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Operator: Good afternoon, ladies and gentlemen, and welcome to today's Rekor Systems, Inc. conference call. My name is Kevin, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. Before we start, I must remind you that statements made in this conference call concerning future revenues, results of operations, financial position, markets, economic conditions, product and product releases, partnerships and any other statements that may be construed as a prediction of future performance or events are forward-looking statements. Such statements can involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. We ask that you refer to the full disclaimers in our earnings release. You should also review a description of the risk factors contained in our annual and quarterly filings with the SEC. Non-GAAP results will also be discussed on the call. The company believes the presentation of non-GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes only. I will now turn the presentation over to Rekor's CFO, Mr. Joseph Nalepa. Joseph Nalepa: Good afternoon, everyone. I'd like to start by thanking all of our investors and stakeholders who have joined us on today's call. Today, I'll walk through our financial results for the year ended December 31, 2025. We've been focusing on execution and operational efficiency and are encouraged by the progress we continue to make. During 2025, we continued to deliver top line revenue growth while also finding efficiencies within our operations. For the year ended December 31, 2025, we recognized revenue of $48.5 million, an increase of 5% compared to revenue of $46 million in 2024. This increase represents continued growth across our public safety and urban mobility businesses. Throughout 2025, we continue to see growth in our sales pipeline and active deployments. As of December 31, 2025, our remaining performance obligations increased to $25.9 million, a nearly 80% increase from December 31, 2024, which highlights strong momentum, giving us confidence in our ability to drive growth into 2026. For the year ended December 31, 2025, recurring revenue was $23.9 million, up 6% year-over-year. This reflects our long-term strategy of expanding our recurring revenue base through software and Data-as-a-Service subscription contracts. Adjusted margin for 2025 was 56% versus 49% in 2024. This improvement was largely driven by a greater portion of high-margin software sales relative to our service and hardware-based contracts as well as operational efficiencies within our deployments. As we continue to grow, we expect margins to fluctuate over time, but to gradually stabilize as our Software and Data-as-a-Service businesses become a larger share of total revenue. As mentioned in our recent press release, we made the decision to onshore our engineering efforts to optimize our engineering operations and cost containment efforts. As a result of this decision, we recognized a noncash asset impairment charge of $3.8 million in 2025. A key highlight this year was our continued focus on optimizing our operations. Total operating expenses, excluding depreciation, amortization and asset impairment charges, declined 20% year-over-year, representing an $11.4 million reduction. These reductions were achieved across all major areas of the business and reflect continuing disciplined cost containment and a deliberate realignment of resources to support our strategy. The combination of revenue growth and improved operational efficiency resulted in significant profitability improvements. Adjusted EBITDA loss for 2025 was $18.1 million, an improvement of $11 million or 38% compared to 2024. A meaningful indicator of our progress in 2025 is the trajectory of our adjusted EBITDA loss throughout the year. Our adjusted EBITDA loss in the first half of 2025 was $13.1 million compared to a loss of $5 million in the second half of 2025, demonstrating that the operational improvements and cost discipline we've implemented throughout the year are taking hold and moving us in the right direction. We are encouraged by this trend and believe it reflects the early results of our strategic realignment. As we continue to evaluate our operations and identify further efficiencies heading into 2026, we do anticipate incurring onetime charges in the first and second quarters, primarily related to the cancellation and restructuring of existing agreements. While these charges are near term in nature, we view them as necessary steps in building a leaner, more scalable operating structure that positions the company for improved performance and long-term value creation. We entered 2026 with strong momentum and remain committed to driving sustainable growth and long-term shareholder value. I'm grateful for your continued support and partnership. Thank you for your attention. Robert, over to you. Robert Berman: Thank you, Joe, and good afternoon, everyone. 2025 was a defining year for the company. We made a deliberate shift away from building the company of the future and refocused the organization on executing a pragmatic, profitable business model. That shift is now clearly reflected in our results. We are a more disciplined, efficient and resilient company, having transitioned from a development-heavy R&D-driven organization to a customer-focused business with fully productized solutions. As our rightsizing actions conclude towards the end of Q2 and the bulk of our efficiency work moves behind us, we are entering a new phase of the company, one focused on scaling. In the back half of 2026, we expect to aggressively ramp sales execution and drive accelerated growth, supported by strong and expanding demand environment and a platform now built for scale. From a financial standpoint, we delivered solid progress. Revenue grew year-over-year despite a significant focus on efficiency. More importantly, our mix towards higher-value recurring revenue and tighter cost controls drove gross margins to 56%. We reduced net loss by 49% and importantly, achieved operating cash flow positivity in the fourth quarter of 2025. Combined with meaningful improvement in adjusted EBITDA, this makes a critical inflection point and demonstrates that our model is both viable and scalable. We have already captured substantial efficiencies through our rightsizing efforts and expect additional gains as we continue to align the cost structure with the current scale of the business. That said, we want to be clear, there may be some quarter-to-quarter variability as we complete this process. The long-term trajectory, however, remains firmly intact. We are also taking a disciplined approach to innovation spend. We are reducing and normalizing R&D to a run rate of 7% to 10% of gross revenue by the back half of 2026, aligning investment levels with a company of our size. At the same time, we are improving development efficiency through the use of modern tooling and focusing resources on near-term customer-driven priorities. Operationally, the decision to onshore our engineering team is already delivering results. We are seeing faster development cycles, improved responsiveness and stronger customer engagement. This is not only a cost and efficiency improvement, it enhances our competitive positioning. Between late '21 and late 2023, we completed 3 acquisitions, each with distinct technologies, teams and operating models, making integration a complex undertaking, after which we navigated a period of leadership transition across both the Board and executive teams, which added another layer of complexity. That work is now largely behind us. Integration is substantially complete, and we are operating on a unified platform and the organization is now aligned, stable and focused. Importantly, we continue to execute and make meaningful progress throughout this period, positioning us to fully leverage these assets as we enter a growth phase in 2026. We also launched Rekor Labs in 2025, focused on identifying synthetically created and modified media known as deep fakes. This initiative builds on technology we have been developing internally for years. Professor Sanjay Sarma has agreed to chair Rekor Labs and stepped down from the parent company Board to do so. In closing, we have materially strengthened the foundation of the business. We now have a more efficient cost structure, higher quality revenue base and a clear path to sustained profitability. With the heavy lifting behind us and a platform built to scale, we are entering our next phase focused on execution, growth and value creation. We believe we are well positioned to drive meaningful, scalable long-term value for our shareholders. Thank you for your continued support. And operator, we can now turn the call and open it up for questions. Operator: [Operator Instructions] Our first question is coming from Michael Latimore from Northland Capital Markets. Mike Latimore: Congrats on getting cash flow positive here in the fourth quarter. I guess as you look to '26 here, do you think -- do you expect the year to be cash flow positive, maybe excluding maybe onetime items? Robert Berman: Joe? Joseph Nalepa: Yes. So without -- I don't want to provide specific profitability guidance, but we are encouraged by the progress we made at the end of 2025, and we hope to continue to build on that momentum as we enter 2026. I think you'll see some additional cost savings related to the onshoring of engineering efforts as well as some other things that we're working on to kind of help reduce our expense base while also maintaining top line revenue growth. I do want to be conscious that there are going to be those onetime charges that come in as we look to restructure the business. But I think it all gets back to ensuring that we're running a lean operation and working towards that goal of becoming profitable. Mike Latimore: Yes. Great. Okay. Sounds good. And then maybe an update on the Georgia deployment. That was a big contract you guys won last year. Maybe talk a little bit about any deployments in the fourth quarter? How does that kind of play out through '26? Robert Berman: Yes. So Mike, typically, the state agencies or DOTs usually shut down between Thanksgiving and New Year's. It will let you do a lot of work. And then obviously, around the country, depending on the weather, it may be impossible. So we just started to crank things up there, probably towards the second half of the first quarter. And we're working down there right now at a pace that's more than we've ever done in Georgia before, and hopefully, it will continue. Mike Latimore: Right. Great. And you highlighted -- for '25, you highlighted the public safety sector growing. Can you just describe a few of the more important customers you had in '25 for public safety? [indiscernible] said in the press release. Robert Berman: Yes. We have a couple of large OEM customers. Unfortunately, that -- where we cannot use their name, but they've been using our engine and software for years. And the LPR business is growing. It's picking up, and we're seeing that. We still have probably one of the best engines there is given that it operates not only in the U.S. but in 90 other countries. So we're seeing more licensing of our software, which is where our focus is. And we're going to continue those efforts going into '26 because it's just a better business model, right? Less overhead, boots on the ground, sales churn and so forth. So we're focused more on the software side of it now, which is good. Mike Latimore: Great. And last one for me. There's been some talk about just political and, I guess, regulatory resistance to ALPR technologies. How do you view that? I mean is that elongating sales cycles? Is that creating obstacles? Or is it accelerating opportunities since you have some solutions there? Robert Berman: We -- the majority of our software license sales are not in the law enforcement arena. They are theme parks, parking companies and others. So we don't have that issue there. In law enforcement, it's always been an issue, Mike. It's not going away. But we don't operate like others. We don't have data lakes. We don't sell the data to third parties. That's where you see a lot of issues. So we kind of stay in the background and let others battle that out. Mike Latimore: I guess I'll sneak one more in, if that's all right. In Texas, there's a good kind of, I guess, master contract there and you have Austin and you're trying to sell other big cities. Maybe update on kind of the receptivity of other big cities to Command in Texas? Robert Berman: Only that it's moving forward. It's a very slow grind. These agencies do not move quickly, although we would like them to, and sometimes we're naive to think that, that was a much faster process. I do think the good news is that we're in front of them. I know we have a couple of meetings coming up later in April with a number of the districts. So there is interest. And we are in the process of working on a couple of new contracts and a couple of renewals of existing contracts. So I think onshoring command was a good thing for us to do because it brought us closer to the customer. And frankly, it fixed a lot of bugs that the system had that where attention wasn't being paid to it. So we'll be able to get that to scale a lot faster now and tweak it. Operator: Our next question is coming from Louie DiPalma from William Blair. Louie Dipalma: For Robert and Joe, for both of you, you referenced the Georgia DOT $50 million contract. In another geography during the summer of 2024, you won the 1,000-plus camera contract with the Florida DOT. What has been the progress of the Florida rollout? And do you expect that program to generate further growth in 2026? And what are the other prospects in Florida besides that particular contract? Robert Berman: Yes. So Florida, it wasn't 1,000. It was 150 systems and District 7. And it was a pilot as a state is looking to move to a Data-as-a-Service model for the entire state, and it's gone well, and we're in discussions with them now and the program is expanding. It's not public. I can't talk about it yet, but we're making good progress down there. The growth of the model and Data-as-a-Service is clearly starting to scale. So that's a good thing. And we're seeing that across a number of states, right? Louie Dipalma: Maybe the opportunity was 1,000 and your deployment was in the 100. Thank you for that clarification. Robert Berman: Yes. Yes, we deployed 150 systems in District 7. We have more cameras in Florida than 150. We deployed at least, I think, another 50, maybe a little bit more, and we're deploying now. But if you look at what the apparatus that we deploy does, okay, and you look at what it can replace, yes, there's thousands of systems that this technology can replace just in Florida alone, right? Louie Dipalma: And for the year that just concluded 2025, did you disclose what percentage of the $49 million in revenue came from recurring revenue versus equipment revenue? And what was the growth of your recurring revenue? Robert Berman: Yes, Joe, you want to take that? Joseph Nalepa: Yes. So it was about a 50-50 split, and we had about a 6% growth in our recurring revenue year-over-year. Louie Dipalma: Great. And should we think of that trend continuing in 2026? Joseph Nalepa: I think so. I think it is part of our strategy, we're working to push customers more to a recurring revenue model, and then that aligns well with Data-as-a-Service, Software-as-a-Service it's a little dependent on the buying power of the certain DOTs, but we do expect as part of our strategy to continue to push that into a recurring model. Robert Berman: One way to think about it is that the -- look, when we first went to the LPR business way back when law enforcement agencies, PDs, large and small, were not doing subscription-based procurement. They were buying hardware and software with maintenance packages. And that's traditionally how DOTs have operated. And we were the pioneers, the company we acquired SCS was the pioneer of the concept of Data-as-a-Service. So the idea that you get what you need to be able to have the data to manage your roadways, both for planning and public safety, but you don't have to buy anything. You just pay a company for the data, and they're responsible for the hardware, the software and the maintenance is a very appealing model. It's just that it takes government a little bit of time to catch on to that, but it is catching on. And we've got multiple states doing that now. So that's going to continue to expand because they get -- they can stretch the dollars that they spend much further, right? Operator: [Operator Instructions] And we reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. Robert Berman: Look, everybody, thanks for your support. If you recall, back during the call, -- it was just a few years ago that we completed the acquisitions of these 3 disparate companies. And we've gone through a lot, and Rome isn't built in a night, right, or a day. And I think we've got the company stable. We're focused on profitability. I would encourage you to look at the back half of 2025 with regard to the EBITDA loss compared to the first half of 2025. And I would remind you that a lot of the rightsizing and cost savings and efficiencies that we're doing have taken place here in the first quarter of this year, which will probably be equal to, if not greater, than what we did last year. So you can look at the balance sheet and you can do the math, and you can see that the company is headed in the right direction. And the back half of '26, we're going to focus on scale, and then you'll see the company grow but grow profitably and smartly. So it's growing anyway, but growing a lot faster. So anyway, thanks, everyone. Appreciate it. Operator: Take care. Thank you. Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, everyone, and welcome to the CXApp Fourth Quarter 2025 Earnings Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Khurram Sheikh. Sir, the floor is yours. Khurram Sheikh: Thank you, Matthew. Good afternoon, everyone, and thank you for joining CXApp Fiscal Year 2025 Earnings Call. I'm joined today by our Chief Financial Officer, Joy Mbanugo. I am Khurram Sheikh, Chairman and CEO of CXApp. Before we begin, I want to frame today's discussion. 2025 was a year of deliberate transformation. 2026 is a year of AI-driven acceleration. Today, we will walk you through what we accomplished, where the market is heading and why we believe 2026 represents a true inflection point for CXAI, as we know, you pronounce as sky. With CXAI, we are moving beyond simple workplace apps to an autonomous agentic platform where we define the employee experience. Let me start by directing your attention to our safe harbor statement over the next few slides. Please read at your leisure once you have the slide deck. All right. For those newer to the CXAI story, let me give you a quick snapshot of who we are. CXApp trades on NASDAQ under the ticker CXAI. We're headquartered in the San Francisco Bay Area with offices in Toronto and Manila, giving us a global engineering and delivery footprint. CXAI is a global AI-native workplace experience platform deployed across 200-plus cities, 50-plus countries with over 1 million plus users. We built this with a lean and highly technical team with over 70% focus on R&D, which is critical given our pivot into Agentic AI. Importantly, we now have 39 patents filed, including a new provisional filed on Agentic AI just recently, and we're really proud of that filing because it is a landmark in our space. And then we also have -- already have 18 granted patents. This patent portfolio is not -- is a meaningful competitive moat. This is not just a product company. This is becoming a defensible AI platform company. We maintain enterprise-grade compliance with ISO 2701, SOC 2 and GDPR certification. This is a global enterprise-ready platform with the security credentials that Fortune 500 procurement teams aspire to. So very proud of that. We're proud of the accomplishment of the team over the last year, and we're going to share with you what this strategic transformation has been about and why this is a really great point for our investors to understand what is really happening in the market. So I want to start with the market. Why is this timing right for CXAI, right? We are seeing a fundamental market shift in enterprise workplace technology. Three forces are converging simultaneously. First, hybrid workplace orchestration. Fortune 500 enterprises are actively procuring unified platforms that consolidate desk booking, room booking, parking, dining and attendance into a single workflow. They want calendar and HR system integration with AI-driven smart bookings. The days of coming together 5 or 6-point solutions are ending. Secondly, AI and specifically Agentic AI have moved from nice-to-have to require or must-have. Enterprise buyers are now mandating AI agents with 3-year road map. They want conversational assistance, proactive suggestions, auto routing and AI-enhanced incident reporting. This is not a future requirement. This is the current RFP today. And this is why we're seeing this good momentum because we've seen a lot of RFPs from large enterprise that are exactly what we've been working on. And thirdly, we have started our journey with indoor intelligence and IoT, the Internet of Things. Enterprise want interactive map with real-time occupancy data from IoT sensors, wayfinding, colleague finders and visitor management with multimodal physical and access control. That kind of gives us a new advantage in terms of the AI world. It gives us that localization and edge experience. So CXAI, CXAI sits at the intersection of all these 3 trends. We're not chasing the market, the market is coming to us now. And that's why we see as way, way different from 2025. Now what is happening with Agentic AI and the defining trend there? Let me put some numbers behind the AI opportunity. By the end of 2026, Gartner estimates that 40% of enterprise apps will feature task-specific AI agents, up from less than 5% in 2025. This is an 8x increase in a single year, and workplace is identified as a primary deployment domain booking, service request, contextual suggestions. This is exactly what we built. The AI agent market currently sits at $7.8 billion and is projected to reach $52 billion by 2030. Gen AI model spending alone is growing at north of 80% in 2026. On the adoption side, 88% of organizations now report regular AI use in at least 1 business function. Enterprise software spending is up to around 15% year-over-year, driven primarily by AI investment. The validation from Fortune 500 buyers is clear. They now require AI agents, conversation systems and AI road maps in their procurement decisions. They are specifying exactly what CXAI does. And as you all know, we didn't pivot to AI. We've been building towards this for years. The market has now validated our thesis. So what I see is this is really a platform shift, Agentic AI becoming the control layer of enterprise software and CXAI is positioned directly in that layer as the interception on workflows, data and physical environment. You heard at GTC, Jensen talked about physical AI. We are the physical AI for that workplace environment. So I'm super excited about the direction the market is heading and what we've been accomplishing over the last 2 years with our Agentic AI platform. It's interesting when I have been working with our sales team on all the different opportunities that come in. It is super interesting to watch that our competition is actually no longer there because with our Agentic platform, our clients are coming to us saying, this is what we actually want. We want you to be successful and build it for us. So all the new clients coming in are asking for Agentic AI as critical, as part of the road map. Without it, they will never deploy a solution and the existing customers are naturally evolving to this very rapidly. So let me summarize also what has been the strategic transformation in 2025 and what do we actually do? We executed a comprehensive strategic transformation built on 4 pillars. First, we focused on high-quality recurring revenue. We mean a deliberate decision to prioritize subscription revenue over onetime services and implementation fees. That shows up clearly in the numbers, which our CFO, Joy, will walk through shortly. Secondly, we implemented an AI-driven cost structure. As you know, we have a partnership with Google where we are implementing a lot of the GCB-based solutions. We're a big AI user. We're using Gemini. We're using all the different tools out there with different providers. I won't name all of them because some of them maybe have said that we're not using them, but we're using a number of those guys. But it's all driven towards productivity and to drive operational efficiency, reduced cloud cost in automating the process that previously required manual effort, that AI-driven cost structures across all our functions, be it engineering, be it sales, be it marketing, and that has resulted in, as you've seen the numbers, a much reduced cost structure for us. Thirdly and most importantly, we built our platform from the ground up as an AI-native CXAI platform. This wasn't a bolt-on. We will talk about BOND and CORTEX. They were our key orchestration and intelligence layer solutions. We had designed from day 1 as core platform components, not afterthought. And fourth, we balance short-term impact with long-term scalability. Yes, revenue declined in 2025, and we're transferring above that, but the revenue we have today is dramatically higher quality and the platform we built positions us for a sustainable, scalable growth in 2026 and beyond. I'm going to talk a little bit more about the impact of all of that to our clients and to the end market. This slide illustrates the fundamental transformation we made and how our product delivers value. Because a lot of the customers ask a question, so what? Why is this so important to me, what's the ROI? What's the value? And given all the information out there on AI and Agentic AI, all the promising we made, why is our solution relevant? And this is where we want to show you what the legacy systems are and what our system. We're going to describe those systems in detail later, but I want to show the value and outcome, right? If you look at the legacy world, workplace tools required multiple clicks, manual configuration, fragmenting analytics across different tools. That's what most of our competitors still offer, right? With our AI platform, we replaced those pain points with 4 core capabilities. BOND + CORTEX replaces multi-click workflows with instant actions and autonomous workflows. CXAI VU replaces static analytics with real-time insights that produce actionable outcomes. Our One-Map engine and experience engine replaces fragmented tools with a single source for all workplace data and actions. And finally, our Zero-Touch deployment replaces months of manual configuration with site deployments measured in days now versus months. This is an incremental improvement. This is a category shift from SaaS to intelligent AI platform. And it's the reason enterprises are choosing CXAI over legacy alternatives. And that's being delivered from us in terms of our design, our capability and how we thought about making this system frictionless for our clients. So I'm going to pause now and turn it over to the CFO, Joy Mbanugo to go through the financial results, and I'll be back with the strategic implications for 2026. Joy, over to you. Joy Mbanugo: Thank you, Khurram. Let me walk you through the financial results for fiscal year 2025. I want to start by framing how we think about the past year. As Khurram mentioned, fiscal year 2025 was a year of intentional and strategic reset. We made very deliberate decisions to exit lower quality revenue, transition the platform from SaaS to AI and build a more durable foundation. Those decisions had a short-term cost, and you'll see that impact on the top line. But the underlying health of the business has improved meaningfully, and I want to walk you through exactly why. Starting with the headline numbers on Slide 10. Total revenue came in at $4.6 million compared to $7.2 million in the prior year. I'll address the decline directly in a moment, but first, let me highlight what moved in the right direction. Subscription revenue now represents 98% of total revenue up from 87% a year ago. That shift matters because subscription revenue is recurring, predictable and very high margin. It's a foundation that every AI -- before it was SaaS, and it's the foundation that every AI company wants to be built on, and we're essentially there. Gross margin expanded to 87% in up 5 points from 82% in 2024. That improvement came from disciplined cloud cost management and platform efficiency gain. It demonstrates the operating leverage in our model. We ended the year with a really healthy cash balance of $11.1 million as of December 31, strengthened by various capital raises throughout the year. And that gives us a real runway to execute for the rest of this year. So we have enough cash to cover our expenses for the next 6 quarters. On a per share non-GAAP basis, our diluted earnings per share was negative 58%, improving from last year, which was negative $1.2. So yes, revenue decline, but the business that remains is fundamentally stronger than what we started the year with. Can we go to the next slide? So now I go line by line on the P&L, so you have a more robust picture of what happened over the last year. Revenue was $4.6 million, down 36% year-over-year. This reflects 3 things: the exit of noncore and low -- noncore contracts and professional services, customer churn during our platform transition and reduced bookings during the positioning period. We expect that some of this decline, and it's the cost of doing the reset correctly. Cost of revenues dropped 55% from $1.3 million to $578,000. That declined significantly outpaced the revenue decline, which is exactly what drove the margin expansion. We became materially more efficient at delivering the product. Gross profit was $4 million at 87% gross margin, up 5% -- up 5 points year-over-year. For context, that puts us in best-in-class with other companies in this area. This is a structural improvement, not a onetime event. Now on to operating expenses. Total OpEx was $21.6 million, up 10% from $19.6 million. I want to be direct about what drove that. R&D modestly increased by 4%, but that was intentional and we'll continue to invest in R&D while we continue to invest in AI and improve in the product. We believe that this investment is what's going to position us for double-digit growth in 2026. Sales and marketing was cut by a significant 36% as we use AI in our marketing efforts and made our go-to-market motion leaner, more targeted enterprise sales approach. G&A increased 10% and part of that is restructuring related, we're actively managing this down this year. The most important part in OpEx is the goodwill impairment of $2.1 million. This is a noncash accounting charge. It does not reflect cash outflow. It does not affect operations, and it's not recurring. It is the primary reason that OpEx increased year-over-year. Excluding that item, our operating cost base was essentially flat. Loss from operations was $17.6 million. Adjusted for the goodwill impairment of $2.1 million, the underlying operating loss was approximately $15.4 million, roughly in line with the prior year even as we continue building this platform. Now let's walk through the EBITDA bridge. If we can go to the next slide, please. Going through EBITDA and adjusted EBITDA, this is really important because this shows where some of the operational improvement comes from. Starting at a net loss of $13.5 million for the year, is already a meaningful improvement from $19.4 million of last year. And in back interest, taxes, depreciation, we arrive at negative EBITDA at $10 million compared to negative $15.6 million EBITDA in 2024. That is a 35% improvement year-over-year. This is a number I would point you to as the clearest measure of our operational progress in 2025, their trajectory is definitely trending in the right direction. Now adjusted EBITDA came in at negative $9.8 million compared to negative $8.3 million in 2024. I want to address this directly because on the surface, it could look like a step backwards. And I don't want that to go unexplained. The entire difference comes down to 1 line, our change in fair value of derivative liabilities. And if you remember from last year, this is related to our convertible notes. In fiscal year 2024, this line item was a positive $3.2 million and it flattened adjusted EBITDA. In 2025, it looked to a negative $4.5 million. That is a $7.7 million noncash swing driven entirely by mark-to-market accounting on derivative liabilities. This has 0 impact on our cash position, 0 impact on our operations. It is purely an accounting timing item. If you strip that 1 item out, adjusted EBITDA improved year-over-year. The other adjustments are pretty straightforward, stock-based comp, $2.8 million to $2.1 million of goodwill impairment, we already discussed in smaller items that net close to zero. The real punchline is that our $11.1 million cash balance more than covers our cash-based operating loss. We have the necessary runway to execute, and the hard part of this transition is behind us. If you remember last year, we ended with a significantly lower cash balance. And so we're starting off 2026 very, very strong. Now let's talk about pipeline and sales momentum, which is really exciting to discuss. As Khurram mentioned earlier, I think if we were at this time last year, we had momentum, but the momentum we see now as enterprises move towards Agentic genetic AI is really exciting. And even at CFO conferences and other tech conferences, you can see the excitement and the flurry of activity as people think about moving away from pure SaaS platforms and look into adopting Agentic AI. So where does that leave us as we head into 2026? The pipeline is growing. We are seeing expansion activity within existing enterprise customers. Accounts that have been on the platform are now asking for more. We are seeing new vertical opportunities that we're not pursuing 12 months ago, and we are seeing early signs of acceleration in bookings. In Q4 2025, we had really strong bookings and that has really continued into this year. On the market signal side, 3 things stand out. First, enterprises are consolidating, as you can see in the news, they're moving away from point solutions towards unified experience solutions that is exactly what CXAI is. The procurement conversations we are having today are fundamentally different from a year ago. Buyers are not comparing us to individual tools, they are evaluating us as a complete platform. Second, and very importantly, Agentic AI has become a buying requirement. Executive buyers like CFOs and real estate -- people that own real estate are now specifying AI agents, conversational agents and 3-year AI road map as a baseline requirement before they sign, before you even having a conversation, and we have built exactly that. The platform spent rebuilding is what enterprise procurement teams are now asking for by name. Third, and this is the 1 that gives us the most confidence, customers are telling us that they need our agentic capabilities to make their final buy decision. That is a closing signal, that is pipeline converting. 2025 was a strategic reset, 2026 is where that investment pays off. With that, I'll turn it back to Khurram, who will go through the rest of the presentation. Khurram Sheikh: Thank you, Joy. So let's talk about 2026 outlook. Looking ahead to 2026, we expect AI-driven acceleration to deliver double-digit growth. Let me outline the 4 pillars of our outlook. First, our Agentic AI platform, BOND + CORTEX is in market now and it's generating a lot of enterprise interest. As I said, all the RFPs we've responded to, all the wins that we're getting in this quarter and the coming quarter are all driven because customers have tested and evaluated and understood that what we have, is our road map, is the right thing. And this is our primary growth engine for 2026 is because of that differentiation. Secondly, we expect large enterprise wins and a strong power pipeline conversion as Joy mentioned, we've been involved with a lot of these RFPs for a while. I think it's very competitive. And the competition is not just smaller companies. They're also looking at much larger enterprises that are looking into solutions in our space. And the good news is we are winning. And we're winning big in terms of these client opportunities. So I'm very hopeful on that. These deals are in our funnel today are larger and more strategic than they were ever before. And the reason is because Agentic AI is so critical to an enterprise. It is not a senior manager level decision. This is a C-level decision. At the CIO, the CTO, the CHRO, the Head of Real Estate and even the CEO of the company. This is [ sacrosan ] for them. So that's why they're deliberately taking the time to test it, to validate. They do the RFP and then they show up in our labs, CXAI labs here in the Bay Area and they're wowed by our engineers and our team, and they go back and tell their procurement guys, we need to get CXAI. And that's what's happening. And so I'm super excited about that. So we're confident we're going to achieve those large enterprise. They take a little longer, but they are for the long run. Certainly, strategic partnerships and particularly in vertical AI. And this is creating new distribution channels for us. We'll talk about our TouchSource partnership, that alone gives us access to over 11,000 digital directory deployments. Huge opportunity for us to partner with them and to scale our business through those distribution channels. And we'll talk about more in the coming weeks and months, but that is super exciting 1 for us right now. And fourth, we are committed to sustainable, high-quality revenue growth. We will not sacrifice the quality of our revenue base to chase top line numbers. Growth will come from subscription expansion, not onetime fees. So we stay with that philosophy. I think with the Agentic AI world, the monetization mechanism changing too from not just pure subscription, but also for outcome-based, and I think we're super excited about those opportunities, especially with the new clients who are coming in with a fresh perspective of the market. The 2025 reset is behind us. We entered 2026 with a stronger product, cleaner revenue, better margins and a validated market demand. That, to me, gives me confidence and hope that we're going to be super successful in 2026. So let me talk about some of these elements in more detail. And I'll start with the product road map. So this is a clear evolution and revolution from CXAI. CXAI 1.0 is our current platform. That's where all our current clients have. It's a single code base, delivering space booking, navigation, enterprise, SSO integrations and the full mobile app experience. This is what's in production with everybody, and this is still going to be around for a long time because it's the basis. And it gives us a strong leverage in terms of building CXAI 2.0, which is our major evolution, and it's going to be released in June 2026 with our new clients as well as the existing clients who are upgrading there. And this includes our behind the scenes or access control and [ Agentic ] system, plus our One Mapping engine, delivering a unified One Map experience. It has the Agentic AI interface powered by BOND and CORTEX. Achieves full web parity with our mobile experience and enables Zero-Touch campus deployment. CXAI 2.0 is the version that unlocks our next phase of enterprise open. So all the new clients I talk about are getting CXAI 2.0. They're already having their sandboxes, they're doing their first MVP deployments. And by June, they will be launching their campuses, their first deployments with that, and this is going to be the growth engine for all the new clients and then the existing clients are all wanting to upgrade to CXAI 2.0. So a huge opportunity for us, and this has been the making in the last 12 months. Looking further ahead, our future vision is CXAI Sky. What I mean by that is tongue-in-cheek, it's really the full Agentic AI-driven user experience with predictive intelligence. It includes reactive and generative UIs, zero-friction onboarding and also enables a new segment besides the large enterprise it enables mid-market expansion. This is where the platform really goes, and this is where the opportunities with the distribution partners, with what we mentioned TouchSource earlier in terms of certain vertical markets, a huge opportunity. This is now an MVP right now in our labs, in our CXAI labs. So if you're in the Bay Area and you want to play with CXAI Sky, come talk to us, we'll give you access. We're testing it in all labs. We're going to go to certain initial clients locally here, but this, we think, is a big opportunity for us in both 2026 and 2027. So building for the future already. And by the way, we're just not building features. We're building a platform that gets smarter and more autonomous with every single deployment. So this platform is solid. It's very exciting, and we just also filed our provisional patent, a broad patent on Agentic AI. I've got the number in there when we talk about it in the next slide about the Agentic AI platform, but it really is a landmark in our industry and we're very excited about it. We're going to have multiple filings beyond this. But I want to go under the hood since we filed the IP, the patent provision is there, I want to go under the hood and tell the world what we actually have done and what are our very strong technology team here in CXAI labs has accomplished. One of the things on the left you see is our Unified Data Fabric. This is the ingestion layer that connects IoT sensors for occupancy data, calendar systems for scheduling, enterprise systems like HRIS and IT and spatial data from maps and navigation. This is kind of combining all the integrations we do, and now we're going to connect them all together. That data flows into our Intelligence and Orchestration layer, which has 2 engines, CORTEX is our intelligence engine. It handles predictive analytics, natural language processing, context understanding and intelligence extraction. BOND is our Agentic partner. It provides autonomous orchestration, proactive recommendations, task execution and multisystem control. Think of BOND as a multi-agent solution that allows multiple agents to work together, orchestrate and then with CORTEX knowing the personal recommendations, the preferences the things that matter contextually and making the right decision. What we do is something super unique that nobody else does because we take in account what's really happening in the campus, in the site at Agentic AI, what is happening within the enterprise, and we stay within the enterprise. That is really the core of our IP and patents and what we believe is going to unlock a lot of shareholder value. On the right, you see the actual outcomes this produced. And this is what our clients want. This is what our users want, smart navigation and wayfinding, instant booking of rooms, desks and services, workforce analytics for real-time decision support, space optimization with automated utilization management and proactive context-aware alerts. This is where the world is headed. This is what they want, and we are going to be delivering this very soon to all our clients. The key insight here is that we are transforming passive data into proactive operational force multipliers. This is not a dashboard. It's a system that takes action on behalf of the enterprise, and that's the core of Agentic AI. So let me talk about this another pillar, which is really our strategic partnerships. And we believe this is going to be transformative for our distribution. Our partnership with TouchSource is a joint marketing, sales and product strategy that extends and also embeds CXAI's Agentic AI as the intelligence layer for TouchSource existing base of over 11,000 digital directory deployment. We signed an MOU. We've signed a marketing and co-selling agreement with them. We're super excited working with the team, and we've had -- we've already got some really key targets lined up. This partnership really extends our workplace AI capabilities from enterprise offices into physical commercial real estate, lobbies, common areas, health care facilities, retail spaces and mixed-use properties. The verticals we're tackling together include enterprise office, health care, retail and these mixed-use properties. Each of these represents a significant expansion of our addressable market. What makes this partner compelling is the math. TouchSource already has 11,000-plus deployed screens. We're providing the AI intelligence layer that makes those screens dramatically more valuable. This is a capital-efficient growth channel. And as you recall from me we also have a product, the CXAI Kiosk that we're selling into our enterprise clients, the large clients, and all of them are wanting to have the ability to scale that and knowing that we're the software layer, TouchSource already has those kiosk capabilities in different form factors with the hardware sizes and with the different media players. So it's a really great partnership, and we hope to sell both ways, meaning that we're enabling the Agentic AI Orchestration layer to those kiosks, and vice versa, we're also partnering with them to deploy their kiosks in our enterprise environment where every single floor needs a multiple of them. So there's a huge expansion opportunity. The teams are working very closely. We're going to start giving you updates from this partnership, but this is really a very interesting model for us and it allows us to go beyond the indoor campus environments that we've been in, but to get to a larger piece of the puzzle. And with the CORTEX BOND-based Agentic AI platform, this is going to be much, much simpler and easier for us to do than what we'll be doing for our enterprise clients. All right. So let me just bring it all together in terms of a summary of what we just shared with you. When you think of the bigger picture, the product market fit is confirmed now. Fortune 500 enterprises requirements now match CXAI's capabilities precisely. AI and Agentic AI moved from optional to mandatory in procurement. So no longer it is like, oh, maybe we'll check this out. It is becoming the right standard, and it is becoming critical. So anybody who doesn't have it is not going to be part of these discussions. And this is where, like I said at the start, we see ourselves really ahead of the competition in our space and even the big guys that are playing the space do not have the capability that we have. Secondly, our addressable market exceeds $100 billion, spanning digital workplace platforms is $77 billion with a 20% CAGR and AI assistance at $3.35 billion, going to $21 billion at a 45% plus CAGR. And the timing could not be better. 40% of enterprise after adding AI agents in 2026, that is from Gartner, they're really on top of it and they feel like this is where every app has to go. And the enterprise software spending is also increasing north of 15% year-over-year. And hybrid work is permanent now. It's no longer a transition. It is -- there is going to be there and the platform consolidation is accelerating. So in a nutshell, 2025 reset is complete. 2026 is about scaling the platform and capturing the opportunity. While we believe CXAI is positioned at the center of Agentic AI, enterprise workflows and physical space in thousands and we're excited about what's ahead. Our foundation is stronger than it has ever been. We have a differentiated AI platform, and we are entering the next phase of growth. This is the right company in the right market at the right time. Okay. Let me go to some Q&A. Joy, do you want to check if there are any questions from the audience? Joy Mbanugo: Yes. Absolutely. I think we have a good handful of questions. I think I'll start with questions around our stock because there seem to be quite a few. There's 1 on are you in danger of being delisted and the second 1 related to the stock is, what is your time line on becoming compliant and what is the action plan? And I'll take the first part of it, Khurram, if you want to take the second part. So first, we did receive a delisting notice from NASDAQ, but we received an extension and we have until September, and we do plan on being compliant before September and there are multiple ways we can get there, but we believe we'll get there through growth. Khurram, do you want to add anything? Khurram Sheikh: Absolutely. Look, we are very focused on that. When NASDAQ gave us extension, they understood that we have met all the requirements for listing, except the bid price, so all the other requirements are met in terms of shareholder equity, in terms of market cap, in terms of other requirements that NASDAQ has. The only requirement is the bid price. And we believe that given that we are severely undervalued and we believe that with the results we're going to be demonstrating to the market in the coming months and the momentum we have with our wins as well as our Agentic AI platform, we believe that we can meet that level. And then we also have mitigating factors. So we will be confined much before our September date. That is our goal, and our Board is fully committed to that. Joy Mbanugo: Okay. Next question. What can investors look forward to from the company in the near future? I'll take the first part of it again. And Khurram, if you want to take the second part. From a growth standpoint, like we mentioned, we're not giving specific guidance, but directionally, we expect to grow in the double digits, and we're already seeing great momentum with landing new customers and new logos for 2026. Khurram Sheikh: No, absolutely. And we made the press release, I think, in Q4, we had 5 large clients renew in the fourth quarter. All those clients are also expanding with the Agentic AI this year. And as Joy mentioned, we've got the 20 plus in the pipeline. We believe we're closing deals. There are things in contract right now. They're in contract with us right now, and there are other deals coming our way. So we're pretty excited about moving them from pilots and initial discussions to now contracts and hopefully scale deployments in 2026. So it's a pretty exciting time at the company, and our team is fully focused on executing those contracts and making sure they deliver. And I think if we deliver even a small percent of those, we're going to hit the double-digit number. So I think we believe that, that is very realistic. And we believe there will be more happening hopefully, in the coming weeks and months as these customers go from their pilots to their first appointment. Joy Mbanugo: Next question, and Khurram I'll have to punt this over to you. How do you plan on setting yourself apart from other AI companies? Khurram Sheikh: That's a great question. And in our space, if you look at our landscape, there's a lot of companies that have been around for a while in the new space management and other space. And that market is getting commoditized, and those companies are really at a very low margin. Secondly, you see people that have built apps. As you see, the SaaS model is on the threat. And so when you think about Agentic AI, there are only a handful of companies that actually can do it. I think the large AI companies are focused on horizontal solutions. We believe we are a vertically integrated solution that is really tied to campus environment, campus intelligence, intelligent AI system inside buildings. And that's where we have the big moat. And our BOND and CORTEX are designed to provide the same level of Agentic interface that you see in the horizontal apps, but in a more burdening integration -- integrated way with the security and privacy that are needed by our clients. And as a reminder, all our clients -- most of our clients are large financial guys, they are not going to -- they don't compromise on security and privacy. So I think that is a core part of our offering and core part our IP. And that sets us apart, right? So when I look at the competition, I think it's more about -- naturally competition is good, but I feel like we've got a significant advantage of others. And even when winning these RFPs, we have very large companies competing with us that don't have the depth of the capability that is required by the client. So I think that is my focus is really that differentiation. And you will see more and more filings on the patents as we move forward as we started implementing these solutions. But it's going to be a competitive space for sure, but it's going to be a much growing space because now these clients are looking at full transformation across the whole enterprise. They're not looking at just the space booking function or the desk booking function. They're looking at everything they do inside the enterprise and in a hybrid fashion. And we provide that solution today, and we're going to grow that capability over time. Joy Mbanugo: Okay. And the last 2 questions are sort of related on deal size and revenue growth. So I'll ask the longer one. Can you contextualize the double-digit growth target relative to 20-plus customer pipeline? How much conversion that would imply how much is new customers versus expected expansion? Was there a total of 5 major customer renewals in 2025, more or less. And for renewal contracts, how much do you see ARR increasing on average? I'll take some of this, Khurram, if you want to take the second half. So there are more than 5 renewals in 2025. How much is new versus expected expansions, I think we expect more growth on the new logo side just because we haven't seen it, but I think healthy on the expected expansion. And then renewal contracts, how much do you see ARR increasing? Hard to tell right now we have large renewals to happen in Q1 and then more throughout the year. So I don't have that exact figure at the moment. Khurram, if you want to take the double-digit growth relative to the 20-plus customer pipeline, do you want to take that? Khurram Sheikh: Yes, absolutely. So as Joy said, we don't just have -- 5 customers renewed in Q4. We've had many more renewals than that. I think on the deal size and the -- it depends on clients. A lot of our clients start with a couple of hundred thousand and then go to higher. And so think of that as the baseline. But a lot of our clients, as you know, are in this -- they're doing this a strategic move. This is through RFPs and a lot of diligence. So from their perspective, this is a multimillion dollar opportunity or multimillion dollar total value for contract, but it's over a number of years. So we believe the starting point is there, but they're making long-term decisions. They're doing -- these deals are 3-year deals. They are 3-year commitments, okay? So they're not just a single year. Let's see what happens. These folks are really wanting to do multiyear deals. So I think that's the exciting part. But on deal size, yes, it depends on the client. If a client has 100-plus campuses, you can imagine that's going to be much larger than somebody who has 10. But the interesting piece I would tell you is, and this goes back to our product capability and others, there's a client that has around 10,000 employees, not the 50,000, 100,000, but they also do around 10,000 events, and they're super excited about our Agentic AI event module because they want to now create events on demand and have all these different events. So from that customer, you would have -- you could -- potentially even have more revenue just from the events module than the employee engagement modules. So there's a lot of opportunity in the growth of these businesses because Agentic AI is going across all their different functions, whether it's space management, whether it's event management, whether it's food ordering. So we see this as even a bigger opportunity. But again, we're starting off on a good piece. And now we just need to make sure that we can execute and deliver and get these customers onboarded as soon as possible. But I see a very bright future for Agentic AI across different dimensions of our space. Joy Mbanugo: That was the last question. Khurram Sheikh: Okay. Great. Well, thank you, everybody, for joining our call. Joy and I are super excited to be hosting you today. We will look forward to future discussions. We are going to have our Q1 earnings call coming up, we're going to have our Annual Shareholder Meeting. We're going to be super proactive out there. We were a little bit under the cover because of the 10-K had to be filed and with the IP and patents. Now that we file those 10-Ks available, you can go read it. The patent has been issued. We're going to be super vocal in the market, and we look forward to sharing with you the positive news on our upcoming deployments, and we look forward to hosting the next earnings call in the next, I think, 30 to 45 days, but we'll keep you posted. Thank you, everybody.
Operator: Good day, and welcome to the Elauwit Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matt Kreps with Darrow Associates. Please go ahead. Matthew Kreps: Good morning, and thank you all for joining us today to discuss Elauwit's Fourth Quarter and Full year 2025 financial results and business update. The earnings release covering our 2025 results is now available on the Investors page of our website at investors.elauwit.com. We plan to file our Form 10-K for the full year today as well. I would encourage you to review the full text of the release and accompanying financial tables in conjunction with today's discussion. This conference call is being webcast live and will be available for replay on our Investors page. Speaking today on the call are Executive Chairman, Dan McDonough; Chief Executive Officer, Barry Rubens; Chief Financial Officer, Sean Arnette; and Sebastian Shahvandi, our Chief Growth Officer. We will cover our prepared remarks on the business and financial results, then open the call for questions from our analysts and institutional investors. Please note that during this call, management will make projections and other forward-looking statements regarding our future performance. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the earnings release as well as other risks that are more fully described in Elauwit's filings with the SEC. Our actual results may differ materially from those projected in the forward-looking statements. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ from our current expectations. Elauwit specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. We will also reference adjusted EBITDA, which is a non-GAAP financial measure. A description of adjusted EBITDA, along with a reconciliation of adjusted EBITDA to the most comparable GAAP financial measure can be found in our earnings release. And with that, I will now turn the call over to Dan. Please go ahead. Daniel McDonough: Thank you, Matt, and thank you to everyone who has joined today's call. I'll begin today's call with an overview of the business, then pass to Sebastian for an update on our rapidly expanding sales program. Barry will have a discussion around our operations, and then Sean will provide a few highlights from the financial results. Since we are still a newer company to Nasdaq, let me give a quick summary of our business. Elauwit is a technology-driven broadband infrastructure provider focused on delivering high-speed Internet to multifamily and student housing communities. We install and activate carrier-grade gigabit service via fiber and WiFi 6 access throughout the entire property. We then generate long-lived recurring revenue from these properties under 2 financial models: managed service and Network as a Service, which we refer to as NaaS. Uniquely, we integrate the property owner into the revenue chain, driving new revenue and value creation for them. Ultimately, we expect to create a win-win-win scenario, where we generate high-margin revenue streams for Elauwit, elevate the resident experience and unlock value for property owners. In addition to a growing number of units already under contract, we have a robust and quickly expanding pipeline of new installations, giving us visibility into our growth ahead. To deliver on this, we have built a scalable operating model that we believe can grow to handle almost any number of units and in any location as we take share in a large and fragmented addressable market. At its core, the Elauwit model represents simplicity, service and profit. When a resident moves into an apartment or other multifamily housing unit, they sign a lease, then begin the arduous process of securing Internet access. This usually means a lengthy sign-up process, waiting several days for a technician to be available and then taking a day off work for an open-ended install appointment. Typically, the property owner isn't even participating in this revenue stream. Elauwit simplifies and improves every facet of this experience. The property is prewired with enterprise-grade networking equipment, offering the resident better service and faster speeds. When the resident signs their lease, the Internet fee is included on their rent invoice as a standard cost, but usually at a 10% to 15% less expense than the conventional products I just described. Instead of waiting days for an install, they get their log on credentials when they get their keys, providing immediate Internet access, not just in their unit, but property-wide in all of the amenities. That alone is a compelling case, but we take it one step further by integrating the property owner into the monthly recurring revenue from the service, which provides a source of profit and the increased recurring cash flow that can increase the value of their property. We offer 2 approaches to this incredible service in what we estimate is more than a $25 billion market opportunity. For both approaches, the entire property is turned on and serviced and the monthly fee is included in the resident's cost by default, ensuring full subscription to the services. Option 1 is a managed network approach, whereby the property owner pays us an upfront fee to construct and install the network throughout the property. The property owner then collects a monthly fee from the resident that goes in part to them for their installation cost and profit and partly to us for our services under a 5- to 7-year contract. This model works well in new construction or with large and financially sophisticated properties seeking retrofit upgrades. Option 2 is Network-as-a-Service, or NaaS, a deal for retrofits for smaller property owners. Under this model, we can use our public company balance sheet to install and own the network, then collect a higher recurring monthly fee from the property owner to operate under an 8- to 10-year contract. Both models mirror the data center or alarm company model where customers stay for years, generating what we expect will be high-margin service revenue. We are now moving ahead quickly to expand our pipeline of targeted managed services and Network-as-a-Service opportunities with a major marketing and sales campaign. Sebastian will speak more to this point in a moment, but I'm very pleased with the initial results of our newly unleashed revenue engine, and I look forward to what the year ahead can bring. And that brings me full circle to my opening comment that Elauwit represents a compelling growth case of high-value recurring and long-lived revenue. And with that, I'll turn it over to Sebastian to talk through our new sales and marketing program to deliver on that opportunity. Sebastian Shahvandi: Thanks, Dan. We've built a fully integrated go-to-market engine that brings together inbound and outbound strategies into a single coordinated system. At the center of this model is a clear, consistent focus on customer experience, ensuring that every interaction from the first touch to long-term partnership is intentional, seamless and value-driven. Our approach is powered by a modern AI-enabled marketing and sales stack, custom designed not just for speed and scale, but for relevance and personalization. We're leveraging a broad set of AI tools to enhance data quality, improve targeting precision and deliver a more meaningful engagement at every stage of the journey. Our programs span multiple ICT and persona-driven channels, including our website, targeted account-based outreach, organic and paid social media and structured outbound campaigns. Let me give some additional detail to illustrate just some of the diverse channels we're using to identify and engage property owners. A central pillar of our 2026 strategy is an aggressive industry event calendar, 22 regional events and conventions. However, our approach is not focused on booths and exhibiting. Instead, we invest in pre-event outreach to identify and schedule one-on-one meetings with decision-makers before we ever arrive. And early results are encouraging. With just 3 of the 22 events completed, event source deals currently represent approximately 1,800 units in our active pipeline. Adding to this, paid media efforts are gaining attraction with about 6,000 units in active bidding sourced via paid ads and 127,000 impressions across Google, LinkedIn and Meta ads. Our channel partner program is also demonstrating significant forward motion with almost 7,000 units of new business pipeline attributed to the partner activity. All in, we're actively targeting approximately 2,000 new business accounts right now, representing an addressable base of roughly 12 million units through these and other strategies. And I want to remind everyone, the results reflect only a couple of months of initial work given our RevOps organization was only formally launched at the beginning of Q1. Even so, business attributed to the new RevOps organization now represents 63 opportunities, 13,000 units in discussion and an addressable base of roughly 315,000 units in total across the property owner portfolios. New business sales currently represents 254 opportunities. The continued momentum in new logo growth reflects both increased marketing activity and deeper alignment with customer needs driven by stronger engagement over the last 90 days. But it isn't just about new properties. We can also mine our existing customer base for more properties. Our current customer base represents approximately 387,000 addressable units for expansion, and our focus remains on deepening relationships and continuously improving the customer experience. From a solution mix perspective, approximately 88% of our pipeline is comprised of managed services, 9% on managed services finance and 5% as Network-as-a-Service. While many early-stage opportunities are currently positioned as managed services, we see a strong opportunity to expand NaaS adoption as deals progress, particularly with smaller portfolio customers where flexibility and ease of deployment are critical components of the customer experience. As we continue to scale this engine, we're already seeing improvement in both deal creation and pipeline velocity. Just as importantly, we're creating a more efficient and customer-centric sales process. This includes a soft quote process built for our Network-as-a-Service offering, enabling us to reach consideration in the funnel weeks faster than before. Our goal is to reduce the sales cycle, while improving the overall buying experience. We're already seeing a strong indicator of traction, pipeline growth and increased alignment between our go-to-market efforts and the needs of our customers. With that, I'll turn the call over to Barry. Barry Rubens: Thank you, Sebastian, and good morning, everyone. We're excited to be here and to deploy our expanded balance sheet for growth. Elauwit built a strong base as a private company, but being a listed company provides the access to capital to expand our market reach and drive growth. With our enhanced balance sheet, we are now funded to pursue the 70% of the market opportunity that was available, but not accessible to us before by virtue of the Network-as-a-Service model. While Sebastian described our rapidly growing sales opportunity set, once signed, we track our revenue-generating business across 3 nested metrics. Those are contracted units or those waiting to be built or in the process of installation, activated units, units that are fully installed and turned on for service, but may not be fully billing yet due to onboarding and billed units, units that are fully generating monthly recurring revenue under our managed service or NaaS contracts. As a reminder, Activated units represent the rollover period throughout the 12 months following installation, and we onboard their costs pro rata to align with property lease renewals. In short, when we complete an installation, we know that we have 12 months of growth ahead, then long-term sticky recurring revenue for years to follow. Giving some numbers to the categories based on December 31, 2025 counts, contracted units, those waiting to be built or in the process of installation, along with units we currently serve increased 34% to 34,067 from the 25,375 at the end of the prior year period. Activated units, units that are fully installed and on but may not be fully billing yet due to onboarding increased 92% to 22,255 from 11,588 at the end of the prior year period. Build units, units that are fully generating revenue under our managed services or Network-as-a-Service contracts increased 77% to 16,445 from 9,279 at the end of the prior year period. And our pipeline continues to grow, taking a slightly different filter on the numbers Sebastian presented, -- of the 121,000 units in our pipeline, we now have 9,221 units in the contracting process. Those have been verbally awarded to us by the property owner. And we have 32,968 in the proposal phase. I should remind everyone that the majority of new contracted units remain as managed services, since we only began selling NaaS proactively as a model following our IPO in the fourth quarter last year and added our sales team in the first quarter of this year. I should also note, and Sean will elaborate more, that our revenue includes the recurring services sales as well as installation sales. While we have largely been focused on managed services to date, we expect recurring revenue to increase as a percentage of total revenue over the coming years due to: 1, the rising number of billed units on long-term multiyear contracts; and 2, the rising contribution of network installation -- Network as-a-Service installations that bill typically at a higher monthly rate. We anticipate that recurring revenue will grow steadily because of the sticky nature of these contracts and may be enhanced further by the shift in favor of Network-as-a-Service throughout 2026 and well into 2027. I'd also like to take a moment to note that our sales universe is vast. We're currently in about half the states and our business model uses a highly scalable call center for service to residents, plus contracted installation teams that we can easily flex and scale as needed with minimal cost to us. This approach means that rather than targeting specific markets, we can readily go anywhere our property owner clients want us to provide service. We believe we have good growth visibility just from the business we have already contracted and exciting upside from the new sales team to expand our growth prospects, providing a compelling business built on a growing percentage of recurring revenue under long-term profitable contracts. And with that, I'll hand it over to Sean to briefly cap some of our business highlights from the quarter and year-to-date. Sean Arnette: Thank you, Barry. Today, I'll walk through financial highlights of our fourth quarter and full year 2025 that continue to show robust growth. Revenue for the fourth quarter increased 85% to $6.1 million compared to the $3.3 million for the prior year period. Cost of revenue increased to $5.5 million for the fourth quarter compared to $3 million for the prior year period. As noted in our previous call, network construction activity, both in terms of cost and margin can be lumpy and incur substantial costs upfront, but leads to long-lived recurring revenue. Gross profit increased to $0.5 million for the fourth quarter compared to $0.3 million for the prior year period. Our gross margin for the fourth quarter period remained at 8.6% compared to the prior year period. Management is currently implementing cost reduction actions intended to bring our network construction gross margin back into our expected range of approximately 15%. Operating expenses were $2.8 million for the fourth quarter compared to $1.3 million for the prior year period. As planned, we are investing in sales and marketing expansion coming into 2026 to drive additional growth in top line sales and recurring revenue. We reported an operating loss of $2.2 million for the fourth quarter compared to an operating loss of $1 million for the prior year period. Net loss was $2.3 million compared to $1.1 million for the fourth quarter last year, driven by our investment in our sales and marketing teams as well as public company-related expenses. Adjusted EBITDA in the fourth quarter was a loss of $2.2 million compared to a loss of $1 million for the prior year period. On a full year basis, revenue increased 154% to $21.6 million compared to $8.5 million for the prior year period, demonstrating increased network construction and activation activities driving the ramp in our recurring service revenues. Cost of revenue increased to $17.6 million for the year compared to $7.3 million for the prior year period. Gross profit increased 244% to $4.0 million for the year compared to $1.2 million for the prior year period. Our gross margin for the full year increased to 18.5% compared to 13.7% for the prior year period, primarily due to increased network activations and greater recurring services revenue in which we realized higher gross margin levels than with our network construction activities. Operating expenses were $7.7 million for 2025 compared to $4.4 million for the prior year period. Growth in our network construction and operations teams, investment in sales and marketing and expenses associated with the preparation for an existence as a publicly traded company drove the increase. With our NASDAQ IPO and related capital raise, we now have a balance sheet capable of funding increased Network-as-a-Service activity and other initiatives designed to drive growth and increase the contribution from long-term recurring revenue sources. With that, I'll turn the call back over to Dan. Daniel McDonough: Thanks, Sean. I'd like to remind everyone that we are available to meet with institutional investors. If you would like to arrange a meeting, please do so through one of the investor events, if attending or via Matt Kreps, our Investor Relations contact, whose contact information on our results release and on the IR website. And with that, I'd like to ask the operator to open the call for questions. Operator: [Operator Instructions] The first question today comes from George Sutton with Craig-Hallum. Unknown Analyst: This is Logan on for George. I want to start with the -- I believe it was 9,000 units in the contracting phase and 32,000 units in the proposal phase, if I got those numbers right. Barry Rubens: You are correct. Unknown Analyst: Okay. Great. How fast would we expect those to potentially move to being contracted units? And I would extend that question to the 8,000 units of incremental bidding opportunities that you called out in the press release. Just how long would it take to potentially win those? Barry Rubens: The majority of the 9,200 units in the contracting process will be complete in -- by the end of April. And the majority of those units are to be completed by the end of 2026. If I look at the 33,000 units in the proposal process, -- and I simply apply the success rate we indicated we had last -- in earlier periods of 25% to that, which I think is going to be low. That would represent another 8,000 units that we'd expect to have contracted before the end of the year. Unknown Analyst: Got it. Helpful. I'm curious if you could talk about what you're seeing or hearing with some of the really large property managers out there who have shown a desire to potentially move portfolios over to a managed WiFi structure. Just is it an area that you feel like you're making some progress? And how material are some of those opportunities right now? Barry Rubens: I'll take that question. The process of larger companies moving their portfolios over to typically managed services because they are larger companies with established balance sheets is accelerating throughout the marketplace. We are actively involved with conversations with several parties that have a desire to move their portfolios rapidly over to managed services over the course of the next several years. And we believe it could have a material impact on our results looking at 2026 and 2027. So -- in addition to that, as we're seeing larger companies very rapidly make this move over to managed services, it's not lost on me that midsize and smaller companies are paying attention. I literally was in a meeting this past week where someone indicated they felt like they would be at a disadvantage, if they did not move forward with this and capture the 200 basis points of NOI that's available to them. So what we're seeing is an accelerating movement to managed services, led by larger companies. We think that's going to be followed by medium and small-sized companies. Unknown Analyst: Got it. So it certainly sounds like there's a lot of early success with kind of the new sales and marketing efforts. I'm curious, as we sit here today with, I think you said 5% of the pipeline being Network-as-a-Service, how do you go about trying to increase that share over the next year from a sales and marketing perspective? And just any color on kind of the strategy to expand that part of the business would be helpful. Barry Rubens: Sebastian, would you like to handle that? Sebastian Shahvandi: Yes, absolutely. Great question. Look, as we have a focused approach to where we're targeting and how we're going about it, our -- some of our focus is going towards the smaller customer base or the smaller prospects that have moved to lighter portfolios and capital is not readily available for them. In order to get to the kind of NOI increase that they want, the Network-as-a-Service offering is the best offering for them that they can start quicker with real capital out of their pockets. And so by targeting those specific size portfolios, we're able to have more penetration into that growth side of that business as well. Operator: The next question comes from Derek Greenberg with Maxim Group. Derek Greenberg: Just continuing off the last one. I was wondering maybe how you view the potential time line in terms of beginning to generate revenue from the Network as a Service offering. Sebastian Shahvandi: Well, Barry, I can take this as well. Sure. Look, Network-as-a-Service offering is a conversion, right? It's not like new builds that we have to wait after the contract is signed for the property to be built up and so on. Network-as-a-Service, typically, if you look at from contracting being done inside, you can look at 3 to 6 months for it to get started depending on the size of the property and the kind of the work that needs to go into it. We're also seeing on a lot of these conversations that we're having with the Network-as-a-Service offering with the current prospects is the conversation moves a little bit faster than new builds as well. So all in all, as I mentioned, post contract signing, you can think about 3 to 6 months to starting the revenue side. Derek Greenberg: Okay. Great. And then in terms of just your expenses. I was curious looking at the fourth quarter this year, how much of G&A was like onetime expenses related to the IPO? And what do you expect expenses to kind of revert to or hover around going forward? Barry Rubens: Sean, I'm going to let you handle that question, if that's okay. Sean Arnette: Sure, absolutely. Derek, we certainly did have an increase in our SG&A in the fourth quarter due to the offering. I think, it was in between 15% and 20% of that was onetime in nature that we don't anticipate continuing. Fully expecting SG&A to come down a bit as we move into 2026 here with a slow ramp through the year in line with the growth of the business. Derek Greenberg: Got it. That's helpful. And then in terms of sales and marketing and specific with the new team investments in that area, I was wondering maybe at scale, what you project it could represent as maybe a percent of sales or percent of total expenses? What do you expect the investments in that to get to over time? Barry Rubens: Sebastian, you and I have gone through that before. Why don't you talk about kind of what the target run rate is for new sales and marketing expenses. And then, Sean, we can put it into a perspective with respect to overall cost of the organization. Sebastian Shahvandi: Sure. I mean for 2026, I think it's around $1.5 million for sales and marketing combined. Sean Arnette: And in terms of overall SG&A, we're looking for that to be about 20% of the expense of the business. Derek Greenberg: Okay. Great. That's super helpful. My last question is just on gross margins. I was wondering if you could maybe talk a little bit about the potential for the business overall as recurring revenue scale. Barry Rubens: Sean, I'm going to let you handle that question. I think it's still in line with what we discussed during the IPO. Sean Arnette: Yes, absolutely, Barry. Derek, the long-term forecast hasn't changed from the discussions at the end of last year during the IPO process. Ultimately, we expect around 15% gross margin on our network construction activities, whereas the recurring service revenue is really where we're going to generate the gross margin for the business with managed service projects realizing in the neighborhood of 60% gross margin over time and Network-as-a-Service projects closer to 75% over time. Operator: The next question comes from [ Deane Pernis ] with Pernis Research. Unknown Analyst: Congrats on the quarter. Had a couple of questions. Number one was in regards to Network as a Service with your sales and marketing. So when you first, I guess, start conversations with these customers, do they -- are they aware of your services? Does it kind of start from a level of 0? Or are they already kind of familiar with services you provide? I'd love to just know more about that. And secondly, on kind of future financing, I would love to know how you're planning on financing future growth through equity versus debt and if you're in talk with any capital partners or facilities that you're in talks with? And just how you feel about the balance sheet as of right now? Barry Rubens: Dean. Thanks for joining the call. Good to hear from you. Sebastian's team has been engaged most recently with folks. So I think on that first part of the question in terms of the familiarity that our customers have, maybe Sebastian, you can add some color to that. And then I thought Sean could handle the balance of that. Sebastian Shahvandi: Happy to. So as far as your first question, do they know us as far as what offerings we have? The way we approach it is this. When we are going after prospects, as I mentioned earlier on our earnings kind of report, the approach is very strategic. It's very well targeted. So we have a really good idea of the portfolio size of customer base we're going after. And in that way, as we approach them, we know which ones to position first and second. That being said, we don't exclude any of the offerings that we have. But if we're going after someone who has a smaller portfolio, we let them know that the NaaS offering with 0 capital expenditures from their side could be more attractive to them. And then if they have funding available or capital available for themselves, we provide them the managed service offering as well. So it's not a one or the other. It's more of here's everything that we have available, starting with the size of the customer, the persona we're going after and who we're talking to at that point. Sean Arnette: Sorry, Dan, I'll address the rest of the question in terms of the balance sheet, which for Elauwit is stronger than it's ever been right after the IPO. We feel great about the position we're in and the ability to leverage that balance sheet for project financing. So when we look out, we certainly expect to be able to fund Network-as-a-Service projects predominantly from debt with a small bit of equity capital off the balance sheet. We are talking with a variety of different type of capital partners working to tease out the most efficient way of delivering financing for these type of projects. But we do have one existing relationship as disclosed in our filings with Endurance Financial, a debt partner that has supported us from the early days and ability to move very quickly should Network-as-a-Service opportunities come about quickly, but certainly looking to find a bit of efficiency in terms of how we fund projects moving forward. Operator: This concludes our question-and-answer session and concludes the conference call today. Thank you for attending today's presentation. You may now disconnect.
