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Operator: Good day, everyone, and welcome to the Cintas Corporation Announces Fiscal 2026 Third Quarter Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jared Mattingley, Vice President, Treasurer and Investor Relations. Please go ahead, sir. Jared Mattingley: Thank you, Ross, and thank you for joining us. With me are Todd Schneider, President and Chief Executive Officer; Jim Rozakis, Executive Vice President and Chief Operating Officer; and Scott Garula, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2026 third quarter results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission. I'll now turn the call over to Todd. Todd Schneider: Thank you, Jared. We are pleased to have delivered another successful quarter, showcasing the resilience and strength of our value proposition. Cintas achieved record revenues and strong operating margins while continuing to invest for future growth. Third quarter total revenue grew a strong 8.9% to $2.84 billion. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 8.2%. Each of our three route-based businesses continues to grow at attractive rates. Turning to profitability. We achieved all-time high gross margins in each of our three route-based businesses. Strong top line growth along with benefits from our strategic investments and cost-saving initiatives continue to help drive margin expansion. Gross margin as a percent of revenue was 51%, a 40 basis point increase over the prior year. Operating income grew to $659.9 million, an increase of 8.2% over the prior year. When you adjust for the onetime gain we recognized in the third quarter of last year, operating income would have grown 11%. Diluted EPS of $1.24 grew 9.7% over the prior year. When you adjust for the onetime gain we recognized in the third quarter of last year, diluted EPS would have grown 12.7%. Turning to guidance. We are raising our fiscal 2026 financial guidance. We expect our revenue to be in the range of $11.21 billion to $11.24 billion, a total growth rate of 8.4% to 8.7%. We expect adjusted diluted EPS to be in the range of $4.86 to $4.90, a growth rate of 10.5% to 11.4%. The adjusted EPS guide does not include the impact of nonrecurring transaction expenses related to UniFirst. Before I turn the call over to Jim, I'd like to provide some comments on the recently announced merger, our agreement to acquire UniFirst. We remain excited about this opportunity and the long-term value creation for Cintas and its shareholders, our employee partners and the team partners of UniFirst and the benefits to our collective customers. When we announced the transaction 2 weeks ago, we indicated that the merger was subject to approval by UniFirst shareholders, regulatory clearance in both the U.S. and Canada and other customary closing conditions. We and UniFirst have begun the process for satisfying these closing conditions. In order to avoid creating speculation, we will not be providing any additional commentary on the process. We will, however, update the market as appropriate. With that, I'll turn it over to Jim to discuss the details of our third quarter results. James Rozakis: Thank you, Todd. Our business continues to perform exceptionally well. We're adding new customers who rely on us for image, safety, cleanliness and compliance needs, while successfully cross-selling additional solutions to our existing customer base. Retention remains at record levels, while pricing is consistent with historical levels. Turning to our business segments. As Todd mentioned, we delivered attractive growth rates across all of our business segments. Organic growth by business was 7.3% for Uniform Rental and Facility Services, 14.6% for First Aid and Safety Services, 10% for Fire Protection Services and 3.1% for Uniform Direct Sale. Gross margin percentage by business was 50.3% for Uniform Rental and Facility Services, 58.1% for First Aid and Safety Services, 50.5% for Fire Protection Services and 41.4% for Uniform Direct Sale. Gross margin for the Uniform Rental and Facility Services segment increased 30 basis points from last year. The 50.3% gross margin is the highest gross margin ever for this segment. We executed at a high level in the third quarter and our continued strong top line growth helped drive results. We've been laser-focused on managing the many inputs we control effectively. We've invested in technologies like SAP to improve our capabilities and the strong performance of our supply chain continues to be a significant strategic advantage for us. Gross margin for the First Aid and Safety Services segment was 58.1%. This is also an all-time high. We are investing in route capacity to serve more customers, leadership and management trainees to build our talent pipeline, advanced technologies to drive efficiency, and we're adding selling resources, all of which are fueling the attractive double-digit growth we are seeing. It's important to remember that margins of all our businesses can fluctuate from quarter-to-quarter based on several factors, including things like revenue mix and the timing of our investments. Incremental margins were effectively 28% for the quarter after adjusting for the onetime gain on the asset sale last year, right in line where we like to be. The current macro environment is certainly complex. We help businesses navigate this environment by letting them focus on running their business. Delivering consistent excellence in a complex environment is never easy, but customers want reliable partners with proven solutions. Our diversified customer base and strong value proposition continues to resonate, particularly in our four verticals, health care, hospitality, education, and state and local government. In addition to being aligned with resilient sectors of the economy, our addressable market is very large and our solutions remain essential for businesses of all sizes regardless of how complex the economic environment. We have consistently shown ability to convert businesses over to a managed rental solution, typically around 2/3 of all of our new customers. In addition, we've shown the ability to grow multiples of job creation and GDP. Lastly, we're very enthusiastic about integrating UniFirst and its team partners into our organization, which we believe will strengthen our ability to better serve our customers. As a reminder, we anticipate that transaction will close in the second half of calendar 2026. With that, I'll turn the call over to Scott to discuss our operating income, capital allocation performance and 2026 guidance assumptions. Scott Garula: Thanks, Jim, and good morning, everyone. The exceptional results we delivered in terms of revenue growth and gross margin expansion, translated into continued strength in operating margins and cash flow. Selling and administrative expenses as a percentage of revenue was 27.8%, which was a 60 basis point increase from last year. When you adjust for the onetime gain on the asset sale last year, SG&A would have been flat year-over-year. Third quarter operating income was $659.9 million compared to $609.9 million last year. Operating income as a percentage of revenue was 23.2% in the third quarter of fiscal 2026 compared to 23.4% in last year's third quarter. Adjusting for the onetime gain last year, operating income as a percentage of revenue would have increased 40 basis points year-over-year. Our effective tax rate for the third quarter was 20.6% compared to 21% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Net income for the third quarter was $502.5 million compared to $463.5 million last year. This year's third quarter diluted earnings per share was $1.24 compared to $1.13 last year, an increase of 9.7%. Earnings per share increased 12.7% after you adjust for the onetime gain last year. Our disciplined approach to capital allocation has positioned us well to finance the recently announced agreement with UniFirst. With leverage expected to be about 1.5x debt-to-EBITDA at closing, we maintain flexibility for deploying capital across each of our priorities. During the first 9 months of fiscal 2026, we have returned $1.45 billion in capital to our shareholders in the form of dividends and share buybacks. Earlier, Todd provided our updated guidance for the remainder of the fiscal year. In addition, please note the following in the guidance. Both fiscal 2025 and fiscal 2026 have the same number of workdays for the year and by quarter. Our guidance does not assume any future acquisitions. Our guidance assumes a constant foreign currency exchange rate, the fiscal 2026 net interest expense of approximately $101 million, a fiscal 2026 effective tax rate of 20%, which is the same compared to our fiscal 2025, and the guide does not include the impact of any future share buybacks or significant economic disruptions or downturns. As both Todd and Jim have mentioned, we are excited about the recently announced UniFirst acquisition. While the deal is expected to close in the second half of calendar 2026, we expect to incur nonrecurring transaction costs related to the acquisition. The adjusted diluted earnings per share guide excludes the estimated impact of these transaction costs. Transaction costs expected to be incurred during fiscal 2026 are estimated to have an impact on diluted earnings per share in the range of $0.03 to $0.04. In addition, beginning with the fourth quarter, we will break these costs out on our income statement as a separate line item to provide visibility to these transaction-related costs. With that, I'll turn it back to Todd for some closing remarks. Todd Schneider: Thank you, Scott. In closing, our strategic investments in technology, capacity, talent and sales capabilities are driving solid growth and margin progression. These commitments position us to sustain long-term performance while helping customers achieve and surpass their image, safety, cleanliness and compliance goals. We're maximizing returns on every dollar invested to maintain our momentum and deliver superior service to our customers. I'd like to thank our employee partners for their exceptional dedication to our customers and the outstanding work they do for Cintas every day. I'll now turn it back over to Jared. Jared Mattingley: Thank you, Todd. That concludes our prepared remarks. Before opening it up for questions, I'd like to reiterate Todd's earlier statements about the UniFirst acquisition process. In order to avoid speculation, we will not provide any additional commentary on that process. We will update the market, however, as appropriate. Now we are happy to answer questions from the analysts. [Operator Instructions] Thank you. Operator: [Operator Instructions] And our first question comes from Tim Mulrooney from William Blair. Timothy Mulrooney: Just two procedural ones. Scott, I just wanted to follow up on the guidance thing that you were mentioning at the end. How much of that $0.03 to $0.04 of EPS related to the UniFirst transaction was incurred in the third quarter versus expected in the fourth quarter? I didn't see a reconciliation table for the third quarter. I just wanted to make sure everyone is aligned on their models. And I also noticed SG&A was a little bit higher in the third quarter than what folks were expecting. So I thought maybe there was a little bit of deal-related expense there in the third quarter, I'm not sure. Scott Garula: Yes, Tim, good question. The estimate that we provided of that $0.03 to $0.04 is related to the fourth quarter and the fiscal year guide. Any costs that were incurred in Q3 were immaterial. As far as the comment on SG&A being a little higher, just to remind everyone of that onetime gain last year, that represented about 60 bps. So when you take that into consideration, SG&A was effectively flat year-over-year. And if you go back really over the last 3 fiscal years, Q3 is typically elevated due to the timing of certain expenses like the reset of payroll taxes. In fact, when you go back to last fiscal year and you back out the adjustment for the onetime gain, we were up 100 basis points sequentially last year and actually 70 basis points sequentially if you go back to fiscal year '24. So we feel really good where we are with the SG&A expenses. And when you back out the onetime gain, it's flat year-over-year. Timothy Mulrooney: Yes. Good point, Scott. I think maybe consensus didn't fully factor in everything because of the onetime gain last year. So that's a good reminder. And then just as my follow-up, apologies if I missed it, but how much were energy costs as a percentage of revenue in the quarter? And what's your expectation for next quarter? Given the increase we've seen in oil prices over the last few weeks, I think this is an important question for investors. Scott Garula: Yes. Tim, good question. Energy for the quarter was 1.7%, which was flat year-over-year and up 10 basis points over the previous quarter. Certainly, the increase in gas prices will have an impact. But just I want to remind everyone that only 60% of our energy costs are related to fuel for our vehicles, which when you do the math on that, that equates to about 100 basis points. So if you just look at, fuel has been continuing to increase, but if you assume a 30% increase in fuel cost that would be sustained over an entire quarter, that would add 30 basis points of cost to our results. So yes, it has an impact, but not something that we feel that we can overcome and we have contemplated this in our guide. Operator: And our next question comes from George Tong from Goldman Sachs. Keen Fai Tong: Can you provide an update on higher-level customer purchasing behaviors in the current macro environment, if you're seeing any changes, any increases or reductions? Todd Schneider: George, this is Todd. I'll take that question. It is -- Scott and Jim have spoken about it, it is certainly a complex environment. But our customer base has been quite resilient. I think it ties back into our value proposition, continuing to resonate. When you deal with these types of complex environments, it can create opportunity for you as well. And we help our customers run a better business. And by outsourcing items to us that in most cases, what they were solving that somehow, some way in their own fashion and in their own business. By outsourcing it to us, it allows it to free them up to focus on running their business and taking care of their guests or their patients or their customers, however you want to phrase it. But no real change in the customer base, pretty resilient. And I think our value proposition continues to resonate. Keen Fai Tong: Got it. That's helpful. And then going back to an earlier point on fuel, you mentioned that fuel expectations are contemplated in your full year guide. Can you elaborate on what exactly you're assuming for the remaining quarters of the year in terms of how fuel will trend? And how you plan to pass along any changes in fuel costs to customers in the form of pricing? Scott Garula: Yes. Thank you, George. As Todd mentioned, I mean, clearly, this is a dynamic environment. And our guide includes our best estimate of the increase in energy cost. As far as our approach to mitigating this or I think you've said passed along, I'll let Todd answer that. Todd Schneider: Yes. So George, it is certainly a dynamic environment. Hence, you look at what oil prices were doing last night and then what they're doing this morning. So they're changing by the minute. That being said, we've got it contemplated in our -- an increased level of gas prices at the pump into our guidance. And as far as how we handle that, we do not have a fuel surcharge, that historically is not how we handle it. As Scott correctly pointed out, if you think about the fuel at the pump, it accounts for about 100 basis points of our total as a percent of sales. So it's not our largest cost. And we also take the approach that we think long term about this, and we find other ways to extract out inefficiencies. We don't just look at it and say, "Well, this happened. So we've just got to pass it on." We want to be better than that. And we want to focus on being consistent for our customers and extracting out inefficiencies in other ways that we have in our business and still hitting our goals as a -- financial goals as a company while we're doing that. Operator: And our next question comes from Justin Hauke from R.W. Baird. Justin Hauke: I guess I had one question just kind of on the CapEx expectations. Your CapEx as a percentage of revenue has historically been a lot lower than UniFirst has been. Obviously, you guys are much, much bigger, so that's part of it. But I guess just philosophically, looking at their assets and the systems to kind of get to Cintas levels. Just thinking about -- do you expect the CapEx to kind of trend a little bit higher as a percentage of revenue in the first couple of years of integration? Scott Garula: Yes, Justin, good question. And I would just say we just announced the agreement a couple of weeks ago. We'll know a lot more as we