they're using the other providers, if they're using their own vehicles, and I know that they have some of their own kind of custom-made vehicles, but they are a mixed fleet. If that changes away from the USPS, is that a positive for Aebi Schmidt going forward as far as mix of how much business you can capture now? Or was USPS a pretty big customer, and there won't be much of a change here? Steffen Schewerda: Mike, I believe that this is an advantage for Aebi Schmidt. I mean, in this context, there was also the notion of, "Hey, we do it within 1-hour delivery or 3-hour deliveries," where customers pay a little bit more. We're talking about the same article here and the same announcement. So I believe it will drive additional demand. The question is what kind of vehicle, what kind of concept will this be? But I believe in our product portfolio, we have something to participate in that market, and we are in active discussions. Operator: Your next question today comes from the line of Matt Koranda from ROTH Capital. Matt Koranda: I guess I wanted to hear on the midpoint of the adjusted EBITDA guide for '26, it looks like about nearly $30 million in improvement. But I guess you guys have said synergies in total are north of $40 million from the combination. Obviously, that gets realized over a couple of years. So I just wanted to hear a little bit about how much gets realized in '26, and what's built into the full year guidance? Marco Portmann: Yes, thanks. Good morning, Matt. This is Marco speaking. So yes, midpoint, $185 million of our adjusted EBITDA guidance, and -- I mean to reiterate in 2025, right? So we always said we're going to deliver at least $40 million in total now. And out of that, we have realized in '25 somewhere in the mid-teens. That's predominantly cost synergies. And we expect the same amount to realize also in 2026 on top of that. Keeping in mind that specifically the procurement synergies, they will kick in, in the third quarter 2026. Again, that's relating also to what we just talked about with the service body. And we have also revenue synergies, which are predominantly kicking in, in the second half of 2026 as well. Before we will then see the full realization by summer 2027 as we have initially announced pre-merger. So we're still fully on track to that. But also keep in mind, it's not just the synergies. If you look at the different -- the difference between 2025, '26, there's also one-off expenses that we have to account for 2025, we faced some additional stuff that isn't part of the adjusted, some ramp-up expenses that are operational, some compliance topics, a couple of these things. And also in Q1 now '26, we'll still have some ramp-up expenses, specifically in the walk-in-van business. Matt Koranda: Okay. Got it. And I wanted to hear a little bit more about the seasonality commentary that you gave in the prepared remarks. It sounds like you said first quarter, usually your lower quarter in terms of seasonality, but might be a little bit more pronounced this year. Could you unpack some of the factors that are causing the more pronounced seasonality? And is that more pronounced in one of the two segments in North America or Europe, or is it both? I just want to hear a little bit more about how to think about it. Marco Portmann: Yes. I mean, I think commentary is right. Generally speaking, we do have quite a bit of seasonality, a bit more than maybe typically would be expected, coming especially a little bit from the ordering cycles we see in Europe, but also generally the snow business or snow-related business that we have. And as we said, in 2026, this is going to be quite a bit more pronounced. So we will see, of course, a slower start in Q1 because these walk-in-van orders, while we do have the backlog now, and we still see the good momentum, it will materialize only beginning in Q2 really. And we still have some one-off expenses associated with that ramp-up in the first quarter. So we don't have the revenue yet, but also some costs already flowing in. And that also from a segment view, will hit us, of course, in the U.S. So you will see that if you compare Q1 U.S. or North America as the segment officially is called versus last year. In Europe, you will see quite a good improvement Q1 over Q1. But of course, keeping in mind that Europe has had a slow start in 2025. So yes, you see that basically coming in out of the order backlog that wasn't there in Q4 that now leads to that lack of revenue basically in Q1 walk-in-vans, and again, commercial truck body, we commented on that. It is a soft market. We still see that, and that will persist through Q1 or does persist through Q1. We can say that as of today. And of course, the geopolitical environment also didn't really help in the last couple of weeks. So you feel that as well. And then you have basically in Q2, Q3 of the ramp-up, as we explained, and the fourth quarter really will be, I would say, similar to what you have seen now in the dynamics in 2025, but again, more pronounced that this is really the strong quarter that will bring the year together. I just wanted to be precise on that to rightsize expectations on our quarterly momentum of 2026. Barend Fruithof: And Matt, just to add one point. As you know, we have built a new upfit center in Chicago that will help to accelerate our backlog in the municipal area into more sales. And we will see already an improvement in March, and that will then go up already in the second quarter. And that's also a good thing then to reduce our backlog and turn it into sales in the municipal area. Operator: This concludes the Q&A for today, and I will now hand back to Simone Grancini for closing remarks. Simone Grancini: Thank you, Sharon. I thank everyone for joining today's call and your interest in the Aebi Schmidt Group. As always, please reach out to investor.relations@aebischmidt.com if you have any follow-up questions. And with that, Sharon, please disconnect the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may all disconnect.
Operator: Welcome to the Ondas Inc Fourth Quarter and Fiscal Year 2025 Conference Call. [Operator Instructions] Before we begin, the company would like to remind you that this call may contain forward-looking statements. While these forward-looking statements reflect Ondas' best current judgment, they are subject to risks and uncertainties that could cause actual results to differ materially from those implied by these forward-looking statements. These risk factors are discussed in on this Periodic SEC filings and in the earnings press release issued on Monday, which are both available on the company's website. Ondas undertakes no obligation to revise or update any forward-looking statements to reflect future events or circumstances, except as required by law. During this call, Ondas will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued on Monday, which is available at the Investor Relations section of our website. This non-GAAP information is provided as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP. A However, management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business. Please also note today's event is being recorded. At this time, I would like to turn the floor over to Eric Brock, Chairman and CEO. Please go ahead. Eric Brock: Thank you, operator, and good morning. We appreciate you joining us today and for your continued interest in Ondas. Let me start by setting the stage for today's discussion. Simply put, Ondas is delivering a whole strategic growth plan we have consistently outlined over the past year. We are doing what we said we would do. We are seeing strong momentum across the business. Revenue growth and increasing market adoption are validating our strategy. At the same time, our acquisitions are adding meaningful strategic value and expanding the scope of what we can deliver to customers. Importantly, this is not happening in isolation. Our business strategy is actively driving the buildout of a scaled operating platform, one that is designed to support global deployment, localization and long-term growth. And as that operating platform scales, we are beginning to see it reflected in our financial model. So when you look at Ondas today, what you're really seeing is a company where strategy is translating into execution, execution is building the platform, and the platform is driving financial outcomes. We believe this dynamic positions us for significant upside as we move through 2026 and beyond. So let's turn to the agenda. I want to highlight that today's investor update will be a bit different than our typical earnings call. We're now at the end of March. And importantly, we provided a comprehensive strategic update at our OAS Investor Day in January along with additional financial and business updates throughout the quarter. So rather than walking you through a detailed recap of 2025, we're going to focus today on the transformation of Ondas and how that transformation has continued to accelerate into the first quarter of 2026. Note that we expect our prepared remarks to be on the longer side this morning, considering the significant activity at Ondas in recent months. Our goal is to give you a clear view of how the business is scaling across our technology portfolio, our expanding operating platform and go-to-market strategy and the rapid maturation of our financial model. We'll begin with a brief introduction and then discuss our new joint venture with Heidelberg, ONBERG Autonomous Systems, which is a key component of our European strategy. We'll also cover the World View acquisition announced on Monday, which is scheduled to close in Q2 2026, along with our partnership with Palantir and how, together, we are building a scalable, software-defined multi-domain ISR platform. Neil will then provide a brief financial review. After that, we will provide a brief update on Ondas Networks and then focus on Ondas Autonomous Systems and our strategic growth program and emphasize how we are creating and compounding value as we scale the business. We'll close with our outlook and then open the call for questions. I'm pleased to be joined this morning by key members of our leadership team, including Neil Laird, our Chief Financial Officer; Oshri Lugassy, Co-CEO of Ondas Autonomous Systems and Meir Kliner, President of OAS, all of whom are quite familiar to you. Neil and I will lead today's presentation, and we'll aim to be efficient with your time. Oshri and Meir will be available during the Q&A to address questions, particularly details around our technology platforms, operations and growth initiatives. I will continue now by highlighting the momentum we are seeing across the business and importantly, how that momentum is accelerating into 2026. Starting with 2025, we delivered strong performance across both our core business and our strategic initiatives. We generated over $50 million in revenue, well ahead of our earlier targets and exited the year with a significantly expanded backlog, reflecting growing customer demand and market adoption. At the same time, we are raising our 2026 revenue outlook to at least $375 million, representing a substantial step-up from prior expectations. This reflects both the strength of our core business and the impact of our strategic growth program. Importantly, we are investing ahead of that growth, particularly in the first half of 2026, to support what we expect to be a significant revenue ramp in the back half of the year and beyond. On the strategic side, we've made meaningful progress accelerating the build-out of our systems-of-systems platform. In the first quarter alone, we announced 5 accretive acquisitions that expand our capabilities across multiple domains, while also enhancing our financial profile. We've done this with a highly attractive capital position ending the year with a pro forma cash balance of over $1.5 billion, which gives us the flexibility to continue executing our strategy at scale. And finally, we've continued to invest in leadership and operational infrastructure to ensure we can integrate and scale these capabilities effectively. So when you step back, what you see is a business that not only exceeded expectations in 2025, but has also accelerated its strategic road map, and we are carrying that momentum into 2026 with a high degree of confidence. I'm excited to introduce ONBERG, our European joint venture with Heidelberg, a key step in Ondas' global expansion and our localized go-to-market platform for Europe. Delivering defense and security solutions today requires more than advanced technology. It demands local manufacturing, talent, and alignment with national and regional priorities. This is especially true in Europe where defense spending is rising to rapidly deploy modern capabilities, including unmanned and autonomous systems. ONBERG is our answer to this market need. This joint venture with Heidelberg, a leading German industrial platform provides local manufacturing, engineering and life cycle support that meet European sovereignty requirements. Heidelberg's established relationships with government and defense procurement channels across Germany and NATO and aligned customers further strengthen our position. By combining Ondas systems-of-systems expertise with Heidelberg's local infrastructure, we're creating a sovereign aligned platform ready to deliver large-scale programs across the EU. ONBERG has already identified strong demand for OAS platforms, particularly in Germany and Ukraine where requirements for autonomous systems are immediate. Strategically, ONBERG enables us to participate directly in European programs as a localized provider critical to winning in this market. Financially, ONBERG represents significant upside. While our current European business is growing, our forecasts do not yet include new incremental revenue from ONBERG. As ONBERG becomes operational in the coming months, we expect it to drive meaningful growth beyond our existing targets. Ondas holds a 51% controlling interest in ONBERG ensuring we capture the value as the platform scales. So overall, ONBERG is an important extension of our global strategy. Localizing our platform, expanding our addressable market and positioning Ondas to participate in one of the fastest-growing defense markets in the world. Let me now turn to what we believe is one of the most important strategic developments for Ondas, the acquisition of World View and our partnership with Palantir. Starting with World View. This acquisition brings a unique and highly strategic capability into our platform, persistent sensing in the stratosphere. The stratosphere sits between traditional airspace and low-earth orbit and it is increasingly being recognized as a critical domain for defense, homeland security and commercial ISR applications. By adding this stratospheric layer, we are accelerating the build-out of our systems-of-systems architecture expanding from ground and air into a truly multi-domain ISR platform. Now equally important is how this capability is being integrated, and that's where Palantir comes in. We are very excited about our partnership. We believe Palantir is one of the most important force multipliers for Ondas as we scale this platform globally. Through this relationship, we have access to Palantir's full AIP software stack from operational platforms like Warp Speed and Foundry to mission-critical systems, including Maven and advanced command and control capabilities. This enables a software-defined ISR architecture or data across stratospheric aerial and ground systems is fused in real time into actionable intelligence. Importantly, this is not just technology integration. It is an active commercial partnership. We are already working together on market development, pursuing tailored solutions and program opportunities where our combined capabilities are differentiated. Palantir is also engaged strategically as we expand our layered ISR platform helping shape how we scale over time. So when you step back, the combination of World View, Ondas and Palantir is creating something unique, a scalable, multilayered ISR platform that integrates sensing, data and decision-making into a unified operational system. We believe this platform positions us extremely well for the next generation of defense and intelligence programs, and we expect this partnership to be a meaningful driver of upside as we move through 2026 and into 2027, accelerating our ability to penetrate what we see as a large and high-value market opportunity for layered ISR systems at scale. Before we go deeper into the World View platform and how it fits into our broader ISR strategy, I want to take a moment to introduce Ryan Hartman, President and CEO of World View. The entire Ondas leadership team, including Oshri and myself, is excited to partner with Ryan and the World View team as we accelerate our systems-of-systems road map. Ryan is a true industry pioneer with critical experience across Raytheon and Insitu as well as serving as the UAS representative on the FAA NextGen Advisory Committee and on the FAA Drone Advisory Committee. He brings a proven track record of scaling advanced aerospace technologies into real-world mission-critical deployment. We believe Ryan and his team will be instrumental in scaling this platform and capturing the significant opportunities ahead, particularly in the United States as we expand across defense, intelligence and homeland security markets. Ryan will walk you through the World View platform, including the Stratollite system, key use cases and how this integrates into our broader software-defined multi-domain ISR architecture. He'll also touch on how our partnership with Palantir is helping us accelerate market development and expand program opportunities. Ryan, over to you. Ryan Hartman: Thank you, Eric. The team at World View is thrilled to join forces with Ondas and excited about working closely with you and the entire leadership team across Ondas and OAS. I also appreciate the opportunity to be here today with our investors. I'm excited to share our vision for an interconnected intelligent multi-domain ISR ecosystem and why World View is such an important part of that future. At World View, we have helped make the stratosphere an operational domain. For a long time, the stratosphere was largely overlooked. It sits between traditional aircraft operations and space. It was understood scientifically but had not been fully operationalized for persistent sensing. That changed in a very visible way in early 2023 when a Chinese high-altitude balloon incident reshaped how governments think about the strategic importance of the stratosphere. World View is uniquely positioned to meet the growing demand for stratospheric intelligence, surveillance and reconnaissance from the U.S. Department of War, Department of Homeland Security, allied governments across the world and an expanding range of commercial customers. We build stratospheric platforms that can remain over an area of interest for 30 days or more. We do that by using the 4 directional wind bands that exist at different altitudes in the stratosphere by changing altitude with ballasted air, we can navigate or station keep over a target area. It is simple in principle, but complex in execution because you are steering a month-long mission using stratospheric physics. Navigation becomes a vertical decision that creates a horizontal result. We call these platforms Stratollites. Stratollites operate in the stratosphere and often overlooked a strategically important layer of the atmosphere. They deliver a unique combination of persistence, proximity, resolution and flexibility. UAVs are precise and responsive, but their endurance is measured in hours. Satellites are global and predictable, but they operate in fixed orbits with limited revisit. Stratollites fill the gap between those 2 domains. They can deliver high resolution sensing than satellites with much longer endurance than UAVs. And we have built this as a flexible platform architecture, not a single-purpose asset. We have designed a family of stratollites in different shapes and sizes to meet different mission requirements from long duration, navigable altitude-controlled systems with high size, weight and power capacity to shorter duration tactical free float systems. On top of that, we configure payloads to the mission whether a customer needs electrooptical data, hyperspectral imaging, infrared sensing, communications capabilities or a combination of any of those and more, we can tailor the system to the objective. That configurable architecture allows us to serve a broad mix of defense and commercial missions. For maritime surveillance and in-theater operations to border security, critical infrastructure, energy, mining, disaster response and wildfire monitoring. Today, we are seeing demand expand as more customers understand the strategic and economic value of persistent sensing and insight from the stratosphere. Right now, for example, stratospheric platforms like ours are being contemplated as a key layer of the $1 trillion golden Dome system. We are also actively preparing for the inclusion of our technology in support of active U.S. Department of War operations like Epic Fury. But the stratosphere is only one domain. It offers unique advantages just as UAVs, land systems and space-based assets offer their own unique advantages. Even within the UAV segment, different classes of systems serve very different operational needs. And that is exactly what both World View and Ondas recognized independently and early. World View's vision has been to move beyond a single domain sensing company and build toward a broader, integrated multi-domain AI-powered ISR architecture. Ondas has been pursuing a highly complementary vision, building a portfolio of autonomous systems across adjacent domains with the same underlying belief that the future of ISR is not platform by platform, it is networked, interoperable and decision centric. That shared vision is why joining forces made so much sense. This is not a case of one company plugging into another company's road map. It is the combination of 2 companies that we're moving toward the same future from different points of strength. World View brings the stratospheric layer and a heritage of persistent sensing, Ondas brings complementary autonomous systems and a heritage of building toward multi-domain integration. Together, we can move faster and build more cohesively than either company could alone. Because the broader ISR market still has a structural problem today. Across the industry, most systems still operate in walled gardens, separate data feeds, separate tools, separate teams, separate time lines. Customers are left stitching together fragments just to understand what is happening, let alone act on it. The operator should not have to carry which domain the data came from. The operator should care whether the decision is right, fast and accountable. By joining forces with Ondas and through our recently announced partnership with Palantir, we are building a true system of systems, unified intelligence with one operational picture. That means one workflow language and one set of decision loops that can task the right asset at the right moment. If you need persistence and proximity, the stratosphere can hold station and support edge inference close to the area of interest. If you need precision and rapid tactical response, a UAV or land-based system can execute the mission. If you need broader context, additional domains like satellites can complete the frame. What makes that multi-domain picture operational is the Palantir-powered AI infrastructure we are building underneath it. At the operations layer, it helps increase efficiency across planning, production, mission management, and fleet coordination by connecting workflows that are often fragmented today. At the mission layer, it enables edge inference that can ingest, fuse and contextualize data from across these domains into a single operational picture. The result is not just more visibility. It is decision-ready insight that helps operators understand what matters, act faster and do so with greater confidence. Operationally, this also creates a more unified structure that allows the portfolio of companies to maintain their platform-centric expertise while benefiting from a common ISR tool set, shared tasking, processing, exploitation and dissemination workflows and shared support functions where that creates leverage. The simplest way to think about it is this, we are connecting persistence, autonomy and AI into one operational workflow in a way that has not existed before. We are building what we call an interconnected intelligence ecosystem. In practical terms, that means connecting platforms, sensors, software and operators so customers can move from data to decisions faster. And that is where we believe the market is going. It is not enough to collect more data. The value is turning that data into decisions faster, more coherently and across domains. We believe the future of ISR is multi-domain interoperable and decision centric. World View brings the stratospheric layer, Ondas brings complementary autonomous systems and Palantir brings the software and AI backbone. Together, we're building a more connected way to operate. Eric, I'll hand it back to you. Thank you. Eric Brock: I will now hand the call to Neil to provide a detailed financial update. Neil Laird: Thank you, Eric. We are pleased to report strong fourth quarter and full year results, which we believe represent an inflection point in the growth of the business, both organically and through our strategic growth program. We believe these results validate both the strength of our core business and the scalability of our operating model as we move into a significantly larger phase of growth. Revenue in the fourth quarter was $30.1 million up 629% year-over-year and nearly 200% sequentially from the third quarter. This performance was at the high end of our preliminary guidance and reflects strong demand across our Ondas Autonomous Systems segment. Importantly, organic revenue growth was also strong, increasing 63% year-over-year, driven by continued deliveries of Iron Drone and Optimus systems. Gross profit was $12.7 million, representing a 42% gross margin, a significant improvement from 21% in the prior year and 26% in the third quarter. This reflects both favorable product mix and the benefits of scaling revenue across our cost base. Operating expenses increased to $36.1 million, driven primarily by investments in personnel and infrastructure to support the scaling of our operating platform as well as increased activity related to our acquisition program. We view these investments as intentional and necessary to support the significant revenue growth we expect in 2026 and beyond. Let me briefly address the movement in other expenses during the quarter, which was primarily driven by a noncash accounting item related to our October 2025 financing. As a result of the structure of that financing, certain warrants are required to be classified as a liability and mark-to-market each reporting period using a Black Scholes valuation methodology. In the fourth quarter, this resulted in a noncash charge of approximately $82.2 million, which is reflected in other expenses. Importantly, this charge is purely accounting-driven and does not impact our cash position, operations or the underlying economics of the business. The valuation of these warrants can fluctuate meaningfully from period to period based on factors such as our stock price, volatility assumptions and time to maturity. And as a result, we expect this line item to introduce variability into our reported earnings going forward. We believe it is important for investors to focus on the underlying operating performance of the business, where we are seeing strong revenue growth, expanding backlog and continued execution of our strategic plan. I also note that this noncash charge was partially offset by approximately $10.7 million of other income, primarily driven by interest earned on our cash balances following our recent capital raises. Cash operating expenses were $23.6 million. A summary of cash operating expenses was included as a table in our earnings release and as an appendix to this presentation. Net loss for the quarter was $101 million driven by the $82.2 million noncash charge related to warrants discussed above. Adjusted EBITDA was a loss of $9.9 million compared to $7 million in the prior year. Overall, the financial results reflect a business that is scaling rapidly, investing ahead of growth and beginning to demonstrate the operating leverage embedded in our model. Turning to our full year results. For 2025, we generated $50.7 million in revenue, representing 605% growth compared to $7.2 million in 2024 and at the high end of our previously issued guidance range. This level of growth reflects both strong execution in our core business and the early impact of our strategic growth program. Full year gross margin improved significantly to 40% compared to 5% in the prior year, driven by higher volumes and improved product mix, particularly in the fourth quarter. For the full year, other expense was primarily driven by the previously discussed noncash warrant revaluation related to our October 2025 financing, resulting in an $82.2 million charge for the year. As noted, this is a mark-to-market accounting adjustment with no impact on our cash operations or underlying business performance and may introduce variability in reported results going forward. This noncash expense was partially offset by approximately $7.7 million of other income, primarily from interest earned on our cash balances. Cash operating expenses were $53 million, net loss for the year was $133.4 million with the warrant accounting and other noncash expenses being major contributors to the increase year-over-year. Adjusted EBITDA for the full year was a loss of $31.3 million compared to a loss of $28.5 million in 2024, reflecting increased investment in personnel, infrastructure and integration to support the next phase of growth. Now turning to our cash flow and capital position. We ended the year with $594 million in cash, cash equivalents and restricted cash compared to $30 million at the end of 2024. As Eric noted earlier, following our recent capital raise, our pro forma cash balance is over $1.5 billion providing significant financial flexibility to execute our growth strategy. Cash used in operating activities for the full year was $38.7 million compared to $33.5 million in 2024. This includes approximately a $10.7 million increase in accounts receivable in line with revenue growth. Cash used in investing activities was $260 million, the majority of which approximately $207 million was deployed into acquisitions as part of our strategic growth program. In addition, we invested approximately $51 million into short- and long-term investments including a number of strategic investments. These investments are aligned with our broader platform strategy. They support key partners, enhance access to critical technologies, improve supply chain efficiency, and we believe will generate attractive returns over time. Cash provided by financing activities was $863 million, primarily from our equity offerings throughout the year along with proceeds from warrant and option exercises. Looking ahead, we expect cash efficiency to improve over the course of 2026 as revenue and gross profit scale. We do expect higher cash usage in the first half of the year, reflecting continued investment ahead of growth. However, as we move through the second half, we expect to see meaningful improvement driven by operating leverage particularly within our OAS segment. Turning to the balance sheet. We believe Ondas now has one of the strongest balance sheets in the sector and a key competitive advantage as we scale the business. We ended the year with $594 million in cash and following our January equity raise, our pro forma cash position increased to approximately $1.5 billion. This provides us with significant financial capacity to execute on both our organic growth and strategic initiatives. At the same time, the balance sheet was further strengthened by reducing debt by approximately $41.7 million during the year, leaving only a modest debt profile at year-end held by certain subsidiaries, including Ondas networks. The previously discussed warrant liability was recorded at $489 million at year-end. And again, this liability is expected to fluctuate higher and lower perhaps significantly quarter-to-quarter based upon Ondas share price and other value is relevant for Black Scholes valuation and quarterly changes in this measure will result in noncash impacts on our GAAP net income. As a result, our shareholders' equity has increased to approximately $441 million compared to just $17 million at the end of 2024. So overall, we've significantly improved both the scale and the quality of the balance sheet, positioning the company with a capital flexibility and cost of capital advantage to support our growth strategy. With that, I'll turn the call back over to Eric. Eric Brock: Thank you, Neil. I want to take a moment to expand on what Neil discussed regarding our balance sheet and liquidity because we believe this is a key differentiator for Ondas. We are benefiting from strong and growing investor support. That support is reflected not only in the strength of our balance sheet, but also in our continued access to capital and a clear cost of capital advantage relative to many subscale competitors in our sector. Since June of 2025, we have raised approximately $1.8 billion including the $1 billion financing we completed in January of this year. That January financing was led by a large U.S.-based institutional investor who knows the Ondas business well and has been a long-time supporter of the company. Importantly, the prefunded warrants associated with that financing have been fully exercised and are in the share count, and we believe the investor currently holds less than 5% of our outstanding shares. More broadly, we are seeing continued growth in our institutional ownership base. Based on Capital IQ data, institutions now hold approximately 33% of our shares. We are actively working to further broaden that base. And we believe Ondas is well positioned for inclusion in additional indices, including the Russell 2000 as we move through 2026. So overall, we see our capital position and investor support as a meaningful competitive advantage, one that enables us to execute our strategy at scale. Let me briefly touch on Ondas' networks. 2025 was an important year for Ondas Networks, highlighted by the formal adoption of our IEEE 802.16 or .16, technology by the Association of American Railroads, as the communications protocol for the next-generation Head of Train/End of Train standard. This is a significant milestone and reflects years of development and validation, including our ongoing collaboration with MXP Rail. More broadly, the AAR has now signaled its intent to adopt .16 across all of its communications networks, which we believe confirms Ondas Networks position as a foundational technology provider for next-generation rail communications. This is a very important development given the large total addressable market with the Class 1 rails in North America and underpins what we believe is substantial value underlying Ondas' networks software-defined networking capability and the network upgrade opportunity that will eventually accrue to Ondas shareholders. From a commercial perspective, we are seeing continued progress with interest in 160 megahertz accelerating from many parts of the industry. We are now engaged with all Class 1 railroads and are advancing multiple infield proof-of-concept deployments particularly around 160 megahertz network applications. These efforts are generating strong feedback, and we expect to begin converting these into commercial opportunities in the second half of 2026. At the same time, ACSES radios for Amtrak are now in production with initial deliveries expected to be completed in the first half of the year. While we are disappointed in the time lines with respect to driving network deployments with our rail customers, we continue to see meaningful long-term value in the Ondas Networks business. As adoption of .16 expands and commercial deployments begin to scale. Of course, we are working to realize that value for our investors, and we think we will make measurable progress in 2026. Let me now turn back to Ondas Autonomous Systems and the broader platform. As we outlined at our Investor Day in January, we are executing against a clear plan across both our core business and our strategic growth program and we are making strong progress. We've already covered our 2025 performance at the OAS Investor Day in January. So rather than revisit that, I want to focus today on how the business has evolved and transformed in the last few months. Specifically, I want to walk you through how we've expanded our technology and capabilities, how we are now positioned across multiple high-value market segments and how we have significantly broadened our operating platform. What you'll see in the next few slides is the result of that transformation, how Ondas is evolving into a scaled multi-domain autonomy platform with the ability to deliver integrated solutions at a global level. This is where the strategy becomes visible in the platform we've built. As depicted on this slide, Ondas has undergone a significant transformation in just the last 9 months. I want to highlight the 5 new acquisitions from Q1 2026, Rotron, Mistral, BIRD, INDO Earth and now World View, which have materially expanded both the scope and scale of our platform. Ryan Hartman and I shared details regarding World View and the strategic fit and road map earlier. We will also provide some context for the other acquired companies a bit later on the call. But make no mistake, these acquisitions are not just additive. They are highly strategic. We are adding mission-ready technologies, established customer relationships and exceptional talent across multiple domains. This is accelerating the build-out of our systems-of-systems architecture and expanding our ability to deliver integrated solutions at scale as these companies are also accelerating the scaling of our operating platform. At the same time, this transformation is having a direct impact on our financial model. We are building a significantly larger backlog, increasing our revenue base and expanding our gross profit pool, all of which support operating leverage as we scale and that operating leverage is what ultimately drives our path to profitability. So this is not just about growth. It's about building a platform that can scale efficiently and generate strong financial outcomes over time. This is a step change in the scale and maturity of the Ondas operating and financial platform. Just 12 months ago, Ondas Autonomous Systems was primarily focused on 2 markets: ISR and counter UAS with 2 core platforms: the Optimus system and Iron Drone Raider. Today, that has changed significantly. Our market opportunity set has been transformed. We are now positioned across 4 high-value defense technology verticals, including Counter-UAS, ISR, loitering munitions and one-way attack systems and unmanned ground vehicles. And with the addition of World View, we've extended that capability even further into the stratosphere, adding an entirely new domain to our aerial and ground capabilities. So what you're seeing is a substantial expansion, not only in our technology base but also in the financial opportunities available for Ondas. We've moved from a focused set of capabilities into a broad multi-domain platform positioned to compete across some of the fastest-growing segments in the global defense market. This slide brings together visually everything we've been discussing. Here, you can see the breadth of our aerial and ground-based platforms, combined with the software-enabled command and control layer and AI-driven applications that sit on top. What makes this powerful is not just the individual systems, it's the integration. We are building a unified platform where sensors, effectors and autonomous systems are connected through a common C2 and software layer, enabling coordinated real-time operations across multiple domains. And with our partnership with Palantir, we are able to take that integration even further, deploying these capabilities into broader mission level systems with advanced data fusion, AI-driven analytics and decision support. So rather than offering stand-alone products, we are delivering an integrated operational capability, one that allows customers and partners like Palantir to move from data to decisions faster and to execute missions more effectively. With that foundation in place, let me now turn to how we are scaling this platform through our strategic growth program. Over the past several months, we've announced a series of strategic acquisitions that are expanding both our capabilities and our market access. These businesses play very specific roles within the OAS platform, enhancing our technology stack strengthening our go-to-market capabilities and accelerating our ability to deliver integrated solutions at scale. I covered World View with Ryan earlier in the call. Here, I want to walk through Mistral, Rotron, BIRD and INDO Earth. And highlight how these transactions are contributing to the evolution of our financial model, adding revenue, expanding our gross profit pool and supporting operating leverage. Importantly, we view these acquisitions as highly accretive, not only to our financial profile, but to the long-term enterprise value of Ondas as we continue to scale. Let me start with Mistral which has been a partner of Ondas since the second quarter of last year and is one of our most strategically important acquisitions. Mistral is a direct accelerant for our U.S. market expansion. It enables Ondas to operate as a prime contractor significantly expanding our access to major U.S. defense programs while also adding critical manufacturing and program execution capabilities. Mistral also brings meaningful market experience and customer access across UAVs, loitering munitions and ground robotics, aligning closely with the core segments of our platform. The company has already captured programs in excess of $1 billion, which we expect to generate significant pull-through revenue. We also expect Mistral to contribute meaningful backlog to Ondas upon closing, which we anticipate in the second quarter. Just as importantly, Mistral brings deep U.S. market development expertise, helping us localize our Israeli developed platforms for U.S. requirements and accelerate adoption across defense and security customers. We expect Mistral to be a meaningful driver of revenue growth and EBITDA leverage beginning in the second quarter of 2026 and continuing as we scale our presence in the U.S. market. Next, let me highlight Rotron Aerospace. Rotron significantly expands our aerial capabilities, adding long-range UAV platforms in the Talend platform, autonomous strike systems with the Defender and Stratos platforms and advanced propulsion technologies. This is particularly important as modern defense strategies continue to shift toward low-cost attritable mass scale autonomous systems that can be deployed efficiently and cost effectively in contested environments. With Rotron, we are extending our platform beyond ISR into a more complete strike and effector layer. Strengthening our overall multi-domain architecture. In addition, Rotron provides a strong local presence in the United Kingdom, where it is competing for programs, including the project break stop, a one-way effector or OWE program. Rotron positions Ondas to engage directly with U.K. and broader NATO rearmament programs, which are seeing significant acceleration. So strategically, Rotron enhances both our technology stack and our geographic reach while positioning Ondas to participate in the next generation of autonomous defense systems, where scale, autonomy and affordability are critical. Next, BIRD Aerosystems. BIRD adds a critical airborne protection layer to our platform with advanced ISR and counter UAS capabilities designed to protect both manned and unmanned systems. This is particularly important in today's environment where the increasing lethality and proliferation of low-cost UAS and loitering munitions is driving strong demand for effective airborne protection solutions across both military and security applications. At the core, our proven mission-critical technologies, including laser-based DIRCM systems, which autonomously detect, track and defeat incoming missile threats in real time, providing active protection in highly contested environments. Importantly, BIRD brings access to long cycle program of record defense budgets, supporting more predictable and recurring revenue streams, along with high-margin systems already deployed on leading global platforms. Strategically, BIRD strengthens our ability to deliver integrated ground to air defense architectures while contributing meaningful backlog, revenue and EBITDA as we scale the business. Finally, INDO Earth. INDO Earth expands our ground system strategy into military engineering vehicles, providing entry into large-scale defense procurement programs with immediate revenue contribution. This adds a scalable platform in heavy ground equipment with strong visibility into revenue and gross profit, supported by active programs and customer demand. Importantly, INDO Earth also provides a funded services platform in Israel, which we expect will support the broader OAS business and drive meaningful operating expense leverage as we continue to scale our operations in the region. Strategically, this is an important step in broadening our systems-of-systems architecture into the heavy grad segment, complementing our aerial and ISR capabilities. Over time, we see a clear opportunity to integrate autonomy and advanced technologies into these platforms, creating next-generation robotic engineering systems. INDO Earth is a great business and financial opportunity for Ondas. It not only contributes near-term revenue backlog, but also establishes a foundation for long-term growth in autonomous ground systems. Let me bring this all together. We believe these acquisitions significantly accelerate our systems-of-systems strategy while driving meaningful scale in our financial model. This is exactly how we designed our strategy from the outset. The key takeaway here is the level of accretion we are generating both to our financial model and to our enterprise value. Across these 5 acquisitions, we will deploy approximately $550 million of capital and based on our current estimates, these businesses are expected to generate approximately $230 million of revenue in 2026. We view that as a very attractive entry point, particularly given the growth profiles of these businesses and the operating leverage we expect to achieve as they are integrated into the Ondas platform. Importantly, many of these businesses, particularly Mistral, BIRD and INDO Earth have contracted revenue and/or significant backlog, a steep revenue growth curve supported by strong industry tailwinds. And meaningful expected EBITDA generation over the next 12 to 18 months. At the same time, Rotron and World View represent technology-driven platform businesses with strong long-term growth potential as adoption of their capabilities accelerates, aided by the integration with the Ondas operating platform. So this is not just about adding revenue, it's about expanding our gross profit pool driving operating leverage and enhancing the overall quality of our earnings over time. And importantly, we believe this model is repeatable. We are building a disciplined, programmatic M&A capability that allows us to acquire strategic assets at attractive valuations, integrate them into our platform and drive both growth and margin expansion. We look forward to demonstrating that value creation over time but we believe these transactions are already meaningfully accretive and will become increasingly so as we scale. Let me take a moment to step back and explain how this model works and why we believe it is both highly accretive and repeatable. It starts with identifying and acquiring customer validated technology and services platforms operating in markets and categories with strong secular growth tailwinds. In many cases, these businesses are capital constrained. They have strong products and market demand but lack the capital and infrastructure to fully scale making Ondas as an attractive partner to support the next leg of business growth and value creation that allows us to acquire them at attractive entry valuations. At the same time, Ondas benefits from a premium valuation supported by the operating platform we've built and the capital our investors have provided. That creates a favorable dynamic where we can acquire high-quality assets at attractive valuations and integrate them into a scaled platform. That's what we refer to as day one value creation but the more powerful part of the model is what happens after the acquisition. We see what we call a growth double dip. First, these businesses benefit from the underlying growth in their markets. And second, they grow faster as part of the Ondas platform through our go-to-market capabilities, operational infrastructure and access to capital. We are already seeing this in practice. Companies like Sentrycs and 4M, for example, are outperforming the assumptions we made when underwriting the acquisitions. The upside is driven by our growth double dip by virtue of their integration into the OAS platform. And beyond the individual businesses, there is also a portfolio effect. As we integrate these platforms into a systems-of-systems architecture and go to market with more complete multi-domain solutions, we create greater value for customers, which we believe will drive higher revenue and improve margins over time. So overall, this is not just a series of acquisitions or a portfolio of capabilities. Our operating and financial models drive a compounding value creation flywheel, and we believe this strategic growth program will be a major driver of shareholder value in both the near and long term. Let me now turn to how this translates into our outlook. Here, we will focus on our key operating priorities and provide context on the M&A pipeline as well as update our financial targets. Let me firstly touch on our key operating priorities as we move through 2026. At the core, we remain focused on driving order growth, expanding our backlog and delivering continued revenue growth across the business while leveraging the expanded technology base we've built. We are also continuing to invest in and advance our manufacturing capabilities to support scale and meet increasing demand. On the technology road map, advancing the autonomous border protection infrastructure program remains a major focus. This has significant strategic and financial potential, and we expect it to be an important