Sean Peasgood: Good afternoon, and thank you for joining us for Intermap Technologies conference call to discuss its financial results for the fourth quarter and full year 2025. [Operator Instructions] Certain information in this presentation constitutes forward-looking statements, including statements regarding revenue growth, conversion of government awards, timing of revenue recognition, expansion of recurring commercial revenue, capital deployment, and future operating performance. Forward-looking statements are identified by words such as anticipate, expect, project, estimate, forecast, continue, focus, will and intend. These statements are based on current assumptions and involve risks and uncertainties, including availability of capital, revenue variability, timing and the structure of government contracts, customer concentration, economic conditions, competitive dynamics, technology risk, cybersecurity and other factors described in Intermap's public filings. Actual results may differ materially. The company undertakes no obligation to update forward-looking statements except as required by law. With that out of the way, I'd like to pass the call to CEO, Patrick Blott. Go ahead, Patrick. Patrick Blott: Thank you, Sean. Good afternoon, ladies and gentlemen, and welcome to Intermap's financial results conference call for the fourth quarter and full year 2025. I'm Patrick Blott, Chairman and CEO. Today, I'll provide highlights from the year, along with a business update and outlook. I'll then turn the call over to Jennifer to review our financial performance in more detail. Revenue was $10.6 million compared to $17.6 million in 2024. Fourth quarter revenue was $1.6 million compared to $7.4 million in the fourth quarter of 2024. As has been previously detailed, the decline in total revenue reflects delays with follow-on awards for Indonesia and U.S. government programs. Meanwhile, our commercial revenue grew strongly year-over-year, driven by customer adoption of our technology advances, including proprietary AI capabilities. In our Czech market, the beta introduction of the Risk Assistant saw 8 leading insurers representing more than 90% market share of the multi-perils market adopt Intermap's AI-assisted risk platform with major providers such as Generali already expanding their usage throughout Europe. Our precise object level evaluation supports more informed underwriting and reinsurance decisions at scale and with automation. We estimate this to be a $1.2 billion addressable market globally given the large protection gaps. Indonesia is progressing through a World Bank-sponsored procurement process, and we have been down selected across all 4 remaining lots, representing a potential $200 million opportunity. Intermap has positioned itself through advances in its commercial business and technology as a leader in the technologies required to achieve data sovereignty, provenance and custody objectives for governments as they increase focus on their national security. This is also happening in Indonesia. Governments around the world are worried about their sovereignty. They're worried about their data security, and Intermap is one of a small number of contractors that has both past performance and an installed base where we can provide military-grade data with assurances. We are also in final contracting on several U.S. government programs that were delayed due to the federal budget process. These are funded programs where we have a strong visibility toward award. Similar to our proven commercial offerings, these data solutions offer assured position, navigation and timing at scale with quality that is investment grade and suitable for large-scale automated deployments. Together, these government delays account for essentially all of the year-over-year revenue decline. The business itself is stronger than ever. Subscription and data revenue grew 29% to $5.2 million and is now our largest revenue category. We invested significantly in the business with over $1.8 million in technology upgrades, people, fixed asset and capacity expansion and $3.9 million to reduce liabilities and improve our working capital position and credit profile, lowering our cost of capital. Excluding currency fluctuations, working capital and the fixed asset investment, cash flow from operations improved 30% compared to last year. The business operated at cash flow breakeven while we invested in growth. We strengthened the balance sheet, ending the year with $22.5 million of cash and $24.6 million of shareholders' equity. We upgraded our audit to the more rigorous PCAOB standard and hired MNP to see Intermap through its road map towards an uplisting to the NASDAQ and a U.S. registration at the appropriate time. The underlying business is growing, scaling and better positioned than at any point in its history. We affirm our guidance of $30 million to $35 million revenue with a 28% EBITDA margin. And with that, I'll turn the call over to Jennifer to walk through the financials in more detail. Jennifer? Jennifer Bakken: Thank you, Patrick. As a reminder, we report our financial results in U.S. dollars. As Patrick mentioned, revenue for 2025 was $10.6 million compared to $17.6 million in '24. As we previously discussed, the decline was entirely attributable to delays in the follow-on work on Indonesia and U.S. government programs rather than any loss of existing programs. Operating loss for the year was $6.9 million compared to operating income of $2.5 million in the prior year. Net loss was $6.7 million compared to net income of $2.5 million in 2024. The year-over-year change was primarily driven by lower revenue related to contract timing, along with increased fixed costs as we continue to invest in our infrastructure and capacity to support expected growth in 2026. Turning to the balance sheet. We ended the year with cash of $22.5 million compared to $400,000 at the end of '24. Shareholders' equity increased to $24.6 million from $3.7 million over the same period. Our current ratio, which is defined as current assets divided by current liabilities, improved significantly to 5.2x at year-end '25 compared to approximately 1x at the end of the prior year, reflecting the substantial strengthening of our balance sheet and capital structure. These improvements were driven by financings completed during the year as well as the timing of government program execution and related revenue recognition. Overall, we believe our improved liquidity and capital position provide a solid foundation to support our expected growth in 2026. I'll now turn the call back to Patrick. Patrick Blott: Thank you, Jennifer. We're on Slide 5. The revenue mix shifted towards recurring and subscription data. Subscription and data revenue grew 29% to $5.2 million and represented 49% of total revenue. That growth was driven by expansion of our insurance analytic platform and broader enterprise adoption of our subscription offerings. While Acquisition Services declined due to the timing of large government programs, the overall business continues to shift towards recurring, higher-margin subscription and data revenue. During the year, we made substantial progress across the business. We strengthened the balance sheet through financings completed in February and September. We advanced large government opportunities, including with Malaysia, Indonesia and the U.S. government. We expanded our commercial insurance analytics platform. We deployed the AI-enabled Risk Assistant. We also completed infrastructure upgrades, including GPU capacity and security enhancements to support scalable delivery. In terms of priorities, we're focused on converting a large and growing government pipeline into contracted awards, particularly in Southeast Asia, starting with Indonesia and Malaysia. We're converting contracts in task orders for the U.S. Defense Department and FedCiv customers, and we're expanding geographically into South America and Europe. We're scaling recurring subscription data and analytics revenue, leveraging the Risk Assistant framework to accelerate adoption, growing deeper into the market opportunity globally, expanding into additional vertical markets that leverage our military-grade technologies and autonomous navigation and telecommunications. And we're allocating capital with discipline, both in partnership with previously announced DARPA programs that fund emerging dual-use geospatial technologies and while supporting key internal growth pursuits and product development with a focus on high-margin API-enabled recurring revenue. And we're leveraging our strengthened balance sheet to compete for larger, longer duration programs. We're now ready to move to the Q&A section of the call, and I will pass the call back to Sean. Sean Peasgood: Great. Thanks, Patrick. [Operator Instructions] First question, there are several questions on Indonesia. So do you have any color that you can share with respect to the drivers of the delays in the process? It looks like the technical component of the evaluation was completed last Thursday based on the publicly available schedule. How do you feel about the remaining milestones? And do you have any color on the competitors that cleared the technical component? Patrick Blott: Yes. I've mostly shared as much as we can share, but I can say that, I mean, it's a big program for them and us, but it's a big program for them. And it involves the World Bank. It involves layers of decision-making and approvals and a process that's new, and it's -- that's the driver of the delays. Sean Peasgood: Okay. And then no comment on the competitive side of things at this point. You don't have that information or not able to comment? Patrick Blott: Yes. Yes, we're not commenting on the competitive stuff. Sean Peasgood: Okay. Yes. So if that's it on the Indonesia stuff, I think we really don't have limited things that we can talk about. So on the Malaysia flood mapping contract, can you discuss if any revenue from Q4 was recognized from that contract? And then any insight of further opportunities from that initial contract in Malaysia? Patrick Blott: Yes. I mean that is actually several awards under a program there, which we've announced the award of one, but that is 2026 revenue, all of it. Sean Peasgood: Sorry, these questions are still coming in here. Can you speak about the uplift in the U.S.? Maybe just give everybody an update on that. Patrick Blott: Yes. I said before, I mean, it is a priority for the company. It is a strategic objective. And we're on a road map. There's a lot of things logistically that need to get done. A couple of big ones have occurred, including the foreign private issuer filings, the uplifted audit to the PCAOB standard, but the registrations and the uplisting are something that we're going to get done. Valuation is a factor. So it's going to get done at the appropriate time. Sean Peasgood: Can you -- while you can't talk about competitors, do you still feel that Intermap is the only company in the world that meets the technical capability to take on the contract? I'm assuming the Indonesia one is what they're referencing. Patrick Blott: I believe that. And most certainly, that applies to the past performance. Sean Peasgood: On the commercial side, obviously, there's a bunch of growth there. Can you talk about anything outside of insurance? Are there other drivers other than insurance in the commercial business that people should be looking at? Patrick Blott: Yes. I mean again, large-scale data problems, right? We sell it similarly. The customers consume it in a very similar fashion, but they consume it for different use cases. And -- but large-scale data problems, particularly things like autonomous navigation, which is a big one and also communications and signals, signals monitoring signals propagation, that's another big one. And so there's a variety of verticals that are benefiting greatly from the availability of what was once just high side classified military data. And now it's being used to solve big problems and at scale. So where there's commercial big problems at scale, that's where our data may be a good fit. Sean Peasgood: Next question. Given that AI companies seem to be eclipsing software companies these days. Where and how do you characterize Intermap on the spectrum of software versus AI? Patrick Blott: Yes. I mean that's a good question. I was invited to a government-led conference for mostly a government audience just a couple of weeks ago, military and intelligence where people are very focused on that and essentially leveraging the AI because from our perspective, where we use it, and we use it in about 5 different work streams at Intermap in terms of both product development and capability development. And then we market it, we have actually marketed and sold a product that is a agentic AI product. So we're pretty familiar with it. We've been working with machine learning and AI for a long time. We've had the GPUs in place for years now as we -- because we have one of the largest commercial archives in the world, right? We have training data that's unmatched at global scale. And so this is a capability that isn't new to Intermap. But what's happening is it is making our people much more effective, and it's making our customers and the products that we sell them much more accurate. And so speed and accuracy is where we focus and AI is helping us move the football there. But what -- I mean, Intermap fundamentally is a data company, right? People are consuming points. The more the more points I sell, the more money we all make. We're not -- people consume through various software features. And if I can find ways to make points easier to consume, especially for nonexpert users, I'm expanding my markets. So AI for us has been a huge help in terms of adoption, especially with new data sets as we try to get our customers to adopt more data and new data and integrate different data, AI has helped us do that. And I think it's a good thing. So that's where we -- I mean, we do definitely have software coders, but the software coders are using it, and it's making them more effective and faster. And we have also very strict -- I mean, it's not a consumer quality AI. We're dealing with, again, mil-spec data and some government and strict requirements. So things are happening pursuant to rules, and they're happening in ways that are very closely monitored as well. Sean Peasgood: Okay. Great. I had a few people asking this. So just back to Indonesia, this question says, Indonesia had a fairly limited number of bidders to begin with. So what does down selection mean in this context? And maybe just -- I don't know if you just described your term, down selection, but I did have some other people ask me right after the news release went out. Patrick Blott: It's a great question because it is a silly word. I mean it; means selection. How it became down selection, I'm not sure, but that's the universal term in government land, both in the U.S. and Canada and everywhere else when you get -- when you go through a process and you compete and you get selected, they call it down selected. Sean Peasgood: Right. Okay. Great. Just on the pipeline. So on other national mapping programs, what does the pipeline look like? And are any of these opportunities looking like a 2026 contract time line? Or should we think about those in 2027? And how important is winning Indonesia to winning these further programs? Patrick Blott: They're separate, not important at all, I would say, to the other programs. And they are in Southeast Asia, but also in other areas of the world. And there's a lot of activity going on. So I think the answer to the question is, yes, 2026, and they're not -- they're correlated in the sense that past performance matters everywhere, right, especially with larger programs. Nobody really wants to -- especially in governments, which tend to be risk-averse, they don't want to take a flyer on providers that have never done it before when the dollars are large. They might take a flyer for small dollars, but for large dollars, they want past performance. And so past performance matters. And to that extent, there's correlation there because it extends our past -- the first phase of Indonesia extends Intermap's past performance at an extremely high specification that then a lot of people around the world look at. So that's -- to that extent, they're correlated. But otherwise, they're not related at all. Sean Peasgood: Okay. Great. I do have a follow-up from the AI question. So how likely are large AI companies to replicate Intermap's technology? What is your competitive advantage in this regard? Patrick Blott: Yes. Again, I'll say it again, we're fundamentally a data company. So AI can't create data. And if it does create data, that's what we would call synthetic. So a synthetic data, you can't use for many things that our customers use data for, like you don't want to fly an airplane with a synthetic data. So it's not -- how we deliver and consume, we do try to make the consumption of our data as easy as possible. We use software to do that. And also, we want to do it at scale, right? Think of 1,000 points of light. We want to be able to deliver data into automated systems. Our insurance underwriters are pulling in excess of 5 million points a month. That's huge -- a human can't do that, right? Like a human can't look at a screen and underwrite risk at that scale. So in order to consume the data, we take every advantage we can in terms of software, AI, whatever that allows our customers to do their job in larger and larger ways. That also affects the military. Anybody can pick up the front page of any news recently and just see the evolution of targeting from looking for a bad dude in the war on terror 10 or 15 years ago to looking at literally hundreds concurrently in the current -- it's all about scale, it's all about automation. We're right in the sweet spot of all of that. AI is our helper. It's not particularly a threat because at the end of the day, people -- we want people to consume as much data as possible. Sean Peasgood: Okay. Next couple of questions on U.S. defense contracts. So have you got any traction on the key U.S. defense contracts? I know you mentioned it in your opening remarks, but any other comments there? And then are you -- again, on the pipeline there in the defense side, are there other opportunities that you haven't talked to that you're working on? Patrick Blott: Yes. And we'll announce when we can -- I mean, I can say this, we're in funded programs, and we're in contracting. So I have a pretty decent visibility, and we'll announce as soon as we can, but it's got to be inked. Sean Peasgood: Okay. This one on the World Bank. Does the World Bank have a time line on when the allocated funds need to be spent? Patrick Blott: That is a very good question. It's above my pay grade. That is a government to government Indonesia to World Bank. It's not us. Sean Peasgood: All right. I'm just looking here if there's anything else in here that we haven't hit on. Well, how many aircraft are you currently operating? And how many do you have in your fleet? Patrick Blott: We're not disclosing that, but we have more than we need, and it's not just aircraft. Sean Peasgood: Okay. Oh, from the revenue guidance for 2026, can you talk to how much of Indonesia is reflected in that 2026 number? Patrick Blott: I mean the way that we do it is we take a whole array of the pipeline, which is a factored pipeline, which is coming in from a whole bunch of different sales reps focused on a whole bunch of different things. And so it funnels through that and gets probability weighted and is basically a multi -- at the end of the day, becomes a multi-pathway. Any one of -- Indonesia is published -- it's a published budget. It's a published requirement. It's a published schedule. I'm pulling -- I don't have these numbers right in front of me, but 20% to 30% upfront of Indonesia is at least $40 million to $50 million a day the contract signed. So like pulling out any particular one is not the way that we do it, and I don't think it's the right way to do it. Sean Peasgood: So assuming you won Indonesia would be conservative. Okay. I don't think there's any other questions. And if there are, people can e-mail us if I've missed any. There are a lot in here, but a lot of them are just more on Indonesia, which we're not going to comment on or specific customers, which we're also not going to comment on. So I think with that, Patrick, I'm going to pass it back to you for closing remarks. Patrick Blott: Struggling with my mute here. Thank you for joining the call today. We look forward to updating you on progress in future quarters. Sean Peasgood: This concludes Intermap's Fourth Quarter of 2025 Conference Call. We thank you for joining us.
Operator: Good afternoon, ladies and gentlemen, and welcome to the everplay group plc Full Year Results Investor Presentation. [Operator Instructions] Before we begin, we would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from everplay group plc. Mikkel, good afternoon, sir. Mikkel Weider: Good afternoon, and thank you very much. And welcome, everyone, to this 2025 results presentation. I am, as mentioned, Mikkel Weider, I'm the CEO of everplay; and with me is, Rashid Varachia, our CFO. We'll take you through the year of 2025 and look a little ahead. But since most of you probably haven't met me before, I should probably say just a few words about myself. So I have started several gaming companies during my life, including Nordisk Games, which grew to 1,300 employees via M&A and organic growth. I was the founder and CEO for 7 years. So we invested in or acquired 9 different game studios, including Avalanche, Supermassive, Raw Fury and MercurySteam. I have been at something like 15 different boards, mostly game companies and worked with games of all sizes from indie games and UGC to AAA. So when they called last year from everplay, I was engaged with a handful of different game companies, but I thought the opportunity sounded a little too exciting. So I really like the strategy and the people I met during the process. So I said, yes. And I started on January 5, just a couple of months ago, and I will talk a little about my early findings and thoughts later in the presentation. But first, let's look at 2025. So 2025 saw solid revenues of GBP 166 million, which is up 5% when excluding physical distribution and the performance of our new releases were really good. We saw an 11% growth in adjusted EBITDA for the year, reaching GBP 48.5 million, of course, which represents a 29% margin, which is up 3.1% from the previous year. We will pay a total dividend for the year of 2.9p per share, representing a payout of GBP 4.2 million in total. We ended the year with almost GBP 52 million in cash despite active M&A activities and dividend payouts. Overall, we are set to grow. We have a very nice pipeline of games coming out, many new partnerships and a strong back catalog. So our strategy remains on track. So what happened more in 2025? Well, we launched 11 new titles. They overall performed very well. They actually generated 80% more revenues than all the new titles in the past year. We signed several new large partnerships. We took a minority stake in Super Media Group connected to a strategic partnership with Bulkhead. We acquired the rights of the popular Hammerwatch franchise, including a range of long-term publishing rights. Now if we look a little at the specific companies, Team17, our largest company, had a very nice year, reached more than GBP 100 million in revenue and 20 million units sold. I would also say the quality of our new releases in 2025 were a lot higher than the previous year, reaching an average user score of 87% compared to only 61% the year before. So a big shout out from me to everyone who worked on these games. Date Everything! was the breakaway hit of the new releases with more than 750,000 copies sold. Yet our back catalog still accounted for 75%, which I think is really good and very high compared to most game studios out there. And I would say it's fair to say that 2026 looks even better with more than 10 new games coming out, which is more than twice the releases of last year and also including some really big ones, Hell Let Loose, Golf With Your Friends 2 and Wardogs. It's worth mentioning that the brunt of releases will come out in the latter part of the year. Now astragon, on the other hand, had a less good year than Team17. We terminated the physical distribution business, which hurt the top line, but streamlined our business. But we also saw underwhelming launches of the 2 main new titles during the year. Seafarer had a rocky launch in early access with several box and issues and Firefighting Simulator: Ignite was a better launch, but still saw less traffic and sales than we hoped for. So we are currently improving and adding content to both games. Seafarer will come out of early access and into full launch at the end of the year and should be in a much better shape at that point. We also lacked important large update for our main titles, which we are changing now onwards. In 2026, we look forward to several new releases, whereas not all have been announced yet. We are cautiously optimistic for the year. Lessons have been learned and more content is coming out. As for Team17, the larger launches will also fall in the second half of the year. So of course, when one company is under delivering, it's, of course, nice to have a portfolio of companies. So we are not too dependent on a few launches. And StoryToys had a really, really great year. Revenues rose an impressive 25% to GBP 30 million. And StoryToys did 740 updates during the year, which is about 3 launches per workday and 40% more than the previous year. And we ended the year with 376,000 active subscribers. Growth came from several places. StoryToys had a highly successful launch of the LEGO DUPLO app, LEGO Bluey app, which had more than 1 million downloads in the first month and also reached #1 in the app stores. StoryToys also secured several new partnerships and license agreements, including some large partnership with both Netflix and Apple. If we look ahead, 2026 has started well. We crossed 300 million downloads in the beginning of the year, and we have a lot of content coming out mostly on existing apps, but also a couple of new and unannounced apps. And now over to Rashid for a more financial review. Rashid Varachia: Lovely. Thank you, Mikkel. Hi, everyone. So group revenues were broadly flat year-on-year at GBP 166 million, but excluding the physical distribution, which we exited during the year, they were 5% up year-on-year. And the growth drivers coming from the success of our new title releases such as Date Everything!, Bluey, Worms Across The Worlds and Apple Arcade and then the new strategic partnership deals with Netflix Games. Team17, as mentioned by Mikkel, was 8% up year-on-year, reaching a record GBP 106 million with 20 million units sold. Six new games drove a 700% increase in new release revenues and outstanding performance from titles such as Date Everything!. Other titles included SWORN and Worms Across The Worlds and Apple Arcade. Back catalog contracted by 13%, mainly due to strong performance from Dredge in 2024 and revenue generated from fewer new title releases in the prior year. astragon was the only division which contracted with a decline of 33%, in part driven by a strategic decision to exit low-margin direct physical distribution. Excluding physical distribution, astragon revenues decreased by 18%. Two new titles were released during the year, Firefighting Simulator: Ignite and Seafarer: The Ship Sim, both performing unfortunately below expectations. But we're expecting the business to bounce back in 2026. And then finally, on StoryToys, outstanding performance where revenues were up 25% to GBP 30.4 million. They released 740 app updates. Subscriber numbers increased to 376,000 with peak monthly active users of 12.9 million, reaching 286 million lifetime downloads. Performance driven by a major new Netflix and Apple game partnerships, including LEGO DUPLO World and Barbie Color Creations, along with 3 launches on Apple Arcade Greats. Next slide, please. Thank you. New release revenue increased 80% to GBP 41 million versus GBP 23 million in FY '24 due to an increased number of titles and stellar performance of Team17 titles and LEGO Bluey from StoryToys. Our back catalog contributed 75% of group revenues, which was in line with its 5-year average. The total back catalog revenue were GBP 125 million, which was a 13% decline versus prior year. This was on the back of an exceptionally strong FY '24, which grew by 27%. First-party IP revenue declined 9% to GBP 56 million, reflecting a softer performance at astragon. Team17 was up 2%, supported by Hell Let Loose and Golf With Your Friends. And finally, on this slide, third-party revenue grew 4% to GBP 110 million with strong contributions from the overcooked franchise, Date Everything!, Dredge and LEGO DUPLO World. Gross profit increased significantly by 10% to GBP 76.3 million, where gross margins increasing by 4.4% to 46%, mainly due to exit from physical distribution business and no material impairment. And just as a reminder, during FY '24, a GBP 4.6 million charge was booked for title impairment. Overall, royalty payments were lower year-on-year due to a favorable sales mix at Team17 and a higher weighting of StoryToys revenue, which carry lower royalty levels. And then finally, expense development costs increased modestly to support expansion onto new subscription services, for example, Worms Across The Worlds on Apple Arcade and LEGO DUPLO World. Significant improvements on adjusted EBITDA, which grew just over 11% to GBP 48.5 million. Adjusted EBITDA margin also increased 3.1%, reflecting higher gross margin and flat admin costs. Acquisition-related adjustments declined from 13.8% to GBP 12.1 million due to the end of acquisition-related incentive payments. And net finance income increased to over GBP 1.2 million, and the effective tax rate increased from 24% to 25.5%. And then finally, adjusted EPS increased 7% to 25.7p. There was an GBP 8.2 million increase to GBP 33.3 million on capitalized development costs. This was due to Team17 and the new titles such as Golf With Your Friends 2, Hell Let Loose: Vietnam and astragon, both Police Sim and Ranger's Path. The current year for cap dev in terms of FY '26 is forecasted to be GBP 45 million. Again, this is mainly due to the investments in first-party IP such as Wardogs, the Hell Let Loose franchise, which we have much better visibility over. However, this has led to an increase in terms of cap dev. And then finally, on cash, our cash position was GBP 51.9 million versus last year and increases were driven by our dividend payment during the year, increased tax and then also increase in acquisition-related payments. But overall, our variances included working capital and capital development. And as mentioned earlier by Mikkel, I'm pleased to announce a 2.9p per share dividend. Mikkel Weider: Yes. And now I wanted to say a couple of words about my first 3 months. It's, of course, always interesting to start in a new business and coming into a company with fresh eyes, so -- and see a little from the outside. So I wanted to take this opportunity to give my view on the company after close to 3 months in. So yes, it's always a little exciting to start a new job. Is everything as good as they told you in the hiring process? Or do you uncover larger problems once you're on the inside? Well, fortunately, I can say that the company is in better shape than I had hoped for. Yes, there is stuff to work on for sure. But overall, I'm very impressed with the company and the organization despite the stock being pretty weak in the recent weeks. There is a good energy, I think, in the company and the culture is strong. While there has been several changes in the management in the last years, especially in Team17, I feel we have a range of great people now to take the company to the next level, and we are well positioned for growth. The back catalog is also as strong as I could have hoped for, which creates stable cash flows and predictability, which is really nice, of course. I already like the vertical strategy of the company with focus divisions before I joined. But getting on the inside, I can really appreciate the focus of each division. If you like an astragon or StoryToys game, you'll most likely like the new games coming out from them as well, and Team17 can also do a lot of cross-promotion between titles. Some of the stuff I would like to focus more on in the coming years are to have a stronger tech focus, including AI. I also like to look more at processes and reutilization. So we want to add more service elements and upsells for evergreen titles, for example, having more paid DLCs attached to our bigger games. And I'm also looking at how we can work more together and create synergies across the group. And of course, we want to do more M&A. So over the last 18 months, my predecessors have worked with different strategic pillars. And I think there overall has been good progress on these pillars in 2025, and these are pillars that I support as well. So there was an ambition to strengthen our first-party IPs that is IPs and games we fully own ourselves, something I definitely think is a good idea. And in 2025, we launched 2 new titles with first-party IPs. And we have 10 projects in the pipeline for our owned IP. So I think there has been good progress there. Another focus has been to find and grow new innovative third-party games that is games made by other companies with their IPs. There has been solid progress here as well. Date Everything! was a breakaway hit, and we have more than 10 new third-party games coming out already in 2026. A third focus has been to be very mindful of costs and to improve margins. Gross margins, they are up 4.4% and adjusted EBITDA was up 3.1%, which makes the company a very profitable one compared to a lot of our peers. And finally, we wanted to drive more growth. Well, adjusting for the removal of physical distribution, the company did see growth after all, and we also managed to acquire IPs and games for the future back catalog. On the organization side, there has been several changes. Aside from having a new CEO, me, if you're in doubt, Team17 promoted Harley Homewood to be the General Manager in November, and he's really doing a good job so far. In Team17, we have recently regrouped our games in 3 overall pillars with a franchise director for each, so we more easily can reutilize knowledge, technology and do cross-promotion within the clusters. In astragon, we have exited the distribution business, but also slimmed the organization overall to focus on the core titles, and we now have a more simplified organization, making it easier to get higher margins again. In general, we want to scale without adding proportionally more people. I think it's important to stay nimble and agile and use technology and processes in smarter ways. An example of that, Team17 has more than twice the amount of launches in 2026 compared to last year, while not adding to the total headcount. I think that is quite impressive. Finally, we have hired a few additional central resources to assist all divisions. And overall, we are creating a stronger foundation for organic growth and acquisitions. As mentioned, I want us to become stronger in tech and AI. And as many of you know, AI has evolved a lot the last months, really empowering developers in tech. New tools and AI will allow us in everplay to, a, create more and larger and richer games while not adding costs; and b, also help us optimize our internal processes and logistics. In general, I actually think AI will result in a greater demand for publishers like us, someone who can help developers games to stand out in the crowd. With more games being launched, discoverability will definitely be key onwards. So in many ways, AI strengthens our reasons to be. In the meantime, it's, of course, very important we follow the evolution closely to reap the fruits, we need to be at least early adopters. We need to be stellar in marketing and publishing, and we need to be very agile and adapt to changing technologies while still doing it in an ethically correct way. We've been working with AI for a while. We have an AI council and AI tools for all our people. And we have various cases across the group, cases we want to expand on and distribute across the group. Some examples, StoryToys are actively using AI in engineering, doing 40,000 lines of code per month. We're also using AI in QA several places, for example, for performance testing and [ automatization ]. But as mentioned overall, we can go further, and I want to empower our employees even more. And now a short break from talking. Let's watch a show reel of some of the games coming out this year. [Presentation] Mikkel Weider: A lot of nice games, if you ask me. So some of the bigger titles this year are Hell Let Loose: Vietnam, Golf With Your Friends 2, Bus Simulator, Silver Pines, Wardogs and some pretty interesting unannounced titles we look forward to presenting later in the year. And now for the last slide of the presentation. Overall, I believe we are well positioned to continue the growth with a strong pipeline and back catalog. As mentioned earlier on, some of the larger games are scheduled for the second part of the year, which gives some additional weight to H2 results. But overall, we are confident we can deliver the adjusted EBITDA for 2026 in line with the current market expectations. Looking to the midterm, we are investing in several of our larger first-party franchises with games coming out over the next couple of years. We are very happy about these investments, and we think they will bring great returns and strengthen our portfolio considerably. And with these words, I think we can conclude the presentation. We will now take questions hosted by James Targett, our Head of Investor Relations. So James, come on board and tell us if you have some questions already. James Targett: Yes. Thank you, Mikkel. I do have some questions, which have come in from shareholders. First of all, your thoughts on capital allocation, particularly how you think about M&A versus share buybacks currently? Mikkel Weider: Do you want to say some words on that, Rashid? Rashid Varachia: Yes. Obviously, capital allocation, very important to us. We're hugely cash generative, and we're always very conscious in terms of how that cash has been deployed. But we also -- it's also important to note last year was the first year whereby we actually reported a dividend payment. And so we will continue in terms of our journey in terms of capital allocation. We want to do M&A, and it's great that we have the funds to do M&A. But in terms of share buyback, it's very unfortunate where we find ourselves with our share position and share price position this week. And it's something that the Board will continue to review and discuss, but no immediate plans for any action on that at the moment. James Targett: Thanks, Rashid. Mikkel, one for you on AI. There's been a lot of narrative over the last few months that AI will disintermediate software businesses, make them less relevant. Could you address that directly for everplay and outline why developers won't be able to go straight to players and bypass Team17 or everplay? Mikkel Weider: Yes. No, no, I think it's a very interesting topic. So first of all, we don't see clear indications that there will be like one person in a basement ticking a button and suddenly having a wonderful game. There will certainly be a lot of low-quality games out there, but games of a certain quality will need like a team around them. However, that -- those teams, they can really be empowered by AI. And we are very used to working with small and agile teams of like 3, 4, 5, 7 people. And I think that's really what you need to make a quite powerful games -- game these days. I would be a little more worried if we had like 300 people working on a AAA game, and we've been working on it for 3 years on a very old engine, and it's coming out in 2 years or something like that. But I actually think we are really well positioned to work with smaller agile teams using powerful tools. Now of course, yes, there will be -- I'm sure there will be a lot more content coming out, but then it will be super important to have someone help kind of like connect the gamers with this content. And here, I think we are, again, really well positioned, helping teams out there where they can focus on making cool games, and we can get them in front of a much bigger audience. So maybe a little like today where everyone of us on this call, we can easily upload a video to YouTube, but is it going to be watched very much? Well, most likely not. And whereas there are some really big content creators out there who are very professional in their output. And that's where we want to be, like either the professional YouTubers or the -- or like closer to the Netflix. And it's not like Netflix has not been able to grow while YouTube was there. So I think we're going to live pretty well actually in that intersection, you can say. But again, we have to be on the top of our game here, like we can't just sit and wait for this to happen, like we're going to actively embrace it. And hopefully, we'll be a disruptor instead of getting disrupted ourselves. I think we have a good chance of that. James Targett: Thanks, Mikkel. Rashid, one for you. Are you concerned about the rise in development costs compared to the previous years? And how does this support the midterm growth? Rashid Varachia: Yes. So not concerned, James, because there's reasons for the increase. We came off the back of '24, whereby it was an all-time low in terms of cap dev. We had impairments back in '23, early part of '24. But this is a growth for our future. So I'm hugely excited. We've got some fantastic new games coming. We've already said this year, there's going to be at least 15 games, 15 new games. And it's investment, as I said earlier, into our first-party titles. And towards the end of last year, we invested in the Super Media Group, the Bulkhead team who are responsible for Wardogs, a fantastic game, massively excited. The games coming out later this year, but that does require capital investment. So a combination of Wardogs, our own IP and the team at StoryToys are also growing significantly. Unfortunately, we can't announce everything on this call, but there's some really great games coming from the StoryToys team as well. So that has led to an increase in cap dev, and the way we like to -- well, how I like to forecast is I'm fairly conservative. That's reflected in the numbers, and we should see growth in future years. Last year, we had 3 upgrades. So all being well, we'll beat the current expectations. James Targett: Thanks, Rashid. A question on how we decide about acquiring IP versus building IP internally. Maybe that's more for you, Mikkel. Mikkel Weider: We'll do both, you could say. Our core business is to build our own like to grow organically and invest in games that we -- as we do today. And then, as Rashid also mentioned, sometimes when we know something is working, we can take -- we can do a bigger investment in that title based on like, let's say, Hell Let Loose. It's such -- there's such a huge fan base. So it feels much more safe to kind of like do more within that IP than trying something completely new. On the M&A side, we are interested in looking around, and we're going to be super structured about it. And we're going to be highly picky with what we potentially buy. We're going to say no and no and no and no, and then maybe we're going to say yes to something because it has to sit really well with us for us to buy something. We are -- would potentially like to buy IPs and games, so assets because we can actually handle assets in our company, which is much better than in my previous company, for example, where we always had to buy like a full team that can handle everything themselves. This time around, we can buy assets and then take care of them for the next 5, 10 years. We can also buy a studio or a company, but then it has to be really fitting with our values and it has to -- that our due diligence has to be very thorough whether we want to take them in or not. And you could say that we -- on our wish list are titles that can bolster our existing divisions and to make a new kind of like forest division would require that it's like really like a standout opportunity. So we'll be active, but very cautious on what we potentially would be buying. And now I'm going to -- I saw a question on the list here as well. And we can, of course, evaluate whether we should buy shares in our own company if we think we are more attractive than anything out there. That's, of course, something to -- we'll be considering along the way as well to get most bang for the buck. James Targett: Rashid, what is the amortization policy for capitalized development costs on larger first-party titles such as Hell Let Loose: Vietnam and Golf With Your Friends 2? Rashid Varachia: Yes, it's very conservative, James. It's 2 years with month 1 being 30% and that hasn't really changed. And it's something which I reviewed when I first came on board. We've taken feedback from PwC as well. And the expectation was we would increase that. But again, with the very nature of how I tend to do things, I'd like to leave it conservative. The Board agrees, we should leave it how it is. But the tail for our titles is much longer than it's ever been. And I think it's a good point -- good place to mention our back catalog because as we said earlier, our back catalog represents nearly 75% of our total revenue. And when we look at our back catalog and we look at the aging of our back catalog, there's still over 50% of our back catalog, which is coming from titles, which is 4 years plus. So a, demonstrating the longevity of our titles, but also the number of titles that we have actually, what I call in the hopper, which is 150-plus titles that we have. So there's no concerns there in terms of our amortization policy. James Targett: Thanks, Rashid. A question from Mikkel. How does everplay, specifically Team17 and astragon focusing on the PC and console business aim to stand out among the growing number of indie and AA releases every year? Mikkel Weider: Well, several answers to that one. One is that we can -- as opposed to most other, we can actually do cross-promotion. So hey, if you like Construction Simulator, you might really like Bus Simulator, for example, like where we stick within our verticals. If you like Hell Let Loose, maybe you're going to love Wardogs. So I think cross-promotion is something that we can do and which is harder for the other. We are great in kind of like getting to a bunch of different platforms, which is quite hard for smaller entities like you don't just immediately get on Xbox or PlayStation or new consoles coming up. So I think the distribution is we have more direct consumer access than a developer typically would have. We know how to operate social media and marketing and outreach and where it gives the most bang for the bucks. Honestly, most developers, they are not very interested in a lot of these things that we are doing, and they are not -- therefore, not very good at it. And we just need to keep being at the forefront of marketing and getting games in front of eyes of other people. So we are also strengthening actually our marketing department, for example, in Team17 because this will be core for us in the future. And then maybe we'll have technology handle some of the -- be more active in other parts of the organization, where -- which is not our core focus. So yes, it's -- we need to keep improving, of course, and being at the forefront. James Targett: Okay. And actually, our last question, maybe one you could both answer to finish with. Is there any particular game this year that you're most excited about? Mikkel Weider: What do you say, Rashid? What are you excited about? Rashid Varachia: I say one, James. I'm going to say 2. I'm going to go Wardogs because it looks fantastic, and it's a bit of me, love a bit of shooting. And then I'm going to go Golf With Your Friends because I'm rubbish playing it. I need to practice a little bit more. Mikkel Weider: You mean you are obviously playing it in real life. Okay. Yes. Okay, then Golf With Your Friends 2 is a little more. Yes, those are good titles. I'm also personally excited about, of course, the Hell Let Loose that we mentioned. I think that like a classical franchise like Bus Simulator has been with us for so many years. And sometimes instead of killing dragons and shooting some, it is actually very, very relaxing and soothing to drive a bus instead. So I think that's going to be good fun. And then, of course, some of the more like indie titles like Silver Pipes, for example, I think looks really exciting. James Targett: Okay. Well, yes, plenty to look forward to. Well, that's all the questions. So yes, Mikkel, over to you. Mikkel Weider: Well, thank you very much, everyone, for joining this call. It's been a pleasure, and thank you so much for banking everplay. Operator: Perfect, guys, if I may just jump back in at this point, and thank you very much indeed for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback. On behalf of the management team of everplay group plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.
Operator: Good morning, everyone. Thank you for standing by, and welcome to BIO-key International's 2025 Year-End Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded today, Tuesday, March 31, 2026. I will now turn the call over to Bill Jones, Investor Relations. You may proceed. William Jones: Thank you, Jerry. Hosting today are BIO-key's Chairman and CEO, Mike DePasquale, and its CFO, Ceci Welch. As a reminder, today's call and webcast as well as answers to investor questions include forward-looking statements that are subject to risks and uncertainties, which may cause actual results to differ materially from current expectations. Words like anticipate, believe, expect and project or similar words identify and express forward-looking statements. These statements are made based on beliefs, assumptions and information currently available to management as of today and pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. For a more complete description of the risks and uncertainties that affect future performance, please see Risk Factors in the company's annual report, Form 10-K with the SEC. Listeners are cautioned not to place undue reliance on forward-looking statements made as of today. The company makes no obligation to revise or disclose revisions to forward-looking statements to reflect circumstances or events occurring after this call. Now I will turn the call over to Mike to begin. Mike? Michael DePasquale: Thanks, Bill, and thank you all for joining us today. After my remarks and Ceci's financial overview, we will open the call to investor questions. As highlighted in today's press release, we had a broad base of achievements in 2025 that position BIO-key for improved top line and bottom line performance in 2026 and future periods. Kicking off the year, we now anticipate Q1 '26 revenue of approximately $2.2 million, representing a 37% increase over Q1 and 2025 and a larger sequential improvement over Q4 '25 as well. We also expect a substantial improvement in our Q1 '26 bottom line performance exceeding each of our fiscal '25 quarters, and although we were disappointed by our 2025 revenue performance, we are now seeing much more urgency and focus from our customers and prospects, to take action in better securing access to mission-critical systems, particularly in the military and defense, financial services and regulated industries. Our 2025 revenue comparison versus 2024 was also impacted by two significant factors totaling roughly $2 million. The first related to a $1.5 million 2-year license renewal with a foreign national bank, the bulk of which was recorded in 2024. This caused roughly an $800,000 decrease in recognized revenue related to this customer in 2025 versus 2024. Despite revenue recognition timing related to this customer, the relationship continues to grow nicely, and earlier this month, they executed an expanded 1-year license renewal of over $1 million for 2026, which represents an approximately 30% increase in revenue over the previous contract. Our year-over-year revenue comparison also reflected the completion in 2025 of our strategic transition to selling only BIO-key-branded solutions in the EMEA region. As anticipated, this transition is beginning to benefit our gross margin and growth prospects as we rebuild our EMEA pipeline with BIO-key-only solutions and sales opportunities that carry substantially higher net margins. While these factors led to lower year-over-year software license, both Hardware and Services revenues grew in 2025 due to the expansion of our customer base and licensed endpoints. Turning to our outlook. Let me review key trends in the enterprise authentication market that support our optimism for 2026. First is the increasing need for secure access to digital platforms and protection against growing cybersecurity threats, which is driving rapid growth in the authentication solutions market. Global sales are estimated to be $23 billion in 2025 and projected to reach almost $100 billion by 2035, representing a compound annual growth of almost 16%. As cybercrime becomes more sophisticated, we expect businesses and governments to increasingly embrace advanced authentication technologies such as those that BIO-key provides to safeguard sensitive information and maintain customer trust. This surge in demand for enhanced authentication solutions is being driven by the widespread adoption of digital services, e-commerce, online banking and the growing use of mobile devices. Authentication solutions, including biometrics, MFA, digital certificates are all crucial to ensure that only authorized individuals gain access to private information or systems. A key gap we fill is that mainstream MFA solutions offer only device-assisted authentication, whereas our PortalGuard platform is a complete MFA offering with phoneless and tokenless authentication that leverages biometrics. Our Passkey:YOU Solution provides web key secured hosted FIDO2 passkey authentication for tokenless, phoneless and passwordless authentication with biometric efficiency. By the year-end 2026, passwordless authentication will be the default for workforce access across almost every enterprise. The shift is being driven by the increased vulnerability of passwords to phishing, credential reuse and account takeover attacks. More than 70% are already moving towards passwordless adoption and about 3/4 of enterprises expect to invest in passkeys or passwordless tools this year. Biometric authentication adoption is expected to continue to grow, particularly in the most sensitive and high-value use cases in the regulated spaces such as military and defense, financial services and health care, where we have already seen growing adoption. The traction we see is also aided by more supportive regulatory frameworks in many foreign jurisdictions as well as by escalating geopolitical risks, which we're all aware of. AI-driven threats are forcing security leaders to rethink how access decisions are made, emphasizing the need for much more resilient identity strategies, where biometrics can play a pivotal role as opposed to conventional methods that are most vulnerable to AI-powered attacks. Authentication technologies are converging towards unified access for workforce, partner and privileged access under single strategic foundations. Our PortalGuard Passkey and Biometric Solutions provide infinite flexibility in deploying to any component of a company's employee population despite infrastructure and job function. Phones and tokens are no longer necessary and with 16 types of auth-factors, one size no longer fits all. These significant shifts in how enterprises approach authentication with a focus on security, convenience, compliance and evolving regulations, play directly to our strengths. In 2025, we launched our Defense & Intelligence Cybersecurity Initiative, which is discussed in today's press release. We also highlight several recent contract wins and momentum we are seeing in the defense and financial sectors, as well as significant new partnerships, both domestically and internationally. Since that's in the press release, I won't repeat it here, but we can certainly address any questions regarding any of those areas in the Q&A session. In terms of our continuing investment in R&D and new product development, in Q4, BIO-key formally introduced the new FBI FAP 20 Certified EcoID III fingerprint scanner. EcoID III is our most advanced reader, which pairs encrypted device-to-host communication with liveness detection for faster, more secure authentication. EcoID III is primarily for highly regulated industries and the most sensitive zero-trust environments such as defense and banking. We're also finishing up work on our most significant update ever for our PortalGuard Identity platform, Version 7.0. This includes a major platform monetization, significant new configurability and flexibility and improved lower-cost deployment capabilities. It is currently undergoing comprehensive third-party security testing for an expected release during the second quarter. Our updated product offerings and unique biometric capabilities give us a sustainable competitive advantage, particularly as I discussed in the regulated industries due to those strict compliance standards. Our defense and banking niches, in particular, have significant global upside in 2026 and beyond. Today, our business is predominantly subscription-based, and we continue to utilize a partner-centric model, in which roughly 50% of our new U.S. business and nearly 100% of our international business is sold through a network of sales channel partners, including Amazon and TD Synnex, which we have built relationships with over the last few years. Turning to overhead and cost. In 2025, we were able to reduce our total SG&A expense by almost $800,000 or 11% and total operating expenses by 7%. This mission continues, and we are optimistic about the potential benefits of AI adoption in our processes to drive even further operational efficiency, productivity and lower cost. These initiatives play an important role, along with our growth efforts to progress the company toward our goal of reaching breakeven and profitability in 2026. Finally, we also made great strides in strengthening our financial position in 2025, ending the year with $2.7 million in cash, up more than $2 million from 2024 and increasing our book value to $7.6 million versus $3.8 million at the end of 2024. Our current cash position and expected cash receipts provide a solid working capital base to support our growth plans for 2026. We're off to a strong start this year with building momentum in several key verticals. We expect top line expansion, combined with expense management to meaningfully advance our goal of reaching our target again of breakeven and profitability this year, and we are well positioned in terms of financial liquidity to fund our growth plans. Given the growing adoption of BIO-key's flexible passwordless, tokenless and phoneless authentication solutions that we are seeing, we expect 2026 to be a very exciting and productive year for our company and for our shareholders. We're entering the most exciting chapter in our company's history, one defined by innovation, strategic expansion and relentless focus on delivering value to our customers and our shareholders. Significant growth and profitability are in sight and with the right team, technology and partnerships in place, we are poised to deliver long-term shareholder value. Now let me turn the call over to Ceci for a review of the financials. Cecilia Welch: Thank you, Mike. We released our results this morning, so let me provide a quick review. Reflecting the factors Mike addressed earlier, the total 2025 revenues decreased 12% to $6.1 million versus $6.9 million in 2024. 2025 revenue did benefit from over 100% increase in Hardware revenues to $1.3 million in 2025, largely due to increased purchases of our Biometric Solutions, and Service revenue increased 6% to $1.2 million due to BIO-key's growing customer base and new customer deployment. In Q4 of '25, License Fee revenue decreased 26%, Hardware revenue increased 85% and Service revenues decreased 10% as reflecting the factors Mike discussed as well as the timing of deployment. Our 2025 gross margin was 77.5% as compared to 81.4% in 2024, primarily due to the mix of software fee -- License Fee revenue and Hardware revenue as a percent of total revenues. Gross margins on license fee improved 91% in 2025 from 88% in 2024, reflecting the benefit of selling branded products versus third-party products in the EMEA region. In 2025, we reduced our SG&A costs by 11% due to proactive cost management, including reorganization of sales personnel, reducing marketing show expenses and lower audit fees, partially offset by higher professional fees related to BIO-key financing activities. We will continue to focus on cost reduction opportunities as we move forward in 2026. Research and development engineering costs increased 4% in 2025 due to support the new product development, as Mike discussed. As a result, operating expenses decreased 7% overall in 2025. Lower operating costs helped to offset the impact of lower revenue in 2025 as BIO-key's net loss increased to $4.6 million or $0.69 per share from $4.3 million or $2.09 per share in 2024. BIO-key's Q4 '25 net loss increased to $1.7 million or $0.19 per share as compared to the $1.4 million in 2024 or $0.46 per share. Weighted average common shares outstanding, which reflect warrant exercises and other financial activities are provided in today's press release. As of December 31, 2025, BIO-key had current assets of $4.6 million, including cash of $2.7 million as compared to the prior year-end of $1.9 million, which included $438,000 of cash. Accounts receivable increased 73% to $1.2 million at December 31, 2025, from $718,000 at the end of 2024, and our book value increased to $7.6 million at year-end 2025 from $3.8 million at the close of 2024. We plan to file the 10-K within the next week. With that, operator, let's please proceed to the question-and-answer session. Operator: [Operator Instructions] Our first question today is from Jack Vander Aarde with Maxim Group. Jack Vander Aarde: So Mike, I think just -- you already addressed it pretty well. I just want to also just kind of get a little more clarity on the 2025 revenue was a little softer than you initially expected. But obviously, great to see you're targeting a strong first quarter '26 with $2.2 million of revenue. That's fantastic. Just trying to better understand the 2025 result. So one of the reasons mentioned was due largely to a significant contract renewal with a foreign retail bank in 2024 that didn't benefit 2025. Can you just maybe speak to this a little bit further? Is this an active customer? Are they due for an expansion or renewal in 2026? Just help me better understand that particular customer. Michael DePasquale: Yes. So -- and in my comments, Jack, by the way in my comments, I mentioned that they did renew for 1 year at over $1 million. So about a 30% increase in value of that contract. So it was a 2-year contract that we closed in 2024. We took the revenue all in 2024 for that 2-years. So that's why, again, in 2025, obviously, it wasn't repeatable. So that's what I was trying to say. But you're looking for a little more color on 2025. And I would sum it up this way outside of the comments that I made in the prepared session. We went through a significant transition in our EMEA division. That took a little bit longer than we expected, but quite frankly, is going to have a huge benefit for us here too in 2026 and going forward because of two things. Number one, we're selling BIO-key-only solutions with and including our Biometrics, which are getting very, very good visibility, especially within the regulated industries, and that's banking, defense, health care, that kind of thing. The second piece is the reason this again took a little bit longer, the deal size in EMEA is -- some of the deals are 7-figure, but most of them are in the high hundreds of thousands of dollars. So they are larger deals. They're all through channel partners. They're typically with larger customers, and the benefits are incredible when they close. But that took us a little bit longer to get over the chasm in 2025. And I think that's why we underperformed our expectations there. Most of it was timing, but we are very bullish and very encouraged about 2026, and we will take advantage of that benefit. And that should get us to our goal and objective of breakeven profitability and obviously being cash flow positive this year. Jack Vander Aarde: Okay. Great. No, I really appreciate that extra color, Mike. That actually makes a lot of sense. And then just to be extra crystal clear, is this -- in the press release, you did -- you referenced all these various specific deals in highlights. Is this the customer that I'm looking at? Or is this a different one under the financial sector, you secured a $1.04 million 1-year license renewal with the foreign bank. Was this -- is this that customer from 2024? Or is this a separate entity? Michael DePasquale: No, that's that customer. Jack Vander Aarde: Okay. Great. And then Mike, let's talk about the first quarter because this is definitely a point of emphasis that I just -- it popped out to me. Here we are, we're basically the last day of the first quarter as of today. So it sounds like you have a pretty good read-through on that $2.2 million target. Is this any of the -- I guess, one, any of the slippage from the fourth quarter that slipped into the first quarter? And then two, do you have a good sense of the mix of that revenue? Is it mostly license revenue? How do I think about that? And is it growth across all three segments? Michael DePasquale: Well, the majority will likely be License revenue, but there's also some strong Hardware revenue as well, but very good margins. As you know, our blended gross margins are always never lower than the high 70s all the way up through the low 80s. So depending upon that mix, you're going to be looking at an 80-plus percent, if not more, gross margin across the board, whether it's hardware or software combined, that's what you can expect. Jack Vander Aarde: Excellent. That's helpful. And then -- just maybe if we could just touch on some of these large deals you're seeing in some -- it sounds like you're seeing more urgency, as you mentioned, from customers across -- you started listing a segment here and there, and then you started basically covering all your segments, it seems that -- where would you say -- if you could just highlight like maybe a handful of potential -- maybe deals that aren't in stone yet, but things that are kind of in the background that you're working on that could really move the needle. Would you say that these opportunities are in Europe and they're in your defense, your military and defense sector primarily, the financial banking financial services primarily? Or is it really all over the board? Where are you seeing the largest needle mover opportunities that maybe you haven't talked about explicitly yet? Michael DePasquale: Well, for sure, and we've discussed this before, we've developed quite a niche in defense and in government right now that, including and incorporating our Biometrics is getting significant uptake. So I don't have to remind you of the geopolitical scenario we're dealing with and certainly the sense of urgency around security. Within our niche, we have a sub-niche, which is focused on intelligence and information, and so that's top, top priority. And our solutions not only provide the level of security that's required, but convenience and availability and scalability, and that is critical and important in those segments. We're seeing the business on a global basis and the expansion will be on a global basis. It will be in EMEA, in Europe and in the Middle East. We have a couple of very large opportunities in South America right now that we're working with some very large partners, notorious partners. And the relationship that we announced just a couple of weeks ago with TD Synnex, as you know, they're one of the largest resellers and VARs in -- they're global, but certainly here in the U.S. and they're very focused on the state, local and federal business, and they are going to help us as a force multiplier, grow our business there as well. So it's across the board. I mean we have opportunities, for example, in the gambling space, right, to secure access to information, in banking in both large national banks as well as some regional banks as well, in health care, some national ministries all the way down to hospitals. As you know, we've been in that business for a long time. So we cut across every sector of the economy. But certainly in the regulated space, that's where I see continued growth. And it's not -- let's put it this way, if you're a defense or a government contractor right now, your business is going to blossom and grow. And each of those contractors, forget about the government themselves, has to secure at the NIST level, right? They have to secure and meet the compliance hurdles that are required to do business with the government, and that's a huge opportunity for us. And that's why our relationship with TD Synnex, I think, is going to blossom and be significant here domestically. Operator: [Operator Instructions] The next question is from [ Dan Camis ], a private investor. Unknown Attendee: Were your expenses in the first quarter about the same as fourth quarter? Michael DePasquale: Well, we haven't reported the quarter. So I can't comment on the exact numbers for expense and so forth. We did and do believe our revenue is going to be in the range that we predicted. But certainly, the first quarter should be similar to all of the other quarters. Sometimes events like, for example, when we attend a large event and we spend money perhaps there, it could be a little bit higher. We are relaunching our website right now and planning to do so early in the second quarter. So there might be some expense associated with that. But other than that, we're pretty stable. Unknown Attendee: Okay. So we should see pretty significant improvement in cash flow in the first quarter, it sounds like. Should we expect -- or can you give us any clue as to what to expect for expenses in R&D in 2026? Michael DePasquale: We're -- I think I mentioned in my prepared remarks that we're about to launch one of the most significant upgrades and enhancements for our PortalGuard platform Version 7. So a lot of that money has already been spent. We've been working on this for nearly 1.5 years, 2 years. And so I would think our R&D expenses are going to be relatively stable. I don't expect them to grow significantly. And we're really hoping, and we have a very intensive initiative going on within the company to assess AI-related tools, and we have contracts with a number of them -- and we're assessing where and how we can use those not only within all facets of the business, but within development to do two things: Number one, become more efficient and more productive; but ultimately reduce cost and increase our time to market. Unknown Attendee: I see. Anything revolutionary about this version? Or is it a marginal improvement and upgrade in your offerings that you can talk about... Michael DePasquale: It's significant, and we'll be announcing that shortly, especially for partners, Dan, where some of our larger partners want to be able to control, to mix and match and to deploy because everything is subscription now, to be able to deploy licenses, pull them back if, for example, the customer decides to cancel and to utilize those licenses in other accounts and so forth. So the ability to have multi-tenant management for those partners is a really big deal, and that's part and parcel of what we're doing here amongst many other enhancements for security, the incorporation of mobile technologies, a whole host of different options and availability. But a lot of this is focused on making our partners more involved in the dashboard and management of the solution set. Unknown Attendee: I see. Is there anything, I guess, in that 30% increase you mentioned in the $1 million foreign bank renewal that you're particularly excited about? Or was it just more licenses or... Michael DePasquale: Excited about a couple of items. Number one, obviously, the growth and the increase in the user population, but also the assessment of our more advanced technologies like one-to-many, that could dramatically change the way they operate and increase the size of this contract as we continue through this year and into next. So I'm very excited about that opportunity. And I think it's revolutionary because it could be one of the largest deploys of this type and this nature in the world. So we're enthused about that. There's a lot of growth potential ahead for that as well. Unknown Attendee: Are you saying that you're going to be scrubbing their database on a one-to-many basis? Michael DePasquale: No, no, no, they already do that. I mean that's [indiscernible]. I'm talking about some more advanced use of the technology. Unknown Attendee: Okay. I guess we'll be hearing about that then. Michael DePasquale: Hopefully. Unknown Attendee: You said it's a good start toward our goal of achieving breakeven results in early 2026. Are you saying there's a -- I'm just trying to clarify that statement in your release. Are you saying that, that's -- there's a potential for breakeven in the second quarter? Or were you just saying that you basically reduced your cash burn in the first quarter? Michael DePasquale: I think we're saying that our goal this year, right, is to be breakeven or profitable and to be cash flow positive, and that's our objective. And when we get there, I can't specifically say, but it's -- we should be there in the early part of 2026. That's our goal and objective. Unknown Attendee: I mean... Michael DePasquale: Again, it's not that sophisticated, right? You can look at our expenses in the -- I'm saying $2 million range, right, give or take, right? It could be higher, it could be a little bit lower. You can look at our revenue in the $2 million to $3 million range. You can look at our gross margins in the 80% range and you can figure it out. So that -- again, that's our goal and objective, right, to get there, to be there. And I believe we have as I mentioned and closed in my prepared comments, I believe we have the team, we have the partners, we have the product. And now we have, I'll call it, a very captive market, especially, again, in our niche on the regulated side to be able to get there. Unknown Attendee: Got it. Any evidence in the first quarter? I mean, I think one bug has always been U.S. businesses adopting passwordless adoption. You're indicating there's a significant move in that direction. I'm just wondering if there's any evidence in the first quarter that U.S. businesses are willing to purchase from BIO-key rather than their usual large competitors? Michael DePasquale: Yes. No doubt. New business, no question, yes. And again, that partnership, look, Synnex is a large company. They're a large public company. You can look them up. They're very enthused about offering our solutions and technology, especially in their public sector business. So I mean, that's a very strong proof-point that we can expand and them as a force multiplier, right, with the customer base they have, nevertheless, the partner network they have, we should see significant growth in that business. Unknown Attendee: Well, along that line, I think recently, when you've mentioned the partner announcement, there's usually been some underlying deal that supports it. Is that what's going on with TD Synnex? Michael DePasquale: We have a whole series of deals going with them. And you'll hear more about it as we're able to announce them. Unknown Attendee: All right. That sounds good. Can you say anything about your ARR, where is that running in the first quarter? Or are we still between $6 million and $7 million? Michael DePasquale: Yes, we're in that range. Again, we've transitioned -- other than our legacy customers, we have a handful of legacy customers. For the most part, our business is a subscription business. And even those legacy customers, we're migrating them, especially now that we have new and enhanced features