close the deal. But when we closed this merger, we still expect not only will we continue to generate strong cash flow, UniFirst generates strong cash flow. We'll have a strong balance sheet. We talked on our UniFirst call about at closing, we would expect debt-to-EBITDA being at 1.5. So we're in a great position. And I don't see our capital allocation priorities really changing. Our first priority has always been reinvesting back into the business through CapEx, followed by strategic M&A. And then I will continue to look at returning capital back to our shareholders in the form of dividends and buybacks. So more to come on what we would look at in the future with CapEx as a percent of revenue as we close the deal. But I would really not anticipate any material changes in our capital allocation priorities. Todd Schneider: Justin, I'd just like to add to that that UniFirst's CapEx was higher. They were certainly trying to catch up on the technology subject and other areas. And we obviously -- we're in a really good position from a technology footprint, and we'll continue to invest in there because we have to make sure that we're positioned to compete in the marketplace. That being said, one of the uniquenesses about UniFirst versus most companies that transact like this is they were not for sale. And as a result, they ran their business very much thinking in the long term, they invested for the long term. So it's -- we're not acquiring an asset that needs a significant amount of CapEx investment into facilities and to get it up to standard. They run a really good business, they think about how to run a business very similar to us. The cultures are very similar. They think long term, they think about investing for the long term for their people and their customers. And as a result, we think that positions us incredibly well for the future. Justin Hauke: Yes. No, certainly, I agree on all that. I think that's it. My other questions have been answered on the items that you already addressed. Operator: And our next question comes from Manav Patnaik from Barclays. John Ronan Kennedy: This is Ronan Kennedy on for Manav. You commented on retention at record levels, pricing at historic levels. Could you please provide some further color as to how we should think about what those levels are as a reminder, and then the trends and drivers versus your expectations for new business and cross-sell? And then anything to call out from specifically strong organic drivers at a respective segment level, please? James Rozakis: Ronan, this is Jim. I'll take that question. I'll start with it. And if we start to think about our growth formula and what we're attempting to achieve every quarter, we do like to target that mid- to high single-digit total growth rate as an organization. The major contributors to that growth as you correctly pointed out is our new business acquisition. And a reminder, 2/3 of that new business acquisition comes from that no-programmer or do-it-yourself space, and that continues to perform very well for us, and we really like the trend line there. Retention levels for us has stayed around that steady, that 95% rate, and we are really comfortable with where that is at this point. Pricing is at our historical levels, which we've consistently said is in that 2% to 3% range. And then the remainder of the growth, if you kind of put all those together, you start with a negative 5%, you add in 2% for pricing, and you want to get up to 8%, the majority of that is new business, but then the remainder is that cross-selling opportunity selling into the current customer base, which has been highly effective for us this year. And we think that there's a long runway of opportunity within our current customer base as we continue to provide great value. We think about it in long term. We've made nice investments in the product line and the technology and try to make it easier to do business with us and the customers in this type of an environment is complex, are looking for steady answers and they know they can rely on us. So we've had a lot of success this past year. So I would say new business and cross-sell slightly continuing to improve and the others right where we expected them to be. John Ronan Kennedy: Jim, I appreciate it. And then for my follow-up, kind of a follow-up to Tim and George's questions. But beyond gas prices, I guess, focusing on the all-time high gross margins in each of the segments. Can you just further unpack the drivers there, I know it's strategic investments, cost initiatives, and assess the sustainability of them? I know there may be a potential immediate impact if there is inflation, but also unpack the other components of your key cost buckets from a gross margin standpoint beyond gas, whether that's materials or the production expense, the labor, et cetera. So drivers of gross margins and sustainability in near term and longer term, given the current dynamics. James Rozakis: Ronan, I'll start on that and see if anybody wants to add color. And I'll start at the consolidated level, and say that the gross margin at 51% for the quarter, obviously, a great quarter for us. The team did an excellent job at execution for the quarter. And I think a little bit of that is a demonstration of our culture and the belief that nothing is ever as good as it can be and that there's always an opportunity to improve processes and work out inefficiencies. But if we look at and we think about the quarter in and of itself, first of all, there was no one-timers, nothing significant from a one-timer perspective that helped the quarter. The key drivers of that is our primary focus, which is revenue growth, and we like strong revenue growth to continue to create leverage. And that certainly contributed in all three of our route-based businesses. We are always looking for initiatives to remove inefficiencies and expenses out of the business. And you can see that across all of our businesses, certainly in our rental business, is a big focus for them. Maybe the other one to call out is revenue mix in both our First Aid and Fire Protection businesses. That's important for us and revenue mix can fluctuate a little bit quarter-to-quarter. So this was a good quarter for us on that revenue mix. And then, of course, timing of investments and what those investments look like. So all around a strong quarter of execution. So the team did a fantastic job, and those were the key inputs. But then, just a quick reminder that it can fluctuate quarter-to-quarter. Running a business isn't linear and that we're going to continue to make investments in the business for the short-term delivery of results and then long term to be able to set ourselves up for long-term continued success. John Ronan Kennedy: And then anything to be mindful of from the other cost buckets and potential inflation there on, whether it's materials, labor or otherwise? Todd Schneider: Ronan, thanks for the question. This is Todd. Certainly, it's a dynamic environment on tariffs as well. But our supply chain team has done a magnificent job of navigating that. We've said in the past, we're not immune to tariffs. But any increase in tariff or decrease in that is going to take time to run through our system, whether we have to get into our supply chain and then amortize that. So I would say nothing material there to factor in. Operator: And our next question comes from Josh Chan from UBS. Joshua Chan: I guess in terms of your investments, how do you feel about your level of investments kind of exiting 2026 and into '27? Just thinking about how well funded do you think your growth initiatives are at this point? Todd Schneider: Josh, one of the things about our culture here at Cintas is we are constantly investing. And as a result, yes, certain years, you might see more than others. But we think we're in a really good spot from a -- what we have been investing and what we will continue to invest. So I wouldn't say anything -- no material change there. You should expect us to continue to invest because we look at the future, and it looks incredibly bright. We look at the opportunity out there in the white space of converting over no-programmers, and we want to go after that. We're competing in an environment where there's 16 million to somewhere maybe up to 20 million businesses in the U.S. and Canada. And there's 180 million people that go to work every day in the U.S. and Canada. That opportunity is immense. So we're investing for the future because we think the future looks really bright, and we have to position ourselves to be able to compete in those areas. Joshua Chan: Sure. That makes a lot of sense. And then I guess in terms of your comment about the good balance sheet position. Does that imply that you can continue to perhaps repurchase stock as you desire even through this process? Or how should we think about sort of the pace of buybacks? Scott Garula: Josh, thanks for the question. As I mentioned, we continue to generate strong cash flow, strong balance sheet. And certainly, we're not going to be limited due to our capital allocation. However, there are restrictions from the time that we signed the agreement with UniFirst through the expected UniFirst shareholder votes. You might also guess that we were limited during Q3 with share buybacks, just to being in a quiet period as we negotiated the UniFirst agreement and completed confirmatory due diligence. But once those restrictions are lifted, we'll continue to be opportunistic with our buyback strategy. Operator: And our next question comes from Jasper Bibb from Truist Securities. Jasper Bibb: Just wanted to ask what you're seeing in wearer levels at existing customers in uniform? Todd Schneider: Jasper, I'll start. As I mentioned, our customer base is quite resilient. So if anything, our -- growth from our current customers has slightly improved. Wearer levels are -- we see the jobs reports, but are meaning that they're not as robust as what we would like. But nevertheless, our customers are still quite resilient and hanging on to their people. And we just see an amazing opportunity to sell other items, cross-sell other items into those -- into that customer base, but things are pretty steady. Jasper Bibb: Nice, that makes sense. And then I know we just got UniFirst. But after that closes, I imagine you're going to be looking for more acquisitions outside the uniform business. So just any thoughts on what might be next for you after that point? And maybe how you're thinking about the consolidation opportunity in the Fire business would be interesting. Todd Schneider: Sure, Jasper. We're acquisitive in each of our route-based businesses. We'll certainly be busy in our rental business here shortly. But the strength of our balance sheet, the strength of our infrastructure and our other businesses allow us to be acquisitive in all those. So we will continue to go down that path. And those are tough to pace and tough to predict on deal flow, but it won't change how we think about it. That being said, in the Fire business you asked specifically, the mix of business really matters to us. So we try to think long term about that. We prefer service business much more so than installation type business. So it just has to be the right deal. But we have been very acquisitive in that business over the past months and years, and we'll continue with that approach. Operator: And our next question comes from Andrew Steinerman from JPMorgan Securities. Alexander EM Hess: This is Alex Hess on for Andrew Steinerman. I want to touch on a couple of recent initiatives you have. First is the recently announced 3-way contract with you guys, Ford and Carhartt, and the second being the launch of what I think is a new personalized Apparel+ program on your website. Both of those seem to be targeting the trades and manufacturing a bit more. Just wanted to maybe start, is there something you're seeing in those goods providing industries that maybe you're leaning into those a little more for sales growth near term? Todd Schneider: Alex, thank you for the question. I'll start. Our relationship with Carhartt and with Ford goes back many, many years. And we have a great relationship with both organizations. And this is about providing products that people want to wear. And in the case of Ford, I know Jim Farley was passionate about providing the products that his people want to wear and would be proud to wear. And our relationship with Carhartt was an absolute natural. So we're excited about that. Certainly, the trades are something that we think is growing in demand and is an incredible opportunity for us. Those are people that -- frankly, we don't have nearly as many people in the trades in our uniform program as we should, and they're all wearing garments. They're in jobs that are perfectly position for us to tap into. So we're excited about that, and we see the future looks really bright in that area as far as Apparel+. Jim? James Rozakis: Yes, I'll add a little color there, Alex, and I appreciate the question. And Apparel+ really goes back to the core of our company culture and values, which is a culture of innovation and continuing to be dynamic and move to where the opportunity is and where the opportunity will present themselves in the future. And so Apparel+ is just another movement towards that. So we want to be able to outfit any job imaginable across North America. And we want to make sure that we have the right apparel in those industries for what people want to wear, what they choose to go to work in, and it's been very successful for us. Regarding specialty trades, I think Todd outlined the fact that that market is really a large employment market. They resonate well with our value proposition, and there's a tremendous amount of opportunity. In fact, I have an example of one that I brought here for our call today. And as we always speak about 2/3 of our new customers come from the unserved market, and we always want to illustrate what does that look like? Why do customers continue to partner up with Cintas and what do they see as a main driver of the value proposition? So I have a property maintenance example here. And this company was going ahead and they were buying uniforms for their employees, a combination of retail and e-commerce, with the primary objective that they wanted to look professional and they want to look good and cohesive in front of their customer base. But what they found out over time is that they weren't able to accomplish that objective that they were -- as they bought year after year, the styles would change, they would be inconsistent on an annual basis. What employees determined was clean and what represented the company well would vary depending on the individual employee. The management team was spending a bunch of time administering the program, in ordering, in size changes and any time things were worn out. So it took them a bunch of time. And then, of course, budgeting was all over the place. Sometimes they had big spikes in budgets, other times they had very little, made it really hard for them to manage their P&L. When they were introduced to the fully managed rental program for Cintas, they saw all the things that they wanted out of the program. They were able to get higher quality uniforms that were very comfortable, that were branded with specifically the Carhartt name, things that their employees really wanted to wear. They got a nice consistent image across the board because all of their employees are wearing exactly the same thing, and they were in good and usable and presentable conditions because of our professional laundry service that was provided with them. They were able to get time back in their day because they were no longer in a uniform business. They were in the business of taking care of their customers, which they certainly appreciated, and it made budgeting a whole lot easier. So that's exactly why we want to continue to expand the product line to be able to show other industries the benefits here of our rental program and why we think that we have such a massive market opportunity. Alexander EM Hess: Got it. That's awesome, guys. And then maybe as a follow-up. Obviously, you guys are in the midst of implementing SAP into the Fire segment, and you guys have implemented SAP into a host of acquisitions over the years. Maybe you can just highlight one on Fire, the progress and prospective benefits, but also just sort of learnings from running that ERP implementation successfully over the years and what you might be able to do with that going forward? Todd Schneider: Yes, Alex, we are preparing to implement our SAP into -- our technology into the Fire business. And we're excited about that. We think it's going to bring standardization with that, allows for a better customer experience. And with that, it also allows for a better employee partner experience. So we focus on these technologies to allow us to make it easier to do business with us and make it easier for our employee partners to do their jobs. So we think it will do just exactly