driver for the business as it progresses. In addition, we are rapidly developing what we refer to as a Shahed killer interceptor, and we are optimistic about our ability to field the competitive system in what is becoming a very important market segment. Beyond our core road map, we have also established several new growth platforms that we believe offer meaningful upside to our current financial outlook. Importantly, we have not yet incorporated material contributions from some of these initiatives into our forecast. That includes the layered ISR go-to-market efforts with Palantir, where we are seeing encouraging early engagement and believe this could become a meaningful growth driver as programs develop. Similarly, ONBERG is actively pursuing opportunities in Germany and Ukraine. While we have not yet included revenue from this joint venture in our outlook, we are optimistic about its potential as visibility improves. So overall, we see multiple avenues for upside beyond our current plan as these platforms begin to convert into orders and revenue over time. We will surely keep you updated on this progress. Let me spend a moment on our strategic growth program and M&A pipeline. Our programmatic M&A effort, led by Mark Green continues to be highly productive. We've built a disciplined team and process that spans technical, market, financial and legal expertise, along with dedicated post-merger integration processes to ensure we can efficiently scale these businesses once acquired. As we continue to demonstrate execution, we are seeing increasing inbound interest, including from larger and more mature companies and their investors. We view this as strong validation of our platform and strategy. We believe our ability to source, execute and integrate acquisitions is becoming a core competitive advantage for Ondas. Our pipeline remains robust with over $500 million of potential revenue across active opportunities. That said, our focus is not on driving the size of the pipeline, it's on quality. We are highly selective and prioritize targets that are strategically aligned, financially accretive and that enhance our systems-of-systems road map. The opportunity set is much larger, and we are careful on how we prioritize and sequence our M&A activity. In terms of capital allocation, we've utilized equity in recent transactions as a way to align with sellers and reflect the value of the platform we are building. At the same time, we remain flexible. We will deploy both equity and cash as appropriate, while maintaining a strong balance sheet. And finally, on the topic of dilution versus accretion, our focus is always on value creation. When we issue equity, the key question is what we are acquiring in return. As we've outlined, we believe these transactions are highly accretive and we will continue to demonstrate that through our results over time. Let me now turn to our updated financial outlook. We are increasing our 2026 revenue target to at least $375 million which represents more than a doubling of the outlook we provided at our Investor Day in January. This increase reflects upside across both our core business and the contribution from the acquisitions we have announced in the first quarter. For the first quarter, we expect revenue in the range of $38 million to $40 million, representing strong year-over-year growth. The full impact of these acquisitions will build over time. In Q1, BIRD is the only newly acquired company expected to contribute meaningfully with the majority of revenue from acquisitions ramping from Q2 through the rest of the year. We also expect backlog to increase significantly in the first quarter, driven by continued order momentum in the core business as well as the addition of backlog from the newly acquired companies. From an investment perspective, we will see increased operating expenses at both Ondas Inc. and OAS in the first and second quarter of 2026, as we continue to build out the team and infrastructure required to support a much larger enterprise. We view these investments as essential to enabling the next phase of growth, and we expect them to drive meaningful operating leverage over time as revenue scales. Importantly, we are maintaining our path to profitability. We expect our product companies to reach positive EBITDA in the third quarter of 2026, followed by OAS in the third quarter of 2027 and Ondas Inc. in the first quarter of 2028. And as we begin to integrate our recent acquisitions and realize the benefits of scale, we believe there is potential to accelerate these time lines. So overall, we believe our outlook reflects a business that is scaling rapidly with strong visibility, increasing momentum and multiple opportunities for upside as we move through 2026 and beyond. Finally, the unmanned and autonomy sectors are transitioning from development to deployment with end markets still early in a 10-plus year adoption cycle and increasing urgency for industry maturity. This creates a generational opportunity for leaders like Ondas, reinforcing our focus on executing the core and strategic growth plan. With that said, I want to thank you again for spending the time with us. Operator, we will now move to take investor questions. Operator: [Operator Instructions] Our first question today comes from Austin Bohlig from Needham. Austin Bohlig: Congrats on all the solid results. The first question I had is just given kind of the increasing conflict we're seeing in the Middle East, how has the business may have progressed or order flow or interest since that conflict began? Eric Brock: Austin, thank you. So without a doubt, that is driving more activity. So we're seeing more demand, more RFP, more urgency. And of course, that's also supporting the long-term thesis we have around how we're building our business and the markets and capabilities we're focused on. I'll ask Meir Kliner maybe to give some more texture to that answer. Meir? Meir Kliner: Sure. We believe we have the right products at the right time through our tech companies we are well positioned in both ISR and counter UAS, which are the 2 of the most critical capabilities in today's operational environment. We have seen a very strong demand right now, particularly for the system that we are already proven and deployed around the world. By the way, looking ahead, we don't see this as a short-term dynamic. If anything, once the current conflicts end, there will be a broader recognition that these threats are not going away. So the budget for the government and defense organization is going to increase dramatically, and hopefully, we will be there to supply our capabilities with our tech companies. Thank you. Austin Bohlig: All right. And I guess just one follow-up for you guys. Really appreciate the color on kind of the revenue contribution from these recent and sizable acquisitions. For that 2026 kind of number you guys provided in the deck. Should we assume that's what's going to be recognized? Or is that kind of like a pro forma revenue number? Eric Brock: So we've given you the target of at least $375 million. We have quite a bit of visibility. We did share some details around what I do believe and I was emphasizing our conservative outlook that we underwrote for the acquired companies in Q1 and I'd highlight that those numbers are full year outlooks. So you got to consider the fact that we're going to only be consolidating the bulk of them over the last 3 quarters of the year. So that's the way to think about the math there. Operator: Our next question comes from Jon Siegmann from Stifel. Jonathan Siegmann: So the multilayered ISR, I appreciate all the details on World View. It's been a challenge for the military and industry, just to stick even a single pair of these sensors together. Can you comment a bit on how the customers are going to procure this ambitious capability? And is it possible we'll see some near-term contracts? Or is this something that Ondas might participate as a prime? Or is this as a sub to Palantir or somebody else? Eric Brock: All right. Great question, Jon, and I'm going to ask Ryan to provide some context. Ryan? Ryan Hartman: Yes. Jon, great question. So in the near term, we expect contracts for the single domains and procuring intelligence surveillance and reconnaissance as a service from those domains. The strategy that we have for a service or a system of systems, will ultimately give us the ability to contract for multi-domain with single customers. So we're seeing movement in the customer base to procure multi-domain through single sources. And the partnership with Palantir enables us to provide a portal for customers to be able to access that multi-domain ISR. So it will take some time to build out the Palantir layer of the technology. But once that's built out, we'll be able to start offering multi-domain ISR as a service to specific customers. Eric Brock: All right. And I'd emphasize that the Stratollite in the stratosphere that's operational today, and it is leveraging some of the work that World View has done with Palantir so we're demonstrating the value and we do believe that we're going to be able to integrate it into other layers that Ondas has and will have in the future. Jonathan Siegmann: And then maybe just one on Mistral, great acquisition there. I think most of us are familiar with the HERO system. But our sense is it's more diversified than just that product line. You mentioned $1 billion IDIQ, which is the hero. Just can you talk a bit more about the other products they produce. Eric Brock: Yes, Jon, that's a great point. The HERO is an important product line and program from Mistral, but they do have a bunch of other active systems that they're selling and quite a lot of capabilities around that. So Meir, can you provide some more context around the other things that Mistral is bringing. Meir Kliner: So Eric, it was hard to hear. Can you repeat the question, please? Eric Brock: Yes. So the question Meir is, on Mistral in addition to the loitering munitions, the HERO systems. The other revenue-generating platforms. Meir Kliner: Yes, they have not only loitering munition, also ISR and also ground vehicle, I think that we talked about it before that we used to work in Mistral in our portfolio companies, also in the UTV and ISR drones and ground units. So I think it's the whole system. And this is specific in the segments that we are working. And this was one of our interests when we're talking about Mistral. And right now, they have the project for the ISR and not only loitering munition. Operator: Our next question comes from Timothy Horan from Oppenheimer. Timothy Horan: Eric, can you give us a sense of these acquisitions, what you think the organic growth rate is? And also, can you just talk about the bottlenecks to growth? Is it go-to-market? Is it your manufacturing capacity? Is it just getting yes, any color around that? And then lastly, you have some revenue targets out there for 2030. It seems like you're kind of well ahead of schedule there? Just any thoughts on that revenue target? Eric Brock: Yes. So I'll start with the last observation, and I agree with that. So we are quite confident with the businesses that we've put together here, the momentum we have, the success we think we're demonstrating with the model that, that $1.5 billion target is very visible. So coming back to the first question, we did -- if you look at Ondas in the core as it was ending 2025, the full year pro forma revenue would have been in the $90 million to $95 million range. So clearly, we were looking for significant growth when we started the year, and we shared that $175 million target at our OES Investor Day in January. And I would say that in our increase here to $375 million, we see that core growth even stronger. So we feel really good with our visibility, and we think the growth is going to remain significant going into '27 for sure and beyond. Timothy Horan: And what's the bottleneck to growth? Is it -- I mean, do you have the manufacturing capacity? Do you have the salespeople? Eric Brock: Yes, I don't -- I mean, there are no bottlenecks to what we've laid out. But of course, we're going to have to continue -- because we have the capacity identified and we have been building aggressively the OAS platform, which we've emphasized on this call today, and we're going to continue to do that. We're also investing in integration so that the acquired companies can leverage the OAS platform out of the gates to its greatest extent. So at the same time, of course, this is quite a significant revenue ramp in business opportunities. So we're going to have to build the manufacturing capacity in partners as we're going forward. We'll keep you posted on how we're doing that. But I don't think we have any unique bottlenecks, and we can deliver what we're targeting for the year for sure. Timothy Horan: And just lastly on World View. Are we talking thousands of balloons in the stratosphere, ultimately, our tens of thousands, hundreds of thousands, I mean, how are you thinking about this? And can you create a cellular network of these stratosphere balloons? Eric Brock: Yes. Great. So Ryan, maybe you could share a couple of things a bit about the as-a-service element of this and then add some details around the various payloads that we see customers engaging in and how the markets may open further for other use cases. Ryan Hartman: Yes, happy to. Thanks for the question. So the way we operate today is we provide data and intelligence as a service. And so essentially, the way that I've looked at it in the past is data is the new oil, the more data you produce and process, the more customers you can create on a per-flight basis. So when we're looking at the market, we're seeing some great movement in the U.S. Air Force moving towards a program of record. We've seen stated demand that would equate to 250 flights per year just for that 1 customer. In addition to that, we're seeing movement on Golden Dome where the stratosphere is an important layer to the overall Golden Dome architecture. Our assessment is that Golden Dome will make up hundreds of flights per year for that specific capability. And then when we think about kind of the broader market, those 2 specific customers would make up upwards of 450 flights per year. We see equivalent capabilities necessary for Australia, Canada and other allied partners around the world. And then we're building out a commercial capability as well where our technology can be used for things like oil and gas pipeline monitoring, where we can be detecting methane. And we see use cases for monitoring railways and power lines. Anything that's long linear infrastructure, the stratosphere has a unique advantage of being able to see a significant amount of that infrastructure in a single image. And having the right sensors gives us the ability to turn the stratosphere into a very useful asset for, like I mentioned, detecting things like methane, obstructions on railway, falling power lines or foliage encroachment on power lines, things like that. And then on the communications question, yes, absolutely. We can provide a unique mesh networking and/or 4G/5G connectivity from our platforms. So as we start to build out the commercial side, we'll leverage the size, weight and power of the Stratollite to be able to carry multiple sensors or multiple capabilities on a single flight that ultimately increases the gross margin per flight and produces significant revenue on a single flight. So we're quite excited about the number of use cases, excited about the growth and not just the defense market, but the commercial market as well. So to answer your question specifically, are we talking hundreds, thousands or tens of thousands, I believe that scale, we'll be operating thousands of flights per year and something on the order of 50% gross margin on a per flight basis. Operator: Our next question comes from Max Michaelis from Lake Street Capital Markets. Maxwell Michaelis: If we go back to the core business, Iron Drone and Optimus, I know you gave out guidance. I think it was last fall or summer. You talked about a $25 million and $45 million in 2026. I was curious if you can kind of update us on what that looks like now. I know just with -- I just kind of want to get an idea of sort of the organic growth rate of the original core business. Eric Brock: I think the -- what I'll say, Max, is that the growth rate there is similar to what I've outlined by giving the tools with the 90 to 95 core, which is essentially doubling this year. And what I'll add is that we're seeing particular strength on the counter drone side with both Iron Drone and Sentrycs and that's going to be growing faster than Optimus. Maxwell Michaelis: Okay. And that kind of leads into my next question. I was just hoping you can kind of call out maybe some of the 2025 acquisitions, ones that are sort of outperforming your original expectations is probably just soon to calling you out on the 2026 acquisitions, but anything that helps kind of around the 2025 acquisitions. Eric Brock: It's a good question. I think I can say we're very happy with all the companies and how they're performing. I did highlight in the prepared remarks, Sentrycs and 4M and I've done that because those are some deals that we've announced recently during the fourth quarter. With that said, Roboteam seeing significant demand in Apeiro Motion as well. So I'm expecting that we'll be able to demonstrate that they're outperforming as well to you this year. So we're pretty happy with the portfolio we've put together. Operator: Our next question comes from Michael Legg from Ladenburg. Michael Legg: Congrats on all the success to date. Can you talk a little bit about the integration of all these acquisitions and how you're doing that internally, keeping management, et cetera? Eric Brock: Yes, sure. So we have established at both OAS and the Ondas level, what we call PMI activity. So it's the post-merger integration activities. And that's a very important part of the story there. It's making sure communications across the companies and up and down, right? So we can get that operating leverage is optimized. So we're going to continue to invest in that PMI activity because it's critical otherwise, we're very happy with retention, and that's something we're obviously sizing up before we enter into acquisitions. I think what we see from the companies we acquire is that there's a lot of excitement to join Ondas because we're creating more opportunities for them to really grow the business that they've worked so hard to create. So I think the talent that's coming on and the way we're motivating them. Obviously, there's compensation plans that do that properly but it's an exciting place because we're putting together this go-to-market model that makes the original objectives from these leadership teams around building their businesses, everything. We're just creating more opportunity for them. And I think that's just going to reinforce as we continue to deliver on the operating and financial plan we have shared with you today. Michael Legg: Great. And then just a follow-up question. On the systems and systems approach, can you talk about how much of that you think will come from Ondas internal systems? And how much would be third-party coordinations? So if you look at the internal or the core, as I describe it, that's going to continue to grow. So as I said on the call, if you were with us 12 months ago, we were, of course, very focused on Optimus and Iron Drone. As we ended the year, we had built out a UGV portfolio. We've expanded our aero platforms in Counter-Drone Systems so that becomes the new core. And then, of course, in the first quarter here, we've added even more exceptional platforms that do expand and they deepen and expand the systems and systems capabilities. And Ryan shared a graphic there, which I thought was really important. It showed all the layers. And we're going to begin to pull them together. So I think you should expect us to add more layers, more valuable platforms that fit that model I shared around how they become very accretive to the operating plan, very accretive to customers, right? Customers are looking for companies like Ondas and Palantir to bring this together to make it scalable and valuable so we'll continue on this path. Operator: Our next question comes from Alex Latimore from Northland. Alexander Latimore: Great information here. Thanks for putting this together. This is very vivid. My question here was regarding the acquisition cadence. I was wondering if you could step through what the acquisition cadence will look like for this year and then potentially going forward and then which capabilities are the highest priority in that pipeline, whether it's hardware, software or different manufacturing assets. Eric Brock: Yes. Good question. I'll start with the latter, and then I'll get to the cadence. So I think it's pretty straightforward. We're going to continue to deepen the aerial and ground capabilities. You do bring up a good point, the C2, the command and control capabilities is another in sensors at the edge, you also see that in our strategic pipeline. So I'm expecting to be able to bring more to the table there as software enablement becomes even more valuable. In terms of cadence, I don't -- March was an interesting month because we had a bunch of deals. Many of them had been started months before and came down and we were able to get into definitive agreements right around the same time. So I don't -- I wouldn't measure 3 or 4 deals a month. At the same time, there is active conversations. And they could be bunched. They could be sequenced with greater time in between. It just remains to be seen but we will continue to pursue the strategic program because it is so valuable. Alexander Latimore: Understood. And then regarding the C2 platform, I was wondering what your intentions are there? Are you planning to build or acquire a sort of single pane of glass C2 platform to connect all your systems? Or is that where Palantir comes in? And then what level of customer demand are you seeing for that. Eric Brock: Yes. So it's both. So clearly, if you think about the systems and then there's the systems-of-systems, each autonomous system has its own command to control because these can be deployed as infrastructure or for specific use cases by specific customers. We need to make those -- each system be able to be integrated with more -- with other systems, right? So we need to be able to plug into other command and control architectures and we're able to and then, of course, we're going through the Palantir activity, which is the broadest integration around system to systems. So you're going to start to see us -- it's really all of it. It's really at the system level, it's at, say, regional deployments and then there's the wider deployments like the Palantir Maven system that becomes really important. So there's internal development, and you'll also see us -- there's opportunities for us to bring in high-value capabilities around command and control. And we'll see if that comes to fruition. But we don't -- we do have -- our systems are designed to be plugged and play by and large, with what the customer needs to deploy, right? So we can fit into their architecture. We can solve the problem for them or we can fit into what they need us to fit into. Operator: And our next question comes from Matthew Galinko from Maxim Group. Matthew Galinko: Congrats on the results. Is the ONBERG structure is something you can repeat in other regions? Or is it something you look to do elsewhere? Eric Brock: It's a good question. So yes, it's something we can repeat. I'm not sure if we will. Europe is -- was a particularly interesting opportunity for us because we have been building out our capabilities around systems, and you've heard us speak really strong about the need to be local. And as we started to get to know Heidelberg, who is our partner and understand their capabilities, it really made a lot of sense for us to join forces. So could you see us do that in other markets? I think so, but maybe we'll see how we proceed with ONBERG first. I don't see another market with as the same significance to do a joint venture as we do with what we're doing with ONBERG. Matthew Galinko: Got it. And my follow-up is, as we look towards 2028 for positive adjusted EBITDA. Can you kind of point to where we'll see OpEx leverage, kind of what line items? Like are we going to continue to see R&D kind of steady with integration and then program development or kind of where will we see the leverage hit? Eric Brock: Great question, and it's going to be hard for me to be specific. I do think R&D, we're going to continue to invest there. And I don't have a target at the moment for what that is going to be as a percentage of revenue. I think we're going to get sales and marketing and supply chain leverage. We're going to get gross margin leverage. So the thesis here, and I think we're demonstrating that if you look at the manufacturing partnerships and the relationships we're building, is that when you can -- we can bring multiple platforms in aerial, ground platforms are really for a manufacturing partner and a component supplier very similar you get -- you become more important to your component vendor, you become more important to your manufacturing partners. And that -- in the scale you provide to them, they can turn back to you with better pricing and cost of goods sold and things like that. So I think the leverage comes in cost of goods sold. It's like -- it's going to come with sales and marketing because we're going to be getting larger deals, right, over time. And then there's the field services as well when you have -- I'll take INDO Earth as an example. INDO Earth, we have a Roboteam. We have Apeiro Motion. We have now built a very serious ground portfolio, and we can have the synergies around how we support customers in the field, right? We have folks out to service the dozers from INDO Earth, they can be the same folks who can do that with UGVs, so I think that -- those are the sorts of things we'll look at for efficiencies around the financial model. Operator: And with that, we've reached the end of today's question-and-answer session. I'd like to turn the floor back over to Eric Brock for closing remarks. Eric Brock: All right. Thank you, operator. And as we wrap the call, I want to say thank you again for spending time with us today. As we've discussed, we have had a strong start to 2026 and we're focused on sustaining that momentum throughout the year. We look forward to providing you more updates along the way as we do, and we're going to get back to doing the work, and we look forward to speaking again soon. Have a great day. Operator: And with that, ladies and gentlemen, we'll be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Jenoptik conference call regarding the financial results of 2025. [Operator Instructions] Let me now turn the floor over to your host, Dr. Prisca Havranek. Prisca Havranek-Kosicek: Thank you very much. Good morning, everyone, and welcome to our fiscal year 2025 results call. Today, I'm here with Andreas Theisen, our Head of Investor Relations. I will lead you through the presentation. And then as always, Andreas and I will be open for your questions. As you know, our preliminary headline 2025 results have already been published mid of February. So today, we will cover the full set of audited financial figures, including key business unit results as well as our outlook for the year 2026. Now let me start with an overview on Page 5 -- 4 of our slide deck. From a management perspective, 2025 was a very busy year. First of all, let me briefly comment on our progress on executing our strategic goals. Number one, we implemented a new organizational structure, making our company somewhat leaner, increased accountability within our businesses and with our new reporting structure, also increased transparency for our investors. Secondly, we brought our biggest single investment, I mean, our new micro-optics fab in Dresden online, and we are now in a position to further grow this business going forward. Thirdly, again, in our semi business, we delivered on our strategy to grow share of wallet in our inspection business. So overall, I think we made substantial progress in making Jenoptik stronger yet again and in delivering on our strategic agenda. Now looking at business development. From a market perspective, in particular, semi lithography was somewhat difficult in 2025. We focused on what we can control and thus, our focus throughout the year was on executing and accelerating our efficiency program. This has paid off in terms of margin protection and cash generation. As we enter 2026, we have seen signals of a rebound, in particular, in the semi market and overall, a more positive trading environment across most of our verticals. In 2026, we will keep our near-term focus on addressing and further developing our growth opportunities, particularly in areas like AI-driven semi demand, optical communication for data centers, defense application, SMS expansion in the U.S. and also AR/VR. As a consequence, we expect to return to profitable growth this year, and I will cover the details of our guidance here at the end of my presentation. Lastly, I'm very excited that our management team will be complete soon again with Dominic Dorfner joining us as our new CEO, as you have seen from yesterday's release. Now turning to Page 5. Looking at order intake in detail on group level, we reported a decline of approximately 3% year-on-year. However, the dynamics have been fairly divergent between our 4 strategic business units. So starting with Semiconductor and Advanced Manufacturing. As you know, development has been impacted by certain supply chain fluctuations in our lithography business as well as an order cancellation in Q1, as we highlighted on our previous call. While we saw a stabilization of demand in the lithography business in the second half of 2025, order intake for the full year was down by around 11% year-on-year. Customer activity in our inspection business was strong throughout the year with us executing on our strategic road map of increasing our share of wallet. Turning to our Biophotonics business. Order intake was very strong last year, being up by around 19%. We saw positive momentum, in particular for our defense product offering, but also a positive development in our life science applications. In MedTech, we have seen lower momentum in the second half post the launch of a new generation product in our dentistry business. I would like to remind you here that quarterly volatilities of order intake in this business has become more pronounced given our customers' order behavior in the defense business. Here, customers tend to place few, but partly very sizable orders, sometimes for multiyear deliveries. Overall, given the nature of this industry, we do expect fluctuations between single quarters to remain high also going forward. Now moving on to our Solutions businesses. In Metrology & Production Solutions, orders are slightly down year-on-year on an ongoing weakness in the automotive market, whereas Smart Mobility Solutions recorded robust mid-single-digit order intake growth last year. Our book-to-bill ratio was slightly below 1 or at 0.95 to be precise. Our order backlog reduced compared to prior year-end to around EUR 591 million. Overall, we anticipate turning more than 80% of this backlog into revenue in 2026. Please follow me now to Page 6. The revenue in 2025 declined by approximately 6% year-on-year to around EUR 1.05 billion. This reflects generally weaker order intake trends at the beginning of the year, especially in the semi space, as I mentioned before, it also includes a 1 percentage point negative impact from euro-USD exchange rate fluctuations. With regards to our semi business, revenue was down 12% year-on-year. This was a result of what we already discussed several times in earlier calls, meaning softer demand in the lithography business, which, as you know, makes up for a big chunk of our volume. On the contrary, revenue with our customers in the semi inspection arena developed very well last year. Now looking at Biophotonics. Here, revenue was up by 10%, driven by a strong performance primarily of our defense as well as our MedTech businesses. For Metrology and Production Solutions, revenue development reflects what I've mentioned before on order intake. So an unchanged difficult market environment in the -- particularly European automotive industry was primarily weighing down on our revenue performance. Now finally, revenue of our Smart Mobility Solutions business was up by almost 9% in 2025, particularly as our efforts in the important U.S. market are gaining traction following our strategic decision to enter the smart mobility market in the U.S. with our own sales and our own service force. Please follow me on to Page 7, where we look at our regional revenue distribution. First of all, I would like to note that given the size of our key account businesses, and I'm talking about our semi and our Biophotonics businesses here, the meaning of regional performance is somewhat limited. Year-over-year decline in revenues in Europe, including Germany, was very much triggered by issues we had in our semi business or to be more precise, our lithography business. In the Americas, we saw a positive development driven by Biophotonics and of course, the now well-advanced go-to-market transition of Smart Mobility Solutions in the U.S. Looking at revenue share we realized with our top 7 customers. Unsurprisingly, this has dropped from 48% to now 43% in 2025, reflecting the somewhat special situation in lithography. Looking forward, of course, we expect that the share of our top customers to grow again. Now on Page 8, I would like to cover our profit performance by business. As you can see on the left hand of this chart, the group's EBITDA reached almost EUR 193 million, down by around 13% compared to last year. Our absolute EBITDA improved sequentially every quarter last year, and margins in the second half improved to the above 20% level. However, the full year, our EBITDA margin contracted by 150 basis points year-on-year, including an about 1 percentage point impact from our cost reduction program. On business unit level now, influenced by lower utilization and changes in the product mix, EBITDA in our semi business unit dropped by almost 18% year-on-year. Importantly, we were able to retain a strong margin level of around 26% on a full year basis and even around 29% when looking just at Q3 and Q4 together. So I believe this clearly shows the resilience we have in this business. In our Biophotonics business, the strong top line growth drove better utilization of our capacities in combination with positive product mix effects. EBITDA margin substantially improved to more than 20% last year. Looking forward, though, broadly keeping the strong margin level is what we're aiming at. And let me reiterate that semi type margins are not realistically in the cards from today's perspective. When looking at our Metrology and Production Solutions business, lower overall revenues impacted profitability on the basis of lower fixed cost absorption. But for sure, our cost reduction program will also help us to get our fixed cost base lower going forward. Finally, Smart Mobility, we saw good margin progression of more than 200 bps to 13.6% based on strong top line development and the associated leverage of functional costs. Now turning to Page 9, looking at key aspects of our P&L. I think we've said several times already, strict cost management was a key priority to us in 2025, considering the lower revenue levels that we alluded to before. Overall, we have reduced our headcount measured by FTE by almost 5% compared to the prior year. So now looking at the main developments of our P&L in detail. Gross margin was down by 130 bps year-on-year, which was primarily influenced by lower fixed cost absorption and product mix effects. On a business unit level, our semi business saw the biggest impact here. On the functional expense side, I think we remain very disciplined as those expenses declined by 1% year-on-year despite some general labor cost inflation impact as well as the already mentioned cost reduction expenses. Moving on to the EBIT line. You see a more pronounced decrease in both absolute terms and of course, margin compared to EBITDA since depreciation and amortizations were as expected, slightly up year-on-year. Further down the line, as you may recall from our Q2 call, we have recognized an income of a little above EUR 3 million resulting from a settlement agreement regarding the sale of VINCORION, our previous mechanical defense activities. Bottom line, our earnings per share reached EUR 1.26 versus EUR 1.62 in 2024. And as you have may read in our communication this morning, the Executive Board and the Supervisory Board proposed a dividend of EUR 0.40 for fiscal 2025 compared to EUR 0.38 for the year before. Finally, on ROCE, not unexpected given our earnings development last year, ROCE was at 8.4%, quite below our ambition level. We continue to see ROCE as a core metric in steering our company and remain committed to getting back to more satisfactory levels. Now turning to Page 10 and looking at cash flow and balance sheet data. Here, let me say that we are very pleased with the development, particularly considering the difficult trading environment for some of our businesses. So despite decline in earnings, as you can see, our operating cash flow pretax improved considerably, mainly on lower inflows into our working capital. And with additional support from the normalization of our CapEx, free cash flow was up by nearly EUR 50 million, enabling significant debt and leverage reduction. Finally, please follow me to Page 12 to cover our guidance for 2026. When looking into 2026, I think it's clear there's still high market uncertainties persisting driven by both macroeconomic, but also geopolitical developments that are generally difficult to predict. With regards to the semiconductor equipment industry, the by far biggest end market for Jenoptik, recent news flow has been positive, given, amongst others, announcement of massive data center investments and the associated need for computing capacity. Based on these trends and as well customer order activity, we expect positive momentum for our business in this space. Overall, for the Jenoptik Group, we expect revenue in 2026 to be up in the single-digit percentage range versus prior year. On profitability, we expect our EBITDA margin to be in the range of 19% to 21% in fiscal 2026. We do expect our CapEx to be slightly below last year's level. With that level, we are delivering what we promised and we will be trending towards our maintenance CapEx level. Now before I close my presentation, and we go into the Q&A, let me give you some extra color in sense of model assumptions, which some of you may find helpful. On revenue, we estimate a similar FX headwind of approximately 1 percentage point as we saw in 2025. Regarding profits, for sure, we may have some benefits from our cost-saving program and the emission of the associated onetime expenses from the restructuring as we are moving into '26, but general cost inflation, expected FX headwinds should also be borne in mind. On the contrary, rising energy prices may not influence the equation significantly, at least as far as we know from today's perspective. On our financial results, we are in the process of refinancing some of our German debenture bonds and overall expect our financial results to be broadly in line with previous year. And very importantly, from a phasing perspective, we do expect revenue in the first quarter of 2026 to be below last year's first quarter, given our current order book structure and capacity availability. So in summary, as we move into 2026, we see an improved demand picture as of now, supporting positive expectations, especially in our semi and defense businesses. Therefore, operational execution is our main focus at the moment. Moreover, we believe we have ample growth opportunities ahead of us, which we aim to realize. And those include, as I've mentioned in the very beginning, firstly, digital data communication with our high-performance microlenses used in transceiver. Secondly, defense, where we have established -- we have an established product offering and a strong international customer base; and lastly, further leveraging our infrastructure investment in the U.S. market for our SMS business. So as I see it, we have everything in our hands to be successful in 2026. And with that, I would like to thank you and hand back to our moderator to start the Q&A session. Operator: [Operator Instructions] And we have the first question. So the first comes from Craig Abbott from Kepler Cheuvreux. Craig Abbott: Good morning, Prisca and everyone. And thank you Prisca for also giving us some of the additional modeling indications. I'll just ask a couple of questions first and then get back in the queue. In the -- looking at your EBITDA margin in your semi activities in Q4 was indeed quite high, I think, around 30%. And I just wanted to -- this could be an indication of a new level of profitability we can expect going forward. Appreciating there will always be some quarterly fluctuations. But if that nevertheless is like kind of directionally a run rate? And can this be scaled further? That would be my first question, please. Prisca Havranek-Kosicek: Of course. Thank you, Craig. And I would like to caution a bit here. Yes. You are right. We were actually quite pleased with the 29.8% margin that we saw in Q4 '25, right? Main driver was better product mix and also lower costs from our reduction program. And also, of course, to be fair, we also have some onetime effects from release of bonus provisions that impact obviously the whole company, but also this business. So to your question on to moving forward, if this is an indication of a new profitability level, we expect good margins to be realized. But we have to also think that we -- next to the sector cost inflation, you know, we have a labor cost agreement of about 3% hitting us as of April '26. We also have to put in additional resources to accommodate the ramp-up and then our accelerating demand that we -- that as I've mentioned that we anticipate at least based on what we see today. So overall, that would not lead me to believe that we will come to a different margin environment for this business in 2026. Craig Abbott: I'll ask two more now and then I'll get back in the queue. The secondly, in semi, you mentioned twice, and you've talked about this before about increasing your share of wallet in the inspection space. I just wondered if there's any more light you could provide here and kind of helping us put that in some kind of dimension. And yes, if you could remind us kind of the sales split in your semi activities between lithography end markets and the inspection activities. Prisca Havranek-Kosicek: Yes. Thank you very much for your question, Craig. So as you know, we talk a lot about lithography, and I'm sure there will be some questions going forward. But our second large pillar in this business is our inspection business, you know, where we, again, also sell optical components, optical systems into the key players there. And we have indicated on several occasions that we actually have seen nice growth development throughout the year '25, both in order intake, but also in revenue. And with that, of course, that business has been growing versus the lithography business that has not been growing in 2025. Strategically, we think that's important, not only to build up, I would say, a second large pillar outside of the lithography business, which, of course, volume-wise is still the bigger one, but also because we believe we have ample share gains that we actually can get in our -- in the share of wallet of our customers. And this is linking back to our Capital Markets Day in 2023, where I think we talked about that. And now it's basically to give you a data point also that we are delivering on that strategic goal. Craig Abbott: And my third and last question for now. Please, on the EBITDA margin progression, if you could help us bridge that through. You gave us some indications in your comments a moment ago, but just trying to gauge like how much of that is like the efficiency measures feed through coming through now plus the follow the cost there last year. And secondly, mix effects from perhaps an over-proportional growth in your semi activities and whatever else may be factors worth pointing out, thank you. Prisca Havranek-Kosicek: Yes. Thank you, Craig. I mean you've seen the segment guidances that we are giving on this. Maybe where I can put a little bit more flavor, as I already alluded to in the comments. So of course, there's a one-off effect overall for the company from the restructuring expenses that we had in 2025 of high single-digit millions, which, of course, on a recurring basis, we will not have that, and we'll get some incremental impact from this restructuring project. We also have a project where we are working on introducing material expenses. That's also part of the activities we have kicked off last year. So that, I would say, is a tailwind. The headwind is, of course, the normal labor cost inflation. We have -- I think I mentioned that in the comments, labor cost agreement in Germany, and this is the biggest cost factor, obviously, for us that starts in April and is above 3%. So we have to, of course, factor this into the equation. And then we have to see overall what the geopolitical situation will bring. At the moment, we do not expect a major increase in costs from the current geopolitical situation, and maybe I can comment some more on that afterwards. But we will, of course, also have a slight increase in energy costs. But keep in mind that we are not an energy-intensive business. Our energy costs are fairly small compared to a lot of other industries. So if you take the net-net there, that gives you sort of the view on the sector cost inflation. And then on top of that, you mentioned our semi business. As you know, the mix matters in our company. So the demand acceleration, the early signs of which we are seeing today will, of course, have some influence on how the year plays out. And the semi profitability, of course, is a big mix factor within our total company profitability mix. I hope that sort of gives you a little bit of flavor on those questions. Craig Abbott: Yes, indeed. Very helpful. Thank you very much. Operator: The next question comes from Maissa Keskes from ODDO BHF. Maissa Keskes: Regarding Prodomax, the order intake is very low in '25 and the backlog is almost done. So how do you see the business development in '26 and beyond? And should we expect additional costs that could put some pressure on margins? And what are the concrete measures that are you implementing to mitigate this? Prisca Havranek-Kosicek: Yes. Thank you, Maissa, for the question. On Prodomax, we have seen in Q4 in 2025, an order cancellation at that business in the mid-single-digit value. So that, of course, is, I would say, not great news. That is unfortunate. It's not something that we will see going forward in our view. But of course, it's also a testimony to what I'm going to say next, which is that the demand situation for Prodomax in the overall North American/U.S. OEM space is still quite volatile and quite subdued. And that, of course, has an impact on Prodomax top line and the demand picture overall, as I've just mentioned also for 2025 order intake. Now what are we doing about this? Now Prodomax is an asset-light business that has actually -- it's based out of Canada. So it has a certain flexibility in its cost base that we have and the management there together with us have already, I would say, put to use in 2025. And of course, that's what we have to closely monitor again in 2026, depending on the demand situation. What I think is important, but I think you're fully right, a very low demand and also depressed revenue level will also hit profitability there. And there will be some structurally remaining costs that we cannot -- that are fixed basically, yes. But I think what is important to note is Prodomax is a business that has a very good market position, I would say, in this North American OEM space. So when -- it's more a question of when the demand will return rather than if the demand will return. So we believe this is temporary in nature. And while it's hard to be specific on when do we think the demand will return, we are absolutely convinced given the market position that it will return given time. Operator: The next question comes from Olivier Calvet from UBS. Olivier Calvet: Prisca, Andreas, my first question would be on the sequential development in margin. Do you expect a similar development as 2025? You touched on the Q1 growth rate being a bit subdued, let's say. Yes, maybe start there perhaps. Prisca Havranek-Kosicek: Yes. Thank you, Olivier. Yes, you are right. I have mentioned, I would like to reiterate that given the current demand pattern and also our internal capacities, we expect Q1 revenues to be below Q1 revenues of '25. That is correct. And obviously, given our full year guidance, then there will be an acceleration of demand -- or of revenue in that sense for the coming quarters. And of course, the margin picture will also -- because your question was on the sequential margin development, that will also follow, obviously, both the revenue development, but also the mix development is important. So I would say I would expect overall a back-end loaded development for the year, given also the start into the first quarter revenue-wise, as I've mentioned. I cannot give you specifics on margins on particular quarters. But I would say, in general, a bit also what we've seen also in '25, I would expect a stronger H2 compared to H1 at this point. Olivier Calvet: And just on your comments on capacity availability, could you maybe just give us a bit more color there? And I guess also within the semis business, could you touch on the lead time or sort of order to revenue conversion cycle in lithography and inspection perhaps? Prisca Havranek-Kosicek: Yes, of course, happy to take that question. So maybe let's start on a little bit of a higher level, right? We have businesses that have longer lead times, and now I'm referring to the semi space that you've been asking about, and that would be the classical optical components manufacturing. So whenever we do classical optics components, lenses, lens systems and subsystems, that has longer lead times. It's more lengthy manufacturing processes and also sometimes in the supply chain, there is longer lead times. If we then look at the micro-optics business, so mainly our sensor business there. So what we have basically invested into Dresden for, that typically is a faster manufacturing process with shorter throughput times, shorter cycles. And so those are the two different dynamics, I would say, in the semi business. And that is valid, I would say, both for