and products, we have a good reason to be able to migrate them. So that sector of our business is definitely substantial, and multiyear deals are our total focus. And so even when we're on-prem, we can be subscription and we can be multiyear and still fit within the confines of their requirements. So that's another really big advantage that we bring to the table. And that's why I believe in the regulated industries, we're doing so well, where many -- especially international clients do not want hosted solutions. So everything here is kind of moving to the web, right, to AWS or Oracle or Azure, no question, here domestically. However, internationally, there's still a pension for storing and housing customer data on-prem, and we can go both ways. So we can offer our customers the opportunity to do it either way. And more importantly, and this is a new feature in Version 7, to be able to do both at the same time and to be able to transition seamlessly. So that's a powerful, powerful differentiator for us. Unknown Attendee: Got it. A couple more, I think. Any changes in the Boumarang asset or any news on that? Michael DePasquale: No. I know they have an S-1 filed now, which I think is public information and are looking at -- they've done a couple of acquisitions of like product, and that's really all I have at this point. I have no other information. Unknown Attendee: So no change in that asset value at all? Michael DePasquale: No. Unknown Attendee: Last question is, I think probably you have about 10 business days to get the stock above $1 before to stall a reverse split. At this point, is there anything you think that could still forestall such a split? Michael DePasquale: Yes. That's a great question. I didn't even think about quite honestly, the proxy that's out there. Obviously, belt and suspenders, right? We're not going to risk the potential to lose our NASDAQ listing, right? That's not going to happen. So obviously, the Board, it was prudent for us to file the proxy. We have until early May, I think the first week of May to have the stock trade for 10 consecutive days over $1, if that happened, we certainly would not do the reverse split. But if we need to, we certainly will. And so our shareholder meeting is scheduled late April. I'm hoping that in the next month that we're going to be able to find our way clear to seeing the stock trade up. But as you know, this geopolitical scenario hasn't been kind to anyone, and it doesn't matter who you are, what space, what industry, has been broad-based, and it's a difficult market. So who knows? But we certainly are in a position to do whatever we need to do to protect ourselves, especially now, as the wind is at our back, and we're feeling much more optimistic about significant scale of our business going forward. So I hope we don't have to do it, Dan, but if we do, we will. Operator: Showing no further questions. This concludes the question-and-answer session. I'll ask Mike DePasquale to provide any closing remarks. Michael DePasquale: Thank you again for joining today's call. We genuinely appreciate your interest in BIO-key, and I look forward to updating investors on our progress on our Q1 call in May. In the interim, we will update investors via press release of significant developments. If you have any questions, please reach out to our IR team whose contact information is in today's press release. With that, operator, please conclude the conference. Thank you, everyone, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Tony Dammicci: Welcome, everyone, to the MDB Capital Holdings Fourth Quarter and Full Year 2025 Update Conference Call. Thanks very much for joining us today. [Operator Instructions] Before we begin the formal presentation, I'd like to remind everyone of several important things. Today's conference call is being recorded. A question-and-answer session will follow the formal presentation. [Operator Instructions] Remember, questions can only be seen by the moderator. Please remember that statements made on this call and webcast may contain provisions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You're cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Also, please be aware that we are not obligating ourselves to revise or publicly release results or any revision to these forward-looking statements in light of new information or future events. Throughout today's discussion, we'll attempt to present some important factors relating to our business that may affect our predictions. You should also review our most current Form 10-K for a complete discussion of these factors and other risks, particularly those under the heading of Risk Factors. A press release detailing these results, which crossed the wire this afternoon is available in the Investor Relations section of our website, mdb.com. A replay of this call will also be provided later on mdb.com. Your host today is Chris Marlett, Chief Executive Officer and Co-Founder of MDB Capital Holdings. He'll be joined later by George Brandon, MDB Capital President and Head of Community Development. Chris will lead an update on the fourth quarter ending December 31, 2025. At this time, I'll turn the call over to Chris Marlett. Chris? Christopher Marlett: Thanks, Tony. Well, thanks, everyone, for joining today. I'm excited to be here and talk to you about what's been happening. It's been a while since our last call, and the year has gotten off to a really interesting start. And so I thought I'd first kind of just talk about our agenda, which I know most of you are very, very interested in where our assets are, what we think about our current investments and what we see for the future. But I wanted to take some time to give you sort of a view from the way we're looking at building this business and why we're so optimistic for the future of MDB. We just published, which you should all have as shareholders, a year-end shareholder letter, which will talk to a lot of what we're going to talk to today, but in a bit more detail. If you can get through it, it's about 9 or 10 pages. But I think it does a pretty good job of giving you a real good view of where we see the business, where we're headed and why we're excited about the future. So with that, I'll start off with just reminding everybody our story, really, we've taken this proven model of launching companies about 1 every 18 months where we helped to conceive of a big idea, bring it and position it for being public and having value in the public markets and then taking them public. And we did that before we were public, and it was a very nice business. And of course, the reason we decided to go public was that we believe we could scale that to 3 to 5 launches a year, maybe not overnight, but we really believe that we could do that, have a lot more impact and build a real organization to build public venture really kind of into an asset class where we could actually build portfolios for our investors as opposed to just most of our investors historically had 1 or 2 of our companies in their portfolio. So we did that for 29 years. We just did our 18th IPO. Never a failure means we never failed to get an IPO done. And every one of them, except for the last one, which is very new. It's only a couple of months old, have traded at a very significant premium to the IPO price. And that really, I think, speaks to what we've done from an asymmetric value positioning perspective, bring companies public at a reasonable valuation and the promise of them caused them to trade at values much higher than what we took them public at. All those companies had the opportunity to raise additional follow-on capital, and we create a lot of equity value, not just fees. And so the scaling is really what we're talking about. So talking about where we came from, and I've been in the business now for 40 years. And my mission has always been before we even started MDB was how do we get to the truth quickly? How do we understand the companies that we're getting behind or the opportunities we're getting behind and creating -- or in many times, creating these companies in conjunction with inventors or universities or entrepreneurs. And so in the old days, we would look at 10-Ks and 10-Qs. We literally have to call Washington and get these filings. And it was a very haphazard approach to trying to learn about companies. These were all public companies. If we had a private company, we were going to take public. The information challenge was really crazy. As a result of the Internet, we launched PatentVest in 2003, which enabled us to really understand deep tech very much in a clear way because we could get our minds around what somebody owned and how it was differentiated from somebody else out there in the technology landscape. And that gave us, in our mind, a real ability to really understand the critical elements to building leadership. And this leadership we saw was the critical element for these companies being able to trade at $1 billion valuations or have the potential to trade at $1 billion valuations. And as we refined it, we -- in our screening criteria and our processes and trained our analysts, we could start to filter companies where instead of going from a handful in the old days or maybe 100 a year after PatentVest, we got into the point where we could review thousands per year really because we could get through an idea in an hour or 2 by understanding did they have the ability to be a leader in a technology vertical pretty quickly with the development of PatentVest. But we still had really a bottleneck, and we've really experienced that bottleneck over the last couple of years since going public at MDB, which is we can find a big idea, we can pull it together. But really, that process of getting a position to create real value in the public marketplace is a very, very labor and time-intensive process. So the deep diligence and all the market insertion risks and competitive mapping and the business IP strategy and then getting the -- really getting the company positioned to be able to communicate its value add is very tough. And it's still tough. It's always tough with a big idea. And that would consume hundreds, if not thousands of hours. And it would take many months to get these companies ready to go public. And so this has really been our reality and quite frankly, our biggest challenge in scaling that we've had. But I have to say, and I referenced in my letter that AI really is a game changer for us, and we are committed as an organization to using it at every level. I would tell you that even the last 90 days has just been kind of earth-shattering for us in the ability for us and our teams to really solve that information challenge that almost every company faces, and we certainly face in getting these companies ready for being public. And so when you think about the Internet, it really did a great job of catalyzing and organizing that information, but it really created sort of overload in inertia. You had almost too much information. Even when we were looking at patent data, when we first started, you would look at -- you would do a screen and you would look at thousands of patents. Well, getting to those thousands of patents was virtually impossible. It would take really unbelievable amount of man hours to make that happen and really understand how a company could differentiate itself from the other companies in that field. And so what AI has really done and really done in a very, very tangible way, literally in the last 90 to 120 days is it eliminates that inertia. It really connects the dots at an unprecedented speed. And when you couple that with our expert analysts that have created the SOPs, if you will, to actually screen through these companies like we did very manually before, those SOPs applied through agentic models in AI has really become almost unbelievable. And what we're seeing, whether it's with patents or whether it's with new business opportunities, we're able to get to the truth super-fast. We're able to connect dots we could never connect before. And this is going to have an unbelievably profound impact on our business. And I know AI is sort of the catchword of today and every AI company that comes in to look for funding, I'm always very skeptical of. But I can tell you that as far as using really off-the-shelf AI, things like Claude day-to-day within our operation and now building SOPs and agents to effectively execute what we can do doesn't mean we're going to actually lay off anyone or fire anybody like has been put in the press. What it enables us to do now is really scale in an unbelievable way. So the transformative impact in a real tangible setting is becoming real. And we really believe that our ability to effectively boil the ocean of opportunities is achievable. And we're in the process of continuing to develop these agents where we can literally look not only for new companies through our patent data, but from grant databases, from conferences, anywhere we go where we see opportunities where we can feed it in with our specific criteria, these agents can now do the work of hundreds of analysts and then start to boil the ocean and get these things narrowed down to where now our analyst team who are experts in understanding whether or not these are real genuine opportunities can be boiled down very, very fast to a very small stack of companies. But even if, let's say, 5% of the opportunities made it through our screen, whether it was companies that were brought to us by friends or colleagues, the real hard work was the deep due diligence. And that deep due diligence was very -- that took -- that's what took the hundreds, if not thousands of hours to do. And in fact, every one of these companies were facing the same thing. They're trying to get to the answers quickly. The Boards are trying to figure out what strategy to employ. And the information divide is just really, really difficult, especially when you're talking about deep tech or disruptive technology. And so we really estimate that we can compress that time by 2/3. It's really astounding. And you're going to see it, obviously, as investors, right? So you can put in every one of our deals. You can put the prospectus in, you can query it. And you guys are getting the questions quicker. And we're seeing it already in the last 90 days the questions we're getting from investors and the insights we're getting from investors is really astonishing. I mean it's really -- it's fun for us because our mission is to get to the truth as fast as possible. And so we're experiencing this real time. It's like something I've never seen before. But then when you actually want to prepare that company and take it public, it would take from 6 to 18 months. And I think we're going to be able to get this done in weeks. Like we -- to give you an example, we just started on the S-1 for Paulex to take it public. Our team could actually put together a pretty good draft for the S-1 pretty darn quickly. And I think -- and again, we're still in the early stages of really implementing all these processes within our organization. But whether it's the financial models, the business strategy, the IP positioning, we see this being done in weeks, not months, which has -- when you talk about the scale issue that we're -- that we faced, we're seeing this as a total game changer for our ability to scale. And so -- but throughout our business, whether it's through PatentVest, through all of our investor diligence, I mean this whole thing is going to change. It's going to change how our community reacts to deals. It's going to change how deals get distributed. It's going to change it at every level, and we're seeing it real time right now. So over the -- since we've gone public, one of the things that I don't think has been very apparent to everybody that has really just been focused on figuring out what one of our deals is worth or whether they should buy it or what eXoZymes might be worth is that we've been investing in MDB Direct in our clearing operations and patent vest to really build those as separate discrete assets. Yes, they're very obviously critical and important in our daily operating business, but they really are distinct assets in their own right. And we've been investing about $4 million annually since the IPO on these assets. And that is super apparent because we've been able to take and stand up these 2 enterprises to where they now, in our mind, have significant independent value and in effect, big ideas that are going to be launched off into their own entities very soon. So in MDB Direct, what we did was super unique. And we knew that scaling IPOs, especially public venture IPOs was going to -- was not a thing that is done with traditional institutional investors. Traditional institutional investors are looking for ideas that are much more highly developed. And so a lot of these companies that are sort of in the development phase or going public, a lot of them were starting to get funded by crowd funding and other platforms like this, Reg A+, things like that. And now we're seeing things -- companies like Robinhood now being key distributors for these kind of offerings for big companies like the big major underwriters. And distribution is changing in a very, very dynamic way. But the key differentiator is clearing. So folks like Robinhood had to become -- had to go self-clearing. They used to clear it through other people. Most of the broker-dealers that operate in the microcap marketplace, none of them are -- or virtually none of them are self-clearing. But they're recognizing to be able to operate and access these investors, clearing could be a clear differentiator. And clearing is also the ability to be profitable. In many cases, stock loan margin lending, et cetera, these things are key cash generators for any company in our space that has any kind of assets that are built on their platform. And so we know that what we've built here is a very, very valuable asset. And so it took 5 years of work with our vendors and our software developers and what have you to get this up and running. And it's a super valuable asset. And I think that we're looking forward to being able to scale that asset and at the same time, create value and monetize the asset. So really, the big opportunity for MDB Direct is a strategic partnership to monetize the asset and also help solve our distribution challenges at scale. I talked about in the letter a bit, but when you go from one company every 18 months with a very small community and effectively a few relationship managers that work within our organization to go to 3 to 5 companies a year and really start to scale this, we have to basically solve the distribution challenge. And so again, I spoke about public venture as sort of being a very much of an individual investor-oriented asset class, where you can look back to the IPOs of even companies like Amazon and Tesla that went public through larger underwriters, but the institutional investors were not major players that drove valuation in those companies. And even today, SpaceX is talking about going public and raising a lot of money. Elon Musk is smart enough to know that he needs to have retail distribution, and he's figuring out ways to do that in the offering because he knows they're going to end up being the people that really want to own the stock. And the institutional investors many times came a lot later. And so we see an opportunity with these firms that don't have self-clearing that are recognizing that distribution is going to change that this is a real opportunity to partner with other -- either other firms to spin this off as its own entity, to sell it outright and then clear through those -- clear through whoever we sell it to. But we see this as a very valuable asset. To our knowledge, there's no other clearing firms for sale or partnering capability right now. When we were looking to do this, we were looking at -- there was only one clearing firm that was set up for sale or for partnership. And that firm, even with a lot of challenges and really not a huge platform, sold for tens of millions of dollars. And so we see this as really exciting. It's now operational. It's working, and we're now just starting active discussions with various folks, and we're seeing this as really a force multiplier, not only generate some value for the shareholders, but also partner on distribution, which I think could be a really great thing for what we're doing as we have the ability to curate more big ideas. And PatentVest, just the other big idea, just as big as clearing was, was to become a law firm. So we had built a patent research company before and sold it before we had gone public. And that company was very limited by the fact that we weren't a law firm because we really -- we could do research, but we couldn't really render opinions. We had to be careful with attorney client privilege. A lot of our analysts were in Latin America, which made a lot of people nervous. But with that, we were able to sell to a U.K.-based law firm because in the U.K., they were able to go public. And then as we went forward and the ABS program became a possibility, we became one of the first ABS IP law firms, and it's been really phenomenal. And Javier Chamorro, who runs the operation has done a great job of getting this up and going to where we have all the core operations of a law firm from patent prosecution to foreign prosecution management to docketing to maintenance fees, all the various things you need to do to do that in addition to all the front-end research that enables us to start to provide a lot more value and create higher quality patents and higher -- a better experience for small companies and large companies that are looking to be more efficient and create higher quality. So what we see is by being the first potential ABS law firm to go public, which makes a lot of sense and take this from being a real legal process to a business process, we can now partner with these big law firms like we used to before we sold the patent research business. And we think that big law is facing an existential crisis with regard to what's happening in patent prosecution. A lot of the big law firms see that prosecution is a process business and that their high-level legal talent really can be best focused on strategy and litigation. And we're having some great discussions with these law firms, and we're looking forward to seeing this develop. It turns out it's a huge business. So if you look at patent prosecution in the U.S., I think $10 billion to $15 billion is a conservative figure for how big that business is in the U.S. And we really think that we can garner a really meaningful share of that business by partnering with big law firms. And we're really excited about this. And I think that the AI legal tech market is boomed. Obviously, there's been tons of money going into that market. We don't want to call ourselves an AI legal tech company because really what we are as a law firm that is going to embrace AI. And I think that a lot of these platforms that have been funded, there's probably -- I wouldn't be surprised if there's 100 AI legal tech law firms out there currently. And I think we're in this really great position to be able to participate in this area, create a lot of value, and we're looking to spin this out as an independent entity and finance it before year-end, as we touched on last year. And so our portfolio assets, we have 2 portfolio assets outside of MDB Direct and PatentVest that I think can create a lot of value. And obviously, eXoZymes which is, is public in Paulex, which we recently funded and are planning to take public later this year are, again, $1 billion market cap potential just like everything else we've done historically. And so talking about eXoZymes, eXoZymes is at a really critical point in its development. And I think that what had happened with eXoZymes is that initially, the strategy was let's go out and partner with pharmaceutical companies to go help them make stuff they can't make. We recognized at eXoZymes as I'm on the board there that, in fact, we could make things that nobody else could make. And if we could do that, why wouldn't we just make them and sell those products. And so that's where it's going. And I think that the promise of synbio is about ready is upon us because companies like Ginkgo Bioworks, everybody thought that they had cracked the code for being able to scale manufacturing in synbio when, in fact, they hadn't. And they created a lot of partnerships and they had a lot of sort of irons in the fire. What we realized is focusing in on a couple of really big ones was really super critical and making sure that we could scale manufacturing. And so as you've seen -- hopefully, you've seen is that some of the press releases is that, that technology is now being turned over to contract manufacturers and being demonstrated that it scales. -- which is something that's never really been done in our experience in synbio. So it's -- again, this is a company that -- I don't know that anyone is going to want to value synbio at $20 billion again, but I think that the headroom on this, when you look at the current market value of the company is pretty immense, and we're pretty excited that we're at this critical point now. And Paulex, I won't spend a lot of time on. We're going to have an update for those of you that participated in Paulex. But quite frankly, we're hoping to initiate the clinical trial in September at the same time the IPO goes. Again, another game-changing potential drug that would touch both type 1 and type 2 diabetes by producing insulin, by helping the body to produce insulin again or produce more of it. We started the company with some of the same folks that we started prevention with that know diabetes and that we've had a lot of success with. So we're very excited. And I think that I look forward to this IPO later this year. And we're super excited that the clinical trial results could start to emerge at the end of this year or early next year that could be really groundbreaking. So when you look at our 4 principal assets as it stands right now, eXoZymes as a current sort of market valuation. At year-end, it was about $45 million. The stock has come down a little bit. It's about $30 million in market value currently of what we own. Paulex, we own 7.1 million shares of that, and it's yet to be seen what we'll price the IPO at, but it could be a very substantial asset. And MDB Direct, again, not making promises on the value, but clearing firms of this type have sold for tens of millions of dollars or -- and I think we're in an environment where the value of this could be much greater with where the world is going from a distribution perspective of new offerings. And of course, PatentVest, we've been investing in for a long time, has, in our mind, a lot of value. We've invested many millions of dollars in the development of PatentVest since 2003 and even more so since we've been public to get it ready as a law firm and ready for launch. And then a combination of our cash, current assets through marketable securities, less all the current liabilities at year-end was about $22.3 million. And one of the sort of footnotes was we thought we were going to get Buda Juice done before year-end, but it ended up trickling into January. So it will give us some benefit in the first quarter. So when you look at the financial overview, I'm trying to simplify it as much as possible. Obviously, you can read the 10-K for yourself, but we have about $10 million in fixed operating expenses, and we burned about $5.7 million if you look at the cash flow statement for the year. And -- but if you look at the investment we've made in the clearing ops and PatentVest, it was about $4 million, which was $4 million as part of the $10 million. So if you effectively took the $4 million off of the $5.7 million, we would have -- in effect, burned $1.7 million. So I think that a lot of people, when they're looking at our operating statements, I don't know that, that's super clear to everybody. So if post the spinout of our clearing platform and PatentVest, our OpEx will go down to about $6 million a year, which when you now look at the number of companies we can launch and how much equity we earn in those companies, we have huge financial leverage. Even if you look at the equity position that we earned from co-founding Paulex this year, that equity is certainly worth -- in our minds, a lot -- worth a lot more than what we burned from a cash perspective this year. And so we think we generated significant equity value that's really not apparent in fiscal year 2025. But going forward, we've seen this leverage as being really unbelievable. And so I think that all of our things have $1 billion capabilities. And if we can launch 3 or 5 a year on a $6 million in OpEx base, I think we're going to have really, really -- we could drive a lot of really important shareholder value. So what can go wrong? Well, we are -- this is not public, sure thing. It's public venture, right? And so what I would say is that there's a lot of interesting things going on that we face since we've started. There's obviously a lot of macro and global risk. I have no idea how it's going to turn out nor do I want to venture a guess. The microcap market conditions have been very difficult. A lot of these companies because of the venture markets and small public markets were having such a difficult time. So many of these companies face such horrible dilution. There were lots of institutional investors investing in the space, but the dilution of these small companies was just horrific. And so we're hoping to see that change hopefully soon. Obviously, execution risk, not only our execution risk, but obviously, our portfolio companies have to execute. And this distribution gap that we're looking to solve is probably the biggest worry I have. And I'm not too worried about AI execution risk. We're already seeing those tools work for us. And with regard to clinical and regulatory risk, those are always something to be faced with all the life science companies we're involved with. So the path forward is pretty straightforward. We're now positioned to launch 3 to 5 high-quality companies a year. Again, that's going to depend a lot on our distribution and how we can build that. We've got a lot of -- we've talked about it in the past. We're doing a lot of things in partnering with other distribution partners. And so we're hoping to make that happen in addition to what we're doing with spinning out the clearing platform. And we're obviously going to spin out PatentVest as well and monetize that. And this cost scale efficiency improvement, I think, is only getting better as we get better at what we're doing. And as always, shareholders retain preferred access to MDB deals. And so I want to thank you all for having faith in what we're doing here at MDB. And it's been a really tough couple of years for us, watching our stock go down for the last couple of years since we took this company public. And so I'm going to use that for a second here to editorialize for 1 second. I know I've ran a bit over on this presentation. We're up to 37 minutes, but I'm going to try and make this as quick as possible. So we've had a lot of people that have stuck in there, but a lot of people have sold our stock or the stock wouldn't have gone down. And I think a lot of people have been disheartened. And I think part of what I will take credit for is this was a lot harder than we originally thought to get up and going. I could use the market backdrop as an excuse, but the reality was is that we thought we had it in the bag. And when you looked at the -- let's call it, the batch of companies we did right before we -- let's call it, the grouping of companies we launched right before we went public, all of them went to $1 billion valuations. And if that had happened after we were public with our current batch, we would not be having this conversation right now. And I think that a lot of our investors were like, well, yes, you got lucky with prevention, one of the drugs worked and it's sold and -- but -- or how much are you really involved? Well, the reality was we started that company, those assets wouldn't have been licensed. There wouldn't have been, in my mind, that opportunity and certainly not in a public realm, hadn't we been able to help make that happen. If you look at POS Biosciences, investors have had -- it still trades, I think, for $1.5 billion valuation or so, maybe close to $2 billion. I don't know where it's at right now. But investors have had multiple opportunities to make many multiples of their investment for where we took that public. And even when you look at the most challenging one, which was Cue Biopharma, this company achieved $1 billion valuation on the promise. The technology worked, but it also highlights the difficult parts of what we do, which is the company has got to execute. And that technology, we haven't given up on it. We still think the technology is brilliant, and it should be broadly available to patients, but it's had some challenges. But when I look at the current batch of companies that we have here today, when you look at all 4 of the principal assets we have, I really believe all those have $1 billion capability. And obviously, if all of them hit $1 billion, it would be a crazy return to shareholders. I'm not saying that's going to happen, and I don't expect it to happen. But it would not surprise me if any one of them hit $1 billion valuation. And I think that when you couple that with the pipeline of things that we see that we have coming, it seems inconceivable to me that we're not going to find one of these companies to hit $1 billion valuation again and reward shareholders. So again, it's not a promise. It's with all the caveats, but that's the way we're seeing things and why we're excited. So with that, I'm going to open it up to questions. I think, George, why don't you come back... George Brandon: Let's just jump into it. [Operator Instructions] I'm going to start right off. Chris, I know you hit the positions we have the biggest stake in, but I just got a question on, can you talk a little bit about Cue, ClearSign and Beam and then also a question on Buda. That was unusual for us to do Buda. So can you just give a little bit of a view on those positions that many of our shareholders still hold? Christopher Marlett: Yes, yes. So ClearSign has certainly been on that long commercialization journey. And that's a company that Anthony knows much better than me. But from the -- and it's a very small position within our firm. But it -- they have been on this commercialization journey and their unique burner technology is more relevant than ever. We're going to be burning a lot more natural gas. And so I think that, that company is scaling. And I still think the prospects for that company are quite good. With regard to HeartBeam, HeartBeam did something that most people thought was impossible to get an FDA approval for a pocket 12-liter ECG, what's not told in that story is that, that ECG is even better than a 12-liter in many ways. And as they've signaled, could be the first device to be able to detect a heart attack, which is a game changer would save millions of lives. The commercialization journey is not easy for any of these small companies. And so -- but HeartBeam, we're still super -- we think everybody in the ECG space or health monitoring space, AI space should want to partner with HeartBeam because they have the most sensitive ambulatory ECG in the planet. Period. End of story. So we're very hopeful that the team is going to execute on making sure one of those partnerships happen, which will bring scale to a really unbelievable technology that could save millions of lives. Buda, I addressed it in the shareholder letter. You can look at it, but Buda, everyone said, well, geez, why are you going away from deep tech or what have you? Well, it was a bit serendipitous because a friend of mine really was the CEO of the company, and he was visiting me in Nicaragua, we were sitting around and he said, well, here's what I'm doing. And I said, my God, you're building a whole new category in a category that's going to be everything. So when you look at Buda, they have the opportunity to be not only the fresh juice leader, which is not widely known that is you can't really buy fresh juice at scale in most markets like Walmart and Kroger across the country. And -- but this fresh movement is going big. And now ever since we started the thing, man, every one of these markets need a fresh element because all the shelf-stable processed foods are all going to get shipped by Amazon. And quite frankly, everything is going against processed foods. So it was the opportunity to basically participate in what could be one of the biggest global shifts we've seen. Anybody that's shopped at markets in Europe knows that you're not -- people go shopping a couple of times a week because they want fresh. They don't want they don't -- they're not eating preservative foods for the most part in Europe. So this is a massive, huge opportunity, and we saw an opportunity to bring that to our community. It's a unique company that could be the leader in the space, and it happens to be profitable. And so we're super excited about it. And what else did I miss? George Brandon: And Cue Bio. Christopher Marlett: And Cue Bio. So Cue is struggling. I think they've struggled putting together a cohesive management and Board and getting that technology to commercialization. But that being said, they partnered with Boehringer Ingelheim and also partnered with ImmunoScape on 101. And now they're about ready to put 401 in the clinic. All of these are massive game-changer type opportunities. The stock doesn't reflect it. You'd never guess by looking at the stock that it has any value. But in fact, we believe that all 3 of those opportunities, those shots on goal are super valuable. And we're really -- we're still just as bullish about the technology as possible as we've ever been, but they've had their challenges in getting the execution side of it done. George Brandon: So a question on -- moving on to eXoZymes in that conference call. We're going to jump right off this call and go right into Exosymes's year-end call here that starts in 15 minutes. So we'll wrap up before that. But what are you looking at for, obviously, they're going to have to raise money. What's the dilution going to look like in your mind? I'm getting a question on what do you -- how do you think the dilution works? And how does that work when you're looking at an asymmetrical opportunity? Christopher Marlett: Yes. So the great thing about Eosymes is that, again, much like if you think about mDBVat a $10 million OpEx level to create big opportunities, eXoZymes is the same way. Exosymes has about $10 million in OpEx to create huge opportunities. Now they've created now 2 gargantuan opportunities in NCT and cannabinoids. And they're going to talk all about that, so I won't go into it too deeply. But the combination of government grants and now that those opportunities being on the doorstep of commercialization. These aren't science projects anymore. These are -- so dilution is in our mind, is going to be relatively minimal because this is not like putting drugs in clinical trials. This is not -- they can outsource manufacturing. So it is super capital efficient. And we've worked really hard and they've worked really hard to create a high-impact organization to focus on big, huge platforms, where they can be -- where they can generate -- we're talking about TAMs in the hundreds of billions with the 2 platforms they're in. And they have the ability to be a major player in those platforms with a relatively small operating budget, which really speaks to how impactful their technology is. The reality is nobody believed they could do it. Nobody believed it would scale. I would just tell you, throw all your best scientists at it, go visit the company, go see where they're at, and you're going to see that this could be the biomanufacturing. This could really be the start of a huge biomanufacturing revolution. And in fact, the U.S. government, we can't continue to outsource manufacturing, especially pharma and nutritional supplement manufacturing overseas. And so -- this is a huge initiative. I think you're going to see continued government grants coming to them. And so I just think that it's in the right place at the right time. And now we just got to go out and tell the story. George Brandon: A question on PatentVest. How systematically or structurally, how do you see that spin out? If I'm a shareholder of MDB, how is that going to impact me? Do you have an idea of what that path is on valuation and spin out? I know you said, hey, you weren't really sure about what the valuation is going to be. But how -- if I own a share of stock, what am I going to see as a shareholder? Christopher Marlett: Well, the good news about both the clearing -- MDB Direct, the clearing ops and PatentVest is we own 100% of both of them. So we're starting with a much larger share of those than we do with the other companies we have ownership in. And -- and so our objective is to do a round of financing to bring in partners. So we want to bring in folks, I can't mention names, whether it be law firms, big corporate strategics or other strategics, and we're talking to various strategics right now. Our goal is to get that funded and out of MDB as a company. Then we look -- we're going to look forward to taking it public in 2027 and the method in which we do that and how we do it, it's not really completely formulated yet. But that's going to be largely dictated by what we do on the partnering front here in the short run and funding it as its own independent division here shortly. George Brandon: Can you talk a little bit about what your deal pipeline looks going forward in the next 12 to 24 months? Christopher Marlett: It's really interesting because the deal pipeline is great, and it's -- I can only see it getting better. So the biggest point is really our ability to get them sold, right? We have to get them packaged and sold. And so right now, with where we're at, the biggest constraint isn't the number of companies we're seeing. It's really going to be to work out the distribution side of the equation and get those and get that done. So I think once we do that, who knows how many we can do a year. So like I said, we -- the biggest issue is solving the distribution thing. Obviously, our stocks, some have done okay, some haven't done as good as we hoped. And obviously, if a couple of them work out pretty good, then that puts wind in the sails of everybody. But we really need to add incremental distribution. Our community is still relatively small. We have -- while we have a couple of thousand shareholders, we only have 675 active accounts. So it's still very small. And we're trying to broaden distribution so that we don't have a couple of really large investors in our deals. We're trying to broaden that a bit. And so as we do that, then our ability to get more of them done is going to increase. So I'm not worried about the number of companies that we can launch. I'm worried about just making sure that we can find investors for them all. George Brandon: Okay. So I got a question here that -- it's a good question, but I'm just going to read it. I normally paraphrase, but would or have you considered a SaaS model for PatentVest that in turn for its analysis? This would serve not only to generate revenue but attract IP contribution to increase IP content to evaluate the combination of IP to uncover unexplored opportunities. Christopher Marlett: Yes. So I think to be 100% blunt, I think SaaS is going to be crushed by AI. George Brandon: Go into that a little bit. How, why, and why do you think that? Christopher Marlett: Yes. So just to give you an idea. We -- just to give you one segment that's a really, really big core thing of what we do. So -- let's take patentability, which is what is largely called prior art search, right? So any new vendor that comes up with a new idea wants to do a patentability or should do a patentability analysis. So heretofore, you would -- maybe if you were -- you would subscribe to a patent database, you would go out, you would do your own patentability analysis and search, you would maybe pay PatSnap $10,000 or $12,000 a year or $15,000 a year to go do that. And it would kind of get you part of the way there, maybe, right? And you kind of -- you get a lot of data and you'd say, well, maybe this works. An expert user would use PatSnap in maybe 5 or 6 other databases and then get to a really, really good patentability, but very few people did it because it was too expensive and too time consuming. We've now -- just to give you an idea, what we were doing is we had expert trained analysts in Latin America with PhDs and master's degrees in science. They would do a patentability analysis in 45 hours. Now even though the cost was lower by doing it in Latin America, 45 hours is still a huge amount of inertia to actually go through and actually do that work. We took the same SOPs for doing a patentability analysis, now run by that same expert analyst that we have in Latin America, with AI, where we basically programmed the agent. We programmed the agent ourselves with a popular AI vendor where the software needed to run that analysis was completely done in-house without a software developer, mind you, okay? We can now do that patentability analysis with our expert, patent searcher in 1.5 hours, and it's better. And that's today. We're doing that right now. I'm telling you it's going to completely change the SaaS business. So these folks that are out there building AI solutions, curated AI solutions, I think they're going to -- I'm very skeptical of the value of them because we're building them with off-the-shelf AI solutions today with our own people. They're not even software developers. And so the curated data that we have that we've invested in for all these years is super valuable now because it's got to be done behind a wall, right? And we don't think that people should be putting their investments or their inventions into ChatGPT and doing this. So that gives you a reason why I think SaaS is going to be -- I think human in-the-loop IP development is the future. and we have a shot to be a leader in it because we're an ABS firm, because we have attorney client privilege, because we have the ability to basically turn this into a unified business process, I don't see it as a SaaS business going forward. George Brandon: Okay. Well, we're at the end here, and I'm going to go ahead and turn it back to you and let you go ahead and close it out. Christopher Marlett: All I can say is thanks. It's been a very tough road the last couple of years since we've been public. But I hope that by listening to where we see things going that you have a bit more enthusiasm and you have the ability to kind of keep the faith and hang in there. We're super excited about the future for the firm. We're getting better and better every day. We're not -- the entire team here is working their ass off to make things happen. It's been a rough thing. We haven't given people raises. We've taken back RSUs. We've really backtracked a lot and a lot of the expectations that we had for ourselves were not met. But you just don't give up. You never say die, you just keep going. And we -- I appreciate everybody at the firm that's done it. It's not been easy. It's been a lot of really difficult discussions. But that being said, when I look at what's bubbling up from what we have, I'm super excited. So I'll leave it at that. Tony Dammicci: George? George Brandon: You want me made the ending? Well thank you, everybody, for coming. Tony, that was your job. You're supposed to jump on there, close it out, start it, close it out. Tony Dammicci: That's all right. I'm ready to do it. So we'll say thank you very much for attending today's presentation. This will conclude our conference call. George Brandon: All right. Thank you, guys. Appreciate it. Tony Dammicci: Bye.
Operator: Good afternoon, ladies and gentlemen, and welcome to the everplay group plc Full Year Results Investor Presentation. [Operator Instructions] Before we begin, we would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from everplay group plc. Mikkel, good afternoon, sir. Mikkel Weider: Good afternoon, and thank you very much. And welcome, everyone, to this 2025 results presentation. I am, as mentioned, Mikkel Weider, I'm the CEO of everplay; and with me is, Rashid Varachia, our CFO. We'll take you through the year of 2025 and look a little ahead. But since most of you probably haven't met me before, I should probably say just a few words about myself. So I have started several gaming companies during my life, including Nordisk Games, which grew to 1,300 employees via M&A and organic growth. I was the founder and CEO for 7 years. So we invested in or acquired 9 different game studios, including Avalanche, Supermassive, Raw Fury and MercurySteam. I have been at something like 15 different boards, mostly game companies and worked with games of all sizes from indie games and UGC to AAA. So when they called last year from everplay, I was engaged with a handful of different game companies, but I thought the opportunity sounded a little too exciting. So I really like the strategy and the people I met during the process. So I said, yes. And I started on January 5, just a couple of months ago, and I will talk a little about my early findings and thoughts later in the presentation. But first, let's look at 2025. So 2025 saw solid revenues of GBP 166 million, which is up 5% when excluding physical distribution and the performance of our new releases were really good. We saw an 11% growth in adjusted EBITDA for the year, reaching GBP 48.5 million, of course, which represents a 29% margin, which is up 3.1% from the previous year. We will pay a total dividend for the year of 2.9p per share, representing a payout of GBP 4.2 million in total. We ended the year with almost GBP 52 million in cash despite active M&A activities and dividend payouts. Overall, we are set to grow. We have a very nice pipeline of games coming out, many new partnerships and a strong back catalog. So our strategy remains on track. So what happened more in 2025? Well, we launched 11 new titles. They overall performed very well. They actually generated 80% more revenues than all the new titles in the past year. We signed several new large partnerships. We took a minority stake in Super Media Group connected to a strategic partnership with Bulkhead. We acquired the rights of the popular Hammerwatch franchise, including a range of long-term publishing rights. Now if we look a little at the specific companies, Team17, our largest company, had a very nice year, reached more than GBP 100 million in revenue and 20 million units sold. I would also say the quality of our new releases in 2025 were a lot higher than the previous year, reaching an average user score of 87% compared to only 61% the year before. So a big shout out from me to everyone who worked on these games. Date Everything! was the breakaway hit of the new releases with more than 750,000 copies sold. Yet our back catalog still accounted for 75%, which I think is really good and very high compared to most game studios out there. And I would say it's fair to say that 2026 looks even better with more than 10 new games coming out, which is more than twice the releases of last year and also including some really big ones, Hell Let Loose, Golf With Your Friends 2 and Wardogs. It's worth mentioning that the brunt of releases will come out in the latter part of the year. Now astragon, on the other hand, had a less good year than Team17. We terminated the physical distribution business, which hurt the top line, but streamlined our business. But we also saw underwhelming launches of the 2 main new titles during the year. Seafarer had a rocky launch in early access with several box and issues and Firefighting Simulator: Ignite was a better launch, but still saw less traffic and sales than we hoped for. So we are currently improving and adding content to both games. Seafarer will come out of early access and into full launch at the end of the year and should be in a much better shape at that point. We also lacked important large update for our main titles, which we are changing now onwards. In 2026, we look forward to several new releases, whereas not all have been announced yet. We are cautiously optimistic for the year. Lessons have been learned and more content is coming out. As for Team17, the larger launches will also fall in the second half of the year. So of course, when one company is under delivering, it's, of course, nice to have a portfolio of companies. So we are not too dependent on a few launches. And StoryToys had a really, really great year. Revenues rose an impressive 25% to GBP 30 million. And StoryToys did 740 updates during the year, which is about 3 launches per workday and 40% more than the previous year. And we ended the year with 376,000 active subscribers. Growth came from several places. StoryToys had a highly successful launch of the LEGO DUPLO app, LEGO Bluey app, which had more than 1 million downloads in the first month and also reached #1 in the app stores. StoryToys also secured several new partnerships and license agreements, including some large partnership with both Netflix and Apple. If we look ahead, 2026 has started well. We crossed 300 million downloads in the beginning of the year, and we have a lot of content coming out mostly on existing apps, but also a couple of new and unannounced apps. And now over to Rashid for a more financial review. Rashid Varachia: Lovely. Thank you, Mikkel. Hi, everyone. So group revenues were broadly flat year-on-year at GBP 166 million, but excluding the physical distribution, which we exited during the year, they were 5% up year-on-year. And the growth drivers coming from the success of our new title releases such as Date Everything!, Bluey, Worms Across The Worlds and Apple Arcade and then the new strategic partnership deals with Netflix Games. Team17, as mentioned by Mikkel, was 8% up year-on-year, reaching a record GBP 106 million with 20 million units sold. Six new games drove a 700% increase in new release revenues and outstanding performance from titles such as Date Everything!. Other titles included SWORN and Worms Across The Worlds and Apple Arcade. Back catalog contracted by 13%, mainly due to strong performance from Dredge in 2024 and revenue generated from fewer new title releases in the prior year. astragon was the only division which contracted with a decline of 33%, in part driven by a strategic decision to exit low-margin direct physical distribution. Excluding physical distribution, astragon revenues decreased by 18%. Two new titles were released during the year, Firefighting Simulator: Ignite and Seafarer: The Ship Sim, both performing unfortunately below expectations. But we're expecting the business to bounce back in 2026. And then finally, on StoryToys, outstanding performance where revenues were up 25% to GBP 30.4 million. They released 740 app updates. Subscriber numbers increased to 376,000 with peak monthly active users of 12.9 million, reaching 286 million lifetime downloads. Performance driven by a major new Netflix and Apple game partnerships, including LEGO DUPLO World and Barbie Color Creations, along with 3 launches on Apple Arcade Greats. Next slide, please. Thank you. New release revenue increased 80% to GBP 41 million versus GBP 23 million in FY '24 due to an increased number of titles and stellar performance of Team17 titles and LEGO Bluey from StoryToys. Our back catalog contributed 75% of group revenues, which was in line with its 5-year average. The total back catalog revenue were GBP 125 million, which was a 13% decline versus prior year. This was on the back of an exceptionally strong FY '24, which grew by 27%. First-party IP revenue declined 9% to GBP 56 million, reflecting a softer performance at astragon. Team17 was up 2%, supported by Hell Let Loose and Golf With Your Friends. And finally, on this slide, third-party revenue grew 4% to GBP 110 million with strong contributions from the overcooked franchise, Date Everything!, Dredge and LEGO DUPLO World. Gross profit increased significantly by 10% to GBP 76.3 million, where gross margins increasing by 4.4% to 46%, mainly due to exit from physical distribution business and no material impairment. And just as a reminder, during FY '24, a GBP 4.6 million charge was booked for title impairment. Overall, royalty payments were lower year-on-year due to a favorable sales mix at Team17 and a higher weighting of StoryToys revenue, which carry lower royalty levels. And then finally, expense development costs increased modestly to support expansion onto new subscription services, for example, Worms Across The Worlds on Apple Arcade and LEGO DUPLO World. Significant improvements on adjusted EBITDA, which grew just over 11% to GBP 48.5 million. Adjusted EBITDA margin also increased 3.1%, reflecting higher gross margin and flat admin costs. Acquisition-related adjustments declined from 13.8% to GBP 12.1 million due to the end of acquisition-related incentive payments. And net finance income increased to over GBP 1.2 million, and the effective tax rate increased from 24% to 25.5%. And then finally, adjusted EPS increased 7% to 25.7p. There was an GBP 8.2 million increase to GBP 33.3 million on capitalized development costs. This was due to Team17 and the new titles such as Golf With Your Friends 2, Hell Let Loose: Vietnam and astragon, both Police Sim and Ranger's Path. The current year for cap dev in terms of FY '26 is forecasted to be GBP 45 million. Again, this is mainly due to the investments in first-party IP such as Wardogs, the Hell Let Loose franchise, which we have much better visibility over. However, this has led to an increase in terms of cap dev. And then finally, on cash, our cash position was GBP 51.9 million versus last year and increases were driven by our dividend payment during the year, increased tax and then also increase in acquisition-related payments. But overall, our variances included working capital and capital development. And as mentioned earlier by Mikkel, I'm pleased to announce a 2.9p per share dividend. Mikkel Weider: Yes. And now I wanted to say a couple of words about my first 3 months. It's, of course, always interesting to start in a new business and coming into a company with fresh eyes, so -- and see a little from the outside. So I wanted to take this opportunity to give my view on the company after close to 3 months in. So yes, it's always a little exciting to start a new job. Is everything as good as they told you in the hiring process? Or do you uncover larger problems once you're on the inside? Well, fortunately, I can say that the company is in better shape than I had hoped for. Yes, there is stuff to work on for sure. But overall, I'm very impressed with the company and the organization despite the stock being pretty weak in the recent weeks. There is a good energy, I think, in the company and the culture is strong. While there has been several changes in the management in the last years, especially in Team17, I feel we have a range of great people now to take the company to the next level, and we are well positioned for growth. The back catalog is also as strong as I could have hoped for, which creates stable cash flows and predictability, which is really nice, of course. I already like the vertical strategy of the company with focus divisions before I joined. But getting on the inside, I can really appreciate the focus of each division. If you like an astragon or StoryToys game, you'll most likely like the new games coming out from them as well, and Team17 can also do a lot of cross-promotion between titles. Some of the stuff I would like to focus more on in the coming years are to have a stronger tech focus, including AI. I also like to look more at processes and reutilization. So we want to add more service elements and upsells for evergreen titles, for example, having more paid DLCs attached to our bigger games. And I'm also looking at how we can work more together and create synergies across the group. And of course, we want to do more M&A. So over the last 18 months, my predecessors have worked with different strategic pillars. And I think there overall has been good progress on these pillars in 2025, and these are pillars that I support as well. So there was an ambition to strengthen our first-party IPs that is IPs and games we fully own ourselves, something I definitely think is a good idea. And in 2025, we launched 2 new titles with first-party IPs. And we have 10 projects in the pipeline for our owned IP. So I think there has been good progress there. Another focus has been to find and grow new innovative third-party games that is games made by other companies with their IPs. There has been solid progress here as well. Date Everything! was a breakaway hit, and we have more than 10 new third-party games coming out already in 2026. A third focus has been to be very mindful of costs and to improve margins. Gross margins, they are up 4.4% and adjusted EBITDA was up 3.1%, which makes the company a very profitable one compared to a lot of our peers. And finally, we wanted to drive more growth. Well, adjusting for the removal of physical distribution, the company did see growth after all, and we also managed to acquire IPs and games for the future back catalog. On the organization side, there has been several changes. Aside from having a new CEO, me, if you're in doubt, Team17 promoted Harley Homewood to be the General Manager in November, and he's really doing a good job so far. In Team17, we have recently regrouped our games in 3 overall pillars with a franchise director for each, so we more easily can reutilize knowledge, technology and do cross-promotion within the clusters. In astragon, we have exited the distribution business, but also slimmed the organization overall to focus on the core titles, and we now have a more simplified organization, making it easier to get higher margins again. In general, we want to scale without adding proportionally more people. I think it's important to stay nimble and agile and use technology and processes in smarter ways. An example of that, Team17 has more than twice the amount of launches in 2026 compared to last year, while not adding to the total headcount. I think that is quite impressive. Finally, we have hired a few additional central resources to assist all divisions. And overall, we are creating a stronger foundation for organic growth and acquisitions. As mentioned, I want us to become stronger in tech and AI. And as many of you know, AI has evolved a lot the last months, really empowering developers in tech. New tools and AI will allow us in everplay to, a, create more and larger and richer games while not adding costs; and b, also help us optimize our internal processes and logistics. In general, I actually think AI will result in a greater demand for publishers like us, someone who can help developers games to stand out in the crowd. With more games being launched, discoverability will definitely be key onwards. So in many ways, AI strengthens our reasons to be. In the meantime, it's, of course, very important we follow the evolution closely to reap the fruits, we need to be at least early adopters. We need to be stellar in marketing and publishing, and we need to be very agile and adapt to changing technologies while still doing it in an ethically correct way. We've been working with AI for a while. We have an AI council and AI tools for all our people. And we have various cases across the group, cases we want to expand on and distribute across the group. Some examples, StoryToys are actively using AI in engineering, doing 40,000 lines of code per month. We're also using AI in QA several places, for example, for performance testing and [ automatization ]. But as mentioned overall, we can go further, and I want to empower our employees even more. And now a short break from talking. Let's watch a show reel of some of the games coming out this year. [Presentation] Mikkel Weider: A lot of nice games, if you ask me. So some of the bigger titles this year are Hell Let Loose: Vietnam, Golf With Your Friends 2, Bus Simulator, Silver Pines, Wardogs and some pretty interesting unannounced titles we look forward to presenting later in the year. And now for the last slide of the presentation. Overall, I believe we are well positioned to continue the growth with a strong pipeline and back catalog. As mentioned earlier on, some of the larger games are scheduled for the second part of the year, which gives some additional weight to H2 results. But overall, we are confident we can deliver the adjusted EBITDA for 2026 in line with the current market expectations. Looking to the midterm, we are investing in several of our larger first-party franchises with games coming out over the next couple of years. We are very happy about these investments, and we think they will bring great returns and strengthen our portfolio considerably. And with these words, I think we can conclude the presentation. We will now take questions hosted by James Targett, our Head of Investor Relations. So James, come on board and tell us if you have some questions already. James Targett: Yes. Thank you, Mikkel. I do have some questions, which have come in from shareholders. First of all, your thoughts on capital allocation, particularly how you think about M&A versus share buybacks currently? Mikkel Weider: Do you want to say some words on that, Rashid? Rashid Varachia: Yes. Obviously, capital allocation, very important to us. We're hugely cash generative, and we're always very conscious in terms of how that cash has been deployed. But we also -- it's also important to note last year was the first year whereby we actually reported a dividend payment. And so we will continue in terms of our journey in terms of capital allocation. We want to do M&A, and it's great that we have the funds to do M&A. But in terms of share buyback, it's very unfortunate where we find ourselves with our share position and share price position this week. And it's something that the Board will continue to review and discuss, but no immediate plans for any action on that at the moment. James Targett: Thanks, Rashid. Mikkel, one for you on AI. There's been a lot of narrative over the last few months that AI will disintermediate software businesses, make them less relevant. Could you address that directly for everplay and outline why developers won't be able to go straight to players and bypass Team17 or everplay? Mikkel Weider: Yes. No, no, I think it's a very interesting topic. So first of all, we don't see clear indications that there will be like one person in a basement ticking a button and suddenly having a wonderful game. There will certainly be a lot of low-quality games out there, but games of a certain quality will need like a team around them. However, that -- those teams, they can really be empowered by AI. And we are very used to working with small and agile teams of like 3, 4, 5, 7 people. And I think that's really what you need to make a quite powerful games -- game these days. I would be a little more worried if we had like 300 people working on a AAA game, and we've been working on it for 3 years on a very old engine, and it's coming out in 2 years or something like that. But I actually think we are really well positioned to work with smaller agile teams using powerful tools. Now of course, yes, there will be -- I'm sure there will be a lot more content coming out, but then it will be super important to have someone help kind of like connect the gamers with this content. And here, I think we are, again, really well positioned, helping teams out there where they can focus on making cool games, and we can get them in front of a much bigger audience. So maybe a little like today where everyone of us on this call, we can easily upload a video to YouTube, but is it going to be watched very much? Well, most likely not. And whereas there are some really big content creators out there who are very professional in their output. And that's where we want to be, like either the professional YouTubers or the -- or like closer to the Netflix. And it's not like Netflix has not been able to grow while YouTube was there. So I think we're going to live pretty well actually in that intersection, you can say. But again, we have to be on the top of our game here, like we can't just sit and wait for this to happen, like we're going to actively embrace it. And hopefully, we'll be a disruptor instead of getting disrupted ourselves. I think we have a good chance of that. James Targett: Thanks, Mikkel. Rashid, one for you. Are you concerned about the rise in development costs compared to the previous years? And how does this support the midterm growth? Rashid Varachia: Yes. So not concerned, James, because there's reasons for the increase. We came off the back of '24, whereby it was an all-time low in terms of cap dev. We had impairments back in '23, early part of '24. But this is a growth for our future. So I'm hugely excited. We've got some fantastic new games coming. We've already said this year, there's going to be at least 15 games, 15 new games. And it's investment, as I said earlier, into our first-party titles. And towards the end of last year, we invested in the Super Media Group, the Bulkhead team who are responsible for Wardogs, a fantastic game, massively excited. The games coming out later this year, but that does require capital investment. So a combination of Wardogs, our own IP and the team at StoryToys are also growing significantly. Unfortunately, we can't announce everything on this call, but there's some really great games coming from the StoryToys team as well. So that has led to an increase in cap dev, and the way we like to -- well, how I like to forecast is I'm fairly conservative. That's reflected in the numbers, and we should see growth in future years. Last year, we had 3 upgrades. So all being well, we'll beat the current expectations. James Targett: Thanks, Rashid. A question on how we decide about acquiring IP versus building IP internally. Maybe that's more for you, Mikkel. Mikkel Weider: We'll do both, you could say. Our core business is to build our own like to grow organically and invest in games that we -- as we do today. And then, as Rashid also mentioned, sometimes when we know something is working, we can take -- we can do a bigger investment in that title based on like, let's say, Hell Let Loose. It's such -- there's such a huge fan base. So it feels much more safe to kind of like do more within that IP than trying something completely new. On the M&A side, we are interested in looking around, and we're going to be super structured about it. And we're going to be highly picky with what we potentially buy. We're going to say no and no and no and no, and then maybe we're going to say yes to something because it has to sit really well with us for us to buy something. We are -- would potentially like to buy IPs and games, so assets because we can actually handle assets in our company, which is much better than in my previous company, for example, where we always had to buy like a full team that can handle everything themselves. This time around, we can buy assets and then take care of them for the next 5, 10 years. We can also buy a studio or a company, but then it has to be really fitting with our values and it has to -- that our due diligence has to be very thorough whether we want to take them in or not. And you could say that we -- on our wish list are titles that can bolster our existing divisions and to make a new kind of like forest division would require that it's like really like a standout opportunity. So we'll be active, but very cautious on what we potentially would be buying. And now I'm going to -- I saw a question on the list here as well. And we can, of course, evaluate whether we should buy shares in our own company if we think we are more attractive than anything out there. That's, of course, something to -- we'll be considering along the way as well to get most bang for the buck. James Targett: Rashid, what is the amortization policy for capitalized development costs on larger first-party titles such as Hell Let Loose: Vietnam and Golf With Your Friends 2? Rashid Varachia: Yes, it's very conservative, James. It's 2 years with month 1 being 30% and that hasn't really changed. And it's something which I reviewed when I first came on board. We've taken feedback from PwC as well. And the expectation was we would increase that. But again, with the very nature of how I tend to do things, I'd like to leave it conservative. The Board agrees, we should leave it how it is. But the tail for our titles is much longer than it's ever been. And I think it's a good point -- good place to mention our back catalog because as we said earlier, our back catalog represents nearly 75% of our total revenue. And when we look at our back catalog and we look at the aging of our back catalog, there's still over 50% of our back catalog, which is coming from titles, which is 4 years plus. So a, demonstrating the longevity of our titles, but also the number of titles that we have actually, what I call in the hopper, which is 150-plus titles that we have. So there's no concerns there in terms of our amortization policy. James Targett: Thanks, Rashid. A question from Mikkel. How does everplay, specifically Team17 and astragon focusing on the PC and console business aim to stand out among the growing number of indie and AA releases every year? Mikkel Weider: Well, several answers to that one. One is that we can -- as opposed to most other, we can actually do cross-promotion. So hey, if you like Construction Simulator, you might really like Bus Simulator, for example, like where we stick within our verticals. If you like Hell Let Loose, maybe you're going to love Wardogs. So I think cross-promotion is something that we can do and which is harder for the other. We are great in kind of like getting to a bunch of different platforms, which is quite hard for smaller entities like you don't just immediately get on Xbox or PlayStation or new consoles coming up. So I think the distribution is we have more direct consumer access than a developer typically would have. We know how to operate social media and marketing and outreach and where it gives the most bang for the bucks. Honestly, most developers, they are not very interested in a lot of these things that we are doing, and they are not -- therefore, not very good at it. And we just need to keep being at the forefront of marketing and getting games in front of eyes of other people. So we are also strengthening actually our marketing department, for example, in Team17 because this will be core for us in the future. And then maybe we'll have technology handle some of the -- be more active in other parts of the organization, where -- which is not our core focus. So yes, it's -- we need to keep improving, of course, and being at the forefront. James Targett: Okay. And actually, our last question, maybe one you could both answer to finish with. Is there any particular game this year that you're most excited about? Mikkel Weider: What do you say, Rashid? What are you excited about? Rashid Varachia: I say one, James. I'm going to say 2. I'm going to go Wardogs because it looks fantastic, and it's a bit of me, love a bit of shooting. And then I'm going to go Golf With Your Friends because I'm rubbish playing it. I need to practice a little bit more. Mikkel Weider: You mean you are obviously playing it in real life. Okay. Yes. Okay, then Golf With Your Friends 2 is a little more. Yes, those are good titles. I'm also personally excited about, of course, the Hell Let Loose that we mentioned. I think that like a classical franchise like Bus Simulator has been with us for so many years. And sometimes instead of killing dragons and shooting some, it is actually very, very relaxing and soothing to drive a bus instead. So I think that's going to be good fun. And then, of course, some of the more like indie titles like Silver Pipes, for example, I think looks really exciting. James Targett: Okay. Well, yes, plenty to look forward to. Well, that's all the questions. So yes, Mikkel, over to you. Mikkel Weider: Well, thank you very much, everyone, for joining this call. It's been a pleasure, and thank you so much for banking everplay. Operator: Perfect, guys, if I may just jump back in at this point, and thank you very much indeed for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback. On behalf of the management team of everplay group plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.