that. And that shows up in all kinds of different ways, retention of customers, retention of our employee partners, productivity, those types of things. That being said, it takes time. And technology is certainly never easy to implement. But we have really good muscle memory there, and we're well prepared to roll that out. And once we close on our deal with UniFirst, we're highly positioned to do the exact same thing. And I think we'll see the same experience. I think the team partners at UniFirst will be excited about it, make it easier to do their jobs, make it more valuable to the customers, make it easier for the customers to do business. And we think long term about those subjects as you go through the challenges of integrating technology, but the long-term impact is powerful for our business. Operator: And our next question comes from Jason Haas from Wells Fargo. Jun-Yi Xie: This is Jun-Yi on for Jason Haas. Can you walk us through some of the key puts and takes to consider for 4Q organic revenue growth by segment? I believe you guys had some onetime benefits in 4Q last year in Uniform Direct and First Aid and Safety. Could you remind us how big those impacts were? And any other factors to consider across the board? Todd Schneider: Thank you for the question. I'll start. And I appreciate you pointing it out because the comparative for Q4 is -- on revenue growth is significant. It was our highest revenue growth quarter last year. The organic was at 9%. And we did have some onetime benefits, specifically in our First Aid business that ran 18.5% organic growth. We certainly do not anticipate that again. And then in our Uniform Direct Sale business as well. In First Aid, we had an increase in the training business that helped us as it relates to AED training. So that was a spike that we -- again, we don't think is going to occur at those levels. And the Uniform Direct Sale business can be a little lumpy, but it had a really good quarter. So yes, hopefully, that gives you a little bit of color around the tough comparative in Q4. Scott Garula: Todd, I might just add, like, first off, I'd just say we had an outstanding quarter this quarter. Jim mentioned that we continue to execute at a high level. We feel that the guide for Q4 is not only a good guide, but it's also consistent with the guide that we gave at the end of the second quarter. I guess let me kind of walk through a little bit of math there that last quarter, the organic growth at the high end of the range was 8%. And if you look at the guide for this quarter, this quarter is also at 8%. And then if you even take it a step further and look at it another way, last quarter, we issued a guide for the second half of the year to grow organically 7.8%. In Q3, we just delivered a growth rate of 8.2% organically. And when you combine that with the Q4 implied of 7.6%, you get an average of 7.9%. So really effectively right in line with the guide that we gave last quarter. Jun-Yi Xie: Great. That's really helpful. And as my follow-up, I understand that most of your new business comes from no-programmers. But I want to see if you've seen any change in the competitive environment recently following your acquisition and also given changes in the macro and geopolitical environment? Todd Schneider: Thank you for the question. It is -- the geopolitical environment is -- certainly have a dynamic impact on things. But from a competitive set standpoint, no real change, keeping in mind, as you referenced, 2/3 of our new customers come from that no-program market. So when you're competing with e-commerce and you're competing with retail and you're competing with other managed programs, relative to all that, we also have traditional competitors. So no real change to that competitive set. It's incredibly competitive, and that's the way it always has been and will be. That being said, we are focused on delivering value to that set of prospects out there. There are so many businesses. We do business with a little over 1 million businesses, and there's whatever, 16 million to 20 million businesses in the U.S. and Canada, the opportunity out there is immense. And we're focused on delivering our message and getting our team positioned to better serve that market and get the word out better to that market because so many of them don't realize what we can do for them. And many of them also think that they're not a big enough business to have a program like we offer, which is incredibly contrary to how we make a living, which is servicing Main Street USA is -- and our average size customer is -- spends about $10,000 a year with us. So trying to get that message out to that prospect base is incredibly important to us. Operator: And our next question comes from Ashish Sabadra from RBC. William Qi: This is Will Qi on for Ashish Sabadra. I just wanted to ask on route density and the incremental opportunities there around footprint, especially with the UNF acquisition in mind. Retention is still at high, will any retention dips result in kind of reorganization there? Or do you still see a lot of opportunity kind of increasing the sell-through on those routes and just further fleet optimization? James Rozakis: Why don't I start on that one, and then I'll see if anybody else wants to add color. I think, Ashish, you all are probably aware of our SmartTruck technology and how we approach routing and routing efficiency. And the first thing that we try to do with routing and routing efficiency is be as little disruption as possible, whether that's within our own facilities or when we make an acquisition. And especially when we make acquisitions, we recognize that the most important component of the acquisition are the customers and the new employees that we brought on board, and we try to be as little disruption as possible to those two constituents. And we spent a lot of time trying to win over hearts and minds and build trust. And then we implement our SmartTruck technology. And SmartTruck allows us to make incremental moves and to gain efficiency over time rather than a wholesale route consolidation all at one point. We don't like doing that. We don't like big route reorganizations within a facility at one point because it could be highly disruptive. So we love the SmartTruck technology. It's been effective for us over the last several years. It's been one of the contributors to continuing to elevate our gross margin, and that would be our approach with any future acquisitions. Operator: And our next question comes from Faiza Alwy from Deutsche Bank. Faiza Alwy: I wanted to see if you've gotten any feedback from any of your larger customers around the announced acquisition of UniFirst. And really related to that, I'm wondering if we should be expecting any type of dissynergies when you initially make the -- when the acquisition is completed? Todd Schneider: Faiza, as far as our customers, as you can imagine, we stay really close to our customers, and we're getting a good response from them. They understand that they have many options, and they make that very clear to us that they have many options, which puts them in a good leverage position. And whether it's a national account or a local account, they have the same options. And our national customers still the vast majority of them are simply hunting licenses. So they'll negotiate centralized terms and conditions and then they allow their locations to decide who they want to do business with whether they're on contract or not. So they have the exact same choices that any local company would have. And they're very clear about that, that, hey, this -- we think this will be good for us. You'll bring better technology, better infrastructure, speed of delivery to our locations. You'll allow you to spend more time with our business instead of driving. All those things are very positive. So the response has been quite good. Any dissynergies? So I don't know that I would describe it that way. Certainly, we'll have our onetime costs. But we think that the combination of our two companies is going to be really good for all of our constituents, our customers, our employee partners, team partners and our shareholders. Faiza Alwy: Great. And then just a follow-up on that. I'm curious if you're doing anything differently kind of in terms of managing the business or in the timing of investments, things like that up until the acquisition? And is that going to be a factor in terms of how we should think about incremental margins in the near term? I see the implied kind of 4Q guide, but just curious if you're just managing things a little bit differently? Todd Schneider: Yes. Thank you for the question, Faiza. Yes, our incrementals that we're guiding towards in Q4 are very attractive. But that is not because of a change in approach. That's simply what we've been predicting and timing around for the year. And I wouldn't see a change in our approach in general as you speak to that. We're investing for the long term and we'll take our normal prudent approach as we think about investing for our business. Operator: And our next question comes from Connor Cerniglia from AllianceBernstein. Connor Cerniglia: I wanted to follow up on employment trends you've been seeing and get an update versus last quarter. Are you seeing any changes in the conversion cycle or win rate for first-time buyers? And within that specific verticals, call it, health care or education, are they proving more resilient? And which areas are you seeing more weakness? Todd Schneider: Good question, Connor. Yes, I wouldn't say we see any change in the conversion rate as it speaks to converting over that prospect base. As it relates to our verticals, we think we've chosen our verticals really, really well. And I think the employment data would defend that statement, meaning that if you look at health care, hospitality, education, state and local government have all fared reasonably well as it relates to employment. And we think the future there looks bright as well. Operator: And our next question comes from Seth Weber from BNP Paribas. Seth Weber: Just a quick one for me. Just on the Fire ERP implementation. I think we had previously talked about like 100 basis points margin headwind next year for '27? I just wanted to sort of mark-to-market and see where we're at from an expense perspective, if that's still the right way to think about it? Just 100 bps for this segment. Scott Garula: Yes. This is Scott. Thanks for the question. As Todd mentioned, some of the impact on next year's -- on the segment is going to be dependent on the rollout in the Fire business. We're satisfied with our progress today. Still not clear on exactly when next fiscal year that will be fully rolled out, but the progress is good. If you looked at an entire year, it would be the 100 basis points that you referenced. Then depending on when we actually go live with the entire business, it will be something less than that because we're not anticipating that to be fully rolled out by June 1. Operator: And with that, we need to end our Q&A session for today. I'd like to turn the call back over to Jared for closing remarks. Jared Mattingley: Thank you, Ross, and thank you for joining us this morning. We will issue our fourth quarter of fiscal 2026 financial results in July. We look forward to speaking with you again at that time. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. Welcome to Kingsoft Corporation Fourth Quarter 2025 and Annual Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Yinan Li, IR Director of Kingsoft. Please go ahead. Yinan Li: Thank you, operator. Ladies and gentlemen, good evening, and good morning. I would like to welcome everyone to our 2025 fourth quarter and annual results earnings call. I'm Li Yinan, the IR Director of Kingsoft. I would like to start by reminding you that some information provided during the earnings call may include forward-looking statements, which may not be relied upon in the future for various reasons. These forward-looking statements are based on our information and information from other sources, which we believe to be reliable. Please refer to the other publicly disclosed documents for detailed discussion on risk factors, which may affect our business and operations. Additionally, in today's earnings call, the management will deliver prepared remarks in both Chinese and English. A third-party interpreter will provide a consecutive interpretation into English. During the Q&A section, we will accept questions in both English and Chinese with automated interpretation provided by the third-party interpreter. On-site translation is solely to facilitate communication during the conference call. In case of any discrepancies between the original remarks and the translation, the statements made by the management will prevail. Having said that, please allow me to introduce our management team who joined us today: Mr. Zou Tao, our Executive Director and CEO; and Ms. Li Yi, our acting CFO. Now I'm turning the call to Mr. Zou Tao. Tao Zou: [Interpreted] Hello, everyone, and thank you all for joining Kingsoft's 2025 First Quarter and Annual Results Earnings Call. In 2025, we remained committed to technology empowerment and focused on enhancing our core capabilities. Kingsoft Office Group continued to prioritize its core strategy of AI collaboration and internationalization, deepen its presence in the AI office market and development of future-oriented intelligent office products tailored to the all scenario office needs of both individual and enterprise users. In the online game business, we further deepened our expertise in classic wuxia IP and actively expanded into diversified game categories and global markets. In 2025, the group's total revenue reached RMB 9.68 billion, representing a year-on-year decrease of 6%. Among this, revenue from the office software and services business recorded revenue of RMB 5.93 billion, up 16% year on year and maintaining steady growth. Revenue from the online games and others business amounted to RMB 3.75 billion, up (sic) [down] 28% year on year, primarily due to the high base in the same period last year and the decline in revenue from existing games. After release in early 2026, Goose Goose Duck has received positive market reception and has surpassed 30 million cumulative new users. This demonstrated our potential in expanding into new game genres and injected fresh growth momentum into the online games business. Now I will walk you through the business highlights of the full year and fourth quarter 2025. In 2025, Kingsoft Office Group continued to advance its core strategy of AI collaboration and internationalization. Total annual revenue reached RMB 5.93 billion, up 16% year-on-year. Fourth quarter revenue reached RMB 1.75 billion, also up 17% year-on-year. The company is pursuing a dual-track approach encompassing office AI reconstruction and upgrade and AI office native exploration. On one hand, it is driving a comprehensive intelligent upgrade across its existing WPS component suite to reshape the full scenario office experience. On the other hand, it is exploring an agent-native office paradigm, with its office AI agent WPS Lingxi evolving into an all-around AI office companion marking an entry into the era of office AI agents. WPS 365 has undergone a comprehensive AI-driven upgrade, establishing a multidimensional framework that spans technology infrastructure, collaboration systems, intelligent search, and digital employee ecosystems comprehensively empowering enterprises in their digital and intelligent transformation while enhancing office collaboration and operational efficiency. The Company's international expansion is progressing steadily with completed product upgrades and overall model development, now offering global integration office capabilities. For WPS individual business, the user base continued to expand steadily, with both domestic and international operations achieving quality growth. Total annual revenue reached RMB 3.63 billion, up 10% year-on-year. The growth trend continued in the fourth quarter with revenue reaching RMB 918 million, the year-on-year growth rate accelerating to 14%. The cumulative number of annual paid individual users in domestic reached [indiscernible] million, up 11% year-on-year. By the end of 2025, WPS AI's monthly active users surpassed 18 million, representing a year-on-year increase of 307%. Overseas market, the cumulative number of paying users grew substantially with particularly stronger growth among large-scale users. The monthly active devices for the overseas PC version reached 42.5 million, up 54% year-on-year. WPS 365 business, we maintain high quality and rapid growth. Total ad revenue reached RMB 720 million, up 65% year-over-year. Fourth quarter revenue was RMB 210 million, also up [indiscernible] the fourth consecutive quarter of year-on-year growth about 16%. We continue to advance products and service upgrade guided by the core principle of integration, intelligence [Audio Gap] industries specifically additions. The company