inspection and for lithography where applicable. I would say, broadly speaking, you could probably imagine that the classical optical business is more than double of the -- maybe the lead times or the throughput times in the micro-optics business. Now as to capacities, let's say, we have -- as you know, we have invested into Dresden, and we have ample capacity there given the investment there also for, of course, going forward. So we can definitely accommodate substantial future growth for this business in this site. Now in the classical optics, as we have several manufacturing sites, you may have seen that we announced an investment into our Jena manufacturing site in Germany in fall last year. So we have also added there, I would say, moderately capacity in the sense of machines and also, to a certain extent, clean room facility. But we have had a good loading, I would say, overall, in particular, in our German sites in '25, also given the growth dynamics of the inspection business. So of course, we -- while we are -- we will be adding resources to accommodate a potential acceleration, we have to, of course, also make sure that we have -- our loading is not always completely balanced across all sites. I think that's the reality of a manufacturing organization. So in that sense, we have to be putting full operational execution into doing that. And that, of course, will also be determined next to the demand picture on how the year plays out. Hence, being at the beginning of the year, we have to cater for some volatility here. Olivier Calvet: Maybe just a final one on capital allocation. Good to see a higher dividend. But are there any changes that we've seen some moves on the Supervisory Board? Anything we should think of in terms of share buyback or anything like that? Prisca Havranek-Kosicek: So there was a lot of questions in one. I'll try to address at least what I can say. Now maybe, first of all, I'm very happy that our Supervisory Board is now complete. And I think you will understand that I will not sort of -- cannot comment on the composition or the Supervisory Board as such other than saying that I think we have an excellent Supervisory Board that helps the management team together shape the future of the company. As to capital allocation, which, of course, we were very clear at the Capital Markets Day '23 on what our capital allocation policy is. And let me remind you, and I think we've just talked about growth and capacities. Number one, capital allocation priority is supporting organic growth. Having said that, the major investment in Dresden is behind us, hence, also my comment on trending towards maintenance level from a CapEx point of view. But there will always be growth CapEx, obviously, given a little bit also the shape of the demand picture. And then second, obviously, returning to shareholders. You've mentioned the modestly increased dividend that we have. And this is our primary instrument at the moment that we use at Jenoptik. And then last but not least, of course, while I don't want you to read anything into that, but just reiterating what we said at the Capital Markets Day '23, of course, there could also be M&A activity, but we don't have an appetite at the moment to have a focus on M&A. Operator: The next question comes from Martin Jungfleisch from BNP Paribas. Martin Jungfleisch: I have 3, please. I'll go one by one. The first one is on just the start of the year. You mentioned that you have seen a solid start, particularly in the OEM business. Could you just quantify this a bit? So what does this mean on the order side? Would you potentially see a level of the Q3, like EUR 300 million? Or is it more like the Q4 of EUR 220 million? If you could provide some color on that, please? Prisca Havranek-Kosicek: Yes. Thank you, Martin, for your question. And I think you will understand, obviously, I cannot really give you a quarter guidance on that. We've seen, as you said, significant improvement in demand, in particular, our OEM businesses. I have mentioned particularly semi there and also, I would say, the Defense business and some parts of our Life Science businesses. So we actually see good momentum there. But also, of course, our -- as I've said, particularly in the Biophotonics business, including the Defense business, there's high amount of order volatility. So we have to keep in mind that these businesses are driven by ups and downs in order volumes. Yes, but overall, we've seen in the beginning of the year, a significant improvement in demand in OEM, meaning Semiconductor and Biophotonics/Defense. Martin Jungfleisch: Okay. So the order -- the book-to-bill should be probably significantly above 1, I suppose. Prisca Havranek-Kosicek: Yes, I don't know, I cannot give you, as you will understand, some guidance on that. I think you have to do the math yourself there. Martin Jungfleisch: And then -- yes. And secondly, maybe on the semi business. Can you disclose what the segment guidance implies for the litho and the inspection business? Like would you expect higher growth from litho this year versus inspection and some other areas? And maybe if you have also baked in some positive effects from some restocking at your largest customers given their growth ambitions for 2026 and beyond? Prisca Havranek-Kosicek: Yes. I am afraid I won't be able to give you much detail on the specifics of those businesses. As you know, we work with a very concentrated customer base. And then therefore, it's -- we're a little bit limited on what we can say there, as you understand. I mean what I can tell you is that as we have said before, we believe the effects from the supply chain correction in lithography are behind us. As we've continuously said, we think this was most pronounced in the first -- in the beginning of '25. So we believe that this is behind us now. And as Craig has also before -- sorry, asked was around that we are happy with the growth momentum we see in inspection and also our strategic move there. So overall, I think if you put those two together, you sort of get the impact for the wider segment. Martin Jungfleisch: And maybe just one last question is on the photonics product. I think you've highlighted a few times. Can you just talk a bit about the photonics for the micro-optics business and the Probe Card business a bit more? So what kind of size in revenues was that last year? And what are your expected growth rates for this year? I mean there's a lot of companies in the laser transceiver business that are seeing the revenues doubling this year. So just checking with you if you're seeing like a similar trend here? And also, how does this tie with the capacity? Do you have enough capacity to cater for that demand? Andreas Theisen: Martin, it's Andreas here. Maybe on the UFO Probe Card for everyone. So this is for -- this is a testing set of kit for photonic integrated circuits, so special submarket of the semi market. I think we alluded to that before, and we have an interesting product, as I said, for testing those chips. The scale of the business is relatively small at the moment. So we are talking about a single-digit million euro number. We see growth here. But I think we can also say that we are not having the only solution for this for testing those chips. And therefore, we do not really see this to become a tangible or a major driver for our P&L going forward. So it will be growing, but not in a tangible sense. Prisca Havranek-Kosicek: And maybe to add on that, on your question on the micro-optics, basically the micro lenses, yes, the micro lens -- difficult word, arrays that we supply into transceivers basically or optical data communication. Now as I've also mentioned in my remarks, we have seen -- and we talked about that in '25, right? We've seen a big interest, big demand for the existing product portfolio, I would say, we have of our business there. It's modest in size, but we expect, given the -- all the massive investments into data centers, AI driven, we expect actually some nice growth there, obviously, on a smaller basis as we speak. But we believe -- we closely monitor this market, and we believe that it's an interesting growth opportunity for us incrementally. Martin Jungfleisch: Okay. And the capacities are sufficient for growth, I suppose? Prisca Havranek-Kosicek: We are in the business of sort of adding capacities wherever we need them, right? And so in that sense, I would say it's too early to tell how that will really develop. And therefore, for now, we are fine capacity and this -- we'll closely monitor that. Operator: [Operator Instructions] And we have one more question from Lasse Stueben from Berenberg. Lasse Stueben: Sorry to come back on the Q1 again. I was just a bit surprised because Q1 '25 wasn't a super strong quarter. So can you give more color on sort of between the businesses, what's kind of happening? Is this largely down to the lumpiness in Defense or simply just the phasing of the demand in semi? And then the second question I would have is just on the Q4 margin in Metrology, that was very high. And it seems like in the segment outlook, you're sort of guiding for an improvement in the margin there for '26. So maybe some more color on what that could potentially kind of look like? Should we be looking for a double-digit EBITDA margin for Metrology in '26 or something else? Prisca Havranek-Kosicek: Yes. Of course, Lasse, thank you very much. I'll take the Q4 Metrology question first, and then I will try to give a bit more flavor on Q1. Now I mean, if you look at the margin in Q4 Metrology and you look at the revenues, right, it was a super strong given basically comparing the other quarters, Q4 in Metrology. And this is the main effect that you see there. Now from a CFO point of view, I would prefer, obviously, a somewhat more flat or not as volatile revenue development, right? But there's nothing -- the main driver in that margin is the top line. And I've said -- I've mentioned AR/VR growth potentials in -- when I talked about '25. So I think that's an interesting thing to take a look at, not saying that we are planning at all for an inception or anything there. But we've seen some nice commentary and movements also in a trade fair in January in Photonics West regarding that. But then on the other side, as you know, in the metrological business, it's also, as I've mentioned, the automotive business, where we do not really see an improved demand picture right now. So I would say we have to see how this overall plays out into the next year. But that's the explanation on the Q4 on the floor levels. And I -- We have a segment guidance on -- specifically on MPS, which is revenue higher than -- sorry, profitability higher than -- growth higher than revenue. But we have to see how the year plays out. And then on your question on Q1, obviously, we're not guiding for quarters. So I'm somewhat limited on what I can see there. But what I can tell you is keep in mind that, I mean, while semi is the biggest business, there's also sizable other businesses in the Biophotonics space, depending on the Metrology business as we go there. And when we say that we anticipate lower revenues than in the previous year, obviously, it's related to all of those businesses. Do not just focus on the semi business here. Operator: And we have one more question from Craig Abbott from Kepler Cheuvreux. Craig Abbott: Yes. I actually just wanted to follow up on part of what you were just discussing in terms of the Metrology protection business. Indeed, I was pleasantly surprised actually by the positive tone of the outlook for this year. I was going to ask you to what extent that is due to pickup finally in the AR/VR applications? Or is it other applications more than traditional applications for TRIOPTICS? Because I assume also given the margin progression in Q4, that the big driver there is the TRIOPTICS business. Is that correct? Prisca Havranek-Kosicek: Thank you for your question, Craig. So I'll try to give you a bit more flavor here. So yes, you're right. We have guided for mid-single-digit growth in '26, right, for MPS. And as we take a part this plan, if you're right, TRIOPTICS is one of them. And of course, how the smartphone business, which still is a sizable chunk of our TRIOPTICS business plays out, we have to see. So that is one assumption around that. AR/VR, we have seen, I would say, nice small movements and also a lot of press, obviously, if you look at what Meta is doing and so on. But if you then look at the volumes, I think one of the Ray-Ban is 15,000 volumes or something. So you have to say that I don't think we are at the commercialization of that yet. And when and if there will be an inflection point, we have to see. So we have factored some assumptions into that, but for sure, not a complete takeoff of the AR/VR business. But then on the other side, we have factored in that the automotive demand remains depressed, but we have not factored in an incrementally reduced demand. So those are a little bit our assumptions into that segment that has a wide variety of end markets and dynamics there. So that drives our thinking for 2026. But it's early days, so we have to see how those things play out then in detail. Operator: So at the moment, there are no further questions. Oh, we have one more question, sorry, from Malte Schaumann from Warburg Research. Malte Schaumann: I have a question on the Smart Mobility business. You expect quite significant growth in 2026. Order intake has been kind of book-to-bill close to 1. So maybe a comment on how the project pipeline might look like and if you would expect -- I mean, this implies that maybe some larger projects are in the pipeline that might realize during the first half of the year. So maybe additional color here would be appreciated. Prisca Havranek-Kosicek: Yes, of course, Malte. So keep in mind that when we have TSP revenues, our order intake is actually not that relevant, where we have recurring revenues that -- it's really where the hardware sales that the order intake is revenue important, right? Where we have solutions businesses, it's less of an importance. So just as a sort of structural comment on that. And then obviously, we expect a growth trajectory from a continued expansion in the U.S. That's something that we've invested in that we would like to see continue there. And then you also -- on your question on order intake, this business is also somewhat volatile for order intake because sometimes there are projects or orders. Think of our business in the Middle East that we take opportunistically that can increase and decrease certain -- or give some volatility in the quarterly order intake. So that's the thinking around growth in SMS. Operator: So now there are no further questions. [Operator Instructions] But I think there will be no more questions. So then I can give the word back to you. Prisca Havranek-Kosicek: Thank you very much. And I would like to close the call with a clear message. Despite market uncertainties, we believe that we are well positioned to return to profitable growth in 2026 by focusing on both exploiting our growth opportunities in our key end markets as well as focusing on operational execution. Thank you for attending our call, and we look forward to seeing many of you on the road over the next weeks. Thank you very much.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Zhihu Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] Today's conference is being recorded and webcasted. At this time, I would like to turn the conference over to you, Yolanda Liu, Head of IR and Capital Markets. Please go ahead, madam. Yolanda Liu: Thank you, Hadi. Hello, everyone. Welcome to Zhihu's 2025 Fourth Quarter and Full Year Financial Results Conference Call. Joining me today on the call from senior management team are Mr. Zhou Yuan, Founder, Chairman and Chief Executive Officer; and Mr. Wang Han, Chief Financial Officer. Before we begin, I'd like to remind you that today's discussion will include forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. As such, actual results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in our public filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Additionally, the discussion today will include both GAAP and non-GAAP financial results for comparison purpose only. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to our earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our IR website at ir.zhihu.com. Today, Victor Zhou, an AI agent, representing Mr. Zhou Yuan, will deliver prepared remarks in English on his behalf. As Victor is still being refined, we appreciate your understanding. Victor, please go ahead. Yuan Zhou: Thank you, Yolanda. Hello, everyone, and thank you for joining Zhihu's fourth quarter and full year 2025 earnings call. I am Victor Zhou, and I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, Founder, Chairman and CEO. In 2025, we achieved our first ever full year non-GAAP profit. This historic milestone validates our strategic transformation and underscores the structural durability of our operational leverage. Full year 2025, adjusted net income reached RMB 37.9 million, on a substantial turnaround from the adjusted net loss of RMB 96.3 million in 2024. Our community engagement continues to thrive. In Q4, average daily time spent per user increased to over 41 minutes on the platform. Our ecosystem of trusted creators remains vibrant, consistently delivering authentic and high-quality content across diverse fields. At the same time, we accelerated AI integration within our community. The synergistic evolution of our high-quality content times the expert network times AI capabilities continuously strengthened Zhihu's competitive mode in the AI era. In 2025, we successfully optimized our business structure. With a healthier commercial ecosystem, total revenue trend improved meaningfully in the fourth quarter, driven by a double-digit sequential increase in marketing services. Entering 2026, amid the surging AI adoption, we are leveraging Zhihu's unique advantages to scale AI-driven commercialization, including rapidly building industry-leading export data solutions and deploying AI productivity tools to accelerate IP monetization of our Yan'an Stories franchise. These initiatives will unlock new commercial opportunities for Zhihu. These efforts are anchored by a robust self-sustaining ecosystem. The powerful synergies between high-quality content, our expert network and expanding AI capabilities have created a positive feedback loop, driving heightened community, activity and interaction. In the fourth quarter, our data engagement metrics strengthened significantly. Average daily time spent per user increased sharply both year-over-year and sequentially to over 41 minutes. Substantial year-over-year growth in positive user interactions also drove notable improvements in both short- and long-term new user intention. High-quality content on our platform continues to surge. In Q4, daily creation of high-quality content rose by over 20% year-over-year, contributing to over 31% growth for the full year. Notably, professional AI-related content increased by over 30% year-over-year. As the global AI landscape has shifted from capability races to architectural innovation and system integration, Zhihu remains a leading forum for prominent researchers and frontline engineers to share insights, unpack complex topics and debate key issues. At the vanguard of the AI revolution, our community hosted extensive high-level discussions on key topics such as DeepSeek's Engram architecture, Qwen's new RIF's winning mechanisms, and the continuous iterations of Kimi and Zhipu. The conversation has moved from stronger models to effective system deployment, emphasizing tiered agent architectures and workflow redesign in products like Open Cloud and Cloud Co-Work. The debut of Unitree Robots at the Spring Festival Gala, together with Tesla and the figures progress towards a mass-producing humanoid robots have filled a critical analysis of embodied AI road maps as founders and the employees from leading AI enterprises personally engaged on Zhihu to answer questions and address concerns. Our platform remains attractive space where AI innovations are first explained, validated and responsibly disseminated. We continue to leverage AI to upgrade our community governance and content mechanism. By replacing many operations with algorithm-driven automated workflows, we enhanced community governance ,efficiency and precision. We introduced new metrics for trustworthy contents recognition and promotion ,while integrating user feedback into our evaluation framework. These measures effectively reduce system noise, dynamically suppressing low-quality content and elevating the overall user experience. Professional creators remain the backbone of Zhihu's expert network. In the fourth quarter, daily active high-tier creators grew by double digit year-over-year. A number of verified honored creators rose by nearly 30% as we continue to strengthen incentives for top-tier creators while supporting their efforts to expand industry influence. Our Zhihu 2025 annual review highlighted exceptionally robust high-tier creator engagement. In AI and technology, leading AI companies, including DeepSeek, Moonshot, Tongyi Qianwen, ByteDance Seed, Zhipu and StepFun actively engaged on our platform through their official accounts. Creators with frontline industry and R&D backgrounds consistently shared cutting-edge insights on our platform, contributing to major industry discussions. For the full year, AI-focused creators grew by approximately 16%. In fundamental sciences such as astronomy and chemistry, high-profile creators actively joined our flagship online and offline science programs. Their authoritative content sparked a widespread discussion beyond our community, driving higher search interest for related topics. On the product side, Ideas remains the primary channel for high-frequency knowledge sharing by professional creators, while Circle facilitates engagement around common interest. For the full year, average daily content volume on Ideas grew 73.5%, and the average daily interactions doubled. This momentum persisted in the fourth quarter with double-digit sequential growth across both metrics. We also increased support for mid-tier creators during the quarter, fostering a dynamic growth-oriented ecosystem. Leveraging AI agents, we significantly improved our efficiency in identifying and nurturing talent. In Circles AI-powered proms and standardized tools lowered creation variants and enhanced content distribution. As a result, average daily content creation in Circles surged over 100% sequentially with daily views up 72%. Beyond the AI-driven efficiency gains in content operations, creator support and ecosystem management, Q4 also saw accelerated advances in our foundational AI capabilities enhancing experiences for both creators and the users. In search, creation and consumption, we continue to deepen the integration of AI into the Zhihu community experience. In search, we completed an AI upgrade to our integrated search in December, introducing cross topic content aggregation and hot trend summarization to create a new entry point for high-quality content discovery. We also tailored the answer formats to different query types, which drove a double-digit increase in click-through rates for our AI direct answer cards and meaningfully increased average AI search interactions per user through more multi-turn conversations. In creation, AI is increasingly becoming a practical tool for creators on Zhihu. Since the fourth quarter, we have rolled out features such as content publishing and one-click enhancement powered by intelligent editing, automated formatting and image pairing capabilities. These tools lower the barrier to creation, improve readability and distribution efficiency and help creators turn ideas into shareable content more efficiently. We are also introducing multimodal capabilities such as AI-generated illustrations and image summarization to make long-form content more visually engaging and improve user conversion in the feed. In consumption and circulation, AI is helping Zhihu content transcend traditional community boundaries through external ecosystem partnerships, we are extending our content capabilities into more intelligent assistant scenarios. Within the community users are beginning to use AI in common thrives for fact checking and professional explanation, which supports more authentic interaction and follow-up discussions. Meanwhile, our AI reading panel on PC has improved the efficiency of long-form reading through one-click summarization and terminology explanation and is beginning to generate more valuable interest signals for future recommendation and monetization. Now turning to commercialization. Our efforts to optimize our commercial structure have yielded notable results. With a healthier business ecosystem, total revenue has entered a recovery phase, reaching RMB 643.5 million in the fourth quarter as the pace of sequential decline continued to narrow. This shows a clear top line recovery trajectory. At the same time, we are exploring new scalable AI-powered monetization avenues with an unwavering focus on long-term value and operational excellence. Let's take a closer look at our performance by segment. In the fourth quarter, marketing services revenue reached RMB 234.8 million, up 24% sequentially as our adjustment cycle bottomed out. Disciplined execution in optimizing client mix and upgrading commercial products capitalizes momentum, strengthening our appeal to high-value clients. We elevated the overall client quality, deepened industry penetration and accelerated new customer acquisition. In the fourth quarter, ARPU rose significantly among clients in high-value verticals such as technology and e-commerce. We also reached the new segments in sectors such as automotive and health care. In December, we hosted the Electric Club New Knowledge Technology Conference, which brought together automotive engineers, autonomous driving specialists and leading tech experts from the Zhihu community to explore NEV safety and intelligent upgrades. The event drove 140% year-over-year increase in participating clients enabling industry leaders like BYD, Mitsubishi and Voyah to articulate their technological strength and the safety value through targeted engagement and build trusted content assets. On commercial product upgrades, we leveraged our trusted content and expert network to expand the community-driven monetization and amplify the commercial value of our key IPs such as Zhihu Science Season and Zhihu Reviewers Jewelry. Revenue from IP-related projects increased 21% year-over-year, supported by deeper brand collaborations across our IP portfolio. At the same time, our Idea Plus solution gained strong momentum during the quarter. By offering a lightweight precisely targeted format, Idea Plus extended our native advertising capabilities into short-form content, significantly shortening the path from discovery to purchase, capitalizing on 106% year-over-year increase in daily ideas, interactions. Idea Plus achieved a 62% sequential increase in client numbers and 200% sequential growth in average daily client spend. In 2026, supported by a healthier commercial ecosystem, we aim to drive continued recovery and sustainable long-term growth in marketing services. Next, turning to the business we currently report on the paid membership, which we increasingly see evolving into a broader content and IP operations business. Paid membership remains a revenue contributor of this segment. In the fourth quarter, average monthly paid members reached 12.2 million, generating RMB 333.5 million in revenue. Short-term membership fluctuations aligned with expectations as our structural adjustments prioritize fundamental improvements in service experience and profitability to support a smooth transition during this phase, we are exploring new growth drivers, initiatives to improve member retention and ARPU are yielding results. Q4 average ARPU increased by 1.4% sequentially and overall quarterly renewal rates improved by 2.7 percentage points. Beyond the paid memberships, we are maximizing content IP's value across media adaptations and licensing. IP monetization revenue, which is currently recognized in other revenues grew more than fivefold year-over-year in the fourth quarter and doubled for the full year, underscoring the significant growth potential of this business. The monetization potential of our Yan'an Stories IP continued to translate into tangible results. In December, 2 adapted short dramas Fang and Xia, and The Seventh Year Of Secret Love For My Childhood Friend premiered on Tencent Video, quickly ranking among the platform's top releases. Fang and Xia set all-time popularity record for vertical short dramas on the platform, while Seventh Year Of Secret Love For My Childhood Friend topped the charts and sparked widespread discussion across social media. These results demonstrate our IP's strong adaptation potential and mainstream appeal. During the quarter, we released our short story influence list for the third consecutive year recognizing 62 outstanding works and 20 authors. The selection includes both mature IP already adapted into film and television as well as a pipeline of high-quality titles with strong multi-format development potential. Together, these initiatives highlight our scalable pathway for long-term value creation, cultivating high-quality content, structuring an IP portfolio and extending it across multiple formats to unlock compounding growth. Looking ahead, rapid advances in multimodal AI and the rising industry productivity are expected to further expand monetization opportunities for Yan'an Stories IP creating new growth potential for our content and IP operations business. Building on this, we are exploring a new format for IP development, AI-powered comic dramas and emerging formats driven by demand for lightweight content and improved generative model efficiency. Positioned upstream, Zhihu leverages a dense network of high-quality creators and rich content assets giving us a natural advantage as a stable source of premium IP. Strategically, we will pursue a dual-track approach of IP licensing and in-house incubation. We will also collaborate with platforms and studios to unlock mature IP value, while building in-house AI production capabilities. Turning to other revenues. Beginning in the third quarter to improve profitability, we consolidated our vocational training and the new initiatives into other revenues, which totaled RMB 75.2 million in Q4. We believe 2026 will mark another leap in AI productivity complemented by rapid expansion of real-world applications. Leveraging Zhihu's unique strength we are accelerating exploration of AI-related monetization. We also see growing potential in export data solutions as competition among other ends, increasingly shifts from scale alone to alignment, quality and real-world generalization, high-value, traceable and structured data is now the core driver of model performance. With our long-standing expert network and authentic discussion scenarios, Zhihu is well positioned upstream in the supply of high-quality knowledge and insights and we believe we can be among the earliest platforms in China to systematically define and commercialize high-value data solutions. To support this opportunity, we are developing our export data solution capabilities. At the same time, we are also exploring how to engage experts more deeply in data construction and labeling processing that supports model training and alignment. In summary, achieving full year non-GAAP profitability in 2025 marks a pivotal milestone for Zhihu, validating the resilience of our strategy and the strength of our execution. In 2026, we remain committed to prioritizing disciplined operations, while accelerating AI integration across our community and commercial models. We are sharpening our strategic focus and optimizing resource allocation. In our established businesses, we will continue to prioritize ecosystem health and the user experience, leveraging AI to drive efficiency gains and elevate content quality. At the same time, we are doubling down on AI-driven monetization innovations to cultivate new scalable growth engines. We are confident that 2026 will usher in a new era for high-quality growth for Q4, defined by the further realization of our unique AI capabilities and monetization potential. With that, I will hand the call over to our CFO, Wang Han, whose remarks will be delivered through his AI voice agent. Han, please go ahead. Wang Han: I will now go over our fourth quarter financials for a complete overview of our results, please refer to our press release issued earlier today. 2025 represents a structural upgrade in Zhihu's financial profile. As Victor noted, we achieved our first full year non-GAAP profitability milestone. Financially, this progress was driven by sustained cost discipline, improved operating leverage and tighter expense control, while maintaining healthy gross margins. For the full year, we recorded non-GAAP net income of RMB 37.9 million, and our non-GAAP operating loss narrowed by 33.6% year-over-year. These results reflect the cumulative impact of our multi-quarter structure optimization and provide a strong foundation to build on as we enter 2026. Now turning to the fourth quarter. Our total revenues for the quarter were RMB 643.5 million compared with RMB 859.2 million in the same period of 2024. The year-over-year decrease continue to reflect our ongoing efforts to optimize revenue mix and focus on sustainable, high-quality growth. Notably, the pace of sequential decline continued to narrow, reinforcing a clear top line recovery trajectory. Our marketing services revenue for the quarter was RMB 234.8 million compared with RMB 315.9 million in the same period of 2024, while the year-over-year decline reflects our proactive refinement of service offerings, the sequential trend was notably positive. Marketing services revenue grew 24% sequentially, marking a clear inflection point in our recovery. This momentum was driven by stronger client quality, deeper industry penetration and the successful ramp-up of new commercial products. Paid membership revenue was RMB 333.5 million compared with RMB 422 million in the same period of 2024. Average monthly subscribing members were 12.2 million. The year-over-year decline in membership was expected and reflects our deliberate prioritization of unit economics over scale. That said, we delivered sequential improvements in both ARPPU and renewal rates during the quarter, which we view as early validation that our retention initiatives are gaining traction. Other revenues were RMB 75.2 million compared with RMB 123.1 million in the same period of 2024. The decrease primarily reflected the strategic refinement of our vocational training business, partially offset by growth of revenues generated from our intellectual property derivatives business. Our gross profit for the quarter was RMB 344.8 million, compared with RMB 540.7 million in the same period of 2024. Gross margin was 53.6% compared with 62.9% in the same period of 2024. The decrease in gross margin was primarily due to our ongoing efforts to broaden and enhance content offerings for all users. Our total operating expenses for the quarter were RMB 608.7 million compared with RMB 528.8 million in the same period of 2024. The increase was primarily due to a onetime non-cash goodwill impairment charge of RMB 126.3 million, which was primarily associated with our prior acquisitions, mainly driven by lower valuations amid the current market conditions. Excluding this item, underlying operating expenses continued to decline year-over-year as we further streamline spending across key areas. Selling and marketing expenses decreased by 13% to RMB 275.2 million from RMB 316.2 million in the same period of 2024, driven by more disciplined marketing spend and lower personnel-related expenses. Research and development expenses decreased 16% to RMB 123.1 million from RMB 146.6 million in the same period of 2024. The decrease was primarily driven by ongoing improvements in our research and development efficiency. General and administrative expenses were RMB 84 million compared with RMB 66 million in the same period of 2024, primarily due to higher share-based compensation expenses. Our GAAP net loss for the quarter was RMB 210.8 million compared with RMB 86.4 million in the same period of 2024. On a non-GAAP basis, adjusted net loss was RMB 39.4 million compared with adjusted net income of RMB 97.1 million in the same period of 2024. As of the 31st of December 2025, we held RMB 4.5 billion in cash and cash equivalents, current and non-current term deposits, restricted cash and short-term investments compared with RMB 4.9 billion as of the 31st of December 2024. As of the 31st of December 2025, we repurchased 31.1 million Class A ordinary shares on the open market for an aggregate value of USD 66.5 million. In addition, throughout 2025, we repurchased a total of 16.6 million Class A ordinary shares through the company's trustee for an aggregate value of USD 23.4 million, representing 6.29% of the total issued ordinary shares. Looking ahead, we will further enhance earnings quality and scalability by prioritizing higher-margin, more capital-efficient revenue streams. We will continue to strengthen our monetization capabilities and explore new AI-powered revenue models, while leveraging Zhihu's core strength, high-quality content, a respected expert network and advanced AI capabilities, coupled with disciplined capital allocation, including share repurchases. These actions will reinforce our financial resilience and support sustainable long-term value creation. Operator: [Operator Instructions] We will take our first question. Your first question comes from the line of Xueqing Zhang from CICC. Xueqing Zhang: [Foreign Language] Thanks management for taking my question. And my question about your financial outlook. So firstly, what's the earnings outlook in 2026 and how to balance the investment with the cash flow and the profitability? Wang Han: [Foreign Language] Unknown Executive: [Interpreted] This is from Zhihu CFO, Wang Han. So first, 2025 demonstrated that Zhihu can achieve profitability. But more importantly, we believe, given our unique assets and positioning Zhihu's opportunity set in the AI era is meaningfully larger than what we current scale reflect. So we are not pursuing a single path of delivering profitability this year, more profitability next year. And then turning to dividends. At our current scale, that would not generate a particular meaningful level of returns for our shareholders. So what we want to do instead is stay focused on the opportunities created by AI and invest behind them. At the same time, this does not mean we will abandon the bottom line discipline that we worked hard to achieve or return to the old model of burning significant cash for growth. We will be disciplined in selecting new initiatives concentrating our investments on areas with visible ROI potential and a strong fit with Zhihu's core strength. In other words, we want to deliver growth in new AI-driven revenue stream. At the same time, to keep the overall bottom line on a healthy and responsive track. Thanks for the question. Operator: Thank you. We will take our next question. Your next question comes from the line of Daisy Chen from Haitong International. Kewei Chen: [Foreign Language] I'll translate it myself. As of current stage, what is your strategy in terms of our commercialization? And what are the company's core priorities for 2026? Wang Han: [Foreign Language] Unknown Executive: [Interpreted] So thanks for your question. I will get started with my answers. This is from Zhihu CFO, Wang Han. So in terms of the priority and the strategy in 2026, these are mainly centered on 2 tracks. First of all, in our core community business, we want to continue using AI to improve efficiency and deliver a better product experience for our users and the content creators. At the same time, to maintain stable revenue and a healthier level of operating profitability. In other words, we want to -- our core business to maintain steady, while becoming increasingly AI-enhanced and financially stronger over time. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] At the same time, we want to fully leverage Zhihu's unique assets to develop new AI businesses. As I mentioned earlier, the new initiatives we choose will not be built around aggressive cash burn. We will focus on areas where we can see a path to a healthy cash flow. Right now, we are mainly focused on 2 areas. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] The first is AI-enabled short-form drama and comic adaption. As text to video and image to video models continue to evolve. The production chain is becoming increasingly streamlined. In that process, the scarce asset is high-quality upstream IP, and that is not something that can be acquired overnight, simply by spending heavily. Zhihu's advantage is not only that we have accumulated a large library of high-quality copyrighted content, but also that we have a highly active creator ecosystem that continue to generate new ideas and new IPs. More importantly, AI-generated short drama and the comic style content have already shown that users are willing to pay for this type of AI content. So we believe this is one of the most promising areas where focused investment could generate meaningful and scalable AI revenue for us. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] The second area is data -- AI data services. At a time when many AI applications are still operating with heavy cash burn, there are only a few categories in the ecosystem that can capture structurally attractive economies. One, of course, is represented by companies like NVIDIA. Another on a relatively smaller but still very attractive scale is high-quality data area. In U.S. companies such as Scale AI, Surge AI and McClure has grown rapidly within just a few years by providing high-quality data services to leading LLM developers, while also demonstrating a healthy cash flow characteristics. So with our strong export network and depending on understanding of high-quality model data, we believe Zhihu is well positioned to provide differentiated data solutions for all of these AI developers. At the same time, our community can continuously service new areas of expertise, emerging knowledge, and involving capabilities that LLMs have not yet fully covered. This gives Zhihu a very differentiated advantage in this field. And we believe this is also a business with a clear opportunity to generate positive cash flow. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] So in a word, what we want to deliver is a stable core business that continue to upgrade through AI with improving product capability and a healthy financial profile. Alongside new AI revenue streams that can grow in a disciplined way. The goal is not to pursue growth through excessive spending, but also -- but to build a new AI business with visible monetization potential and a path to positive cash flow. Thank you for the question. Operator: [Operator Instructions] We will take our next question. The question comes from the line of Vicky Wei from Citi. Yi Jing Wei: [Foreign Language] So could management share some data that will help us better understand the impact of AI on the Zhihu community? And additionally, with regard to product upgrades and user experience enhancement in the coming year, what new initiatives does Zhihu have in place? Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreted] Thanks for your question. I will take this question. This is from Zhihu CEO, Zhou Yuan. So first of all, the impact of AI on our community has not been passive. Over the past few quarters, we have been actively driving this accelerating and deeper integration between AI and the Zhihu community with a clear focus on improving such as content consumption, creator experience and so on. Broadly speaking, the positive changes from AI adoption can be seen across 2 groups: our core retained users and our new users. Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreted] Starting with our core retained user, AI is helping users and creators better understand and connect with each other, which further strength the social nature of a real human interaction on our platform. In 4Q, both the coverage and frequency of the positive user interactions on the platform increased year-over-year. We are also seeing users actively call on AI capabilities, aka Zhida. In the comments section for things like fact checking, explaining professional topics and the following training discussions. Importantly, this is happening without disrupting the community atmosphere. Instead, it is helping drive -- is helping drive more interaction and the follow-on discussion among real users. More recently, we launched AI reading panel on PC, with features such as one-click summaries and explanations of professional terms. It has meaningfully improved the reading efficiency of long-form content and significantly enhance the deep reading experience for our core users. Yuan Zhou: [Foreign Language] Unknown Executive: As we mentioned earlier, daily newly added high-quality content in the community grew by over 20% year-over-year in 4Q. But beyond content volume, while we are more -- what we care more about is a positive shift in user and the creators' behaviors. So through like AI capabilities, such as intelligence editing and multi-model associated creation, we're continuing to lower the barrier. So we can see like in the per user's interaction improved significantly in this quarter. Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreter] For new users entering the community, AI is also lowering the barrier to content discovery, joining discussions and participating in interactions. In 4Q '25, the direct MAUs of Zhihu Zhida continued to grow by more than 260% year-over-year, while next month's retention improved by about 83% year-over-year. In February '26, average daily search queries per DAU increased by more than 16% compared with November '25. Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreter] As we shared previously, we mentioned that we completed another upgrade of AI capability within Zhihu's main search to further integrate Zhida with our broader search experience and making it a new entry point for high-quality content for our users. So we see this happened in December. And after this upgrade, search can present more suitable answer formats based on different types of queries. Since launch, user coverage of a AI Zhida cards have increased meaningfully. CTR, click-through rate saw double-digit improved and average AI searches per user also increased noticeably. Yuan Zhou: [Foreign Language] Operator: Continue to standby, the conference will resume shortly. [Technical Difficulty] Unknown Executive: [Interpreter] Okay. I will continue to deliver answers from our CEO, Zhou Yuan. So for the looking forward perspective, our plans are focused on 2 areas. First, we will continue investing in the experience gains we are already seeing from AI, both in terms of enabling more social interaction and efficiency for core return users and new users. So this direction here is already quite clear, and we have been building toward it step-by-step. On top of that, we are preparing to upgrade the Zhida's core capability from AI search towards an agent-based experience. We believe this could bring broader product experience upgrades to users across community. Although there is still an innovation and execution process ahead of us, and we will continue to work through that rollout. So this is from Zhihu CEO, Zhou Yuan. Thanks for your question again. Operator: Thank you. That concludes today's Q&A session. I will now turn the call back to Yolanda for additional or closing remarks. Yolanda Liu: Thank you once again for joining us today. If you have any further questions, please contact our IR team directly or Christensen Advisory. Thank you. Thank you all. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Thank you for standing by. Welcome to Kingsoft Corporation Fourth Quarter 2025 and Annual Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Yinan Li, IR Director of Kingsoft. Please go ahead. Yinan Li: Thank you, operator. Ladies and gentlemen, good evening, and good morning. I would like to welcome everyone to our 2025 fourth quarter and annual results earnings call. I'm Li Yinan, the IR Director of Kingsoft. I would like to start by reminding you that some information provided during the earnings call may include forward-looking statements, which may not be relied upon in the future for various reasons. These forward-looking statements are based on our information and information from other sources, which we believe to be reliable. Please refer to the other publicly disclosed documents for detailed discussion on risk factors, which may affect our business and operations. Additionally, in today's earnings call, the management will deliver prepared remarks in both Chinese and English. A third-party interpreter will provide a consecutive interpretation into English. During the Q&A section, we will accept questions in both English and Chinese with automated interpretation provided by the third-party interpreter. On-site translation is solely to facilitate communication during the conference call. In case of any discrepancies between the original remarks and the translation, the statements made by the management will prevail. Having said that, please allow me to introduce our management team who joined us today: Mr. Zou Tao, our Executive Director and CEO; and Ms. Li Yi, our acting CFO. Now I'm turning the call to Mr. Zou Tao. Tao Zou: [Interpreted] Hello, everyone, and thank you all for joining Kingsoft's 2025 First Quarter and Annual Results Earnings Call. In 2025, we remained committed to technology empowerment and focused on enhancing our core capabilities. Kingsoft Office Group continued to prioritize its core strategy of AI collaboration and internationalization, deepen its presence in the AI office market and development of future-oriented intelligent office products tailored to the all scenario office needs of both individual and enterprise users. In the online game business, we further deepened our expertise in classic wuxia IP and actively expanded into diversified game categories and global markets. In 2025, the group's total revenue reached RMB 9.68 billion, representing a year-on-year decrease of 6%. Among this, revenue from the office software and services business recorded revenue of RMB 5.93 billion, up 16% year on year and maintaining steady growth. Revenue from the online games and others business amounted to RMB 3.75 billion, up (sic) [down] 28% year on year, primarily due to the high base in the same period last year and the decline in revenue from existing games. After release in early 2026, Goose Goose Duck has received positive market reception and has surpassed 30 million cumulative new users. This demonstrated our potential in expanding into new game genres and injected fresh growth momentum into the online games business. Now I will walk you through the business highlights of the full year and fourth quarter 2025. In 2025, Kingsoft Office Group continued to advance its core strategy of AI collaboration and internationalization. Total annual revenue reached RMB 5.93 billion, up 16% year-on-year. Fourth quarter revenue reached RMB 1.75 billion, also up 17% year-on-year. The company is pursuing a dual-track approach encompassing office AI reconstruction and upgrade and AI office native exploration. On one hand, it is driving a comprehensive intelligent upgrade across its existing WPS component suite to reshape the full scenario office experience. On the other hand, it is exploring an agent-native office paradigm, with its office AI agent WPS Lingxi evolving into an all-around AI office companion marking an entry into the era of office AI agents. WPS 365 has undergone a comprehensive AI-driven upgrade, establishing a multidimensional framework that spans technology infrastructure, collaboration systems, intelligent search, and digital employee ecosystems comprehensively empowering enterprises in their digital and intelligent transformation while enhancing office collaboration and operational efficiency. The Company's international expansion is progressing steadily with completed product upgrades and overall model development, now offering global integration office capabilities. For WPS individual business, the user base continued to expand steadily, with both domestic and international operations achieving quality growth. Total annual revenue reached RMB 3.63 billion, up 10% year-on-year. The growth trend continued in the fourth quarter with revenue reaching RMB 918 million, the year-on-year growth rate accelerating to 14%. The cumulative number of annual paid individual users in domestic reached [indiscernible] million, up 11% year-on-year. By the end of 2025, WPS AI's monthly active users surpassed 18 million, representing a year-on-year increase of 307%. Overseas market, the cumulative number of paying users grew substantially with particularly stronger growth among large-scale users. The monthly active devices for the overseas PC version reached 42.5 million, up 54% year-on-year. WPS 365 business, we maintain high quality and rapid growth. Total ad revenue reached RMB 720 million, up 65% year-over-year. Fourth quarter revenue was RMB 210 million, also up [indiscernible] the fourth consecutive quarter of year-on-year growth about 16%. We continue to advance products and service upgrade guided by the core principle of integration, intelligence [Audio Gap] industries specifically additions. The company further consolidated its advantage among central and state-owned enterprises, while accelerating expansion into private enterprises, foreign-invested enterprises, and local state-owned enterprises, while also advancing channel ecosystem development to further enhance its market presence. In 2025, WPS 365 continued to improve the implementation of AI technology in office scenarios. Our official digital employer has already achieved a large-scale standardized delivery. In early 2026, WPS 365 officially integrated enhancing our core capabilities, injecting growth momentum to improving the quality and [indiscernible] enterprise collaboration and office work. This intelligence further enrich our AI office ecosystem. For WPS software business, total annual revenue reached RMB 1.46 billion, up 15% year-on-year. Fourth quarter revenue reached RMB 530 million, up 15% year-over-year. We actively participated in bids for domestic office software by central and local government. We continue to maintain a leading share in both flow-layout and fixed-layout document software market. We continue to advance the implementation of government digitalization projects support the development of digital platforms in multiple regions and effectively empower the intelligent upgrading of government office operations. In the fourth quarter, our flagship PC game JX3 Online enhanced its costume design through technological upgrade and its aesthetic style was widely praised by players. The version optimization and service upgrades completed at the end of 2025 have received positive market feedback, and we will further increase investment in game play and narrative experience. Our classic JX series PC games and its inherited mobile games like World of Sword: Origin continued to iterate on content and versions, maintaining stable operations in both domestic and overseas markets. Social deduction game Goose Goose Duck officially launched in January 2026. It recorded over 5 million new users on launch day, surpassed 30 million cumulative new users, and ranked #1 on the iOS free chart for most of the past two months. Driven by word-of-mouth and organic traffic, it penetrated the broader social circle. Two casual games from the Angry Birds series also received publishing licenses and are expected to launch in China in 2026, further enriching our casual games portfolio. Starsand Island, our cozy pastoral life simulation game began early access in February 2026. With its unique art style and game play, the game established a strong reputation among core players worldwide. Going forward, we will actively optimize the products based on player feedback to lay a solid foundation for the official version launch in the second half of the year. Looking ahead, Kingsoft Office Group will deepen the application of AI agent technology across full-scenario office environments, strengthen the core competitiveness of WPS 365 as an intelligent collaboration platform, and accelerate the execution of its internationalization strategy. For online games business, we will continue to focus on premium content development and global publishing, sustain the vitality of classical IPs, and foster the growth of new game genres to achieve sustainable growth. We will deepen technological innovation and commercial expansion, actively expand global market opportunities, and create long-term value for our shareholders. Yinan Li: Next, I would like to invite Ms. Li Yi to introduce the financial performance for the fourth quarter and annual. Yi Li: Thank you, Zou and Yinan. Good evening, and good morning, everyone. As for the financial results, I'm starting for the Q4 use RMB as a currency. Revenue decreased 6% year-on-year and increased 8% quarter-on-quarter to RMB 2,618 million. The revenue split was 67% for office software and services and 33% for online games and others. Revenue from the office software and services business increased 30% year-on-year and 50% quarter-on-quarter to RMB 1,750 million. The increases were primarily attributable to the growth across 3 principal business of Kingsoft Office Group. The steady increase of WPS individual business was primarily driven by the expanding number of paying subscribers attributable to continuous interaction of AI capabilities and improvement in intelligent office experience. The strong growth in WPS 365 business was mainly driven by the deep integration of document AI and collaboration capabilities, along with continued customer expansion among private and local state-owned enterprises. The growth in WPS software business was mainly supported by sustained demand from government and enterprise clients, further consolidating our leading position in the flow-layout and fixed-layout document market. Revenue from the online games and others business decreased 33% year-on-year and 3% quarter-on-quarter to RMB 868 million. The decreases were mainly due to decline in revenue from certain existing games. Cost of revenue increased 5% year-on-year and decreased 1% quarter-on-quarter to RMB 471 million. Gross profit decreased 8% year-on-year and increased 10% quarter-on-quarter to RMB 2,148 million. Gross profit margin decreased by 2 percentage points year-on-year and increased by 2 percentage points quarter-on-quarter to 82%. Research and development costs increased 30% year-on-year and 6% quarter-on-quarter to RMB 953 million. The increases were primarily driven by increased headcount and AI-related expenditure, reflecting our strategic focus on advancing AI and collaboration capabilities. Selling and distribution expenses increased 36% year-on-year and decreased 18% quarter-on-quarter to RMB 462 million. The year-on-year increase was mainly due to high marketing expenditures in both office software and services and online games business. The quarter-on-quarter decrease was mainly due to high base from promotions for new game launches in the prior quarter, partially offset by increased spending on marketing activities for Kingsoft Office Group. Administrative expenses increased 33% year-on-year and 40% quarter-on-quarter to RMB 202 million. The increases were mainly due to higher personnel-related expenses and increased depreciation arising from the completion and operation of our Wuhan campus. Share-based compensation costs increased 55% year-on-year and 15% quarter-on-quarter to RMB 92 million. The increase was mainly due to the grants of awarded shares to the selected employees of certain subsidiaries of the company. Operating profit before share-based compensation costs decreased 48% year-on-year and increased 70% quarter-on-quarter to RMB 606 million. Net other gains for the fourth quarter of 2025 were RMB 819 million compared with losses of RMB 74 million for the fourth quarter of 2024 and gains of RMB 13 million for the third quarter of 2025, respectively. The gains in this quarter were mainly due to that we recognized a gain on deemed disposal of Kingsoft Cloud as a result of the dilution impact of the issue of new shares of it. Share of losses of associates were RMB 132 million for the fourth quarter of 2025 compared with losses of RMB 148 million and profit of RMB 5 million for the fourth quarter of 2024 and the third quarter of 2025, respectively. Income tax expense was RMB 220 million for the fourth quarter of 2025 compared with expenses of RMB 212 million and RMB 66 million for the fourth quarter of 2024 and the third quarter of 2025. As a result of the reasons discussed above, profit attributable to owners of the parent was RMB 975 million for the fourth quarter of 2025 compared with profit of RMB 460 million and RMB 213 million for the fourth quarter of 2024 and the third quarter of 2025. Profit attributable to owners of the parent, excluding share-based compensation costs was RMB 1,026 million for the fourth quarter of 2025 compared with the profit of RMB 496 million and RMB 277 million for the fourth quarter of 2024 and the third quarter of 2025. The net profit margin, excluding share-based compensation costs, was 39%, 18% and 11% for this quarter, the fourth quarter of 2024 and the third quarter of 2025, respectively. And now on the year 2025. Revenue decreased 6% year-on-year to RMB 9,683 million. Office software and services made up 61% increased 60% year-on-year to RMB 5,929 million. Online games and others made up 39% and decreased 28% year-on-year to RMB 3,754 million. Gross profit margin decreased by 2 percentage points year-on-year to 81%. Operating profit before share-based compensation costs decreased 47% year-on-year to RMB 2,072 million. Profit to owners of the parent was RMB 2,004 million for the year of 2025 compared with a profit of RMB 1,552 million for the last year. The group had a strong cash position towards the end of 2025. As at 31st December 2025, the group had cash resources of RMB 27 billion. Net cash generated from operating activities was RMB 2,292 million and RMB 4,787 million for the year ended 31st December 2025 and 31st December 2024, respectively. Capital expenditure was RMB 342 million and RMB 426 million for the year ended 31st December 2025 and 31st December 2024. That's all for the introduction of our operational and financial results. Thank you all. Now we are ready for the Q&A section. Thank you. Operator: [Operator Instructions] We will now take our first question from the line of Liping Zhao of CICC. Liping Zhao: [Interpreted] I have 2 questions on the gaming business. So first, after Mr. Zou recently took on the role as the CEO of Xishanju, what strategic adjustments have been made regarding to the future development of the gaming business? And are there any opportunities or possibilities for implementing AI to improve efficiency in the game development? And second, we have observed that Goose Goose Duck is performing well in terms of popularity. Could you share some insights on the current user base and retention metrics? I'd also like to understand the time line for future monetization and potential incremental contribution to the overall revenue and profit. Tao Zou: [Interpreted] So first off, I'd like to talk about the Goose Goose Duck. And so actually, since we have launched on the 7th of January, we [Audio Gap] research of over 30 million new users. And up to now, generally speaking, and the total users could be quite stable at the 3 million up and down. So we are actually doing this planning started from the spring festival up till the summer holiday. We're going to prepare a series of different versions and with different stages, and we would like to have a stable and continuous stable game. And this is actually for the mid- and long consideration for this game is that firstly, through this launch, we could actually have some of the remaining data, and we have confidence that for the continuous version, we could [indiscernible] generation. And so we could make the BAU higher. This is actually the most important priority for us. And it means that we need to make enough users. And once the product has launched, for the income perspective, we didn't do that much work on it because for the industry -- for the game industry, the average performance in the future, we will consider about the payable rate and also the up value. We still have a very big space for it. But for this game, since launch up to now, the total performances is more than like over our expectations. In the future, we still have a very big space for the growth. And in the future, we also would like to launch in the game space. And from the users' perspective, like we would like to make it stable and make it continuously stable. And then step-by-step digging the commercialization possibilities. This is the first stage is that we need to make sure this version is stable, have a good quality service and also with different version, make sure that the total quantity of the users online is good enough and then furthermore, make it higher. So in the long-term perspective for this IP, we're going to consider how to have like expand different surroundings products and also for the other accessories, we have different ideas for it. So let's put it in the future. But currently, the most important thing is that have a stable operation and make the users like to have a higher user quality. So actually, for this first question, it is quite complex. I would like to make it simplified is that since I become the CEO on the 1st of December last year, [indiscernible] is already 3 months past. So generally speaking, firstly is for the service of the [ fit of the thought ] and also for the JX3 for the business is actually the basic of our business. So we would like to continue for the investment of the basic space. And in the past few years, we always have a lot of very like [indiscernible]. And although we have collected some infections of the external competition and infection. But generally speaking, the customers are quite -- the customer quality is quite stable. That is why we believe that -- so currently, the customer service, we're going to provide a better service for our customers and higher quality for them, especially for the content. This is actually our guarantee, the basic guarantee. Second is that we need to make some projects which doesn't have like strategic way. We need to do some adjustment and also maybe shrink that business. It means that we could have enough space, enough ability to make it into the middle and long-term strategy, especially for we're going to have some strategic value. So currently, it's not that convenient for me to release some of the information about it. But probably in May, when we do this seasonal report, it's going to be more convenient for me to have an official introduction for it. And thirdly is about relevant to the second part of the question is that the AI is going to be a completely new area. It's already arrived, especially for our sales. And we can see is that for the industry of their game, actually for the manufacturing and production of the game, in many years, we have a lot of like a revolution. It's not just to have a high efficiency, but this is actually completely changed the way of the mode production. And since I became the CEO on the 1st of December last year, and we could completely carry out of the AI, the different policies, especially not only for their staff thinking and also the platform of the AI building. In the future, we're going to based on this platform to doesn't have that much like identification for the position, but we're going to like to highlight the innovation through the platforms of AI construction in the future, mostly that the creator is going to create the game on the platform. They're going to have a lot of the creation. They're going to have some meaningful content. And internally, we're going to select some excellent projects and commercialize and promote it into this market. So simplified is that we think in the whole industry organization, the content creation organization will completely change and also the way of working will be completely changed. So basically, based on the platform's creation on the AI, everybody is going to be a producer and everybody is going to be the creator for the content. And this is actually everybody could do the creation. This is the time. The time has arrived. So I have strong confidence for it. And in the past few years, the AI tools have completely like become more mature. And especially this year, the whole industry for the products, we have no doubt about it, AI has already come. That is why I think that the time is already matured. And thirdly is for the positions, they have actually a strategic meaning. And the last year for the game, we [indiscernible] has launched, it doesn't have reached our expectation and also the performances of old game is a little bit slow. But this is actually we make analyze internally and make a conclusion. And this is actually a good point for us because we could deduct some of the old things and also we are conducting new. I think that when we move forward on this, we're going to have more space, and this is going to be our opportunity for season. And in the future under this mode, we're going to have a higher product efficiency. And so that is why I think that sometimes the bad news is not actually a bad thing. So like from the challenges and difficulties last year, we actually have some challenges facing, but this is going to let us get to welcome this a new page for Seasun. Operator: We will now take our next question from the line of Linlin Yang of Guangfa Securities. Linlin Yang: [Interpreted] I have 3 questions. The first is what is the progress of our AI business as well as the development and commercialization of industry-specific models and products. The second question is about the AI industry. Recently, the view that AI will display traditional software while the core business of Kingsoft WPS has not been materially affected so far. But there is uncertainty regarding the expansion of value-added service. What is your opinion about this question? And when you serve enterprise customers, what are their key demand for AI? And what capabilities do you need to strengthen? And recently, Xiaomi has MiMo with a trillion parameter large language model as well as a line of associated models. In what ways will the MiMo model further empower and enhance the WPS business? Tao Zou: [Interpreted] So we would like to answer the first 2 questions, and then Mr. Lei is going to answer the third question. And so this is actually quite busy that since last April, we have set up the AI product center. And this year, we actually have the full hub. We would like to cooperate with the Kingsoft Cloud to have some collaborations altogether. So actually, the Kingsoft Cloud, we already have delivered some of the products like, for example, the Kingsoft [indiscernible] and also internally the target for the like assessment, we already used some of the products. And we made a conclusion since last year that we would like to really get into the typical industry and trying to figure out the way of the road AI hold to have this empowered for different industries. So the key point of this year is that we need to target for the element -- the target the aim, especially like we can see that this year, the open cloud is show that appeared and it's very popular the whole world. So this is actually a great remind for us. AI is going to have empowered for different person. AI could be able to empower for enterprises, and they have different ways to show up. And all of this could be able to be realized. So we will not only need to based on the initial thinking, actually, the key things of this year is that we [indiscernible] scenario and also to focus on different industries to get into that industry. And this is actually the biggest differences between last year and this year is that last year, we are trying different roles and trying to localize in different ways. Maybe that AI works for that industry. But this year, we have to get deeply into typical industries in probably 1 to 2 different regions and then make actual work. This is actually like the AI product center development and also progress. Jun Lei: So I would like to answer the second question is that based on my understanding is that the AI is the influence for the AI [indiscernible] if they are saying that -- if we are saying that AI is going to eat up software is not -- so I don't personally agree on this statement because as we know is that for the big language model, AI has to bring that I would like to using like digitalization system to have like restructured the AI currently. So this trend is quite significantly recently. And since 2023, we have the restructure. I can see that AI is the core thing. And as developed in the past few years, AI has constantly strengthened and more and more be recognized by people and simplified saying that this is actually the whole restructure for the [indiscernible] so AI could actually -- if we are seeing that AI is going to eat up the software, the description is not accurate because the software is compared with hardware. So what is exactly software and hardware. So like this year, you can see that the AI scale, I would like to using like the digital system to expand that, especially for the basic on the AI risk structure for the software and compared with the hardware, like, for example, [ Doba ] this is software, right? But today, we can see is that -- and compared with the previously, they have a bigger function. They have the better interaction and also have more like different multiple functions and abilities, which we cannot imagine previously. So this is actually our understanding. But additional software, they are different because the AI software could be replaced the traditional software. That is for sure. But AI is not going to eat up the software because that is not scientific. This is my opinion since 2023. And also the influence for the office is that since 2023, AI has showed up. I discussed about my opinion. So during that time, we can say is that AI could be strengthened, like keep strengthen the ability in the future. That is why right now, we have changed the name as office because 2023, we initially used office AI, and then we used the change name as AI office. So this is constantly of my first question answer is that initially, the AI ability is not that strong enough. That is why we need to use office to strengthen the AI ability. But as the AI ability has become stronger and stronger, like, for example, we have the native AI office development since 2023, then WPS 1.0, 2.0 and 3.0, especially last year, we have launched Lingxi, and this is actually a constant development. And up to now this year, 2026, it's significantly clear that Office AI is going to be the big part. And all of us is going to use. All of that is like AI office. So this is the second point, which is super for this time since 2023. And also for the WPS AI membership since last year, we could increase 307% since last year. The reason is that last year -- the first -- last year, we have launched the Lingxi that version. So this is actually the second part I like to answer this question. And third part is about Xiaomi. So Xiaomi has launched MiMo-V2-Pro. So no matter for the communication meeting with Kingsoft or the cloud communication meeting, that is based on One Plus and that is the Xiaomi's big model for MiMo. And for Kingsoft and Xiaomi, we are actually AI like mixer. And Xiaomi would like to do this big model but Kingsoft we are not. So as time when we have AI launched, especially recently, Xiaomi has launched that our own AI and the performance is actually quite good. So we can see that the ability of Xiaomi is increasing all the time. And the key thing is that we need to make our competition ability stronger and also to have our own [indiscernible] strengthen their AI ecosystem construction. As time goes by, the whole like Kingsoft series products could have like a very competitive ecosystem together like development together with Xiaomi. Yinan Li: [Interpreted] Hello. Thank you for joining us today, and this will conclude our presentation for the 2025 Fourth Quarter and Annual Results Earnings Call. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good day, everyone, and welcome to the Cintas Corporation Announces Fiscal 2026 Third Quarter Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jared Mattingley, Vice President, Treasurer and Investor Relations. Please go ahead, sir. Jared Mattingley: Thank you, Ross, and thank you for joining us. With me are Todd Schneider, President and Chief Executive Officer; Jim Rozakis, Executive Vice President and Chief Operating Officer; and Scott Garula, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2026 third quarter results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission. I'll now turn the call over to Todd. Todd Schneider: Thank you, Jared. We are pleased to have delivered another successful quarter, showcasing the resilience and strength of our value proposition. Cintas achieved record revenues and strong operating margins while continuing to invest for future growth. Third quarter total revenue grew a strong 8.9% to $2.84 billion. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 8.2%. Each of our three route-based businesses continues to grow at attractive rates. Turning to profitability. We achieved all-time high gross margins in each of our three route-based businesses. Strong top line growth along with benefits from our strategic investments and cost-saving initiatives continue to help drive margin expansion. Gross margin as a percent of revenue was 51%, a 40 basis point increase over the prior year. Operating income grew to $659.9 million, an increase of 8.2% over the prior year. When you adjust for the onetime gain we recognized in the third quarter of last year, operating income would have grown 11%. Diluted EPS of $1.24 grew 9.7% over the prior year. When you adjust for the onetime gain we recognized in the third quarter of last year, diluted EPS would have grown 12.7%. Turning to guidance. We are raising our fiscal 2026 financial guidance. We expect our revenue to be in the range of $11.21 billion to $11.24 billion, a total growth rate of 8.4% to 8.7%. We expect adjusted diluted EPS to be in the range of $4.86 to $4.90, a growth rate of 10.5% to 11.4%. The adjusted EPS guide does not include the impact of nonrecurring transaction expenses related to UniFirst. Before I turn the call over to Jim, I'd like to provide some comments on the recently announced merger, our agreement to acquire UniFirst. We remain excited about this opportunity and the long-term value creation for Cintas and its shareholders, our employee partners and the team partners of UniFirst and the benefits to our collective customers. When we announced the transaction 2 weeks ago, we indicated that the merger was subject to approval by UniFirst shareholders, regulatory clearance in both the U.S. and Canada and other customary closing conditions. We and UniFirst have begun the process for satisfying these closing conditions. In order to avoid creating speculation, we will not be providing any additional commentary on the process. We will, however, update the market as appropriate. With that, I'll turn it over to Jim to discuss the details of our third quarter results. James Rozakis: Thank you, Todd. Our business continues to perform exceptionally well. We're adding new customers who rely on us for image, safety, cleanliness and compliance needs, while successfully cross-selling additional solutions to our existing customer base. Retention remains at record levels, while pricing is consistent with historical levels. Turning to our business segments. As Todd mentioned, we delivered attractive growth rates across all of our business segments. Organic growth by business was 7.3% for Uniform Rental and Facility Services, 14.6% for First Aid and Safety Services, 10% for Fire Protection Services and 3.1% for Uniform Direct Sale. Gross margin percentage by business was 50.3% for Uniform Rental and Facility Services, 58.1% for First Aid and Safety Services, 50.5% for Fire Protection Services and 41.4% for Uniform Direct Sale. Gross margin for the Uniform Rental and Facility Services segment increased 30 basis points from last year. The 50.3% gross margin is the highest gross margin ever for this segment. We executed at a high level in the third quarter and our continued strong top line growth helped drive results. We've been laser-focused on managing the many inputs we control effectively. We've invested in technologies like SAP to improve our capabilities and the strong performance of our supply chain continues to be a significant strategic advantage for us. Gross margin for the First Aid and Safety Services segment was 58.1%. This is also an all-time high. We are investing in route capacity to serve more customers, leadership and management trainees to build our talent pipeline, advanced technologies to drive efficiency, and we're adding selling resources, all of which are fueling the attractive double-digit growth we are seeing. It's important to remember that margins of all our businesses can fluctuate from quarter-to-quarter based on several factors, including things like revenue mix and the timing of our investments. Incremental margins were effectively 28% for the quarter after adjusting for the onetime gain on the asset sale last year, right in line where we like to be. The current macro environment is certainly complex. We help businesses navigate this environment by letting them focus on running their business. Delivering consistent excellence in a complex environment is never easy, but customers want reliable partners with proven solutions. Our diversified customer base and strong value proposition continues to resonate, particularly in our four verticals, health care, hospitality, education, and state and local government. In addition to being aligned with resilient sectors of the economy, our addressable market is very large and our solutions remain essential for businesses of all sizes regardless of how complex the economic environment. We have consistently shown ability to convert businesses over to a managed rental solution, typically around 2/3 of all of our new customers. In addition, we've shown the ability to grow multiples of job creation and GDP. Lastly, we're very enthusiastic about integrating UniFirst and its team partners into our organization, which we believe will strengthen our ability to better serve our customers. As a reminder, we anticipate that transaction will close in the second half of calendar 2026. With that, I'll turn the call over to Scott to discuss our operating income, capital allocation performance and 2026 guidance assumptions. Scott Garula: Thanks, Jim, and good morning, everyone. The exceptional results we delivered in terms of revenue growth and gross margin expansion, translated into continued strength in operating margins and cash flow. Selling and administrative expenses as a percentage of revenue was 27.8%, which was a 60 basis point increase from last year. When you adjust for the onetime gain on the asset sale last year, SG&A would have been flat year-over-year. Third quarter operating income was $659.9 million compared to $609.9 million last year. Operating income as a percentage of revenue was 23.2% in the third quarter of fiscal 2026 compared to 23.4% in last year's third quarter. Adjusting for the onetime gain last year, operating income as a percentage of revenue would have increased 40 basis points year-over-year. Our effective tax rate for the third quarter was 20.6% compared to 21% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Net income for the third quarter was $502.5 million compared to $463.5 million last year. This year's third quarter diluted earnings per share was $1.24 compared to $1.13 last year, an increase of 9.7%. Earnings per share increased 12.7% after you adjust for the onetime gain last year. Our disciplined approach to capital allocation has positioned us well to finance the recently announced agreement with UniFirst. With leverage expected to be about 1.5x debt-to-EBITDA at closing, we maintain flexibility for deploying capital across each of our priorities. During the first 9 months of fiscal 2026, we have returned $1.45 billion in capital to our shareholders in the form of dividends and share buybacks. Earlier, Todd provided our updated guidance for the remainder of the fiscal year. In addition, please note the following in the guidance. Both fiscal 2025 and fiscal 2026 have the same number of workdays for the year and by quarter. Our guidance does not assume any future acquisitions. Our guidance assumes a constant foreign currency exchange rate, the fiscal 2026 net interest expense of approximately $101 million, a fiscal 2026 effective tax rate of 20%, which is the same compared to our fiscal 2025, and the guide does not include the impact of any future share buybacks or significant economic disruptions or downturns. As both Todd and Jim have mentioned, we are excited about the recently announced UniFirst acquisition. While the deal is expected to close in the second half of calendar 2026, we expect to incur nonrecurring transaction costs related to the acquisition. The adjusted diluted earnings per share guide excludes the estimated impact of these transaction costs. Transaction costs expected to be incurred during fiscal 2026 are estimated to have an impact on diluted earnings per share in the range of $0.03 to $0.04. In addition, beginning with the fourth quarter, we will break these costs out on our income statement as a separate line item to provide visibility to these transaction-related costs. With that, I'll turn it back to Todd for some closing remarks. Todd Schneider: Thank you, Scott. In closing, our strategic investments in technology, capacity, talent and sales capabilities are driving solid growth and margin progression. These commitments position us to sustain long-term performance while helping customers achieve and surpass their image, safety, cleanliness and compliance goals. We're maximizing returns on every dollar invested to maintain our momentum and deliver superior service to our customers. I'd like to thank our employee partners for their exceptional dedication to our customers and the outstanding work they do for Cintas every day. I'll now turn it back over to Jared. Jared Mattingley: Thank you, Todd. That concludes our prepared remarks. Before opening it up for questions, I'd like to reiterate Todd's earlier statements about the UniFirst acquisition process. In order to avoid speculation, we will not provide any additional commentary on that process. We will update the market, however, as appropriate. Now we are happy to answer questions from the analysts. [Operator Instructions] Thank you. Operator: [Operator Instructions] And our first question comes from Tim Mulrooney from William Blair. Timothy Mulrooney: Just two procedural ones. Scott, I just wanted to follow up on the guidance thing that you were mentioning at the end. How much of that $0.03 to $0.04 of EPS related to the UniFirst transaction was incurred in the third quarter versus expected in the fourth quarter? I didn't see a reconciliation table for the third quarter. I just wanted to make sure everyone is aligned on their models. And I also noticed SG&A was a little bit higher in the third quarter than what folks were expecting. So I thought maybe there was a little bit of deal-related expense there in the third quarter, I'm not sure. Scott Garula: Yes, Tim, good question. The estimate that we provided of that $0.03 to $0.04 is related to the fourth quarter and the fiscal year guide. Any costs that were incurred in Q3 were immaterial. As far as the comment on SG&A being a little higher, just to remind everyone of that onetime gain last year, that represented about 60 bps. So when you take that into consideration, SG&A was effectively flat year-over-year. And if you go back really over the last 3 fiscal years, Q3 is typically elevated due to the timing of certain expenses like the reset of payroll taxes. In fact, when you go back to last fiscal year and you back out the adjustment for the onetime gain, we were up 100 basis points sequentially last year and actually 70 basis points sequentially if you go back to fiscal year '24. So we feel really good where we are with the SG&A expenses. And when you back out the onetime gain, it's flat year-over-year. Timothy Mulrooney: Yes. Good point, Scott. I think maybe consensus didn't fully factor in everything because of the onetime gain last year. So that's a good reminder. And then just as my follow-up, apologies if I missed it, but how much were energy costs as a percentage of revenue in the quarter? And what's your expectation for next quarter? Given the increase we've seen in oil prices over the last few weeks, I think this is an important question for investors. Scott Garula: Yes. Tim, good question. Energy for the quarter was 1.7%, which was flat year-over-year and up 10 basis points over the previous quarter. Certainly, the increase in gas prices will have an impact. But just I want to remind everyone that only 60% of our energy costs are related to fuel for our vehicles, which when you do the math on that, that equates to about 100 basis points. So if you just look at, fuel has been continuing to increase, but if you assume a 30% increase in fuel cost that would be sustained over an entire quarter, that would add 30 basis points of cost to our results. So yes, it has an impact, but not something that we feel that we can overcome and we have contemplated this in our guide. Operator: And our next question comes from George Tong from Goldman Sachs. Keen Fai Tong: Can you provide an update on higher-level customer purchasing behaviors in the current macro environment, if you're seeing any changes, any increases or reductions? Todd Schneider: George, this is Todd. I'll take that question. It is -- Scott and Jim have spoken about it, it is certainly a complex environment. But our customer base has been quite resilient. I think it ties back into our value proposition, continuing to resonate. When you deal with these types of complex environments, it can create opportunity for you as well. And we help our customers run a better business. And by outsourcing items to us that in most cases, what they were solving that somehow, some way in their own fashion and in their own business. By outsourcing it to us, it allows it to free them up to focus on running their business and taking care of their guests or their patients or their customers, however you want to phrase it. But no real change in the customer base, pretty resilient. And I think our value proposition continues to resonate. Keen Fai Tong: Got it. That's helpful. And then going back to an earlier point on fuel, you mentioned that fuel expectations are contemplated in your full year guide. Can you elaborate on what exactly you're assuming for the remaining quarters of the year in terms of how fuel will trend? And how you plan to pass along any changes in fuel costs to customers in the form of pricing? Scott Garula: Yes. Thank you, George. As Todd mentioned, I mean, clearly, this is a dynamic environment. And our guide includes our best estimate of the increase in energy cost. As far as our approach to mitigating this or I think you've said passed along, I'll let Todd answer that. Todd Schneider: Yes. So George, it is certainly a dynamic environment. Hence, you look at what oil prices were doing last night and then what they're doing this morning. So they're changing by the minute. That being said, we've got it contemplated in our -- an increased level of gas prices at the pump into our guidance. And as far as how we handle that, we do not have a fuel surcharge, that historically is not how we handle it. As Scott correctly pointed out, if you think about the fuel at the pump, it accounts for about 100 basis points of our total as a percent of sales. So it's not our largest cost. And we also take the approach that we think long term about this, and we find other ways to extract out inefficiencies. We don't just look at it and say, "Well, this happened. So we've just got to pass it on." We want to be better than that. And we want to focus on being consistent for our customers and extracting out inefficiencies in other ways that we have in our business and still hitting our goals as a -- financial goals as a company while we're doing that. Operator: And our next question comes from Justin Hauke from R.W. Baird. Justin Hauke: I guess I had one question just kind of on the CapEx expectations. Your CapEx as a percentage of revenue has historically been a lot lower than UniFirst has been. Obviously, you guys are much, much bigger, so that's part of it. But I guess just philosophically, looking at their assets and the systems to kind of get to Cintas levels. Just thinking about -- do you expect the CapEx to kind of trend a little bit higher as a percentage of revenue in the first couple of years of integration? Scott Garula: Yes, Justin, good question. And I would just say we just announced the agreement a couple of weeks ago. We'll know a lot more as we close the deal. But when we closed this merger, we still expect not only will we continue to generate strong cash flow, UniFirst generates strong cash flow. We'll have a strong balance sheet. We talked on our UniFirst call about at closing, we would expect debt-to-EBITDA being at 1.5. So we're in a great position. And I don't see our capital allocation priorities really changing. Our first priority has always been reinvesting back into the business through CapEx, followed by strategic M&A. And then I will continue to look at returning capital back to our shareholders in the form of dividends and buybacks. So more to come on what we would look at in the future with CapEx as a percent of revenue as we close the deal. But I would really not anticipate any material changes in our capital allocation priorities. Todd Schneider: Justin, I'd just like to add to that that UniFirst's CapEx was higher. They were certainly trying to catch up on the technology subject and other areas. And we obviously -- we're in a really good position from a technology footprint, and we'll continue to invest in there because we have to make sure that we're positioned to compete in the marketplace. That being said, one of the uniquenesses about UniFirst versus most companies that transact like this is they were not for sale. And as a result, they ran their business very much thinking in the long term, they invested for the long term. So it's -- we're not acquiring an asset that needs a significant amount of CapEx investment into facilities and to get it up to standard. They run a really good business, they think about how to run a business very similar to us. The cultures are very similar. They think long term, they think about investing for the long term for their people and their customers. And as a result, we think that positions us incredibly well for the future. Justin Hauke: Yes. No, certainly, I agree on all that. I think that's it. My other questions have been answered on the items that you already addressed. Operator: And our next question comes from Manav Patnaik from Barclays. John Ronan Kennedy: This is Ronan Kennedy on for Manav. You commented on retention at record levels, pricing at historic levels. Could you please provide some further color as to how we should think about what those levels are as a reminder, and then the trends and drivers versus your expectations for new business and cross-sell? And then anything to call out from specifically strong organic drivers at a respective segment level, please? James Rozakis: Ronan, this is Jim. I'll take that question. I'll start with it. And if we start to think about our growth formula and what we're attempting to achieve every quarter, we do like to target that mid- to high single-digit total growth rate as an organization. The major contributors to that growth as you correctly pointed out is our new business acquisition. And a reminder, 2/3 of that new business acquisition comes from that no-programmer or do-it-yourself space, and that continues to perform very well for us, and we really like the trend line there. Retention levels for us has stayed around that steady, that 95% rate, and we are really comfortable with where that is at this point. Pricing is at our historical levels, which we've consistently said is in that 2% to 3% range. And then the remainder of the growth, if you kind of put all those together, you start with a negative 5%, you add in 2% for pricing, and you want to get up to 8%, the majority of that is new business, but then the remainder is that cross-selling opportunity selling into the current customer base, which has been highly effective for us this year. And we think that there's a long runway of opportunity within our current customer base as we continue to provide great value. We think about it in long term. We've made nice investments in the product line and the technology and try to make it easier to do business with us and the customers in this type of an environment is complex, are looking for steady answers and they know they can rely on us. So we've had a lot of success this past year. So I would say new business and cross-sell slightly continuing to improve and the others right where we expected them to be. John Ronan Kennedy: Jim, I appreciate it. And then for my follow-up, kind of a follow-up to Tim and George's questions. But beyond gas prices, I guess, focusing on the all-time high gross margins in each of the segments. Can you just further unpack the drivers there, I know it's strategic investments, cost initiatives, and assess the sustainability of them? I know there may be a potential immediate impact if there is inflation, but also unpack the other components of your key cost buckets from a gross margin standpoint beyond gas, whether that's materials or the production expense, the labor, et cetera. So drivers of gross margins and sustainability in near term and longer term, given the current dynamics. James Rozakis: Ronan, I'll start on that and see if anybody wants to add color. And I'll start at the consolidated level, and say that the gross margin at 51% for the quarter, obviously, a great quarter for us. The team did an excellent job at execution for the quarter. And I think a little bit of that is a demonstration of our culture and the belief that nothing is ever as good as it can be and that there's always an opportunity to improve processes and work out inefficiencies. But if we look at and we think about the quarter in and of itself, first of all, there was no one-timers, nothing significant from a one-timer perspective that helped the quarter. The key drivers of that is our primary focus, which is revenue growth, and we like strong revenue growth to continue to create leverage. And that certainly contributed in all three of our route-based businesses. We are always looking for initiatives to remove inefficiencies and expenses out of the business. And you can see that across all of our businesses, certainly in our rental business, is a big focus for them. Maybe the other one to call out is revenue mix in both our First Aid and Fire Protection businesses. That's important for us and revenue mix can fluctuate a little bit quarter-to-quarter. So this was a good quarter for us on that revenue mix. And then, of course, timing of investments and what those investments look like. So all around a strong quarter of execution. So the team did a fantastic job, and those were the key inputs. But then, just a quick reminder that it can fluctuate quarter-to-quarter. Running a business isn't linear and that we're going to continue to make investments in the business for the short-term delivery of results and then long term to be able to set ourselves up for long-term continued success. John Ronan Kennedy: And then anything to be mindful of from the other cost buckets and potential inflation there on, whether it's materials, labor or otherwise? Todd Schneider: Ronan, thanks for the question. This is Todd. Certainly, it's a dynamic environment on tariffs as well. But our supply chain team has done a magnificent job of navigating that. We've said in the past, we're not immune to tariffs. But any increase in tariff or decrease in that is going to take time to run through our system, whether we have to get into our supply chain and then amortize that. So I would say nothing material there to factor in. Operator: And our next question comes from Josh Chan from UBS. Joshua Chan: I guess in terms of your investments, how do you feel about your level of investments kind of exiting 2026 and into '27? Just thinking about how well funded do you think your growth initiatives are at this point? Todd Schneider: Josh, one of the things about our culture here at Cintas is we are constantly investing. And as a result, yes, certain years, you might see more than others. But we think we're in a really good spot from a -- what we have been investing and what we will continue to invest. So I wouldn't say anything -- no material change there. You should expect us to continue to invest because we look at the future, and it looks incredibly bright. We look at the opportunity out there in the white space of converting over no-programmers, and we want to go after that. We're competing in an environment where there's 16 million to somewhere maybe up to 20 million businesses in the U.S. and Canada. And there's 180 million people