Operator: Thank you very much, and good afternoon, ladies and gentlemen. Welcome, and thank you for joining our conference on the financial year 2025 results. My name is Jeroen Eijsink, and this is the first time I'm addressing you in my role as Chief Executive Officer of HHLA. I'm very pleased to be here today together with my fellow Executive Board member, Annette Geiss, to guide you through HHLA's performance in the 2025 financial year. Over the past 6 months since assuming the role on October 1, 2025, I've taken the time to get to know HHLA in depth. This has included spending a great deal of my time at our terminals in Hamburg as well as visiting our European subsidiaries such as Metrans and PLT Italy. Above all, I have met many of the people who ensure around the clock that supply chains continue to function. What I have seen during this time is a company with strong substance and committed teams. HHLA is operating in a challenging environment, but it is well positioned to address the challenges ahead. At the same time, I have also gained a clear understanding of where we need to improve and where we will focus our efforts going forward. Let me now briefly summarize the past year 2025. The year was shaped by a demanding market environment. Persistent geopolitical tensions and continued economic weakness in Germany weighed on supply chains and reduced planning certainty. At the same time, global trade flow shifted with declining volumes on North American routes and growth in Far East trades, particularly with China. Another factor during the year was the reorganization of liner services following the formation of new shipping alliances, most notably the launch of The Gemini Cooperation by Hapag-Lloyd and Maersk. In addition, MSC gradually shifted its Hamburg services to HHLA over the course of 2025. For the Port of Hamburg, this resulted in a noticeable reallocation of traffic flows, while all major alliances continue to be handled reliably by HHLA. In this dynamic environment, we focused on strengthening our operational base. We continued to modernize our Hamburg container terminals, building on our automation expertise at CTA and advancing our reorganization and expansion measures at CTB. At the same time, we strengthened our European Intermodal network by further expanding the activities of our Rail subsidiary, Metrans. For instance, we announced the modernization of our terminal in Slovakia and laid the foundation stone for a new site in Hungary in 2025. Most recently, we secured a 50% stake in a Romanian terminal to establish our first intermodal facility there. With investments like these, Metrans strengthened its position in Southeastern Europe. Even in a challenging geopolitical environment, we remain committed to our long-term strategic priorities. These include our continued engagement in Ukraine marked by the acquisition of a majority stake of 60% in the Intermodal Terminal Batiovo. Operationally, this all translated into solid growth. Container throughput increased by more than 5%, while Container transport rose by almost 11%. Supported by this volume growth, both revenue and EBIT made good progress. Revenue in the Port Logistics subgroup increased by about 10% and EBIT rose by more than 20%. At the same time, profit after tax and minority interests was burdened by a one-off and noncash tax effect. It was not cash-effective, but had a significant impact on net income for the year. Against this backdrop, the Executive Board, together with the Supervisory Board have decided to propose to the Annual General Meeting that no dividend will be distributed for the 2025 financial year. The focus remains on financing capabilities and a disciplined capital allocation to support the persistently high-level of strategic investments ahead. With that, I would now like to hand over to Annette, who will take you through the performance of our segments in more detail, starting with the Container segment. Annette Walter: Thank you, Jeroen, and good afternoon, everyone. Let's move directly to the performance of our Container segment. As Jeroen has already mentioned, we recorded overall growth in container throughput of 5.4%. Volumes at the Hamburg container terminals increased by 4.8% to almost 6 million TEU. The key drivers in overseas traffic were volumes to and from the Far East, especially China, as well as South America, Africa, Australia and the Middle East. By contrast, the North America shipping region declined strongly. Volumes in feeder traffic increased significantly year-on-year. This development was supported mainly by traffic with Finland, Poland and other German ports. However, cargo volumes from Estonia, Latvia and the U.K. declined. The proportion of seaborne handling by feeders was slightly above the previous year's level at 19.6%. At our international container terminals, throughput volume rose strongly by 19.2% to 339,000 TEU. Especially in Italy, we saw remarkable volume growth at the HHLA PLT Italy, which really makes us proud. At CTO, we resumed seaborne handling in the third quarter of 2024 and we were able to continue operations throughout 2025, also, still with certain limitations. This base effect leads to the significant year-on-year increase expected for 2025. Volumes at the multifunctional terminal at HHLA TK Estonia declined slightly on the other hand. Segment revenue climbed significantly by 9.0% year-on-year to EUR 843.2 million. This was supported by higher throughput volumes and beneficial shift in the modal split. On top of that, HHLA's international container terminals made a positive contribution to revenue growth with a strong performance of PLT Italy standing out once again. EBIT costs increased by 11.5% compared to the previous year. This was mainly driven by extensive automation efforts, the positive volume trend and correspondingly higher capacity utilization. Personnel expenses also increased, reflecting union negotiated wage settlement and the additional deployment of personnel from the general port operations pool. In addition, expenses for consultancy and related services as well for purchase services, rose strongly. As a result of necessary investments, depreciation expenses increased moderately. The earnings safeguard measures implemented at the Hamburg container terminal since March 2023 had an offsetting effect, but were not sufficient to fully compensate for the cost increases described. Against this backdrop, EBIT declined by 6.4% to EUR 73.6 million, while the EBIT margin decreased by 1.5 percentage points to 8.7%. So let's move on now to the Intermodal segment. Transport volumes in the Intermodal segment made particularly good progress over the year. As a result, container transport rose by 10.9% to 198,200 TEU compared to the previous year. Rail transport rose year-on-year by 11.2% to 171900 TOU. This strong volume growth was largely driven by traffic with the North German seaports as well as traffic in the German-speaking countries. Moreover, the transport volumes of Roland Spedition in the previous year were only included from June onwards. Road transport rose significantly by 8.7% to 263,000 TEU. This development was helped in particular by the recovery of transport volumes in the Hamburg region. With an increase of 12% to EUR 797 million, revenue outperformed the volume development. In addition to routine price adjustments, this was partly due to the further increase in Rail share of the total intermodal transport volume from 86.5% to 86.7%. EBIT increased by 23.9% to EUR 103.7 million. The main reason for this strong EBIT growth was the increase in transport volumes despite an opposing effect from ongoing operational difficulties caused by construction work on major transport roads and congestion at the North-German seaports. Let's turn briefly to the Logistics segment, where we have pooled for instant vehicle logistics consultancy as well as digital and leasing services. In the reporting period, the consolidated companies generated a revenue of EUR 92.8 million, representing an increase of 10.9% compared to the previous year. The rise is attributable to the leasing company for intermodal traffic and to vehicle logistics. After reporting a loss in the previous year, the segment returned to a positive operating result of EUR 6.5 million in 2025. The performance within the segment varied across the individual companies. Whereas the Leasing company and Vehicle Logistics made strong earning contributions, our Innovative business activities fell short of the prior year result. At-equity earnings also made encouraging progress, increasingly by 27.5% to EUR 5.7 million in the reporting period. Coming back to the Port Logistics subgroup as a whole, let's have a look now at our cash flow development. The reporting period, cash flow from operating activities of EUR 257 million mainly comprised earnings before interest and taxes as well as write-downs and write-ups on nonfinancial assets. The main items with an opposing effect were interest payments, trade receivables and other assets as well as income tax payments. Investing activities resulted in a net cash outflow of EUR 307 million, up almost EUR 26 million on the previous year. This development was largely due to payments for investments in large-scale equipment at the Hamburg container terminals as part of our efficiency program. As a result, free cash flow of the Port Logistics subgroup was a negative amount of EUR 50 million. Cash flow from financing activities totaled EUR 0.4 million. On the one hand, new financial loans of EUR 140 million, on the other hand, opposing effects from dividend payments and settlement obligations to shareholders of the parent company and to noncontrolling interest as well as from repayments on bank loans and payments for the redemption of lease liabilities. Overall, our available liquidity at the end of December 2025 remained at a robust level of EUR 180 million. Before I hand back to Jeroen, I would like to briefly address our dividend proposal. At this year's Annual General Meeting, the Executive Board and the Supervisory Board will propose, not to distribute a dividend for the 2025 financial year, neither for the Class A nor the Class S shares. As we already mentioned before, earnings per share are at a very low level. At the same time, we are currently investing at a high level in order to modernize our terminals and ensure that our infrastructure is fit for the years ahead. Against this backdrop, we have decided to retain the available funds within the company to safeguard our ability to invest and to finance our projects. This represents a responsible prioritization in favor of the long-term stability and future strength of HHLA. That concludes my remarks. For the review of our ESG performance, an update on the squeeze-out and an outlook for the 2026 financial year, let me now hand back to you, Jeroen. Jeroen Eijsink: Thank you, Annette. Let me start with the sustainability topic. Sustainability is not an image project for us. It's increasingly becoming a hard competitive factor. Our customers are paying much closer attention to low-carbon supply chains, and we are actively helping them achieve their targets. To do so, we are making investments in three key areas: energy-efficient systems, electrified equipment fleets and automated processes with significantly reduced emissions. There are already very concrete examples of this across our operations. At CTA, our tractor units are now fully electrified. At CTB, automated guided vehicles are helping us to significantly reduce diesel consumption, and at CTT, we are operating hybrid van carriers that are already designed to be converted to battery or hydrogen power. As a result, almost half of our total energy consumption is already covered by renewable sources today. This clearly demonstrates that technological innovation and sustainable solutions go hand-in-hand at HHLA. This is not only an ambitious aspiration, it's operational reality. Accordingly, this is also reflected in our EU taxonomy indicators, where we once again achieved very strong results. All of these measures are decisive steps towards our long-term objective to achieve climate-neutral production across the entire HHLA Group by 2040. Before we turn to the outlook for 2026, I would like to briefly address another topic that has been high on our agenda since the beginning of the year. In addition to our operational and financial performance, the squeeze-out request announced in early January by the Port of Hamburg Beteiligungsgesellschaft SE, HHLA's majority shareholder has required considerable attention. So where do we currently stand in the process? The amount of the cash settlement is currently being determined by an independent expert. Following this, the squeeze-out will require approval by the Annual General Meeting in June. Of course, the Executive Board will accompany this process in a responsible and constructive manner. Let me conclude by briefly addressing the current market situation and our outlook for the 2026 financial year. Recent developments in the Middle East once again pose significant challenges for international shipping. They continue to affect global trade routes, sailing schedules and supply chains and as a consequence, also have an impact on European ports and logistics corridors. At present, we are seeing a market rise in uncertainty. Shipping lines are adjusting schedules at short notice, opting for alternative routes and in some cases, accepting extensive detours. This results in longer transit times, higher operating costs and greater operational complexity along the supply chain. Against this backdrop, the outlook shown on this slide is subject to a degree -- a high degree of uncertainty. At the same time, the progress we've made in recent years in modernizing our infrastructure and expanding our European network provides a solid basis for our expectations for the current financial year. Overall, we expect a positive development for the current financial year. We anticipate a significant year-on-year increase in container throughput and a strong year-on-year increase in container transport. Moreover, strong revenue growth is expected from the Port Logistics subgroup compared to 2025. EBIT is likely to be between EUR 160 million and EUR 180 million. To further increase efficiency and expand capacity in the Container and Intermodal segments, capital expenditure in the Port Logistics subgroup will be in the range of EUR 400 million to EUR 450, around half of this amount will be invested in the Container segment with the majority going to the Hamburg container terminals. These investments will focus on the efficient use of existing terminal space in the Port of Hamburg and the expansion of our foreign terminals. The other half will be used primarily to further expand our own transport and handling capacities for our Intermodal activities. With this outlook for the current year, I would like to close my remarks on our 2025 financial results. Annette and I are both happy to take your questions now. Operator: [Operator Instructions] Ladies and gentlemen, there are no questions at this time. I would like to turn the conference back over to Jeroen Eijsink for any closing remarks. Jeroen Eijsink: Ladies and gentlemen, thank you very much for your interest in HHLA. Before we conclude, I would like to leave you with a closing thought. HHLA remains a central pillar of European logistics. Our international network strengthens our resilience, broadens our positioning, enhances our competitiveness. Our investments consistently focus on reliability, efficiency and sustainability, guided by our commitment to continuously improve customer satisfaction. We are determined to stay on this course. Thank you.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Buzzi S.p.A Full Year 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pietro Buzzi, CEO of Buzzi S.p.A. Mr. Buzzi, you have the floor. Pietro Buzzi: Thank you, and good afternoon, everyone. Welcome to our conference call. And again, thanks for participating. We do publish a presentation, which I will follow at least in part, if not in full, that is available on our website. So I will mainly refer to that and to the page. So starting from the first page, we have a brief summary of what has been 2025 for Buzzi. Overall, a good year, although not as good as the 2 last one, so with some decline in profitability, but still showing, let's say, very strong results and very significant cash flow generation. So as you can see from here, we had a slight improvement in our revenues, in our net sales. This was already disclosed at the beginning of February with an impact -- positive favorable impact coming from the changes in scope. EBITDA is falling somewhat short of last year, minus 3% approximately, which would be actually minus 6% like-for-like. So the overall impact again of the Forex and the Scope changes was favorable. EBITDA margin, we are losing some profitability, which is mainly due to the fact that the additions, let's say, to the perimeter to the scope at least initially for the first year, they are coming in with an average profitability, which is below the one of the, let's call it, traditional scope perimeter and to the fact that one of the -- or the strongest country for us, U.S. declined somewhat. CapEx are, let's say, similar to last year in terms of industrial CapEx, a little bit lower than last year, considering also the equity investment, and we can let's say, enter into that later in the presentation. Net financial position also with the help of some lower CapEx improved significantly and cash flow generation was very close to last year regardless of the slight decline in profitability. We have -- we propose to the next AGM to keep the dividend unchanged versus last year. But -- and we will comment later the shareholders' remuneration in 2026 is anyway going up significantly, thanks to the buyback program, which is underway. As you can see on the following page, let's say, Page 2, one of the key feature, let's say, of 2025 was the Scope changes, which included an Asset Swap, if you wish, which occurred in Italy and Italy and its bordering country, in particularly Austria, where we sold, let's say, the Fanna plant in the Northwest, is in the Pordenone province for those that are a little more acquainted with the Italian geography. And Alpacem is the owner, is part of the Wietersdorfer group. This group, which acquired the Fanna plant is composed basically of 3 parts. It includes 1.5, let's say, plant in Austria, which is quite strong, let's say, locally. The Slovenian plant where we have already -- we used to have already a presence since some year, which is a very stronger plant just on the other side of the Italian border. And some Italian assets that now includes also the Fanna plant. So quite a strong and integrated group in the Northeast of Italy. And then we expanded our presence internationally between starting from March, April until December, it's an ongoing process, if you wish, by acquiring initially over, let's say, a 30% stake in a listed company in the Emirates name Gulf Cement Company, which is a single plant, let's say, entity, but with a quite significant capacity, very powerful in terms of machinery, let's say, and equipment. Then through the OPA, the ownership was increased. And later on, December and also something more will follow during this year. We achieved a gradual improvement in our ownership, which at the end of the year is around 66% indirectly is a little less because we participate to this investment together with a partner in a specific entity called TC Mena Holdings, where we see as 90% and the partner as 10%. So the, let's say, economic ownership is a little less than the 66% at the year-end. On the following page, you'll see the bridge, let's call it, of the turnover -- 2025 turnover by regions, so by main regions where we operate. And Italy had a fairly good year, I would say. If we do not consider -- so excluding the scope impact, actually, our volume and pricing will remain basically the same, prices slightly better. So this was quite a strong support in Italy coming from the infrastructure project of the so-called resilience plan of the European funds, let's say, allocated to Italy. Central Europe was kind of mixed. So there was a recovery in volume, but prices suffered mainly in Germany. And this translated into, let's say, an offset of the progress that we achieved in the volume in our cement, let's say, shipments. Eastern Europe, I would say, good results overall. There was a negative impact -- unfavorable impact coming from the deconsolidation from the sale of the of the Ukrainian assets. So this was the first year without Ukraine included in the scope of consolidation. But the remaining countries overall performed well, in particularly Poland and Czech Republic. And we did have also some benefits from the strengthening of the local currencies, both zloty, Czech koruna and also the ruble in Russia. U.S. was, in a sense, the worst performer also due to the size. So every time that something, let's say, negative happens to U.S. in our case, impact on our figures on our numbers is inevitably more significant. What happened in U.S., we had a minor, let's say, decline in volumes more in ready-mix actually than in cement. Pricing fairly stable, but no improvement if you look at the average or there were some improvements in specific geographic areas, but some declines in other ready-mix prices were a bit under pressure, particularly in Texas and the overall result was a little negative. And the dollar lost us some of its value affecting the translation. So around EUR 70 million or EUR 70 milliojn negative on our net sales figure. Brazil is coming in for the full year for the first time. So the comparison of the first 2 bars refers to the last quarter of 2024. But the impact is, I would say, overall positive with the exception of some unfavorable variances coming from the Forex. -- and is bringing in additionally, let's say, EUR 2,065 million of turnover. Same reasoning more or less for the UAE, which is smaller in terms of turnover and is also including -- included -- it's been included starting from May, so about 6, 7 months. And this brings us to the EUR 4.5 billion approximately level up to EUR 4.3 billion of last year that you see in the bar at the right. Not top, right side of the slide. And then if we move to the main, let's call it, operating figure for the results, which is the EBITDA. What you can see from here is, again, fairly simple, if you wish. So volumes good trend. A favorable variance of about EUR 44 million, but a number of, let's call it, negative items or unfavorable items associated, first of all, with the price environment, which was overall slightly negative besides what happened in the U.S., particularly, I would say, in Germany. So Germany and the U.S. were the 2 countries where we suffer actually Germany, more than U.S., we suffered the most in terms of pricing trend. Variable cost not so much coming from energy and fuel or electrical power. It was more related to raw material and other variable costs, for example, logistic ones. And fixed cost, typically labor, maintenance were also going up, difficult to fully, let's say, control versus the volume and price trend. Other mixed cost also showing a favorable figure. CO2, basically not an issue last year because we still remain -- this refers, of course, to the countries under the ETS scheme. And in those countries, we basically remain in line with the free allowances received with a few exceptions and a minor, let's call it, negative variance versus the previous year. FX overall negative, mainly in the U.S. And then Scope changes that refer to, okay, on the positive side, Brazil and Emirates on the negative to Ukraine, rebalancing somehow the negative impact that you see on the center of the slide by EUR 61 million. So overall, the decline is what we mentioned at the beginning, and this is the -- in brief, let's say, the explanation and more explanation can be given, of course, country by country or region by region where things did not behave, let's say, or happen in a consistent way. We had, of course, some regions more affected by costs, some regions more affected by prices, et cetera. In the following pages, the cash generation and capital allocation. You can see that operating cash flow, as I was mentioning at the beginning, remained very, very close to last year besides the EBITDA decline. CapEx industrial slightly lower than last year, not really because of our decision to decrease them was actually somehow related to the execution phase, which on more complex projects usually takes than you might budget or when you, let's say, translating the design in the engineering phase into implementation and execution usually takes longer. And remuneration of the shareholder was quite good, I would say. You can see the split between, let's say, dividend and buyback. We have an ongoing program, which started at the end of February, which has been more or less so far 50% completed and we should get to the end. We will see, of course, it depends on the liquidity of the shares on the daily trading. But normally, with this kind of trend, we should be able to complete it by the end of May or maybe even earlier. We will see. It's well advanced and likely to be completed in maybe 2 more months. There is also a proposed resolution taken today by the Board of Directors to cancel the shares that will be in portfolio, let's say, in treasury at the time of the AGM. So we don't know exactly the number. But anyway, both the shares that were already in treasury at year-end and the ones that are being bought currently will be canceled, which is also, I think, overall a positive news for the shareholders. Just to give you a little more color on the different geographic areas, we move to Page 7. The U.S. always, let's say, a very strong contributor to our results. But last year, they were not able to keep up with the same level of profitability that we enjoyed in 2024. Basically, in terms of EBITDA margin, as you can see, we went back to the level of 2023, which is anyway a very good one, both in absolute terms and also in relative terms when you compare to other peers operating in the U.S. But the trend was slightly negative. We faced difficult volume part of the year. Then in the second part, there was a recovery, but not full. So we were unable, let's say, to close with a favorable volume trend, minus 2.2%, I think, very similar to the overall market trend. And ready-mix volumes suffer like we were a little bit more in terms of shipment deliveries and also pricing ready-mix, as you know, as you recall, in our case, they are mainly in the Texas area, which was one of the -- yes, I would say, more difficult in terms of market environment also due to the presence of the significant presence of both incumbent and new importers into the -- along the coast from Houston to Corpus Christi, et cetera. So we have a structure in the U.S., a cost structure which is compared to our countries, skewed in a sense of more significant weight of the fixed cost. So when you lose also slightly volumes, this has an immediate impact on our profitability, which was the main case. So cost not really going down, volumes going down a bit, pricing not moving or more, let's say, moving unfavorable than the opposite. And this was the result. On top, we had the negative foreign exchange impact following the devaluation of the dollar, which on the EBITDA -- on the EBITDA means around EUR 26 million, not a small amount. Moving to Italy, which is the following page, more favorable situation, support, as I was mentioned before, mainly from the PNRR programs. So public building and infrastructure projects, which also are typically enjoying a greater cement intensity versus either new residential or residential renovation. So there is a decline in cement volume, but this is a direct consequence of the Scope changes that we were commenting at the beginning. Meanwhile, for example, our ready-mix concrete subsidiary has been able to increase volume by around 6%. Pricing performance was okay, some improvements. And our cost, both fuel and power were definitely under control. So we did not suffer any significant, let's call it, inflation -- energy inflation during 2025. The changes in scope on EBITDA means 13 million -- EUR 14 million let's say, about EUR 14 million of impact, which is not very different from what you see in the EBITDA variance actually. We are showing plus 3.5% like-for-like. So it was fully offset by the good trend or the stable trend in volume and favorable trend in pricing. In Central Europe, which means for us, basically mostly Germany plus Luxembourg and ready-mix operation in the Netherlands, quite a different trend if we look at Germany versus Benelux. Unfortunately, Germany has a much greater weight on the area because the performance of Luxembourg was -- and in the Netherlands was growing, was okay, was improving. Meanwhile, Germany did improve some. So there was a rebound in the volumes, but there was no rebound. Actually, there was a decline in prices, which started already on the previous year. Actually, we entered 2025, the exit price, let's say, of 2024 was already lower, and we were unable to recover or to change it significantly or just slightly to 2023 and '25. And this was the major impact on the -- I mean, the major reason for the EBITDA decline together with a cost situation, cost environment, which was not favorable or quite different from what we experienced in Italy, mainly on the -- we suffer mainly on the energy cost, on the power cost, not so much on the fuel. But yes, on power, this is also somehow related to the -- to an hedging, which was made in advance so to cover the purchases for 2025, which at the end was not, if you wish, successful in a sense that maybe it was a bad timing. But of course, I mean, the reasoning behind hedging is not to pick the right timing. Just in this year, I mean, in 2026, we will see a totally different trend because the market condition has changed in the meantime. So the change -- the favorable change in Benelux was able to help somehow the region. But Germany, clearly is waiting significantly on this specific portion of the business. And the performance in terms of EBITDA certainly was not was poor overall. I mean there are reasons behind it, which explains it, but was overall quite poor. In Eastern Europe, on the following page, we are, I think, continue to be on a steady, let's say, profitability outcome. Of course, these businesses are not as big and as significant. So their contribution, let's say, to the overall profitability of the company is not as significant as Germany or U.S. But the good news is that there is a positive momentum, both in Poland and in Czech Republic, which should also continue in the coming year. So strong cement volume dynamics in Poland was clearly -- I mean, it was quite meaningful. Czechia, it's smaller, but also stable. Our ready-mix business in Czechia performed very well. We lost cement volumes in Russia. That's the only area where I think also after some years of war, let's say, the impression is that the economy is starting to feel more, let's say, the pain than in the previous year. And also probably in Russia, the prospects for the next year are also quite difficult or more difficult than in other Eastern European countries. Ukraine is not part of the region anymore. So -- but its contribution was not very significant anyway. So if we exclude Russia, there is a margin expansion. And driven by higher production and also, in this case, lower energy cost, which did not as opposed to Germany that we commented before. Exchange rates also favorable, if you wish, not a minor, let's say, contribution, but anyway, a favorable contribution. And the impact of the deconsolidation of Ukraine was, I would say, totally absorbed and also the negative contribution from Russia was totally absorbed by the strong performance of Poland and Czech Republic. Brazil, which is a newcomer, let's say, first year in the group. So let's say that we are on a pro forma comparison here because last year, actually, only the last quarter was included in our figures. We had a volume trend, which was favorable, 2%, 3% up again compared to the full year 2024. Price trend in local currency also favorable. This translated into, I would say, significant margin expansion. Our cost also were particularly the energy costs are lower than the previous year. So -- as a first, let's say, year of full operation in the group, I think we can be fairly happy with the overall performance. There is room to do better in the coming year if the external condition and also the industry trend will go in a certain direction, which is possible. And the only negative factor, the only negative is the exchange rate trend, but not so impact. I mean, not so dramatic on our -- on the overall figure with minus EUR 5 million on net sales and minus EUR 1.5 million on EBITDA. And currently, actually, if we look at the -- of course, it's not necessarily a trend that will continue for the entire year 2026. But what we are seeing lately is actually a more stable real versus the euro since the beginning of 2026. So if the local currency -- if the trend in local currency will perform better, which is what we expect also in euro, we should have -- it should be reflected, I mean, also in euro terms in likely absence of negative FX impact in the coming -- in the current year. Mexico is not part, as you know, of the group is not line by line consolidated, but it remains a very important part in terms of, let's call it, also management involvement, but in particular, in terms of results -- net result contributed to the other company. The Mexican performance was mixed, but overall, still very good. We [ suf ] a bit on the turnover on the EBITDA in euro terms. But when we clean up, let's say, from the foreign exchange impact, actually, both figures were better than last year. And this is one of the few countries together with the Eastern European country, Poland and Czechia, that is -- was able to achieve an improvement in the EBITDA margin, which is already very, very high, as you can see. So I would say that we cannot complain about the Mexican performance. The only complaint is that it cannot be included in the line-by-line consolidation. But for the rest, very strong performance coming from this country. Some comments on how we see [ 2020 ] also on the light of what has happened so far and also recent change in the macroeconomic environment. I mean, we are -- we were, let's say, but we still are pretty confident that we can continue to perform fairly well during the year. There are uncertainties. There are certainly geopolitical tension, potential inflation pressure for how long this difficult, let's say, situation in the Middle East will last and will affect particularly the energy cost, but not only because there are anyway also impacts on the demand in part directly like in the Emirates or indirectly like in Europe or probably less in the U.S. and Brazil. But anyway. So by major, let's say, regions like we showed before, U.S., the expectation are for -- the association is, let's say, forecasting some additional decline in demand. probably in the range of 2%, 3%, something similar to what happened in the previous year. But of course, if this happens, it would be already the 3, 4, 5, 6, 4, at least fourth year in a row of decline versus the previous peak which was not historical peak, but anyway, the previous peak of the cycle in 2022. And this is something that clearly is not, let's say, helping the overall price environment because there's most of the regions of the state, some capacity available. And as I said before, due to our cost structure to lose some volumes almost immediately translates into a margin construction because the fixed costs are quite high in the area. On the other hand, we have seen also at the beginning of the year, particularly during the month of February, demand quite resilient. So it's true that on one side, you have residential weakening, but there are definitely in the nonresidential portion of the demand or yes, some kind of projects that are going well that require cement and concrete. Typically, just to mention one, which is, of course, very much on the fashionable the data center construction, but this is actually happening. It's happening and it's relatively intense in terms of cement consumption. So again, a mixed environment with the nonresidential segment and also the infrastructure probably supportive and maybe even better than what the association has been forecasting for the full year. So we will see. There are, of course, other factors to be considered in the U.S., which we mentioned in the comments of the press release that are a bit disturbing or potentially disturbing, let's say, the price environment. But okay, a situation or a scenario which is, I would say, moderately optimistic. I would be optimistic about the outcome for the U.S. in the current year. Italy should be a year very similar to the previous one as long as we continue to have demand coming from the infrastructure plan, let's say, or the European funds, there are good chances that we can more or less repeat last year results and also Italy is more likely probably than the U.S. to be able to improve somewhat the prices. There are underlying reason related to the introduction of the CBAM, the scarcity or the less availability of CO2 allowances, which also translate into a higher cost. So there are -- there's probably more room than in the U.S. on the pricing side to be a favorable variance. Central Europe, we should see some rebound. We are forecasting some rebound in Germany. The federal infrastructure plan should start -- will start to have some impact also on cement demand. We are coming from a year where the prices, as we were commenting before, remain fairly weak. So there is -- there should be a possibility also couple being within, let's say, the ETS system similarly to the -- to Italy, there should be a possibility to recover something on the pricing side. Clearly, this means also additional cost for CO2, but more chances, let's say, to gain something on the price level. Eastern Europe, with the exception of Russia, which is probably entering a much more difficult phase than what we faced in the last 2, 3 years. We don't see a reason why Poland and Czechia should be worse than the previous year. These are also countries where as opposed to Germany, Italy, we are operating at a very high capacity utilization level. And so we are definitely optimizing, I would say, our profitability, thanks to the capacity utilization, which is -- we think they have to stay. In Brazil, we mentioned it already, we see a positive trend overall, particularly in the Northeast, which has been growing in terms of volume and prices more than the Southeast. But if there is an easing of the monetary policy, which today represents significant constraints for the construction investment with interest rates at 15% or 16% the number of projects that are -- that have been on hold so far should start. And clearly, this has even more impact in the Southeast where most of the consumption and the population actually are because this is where the bulk, let's say, the cement consumption of the country is located. In the Emirates, we will certainly suffer from lower cement consumption until at least -- we will see until something different happens. But that's the country with more direct impact coming from the local, let's say, turmoil or conflicts going on. But on the other hand, we are -- we have a number of initiatives of projects that are -- that have been put in place last year and will continue this year to improve the profitability. So even with the lower cement volume, we may be able to do something better in terms of EBITDA. Mexico craze not affecting directly our numbers. But we are seeing -- we're, let's say, more positive versus last year in terms of volume trend and profitability should remain at a very, very high level. This is for the, let's say, the top line and the volume prices scenario. The risk or the, let's call it, the uncertainties are definitely more related to the cost side, where it is true that many components or many items are -- have been contracted for a certain number of months. So we have certainly some stability for a good part of the year. But it is clear that on the energy cost, in particular, the current situation is creating an environment of rising cost driven by renewed inflation like we mentioned here. So there is volatility, but volatility mainly on the high side in a sense of more expensive side. This is difficult to, let's say, assess completely right now. We ran some number, taking, of course, kind of sensitivity analysis. And there is certainly an impact that we don't know if we will be able to offset with the price improvement or not. It will mainly depend on the specific situation, demand, pricing demand, let's say, competitive environment, what is the attitude of the competitors, et cetera. So the idea is, of course, to try our best to preserve the margins. But how much we will be able to do that and how much actually the cost environment will be unfavorable is difficult to assess. In general, we do see a significant risk of rising cost, in particular, the energy component in the coming months. The FX foreign exchange is very difficult to somehow forecast. Initially, in our budget, we introduced an exchange rate for the dollar, which was definitely weaker than the 2025 average. Is this going to be true? It's not going to be true. We don't know. So far, again, not as much as we forecasted, but this could change in the coming months and can certainly move, let's say, the variance from positive to negative if the dollar will weaken more than what we expected or more than what is showing up to now. So overall, again, reviewing our numbers, reviewing our budget in a quick way, we think that it will be quite difficult or actually as of now impossible to achieve an EBITDA greater than in 2025. So our view right now is to as we wrote, let's say, marginally decline by how much is difficult to tell right now. But I think the message, which is important to give today is that looking at all the variables, looking at all the available information as of now, it is -- this is the best, let's say, forecast that we can make, and we think that is a correct one, which means that, okay, there our profitability will not improve in 2025. But if it is a marginal decline like we expect, will remain anyway at a very good level. And we would be happy, of course, to change this view as soon as possible. And -- but this, realistically speaking, is likely to occur if it does occur only after more months of actual results available. So with, say, 1 quarter or maybe let's call it, 6 months behind us, we will have definitely a clearer view on the full outlook. But I think it's important to give this message today, which has been, I mean, analyzed in a very deep and serious way with, again, running several sensitivity analysis that are giving us this kind of outcome at least at the current stage. So I think I spoke for almost 1 hour. So probably -- in order not to be tedious and to make the conference a little more interactive, I would let you read the following pages by yourself and open now, let's say, the Q&A session. Thank you for listening. Operator: [Operator Instructions] First question is from Ben Rada Martin, Goldman Sachs. Benjamin Rada Martin: I've had 3, please. My first one was on CapEx. I know in the release, you spoke to an increase planned in 2026 versus '25 and some of the buckets in terms of decarbonization and production. Would you be able to talk to what kind of quantum you expect for 2026 CapEx and then in terms of the medium-term CapEx expectations as well? And then the second would just be on the guidance assumptions and very much understand how uncertain the backdrop is currently and very helpful to kind of talk through some of those impacts. But if we look at that moderate decline or slight decline in EBITDA expected, is it right to assume that there's limited energy impacts so far in that number? Or I guess, what kind of pressure do you see embedded within that forecast? And then finally, would just be another quick one on energy. When would you expect to see, I guess, pressure come through the cost base? Is it more of a second half story at the moment? Pietro Buzzi: Yes. I mean the last 2 questions are, I think, related. And the answer, yes, is that definitely, we have -- as usual, I mean, we have in front of us about I mean, starting from January more than today because already 3 months past, but usually 5, 6 months of fairly stable energy cost or at least as we budgeted because of, let's call it, hedging policies, which is different from one country to another. So -- but if you look at the mix or the weighted average, in general, we have 40%, 50% more or less of our cost already hedged for electrical power or fuel. So yes, the trend if it changes, which I think it will change, unfortunately, will be more evident in the second half. By how much, it depends because we have, for example, also countries in Europe, typically Germany and in Europe, the debate about power cost is really significant. I mean there's a lot of political pressure on power cost being too high to reduce even talking about how to amend the ETS. Tomorrow [indiscernible] will speak about that. Let's see what he say. But -- so specifically in Europe, the big countries like Italy and Germany, we don't see a big risk on power cost. The [ famous ] also energy release has been approved. So there, we should be okay. On fuel cost is different, of course, also even if our share of so-called waste-derived fuel is increasing gradually, we are still strongly dependent on pet coke. So let's say, a price which is somehow linked or index to the -- to some extent, certainly to the oil price. So there, easily, you could see an increase of, I don't know, 20% or so. And unfortunately, this is well possible. It will impact only partially, as I said before, the full year results, let's say, 6 months, but it's well possible. On the CapEx, our trend, I think -- I mean, we are always very kind of ambitious. We are approving the budget. And then as I was explaining before, some of the biggest projects are actually taking longer to be executed to come to the execution phase. Engineering is more complex versus the initial -- I mean, at the time of the initial approval. So if you want to take an average of the next 2, 3 years, I would move it to between -- I mean, to be -- except for -- I mean, just the industrial CapEx, then there will be other kind of equity investments or M&A transaction is different. But I would move it to between 500 and 550 is probably a number that considering the major projects that we have underway, including some expansion projects is likely to be the right one. Operator: The next question is from Elodie Rall, JPMorgan. Elodie Rall: So maybe you could talk to us a bit on the price action that you're taking in Europe to start with to offset indeed the increasing inflationary environment. You talked about your hedging strategy. Are you pushing prices a bit more? Are you seeing the industry pushing prices and where are we at, at the moment in terms of price increases in Europe? And same question for the U.S. You talked about better demand year-to-date. So how do you see scope for price increases? I guess April will be the big start in the U.S. And then I had a clarification on your buyback plan. You did EUR 200 million very recently, I think. And now you announced another EUR 300 million plan. Is that the correct way to understand it? You can do another EUR 300 million from here? Okay. I'll stop here. Pietro Buzzi: Yes. On the buyback, in theory, well, first of all, we have to complete the -- undergo, let's say, EUR 200 million. And then the idea is to renew, let's say, the authority to ask for a renewal, to ask the AGM a renewal for the authorization to authorize an additional EUR 300 million. This EUR 300 million still will -- I mean it doesn't mean that we will necessarily, let's say. exercise the authorization. This is a preliminary authorization, which is given by the AGM, and then the Board will have to decide whether to actually start the program or not. What I think is likely to -- I mean this is unless, again, the market changes completely, but I think we will complete the undergoing EUR 200 million. And then we will have an opportunity or a possibility for another, let's say, EUR 300 million in the 18 months, -- is lasting, let's say, 18 months after the AGM resolution or authorization. On the price section, well, there are some countries, I would say, in Europe, mainly which are also -- the biggest one Italy and Germany. The winter has been difficult in Europe. In general, what we saw and what you also will see when we release our, let's say quarterly summary. There's been cold rain. So particularly January and February was not a good time, let's say, to go for a price increase and March is better. And also the weather has been improving. And of course, January and February are not big shipment months anyway. So the attempt in Europe to increase prices is driven yes, mainly by the cost trend, which includes an additional cost for CO2 like we mentioned in the beginning, probably an additional cost associated with the CBAM, let's call it, also a decline of allowances because you have the 2 components. And yes, more, let's say, today than yesterday, of cost pressure on the energy side, mainly fuel, as I said before, than power. The magnitude, I think, it's moderate. We have to make sure, let's say that we will not be, let's say, losing volume or market share, either against the import or local competitors. But I think there is at least in these 2 important countries in Europe, there is a chance to a price improvement and being able to offset the additional costs like we were commenting before, let's say, on the -- on our policies to at least keep the margins. In the U.S., very differentiated from area to area. There are -- okay, we don't have the ETS, but we have other issues that are associated with the, first of all, okay, the imports where they are strong. That continue to be, let's say, have a very competitive approach in terms of pricing. Second, the industry structure has changed quite significantly. As you know, in particular, I think, the growth, the presence of QUIKRETE as a cement player has changed the picture quite a bit. Also QUIKRETE being major customer of cement from us but also from other competitors. And the fact that the declining, let's say, capacity utilization is clearly for them, let's say, an opportunity to self-supply cement to their, let's say, mixing operation as much as possible. It has to be obviously, economically feasible. So if they are too far away from one of their plants, they will continue to buy from another competitor. But if they can, they will obviously buy from themselves. And this is something that is putting pressure because if you lose volume, you have to look for volumes somewhere else, to look for volume somewhere else maybe -- I mean, pricing is a tool. And this is one of the changes we have to -- which again is very regional, but can have a significant impact. Another point which we also briefly mentioned in the press release is the product mix. There was an effort 2, 3 years ago, particularly by the European player in the U.S. to move as quickly as possible to the so-called 1L product. So with a lower clinker content for limestone, which is actually a very good product, but more capacity available and again, players in the market that don't have maybe European parent, like, again, QUIKRETE, their interest in developing or in pushing 1L is much less. And this is also translating into a competitive pressure, which is different from the past where you compete not only on pricing, et cetera, but you compete also on the kind of product that you're selling. So again, a mixed environment. Anyway, if the demand stays, I think that maybe not everywhere, but some price improvement we can get also in the U.S. And then we will see how much the cost pressure -- how much cost pressure there will be on the margins. But it's a complex -- it's a more complex landscape than 2, 3 years ago certainly. Operator: Next question is from Emanuele Gallazzi, Equita. Emanuele Gallazzi: I have 3 questions. Well, the first one is on Germany. Can you just discuss a little bit more on your expectation for the German market in 2026. You mentioned a gradual recovery supported also by the infra spending plan. When do you expect the first contribution from it to kick in? The second one is on the capital allocation, very clear on the buyback. I was looking at, let's say, the M&A, can you just update us on your M&A strategy at this stage and the opportunities that you see in the current environment? And the last one is a clarification on the guidance. I probably missed it. But on which euro-dollar exchange rate is based your current guidance? Pietro Buzzi: Okay. We are at [ 120 ] right now as an average for 2026 versus [ 114 ] -- was [ 113 ] approximately in '25. So this of course, can be -- as I said before, can be better. If we look at the trend so far is better. Will it last? I don't know, anyway. M&A, yes, is the focus. I mean it is a focus in a sense that our idea is to be, of course, continue with a stronger financial discipline and consider only, let's say, targets that are -- can represent a real opportunity, not only on a strategic view, but also on the financial, let's call it soundness of the overall proposal. I think that today, but also before, it really hasn't changed much. The focus remains countries where we already are. So the opportunities -- if there are opportunities where we already have a presence, certainly they are -- we give them much more investigation, but much more, let's call it, focus than versus opening totally new country or venture with someone else. I say something that is publicly known publicly available, certainly in Brazil recently there have been movement announcement, CSN is announcing -- more than announcing, I think, it started actually a sales process of its cement division. And is it -- is this a real opportunity or not for us? Difficult to tell. I mean, we have to -- but certainly, again, looking at the main strategy, which is reinforced in a disciplined way. The presence where we already are, it could represent, let's say, an opportunity. It has to be investigated. I mean the process is at the beginning. So we need to understand a little better. But generally speaking, this kind of, let's call it, opportunities are more interesting than others. And basically, that's it. In Germany, it's not totally clear how much of the, let's call it, public infrastructure plan will translate into a greater consumption already this year. We think that something will show -- is starting to show, will start to be available. In terms of quantities, let's say, of cement coming from these kind of projects. It's difficult to tell, but maybe I don't know. I don't have -- I don't want to spend a clear number without support. But what we are seeing that, yes, there is a rebound due to the normal, let's call it, cyclicality. The fact that after 2, 3 years of declining consumption, it is rebounding. There is more, I think, also optimism let's call it, confidence within the country after the change of government. And there is a potential, but more than potential consumption coming from the infrastructure plan. So what we can do maybe is to look at -- again come back with some figure with you looking at -- because last year, the association was giving some information of some -- was somehow trying to assess the overall impact, but was more on a longer time horizon. So in the next, let's say, 5, 6 years. Maybe there are more recent, let's say, population assessment of what could be or what will be -- what can be, let's say, the impact already in 2026. But I think certainly, there is some. Operator: Next question is from Arnaud Lehmann, Bank of America. Arnaud Lehmann: So I have 3 questions, please. Firstly, on CO2. Do you have an idea how much reduction in free CO2 allowance you will get for '26 relative to '25, that's my first question. The second -- yes, go for it. Pietro Buzzi: No, no. Let's take... Arnaud Lehmann: So the other one is, I think you're announcing a stable dividend for 2025, even though your net cash position is above EUR 1 billion, it seems very comfortable. So maybe we could have hoped for a little bit of growth in the dividend. And lastly, on your assets in Russia, we've seen some competitors in different sectors are seeing their assets being seized. Do you think that's a risk for Buzzi as well? Pietro Buzzi: Well, it is a risk. It's probably the largest or the greatest or the biggest risk that we have also in our, if you call, enterprise risk management tool. The probability, extremely difficult to tell. I think -- because this thing really depends on one person now. He wakes up on a certain morning, and if you ask me, I don't see it very likely. I believe that we can continue this way, which is not great because, unfortunately, we are not able to manage the way we would like. But to see really political attack of this kind, in my opinion is unlikely. Anyway, the risk is certainly there. And it's, I think, yes, the biggest risk we have currently in our system, in our -- the second question, tell me again was... Arnaud Lehmann: So the other 2 were how much reduction in free CO2 allowances and why a stable dividend? Pietro Buzzi: Okay. Reduction is about 1 million less for the group, 1 million tons less. And I think we estimate to be in deficit, certainly in Poland and, I think, in Czechia too. And in Germany, I don't recall if we will be in a deficit also, yes. Yes. In Italy, probably slightly deficit, but not as important. And I think we will continue with our internal let's call it, guideline, which is to use the bank or the inventory of free CO2 allowances in the countries where they were coming from. So meaning in Italy, we will continue to use them and in the other country, also the way of somehow hedging the cost by CO2 rights to the extent needed. But we are also able to secure some already at the beginning of this year when the prices went down. So I think we should have a yes, of course, a cost -- additional cost versus last year, but probably a per ton cost, which is still, let's say, favorable. On the stable -- the idea behind a stable dividend was quite simple. Our net income is the same of last year. It is true that our payout is not that great, and there would be room for improvement. I think there is room also in the coming year is basically -- is basically -- and overall, to let's say, examine and to consider the overall shareholder remuneration. So it is true that on one side, we did not increase the dividend. But we do have the undergoing buyback, which makes the overall -- okay, maybe not for everyone because it depends if you're selling your shares or you're keeping your shares. But in general, I think the buyback is beneficial to everyone. And also the decision to cancel the share will adjust at least in -- finally, in a definite way the EPS with an improvement there, which should translate sooner or later, providing, let's say, that the markets are also becoming a little less volatile and improvement in the share price. So we thought that this would be a balanced decision. And also looking at the coming year, where our outlook is not for an improvement. It seems to us that to keep the dividend, which is, yes, same as last year was a balanced decision. Operator: Next question is from Yassine Touahri, On Field Investment Research. Yassine Touahri: I would have 3 questions. First, a question on pricing. I think in Germany and Italy, some of your competitors have announced price increase of 5% to 10% as soon as April. Have you seen price increase later -- in the U.S., I think it was outside of Texas. You had also price increase of like, I think, between $8 and $12 per ton sent by many of the largest players to ready-mixed concrete producer. Again, have you announced similar price increase? Then I would have a second question beyond the price development. On your vertical integration strategy in the U.S. I think that a lot of your competitors are vertically integrated. And you can see -- I understand from your comment that the lack of vertical integration, for example, versus QUIKRETE has been an issue. Is it something that you could consider addressing in the next 5 to 10 years with potentially more acquisition in aggregate of ready mix? And the last question would be on Russia. Could you give us the amount of cash which is currently in Russia when we're looking at your net debt position? Pietro Buzzi: Okay. Russia, I will check it and let you know quickly. In the U.S. as well, we are not totally, let's call -- let's say, without it, in some area, actually, our vertical integration in Texas and San Antonio, Houston, Austin, et cetera is quite significant. We don't have a presence in the aggregates. I mean, this is true. We have some aggregate production, but not -- never, never considered a business in itself and always somehow related to our ready mix activity. So as a way to supply our own ready mix activity. This will become more significant in the coming years. I would say yes. I think initially, at least more oriented towards ready-mix than aggregates because is the most important in terms of keeping your production levels steady, again, not losing customers or avoid losing customers. So it can be seen more, I would say, as a defensive move than strategy, devoted to additional vertical integration in a market which is -- has been shrinking, let's say, in a way or another in a market that's changed like we mentioned before and also changed in terms of big ready-mix producers that are importing cement for their own supply. The number -- I mean, the risk of losing customers and not being able to replace it with another customer, particularly in the ready-mix environment is great. So it can certainly make sense to add the vertical integration, as I said, more as a defensive move than something else. But it is a defensive move that will allow you to keep your volumes and also to keep your -- again, to keep your margins. On the pricing environment, I think, we moved that, but not by the same percentages there. Yassine Touahri: I think the percentages are mentioned, where the price increase announced. Not the price increase that are expected to be realized. I suspect that the message, I think, of the larger -- of some of the large cement players in the U.S. would be that a low single-digit price increase being expected which I suspect means like maybe half for the price increase... Pietro Buzzi: Yes, probably this is, again, not everywhere, but probably this is the most likely outcome, usually. You have protection, you have anyway, as I said, many players that are behaving maybe not exactly as the big ones that are particularly in this moment where the output is not going up. So clearly, looking very much to their capacity utilization than versus just even if economically speaking, it could make more sense sometimes to lower your production and increase prices in the long run. This is not necessarily a good move because if you lose a customer and you're not able to recover it in the long run, this will translate into lower profitability, too. So yes. Yassine Touahri: And another question was, have you sent a price increase letter for April in the U.S., Germany and Italy? Pietro Buzzi: In the -- so-called price increase letter is more a technique of -- more common in the U.S. than in Italy or Germany. In Italy and also in Germany is more case-by-case, customer-by- customer, let's call it, discussion or any way proposition. So... Yassine Touahri: If we look at -- if you look at your own vertical integration into concrete in Germany and Italy, are you increasing prices in April substantially to offset the higher fuel costs that you're expecting and the CO2 alone? Pietro Buzzi: Is not yet the higher fuel cost. It was more, let's call it, decision taken already at the beginning of the year. And yes, we have price improvement in place, which I don't think will be the magnitude that you were mentioning, right. Like I mean, for the reason that you were mentioning. But yes, we think it's likely to stick also because again, more recently, people are feeling pressure also on other cost factors. So it's more -- it's easier, let's say, to accept also an increase of the cement price if there is a general inflation rebound. Yassine Touahri: And maybe following on this situation. I think like the importer in Europe, especially in Italy, they will probably have to pay a CBAM cost, but it's a bit unclear they don't know. I think what kind of cost they will have to pay because the benchmark is not public. What do you feel? Do you feel that the independent importer are being a little bit careful because they might have EUR 10, EUR 15 extra cost, but they are not yet increasing prices? Pietro Buzzi: No, I think they've been already increasing in general. It is like you're saying, it's not totally clear what will be the -- it depends actually on their CO2 content. And yes, each importer can have a different impact according to the kind of product that is bringing in. But yes, I think everyone is considering just maybe as a conservative move to make sure that they are not losing, let's say, versus the previous price. So that they will be able somehow to offset the additional CO2 cost associated with the CBAM scheme. Yassine Touahri: And on the pricing as well, I think, on one side, you've got the imports that are making it difficult to increase prices. But at the same time, I guess, the cost of importing is probably increasing a lot with the oil price making shipping more expensive? Is it something that could be helpful for you to either increase prices or get back the market share that you lost versus especially the big bag imports? Pietro Buzzi: Yes, yes. It is a chance. The -- anything that makes the import more expensive will allow, let's say, or will help, let's say, domestic supply to be more and more competitive, certainly. Yes, it is a chance. Yassine Touahri: On the other side, on Texas, you've got a new cement plant. I think it's the first time there is a cement plant in Texas for many, many years in West Texas. It looks like it's 10% of the Texas capacity, so it's a lot. And the -- it looks like they're going to -- it looks like the cement plant could be -- I guess, do you see a risk for your market share in West Texas? I think where there is a lot of oil well cement. Do you see a risk as well in your market share in the Dallas Fort Worth area where I guess that if they want to ramp up, they will have to sell to Dallas and Fort Worth. Is there a risk for sure? Pietro Buzzi: Of course, there will be more competition, particularly on the oil well. On the other hand, it is true that GCC was already preparing, let's say, the commissioning of the plant by importing cement from Mexico in the area. So it's not totally new. I mean, of course, they have more capacity locally, so they are more competitive, and they can be more aggressive, but they were anyway preparing the commissioning already before. And on the oil well, yes, at the end, the oil well is really a matter of what is the oil price. So if the oil price stays or goes up, I think, yes, okay. There can be more comments. I think this kind of customer is a little different. I mean, being really special products with a very strong significant quality requirements, consistency must be difficult -- it's much more difficult for a customer of oil well to change supplier versus the normal ready-mix customers. So there must be -- okay, there is a huge pricing difference they will consider it, but then they have to test it. I mean they have to go through their quality department is quite complex. So -- and again, the demand is driven purely from the cost -- from the price -- oil price. Yassine Touahri: Okay. Is it fair to assume that in the U.S. in your forecast, you've assumed maybe a bit of a price increase in land, but no price increase in Texas at this stage? Pietro Buzzi: Correct. Yassine Touahri: Maybe on Russia, on Russia, you don't have the number on even approximately the amount of cash that you have in Russia? Pietro Buzzi: EUR 150 million. Operator: Next question is from Alessandro Tortora, Mediobanca. Alessandro Tortora: A few questions, if I may, as -- so the first one is on you made a comment on a very significant margin expansion. Clearly, volume were up, let's say, low single-digit prices, let's say, not slightly up. So the game changer not to stay in this, let's call it, new level, very good level. So you -- it was the work you did on the cost side. And the real mission of the market is I don't know, to be structurally above 30%. So just to understand that clearly, I understood your comment on we need, let's say, more, how can I say, disciplined competitive landscape and for the CSN deal could help on this. So just your thoughts on this because clearly, the margin expansion, especially in the second half was very, very good operationally. Pietro Buzzi: Yes, yes. It was driven, yes, by -- well volumes were good, let's say. So capacity utilization is some plant is really pro capacity, which is giving the best operating leverage. So this is always -- the energy -- power cost, in particular, we save some. We are also becoming in a sense, indirectly, but let's say, producer of renewable energy. We have now an investment into a renewable energy company, which is allowing us to enjoy, let's say, better -- lower, let's say, power cost. And pricing, not a great change. I mean you don't see such a significant improvement. But there are some improvements in prices. Also again, because the market is quite brilliant, let's say. And yes, CSN could be an opportunity besides -- I mean, whoever buys it, will buy anyway, we'll have to invest a significant amount of money because -- okay, relatively speaking can be cheap or expensive. It depends on how much we want to take. But in absolute term, is any way sizable company. So -- and yes, CSN has been certainly more aggressive, let's say, than other competitors on prices, particularly in the Southeast region. So we hope that this could translate into a more disciplined competitive environment that is certainly a chance, let's say. Alessandro Tortora: Comment on pricing strategy discussion client by client in some countries. So is there at least with some clients in some countries, some kind of indexing with, let's say, CO2 price and so on? Because we saw the decline in CO2 price recently. So just to understand if there is or not. Pietro Buzzi: No, there's not. It would be too dangerous in our -- I mean someone definitely did it in the past, but it's very dangerous. I think in our opinion, will not be the right commercial marketing strategy. Alessandro Tortora: Okay. Because there are different opinions on that. And on the CapEx side, the question is, first of all, you mentioned this run rate for the next 2, 3 years with EUR 500 million, EUR 550 million per year CapEx. Does this include the, let's say, U.S. expansion project you had in mind? Pietro Buzzi: Yes. Yes. Correct. Alessandro Tortora: And which is... Pietro Buzzi: I mean, which will start, but we'll start at a slow pace, let's say. But it will start, yes. Alessandro Tortora: Okay. Okay. And secondly, in theory, we should have, let's say, a second round of grants, let's say, in Europe also for, let's say, some innovative carbon capture projects. Is it something that you're still monitoring? Do you believe that maybe you can take, I don't know, a decision on developing at least one single project for this technology? Or let's say, the approach is to be extremely, let's say, conservative and maybe waiting a little bit for technology getting more mature? Pietro Buzzi: Monitoring, yes. Lorenzo, you want to add something? Lorenzo Coaloa: No, I mean, again, monitoring for sure and -- but let's say, at the same time, we need probably more clarity on the regulation and also on the criteria that will be, let's say, considered by the commission when it comes to the evaluation of the project. Pietro Buzzi: Let's see if there is -- what happens on the ETS side, I say tomorrow, but not tomorrow, I mean the so-called revised ETS by June, I know it's, if I recall correctly, let's see what happens there. Because still, we believe that the cost benefit of a carbon capture project is unjustifiable, let's say, today. So what you are focused much -- is -- and also to -- okay, if you build a totally new plant, but again, cost benefit very difficult to justify, it can make sense. I mean you build a totally new plant. You introduce also the carbon capture installation. But to add the carbon capture installation to an existing plant, which dates to maybe the 70s or the 80s, they are not bad, but let's say there's plenty of room for improvement in energy consumption and also fuel consumption before carbon capture installation. So we are a little bit shifting our focus on projects in countries like Poland or Deuna. Deuna, where we put on all the carbon capture projects to something that will reduce, let's say, maybe CO2 emission by 20%, 25% and modernize the plant. So being ready to possibly at a later time, which I think it will be inevitable because the deadline that are set today are realistic at a later time to introduce a carbon capture on a plant, which has already been optimized, instead of doing it on a plant, which is again 30 -- 40 years old. Lorenzo Coaloa: And maybe if I may add, with a return -- I mean, return on investment definitely much more interesting than a single installation, carbon capture installation with, let's say, a business plan, which is at the moment and with the current situation is not really flying. Pietro Buzzi: It's a better way to lower CO2 emissions for sure. Alessandro Tortora: Okay. Okay. Just if I may, sorry, you mentioned that the financial, let's say, income was not pretty high this year. Can you help us to quantify, sorry, the FX gain component in that number? Pietro Buzzi: Yes. Well, one item, which is included into that figure is also the bad will of the UAE acquisition, which is EUR 44 million positive. If you look at the fewer net interest expense and net interest income in this case, we have EUR 60 million and last year, it was EUR 55 million -- EUR 60 million, yes. Last year it was EUR 55 million. So it is EUR 5 million up. This is the cash portion. The noncash portion, the 2 big items are [ 75 ] of ForEx, so nonmonetary. And -- well, I don't know if it nonmonetary, the bad will because we paid anyway. So -- but we paid less than the equity -- book equity. And so we have [ 44 ] positive that we are also inside the same line item. Operator: [Operator Instructions] Mr. Buzzi, there are no more questions registered at this time. Pietro Buzzi: Okay. Good. Thanks, everyone, for listening. I don't know how many are still listening. But anyway, I hope it was somehow helpful. And we stay in touch, of course, with our Investor Relations team and looking forward to meet you personally in the coming months. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Good day, and thank you for standing by. Welcome to the Inventiva Full Year 2025 Financial Report Webcast and 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, David Nikodem, Head of Investor Relationship. Please go ahead. David Nikodem: Good morning, good afternoon, everyone, and thank for joining Inventiva's Full Year 2025 Financial Results and Business Update. Our press release was issued yesterday evening, and this webcast and slides will be available in the Investors section on our website following the call. Joining us on the call today are Andrew Obenshain, Chief Executive Officer; Jean Volatier, Chief Financial Officer; and Dr. Jason Campagna, Chief Medical Officer and President of R&D. I would like to remind everyone that statements made during today's conference call and during the Q&A session may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to Slide 2 of the slides and our SEC and AMF filings for a discussion of associated risks. These statements reflect our views as of today and should not be relied upon as representing our views at any later date. With that, I will now turn it over to Andrew, starting on Slide 3. Andrew? Andrew Obenshain: Thank you, David. Good morning, good afternoon to everyone, and thank you for joining us. Since joining Inventiva 6 months ago, I've been struck by the depth of scientific conviction behind lanifibranor and the dedication of this team. Today, every resource, every decision and every member of this team is now aligned behind a single objective, advancing lanifibranor towards approval for patients with MASH. Let me start with our main focus, our global Phase III clinical trial NATiV3. Enrollment was completed in April 2025 and represented a landmark operational milestone for this company. Today, we are updating the expected timing of our top line readout to Q4 2026, reflecting the disciplined sequencing of our clinical and biostatistical milestones. We believe the data from the NATiV3 trial, if positive, has the potential to carry weight with regulators, physicians and most importantly, with patients. And we believe we are running this program with the rigor and precision all stakeholders deserve. On our pipeline and organizational focus, in the first half of 2025, we made the strategic decision to concentrate all of Inventiva's resources on lanifibranor and MASH. As part of this plan, in Q4 2025, we sold our global rights to odiparcil to Biossil and we may receive up to $90 million of potential regulatory and commercial milestone payments, as well as potential high single-digit royalties on future net sales if approved. While this transaction frees up our internal resources to fully focus on lanifibranor, we are pleased that odiparcil has found a new home where its development can continue, potentially in offering patients with MPS VI an opportunity for treatment. At the same time, we strengthened our leadership team to align with the level this opportunity demands. Jason Campagna joined as CMO and President of R&D. Martine Zimmermann joined as new EVP and Head of Quality and Regulatory Affairs; and Nazira Amra joined as our Chief Commercial Strategy Officer. We are building towards launch in a lean and targeted way, advancing our readout and NDA preparations while laying the early groundwork for commercialization in anticipation of potential approval of lanifibranor. And the opportunity is real. MASH has been underdiagnosed and undertreated for too long, but that is changing. More patients are being identified, more being diagnosed and entering care. Awareness is growing, screening is improving and metabolic disease is finally getting the attention it deserves. The numbers tell that story clearly. There are an estimated 18 million people in the U.S. living with MASH, but only around 10% have been diagnosed, and that number has grown by 25% compared to 2024 estimates. Among those diagnosed with clinically actionable F2 or F3 disease, only around 40% are currently under the care of a treating position. So while diagnosis rates are improving and the market is evolving, far too many patients with significant fibrosis remain without the care they need and face a real risk of progression to cirrhosis and liver failure. If our NATiV3 trial can replicate the 18% fibrosis improvement seen in Phase II, we believe lanifibranor could be well positioned as a potential best-in-disease oral therapy with significant commercial impact. Ultimately, our goal is to make a meaningful difference for patients and that is what drives everything we are doing. I will now turn the floor over to Jason, who will give a brief update on lanifibranor, our differentiated oral anti-fibrotic, and a potential new treatment option that we believe addresses the remaining unmet medical needs in MASH. Jason Campagna: Thank you, Andrew. Good morning and good afternoon, everyone. Let me start by reminding you of the mechanism of action and the development pathway of lanifibranor. Lanifibranor is a small molecule designed to induce anti-fibrotic, anti-inflammatory and beneficial vascular and metabolic changes by activating all 3 PPAR isoforms, alpha, delta and gamma in a balanced manner. This broad mechanism of action is designed to target the hepatic and extrahepatic drivers of MASH simultaneously and in one oral therapy. Lanifibranor was the first asset to achieve statistically significant improvement in the composite endpoint of both fibrosis improvement and MASH resolution in our Phase IIb NATIVE trial, after just 24 weeks of treatment with a favorable safety and tolerability profile. On the basis of these results from our Phase IIb the FDA granted lanifibranor breakthrough therapy and fast track designations. NATiV3, our pivotal Phase III clinical trial was designed to confirm and extend those findings in a larger, more diverse global population over 72 weeks and is intended to provide the data to enable successful marketing authorization in the United States and Europe. NATiV3 is a randomized, double-blind, placebo-controlled trial in patients with biopsy-confirmed MASH and stages F2 or F3 fibrosis, the core of the MASH treatment population. Those with significant disease burden and a high risk of progression to cirrhosis, liver failure and liver-related mortality. We specifically chose a clinically meaningful primary endpoint for NATiV3, fibrosis improvement and MASH resolution. And at 6 months in our Phase IIb the 1,200-milligram dose of lanifibranor showed a 24% treatment effect. NATiV3 was also deliberately designed to mirror the patient population of our positive Phase IIb and the real world as it exists today. A meaningful proportion of our patients have type 2 diabetes and other metabolic comorbidities, and a number are on background GLP-1 and/or SGLT2 inhibitor therapies, mirroring the patient's physicians actually see in their clinics, which we believe will ensure that we generate clinically meaningful data to support both NDA and MAA submission. In April of 2025, we completed enrollment, exceeding our original targets with over 1,000 patients in the main cohort and additional 410 patients with MASH and fibrosis stages F1 through F4 in an exploratory cohort. We anticipate sharing the top line results of our pivotal Phase III trial in Q4 of this calendar year, a moment, I believe, will be significant for the field and for the patients who need new treatment options. I will now turn the floor over to John for our financial review. Jean Volatier: Thank you, Jason. Good morning and good afternoon, everyone. So yesterday evening, we issued our press release with our full financial results for the year ended December 31, 2025. I will focus on the highlights. As of December 31, '25, we held EUR 230.9 million, close to EUR 231 million in combined cash, cash equivalents and short-term deposits. This position was built by 2 significant financing events in '25. First, the execution of the second tranche of our 2024 structured financing in May generating approximately EUR 108 million in net proceeds. And second, our U.S. registered public offering in November generating approximately EUR 139.4 million in net proceeds. We estimate that we are funded beyond our anticipated NATiV3 readout. Based on our current operating plan and cost structure, we estimate that our cash runway extends to the middle of Q1 2027 and to the middle of Q3 2027, assuming the full exercise of our tranche 3 warrants, which could generate up to an additional EUR 116 million. We confirm this way the cash guidance provided earlier. Our R&D expenses for the full year were EUR 87 million, primarily reflecting our pipeline prioritization and, to a lesser extent, the completion of NATiV3 enrollment in April 2025. Marketing and business development spend increased to EUR 5 million primarily due to expenses related to a planned pre-commercial investment as we prepare for a potential launch of lanifibranor if approved. G&A expenses of EUR 47.9 million include approximately EUR 20.3 million of noncash share-based compensation tied to the governance and organizational transition we implemented this past year. I will now turn the floor back to Andrew for closing remarks. Andrew Obenshain: Thank you, Jean. Inventiva enters 2026, well-funded, operationally focused and ready for a consequential chapter in this company's history. NATiV3 is fully enrolled. We've built a leadership team with deep medical, regulatory and commercial expertise, and our regulatory and commercial readiness work is progressing in parallel. Our anticipated top line readout in the fourth quarter of this year represents a genuine inflection point, not just for Inventiva, but for the millions of patients living with MASH, who still have no adequate treatment options. We are truly executing with the discipline and urgency this moment demands. Thank you for joining us today. We will now open the floor for questions. Operators, please go ahead and provide instructions for the Q&A session. Operator: [Operator Instructions] We will now take our first question. And our first question for today comes from the line of Seamus Fernandez from Guggenheim. Seamus Fernandez: Just a few quick questions. First, can you update us on how the performance of the trial has been in terms of dropouts? I know that there were some requirements from the tranches that were coming in that were successfully completed. But just wanted to get a sense of where the dropout rate was as you were kind of wrapping up enrollment. Second question is, can you help us understand how you're thinking about the performance of the 800 versus the 1,200-milligram dose in terms of both weight gain and then ultimately on fibrosis? Is the sort of change from a more typical 12-month endpoint to the 18-month endpoint geared to have the 800-milligram dose catch up to the 1,200 but also manage the potential tolerability or weight gain issues? And then to the last question is just what you're seeing in terms of the overall market interest. Madrigal continues to see very strong uptake in the U.S. How are you thinking about the opportunity to compete with Madrigal? What do you think is the threshold necessary? Andrew, you mentioned 18%. Just interested to know if you think 18% is the threshold where the impact is going to be substantial or is that more reference to the powering of the study? Andrew Obenshain: So, Morning, Seamus. Thanks for the questions. I'm actually going to take your third one first and then hand the first 2 over to Jason. So yes, just to be really direct, we think that if we replicate the Phase II trial and have an 18% effect on a fibrosis, we have an excellent drug. That is the clearing efficacy that we need for in order to have a very attractive market opportunity. We continue to see a lot of market growth, thanks to the entry of the 2 approvals and a lot of awareness around MASH. And there still continues to be unmet need, especially we see in that F3 diabetic patient population, where we think there'll be a very good entry point for lanifibranor. And then at 18% of fibrosis effect with our HbA1c lowering, we have a very good profile for that. Let me then turn the question over to Jason first on the drop-offs and what we've last discussed publicly there. And then the second question about the 800 catching up the 1,200 dose. Jason Campagna: Seamus. So let's take the first one. So you are correct. As part of the structured financing from 2024, there were covenants in there around the release of follow-on tranches that the early termination rate for the trial needed to be below 30%. That number was selected because the original powering analysis from the trial was built allowed for up to a 30% dropout rate. So that was the metric that was used, and we have disclosed publicly at the time of both the first and the second tranche release, which would have been in April of 2025, that we were below that threshold. I think now that we're tightening the guidance to Q4 of this calendar year, I think we were able to confirm we are well within that range and feeling quite good about where we've landed and are reaffirming that the trial is well powered to detect the primary endpoint with the size of the trial that we have and the early termination that we've seen. So the second question you asked about the 2 doses, I think you're landing sort of in the right mixture of elements that are important to us. So we agree with you that in theory, with additional time just because of the way PPARs work and the biology of the liver that that 800-milligram dose will have time to sort of catch up to the 1,200. It was already quite a good dose back in NATIVE, as you recall. But 6 months is relatively thin for a PPAR, which is a transcriptional modulator to sort of do its work. So the idea that you could see a deeper effect with that 800 dose at 18 months, it's very reasonable. But I think where you're landing around the potential dose responsiveness of the tolerability concerns, that is also very important to us. So take weight gain, which you mentioned. Weight gain is a traditional PPAR gamma mediated fluid retention event, and we know that, that fluid retention is highly likely to be dose dependent just from what's been shown with other PPAR agonists and our own data from NATIVE. So we think that potential to have really strong efficacy with both doses, which we were able to show in NATIVE, but may have a different tolerability profile at the lower dose could be meaningful for patients. So it's our hope that both will be positive, and we'll have that opportunity to discuss that with regulators. Operator: Our next question comes from the line of Yasmeen Rahimi from PSC. Unknown Analyst: This is Dominic on for Yas. The first one, we know that NATiV3 is a very large data set. As we're getting closer to top line data in 4Q, what are some of the quality control, I guess, protocols going on in the background to analyze the biopsy samples and what procedures are in place to ensure timely and thoughtful assessment of these biopsies? And then our second question is, can you just talk or help us understand, I guess, how you have how -- if you had any recent safety monitoring committed? And are you seeing anything on a blinded basis on the safety profile? Any color there would be helpful. Andrew Obenshain: Good morning, Dominic. So 2 questions. Let me take the second one first, and the first one over to Jason. Just on safety monitoring, there are periodic monitoring committee meetings every 6 months. You would know if they had said anything. Other than that, we really can't say anything about those meetings. Go ahead, Jason, on the biopsy. Jason Campagna: Yes. Thanks, Andrew. Dominic, so quality control and biopsy. Let me start by saying that the team we have here is outstanding. The clinical operation, the clinical development team have been immersed in the world of MASH clinical trials for the better part of a decade. So this is something that they know well and we carried that expertise forward. So you could think of quality control biopsy around 3 issues. Are we hurting the patient? Meaning at the bedside, are we doing the right things. Second, are we capturing the biopsy according to standard practice? So that's the length of the biopsy, the overall quality of the core, if you will. There's measurements and things that sort of go in and say check or not check. We have reviewed all of those and continue to do so right up until when we get to last patient, last visit later this year. And then lastly, finally, when the slides are sectioned prior to going off and being read, there's a quality control set there that looks at what actually gets made on to the slide. Afterwards, at that point, we are obviously blinded to all of that information. But there is a quality check in terms of are the reviewers, the readers staying on time and on track reading biopsies in the paired matter that's specified both in the protocol and the analysis plan. So I like the teams that we have in front of it and more importantly, I think that they are doing exactly the right work to keep us on track. Operator: Our next question for today comes from the line of Ritu Baral from TD Cowen. Ritu Baral: I want to drill down a little bit more upon final powering. You guys disclosed the over 1,000 final patient number. I think it's 1009 and the 90% powering. What's the effect size that, that powering is for on the primary combined endpoint? And what are your expectations for potential movement around placebo of that, I think it was 7% at the 6 month upon the final primary endpoint? And then I have a follow-up on market expectations around that F3 diabetic population that was mentioned. Andrew Obenshain: Thank you, Ritu. Jason, why don't you go ahead and answer that question? Jason Campagna: On the first one, we are not guiding to the actual effect size, but I can reiterate for you and for everyone what we have been saying. So first, we are with the sample size of over 1,000 patients. We are powered to over 90% on a primary endpoint of the composite fibrosis improvement 1 stage or more MASH resolution. That one has a higher placebo response than we showed in NATIVE, which as you know, was 7%; and two, a smaller treatment effect than we showed in NATIVE data about the 1,200 milligram dose. So that means the overall effect size that we are powered to is smaller. So a much more conservative view than the actual data that we showed in the Phase II program. We just talked earlier with Seamus that, that alongside our comfort with the early termination rates we have, we feel very good that the trial is structurally sound and that will give us an answer to the question one way or the other. Did lanifibranor work first at the 1,200-milligram dose? The testing is hierarchical. We can't get to the 800, unless you went on the 1,200. But that is the core question. We think the trial was well set up to deliver an answer to that question that is well powered and highly confident. I think to your second question around placebo response. The individual endpoints of fibrosis alone. I think everybody on the call knows this, fibrosis alone improvement or MASH resolution alone can be quite noisy. It's not clear after all these years of study why that is, but we do know that they're noisy. On the other hand, the composite endpoint, the primary endpoint of NATiV3, are with us and other sponsors have shown that, that endpoint is much less prone to placebo response. And that makes sense, Ritu, biologically, right? You have in 1 patient, they may on a placebo response move their fibrosis stage by 1 point or more, but the idea that they can also resolve their MASH spontaneously. What that 7% tells you was that in the wild, in the real world, that's incredibly uncommon and that makes total sense with the actual way that patients walk in. It's unusual if you leave them sort of sitting along without treatment, that both of those things will get better on their own. So the placebo response there actually reflects, we believe, the underlying biology, and it should remain very low. We've seen it by precedent, and it's our expectation for the trial that we're running. Ritu Baral: Very helpful. And then, Andrew, a question on how you guys and your own market research is viewing that F3 diabetic population. Do you have an approximate patient number? How is the diagnosis rate in that population changing versus the overall MASH population given the ADA focus on MASH and its messaging to diabetologists? Andrew Obenshain: Thanks for the question, Ritu. So in terms of size, there's about 375,000 patients total F2, F3, in under treatment of care right now. The largest segment is -- one of the largest segments is that F3 diabetic patient population, being 55% to 65% of the patients are diabetic, and about it splits roughly 50-50 in our market research between F2, F3. So that patient population is quite a large patient population overall. In terms of growth, we don't have the granularity down to that segment. However, I would just know anecdotally that F4 is one of the fastest-growing segments. And I think the diagnosis rates are increasing quite a bit overall for F2, F3, F4, just to the number of entrants into the market. So they are growing a minimally proportionate with the market in that segment. Ritu Baral: To that point, Andrew, can you tell us of the 410 expansion cohort patients, how many are F4. Do you know at this point? Andrew Obenshain: I'll pass that question. Jason Campagna: Yes. Confirming you're talking about the exploratory cohort, correct? Ritu Baral: The exploratory cohort, yes. Jason Campagna: We do have F4s in that cohort. They would have screen failed in that case, by histology, potentially other lab values for the actual main cohort in NATIVE. So they represent a sort of range of F4 from. They're all compensated by definition, meaning they have no clinical outcome events, decompensation events. But the range of severity with portal hypertension can be from none to evidence of clinically significant. And those -- that data is going to be quite interesting to us. We're not yet guiding on when we'll have an opportunity to get those data out. It's unclear right now if we have them at top line per se, or in the weeks that follow it in one way or another. But I think as we get closer to top line data, we should be guiding on that more tightly. Operator: Our next question today comes from the line of Thomas Smith from Leerink Partners. Thomas Smith: Just wanted to follow up on that F4 population. And I know you're capturing some of those patients in the exploratory cohort. Can you just expand a little bit on what you hope to learn from that exploratory cohort and how you're thinking about planning for the outcome study in F4s pending the NATiV3 data and perhaps how you're thinking about perhaps how some of those plans could change. We know we're going to get F4 outcomes data for Rezdiffra also in 2027. So some interesting timing around that data set relative to when you're planning on starting this F4 outcome study. Andrew Obenshain: Thanks for the question, Tom. Jason, go ahead. Jason Campagna: So there's a lot there. Let me make sure I get it all for you. So one, just in general, what are we expecting to learn from that cirrhotic population in the exploratory cohort. First, above all safety of lanifibranor in that population. Clearly, right, if you're going to bring in a new therapeutic into a more, let's say, sicker population, you want to obviously want to have safety headroom to do that. So approximately 75 patients we have in that cohort safety above all else. Second, it's not that, as you know, that cohort is not tracked systemically -- systematically, excuse me, for efficacy. That being said, we do anticipate having data of things on like LFTs, transaminases and other things that would point directionally towards whether the drug is biologically active. So really a pharmacology question, very important. We have done hepatic impairment studies with the drug, but looking at it in a real world and a clinical trial would be incredibly helpful. And I think lastly, it will give us a sense in our own hands of how those patients progress over time to later-stage disease. You could read about it, you can model it, you can look at other people's trial, but in your own trial we will see how many of those patients go on to actually have liver related or other events. And that will be incredibly helpful as we think about powering and sizing of an outcome-driven trial, which is what we're right now calling NATiV4, for lack of a better term. But make sure that, that gets to your question, Tom, on the value of that cohort to us? Thomas Smith: Yes, that's helpful. Jason Campagna: Great. So now look, you know the Madrigal data coming. I think yet we acknowledge that. We agree. I think our view is that positive data, if Madrigal were to show it, would only be helpful for the field period, full stop. The idea that we have now finally shown that the surrogate endpoint does correlate with clinical outcomes would be an enormous one for the field. Look no further than what happened in the cardio renal division with proteinuria in the last 6 years. Proteinuria was issued as a surrogate in 2019. I have 5 or coming 6 approved therapeutics for IgAN, that's an enormous win for patients. So we expect something like that would hope would happen here. But clearly, that would influence our thinking about how we think about populations and the ones that are most likely to develop liver-related outcomes because we want to get more of them since we know that the sort of door is open to show that the histology will map to clinical outcome. Operator: Our next question comes from the line of Michael Yee from UBS. Michael Yee: I have [ 32 ] myself. First question is on weight gain, can you remind or confirm the views that based on the phase II also, I think what you're sort of said in the ongoing Phase III that there is some initial weight gain, but that it plateaus and that you don't really see anything beyond a modest increase in some patients, at least in the phase II, and that plateaus and that was initially seen in the Phase III, and therefore, no concerns. The second question is, is there any view that either because of other drugs or because of longer time duration of 18 months versus 6 months here that, that could actually come down in some of those patients or at least come back down to baseline, is that possible? And then the third question is around getting the regulators comfortable with that, what I guess fluid retention effect in some patients and that there would be presumably no at least initial cardiac imbalance in any of the arms that you see and which you'll be able to talk about no imbalance in any cardiovascular events numerically or any SAEs of that nature when you disclose the data in the fourth quarter? Andrew Obenshain: Mike. You were a little soft, so I'm just going to repeat some of it. So there was a question about does weight gain indeed plateau and number one, if in the Phase II. Number two, does that weight gain -- is there a chance of that weight gain would actually go down in the Phase III, either due to concomitant medications or longer treatment? And then number three, some of the weight gain do -- if the weight gain is due to fluid is there any concerns about a cardiac imbalance in the trial. So for those 3 questions, I'll hand it over to Jason. Jason Campagna: Yes. Mike, good to talk to you again. So we have previously said and we'll reaffirm it here that the data that we have previously shown from the blinded look at NATiV3 back in September of 2024, and that we also disclosed at that time the FASST clinical trial in systemic scleroderma, which was a year trial with treatment of lanifibranor same doses in NATiV3, 800, 1200 milligrams, that the weight -- the fluid retention weight gain appear to plateau. I think we don't have any additional information to guide on that publicly, but I think that is what we've seen in both of the clinical trials so far. I think second, do we expect the weight to come down? It's well possible. I think there are a couple of factors at play. Take the LEGEND study, for example. We show that when patients are given SGLT2 inhibition in parallel with lanifibranor that there's almost no weight gain at all. There are many patients in the trial that are on SGLT2 inhibition and do not have the number for you off the top of my head. And we know that patients can be started on those therapeutics for management of diabetes or any other reason. So it is entirely possible and reasonable to believe that if patients are getting SGLT2 inhibitors or other diuretics to manage blood pressure, et cetera, that, that weight gain either the fluid retention, could be blunted or resolved so that the final landing spot, if you will, for any patient, might be lower than the peak weight gain that they had in the trial. But I think we'll see what the data show. Lastly, in terms of regulators, I think I can't speak for the FDA, but I can only speak to what I've read of everything they've put out. The fluid retention is a known phenomenon with PPAR gamma agonism, the thing about lanifibranor is it was designed to be different than other PPAR gammas, and we'll see what the data show. Our view is that it is a very different type of PPAR agonist. But that being said, the PPAR gammas is a known effect. It is on target. It is not idiosyncratic in any way. So FDA has shown with labeling and other work that they are comfortable with fluid retention, I think you're hitting on the right point, the cardiac. And as we've talked about and guided publicly over the years, we are not seeing congestive heart failure as a clinical issue in our program. It doesn't mean that we don't follow it. And it doesn't mean that you're thinking about how fluid retention may lead to that. That's certainly in the PPAR labels today, the gamma agonist, but it is just not something that we are generally seeing in our program, but we will be paying careful attention to it, and it's a dialogue we'll have with FDA. Operator: [Operator Instructions] Our next question comes from the line of Ellie Merle from Barclays. Unknown Analyst: This is Jasmine on for Elie. So as kind of a follow-up to Ritu's question. You talked about the overlap of MASH in type 2 diabetes as a segment where lanifibranor can be particularly attractive. But do you have a specific bar for what competitive data would look like in this population? And then specifically, how many type 2 diabetes patients do you think have undiagnosed MASH, and how do you plan to work to increase the diagnosis in this population and unlock that segment? Andrew Obenshain: So I'll take those 2 questions. First of all, just the diabetes and overlap with MASH, it is enormous, right? And there's -- I think there's about 18 million patients in the U.S. with undiagnosed MASH. At least half of those or more have diabetes at it's obviously way, way more than 375 under the treat or care. The way we see the market evolving is we've seen since about 2004 that market has grown about 20%. So it's clearly quite robust growth, and we do anticipate that to grow nicely. We, as a company, probably will not be pushing diagnosis, at least initially, there are enough patients coming in that we can focus on the patients being diagnosed -- the existing patients being diagnosed. That would obviously, maybe a later marketing strategy would be to actually increase diagnosis. And then your first question about -- I'm sorry, I forgot your first question already. Unknown Analyst: Just if you have like a specific bar in that population for what competitive data looks like? Andrew Obenshain: Yes. So the -- in terms of competitive data, the way we look at this is that the differentiated profile that we have is we work both on the liver and we're extrahepatic. We work on the body and we work on the liver. So we have direct anti-fibrotic effect. Again, as I said, that an 18% effect size, if we duplicated that in the Phase III trial, we feel it's a very competitive drug. And then the other thing we'll be looking at is HbA1c lowering, which was on average across the whole patient population, diabetic and nondiabetic in the Phase II, with just over 0.5 point, that would be an approvable diabetes medication years ago. So that combination of HbA1c lowering, combined with triglyceride lowering, HDL raising and the fibrosis effect, we think, has an extremely attractive profile for that diabetic F3 patient. Operator: Our next question comes from the line of Lucy Codrington from Jefferies. Lucy-Emma Codrington-Bartlett: Just one left, please. Regarding the confirmatory trial, just wanted to confirm, do you have an understanding with the FDA in terms of what underway means when it comes to granting accelerated approval? Is it enough just to have started that trial? And does this need to be by the time you file or by the time you get to approval? And then related to that, is starting that trial included in that mid 3Q cash runway with the third tranche of warrants? Andrew Obenshain: Yes. So yes, it is included. Starting that trial is included in the cash runway of that mid-Q3 runway. Jason, you want to talk about what's necessary for the trial? Jason Campagna: Yes. Lucy, I think you have the broad brushstrokes of it, right, but just something on the language. So accelerated approval is only at the time of the review. What we're looking to get is conditional approval under Subpart H, which is you've got marketing authorization and then the trial, as you note, confirms your surrogate and then you get full approval. Whether accelerated is only a question of how long it takes the FDA to actually review the file. With that, I'm just trying to make sure that we're all clear on that, that we -- you have the broad brushstrokes, right? But the individual rules are discussed with each sponsor at the time of the pre-NDA meeting and then during the mid-cycle review. But the general framework is you need to have most of the trials structurally in place, protocol approved at the time you were filing the drug and it needs to be moving on the definition of moving is going to be something FDA will define for us. We will be prepared. We have our CROs selected, the protocol is approved, may even have sites open. All of that is in the future. But at the time we file, we will meet the FDA position of trial meaningfully underway. And then at the mid-cycle review, you need to show continued progress on that. So they will check again that made a much more detailed look around enrollment nerves, site activation curves, et cetera. Again, each sponsor has their own detailed agreement with FDA on that, and it is our plan, of course, not only to have those conversations, but to make sure that we're meeting those requirements. So that when we are offered if we're fortunate enough to make it there, and we offered, the conditional approval, that trial will be well underway at that point. Lucy-Emma Codrington-Bartlett: Got it. Thank you, and thank you for clarifying on the terminology. Operator: Our next question for today comes from the line of Annabel Samimy from Stifel. Jayed Momin: This is Jayed on for Annabel. Congrats on the progress. Just 2 for me. The first one is around the use of background GLP-1 in the trial. What are your expectations on the potential impact of having that background GLP-1 use on [ lani ] effect size of those patients? And my second question is around the AIM-MASH tool that was nearly FDA qualified as a supportive tool to help with histological assessments. Do you have any plans to maybe leverage that to control or minimize variability? Andrew Obenshain: Yes. Thanks, and thanks for the question on the impact on the lani effect size based on background GLP-1 and the tools. So go ahead, Jason. Jason Campagna: Yes. So in confirming we do have, and we've previously shared that we have about 14% or so of the population in NATiV3, that's across both cohorts, that have background GLP-1 use at the time of randomization. That could be semaglutide, older drugs, liraglutide, dulaglutide, et cetera. So it's not only limited to the modern GLP-1. And I think its effect on treatment response should be minimal, and that should -- it will sound tongue in cheek, it's not intended to be. It's because that when you enter the clinical trial independent of what drugs you're on, whether you've lost weight by any other measure, independent of a GLP-1, you're entering the trial issue have that F2, F3 disease with active MASH. So whatever it is, one, those drugs are not doing it for you or your lifestyle modifications; and second, that the doses that we're using are really the diabetic doses. So they don't -- they are not anticipated to have much of an effect at all. We're simply seen that in the clinical trial data. I think to the second question about the tools, are you talking about PathAI specifically or just more general non-invasives? Jayed Momin: Yes, no, it's the PathAI tool. Jason Campagna: Yes. It's an interesting idea, right? But if you -- looking at it really simply, what PathAI lets you do is substitute one human pathologist for a digital pathologist and then you need a second pathologist to read. It's still the same idea of 2 plus 1 consensus. In this case, 1 of the 2 is PathAI. It's interesting. It's not something that in NATiV3, we anticipate taking much advantage of. But it is something we're thinking very closely about for NATiV4, potentially using that as the -- in the exploratory cohort presently from NATiV3 to see how we may be going to pull more data out of those patients that happen to have a biopsy. Operator: Our next question for today comes from the line of Rami Katkhuda from LifeSci Capital. Rami Katkhuda: I guess can you remind us of lanifibranor's FC and F2 versus F3 patients in the Phase II study and how those differences may impact expectations for NATiV3 just given the higher proportion of F3 patients enrolled? Andrew Obenshain: Go ahead, Jason. Jason Campagna: Rami, just to qualify, you want the proportion of patients in NATiV2 or the responses of the F2, F3? Rami Katkhuda: The responses, please, between the F2s and F3s. Jason Campagna: The sample sizes are simply too small to break out what we have done. We think the analysis that's more helpful, it's in our corporate materials, is that when you strip away the F1s in that trial. You get down to about 188 F2, F3 across all 3 arms. You can see that the effect size actually slightly goes up. What we guide to is that it remains unchanged. So the drug seems to work equally well in more advanced fibrosis in patients with earlier disease. So you're not getting much of a free glide on those F1s, if you will. I think second, when we look at NATiV3, as Andrew talked about earlier, this is a contemporary MASH market. The majority of patients showing up and clinics today that have F3 disease, will have diabetes. So we think that aligns pretty well with the outside world. And we're pretty comfortable with what we've seen from our Nature publication back in 2024, that the drug not only works equally well in earlier and late-stage disease, but the adiponectin levels actually go up equally well across all cohorts and it's that adiponectin that's really driving, we think, well correlated with the clinical response. So we like where we're landing with NATiV3 and the likelihood of efficacy in both those F2 and F3 patients. And as a reminder, we're stratified by fibrosis stage and diabetes and NATiV3, so we're going to cut those data in a number of different ways to sort of get where you're headed with your question. Operator: Our next question comes from the line of Srikripa Devarakonda from Truist Securities. Unknown Analyst: This is Anna on for Kripa. So 2 questions from us. First, looking ahead a little bit in terms of the MASH guidelines, would you expect an update on the MASH guidelines this year? And how are you thinking about getting [ lani ] into the MASH guidelines? And then second question, in terms of cash, what kind of needs to happen for you to have access to that third tranche? Is it based on kind of Phase III success only? And are you looking at any other non-dilutive sources of funding such as partnerships? Andrew Obenshain: Thanks for the questions. So on the MASH guidelines, I think we will wait -- we need to get data first before we have any conversations about putting lanifibranor into the MASH guidelines. On cash, the tranche 3 is a positive endpoint, and we hit a positive endpoint in our trial, and then when those 77 million shares of EUR 50 become exercisable, and the investors have 45 days to exercise them. So that's how that mechanically works. So positive trial equals cash coming in, so as long as the stock price is above the EUR 50. We are always looking for ways to increase our cash runway. And we've obviously in a very strong cash position right now. In terms of partnerships, right now, our plan is to commercialize lanifibranor ourselves. Going forward, we think that there's plenty of access to capital, either in the equity markets or other kind of capital sources that we don't necessarily need to partner lanifibranor. Operator: Our next question comes from the line of Sushila Hernandez from Van Lanschot Kempen. Sushila Hernandez: Could you elaborate on your regulatory and commercial infrastructure? What steps are you taking to act with speed once the data is here, also considering your cash runway? Andrew Obenshain: Yes, good question. So yes, so we are being very careful stewards of our capital right now before data. So a lot of -- the regulatory team is fully staffed, and I would include the quality team on that, too, because that's necessary, to make a really good filing with the FDA. So we have invested. We've increased the size of that team and the talent on the team in the course of this year. From a commercial standpoint, really focused on strategic commercial execution. So being led by Nazira Amra, really focused on market access, the market research. I'm going to include in the broad commercialization medical affairs there. So the strategic role that won't really set us up for success in the future. We will not staff up aggressively in commercial until we have positive data. Operator: This concludes today's question-and-answer session. I will now hand the call back to Andrew Obenshain, CEO of Inventiva for closing remarks. Andrew Obenshain: Thank you so much. Thank you, everyone, for joining the call this morning. We certainly have an exciting remainder of the year coming up for Inventiva, and we look forward to engaging with you all as we go forward. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Serica Energy plc Full Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself; however, the company can review all questions submitted today and will publish responses where it's appropriate to do so. Before we begin, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Serica Energy plc, Chris. Good morning, sir. Christopher Cox: Good morning, and welcome to our 2025 full year results presentation. I'm joined as usual by Martin Copeland, CFO; and Andrew Benbow, our Head of Investor Relations. Thank you to everyone who has submitted questions ahead of the call, but please feel free to post any further questions you have during the presentation. And should we not get time this morning, then please contact Andrew directly. We will respond promptly to every question we receive. Martin and I will now run through a short presentation and then answer as many questions as we can in the time available. This slide is a reminder of our strategy and our purpose. We're here to produce hydrocarbons safely and efficiently while creating value for shareholders and also helping to deliver energy security, jobs and investment for the country. You may be aware that this has been our purpose unchanged for some time now. And I know that such statements can sometimes sound like typical corporate speak. But as we speak today against the backdrop of the terrible events in the Middle East, the importance of our contribution to domestic energy security has never been more apparent. We are unapologetic about the role we play in providing much-needed energy products for society. We have a two-pronged strategy for creating value. Our DNA is taking on mid- to late-life assets and then extending their field life and optimizing production. We've been delivering on that strategy recently with a number of M&A transactions, and we expect that to continue. And we are well positioned at present with a highly cash-generative production portfolio with organic growth options fighting for capital allocation. Our strong positioning is partly as a result of strategic delivery last year. We invested in our existing portfolio, carrying out significant work on resilience and asset life extensions as well as completing a highly successful 5-well drilling program around Triton. These wells will help retain robust production at the FPSO, and the success of that campaign gives us confidence to continue to exploit multiple organic investment opportunities elsewhere in our portfolio. As we continue investing, we also continued our track record of shareholder distributions with dividends amounting to 16p per share. As announced today, these distributions are continuing in 2026, as we recommend a 10p final dividend in respect of last year, continuing to strive to offer investors a compelling mix of growth and returns. And of course, key to our strategic delivery in 2025 were multiple acquisitions. We were one of the more active M&A players in the U.K. sector last year, announcing multiple acquisitions that increased and diversified our portfolio, enhanced cash flows and added to our opportunity set. In total, we increased our reserves by 19%, adding some quality long-life fields to our portfolio. The impact on production will also be material, adding over 20,000 barrels a day to our production capacity. The deals were done at very attractive prices with reserves added at a low cost of $3.30 per barrel. The acquisitions, which we have completed, being Prax Upstream and now TotalEnergies, which completed today, have resulted in the net receipt of cash by Serica amounting to $75 million in aggregate. And the ones still to be completed, from ONE-Dyas and Spirit Energy, will also result in net cash receipts or only limited cash paid out on completion. Hence, these acquisitions will be cash flow accretive this year, thereby supporting further portfolio investment and returns to our shareholders. Looking ahead, our strategy remains unchanged as we seek to acquire assets that may be non-core to others, but can be enhanced by Serica through extending field life and delivering further value, both corporately and through the subsurface. We will continue to look for potential acquisitions in the U.K., although the amount of recent consolidation means there may be fewer opportunities in the near term. As a result, and as we previously signaled, we will continue to explore opportunities overseas, but only in areas where we are confident that we can deliver our clear value creation strategy. As we grow, we are ensuring that the capabilities of our team grow with us. We are confident in our strategy and confident that we have the right team to deliver it. Since joining, I felt there were some areas in which Serica lacked the expertise required to excel as a North Sea producer. And as our portfolio has grown, the need to strengthen our capability has grown with it. We've made a number of targeted senior appointments that have materially improved our decision-making, our talent management and our ability to deliver for shareholders. We have established a quality executive leadership team and are putting in place the wider organizational structure and processes to position us to deliver on our strategic and operational goals. We are not finished, but I believe we are close to achieving the goal of establishing the right team to lead a top-performing FTSE 250 company. We need a team with depth and breadth, as we are now building a broader and more complex business. Our portfolio is more diverse and robust with assets that will encompass the entirety of the U.K. continental shelf from the West of Shetland to the Southern North Sea. Our new assets will significantly enhance the predictability and quality of our overall production and cash flows with less reliance on the 2 main hubs and the number of producing fields set to more than double. By the end of the year, we will have equity in a total of 26 producing fields. We are growing our presence in the basin and keen to continue growing. We now operate around 10% of the U.K.'s natural gas production. And today, having assumed control of the Shetland Gas Plant, we have the potential to play a key enabling role in the most prospective gas basin in the UKCS. The projected decline in North Sea production, we often see reported, is one enforced by policy and not geology. As our Chairman has said today, we urge the government to unblock the logjam in its approval of the development of new oil and gas fields, change its stance to the award of new licenses, scrap the onerous and counterproductive EPL and replace it with the already announced OGPM as soon as possible and to change its tone towards the sector. The opportunities in our portfolio alone show there is more to be delivered from the UKCS, much of which is short cycle in nature, and we're keen to play our part. And we are set to increase our production materially in 2026. As you can see from the chart on the right, our expectation for 65,000 barrels a day by the end of the year is not aspirational. It is, in fact, less than what we would be delivering today had all the asset transactions completed. That figure does include Lancaster with production scheduled to cease in May as expected, when the FPSO moves on to its next project. But of course, we need to actually own these assets first. And I'm pleased to say that completions remain on track with the previously stated timetables. We targeted the end of the first quarter for the TotalEnergies acquisition, and that completed today, slightly ahead of schedule. This transaction brings into the portfolio over 5,000 barrels a day of unhedged gas production. We also remain on track for midyear completion for the ONE-Dyas transaction and later in the second half of the year for Spirit Energy. On our Core portfolio, production has increased in 2026 year-to-date compared with Q4 last year, but it's still not where we would want it to be. Production at the Bruce Hub has largely been robust, and we are regularly producing 20,000 barrels a day net from the hub, which is a real positive given the current gas prices. Unfortunately, some further unscheduled maintenance at Triton needed to be carried out in February and early March that required a shutdown for just over 3 weeks. The operator, Dana, concluded that due to overdue maintenance on some production and power generation systems, they could not wait until the summer shutdown to complete work on those systems. They, therefore, took the proactive step to fix the issues immediately rather than to continue to run the equipment that could potentially fail. This work was completed on the 9th of March, and Triton has been running continuously since that time. As indicated in our January trading statement, we also lost production from Orlando for much of the period due to wave damage caused to the Ninian host platform, but this is now also back online and producing over 3,000 barrels a day. Since production restart at Triton, we have seen a fortnight of stable production averaging over 50,000 barrels a day in that period. Over the last few days, we have also seen the first production from Belinda, the last field in the U.K. to receive development consent. It is too early to determine a stable rate for Belinda, but early indications are promising. Triton is currently running with a single gas export compressor as the second compressor is offline awaiting a spare part. Maximum production in this operating mode is roughly 25,000 barrels a day net to Serica. And as we now have excess well capacity, we can anticipate being able to flow at that rate at least through the end of 2027. Once the second compressor is available, we will need to decide with Dana whether it makes sense to keep the second compressor as a backup to give more stability at 25,000 barrels a day or to run the 2 compressors in parallel at a higher rate, but with more vulnerability to downtime. Our production guidance of significantly over 40,000 barrels a day was based on very conservative uptime, effectively building in a weaker month of downtime at Triton. As such, with a significant production uplift to come, we are comfortable in retaining our guidance is unchanged. Going forward, the predictability of our production will be enhanced by the new assets coming in with some, notably GLA and Cygnus having historically very high uptime. But for now, we continue to be focused on delivering improved performance from our existing assets where there's still plenty to do. We are working to embed a culture of operational excellence, where we are not satisfied if we produce anything less than the maximum possible on any given day. In the last few years, there have not been enough maximum production days, and we are reenergizing our entire workforce to pull together to deliver more. There is also work to be done this year to help deliver production well into the future. At the Bruce Hub, there is exciting subsurface potential, and we are doing the necessary work this year to prepare for potential drilling in 2027. At Triton, we are working closely with Dana, and the focus is very much on delivering stability of operations. Dana have been taking many of the same actions that we have taken at Serica to improve performance, in particular, with strengthening of their team with new offshore installation managers, maintenance team leaders and safety advisers as well as bringing in-house some key technical specialist roles, which were previously outsourced. We are also, of course, working hard to integrate our new assets, and I am delighted to welcome our new colleagues from TotalEnergies into Serica and those transferring across to our operations and maintenance contractor, px, today. Even without the addition of reserves from new assets, I'm pleased to say that our reserves replacement effectively achieved 100% in 2025. This was achieved through the excellent work of our subsurface team and largely by 10.2 million barrels being moved from resources into 2P reserves due to the maturation of the Kyle redevelopment, which has now been renamed Kyla. This effectively offset the 10.1 million barrels of production in the year. With the addition of the newly acquired assets, our 2P reserves rise 19% on a pro forma basis. We will continue to be balanced between oil and gas. But on completion of the acquisitions, we will become slightly more gas-weighted as our acquisitions are mostly gas fields. I'm pleased to say we have also delivered a 16% increase in 2C resources, indicative of our attractive opportunity set. This increase was driven by the extensive work on maturing the potential Bruce drilling program as additional infill well opportunities delivered an 18.2 million barrel increase in 2C resources. This outweighed the relinquishment of the Mansell license and transfer of Kyla to reserves. The addition of Wagtail, which we announced during the year, also provided an uplift of 8 million barrels of 2C resources. In total, we now have over 100 million barrels of 2C resources, constituting a diverse and attractive opportunity set. These are projects of various types and across our asset base, but are all tangible and deliverable opportunities. With prudent investment, there is plenty in the hopper to sustain our production at or above current levels into the next decade. We are continuing to high-grade the suite of opportunities and plan to share considerably more detail on these at a Capital Markets Day in early June. We are focusing at present on those opportunities that have the potential for rapid payback, and there are a number of projects that fit that description. One that we have talked about before is Bruce. Bruce is a huge field, and there is plenty of remaining potential there, as can be seen by the increase in resources we have been able to share today. There has been no drilling on Bruce since 2012, and drilling on the field, which sits with our -- within our subsidiaries that do not have tax losses, would be highly tax efficient. First hydrocarbons are possible within 1 year of drilling, and we see a first phase of wells that could add over 10,000 barrels a day to production. This is a significant opportunity to deliver greater production of critical gas supply to the U.K. in a relatively short-term time frame. This opportunity is the result of work done over more than a year now across the integrated disciplines within our exceptional subsurface team, which, as I may have mentioned before, is the best in the business. Market screening for a rig is currently underway to enable us to potentially take an investment decision later in the year, which could enable drilling to begin in 2027. There is still more work to be done, and there are other opportunities also battling for capital. Kyla also offers a material production uplift. This was a previously producing field, which ceased production due to the host infrastructure being decommissioned. A horizontal well drilled into the best part of the reservoir and producing into Triton could also, therefore, add 10,000 barrels a day to our portfolio. And then, we have the opportunities just welcomed into or to be brought into our portfolio via acquisition. Glendronach is a compelling opportunity, and there are others not even mentioned on this slide that we look forward to discussing at the Capital Markets Day. And we are very excited by the overall potential West of Shetland. I realize this is quite a busy map, so let me give you a quick overview. We've acquired the acreage, which is shown in blue, which includes the Laggan and Tormore and other producing fields as well as a number of exploration prospects plus the associated pipelines in orange and the Shetland Gas Plant. Further west and north of our acreage is an extensive area colored in gray. This acreage is owned by Adura and Ithaca, 2 of the largest U.K. producers who are bullish about the drilling prospects in the area. The industry consultant, Westwood Global Energy, recently published a report identifying that the West of Shetland Basin holds an estimated 5 trillion cubic feet of gas. Of course, that sounds like a big number, and it is. In fact, it's equivalent to supplying every household in the U.K. for 5 years. And yet some people continue to say that the amount of gas we can produce in the U.K. is not significant. With 1.5 billion barrels of discovered and prospective resources situated within tieback distance of our existing infrastructure, this is an area of material potential for the industry and for Serica. And the Shetland Gas Plant is an asset of strategic importance to the country. While we are not primarily a third-party infrastructure company, as well as processing our own gas through the plant, we are currently processing gas for Adura from their Victory field, which only started producing last September. And we hope soon to be doing the same for Ithaca and Adura, Tornado field, which they are looking to move to final investment decision by the end of the year. But as well as exciting third-party opportunities, which all add value for Serica, there are also opportunities for the GLA joint venture to develop and add value from the assets on which we have completed today. These include the Glendronach tieback and a possible infill well at Tormore. And now that these are in our portfolio, they will be assessed and ranked against the other development opportunities we have in the battle for capital allocation, about which, again, we will give more detail at our Capital Markets Day. And with that, I will hand over to Martin to give you more on our finances and how we are seeing things in the near-term market situations. Martin Copeland: Thanks, Chris. As we largely preannounced with our January trading statement, the story of last year is mostly that despite a challenging year operationally, our relative financial strength and our confidence in the resolution of those issues enabled us to continue delivering on investment in the portfolio and on healthy shareholder returns, including maintaining the full year dividend at 16p, inclusive of the 10p proposed final dividend we are announcing today. When it comes to how we generated and used cash during the year, this waterfall chart shows the picture of what actually happened to gross cash from our year-end 2024 to our year-end 2025 position. But the real story of the business potential lies in understanding what the deferred production cost us in foregone 2025 revenues from the unscheduled Triton interruptions. Based simply on adjusting for what would have happened if Triton had delivered operating efficiency in line with our 2025 budget and factoring in the actual prices of oil and gas, which prevailed, we estimate we missed out on some $250 million of revenues last year. And because those missed revenues were at Triton, where not only do we still have material tax losses, but we were also investing heavily, which is the key method of sheltering the EPL and that our cost base is very largely fixed in nature, those foregone revenues would have flowed almost directly to additional free cash flow generation. We were, however, helped last year by the receipt of $63 million tax rebate in respect of overpaid taxes from 2024, but also from a low cash tax bill during the year, given we were able to factor in the impact of group relief into the installment payments made during the year. These are the reasons why the tax bar is, in fact, a positive on this chart. So we very much do not see 2025 as representative. And indeed, as we indicated in January, we are confident of material free cash flow generation this year, and that outlook has, of course, only improved in the current market conditions. In fact, as it says on this page, with the completion of the TotalEnergies deal today, we have more than halved our net debt as compared to the year-end level and are on track to be in a net cash position by the end of H1. Turning in a little more detail to the income statement. While realized prices were generally not materially different than in 2024, being marginally lower in oil, but higher in gas, our revenues of $601 million were down 20% from the prior year, essentially in line with the lower volumes. But the truer comparison of the impact of Triton issues can be seen in the comparison with the 2023 pro forma levels. On this basis, production was down some 4.5 million barrels or approximately 30%. Our hedge book was in the money at year-end and delivered unrealized hedging gains of $75 million and just under $8 million in realized gains, as we benefited especially from protection against the lower prices seen in Q2 in the wake of the liberation day tariff announcements. Operating costs were roughly 10% higher than 2024, largely as a result of increased maintenance activity at the Bruce platform, as we sought to reduce maintenance backlogs, but also because of a slight weakening of the dollar versus our largely pound-denominated costs. G&A costs were up by just under $2 million, as we made choices to add capabilities to set us up for future success, and we incurred transaction costs of $5.5 million associated with the extensive M&A activity. Despite the challenges in the year, we still delivered a profit before tax of $80 million, but at half the level of the prior year. Our current tax charge was only $2 million, as we benefited from in-year group relief associated with losses made in the Triton subsidiaries. However, in common with all our North Sea peers, and as we also reported in our H1 results last year, we had a material deferred tax charge of $130 million, including a $65 million charge relating to the enactment in Q1 of the extension of the EPL from 2028 to 2030. The result of these noncash accounting impacts is that we reported a book tax charge of 165% and posted a loss after tax of $52 million for the year. Turning now to the balance sheet and notable changes in the year, which result mostly from acquisitions. Our exploration and evaluation balance doubled to $43 million, primarily as a result of the completion of the Parkmead acquisition, as we became operator and brought into a greater share of the Skerryvore exploration prospect. We also consolidated the acquisition of Prax Upstream, which completed on the 11th of December as a business combination. As preannounced in January, we ended the year with net debt of $200 million, being effectively 1x EBITDAX. But as already explained, we see this as something of an anomaly and would have been net cash pro forma for the deferred cash flow from the Triton issues. And as already noted, we have more than halved our net debt since the balance sheet date. Finally, inclusive of the impact of new drilling at Belinda and Evelyn as well as bringing Lancaster into the portfolio from the Prax Upstream business, we ended the year with the exceptionally low level of decom provisions of less than $2 per 2P barrel of oil equivalent. While we always update on our hedging with our results, given the dramatic events in commodity markets year-to-date, we felt that a slightly deeper dive is merited today. Before turning to how we positioned -- we are positioned and what we expect to be doing in the future, we wanted to give a bit of background on what's been happening in oil and U.K. wholesale gas markets year-to-date. We came into the new year with all market fundamentals in terms of physical supply of oil and, to a lesser extent, gas pointed to a weak Brent prices during 2026 and medium-term weakness in gas prices. Bearish sentiment was evident in the market, and this was apparent in that despite unusually low European storage levels, U.K. gas prices averaging around 84p per therm for January and February were roughly half the level of the equivalent mid-winter period in 2025. However, of course, things changed dramatically after the war in Iran commenced on the 28th of February. For the 3 weeks of March so far, NBP day-ahead pricing has averaged 127p per therm, and Brent has averaged $103 per barrel. But as the charts on this page, which show the shape of the forward curve for Brent and for NBP at various dates since early January right up to a week ago on the 19th of March, things really elevated in reaction to the de facto closure of the Strait of Hormuz and the physical attack on the Ras Laffan and Pearl GTL plants in Qatar. But although near-term prices, the front end of the curve have risen sharply, the prices further out in time have not risen nearly as much, and the forward curve for both oil and gas are in very steep and, in fact, unprecedented backwardation. These forward prices should not be seen as predictors of future prices, but they do represent the levels at which Serica would be able to hedge in the market through swaps. So with this backdrop in mind, we turn to where our hedge book stands today. We've been building our hedges materially during the first quarter, and the reason for that goes to the reasons why we hedge. Firstly, we have an ongoing requirement by our banks to hedge a certain amount on a rolling basis, being 50% of the current year and 30% of the following year. But beyond that, we are always striving, appreciating that we cannot predict events and prices to find the Goldilocks solution, not too little and not too much. On the one hand, we seek to ensure that we protect downside sufficiently to ensure that we can cover our cost base in tougher times as well as to support our capital allocation priorities, including the dividend. This also includes maximizing the liquidity available to us through the borrowing base under our RBL. But on the other hand, we do not want to overhedge so that events, even if they are the kind of tail risk events we have seen this month, which cause prices to spike, can benefit our shareholders. So we were always looking to protect the downside, but leave as much as possible of the upside potential. In common with our peers, we do this both by imposing policy limits on our absolute amount of hedging and by the choice of instruments that we use for hedging. As shown on this table, Serica is currently hedged for about 60% of our forecast production in 2026 and about 50% in 2027, which is inside our policy limits. When we combine the impact of the unhedged part with the use of zero-cost collars, which retain an element of upside exposure, we retain about 40% upside exposure in 2026 and around 55% in 2027. The position in gas is actually more exposed to upside than in oil with only around 50% of our gas volumes hedged this year and less than 40% for next year. While we have built the book since the beginning of the year, about 50% of the hedges we've built have been taken on since the start of facilities from the 2nd of March, and we've been able to capture some very attractive opportunities. For instance, although the table show averages for the quarter, we have, in fact, recently placed some swaps for March at levels up to $111 per barrel for oil, which is especially pleasing given our most recent Triton lifting concluded only earlier this week. We appreciate that it can be confusing to understand the intricacies of hedging approaches. And although we hope the floor prices are quite clear on this table, it is tough to figure out what the foregone upside price implications are. So, as a bit of a guide, we estimate that our current hedge book for 2026 with oil prices at a notional $100 a barrel, we realized roughly $80 a barrel. And at 150p per therm for gas, we realized roughly 130p per therm. Taking a look at this slide, you may think you've seen this before, and that is because you have. We're pleased to say that we are simply reiterating our guidance across production, OpEx and CapEx at the levels we set forth with our trading statement in January. What we have though updated on this page is the carry-forward tax loss balances that we've reported today as of the 31st of December 2025. As you can see from a combination of our own activities during the year as well as M&A that we completed during 2025, we ended the year with essentially double the level of tax losses as we started with. We now have roughly $2 billion of corporation tax and SCT losses and roughly $500 million of EPL losses. And using the simple math that we've applied before of corporation tax loss times 30%, SCT times 10% and EPL times 38%, then the notional value of these losses is around $1 billion. Finally for me, I wanted to say a few words to add what Chris has already covered in relation to the M&A we announced in the year. In my previous career as a banker, we would tend to consider that the M&A was done when the deal was signed. But what I've since learned is that to ensure we deliver value, we need not only to be capable of efficiently delivering complex operated asset transactions through to completion, but also to ensure that the businesses are integrated efficiently into Serica and set up to realize their value potential. Serica has, therefore, invested in human capital to ensure that we have the skills and processes that are needed to be successful in an M&A growth strategy. This includes being agile and opportunistic in the execution phase and ensuring that we always do what we say we will do. So we sustain Serica's good reputation in the M&A market as a credible and trustworthy counterparty. That also means having the people, processes and systems that are set up to deliver in a repeatable way to coordinate and drive forward the multiple work streams needed to get to completion and day 1 in the fastest possible time, all while also ensuring safe and reliable continuous operation of high-sensitivity assets and complex IT systems. The process we have just completed to see GLA and the Shetland gas plant come under our control today is a great example of this. Finally, this also means doing the necessary work upfront to protect value from the transaction and to ensure that the people and systems can be integrated as smoothly as possible to ensure that the value can be realized in practice. One example of this is the approach we've taken with the Spirit Energy deal, which is not yet completed. Although we only assume completion from around end September, we know that future gas prices were key to value realization on this deal. So based on a very constructive relationship with Spirit Energy and with their parent, Centrica Energy, we have been able to put in place deal contingent hedging for roughly 50% of the production, but on a basis which protects the value of our deal, but still leaves ample upside potential for Serica to enjoy. This was made possible in part thanks to Centrica Energy being a leading participant in gas markets and working through the complexities of a structure like this with us. With that, I will hand back to Chris for some concluding remarks. Christopher Cox: Thank you, Martin. This is another slide that should look quite familiar, and that's because our focus areas remain unchanged. Safety is, of course, the #1 priority and delivering reliable production this year that will generate material free cash flow. We are integrating acquisitions, progressing organic growth projects and still looking in the market to continue prudently adding to the portfolio to deliver for our shareholders. In addition, we continue to plan to move from AIM to the main market of the London Stock Exchange during the year. We are very excited by the opportunities ahead and look forward to updating you on progress throughout the year. And with that, I will hand over to Andrew to run the M&A (sic) [ Q&A ]. Andrew Benbow: The M&A, I hope not. Christopher Cox: Q&A, the Q&A. I'm sorry. Andrew Benbow: I think we'll keep other people with the Q&A -- with the M&A. Andrew Benbow: Right. So the first question actually is about the last thing that you mentioned. When are you anticipating being admitted to the main market? And what impact do you think this might have on the share price? Martin Copeland: So probably I'll take that one. Yes, we -- I think we put in our detailed announcement today that we expect now that will be in Q3. It's -- the work is ongoing for it. There's a lot of process. And I know, as Andrew often says, a surprising amount of process just to move from one part of the London Stock Exchange to another. But nonetheless, there is, and we are working it hard. We expect it will be during Q3 of this year. So very much on track to get there during the year. In terms of what it will do for the share price, I mean, it's very -- obviously, our main reason for wanting to do that is to get a greater degree of exposure for Serica to investors generally. And the wider the exposure we get, the better it is generally for support for our share price. And in particular, certainly at anything around our current market capitalization, we would be very comfortably inside the FTSE 250. So one of the 350 biggest companies in the U.K. And the benefit of that is once you get into the FTSE 250, there are a lot of tracker and index funds that have to follow stocks in that segment. So that's one of the main reasons why we see a benefit in moving to the main board, and we remain very much on track to make that move during the course of the year. Andrew Benbow: Moving on to Triton. We've had a few questions come in unsurprisingly. So I'll try and amalgamate in a way that makes sense. There's kind of 3 questions really. One is, why couldn't the maintenance have been done last year? Second is a similar one, which is, will the work at Triton reduce the maintenance period later this year? And then the general question, which I think is the one that everyone wants to know is, how much should the reliability of Triton concern shareholders? Christopher Cox: Thank you. I'll try and address all 3 of those. So the work that had to be done in February and March was not something that we actually even knew about when the last shutdown took place. What happened was in doing some inspections of key equipment, Dana discovered that they could not vouch for the status of some of that equipment. They could not prove that they've been maintained properly or inspected properly, and they didn't have the records to be able to prove that. So there wasn't necessarily evidence that there was anything wrong with the equipment. They just couldn't show from their maintenance systems that it had been inspected when it should have been inspected and maintained properly. And so what that meant was when they put all of that together, they felt that there was a risk that was intolerable and equipment could break before it got to the next shutdown. And so rather than take that risk, they took the decision that they would shut down and fix it now. I think you asked, does that shorten the shutdown in the summer? It doesn't because some of the things they discovered that need maintenance, they haven't done now and they haven't to the summer shutdown. However, I will say that in our planning for the year, we assumed that Triton would be off essentially for 3 months in the summer, whereas Dana is planning for a 65-day outage. So we've built in a buffer there to some extent. And as I said during the presentation, we've also assumed a week's downtime on Triton as we go through the year outside of that summer shutdown window. So we think we've made some fairly conservative estimates around Triton for the year. So how much should shareholders be concerned about Triton? Look, it's still not as reliable as we want it to be. That's clear. And we are working with Dana on a number of things to try and improve the reliability. And the key is, frankly, it's the power turbines and the compressors where we're reliant on one of each at the moment, and there are 2 of each on the vessel. And we need to get to a point where we've got 2 power turbines and 2 compressors available. And that's -- it's going to take a few months before we're in that position. In the meantime, we're quite vulnerable to outages. But as I've said, I think we've been quite prudent and put in place some fairly conservative assumptions this year such that we're confident with the production guidance that we've given. And we're going to be part of -- Dana has just formed a compression improvement task force, which is targeting getting 90% efficiency with a single compressor and figuring out what else needs to be done in order to have 2 compressor operations. And we're going to be involved in that work ourselves. So I think, as we move forward, things will get better. But for now, it's -- we still have that vulnerability. We can't shy away from it. Andrew Benbow: And just briefly to clarify, our guidance takes in effectively 1 week of downtime each month over the course of the year. Keeping on Triton for another one, would you be comfortable bringing Kyla into the FPSO? Christopher Cox: So -- yes, I'll take that one. So, Kyla, just to be clear, we've announced that we've moved the barrels from Kyla into reserves as of the end of last year. That doesn't mean we've taken a sanctioned decision on it yet. As I mentioned during the presentation, it's fighting for capital with a lot of opportunities in our portfolio. And we will make a decision on which ones we're going to pursue in which kind of time frame as we go through the year, and more detail at the Capital Markets Day. So we haven't taken FID on Kyla yet, but it's mature enough. We know enough about it. We like it as a development. So we were at a point where we could move it from resources into reserves. Now, of course, we're not going to bring in another field into Triton until we're comfortable that we can produce it safely and efficiently. And the fact is we've only just brought on Belinda in the last few days. And we had anticipated that at the end of January, and it didn't happen because we had a shutdown. So there's no way we're bringing another development into Triton until we get stable operations there. But as I've said, I think Dana is doing a lot of the right things to achieve stable production and 2 compressor operations. And I'm hopeful that we get to the point where, yes, we can sanction Kyla and bring it into Triton. Andrew Benbow: Somebody on the side actually has just said that they're a bit bored of talking about Triton's compressor... Christopher Cox: Me too. Me too. I'm fed up with talking about it, too, but it's what we get asked questions about and for good reason. Andrew Benbow: They do have a question with it as well, which is -- which I think I'll take the time to broadly think about it, which is what percentage of group production will come from Triton in 2027? Now, we obviously haven't guided for 2027 as yet. But if you look at analyst expectations, it's probably somewhere in between 1/4 and 1/3 of production will come from Triton next year. So it clearly becomes of significantly less importance to the portfolio, albeit still being highly cash generative. Next question, I think, is one for Martin, actually. Why do companies who acquire assets from [ TotalEnergies ] sometimes pay Serica rather than Serica paying for the assets? I presume they're concerned about the decommissioning costs at the end of field life. What value is it that you can see that vendors can't? Martin Copeland: Good question. So yes, there's a bunch of things embedded in that, obviously. One is companies like TotalEnergies makes a strategic decision that they basically want out of an asset like this. And you can understand why because we think it's got amazing potential, we're buying it as it is, but they thought it was going to be a lot bigger than it actually is. And so it's kind of got -- it's been something that's been strategically on the decision to exit. So, therefore, price is not the most important thing. But add to that, yes, why -- they're not -- obviously, they're a commercial and sensible company, and we are too. And therefore, they -- whilst we're receiving cash, that's because the effective date, the historic date at which the deal we economically owned it was the 1st of January 2024. So the $57 million odd that we received today is basically the after-tax cash flow from that asset for that period until today. So that effectively, we economically owned it, and we receive it today because we've legally completed today. And then, when you think about how that works, yes, we are taking on the decommissioning liability associated with that asset in the future. The thing about decommissioning liabilities are that they are obviously an obligation to decommission in the future, but the timing of that decommissioning, and indeed, the absolute amount of the cost of it are not certain. And absolutely, our objective, which is different than that of, say, TotalEnergies when they owned it, is to continue to invest in the portfolio through some of the things that Chris talked about, like maybe Glendronach, maybe a Tormore well, but also getting the benefit of third-party gas into the plant like Victory that's already there and Tornado that we hope to come in the not-too-distant future. All of those things would just push out the time at which decommissioning happens. And all of that is very significant in terms of additional value for us. So for us, it's about delivering on those things, which TotalEnergies was not going to do because the capital investment associated with them just didn't screen for them relative to all the other global opportunities they have. It does screen for us, and we, therefore, look forward to doing it. And it's a case of, again, as Chris indicated, it's right assets, right hands, and it's just the natural kind of food chain, I would say. One other little point is there's also a tax differential. And TotalEnergies was being fully taxed on it under their ownership. And indeed, the receipt of cash we've had today is after it's been taxed for that whole period at 78%. But when in our hands, we're buying it into some of the entities we acquired through Prax Upstream, and that means it will be sheltered from a large amount of the tax now as of from today when it comes into our ownership. So there's a different valuation reference point for us as well. So I hope that answers the question. And that's just using GLA as an example, but you could play that across to other things as well. Andrew Benbow: And speaking of some of the other things that we're acquiring, given the context of very high commodity prices, could you talk about the expected payments on closing of the acquisitions of the ONE-Dyas and Spirit's assets? Assuming oil and more particularly gas prices stay where they are, those payments could be very favorable to Serica. Martin Copeland: Yes. I mean, clearly, they will -- we do -- as we track them, they're going to be up versus where our original planning for them was when we did the M&A because we weren't planning for prices where they are right now. So yes, the net impact of that is going to be that we expect to get higher payments than we would have done or in the case of Spirit Energy to essentially probably the net payment by us will probably be lower. The exact numbers of those is obviously something that needs to be worked through based on what actually happens to commodity prices between now and when we actually complete. The only other cautionary note I'd say is that, again, just as I mentioned for TotalEnergies in the case of both ONE-Dyas and Spirit Energy, under their ownership, they're being fully taxed with the full EPL rate. And so whatever the increment is, it's going to have a higher tax rate against it than it would under us. So that does help to dampen the impact of higher prices a little bit. Andrew Benbow: A more general question on the M&A landscape in the North Sea. How is the current market? And how has the M&A dynamics changed after Adura and NEO NEXT+? Martin Copeland: Yes. I mean, I think Chris alluded to that in his remarks that -- we'll have to say that we think the opportunity set in the U.K. this year is going to be down on last year. And I guess, it's kind of easy to say that because there was a hell of a lot of activity last year, right? So the bar would be very high to be able to repeat the level of activity in the basin this year that we saw last year. But that impact of the significant consolidation that we've seen is probably a reason why we think there'll be less M&A this year. It doesn't mean to say there won't be any. And I do think in time, as the likes of an Adura or a NEO NEXT+ and some of the others, Ithaca, as they look at their portfolios, they may well see that there are assets within there that in the normal course, they look to divest and move on. And that's kind of normal course business that we would expect to carry on. But overall, we just think the activity in the U.K. is likely to be down. The other cautionary note on M&A is that whilst we see these very high prices, high -- not just high, but volatile prices, prices that move all over the place are very difficult to transact M&A in, right? It just makes doing deals really hard when prices are moving really fast. So that's not a comment specifically about the U.K. It's just a general comment about doing M&A in the upstream. Andrew Benbow: And while we're on the discussion about U.K. M&A, then how about overseas? You mentioned it's something that you're looking at. So what kind of areas could people expect an acquisition to be made in? Christopher Cox: Do you want me to take that one? So look, we are starting to look overseas and get a bit more serious about that. And there's really a couple of reasons for that. One is what Martin just mentioned, there are fewer and fewer opportunities in the U.K. We're still working on a few opportunities, but not as many as they were a year ago. And we want to have a sustainable business. And at some point -- the U.K. is in decline. And at some point, you'll get to a point where there's not enough production left for us to maintain the kind of size of business that we are. So sooner or later, we have to look overseas anyway if we want to have a sustainable business. So look, we don't want to limit ourselves too much to where we might go. We do quite like Southeast Asia. So why would that be of interest? Really, it's an area where we can see playing out our strategy in a similar way to we do in the North Sea. Southeast Asia in general is a bit less mature than the North Sea, but it's -- most of the fields are kind of mid- to late life now. So you're getting to the point where a number of the majors are thinking about exiting fields there or just reducing their exposure in the area. So we're at that point now where -- probably where we were in the North Sea 10 or 15 years ago, frankly, where opportunities are coming available for companies like us to go in. And as we said, push out the decommissioning, extend the life of fields, drill more wells, find more reserves. So we just see that it's a ripe area for that kind of an opportunity. Yes. And I don't really want to comment too much on other areas because as soon as we say we're ruling something out, and then, an opportunity comes up, who knows where we could go. So never say never, but I think Southeast Asia is probably first on our list of places that we like for the reasons I've just mentioned. Andrew Benbow: I'm aware we're running out of time. We've got quite a lot of questions still to go through, so I'll try and group them together. Dividends, quite a lot of people have asked about dividends. So a question for Martin. Do we see a return to dividend growth? The dividend looks quite small considering the free cash flow to come. Martin Copeland: It's a really good question. And look, the way we think about the whole capital allocation piece is we've got to balance the dividends to shareholders with investment in the portfolio and with M&A growth. And it's the -- we're not alone in that. That's kind of the conundrum for all of us and our peers that are involved in this. It's probably going to sound a bit like a stuck record in saying, wait for the CMD, but we are definitely planning to give a great deal more detail about how we balance all of those things at the Capital Markets Day. I guess, it's a sign of confidence we felt to show that we were able to continue the dividend at the same level as before despite the fact we had a challenging year last year, but -- now, but we expect to give a lot more clarity. And we've got to -- and show the really interesting and exciting returns can come from the investment in our portfolio, but it always while ensuring that we also pay a sensible amount of dividend. So I know that's not going to directly answer your question, but that's probably what we can give for now. Andrew Benbow: Another quick one for you, Martin, about tax losses. How long do you think they'll last for? And which of your assets do they cover? Martin Copeland: Really good question. And we -- you probably noticed that we've sort of stopped giving guidance on how long we think they're going to last for, and that's because we used to give it. And then, we found that they lasted for a lot longer. And as it happens last year, we created a lot more losses either through our own activity because the silver lining on Triton performance was that, as I probably indicated, we actually added to the loss pool there rather than reducing it during the year. But then, of course, we also did some transactions that brought some losses with them. So in terms of -- and then, of course, how quickly use it is also a function of what happens to the commodity price, which is incredibly difficult to predict. So it sounds like a bit of a cop out. We've got a lot of losses now. They basically will -- are reasonably balanced across our portfolio with the exception of Bruce, Keith and Rhum, which is in the entities that basically don't have any losses. But that, as Chris indicated, is one of the key areas we're looking to make investment into. And investment is not only needed to bring short-cycle gas to the U.K., which it desperately needs, but is also efficient when it comes to the use of tax because if we can invest, we get still strong capital allowances against the 78% tax rate that applies there. So we have a strategy which is kind of fit for all seasons in that respect. Andrew Benbow: And speaking of tax rates, I think we should finish with politics and apologies to people whose questions we haven't got around to, but please do e-mail them over to me directly if you'd like a response. Are you talking face-to-face with Ed Miliband or Rachel Reeves? With such pressure from so many sources, do you feel the logic of the message is getting through? And are there any milestones going forward? And do you feel more positive in the stance of Whitehall? Christopher Cox: So we're speaking with everybody that will listen, both individually and as part of industry bodies. I was personally in the meeting with Rachel Reeves, #11, whenever that was, just around the spring statement time. The message is definitely getting through about the need to stimulate the North Sea before it's too late. We have a tax regime that's been designed by this government in consultation with the industry. And yet, as we sit here today, that won't come into force until 2030. And our argument is just bring that in now. Treasury absolutely get that. I guess all I'll say is there are other parts of the government that are not necessarily sold on that idea. So I'm not going to try and predict where we'll end up on that because at the moment, I don't think anybody in government really knows where we're going to end up on that. Andrew Benbow: Martin, anything you want to add? Martin Copeland: No. I think Chris has covered it very well. I mean, look, everyone in this call will know, we've seen the volume of really quite broad-based sentiment now to recognize the importance of security of supply. And that's an argument that we've clearly been supporting for a long time. We just hope that a sense of pragmatism, the recognition of the importance of security of supply from a sort of defense and just national security perspective will begin to carry more weight than it perhaps does -- has done in recent times. Andrew Benbow: And with that, Chris, would you like to give any closing remarks? Christopher Cox: Well, just that we've got another exciting year ahead of us. We are integrating new assets into our portfolio. We're seeking to do more M&A still on top of that. We will be growing production as we go through this year, both on our existing portfolio and the new assets. We will be moving to the main market this year. And we've got lots of exciting investment opportunities in our portfolio, about which we will speak at the Capital Markets Day, which is the next time we will see you. Operator: Perfect, guys, if I may just jump back in there. Thank you very much indeed for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback. On behalf of the management team of Serica Energy plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.