further consolidated its advantage among central and state-owned enterprises, while accelerating expansion into private enterprises, foreign-invested enterprises, and local state-owned enterprises, while also advancing channel ecosystem development to further enhance its market presence. In 2025, WPS 365 continued to improve the implementation of AI technology in office scenarios. Our official digital employer has already achieved a large-scale standardized delivery. In early 2026, WPS 365 officially integrated enhancing our core capabilities, injecting growth momentum to improving the quality and [indiscernible] enterprise collaboration and office work. This intelligence further enrich our AI office ecosystem. For WPS software business, total annual revenue reached RMB 1.46 billion, up 15% year-on-year. Fourth quarter revenue reached RMB 530 million, up 15% year-over-year. We actively participated in bids for domestic office software by central and local government. We continue to maintain a leading share in both flow-layout and fixed-layout document software market. We continue to advance the implementation of government digitalization projects support the development of digital platforms in multiple regions and effectively empower the intelligent upgrading of government office operations. In the fourth quarter, our flagship PC game JX3 Online enhanced its costume design through technological upgrade and its aesthetic style was widely praised by players. The version optimization and service upgrades completed at the end of 2025 have received positive market feedback, and we will further increase investment in game play and narrative experience. Our classic JX series PC games and its inherited mobile games like World of Sword: Origin continued to iterate on content and versions, maintaining stable operations in both domestic and overseas markets. Social deduction game Goose Goose Duck officially launched in January 2026. It recorded over 5 million new users on launch day, surpassed 30 million cumulative new users, and ranked #1 on the iOS free chart for most of the past two months. Driven by word-of-mouth and organic traffic, it penetrated the broader social circle. Two casual games from the Angry Birds series also received publishing licenses and are expected to launch in China in 2026, further enriching our casual games portfolio. Starsand Island, our cozy pastoral life simulation game began early access in February 2026. With its unique art style and game play, the game established a strong reputation among core players worldwide. Going forward, we will actively optimize the products based on player feedback to lay a solid foundation for the official version launch in the second half of the year. Looking ahead, Kingsoft Office Group will deepen the application of AI agent technology across full-scenario office environments, strengthen the core competitiveness of WPS 365 as an intelligent collaboration platform, and accelerate the execution of its internationalization strategy. For online games business, we will continue to focus on premium content development and global publishing, sustain the vitality of classical IPs, and foster the growth of new game genres to achieve sustainable growth. We will deepen technological innovation and commercial expansion, actively expand global market opportunities, and create long-term value for our shareholders. Yinan Li: Next, I would like to invite Ms. Li Yi to introduce the financial performance for the fourth quarter and annual. Yi Li: Thank you, Zou and Yinan. Good evening, and good morning, everyone. As for the financial results, I'm starting for the Q4 use RMB as a currency. Revenue decreased 6% year-on-year and increased 8% quarter-on-quarter to RMB 2,618 million. The revenue split was 67% for office software and services and 33% for online games and others. Revenue from the office software and services business increased 30% year-on-year and 50% quarter-on-quarter to RMB 1,750 million. The increases were primarily attributable to the growth across 3 principal business of Kingsoft Office Group. The steady increase of WPS individual business was primarily driven by the expanding number of paying subscribers attributable to continuous interaction of AI capabilities and improvement in intelligent office experience. The strong growth in WPS 365 business was mainly driven by the deep integration of document AI and collaboration capabilities, along with continued customer expansion among private and local state-owned enterprises. The growth in WPS software business was mainly supported by sustained demand from government and enterprise clients, further consolidating our leading position in the flow-layout and fixed-layout document market. Revenue from the online games and others business decreased 33% year-on-year and 3% quarter-on-quarter to RMB 868 million. The decreases were mainly due to decline in revenue from certain existing games. Cost of revenue increased 5% year-on-year and decreased 1% quarter-on-quarter to RMB 471 million. Gross profit decreased 8% year-on-year and increased 10% quarter-on-quarter to RMB 2,148 million. Gross profit margin decreased by 2 percentage points year-on-year and increased by 2 percentage points quarter-on-quarter to 82%. Research and development costs increased 30% year-on-year and 6% quarter-on-quarter to RMB 953 million. The increases were primarily driven by increased headcount and AI-related expenditure, reflecting our strategic focus on advancing AI and collaboration capabilities. Selling and distribution expenses increased 36% year-on-year and decreased 18% quarter-on-quarter to RMB 462 million. The year-on-year increase was mainly due to high marketing expenditures in both office software and services and online games business. The quarter-on-quarter decrease was mainly due to high base from promotions for new game launches in the prior quarter, partially offset by increased spending on marketing activities for Kingsoft Office Group. Administrative expenses increased 33% year-on-year and 40% quarter-on-quarter to RMB 202 million. The increases were mainly due to higher personnel-related expenses and increased depreciation arising from the completion and operation of our Wuhan campus. Share-based compensation costs increased 55% year-on-year and 15% quarter-on-quarter to RMB 92 million. The increase was mainly due to the grants of awarded shares to the selected employees of certain subsidiaries of the company. Operating profit before share-based compensation costs decreased 48% year-on-year and increased 70% quarter-on-quarter to RMB 606 million. Net other gains for the fourth quarter of 2025 were RMB 819 million compared with losses of RMB 74 million for the fourth quarter of 2024 and gains of RMB 13 million for the third quarter of 2025, respectively. The gains in this quarter were mainly due to that we recognized a gain on deemed disposal of Kingsoft Cloud as a result of the dilution impact of the issue of new shares of it. Share of losses of associates were RMB 132 million for the fourth quarter of 2025 compared with losses of RMB 148 million and profit of RMB 5 million for the fourth quarter of 2024 and the third quarter of 2025, respectively. Income tax expense was RMB 220 million for the fourth quarter of 2025 compared with expenses of RMB 212 million and RMB 66 million for the fourth quarter of 2024 and the third quarter of 2025. As a result of the reasons discussed above, profit attributable to owners of the parent was RMB 975 million for the fourth quarter of 2025 compared with profit of RMB 460 million and RMB 213 million for the fourth quarter of 2024 and the third quarter of 2025. Profit attributable to owners of the parent, excluding share-based compensation costs was RMB 1,026 million for the fourth quarter of 2025 compared with the profit of RMB 496 million and RMB 277 million for the fourth quarter of 2024 and the third quarter of 2025. The net profit margin, excluding share-based compensation costs, was 39%, 18% and 11% for this quarter, the fourth quarter of 2024 and the third quarter of 2025, respectively. And now on the year 2025. Revenue decreased 6% year-on-year to RMB 9,683 million. Office software and services made up 61% increased 60% year-on-year to RMB 5,929 million. Online games and others made up 39% and decreased 28% year-on-year to RMB 3,754 million. Gross profit margin decreased by 2 percentage points year-on-year to 81%. Operating profit before share-based compensation costs decreased 47% year-on-year to RMB 2,072 million. Profit to owners of the parent was RMB 2,004 million for the year of 2025 compared with a profit of RMB 1,552 million for the last year. The group had a strong cash position towards the end of 2025. As at 31st December 2025, the group had cash resources of RMB 27 billion. Net cash generated from operating activities was RMB 2,292 million and RMB 4,787 million for the year ended 31st December 2025 and 31st December 2024, respectively. Capital expenditure was RMB 342 million and RMB 426 million for the year ended 31st December 2025 and 31st December 2024. That's all for the introduction of our operational and financial results. Thank you all. Now we are ready for the Q&A section. Thank you. Operator: [Operator Instructions] We will now take our first question from the line of Liping Zhao of CICC. Liping Zhao: [Interpreted] I have 2 questions on the gaming business. So first, after Mr. Zou recently took on the role as the CEO of Xishanju, what strategic adjustments have been made regarding to the future development of the gaming business? And are there any opportunities or possibilities for implementing AI to improve efficiency in the game development? And second, we have observed that Goose Goose Duck is performing well in terms of popularity. Could you share some insights on the current user base and retention metrics? I'd also like to understand the time line for future monetization and potential incremental contribution to the overall revenue and profit. Tao Zou: [Interpreted] So first off, I'd like to talk about the Goose Goose Duck. And so actually, since we have launched on the 7th of January, we [Audio Gap] research of over 30 million new users. And up to now, generally speaking, and the total users could be quite stable at the 3 million up and down. So we are actually doing this planning started from the spring festival up till the summer holiday. We're going to prepare a series of different versions and with different stages, and we would like to have a stable and continuous stable game. And this is actually for the mid- and long consideration for this game is that firstly, through this launch, we could actually have some of the remaining data, and we have confidence that for the continuous version, we could [indiscernible] generation. And so we could make the BAU higher. This is actually the most important priority for us. And it means that we need to make enough users. And once the product has launched, for the income perspective, we didn't do that much work on it because for the industry -- for the game industry, the average performance in the future, we will consider about the payable rate and also the up value. We still have a very big space for it. But for this game, since launch up to now, the total performances is more than like over our expectations. In the future, we still have a very big space for the growth. And in the future, we also would like to launch in the game space. And from the users' perspective, like we would like to make it stable and make it continuously stable. And then step-by-step digging the commercialization possibilities. This is the first stage is that we need to make sure this version is stable, have a good quality service and also with different version, make sure that the total quantity of the users online is good enough and then furthermore, make it higher. So in the long-term perspective for this IP, we're going to consider how to have like expand different surroundings products and also for the other accessories, we have different ideas for it. So let's put it in the future. But currently, the most important thing is that have a stable operation and make the users like to have a higher user quality. So actually, for this first question, it is quite complex. I would like to make it simplified is that since I become the CEO on the 1st of December last year, [indiscernible] is already 3 months past. So generally speaking, firstly is for the service of the [ fit of the thought ] and also for the JX3 for the business is actually the basic of our business. So we would like to continue for the investment of the basic space. And in the past few years, we always have a lot of very like [indiscernible]. And although we have collected some infections of the external competition and infection. But generally speaking, the customers are quite -- the customer quality is quite stable. That is why we believe that -- so currently, the customer service, we're going to provide a better service for our customers and higher quality for them, especially for the content. This is actually our guarantee, the basic guarantee. Second is that we need to make some projects which doesn't have like strategic way. We need to do some adjustment and also maybe shrink that business. It means that we could have enough space, enough ability to make it into the middle and long-term strategy, especially for we're going to have some strategic value. So currently, it's not that convenient for me to release some of the information about it. But probably in May, when we do this seasonal report, it's going to be more convenient for me to have an official introduction for it. And thirdly is about relevant to the second part of the question is that the AI is going to be a completely new area. It's already arrived, especially for our sales. And we can see is that for the industry of their game, actually for the manufacturing and production of the game, in many years, we have a lot of like a revolution. It's not just to have a high efficiency, but this is actually completely changed the way of the mode production. And since I became the CEO on the 1st of December last year, and we could completely carry out of the AI, the different policies, especially not only for their staff thinking and also the platform of the AI building. In the future, we're going to based on this platform to doesn't have that much like identification for the position, but we're going to like to highlight the innovation through the platforms of AI construction in the future, mostly that the creator is going to create the game on the platform. They're going to have a lot of the creation. They're going to have some meaningful content. And internally, we're going to select some excellent projects and commercialize and promote it into this market. So simplified is that we think in the whole industry organization, the content creation organization will completely change and also the way of working will be completely changed. So basically, based on the platform's creation on the AI, everybody is going to be a producer and everybody is going to be the creator for the content. And this is actually everybody could do the creation. This is the time. The time has arrived. So I have strong confidence for it. And in the past few years, the AI tools have completely like become more mature. And especially this year, the whole industry for the products, we have no doubt about it, AI has already come. That is why I think that the time is already matured. And thirdly is for the positions, they have actually a strategic meaning. And the last year for the game, we [indiscernible] has launched, it doesn't have reached our expectation and also the performances of old game is a little bit slow. But this is actually we make analyze internally and make a conclusion. And this is actually a good point for us because we could deduct some of the old things and also we are conducting new. I think that when we move forward on this, we're going to have more space, and this is going to be our opportunity for season. And in the future under this mode, we're going to have a higher product efficiency. And so that is why I think that sometimes the bad news is not actually a bad thing. So like from the challenges and difficulties last year, we actually have some challenges facing, but this is going to let us get to welcome this a new page for Seasun. Operator: We will now take our next question from the line of Linlin Yang of Guangfa Securities. Linlin Yang: [Interpreted] I have 3 questions. The first is what is the progress of our AI business as well as the development and commercialization of industry-specific models and products. The second question is about the AI industry. Recently, the view that AI will display traditional software while the core business of Kingsoft WPS has not been materially affected so far. But there is uncertainty regarding the expansion of value-added service. What is your opinion about this question? And when you serve enterprise customers, what are their key demand