that go to work every day in the U.S. and Canada. That opportunity is immense. So we're investing for the future because we think the future looks really bright, and we have to position ourselves to be able to compete in those areas. Joshua Chan: Sure. That makes a lot of sense. And then I guess in terms of your comment about the good balance sheet position. Does that imply that you can continue to perhaps repurchase stock as you desire even through this process? Or how should we think about sort of the pace of buybacks? Scott Garula: Josh, thanks for the question. As I mentioned, we continue to generate strong cash flow, strong balance sheet. And certainly, we're not going to be limited due to our capital allocation. However, there are restrictions from the time that we signed the agreement with UniFirst through the expected UniFirst shareholder votes. You might also guess that we were limited during Q3 with share buybacks, just to being in a quiet period as we negotiated the UniFirst agreement and completed confirmatory due diligence. But once those restrictions are lifted, we'll continue to be opportunistic with our buyback strategy. Operator: And our next question comes from Jasper Bibb from Truist Securities. Jasper Bibb: Just wanted to ask what you're seeing in wearer levels at existing customers in uniform? Todd Schneider: Jasper, I'll start. As I mentioned, our customer base is quite resilient. So if anything, our -- growth from our current customers has slightly improved. Wearer levels are -- we see the jobs reports, but are meaning that they're not as robust as what we would like. But nevertheless, our customers are still quite resilient and hanging on to their people. And we just see an amazing opportunity to sell other items, cross-sell other items into those -- into that customer base, but things are pretty steady. Jasper Bibb: Nice, that makes sense. And then I know we just got UniFirst. But after that closes, I imagine you're going to be looking for more acquisitions outside the uniform business. So just any thoughts on what might be next for you after that point? And maybe how you're thinking about the consolidation opportunity in the Fire business would be interesting. Todd Schneider: Sure, Jasper. We're acquisitive in each of our route-based businesses. We'll certainly be busy in our rental business here shortly. But the strength of our balance sheet, the strength of our infrastructure and our other businesses allow us to be acquisitive in all those. So we will continue to go down that path. And those are tough to pace and tough to predict on deal flow, but it won't change how we think about it. That being said, in the Fire business you asked specifically, the mix of business really matters to us. So we try to think long term about that. We prefer service business much more so than installation type business. So it just has to be the right deal. But we have been very acquisitive in that business over the past months and years, and we'll continue with that approach. Operator: And our next question comes from Andrew Steinerman from JPMorgan Securities. Alexander EM Hess: This is Alex Hess on for Andrew Steinerman. I want to touch on a couple of recent initiatives you have. First is the recently announced 3-way contract with you guys, Ford and Carhartt, and the second being the launch of what I think is a new personalized Apparel+ program on your website. Both of those seem to be targeting the trades and manufacturing a bit more. Just wanted to maybe start, is there something you're seeing in those goods providing industries that maybe you're leaning into those a little more for sales growth near term? Todd Schneider: Alex, thank you for the question. I'll start. Our relationship with Carhartt and with Ford goes back many, many years. And we have a great relationship with both organizations. And this is about providing products that people want to wear. And in the case of Ford, I know Jim Farley was passionate about providing the products that his people want to wear and would be proud to wear. And our relationship with Carhartt was an absolute natural. So we're excited about that. Certainly, the trades are something that we think is growing in demand and is an incredible opportunity for us. Those are people that -- frankly, we don't have nearly as many people in the trades in our uniform program as we should, and they're all wearing garments. They're in jobs that are perfectly position for us to tap into. So we're excited about that, and we see the future looks really bright in that area as far as Apparel+. Jim? James Rozakis: Yes, I'll add a little color there, Alex, and I appreciate the question. And Apparel+ really goes back to the core of our company culture and values, which is a culture of innovation and continuing to be dynamic and move to where the opportunity is and where the opportunity will present themselves in the future. And so Apparel+ is just another movement towards that. So we want to be able to outfit any job imaginable across North America. And we want to make sure that we have the right apparel in those industries for what people want to wear, what they choose to go to work in, and it's been very successful for us. Regarding specialty trades, I think Todd outlined the fact that that market is really a large employment market. They resonate well with our value proposition, and there's a tremendous amount of opportunity. In fact, I have an example of one that I brought here for our call today. And as we always speak about 2/3 of our new customers come from the unserved market, and we always want to illustrate what does that look like? Why do customers continue to partner up with Cintas and what do they see as a main driver of the value proposition? So I have a property maintenance example here. And this company was going ahead and they were buying uniforms for their employees, a combination of retail and e-commerce, with the primary objective that they wanted to look professional and they want to look good and cohesive in front of their customer base. But what they found out over time is that they weren't able to accomplish that objective that they were -- as they bought year after year, the styles would change, they would be inconsistent on an annual basis. What employees determined was clean and what represented the company well would vary depending on the individual employee. The management team was spending a bunch of time administering the program, in ordering, in size changes and any time things were worn out. So it took them a bunch of time. And then, of course, budgeting was all over the place. Sometimes they had big spikes in budgets, other times they had very little, made it really hard for them to manage their P&L. When they were introduced to the fully managed rental program for Cintas, they saw all the things that they wanted out of the program. They were able to get higher quality uniforms that were very comfortable, that were branded with specifically the Carhartt name, things that their employees really wanted to wear. They got a nice consistent image across the board because all of their employees are wearing exactly the same thing, and they were in good and usable and presentable conditions because of our professional laundry service that was provided with them. They were able to get time back in their day because they were no longer in a uniform business. They were in the business of taking care of their customers, which they certainly appreciated, and it made budgeting a whole lot easier. So that's exactly why we want to continue to expand the product line to be able to show other industries the benefits here of our rental program and why we think that we have such a massive market opportunity. Alexander EM Hess: Got it. That's awesome, guys. And then maybe as a follow-up. Obviously, you guys are in the midst of implementing SAP into the Fire segment, and you guys have implemented SAP into a host of acquisitions over the years. Maybe you can just highlight one on Fire, the progress and prospective benefits, but also just sort of learnings from running that ERP implementation successfully over the years and what you might be able to do with that going forward? Todd Schneider: Yes, Alex, we are preparing to implement our SAP into -- our technology into the Fire business. And we're excited about that. We think it's going to bring standardization with that, allows for a better customer experience. And with that, it also allows for a better employee partner experience. So we focus on these technologies to allow us to make it easier to do business with us and make it easier for our employee partners to do their jobs. So we think it will do just exactly that. And that shows up in all kinds of different ways, retention of customers, retention of our employee partners, productivity, those types of things. That being said, it takes time. And technology is certainly never easy to implement. But we have really good muscle memory there, and we're well prepared to roll that out. And once we close on our deal with UniFirst, we're highly positioned to do the exact same thing. And I think we'll see the same experience. I think the team partners at UniFirst will be excited about it, make it easier to do their jobs, make it more valuable to the customers, make it easier for the customers to do business. And we think long term about those subjects as you go through the challenges of integrating technology, but the long-term impact is powerful for our business. Operator: And our next question comes from Jason Haas from Wells Fargo. Jun-Yi Xie: This is Jun-Yi on for Jason Haas. Can you walk us through some of the key puts and takes to consider for 4Q organic revenue growth by segment? I believe you guys had some onetime benefits in 4Q last year in Uniform Direct and First Aid and Safety. Could you remind us how big those impacts were? And any other factors to consider across the board? Todd Schneider: Thank you for the question. I'll start. And I appreciate you pointing it out because the comparative for Q4 is -- on revenue growth is significant. It was our highest revenue growth quarter last year. The organic was at 9%. And we did have some onetime benefits, specifically in our First Aid business that ran 18.5% organic growth. We certainly do not anticipate that again. And then in our Uniform Direct Sale business as well. In First Aid, we had an increase in the training business that helped us as it relates to AED training. So that was a spike that we -- again, we don't think is going to occur at those levels. And the Uniform Direct Sale business can be a little lumpy, but it had a really good quarter. So yes, hopefully, that gives you a little bit of color around the tough comparative in Q4. Scott Garula: Todd, I might just add, like, first off, I'd just say we had an outstanding quarter this quarter. Jim mentioned that we continue to execute at a high level. We feel that the guide for Q4 is not only a good guide, but it's also consistent with the guide that we gave at the end of the second quarter. I guess let me kind of walk through a little bit of math there that last quarter, the organic growth at the high end of the range was 8%. And if you look at the guide for this quarter, this quarter is also at 8%. And then if you even take it a step further and look at it another way, last quarter, we issued a guide for the second half of the year to grow organically 7.8%. In Q3, we just delivered a growth rate of 8.2% organically. And when you combine that with the Q4 implied of 7.6%, you get an average of 7.9%. So really effectively right in line with the guide that we gave last quarter. Jun-Yi Xie: Great. That's really helpful. And as my follow-up, I understand that most of your new business comes from no-programmers. But I want to see if you've seen any change in the competitive environment recently following your acquisition and also given changes in the macro and geopolitical environment? Todd Schneider: Thank you for the question. It is -- the geopolitical environment is -- certainly have a dynamic impact on things. But from a competitive set standpoint, no real change, keeping in mind, as you referenced, 2/3 of our new customers come from that no-program market. So when you're competing with e-commerce and you're competing with retail and you're competing with other managed programs, relative to all that, we also have traditional competitors. So no real change to that competitive set. It's incredibly competitive, and that's the way it always has been and will be. That being said, we are focused on delivering value to that set of prospects out there. There are so many businesses. We do business with a little over 1 million businesses, and there's whatever, 16 million to 20 million businesses in the U.S. and Canada, the opportunity out there is immense. And we're focused on delivering our message and getting our team positioned to better serve that market and get the word out better to that market because so many of them don't realize what we can do for them. And many of them also think that they're not a big enough business to have a program like we offer, which is incredibly contrary to how we make a living, which is servicing Main Street USA is -- and our average size customer is -- spends about $10,000 a year with us. So trying to get that message out to that prospect base is incredibly important to us. Operator: And our next question comes from Ashish Sabadra from RBC. William Qi: This is Will Qi on for Ashish Sabadra. I just wanted to ask on route density and the incremental opportunities there around footprint, especially with the UNF acquisition in mind. Retention is still at high, will any retention dips result in kind of reorganization there? Or do you still see a lot of opportunity kind of increasing the sell-through on those routes and just further fleet optimization? James Rozakis: Why don't I start on that one, and then I'll see if anybody else wants to add color. I think, Ashish, you all are probably aware of our SmartTruck technology and how we approach routing and routing efficiency. And the first thing that we try to do with routing and routing efficiency is be as little disruption as possible, whether that's within our own facilities or when we make an acquisition. And especially when we make acquisitions, we recognize that the most important component of the acquisition are the customers and the new employees that we brought on board, and we try to be as little disruption as possible to those two constituents. And we spent a lot of time trying to win over hearts and minds and build trust. And then we implement our SmartTruck technology. And SmartTruck allows us to make incremental moves and to gain efficiency over time rather than a wholesale route consolidation all at one point. We don't like doing that. We don't like big route reorganizations within a facility at one point because it could be highly disruptive. So we love the SmartTruck technology. It's been effective for us over the last several years. It's been one of the contributors to continuing to elevate our gross margin, and that would be our approach with any future acquisitions. Operator: And our next question comes from Faiza Alwy from Deutsche Bank. Faiza Alwy: I wanted to see if you've gotten any feedback from any of your larger customers around the announced acquisition of UniFirst. And really related to that, I'm wondering if we should be expecting any type of dissynergies when you initially make the -- when the acquisition is completed? Todd Schneider: Faiza, as far as our customers, as you can imagine, we stay really close to our customers, and we're getting a good response from them. They understand that they have many options, and they make that very clear to us that they have many options, which puts them in a good leverage position. And whether it's a national account or a local account, they have the same options. And our national customers still the vast majority of them are simply hunting licenses. So they'll negotiate centralized terms and conditions and then they allow their locations to decide who they want to do business with whether they're on contract or not. So they have the exact same choices that any local company would have. And they're very clear about that, that, hey, this -- we think this will be good for us. You'll bring better technology, better infrastructure, speed of delivery to our locations. You'll allow you to spend more time with our business instead of driving. All those things are very positive. So the response has been quite good. Any dissynergies? So I don't know that I would describe it that way. Certainly, we'll have our onetime costs. But we think that the combination of our two companies is going to be really good for all of our constituents, our customers, our employee partners, team partners and our shareholders. Faiza Alwy: Great. And then just a follow-up on that. I'm curious if you're doing anything differently kind of in terms of managing the business or in the timing of investments, things like that up until the acquisition? And is that going to be a factor in terms of how we should think about incremental margins in the near term? I see the implied kind of 4Q guide, but just curious if you're just managing things a little bit differently? Todd Schneider: Yes. Thank you for the question, Faiza. Yes, our incrementals that we're guiding towards in Q4 are very attractive. But that is not because of a change in approach. That's simply what we've been predicting and timing around for the year. And I wouldn't see a change in our approach in general as you speak to that. We're investing for the long term and we'll take our normal prudent approach as we think about investing for our business. Operator: And our next question comes from Connor Cerniglia from AllianceBernstein. Connor Cerniglia: I wanted to follow up on employment trends you've been seeing and get an update versus last quarter. Are you seeing any changes in the conversion cycle or win rate for first-time buyers? And within that specific verticals, call it, health care or education, are they proving more resilient? And which areas are you seeing more weakness? Todd Schneider: Good question, Connor. Yes, I wouldn't say we see any change in the conversion rate as it speaks to converting over that prospect base. As it relates to our verticals, we think we've chosen our verticals really, really well. And I think the employment data would defend that statement, meaning that if you look at health care, hospitality, education, state and local government have all fared reasonably well as it relates to employment. And we think the future there looks bright as well. Operator: And our next question comes from Seth Weber from BNP Paribas. Seth Weber: Just a quick one for me. Just on the Fire ERP implementation. I think we had previously talked about like 100 basis points margin headwind next year for '27? I just wanted to sort of mark-to-market and see where we're at from an expense perspective, if that's still the right way to think about it? Just 100 bps for this segment. Scott Garula: Yes. This is Scott. Thanks for the question. As Todd mentioned, some of the impact on next year's -- on the segment is going to be dependent on the rollout in the Fire business. We're satisfied with our progress today. Still not clear on exactly when next fiscal year that will be fully rolled out, but the progress is good. If you looked at an entire year, it would be the 100 basis points that you referenced. Then depending on when we actually go live with the entire business, it will be something less than that because we're not anticipating that to be fully rolled out by June 1. Operator: And with that, we need to end our Q&A session for today. I'd like to turn the call back over to Jared for closing remarks. Jared Mattingley: Thank you, Ross, and thank you for joining us this morning. We will issue our fourth quarter of fiscal 2026 financial results in July. We look forward to speaking with you again at that time. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Kingsoft Cloud's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nicole Shan, IRD of Kingsoft Cloud. Please go ahead. Nicole Shan: Thank you, operator. Hello, everyone, and thank you for joining us today. Kingsoft Cloud's fourth quarter and fiscal year 2025 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com as well as on PR Newswire services. On the call today from Kingsoft Cloud, we have our Chairman and CEO, Mr. Zou Tao; CFO, Li Yi; Senior Vice President, Mr. Liu Tao; Senior Vice President, Mr. Tian Kaiyan; Vice President, Ms. [indiscernible]; and Associate Vice President, Mr. [indiscernible]. Mr. Zou will review our business strategies, operations and other company highlights, followed by Ms. Li, who will discuss the financial performance. We will be available to answer your questions during the Q&A session that follows. We will be conducting an interpretation. Our interpretation are for your convenience and reference purpose only. In case of any discrepancy, management statement in our original language will prevail. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in 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 known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors are included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law. Finally, please note that unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB. It's now my pleasure to introduce our Chairman and CEO, Mr. Zou. Please go ahead. Tao Zou: [Interpreted] Hello, everyone, and thank you, and welcome to Kingsoft Cloud's Fourth Quarter and Fiscal Year 2025 Earnings Call. I am Zou Tao, CEO of Kingsoft Cloud. Since the beginning of 2025, the global AI industry has reached a series of milestones from the democratization sparked by the DeepSeek moment to the active competition among multimodal software models from the leap of embodied AI into the physical world to OpenCloud's closed-loop capability of understanding and execution. AI is evolving with unstoppable momentum linking across models, agents, computing power through industrial applications, reshaping every sector. As a tightly integrated component of the AI 5-layer take, cloud computing is now meeting an unprecedented surge in demand for intelligent computing. This year, we stayed committed to our high-quality and sustainable development strategy, embracing the opportunities in AI era, strengthening our capability through solid execution. We have delivered impressive results, achieving strong financial performance while forging lasting business strength. First, we recorded a historical high quarterly revenue, reaching RMB 2.76 billion, representing a year-over-year growth of 24%, among which revenues from public cloud services increased by 35% to RMB 1.9 billion. Our intelligent computing services keep driving our growth. The gross billing of AI business reached RMB 926 million, representing a 95% year-over-year and contributing 49% of our public cloud services. Second, growth in our ecosystem and external business segment is progressing hand-in-hand. On one hand, our ecosystem partnerships have remained strong and continue to deepen. This quarter, Xiaomi and Kingsoft ecosystem revenue reached RMB 804 million, a 63% year-over-year increase, accounting for 29% of total revenue. For the full year 2025, related party transactions with Xiaomi and Kingsoft ecosystem partners reached 94% of our net annual C, almost hitting the limit. On the other hand, our external customers, including leading enterprises across a wide range of high-growth industries, also shown confidence in our products and services, accounting for around 70% of total revenue. Furthermore, revenue from our top 5 non-ecosystem customers grew by 44% year-over-year, sustaining strong growth momentum. Last but not least, profitability continued to improve this quarter with adjusted gross margin increasing quarter-over-quarter to 17.1% and adjusted operating margin reaching 2.0%. We have achieved operating level profitability 2 quarters in a row, and our self-funding capability has shown sustained and significant year-over-year improvement. Now I would like to walk you through the key business highlights for the fourth quarter of 2025. In terms of public cloud services, revenue reached RMB 1.9 billion this quarter, representing a year-over-year increase of 35%. From a customer perspective, in 2025, AI continued pushing its boundaries, driving industries to fully embrace it, diversifying our customer base. Beyond leading AI enterprises and Internet giants, we now also serve automotive manufacturing, autonomous driving, embodied AI and fintech sectors, et cetera. We've solidified our cooperation within the Xiaomi and Kingsoft ecosystem while capturing new external opportunities. From a product and services perspective, we keep pushing the limits of cluster scale, supporting large-scale training and explosive inference demand. Notably in this quarter, we delivered a new inference cluster for top video streaming platform, serving over 100 million users. We also secured a major fintech customer using our token-based inference service who speak highly of our stable model and computing power services. On supply chain front, despite market uncertainties, our well-established and resilient supply chain built through years of experience allowed us to plan ahead strategically and stock key components dynamically to ensure sustainable business growth. Now in terms of enterprise cloud, revenue reached RMB 859 million this quarter, a significant quarter-over-quarter increase of 18%. Driven by the AI Plus policy, industrial intelligence solutions have become a key growth driver. The demand for specialized vertical models, real-world applications and strict data compliance makes cloud services more essential than ever in advancing industrial intelligence. The AI business of enterprise cloud is paving the way for steady long-term growth, not only representing a $1 trillion market opportunity, but also playing a critical role in driving the technological leap across industries. As a B2B cloud service provider with solid technology expertise and enterprise service capabilities, we are well positioned to capture these industrial transformation opportunities. In the area of enterprise services, we achieved key breakthroughs in high-end manufacturing industry. We provided stable and high-performance computing service to the top enterprises to support their process in intelligent manufacturing, industrial vision and AI R&D. In health care space, we launched a data agent-based AI application in health care intelligent operation process, marking a paradigm shift from digitalization to intelligence. This analysis through natural dialogue platform enables natural language insights into DRG cost control, moving hospital management from retrospective statistics to proactive intervention. While significantly lowering the barrier to data application, we have further solidified our technical moat and differentiated competitive advantages in high-value medical AI scenarios. In public services area, we partnered with telecom operators to provide sustainable and stable high-performance computing clusters for the public services sector, successfully entering key markets like Shanghai. We believe that by leveraging Kingsoft Cloud's deep vertical expertise and enterprise service experience, intelligent computing opportunities in the enterprise cloud segment represents a massive industrial frontier, generating synergies with our public cloud business. In terms of products and technology, we are building a next-generation computing services system for LLM training, inference and industrial intelligence, offering full stack capabilities from computing services to model as a service. Our technology upgrades from basic cloud computing to an AI-first AI-native cloud architecture contributing for digital and intelligent transformation across sectors. We focused on the technologies catering to model training and inference scenarios, aiming to provide highly stable, highly efficient and ready-to-use intelligent computing services. This quarter, our StarFlow platform keep upgrading with the launch of MCP, aka model context protocol cloud, process optimization and AI search features to help enterprises develop and deploy AI agents through a unified platform, gradually building a new ecosystem centered around agent-based operations. For enterprises with private deployment demand, our Galaxy Stack provides heterogeneous GPU management, rookie network and intelligent container scheduling capabilities. We also feature full stack localization with indigenous adaptation to empower intelligent transformation across verticals. Standing at a new starting point, looking ahead, we're truly excited by the limitless possibilities that lie before us. We will remain committed to our high-quality and sustainable development strategy by embracing the immense opportunities presented by the AI era, developing along with the industry and refining our core technologies. We will continue to capture the market opportunities, both within and beyond our ecosystem, optimizing the operations of our assets to enhance profitability and thereby create value for our customers, shareholders, employees and society. I will now pass the call to our CFO, Ms. Li Yi, to go over our financials for the fourth quarter and fiscal year 2025. Thank you. Yi Li: Thank you, Mr. Zou and [indiscernible], and thank you all for joining the call today. Before we walk through the details of financial results for the fourth quarter and fiscal year 2025, I would like to highlight the following aspects. First, our revenue has achieved record high, RMB 2,761 million this quarter, representing a year-over-year growth rate of 24%. Within that, revenue from public cloud services was RMB 1,902 million, increased by 35% from RMB 1,410 million in the same quarter last year. Unprecedented explosive demand for our AI business drove a 95% year-over-year billing growth, which totaled RMB 926 million. Second, profitability has seen substantial improvement. Driven by shift in our revenue structure, our adjusted gross margin continued its upward trend, rising to 70% from 60% in the previous quarter. Adjusted EBITDA margin reached 28%, up 12 percentage points from 60% in the same quarter last year, though down from 33% last quarter. The year-over-year growth was fueled by a large contribution from AI-related business, where [indiscernible] represents the primary cost component. The sequential decrease was mainly due to a nonrecurring subsidiary received last quarter, which established a high baseline. Notably, we have achieved adjusted operating profit for 2 consecutive quarters, reaching RMB 55 million this quarter, which was a 2% margin. These results validate our ability to monetize intelligent cloud opportunities and our strategic focus on high-quality enterprise services. Third, our cash and cash equivalents achieved RMB 6,018 million, strengthening our ability to further support the investment into AI business. Now I will walk you through our financial results for the fourth quarter of 2025. This quarter, total revenue were RMB 2,761 million. Of this, revenues from public cloud services were RMB 1,902 million, up 35% from RMB 1,410 million in the same quarter last year. Revenues from enterprise cloud services reached RMB 859 million during this seasonally strong quarter, which was characterized by a high volume of project completion. Total cost of revenues was RMB 2,296 million, up 27% year-over-year, which was mainly due to our investment into infrastructure to support intelligent cloud business growth. IDC costs increased by 30% year-over-year from RMB 725 million to RMB 812 million this quarter. The increase was mainly due to the increasing needs of [indiscernible], which serves the expanding AI business. Depreciation and amortization costs increased from RMB 323 million in the same quarter of 2024 to RMB 741 million this quarter. The increase was mainly due to the depreciation of newly acquired and leased servers and network equipment, which were mainly allocated to our AI business. Solution development and service costs increased by 50% year-over-year from RMB 557 million in the same quarter of 2024 to RMB 642 million this quarter. The increase was mainly due to the solution personnel expansion. Fulfillment costs and other costs were RMB 40 million and RMB 61 million this quarter. Our adjusted gross margin for the quarter was RMB 471 million, increased to 10% year-over-year and 20% quarter-over-quarter. It was mainly due to the expansion of our revenue scale, the enlarged contribution from AI business and the cost control of IDC racks and servers. Adjusted gross margin increased from 60% last quarter to 70% in this quarter, which was mainly due to the high contribution from enterprise cloud. On the expense side, excluding share-based compensation costs, our total adjusted operating expenses were RMB 459 million, increased by 3% year-over-year and increased 9% quarter-over-quarter, of which our adjusted research and development expenses were RMB 181 million, increased by 7% from same quarter last year. Adjusted selling and marketing expenses were RMB 111 million, increased by 3% year-over-year. Adjusted general and administrative expenses were RMB 168 million, decreased 1% year-over-year. Our adjusted operating profit was RMB 55 million, increased by 124% from adjusted operating profit of RMB 24 million in the same period last year. The improvement was mainly due to the expansion of our revenue scale and gross profit as well as the expense control. The total expense as a percentage of revenue keeps decreasing. Adjusted operating profit margin increased from 1% in the same period last year to 2% this quarter. Our non-GAAP EBITDA margin was RMB 785 million, increased by 180% from RMB 360 million in the same quarter last year. Our non-GAAP EBITDA margin achieved 28% compared with 60% in the same quarter last year. It was mainly due to our strong commitment to AI cloud computing development, strategic adjustment of business structure, strict control over costs and expenses. This quarter, our capital expenditure, including those financed by third parties and right-of-use assets obtained in exchange for finance lease liabilities were RMB 496 million. For the full year 2025, our total revenue achieved RMB 9,559 million, increased by 23% from RMB 7,785 million in 2024, among which revenues from public cloud services were RMB 6,634 million, increased by 33% year-over-year. Revenues from enterprise cloud services were RMB 2,925 million, increased by 5% year-over-year. Adjusted gross profit was RMB 1,542 million, increased by 40% from RMB 1,358 million last year. Adjusted gross margin was 60%, decreased from 70% last year, which was mainly due to the high cost for servers and other hardware equipment. Adjusted operating loss was RMB 152 million, narrowed significantly from RMB 431 million. Adjusted operating profit margin was minus 1.6% narrowed from minus 12.5% last year. Adjusted EBITDA profit was RMB 2,336 million, increased by 266% from RMB 639 million last year. The adjusted EBITDA margin was 24%, improved by 60% from 8% last year. Looking ahead, we aim to capitalize on the explosive growth in demand by further investing in infrastructure, enhancing service stability, managing liquidity risk and improving operating efficiency. We remain focused on AI-driven strategy, providing customers with high value-added cloud services. That's all for the introduction of our operational and financial results. Thank you all. Nicole Shan: Thank you, operator. This concludes our prepared remarks. We are now happy to take your questions. Please ask your question in both Chinese and English, if possible. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from the line of Liping Zhao from CICC. Liping Zhao: Congrats for the very good 4Q results. I have 2 questions here. First, Xiaomi recently launched the MiMo-V2 series models, which have received positive market feedback. How should we view our role and positioning within Xiaomi's AI strategy? And what strategies will be implemented around Xiaomi and Kingsoft service going forward? And secondly, how does the management view the current pricing uptrend in the cloud service industry? Has the company already adjusted prices for AI computing services? Or are there any related plans in place? To what extent are those price adjustments driven by demand or driven by the upstream procurement cost pass-through? Tao Zou: [Interpreted] The answer comes from our CEO, Mr. Tao Zou. So a little bit of background. So back in 2024, I think that was in August, we had an internal discussion around the development of AI and models for the whole Xiaomi and Kingsoft ecosystem. So the idea was that the whole Xiaomi and Kingsoft ecosystem will form a [indiscernible] portfolio of solutions where -- a whole system where Kingsoft will stay disciplined and not really developing our own large language models, which is left to -- for Xiaomi to develop. So the MiMo model and its widely recognized performance is actually an implementation and manifestation of our overall AI strategy within the Xiaomi and Kingsoft ecosystem. And secondly, back in 2025, so 1 year later from the internal discussion session, from a KC perspective, we formed a strategy that's called 1+N. So the 1 here actually refers to the Xiaomi MiMo model, which is the key to KC's inference strategy. So in the future, we will continue to adhere to this strategy, which essentially means that within the ecosystem, we will continue to serve the Xiaomi and Kingsoft ecosystem. And for external customers, we will also try to monetize our model as-a-service capabilities, thereby not only in the training area that we were able to make our revenue and profits, but also we will make our contribution in the inference era that is approaching. Tao Liu: [Interpreted] So the answer comes from our SVP, Mr. Liu Tao. So as a bit of background again. So in the Q3 last year, we had anticipated the significant pricing increase from the supply chain side. And therefore, we had dynamically and strategically stocked up some of the key components. So we did have -- so we were actually prepared for this -- what's unfolding today. Now in terms of the price hike that you were asking, so we stick to 2 principles. Number one, if we already -- for some of the customers and business where we already have contracts in place and where we have the stocking of the underlying resources, we tend to not increase the pricing. However, for some of the new customers, new contracts, especially with significant increase of usage, there's going to be significant price hiking in these kind of scenarios. Now also in terms of profitability, one thing is that we will actually try to pass through some of the upstream cost increases to our customers. And secondly, for -- we also -- depending on the demand, right, we also try to increase some of the price to reflect and increase our profit. Operator: Our next question comes from the line of Wenting Yu from CLSA. Wenting Yu: The first question is that some of your cloud service partners have announced they will shift their cloud business more towards [indiscernible] from the traditional server rental and also the subscription model. Will KC adopt a similar strategy? And how do you view the impact of this trend on industry competition and long-term profit margins? And the second question is regarding the impact from the [indiscernible] engine. It is adopting a relatively low price strategy. And how do you view the impact on the industry and also on potentially our business this year? Tao Zou: [Interpreted] Okay. So regarding your question on the shifting to model as a service strategy, we have noted some of the other peer companies who released their results earlier than us mentioning it. However, my view is that this is not actually some new concept. It is actually one of the inevitable stage of the development of AI as well as large language models from the training that we do to create them to a certain stage that they become applicable and workable in our day-to-day work and life. So in relation to our own inference-related work, model as a service work, we actually launched the StarFlow platform, as we mentioned in the prepared remarks last year. And because we are a neutral platform, we were able to host essentially all of the open source models, including also the model coming from Xiaomi to provide model as-a-service business, where this is essentially actually the fastest-growing business in the history of the company. Actually, so we talked about the Xiaomi MiMo model earlier, the way that we're providing services for Xiaomi MiMo model is also a model as-a-service business. And also for some of the large language model customers that we used to -- and we're still providing training services to them, we also provide model as-a-services business to them as well to cater to their inference needs. Now as to your second question about the price change for [indiscernible], I haven't really noticed that particular piece of news. However, the general market dynamics today is that on one hand, we're seeing explosive growth on the demand side. And we're seeing a particularly high price hiking from the supply chain side. So I do not personally think that under such circumstances, changing price to a lower level would actually be implementable and applicable in the real world. Now what I have focused more is the price hiking information from, for example, AliCloud. We have worked with them together. We have been in the industry together for many years, and this is the first time that we've seen them hiking their price. And also an addition from our SVP, Mr. Liu Tao, is that there is a difference between the catalog price and the actual price that the companies that offer as cloud players and our customers engage into. So the change in catalog price is more of a marketing kind of purpose, and it does not necessarily mean the actual price that companies enter into business. Operator: Our next question comes from the line of Timothy Zhao from Goldman Sachs. Timothy Zhao: My first question is on your financial outlook. Just wondering if you can share some color on how we should think about the revenue, EBITDA, operating profit growth outlook for this year? And also on the capital expenditure plan, what is your thought and considering the balance sheet and also the prepayment from certain customers, do you think it's possible to further raise your CapEx plan given the rising AI demand? And secondly is regarding the third-party revenue in the AI outlook. Just wondering if you can share more detailed color on your -- what specific product or what type of customers are driving the third-party AI growth? And also what is the breakdown and outlook between the mix of AI training versus AI inferences? Yi Li: All right. I will take the CapEx first. For 2026, we expect total CapEx and control assets to exceed RMB 10 billion, representing expansion from 2025 level. On funding structure, we expect approximately half of our CapEx is targeted to be covered by customer prepayment arrangements, which will significantly reduce safe funding requirements. Additionally, we plan to access more assets through short- and long-term leases with payment structure and operating cash flows to minimize upfront capital encumbrance. For the funding position and financing needs, we currently have no equity finance plans. 2026 capital expenditure are secured through 4 channels. First, proceeds from our 2025 financing; and second, customer operating receipts; and third, the strategic customer prepayments; and the fourth, the commitment credit facilities from banks and financial institutions. Incremental resource requirement will be made primarily through leasing to preserve balance sheet flexibility. For the guidance for the 2026, we expect our growth rate will accelerate and the EBITDA rate will improve much in 2026 as well. Unknown Executive: [Interpreted] So if you look at the past results as described -- as discussed in the prepared remarks, the -- for the top 5 non-ecosystem customers combined revenue for year-over-year basis revenue growth was 44%, which is really strong growth. So those would include Internet companies, autonomous driving and robotics. And then in terms of looking forward into the year of 2026, we do see extremely large demand coming from outside of the ecosystem. And to some extent that such demand is actually higher than the demand from our ecosystem. So the final revenue or financial results coming from that demand will actually be determined -- will actually be dependent on how much resources we're able to secure and deliver to such customers. Now from the perspective of products and solutions, we have -- we're actually seeing more than half of the potential demand coming in for inference versus training. And then for the StarFlow platform, which we discussed earlier, it's growing really fast for that business, and we're seeing better profit margin coming from that particular business. And this is a result, of course, from the very good application, very good application and increasing penetration for agents and core applications. Thank you. Nicole Shan: Thank you. Due to time constraint, this concludes our Q&A session. Thank you once again for joining us today. If you have any other questions, please feel free to contact us. Look forward to speaking with you again next quarter. Have a nice day. Thank you all. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Avshalom Shimi: [Audio Gap] differ materially from those projected, including as a result of changing industry and market trends, reduced demand for our products, the timely development of our new products and their adoption by the market, increased competition in the industry and price reduction as well as due to risks identified in the documents filed by the company with the Israeli Securities Authority. Online with me today are Mr. Shai Babad, Strauss Group's President and CEO; and Mr. Tobi Fischbein, Group CFO; and myself, Avshalom Shimi, Head of Investor Relations. We will begin with a review of the annual results by CEO, Shai Babad, and then move on to the financial highlights of the quarter and 2025 presented by CFO, Tobi Fischbein. We will then move to the Q&A session. Shai, the floor is yours. Shai Babad: Thank you very much, Avshalom. Again, we apologize deeply for the delay. The computer fell in the last moment after everything was ready. [ Murphy ] is slow, and we had to upload everything on a new computer. But let's start, and I'll try to be brief and to the point. Next. Next. The highlights of 2025. We have a very strong double-digit growth in 2025 and also a very strong double-digit growth in the last quarter of Q4 of 2025. In the year of 2025, we also managed to regain back our margins and improve the profit -- operational profit and the operational profitability, with margins reaching 9.6% without our kitchen activity, which is very, very close to the strategic guidelines that we gave. In net profit in the last quarter, we managed to improve the results by 100%, getting to ILS 150 million in one quarter of net profit, which is a substantial improvement and also to the free cash flow. In addition, lately, we acquired Yoki and we made a very substantial and large M&A in Brazil, which I will mention a little bit later. We also are in the journey of our productivity, and we can say that we are online with all the productivity targets that we set ourselves with, in line with the strategy. There's also been a lot of innovation that was done from diversified innovation to disruptive innovation with the new launches of Coffee and [ Shabbat ] machine in our water purification systems that was done in Q4. And last but not least, in the north of Israel, we launched a new plant for alternative milks under the Michael Strauss, our Founder, Campus, which was launched in October 2025. When we look at the results, we can see that here, there's a 15% growth all over the year, organic growth and a 12%, almost 13% growth in revenues in net sales in the last quarter. This is in addition to also volume increase that we had during this year. So most of the increase in revenue came from price increase, mainly in our Coffee International business, but not only. We managed to increase price to actually increase market share in most of the categories in which we play, in categories and very strong categories in Israel, overall categories in which we play in, we managed to increase market share by 1%. But also in Brazil, we maintained a very -- our position is #1, increased market share, but also increased prices. We can see here the EBIT improvement all over the year from almost ILS 800 million to almost ILS 1.7 billion -- sorry, is ILS 1.07 billion in EBIT. It's the first time that we actually crossed the ILS 1 billion in EBIT without our kitchen activity. And net sales remained with a smaller improvement from ILS 418 million to ILS 450 million, mainly due to tax payments and financial costs that Tobi will elaborate later. But in the last quarter, as you can see, already there is an improvement in the net profit and our ability to roll through our operational profit to our net profits. And in cash flow, of course, you can see also there is an improvement from last year with a negative cash flow. This year, we managed to get back to a positive cash flow with a very strong cash flow in the fourth quarter. When we look at our Israeli activities, as I mentioned before, we managed to increase market share in almost all our categories here. There was a lot of innovation that was done in Israel, which I'll talk about very soon. In Health & Wellness, while increasing sales and growing in sales, we also improved our EBIT. When we look at last quarter, EBIT in Health & Wellness, we kind of -- we stayed the same, but this is mostly because of marketing efforts that were done this quarter in Health & Wellness because of the launch of the new plant in the North for alternative milks. We invested more than ILS 14 million in marketing efforts in addition to what we've done last year, and this is the difference. But overall, Health & Wellness, good growth in revenues, also improvement in operational profit and in margins. When we look at Fun & Indulgence, here because of our confectionery business and because of cocoa prices, we went a little behind. And we can see that in the last quarter, there's already an improvement, as we've mentioned in our confectionery business. Looking into 2026, this will continue to improve and we'll see substantial improvement in our confectionery business, which will yield results that will be close to what we used to have in 2021. And also in Coffee, we managed to improve margins. And as you can see, of total overall in Israel, we grew by almost 6%. Operating income stayed the same because of cocoa prices because of its effect on the business in our confectionery business, which is starting to improve rapidly Q4 and also looking into 2026. And therefore, operating profit kind of remained the same with a very positive outlook into 2026. This is a little bit to show you a little bit of our innovation. In innovation, we have diversified innovation, stretching our brands from one category to another. You can see the milky brand here that -- [indiscernible] which is another yogurt was stretched into that brand. Also in Alpro, we stretch our confectionery brands into Alpro. You can see that we are going very much into the -- also improving innovation into the functional segments of Pro yogurts with proteins, drinks with proteins, and our Pro brand is being expanded. We can also see the disruptive innovation that was done in this year with the first time carb-free drinks, which is alternative -- which is imitation of the protein that comes from a cow that is produced through fragmentation with yeast or mushrooms, and therefore, we can produce milk that is just not being produced from cow and the same with cheese. We launched this in Israel, and we see already sales that are starting to grow. And with our new opening of our new plant in Israel as well, there was a lot of innovation and a lot of investment in new engines of growth that we've put in place. Next. When we look at our Coffee international activities, so this year for Strauss, it was the coffee year. We see substantial improvements in our business -- in our International Coffee business, mainly through prices increase that was done. You can see revenues increased and eroded by 30 -- almost 31% while operating income more than doubled itself on the coffee -- on the total coffee business. We can see here, Três Corações, our Brazilian business with tripling its revenues. Here, it's a very important to say. We saw a very unique and very good results in Q4 for our Brazilian business. We don't think we'll be able to maintain the same margins going forward, but of 12% or 11%, but we do believe we have a new platform in Brazil. And instead of the 3% or 4% margin that we used to have, we think we can be around the 8%, 9% margins going forward for this year. So -- we did maintain a new platform. It's not going to be as high as Q4, but it is going to be very strong operations in Brazil in the R&G. In addition, in the non-R&G, we are continuing to expand our activity in the non-R&G as part of our strategy to hedge -- to naturally hedge the green coffee volatility prices with the coffee activity with the non-R&G activity in Brazil. And one of the steps that we took, which is in line with the strategy was the Yoki acquisition, which I'll say a few words later on. When we look at our Water business, so we increased our installed base and revenue grew due to that, although there was a war, and we see also the impact this year that our growth is lower than what we are planning because of the war. But in parallel to that, we managed to maintain the profits, the operating profit of ILS 115 million each year. Israel grew its profit. But in China, as mentioned in the last quarters, Xiaomi gave a very hard competition and therefore, we went on to a tech mode in which we gave a lot of discounts, and we have reduced price in many cases and also put new platforms into the market. This has cut off our total profits from China. And therefore, the total result remained the same. The good news is that we already see in Q4 that we managed to come back to being a very strong #2 player in market share. We gained market share back in China. We managed to sell in a double-digit growth in the last quarter. We also managed to become #1 in the off-line sale and #2 in the online sale, altogether, #2 in the market, pushing Xiaomi back. We do think this stomach will continue with us into the next few quarters until we'll be able to get profits back on a high level in China. But overall, when it comes to revenue and growth and market share position, we managed to get that back. Next. When we look at our productivity, so we are in line with our productivity active -- targets that we set for this year. We will reach, we believe, within the target and even exceed the target between the ILS 300 million and ILS 400 million. This helps us a lot to achieve our results, to improve operational profit and to improve profitability. There's a lot of streams that are working. I'm not going to repeat all the streams that we talked in the last calls, but there's procurement, there's logistics supply chain in each one of them, there's marketing, RGM. In all of them, we are working very hard. And we are building capabilities, which will help us for the next upcoming years to even to continue to enhance, deepen and improve productivity. A word on strategy. If you look at the strategy that we mentioned in 2024 until the end of 2026, so we kind of ticked the box on all the targets and missions that we set in the strategy. We talked a lot about a strong home base in Israel with optimizing the portfolio in Israel, with double down on the core, with growing more than 5% in the segments that we decided to stay. We reduced SKUs from 1,300 to 780 in Israel while maintaining a higher CAGR than 5%. We've managed to improve margins. With the turnaround, we are expected to do in the confectionery business this year. We believe that the Israeli business will be fully on track with the strategy that we set. We're doing a lot of innovation activity. We built two engines of growth in Israel with the milk drinks and protein drinks and protein by itself. And on the other hand, the new factory that we build with alternative milks and the new factory that we built in the north that will be -- that will enable us to give all our brands in alternative milk version as well. So this is regarding Israel. Regarding the engine growth of Brazil, we said that we need to maintain and to improve -- maintain our position as first in market share, but also to improve our R&G profitability and total profit. And we've managed to do that. We've managed to have done that. If you look at the last 3 quarters, you can see that in quarter 2, quarter 3 and quarter 4, the results in Brazil have improved substantially. We are not going to be able to maintain the same margins as we saw in margin in quarter 4, but the margins will stay high. There's new platform of profitability for the R&G and this is also a tick on what we said in the strategy. On the other hand, the non-R&G is growing also more than 5% each year in the non-R&G activity in Brazil. We also managed M&A activities that we will do in the strategy and also that we can take with the acquisition of Yoki. So overall, we hedged -- we are hedging our activity with the R&G to be less exposed to the volatility of green prices on the one hand. But on the other hand, to continue to push for healthy growth, in the aim of becoming one of the largest dry food companies in Brazil. When we talk about our international water player, as an international water player, we talked a lot about multi-products in the water business. We launched 5 new products from affordable products to premium products, to under the same products to functional products such as the Shabbat and the soda products. Some of those products will be launched also outside Israel. We've managed to turn around our U.K. business in our water business as well. In China, we are opening now the second plant this year, which will enable us to push more on productivity, to reduce cost, to strengthen profitability, but also push growth. And all this is based also on the pillar of future ready and resiliency with performance improvement, which is all the productivity work that we have done and the resiliency that we built in the culture and the health of the organization through upskilling, reskilling leadership models and a lot of activities that we are doing in the streams of our health -- the health of our organization. One word, which is very important for me to say about the Yoki business. There was some eye lifted when we acquired Yoki with effect of why General Mills sold it and why do we buy it and the business is losing money. So I just want to make some sense out of this all. General Mills sold the activity for two major reasons. They have published this in their notification when they sold, so I feel free to mention this. One is their focus on global brands. They want to enhance their exposure to global brands and to focus very much on the global brands and not on local brands. And the other is their scale and their infrastructure in Brazil, which wasn't big enough to support profitability in Brazil. On the other hand, this is exactly in line with our strategy because our strategy is to support loved local brands. We will never have -- I wouldn't say never, but our strategy does not aim or focus on global brands. On the contrary, it focuses only on how do we take local loved brands and leverage those in order to make sure that we build strong brands. We know how to bring innovation and synergies into those loved local brands. If you look at our journey in Brazil, what we've done in our local loved coffee brands, which were #3 and #4 in the market and JD, which is a global brand was #1. We managed to exceed and to become the #1 player in coffee with loved local brands. With Yoki, it's the same thing. We are taking now under our wings very large local brands, very nonlocal brands. And what we have are very high synergies. When it comes to distribution, when it comes to logistics, we are reaching in Brazil more than 400,000 points where Yoki before through third party reached only 100,000 points. When we talk about scale and infrastructure because of our coffee business in Brazil and because of our already existing infrastructures in Brazil, we have much larger scale to support Yoki -- and very high synergies to support Yoki. And therefore, when we look at all the synergies, logistic synergies, distribution synergies and also G&A strategies -- SG&A synergies by combining and merging headquarters and management positions, we believe that within 18, 24 months, we will be able to turn around the business to make it profitable. And I think if our plans will work, we might be able even to do that sooner than that. And therefore, buying this company for 0.4 multiplier on revenues with the synergies that we have. And with our abilities and infrastructure that we have in Brazil, we believe that we'll be able to do a turnaround, and we believe that it's a very, very good fit to our existing business and very much in line with our strategy to become a larger food and dry -- dry food, sorry, a company in Brazil on the one hand. On the other hand, to continue to grow our non-R&G activity to hedge the vulnerable -- the volatility and the vulnerable that we have, the vulnerability that we have because of green coffee prices. And that was the rationale of the deal. And I must say that we are very confident about that, especially after building the new platform that we have now in the R&G in Brazil. And just to conclude before the last slide, looking to now, I talked about the qualitative targets of our strategy. I just want to remind us all the long-term financial targets that we set ourselves in the strategy. So we talked about a 5% CAGR. We are in line with that. We will actually exceed that by the end of 2026. We talked about margin expansion between 10% to 12%. If you look at Q4 of 2025, we are already at 9.6% margins. We don't know yet how 2026 will finish. There's a lot of unknowns regarding cost of goods and what will happen and how will that affect. But I think that we are in line right now to reach the target that we set on the lower part of it. So we feel confident also with that target so far. When we talk about productivity, as I mentioned before here, we are in line and even exceeding the target. When we talk about investments, we are investing a lot in digitalization, in improving our infrastructure, in opening capacity constraints in Israel mainly, but not only, we have reached capacity constraints where demand is much higher than what we are supplying to the market. So we are investing to put more lines to open those bottlenecks and to make sure that we can meet demand. And last but not least, focusing on the core. We said that 85% from 65%, 67%. 85% of our activity will be core. Core means growing 5% or more sustainable, having margins between 8% to 10% sustainable and being the #1 or #2 in the market. And in all of those criteria, I think that when we check all those criteria, 85%, as we've mentioned, of our activity will be by the end of 2026 core activity with the turnaround of our confectionery business. Already today, more than 80% is under the core. So overall, we think that we are accomplishing the targets of our strategy. And here, it's very important to note. These days, we are already working on the new phase of our strategy for years '27 to 2030. We will publish the new strategy out by H2, the second half of 2026. The focus will be on continuous healthy growth and expanding the business while we will leverage loved local brands in geographies in which we play and also in new geographies in which we want to enter. We will push hard on productivity, and we will enhance the build and the growth of our core activities as well. And all that will be out by H2, while we'll finish working on the new strategy. And we'll put the new strategy out to the market with the new guidelines of where we think -- what we think we can achieve and where the strategy will take us by H2. So stay tuned. And the last thing that I want to mention is our work in ESG. This is highly important for us. We continue working on improving our products by reducing sugar, by reducing nitrogen, by making sure that our products, the quality of our products are healthier. And also by increasing the portfolio of healthy products within our portfolio. So we go into proteins. We are enlarging. We are growing our dairy business. We are growing as we invested in alternative milks, in parallel, to make our portfolio more nutritious and more healthier. We are working on sustainable supply chain with working with our suppliers that they meet demands. Of course, our water business and extending our water business helps us a lot with reducing plastic bottles and helping the earth. We are investing a lot of time on people and communities, especially now during the war in Israel, but also in the war in Ukraine and Russia, helping the communities and helping our people and we're investing a lot of that. And of course, governance. There's been jumps ahead in governance in the company where we have our own risk assessment team that was embedded already 1.5 years ago in Strauss and we upgraded our ability in risk of risk analysis. And on the other hand, internal control and auditing -- internal auditing actually was built through a local team, inside team inside the company from external adviser. So those front line, second line and third line of defense are being built within the company. And therefore, you can see, I think the rating that we have through the different rating companies on ESG is very high, and we take it very, very seriously. So with that, thank you, and -- we'll move it to Tobi for the financial results. Tobi Fischbein: Thank you, Shai. On Slide 15, we have a Q4 net sales, which totaled ILS 3.2 billion, up 10.2% year-on-year. Growth was broad-based across all businesses with strong contribution from our Coffee International segment, offset by currency impact from stronger Israeli shekel vis-a-vis local currencies in most of our foreign activities. On Slide 16, full year 2025 net sales reached ILS 12.5 billion, up 11.6% year-on-year. All core segments contributed to this performance. Strauss Israel delivered solid mid-single-digit growth despite the impact of divested activities. Coffee International sales grew 30% in shekel terms to record high sales. And Strauss Water achieved steady growth, driven by a larger installed base in Israel and in the U.K. On Slide 17, Q4 2025 group EBIT was ILS 282 million, up 62.3% year-on-year with 8.9% EBIT margin, up from 6.1% in Q4 of 2024. For the full year, group EBIT grew 35.6% to a record ILS 1.02 billion with an 8.2% EBIT margin. The strong growth and profitability improvement was driven largely by our Coffee International business and productivity gains across the group. On Slide 18. In Q4 2025, Strauss Israel's EBIT was ILS 136 million, up 13.6% year-on-year. Coffee International's EBIT increased by 270% to ILS 173 million. And Strauss Water's EBIT remained flat at ILS 40 million. For the full year 2025, Strauss Israel EBIT totaled ILS 530 million, up 0.4%. Coffee International more than doubled its EBIT to ILS 493 million, and Strauss Water contributed ILS 115 million, flat year-on-year. On Slide 19, we see the net income. In Q4, the net income attributable to shareholders more than doubled to ILS 151 million, reflecting strong EBIT growth. Full year net income reached ILS 450 million, a 7.6% increase over 2024, driven by EBIT improvement while impacted by higher finance expenses, mainly due to a stronger shekel and higher interest expenses in Brazil as well as higher tax expenses due to the profit mix and release of provisions in 2024. On Slide 20, we see the cash generation improved significantly. In Q4 2025, we generated free cash flow of ILS 554 million, an increase of ILS 110 million year-on-year. For the full year, free cash flow turned positive at ILS 215 million versus negative ILS 51 million in 2023. These gains were driven by higher business profitability and lower CapEx. Slide 21. We ended 2025 with net debt of ILS 2.2 billion, slightly higher than a year ago, while our net debt-to-EBITDA ratio improved to 1.6x at year-end compared to 1.7x a year ago, underscoring our strong financial position and moderate leverage. On Slide 22, we see Strauss Israel's sales performance. On Slide 23, Strauss Israel Q4 2025 sales were ILS 1.34 billion, a 4.4% increase year-on-year. Growth was driven by Health & Wellness higher volumes and improved mix as well as our Snacks and Confectionery segment while Coffee Israel had pricing actions, mitigating green coffee cost inflation and slightly lower volumes following the Coffee-To-Go divestiture. On Slide 24, we see Strauss Israel full year sales. And we see them reached ILS 5.46 billion, up 5.6% versus 2024. Health & Wellness segment sales grew 2.7% through increased volumes and better product mix, offset by the divestiture of the Ultra Fresh business. Snacks and Confectionery saw double-digit growth, driven by pricing, volume and mix. Coffee Israel delivered high single-digit growth following pricing actions and volume growth, offset by the exit of the Coffee-To-Go chain. On Slide 25, Strauss Israel Q4 2025 EBIT increase and margin improvement were driven by improved profitability in Coffee Israel and in Snacks and Confectionery. While in the full year 2025, profitability gains in Health & Wellness and in Coffee Israel, combined with successful productivity initiatives helped offset much higher raw material costs used in the confectionery business, resulting in stable overall yearly EBIT. On Slide 26, we turn to Coffee International, our global coffee business, which delivered exceptional growth in 2025. Coffee International highlights on Slide 27. We see a record performance in our International Coffee segment. Q4 of 2025 net sales were ILS 1.6 billion, up 24% year-on-year. Q4 EBIT jumped to ILS 173 million, a 270% surge versus Q4 of 2024, expanding the EBIT margin to 10.9% from 3.6% a year ago. For the full year, Coffee International sales reached ILS 6.2 billion, up 31% and EBIT more than doubled to ILS 493 million for an 8% EBIT margin. On Slide 28, we see our Brazil joint venture, Três Corações has achieved strong double-digit growth in Q4 driven by pricing actions to offset green coffee cost inflation and continued expansion into non-R&G categories, offsetting slightly -- offset slightly by a weaker Brazilian real. In Central and Eastern Europe, we saw volume increases and successful pricing adjustments led by focused sales execution, gaining market share across all our key markets, Poland, Romania, Ukraine and Russia. These factors led to an overall 24% sales growth in Coffee International for Q4 of 2025. On Slide 29, we see the full year Coffee International net sales grew 30.8% in shekel terms and over 45% in local currency in Brazil. Três Corações had a record year in Brazil. The CEE region also delivered robust performance in 2025 with effective price management and volume growth across the region. Slide 30, for the Três Corações, our Brazilian JV results. We saw Três Corações has posted outstanding results with Q4 of 2025 net sales at BRL 3.59 billion, up 23.9% year-on-year and EBIT of BRL 464 million, up 364% with Q4 EBIT margin of 12.9% versus 3.5% in Q4 of 2024. For the full year 2025, Três Corações achieved BRL 14.1 billion in sales and BRL 1.26 billion in EBIT, an increase of 226% year-on-year, bringing annual EBIT margin to 8.9%. These records were driven by excellent sales execution and pricing management to mitigate green coffee cost inflations, continued growth in non-R&G products and operational efficiencies. Moving to Slide 31, to discuss our Strauss Water segment, actually on Slide 32. Strauss Water delivered steady growth in 2025. Q4 2025 sales were ILS 237 million, up 7.4% year-on-year, driven by a larger installed base in Israel and in the U.K. and also by an improved product mix. Q4 EBIT was flat at ILS 40 million. For the full year 2025, sales reached ILS 895 million, a 5.5% increase and full year EBIT reached ILS 115 million, unchanged from 2024. Solid growth in Israel and in the U.K. was offset by softer results in our China water JV with higher due to increased competition. On Slide 33, we see higher Strauss Water performance where we saw high single-digit top line growth in local Chinese currency. Q4 of 2024 sales at HSW were CNY 543 million, up 7.5% year-on-year. However, net income for the quarter declined 48% to CNY 42 million as we invested heavily in marketing amid intensified competition, but we are able to maintain market leadership position. For the full year 2025, HSW's revenue grew 8.7%, while net income totaled CNY 179 million, down 25% from 2024, reflecting higher costs to successfully protect our market position in China. Let's move back to Avshalom for the Q&A session, please. Avshalom Shimi: Thank you very much, Tobi. We will now move on to the questions you have sent. So we have the first question coming in, and I will read it out. Has the current conflict created any new near-term challenges or impediments to operations? Shai Babad: So not in a substantial way. There are -- we have to still continue to monitor that. We have two missions in this period of war. One, we put two main focuses on target. One is business continuity to make sure that all our factories all around the country in the north and in the south are continued business operations as usual, and we continue to produce. And so far, we've managed to do that. And second, to take care and to make sure that we take care of our people and our frontline workers and everyone in the company. And in those two missions, we are highly at focus. So far, we managed to pull and to maintain and to provide business continuity to the consumers here in Israel. It all depends on the length of the war. We think that as long as the war is not going to take more than a couple of months, then this will be able to continue. If not, we'll need to examine and reexamine our activity. But so far, there's no real implications of the war. Avshalom Shimi: Thank you, Shai. And we move to the next question. What kind of productivity initiatives remain for this year? Shai Babad: So we continue with -- we have 8 streams of productivity initiatives. One is working capital, other one is logistics, S&OP, manufacturing, revenue management, marketing, ROI, working capital, and I'm missing one, I think, right now. And in all of those streams, there are targets that were set for each year. We're continuing to work on that to improve procurement, which is one of them as well. We're continuing to improve each one of them working with a very detailed and deep plan in each of those streams with stream leaders that are working on that productivity, and that will continue until the end of 2026. While we will issue our new strategy 2027 ahead, we will also put a new plan in how do we deepen enhance our productivity with also AI coming into life and into our industry and also into our company. So with all that will be out when we get into 2027 to 2030 strategy with the new plan to enhance productivity. But so far, we are still in the original plan, and we are on track. Avshalom Shimi: We have -- thank you, Shai. We have another question. Can you elaborate why or how are you confident about the ability to generate synergies and make the turnaround for Yoki? And are there any low-hanging fruits that you can discuss? Shai Babad: So yes, as I mentioned before, the fact that we reached 400,000 points in distribution today in Brazil. And that today in Brazil, we sell around BRL 14 billion already of dry food, mainly coffee, but not only in Brazil. The synergies that we have and the connections that we have with all the retailers. When we talk about logistics and logistics costs in Brazil of warehouses. Here, we see many low-hanging fruits in which while we will embed Yoki activity into our activity, those synergies will come into life. During the due diligence process, which is a very long process, we have actually examined that. And some of the categories in which Yoki are doing now in corn, for instance, we have already today in Três Corações as well. So when we look at their categories in the categories in which we in the cost, logistic costs and distribution costs that they have, in parallel -- in comparison to our logistics costs and distribution costs, we see a lot of potential of synergies there. On the other hand, we also have headquarters and SG&A costs, which we believe that once this will be embedded in one company, there's a lot of headcounts, which we we'll be able to let go. And there's a lot of headquarters and managers that can be actually synergized and combined. And also there, we see a low-hanging fruit. The third is also the potential to grow sales by higher exposure. When we reach 400,000 points and they reach 100,000 points, we have much higher exposure to the market with high connection. And General Mills mentioned it by themselves that their scale of infrastructure today in Brazil is not strong enough or not support enough in order to make the business profitable, which is in contrary, the opposite to what we have in Brazil, through the Três Corações business. If this was just a stand-alone business by itself without all the infrastructure and the logistics and warehouses and the distribution that we have in Brazil, then of course, we wouldn't have had any synergies and any [ hanging ] fruits. The fact that those dry food categories are in line, totally in line with our dry food categories in some cases, are the same categories because we are producing the same products and selling the same products in the market under different brands. And the fact that they have such -- Yoki is such a strong loved brands in Brazil, we see a very, very high match with Três Corações loved known local brands in Brazil. So when we take those loved local brands with our loved local brands, and we add to that our synergies of logistics, distribution and our ability through the exposure to exceed sales and also the merge of headquarters and reduce of headcounts, we see many hanging fruits that through a very thorough and deep work that will be done by the management of Três Corações. We believe that within 18 to 24 months, we'll be able to do the full turnaround, and we actually believe that we might be able to do it even before. We also have experience in that. This is not the first M&A that we are doing in Brazil, the family and the Três Corações and the [ Limor ] Brothers family are managing the company in Brazil have done. There have been businesses within the coffee and not only coffee that we've bought along the years, and all of them were very successful because they're all built on the same synergies. So we also experienced on how do you take and merge loved local brands from Brazil that were not in our portfolio and to embed them in our portfolio, whether it's in coffee or whether it's in other categories. So to your question, we feel very confident that we'll be able to do the turnaround. We've done a very thorough due diligence, checking those synergies. And we -- the proof is up to us. We have to actually show and perform to see that what we say, this is what will happen. And luckily for all of us, we'll meet here again in 18 to 24 months, and we'll see the results. But we are very confident, as I mentioned. Avshalom Shimi: Thank you for that, Shai. And I see we don't have any further questions. So I will now return the call to Shai for closing remarks. Shai Babad: So as you can see from the results -- thank you, Avshalom. As you can see from the results, we had a very successful year with a double-digit growth in revenues with improved financial parameters all through our P&L with much higher operational profit with higher margin and also in the last quarter also, our net profit already improved. We are entering 2026 with a very good back wind. And we hope that the trends that you've seen in the last quarter of 2025, and in '25 will continue in 2026. In Brazil, it will not be to that extent, but it will be a new platform. We are looking into the turnaround of our confectionery business in 2026, which will also help us improve our results. And we are looking to see how the engines of growth that we put in place such as the new line in [indiscernible] milk drinks or such as the new line -- such as the new factory in the north of alternative milks in Campus Michael, those will actually will help us and to contribute to continued growth and to continue improving our results. And with Brazil, we are looking into doing a successful implementation of our Yoki business. And more than all, we are also looking into -- and these days, we're working very hard on our new strategy for 2027 to 2030, to show how we're going to continue and to set a path of how we're going to continue this healthy growth and continue to expand the company, mainly in the global arena and less in Israel. And how do we leverage our power, our infrastructure, our innovation capabilities into loved local brands in those different geographies and continue our path of growth. Last but not least, those are very difficult times in Israel. So I just wish for everyone to be safe. I wish that our soldiers will come back home safely and that the war will be over as soon as possible that everybody can go back to normal days. Until then, we will be continuing to working very hard to make sure that we, on the one hand, provide business continuity. And on the other hand, take care of our people, and take over our people in the front line that are working on those factories that are under the attack. And I just wish all of us quiet and happy days. And for the coming Easter and coming Passover, anyone is celebrating. So also happy Passover and Happy Easter to all of us. And we hope to see you here soon in our first quarter and to continue to show you the positive trends that we've been showing in the last quarters. Thank you. Avshalom Shimi: Thank you, Shai. And thank you, guys, for joining Strauss Group's Fourth Quarter and Full Year 2025 Results Earnings Call. And this concludes our call for today. Thank you.
Avshalom Shimi: [Audio Gap] differ materially from those projected, including as a result of changing industry and market trends, reduced demand for our products, the timely development of our new products and their adoption by the market, increased competition in the industry and price reduction as well as due to risks identified in the documents filed by the company with the Israeli Securities Authority. Online with me today are Mr. Shai Babad, Strauss Group's President and CEO; and Mr. Tobi Fischbein, Group CFO; and myself, Avshalom Shimi, Head of Investor Relations. We will begin with a review of the annual results by CEO, Shai Babad, and then move on to the financial highlights of the quarter and 2025 presented by CFO, Tobi Fischbein. We will then move to the Q&A session. Shai, the floor is yours. Shai Babad: Thank you very much, Avshalom. Again, we apologize deeply for the delay. The computer fell in the last moment after everything was ready. [ Murphy ] is slow, and we had to upload everything on a new computer. But let's start, and I'll try to be brief and to the point. Next. Next. The highlights of 2025. We have a very strong double-digit growth in 2025 and also a very strong double-digit growth in the last quarter of Q4 of 2025. In the year of 2025, we also managed to regain back our margins and improve the profit -- operational profit and the operational profitability, with margins reaching 9.6% without our kitchen activity, which is very, very close to the strategic guidelines that we gave. In net profit in the last quarter, we managed to improve the results by 100%, getting to ILS 150 million in one quarter of net profit, which is a substantial improvement and also to the free cash flow. In addition, lately, we acquired Yoki and we made a very substantial and large M&A in Brazil, which I will mention a little bit later. We also are in the journey of our productivity, and we can say that we are online with all the productivity targets that we set ourselves with, in line with the strategy. There's also been a lot of innovation that was done from diversified innovation to disruptive innovation with the new launches of Coffee and [ Shabbat ] machine in our water purification systems that was done in Q4. And last but not least, in the north of Israel, we launched a new plant for alternative milks under the Michael Strauss, our Founder, Campus, which was launched in October 2025. When we look at the results, we can see that here, there's a 15% growth all over the year, organic growth and a 12%, almost 13% growth in revenues in net sales in the last quarter. This is in addition to also volume increase that we had during this year. So most of the increase in revenue came from price increase, mainly in our Coffee International business, but not only. We managed to increase price to actually increase market share in most of the categories in which we play, in categories and very strong categories in Israel, overall categories in which we play in, we managed to increase market share by 1%. But also in Brazil, we maintained a very -- our position is #1, increased market share, but also increased prices. We can see here the EBIT improvement all over the year from almost ILS 800 million to almost ILS 1.7 billion -- sorry, is ILS 1.07 billion in EBIT. It's the first time that we actually crossed the ILS 1 billion in EBIT without our kitchen activity. And net sales remained with a smaller improvement from ILS 418 million to ILS 450 million, mainly due to tax payments and financial costs that Tobi will elaborate later. But in the last quarter, as you can see, already there is an improvement in the net profit and our ability to roll through our operational profit to our net profits. And in cash flow, of course, you can see also there is an improvement from last year with a negative cash flow. This year, we managed to get back to a positive cash flow with a very strong cash flow in the fourth quarter. When we look at our Israeli activities, as I mentioned before, we managed to increase market share in almost all our categories here. There was a lot of innovation that was done in Israel, which I'll talk about very soon. In Health & Wellness, while increasing sales and growing in sales, we also improved our EBIT. When we look at last quarter, EBIT in Health & Wellness, we kind of -- we stayed the same, but this is mostly because of marketing efforts that were done this quarter in Health & Wellness because of the launch of the new plant in the North for alternative milks. We invested more than ILS 14 million in marketing efforts in addition to what we've done last year, and this is the difference. But overall, Health & Wellness, good growth in revenues, also improvement in operational profit and in margins. When we look at Fun & Indulgence, here because of our confectionery business and because of cocoa prices, we went a little behind. And we can see that in the last quarter, there's already an improvement, as we've mentioned in our confectionery business. Looking into 2026, this will continue to improve and we'll see substantial improvement in our confectionery business, which will yield results that will be close to what we used to have in 2021. And also in Coffee, we managed to improve margins. And as you can see, of total overall in Israel, we grew by almost 6%. Operating income stayed the same because of cocoa prices because of its effect on the business in our confectionery business, which is starting to improve rapidly Q4 and also looking into 2026. And therefore, operating profit kind of remained the same with a very positive outlook into 2026. This is a little bit to show you a little bit of our innovation. In innovation, we have diversified innovation, stretching our brands from one category to another. You can see the milky brand here that -- [indiscernible] which is another yogurt was stretched into that brand. Also in Alpro, we stretch our confectionery brands into Alpro. You can see that we are going very much into the -- also improving innovation into the functional segments of Pro yogurts with proteins, drinks with proteins, and our Pro brand is being expanded. We can also see the disruptive innovation that was done in this year with the first time carb-free drinks, which is alternative -- which is imitation of the protein that comes from a cow that is produced through fragmentation with yeast or mushrooms, and therefore, we can produce milk that is just not being produced from cow and the same with cheese. We launched this in Israel, and we see already sales that are starting to grow. And with our new opening of our new plant in Israel as well, there was a lot of innovation and a lot of investment in new engines of growth that we've put in place. Next. When we look at our Coffee international activities, so this year for Strauss, it was the coffee year. We see substantial improvements in our business -- in our International Coffee business, mainly through prices increase that was done. You can see revenues increased and eroded by 30 -- almost 31% while operating income more than doubled itself on the coffee -- on the total coffee business. We can see here, Três Corações, our Brazilian business with tripling its revenues. Here, it's a very important to say. We saw a very unique and very good results in Q4 for our Brazilian business. We don't think we'll be able to maintain the same margins going forward, but of 12% or 11%, but we do believe we have a new platform in Brazil. And instead of the 3% or 4% margin that we used to have, we think we can be around the 8%, 9% margins going forward for this year. So -- we did maintain a new platform. It's not going to be as high as Q4, but it is going to be very strong operations in Brazil in the R&G. In addition, in the non-R&G, we are continuing to expand our activity in the non-R&G as part of our strategy to hedge -- to naturally hedge the green coffee volatility prices with the coffee activity with the non-R&G activity in Brazil. And one of the steps that we took, which is in line with the strategy was the Yoki acquisition, which I'll say a few words later on. When we look at our Water business, so we increased our installed base and revenue grew due to that, although there was a war, and we see also the impact this year that our growth is lower than what we are planning because of the war. But in parallel to that, we managed to maintain the profits, the operating profit of ILS 115 million each year. Israel grew its profit. But in China, as mentioned in the last quarters, Xiaomi gave a very hard competition and therefore, we went on to a tech mode in which we gave a lot of discounts, and we have reduced price in many cases and also put new platforms into the market. This has cut off our total profits from China. And therefore, the total result remained the same. The good news is that we already see in Q4 that we managed to come back to being a very strong #2 player in market share. We gained market share back in China. We managed to sell in a double-digit growth in the last quarter. We also managed to become #1 in the off-line sale and #2 in the online sale, altogether, #2 in the market, pushing Xiaomi back. We do think this stomach will continue with us into the next few quarters until we'll be able to get profits back on a high level in China. But overall, when it comes to revenue and growth and market share position, we managed to get that back. Next. When we look at our productivity, so we are in line with our productivity active -- targets that we set for this year. We will reach, we believe, within the target and even exceed the target between the ILS 300 million and ILS 400 million. This helps us a lot to achieve our results, to improve operational profit and to improve profitability. There's a lot of streams that are working. I'm not going to repeat all the streams that we talked in the last calls, but there's procurement, there's logistics supply chain in each one of them, there's marketing, RGM. In all of them, we are working very hard. And we are building capabilities, which will help us for the next upcoming years to even to continue to enhance, deepen and improve productivity. A word on strategy. If you look at the strategy that we mentioned in 2024 until the end of 2026, so we kind of ticked the box on all the targets and missions that we set in the strategy. We talked a lot about a strong home base in Israel with optimizing the portfolio in Israel, with double down on the core, with growing more than 5% in the segments that we decided to stay. We reduced SKUs from 1,300 to 780 in Israel while maintaining a higher CAGR than 5%. We've managed to improve margins. With the turnaround, we are expected to do in the confectionery business this year. We believe that the Israeli business will be fully on track with the strategy that we set. We're doing a lot of innovation activity. We built two engines of growth in Israel with the milk drinks and protein drinks and protein by itself. And on the other hand, the new factory that we build with alternative milks and the new factory that we built in the north that will be -- that will enable us to give all our brands in alternative milk version as well. So this is regarding Israel. Regarding the engine growth of Brazil, we said that we need to maintain and to improve -- maintain our position as first in market share, but also to improve our R&G profitability and total profit. And we've managed to do that. We've managed to have done that. If you look at the last 3 quarters, you can see that in quarter 2, quarter 3 and quarter 4, the results in Brazil have improved substantially. We are not going to be able to maintain the same margins as we saw in margin in quarter 4, but the margins will stay high. There's new platform of profitability for the R&G and this is also a tick on what we said in the strategy. On the other hand, the non-R&G is growing also more than 5% each year in the non-R&G activity in Brazil. We also managed M&A activities that we will do in the strategy and also that we can take with the acquisition of Yoki. So overall, we hedged -- we are hedging our activity with the R&G to be less exposed to the volatility of green prices on the one hand. But on the other hand, to continue to push for healthy growth, in the aim of becoming one of the largest dry food companies in Brazil. When we talk about our international water player, as an international water player, we talked a lot about multi-products in the water business. We launched 5 new products from affordable products to premium products, to under the same products to functional products such as the Shabbat and the soda products. Some of those products will be launched also outside Israel. We've managed to turn around our U.K. business in our water business as well. In China, we are opening now the second plant this year, which will enable us to push more on productivity, to reduce cost, to strengthen profitability, but also push growth. And all this is based also on the pillar of future ready and resiliency with performance improvement, which is all the productivity work that we have done and the resiliency that we built in the culture and the health of the organization through upskilling, reskilling leadership models and a lot of activities that we are doing in the streams of our health -- the health of our organization. One word, which is very important for me to say about the Yoki business. There was some eye lifted when we acquired Yoki with effect of why General Mills sold it and why do we buy it and the business is losing money. So I just want to make some sense out of this all. General Mills sold the activity for two major reasons. They have published this in their notification when they sold, so I feel free to mention this. One is their focus on global brands. They want to enhance their exposure to global brands and to focus very much on the global brands and not on local brands. And the other is their scale and their infrastructure in Brazil, which wasn't big enough to support profitability in Brazil. On the other hand, this is exactly in line with our strategy because our strategy is to support loved local brands. We will never have -- I wouldn't say never, but our strategy does not aim or focus on global brands. On the contrary, it focuses only on how do we take local loved brands and leverage those in order to make sure that we build strong brands. We know how to bring innovation and synergies into those loved local brands. If you look at our journey in Brazil, what we've done in our local loved coffee brands, which were #3 and #4 in the market and JD, which is a global brand was #1. We managed to exceed and to become the #1 player in coffee with loved local brands. With Yoki, it's the same thing. We are taking now under our wings very large local brands, very nonlocal brands. And what we have are very high synergies. When it comes to distribution, when it comes to logistics, we are reaching in Brazil more than 400,000 points where Yoki before through third party reached only 100,000 points. When we talk about scale and infrastructure because of our coffee business in Brazil and because of our already existing infrastructures in Brazil, we have much larger scale to support Yoki -- and very high synergies to support Yoki. And therefore, when we look at all the synergies, logistic synergies, distribution synergies and also G&A strategies -- SG&A synergies by combining and merging headquarters and management positions, we believe that within 18, 24 months, we will be able to turn around the business to make it profitable. And I think if our plans will work, we might be able even to do that sooner than that. And therefore, buying this company for 0.4 multiplier on revenues with the synergies that we have. And with our abilities and infrastructure that we have in Brazil, we believe that we'll be able to do a turnaround, and we believe that it's a very, very good fit to our existing business and very much in line with our strategy to become a larger food and dry -- dry food, sorry, a company in Brazil on the one hand. On the other hand, to continue to grow our non-R&G activity to hedge the vulnerable -- the volatility and the vulnerable that we have, the vulnerability that we have because of green coffee prices. And that was the rationale of the deal. And I must say that we are very confident about that, especially after building the new platform that we have now in the R&G in Brazil. And just to conclude before the last slide, looking to now, I talked about the qualitative targets of our strategy. I just want to remind us all the long-term financial targets that we set ourselves in the strategy. So we talked about a 5% CAGR. We are in line with that. We will actually exceed that by the end of 2026. We talked about margin expansion between 10% to 12%. If you look at Q4 of 2025, we are already at 9.6% margins. We don't know yet how 2026 will finish. There's a lot of unknowns regarding cost of goods and what will happen and how will that affect. But I think that we are in line right now to reach the target that we set on the lower part of it. So we feel confident also with that target so far. When we talk about productivity, as I mentioned before here, we are in line and even exceeding the target. When we talk about investments, we are investing a lot in digitalization, in improving our infrastructure, in opening capacity constraints in Israel mainly, but not only, we have reached capacity constraints where demand is much higher than what we are supplying to the market. So we are investing to put more lines to open those bottlenecks and to make sure that we can meet demand. And last but not least, focusing on the core. We said that 85% from 65%, 67%. 