Operator: Thank you very much, and good afternoon, ladies and gentlemen. Welcome, and thank you for joining our conference on the financial year 2025 results. My name is Jeroen Eijsink, and this is the first time I'm addressing you in my role as Chief Executive Officer of HHLA. I'm very pleased to be here today together with my fellow Executive Board member, Annette Geiss, to guide you through HHLA's performance in the 2025 financial year. Over the past 6 months since assuming the role on October 1, 2025, I've taken the time to get to know HHLA in depth. This has included spending a great deal of my time at our terminals in Hamburg as well as visiting our European subsidiaries such as Metrans and PLT Italy. Above all, I have met many of the people who ensure around the clock that supply chains continue to function. What I have seen during this time is a company with strong substance and committed teams. HHLA is operating in a challenging environment, but it is well positioned to address the challenges ahead. At the same time, I have also gained a clear understanding of where we need to improve and where we will focus our efforts going forward. Let me now briefly summarize the past year 2025. The year was shaped by a demanding market environment. Persistent geopolitical tensions and continued economic weakness in Germany weighed on supply chains and reduced planning certainty. At the same time, global trade flow shifted with declining volumes on North American routes and growth in Far East trades, particularly with China. Another factor during the year was the reorganization of liner services following the formation of new shipping alliances, most notably the launch of The Gemini Cooperation by Hapag-Lloyd and Maersk. In addition, MSC gradually shifted its Hamburg services to HHLA over the course of 2025. For the Port of Hamburg, this resulted in a noticeable reallocation of traffic flows, while all major alliances continue to be handled reliably by HHLA. In this dynamic environment, we focused on strengthening our operational base. We continued to modernize our Hamburg container terminals, building on our automation expertise at CTA and advancing our reorganization and expansion measures at CTB. At the same time, we strengthened our European Intermodal network by further expanding the activities of our Rail subsidiary, Metrans. For instance, we announced the modernization of our terminal in Slovakia and laid the foundation stone for a new site in Hungary in 2025. Most recently, we secured a 50% stake in a Romanian terminal to establish our first intermodal facility there. With investments like these, Metrans strengthened its position in Southeastern Europe. Even in a challenging geopolitical environment, we remain committed to our long-term strategic priorities. These include our continued engagement in Ukraine marked by the acquisition of a majority stake of 60% in the Intermodal Terminal Batiovo. Operationally, this all translated into solid growth. Container throughput increased by more than 5%, while Container transport rose by almost 11%. Supported by this volume growth, both revenue and EBIT made good progress. Revenue in the Port Logistics subgroup increased by about 10% and EBIT rose by more than 20%. At the same time, profit after tax and minority interests was burdened by a one-off and noncash tax effect. It was not cash-effective, but had a significant impact on net income for the year. Against this backdrop, the Executive Board, together with the Supervisory Board have decided to propose to the Annual General Meeting that no dividend will be distributed for the 2025 financial year. The focus remains on financing capabilities and a disciplined capital allocation to support the persistently high-level of strategic investments ahead. With that, I would now like to hand over to Annette, who will take you through the performance of our segments in more detail, starting with the Container segment. Annette Walter: Thank you, Jeroen, and good afternoon, everyone. Let's move directly to the performance of our Container segment. As Jeroen has already mentioned, we recorded overall growth in container throughput of 5.4%. Volumes at the Hamburg container terminals increased by 4.8% to almost 6 million TEU. The key drivers in overseas traffic were volumes to and from the Far East, especially China, as well as South America, Africa, Australia and the Middle East. By contrast, the North America shipping region declined strongly. Volumes in feeder traffic increased significantly year-on-year. This development was supported mainly by traffic with Finland, Poland and other German ports. However, cargo volumes from Estonia, Latvia and the U.K. declined. The proportion of seaborne handling by feeders was slightly above the previous year's level at 19.6%. At our international container terminals, throughput volume rose strongly by 19.2% to 339,000 TEU. Especially in Italy, we saw remarkable volume growth at the HHLA PLT Italy, which really makes us proud. At CTO, we resumed seaborne handling in the third quarter of 2024 and we were able to continue operations throughout 2025, also, still with certain limitations. This base effect leads to the significant year-on-year increase expected for 2025. Volumes at the multifunctional terminal at HHLA TK Estonia declined slightly on the other hand. Segment revenue climbed significantly by 9.0% year-on-year to EUR 843.2 million. This was supported by higher throughput volumes and beneficial shift in the modal split. On top of that, HHLA's international container terminals made a positive contribution to revenue growth with a strong performance of PLT Italy standing out once again. EBIT costs increased by 11.5% compared to the previous year. This was mainly driven by extensive automation efforts, the positive volume trend and correspondingly higher capacity utilization. Personnel expenses also increased, reflecting union negotiated wage settlement and the additional deployment of personnel from the general port operations pool. In addition, expenses for consultancy and related services as well for purchase services, rose strongly. As a result of necessary investments, depreciation expenses increased moderately. The earnings safeguard measures implemented at the Hamburg container terminal since March 2023 had an offsetting effect, but were not sufficient to fully compensate for the cost increases described. Against this backdrop, EBIT declined by 6.4% to EUR 73.6 million, while the EBIT margin decreased by 1.5 percentage points to 8.7%. So let's move on now to the Intermodal segment. Transport volumes in the Intermodal segment made particularly good progress over the year. As a result, container transport rose by 10.9% to 198,200 TEU compared to the previous year. Rail transport rose year-on-year by 11.2% to 171900 TOU. This strong volume growth was largely driven by traffic with the North German seaports as well as traffic in the German-speaking countries. Moreover, the transport volumes of Roland Spedition in the previous year were only included from June onwards. Road transport rose significantly by 8.7% to 263,000 TEU. This development was helped in particular by the recovery of transport volumes in the Hamburg region. With an increase of 12% to EUR 797 million, revenue outperformed the volume development. In addition to routine price adjustments, this was partly due to the further increase in Rail share of the total intermodal transport volume from 86.5% to 86.7%. EBIT increased by 23.9% to EUR 103.7 million. The main reason for this strong EBIT growth was the increase in transport volumes despite an opposing effect from ongoing operational difficulties caused by construction work on major transport roads and congestion at the North-German seaports. Let's turn briefly to the Logistics segment, where we have pooled for instant vehicle logistics consultancy as well as digital and leasing services. In the reporting period, the consolidated companies generated a revenue of EUR 92.8 million, representing an increase of 10.9% compared to the previous year. The rise is attributable to the leasing company for intermodal traffic and to vehicle logistics. After reporting a loss in the previous year, the segment returned to a positive operating result of EUR 6.5 million in 2025. The performance within the segment varied across the individual companies. Whereas the Leasing company and Vehicle Logistics made strong earning contributions, our Innovative business activities fell short of the prior year result. At-equity earnings also made encouraging progress, increasingly by 27.5% to EUR 5.7 million in the reporting period. Coming back to the Port Logistics subgroup as a whole, let's have a look now at our cash flow development. The reporting period, cash flow from operating activities of EUR 257 million mainly comprised earnings before interest and taxes as well as write-downs and write-ups on nonfinancial assets. The main items with an opposing effect were interest payments, trade receivables and other assets as well as income tax payments. Investing activities resulted in a net cash outflow of EUR 307 million, up almost EUR 26 million on the previous year. This development was largely due to payments for investments in large-scale equipment at the Hamburg container terminals as part of our efficiency program. As a result, free cash flow of the Port Logistics subgroup was a negative amount of EUR 50 million. Cash flow from financing activities totaled EUR 0.4 million. On the one hand, new financial loans of EUR 140 million, on the other hand, opposing effects from dividend payments and settlement obligations to shareholders of the parent company and to noncontrolling interest as well as from repayments on bank loans and payments for the redemption of lease liabilities. Overall, our available liquidity at the end of December 2025 remained at a robust level of EUR 180 million. Before I hand back to Jeroen, I would like to briefly address our dividend proposal. At this year's Annual General Meeting, the Executive Board and the Supervisory Board will propose, not to distribute a dividend for the 2025 financial year, neither for the Class A nor the Class S shares. As we already mentioned before, earnings per share are at a very low level. At the same time, we are currently investing at a high level in order to modernize our terminals and ensure that our infrastructure is fit for the years ahead. Against this backdrop, we have decided to retain the available funds within the company to safeguard our ability to invest and to finance our projects. This represents a responsible prioritization in favor of the long-term stability and future strength of HHLA. That concludes my remarks. For the review of our ESG performance, an update on the squeeze-out and an outlook for the 2026 financial year, let me now hand back to you, Jeroen. Jeroen Eijsink: Thank you, Annette. Let me start with the sustainability topic. Sustainability is not an image project for us. It's increasingly becoming a hard competitive factor. Our customers are paying much closer attention to low-carbon supply chains, and we are actively helping them achieve their targets. To do so, we are making investments in three key areas: energy-efficient systems, electrified equipment fleets and automated processes with significantly reduced emissions. There are already very concrete examples of this across our operations. At CTA, our tractor units are now fully electrified. At CTB, automated guided vehicles are helping us to significantly reduce diesel consumption, and at CTT, we are operating hybrid van carriers that are already designed to be converted to battery or hydrogen power. As a result, almost half of our total energy consumption is already covered by renewable sources today. This clearly demonstrates that technological innovation and sustainable solutions go hand-in-hand at HHLA. This is not only an ambitious aspiration, it's operational reality. Accordingly, this is also reflected in our EU taxonomy indicators, where we once again achieved very strong results. All of these measures are decisive steps towards our long-term objective to achieve climate-neutral production across the entire HHLA Group by 2040. Before we turn to the outlook for 2026, I would like to briefly address another topic that has been high on our agenda since the beginning of the year. In addition to our operational and financial performance, the squeeze-out request announced in early January by the Port of Hamburg Beteiligungsgesellschaft SE, HHLA's majority shareholder has required considerable attention. So where do we currently stand in the process? The amount of the cash settlement is currently being determined by an independent expert. Following this, the squeeze-out will require approval by the Annual General Meeting in June. Of course, the Executive Board will accompany this process in a responsible and constructive manner. Let me conclude by briefly addressing the current market situation and our outlook for the 2026 financial year. Recent developments in the Middle East once again pose significant challenges for international shipping. They continue to affect global trade routes, sailing schedules and supply chains and as a consequence, also have an impact on European ports and logistics corridors. At present, we are seeing a market rise in uncertainty. Shipping lines are adjusting schedules at short notice, opting for alternative routes and in some cases, accepting extensive detours. This results in longer transit times, higher operating costs and greater operational complexity along the supply chain. Against this backdrop, the outlook shown on this slide is subject to a degree -- a high degree of uncertainty. At the same time, the progress we've made in recent years in modernizing our infrastructure and expanding our European network provides a solid basis for our expectations for the current financial year. Overall, we expect a positive development for the current financial year. We anticipate a significant year-on-year increase in container throughput and a strong year-on-year increase in container transport. Moreover, strong revenue growth is expected from the Port Logistics subgroup compared to 2025. EBIT is likely to be between EUR 160 million and EUR 180 million. To further increase efficiency and expand capacity in the Container and Intermodal segments, capital expenditure in the Port Logistics subgroup will be in the range of EUR 400 million to EUR 450, around half of this amount will be invested in the Container segment with the majority going to the Hamburg container terminals. These investments will focus on the efficient use of existing terminal space in the Port of Hamburg and the expansion of our foreign terminals. The other half will be used primarily to further expand our own transport and handling capacities for our Intermodal activities. With this outlook for the current year, I would like to close my remarks on our 2025 financial results. Annette and I are both happy to take your questions now. Operator: [Operator Instructions] Ladies and gentlemen, there are no questions at this time. I would like to turn the conference back over to Jeroen Eijsink for any closing remarks. Jeroen Eijsink: Ladies and gentlemen, thank you very much for your interest in HHLA. Before we conclude, I would like to leave you with a closing thought. HHLA remains a central pillar of European logistics. Our international network strengthens our resilience, broadens our positioning, enhances our competitiveness. Our investments consistently focus on reliability, efficiency and sustainability, guided by our commitment to continuously improve customer satisfaction. We are determined to stay on this course. Thank you.
Operator: Good day, and welcome to the TOMI Environmental Solutions, Inc. 2025 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Zach Nevas from IMS Investor Relations. Zach, the floor is yours. Zachary Nevas: Thank you for joining us today for the TOMI Environmental Solutions Investor Update Conference Call. On today's call is TOMI's CEO and Chairman, Dr. Halden Shane; E.J. Shane, our Chief Operating Officer; and our Chief Financial Officer, David Vanston. A telephone replay of today's call will be available until April 7, 2026, the details of which are included in the company's press release dated March 31, 2026. A webcast replay will also be available at TOMI's website, www.steramist.com. Certain written and oral statements made by TOMI may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements should be evaluated in light of important risk factors that could cause our actual results to differ materially from anticipated results. The information provided in this conference call is based on the facts and circumstances known at this time. Please refer to our filings with the SEC, including our 10-K for the year ended December 31, 2025, for a discussion of these risk factors. The company undertakes no obligation to update these forward-looking statements after the date of this call. I will now turn the call over to TOMI's CEO and Chairman of the Board, Dr. Halden Shane. Halden Shane: Thank you, Zach, and thank you for joining us for our 2025 earnings report today. I am pleased to share our full year 2025 results and more importantly, our perspective on where TOMI Environmental Solutions is headed. While 2025 was a year that tested our patience, it was also a year that validated our technology, deepened our customer relationships and positioned us to execute on a meaningful revenue opportunity in 2026 and beyond. I want to walk you through the highlights with optimism I generally feel as I review the progress our team has made. The SteraMist Integration System, which is our SIS platform, achieved its first commercial installation at a leading CDMO in June of 2025. The milestone proved our concept and by year-end, we had 4 fully operational SIS enclosure installations. We closed the year with a signed purchase contract of $500,000 for a global biopharmaceutical leader in December for integration into sterile manufacturing pass-through fill boxes. In the same month, a leading cell and gene therapy manufacturer adopted SteraMist iHP for a commercial scale pharmaceutical facility, a landmark win in one of the fastest-growing sectors of life sciences manufacturing. We were selected by NASA Johnson Space Center for a biosecurity operation, and they have continued to express satisfaction with our technology's performance. We deployed critical resources to support wildfire recovery efforts in the California communities, demonstrating both our civic commitment and our operational agility. We secured a bid from a leading university in Rhode Island for our CES technology. That project has been completed and awaits factoring testing. In the eye health sector, one of our most prominent new platinum customers onboarded in Q1 2025 has grown to 2 active facilities, each using 5 SteraMist machines for sterilization procedures. A third site in Berlin, Germany is set to commence trials in June of 2026. This customer also operates under an open monthly BIT Solution order, exactly the recurring revenue model we are building. Our OEM partnership strategy is gaining serious momentum. Relationships with PBSC, ESCO and Steelco are embedding iHP directly into clean room enclosures, pass-through hatches and biosafety cabinets at the point of manufacture, creating a scalable distribution channel that expands our reach without proportionately increasing our direct sales cost. We successfully completed our first collaboration project with partner PBSC, the iHP pass-through, which exceeded decontamination cycle speed expectations and generated strong customer feedback. We have already begun a second PBSC project. We expanded into the agriculture industry through our partnership with Algafeed, who has committed to acquiring additional handheld units before the end of 2026 in food safety. The FDA's late 2025 approval of hydrogen peroxide as a direct food additive for multiple uses, including as an antimicrobial and bleaching agent is a watershed regulatory moment for us. We are now engaged with significant partners, including Danone and Nestle and are actively winning bids, both directly and through service providers. SteraMist iHP is demonstrating real-world efficacy across a wide range of food processing environments. We are actively pursuing a food contract notification or FCN and have identified 2 specific opportunities to enhance our efforts on a tailored FCN for powdered infant formula, which comes at the request of an existing customer. Additionally, we are awaiting approval of our -4 label from the EPA for our cannabis industry and other requested markets in our Food Safety division. We also plan to submit a -5 EPA label based on the studies conducted with Plum Island as previously announced. A landmark USDA study confirmed BITs efficacy against the formed wing virus for agricultural biosecurity in honeybees. In 2025, SteraMist was honored with the Disinfection Decontamination Products Company of the Year Award by MedTech Outlook. We achieved compliance, recognition across 3 safety vendor management platforms and are in the process of adding a fourth to support 2 ongoing integration projects at a well-known Baltimore hospital. Our customer service team is actively transitioning our larger base to open order policies for support service offerings and BIT Solution orders. The backlog of our orders for support services is up 16%, and BIT Solution is up 24% in the first quarter of 2026 compared to the same period last year, providing early and compelling indicators of increasing recurring revenue trajectory we are building. To our long-term supporters of our technology and company, we are pleased to announce that we're finally receiving approvals from the HSE and the BPR submissions, we are now officially recognized in the United Kingdom, including Wales and Northern Ireland as well as in the Netherlands. The recent approval in the Netherlands strengthens our confidence that other EU countries will soon follow suit. Our heart monitoring device project is nearing completion and is scheduled for factory testing next month. We are preparing to introduce our iHP device to the U.S. markets through the appropriate regulatory pathways, including the FDA 510(k) premarket notification process once testing is finalized. The success of receiving the FDA 510(k) means that we'll finally be able to go after the entire ethylene oxide sterilization market. The global ethylene oxide market was a $5.29 billion market last year. Key growth factors is a rising demand for sterilized medical consumables and improved healthcare infrastructure, particularly for hospital, labs and surgery centers. Our technology is protected by more than 30 utility and design patents through 2038, and is deployed in over 40 countries. We are entering 2026 with operational momentum, growing recurring revenue and expanding global customer base and a clear strategy to drive sustainable growth. Our focus remains on execution, converting our pipeline into recognized revenue while continuing to advance the technology platform that makes all of this possible. The pipeline that we have is the strongest we've ever had. Our first quarter 2026 revenue is greater than our first quarter of 2025. I will discuss some details in my conclusion today, but our entire opportunity book for integration projects remains at $16 million. The entire SteraMist iHP opportunity book is currently at $20 million. However, first, I will now hand the call over to our Chief Financial Officer, David Vanston, who will provide an overview of the financial results for the full year ended December 31, 2025, compared to the same period in 2024. David? David Vanston: Thank you, Dr. Shane. I will now walk you through our full year '25 financial results. Our complete audited financial statements are included in the Form 10-K we filed with the SEC and in today's press release. Revenue for the year ended December 31, 2025, was $5.6 million compared to $7.7 million in '24. The decline was driven primarily by the timing of customer equipment purchases. Service revenue remained relatively stable year-over-year, which we view as an indicator of the durability of our installed base. Gross margin improved to approximately 55%, up from 46% in '24, reflecting lower cost of sales and a reduction of inventory reserves compared to the prior year. Total operating expenses were $6.9 million, down approximately 10% from '24, reflecting disciplined cost management. The net loss was $3.7 million or $0.19 per share, an improvement from a net loss of $4.5 million or $0.22 per share in 2024. We ended the year with approximately $88,000 in cash. Working capital was approximately $1 million, and we used $1.2 million in operating cash during '25, an improvement from $1.4 million in '24. We have taken steps to address our liquidity position, including a $535,000 convertible note raise during '25, a $20 million equity line of credit with Hudson Global Ventures entered into November '25, from which we have made our first draw approximately $94,000 in February '26. We've done an effective S3 shelf registration for up to $50 million, and we've engaged Bancroft Capital to explore additional financing options. I encourage investors to review our Form 10-K in full. I will now turn our call over to our Chief Operating Officer, Shane to discuss upcoming business highlights. Elissa Shane: Thank you, David. As Dr. Shane highlighted earlier in the call, we are actively focusing on open BIT Solution orders and annual service offerings, leading to a higher open sales book metric. This initiative stems from our growth in personnel and operations, along with our enhanced comprehensive training program that prioritizes continuous recertification. This strategy not only elevates customer standards for implementation and safety, but also has the potential to drive additional revenue and foster deeper product adoption in the future. The sales performance of support services and BIT Solutions sales are expected to exceed 2025 levels as evidenced by the increase of 16% in the backlog of orders for TOMI Support Services and an increase of 24% in BIT Solution backlog of orders for the first quarter of 2026 compared to the same period last year. Dr. Shane also provided updated information on 2025 announcements for just a handful of customers. This includes anticipated orders from our aquaculture customer, a completed Custom Engineered System, or CES, for the Rhode Island University, 2 iHP chambers for the biopharmaceutical partner, a second order with our partner in Malaysia, and a third location in Berlin, Germany for the eye health company, which we expect will proceed with the same standard operating procedures as the first 2 sites. We anticipate approximately $3 million in sales among these 5 customers and the trends in support services and BIT Solutions sales for 2026. It's important to note that this projected $3 million in revenue includes approximately $920,000 that overlaps with the $3 million integration pipeline announced on November 26, 2025. When factoring in our iHP deployment services, which generates over $1 million consistently, we can confidently state $6 million in revenue just among 5 customers and 3 revenue streams for 2026. To date, approximately $800,000 has been recognized from the November 2025 $3 million integration pipeline. This amount originates from 10 distinct customer orders. Of these 10, 7 customers have formally placed the order. We anticipate final approvals from the remaining 3 accounts, and we have added 4 more integration projects moving towards CapEx approvals since the November announcement, which is anticipated to contribute another $2.3 million to our active immediate integration project pipeline. Our East Coast distributor, ARES Scientific, has been instrumental in securing multiple university wins for our SIS platform. We're actively collaborating with VWR, Avantor, engaging with all case managers and overhauling marketing initiatives with them. We are prioritizing the ongoing education and engagement of our international partners, investing in them to promote their own long-term customer base instead of expanding into new regions. This strategic focus, coupled with recent regulatory approvals, is expected to support our growth and positively influence our revenue. For example, we have successfully received HSE approval and announced a preferred partnership with Total Clean Air, or TCA in the United Kingdom, where we recently completed factory testing on a custom engineered project that they brought to us. TCA has also invested in mobile equipment in quarter 1, 2026 to support their demonstration and service deployment capabilities. The food safety sector is also beginning to gain momentum, and we're receiving valuable referrals and case studies from our current clients. This industry uses our SteraPak product or requires custom applications, indicating that we are still in the early stages of realizing significant revenue. Additionally, there remains much work to be done on the regulatory front. For example, Nestle's pending expansion waits for other international registrations outside the ones received in the European Union. One of the most exciting developments comes from our long-standing relationship with Disinfectant Care, which has secured a service contract at a major dairy facility in Mexico. Following customer-specific testing and studies conducted on site, SteraMist iHP not only demonstrated its efficacy, but also showed the preservation of cheese quality, a key finding that strengthens our credibility and served as a valuable referral for other new customers. In summary, we are now making strides across a diverse range of sectors in the food industry. We are used in cheese, eggs, coffee, ice cream, consumer packaged goods, cannabis, nutrition, vertical farming, pet food, food ingredient suppliers, refrigerated foods and specialty ingredient suppliers. This is broadening of our market presence positions us well in the industry. Another significant area of focus for us, which we believe is expected to see returns in 2026 is the biological safety cabinet or BSC industry, particularly regarding our service providers and the SIS stand-alone system. We have developed the necessary accessories and protocols for treating all classes of cabinets, a progress required as we prepare for NSF approvals this summer. Currently, we have certified service providers utilizing our SteraMist iHP technology, including [ Triumvirate ] and MarathonLS on the East Coast as well as HEPA in Canada. On April 2, we conducted a key demonstration with one of the most recognized providers in the industry who operates multiple locations across the United States. Triumvirate hosted a webinar this quarter where they showcased how iHP technology outperforms key competitors in the market, including Spor-Klenz, Formaldehyde, and Vaporized Hydrogen Peroxide. This webinar was well attended attracting approximately 250 participants. Ultimately, our goal is to enable these service providers to compete effectively by incorporating iHP technology into their offerings for BSCs. They appreciate this innovation because it allows them to complete more treatments in a single day compared to older technologies. In addition, we maintain a robust intellectual property portfolio, CE and UL listings and are preparing to pursue USP 1072 material efficacy, which will expedite our sales process in the life sciences market. Furthermore, we are committed and continued to conduct customer-specific studies that help us secure contracts and maintain the client roster we hold, such as those highlighted today. I will now return the call back to our CEO, Dr. Halden Shane. Halden Shane: Thank you, EJ. I want to take a moment, maybe even more of a moment and express deep appreciation to the majority of our shareholders who supported us and have believed in our mission through our highs and lows. You are the majority and our long-term investors. Thank you for supporting our team and most importantly, believing in our technology and products. I believe at the start, we all knew this was not going to be easy because we're creating a new standard in many industries, and it's very hard to accomplish being undercapitalized makes it even harder. But we are on the verge of accomplishing the impossible. To the handful of naysayers, we believe we'll be able to earn your support, and we continue to execute a deliberate strategy to expand our operations and improve our financial performance. If not, then maybe it's the wrong company or you need to see a professional. It was a tough year for us from the financial perspective, but we remain focused the whole time on the future. In my eyes, there are no excuses, but were definitely roadblocks. Those roadblocks included DOGE, tariffs, working capital and recently the war. We chose to become the standard in the pharmaceutical, life science and university vivarium market. Unfortunately, some of the negatives of becoming a standard in that market is the perfect storm that occurred in 2025. Like there was panic buying behind the 2020 COVID, there was a lack of buying in the 2025 due to the reasons I stated above. Just recently received an e-mail from a major university that everybody knows on the West Coast of the United States. They were putting off a purchase until the end of 2026. The reason they had to postpone the purchase was because of DOGE, tariffs and political uncertainty, including the war. Also, that person stated there was an uncertainty maybe about her job. But no matter, we are a team, and we can overcome situations like that. And I can assure it's all temporary. The university will purchase this year even if it's a new professional in that job position. I did a review of our stock over the last 10 years. I choose certain points because it was approximately when we received our hospital health care EPA registration and had marketing in place. The key metrics are pretty amazing. In 2014, revenue was about $2.2 million. Our stock price was $2.16. Our major clients was a Panamanian hospital and a group in Mexico trying to sell to Mexican hospitals. In 2020, we had a banner year. Unfortunately, it was due to the pandemic. We did $25 million, demonstrated that we're capable of handling that volume of business. It did take away from the focus on the life science industry, pharmaceuticals, et cetera, but most of that was temporary panic buying. Our stock price was $4.57. In 2024, our revenue was approximately $7.7 million. Our client list was pretty impressive compared to 2014, and our stock price ended up at $1.05. The next year, 2025, our sales was $5.6 million. The sales that we could recognize as revenue, obviously, as you know, the sales were much higher, as we stated, provided in our pipeline with open significant orders for the first time moving across into 2026. As stated previously, we were confronted with tariffs, DOGE, political uncertainty. We closed the year with a stock price of $0.78. Now we're in 2026. It looks like our first quarter, which includes recognized revenue and open orders, could be $3 million or higher. Not sure how this ends up playing out later today. But for sure, we're beating our first quarter 2025 revenue in the first quarter of 2026. Our stock price is around $0.55. We estimate our revenue for this year will be around $12 million, bearing any unknowns. In 2020, we did a reverse split. Today, that $0.55 comes out to be about $0.0688 pre-split. So here's a short list of our current clients. Pfizer, Merck, Thermo Fisher, Fresenius Kabi, [ Allogene ], Boehringer Ingelheim, Catalent, CSL, [ Seqirus ], ITH Pharmaceuticals, Nestle Purina, Mead Johnson, [ Ziegler ], Simplot, Perdue AgriBusiness, Kindred Health, Mercy Health, Novant Health, St. Jude Children, Gila River Health Care, FDA, USDA, CDC, NIH, DHS, USAMRIID, [ Armitron ], ESCO, [ Telestar ], ServiceMaster, First Onsite, Avantor, Tecumseh. In retrospect, do you think a company like TOMI with that list is worth $0.0688 only? My point here is our stock price was $2.14 when we had 2 customers, 1 in Panama and 1 in Mexico. I remember a statement from a very successful person, Warren Buffett, "be greedy when others are fearful." That statement couldn't be true today about our company. I choose to run this company making a decision that many CEOs will never make. And that's because it hurts before it pays. I stop relying on easy sales and onetime equipment and build something from a more potent recurring control over how customers operate. The shift does not show up cleanly on quarterly charts. It shows up as a service revenue climbs and consumables replace capital purchases. Our customers stop buying, they start attending. That is where the game changes. We are not growing very fast, but we are growing very smart. Our company has moved from episodic revenue to embedded revenue before a deal closes, the relationship reset. Not every deployment creates a tail, more usage, more replacement, more service. This is not a product business anymore. It's a system. Recurring revenue isn't about stability. It's about control. Most executives say they want predictable revenue. What they actually want is predictable revenue without sacrifice. We took the hit upfront. Volatility increased, revenue looked uneven. Margins had to be rebuilt. But underneath the engine changed. Short-term policy facility is often the price of long-term dominance. Instead of building expensive infrastructure scale globally, we use distribution channels and partnerships to expand and reach without expanding costs. International revenue became a large slice of the pie without dragging down the balance sheet. That's not expansion. That's leverage we used. Scale without cost is the cleanest form of growth. At the same time, we wanted the business towards higher-margin solutions and service -- services. That's our razor-razor blade model, not louder, not last year, just better economics. The following current numbers could possibly change, but the point I want to make is that at this moment, our economics, of course, is first based on sales of equipment revenue, but our scaling and cleanest form of growth is solution sales, support service and iHP in-house service. Quarter 1 of 2025, we did $299,000 change in solution sales. In quarter 1 of 2026, at this moment, our solution sales are $429,413. As far as support services in quarter 1 of 2025, we had 73,279. Currently, in the first quarter of 2026, we have 253,390. In support services, these are such things as training, certifications, qualifications, validation cycle developments, installations, et cetera. And the third part, iHP service. In the first quarter of 2025, we had $439,386. Currently, with invoice and open orders, we have a total of $729,440. Margins improved, mix improved, the business became more resilient without announcing it. We were able to figure out how to achieve success by having money actually compound. Do you keep chasing revenue to reset every quarter? Or do you endure short-term pain to build revenue that compounds without permission. That decision defines whether you're playing offense or playing survival. We didn't eliminate risk. We repositioned it. In doing so, we created something more valuable than growth. We created dependency in a world chasing speed. We chose structure and structure wins. I can't take the credit for all this writing. I want to thank [ Joel Block ] for understanding how we have created this company and understanding the suffering we've gone through. Once again, I want to thank everyone for their long-term commitment and support and for a small team of 20 working endlessly to achieve all the goals. I also want to thank our creditors who've been super as we go through the stage of growth. At the end, the warriors that have helped us achieve success. Also, I'd like everybody to pray for our brave soldiers that are in difficult situation. To all that are listening, we're excited about what's ahead. Operator, let's open the call to questions. Operator: [Operator Instructions] And the first question today will be from [ Carl Wright from Lonetown Capital ]. Unknown Analyst: So first question, could you provide some more insight into the global opportunities you mentioned in the quarter? Elissa Shane: Yes. Hi, Carl. Certainly. So the first of the EU registrations on the submission we did came in, so we expect many other EU states to follow suit within the next upcoming months. And with that, we have been positioned with current relationships and distributors from Poland, Germany, Netherlands that have been around our technology and really educated to be able to take on the opportunities that have been waiting for just that registration. So just as the U.K. did once the HSE came through earlier in this quarter with bringing on TCA and quickly being able to fulfill our first custom engineered system, I see that happening with the other regions in the EU. Unknown Analyst: Got it. And then congratulations on bringing down operating expenses by 10%. Could you provide a little more color about how we should think about operating expenses in the business just going forward? Halden Shane: Sure. David, go ahead. David Vanston: Sure. I think the -- again, as Dr. Shane mentioned earlier, as we grow, we will have to invest into our operating expenses, but we already have leverage in it. So we do not expect to see a significant jump in our operating expenses. You should -- if you're going to model it, you would model it as a percentage of revenue growth. But I would say it would slightly decrease as we grow as a percentage. Operator: [Operator Instructions] The next question is coming from John Nelson. John is a private investor. Unknown Attendee: Several questions. First one, I'm one of those long-term investors that... Halden Shane: I know you are. Unknown Attendee: Is -- confident that over the years you're going to deliver. So thank you. Thank you for your... Halden Shane: And I thank you for your help. Unknown Attendee: First question is, you mentioned in the press release in '25 versus '24 revenues, customers deferring, capital expenditure, projects due to uncertain economic environment with the impact of tariffs and Middle East crisis. Are you seeing any signs of -- and you must be seeing some signs of it improving because of your first quarter comments. But are you seeing any of those customers that were deferring CapEx projects starting to move on them? Halden Shane: We are. Unknown Attendee: Okay. And then the BIT Solution revenues for '25 versus '24. Can you provide any details on the comparisons there? Halden Shane: Sure. Are you talking '24 versus '25 or '25 versus '26? Unknown Attendee: No, '24 versus -- '25 versus '24. Halden Shane: Okay. EJ? Elissa Shane: Yes. There's an increase in the solution between '24 and '25, and we're seeing that continue into '26. A lot of it has to go in with Dr. Shan's closing and this moved into open orders. And this came in tandem. About 1.5 years ago, we mentioned a big push on different support services. And having us be able to go on site and speed up the use of our technology and qualify different areas, we're able to predict how much solution they're going to be able to use. So that, in essence, is now finally starting to pay off with them purchasing the orders that they need in advance and just get into more of an auto shipment. So that's the goal, and it's starting to come into play. It started at the end of 2025, and it's moving into this year as well. So that's the big difference. And the 2, why it's referenced in the script that way is because they go in hand. Our support services and our BIT Solution are definitely together in trends. Unknown Attendee: Okay. And then are most of your customers in '25 using more -- significantly more BIT Solution than they did the prior year? Elissa Shane: Yes, definitely. I mean there's always some fluidity to it because you'll have our service provider shift -- if there's -- the fires produced a lot of solution in Q1, different decommissioning of buildings if they get large -- large service contracts, then this definitely increases our solution. So that's a little harder to predict. But when we're able to go in and qualify different spaces or similar to the eye health company where we know how and exactly where they're using the equipment, that's a little easier. But the Q1 of last year certainly was due to some emergency use. So there's definitely an increase in solution. Unknown Attendee: Okay. And then on -- can you provide any more detail as far as how the application would be used to deal with the wing syndrome for honeybees? Elissa Shane: So we do -- we have the study, and we've done a few other lab type studies, and it's definitely a good use, and we're looking and are still speaking with a local university on trying to get live use case. Once we're able to reestablish that and actual application use, it will proceed from there. Halden Shane: So John, I've reached out to the associations, the honeybee associations, domestic, globally. I've reached out to the Board, and I've yet to get a reply and with overwhelming evidence of what we can do and how we can help the pollinators around the world. And right now I'm reaching out to the Department of Agriculture to see if they can help or at least get this technology in front of somebody that wants to make a change. Unknown Attendee: Okay. And then you had mentioned briefly the use for treating marijuana plants? Halden Shane: Right. Unknown Attendee: Is it mites -- or is it for the powdery mildew? Halden Shane: It's for powdery mildew funguses on the plants. We have an EPA label we're trying to get from the EPA just for that. Is that - 4, EJ? Elissa Shane: Yes, that's correct. Unknown Attendee: Okay. And -- but currently, you're not getting any revenues yet from that particular type of usage, correct, because of the need for the EPA label? Halden Shane: I think, EJ, you can answer that. I think there were some... Elissa Shane: There's a handful of customers. With them, it's scaling up. And right now, they're doing a lot of handheld treatments, but we do have a good partner that is promoting our product and even some international interest on the treatment. But we do have some wide use, which is great, and that usually is the first step. Unknown Attendee: Okay. Good. And then one thing that I've been curious about is and whether you've explored or thought about exploring it is uses of SteraMist in the military. And I was thinking about it with regards to the Middle East crisis with all of the Navy ships and the -- in the Gulf and how people are crowded together. It's got to be a potential breathing around for germs and potential infections transfer. So has that -- have you explored that at all or ever talked to the Navy about possible usage of SteraMist? Halden Shane: So the Navy has been -- are they still a customer, EJ? Unknown Attendee: No. Well, are they -- if they are a customer, that's new to me, but have you explored uses with it? And if you have, what response have you gotten from the military? Halden Shane: I think we're a little too small and overwhelmed with everything to go after that at the moment. But I believe there was a testing center that the Navy was involved with. It's a great idea and especially with the new COVID variant that seems to be running around and came from the Netherlands to the U.S., I'm sure that you're right of the close proximity on these ships, they do need to get a disinfectant. And I think this is something that we're going to go look into immediately. Elissa Shane: And we have completed some request for information on the grant government site for military vehicles and how to best implement SteraMist. So they are creating information that way, but that does take quite a bit of time. But we do complete those on a regular basis to get the [indiscernible] out there. Unknown Attendee: Okay. And I don't know if there is a particular certification required, but I was thinking the same thing about SteraMist application possibilities for military hospitals or the VA, which, as we know, has a number of problems with infectious disease transfers. Halden Shane: I think they're waiting for me to answer, John. Elissa Shane: Sorry, I don't -- not anything specific. I think [ almost ] to that. We do have a closed service provider been into military housing, but too early to speak about. Unknown Attendee: Okay. And my -- one of my final questions was going to be on scale up. If you do get a significant amount of new orders, how easy or difficult that would be for you? Halden Shane: Well, it's -- again, we probably need to raise some capital to scale up significantly. The 20 people we have do a hell of a job as a team. We were able to handle COVID pretty much with the same amount of employees, and we did really well. So I think we could handle the immediate scale up depending upon the equipment, but we definitely need to go ahead and increase the size of the company going forward in lots of divisions. Unknown Attendee: Okay. Good. And then last question was a number of -- have you actually total them up as far as the number of new customers added net in '25 versus '24? Halden Shane: I haven't -- David, EJ, have any of you done that? David Vanston: No. Elissa Shane: Not based on new customers, no. Definitely -- individual orders between the years, but... Halden Shane: I think we'll do that, John, and I'll talk about it on the call coming up soon in 6 weeks. Unknown Attendee: Okay. I mean you definitely have listed a number of new names that I hadn't heard on previous calls. So -- but I was just curious about... Halden Shane: Yes, I know. And I left out half of them, too, but it was impossible to go through them all. It's just frustrating to see what happens to the stock and what occurs with the difference. So the point, I think, was well made, and we'll see what goes on. Unknown Attendee: Okay. And then as far -- you've done an excellent job of adding significant distributors, both domestically and internationally. Do you -- is that still a significant part of efforts going forward to add even more distributors? Halden Shane: Absolutely. We're in talks right now with many. Operator: There are no other questions at this time. I would now like to turn the call back to Dr. Halden Shane for closing remarks. Halden Shane: Okay. I just want to thank everybody again and wish everybody a happy Passover and happy Easter. Thank you, operator. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation. Halden Shane: You too. Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to the Charlotte's Web Holdings, Inc. 2025 Fourth Quarter Conference Call. [Operator Instructions] This call is being recorded on Tuesday, March 31, 2026. I would now like to turn the conference over to Cory Pala, Director of Investor Relations. Please go ahead. Cory Pala: Thank you, and good morning, everyone. Thank you for joining us today for Charlotte's Web Q4 2025 earnings conference call -- provide some color around the recent developments around BAT transaction, the Medicare opportunity, regulatory momentum and other progress. Afterwards, we will take questions from our analysts. As always, before we begin, please note that certain statements made during this call, including those regarding our future financial performance, business strategy and plans, constitute forward-looking information within the meaning of applicable security laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause actual results to differ materially. We direct you to review the cautionary language in this morning's earnings release as well as the risk factors and other important considerations that are detailed in our regulatory filings, particularly in our most recent Form 10-K report. During the call, we will also refer to supplemental non-GAAP accounting measures, including adjusted EBITDA, which do not have standardized meanings prescribed by GAAP. Please refer to the earnings press release for descriptions of these measures and reconciliations to their most directly comparable GAAP financial measures. And with that, I'll now hand over the call to Charlotte's Web's CEO, Bill Morachnick. William Morachnick: Thanks, Cory. Good morning, and thank you for joining us today. I want to say right up front that this is not business as usual for Charlotte's Web. We've had several key announcements that have tremendous positive impact on our business that I'm excited to share with you. So let me also add that this includes another quarter of demonstrated progress for our push towards achieving scalable profitability. But first, let me start with the most recent development. Last night, we announced a financial transaction with British American Tobacco in relation to its existing convertible loan note. This transaction has 2 primary components. First is the conversion of BAT's outstanding $55 million convertible debenture, plus approximately $10 million in accrued interest in the common shares of Charlotte's Web at a conversion price of CAD 0.94 per share. This eliminates our largest balance sheet liability entirely and avoids approximately $3 million in future annual interest for the next 3.5 years. The second component is a new equity investment of $10 million through a private placement. This is fresh capital coming into the business to support the execution of our key strategic initiatives, including our upcoming participation as a leader in the CMMI Medicare pilot programs. So in total, BAT's combined equity commitment under this transaction is approximately $75 million. And following completion, BAT will hold approximately 40% of the company on a non-diluted basis. Among other things, this transaction provides clarity and stability around BAT's existing investment decision. Let me also provide some additional background on why we believe this is the right transaction at the right time and appropriate in the current circumstances. The original debenture was issued in November 2022 at a conversion price of CAD 2 per share. Due to several issues, including the ongoing federal regulatory delays around consumable hemp, it was extremely unlikely that BAT would voluntarily convert its debt anytime soon. If this debt burden were left unaddressed and continued to accrue interest at 5% per year, the company would have faced an additional $12 million or more in aggregate interest from now through the maturity date in November 2029. This transaction eliminates all of that. The net effect is a dramatically simplified equity-based capital structure. We go from carrying significant debt obligations to a clean balance sheet with a well-capitalized long-term investor. The additional $10 million in fresh capital strengthens our working capital position and provides flexibility to pursue multiple exciting growth opportunities. All right. So now let me turn to our most exciting recent growth opportunity the Center for Medicare & Medicaid Innovation pilot program, or CMMI. Under the CMMI pilot program, for the first time, seniors gained access to science-backed CBD products through a federally authorized Medicare pilot, and Charlotte's Web is positioned to be a participant within this program. Just 10 days ago, CMS, which is the Center for Medicare and Medicaid Services issued additional guidance that significantly clarifies and strengthens this opportunity. CMS established the Substance Access Beneficiary Engagement Incentive or Substance Access BEI, which will be the specific mechanism through which the pilot will operate. Notably, the guidance confirmed that the hemp-derived CBD products, including nonintoxicating full-spectrum products containing up to 3 milligrams per serving of naturally occurring THC are eligible under the program. This means our core portfolio of full-spectrum CBD wellness products qualifies under this federally authorized program. Under the Substance Access BEI, participating health care organizations primarily accountable care organizations, or ACOs, and oncology providers may purchase eligible hemp-derived CBD products for the Medicare patients with up to $500 per beneficiary annually available. To provide some clarity, it's important to note that Medicare does not directly reimburse these products. Rather, the ACO purchases hemp CBD products directly and furnishes them to its patients. The economic rationale is that if these products contribute to lower utilization of higher-cost services, the ACO may benefit through reduced total cost of care. As a result of that, the ACO may have an incentive to support adoption of the Substance Access BEI. Participants in the ACO REACH Model and the Enhancing Oncology Model are anticipated to begin offering the Substance Access BEI beginning April 1, which is tomorrow with the ACO LEAD Model expected to follow in January 2027. I want to be really clear about what this means. This represents an established health care integration pathway. It operates with CMS authorization, physician oversight, patient support through the program's partner Realm of Caring and structured outcomes data collection. To facilitate the pilot, Charlotte's Web will offer products intended to support eligible patients through a secure online health care portal. The initial phase is focused on senior patients receiving care through the ACO REACH provider. Over time, this type of model has the potential to be applied more broadly within the Medicare population, which currently includes approximately 67 million beneficiaries. And looking ahead, there is a second potentially much larger Medicare pathway development. In November, CMS proposed for the first time, allowing Medicare Advantage plans to be included -- to include hemp-derived CBD products in their benefit design. That is a separate program from the CMM pilot and it represents a potential expansion of CBD access into the broader Medicare Advantage system, which covers roughly half of all Medicare beneficiaries. The timing of additional details for this program are still being finalized, but we remain confident that our quality standards and compliance infrastructure position us well for this potential opportunity. All right. Let me take a moment now to talk about the federal regulatory status. Despite ongoing challenges, recent federal policy developments are showing progress for hemp-derived CBD. Congressman Morgan Griffith, who's the Chairman of the House Energy and Commerce Subcommittee on Health, which oversees the FDA, advanced the Hemp Enforcement, Modernization and Protection Act known as the Hemp Act. This proposed legislation would establish a science-based federal framework for hemp-derived products under the FDA oversight. We are actively working with our one hemp partners through the markup process. The Hemp Act is expected to proceed through regular order in the House Energy and Commerce Committee this year with potential pathways for advancements for broader legislative vehicles, including Congress' continuing resolution in September. At the same time, we recognize that multiple legislative approaches to hemp regulation are under active consideration in Congress. And we remain actively engaged with policymakers and stakeholders across these efforts and will support the most effective path forward to achieve a durable science-based federal framework. It's clear that a broader federal solution is critical. Recently issued Substance Access BEI guidance explicitly permits hemp-derived CBD products containing up to 3 milligrams of THC per serving under the CMS program. This would certainly seem to be a direct signal from the federal government that full spectrum products are considered safe and appropriate. Okay. Now let me turn to DeFloria, which is one of our most compelling long-term potential opportunities outside of our core consumer business. This is our collaboration with Aragen Bioscience and British American Tobacco. Last year, DeFloria received FDA clearance to proceed with Phase II clinical trials for its investigational new drug. This botanical IND is for the treatment of irritability associated with autism spectrum disorder. It represents a natural alternative to pharmaceuticals that are often poorly tolerated. It uses our proprietary full spectrum CBD extract derived from a patented hemp cultivars and we believe it represents the most advanced cannabinoid drug program utilizing the FDA's botanical drug pathway. Building on favorable results from Phase I, which established the dosing parameters for the Phase II program, DeFloria has been actively preparing for entry into Phase II clinical trials. Preparations are substantially advanced, and the program is expected to initiate midyear, subject to the customary development activities and resource alignment. Phase II consists of multiple studies across distinct patient populations. These studies will evaluate safety and tolerability and provide early signals of therapeutic effectiveness to inform a subsequent Phase III program. A reminder, as stated in this morning's press release, the potential strategic value to Charlotte's Web shareholders is significant. Clinical advancement through FDA regulated pathways validates the therapeutic potential of our proprietary genetics and strengthens the scientific foundation underlying our entire consumer business. We also hold exclusive commercial manufacturing rights to ultimately receive FDA approval which is clearly a significant long-term revenue opportunity. And we currently own approximately 1/3 of DeFloria, providing us with direct exposure to massive value creation as the program advances. With that high-level update, I'll now ask Erika to walk us through the Q4 and full year financials, and I'll return after her remarks to discuss our business execution and outlook. Erika Lind: Thank you, Bill, and good morning, everyone. As Bill noted, our 2025 financial results reflects 2 years of disciplined execution to stabilize the business return to growth and fundamentally restructure our cost base to drive to profitability. Let me walk through the key metrics, and I'll keep this concise so we can focus the balance of our time on the strategic discussion. Consolidated net revenue for Q4 2025 was $13.3 million. Q4 delivered a strong sequential rebound of 15.8% recovering from the Q3 dip driven by the planned B2B restructuring. Q4 also came in up 4.7% versus the prior year's $12.7 million in revenue. Growth was driven by continued direct-to-consumer momentum across our diversified botanical wellness portfolio, including expanded sleep and functional gummy mushroom offerings, the Brightside low-dose hemp THC gummy line and new minor cannabinoid formulations. Gross profit for Q4 was $5 million with a gross margin of 37.5%, and I want to provide important context around this number. The reported margin was significantly impacted by a nonrecurring $1.3 million inventory charge related to the disposal of legacy gummy products that did not meet our quality standards, which alone reduced gross margin by about 10 percentage points. Excluding this item, the underlying gross margin performance improved meaningfully. In-house manufacturing, net of onetime inventory charges contributed approximately 400 basis points of margin benefit in the quarter, validating our vertical integration strategy. We also saw improvements in the B2B channel mix following our Q3 restructuring driven by a reduction in trade spend. Our direct-to-consumer promotional efficiency improved as we shifted from broad discounting to targeted cohort-based campaigns. We expect gross margin to normalize toward our historical 50% range as we lap transitional items and as production efficiencies continue to scale. Total SG&A expenses were $10.6 million in Q4, consistent with the prior year and slightly higher than Q3. The quarter included several discrete nonrecurring items that impacted comparability, including a $600,000 state sales tax audit accruals and certain contract termination and timing adjustments. Excluding these items, our underlying operating expense base remained consistent with the structurally lower cost profile established throughout the year. Total net loss for the fourth quarter was $11.4 million or $0.07 per share compared to a net loss of $3.4 million or $0.02 per share in Q4 of 2024. Looking at full year results. Consolidated net revenue of $49.9 million increased 0.5% year-over-year, modest but significant as it was our first annual revenue increase since 2021. Full year SG&A expenses were $42 million, a 21.2% decrease from $53.3 million in 2024. This reflects the successful execution of our comprehensive cost optimization strategy, which has now reduced annualized SG&A by approximately $33.6 million or 44.5% over the past 2 years. We believe our cost restructuring is now largely complete. Going forward, we expect quarterly SG&A for the core business to remain in a normalized range of approximately $10 million to $11 million. Excluding anticipated launch spend for the previously mentioned Medicare coverage program. Net loss for the full year was $29.7 million or $0.19 per share compared to $29.8 million or $0.19 per share in 2024. This year, the full year net loss included a noncash change of $6.4 million in the fair value of the company's debt derivative and our investment in DeFloria. However, notably, our operating loss for 2025 improved by more than 36% to $20.3 million, a significant improvement from the $32 million operating loss in the prior year further demonstrating the impact of our cost restructuring. Turning to our cash flow and liquidity. Fourth quarter net cash used in operating activities decreased to $1.9 million compared with $5.5 million in the prior quarter and $1.8 million in Q4 of 2024. For context, quarterly cash change reflects the timing of cash outlays relative to accrual-based expense recognition so there is a natural variability quarter-to-quarter. In addition, our third quarter expenses always experienced a greater cash outlay than other quarters due to the timing of business insurance renewals. That said, the Q4 result demonstrates continued progress. Cash and working capital as of December 31, 2025, were $8 million and $21.7 million, respectively. It is important to note that this cash position does not reflect the BAT private placement, which adds $10 million in fresh capital, strengthening our liquidity and working capital position heading into this next critical phase. Before I hand it back to Bill, I do want to underscore the financial significance of the BAT transaction, which fundamentally changes our financial position. The transaction is transformational for our balance sheet eliminating material liabilities and adding fresh working capital. We are evolving from a company carrying significant debt obligations into one with a clean equity-based capital structure and a highly aligned strategic partner with a stable operating base, improving gross margins from in-house manufacturing and the capital to pursue the growth opportunities now emerging, we are well positioned for the next chapter. With that, I'll turn the call back to Bill to discuss our business execution and outlook. William Morachnick: Thanks, Erika. All right. So let's bring this all together. 2025 was a defining year for Charlotte's Web. We stabilized the business. We returned to annual revenue growth for the first time in 4 years, reduced our cost base by 44% over 2 years. Launched our boldest product innovations to date and laid the operational groundwork for what comes next. And I want to share one more data point that speaks directly to operational readiness. This month Charlotte's Web completed its annual NSF dietary supplement good manufacturing practices audit and received zero findings. For those unfamiliar, that's the gold standard of manufacturing compliance for dietary supplements. And achieving zero findings is an exceptional result. It reflects the discipline and the rigor of our quality team and validates the manufacturing infrastructure that underpins everything we do, from the products on our website to our qualification for federal health care programs. When we say Charlotte's Web is built to meet the standards that regulated health care requires, this is exactly what we mean. Let me share with you quickly what excites me about what's ahead. The CMMI Medicare pilot program, the presidential executive order, bipartisan legislative momentum for a rational federal framework, the advancement of DeFloria through FDA clinical trials and now a clean balance sheet with a well-capitalized strategic partner standing behind us. These are not speculative possibilities. They are real catalysts unfolding now that have the potential to fundamentally transform the scale and scope of our business. We built Charlotte's Web for moments exactly like this. Our brand, our science, our manufacturing capabilities and our regulatory engagement have positioned us to be at the forefront of the hemp industry's integration into mainstream health care. I want to take a minute to thank all of our shareholders for your continued confidence and patience. I know this has not been an easy ride, but the work of the past 2 years is now converging with the most favorable external environment our industry has ever seen, and we intend to capitalize it. Operator, we're now ready for questions from our analysts. Operator: [Operator Instructions] First question comes from Pablo Zuanic from Zuanic & Associates. Pablo Zuanic: Good morning, everyone. Look, I obviously have a lot of questions that I want to ask here given all the very positive news and of course, positive performance. Let me start with the CMS program. A few questions there. Precisely, when we talk about participating centers, what are these participating centers in the CMMI program? Which type of companies, are these established doctor offices or are these new setups, can Charlotte's Web own some of these participating centers. If you can give more color in terms of what are the participating centers in the CMMI program? Mindy Garrison: Well, good morning, Cory. This is Mindy Garrison here with Charlotte's Web, and thank you so much for your question. The participating centers are health care organizations that are already enrolled in specific CMS Innovation models. There are 3 actual models at play right now. The first 2 are ACO REACH and Enhanced Oncology Model or the EOM program, both of which can begin offering CBD, the Substance Access BEI hemp-derived products starting tomorrow, April 1. The third is an ACO LEAD Model, which is expected to launch in January of 2027. So these are not actually new facilities created for this program, they are established physician practices, health care systems, all combining together under an accountable care organization that are managed -- managing Medicare patient populations. The initial cohort under ACO REACH and the Enhanced Oncology Model, address approximately 2 million Medicare beneficiaries. Over time, as additional models come online, particularly the LEAD model and potentially the Medicare Advantage model, the addressable population will expand significantly towards a broader 67 million Medicare beneficiary base. And please excuse my mistake Pablo. Again, I really appreciate your question. Pablo Zuanic: And then just a follow-up on the same subject. Who is going to fund the $500 per patient per year under the BEI. Is that Medicare? Or is someone else funding that? And as part of that question, I'm assuming that the participating center will issue a prescription and the patient will go on your portal and order the product from you. So if you can just clarify in terms of who funds the $500 and then the logistics in terms of how the patients can access the product. Mindy Garrison: All right. Thank you, Pablo. Another really great question. And there's an important distinction here in that Medicare is not directly reimbursing these products. The participating ACOs and EOMs that I just talked about a few moments ago, will purchase the eligible hemp-derived CBD products using its own funds and furnishing them to its Medicare beneficiaries as part of their broader care strategy. The economic rationale for an ACO to participate in the Substance Access BEI and the hemp-derived products is that it will contribute to better patient outcomes, lower total cost of care, reduced hospitalizations, fewer high-cost interventions and lower pharmaceutical utilization. So they benefit through the savings under the CMS model. So the $500 per beneficiary annually represents a maximum of amount that the ACO can invest per patient, funded from the ACO's own program economics, not from a Medicare fee-for-service system is a value-based care incentive, not a traditional reimbursement. To get to your second question about logistically how will this work? Charlotte's Web has built a portal specifically for ACO and EOM programs to access the hemp-derived products that will be eligible under the Substance Access BEI program. They will order the products as if you were issuing a subscription to a pharmacy, except it would be through our portal. And those products would then be drop shipped to the patient's home. So it is a little bit different in that it's actually not a prescription. It's a recommendation from a health care provider to begin utilization of hemp in the service of helping their patients become healthier and live healthier lives. Pablo Zuanic: That's very helpful. And then on the same subject, what revenues does Charlotte's Web will expect from CMMI pilots in 2026 and 2027. I'm not sure if you can talk about guidance here. And as I ask that question, I wonder whether the participating centers will be able to buy from other companies or is Charlotte's Web were the only one pretty much in the pilot. But any guidance the company can give would be helpful. William Morachnick: Yes, sure. Pablo. So I think the way to think about it without giving you a ton of specificity around modeling is this is really early days in the pilot program. So I think I mentioned earlier, it literally starts tomorrow. For that TAM that Mindy just referenced that 1.7 million, 1.8 million folks in the ACO, the patients in there and then another couple of hundred thousand in EOM. I don't foresee massive revenue opportunity for, let's say, the balance of this year. We have to build out the education for the participants. I'm going to frame it as the channel participants, which are these medical and health care practitioners and networks. So they've got to understand the value proposition that CBD represents. They've got to get comfortable with it before they're going to make the recommendations that Mindy referred to. So it's going to be a gradual build over the next 12, 18 months. And we're really positioning ourselves for how this program scales out. So we'll see an uptick, say, in that 2 million TAM over coming quarters, not a whole lot initially. And then as the Medicare Advantage program progresses, then you're talking about a very large number, I think I referenced it in my earlier talk there, Medicare Advantage is about half of the 67 million participants in overall Medicare so that turns into a very large TAM. But we've got to see the specifics around that program and how it's going to flow and what the economics are. In terms of who else is participating, there is no exclusivity. But presumably, there are going to be continuing standards that have to be followed for anyone participating in the program around quality, around safety, around efficacy. So we really like the way we're positioned because we believe we're at the highest standard as that goes. And we've got a really fulsome robust go-to-market strategy immediately to do the kind of training that I was referring to earlier as well as establishing the portal for both the consumer and the health care practitioner. So we feel very confident about the way it's going to scale, but I think it's just -- it's too premature to start modeling around that for your purposes. Pablo Zuanic: No, that's great color, Bill. And one last question on the CMS program. How is the CMS program going to be reconciled with the potential hemp ban that's going to become effective November 12, 2026. William Morachnick: Yes. You always ask the hard question, Pablo. So here's where it stands at the moment, as you're aware, but for all the folks listening. At this current time, we've got the "Hemp ban" that could trigger in November of this year. That's the way that the language in the Ag [ Appropriations ] Bill that was inserted in the continuing resolution in the fourth quarter of last year [ reads ] such that if we're capped -- if the industry is capped at 0.4 milligrams of THC per container, it basically demolishes the CBD industry as we know it. At the same time, talk about cognitive dissidence that makes your head blow up. We are deploying a program for seniors that has a 3-milligram THC cap per serving. So dramatically different scenarios. We're working very closely through our resources in Washington, D.C. and beyond to come up with a very meaningful science-backed approach to where these things can get synchronized to where there is federal regulation that has a consistency that can operate across the country that can deliver the level of efficacy that's required. So at this moment in time, it exists in a way that you framed it, if I may, that we have a potential ban on the horizon. At the same time, we're deploying a program to address seniors that have dramatically different product components to it. So we have to see how the next several months play out but we're feeling good and confident that the Griffith's bill as well as the way the FDA is looking at things is going to land in a place that is much more like the Substance Access BEI is trending as opposed to the language that we saw at the end of last year. Pablo Zuanic: I guess, Bill, before I move on, maybe just a quick follow-up. I mean, would there be a concern that maybe the participating centers will wait to have clarity on the ban before they start getting involved or not necessarily? William Morachnick: It's a fair concern and I can only share with you in the conversations that we've had thus far because we've already done our outreach to potential participants. So ACOs and EOM practices, we're seeing -- I would categorize it as a reasonably high level of enthusiasm for what we have to offer. They're very intrigued by the power that CBD brings to their patients for those need states that we talked about, that their patients suffer to a large degree from. So lack of sleep, anxiety and pain, and they're looking at CBD with a very high level of curiosity and open mind in this of how this can be a phenomenal alternative, both from a cost perspective and an efficacy perspective. So again, I think it's too early to know if I was to say, I don't have a big enough sample set to say where that will go directionally. But early indicators are leaning much more towards we want to get on board with this now because we want to provide these solutions to our patients as soon as possible. Pablo Zuanic: That's good. Look, I'll just move on to some questions about the quarter. Obviously, congratulations on the 16% quarter-on-quarter sales growth. Give more color in terms of what drove that. I know you had something in the prepared remarks, but more color in terms of what drove that? And is that sustainable? Erika Lind: Pablo, this is Erika. Thanks for the good question there. So obviously, for the increase that we had, there were several factors. We have had continued D2C momentum because our portfolio continues to diversify, and we're doing much more targeted campaigns to broaden the top of the funnel. We also purposely restructured our B2B channel so that we removed a lot of the underperforming accounts. And we also think because of that, we've got some retail customers who transitioned to our D2C portal, which has been very positive for us. And then Q4 also benefits from a strong holiday season as with many companies. So it's really the combination of those things that produce really the strongest growth we've had in quite some time. Pablo Zuanic: And then just in terms of your balance sheet, obviously, I'm looking here at the year-end '25, right, $8 million cash, you still have negative -- I mean, negative operating losses. But you do have the BAT transaction now. Maybe just to address on a pro forma basis, the state of the balance sheet and your path forward on cash management and also cash flow generation, specifically I'm asking CapEx there. Erika Lind: Sure. And I appreciate the question, and I -- and the chance to really provide context because I know it's something that people are really sensitive about right now. So obviously, we had $8 million in cash to end the year, but it does not reflect that $10 million in fresh equity through the private placement. That placement clearly significantly strengthens our liquidity and cash position. So -- but I think it's really as important to note that this conversion eliminates our $55 million in the debt principle plus the $10 million in interest and prevents us from having to pay another $12 million for the balance of the note. So that really gives us a lot of optionality. On the operating side, as you know, we worked really hard to rightsize this business. Over the past few years, we've reduced OpEx by 44.5%. That's significant. And obviously, we're going to maintain that cost discipline because that's the norm for us now. We will have some launch costs related to the Medicare pilot program, but our leaner cost structure, improved margins, the steady consumer demand that we're seeing and the additional working capital for the BAT transaction, really strengthens everything for us. And I do want to stress to shareholders that the completion of this transaction requires approval from the majority of the shareholders. BAT obviously does not vote on it. So the decision rests entirely with the independent shareholders. And I strongly want to remind everyone that their vote matters. I encourage you to enter your vote as soon as you receive your proxy, it only takes a minute online. And that would make a huge difference for us and our consumers. Pablo Zuanic: Right. And on the same subject, in terms of the BAT transaction, why did management and the Board think this was the right time to do it at this point? Erika Lind: I'll expand a little bit on Bill's commentary on that. Obviously, we have some extraordinary opportunities ahead of us. And the Medicare pilot programs DeFloria FDA pathway require us to be properly capitalized. We have to be unencumbered by debt, and we have to be positioned to execute. In this case, the opportunity drives the transaction. I -- to talk numbers a little bit, I do recognize that the conversion price is lower than the original CAD 2. But the implied enterprise value per dollar of revenue is actually higher today than it was in '22 and I think it's important for people to understand that. The lower share price reflects the company's reduced revenue base and the industry headwinds. It does not give preferential treatment to BAT. The current transaction is struck at a higher implied EV to revenue multiple at about 3.5x compared to the original '22 deal, which was at about 2.1 to 2.5x. Even though the share price is lower, the enterprise value per dollar of revenue is actually higher today. BAT is paying more per dollar of revenue and not less. And I think that's a reflection of CMMI and the DeFloria catalyst that didn't exist back then. I also know that there are some dilution realities to this. The debenture reduces the debt but it's -- the conversion reduces the debt, but that's not new money. And in terms of enterprise value, that's approximately neutral. The market capitalization increase while debt decreases by the same amount. And what fundamentally changes is the company's risk profile. The debenture overhang, the interest burden and the refinancing risks are all eliminated. This clean balance sheet all else being equal, justifies a lower risk premium, which means the same enterprise value translate to a higher fair value for equity holders over time. And the private placement represents the incremental dilution from new capital, which is approximately 5% of post-conversion shares. We believe that is a modest cost for meaningful working capital at a critical time to capitalize on our growth opportunities. Pablo Zuanic: Yes. And the only comment I would make is that, obviously, I agree that this was a source of overhang, right? I mean the stock -- your stock is up 14% up today. So seems that it was an overhang. So the clarity is helping and investors are responding positively to that. The last question on the subject. BAT now is going to own around 40% of Charlotte's Web, right? We know that BAT also own stakes in Organigram. They own stake in Sanity Group, which was acquired by Organigram. Can BAT own more than 50% of Charlotte's Web at some point or are there restrictions given that they are U.K.