for AI? And what capabilities do you need to strengthen? And recently, Xiaomi has MiMo with a trillion parameter large language model as well as a line of associated models. In what ways will the MiMo model further empower and enhance the WPS business? Tao Zou: [Interpreted] So we would like to answer the first 2 questions, and then Mr. Lei is going to answer the third question. And so this is actually quite busy that since last April, we have set up the AI product center. And this year, we actually have the full hub. We would like to cooperate with the Kingsoft Cloud to have some collaborations altogether. So actually, the Kingsoft Cloud, we already have delivered some of the products like, for example, the Kingsoft [indiscernible] and also internally the target for the like assessment, we already used some of the products. And we made a conclusion since last year that we would like to really get into the typical industry and trying to figure out the way of the road AI hold to have this empowered for different industries. So the key point of this year is that we need to target for the element -- the target the aim, especially like we can see that this year, the open cloud is show that appeared and it's very popular the whole world. So this is actually a great remind for us. AI is going to have empowered for different person. AI could be able to empower for enterprises, and they have different ways to show up. And all of this could be able to be realized. So we will not only need to based on the initial thinking, actually, the key things of this year is that we [indiscernible] scenario and also to focus on different industries to get into that industry. And this is actually the biggest differences between last year and this year is that last year, we are trying different roles and trying to localize in different ways. Maybe that AI works for that industry. But this year, we have to get deeply into typical industries in probably 1 to 2 different regions and then make actual work. This is actually like the AI product center development and also progress. Jun Lei: So I would like to answer the second question is that based on my understanding is that the AI is the influence for the AI [indiscernible] if they are saying that -- if we are saying that AI is going to eat up software is not -- so I don't personally agree on this statement because as we know is that for the big language model, AI has to bring that I would like to using like digitalization system to have like restructured the AI currently. So this trend is quite significantly recently. And since 2023, we have the restructure. I can see that AI is the core thing. And as developed in the past few years, AI has constantly strengthened and more and more be recognized by people and simplified saying that this is actually the whole restructure for the [indiscernible] so AI could actually -- if we are seeing that AI is going to eat up the software, the description is not accurate because the software is compared with hardware. So what is exactly software and hardware. So like this year, you can see that the AI scale, I would like to using like the digital system to expand that, especially for the basic on the AI risk structure for the software and compared with the hardware, like, for example, [ Doba ] this is software, right? But today, we can see is that -- and compared with the previously, they have a bigger function. They have the better interaction and also have more like different multiple functions and abilities, which we cannot imagine previously. So this is actually our understanding. But additional software, they are different because the AI software could be replaced the traditional software. That is for sure. But AI is not going to eat up the software because that is not scientific. This is my opinion since 2023. And also the influence for the office is that since 2023, AI has showed up. I discussed about my opinion. So during that time, we can say is that AI could be strengthened, like keep strengthen the ability in the future. That is why right now, we have changed the name as office because 2023, we initially used office AI, and then we used the change name as AI office. So this is constantly of my first question answer is that initially, the AI ability is not that strong enough. That is why we need to use office to strengthen the AI ability. But as the AI ability has become stronger and stronger, like, for example, we have the native AI office development since 2023, then WPS 1.0, 2.0 and 3.0, especially last year, we have launched Lingxi, and this is actually a constant development. And up to now this year, 2026, it's significantly clear that Office AI is going to be the big part. And all of us is going to use. All of that is like AI office. So this is the second point, which is super for this time since 2023. And also for the WPS AI membership since last year, we could increase 307% since last year. The reason is that last year -- the first -- last year, we have launched the Lingxi that version. So this is actually the second part I like to answer this question. And third part is about Xiaomi. So Xiaomi has launched MiMo-V2-Pro. So no matter for the communication meeting with Kingsoft or the cloud communication meeting, that is based on One Plus and that is the Xiaomi's big model for MiMo. And for Kingsoft and Xiaomi, we are actually AI like mixer. And Xiaomi would like to do this big model but Kingsoft we are not. So as time when we have AI launched, especially recently, Xiaomi has launched that our own AI and the performance is actually quite good. So we can see that the ability of Xiaomi is increasing all the time. And the key thing is that we need to make our competition ability stronger and also to have our own [indiscernible] strengthen their AI ecosystem construction. As time goes by, the whole like Kingsoft series products could have like a very competitive ecosystem together like development together with Xiaomi. Yinan Li: [Interpreted] Hello. Thank you for joining us today, and this will conclude our presentation for the 2025 Fourth Quarter and Annual Results Earnings Call. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good morning, ladies and gentlemen, and welcome to the Jenoptik conference call regarding the financial results of 2025. [Operator Instructions] Let me now turn the floor over to your host, Dr. Prisca Havranek. Prisca Havranek-Kosicek: Thank you very much. Good morning, everyone, and welcome to our fiscal year 2025 results call. Today, I'm here with Andreas Theisen, our Head of Investor Relations. I will lead you through the presentation. And then as always, Andreas and I will be open for your questions. As you know, our preliminary headline 2025 results have already been published mid of February. So today, we will cover the full set of audited financial figures, including key business unit results as well as our outlook for the year 2026. Now let me start with an overview on Page 5 -- 4 of our slide deck. From a management perspective, 2025 was a very busy year. First of all, let me briefly comment on our progress on executing our strategic goals. Number one, we implemented a new organizational structure, making our company somewhat leaner, increased accountability within our businesses and with our new reporting structure, also increased transparency for our investors. Secondly, we brought our biggest single investment, I mean, our new micro-optics fab in Dresden online, and we are now in a position to further grow this business going forward. Thirdly, again, in our semi business, we delivered on our strategy to grow share of wallet in our inspection business. So overall, I think we made substantial progress in making Jenoptik stronger yet again and in delivering on our strategic agenda. Now looking at business development. From a market perspective, in particular, semi lithography was somewhat difficult in 2025. We focused on what we can control and thus, our focus throughout the year was on executing and accelerating our efficiency program. This has paid off in terms of margin protection and cash generation. As we enter 2026, we have seen signals of a rebound, in particular, in the semi market and overall, a more positive trading environment across most of our verticals. In 2026, we will keep our near-term focus on addressing and further developing our growth opportunities, particularly in areas like AI-driven semi demand, optical communication for data centers, defense application, SMS expansion in the U.S. and also AR/VR. As a consequence, we expect to return to profitable growth this year, and I will cover the details of our guidance here at the end of my presentation. Lastly, I'm very excited that our management team will be complete soon again with Dominic Dorfner joining us as our new CEO, as you have seen from yesterday's release. Now turning to Page 5. Looking at order intake in detail on group level, we reported a decline of approximately 3% year-on-year. However, the dynamics have been fairly divergent between our 4 strategic business units. So starting with Semiconductor and Advanced Manufacturing. As you know, development has been impacted by certain supply chain fluctuations in our lithography business as well as an order cancellation in Q1, as we highlighted on our previous call. While we saw a stabilization of demand in the lithography business in the second half of 2025, order intake for the full year was down by around 11% year-on-year. Customer activity in our inspection business was strong throughout the year with us executing on our strategic road map of increasing our share of wallet. Turning to our Biophotonics business. Order intake was very strong last year, being up by around 19%. We saw positive momentum, in particular for our defense product offering, but also a positive development in our life science applications. In MedTech, we have seen lower momentum in the second half post the launch of a new generation product in our dentistry business. I would like to remind you here that quarterly volatilities of order intake in this business has become more pronounced given our customers' order behavior in the defense business. Here, customers tend to place few, but partly very sizable orders, sometimes for multiyear deliveries. Overall, given the nature of this industry, we do expect fluctuations between single quarters to remain high also going forward. Now moving on to our Solutions businesses. In Metrology & Production Solutions, orders are slightly down year-on-year on an ongoing weakness in the automotive market, whereas Smart Mobility Solutions recorded robust mid-single-digit order intake growth last year. Our book-to-bill ratio was slightly below 1 or at 0.95 to be precise. Our order backlog reduced compared to prior year-end to around EUR 591 million. Overall, we anticipate turning more than 80% of this backlog into revenue in 2026. Please follow me now to Page 6. The revenue in 2025 declined by approximately 6% year-on-year to around EUR 1.05 billion. This reflects generally weaker order intake trends at the beginning of the year, especially in the semi space, as I mentioned before, it also includes a 1 percentage point negative impact from euro-USD exchange rate fluctuations. With regards to our semi business, revenue was down 12% year-on-year. This was a result of what we already discussed several times in earlier calls, meaning softer demand in the lithography business, which, as you know, makes up for a big chunk of our volume. On the contrary, revenue with our customers in the semi inspection arena developed very well last year. Now looking at Biophotonics. Here, revenue was up by 10%, driven by a strong performance primarily of our defense as well as our MedTech businesses. For Metrology and Production Solutions, revenue development reflects what I've mentioned before on order intake. So an unchanged difficult market environment in the -- particularly European automotive industry was primarily weighing down on our revenue performance. Now finally, revenue of our Smart Mobility Solutions business was up by almost 9% in 2025, particularly as our efforts in the important U.S. market are gaining traction following our strategic decision to enter the smart mobility market in the U.S. with our own sales and our own service force. Please follow me on to Page 7, where we look at our regional revenue distribution. First of all, I would like to note that given the size of our key account businesses, and I'm talking about our semi and our Biophotonics businesses here, the meaning of regional performance is somewhat limited. Year-over-year decline in revenues in Europe, including Germany, was very much triggered by issues we had in our semi business or to be more precise, our lithography business. In the Americas, we saw a positive development driven by Biophotonics and of course, the now well-advanced go-to-market transition of Smart Mobility Solutions in the U.S. Looking at revenue share we realized with our top 7 customers. Unsurprisingly, this has dropped from 48% to now 43% in 2025, reflecting the somewhat special situation in lithography. Looking forward, of course, we expect that the share of our top customers to grow again. Now on Page 8, I would like to cover our profit performance by business. As you can see on the left hand of this chart, the group's EBITDA reached almost EUR 193 million, down by around 13% compared to last year. Our absolute EBITDA improved sequentially every quarter last year, and margins in the second half improved to the above 20% level. However, the full year, our EBITDA margin contracted by 150 basis points year-on-year, including an about 1 percentage point impact from our cost reduction program. On business unit level now, influenced by lower utilization and changes in the product mix, EBITDA in our semi business unit dropped by almost 18% year-on-year. Importantly, we were able to retain a strong margin level of around 26% on a full year basis and even around 29% when looking just at Q3 and Q4 together. So I believe this clearly shows the resilience we have in this business. In our Biophotonics business, the strong top line growth drove better utilization of our capacities in combination with positive product mix effects. EBITDA margin substantially improved to more than 20% last year. Looking forward, though, broadly keeping the strong margin level is what we're aiming at. And let me reiterate that semi type margins are not realistically in the cards from today's perspective. When looking at our Metrology and Production Solutions business, lower overall revenues impacted profitability on the basis of lower fixed cost absorption. But for sure, our cost reduction program will also help us to get our fixed cost base lower going forward. Finally, Smart Mobility, we saw good margin progression of more than 200 bps to 13.6% based on strong top line development and the associated leverage of functional costs. Now turning to Page 9, looking at key aspects of our P&L. I think we've said several times already, strict cost management was a key priority to us in 2025, considering the lower revenue levels that we alluded to before. Overall, we have reduced our headcount measured by FTE by almost 5% compared to the prior year. So now looking at the main developments of our P&L in detail. Gross margin was down by 130 bps year-on-year, which was primarily influenced by lower fixed cost absorption and product mix effects. On a business unit level, our semi business saw the biggest impact here. On the functional expense side, I think we remain very disciplined as those expenses declined by 1% year-on-year despite some general labor cost inflation impact as well as the already mentioned cost reduction expenses. Moving on to the EBIT line. You see a more pronounced decrease in both absolute terms and of course, margin compared to EBITDA since depreciation and amortizations were as expected, slightly up year-on-year. Further down the line, as you may recall from our Q2 call, we have recognized an income of a little above EUR 3 million resulting from a settlement agreement regarding the sale of VINCORION, our previous mechanical defense activities. Bottom line, our earnings per share reached EUR 1.26 versus EUR 1.62 in 2024. And as you have may read in our communication this morning, the Executive Board and the Supervisory Board proposed a dividend of EUR 0.40 for fiscal 2025 compared to EUR 0.38 for the year before. Finally, on ROCE, not unexpected given our earnings development last year, ROCE was at 8.4%, quite below our ambition level. We continue to see ROCE as a core metric in steering our company and remain committed to getting back to more satisfactory levels. Now turning to Page 10 and looking at cash flow and balance sheet data. Here, let me say that we are very pleased with the development, particularly considering the difficult trading environment for some of our businesses. So despite decline in earnings, as you can see, our operating cash flow pretax improved considerably, mainly on lower inflows into our