85% of our activity will be core. Core means growing 5% or more sustainable, having margins between 8% to 10% sustainable and being the #1 or #2 in the market. And in all of those criteria, I think that when we check all those criteria, 85%, as we've mentioned, of our activity will be by the end of 2026 core activity with the turnaround of our confectionery business. Already today, more than 80% is under the core. So overall, we think that we are accomplishing the targets of our strategy. And here, it's very important to note. These days, we are already working on the new phase of our strategy for years '27 to 2030. We will publish the new strategy out by H2, the second half of 2026. The focus will be on continuous healthy growth and expanding the business while we will leverage loved local brands in geographies in which we play and also in new geographies in which we want to enter. We will push hard on productivity, and we will enhance the build and the growth of our core activities as well. And all that will be out by H2, while we'll finish working on the new strategy. And we'll put the new strategy out to the market with the new guidelines of where we think -- what we think we can achieve and where the strategy will take us by H2. So stay tuned. And the last thing that I want to mention is our work in ESG. This is highly important for us. We continue working on improving our products by reducing sugar, by reducing nitrogen, by making sure that our products, the quality of our products are healthier. And also by increasing the portfolio of healthy products within our portfolio. So we go into proteins. We are enlarging. We are growing our dairy business. We are growing as we invested in alternative milks, in parallel, to make our portfolio more nutritious and more healthier. We are working on sustainable supply chain with working with our suppliers that they meet demands. Of course, our water business and extending our water business helps us a lot with reducing plastic bottles and helping the earth. We are investing a lot of time on people and communities, especially now during the war in Israel, but also in the war in Ukraine and Russia, helping the communities and helping our people and we're investing a lot of that. And of course, governance. There's been jumps ahead in governance in the company where we have our own risk assessment team that was embedded already 1.5 years ago in Strauss and we upgraded our ability in risk of risk analysis. And on the other hand, internal control and auditing -- internal auditing actually was built through a local team, inside team inside the company from external adviser. So those front line, second line and third line of defense are being built within the company. And therefore, you can see, I think the rating that we have through the different rating companies on ESG is very high, and we take it very, very seriously. So with that, thank you, and -- we'll move it to Tobi for the financial results. Tobi Fischbein: Thank you, Shai. On Slide 15, we have a Q4 net sales, which totaled ILS 3.2 billion, up 10.2% year-on-year. Growth was broad-based across all businesses with strong contribution from our Coffee International segment, offset by currency impact from stronger Israeli shekel vis-a-vis local currencies in most of our foreign activities. On Slide 16, full year 2025 net sales reached ILS 12.5 billion, up 11.6% year-on-year. All core segments contributed to this performance. Strauss Israel delivered solid mid-single-digit growth despite the impact of divested activities. Coffee International sales grew 30% in shekel terms to record high sales. And Strauss Water achieved steady growth, driven by a larger installed base in Israel and in the U.K. On Slide 17, Q4 2025 group EBIT was ILS 282 million, up 62.3% year-on-year with 8.9% EBIT margin, up from 6.1% in Q4 of 2024. For the full year, group EBIT grew 35.6% to a record ILS 1.02 billion with an 8.2% EBIT margin. The strong growth and profitability improvement was driven largely by our Coffee International business and productivity gains across the group. On Slide 18. In Q4 2025, Strauss Israel's EBIT was ILS 136 million, up 13.6% year-on-year. Coffee International's EBIT increased by 270% to ILS 173 million. And Strauss Water's EBIT remained flat at ILS 40 million. For the full year 2025, Strauss Israel EBIT totaled ILS 530 million, up 0.4%. Coffee International more than doubled its EBIT to ILS 493 million, and Strauss Water contributed ILS 115 million, flat year-on-year. On Slide 19, we see the net income. In Q4, the net income attributable to shareholders more than doubled to ILS 151 million, reflecting strong EBIT growth. Full year net income reached ILS 450 million, a 7.6% increase over 2024, driven by EBIT improvement while impacted by higher finance expenses, mainly due to a stronger shekel and higher interest expenses in Brazil as well as higher tax expenses due to the profit mix and release of provisions in 2024. On Slide 20, we see the cash generation improved significantly. In Q4 2025, we generated free cash flow of ILS 554 million, an increase of ILS 110 million year-on-year. For the full year, free cash flow turned positive at ILS 215 million versus negative ILS 51 million in 2023. These gains were driven by higher business profitability and lower CapEx. Slide 21. We ended 2025 with net debt of ILS 2.2 billion, slightly higher than a year ago, while our net debt-to-EBITDA ratio improved to 1.6x at year-end compared to 1.7x a year ago, underscoring our strong financial position and moderate leverage. On Slide 22, we see Strauss Israel's sales performance. On Slide 23, Strauss Israel Q4 2025 sales were ILS 1.34 billion, a 4.4% increase year-on-year. Growth was driven by Health & Wellness higher volumes and improved mix as well as our Snacks and Confectionery segment while Coffee Israel had pricing actions, mitigating green coffee cost inflation and slightly lower volumes following the Coffee-To-Go divestiture. On Slide 24, we see Strauss Israel full year sales. And we see them reached ILS 5.46 billion, up 5.6% versus 2024. Health & Wellness segment sales grew 2.7% through increased volumes and better product mix, offset by the divestiture of the Ultra Fresh business. Snacks and Confectionery saw double-digit growth, driven by pricing, volume and mix. Coffee Israel delivered high single-digit growth following pricing actions and volume growth, offset by the exit of the Coffee-To-Go chain. On Slide 25, Strauss Israel Q4 2025 EBIT increase and margin improvement were driven by improved profitability in Coffee Israel and in Snacks and Confectionery. While in the full year 2025, profitability gains in Health & Wellness and in Coffee Israel, combined with successful productivity initiatives helped offset much higher raw material costs used in the confectionery business, resulting in stable overall yearly EBIT. On Slide 26, we turn to Coffee International, our global coffee business, which delivered exceptional growth in 2025. Coffee International highlights on Slide 27. We see a record performance in our International Coffee segment. Q4 of 2025 net sales were ILS 1.6 billion, up 24% year-on-year. Q4 EBIT jumped to ILS 173 million, a 270% surge versus Q4 of 2024, expanding the EBIT margin to 10.9% from 3.6% a year ago. For the full year, Coffee International sales reached ILS 6.2 billion, up 31% and EBIT more than doubled to ILS 493 million for an 8% EBIT margin. On Slide 28, we see our Brazil joint venture, Três Corações has achieved strong double-digit growth in Q4 driven by pricing actions to offset green coffee cost inflation and continued expansion into non-R&G categories, offsetting slightly -- offset slightly by a weaker Brazilian real. In Central and Eastern Europe, we saw volume increases and successful pricing adjustments led by focused sales execution, gaining market share across all our key markets, Poland, Romania, Ukraine and Russia. These factors led to an overall 24% sales growth in Coffee International for Q4 of 2025. On Slide 29, we see the full year Coffee International net sales grew 30.8% in shekel terms and over 45% in local currency in Brazil. Três Corações had a record year in Brazil. The CEE region also delivered robust performance in 2025 with effective price management and volume growth across the region. Slide 30, for the Três Corações, our Brazilian JV results. We saw Três Corações has posted outstanding results with Q4 of 2025 net sales at BRL 3.59 billion, up 23.9% year-on-year and EBIT of BRL 464 million, up 364% with Q4 EBIT margin of 12.9% versus 3.5% in Q4 of 2024. For the full year 2025, Três Corações achieved BRL 14.1 billion in sales and BRL 1.26 billion in EBIT, an increase of 226% year-on-year, bringing annual EBIT margin to 8.9%. These records were driven by excellent sales execution and pricing management to mitigate green coffee cost inflations, continued growth in non-R&G products and operational efficiencies. Moving to Slide 31, to discuss our Strauss Water segment, actually on Slide 32. Strauss Water delivered steady growth in 2025. Q4 2025 sales were ILS 237 million, up 7.4% year-on-year, driven by a larger installed base in Israel and in the U.K. and also by an improved product mix. Q4 EBIT was flat at ILS 40 million. For the full year 2025, sales reached ILS 895 million, a 5.5% increase and full year EBIT reached ILS 115 million, unchanged from 2024. Solid growth in Israel and in the U.K. was offset by softer results in our China water JV with higher due to increased competition. On Slide 33, we see higher Strauss Water performance where we saw high single-digit top line growth in local Chinese currency. Q4 of 2024 sales at HSW were CNY 543 million, up 7.5% year-on-year. However, net income for the quarter declined 48% to CNY 42 million as we invested heavily in marketing amid intensified competition, but we are able to maintain market leadership position. For the full year 2025, HSW's revenue grew 8.7%, while net income totaled CNY 179 million, down 25% from 2024, reflecting higher costs to successfully protect our market position in China. Let's move back to Avshalom for the Q&A session, please. Avshalom Shimi: Thank you very much, Tobi. We will now move on to the questions you have sent. So we have the first question coming in, and I will read it out. Has the current conflict created any new near-term challenges or impediments to operations? Shai Babad: So not in a substantial way. There are -- we have to still continue to monitor that. We have two missions in this period of war. One, we put two main focuses on target. One is business continuity to make sure that all our factories all around the country in the north and in the south are continued business operations as usual, and we continue to produce. And so far, we've managed to do that. And second, to take care and to make sure that we take care of our people and our frontline workers and everyone in the company. And in those two missions, we are highly at focus. So far, we managed to pull and to maintain and to provide business continuity to the consumers here in Israel. It all depends on the length of the war. We think that as long as the war is not going to take more than a couple of months, then this will be able to continue. If not, we'll need to examine and reexamine our activity. But so far, there's no real implications of the war. Avshalom Shimi: Thank you, Shai. And we move to the next question. What kind of productivity initiatives remain for this year? Shai Babad: So we continue with -- we have 8 streams of productivity initiatives. One is working capital, other one is logistics, S&OP, manufacturing, revenue management, marketing, ROI, working capital, and I'm missing one, I think, right now. And in all of those streams, there are targets that were set for each year. We're continuing to work on that to improve procurement, which is one of them as well. We're continuing to improve each one of them working with a very detailed and deep plan in each of those streams with stream leaders that are working on that productivity, and that will continue until the end of 2026. While we will issue our new strategy 2027 ahead, we will also put a new plan in how do we deepen enhance our productivity with also AI coming into life and into our industry and also into our company. So with all that will be out when we get into 2027 to 2030 strategy with the new plan to enhance productivity. But so far, we are still in the original plan, and we are on track. Avshalom Shimi: We have -- thank you, Shai. We have another question. Can you elaborate why or how are you confident about the ability to generate synergies and make the turnaround for Yoki? And are there any low-hanging fruits that you can discuss? Shai Babad: So yes, as I mentioned before, the fact that we reached 400,000 points in distribution today in Brazil. And that today in Brazil, we sell around BRL 14 billion already of dry food, mainly coffee, but not only in Brazil. The synergies that we have and the connections that we have with all the retailers. When we talk about logistics and logistics costs in Brazil of warehouses. Here, we see many low-hanging fruits in which while we will embed Yoki activity into our activity, those synergies will come into life. During the due diligence process, which is a very long process, we have actually examined that. And some of the categories in which Yoki are doing now in corn, for instance, we have already today in Três Corações as well. So when we look at their categories in the categories in which we in the cost, logistic costs and distribution costs that they have, in parallel -- in comparison to our logistics costs and distribution costs, we see a lot of potential of synergies there. On the other hand, we also have headquarters and SG&A costs, which we believe that once this will be embedded in one company, there's a lot of headcounts, which we we'll be able to let go. And there's a lot of headquarters and managers that can be actually synergized and combined. And also there, we see a low-hanging fruit. The third is also the potential to grow sales by higher exposure. When we reach 400,000 points and they reach 100,000 points, we have much higher exposure to the market with high connection. And General Mills mentioned it by themselves that their scale of infrastructure today in Brazil is not strong enough or not support enough in order to make the business profitable, which is in contrary, the opposite to what we have in Brazil, through the Três Corações business. If this was just a stand-alone business by itself without all the infrastructure and the logistics and warehouses and the distribution that we have in Brazil, then of course, we wouldn't have had any synergies and any [ hanging ] fruits. The fact that those dry food categories are in line, totally in line with our dry food categories in some cases, are the same categories because we are producing the same products and selling the same products in the market under different brands. And the fact that they have such -- Yoki is such a strong loved brands in Brazil, we see a very, very high match with Três Corações loved known local brands in Brazil. So when we take those loved local brands with our loved local brands, and we add to that our synergies of logistics, distribution and our ability through the exposure to exceed sales and also the merge of headquarters and reduce of headcounts, we see many hanging fruits that through a very thorough and deep work that will be done by the management of Três Corações. We believe that within 18 to 24 months, we'll be able to do the full turnaround, and we actually believe that we might be able to do it even before. We also have experience in that. This is not the first M&A that we are doing in Brazil, the family and the Três Corações and the [ Limor ] Brothers family are managing the company in Brazil have done. There have been businesses within the coffee and not only coffee that we've bought along the years, and all of them were very successful because they're all built on the same synergies. So we also experienced on how do you take and merge loved local brands from Brazil that were not in our portfolio and to embed them in our portfolio, whether it's in coffee or whether it's in other categories. So to your question, we feel very confident that we'll be able to do the turnaround. We've done a very thorough due diligence, checking those synergies. And we -- the proof is up to us. We have to actually show and perform to see that what we say, this is what will happen. And luckily for all of us, we'll meet here again in 18 to 24 months, and we'll see the results. But we are very confident, as I mentioned. Avshalom Shimi: Thank you for that, Shai. And I see we don't have any further questions. So I will now return the call to Shai for closing remarks. Shai Babad: So as you can see from the results -- thank you, Avshalom. As you can see from the results, we had a very successful year with a double-digit growth in revenues with improved financial parameters all through our P&L with much higher operational profit with higher margin and also in the last quarter also, our net profit already improved. We are entering 2026 with a very good back wind. And we hope that the trends that you've seen in the last quarter of 2025, and in '25 will continue in 2026. In Brazil, it will not be to that extent, but it will be a new platform. We are looking into the turnaround of our confectionery business in 2026, which will also help us improve our results. And we are looking to see how the engines of growth that we put in place such as the new line in [indiscernible] milk drinks or such as the new line -- such as the new factory in the north of alternative milks in Campus Michael, those will actually will help us and to contribute to continued growth and to continue improving our results. And with Brazil, we are looking into doing a successful implementation of our Yoki business. And more than all, we are also looking into -- and these days, we're working very hard on our new strategy for 2027 to 2030, to show how we're going to continue and to set a path of how we're going to continue this healthy growth and continue to expand the company, mainly in the global arena and less in Israel. And how do we leverage our power, our infrastructure, our innovation capabilities into loved local brands in those different geographies and continue our path of growth. Last but not least, those are very difficult times in Israel. So I just wish for everyone to be safe. I wish that our soldiers will come back home safely and that the war will be over as soon as possible that everybody can go back to normal days. Until then, we will be continuing to working very hard to make sure that we, on the one hand, provide business continuity. And on the other hand, take care of our people, and take over our people in the front line that are working on those factories that are under the attack. And I just wish all of us quiet and happy days. And for the coming Easter and coming Passover, anyone is celebrating. So also happy Passover and Happy Easter to all of us. And we hope to see you here soon in our first quarter and to continue to show you the positive trends that we've been showing in the last quarters. Thank you. Avshalom Shimi: Thank you, Shai. And thank you, guys, for joining Strauss Group's Fourth Quarter and Full Year 2025 Results Earnings Call. And this concludes our call for today. Thank you.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology Fourth Quarter and Full Year 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for management's prepared remarks. [Operator Instructions] I will now turn the call over to Mr. Matthew Zhao, VP of Capital Markets and IR at Kuaishou Technology. Huaxia Zhao: Thank you, operator. Good evening to everyone. Welcome to Kuaishou Technology Fourth Quarter and Full Year 2025 Financial Results Conference Call. Joining us today are Mr. Chen Yixiao, Cofounder, Chairman and CEO; Mr. Jin Bing, Chief Financial Officer. Before we start, please note that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information, except as required by law. For all important information about this call, including forward-looking statements, please refer to the company's public information or the fourth quarter and full year 2025 results announcement ended December 31, 2025 issued earlier today. During today's call, management will also discuss certain non-IFRS financial measures. These are provided for additional information and should not replace IFRS-based financial results. For a definition of the non-IFRS financial measures, a reconciliation of IFRS to non-IFRS financial results and related risk factors, please refer to our fourth quarter and full year 2025 results announcement. For today's call, management will use Chinese as the main language, a third-party interpreter will provide simultaneous English interpretation in the prepared remarks session and a consecutive interpretation during the Q&A session. Please note that English interpretation is for the convenience purposes only. In case of any discrepancy, management's standards in the original language will prevail. Lastly, unless otherwise stated, all currency mentions are in RMB. I will now hand the call over to Yixiao. Yixiao Cheng: [Interpreted] Hello, everyone. Welcome to Kuaishou's Fourth Quarter and Full Year 2025 Earnings Conference Call. Over the past year, guided by our tech-driven user-centric philosophy, we accelerated the execution of our AI strategy across all major business areas, our Kling AI, multimodal large video generation models maintain a global leading position, and we continue to leverage our advanced capabilities to empower Kuaishou content and commercial systems. These efforts supported a high-quality growth across the user scale, revenue expansion and profitability. In Q4 2025, average DAUs on the Kuaishou app reached 408 million, representing solid year-over growth. Total revenues for Q4 2025 increased by 11.8% year-over-year to RMB 39.6 billion. Revenue from our core commercial business, including online marketing services and other services, primarily e-commerce increased by 17.1% year-over-year. Adjusted net profit increased by 16.2% year-over-year to RMB 5.5 billion. For the full year 2025, average DAUs in Kuaishou app reached 410 million, and total revenues increased by 12.5% year-over-year to RMB 142.8 billion. Adjusted net profit for the full year increased by 16.5% year-over-year to RMB 20.6 billion, with an adjusted net margin of 14.5%. As we scale AI investments, we continue to deliver steady improvements in the group's overall profitability. Our AI capabilities have become a core engine driving Kuaishou's long-term growth. Meanwhile, as disclosed in the results announcement given the company's business performance, the Board has recommended the payment of a final dividend of HKD 0.69 per share for the year ended December 31, 2025, amounting to approximately HKD 3 billion in total. This reflects our confidence in company's long-term growth prospects and solid financial position as well as our unwavering commitment to enhancing shareholders' value ensuring the benefits of the company's strong cash flow generation. We are sincerely grateful for our investors to continue to support quite a steady growth. It would not have been possible without the trust and support of our shareholders. Looking ahead, by staying closely aligned with the business development and market conditions, we'll flexibly evaluate and continue advancing diversified shareholder returns, including share repurchases and dividend distributions to deliver the fruits of our growth to all our shareholders. Next, I will walk through the details and progress of our major business segment in Q4 2025. First, our AI strategy and the progress of our large video generation model, Kling AI. Kling AI remained committed to its core vision of empowering everyone to craft competing stories with AI aiming to become the premier inclusive, efficient video regeneration infrastructure for the AI era, while driving continuous breakthroughs in model capability, product experience and monetization. In Q4 2025, Kling AI accelerated rollout of multiple model upgrades across several iterations. We launched the Kling01, the world's first unified and multimodal video model developed on the multimodal visual language architecture, Kling01 transcends traditional [indiscernible] video generation models by integrating multimodal text video image and subject increasing a single generative managing engine. Kling01's unified architecture enables end-to-end content creation within 1 model system, allowing users to envision systematically from generation to editing and refinement without switching tools. We also released the Kling Video 2.6 model, which incorporates simultaneous audio visual generation capabilities. The model can generate a complete video containing natural voiceover, sound effects and ambient audio in single process, enhancing creative efficiency across the AI video creation flow. Kling Video 2.6 also introduced a motion control feature that enables users to replicate a specific movement from uploaded videos or from the online motion library. By pairing this with the character reference image, users can generate character specific videos with the frame level precision in both body movements and facial expressions. In February 2026, we launched the Kling AI 3.0 model series developed under on all-in-one product framework, Kling 3.0, supports full multimodal input and output, spanning text images, audio and video, integrating video understanding, generation and editing within a single streamlined AI workflow. This modes unifying multiple tasks within a native multimodal architecture, enable more complex narrative logic, automated story boarding and precise shot control while maintaining strong prompt adherence. Kling AI's innovations in foundational models and product features have paved the way for what is spread commercial applications across professional creative sectors, including marketing, e-commerce, film and television, short plays, animation and gaming. These capabilities have supported a stronger adoption among professional creators and enterprise clients globally, earning the model's widespread acclaim and accelerating their monetization. In Q4 '25, Kling AI achieved revenue of RMB 314 million. Notably in December 2025, Kling AI's monthly revenue exceeded USD 20 million, corresponding to an ARR of USD 214 million. At the same time, Kling AI's motion control feature gained significant traction across major global social media platforms, driving widespread discussion and organic distribution. This momentum brought in Kling AI's reach beyond professional creators to a broader mainstream user base. In Q4, '25, we continue to deepen the impact of large AI models to empower our content and our commercial ecosystems while driving further quality and efficiency improvements or organizational infrastructure. In terms of strengthening the foundation of our content ecosystem, our proprietary multimodal large language model, Kwai Keye-671 billion model has demonstrated strong video comprehension capabilities. Meanwhile, we upgraded our short video and live streaming content understanding in the system and launched a TechNext, our next-generation teching system, which enables more accurate content understanding, driving higher app usage time per user and the retention rate. In content recommendation, we iterated our end-to-end generator recommendation large model with the launch of OneRec-V2, continuously enhancing the precision of the recommendations. For online marketing services, we further optimized our end-to-end generative recommendation technology by deeply integrating multidimensional business data, we enhanced model performance and improved the precision of online marketing material recommendations. For intelligent bidding technology, we developed a unified bidding large model built on multi-scenario and multi-objective data. Together, our generated recommendation large models and intelligent bidding models drove roughly 5% of growth in Domestic Online marketing services revenue in Q4 '25. While reducing the cost of generating online marketing materials, AIGC technology also unlocked additional budgets from our online marketing clients. In Q4, the total spending from online marketing services driven by AIGC marketing materials was nearly RMB 4 billion. For e-commerce business scenarios, during Q4, we further iterated our end-to-end generative retrieval architecture OneSearch. We introduced editable structured Semantic identifier tailored to the e-commerce business, enhancing sematic understanding for mid- to long-tail search query. This drove a nearly 3% increase in search order volume in shopping mall in Q4. In addition, we expanded the application of end-to-end regenerative recommendation technology from pan-shelf-based e-commerce to content driven scenarios such as livestreaming rooms and short videos, propelling GMV growth in all e-commerce scenarios. For live streaming business scenarios, we further refined the AI Universe gift customization feature to deliver better interactivity, reach our dynamic presentation, more refined visual aesthetics, significantly increasing users' willingness to send virtual gifts. To drive the organization efficiency, we have completed the upgrade of our intelligent coding tools, our self-developed AI programming tool CodeFlicker has evolved from a coding assistant to an AI engineer with more engineers adopting the agent-based coding model and the generation rate of new code has roughly risen over -- to over 40%. Moreover, our AI advancements are underpinned by our investments, and we're going to optimization in computing power infrastructure. Building on the success of our self-operated in-house self-built data center, we are steadily advancing the construction of our new computing power center to continuously elevate server and bandwidth operating efficiency. Second, user growth and content ecosystem. In Q4 '25, average DAUs on the Kuaishou app reached 408 million, and MAUs reached 741 million with average daily times spent per DAU on the Kuaishou app was 126 minutes. We're committed to building a vibrant community with the distinctive quality Kuaishou characteristics, continuously strengthening high-quality user growth, differentiated premium content supply, traffic mechanism optimization and interactive scenario development to achieve a healthy, sustainable expansion in both the user scale and traffic to drive the high-quality user growth that we refine user acquisition strategies across channels to continue to optimize the user segments and improve the retention rates. We also leveraged AI technology to enhance push strategies, including resulting in a higher open rate for Kuaishou app. In addition, we introduced innovative user engagement retention initiatives that are consistently improved ROI. Harnessing our established capabilities and content operations, we supported the growth of benchmark creators like Xinyu the Ostrich Lady and continue to create and cultivate high quality top-tier content IPs with the distinctive Kuaishou characteristics, rural culture and entertainment activities, exemplified by the Village Gateway Mini Stage in able to call rural residents to transition from passive viewers to active on-stage participants, featuring diverse content ranging from intangible cultural heritage performances to agricultural technology demonstrations. These initiatives enriched the rural culture life and provided a new channel fo showcasing rural culture. We produced the 6th anniversary concert for Teens in Times, which garnered over 680 million live streaming views. Leveraging live streaming, interactive features and AI-powered creative content, we crafted a shared youthful memory that fosters a mutual bond between the fans and idols. We optimized our traffic mix of increased traffic exposure for top-tier original content, fostering a virtual cycle between content creation and consumption. In Q4, the number of high-quality content uploads increased more than 15% year-over-year. To further develop engagement scenarios, we continued to innovate private messaging engagement features, driving year-over-year increase of nearly 3 percentage points in daily average penetration rate of private messages among users with mutual followers during the quarter. Third, online marketing services. In Q4, revenues from online marketing services to reach RMB 23.6 billion, up 14.5% year-over-year. The accelerated integration and innovative application AI across diverse online marketing service scenarios, not only empowered our ecosystem partners, but also injected a new growth momentum into our online marketing services business. In Q4 '25 within lifestyle service sector, where clients primarily operate under lead-based model, we have the clients to reach users more efficiently and achieve the higher user conversion rates by upgrading our private messaging products and optimizing our algorithms at the same time by continuously expanding into more industries and acquiring new clients. We broadened our online marketing client base and generated incremental marketing placements. In addition, as the lifestyle service actor clients are predominantly small and medium-sized business, we leveraged AIGC tools to enhance their ability to produce market materials. These enhancements for the barriers for marketing placement and drove further growth in online marketing spending. In Q4, content consumption sector, led by short plays, comic-style short plays, mini games along with the application sector were the key growth revenue driver for the non-e-commerce online marketing services. In the content consumption sector, short plays continue to sustain solid growth by optimizing marketing materials exposure format. So we increased the marketing spending in short play vertical meanwhile, empowered by the deep integration of AI technologies. Comic style short plays advanced rapidly through continuously comprehensive supporting programs and rolling out the comic style short play AI agent, we further expanded high-quality and diverse content supply to capture emerging growth opportunities in the sector. Moreover, rising market budgets from clients across the AI application vertical, we leveraged our insights into industry placement pace and market trends to consistently optimize resource allocation and commercial efficiency, effectively channeling and capturing marketing placement and spending from AI application clients. In Q4, for online marketing products, we continued to upgrade offerings including our UAX placement solutions, the AIGC marketing material solutions, live streaming digital human solutions and digital employee solutions. These enhancements helped to lower various marketing placements, improved client placement experience and drive further growth in online marketing spending. Specifically during the quarter, UAX developed a periodic delivery and account level smart replacement product. These upgrades enable clients to extend managed campaign cycles and alert system management from the app unit level to account levels, thereby improving overall delivery efficiency, raising the selling floor campaign scale and providing more stable cost performance for our clients. In Q4, penetration rate of our UAX placement solutions accounted for nearly 80% of the non-e-commerce marketing spending and its penetration rate among active users exceeded at 90%. For e-commerce marketing services following our consolidation of e-commerce business and related online marketing team made September last year to advance traffic synergy, we established our closed-loop capabilities and pricing traffic, transaction, online marketing conversion and merchant services. This was designed to align our platform's overall revenue growth with merchant mix refinement, enabling e-commerce merchant in GPM and CPM for marketing services to improve in tandem in Q4. In first half of 2025, we essentially completed capability refinement of our omni platform marketing solution. In the second half, we focused on addressing differentiated scenario needs across diverse customer segments, effectively increasing incremental GMV generated for e-commerce merchants across omni-domain scenarios and enhancing business stability. In Q4, our omni platform market inclusions accounted for even greater share of our total e-commerce marketing spending, rising further to 75%. Our omni platform product promotion achieved full coverage across products and scenarios, becoming the primary placement offering for our e-commerce marketing services. Our fully managed the auto placement and product combo for small and medium-sized merchants gained broader adoption and recognition, driving a significant increase in spending by these customers. In Q4, by continuously optimizing our pan-shelf-based e-commerce scenarios and strengthening the synergy of omni domain supply and aligned distribution, our e-commerce marketing services revenue pan-shelf-based scenarios increased rapidly year-over-year. Fourth, our e-commerce business. In Q4 '25, our e-commerce GMV grew 12.9% year-over-year to RMB 521.8 billion, building on the systematic omni domain operations category for their integrated pathway between public domain, traffic conversion and private domain asset accumulation, unlocking a new growth engine for merchants and supporting their stable, sustainable operational development across diverse scenarios. During Q4, we continue to empower merchants, strengthen their private domains and operational efficiency, broadening a variety of supply as a result, repeat purchase frequency of active e-commerce merchant users further increased year-over-year. Meanwhile, by enhancing the operations of our key product categories, anymore precisely identifying the needs of our core user bases, we drove continued growth in ARPPU. In Q4 2025, we mobilized the combined strength of service provider agencies and industrial zones to broaden our e-commerce supply, guided by a full life cycle framework. For new merchant development, we deepened our cost reductions and efficiency enhancement, stepped up incubation programs for new merchants, strengthened support for merchants from industrial zones and for the optimized business environment. Collectively, these measures bring force to merchants operational stability, empowered both new merchants in a small and medium-sized merchants to grow and enhance long-term predictability, sustainability of merchant operations during Q4. Both newly onboarding merchants and newly onboarded active merchants growing year-over-year and quarter-over-quarter, driving our active merchant base to another record high, up 7.3% year-over-year. Furthermore, in Q4, we launched the Voyage Initiative focusing on in-depth partnerships with the top tier brands in diverse sectors through a coordinated resource empowerment and initiative aimed at a pioneer new model of mutually reinforcing growth for both the platform and the brand. At the end of December, we began to capture early benefits from our high-quality product and content supply as well as merchant mix optimization. In terms of our live streaming scenario development, the Pop-Up Follower Red Envelopes initiative, which was launched in Q3 to drive targeted follow growth, achieving a meaningful result. By increasing the streaming frequency of streamers with over 10,000 followers, the program drove a 12.7% year-over-year increase in the number of average daily active streamers hosting live sessions with over 10,000 followers, further reinforcing virtuous cycle follower growth and transaction performance in Q4. Through coordinated operations with agencies and leading to organizations, we expanded our KOL supply to further empower KOLs, we advanced our platform endorsed product offerings, which are trusted by both merchants and KOLs building on this foundation, our KOL Blockbuster Initiative focus on high-demand product categories, highlighting our platform's strong order aggregation capabilities and driving greater KOL participation and distribution. The penetration of KOL within our distribution pool continued to improve with a number of active KOLs more than doubling year-over-year, supported by our platform endorsed product offerings, mid-tier to small and medium-sized KOLs were able to overcome product selection challenges and with platform traffic support, they achieved meaningful leaps in operational scale. In Q4, our omni domain operations ecosystem, including pan-shelf-based e-commerce and short videos, continue to demonstrate steady and resilient development. In Q4, the contribution of pan-shelf-based e-commerce GMV to total e-commerce GMV remained broadly stable quarter-over-quarter. We continue to expand our supply scale driving sustaining year-over-year and quarter-over-quarter increases in average daily active merchants for pan-shelf-based e-commerce. Super Links and the official channel for platform recommended products continue to strengthen its role as a core operational tool for shelf-based offerings, which achieved a record growth during the quarter. In Q4, Super Links penetration rate and pan-shelf-based e-commerce product cards reached 19.1%. We also encouraged merchants to expand omni domain operations by leveraging our marketing hosting tools. We guided merchants in content-based scenarios towards shelf-based operations significantly increasing the penetration rate of active merchants using our marketing hosting tools quarter-over-quarter. During Q4, we further advanced our short-video e-commerce content supply, prioritizing refined merchant-centric operations. By continuously leveraging the synergy between short videos and live streaming, we enriched our high-quality content supply and optimized funnel efficiency. These efforts led for a significant growth in short video e-commerce GMV, which continued to outpace overall e-commerce GMV growth. In Q4 '25, we deepened AI integration across e-commerce scenarios delivering tangible efficiency gains for merchants while supporting their growth. The broader rollout of OneRec, OneSearch and other large language model technologies across the e-commerce scenarios continue to generate incremental value. powered by e-commerce knowledge graph and leveraging large models' world knowledge and reasoning capabilities, we strengthened our foundational understanding of products, videos and users. This enabled a more accurate long-term user-interest modeling, improved recommendation diversity and drove higher revisit and repurchase behavior. E-commerce content new generation capabilities have also advanced during the fourth quarter. Features such as live streaming highlights and AI-assisted content creation further strengthened merchants across scenario operating capabilities, propelling step change growth in both content output and GMV. To improve operating efficiency, we launched an AI-powered order analysis feature in Q4, helping merchants identify abnormal orders more effectively, reduce pre-shipment refund rates. Next, regarding our live streaming business. In Q4, live streaming revenue was RMB 9.7 billion. We remain focused on fostering healthy live streaming ecosystem during the quarter, oriented towards high-quality, value-driven content and reinforcing the platform's community-centric core. For live streaming supply, we continue to intensify in professional operations of our core competitive categories, including group live streaming and multi-host live streaming, while strengthening coordinated development across multiple categories. This enriched our live streaming content operations portfolio and drove us to develop improvements on the supply side, better serving users diversified preferences. Our Grand Stage deepened integration between online and offline scenarios supporting the incubation of distinctive streamers on our platform while increasing user engagement. On the product side powered by Kling AI video generation capabilities, our AI universe gives a series with customizable special effects, enhanced interactive feature experience, dynamic motion rendering and visual aesthetics. As of the end of the fourth quarter, the number of cumulative AI Universe gift creations succeeded 1 million. In addition, we expanded the application of the AI capabilities in our live streaming rooms, empowering streamers with AI Interaction Assistant and AI Digital Avatar Solutions to improve streamers' service efficiency. In Q4, our live streaming+ model extended the boundaries of the live streaming ecosystem while also unlocking additional commercial value. Through refined operations, our Ideal Housing and Kwai Hire business deliver both quality improvement and efficient gains. In Q4, the average monthly number of Ideal Housing paying clients increased by over 40% year-over-year. Finally, our overseas business progress. In Q4, we remain firmly committed to our high-value growth strategy, supporting a virtuous business cycle across our overseas business. Despite a complex market dynamics, we achieved a steady growth in overseas business. On the traffic front, while improving customer acquisition efficiency and optimizing our user growth structure, we strengthened the user mind share for the Kuaishou community by expanding the supply of content with a distinctive Kuaishou characteristics, further broadening our core user base. Brazil, our key markets of our overseas development, maintained stable DAUs and time spent per DAU. For online marketing services, we captured the industry opportunity to expand brand presence in Brazil, growing our client base across diverse industries. In addition, we upgraded our products and solutions and actively exploring the new content-driven marketing scenarios, including short videos to improve client performance visibility and unlock new growth momentum supporting our client's long-term development. Our e-commerce business in Brazil achieved a steady year-over-year growth in GMV transaction scale and order volume in Q4, supported by AIGC driven improvement in e-commerce content and quality and operational efficiency and aided by more refiner logistic cost to management, our overseas profitability improved significantly. Looking back over the past year despite multiple challenges, we anchored our core AI-first strategy, leveraging our profound technological expertise, a thriving diverse content ecosystem and continuously enhanced infrastructure and commercial footprint. We collaborated with ecosystem partners to drive systematic growth. Looking ahead, although challenges will intensify, we remain steadfastly guided by our user needs. We're deeply cultivated the building of a one inclusive and a universally accessible digital community, while continuously deepening the seamless integration of AI technologies across our business. This empowers our merchants and marketing clients to effectively elevate their operational productivity. Staying true to our long-term vision, we will deliver a superior user experiences, build broader platform for our partners and create a more sustainable value for our shareholders, collectively unlocking new growth opportunities in the AI era. That concludes my prepared remarks. Next, our CFO, Bing will review the company's financial data for the fourth quarter and full year 2025. Bing Jin: [Interpreted] Thank you, Yixiao, and hello, everyone. Looking back to the past year, we significantly progressed our AI strategy and achieved remarkable results, leveraging our advanced AI capabilities. We strengthened Kuaishou's content and commercial ecosystems, delivering high-quality growth across both our operational and financial metrics. We continue to refine our user growth and retention strategies, resulting in an average DAUs reaching 410 million for the full year. At the same time, we deepened the application of AI large model across multiple business scenarios delivering superior experience for our users, creators and business partners while further improving our operational efficiency. For the full year of 2025, total revenue grew 12.5% year-over-year to RMB 142.8 billion. Adjusted net profit reached RMB 20.6 billion, up 16.5% year-over-year with an adjusted net margin of 14.5%. Importantly, we achieved this growth while continuing to scale our investments in AI, making steady improvements to the group's overall profitability throughout the year. Now let's take a closer look at our Q4 financial performance. Our total revenue grew 11.8% year-over-year to RMB 39.6 billion in Q4. The increase was mainly driven by growth across normal marketing services, e-commerce and Kling AI. Online marketing services revenue increased 14.5% to RMB 23.6 billion in Q4 from RMB 20.6 billion in the same period last year. The growth was primarily driven by AI-powered upgrades to our online marketing product solutions which improved the conversion efficiency and grow higher spend from our marketing clients. Revenue from other services, including e-commerce and Kling AI business reached RMB 6.3 billion in Q4, up 28% from RMB 4.9 billion in the same period last year. The increase was mainly driven by growth in e-commerce GMV, which boosted our e-commerce commission income. And by the continued expansion of our Kling AI business by continuously refining Kling AI's financial models and developing more innovative features, we have expanded this to a range of applications for professional creators and driven new breakthrough in commercialization. In Q4, our live streaming revenue was RMB 9.7 billion. We continue fostering a rich healthy live streaming ecosystem. At the same time, we refined operations across our core categories, providing users with a more diverse high-quality content, leveraging the end powered product innovation. We also drove greater user engagement through high-quality live streaming content. Cost of revenues increased 9.2% year-over-year to RMB 17.7 billion in Q4, accounting for 44.9% of total revenue. The increase was mainly due to higher revenue sharing costs and related taxes in line with our revenue growth. In Q4, our gross profit grew 14.1% year-over-year to RMB 21.8 billion. Gross profit margin was 55.1%, up 1.1 percentage points year-over-year. Turning to expenses in Q4. Selling and marketing expenses were RMB 11.4 billion compared with RMB 11.3 billion in the same period last year. Selling and marketing expenses declined to 28.8% of total revenue, down from 32% in Q4 last year, reflecting the stronger effectiveness of our sales and marketing. R&D expenses increased 20.1% year-over-year to RMB 4.1 billion, accounting for 10.5% of total revenue. Increase was really due to higher employee benefit expenses, including share-based compensation expenses and increased investments in AI. Administrative expenses was -- were RMB 930 million compared with RMB 8.7 million in the same period last year. And administrative expenses accounted for 2.4% of total revenue, largely flat year-over-year. Group level net profit for Q4 was RMB 5.2 billion. Group level adjusted net of profit rose 16.2% year-over-year to RMB 5.5 billion with an adjusted net margin of 13.8%. Our balance sheet remains robust. Cash and cash equivalent, time deposit financial assets and restricted cash totaled RMB 104.9 billion as of December 31, 2025. Net cash generated from operating activities in Q4 was RMB 7.3 billion. Additionally, we actively delivered on our commitment to shareholder returns based on the market conditions. As of December 31, we had repurchased approximately HKD 3.12 billion or around 56.78 million shares, representing about 1.32 percent of our total shares outstanding for 20. Next, I'll provide a quick overview of our financial performance for the full year. For the full year of 2025, our group's total revenue reached RMB 142.8 billion, up 12.5% year-over-year. This includes online marketing services revenue of RMB 81.5 billion, which rose 12.5% year-over-year. Revenue from our online -- our live streaming business increased by 5.5% year-over-year to RMB 39.1 billion. Revenue from other services, including our e-commerce business, totaled RMB 22.2 billion, an increase of 27.6% year-over-year. Gross profit margin expanded by 0.4 percentage points year-over-year to 55% in 2025. Our adjusted net profit for the full year of 2025 was RMB 20.6 billion, up 16.5% year-over-year with an adjusted net margin of 14.5%. Looking ahead, we will continue to prioritize the user needs and we remain committed to investing in AI, leveraging our leading AI capabilities. We will drive further innovation across Kuaishou's content and commercial ecosystems, maintaining our core competitive edge in the rapidly evolving market and delivering high-quality and sustainable long-term growth for the company. Here concludes our prepared remarks. Now we can open for Q&A. Operator: [Interpreted] [Operator Instructions] The first question comes from Lincoln Kong from Goldman Sachs. Lincoln Kong: [Foreign Language] Congrats on the solid fourth quarter results. My question is about Kling AI. So we have seen an accelerating pace for various video generation models across the industry, including CDAS 2.0 launching recently. So what's the impact