-based. Erika Lind: So a couple of important points on that. There are no restrictions based on the fact that they're U.K.-based. The investment is made through BT DE investments or what we call BDI. And that's a Delaware incorporated subsidiary. They will be the direct holder of the shares. However, in the agreement, there is a part 49% cap of ownership and anything beyond that would have -- would be a subject to the applicable securities laws, TSX rules and also potentially shareholder approval depending on the circumstances. So we did build into the agreement of 49% cap that protects us from that. Anything else would have to go through some measures. BAT has been very supportive. They're a noncontrolling strategic partner. And there's a governance framework in the investment rights agreement that's designed to preserve the Board independence and the management autonomy regardless of BAT's ownership. Pablo Zuanic: Right. Understood. Look at the very last question. There were some headlines this week about the FDA submitting a CBD Compliance and Enforcement policy to the White House for review. What do you expect from this week's OIRA meetings? William Morachnick: It's -- I haven't been successful thus far, Pablo speculating where these things are going to land. I want to give this a little bit of time to see how it plays out. We're really head down focused on this transaction was just completed and how we ramp up our readiness for the CMMI program. There's just so much noise in the system right now between federal regulatory, state regulatory, CMMI versus the other things that you brought up. I want to give this a beat to play out a little bit. We've got contingency plans under any potential outcome. But I think it's just -- it's too early and too speculative right now. Pablo Zuanic: Right. And if I may just ask a quick follow-up, right? So I mean, given the way the headline reads, CBD compliance and enforcement policy, is this something to make it consistent with the CMS program? Or is this something to address this hemp ban in November because I guess, I'm confused in terms of the timing and what does it relate to specifically? Because it has repercussions for both, right, in theory, for the CMS program and for what the ban may be in November. And I know maybe it's too early to say, but thank you. William Morachnick: Yes. I mean you're raising the root of why I have an upset stomach most mornings trying... Cory Pala: Bill, your line is disconnected or muted. I'm in a different office, so I can't tell if they've completely disconnected. Pablo, are you still there? Pablo Zuanic: Yes, I am, but we can leave it for a separate follow-up call if you want, Cory. Yes. Cory Pala: Yes. At the end of the day, it's too soon to know exactly where these meetings are going to go in the next few days. We are encouraged that they're occurring but too soon to speculate on exactly where that's going to go. But at the end of the day, we are seeing a convergence of policy. So that's encouraging. Okay. Well, then with that, we seem to have technical difficulties on our end, but that was your final question, I think. So we'll close it off here. I would like to thank everybody for participating on the call today. Pablo, thanks as always for your in-depth questions. And we will look forward to speaking to you all again in the coming months. Thank you. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koil Energy's Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] As a reminder, this call is being recorded today, Tuesday, March 31, 2026. A detailed disclaimer related to Koil Energy's forward-looking statements is included in the press release issued Monday morning and filed with the SEC. It is also available on the company's website, koilenergy.com or upon request. A reconciliation of non-GAAP financial measures used in the press release and on today's call is included in the press release and on the website. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. Koil Energy also undertakes no obligation to revise any of its forward-looking statements to reflect events or circumstances after the date made. At this time, I'd like to turn the call over to CEO, Erik Wiik. Erik Wiik: Good morning, everyone. Thank you for joining us today. In this briefing, I'll be presenting an overview of our financial performance for the fourth quarter and the entire year of 2025. I'll also share an update on our strategic road map and discuss how Koil Energy is positioned for further growth. Finally, I'll be happy to answer any questions you may have. I'm incredibly proud of the Koil Energy team for delivering an outstanding quarter and achieving a new milestone in our growth journey. In the fourth quarter, we achieved a revenue of $7.3 million and EBITDA of $700,000, resulting in a 10% margin. This represents a 22% year-over-year increase in quarterly revenue and 14% sequential growth from the third quarter of 2025. Koil Energy is growing again. For the full year 2025, we achieved revenue of $24 million, marking a 6% year-over-year increase. Adjusted EBITDA was $1 million in 2025 compared to $3.5 million in 2024. The reduction was driven by investments tied to our growth initiatives. Koil remain focused on long-term growth by deploying free cash flow to acquire new rental equipment, fund growth-related expenses, including development of the intellectual property, the establishment of our Brazil operations and bidding activity that supports our international sales pipeline. These investments are already delivering positive growth results. And with that overview, I'll now turn the call over to our Chief Financial Officer, Kurt Keller. Kurt Keller: Thank you, Erik. Let me walk through our fourth quarter results in more detail. For the 3 months ended December 31, 2025, Koil Energy generated revenues of $7.3 million, a 22% increase compared to revenues of $5.9 million the same period last year. Gross profit for the quarter totaled $2.5 million or 35% of revenue, representing a 5% increase in gross profit compared to $2.4 million or 41% of revenues in the fourth quarter of 2024. The decline in margin reflects the shift in revenue mix and volume. Sequentially, quarter-over-quarter, gross margin improved from 32% of sales to 35%. Selling, general and administrative expenses during the quarter equaled $2.1 million. The increase was largely driven by increased sales efforts and legal assistance with patents, master service agreements and international contracts. Moving to net income. We reported a gain of $370,000 for the fourth quarter, which translates to a $0.03 earnings per diluted share. This compared to net income of $541,000 or $0.04 per diluted share recorded in the fourth quarter of 2024. This reduction in earnings reflected higher SG&A expenses. The full year's financials reflected a 6% increase in revenue, driven by a 45% increase in service revenue. The relatively modest overall growth was primarily due to a slump in fixed price contract revenues in the first half of the year. Gross margin increased steadily throughout the year from 32% to 35%. The gross margin for the full year was 33%, down from 39% in 2024. This was driven by increased direct overhead as a result of 15% higher head count levels and lower labor utilization during the first half of 2025. Selling, general and administrative expenses were $8.3 million for the year compared to $6.2 million incurred during the previous year. EBITDA for the year was $960,000, which was $2.6 million lower than in 2024. The reduction reflects $1.3 million in expenses related to our growth initiatives, with $680,000 resulting from higher head count levels, and lower utilization in the first half of 2025 and a $570,000 receivable write-down, which we are actively pursuing through legal action. This led to a breakeven earnings per share compared to $0.22 per share the previous year. Turning to our balance sheet. As of December 31, 2025, we reported $4.8 million in working capital, including $1.5 million in cash and $4.7 million in net receivables. This compares to $5.7 million in working capital at year-end 2024 with $3.4 million in cash and $2.8 million in net receivables. The shift is primarily due to the timing of billing and collections tied to fixed price contract milestones. Before I hand the call back over to Erik, I want to briefly acknowledge that while 2025 was not the year we had hoped for, the significant improvements throughout the year that led to a great fourth quarter, demonstrate the ability of the Koil team to carefully manage our growth journey. During 2025, we restructured and strengthened the finance team and successfully implemented NetSuite as our new ERP system. Our focus remains on profitable growth disciplined execution and scaling investments appropriately. Thank you. Erik Wiik: Thank you, Kurt. My congratulations to the men and women of Koil Energy. And particularly our sales team delivering a record order intake in 2025 and our service team who delivered a 45% annual growth in service revenue. The culture of Koil can be described as exceptional responsiveness and safe workmanship. This is our business DNA. Speed and collaboration are cornerstones of our work culture. Our clients continue to entrust us with critical project awards. For instance, during the year, we installed over 70 multi quick connector plates for Beacon Offshore Energy at its Shenandoah Deepwater field in the Gulf of America. We secured a significant contract to supply steel to flying leads and associated equipment for a project in the Gulf of America. We also announced the award of a significant contract for control equipment for a subsea isolation valve system. Earlier in the year, we won a significant contract to supply multi quick connector plates for a high-pressure system in the Gulf of America. Although we secured numerous smaller contracts on a weekly basis, it is a significant and major awards that drive our growth. We are very excited for our future. In 2026, our team will remain focused on growing the company and delivering on our growth strategy. The consensus among our customers is that global energy demand continues to rise. Deepwater fields naturally decline at an average rate of 7% per year underscoring the urgency for new development just to maintain current output. From our perspective, we're seeing global operators allocate more capital towards deepwater and ultra deepwater developments, particularly in Brazil, the U.S. and West Africa. Subsea tieback developments continues to gain momentum as a preferred approach among offshore operators. These projects allow operators to access nearby reservoirs, utilize available topside capacity and leverage existing subs infrastructure. A key advantage of subsea tieback development is the potential for shorter payback periods than traditional greenfield projects. Leveraging existing assets, these projects frequently have the potential to achieve first oil within 2 years of final investment decision. Proven practical design backed by a deep team experience in subsea development and commissioning plays a critical role in ensuring reliability and staying on schedule. Koil Energy, is in a uniquely strong position to win subsea tieback projects. Billing activity and order intake for subsea tieback projects continued to increase throughout the year. During 2025, we have continued to invest in new talent and additional assets to support our long-term growth strategy. We remain disciplined in balancing profitability with investment and are confident that our expanded capabilities position us well to execute on our growing backlog. We remain focused on our strategic objective to becoming the leading provider of integrated subsea distribution systems and services globally. One indication of subsea activity is the number of subsea trees awarded and later installed. For both greenfields and brownfields, industry analysts such as Westwood Global Energy Group on March 6, 2026, reported an expected increase from 247 subsea tree awards in 2025 to 296 awards in 2026, a 20% increase. Koil's product sales tend to correlate with subsea tree awards as we supply the controls infrastructure linking subsea trees to the topside production facility. Analysts also expect subsea tree installation activity closely correlated with Koil service activity to increase by approximately 8% even when compared against last year's elevated installation levels. We are 2 years into an ambitious 3-year strategy focused on achieving continued profitable revenue growth. While our growth strategy continues to push Koil's business performance domestically, we have also advanced our international activities. Our facility in Macae, Brazil is up and running. While we are waiting for a significant contract in that region, we are currently serving clients with rental equipment that we built in country. The bidding activity in South America is at its highest level and we are pleased to share that we are now qualified to bid for key customers in that region. While Brazil is our main focus, we continue to pursue opportunities in the North Sea, together with our alliance partner, SubseaDesign. We have also hired a channel partner, pipeline network, LLC to pursue service work in Africa and Southeast Asia. Before we conclude, I would like to share that we are currently refining our growth strategy and setting ambitious new goals through 2030. We look forward to presenting these plans at an in-person and online investor conference in Houston on May 7 and 8, 2026. The held in conjunction with the Offshore Technology Conference, OTC Formal invitations will be in shortly. That concludes our prepared remarks today. So I'll turn the call back to the operator to take investor questions. Operator? Operator: [Operator Instructions] The first question today comes from [ Mike Travels ], private investor. Unknown Shareholder: Question is the Iran war and increasing oil prices, what kind of a scenario assessment? Can you tell us when you get into the situation with oil prices increasing, increasing fast? Are your customers increasing their activity? Are they taking a wait and see? Is this more profitable for them? Is it better, worse or no change? What can you tell us? Erik Wiik: Well, that's a question for someone with a higher pay grid than me perhaps. But thank you, Mike, for the question. So I'll refer to our customers what they say. And last week, we had the CERAWeek in Houston. This is an excellent conference where you have not only executives from various international oil companies present, but you also have government officials from various countries that are engaged in oil and gas policies. So two things relate to this. First of all, as you said, the oil price going up. And for a while, we don't know how that will go and how long it will stay. But while it does, obviously, our customers are getting their cash flow improved. They always have and referring to a similar situation in the past, they always have projects sitting on the shelf that they would like to develop, but didn't get included in the budget. So when cash flow increase, what we often see is that we release more projects for that reason. Obviously, that has very little to do with the business case, the long-term business case because all these projects take years to develop. So who knows what the oil price is going to be 5 to 7 years from now. But the other part of this that again, referring to what I learned from my customers, is that the [ foremost ] trait as being something we always have talked about but not too often, perhaps in the recent years. We always knew it was a risk when so much of the resources come from that region. But now we know it's real. That risk is now on everybody's mind. And even if there is hopefully a piece coming shortly here, we will have this in mind. Too many resources are coming from one place. So officials from various countries have reflected that they obviously want to make sure that they have resources in their country or with a trusted neighbor. And for sure, the subsea developments is the best way to address that. There are so many subsea regions around the world and so many countries participate in developing subsea developments. And we hear now that they're more interest in going after that resource than perhaps before this conflict. Unknown Shareholder: That sounds like somewhat of a positive assessment long term, though. Erik Wiik: Well, I hate to connect our earnings to a conflict, but that's what I learned from these people, yes. Unknown Shareholder: Right. Can you give us more color on the longer-term growth plan that you mentioned going out to 2030? Erik Wiik: Yes. So we are preparing that now. We have been working so far on a 3-year strategy. The road map is now 2 years into the 3-year plan. So obviously, we need to hammer out some more details on what we're going to do in the next 3 years or actually 4 years, which gets us to 2030. So that is what we're working on right now. And then we plan to present that at an investor conference in the second week of May, the 7th and 8th of May. Unknown Shareholder: And is that -- is there going to be a link for us to watch that? Erik Wiik: Absolutely. So you can either be present here or we're going to have an online conference as well. Operator: [Operator Instructions] The next question comes from [ Peter Michelman ], private investor. Unknown Shareholder: I was wondering what is your exact head count today in Houston and Brazil, respectively. Erik Wiik: So the exact head count is 68 today. Is that correct? Kurt? Kurt Keller: If you don't include Brazil. And then if we include our people in Brazil, we have three people in that are dedicated to Brazil. Unknown Shareholder: Okay. And with respect to operations in Brazil, are you -- it doesn't sound like you're doing any fabricating with employees in the new facility. It's with subcontractors. Erik Wiik: So the initial work we did was with the subcontractors and -- but then we brought the equipment to the facility for inspection there and also had contractors working at the facility to do inspection and then we shipped it to the field. So all the -- is complete. Unknown Shareholder: And as time proceeds in Brazil and you -- let's say, you get a significant contract. What kind of margins do you see compared to Houston on fabrication and service work, respectively. I mean, the labor is a bit cheaper and the facility lease is cheaper, but then I imagine that -- when you facilitate a sale, it's going to be less revenue? Or how would that work? Erik Wiik: So our margin policy will be the same there as it is here. So we're trying to get the same margin on every project basically. And -- but as you indicated, winning the first project, perhaps we have to go lower, but not necessarily. We think that Brazil is a mature competitive region. You can manage risk well and the competition there is not necessarily you want to lose money either. So it doesn't mean that we necessarily need to give up margin. But as you indicated in the beginning, it might be a little less. Unknown Shareholder: So you're looking 40% target, 35% to 40% range roughly? Erik Wiik: So yes, the gross margin range, we want to be in the high 30s with that, then 40% would be a great target, absolutely. Unknown Shareholder: All right. What became of the receivable turned bad debt from last quarter or the engineering firm in Britain? Kurt Keller: We are still pursuing that, and we received a default judgment here in the States and now are going after them in U.K. legal system. Unknown Shareholder: And is that a long and winding road, so to speak? Kurt Keller: It's one that's maybe not as clear a path as the U.S., but it is in the U.K. And so... Unknown Shareholder: There is a path. Operator: This concludes our question-and-answer session. I'd like to turn the conference back over to Erik Wiik for any closing remarks. Erik Wiik: All right. Thank you, operator, and our thanks to all of you who joined our call today. We appreciate your interest in Koil Energy and look forward to the next earnings call. This concludes our call. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Jiayin Group's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. I will now turn the call over to Mr. [ Sam Lee ] from Investor Relations of Jiayin Group. Please proceed. Unknown Executive: Thank you, operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss Jiayin Group's financial results for the fourth quarter of 2025. We released our earnings results earlier today. The press release is available on the company's website as well as from Newswire services. On the call with me today are Mr. Yan Dinggui, Chief Executive Officer; Mr. Fan Chunlin, Chief Financial Officer; and Ms. Xu Yifang, Chief Risk Officer. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Also, this call includes discussion of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP financial measures to GAAP financial measures. Please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese renminbi. With that, let me now turn the call over to our CEO, Mr. Yan Dinggui. Mr. Yan will deliver his remarks in Chinese, and I will follow up with corresponding English translation. Please go ahead, Mr. Yan. Dinggui Yan: [Foreign Language] Unknown Executive: [Interpreted] Hello, everyone. Thank you for joining our fourth quarter and full year 2025 earnings conference call. Dinggui Yan: [Foreign Language] Unknown Executive: [Interpreted] 2025 was a pivotal year for the industry, marked by deepening regulation and standardized development. Despite the continuously tightening in external environment, we maintained steady progress with -- for the full year, our loan facilitation volume reached RMB 129 billion, representing a year-on-year increase of approximately 28%. We achieved revenue of RMB 6.22 billion, up approximately 7.3% year-on-year and net income of RMB 1.54 billion, a year-on-year increase of approximately 45.4%, demonstrating our operational resilience amidst a complex environment. Dinggui Yan: [Foreign Language] Unknown Executive: [Interpreted] In the fourth quarter, following the implementation of the new regulation, we observed a continuous decline in comprehensive financing costs alongside higher entry barriers and stricter compliance requirements. In response to this new regulatory landscape, we have proactively collaborated with our funding partners to facilitate necessary adjustments. As of now, we maintain partnerships with 79 financial institutions with an additional 53 currently in negotiations. Dinggui Yan: [Foreign Language] Unknown Executive: [Interpreted] We have consistently adhered to the operating philosophy of compliance as the foundation, quality and efficiency as priority. We proactively adjusted our borrowing acquisition pace this quarter, adding approximately 407,000 new borrowers, reflecting a year-on-year decline. To further enhance the precision of channel management and the efficiency of marketing spend, we implemented cross-functional collaboration to revamp our channel evaluation framework and to continue to optimize onboarding standards, ongoing monitoring and off-boarding processes. Additionally, by establishing a more flexible credit limit management system, implementing targeted reactivation strategies for existing borrowers, we effectively unlocked the repeat borrowing potential among quality borrowers. Repeat borrowing contribution accounted for 79.4% of loan facilitation volume, an increase of 6.7 percentage points compared to the same period last year. Dinggui Yan: [Foreign Language] Unknown Executive: [Interpreted] Since the fourth quarter, risk indicators have remained under pressure. We have been advancing a phased deep restructuring of our risk control strategy, which include multiple rounds of tightening entry criteria, optimizing credit limits and iterating on product offerings. This has allowed us to proactively manage risk exposure and refine borrower segment structures, mitigating the impact of certain external fluctuations on asset quality. As of the end of the fourth quarter, the 90-plus day delinquency ratio was 2.03%. Entering 2026, thanks to precise identification and isolation of tail risk, along with structural optimization of existing asset portfolio, forward-looking risk indicators are showing positive trends. We will continue to build a risk control system that balances long-term stability with short-term dynamics serving as the balance for steady operations. Dinggui Yan: [Foreign Language] Unknown Executive: [Interpreted] On the artificial intelligence front, we made solid progress in 2025 in multimodal, antifraud, AI-powered agents and data intelligence. In 2026, our 4+2 strategy will undergo a key upgrade. We have reorganized our 4 core pillars into 2 main tracks: production and non-production. The production track focuses on core business value creation, covering 3 directions: borrower acquisition, risk management and marketing. We are exploring AI-driven identification and acquisition of high-quality borrower groups, deepening the application of multimodal technologies such as voice print, knowledge graph and anti-fraud and enabling AI-powered content generation and review and marketing. The non-production track aims to improve efficiency and quality in daily operations, covering engineering intelligence, agent assistance and office intelligence. Key initiatives include advancing AI programming from coding completion to autonomous coding, adopting a human-machine collaborative agent model to enhance service quality and efficiency and further upgrading our internal intelligent workplace systems. Meanwhile, our intelligent agent platform and machine learning platform as the 2 foundational infrastructures will continue to provide underlying tooling support for upper layer applications. This strategic upgrade marks a shift in our AI strategy from capability building to value creation, embedding AI more deeply into our business value chain and providing stronger, more sustainable drivers for development. Dinggui Yan: [Foreign Language] Unknown Executive: [Interpreted] In terms of new business expansion, we have continued to focus on 3 dimensions: financial product innovation, partnership model innovation and overseas market. On the product side, we actively expanded into auto-backed loans and digital intelligent micro loans, enriching our credit product portfolio. In partnership models, we connected with leading traffic ecosystem through joint operations, establishing deep strategic partnerships with multiple institutions. Throughout the year, we launched 21 projects with business scale growing month by month. As an early mover in global markets, its strategic value has become increasingly prominent. In 2025, facilitation volume in Indonesia increased by approximately 187% year-on-year, while registered users grew by approximately 119% year-on-year, demonstrating gradual scale effect. Mexico business accelerated significantly in the fourth quarter. For the full year, the total loan facilitation volume grew approximately 105% year-on-year, while registered users up approximately 110% year-on-year, marking a key milestone in validating our business model. We plan to use several countries where we have investment and operational experience as anchors to explore opportunities in other markets. Through cross geography and cross-cycle deployment, we will steadily expand our global footprint. Dinggui Yan: [Foreign Language] Unknown Executive: [Interpreted] The essence of financial inclusion lies not only in the depth of service reach, but also in conveying social value. Over the past year, our philanthropic initiatives reached multiple areas, including youth mental health and support for special needs groups. We directly trained over 30,000 teachers, students and parents covering more than 1,300 schools and conducted mental health assessments for over 60,000 students and teachers, protecting the healthy growth of children through concrete actions. In terms of volunteering services, since the establishment of the Jiayin volunteer service team, we have grown to 120 members, completed 28 activities and accumulated nearly 3,800 hours of service. Our philanthropic practices and social responsibility efforts have received multiple recognition from government departments, authoritative media outlets and social organization. This is not only an affirmation of our commitment to long-termism, but also a core competitive advantage in building trust in our brand. Dinggui Yan: [Foreign Language] Unknown Executive: [Interpreted] Regarding shareholder returns, in 2025, we continue to deliver on our commitment to sharing benefit of our development with our shareholders. During the year, we completed cash dividend distributions totaling USD 41.1 million, representing an increase of over 50% year-on-year. In August, we increased the total quota of the current share repurchase program to no less than USD 80 million. To date, we have repurchased nearly 4.6 million ADS with total value of approximately USD 30.4 million. We will maintain our existing dividend policy and make disciplined use of the remaining repurchase capacity to deliver sustainable returns to shareholders. Dinggui Yan: [Foreign Language] Unknown Executive: [Interpreted] Given the ongoing uncertainty in the macro environment, we maintain a prudent stance and expect loan facilitation volume for the first quarter of 2026 to be between RMB 18.5 billion and RMB 19.5 billion. We will continue to use compliance as our foundation and innovation as our engine to continuously solidify the technological foundation and build resilience against cyclical fluctuations. Dinggui Yan: [Foreign Language] Unknown Executive: [Interpreted] With that, I will now turn the call over to our CFO, Mr. Fan Chunlin. Please go ahead. Chunlin Fan: Thank you, Mr. Yan, and hello, everyone, for joining our call today. I will now review our financial highlights for the quarter. Please note that all numbers will be in RMB and all percentage changes refer to year-over-year comparisons, unless otherwise noted. As Mr. Yan noted, amid the liquidity tightening and heightened risk volatility following the new regulatory implementation, we have proactively pivoted to prioritize asset quality over expansion to safeguard our long-term stability. Loan facilitation volume in Q4 was RMB 24.2 billion, representing a decrease of 12.6% from the same period of 2024. Our net revenue was RMB 1,090.2 million, representing a decrease of 22.4% from the same period of 2024. Moving on to costs. Facilitation and servicing expense was RMB 328.2 million, representing a decrease of 3.3% from the same period of 2024. Reversal of credit losses of uncollectible assets, loans receivable and others was RMB 20.1 million compared with RMB 1.2 million allowance for credit losses of uncollectible assets, loans receivable and others in the same period of 2024, primarily due to write-back of allowance for oversea contingent guarantees arising from lower expected loss rates. Sales and marketing expense was RMB 498.7 million, representing a decrease of 3.6% from the same period of 2024, primarily driven by the improvement in operational efficiency. General and administrative expense was RMB 66.8 million, representing an increase of 24.4% from the same period of 2024, primarily due to an increase in employee costs. R&D expense was RMB 121.9 million, representing an increase of 21.4% from the same period of 2024, primarily due to an increase in professional service fees and employee costs. Non-GAAP income from operations was RMB 120.4 million compared with RMB 402.4 million in the same period of 2024. Consequently, our net income for the fourth quarter was RMB 100.6 million compared with RMB 275.5 million in the same period of 2024. Our basic and diluted net income per share were both RMB 0.49 compared with RMB 1.30 in the fourth quarter of 2024. Basic and diluted net income per ADS were both RMB 1.96 compared with RMB 5.20 in the fourth quarter of 2024. Each ADS represents 4 Class A ordinary shares of the company. We ended this quarter with RMB 61.8 million in cash and cash equivalents compared with RMB 124.2 million as of September 30, 2025. With that, we can open the call for questions. Ms. Xu, our Chief Risk Officer, and I will answer questions. Operator, please proceed. Operator: [Operator Instructions] Our first question comes from Yuxuan Chen with Huatai Securities. Yuxuan Chen: [Foreign Language] I got 2 questions here. The first one is about the risk. Could management share how your risk metrics have been trending in the fourth quarter of 2025 and year-to-date in 2026? Given the recent volatility in the industry, how have you adjusted your customer acquisition strategy? The second one is about the regulation. With the regulatory environment in China continuing to tighten, what are your expectations for growth this year? In particular, how do you see the key metrics like loan facilitation volume and profitability trending? Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] Mr. Chen, I will answer your first question, and Mr. Fan will answer your second question. So as you know, risk for this year is highly related to the regulation. So I won't go into too much detail on the interpretation of the new policy and new regulation because I believe most of the investors in the sector are already quite familiar with the dynamics. Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] So from Jiayin perspective, compared with the previous cycle, the increase in risk last year was more pronounced and more prolonged. And particularly in the first 4 to 6 weeks leading up to the peak at the new borrower level, we observed the market reached its peak around late September and to early October. So the exact timing is a little bit different across different channels of different quality, but risk levels remain elevated through November before starting to decline in December. Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] So during this period, we proactively adjusted our channel mix. We tightened our standards in the new borrower models and strategies and control the absolute volume of new borrower acquisition. Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] So from the repeat borrower side, for the incremental assets from the repeat borrowers, risk peaked in November and then gradually declined starting in December. So in response, we adopted a more selective and disciplined approach to risk management, focusing on higher quality and more resilient borrowers for approval. So we also applied more stringent underwriting and credit limit management for customers who are higher risk with multiple outstanding debt, weaker asset profiles and limited financing capacity, particularly among the near prime or marginal borrowers. Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] So overall, our structured risk management approach has delivered tangible results. And based on our internal analysis, amid the broad industry-wide risk cycle, our measures contributed to an improvement in risk metrics by approximately 25% to 30%. Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] Since January, we have been closely monitoring the overall industry volume trends. Both the platforms and our financial institutional partners are really still digesting the impact of last year's risk volatility. With that said, we're still seeing continued improvement in our new risk vintages. Since your question is on the customer acquisition front, we remain cautious in ramping up volumes. In terms of channel strategy, we're really prioritizing the leading traffic platforms and lower cost acquisition channels so that we can optimize our customer mix for the long term. Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] So for the second question, I'll hand it over to our CFO, Mr. Charlie Fan. Chunlin Fan: [Foreign Language] Unknown Executive: [Interpreted] So Mr. Chen, your second question is on the effects of the regulation and metrics. So for the full year of 2025, we achieved total facilitation volume of RMB 129 billion, with revenue and net profit reaching RMB 6.2 billion and RMB 1.54 billion, respectively, representing a net margin of 24.7%. Chunlin Fan: [Foreign Language] Unknown Executive: [Interpreted] So we see since the second quarter of 2025, particularly following the formal implementation of the new regulation, industry liquidity has gradually tightened and risk levels have shown a clear upward trend. So against this backdrop, we proactively tightened our standards and restructured our risk management strategies. So after reaching a historical quarterly peak of RMB 37.1 billion in facilitation volume in Q2, we continue to scale back in Q3 and Q4 with Q4 volume declining to RMB 24.2 billion. Revenue and net profit for the quarter were RMB 1.09 billion and RMB 100 million, respectively, with net margin declining to 9.2%. Chunlin Fan: [Foreign Language] Unknown Executive: [Interpreted] Similar to other leading players in the industry, we have faced short-term pressure on profitability due to declining pricing, volatility in risk metrics and diseconomies of scale resulting from rapid volume contraction. Chunlin Fan: [Foreign Language] Unknown Executive: [Interpreted] So with that said, as we've iterated in previous earnings calls, the implementation of the new regulation is expected to raise industry entry barriers and increase market concentration. As a leading platform, we believe that Jiayin technology can navigate through this period of short-term risk volatility and scale adjustment. We are well positioned to enter a new phase of high-quality moderate growth over the medium to long term. And encouragingly, after several quarters of rising risk across the industry, we are beginning to observe the early signs of stabilization and improvement in asset quality. Chunlin Fan: [Foreign Language] Unknown Executive: [Interpreted] So looking ahead, we'll continue to operate with the compliance as our foundation, closely monitoring changes in risk trends and market liquidity and dynamically adjusting our strategy in line with the evolving industry fundamentals. Given that the industry is still undergoing a transition period following the new regulations, we will maintain a high degree of flexibility and review our target on a quarterly basis. As Mr. Yan mentioned, for the first quarter of 2026, we expect the facilitation volume to be in the range of RMB 18.5 billion to RMB 19.5 billion. Operator: Our next question comes from [ Roxy Liu with Kaiyu Capital ]. Unknown Analyst: [Foreign Language] Given the rapid growth of the company's overseas business in 2025, could the management elaborate on Jiayin's strategy road map and the future outlook in the overseas market? Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] Roxy, I'll answer your question on the overseas part. So in today's fintech landscape, the international business has really become a key growth pillar that we're actively cultivating. As Mr. Yan mentioned earlier, our operations in Indonesia and Mexico have both been growing at a strong pace with volumes roughly doubling year-over-year in 2025. So we expect this momentum to continue. Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] So from the scale perspective, we look to do the same in 2026. So another year of doubling in scale. At the same time, on the quality front, both markets are expected to reach important strategic milestones and moving towards profitability. Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] So from a business model perspective, we will continue to deepen our localization strategy, expanding partnerships with local financial institutions and enhancing our ability to serve and empower the local financial ecosystem. At the same time, we'll continue to broaden our collaboration with international financial institutions to capture synergies from our global strategy. Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] For the new countries and markets, we've been actively laying the groundwork for expansion into new markets. So we look forward to sharing more progress with you later in 2026. Yifang Xu: [Foreign Language] Unknown Executive: [Interpreted] Thank you. That's my answer on the international part. Operator: Seeing no more questions, I will return the call back to Sam for closing remarks. Please go ahead. Unknown Executive: Thank you, operator, and thank you all for participating on today's call. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Operator: Thank you all again. This concludes the call. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good morning, ladies and gentlemen, and welcome to the Charlotte's Web Holdings, Inc. 2025 Fourth Quarter Conference Call. [Operator Instructions] This call is being recorded on Tuesday, March 31, 2026. I would now like to turn the conference over to Cory Pala, Director of Investor Relations. Please go ahead. Cory Pala: Thank you, and good morning, everyone. Thank you for joining us today for Charlotte's Web Q4 2025 earnings conference call -- provide some color around the recent developments around BAT transaction, the Medicare opportunity, regulatory momentum and other progress. Afterwards, we will take questions from our analysts. As always, before we begin, please note that certain statements made during this call, including those regarding our future financial performance, business strategy and plans, constitute forward-looking information within the meaning of applicable security laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause actual results to differ materially. We direct you to review the cautionary language in this morning's earnings release as well as the risk factors and other important considerations that are detailed in our regulatory filings, particularly in our most recent Form 10-K report. During the call, we will also refer to supplemental non-GAAP accounting measures, including adjusted EBITDA, which do not have standardized meanings prescribed by GAAP. Please refer to the earnings press release for descriptions of these measures and reconciliations to their most directly comparable GAAP financial measures. And with that, I'll now hand over the call to Charlotte's Web's CEO, Bill Morachnick. William Morachnick: Thanks, Cory. Good morning, and thank you for joining us today. I want to say right up front that this is not business as usual for Charlotte's Web. We've had several key announcements that have tremendous positive impact on our business that I'm excited to share with you. So let me also add that this includes another quarter of demonstrated progress for our push towards achieving scalable profitability. But first, let me start with the most recent development. Last night, we announced a financial transaction with British American Tobacco in relation to its existing convertible loan note. This transaction has 2 primary components. First is the conversion of BAT's outstanding $55 million convertible debenture, plus approximately $10 million in accrued interest in the common shares of Charlotte's Web at a conversion price of CAD 0.94 per share. This eliminates our largest balance sheet liability entirely and avoids approximately $3 million in future annual interest for the next 3.5 years. The second component is a new equity investment of $10 million through a private placement. This is fresh capital coming into the business to support the execution of our key strategic initiatives, including our upcoming participation as a leader in the CMMI Medicare pilot programs. So in total, BAT's combined equity commitment under this transaction is approximately $75 million. And following completion, BAT will hold approximately 40% of the company on a non-diluted basis. Among other things, this transaction provides clarity and stability around BAT's existing investment decision. Let me also provide some additional background on why we believe this is the right transaction at the right time and appropriate in the current circumstances. The original debenture was issued in November 2022 at a conversion price of CAD 2 per share. Due to several issues, including the ongoing federal regulatory delays around consumable hemp, it was extremely unlikely that BAT would voluntarily convert its debt anytime soon. If this debt burden were left unaddressed and continued to accrue interest at 5% per year, the company would have faced an additional $12 million or more in aggregate interest from now through the maturity date in November 2029. This transaction eliminates all of that. The net effect is a dramatically simplified equity-based capital structure. We go from carrying significant debt obligations to a clean balance sheet with a well-capitalized long-term investor. The additional $10 million in fresh capital strengthens our working capital position and provides flexibility to pursue multiple exciting growth opportunities. All right. So now let me turn to our most exciting recent growth opportunity the Center for Medicare & Medicaid Innovation pilot program, or CMMI. Under the CMMI pilot program, for the first time, seniors gained access to science-backed CBD products through a federally authorized Medicare pilot, and Charlotte's Web is positioned to be a participant within this program. Just 10 days ago, CMS, which is the Center for Medicare and Medicaid Services issued additional guidance that significantly clarifies and strengthens this opportunity. CMS established the Substance Access Beneficiary Engagement Incentive or Substance Access BEI, which will be the specific mechanism through which the pilot will operate. Notably, the guidance confirmed that the hemp-derived CBD products, including nonintoxicating full-spectrum products containing up to 3 milligrams per serving of naturally occurring THC are eligible under the program. This means our core portfolio of full-spectrum CBD wellness products qualifies under this federally authorized program. Under the Substance Access BEI, participating health care organizations primarily accountable care organizations, or ACOs, and oncology providers may purchase eligible hemp-derived CBD products for the Medicare patients with up to $500 per beneficiary annually available. To provide some clarity, it's important to note that Medicare does not directly reimburse these products. Rather, the ACO purchases hemp CBD products directly and furnishes them to its patients. The economic rationale is that if these products contribute to lower utilization of higher-cost services, the ACO may benefit through reduced total cost of care. As a result of that, the ACO may have an incentive to support adoption of the Substance Access BEI. Participants in the ACO REACH Model and the Enhancing Oncology Model are anticipated to begin offering the Substance Access BEI beginning April 1, which is tomorrow with the ACO LEAD Model expected to follow in January 2027. I want to be really clear about what this means. This represents an established health care integration pathway. It operates with CMS authorization, physician oversight, patient support through the program's partner Realm of Caring and structured outcomes data collection. To facilitate the pilot, Charlotte's Web will offer products intended to support eligible patients through a secure online health care portal. The initial phase is focused on senior patients receiving care through the ACO REACH provider. Over time, this type of model has the potential to be applied more broadly within the Medicare population, which currently includes approximately 67 million beneficiaries. And looking ahead, there is a second potentially much larger Medicare pathway development. In November, CMS proposed for the first time, allowing Medicare Advantage plans to be included -- to include hemp-derived CBD products in their benefit design. That is a separate program from the CMM pilot and it represents a potential expansion of CBD access into the broader Medicare Advantage system, which covers roughly half of all Medicare beneficiaries. The timing of additional details for this program are still being finalized, but we remain confident that our quality standards and compliance infrastructure position us well for this potential opportunity. All right. Let me take a moment now to talk about the federal regulatory status. Despite ongoing challenges, recent federal policy developments are showing progress for hemp-derived CBD. Congressman Morgan Griffith, who's the Chairman of the House Energy and Commerce Subcommittee on Health, which oversees the FDA, advanced the Hemp Enforcement, Modernization and Protection Act known as the Hemp Act. This proposed legislation would establish a science-based federal framework for hemp-derived products under the FDA oversight. We are actively working with our one hemp partners through the markup process. The Hemp Act is expected to proceed through regular order in the House Energy and Commerce Committee this year with potential pathways for advancements for broader legislative vehicles, including Congress' continuing resolution in September. At the same time, we recognize that multiple legislative approaches to hemp regulation are under active consideration in Congress. And we remain actively engaged with policymakers and stakeholders across these efforts and will support the most effective path forward to achieve a durable science-based federal framework. It's clear that a broader federal solution is critical. Recently issued Substance Access BEI guidance explicitly permits hemp-derived CBD products containing up to 3 milligrams of THC per serving under the CMS program. This would certainly seem to be a direct signal from the federal government that full spectrum products are considered safe and appropriate. Okay. Now let me turn to DeFloria, which is one of our most compelling long-term potential opportunities outside of our core consumer business. This is our collaboration with Aragen Bioscience and British American Tobacco. Last year, DeFloria received FDA clearance to proceed with Phase II clinical trials for its investigational new drug. This botanical IND is for the treatment of irritability associated with autism spectrum disorder. It represents a natural alternative to pharmaceuticals that are often poorly tolerated. It uses our proprietary full spectrum CBD extract derived from a patented hemp cultivars and we believe it represents the most advanced cannabinoid drug program utilizing the FDA's botanical drug pathway. Building on favorable results from Phase I, which established the dosing parameters for the Phase II program, DeFloria has been actively preparing for entry into Phase II clinical trials. Preparations are substantially advanced, and the program is expected to initiate midyear, subject to the customary development activities and resource alignment. Phase II consists of multiple studies across distinct patient populations. These studies will evaluate safety and tolerability and provide early signals of therapeutic effectiveness to inform a subsequent Phase III program. A reminder, as stated in this morning's press release, the potential strategic value to Charlotte's Web shareholders is significant. Clinical advancement through FDA regulated pathways validates the therapeutic potential of our proprietary genetics and strengthens the scientific foundation underlying our entire consumer business. We also hold exclusive commercial manufacturing rights to ultimately receive FDA approval which is clearly a significant long-term revenue opportunity. And we currently own approximately 1/3 of DeFloria, providing us with direct exposure to massive value creation as the program advances. With that high-level update, I'll now ask Erika to walk us through the Q4 and full year financials, and I'll return after her remarks to discuss our business execution and outlook. Erika Lind: Thank you, Bill, and good morning, everyone. As Bill noted, our 2025 financial results reflects 2 years of disciplined execution to stabilize the business return to growth and fundamentally restructure our cost base to drive to profitability. Let me walk through the key metrics, and I'll keep this concise so we can focus the balance of our time on the strategic discussion. Consolidated net revenue for Q4 2025 was $13.3 million. Q4 delivered a strong sequential rebound of 15.8% recovering from the Q3 dip driven by the planned B2B restructuring. Q4 also came in up 4.7% versus the prior year's $12.7 million in revenue. Growth was driven by continued direct-to-consumer momentum across our diversified botanical wellness portfolio, including expanded sleep and functional gummy mushroom offerings, the Brightside low-dose hemp THC gummy line and new minor cannabinoid formulations. Gross profit for Q4 was $5 million with a gross margin of 37.5%, and I want to provide important context around this number. The reported margin was significantly impacted by a nonrecurring $1.3 million inventory charge related to the disposal of legacy gummy products that did not meet our quality standards, which alone reduced gross margin by about 10 percentage points. Excluding this item, the underlying gross margin performance improved meaningfully. In-house manufacturing, net of onetime inventory charges contributed approximately 400 basis points of margin benefit in the quarter, validating our vertical integration strategy. We also saw improvements in the B2B channel mix following our Q3 restructuring driven by a reduction in trade spend. Our direct-to-consumer promotional efficiency improved as we shifted from broad discounting to targeted cohort-based campaigns. We expect gross margin to normalize toward our historical 50% range as we lap transitional items and as production efficiencies continue to scale. Total SG&A expenses were $10.6 million in Q4, consistent with the prior year and slightly higher than Q3. The quarter included several discrete nonrecurring items that impacted comparability, including a $600,000 state sales tax audit accruals and certain contract termination and timing adjustments. Excluding these items, our underlying operating expense base remained consistent with the structurally lower cost profile established throughout the year. Total net loss for the fourth quarter was $11.4 million or $0.07 per share compared to a net loss of $3.4 million or $0.02 per share in Q4 of 2024. Looking at full year results. Consolidated net revenue of $49.9 million increased 0.5% year-over-year, modest but significant as it was our first annual revenue increase since 2021. Full year SG&A expenses were $42 million, a 21.2% decrease from $53.3 million in 2024. This reflects the successful execution of our comprehensive cost optimization strategy, which has now reduced annualized SG&A by approximately $33.6 million or 44.5% over the past 2 years. We believe our cost restructuring is now largely complete. Going forward, we expect quarterly SG&A for the core business to remain in a normalized range of approximately $10 million to $11 million. Excluding anticipated launch spend for the previously mentioned Medicare coverage program. Net loss for the full year was $29.7 million or $0.19 per share compared to $29.8 million or $0.19 per share in 2024. This year, the full year net loss included a noncash change of $6.4 million in the fair value of the company's debt derivative and our investment in DeFloria. However, notably, our operating loss for 2025 improved by more than 36% to $20.3 million, a significant improvement from the $32 million operating loss in the prior year further demonstrating the impact of our cost restructuring. Turning to our cash flow and liquidity. Fourth quarter net cash used in operating activities decreased to $1.9 million compared with $5.5 million in the prior quarter and $1.8 million in Q4 of 2024. For context, quarterly cash change reflects the timing of cash outlays relative to accrual-based expense recognition so there is a natural variability quarter-to-quarter. In addition, our third quarter expenses always experienced a greater cash outlay than other quarters due to the timing of business insurance renewals. That said, the Q4 result demonstrates continued progress. Cash and working capital as of December 31, 2025, were $8 million and $21.7 million, respectively. It is important to note that this cash position does not reflect the BAT private placement, which adds $10 million in fresh capital, strengthening our liquidity and working capital position heading into this next critical phase. Before I hand it back to Bill, I do want to underscore the financial significance of the BAT transaction, which fundamentally changes our financial position. The transaction is transformational for our balance sheet eliminating material liabilities and adding fresh working capital. We are evolving from a company carrying significant debt obligations into one with a clean equity-based capital structure and a highly aligned strategic partner with a stable operating base, improving gross margins from in-house manufacturing and the capital to pursue the growth opportunities now emerging, we are well positioned for the next chapter. With that, I'll turn the call back to Bill to discuss our business execution and outlook. William Morachnick: Thanks, Erika. All right. So let's bring this all together. 2025 was a defining year for Charlotte's Web. We stabilized the business. We returned to annual revenue growth for the first time in 4 years, reduced our cost base by 44% over 2 years. Launched our boldest product innovations to date and laid the operational groundwork for what comes next. And I want to share one more data point that speaks directly to operational readiness. This month Charlotte's Web completed its annual NSF dietary supplement good manufacturing practices audit and received zero findings. For those unfamiliar, that's the gold standard of manufacturing compliance for dietary supplements. And achieving zero findings is an exceptional result. It reflects the discipline and the rigor of our quality team and validates the manufacturing infrastructure that underpins everything we do, from the products on our website to our qualification for federal health care programs. When we say Charlotte's Web is built to meet the standards that regulated health care requires, this is exactly what we mean. Let me share with you quickly what excites me about what's ahead. The CMMI Medicare pilot program, the presidential executive order, bipartisan legislative momentum for a rational federal framework, the advancement of DeFloria through FDA clinical trials and now a clean balance sheet with a well-capitalized strategic partner standing behind us. These are not speculative possibilities. They are real catalysts unfolding now that have the potential to fundamentally transform the scale and scope of our business. We built Charlotte's Web for moments exactly like this. Our brand, our science, our manufacturing capabilities and our regulatory engagement have positioned us to be at the forefront of the hemp industry's integration into mainstream health care. I want to take a minute to thank all of our shareholders for your continued confidence and patience. I know this has not been an easy ride, but the work of the past 2 years is now converging with the most favorable external environment our industry has ever seen, and we intend to capitalize it. Operator, we're now ready for questions from our analysts. Operator: [Operator Instructions] First question comes from Pablo Zuanic from Zuanic & Associates. Pablo Zuanic: Good morning, everyone. Look, I obviously have a lot of questions that I want to ask here given all the very positive news and of course, positive performance. Let me start with the CMS program. A few questions there. Precisely, when we talk about participating centers, what are these participating centers in the CMMI program? Which type of companies, are these established doctor offices or are these new setups, can Charlotte's Web own some of these participating centers. If you can give more color in terms of what are the participating centers in the CMMI program? Mindy Garrison: Well, good morning, Cory. This is Mindy Garrison here with Charlotte's Web, and thank you so much for your question. The participating centers are health care organizations that are already enrolled in specific CMS Innovation models. There are 3 actual models at play right now. The first 2 are ACO REACH and Enhanced Oncology Model or the EOM program, both of which can begin offering CBD, the Substance Access BEI hemp-derived products starting tomorrow, April 1. The third is an ACO LEAD Model, which is expected to launch in January of 2027. So these are not actually new facilities created for this program, they are established physician practices, health care systems, all combining together under an accountable care organization that are managed -- managing Medicare patient populations. The initial cohort under ACO REACH and the Enhanced Oncology Model, address approximately 2 million Medicare beneficiaries. Over time, as additional models come online, particularly the LEAD model and potentially the Medicare Advantage model, the addressable population will expand significantly towards a broader 67 million Medicare beneficiary base. And please excuse my mistake Pablo. Again, I really appreciate your question. Pablo Zuanic: And then just a follow-up on the same subject. Who is going to fund the $500 per patient per year under the BEI. Is that Medicare? Or is someone else funding that? And as part of that question, I'm assuming that the participating center will issue a prescription and the patient will go on your portal and order the product from you. So if you can just clarify in terms of who funds the $500 and then the logistics in terms of how the patients can access the product. Mindy Garrison: All right. Thank you, Pablo. Another really great question. And there's an important distinction here in that Medicare is not directly reimbursing these products. The participating ACOs and EOMs that I just talked about a few moments ago, will purchase the eligible hemp-derived CBD products using its own funds and furnishing them to its Medicare beneficiaries as part of their broader care strategy. The economic rationale for an ACO to participate in the Substance Access BEI and the hemp-derived products is that it will contribute to better patient outcomes, lower total cost of care, reduced hospitalizations, fewer high-cost interventions and lower pharmaceutical utilization. So they benefit through the savings under the CMS model. So the $500 per beneficiary annually represents a maximum of amount that the ACO can invest per patient, funded from the ACO's own program economics, not from a Medicare fee-for-service system is a value-based care incentive, not a traditional reimbursement. To get to your second question about logistically how will this work? Charlotte's Web has built a portal specifically for ACO and EOM programs to access the hemp-derived products that will be eligible under the Substance Access BEI program. They will order the products as if you were issuing a subscription to a pharmacy, except it would be through our portal. And those products would then be drop shipped to the patient's home. So it is a little bit different in that it's actually not a prescription. It's a recommendation from a health care provider to begin utilization of hemp in the service of helping their patients become healthier and live healthier lives. Pablo Zuanic: That's very helpful. And then on the same subject, what revenues does Charlotte's Web will expect from CMMI pilots in 2026 and 2027. I'm not sure if you can talk about guidance here. And as I ask that question, I wonder whether the participating centers will be able to buy from other companies or is Charlotte's Web were the only one pretty much in the pilot. But any guidance the company can give would be helpful. William Morachnick: Yes, sure. Pablo. So I think the way to think about it without giving you a ton of specificity around modeling is this is really early days in the pilot program. So I think I mentioned earlier, it literally starts tomorrow. For that TAM that Mindy just referenced that 1.7 million, 1.8 million folks in the ACO, the patients in there and then another couple of hundred thousand in EOM. I don't foresee massive revenue opportunity for, let's say, the balance of this year. We have to build out the education for the participants. I'm going to frame it as the channel participants, which are these medical and health care practitioners and networks. So they've got to understand the value proposition that CBD represents. They've got to get comfortable with it before they're going to make the recommendations that Mindy referred to. So it's going to be a gradual build over the next 12, 18 months. And we're really positioning ourselves for how this program scales out. So we'll see an uptick, say, in that 2 million TAM over coming quarters, not a whole lot initially. And then as the Medicare Advantage program progresses, then you're talking about a very large number, I think I referenced it in my earlier talk there, Medicare Advantage is about half of the 67 million participants in overall Medicare so that turns into a very large TAM. But we've got to see the specifics around that program and how it's going to flow and what the economics are. In terms of who else is participating, there is no exclusivity. But presumably, there are going to be continuing standards that have to be followed for anyone participating in the program around quality, around safety, around efficacy. So we really like the way we're positioned because we believe we're at the highest standard as that goes. And we've got a really fulsome robust go-to-market strategy immediately to do the kind of training that I was referring to earlier as well as establishing the portal for both the consumer and the health care practitioner. So we feel very confident about the way it's going to scale, but I think it's just -- it's too premature to start modeling around that for your purposes. Pablo Zuanic: No, that's great color, Bill. And one last question on the CMS program. How is the CMS program going to be reconciled with the potential hemp ban that's going to become effective November 12, 2026. William Morachnick: Yes. You always ask the hard question, Pablo. So here's where it stands at the moment, as you're aware, but for all the folks listening. At this current time, we've got the "Hemp ban" that could trigger in November of this year. That's the way that the language in the Ag [ Appropriations ] Bill that was inserted in the continuing resolution in the fourth quarter of last year [ reads ] such that if we're capped -- if the industry is capped at 0.4 milligrams of THC per container, it basically demolishes the CBD industry as we know it. At the same time, talk about cognitive dissidence that makes your head blow up. We are deploying a program for seniors that has a 3-milligram THC cap per serving. So dramatically different scenarios. We're working very closely through our resources in Washington, D.C. and beyond to come up with a very meaningful science-backed approach to where these things can get synchronized to where there is federal regulation that has a consistency that can operate across the country that can deliver the level of efficacy that's required. So at this moment in time, it exists in a way that you framed it, if I may, that we have a potential ban on the horizon. At the same time, we're deploying a program to address seniors that have dramatically different product components to it. So we have to see how the next several months play out but we're feeling good and confident that the Griffith's bill as well as the way the FDA is looking at things is going to land in a place that is much more like the Substance Access BEI is trending as opposed to the language that we saw at the end of last year. Pablo Zuanic: I guess, Bill, before I move on, maybe just a quick follow-up. I mean, would there be a concern that maybe the participating centers will wait to have clarity on the ban before they start getting involved or not necessarily? William Morachnick: It's a fair concern and I can only share with you in the conversations that we've had thus far because we've already done our outreach to potential participants. So ACOs and EOM practices, we're seeing -- I would categorize it as a reasonably high level of enthusiasm for what we have to offer. They're very intrigued by the power that CBD brings to their patients for those need states that we talked about, that their patients suffer to a large degree from. So lack of sleep, anxiety and pain, and they're looking at CBD with a very high level of curiosity and open mind in this of how this can be a phenomenal alternative, both from a cost perspective and an efficacy perspective. So again, I think it's too early to know if I was to say, I don't have a big enough sample set to say where that will go directionally. But early indicators are leaning much more towards we want to get on board with this now because we want to provide these solutions to our patients as soon as possible. Pablo Zuanic: That's good. Look, I'll just move on to some questions about the quarter. Obviously, congratulations on the 16% quarter-on-quarter sales growth. Give more color in terms of what drove that. I know you had something in the prepared remarks, but more color in terms of what drove that? And is that sustainable? Erika Lind: Pablo, this is Erika. Thanks for the good question there. So obviously, for the increase that we had, there were several factors. We have had continued D2C momentum because our portfolio continues to diversify, and we're doing much more targeted campaigns to broaden the top of the funnel. We also purposely restructured our B2B channel so that we removed a lot of the underperforming accounts. And we also think because of that, we've got some retail customers who transitioned to our D2C portal, which has been very positive for us. And then Q4 also benefits from a strong holiday season as with many companies. So it's really the combination of those things that produce really the strongest growth we've had in quite some time. Pablo Zuanic: And then just in terms of your balance sheet, obviously, I'm looking here at the year-end '25, right, $8 million cash, you still have negative -- I mean, negative operating losses. But you do have the BAT transaction now. Maybe just to address on a pro forma basis, the state of the balance sheet and your path forward on cash management and also cash flow generation, specifically I'm asking CapEx there. Erika Lind: Sure. And I appreciate the question, and I -- and the chance to really provide context because I know it's something that people are really sensitive about right now. So obviously, we had $8 million in cash to end the year, but it does not reflect that $10 million in fresh equity through the private placement. That placement clearly significantly strengthens our liquidity and cash position. So -- but I think it's really as important to note that this conversion eliminates our $55 million in the debt principle plus the $10 million in interest and prevents us from having to pay another $12 million for the balance of the note. So that really gives us a lot of optionality. On the operating side, as you know, we worked really hard to rightsize this business. Over the past few years, we've reduced OpEx by 44.5%. That's significant. And obviously, we're going to maintain that cost discipline because that's the norm for us now. We will have some launch costs related to the Medicare pilot program, but our leaner cost structure, improved margins, the steady consumer demand that we're seeing and the additional working capital for the BAT transaction, really strengthens everything for us. And I do want to stress to shareholders that the completion of this transaction requires approval from the majority of the shareholders. BAT obviously does not vote on it. So the decision rests entirely with the independent shareholders. And I strongly want to remind everyone that their vote matters. I encourage you to enter your vote as soon as you receive your proxy, it only takes a minute online. And that would make a huge difference for us and our consumers. Pablo Zuanic: Right. And on the same subject, in terms of the BAT transaction, why did management and the Board think this was the right time to do it at this point? Erika Lind: I'll expand a little bit on Bill's commentary on that. Obviously, we have some extraordinary opportunities ahead of us. And the Medicare pilot programs DeFloria FDA pathway require us to be properly capitalized. We have to be unencumbered by debt, and we have to be positioned to execute. In this case, the opportunity drives the transaction. I -- to talk numbers a little bit, I do recognize that the conversion price is lower than the original CAD 2. But the implied enterprise value per dollar of revenue is actually higher today than it was in '22 and I think it's important for people to understand that. The lower share price reflects the company's reduced revenue base and the industry headwinds. It does not give preferential treatment to BAT. The current transaction is struck at a higher implied EV to revenue multiple at about 3.5x compared to the original '22 deal, which was at about 2.1 to 2.5x. Even though the share price is lower, the enterprise value per dollar of revenue is actually higher today. BAT is paying more per dollar of revenue and not less. And I think that's a reflection of CMMI and the DeFloria catalyst that didn't exist back then. I also know that there are some dilution realities to this. The debenture reduces the debt but it's -- the conversion reduces the debt, but that's not new money. And in terms of enterprise value, that's approximately neutral. The market capitalization increase while debt decreases by the same amount. And what fundamentally changes is the company's risk profile. The debenture overhang, the interest burden and the refinancing risks are all eliminated. This clean balance sheet all else being equal, justifies a lower risk premium, which means the same enterprise value translate to a higher fair value for equity holders over time. And the private placement represents the incremental dilution from new capital, which is approximately 5% of post-conversion shares. We believe that is a modest cost for meaningful working capital at a critical time to capitalize on our growth opportunities. Pablo Zuanic: Yes. And the only comment I would make is that, obviously, I agree that this was a source of overhang, right? I mean the stock -- your stock is up 14% up today. So seems that it was an overhang. So the clarity is helping and investors are responding positively to that. The last question on the subject. BAT now is going to own around 40% of Charlotte's Web, right? We know that BAT also own stakes in Organigram. They own stake in Sanity Group, which was acquired by Organigram. Can BAT own more than 50% of Charlotte's Web at some point or are there restrictions given that they are U.K.-based. Erika Lind: So a couple of important points on that. There are no restrictions based on the fact that they're U.K.-based. The investment is made through BT DE investments or what we call BDI. And that's a Delaware incorporated subsidiary. They will be the direct holder of the shares. However, in the agreement, there is a part 49% cap of ownership and anything beyond that would have -- would be a subject to the applicable securities laws, TSX rules and also potentially shareholder approval depending on the circumstances. So we did build into the agreement of 49% cap that protects us from that. Anything else would have to go through some measures. BAT has been very supportive. They're a noncontrolling strategic partner. And there's a governance framework in the investment rights agreement that's designed to preserve the Board independence and the management autonomy regardless of BAT's ownership. Pablo Zuanic: Right. Understood. Look at the very last question. There were some headlines this week about the FDA submitting a CBD Compliance and Enforcement policy to the White House for review. What do you expect from this week's OIRA meetings? William Morachnick: It's -- I haven't been successful thus far, Pablo speculating where these things are going to land. I want to give this a little bit of time to see how it plays out. We're really head down focused on this transaction was just completed and how we ramp up our readiness for the CMMI program. There's just so much noise in the system right now between federal regulatory, state regulatory, CMMI versus the other things that you brought up. I want to give this a beat to play out a little bit. We've got contingency plans under any potential outcome. But I think it's just -- it's too early and too speculative right now. Pablo Zuanic: Right. And if I may just ask a quick follow-up, right? So I mean, given the way the headline reads, CBD compliance and enforcement policy, is this something to make it consistent with the CMS program? Or is this something to address this hemp ban in November because I guess, I'm confused in terms of the timing and what does it relate to specifically? Because it has repercussions for both, right, in theory, for the CMS program and for what the ban may be in November. And I know maybe it's too early to say, but thank you. William Morachnick: Yes. I mean you're raising the root of why I have an upset stomach most mornings trying... Cory Pala: Bill, your line is disconnected or muted. I'm in a different office, so I can't tell if they've completely disconnected. Pablo, are you still there? Pablo Zuanic: Yes, I am, but we can leave it for a separate follow-up call if you want, Cory. Yes. Cory Pala: Yes. At the end of the day, it's too soon to know exactly where these meetings are going to go in the next few days. We are encouraged that they're occurring but too soon to speculate on exactly where that's going to go. But at the end of the day, we are seeing a convergence of policy. So that's encouraging. Okay. Well, then with that, we seem to have technical difficulties on our end, but that was your final question, I think. So we'll close it off here. I would like to thank everybody for participating on the call today. Pablo, thanks as always for your in-depth questions. And we will look forward to speaking to you all again in the coming months. Thank you. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.