working capital. And with additional support from the normalization of our CapEx, free cash flow was up by nearly EUR 50 million, enabling significant debt and leverage reduction. Finally, please follow me to Page 12 to cover our guidance for 2026. When looking into 2026, I think it's clear there's still high market uncertainties persisting driven by both macroeconomic, but also geopolitical developments that are generally difficult to predict. With regards to the semiconductor equipment industry, the by far biggest end market for Jenoptik, recent news flow has been positive, given, amongst others, announcement of massive data center investments and the associated need for computing capacity. Based on these trends and as well customer order activity, we expect positive momentum for our business in this space. Overall, for the Jenoptik Group, we expect revenue in 2026 to be up in the single-digit percentage range versus prior year. On profitability, we expect our EBITDA margin to be in the range of 19% to 21% in fiscal 2026. We do expect our CapEx to be slightly below last year's level. With that level, we are delivering what we promised and we will be trending towards our maintenance CapEx level. Now before I close my presentation, and we go into the Q&A, let me give you some extra color in sense of model assumptions, which some of you may find helpful. On revenue, we estimate a similar FX headwind of approximately 1 percentage point as we saw in 2025. Regarding profits, for sure, we may have some benefits from our cost-saving program and the emission of the associated onetime expenses from the restructuring as we are moving into '26, but general cost inflation, expected FX headwinds should also be borne in mind. On the contrary, rising energy prices may not influence the equation significantly, at least as far as we know from today's perspective. On our financial results, we are in the process of refinancing some of our German debenture bonds and overall expect our financial results to be broadly in line with previous year. And very importantly, from a phasing perspective, we do expect revenue in the first quarter of 2026 to be below last year's first quarter, given our current order book structure and capacity availability. So in summary, as we move into 2026, we see an improved demand picture as of now, supporting positive expectations, especially in our semi and defense businesses. Therefore, operational execution is our main focus at the moment. Moreover, we believe we have ample growth opportunities ahead of us, which we aim to realize. And those include, as I've mentioned in the very beginning, firstly, digital data communication with our high-performance microlenses used in transceiver. Secondly, defense, where we have established -- we have an established product offering and a strong international customer base; and lastly, further leveraging our infrastructure investment in the U.S. market for our SMS business. So as I see it, we have everything in our hands to be successful in 2026. And with that, I would like to thank you and hand back to our moderator to start the Q&A session. Operator: [Operator Instructions] And we have the first question. So the first comes from Craig Abbott from Kepler Cheuvreux. Craig Abbott: Good morning, Prisca and everyone. And thank you Prisca for also giving us some of the additional modeling indications. I'll just ask a couple of questions first and then get back in the queue. In the -- looking at your EBITDA margin in your semi activities in Q4 was indeed quite high, I think, around 30%. And I just wanted to -- this could be an indication of a new level of profitability we can expect going forward. Appreciating there will always be some quarterly fluctuations. But if that nevertheless is like kind of directionally a run rate? And can this be scaled further? That would be my first question, please. Prisca Havranek-Kosicek: Of course. Thank you, Craig. And I would like to caution a bit here. Yes. You are right. We were actually quite pleased with the 29.8% margin that we saw in Q4 '25, right? Main driver was better product mix and also lower costs from our reduction program. And also, of course, to be fair, we also have some onetime effects from release of bonus provisions that impact obviously the whole company, but also this business. So to your question on to moving forward, if this is an indication of a new profitability level, we expect good margins to be realized. But we have to also think that we -- next to the sector cost inflation, you know, we have a labor cost agreement of about 3% hitting us as of April '26. We also have to put in additional resources to accommodate the ramp-up and then our accelerating demand that we -- that as I've mentioned that we anticipate at least based on what we see today. So overall, that would not lead me to believe that we will come to a different margin environment for this business in 2026. Craig Abbott: I'll ask two more now and then I'll get back in the queue. The secondly, in semi, you mentioned twice, and you've talked about this before about increasing your share of wallet in the inspection space. I just wondered if there's any more light you could provide here and kind of helping us put that in some kind of dimension. And yes, if you could remind us kind of the sales split in your semi activities between lithography end markets and the inspection activities. Prisca Havranek-Kosicek: Yes. Thank you very much for your question, Craig. So as you know, we talk a lot about lithography, and I'm sure there will be some questions going forward. But our second large pillar in this business is our inspection business, you know, where we, again, also sell optical components, optical systems into the key players there. And we have indicated on several occasions that we actually have seen nice growth development throughout the year '25, both in order intake, but also in revenue. And with that, of course, that business has been growing versus the lithography business that has not been growing in 2025. Strategically, we think that's important, not only to build up, I would say, a second large pillar outside of the lithography business, which, of course, volume-wise is still the bigger one, but also because we believe we have ample share gains that we actually can get in our -- in the share of wallet of our customers. And this is linking back to our Capital Markets Day in 2023, where I think we talked about that. And now it's basically to give you a data point also that we are delivering on that strategic goal. Craig Abbott: And my third and last question for now. Please, on the EBITDA margin progression, if you could help us bridge that through. You gave us some indications in your comments a moment ago, but just trying to gauge like how much of that is like the efficiency measures feed through coming through now plus the follow the cost there last year. And secondly, mix effects from perhaps an over-proportional growth in your semi activities and whatever else may be factors worth pointing out, thank you. Prisca Havranek-Kosicek: Yes. Thank you, Craig. I mean you've seen the segment guidances that we are giving on this. Maybe where I can put a little bit more flavor, as I already alluded to in the comments. So of course, there's a one-off effect overall for the company from the restructuring expenses that we had in 2025 of high single-digit millions, which, of course, on a recurring basis, we will not have that, and we'll get some incremental impact from this restructuring project. We also have a project where we are working on introducing material expenses. That's also part of the activities we have kicked off last year. So that, I would say, is a tailwind. The headwind is, of course, the normal labor cost inflation. We have -- I think I mentioned that in the comments, labor cost agreement in Germany, and this is the biggest cost factor, obviously, for us that starts in April and is above 3%. So we have to, of course, factor this into the equation. And then we have to see overall what the geopolitical situation will bring. At the moment, we do not expect a major increase in costs from the current geopolitical situation, and maybe I can comment some more on that afterwards. But we will, of course, also have a slight increase in energy costs. But keep in mind that we are not an energy-intensive business. Our energy costs are fairly small compared to a lot of other industries. So if you take the net-net there, that gives you sort of the view on the sector cost inflation. And then on top of that, you mentioned our semi business. As you know, the mix matters in our company. So the demand acceleration, the early signs of which we are seeing today will, of course, have some influence on how the year plays out. And the semi profitability, of course, is a big mix factor within our total company profitability mix. I hope that sort of gives you a little bit of flavor on those questions. Craig Abbott: Yes, indeed. Very helpful. Thank you very much. Operator: The next question comes from Maissa Keskes from ODDO BHF. Maissa Keskes: Regarding Prodomax, the order intake is very low in '25 and the backlog is almost done. So how do you see the business development in '26 and beyond? And should we expect additional costs that could put some pressure on margins? And what are the concrete measures that are you implementing to mitigate this? Prisca Havranek-Kosicek: Yes. Thank you, Maissa, for the question. On Prodomax, we have seen in Q4 in 2025, an order cancellation at that business in the mid-single-digit value. So that, of course, is, I would say, not great news. That is unfortunate. It's not something that we will see going forward in our view. But of course, it's also a testimony to what I'm going to say next, which is that the demand situation for Prodomax in the overall North American/U.S. OEM space is still quite volatile and quite subdued. And that, of course, has an impact on Prodomax top line and the demand picture overall, as I've just mentioned also for 2025 order intake. Now what are we doing about this? Now Prodomax is an asset-light business that has actually -- it's based out of Canada. So it has a certain flexibility in its cost base that we have and the management there together with us have already, I would say, put to use in 2025. And of course, that's what we have to closely monitor again in 2026, depending on the demand situation. What I think is important, but I think you're fully right, a very low demand and also depressed revenue level will also hit profitability there. And there will be some structurally remaining costs that we cannot -- that are fixed basically, yes. But I think what is important to note is Prodomax is a business that has a very good market position, I would say, in this North American OEM space. So when -- it's more a question of when the demand will return rather than if the demand will return. So we believe this is temporary in nature. And while it's hard to be specific on when do we think the demand will return, we are absolutely convinced given the market position that it will return given time. Operator: The next question comes from Olivier Calvet from UBS. Olivier Calvet: Prisca, Andreas, my first question would be on the sequential development in margin. Do you expect a similar development as 2025? You touched on the Q1 growth rate being a bit subdued, let's say. Yes, maybe start there perhaps. Prisca Havranek-Kosicek: Yes. Thank you, Olivier. Yes, you are right. I have mentioned, I would like to reiterate that given the current demand pattern and also our internal capacities, we expect Q1 revenues to be below Q1 revenues of '25. That is correct. And obviously, given our full year guidance, then there will be an acceleration of demand -- or of revenue in that sense for the coming quarters. And of course, the margin picture will also -- because your question was on the sequential margin development, that will also follow, obviously, both the revenue development, but also the mix development is important. So I would say I would expect overall a back-end loaded development for the year, given also the start into the first quarter revenue-wise, as I've mentioned. I cannot give you specifics on margins on particular quarters. But I would say, in general, a bit also what we've seen also in '25, I would expect a stronger H2 compared to H1 at this point. Olivier Calvet: And just on your comments on capacity availability, could you maybe just give us a bit more color there? And I guess also within the semis business, could you touch on the lead time or sort of order to revenue conversion cycle in lithography and inspection perhaps? Prisca Havranek-Kosicek: Yes, of course, happy to take that question. So maybe let's start on a little bit of a higher level, right? We have businesses that have longer lead times, and now I'm referring to the semi space that you've been asking about, and that would be the classical optical components manufacturing. So whenever we do classical optics components, lenses, lens systems and subsystems, that has longer lead times. It's more lengthy manufacturing processes and also sometimes in the supply chain, there is longer lead times. If we then look at the micro-optics business, so mainly our sensor business there. So what we have basically invested into Dresden for, that typically is a faster manufacturing process with shorter throughput times, shorter cycles. And so those are the two different dynamics, I would say, in the semi business. And that is valid, I would say, both for inspection and for lithography where applicable. I would say, broadly speaking, you could probably imagine that the classical optical business is more than double of the -- maybe the lead times or the throughput times in the micro-optics business. Now as to capacities, let's say, we have -- as you know, we have invested into Dresden, and we have ample capacity there given the investment there also for, of course, going forward. So we can definitely accommodate substantial future growth for this business in this site. Now in the classical optics, as we have several manufacturing sites, you may have seen that we announced an investment into our Jena manufacturing site in Germany in fall last year. So we have also added there, I would say, moderately capacity in the sense of machines and also, to a certain extent, clean room facility. But we have had a good loading, I would say, overall, in particular, in our German sites in '25, also given the growth dynamics of the inspection business. So of course, we -- while we are -- we will be adding resources to accommodate a potential acceleration, we have to, of course, also make sure that we have -- our loading is not always completely balanced across all sites. I think that's the reality of a manufacturing organization. So in that sense, we have to be putting full operational execution into doing that. And that, of course, will also be determined next to the demand picture on how the year plays out. Hence, being at the beginning of the year, we have to cater for some volatility here. Olivier Calvet: Maybe just a final one on capital allocation. Good to see a higher dividend. But are there any changes that we've seen some moves on the Supervisory Board? Anything we should think of in terms of share buyback or anything like that? Prisca Havranek-Kosicek: So there was a lot of questions in one. I'll try to address at least what I can say. Now maybe, first of all, I'm very happy that our Supervisory Board is now complete. And I think you will understand that I will not sort of -- cannot comment on the composition or the Supervisory Board as such other than saying that I think we have an excellent Supervisory Board that helps the management team together shape the future of the company. As to capital allocation, which, of course, we were very clear at the Capital Markets Day '23 on what our capital allocation policy is. And let me remind you, and I think we've just talked about growth and capacities. Number one, capital allocation priority is supporting organic growth. Having said that, the major investment in Dresden is behind us, hence, also my comment on trending towards maintenance level from a CapEx point of view. But there will always be growth CapEx, obviously, given a little bit also the shape of the demand picture. And then second, obviously, returning to shareholders. You've mentioned the modestly increased dividend that we have. And this is our primary instrument at the moment that we use at Jenoptik. And then last but not least, of course, while I don't want you to read anything into that, but just reiterating what we said at the Capital Markets Day '23, of course, there could also be M&A activity, but we don't have an appetite at the moment to have a focus on M&A. Operator: The next question comes from Martin Jungfleisch from BNP Paribas. Martin Jungfleisch: I have 3, please. I'll go one by one. The first one is on just the start of the year. You mentioned that you have seen a solid start, particularly in the OEM