for the overall industry and to Kling itself. And therefore 2026, what are the strategy or the plans for Kling in terms of our model capability, product upgrade as well as monetization? Unknown Executive: [Interpreted] Thank you for the question. As we mentioned before, large video generation models are highly complex, both the input and output modalities are open-ended, which allows for considerable flexibility in technical pathways and product strategies, leaving significant room for innovation. At this stage, we believe video generation technologies and products are so far from maturity, but especially from diverse players in the ecosystem can help exonerate industry advancement and better meet user needs. Recent accelerated updates to large video generation models, including CDAS 2.0 and others have brought positive momentum to the industry. While lowering the threshold for everyday users to create content, they also have increased the penetration of AI video generation across a wider range of applications scenarios, effectively expanding the overall market. CDAS 2.0 adopts the multimodal input architecture, which aligns with the Kling01 model we released in December last year, underscoring our revisionary early positioning in multiple iterations centered on multimodal capabilities. Kling AI continues to maintain globally leading position in both model and product capabilities. Kling AI was ranked among the top video generation models by artificial analysis.ai with exceptional benchmark scores. Regarding character consistency and controllability, fiscal realism and stability in complex scenarios, including AI 3.0 model series demonstrate stronger performance reinforcing Kling AI's differentiated advantages among professional creators and enterprise clients. Kling AI played a key role in the production of virtual singing and visual effects in the recent hit drama supports into cloud shares produced by film and TV. It delivered high quality and commercial-grade content while significantly reducing production costs. The partnership is a primary example of Kling AI's commercial value in top-tier film and television production. It validates our focus on film and television production scenarios, as the live strategic direction. In terms of revenue, Kling AI maintained a strong month-over-month growth throughout the year, reaching an annualized revenue run rate or ARR of over USD 300 million in January. Based on what we are seeing now, we are confident that Kling AI's revenue in 2026 will more than double. Regarding Kling AI's model iteration over the past year, we have consistently evolved in the unified native multimodal path. When we launched the Kling AI 2.0, we introduced the concept of multimodal visual language or MVL which enables creative expression by combining multiple modalities and addresses the limitations of pure text interactions. With the release of the Kling01 large model in December 2025, we advanced the MVL interaction architecture even more, enabling multimodal inputs across text, image and video. Around the same time, we launched our Kling 2.6 model for simultaneous audio visual generation, multimodal product capabilities. In February this year, we launched the Kling AI 3.0 model series, developed under an all-in-one product framework and this series towards full multimodal input and output within a single model. Looking ahead, we plan to expand the many modalities in our models to further enhance controllability and video generation, including modality for motion and facial expressions. We will also focus on addressing the configuration and consistency challenges of complex scenarios. Meanwhile, on the product front, we will keep advancing our AI agent capabilities to enable fully automated end-to-end content creation. The goal is to empower our models to automatically plan storyboards based on user needs, ensure consistency across characters and scenarios and simultaneously generate well-aligned audio and visual design lighting, visual term and camera movement. Overall, Kling AI remains committed with its vision of empowering everyone to craft [indiscernible] stories with AI. We will continuously refine our model and product capabilities, sustaining Kling AI's global leadership in technology, product and commercial monetization. Operator: [Interpreted] The next question comes from Daniel Chen of JPMorgan. Qi Chen: [Interpreted] So my question is related to the AI investment strategy. So besides the multimodal and video generation area which related to Kling AI, where do -- what are the other segments that management thinks are worse, more investment in the future? Unknown Executive: [Interpreted] Thank you for the question. Regarding the direction of our AI investments, beyond the multimodal video generation domains, we will continue to invest in the research and development of an application of large models across our content and commercial ecosystem scenarios such as large generative recommendation models and large multimodal understanding models. In terms of the large generative recommendation models, over the past few quarters, we have seen significant potential for generative models in recommendation scenarios and we will continue to explore in this direction. For example, in our online marketing recommendation system, we are exploring deeper integrations between generative models and our ranking architecture, shifting from single request optimization to long-term value modeling. In terms of the model capabilities, by leveraging our lens to introduce a stronger logic reasoning, inference and broader world knowledge, we are attempting to break the data feedback loop problem found in traditional recommendation systems. Concurrently, we are building a native, highly concurrent and scalable next-generation ranking architecture for large recommendation models. Through system design and foundational engineering upgrades, we aim to ensure that the expansion of computing power and parameter scale translate into performance improvements. In the direction of the large multimodal understanding models, our proprietary multimodal foundational large language KwaiYii empowers Kuaishou's content understanding infrastructure. In core short video and live streaming scenarios, KwaiYii performs video parsing and user behavior inference effectively driving improvements in the user time spend and retention metrics. Moving forward, we'll upgrade our AI capabilities from one-way passive Q&A to a long-term contextual understanding and a complex task processing further expanded the application to core monetization scenarios such as online marketing services and e-commerce and develop practical intelligence assistance with multimodal interaction capabilities to drive greater commercial value. In 2026, we will also explore the application of agent capabilities across other various business areas. For example, in online marketing scenarios, we are developing an AI agent that delivers automated marketing placement for our e-commerce merchants. This covers the entire workflow from intelligent product selection, creative editing and AI-generated materials, smart bidding and dynamic pricing and customer support and post placement data analysis, lowering the threshold for clients to place marketing materials and improving placement of performance and cost stability. Additionally, we will also explore sales AI agents for lead focused sectors, helping clients improve lead conversion efficiency and reduce customer acquisition costs. In e-commerce scenarios, we will improve the user search experience through the development of a search and recommendation agent, driving higher user search-based order volumes. We will also explore agent-based automated computing power optimization. We will further share our progress on these fronts with you at appropriate time. Finally, we will also advance the construction of the new computing power centers. Computing power is the core foundation and underlying support of our AI development, meeting the company's demand for R&D iteration, model training and inference enhancement. We have integrated the construction of computing centers into our strategic planning, aiming to solidify the computing foundation for AI development. By reserving expansion space to accommodate long-term needs, these centers will deeply support core tasks such as AI algorithm optimization and large model training, empowering our AI innovation with a robust computing foundation. In summary, we will continue to deeply calibrate the R&D of core technologies and their implementation across multiple scenarios. With firm computing investments and a deep AI talent pipeline, we will empower our content ecosystem and realize continuous growth in commercial value of our ecosystem partners. Thank you. Operator: [Interpreted] The next question comes from Thomas Chong of Jefferies. Thomas Chong: [Interpreted] On e-commerce, how should we think about the growth strategies in 2026? How should we think about the trend this year and the growth opportunities? Unknown Executive: [Interpreted] Thanks for the question. Our broad focus for 2026 remains on returning to the essence of Kuaishou's content-based e-commerce and on maximizing our strengths as the content platform. Our growth strategy spans across 3 areas. First, we'll focus on the supply side reforms to continuously refine supply and consistently offer good products. As mentioned earlier, in Q4 2025, we launched a Voyage Initiative to provide a targeted support for top-tier brands. It's designed to help them quickly achieve strong start and sustained growth within the Kuaishou ecosystem. In 2026, we will also invest in more resources on the supply side, primarily across 4 areas: merchant traffic, product, operations and services. Our focus will extend beyond brands to include merchants in the key industrial zones. We already identified 100 priority industrial zones and we are actively managing them. Meanwhile, we are working closely with our e-commerce industry team, small- and medium-sized merchant team and service providers to empower our new merchants. As the e-commerce market matures and macroeconomic dynamics remain challenging, the relationship between platforms and the brand is being reshaped. Platforms are evolving from single transaction roles to collaborative partners that grow alongside merchants. As we empower merchants more effectively, we also plan to refine the platforms, the supply ecosystem and provide users with a wider variety of products. Second, we will continuously improve in paying user acquisition and penetration. Currently, there's still significant growth potential in a number of e-commerce monthly average paying users. In 2026, we'll focus on exploring and better understanding users' interest in e-commerce content. We will also optimize our traffic strategies and leverage effective subsidy mechanisms and across scenario synergies to boost paying user conversion and scaled growth within superior products. Third, we will further optimize resource integration. This quarter, we have seen some preliminary success in implementing traffic synergy. Moving forward, we aim to deepen the integration between e-commerce and commercialization, enhanced coupon synergy, improved subsidy efficiency and optimize the overall resource allocation and investment efficiency. We believe that the inherent conversion advantages of content-based e-commerce will continue to drive its penetration in the online retail market. Over the past year, categories such as men's and sportswear and fresh food grew rapidly. We expect these verticals to maintain their growth momentum this year. As we just mentioned about ramping supply in 2026 and leveraging intelligent operational tools to help merchants reduce costs and improve efficiency while offering them a clear, more certain path for growth. We expect even more structural growth opportunities in content-based e-commerce. In 2026, we expect Kuaishou e-commerce to achieve steady, high-quality growth. Under the promise of high-quality growth, we will further strengthen our e-commerce monetization capabilities and deepen the foundational capabilities of our omni platform marketing solution and smart placement products. We expect that the core incremental growth for e-commerce marketing service revenue will come from 3 areas. First, scale expansion. By focusing on key verticals and broadening industry supply, we aim to scale monetization through e-commerce marketing services in categories such as cosmetic sports and outdoors, fresh food and home furnishings. Second, efficiency improvement. We will actively bring in more brand clients, optimize client composition and integrate resources to drive aligned growth for both GMV and marketing spending. Women's apparel and health care will be a particular focus where we can enhance monetization efficiency. Third, sector expansion. We will expand into sectors where we lag our competitors, such as maternal and children pad and consumer electronics, identifying clear opportunities in driving breakthroughs. In addition, we are also looking to continuously improve monetization efficiency in shelf-based e-commerce. By expanding omni domain product supply, we can increase merchants' marketing budgets on product cards. In short, guided by the e-commerce growth strategy and monetization road map we outlined for 2026, we will take a steady, disciplined approach. We will focus on the right long-term initiatives while leveraging our content platform strengths to better meet the consumption needs of our users. Operator: [Interpreted] The next question comes from Felix Liu Lee of UBS. Felix Liu: [Interpreted] Sorry, just let me finish the English translation in addition to e-commerce, what are the main advertisement industry growth opportunities in 2026? And how do we plan to capture these opportunities? Unknown Executive: [Interpreted] Thank you for your question. From a sectoral perspective, we believe the key growth opportunities this year will mainly come from 3 sectors: lifestyle service, comic-style short plays and AI applications. In the lifestyle service sector, we have seen a continued shift in user behavior from traditional search platforms toward content platforms. Short videos and live streaming formats are more effective at building user trust, reducing decision-making friction and improving conversion efficiency. In addition, the lifestyle service sector continues to deepen its online penetration for merchants in sectors like agriculture, materials, education and automotive. Online platforms are gradually becoming key channels for our marketing and customer acquisition and the platform level will continue to upgrade our products to help merchants reach their potential customers more effectively, while enhancing our in-platform interaction capabilities to improve conversion rates. Moreover, clients in the lifestyle service sector are mostly small and medium-sized merchants that require strong customer service and operational support. Through our AIGC marketing material solutions, we help small- and medium-sized merchants generate marketing materials at a low cost. In addition, our AI-powered customer service solutions to enable merchants to provide 24/7 online support. In the content construction sector, as AI technology significantly improves content production efficiency and lowers production costs, the emerging content format, comic style short plays is advancing rapidly. As a top-tier player, Kuaishou has the dual advantage of our mature short-play ecosystem and the world-leading video generation model by deeply integrating content and technology, where building a comic-style short-play ecosystem that spans the entire value chain from tools and content to distribution. Additionally, we introduced a full-scale comic-style short-play support program covering computing power, traffic and other resources. These continuously enrich the platform's comic-style short-play content supply and boost online marketing spending in this category. Since the second half of last year, the total spending from online marketing services driven by Kuaishou's comic-style short-play has increased rapidly. In March this year, peak daily marketing spending exceeded RMB 15 million. The AI application sector is also what we view as another key growth driver for 2026. As the AI technology continues to advance and new applications emerge, the industry remains in a rapid growth phase. We expect depending on the relevant sectors to continue growing significantly in 2026. Against this backdrop, we will strengthen and refine our operations for our clients, continuously optimize short and long-term retention metrics, helping clients maximize the user lifetime value, all of which will prompt AI application clients to increase both their marketing spending scale and commitment on our platform. In summary, for 2026, harnessing our product upgrade content ecosystem development and refine our operations for our clients in priority sectors. We aim to better capture incremental growth opportunities in the lifestyle service sector, comic-style short-play and AI applications, driving solid growth in our online marketing services revenue. Huaxia Zhao: Operator, last question, please. Operator: [Interpreted] The next question comes from Yuan Liao from Citic. Yuan Liao: [Interpreted] You have repeatedly mentioned the construction of computing power centers. So my question is, could management share your plan scale of AI-related CapEx in 2026? And the key area of your investment? So how will this CapEx investment affect your overall profit margin? Bing Jin: [Interpreted] Thanks for the question. As Yixiao said, over the past year, we have fully deepened our AI strategy, our multimodal large leader generation model, Kling AI has achieved impressive results in technology and advancement, product duration and commercial monetization. At the same time, AI has delivered strong value empowering our content and commercial ecosystems, reinforcing our commitment and confidence to continue investing in AI. In 2026, we expected the group's total CapEx to reach approximately RMB 26 billion, an increase of about RMB 11 billion compared with 2025. This covers computing resources for Kling AI's large models and other foundational models as well as routine server procurements such as off-line data storage and processing and investments in data and computing center infrastructure. The increase in CapEx for Kling AI's large models is partly due to higher inference computing needs from our expanding user base and revenue scale. It also takes into consideration of our major Kling AI model upgrades scheduled for the year, which require additional investment in training computing power. With advancement of model iteration in the future, we will also flexibly allocate computing resources between inference and training to maximize the efficiency of computing resource utilization. I would also like to emphasize that we are highly focused on cash flow management and maintaining ample cash reserves in 2025 despite approximately RMB 15 billion in CapEx, the group delivered nearly RMB 12 billion in free cash inflow for the year. For 2026, even with increased CapEx, we aim to continue maintaining positive free cash flow at the group level for the full year. We believe that every investment today will efficiently translate into future profit drivers. As we stay focused on long-term technology investments, we will maintain disciplined financial management and ample cash reserves. Our robust balance sheet will empower the group's sustainable high-quality growth in the AI era. Thank you. Huaxia Zhao: That concludes the Q&A session. Thank you, operator. Operator: [Foreign Language] Huaxia Zhao: Thank you, operator. [Foreign Language] Operator: Thank you once again for joining us today. If you have any further questions, please contact our capital market and IR team at any time. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by, and welcome to PDD Holdings Inc. Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your host today. Sir, please go ahead. Unknown Executive: Thank you, operator, and hello, everyone, and thank you for joining us today. PDD Holdings earnings release was distributed earlier and is available on our website at investor.pddholdings.com as well as through the Globe Newswire services. Before we begin, I would like to refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make certain forward-looking statements. This call also includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to GAAP measures. Joining us today are Mr. Chen Lei, our Co-Chairman and Co-Chief Executive Officer; and Mr. Zhao Jiazhen, our Co-Chairman and Co-Chief Executive Officer. Our VP of Finance, Ms. Liu Jun, is unfortunately on medical leave. Delivering the prepared remarks today will be Mr. Li Jiong, our Finance Director. Jiazhen and Lei will make some general remarks on our performance for the past quarter and our strategic focus. Jiong will then walk us through our financial results for the fourth quarter and fiscal year ended December 31, 2025. During the Q&A session, Lei and Jiong will answer questions in Chinese and will help translate. Please kindly note that English translation is for reference only. In case of any discrepancy, statements in the original language should prevail. Now it's my pleasure to introduce our Co-Chairman and Co-Chief Executive Officer, Jiazhen. Jiazhen, please go ahead. Jiazhen Zhao: [Foreign Language] Unknown Executive: [Interpreted] Hello, everyone, and thank you for joining our earnings call for the fourth quarter and fiscal year 2025. In 2025, we celebrated the 10th anniversary of the company's founding, and it is also the year in which we made our largest investments in high-quality development. For the first time in the e-commerce industry, we launched a 100 billion support program to support merchants. The entire company joined efforts in stepping up our support to farmers and merchants. And during the shareholders' meeting at the end of last year, we improved our corporate governance structure by introducing the code share structure and further sharpened our strategic focus to investing deeply in the supply chain and concentrating on high-quality brand-oriented growth to drive the entire supply ecosystem to move up the value chain. In the past year, we delivered steady results. This quarter, the group's revenue reached RMB 123.9 billion, growing 12% year-on-year, while full year revenue reached RMB 431.8 billion, up 10% year-on-year. Both this quarter and the annual net income decreased year-on-year, which primarily reflects our sustained investments on both the supply side and demand side. As we have communicated in the past, we prioritize long-term value generation by nurturing our ecosystem rather than short-term financial results. And benefiting from long-term investments on both supply and demand side through initiatives like the RMB 100 billion support program, the platform and supply chain ecosystem have been moving steadily in the right direction. Key participants of the supply chain, such as agricultural regions and industrial belts have become core pillars supporting the platform and ecosystem, while also bringing consumers more affordable, high-quality products. With the continued investments under the RMB 100 billion support program, dedicated projects such as Duo Duo Local Specialties, new quality supply and logistics support for remote regions have gradually broadened our support from top merchants and SMEs to every segment of the supply chain, helping businesses across all categories pursue differentiated growth. This has enabled the transition from merely supplying products to pursuing quality and to brand building, greatly improving supply chain efficiency and overall industrial capabilities, while at the same time, create room for profit and innovation for agricultural regions and industrial belts. In the fourth quarter, the Duo Duo Local specialties team visited agricultural regions such as Anyue lemons, Pu'er coffee, Wuhan seeds, Meizhou pomelos, Wenshan blueberries, Fuzhou abalone and Lianyungang seaweed. Through customized One Product One Plan support programs, the team addressed issues such as the lack of product standardization and low value add. These efforts guided farmers and growers to adopt standardized planting, premiumization and deep processing, effectively increasing the added value of agricultural products and retaining more profits in the places of origin, thereby enable sustainable growth in specialty agriculture industries. In industrial belt, we accelerated the execution of new quality supply program by doubling down on our support efforts. Our dedicated teams visited manufacturing clusters such as Yiwu Accessories, Pinghu down jackets, Hunan Spicy Snacks, Anhui Roasted Seeds, Tianjin Potato Chips, Zhongshan Small Appliances and Shanghai Chocolate and delved deep into every segment of the supply chain from raw materials to components. Through a combination of fee reduction and support, we helped unlock the potential in the supply chain, driving an overall upgrade in supply chain operations and helping industrial belt transition from commoditized competition to brand building. While stepping up our investments in the supply chain, we also unlocked the consumption potential in remote regions through our logistics support program, driving new growth opportunities for merchants. In the fourth quarter, building on the success of this campaign, we continue to tackle the last mile of parcel delivery into villages across multiple provinces and cities, extending the benefits of new e-commerce from western provinces to vast rural areas. To date, we have deployed and built end-to-end delivery networks, including country-level transfer warehouses and village level pickup points in over 10 provinces and municipalities. We also covered the transshipping fees for orders delivered to villages, bringing more remote rural areas into the free shipping zones. In terms of trust and safety, we continue to improve the business environment and further enhance the service levels for both consumers and merchants. During the spring festival, we rolled out a series of food safety measures, including compliance checks on business qualifications, reviews of food advertisements, controls on full live streaming, protection of miners, IP protection and the development of a food database, all to safeguard the food safety for consumers during the festivities. In our global business, despite the drastic changes in external environment, we delivered steady growth over the past year, mainly reflecting the competitive advantages built through our long-term focus on the supply chain. At the last shareholders' meeting, we announced our all-out efforts in investing in the transformation of the supply chain and in building another Pinduoduo. This remains our duty and primary focus. Over the past few months, the 3-year strategy we committed to during the Annual General Meeting has been translated into concrete actions and fundamental changes are taking place within the business and our organizations. In the next phase of our journey, our strategic priority will not be business diversification, but rather concentrating on the high-quality development of the supply chain. Leveraging our strength in the supply chain accumulated over the years, we will reinvent the platform and propel the ecosystem of the value chain. 2026 marks PDD's 11th year and a new starting point as we head into our next decade. We are starting a refresh and moving forward with an all-in attitude and a persistent focus on execution. We will dedicate more talent and resources to deepen our investments in the supply chain, accelerating its upgrade and transformation. We believe that in the next 3 years, we will have the opportunity to build another Pinduoduo. Now I'll hand it over to Chen Lei for further remarks. Lei Chen: Thanks, Jiazhen, and hello, everyone. 2025 marked our 10th anniversary. As Jiazhen just mentioned, we took on greater responsibilities this past year and launched the RMB 100 billion support program to move back to the virtual ecosystem. We also established a co-chair structure to further improve our governance and firmly anchored our company's strategic focus on the high-quality development of supply chain. Through these efforts, we continue to create long-term value for consumers, for merchants, the industry and society has been nearly a year since we launched RMB 100 billion support program. During this time, we continue to reinvest in our ecosystem through measures such as fee reductions, merchant support, trust and safety initiatives. Our dedicated team has gone deep into agriculture regions and manufacturing hubs to have hundreds of regions establish standardized production system and to explore differentiated and brand-oriented growth models. This effort has significantly improved the efficiency and quality of supply chain operations, driving the supply chain transformation from scale driven to value driven. This also brings more high-quality affordable products to our consumers. Our consistent investment in the supply chain have unlocked strong consumer demand on Pinduoduo platform. The platform delivered strong performance during major promotions such as June 18, Double 11 as Spring Festival. [Quality products] from different regions flow through geographic boundaries and offering consumers more diverse selection and further enhancing their quality of life. Our global e-commerce business continued to deliver steady growth and has reached meaningful scale in most countries we serve, accomplished in 3 years was to build a Pinduoduo business 10 years to complete. However, over the past year, the global geopolitical landscape has grown more complex. Trade and regulatory policies across different countries and regions continue to evolve. This has introduced greater uncertainty to our global business and will impact and even reshape our development model. In this context, we need to rely more than ever on the collective capabilities of our supply chain ecosystem. Therefore, we will continue to anchor our strategy in investing deeply in supply chain capabilities and direct more efforts, capital and resources to its transformation. We aim to empower our merchants and manufacturers to become innovators with go-to-market capabilities, developing consumer insights, coming up product size and building brands. This will drive towards high-quality and brand-oriented growth, creating real value for consumers. Over the past few months, we have been making steady progress on the execution of 3-year strategy adopted at a shareholders' meeting, and we are pleased to see some results. In the fourth quarter, our long-term investment in agriculture research achieved new results. Last October, for the second consecutive year, we were invited to attend World Food Forum hosted by UN Food and Agriculture Organization, representing Asian enterprises. We shared our experience and achievements in supporting digital agriculture innovation, and we also sponsored 2 great agriculture research teams that took the stage at the forum, bringing new energy into agriculture research and development. Since the start of 2026, competition in e-commerce sector has continued to intensify around new business models and new technologies. At the same time, the global environment has become more complex than last year with increased uncertainty in the economic and trade climate as well as in regulatory policies across various countries and regions. This will inevitably bring more challenges and weigh on our future performance, putting pressures on our profitability in short term. However, we will continue to uphold our long-term philosophy and faithfully execute our strategy of investing deeply in the supply chain, dedicating more resources to give back to the industry and the society. And now I will turn the call over to Li Jiong, who will walk you through our financial performance for the fiscal year of 2025. Jiong Li: Well, thank you, Lei. Hello, everyone. This is Jiong. Now let me walk you through our financial performance in the fourth quarter and fiscal year ended December 31, 2025. In terms of income statement, in Q4, our total revenues increased 12% year-over-year to RMB 123.9 billion and 10% year-over-year to RMB 431.8 billion for full year 2025. This was mainly driven by the increase in revenues from both online marketing services and transaction services. Revenues from online marketing services and others were RMB 60 billion this quarter, up 5% compared to the same period 2024. Our transaction services revenues this quarter were RMB 63.9 billion, up 19% versus the same period of 2024. Moving on to costs and expenses. Our total cost of revenues increased 15% from RMB 47.8 billion in Q4 2024 to RMB 55.2 billion this quarter. For the full year, our total cost of revenues increased 23% to RMB 188.8 billion, mainly due to increased fulfillment fees, bandwidth and server costs and payment processing fees. On a GAAP basis, total operating expenses this quarter increased 10% to RMB 41 billion from RMB 37.2 billion in the same quarter of 2024. On a non-GAAP basis, our total operating expenses increased to RMB 39.3 billion this quarter from RMB 35.1 billion in Q4 2024. Our total non-GAAP operating expenses as a percentage of total revenues was 32% in Q4. For full year 2025, total non-GAAP operating expenses were RMB 140.7 billion, up from RMB 122 billion in 2024. Looking to specific expense items. Our non-GAAP sales and marketing expenses this quarter were RMB 34 billion, up 9% versus the same quarter of 2024. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenues this quarter was 27% compared to 28% in Q4 of 2024. For the full year, non-GAAP sales and marketing expenses increased from RMB 109.1 billion to RMB 123.3 billion in 2025. Our non-GAAP G&A expense were RMB 907 million in Q4 versus RMB 998 million in the same quarter of 2024. Our annual non-GAAP G&A expenses were RMB 3.2 billion in 2025 versus RMB 2.8 billion last year. Our research and development expenses were RMB 4.4 billion in the fourth quarter on a non-GAAP basis and RMB 5 billion on a GAAP basis. On a GAAP basis, operating profit for the quarter was RMB 27.7 billion versus RMB 25.6 billion in the same quarter 2024. Non-GAAP operating profit was RMB 29.5 billion versus RMB 28 billion in the same quarter 2024. Non-GAAP operating profit margin was 24% this quarter compared with 25% for the same quarter 2024. For the full year, non-GAAP operating profit was RMB 102.6 billion compared with RMB 18.3 billion in 2024. Net income attributable to ordinary shareholders was RMB 24.5 billion for the quarter and RMB 99.4 billion for the full year. In the fourth quarter, basic earnings per ADS was RMB 17.50 and diluted earnings per ADS was RMB 16.51 versus basic earnings per ADS of RMB 19.76 and diluted earnings per ADS of RMB 18.53 in the same quarter of 2024. Non-GAAP net income attributable to ordinary shareholders was RMB 26.3 billion for the quarter and RMB 107.3 billion for the full year. In the fourth quarter, non-GAAP diluted earnings per ADS was RMB 17.69 versus RMB 20.15 in the same quarter of 2024. That completes the income statement. Now let me move on to cash flow. Our net cash flow generated from operating activities was RMB 24.1 billion in Q4 and RMB 106.9 billion for the full year of 2025, compared with RMB 29.5 billion in the same quarter of 2024 and RMB 121.9 billion in 2024. As of December 31, 2025, the company had RMB 422.3 billion in cash, cash equivalents and short-term investments. Thank you, and this concludes my prepared remarks. Unknown Executive: Thank you, Jiong. Next, we'll move on to the Q&A session. Today's Q&A session, Lei and Jiazhen will take questions from analysts on the line. We could take a maximum of 2 questions from each analyst. Lei and Jiazhen will answer questions in Chinese, and we will help translate. Operator, we are open for questions. Operator: [Operator Instructions] Your first question comes from Alicia Yap with Citigroup. Alicis a Yap: [Foreign Language] I have 2 questions. First is that the company made some organization adjustment at the shareholder meeting at the end of last year. So currently, the company is operating in over 90 markets and at the same time, also face new challenges from the complex regulatory environment. So how does the company maintain the flexibility and also the quality of execution in such an environment? And then second question is, over the past quarter, we have seen a slowdown in the growth of e-commerce platform in China and the company's online marketing revenue growth also show a slowdown over the past 2 quarters. So could management share with us your view on the current state of China e-commerce market and where the next phase of growth for the industry might come from? Jiazhen Zhao: [Foreign Language] Unknown Executive: [Interpreted] This is Zhao Jiazhen. Let me take your first question. Over the past few years, our global business has indeed achieved some progress, now serving nearly 100 markets and achieving meaningful scale. And throughout this process, our corporate governance and the development of internal talent have lagged behind the business growth, and that leaves us difficult to keep up in many areas. At the same time, the international geopolitical landscape is evolving rapidly with trade and regulatory policies across regions changing quickly and becoming increasingly tightened. This places new demands on our company as a whole. And therefore, we believe there is both an opportunity and a necessity to undertake a systemic and structural transformation of our organization, culture and corporate governance. And of course, this will be a gradual process. The culture, structure and the appointment of new leaders that was announced at our shareholders' meeting last December is the beginning of this systematic transformation. In the period ahead, we will dedicate greater energy, capital and resources to upgrading and reinventing the supply chain and to achieve an overall transformation of our supply chain operations. I will also address the second question. As you mentioned, over the past few quarters, we have seen e-commerce industry enter a new phase of intensified competition and slowing growth. In this new stage, our strategy of investing deeply in the supply chain was formulated. It was formulated from the recognition that an e-commerce platform should not just be a simple transaction platform, rather, it can and should do more and creating greater value for all participants across the entire supply chain. Our deep investments in the supply chain covers multiple aspects and initiatives recently such as Duo Duo local specialties and logistics support for remote regions are all projects empowering the supply chain to be more inclusive. Here, I will also highlight 2 specific programs. The first program is free delivery to villages. This is a new project we piloted in the fourth quarter of last year, aimed at addressing the challenges of high logistics costs and merchants lack of incentives to shift to remote rural villages, bringing more villages into the free shipping zone. And currently, we have built last-mile logistics infrastructure, including transit warehouses at the country level and pickup points at the villages level across multiple regions in China and with the platform covering the transshipping fees for orders delivered to these villages. And under this new model, merchants only need to send their products to the transport warehouses and the transportation from the warehouse to the village level pickup points is then handled by the transit warehouse. And building on our existing experience, we applied the transshipping model to the last-mile delivery to the villages, improving the shopping experiences in remote areas and helping our merchants to tap into new market opportunities. The second example is new quality supply. For merchants willing to improve their product quality and services, the platform empowers them by providing industry insights and supply chain support. These measures support merchants to upgrade their operations across the entire product life cycle from R&D and production to manufacturing and sales and driving the transformation of the supply chain system. There is actually a lot the platform can do here. For instance, in product development, traditional approaches often rely on trial and error. However, within today's ecosystem, critical product information is compiled by our merchant development teams and promptly relate to the merchants. Together with traffic support for new product testing, these measures enable merchants to iterate their products with more success and improve the ROI of their R&D investments. And these are 2 examples of our efforts to upgrade the supply chain. Faced with slowing industry growth and heightened competition, we are proactively choosing to channel resources into building a high-quality supply chain. Our investments in foundational capabilities like new quality supply and delivery to villages will become the driving force behind the company's sustainable and healthy growth in the next decade. Operator, we are ready for the next analyst on the line. Operator: Your next question comes from Kenneth Fong with UBS. Kenneth Fong: [Foreign Language] The company global business has experienced some ups and downs. Since last year, we have seen high-profile regulatory inquiries in some key markets and significant changes in trade policy highly relevant to our operations. Could management share your thoughts on the current external environment and under such conditions, where is your global business strategic focus in the next phase? And my second question is about the profitability. The company profitability over the past 2 quarters has experienced some fluctuation. So could management share how different business model launch that might impact the profitability? And how should we think about the company long-term profit margin level? Lei Chen: [Foreign Language] Unknown Executive: [Interpreted] This is Chen Lei. I will take your first question. Over the past period, we have indeed received inquiries from regulatory authorities. As our global business grew rapidly and reached a meaningful scale in different countries, it is understandable that this has drawn surprise, concerns and closer scrutiny. However, our management believes that the current regulatory scrutiny will lay a solid foundation for our next stage of growth and will also provide direction for iterating our model amid the rapidly evolving international political and regulatory landscape. Since the launch of our global business, we have consistently focused on the long term. Building on our deep roots in the supply chain, we are committed to achieving sustainable development in each market and creating real value for consumers. As our business skills and regulatory environment across regions change rapidly, we deeply recognize that regulatory compliance is the baseline requirement. As a company operating within local communities, it is our fundamental responsibility as an e-commerce platform to meet local needs and stay true to our core mission, fulfill our duties and contribute meaningfully to the societies we operate in. Therefore, our management team invests significantly in business compliance. However, trade policies, taxation, data regulations, product compliance requirements and other regulatory frameworks are undergoing significant changes across different countries and regions. These requirements often vary considerably and can sometimes contradict one another, inevitably bringing greater challenges and uncertainty. We are actively learning, adapting to these changes and continuously enhancing our compliance capabilities to create sustainable value for society. You also mentioned changes in global trade policies. Since the beginning of last year, we have indeed seen some shifts in trade policies in many major markets. Ensuring business compliance, the team has quickly iterated our business model based on the regulatory environment and market conditions in different regions to deliver reliable services to consumers. This is closely tied to the supply chain capabilities we have accumulated over the years. Therefore, moving forward, the strategic focus of our company's global business will remain on investing in supply chain capability. Every aspect of this directly impacts the consumer shopping experience, and accordingly will be a key area of our investment. Thank you. Jiazhen Zhao: [Foreign Language] Unknown Executive: This is Zhao Jiazhen. Let me answer your second question. First, I want to emphasize that currently, the company is still in a strategic investment phase. The external environment and competitive landscape are changing rapidly. And to meet the consumers' evolving needs, we are working closely with our merchants to explore and launch new business models that is suited to the new conditions. Any new model from launching to a full rollout requires the platform to commit substantial resources in its early stages. Whether it is exploring the new business models or making strategic investments in the supply chain, these are fundamental and long-term initiatives. The timing difference between investment and return will inevitably have a direct impact on our performance in certain stages. As we have communicated on multiple occasions, between short-term financial performance and the long-term value of the platform ecosystem, we will resolutely choose the latter. And therefore, as we continue our strategic investments, coupled with a complex and volatile macro environment, it could be normal to see fluctuations in our profit margins from quarter-to-quarter. And over the past few months, the strategy we announced at the shareholders' meeting is being translated into concrete projects. The business and organization are undergoing deep transformation. And we suggest not to focus too much on the profitability of a single quarter, but rather pay more attention to the high-quality development of our platform ecosystem because only with a healthy platform ecosystem and a robust supply chain, can the platform achieve sustainable growth in the long-term intrinsic value. Operator, let's move on to the next analyst on the line. Hi Joyce, please go ahead. Unknown Analyst: [Foreign Language] I will translate myself. My first question is related to the profit margin as well. Since last year, the company launched several investment initiatives, including last year's RMB 100 billion support program and the management just mentioned heavy investment in the supply chain in the remarks. Could management elaborate a bit on how the company thinks about the investment and return cycles for these projects? And what will be the long-term impact on the company's financial performance? My second question is online retail sales showed very strong growth momentum in the first 2 months of the year. Could the management share the company's view on the consumer market like regarding categories with faster growth in the market? Does the company have targeted strategies to capture new opportunities in the fast-growing product categories? Jiazhen Zhao: [Foreign Language] Unknown Executive: [Interpreted] This is Zhao Jiazhen. I'll answer your question. About a year ago, we further recognized the importance of the long-term development of the ecosystem, and we launched a series of merchant support initiatives such as the RMB 10 billion fee reduction and RMB 100 billion support programs, committing tangible resources to help the merchants and the industries, creating more room for innovation. Our management unanimously agrees that as the platform grows into a public platform with social influence, we should consider the company's development from the broader perspective of public interest and the long-term health of the industry ecosystem. The strategy of focusing on core business and investing deeply in supply chain upgrades that was announced at the shareholders' meeting at the end of last year is an extension and reinforcement in this direction. And after years of development, the e-commerce industry's ecosystem is becoming more mature and merchants demand on the platform have also become more diverse. The platform's role has evolved from initially being a transaction platform to now becoming a comprehensive business partner. Accordingly, the support that merchants need the most from the platforms has also extended from traffic support to all aspects of their operations, including R&D, production and sales. This requires us to go deeper in our operations to come up with targeted support plans tailored to different industries and thereby building a more competitive supply chain. Such investments involve thousands of merchants and cannot be achieved overnight. We are prepared for long-term and patient investments and are very pleased to see that many of these investments have already yielded some results. For example, with the support of the new quality supply project I just mentioned, some merchants have chosen to reinvest the fee reductions provided by the platform into expanding their R&D teams and upgrading production lines. And together with the platform's digital solutions, they have started on a path of product differentiation and transformation. These long-term structural investments will not be immediately reflected in the financial performance in the short run, but they are a crucial part of the long-term sustainable growth of the platform and ecosystem. We will diligently implement these long-term projects by reinvesting concrete resources back into the ecosystem. We target to lower merchant costs, enhance supply chain quality and improve consumer experience. Through investing in the supply chain, we will seek to reinvent the platform and move the ecosystem up the value chain. And regarding your second question, we are also very pleased to see the improvement in the overall consumption market. However, at the same time, we also clearly recognize that in today's competitive landscape, we still face some challenges. The future performance of e-commerce platforms will increasingly be dependent on how much incremental value they can create for the entire supply chain rather than relying solely on traffic acquisition and allocation. And therefore, at this juncture, we have made a firm decision to invest deeply in the supply chain. And for different product categories, our merchant development teams will work closely with sellers. And based on industry insights, we will provide them with tailored industry solutions to help merchants achieve new quality transformation and driving the high-quality development of the supply chain. And we firmly believe that these investments are essential for the e-commerce high-quality development in the next stage, and we are committed to patiently furthering these efforts in the long run. Thank you. Thank you, Joyce. And thank you, Jiazhen. Thank you for joining us today. We look forward to speaking with you early again next quarter. Thank you, and have a great day. Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.