Stuart Smith: Welcome, everyone, to the KULR Technology Group Fourth Quarter and Full Year 2025 Earnings Call. I'm your host today, Stuart Smith. In just a moment, I'm going to be joined by the Chief Executive Officer for the company, Michael Mo, as well as the Chief Financial Officer for the company, Shawn Canter. Both of those officers will be giving their opening remarks, and that will be followed by a question-and-answer section with management. And again, we want to thank you for those questions. Now before I begin, I would like you to listen to the following safe harbor statement. This call contains certain forward-looking statements based on KULR Technology Group's current expectations, intentions and assumptions that involve risks and uncertainties. Forward-looking statements made on this call are based on the information available to the company as of the date hereof. The company's actual results may differ materially from those stated or implied in such forward-looking statements due to risks and uncertainties associated with their business, which include the risk factors disclosed in KULR Technology Group's Form 10-K filed with the Securities and Exchange Commission on March 31, 2026, as may be amended or supplemented by other reports the company files with the Securities and Exchange Commission from time to time. Forward-looking statements include statements regarding the company's expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as anticipate, believe, could, estimate, expect, intend, may, should and would or similar words. All such forward-looking statements that are provided by management on this call are based on the information available at this time, and management expects that internal expectations may change over time. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Except as otherwise required by applicable law, the company assumes no obligation to update the information included on this call, whether as a result of new information, future events or otherwise. Now with that, I'm going to turn the call over to Michael Mo, Chief Executive Officer of KULR Technology Group. Michael, the call is yours. Michael Mo: Thank you, Stuart. Good afternoon, everyone. Thank you for joining. 2025 was a difficult year for our shareholders and for our company. Share price declined significantly, and we recorded a net loss of approximately $62 million. The majority of this loss was driven by onetime and noncash items, but it was still a loss. Our investors, shareholders, internal team members and I all felt the effects of this loss. We recognize the impact this has had, not just on our investors and shareholders, but also on our employees and partners who are deeply invested in our success. I feel that way alongside all of you. I want to acknowledge this directly. Equally as important, I want to separate what affected performance in 2025 from what matters most to the business going forward. In 2025, KULR continued to grow and invest in its core business, the KULR ONE battery platform for energy storage systems. Adversity brings clarity. It sharpens our focus, reinforce our discipline and remind us exactly what must be done. We're taking these lessons forward with urgency and intent. Our foundation is strong, our direction is clear, and we committed to executing with precision and accountability in 2026. What I want to do today is go through what we built in 2025, what we believe is the right foundation and what realistic 2026 growth execution looks like. KULR designs and builds advanced battery systems for autonomous platforms, digital infrastructure, electric transportation and space exploration. KULR ONE is our battery platform. Our progress in 2026 will be judged by core battery revenue growth and improvements in gross margin as volume and automation increase. The mission for 2026 is clear: eliminate distractions and execute with discipline. Our singular focus is to build and sell more KULR ONE batteries. That's the work, and we will do it relentlessly. I would now like to walk you through some of the 2025 financial reportings and the situation surrounding them. Shawn Canter will provide a full financial summary during his portion of the call. Under GAAP accounting, KULR recognized an unrealized mark-to-market adjustment of $13.8 million on its Bitcoin holdings for 2025. The adjustment reflects the change in Bitcoin price at the end of 2025. While this is an expense, it's not a cash expense. We have maintained our Bitcoin treasury of approximately 1,082 Bitcoins without selling any coins. We invested in and formed a distribution relationship with a private exoskeleton company. In late 2025, that company filed for insolvency. We took the full write-off of approximately $6.9 million. Clearly, this investment did not work out. The investment and the distribution relationship with this entity have been ended and the full account is in the 10-K. The lesson is clear. We must be disciplined in how we allocate capital and resources, prioritizing the growth of our core battery platform and focusing on opportunities where we have greater operational control, strong commercial visibility and direct alignment with our strategic priorities. Battery platform revenue, which is product sales plus contract services was $7.3 million in 2025. That's the commercial baseline we're scaling from in 2026. Revenue was $16.1 million, up 51%. Most of that growth came from Bitcoin mining and battery research grant dollars. The number that matters most to us in 2026 is the battery platform revenue. That's the business we're building KULR ONE around, and that's where we need to demonstrate growth. $7.6 million is where we start. I would also like to address the product sales gross margin of 1% in 2025. KULR ONE gross margin at current production volume reflects the economics of an early-stage manufacturing ramp. Three factors are driving the current cost structure. First, material pricing at current volume is high. Second, the fixed facility costs are spread across a production base that has not yet reached high throughput. Third, each new customer program carries engineering and design costs that are concentrated in early production runs before volume scales. As programs mature and volume increases, those program level costs will be absorbed across a larger number of units. All 3 of these factors compressed margin at the start of a production ramp. They will improve as volume grows. To address these, 3 actions are already in motion. First, programs that began as early prototypes are transitioning to production. Many KULR ONE Air drone battery programs are moving along that curve. Each program that crosses from prototype to volume production shifts from a cost center to a margin contributor. Second, we're installing an automated production line in second half of 2026. Automation reduced per unit labor cost and improves yield consistency at scale, both of which will directly impact gross margin. Third, the KULR ONE platform itself is maturing. As more programs are built on the same modular architecture, engineering and design work required to onboard new customers decrease. That ratio continues to improve as platform accumulates application experiences across defense, aviation, telecom and data center use cases. In summary, we do not view 2025 margin profile as the end state of the business. We view it as the current economics of low-volume production before programs mature, automations in place and production volume grows. What we built in 2025 is the foundation for our growth in 2026. Our headquarters facility is a vertically integrated battery production center from design, prototyping, cell screening, qualification test to volume production. We're working with domestic battery cell suppliers to strengthen our NDAA compliant supply chain and our customer base has grown across 6 diverse industries. We have an experienced and dedicated team, solid financial resources and a broad customer base to grow our business. We have learned the difficult and valuable lessons. We're now focused on execution, ship more batteries. You may ask the question, why now? Why 2026 is the year for change? High-growth markets that KULR serves, autonomous platforms, direct energy systems, digital infrastructure, they all share a common technical constraint, power density. The demand for high-power battery pack has emerged, and that's the biggest growth driver for us. The requirement is not simply to store more energy, but to deliver at high C-rates than the standard battery. Oftentimes, this must be done in challenging environments that include extreme temperatures, high G-force, vacuum conditions and underwater pressure without thermal failure. That's not a commercially available battery problem. That's a specialized battery problem. It requires a battery architecture specifically designed for high-power and thermal stress operation. Simply put, these customers often cannot rely on off-the-shelf battery packs. They need high performance, safety and reliability, all in one package that can deliver fast at commercial prices. KULR ONE is built to that specification. It starts with building the right architecture and then select the right battery cell partners. KULR ONE is a modular and customizable architecture to meet customer needs across multiple end markets. We currently have over 30 active customer development programs in KULR ONE Air, KULR ONE Space, Guardian and Triton, which is our new maritime platform. Those programs are at different stages from evaluation to development through more advanced commercialization work. They represent a broad pipeline of revenue growth for KULR ONE as we move these customers from design into production revenue in 2026 and beyond. KULR's cell partnership reflect the same focus. We have worked with both Amprius and Molicel for a long time. They focus on high-power and high-energy density batteries. Those partnerships are a deliberate long-term strategy to maintain access to the most capable battery cell technology available as power density requirements with KULR's markets continue to advance. The combination of KULA ONE system architecture and advanced power cells from our partners give our platform a development road map that extends well beyond the current production configurations. Next, I'll give you an update on our KULR ONE Air. KULR ONE Air, which was launched last year to support the drone industry is now expanded beyond just air-based autonomous systems. Just in the KULR ONE Air category, we have over 20 active engagements to develop specialized battery systems for many high-profile unmanned systems companies that operate in the air, ground and maritime markets. The intensive work accomplished in 2025 to ramp our engagement with these demanding customers will start to become apparent in 2026 as their programs and system evolve from development to deployment. Let me share with you why KULR ONE Air is the right platform for this market. Autonomous systems like drones and robots operate by executing rapid and high-intensity physical action. Their motors accelerate a takeoff. Gimbals stabilize under heavy load. Sensors are firing at the same time and their control systems respond in milliseconds. Each of these actions demand a large amount of current and power delivered instantaneously. Energy batteries, the kind of optimize for energy density and releasing it gradually over a long period of time cannot respond fast enough and sustain the discharge rate, these actions require without overheating or collapsing the voltage. A power battery is designed around the opposite priority. It's built to deliver power at 5 to 20x faster than energy batteries. It also needs to sustain that output through repeated high demand cycles, and it needs to manage the heat generated by the power without failure. For autonomous system where the motor, the sensors and the computers are all cranking at peak current at the same time, only a power optimized architecture can keep up. The engineering challenge of a power battery is not simply to build a bigger or stronger version of an energy battery where heat and thermal stress is manageable. For power batteries, heat dissipation becomes the primary engineering constraint. The design needs to be lightweight enough for the platform to fly and high component and manufacturing quality to sustain the performance. For example, a single defect in welding and soldering joints will result in such a high-energy battery creating a resistance point that at high discharge rate generates enough localized heat to drive the entire pack into thermal runway. KULR ONE address each one of these constraints through a combination of engineering expertise, proprietary technology, thermal control, component integrity and build precision. That's what separates KULR ONE battery that perform in the field from one fails under operational load. Our current engagements span agriculture, survey, law enforcement, defense drone programs and surface and subsea maritime vehicles. The breadth of the applications reflect the platform's configurability. It's the same KULR ONE architecture adopted to the specific power, weight and certification requirements for each platform. KULR has shipped thousands of these drone battery packs to date. We're engaged with 2 of the leading unmanned aerial system companies in the United States with a combined production volume target to approach 10,000 packs per month in second half of 2026. These are active engineering partnerships with production time lines, pack configuration and qualification schedules already in place. Another point -- another important point I'd like to make is about supply chain resilience, namely NDAA compliance that stands for National Defense Authorization Act. The NDAA compliance is a procurement requirement for government and defense adjacent customers. KULR entered a joint development collaboration with Hylio to design, prototype, qualify and manufacture NDAA-compliant battery systems in Texas. Hylio is a Texas-based designer and manufacturer of drones for agriculture and public sector programs where NDAA compliance becomes important. Both the batteries and the drones are made in the United States. Next, I'll give an update on our other KULR ONE programs. KULR ONE Space and KULR ONE Guardian are the 2 programs that set the performance standards for the entire KULR ONE portfolio, both operating environments where battery failure is not recoverable, human space flight, deep space missions and active military operations. The engineering standards that we develop for these programs are what the rest of the KULR ONE platform is built on. Every performance requirement met in the spacecraft or combat system, propagation resistant, thermal stability under extreme conditions, certification under scrutiny raised the engineering baseline that KULR ONE Air, Max and Triton inherit. Customers in defense drones, electric aviation, AI data center programs are buying into this architecture that has already been qualified in the most demanding operating environment. KULR continue to see adoptions across the space sector. The XLT and the Reach series batteries are in active use across multiple satellites in both LEO and GEO applications. The Reach series currently is in multiple unit deployment on 4 partner satellites. Next, I'll talk about what are the competitive advantages of the KULR ONE platform. The #1 competitive advantage for the KULR ONE platform is the performance, safety and quality standards the platform was built to. KULR ONE's core IP originated by the work we've done with NASA Johnson Space Center. The architecture was designed for human-rated spaceflight applications, environments where battery failure is not a recoverable event. Zero propagation failure has a propagation containment. That heritage is the engineering foundation that makes KULR ONE the correct choice for applications where performance and safety are both nonnegotiable. A perfect example of that advantage is our partnership with Robinson Helicopters. Robinson Helicopter Company has manufactured more civil helicopters than any other company in the world in its 50-year history. They have manufactured more than 14,000 helicopters. The procurement standards for safety critical systems are established and rigorous. They valued KULR ONE and selected to be their next electric aviation platform. That decision is important because it further validates the engineering standards KULR ONE was built to. Under this co-development agreement, KULR will design and integrate a lightweight, high-performance battery architecture for the eR66 battery-electric helicopter demonstrator. We're building a dual life architecture, which means that each pack is engineered from day 1 for 2 years. First for primary flight cycle and a certified second life energy storage application. This model creates 2 revenue streams for KULR. The primary use case are rapid organ and tissue transport, emergency response and short-haul operations where zero emission performance and low acoustic signature are operational requirements. Second life energy storage is for industrial and digital infrastructure applications. Execution speed is another KULR ONE advantage. Not speed is a marketing claim, but speed as a demonstrated and repeatable engineering capability. In November 2025, we received a purchase order for a 400-volt battery system to power a Counter-UAV (sic) Counter-UAS direct energy platform. Five weeks later, we developed -- we delivered a complete design package to work in prototype. Achieving that time line was made only possible because of the deliberate engineering foundation we built in 2025, including model-based electrical and thermal simulation, proprietary cell selection, design for safety architecture and in-house integration running electrical, mechanical and firmware developed, all in parallel. This system is scheduled to enter production in 2026. Next, I'll provide an update on KULR ONE platform for digital infrastructure and AI data center applications. Our digital infrastructure strategy addresses 2 distinct but related segments, telecom network backup and AI data center power. Both require battery systems that must perform reliably, but in different operating environments. Telecom sites face grid instability across diverse geography, while AI racks increasingly require battery integration closer to the compute equipment itself rather than rely on centralized UPS systems. Telecom operators depend on the battery backup as a primary protection against grid interruptions. 5G infrastructure laws are raising the performance and uptime requirements for those systems beyond what legacy lead acid installation can meet. In January 2026, KULR was awarded a 5-year preferred battery supply agreement from Caban Energy, a Miami-based company that deliver energy as a service to telecommunication operators across 12 countries. As part of that transaction, KULR has taken full control of the battery manufacturing equipment and process, and we've commenced production. Production battery packs were delivered to Caban in Q1 of 2026. We plan to consolidate full operation into our Texas facility in Q2 to improve efficiency, reduce overhead and centralize operation as we grow. We now have the supply chain set up for the 48-volt 100-amp hour battery production and the focus is to deliver batteries to meet growing Caban demands. Beyond that agreement, we're in active engagements with telecom operators and service providers directly with our KULR ONE battery as a Service offering. These are separate from the Caban channel and represent KULR's effort to build direct recurring revenue relationships in the telecom segment. Data centers have traditionally handled battery backup the same way with large power systems installed in a dedicated room, separate from the computing equipment they protect. That model is changing. As AI workloads grow and hardware running them becomes more power intensive, the industry is moving towards battery backup installed directly inside the computing rack. The battery is no longer just a facility utility. It's become part of the compute infrastructure itself. That shifts create a different set of requirements. A battery that operates inside the rack next to the processor, it protects needs to meet much higher safety standards and need to handle higher voltages and respond much faster than conventional backup systems. At the end of last year, KULR joined the Open Compute Project as a Platinum member. OCP is an industry body whose specifications define how hyperscalers and large cloud operators build their infrastructure. Platinum membership places KULR in the working groups writing the next generation of power standards and position us inside the relevant technical working groups and help us to build a product in line with where the market is going. In the same month, KULR created a joint development collaboration with a leading global battery cell manufacturer to develop the KULR ONE MAX BBU for AI scale data centers. KULR leads the system design, safety engineering and certification, while the cell partner supplies the battery cell platform for the life of the commercial program upon certification. The opportunity is significant, and it depends on certification, qualification and customer adoption time lines. The same trend that are driving record level battery demand in large data centers is also driving demand at the edge. AI inference, the process of running AI models to generate response is moving out of the central data centers into network itself closer to the end user. That means that the computer hardware and the battery backup protecting it must operate in telecom facilities, cell towers and distributed network nodes. The environmental and reliability requirements at these locations are more demanding. This is where the AI data center opportunity and the telecom opportunities converge. The battery requirements are related, the customer base overlap and KULR ONE is the same architecture to save both. Next, Shawn Canter will discuss financial highlights. Shawn? Shawn Canter: Thanks, Mike. 2025 was an important year for KULR. As Mike mentioned, it marked a transition to a scalable product-focused model. Let me touch on a few points from 2025 before we get to the Q&A. KULR generated over $16 million in revenue in 2025. This is a 51% increase over the prior year. As we have previously discussed around our focus on product, our product revenue increased and our service revenue declined. Product revenue was up 39%, while service was down 50%. Again, while we expect to have some service business, we anticipate continued growth to come from the product side of the business as we scale into the large end markets Mike discussed earlier. Product revenue came from 47 customers in 2025. Revenue per customer was approximately $108,000 or 56% higher than 2024. Services revenue came from 34 customers, the same as 2024. Services revenue per customer in 2025 was approximately $65,000 or 50% lower than 2024. Mike touched on gross margins earlier. We have set out in detail information about gross margin, R&D and SG&A in the Form 10-K filed today. KULR recorded an approximately $62 million net loss for the year. There is an aggregate of approximately $33 million of noncash expenses on the income statement that contribute to the net loss. These represent almost 55% of it. As Mike mentioned, the largest of these is an approximately $14 million mark-to-market expense due to the decline in the price of Bitcoin. As a reminder, in the second and third quarter, Bitcoin's ascending price contributed a noncash gain to those quarter's results. Now let's get to the Q&A. Back to you, Stuart. Stuart Smith: All right. Thank you very much for that, Shawn. And as mentioned, that now takes us into the question-and-answer portion for our call today. And here's the first question. Can management speak to which markets are seeing the most momentum today and where early customer interest is starting to turn into repeat business and meaningful revenue? Michael Mo: Yes, Stuart, I'll take that one. I would say the KULR ONE Air for the autonomous platforms are the clearest near-term production momentum. It has expanded beyond the airborne drones to surface and subsea maritime applications as well as land applications. We now have over 20 active customer development agreements or programs across our KULR ONE Air platform. Thousands of battery packs have already been shipped and 2 of the leading drone companies in the U.S. have active production time line with us, pack configurations, qualification schedules in place, and we're looking at over 10,000 battery packs per month later 2026. I would say that's the market has the highest momentum these days. Stuart Smith: Thank you for that, Michael. Here's the next question. Could you give an update on where KULR is positioned in the AI data center backup power market? And what investors should be watching for to know whether this can become a meaningful source of growth? Michael Mo: Yes. We start developing our AI data center BBU product in 2025. And at the end of 2025, we joined the OCP platform membership and which positions us inside the working group that writes the next generation of the power standard for these hyperscaler infrastructures. So now we're building products to meet where the market is heading for the next cycle of growth. 2026 is the year that we really need to work with our BBU cell providers on the UL 9540 certification and work with the hyperscaler customers on integration work. And I would say that 2027 is the year that we can see revenue opportunities. Stuart Smith: Next question. Where do things stand in telecom and energy infrastructure? And what still needs to happen before those opportunities can start contributing in a bigger way? The Caban announcement was a great start. Michael Mo: Yes. We've taken control of the battery manufacturing equipment and process from Caban, and we've commenced production. Production battery types have been delivered to the customer, and we plan to consolidate that into our Webster facility in Q2 and improve efficiency to reduce costs and also centralize operation as we grow. We now have supply chain set up for the 48-volt 100-amp hour battery production, and the focus is now to deliver batteries to meet the customers' needs. In addition, we are in active engagements with telecom operators and service providers directly to provide KULR ONE batteries as a battery as a service offering that's separate from the combined channels. So we're starting to test the water to offer that as the battery as a subscription service. And the goal is to lower the total cost of ownership for operators to replace the lead acid batteries into lithium-ion batteries. Stuart Smith: Michael, since KULR is involved in several areas like aerospace, defense, telecom, e-mobility and data centers, where is management most focused right now? And where will most of the company's attention and resources go over the next year? Michael Mo: Yes. The focus for 2026 is simple, build and sell more KULR ONE batteries. The management is most focused right now on the KULR ONE Air platform. That's the one that shows the highest growth with our customers. I think I repeated it now that we have over 20 active customer engagements for the autonomous systems for air, land and maritime, and we shipped thousands of the battery packs for the customers. And this is the one that we see the highest growth in 2026. Stuart Smith: Looking at the rest of 2026, what are the biggest goals and milestones investors should be on the lookout for? And what would management consider a successful year? Michael Mo: Well, I think that the -- across our portfolio, the KULR ONE Space and Guardian products will continue to gain customer traction. As you know, the private space exploration and the DLW the market is also very growing very quickly. The telecom batteries, we're shipping volume to our customers to meet their demands. We have some new telecom operators that hopefully will get contracts in 2026 for Battery as a Service. Keep in mind that these operating engagements can take some time, but I think it could be a very good recurring revenue business for us. The first is the -- but the most important is the KULR ONE Air product that's going to ramp and scale with our customers. And I think the baseline is 10,000 packs per month as we get our automated production line going. So I think these are the big ideas for our goals. Stuart Smith: Okay. Excellent. Next question then, how stable and repeatable is the KULR ONE platform revenue base becoming? Michael Mo: Yes. Like I said in the prepared remarks, what has fundamentally changed for KULR in 2026 compared to previous years is that the need for power battery pack has emerged for these very fast-growing new markets, autonomous platforms, digital infrastructure and direct energy. KULR ONE is engineered from the ground up to serve this paradigm shift. And our customer engagements are now broader industry coverage. The customers are very diversified in different markets. And we also have a lot more customers and they all have their programs that's running, and we're customizing our solutions specifically for their programs. And these customers have their own road map to ramp in volume in 2026. And that gives us more confidence and build our production capability to serve these customers on schedule. We're certainly moving to a more stable and repeatable product sales business model in 2026. Stuart Smith: All right. Michael, next question is, as space-based AI data centers become more of a long-term discussion point, does KULR see a potential role there given its background in space applications, thermal management and battery safety? Michael Mo: Well, first of all, I think this is a long-term conversation, and it is not something KULR can focus on in 2026. But the space-based AI data center is probably one of the biggest and the hardest idea right now. Elon Musk talked about it. He believes that the best way to solve the difficulties of building AI data center on earth is to move them into space. And at GTC 2026, NVIDIA launched the Space-1 Vera Rubin module along with their Thor and Jetson platform. And these are engineered to deliver AI performance for the open data centers. And on top of that, how to cool chips in space is still an unsolved problem. These data centers will definitely need to use space-proven batteries. And some of these private space companies that NVIDIA is working with for space AI data centers are already KULR customers. So I think there might be opportunities, but not particularly a focus for us in 2026. Stuart Smith: Understood. Here's the next question. You have recently announced drone partnerships with Hylio, a backup power partnership with Caban Energy and a standards body looking to modularize AI data center building blocks. These 3 initiatives represent a large market opportunity, but how much, if any, will you see in 2026? Michael Mo: Yes. Hylio and Caban are both 2026 revenue contributors, Caban in production by now and grow for the remainder of 2026. Hylio is an active engineering collaboration right now and revenue will follow qualification and production milestones as program move from prototype to volumes. And we do expect that the Hylio revenue in second half of 2026. The AI data center BBU business, as I talked about, it will be more like a 2027 business for us. Stuart Smith: Michael, here's the final question for today's call. In regards to your ability to power drones. Given the recent developments globally, are you aligning yourself with companies that plan to rapidly increase output as a result? Michael Mo: Yes. KULR ONE Air for drone, autonomous platform is the focus for KULR 2026. We have many active engagements for air, land, maritime applications. And many of them will go to production in 2026. And we're setting up an automated production line for those platforms, for those batteries in -- to be in operation in second half 2026. Also related to the drone is the counter drone direct energy systems, and we develop a 400-volt battery for a customer in 5 weeks' time from when we receive the PO. And that's actually a record time for a system like that. And these systems will go into production in 2026. Another one that's really important is NDAA compliant. So that's for domestic production. A lot of times, that's a structural requirement for government drone programs. And this is why we partnered with Hylio to build made in U.S.A. batteries and drones together. So we are very well positioned to serve many of these customers that's growing very fast for both defense and commercial applications in 2026. Stuart Smith: Well, as mentioned, that's our final question for today's call. I do want to point out, as we do in all of these calls that all you need to do is pull up the press release that came out for this call, which came out March 26, and continue to send your questions in throughout the quarter leading up to our next call. We appreciate all of those who did submit calls for questions for today's call. And I would like to thank Michael Mo, CEO for KULR Technology as well as Shawn Canter, the CFO for KULR Technology Group for joining us here today. That concludes our call, and I will now turn the call over to our operator. Operator: Thank you. This does conclude today's webcast and conference call. You may disconnect at this time, and have a wonderful day. Thank you once again for your participation.
Gary Friedman: There are pieces that furnish the home. And those who define it. There are places you visit. And those you remember. There are spaces you move through. And those have moved you. Welcome to the world of RH. Albert Einstein's Three Rules of Work: Out of clutter, find simplicity; from discord, find harmony; in the middle of difficulty lies opportunity. Seem especially relevant at this moment. We're compounding clutter from tariffs, global discord as a result of war, and the most dire housing market in decades can make it difficult to separate the signal from the noise. It's important to remember necessity is the mother of invention. And our most important innovations were birthed during the most uncertain times. Transforming a nearly bankrupt Restoration Hardware into RH, the leading luxury home brand in North America was not a feat for the faint of heart. While the external challenges are somewhat familiar, our internal opportunities are massively different. We're not closing stores and fighting to survive. We're building a never seen before brand that's positioned to thrive. Before we get into the details of our strategy, let's start with a few facts that should quiet some of the noise. In 2025, RH achieved revenue growth of 8% and 2-year growth of 15%, far outpacing our furniture industry peers by 8 to 30 points. Adjusted EBITDA reached $597 million, or 17.3% of revenues versus $539 million or 16.9% of revenues in 2024. Free cash flow of $252 million versus negative free cash flow of $214 million in 2024, an increase of $466 million year-over-year. Those results were despite 2025 being our peak investment year with $289 million of adjusted CapEx to support our global expansion plus an additional $37 million to purchase the Michael Taylor, Formations and Dennis & Leen brands to support the launch of our new concept, RH Estates, a strong performance considering the unusual circumstances. Let me shift your focus to our strategy and how we expect our growth to accelerate over the next several years. We believe there are those with taste and no scale, and those with scale and no taste. And the idea of scaling taste is large and far-reaching. We believe our goal to position RH as the arbiter of taste for the home will prove to be both disruptive and lucrative as we continue our quest at building one of the most admired brands in the world. We like to use a simple question to frame our significant opportunity. Who is the home brand for the luxury customer? The LVMH, Hermes, Cartier or Cucinelli customer. RH has curated the most compelling collection presented in the most inspiring spaces in the world. Our brand attracts the leading designers, artisans and manufacturers, scaling and rendering their work more valuable across our growing global platform. Our product is both categorically and stylistically dominant, enabling RH to address the largest market of any brand of its kind. We curate across the 7 major product categories: furniture, upholstery, outdoor, lighting, linens, rugs and decor, and we integrate across the 3 dominant product styles, traditional, contemporary and modern, which we refer to as RH Estates, RH Interiors, and RH Modern. RH Estates, our newest brand extension, launching this spring, will address the traditional market where the RH brand is currently underpenetrated. 60% of luxury homes feature classic or traditional architecture, which influences the majority of furniture purchasing behavior. RH Estates will feature the introduction of RH Bespoke Furniture, customizable collections from our recently acquired Michael Taylor, Joseph Jeup, Formations and Dennis & Leen to the trade brands. RH Estates will also include the introduction of RH Couture Upholstery by Dmitriy & Co., tailor-made sofas, sectionals and chairs of arguably the highest quality upholstery available anywhere in the world. Designers will be able to order custom made sizes and finishes plus specified COM fabrics. RH Bespoke Furniture and RH Couture Upholstery will enable interior design firms to now specify RH for their most discerning clients and custom projects. RH Estates will also include collections from many of the most talented designers and artisans in our industry. Let's take a look at some of their work. [Presentation] Gary Friedman: RH Estates will premiere at the opening of RH Milan, the gallery on the Corso Venezia, a 70,000 square foot former palace, during Salone, the largest design show in the world with an estimated 500,000 visitors descending on the city that week. The launch of RH Estates will include a dedicated source book, mainly mid-May, and international advertising campaign and freestanding Estates Galleries in Greenwich, Connecticut and the San Francisco Design District opening early summer. And the West Hollywood Design District opening in 2027. We believe RH Estates will become our largest and highest margin brand extension, driving significant growth over the next several years. Let me shift your attention to our multidimensional physical-first global ecosystem, the world of RH. That goes far beyond a typical multichannel approach, inspiring customers to dream, design, dine, travel, and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in our industry. The question we often are asked is why physical first in a digital world? Let me explain. Furniture remains the least digitized large retail category with an 80-20 store to online split, with luxury furniture estimated to be as high as 95.5%. Why do stores still dominate? Comfort, scale, finish and quality are hard to judge online. Even when customers purchase on a website, most experienced the product in a store, we believe the physical manifestation of a brand will continue to be significantly more valuable than an invisible online way. We also believe most retail stores are archaic windowless boxes that lack any sense of humanity. That's why we don't build retail stores. We create inspiring spaces. Spaces that are a reflection of human design, a study of balanced symmetry that creates harmony. Spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality, spaces with garden courtyard, rooftop restaurants, wine and barista bars. Spaces that activate all of the senses and spaces that cannot be replicated online. While most have been closing or shrinking the size of their stores, we've been building some of the largest and most immersive spaces in the history of our industry. Let's take a look at our most recent work. [Presentation] Gary Friedman: We believe our investments in building completely unique, immersive experiences in Paris, Milan and London, we'll set the stage for RH to become a truly global luxury brand. It's important to understand that there are several strategically significant businesses embedded in our galleries, including RH Interior Design, where we become the largest residential interior design firm in the world, with projects from San Francisco to Sydney, Los Angeles to London, Miami to Milan, and Dallas to Dubai. We offer design services, including interior architecture, landscape architecture, art and antique curation and turnkey installations. Another important business embedded in our galleries is RH to the trade, a specialized team that calls on services and supports interior design firms assisting in the design, curation, delivery and installation of many of their projects. RH Hospitality operates beautifully integrated restaurants, wine and barista bars in our galleries that generate significant traffic and brand awareness. While our galleries might see several hundred customers per week, our restaurants feed several thousand. With 26 restaurants in operation today and are scheduled to reach 40 by the end of 2027, RH is 1 of only 7 globally owned and operated luxury restaurant brands with 20 or more locations worldwide. We believe our galleries create a unique competitive advantage that will likely never be duplicated in our lifetime as the cost of construction at the luxury level has doubled post-COVID. To address that challenge, we've developed several immersive new gallery concepts that will enable us to scale in a faster and more capital-efficient manner. The first, the most revolutionary is what we call an RH design compound, currently in development in Naples, Miami and Walnut Creek, a compound is 6 to 8 independent buildings connected by beautifully landscaped garden courtyards with a sun-filled atrium restaurant anchoring the project. Due to the absence of multiple stories that require steel structures, grand staircases, elevators, complex mechanical systems and long development time lines, we believe we can build design compounds significantly faster and more capital efficient than our prior design galleries. Another new approach to deploying the RH brand in a faster and more capital-efficient manner is what we call a design ecosystem, currently under construction in Greenwich and Palm Desert and in the development process in West Hollywood Design District. An ecosystem is a multi-building brand presence on a street, in a neighborhood, design district or shopping center. Our first ecosystem will be in Greenwich, Connecticut, and includes our gallery at the Historic Post Office, our new outdoor gallery opened last year, and our new RH Estates Gallery with an integrated restaurant opening in the former Ralph Lauren building this summer. We've also developed a new single-story gallery, ranging from 15,000 to 20,000 square feet with a dramatic courtyard restaurant targeting secondary markets. We're currently under construction in Los Gatos, California and are in design development for galleries in Richmond and Milwaukee. We have been extremely pleased with our performance of our first freestanding RH Interior Design office in Palm Desert, California and have plans to open a second interior design office in Malibu this fall. In total, we have an opportunity to expand our presence in 27 existing markets, and open 1 of our new design concepts in 48 new markets across North America, representing a $2 billion opportunity. Let me shift your attention to our business model and balance sheet. While we believe it's prudent to plan conservatively this year due to uncertainties around interest rates and inflation, and have planned revenue growth in the 4% to 8% range in 2026. We do expect growth to accelerate to 10% to 12% in 2027, and reach $5.4 billion to $5.8 billion by 2030. Adjusted EBITDA in the 14% to 16% range for 2026, reaching 25% to 28% by 2030. We expect cash flow of $300 million to $400 million in 2026, and $500 million to $600 million in 2027, inclusive of $200 million to $250 million of asset sales each year. We expect cumulative cash flow of $3 billion by 2030, inclusive of the asset sales and expect to be debt-free by 2029. While one might look at the current market discord and argue that RH has been in the wrong place at the wrong time. I would argue we've used this period to position our brand to be in the perfect place at the perfect time. Let me explain why. There are two important factors that will meaningfully expand the size of our market over the next 10 years. One is the exponential spending of high and ultra-high net worth consumers on the home. Ultra-high net worth consumers with a net worth above $20 million, own on average 3.7 homes, billionaires own 10. Ultra-high net worth consumers spend 6.4x more on home furnishings than a consumer with a single primary residence. Two, is the estimated $30 trillion to $38 trillion wealth transfer projected to take place over the next 10 years, which is more than double the past 10 years. Not only does the absolute dollar amount more than double, it's estimated that the dollars transfer from one to an average of 7 people. It's possible over the next 10 years our market will be multiple times larger than the past 10 years. When you combine that with our efforts to elevate and expand our product, globally expand our platform, generate significant revenues and brand awareness with our immersive hospitality venues, I would argue that the RH brand is in the perfect place at the perfect time. And we will emerge from this period of clutter, discord and difficulty as one of the highest performing and most admired brands in the world. Allison Malkin: [Operator Instructions] Your first question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: First question, I want to talk about demand signals from the consumer. This has been a transitional period for the company. I realize the demand is outpacing a lot of other home furnishing companies, but it's come at a pretty big cost to margin. So expectations around demand improving while we see the margin of the business begin to turn. That's my first question. Gary Friedman: Simeon, the margin pressures somewhat disconnected and unrelated from the demand. The margin pressures really from -- kind of the investment cadence we have as far as expanding the business throughout Europe and some of the margin pressure coming from the tariffs, from a transition and timing and resourcing. But you basically have kind of an inflection point of we're in kind of a peak investment period from a capital and an expense and cost perspective based on the investments we're making, both from a global expansion and North American expansion point of view and from a product point of view with the launch of RH Estates. I think you have to think about the launch of RH Estates in Q2, we'll have significant costs with sourcebook and advertising and launching costs, without having much revenue until we get into the third and fourth quarter. And Estates is, remember is basically running late. Our original plan was to have Estates in the third and fourth quarter last year. So we have some timing issues. I think when you think about the significant investments we're making, both from a capital and expense perspective, and we're going through kind of an unpredictable time. So I think that's why it's important as you're looking at the business, you're looking at the model, if you're thinking about being an investor here, you have to have a longer-term view than a shorter-term view in periods like these. And in many ways a lot of people are going less than we're going right as people are pulling back and trying to manage the margin side of their business, we're investing in the most significant way we have in our history, and that's just going to create some timing dislocations from an earnings perspective. Simeon Gutman: And then my follow-up, you made a couple of executive leadership changes, one, a new President and two, a second person. And in the release you talked about potentially helping monetize some of the real estate. So can you talk about both of those hires, what prompted them? And then what does it speak to about the direction of the business you are heading in? Gary Friedman: Well, I think it's explained in the press releases. I don't know if there's anything different than that. We mentioned -- we're extremely happy to have Dave Stanchak rejoined Team RH. He's -- has made a significant impact while he was here, both from a North American transformation point of view and a global transformation point of view and was involved in really setting up the structure of the real estate for European expansion. And so it's good to have Dave back. And I think, Dave, it's probably the most, I think experienced real estate executive on a retail point of view because he's -- both -- not someone who's just been involved with mall leasing and -- which is typical, when you think about most retailers, Dave's been involved in real estate investments. He is an investor. He's had his own shopping centers and controls real estate themselves. So he comes out from an investor perspective, a much bigger perspective and it's a kind of a transformational leader as you think about a unique business like ours and the platform we're building, which is unlike anything anybody else is doing or has done at a level of quality and locations and so on and so forth. So there's not anything that I didn't talk about, I think, in the press release. And then with Veronica's joining RH, we've known Veronica for a long time. We've been able to observe her and her leadership and her ability to build what we think is one of the leading manufacturing businesses in North America for an upholstery point of view. But mostly what we, I think, think about here is not just the upholstery part of our business. But if you think about the best luxury models in the world, whether you're looking at Vuitton or Hermes, or CHANEL or others, one of the things that's very unique with their business models as they have a very concentrated core business, 80% of their business is in the leather goods and accessories part of the business. It's very similar to our business from a penetration point of view, 80% of our business is furniture, that's typical if you look at the home furnishings business. So if you're in all categories, that's going to directionally be the mix depending on how you position those categories. And we think there's an opportunity when you look at our business from a global scale and building a unique platform that's synergistic and appropriate for the unique platform we're building from the selling side. I think we've built -- have built and are building the most unique physical selling platform in the world. And I think it deserves and will be positively impacted by building the most unique manufacturing and sourcing platform in the world. So eliminating, when you think about the inefficiencies of manufacturing, when you don't -- when you don't control your distribution, there's quite a bit. So long term we think we can build a unique manufacturing platform. And as I said in the press release, a combination of owned joint venture and outsourced that can be very unique and significantly accretive from a -- we think both a revenue and a cost perspective and a margin perspective. So yes, so we're excited. We think Veronica is the best person in the industry we've met. I think she's a unique talent leader. She's an engineer by education and experience, and has a big -- and very big and kind of strategic view of manufacturing and sourcing. So it's a new level of talent in the company. We've never had someone this kind of pedigree and experience and talent, and we think she's going to do some incredible things long term. Allison Malkin: Your next question comes from the line of Steven Forbes with Guggenheim Securities. Steven Forbes: Gary, with Milan and London slated to open here in short order, curious if you could give us an update on RH Paris and/or just comment on the anticipated revenue contribution from the broader RH International strategy behind the 2030 reference year you laid out in your prepared remarks. Obviously, just looking today, any color to help support or build conviction around those longer-term outlooks you laid out today? Gary Friedman: Not sure if I get that question correctly. Jack Preston: The impact of international as it relates to the 2030 targets, how we think about that growth of that. Gary Friedman: Yes. Well, I think what we've articulated most recently over the last few quarters and really since, I think, our start, really that the opening of Paris, Milan and London is kind of the brand foundation to build on when you think about European expansion. There are the three most important cities in Europe, we think they're important from a positioning of the brand and a brand awareness point of view. And all three of those are really the besides, again, RH England, which is out in the countryside, which was important from a brand impression and awareness perspective and how to kind of make an entry into the European market. But these really are where we have significant investments in the presentation of the product that hospitality experience, which we think is going to be critical long term to building brand awareness throughout Europe. And then one of the keys here is really not just these key stores because if you -- as we assess the business in Europe, and we have since day 1, I believe that the basic distribution and where the sales will come from will be long term, more important in suburbs and second home markets than cities that the cities are really going to be the key to brand awareness and driving the brand, positioning the brand, and we'll do significantly more revenues, we believe, in Paris and Milan and London than we will in other cities. And if we were ranking them, clearly lending, we believe, going to be the biggest market for us as it should be. But our distribution of business is significantly suburbs and second home markets in North America. 90%, 92% of our business is in suburbs and second home markets. And second home markets are kind of like a suburb, right? And about 8% of our business is in the cities. And we think that distribution is going to be similar throughout Europe. And if you looked at Apple's real estate strategy and you look at their distribution throughout Europe, which we believed was a good kind of model for us to look at as far as a higher-end consumer. And you looked at like Apple's North American kind of distribution versus our North American distribution, their penetration in suburbs, our penetration in suburbs. There are similarities there. We're more highly penetrated into second home markets than they are. Most people have their phone with them. But one of the keys for, I think, Dave is joining the company, too, is just to continue that leadership into Europe and building out into the suburbs and into the second home markets to cover the business. So strategically, we're setting up the business in the kind of key markets that you would from a brand and awareness perspective and not that we don't think that the business is going to have revenues there. We just think the biggest revenues are going to come long term when you think about the longer-term plan as we expand into the suburbs and [ certain end ] markets where people really buy much more furniture, both indoors and outdoors. Steven Forbes: Maybe just a quick follow-up. Obviously, great to hear Dave rejoining the company. You talked about -- you talked about $250 million of asset sales in each of the next 2 years. This is sort of a 2-part question. One, can you speak to sort of the value of the non-core assets or the assets that you don't plan to operate in the future versus the value of the assets RH is still planning to operate in the future. And then maybe any color on sort of timing for 2026 asset sales as we think through the potential interest expense savings. Gary Friedman: As far as that mix, I'd say the majority of the asset sales are assets that we will be operating that are in a sale leaseback kind of properties and then there's some investment properties that we had in Aspen. And a few other things that we've decided not to pursue for whatever reason, we own a building in Milan -- not Milan, excuse me, Madrid, and we're not going to pursue the development of that. We're fine with the location we have today. And so it's just looking at -- taking a look at our balance sheet and just turning the facets into cash, as we said we would be doing. So we've said we have about $0.5 billion of real estate assets that we could monetize. And we're going to begin to monetize those. Dave has got tremendous experience on that end of real estate. So -- and he feels very confident in what we're going to be able to do. And some of these are properties that we had purchased and had developed over the last 2 to 3 years, I guess. You got to think about a lot of our investment horizons are pretty long from a -- when you think about some of the galleries that we've built, you've got significant time to design and develop and get through the approval process and then you've got significant time building them. So you have a relatively long holding time. And I think post-COVID, all of the construction cost have went up, particularly at the luxury level. And those prompted us as we communicated in the video, to develop just other faster, more flexible ways to deploy the brand. And when you think about the design compounds and think about where the first couple are going in Naples, we're taking that what was formerly a Nordstrom's site in Walnut Creek, we're taking what was formerly a Neiman Marcus site. And then in Miami, we're developing kind of a parking lot size kind of a key visible area in Miami, that was kind of Bank of America. But we think about those opportunities to be significantly faster and more capital efficient. We've built most of our big, kind of, I'd say, the higher investment, higher capital side of the business, we've been transforming the real estate here now for 15 years. And so even on a European and global point of view, I would say that we have Sydney coming, but that's a different model that's really being built by the developer. It's not going to take much capital from RH. But yes, we have significant assets. We're going to now monetize, turn into cash, and then we've got some assets in Aspen and other things like that, that will monetize over time. So yes, so a lot of that will come off the balance sheet. I don't know, Jack, do you have anything to add on? Jack Preston: No. I think from a timing perspective, Steve, we'll just keep you posted. We're not ready to commit us to show the cadence to 2026, and we'll just update you as things as appropriate. Allison Malkin: Your next question comes from the line of Max Rakhlenko with TD Cowen. Maksim Rakhlenko: So first on Estates, can you provide color on how you're thinking about scaling the collection? We know when the books will hit, but how are you thinking about the cadence of the product rollout into the galleries? How are you looking by inventory, et cetera? Just if you could compare and contrast this collection versus the Modern and Interiors launches that you had a couple of years back. Gary Friedman: Sure. So the books will hit kind of mid-May, and we will -- we've got a handful of stores that will get the initial product that we'll be able to kind of test and then we and get some reads on, but we feel very confident in this selection. So we went out with a bigger inventory by -- and a lot of it based on just the data. You got 60% of luxury homes in America that have classic and traditional architecture. So -- and it is really the next big trend. As you think about how the trends cycle through, this trend is a lot of the product you're going to see cycle through, it's why we've made some of the acquisitions that we made, whether it's the Michael Taylor brand and the famous diamond table and so on and so forth to really be able to not only have authority, but be able to have intellectual property rights for a lot of the kind of key products that are going to come. And so we just think it's going to be a big building trend. But in the second half will be -- and how many galleries do we think? 30? Unknown Executive: I think -- yes. Gary Friedman: About 30, 40 galleries -- our top 30, 40 galleries in the large design galleries, we'll take over the first floor with RH Estates. So this is a significant launch and a significant bet. Maksim Rakhlenko: Got it. That's helpful. And then just a two-parter on margins. If you could just isolate how you're thinking about the impact of tariffs for 2026, both the cadence and magnitude as I don't think you discussed that in the letter this time around. And then separately, if we exclude tariffs and some of the timing shifts that you discussed earlier on the call, how healthy is sort of your -- or how healthy are your product margins as we think about the long-term targets you laid out? How much higher can the product margins go as you do continue to add these new collections that I think come with much higher margin. So if we just think about the core, where can the business go from a product margin perspective? Gary Friedman: Yes. I think -- I mean, we're not giving detailed margin forecast. But our margin -- our product margins are relatively healthy, except for some bumps we're going through from a tariff point of view. I think we've been able to perform reasonably well. If you exclude kind of the weight that we have from this investment cycle and the drag from Europe and you kind of take a look at the business. And I think one of the things we're doing, as we think about this business, a lot of times with brands as you go through the history of brands, you've got kind of the levels and the transformations you make to kind of get to where you want to go. And this next -- this cycle we're in now, it's a key investment cycle. Clearly, we've spent a lot of capital. We've made big investments to kind of position the brand not only in North America, but positioned in Europe for the long term. And once you get past those cycles, we're going to have great leverage. Opening galleries like we're opening and restaurants like we're opening or significant costs, especially when you're doing them in a different country. There's just more travel, more expense from hiring people and building new organizations and so on and so forth. So from a -- I just think, it's not just the product margins, it's really just the overall margin structure of the business once we go post peak here on this investment cycle, both from a capital and from an expense and cost point of view. I think the model of this business is going to look like one of the best models people have ever seen in our industry. So if not the best model, I think it's going to be the best model anyone seen. So we feel confident in that. I mean, we're also just -- from a global perspective, navigating through very uncertain times. And we do have a product mix that is going to be somewhat more cyclical and have more of a drag. So when you're really focused on the furniture business versus the home furnishing, the broader furnishings business, accessories business, tabletop business, kitchen businesses and so on and so forth. You're going to have more weight during times like these. So that's going to require you to fight for more business. But that's throughout our history. We've always fought through the business in times like these. We've always been more promotional than less promotional in times like these. And we think it's times like these that there's a lot of fallout. And there's going to be a lot of competition that's not going to make it through these times. There's been greater fallout in the furniture business. As most people know, over the last few years than in any time in history. And I think there's going to -- as long as the housing market remains difficult, there's just going to be a lot less competition, and we're going to be better positioned than we've ever been for the other side of the cycle. As we build out the assortment, especially in the Estates over the -- think about the Estates expansion over really a 5-year horizon from a product point of view, I'd say over the next 5 years as Estates assortment is going to grow, it's going to build, it's going to become more dominant. The trend is going to -- that wave is going to keep building over the next 5 to 10 years, right? So I think about the whole model of the business in this way, we're very confident in the long-term model. I think what confuses people is most public companies go public and they kind of manage the business, right? They have a simple rollout and they're going to do so many stores a year and the stores are all the same and everything is really predictable and most of them go through their rollout cycle of 5 to 7 to 10 years, however -- what amount of time they stay relevant for. And then usually, becomes kind of a dated concept over time. And that's why we like to say that most retail malls or graveyard for short-lived ideas. Most retail companies don't even concepts don't live out the first term or second term of their leases. So we're going through one of those investment cycles that will leapfrog this business forward and you're looking at kind of peak investment cycle and kind of trough kind of economic cycle, right? So and even with those two, you still get a business here with a kind of a mid-teens EBITDA margin to high teens EBITDA margin. And once you get past this cycle, there's a lot of leverage in this model. So... Jack Preston: Max, I'll add on tariffs. So in Q4, we talked about last year tariffs having an impact of 90 basis points in terms of a drag. And Q4, we had talked about $170 million. We ended up at $190 million in Q4. And the way we characterized that in the last call is that, that's ultimately by Q4, you're fully baked into the sort of prior tariff regime. Obviously, things have changed now with the Supreme Court decision. But tariffs come out in and out of turn, as you know. And so while in the -- let's say, in the first half, you might have some tailwinds from that relatively lower rate that exists under Section 122 today. Who knows what happens in the second half. There's obviously a sprint to replace all those tariffs and potentially more as Trump first said under Section 301 in the back half. So we're just -- we're playing by year being -- as you know, we're nimble and we're dynamic. But as far as last year's tariff impact was sort of fully baked in at Q4, the bit of an indicator as to how it plays out in the first half, but obviously, the math will tell you that there's going to be some relief there as far as that tariff drag is concerned. So we'll keep you updated if there's -- as things play out. Obviously, we're watching it like you guys are watching. Allison Malkin: Your next question comes from the line of Steven Zaccone with Citi. Steven Zaccone: I wanted to ask about the cadence of the year from a revenue growth perspective because the first quarter, obviously calling for revenue to be down, but in the full year, it looks like an acceleration in the back half. Can you just talk through the points of the acceleration? I assume Estates is a big piece? How much is International? Any details you could share would be helpful. Gary Friedman: Well, yes, clearly, International and Estates, the cycling of -- Estates across the entire platform, International from opening cadence and just what we think the growth in the first couple of years. We really -- RH England is kind of our best point of history and -- we know how that ramps. So we expect the International stores to have a ramp to them over the first several years. But when you think about the back half, sure, you've got openings in North America, you've got openings in Europe. You've got Estates, which will -- in Q3, Q4, you'll start seeing the revenues flow from demand in Q2. And you'll see a ramp in Estate. You'll have a second mailing of the book. You'll have newness in both Interiors and Modern. So all of those things combined, we believe is a big step up in the business in the second half. And we would have expected more in the back half of last year and the first half of this year because Estates would have been part of that cadence. Steven Zaccone: Okay. Understood. And then the second question I have is just on the margin recovery of the business, right, because we've been an investment period for the business for some time, and I think you've used the term leapfrog in terms of margins in the past. For the longer duration investor, when you look at the business, what do you think is the biggest factor holding back margins for improving? Is it just the fact that some of the investments have taken a little bit longer and have been a little bit higher than expected? Has it been the top line, the macro environment? How do we think about some of the unlocks to see that margin improvement on the other side come back stronger? Gary Friedman: I think you've just outlined it. Yes, I mean we've -- we're in peak investment cycle in trough -- economic cycle, especially from a home point of view. So the -- I mean, not just trough investment cycle, you've had the whole kind of chaotic tariff cycle, that has caused kind of significant disruption on the business. I mean we've resourced 40% of our assortment business of our size -- resourcing 40% of your core assortment, which is really -- 40% of the assortment is bigger -- it's a larger part of the business. So, yes, it's all of those things together, Steve. So this is a good time to buy our stock. This is when people create generational wealth, right? This is no different than trough times in a real estate market, trough times in any kind of a transitional time for an industry or business. And all businesses in our industry get hit in these times and all businesses that survive to the other side, get a lift in this time. I think what's different is we've historically been investors during times like this is when we've seen the biggest opportunities. But this time is, I think, different than previous times because we're in a kind of a real peak investment cycle. We're opening Europe, we're launching new businesses. And so the opportunity to have a leapfrog, if we're more right than wrong, and we don't have to be completely right, we just have to be directionally right here. And so we say don't let perfect be the enemy of great. And yes, we've got a lot of experience here in this company. We've been doing this a long time. And I think we've proven that we've been a lot more right than a lot more wrong. I mean if you think about the transformation from what was Restoration Hardware before, to what is RH today, if you think about the transformation of this brand, over a 20-plus year period and try to say, name other brands that have made transformations like that, name other brands that are positioned like we are. These are the times that businesses like ours separate ourselves even further from the pack. But you have to make those investments, you have to take that level of risk to be able to do that. So we are not kind of a management culture or leadership culture. And we're constantly innovating and investing, but this is one of those significant cycles. It just happens to be -- during a significant down cycle, especially focused on our industry. And so -- but we're in a better position than we've ever been from a historical point of view to weather the storm. And I think if you just think about what does the next 5 years look like from an investment point of view. I mean we're going to come off, if you take that -- the $37 million and the $289 million, you've got kind of a peak type of investment year historically. And then we come off that peak. And we come into the $250 million to $260 million, and then that's going to drop to $150 million to $170 million a year. So you think about the company growing, the capital investment period coming down, and it's not just the capital, right -- the investment, but it's also all the expense that's connected to that capital. All the expense that's connected to bringing up those stores, training the people, building the infrastructure, building the distribution capability in the business, all the marketing and advertising that supports a launch, all the time and energy to kind of build out the assortments, develop all the products at scale to create a leapfrog, not to kind of slightly outperform. But it's no different than taking a $300 million business that was losing $40 million a year. That was Restoration Hardware and creating RH, that's a $3.5 billion business. I mean that -- think about what the next cycle looks like. The next cycle is, I think, even more magnified that -- we -- our framework for the model. And the biggest pieces of the model are the pieces we're talking about. If I was on the outside, looking at this, I'd say, hey, what is the outlook for capital investments as they go forward and not just thinking about the capital, but what is the expense, the cost investments that are connected to that capital, how does that change over the next 5 years? And how does it change over the next couple of years, right? Just over the next couple of years, the investment cycle is post peak, and it's going to turn down and accelerate in a downward way just as revenues are going to accelerate in a positive way, right? And when you have those two things going in different directions, that's when you have inflection points in return on invested capital, on margins, earnings, et cetera, et cetera. So the framework for the math is pretty simple. I think the strategy because it's never been seen before is -- can be suspect and could be hard to understand. There can be less believers than more believers at certain times. So look, I don't blame anybody for kind of saying, "Hey, this is -- it looks like an uncertain time to invest," whether it's in our stock or any stock in our category. But especially, you've got to kind of believe in the longer-term debt here. And we think this is going to be the -- one of the best bets that people will make as referenced by my personal investment here. So that's how we think about it. Allison Malkin: Your next question comes from the line of Michael Lasser with UBS. Michael Lasser: Gary, you've laid out this ambitious and aspirational plan to take advantage of what seems like a very large and growing addressable market, and yet the market is not really willing to give you the amendment, sort of a doubt. And part of that is RH has been averse to and does not really look at its business on a same-store basis, which is understandable, and that's long how you've articulated it. But at this point, that has defaulted to the narrative where RH needs to grow concepts and its physical footprint in order to drive growth, and that comes with a significant cost. And as a result you may not be able to realize its aspiration, understanding that it's come a long way from its origin, but it's the market's relying heavily on the recent experience. So why based on the recent experience is the default of the market wrong? Gary Friedman: I think it's what I just said. You have to think about peak investment period and what hopefully is a low point in the trough from a market perspective. It's -- again, I think if you pull out the investments, just pull out the European drag of the investment -- think about -- we're investing in Europe. The European market is worse than the American market right now. It's -- we're investing at a time you likely would like to not invest, but you can't make long-term real estate investments and expect to get them all right, right? So the -- why is the simple model, Michael, of saying I'm cycling peak investments, and I'm cycling hopefully what is trough growth, right? And we've got significant growth opportunities as we've laid out. And the cost, they're going to kind of go away. So a lot of people thought Amazon wasn't going to make a lot of money until he did, right? That's -- I think it's that simple. Think about -- yes, I think the key is don't bake this cost structure into your model right now. You're looking at the -- a peak cost structure, both from capital and an expense perspective. These galleries that we're opening are the most expensive galleries that we've opened, both from a capital and a cost point of view. Michael Lasser: Got you. Very helpful. So put it in parlance that the investment community would think about it is, essentially this is, the peak of the disruption, there will be significant same-brand growth that will lead to sizable margin expansion, especially as the investments moderate. Now the counterpoint would be, hey, we're living in a world of high uncertainty between the geopolitical, technological and other factors. So what would be the sensitivity to your outlook for free cash flow in the event that sales in the back half just don't materialize like you would expect. And without asking you to show your hand, but it is important to the investment case, what options would you pursue in the event you needed more financial flexibility to execute on your strategy? Gary Friedman: Yes. I think it's a great question, Michael. Look, we've got the ability to pull back investments further, right? When I think about the major strategic investments that we had -- we had to decide to go international, invest into Europe, years ago, right? These weren't short-term decisions. These were 5, 6, 7, 8 years ago, right? We're making some of these decisions and investments. And those decisions are easy -- are not easy to pull back on, right? But we're cycling those. We've got a lot of flexibility. When you think about the next wave of investments, whether it's expanding in North America, whether it's expanding in Europe, you're looking at much smaller investments, you're looking at much more flexible real estate, many more choices, et cetera, et cetera. And you're just not going to have the same kind of cost. I mean we're going to -- the cost of building some of the new concepts that we've laid out, just the way we're thinking about deploying capital in North America through compounds and ecosystems and secondary market galleries that are in the 15,000 to 20,000 square foot range. Just the real estate risk, the investment risk of those, the financial participation of developers and landlords is much higher than when you're investing in major cities internationally. It's just a very different investment cadence. And we just have a lot -- and you don't have the same time horizon, right? So there's just a lot more flexibility. And -- so when I look at -- I would say, peak investment, peak risk right now. You're looking at peak investment, peak risk. And who knows from day-to-day or hour-to-hour about the geopolitical and economic environment. Of course, this is -- it's kind of different times. And there's major news headlines are made by tweaks and post today, right, and they happen all day long. So I just think that if you're just trying to say, okay, how do I think about the go forward? There's just a lot less risk. There's a lot more risk, I'd say, over the last couple of years than over the next couple of years. I mean there's -- is there further risk in the housing market? There always could be further risk. There always could be other things. I mean, could the war escalate? Could China try to take Taiwan? Could -- yes, there's a lot of things that can go the wrong way. We can all kind of imagine what those look like. But it's no different in calculating what the federal funds rate is going to be, right? Like everybody has been wrong on that. And unfortunately, that's been bad for our business, right? They're supposed to be 3 cuts to the federal funds rate this year. Now it looks like there's going to be no cuts, then there might be hikes. Does that create some short-term risk? It does. Can we navigate through that? We can. Do we have more upside to downside in the second half from a revenue -- demand and revenue point of view? We do. But I kind of say, look, if I was on the outside of this today and I had the information that the outside world has that we're giving you today. I'd say it's or you could -- I would -- look, I bought the stock at what, $2.16 a share, I bought $10 million of the stock. I was wrong, which is at the low point. But I don't see too much more downside risk in the model. Most of the work is behind us, building the galleries, getting the people trained, bringing up restaurants internationally. We -- the product side, I think, is a lot less risky. We're not going into some unknown aesthetic or trend we're betting on what is kind of the biggest market, the traditional classic market. And it just so happens, if you look at the trend that's going to come through, that is going to be the next trend. So -- but yes, your question is correct. We have toggles we can pull. We have assets that we can monetize. And we're pretty good at navigating 3 times like this. We've got it. Yes, this is my 26th year here. So I've seen cycles and the teams seem cycles, and we've navigated through. I would face somewhat similar times, not completely similar times. Allison Malkin: Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Bradley Thomas: Gary, first, I wanted to follow up a bit more about the RH Estates line. And you, I believe, alluded to working more with designers and decorators in this. And so I was hoping you could talk a bit more if the selling process or how you go to market needs to be different on this line that seems to have so much potential for you? Gary Friedman: Well, we do a big business with design -- interior designers today. We have, I think, like I outlined in my comments that we have multiple businesses embedded in our galleries. We have a trade team that services interior designers and decorators, that's a meaningful part of our business. We think it will become a bigger part of our business, especially with the launch of RH Bespoke Furniture and RH Couture Upholstery because that's going to open up the ability to have kind of more customizable product from a size, fabric, finish, so on and so forth. And that will open up -- I think it should open up that market pretty significantly. We have some other strategies to address that market that you'll hear more about, that will kind of support what we're doing from a marketing point of view. So yes, Estates, I think, is when you think -- again, if you think about kind of the high-end part of the business that we're going to address with Estates, and that's just kind of the beginning. We'll also address that throughout the entire brand. But let's say, a stage represents the launch of RH Bespoke Furniture and the launch of RH Couture Upholstery kind of framing those. Think about those across the whole business long term. Bradley Thomas: That's helpful. If I could ask a follow-up on the 2030 margin targets. Just wondering if there's any high-level framework to think about perhaps how International fits into that, and how much mix or leverage of sale -- from sales factors into that? Gary Friedman: Yes, I mean, we have some data now. We kind of know as we've opened some of these, how they're evolving, how to think about, how they might evolve and grow. And so I think we have very reasonable targets internationally, mixed into this. I don't think there's anything that's a stretch perspective. So when you look at -- you just look at the total composition of kind of the top line accelerating in the out years to 12% growth. I think the way I'd think about that is you've got about 4 to 5 points from the platform expansion, you've got 3 to 4 points, maybe 5 points from the product expansion. And you've got -- at some point here, we think, there's a couple of points from the housing market coming back. I mean, I don't think we're going to be in a 9- or 10-year downturn of the housing market. Let's hope not. But if it doesn't come back, it's not like we've got a big number out there for the housing market. We've got kind of a 2- to 3-point hope in the out years of that plan that we'll see some lift in the housing market. If we see a lift in the housing market, you could see -- I mean, based on where it's been, I mean, you could argue there's a 10-point lift from the housing market in the out years. And if that happens, you don't have us growing at 10% to 12%, you have us growing at 18% to 22%. Allison Malkin: Your final question comes from the line of Marius Morar with Zelman. Marius Morar: Just a quick question on the growth outlook for next year. Gary, I think on -- in the video, you mentioned that it's a bit conservative. I was just wondering at the low end, do you sort of embed any sort of deterioration in the housing market or maybe an increase in interest rates? Gary Friedman: Yes. I think we're conservative throughout the second half. I mean, obviously, we have embedded the growth from our platform and the new galleries and the galleries that are cycling, and we've got growth from Estates and some of the newness and expansion of the assortment in Interiors and Modern. But do we have the housing market getting worse? I'd say we have embedded in this -- the current environment right now, which I believe is worse and mostly from a geopolitical point of view and a perception point of view, of more things can go wrong then maybe can go right. And I think that's how the market's generally risk times like these, when you've got uncertainty and you've got global tensions and war and oil issues and the endless amount of things that oil impacts, right? So, yes, I mean -- but did the housing market gets better when interest rates came down somewhat? Not really. Is the housing market going to get worse if they go back? If we get 25, 50, 75 basis points, you get three hikes. I don't think it gets much worse. I think you've got to think back in history and say, in 1978, we sold -- there's 4.06 million homes sold, and that was a low point. And in 2003, '04 and '05, you had 4.06 million homes sold on average, 4 million to 4.06 million of somewhere about 4.03 million. And that's -- and that's with 53 -- I think it's 53% more people, right? So it's hard to believe it gets worse than this to get worse in this for a small period. I mean, none of us have seen a world war in our lifetimes, right? Is there a risk of a world war? I don't think so. I mean I think, cooler heads will prevail. But this is uncertain times. So I think the -- whether the interest rates go up or down 25 to 75 basis points? I don't think it's going to change much in the housing market. If the interest rates go up 300 or 400 basis points, I think that's different. I think they go down 100 basis points with pricing coming down, which is pricing is coming down across the market, I think you're going to see a housing market acceleration. So I'd say short term, handicap it, as even. I think we're seeing pressure right now. Longer term, I think you have to kind of handicap it as a positive because we've never -- we've never seen -- we're now in the fourth year of the worst housing market in 40 to 50 years. That hasn't happened in my lifetime, I've never seen 2 down years -- seen 1.5 down years in my career. I've never seen 3 down years, and I surely never seen a fourth down year. I don't think anybody has. So how long does it stay here? I don't know. It's all today the new normal and build out from here. At some point, I think how the market comes back. And I think it's more likely to come back than go down. But if the interest rates are moving 50 to 75 basis points to 100 basis points, I don't know if that moves the needle plus or minus. On the minus side, you're getting closer to affordability, right? On the upside, you could have some moderate slowing. I think the bigger thing is if we have real inflation and interest rates have to rise 300, 400 basis points, that's a problem. Marius Morar: That's helpful. And maybe a quick follow-up. In the first quarter guidance, do you also embed any drag from the back order and special order similar to the drag you had in the fourth quarter? Gary Friedman: Jack, do you want to take that? Jack Preston: Yes. Yes, that's something that's going to take probably until the second half to fully resolve itself just because of the complexities of resourcing. So that is just -- yes, there's something that... Gary Friedman: We take that drag in, yes. Marius Morar: Is it getting worse in the first quarter? Jack Preston: There's some modest impact that that's over and above what we felt in Q4. And then so then we'll see the resolution of that in the second half. Gary Friedman: It's basically from the amount of resourcing and just the new factories being brought up in different countries, being able to ramp up fast enough. And so that's the biggest hit is coming from tariff-related resourcing of furniture, outdoor furniture, specifically metal outdoor furniture. Lighting is a big one. Rugs is a big one, and furniture is a big one. If you think about our business and you've got -- you take the furniture part of the business includes about 80%. And then you take lighting and rugs, which are the next biggest pieces, those are all being impacted. But you've got to -- by far biggest part of our business has been all impacted in a bigger way. Resourcing things like bedding, pillows, [ throws ], accessories, picture frames, things like that, which are not -- from a percentage point of view, not a very big part of our business, much easier to resource those things, much easier to move picture frames, pillow cases, [ throws ], tabletop, glassware, accessories, things like that much, much more easier. When you talk about ramping furniture factories, lighting factories, rug factories, moving those categories just more complex. And so those have been just slower to scale and transition. And when you think about just the -- being on the manufacturing side or manufacturing partners moving from one country to another, building factories, scaling them. And then all of a sudden, having tariffs change and going, "Oh, God, what do I do now? By doing the right thing, I mean, think about the rug business. And we -- for a while there, I mean, India was a big source of rugs, and you get hit with the 50% tariff and you're sourcing rugs to other countries. There's not that many places that have that kind of capacity to move those businesses. So same thing with lighting. Lighting is very different than any other kind of an item. Again, the more accessories, more seasonal parts of the business, you want to resource Christmas ornaments, things like that, very simple. When you're resourcing the core part of our business, much more complex. Allison Malkin: That concludes our question-and-answer session. I will now turn the call back over to Gary Friedman for closing remarks. Gary Friedman: Thank you. Well, thank you, everyone. We know this is an uncertain time in our business. Hopefully, we've shed some light to give you more certainty and more confidence in our outlook and our strategy. We believe this is the most important period in our history, and we've never been more excited about the outlook and what we believe will be the outcome. So we look forward to talking to you soon. Thank you for all the leadership and partnership from our teams and our partners all around the world. Everybody is working hard to kind of get to the next place. And so thank you. Allison Malkin: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.