business. Could you just quantify this a bit? So what does this mean on the order side? Would you potentially see a level of the Q3, like EUR 300 million? Or is it more like the Q4 of EUR 220 million? If you could provide some color on that, please? Prisca Havranek-Kosicek: Yes. Thank you, Martin, for your question. And I think you will understand, obviously, I cannot really give you a quarter guidance on that. We've seen, as you said, significant improvement in demand, in particular, our OEM businesses. I have mentioned particularly semi there and also, I would say, the Defense business and some parts of our Life Science businesses. So we actually see good momentum there. But also, of course, our -- as I've said, particularly in the Biophotonics business, including the Defense business, there's high amount of order volatility. So we have to keep in mind that these businesses are driven by ups and downs in order volumes. Yes, but overall, we've seen in the beginning of the year, a significant improvement in demand in OEM, meaning Semiconductor and Biophotonics/Defense. Martin Jungfleisch: Okay. So the order -- the book-to-bill should be probably significantly above 1, I suppose. Prisca Havranek-Kosicek: Yes, I don't know, I cannot give you, as you will understand, some guidance on that. I think you have to do the math yourself there. Martin Jungfleisch: And then -- yes. And secondly, maybe on the semi business. Can you disclose what the segment guidance implies for the litho and the inspection business? Like would you expect higher growth from litho this year versus inspection and some other areas? And maybe if you have also baked in some positive effects from some restocking at your largest customers given their growth ambitions for 2026 and beyond? Prisca Havranek-Kosicek: Yes. I am afraid I won't be able to give you much detail on the specifics of those businesses. As you know, we work with a very concentrated customer base. And then therefore, it's -- we're a little bit limited on what we can say there, as you understand. I mean what I can tell you is that as we have said before, we believe the effects from the supply chain correction in lithography are behind us. As we've continuously said, we think this was most pronounced in the first -- in the beginning of '25. So we believe that this is behind us now. And as Craig has also before -- sorry, asked was around that we are happy with the growth momentum we see in inspection and also our strategic move there. So overall, I think if you put those two together, you sort of get the impact for the wider segment. Martin Jungfleisch: And maybe just one last question is on the photonics product. I think you've highlighted a few times. Can you just talk a bit about the photonics for the micro-optics business and the Probe Card business a bit more? So what kind of size in revenues was that last year? And what are your expected growth rates for this year? I mean there's a lot of companies in the laser transceiver business that are seeing the revenues doubling this year. So just checking with you if you're seeing like a similar trend here? And also, how does this tie with the capacity? Do you have enough capacity to cater for that demand? Andreas Theisen: Martin, it's Andreas here. Maybe on the UFO Probe Card for everyone. So this is for -- this is a testing set of kit for photonic integrated circuits, so special submarket of the semi market. I think we alluded to that before, and we have an interesting product, as I said, for testing those chips. The scale of the business is relatively small at the moment. So we are talking about a single-digit million euro number. We see growth here. But I think we can also say that we are not having the only solution for this for testing those chips. And therefore, we do not really see this to become a tangible or a major driver for our P&L going forward. So it will be growing, but not in a tangible sense. Prisca Havranek-Kosicek: And maybe to add on that, on your question on the micro-optics, basically the micro lenses, yes, the micro lens -- difficult word, arrays that we supply into transceivers basically or optical data communication. Now as I've also mentioned in my remarks, we have seen -- and we talked about that in '25, right? We've seen a big interest, big demand for the existing product portfolio, I would say, we have of our business there. It's modest in size, but we expect, given the -- all the massive investments into data centers, AI driven, we expect actually some nice growth there, obviously, on a smaller basis as we speak. But we believe -- we closely monitor this market, and we believe that it's an interesting growth opportunity for us incrementally. Martin Jungfleisch: Okay. And the capacities are sufficient for growth, I suppose? Prisca Havranek-Kosicek: We are in the business of sort of adding capacities wherever we need them, right? And so in that sense, I would say it's too early to tell how that will really develop. And therefore, for now, we are fine capacity and this -- we'll closely monitor that. Operator: [Operator Instructions] And we have one more question from Lasse Stueben from Berenberg. Lasse Stueben: Sorry to come back on the Q1 again. I was just a bit surprised because Q1 '25 wasn't a super strong quarter. So can you give more color on sort of between the businesses, what's kind of happening? Is this largely down to the lumpiness in Defense or simply just the phasing of the demand in semi? And then the second question I would have is just on the Q4 margin in Metrology, that was very high. And it seems like in the segment outlook, you're sort of guiding for an improvement in the margin there for '26. So maybe some more color on what that could potentially kind of look like? Should we be looking for a double-digit EBITDA margin for Metrology in '26 or something else? Prisca Havranek-Kosicek: Yes. Of course, Lasse, thank you very much. I'll take the Q4 Metrology question first, and then I will try to give a bit more flavor on Q1. Now I mean, if you look at the margin in Q4 Metrology and you look at the revenues, right, it was a super strong given basically comparing the other quarters, Q4 in Metrology. And this is the main effect that you see there. Now from a CFO point of view, I would prefer, obviously, a somewhat more flat or not as volatile revenue development, right? But there's nothing -- the main driver in that margin is the top line. And I've said -- I've mentioned AR/VR growth potentials in -- when I talked about '25. So I think that's an interesting thing to take a look at, not saying that we are planning at all for an inception or anything there. But we've seen some nice commentary and movements also in a trade fair in January in Photonics West regarding that. But then on the other side, as you know, in the metrological business, it's also, as I've mentioned, the automotive business, where we do not really see an improved demand picture right now. So I would say we have to see how this overall plays out into the next year. But that's the explanation on the Q4 on the floor levels. And I -- We have a segment guidance on -- specifically on MPS, which is revenue higher than -- sorry, profitability higher than -- growth higher than revenue. But we have to see how the year plays out. And then on your question on Q1, obviously, we're not guiding for quarters. So I'm somewhat limited on what I can see there. But what I can tell you is keep in mind that, I mean, while semi is the biggest business, there's also sizable other businesses in the Biophotonics space, depending on the Metrology business as we go there. And when we say that we anticipate lower revenues than in the previous year, obviously, it's related to all of those businesses. Do not just focus on the semi business here. Operator: And we have one more question from Craig Abbott from Kepler Cheuvreux. Craig Abbott: Yes. I actually just wanted to follow up on part of what you were just discussing in terms of the Metrology protection business. Indeed, I was pleasantly surprised actually by the positive tone of the outlook for this year. I was going to ask you to what extent that is due to pickup finally in the AR/VR applications? Or is it other applications more than traditional applications for TRIOPTICS? Because I assume also given the margin progression in Q4, that the big driver there is the TRIOPTICS business. Is that correct? Prisca Havranek-Kosicek: Thank you for your question, Craig. So I'll try to give you a bit more flavor here. So yes, you're right. We have guided for mid-single-digit growth in '26, right, for MPS. And as we take a part this plan, if you're right, TRIOPTICS is one of them. And of course, how the smartphone business, which still is a sizable chunk of our TRIOPTICS business plays out, we have to see. So that is one assumption around that. AR/VR, we have seen, I would say, nice small movements and also a lot of press, obviously, if you look at what Meta is doing and so on. But if you then look at the volumes, I think one of the Ray-Ban is 15,000 volumes or something. So you have to say that I don't think we are at the commercialization of that yet. And when and if there will be an inflection point, we have to see. So we have factored some assumptions into that, but for sure, not a complete takeoff of the AR/VR business. But then on the other side, we have factored in that the automotive demand remains depressed, but we have not factored in an incrementally reduced demand. So those are a little bit our assumptions into that segment that has a wide variety of end markets and dynamics there. So that drives our thinking for 2026. But it's early days, so we have to see how those things play out then in detail. Operator: So at the moment, there are no further questions. Oh, we have one more question, sorry, from Malte Schaumann from Warburg Research. Malte Schaumann: I have a question on the Smart Mobility business. You expect quite significant growth in 2026. Order intake has been kind of book-to-bill close to 1. So maybe a comment on how the project pipeline might look like and if you would expect -- I mean, this implies that maybe some larger projects are in the pipeline that might realize during the first half of the year. So maybe additional color here would be appreciated. Prisca Havranek-Kosicek: Yes, of course, Malte. So keep in mind that when we have TSP revenues, our order intake is actually not that relevant, where we have recurring revenues that -- it's really where the hardware sales that the order intake is revenue important, right? Where we have solutions businesses, it's less of an importance. So just as a sort of structural comment on that. And then obviously, we expect a growth trajectory from a continued expansion in the U.S. That's something that we've invested in that we would like to see continue there. And then you also -- on your question on order intake, this business is also somewhat volatile for order intake because sometimes there are projects or orders. Think of our business in the Middle East that we take opportunistically that can increase and decrease certain -- or give some volatility in the quarterly order intake. So that's the thinking around growth in SMS. Operator: So now there are no further questions. [Operator Instructions] But I think there will be no more questions. So then I can give the word back to you. Prisca Havranek-Kosicek: Thank you very much. And I would like to close the call with a clear message. Despite market uncertainties, we believe that we are well positioned to return to profitable growth in 2026 by focusing on both exploiting our growth opportunities in our key end markets as well as focusing on operational execution. Thank you for attending our call, and we look forward to seeing many of you on the road over the next weeks. Thank you very much.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology Fourth Quarter and Full Year 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for management's prepared remarks. [Operator Instructions] I will now turn the call over to Mr. Matthew Zhao, VP of Capital Markets and IR at Kuaishou Technology. Huaxia Zhao: Thank you, operator. Good evening to everyone. Welcome to Kuaishou Technology Fourth Quarter and Full Year 2025 Financial Results Conference Call. Joining us today are Mr. Chen Yixiao, Cofounder, Chairman and CEO; Mr. Jin Bing, Chief Financial Officer. Before we start, please note that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information, except as required by law. For all important information about this call, including forward-looking statements, please refer to the company's public information or the fourth quarter and full year 2025 results announcement ended December 31, 2025 issued earlier today. During today's call, management will also discuss certain non-IFRS financial measures. These are provided for additional information and should not replace IFRS-based financial results. For a definition of the non-IFRS financial measures, a reconciliation of IFRS to non-IFRS financial results and related risk factors, please refer to our fourth quarter and full year 2025 results announcement. For today's call, management will use Chinese as the main language, a third-party interpreter will provide simultaneous English interpretation in the prepared remarks session and a consecutive interpretation during the Q&A session. Please note that English interpretation is for the convenience purposes only. In case of any discrepancy, management's standards in the original language will prevail. Lastly, unless otherwise stated, all currency mentions are in RMB. I will now hand the call over to Yixiao. Yixiao Cheng: [Interpreted] Hello, everyone. Welcome to Kuaishou's Fourth Quarter and Full Year 2025 Earnings Conference Call. Over the past year, guided by our tech-driven user-centric philosophy, we accelerated the execution of our AI strategy across all major business areas, our Kling AI, multimodal large video generation models maintain a global leading position, and we continue to leverage our advanced capabilities to empower Kuaishou content and commercial systems. These efforts supported a high-quality growth across the user scale, revenue expansion and profitability. In Q4 2025, average DAUs on the Kuaishou app reached 408 million, representing solid year-over growth. Total revenues for Q4 2025 increased by 11.8% year-over-year to RMB 39.6 billion. Revenue from our core commercial business, including online marketing services and other services, primarily e-commerce increased by 17.1% year-over-year. Adjusted net profit increased by 16.2% year-over-year to RMB 5.5 billion. For the full year 2025, average DAUs in Kuaishou app reached 410 million, and total revenues increased by 12.5% year-over-year to RMB 142.8 billion. Adjusted net profit for the full year increased by 16.5% year-over-year to RMB 20.6 billion, with an adjusted net margin of 14.5%. As we scale AI investments, we continue to deliver steady improvements in the group's overall profitability. Our AI capabilities have become a core engine driving Kuaishou's long-term growth. Meanwhile, as disclosed in the results announcement given the company's business performance, the Board has recommended the payment of a final dividend of HKD 0.69 per share for the year ended December 31, 2025, amounting to approximately HKD 3 billion in total. This reflects our confidence in company's long-term growth prospects and solid financial position as well as our unwavering commitment to enhancing shareholders' value ensuring the benefits of the company's strong cash flow generation. We are sincerely grateful for our investors to continue to support quite a steady growth. It would not have been possible without the trust and support of our shareholders. Looking ahead, by staying closely aligned with the business development and market conditions, we'll flexibly evaluate and continue advancing diversified shareholder returns, including share repurchases and dividend distributions to deliver the fruits of our growth to all our shareholders. Next, I will walk through the details and progress of our major business segment in Q4 2025. First, our AI strategy and the progress of our large video generation model, Kling AI. Kling AI remained committed to its core vision of empowering everyone to craft competing stories with AI aiming to become the premier inclusive, efficient video regeneration infrastructure for the AI era, while driving continuous breakthroughs in model capability, product experience and monetization. In Q4 2025, Kling AI accelerated rollout of multiple model upgrades across several iterations. We launched the Kling01, the world's first unified and multimodal video model developed on the multimodal visual language architecture, Kling01 transcends traditional [indiscernible] video generation models by integrating multimodal text video image and subject increasing a single generative managing engine. Kling01's unified architecture enables end-to-end content creation within 1 model system, allowing users to envision systematically from generation to editing and refinement without switching tools. We also released the Kling Video 2.6 model, which incorporates simultaneous audio visual generation capabilities. The model can generate a complete video containing natural voiceover, sound effects and ambient audio in single process, enhancing creative efficiency across the AI video creation flow. Kling Video 2.6 also introduced a motion control feature that enables users to replicate a specific movement from uploaded videos or from the online motion library. By pairing this with the character reference image, users can generate character specific videos with the frame level precision in both body movements and facial expressions. In February 2026, we launched the Kling AI 3.0 model series developed under on all-in-one product framework, Kling 3.0, supports full multimodal input and output, spanning text images, audio and video, integrating video understanding, generation and editing within a single streamlined AI workflow. This modes unifying multiple tasks within a native multimodal architecture, enable more complex narrative logic, automated story boarding and precise shot control while maintaining strong prompt adherence. Kling AI's innovations in foundational models and product features have paved the way for what is spread commercial applications across professional creative sectors, including marketing, e-commerce, film and television, short plays, animation and gaming. These capabilities have supported a stronger adoption among professional creators and enterprise clients globally, earning the model's widespread acclaim and accelerating their monetization. In Q4 '25, Kling AI achieved revenue of RMB 314 million. Notably in December 2025, Kling AI's monthly revenue exceeded USD 20 million, corresponding to an ARR of USD 214 million. At the same time, Kling AI's motion control feature gained significant traction across major global social media platforms, driving widespread discussion and organic distribution. This momentum brought in Kling AI's reach beyond professional creators to a broader mainstream user base. In Q4, '25, we continue to deepen the impact of large AI models to empower our content and our commercial ecosystems while driving further quality and efficiency improvements or organizational infrastructure. In terms of strengthening the foundation of our content ecosystem, our proprietary multimodal large language model, Kwai Keye-671 billion model has demonstrated strong video comprehension capabilities. Meanwhile, we upgraded our short video and live streaming content understanding in the system and launched a TechNext, our next-generation teching system, which enables more accurate content understanding, driving higher app usage time per user and the retention rate. In content recommendation, we iterated our end-to-end generator recommendation large model with the launch of OneRec-V2, continuously enhancing the precision of the recommendations. For online marketing services, we further optimized our end-to-end generative recommendation technology by deeply integrating multidimensional business data, we enhanced model performance and improved the precision of online marketing material recommendations. For intelligent bidding technology, we developed a unified bidding large model built on multi-scenario and multi-objective data. Together, our generated recommendation large models and intelligent bidding models drove roughly 5% of growth in Domestic Online marketing services revenue in Q4 '25. While reducing the cost of generating online marketing materials, AIGC technology also unlocked additional budgets from our online marketing clients. In Q4, the total spending from online marketing services driven by AIGC marketing materials was nearly RMB 4 billion. For e-commerce business scenarios, during Q4, we further iterated our end-to-end generative retrieval architecture OneSearch. We introduced editable structured Semantic identifier tailored to the e-commerce business, enhancing sematic understanding for mid- to long-tail search query. This drove a nearly 3% increase in search order volume in shopping mall in Q4. In addition, we expanded the application of end-to-end regenerative recommendation technology from pan-shelf-based e-commerce to content driven scenarios such as livestreaming rooms and short videos, propelling GMV growth in all e-commerce scenarios. For live streaming business scenarios, we further refined the AI Universe gift customization feature to deliver better interactivity, reach our dynamic presentation, more refined visual aesthetics, significantly increasing users' willingness to send virtual gifts. To drive the organization efficiency, we have completed the upgrade of our intelligent coding tools, our self-developed AI programming tool CodeFlicker has evolved from a coding assistant to an AI engineer with more engineers adopting the agent-based coding model and the generation rate of new code has roughly risen over -- to over 40%. Moreover, our AI advancements are underpinned by our investments, and we're going to optimization in computing power infrastructure. Building on the success of our self-operated in-house self-built data center, we are steadily advancing the construction of our new computing power center to continuously elevate server and bandwidth operating efficiency. Second, user growth and content ecosystem. In Q4 '25, average DAUs on the Kuaishou app reached 408 million, and MAUs reached 741 million with average daily times spent per DAU on the Kuaishou app was 126 minutes. We're committed to building a vibrant community with the distinctive quality Kuaishou characteristics, continuously strengthening high-quality user growth, differentiated premium content supply, traffic mechanism optimization and interactive scenario development to achieve a healthy, sustainable expansion in both the user scale and traffic to drive the high-quality user growth that we refine user acquisition strategies across channels to continue to optimize the user segments and improve the retention rates. We also leveraged AI technology to enhance push strategies, including resulting in a higher open rate for Kuaishou app. In addition, we introduced innovative user engagement retention initiatives that are consistently improved ROI. Harnessing our established capabilities and content operations, we supported the growth of benchmark creators like Xinyu the Ostrich Lady and continue to create and cultivate high quality top-tier content IPs with the distinctive Kuaishou characteristics, rural culture and entertainment activities, exemplified by the Village Gateway Mini Stage in able to call rural residents to transition from passive viewers to active on-stage participants, featuring diverse content ranging from intangible cultural heritage performances to agricultural technology demonstrations. These initiatives enriched the rural culture life and provided a new channel fo showcasing rural culture. We produced the 6th anniversary concert for Teens in Times, which garnered over 680 million live streaming views. Leveraging live streaming, interactive features and AI-powered creative content, we crafted a shared youthful memory that fosters a mutual bond between the fans and idols. We optimized our traffic mix of increased traffic exposure for top-tier original content, fostering a virtual cycle between content creation and consumption. In Q4, the number of high-quality content uploads increased more than 15% year-over-year. To further develop engagement scenarios, we continued to innovate private messaging engagement features, driving year-over-year increase of nearly 3 percentage points in daily average penetration rate of private messages among users with mutual followers during the quarter. Third, online marketing services. In Q4, revenues from online marketing services to reach RMB 23.6 billion, up 14.5% year-over-year. The accelerated integration and innovative application AI across diverse online marketing service scenarios, not only empowered our ecosystem partners, but also injected a new growth momentum into our online marketing services business. In Q4 '25 within lifestyle service sector, where clients primarily operate under lead-based model, we have the clients to reach users more efficiently and achieve the higher user conversion rates by upgrading our private messaging products and optimizing our algorithms at the same time by continuously expanding into more industries and acquiring new clients. We broadened our online marketing client base and generated incremental marketing placements. In addition, as the lifestyle service actor clients are predominantly small and medium-sized business, we leveraged AIGC tools to enhance their ability to produce market materials. These enhancements for the barriers for marketing placement and drove further growth in online marketing spending. In Q4, content consumption sector, led by short plays, comic-style short plays, mini games along with the application sector were the key growth revenue driver for the non-e-commerce online marketing services. In the content consumption sector, short plays continue to sustain solid growth by optimizing marketing materials exposure format. So we increased the marketing spending in short play vertical meanwhile, empowered by the deep integration of AI technologies. Comic style short plays advanced rapidly through continuously comprehensive supporting programs and rolling out the comic style short play AI agent, we further expanded high-quality and diverse content supply to capture emerging growth opportunities in the sector. Moreover, rising market budgets from clients across the AI application vertical, we leveraged our insights into industry placement pace and market trends to consistently optimize resource allocation and commercial efficiency, effectively channeling and capturing marketing placement and spending from AI application clients. In Q4, for online marketing products, we continued to upgrade offerings including our UAX placement solutions, the AIGC marketing material solutions, live streaming digital human solutions and digital employee solutions. These enhancements helped to lower various marketing placements, improved client placement experience and drive further growth in online marketing spending. Specifically during the quarter, UAX developed a periodic delivery and account level smart replacement product. These upgrades enable clients to extend managed campaign cycles and alert system management from the app unit level to account levels, thereby improving overall delivery efficiency, raising the selling floor campaign scale and providing more stable cost performance for our clients. In Q4, penetration rate of our UAX placement solutions accounted for nearly 80% of the non-e-commerce marketing spending and its penetration rate among active users exceeded at 90%. For e-commerce marketing services following our consolidation of e-commerce business and related online marketing team made September last year to advance traffic synergy, we established our closed-loop capabilities and pricing traffic, transaction, online marketing conversion and merchant services. This was designed to align our platform's overall revenue growth with merchant mix refinement, enabling e-commerce merchant in GPM and CPM for marketing services to improve in tandem in Q4. In first half of 2025, we essentially completed capability refinement of our omni platform marketing solution. In the second half, we focused on addressing differentiated scenario needs across diverse customer segments, effectively increasing incremental GMV generated for e-commerce merchants across omni-domain scenarios and enhancing business stability. In Q4, our omni platform market inclusions accounted for even greater share of our total e-commerce marketing spending, rising further to 75%. Our omni platform product promotion achieved full coverage across products and scenarios, becoming the primary placement offering for our e-commerce marketing services. Our fully managed the auto placement and product combo for small and medium-sized merchants gained broader adoption and recognition, driving a significant increase in spending by these customers. In Q4, by continuously optimizing our pan-shelf-based e-commerce scenarios and strengthening the synergy of omni domain supply and aligned distribution, our e-commerce marketing services revenue pan-shelf-based scenarios increased rapidly year-over-year. Fourth, our e-commerce business. In Q4 '25, our e-commerce GMV grew 12.9% year-over-year to RMB 521.8 billion, building on the systematic omni domain operations category for their integrated pathway between public domain, traffic conversion and private domain asset accumulation, unlocking a new growth engine for merchants and supporting their stable, sustainable operational development across diverse scenarios. During Q4, we continue to empower merchants, strengthen their private domains and operational efficiency, broadening a variety of supply as a result, repeat purchase frequency of active e-commerce merchant users further increased year-over-year. Meanwhile, by enhancing the operations of our key product categories, anymore precisely identifying the needs of our core user bases, we drove continued growth in ARPPU. In Q4 2025, we mobilized the combined strength of service provider agencies and industrial zones to broaden our e-commerce supply, guided by a full life cycle framework. For new merchant development, we deepened our cost reductions and efficiency enhancement, stepped up incubation programs for new merchants, strengthened support for merchants from industrial zones and for the optimized business environment. Collectively, these measures bring force to merchants operational stability, empowered both new merchants in a small and medium-sized merchants to grow and enhance long-term predictability, sustainability of merchant operations during Q4. Both newly onboarding merchants and newly onboarded active merchants growing year-over-year and quarter-over-quarter, driving our active merchant base to another record high, up 7.3% year-over-year. Furthermore, in Q4, we launched the Voyage Initiative focusing on in-depth partnerships with the top tier brands in diverse sectors through a coordinated resource empowerment and initiative aimed at a pioneer new model of mutually reinforcing growth for both the platform and the brand. At the end of December, we began to capture early benefits from our high-quality product and content supply as well as merchant mix optimization. In terms of our live streaming scenario development, the Pop-Up Follower Red Envelopes initiative, which was launched in Q3 to drive targeted follow growth, achieving a meaningful result. By increasing the streaming frequency of streamers with over 10,000 followers, the program drove a 12.7% year-over-year increase in the number of average daily active streamers hosting live sessions with over 10,000 followers, further reinforcing virtuous cycle follower growth and transaction performance in Q4. Through coordinated operations with agencies and leading to organizations, we expanded our KOL supply to further empower KOLs, we advanced our platform endorsed product offerings, which are trusted by both merchants and KOLs building on this foundation, our KOL Blockbuster Initiative focus on high-demand product categories, highlighting our platform's strong order aggregation capabilities and driving greater KOL participation and distribution. The penetration of KOL within our distribution pool continued to improve with a number of active KOLs more than doubling year-over-year, supported by our platform endorsed product offerings, mid-tier to small and medium-sized KOLs were able to overcome product selection challenges and with platform traffic support, they achieved meaningful leaps in operational scale. In Q4, our omni domain operations ecosystem, including pan-shelf-based e-commerce and short videos, continue to demonstrate steady and resilient development. In Q4, the contribution of pan-shelf-based e-commerce GMV to total e-commerce GMV remained broadly stable quarter-over-quarter. We continue to expand our supply scale driving sustaining year-over-year and quarter-over-quarter increases in average daily active merchants for pan-shelf-based e-commerce. Super Links and the official channel for platform recommended products continue to strengthen its role as a core operational tool for shelf-based offerings, which achieved a record growth during the quarter. In Q4, Super Links penetration rate and pan-shelf-based e-commerce product cards reached 19.1%. We also encouraged merchants to expand omni domain operations by leveraging our marketing hosting tools. We guided merchants in content-based scenarios towards shelf-based operations significantly increasing the penetration rate of active merchants using our marketing hosting tools quarter-over-quarter. During Q4, we further advanced our short-video e-commerce content supply, prioritizing refined merchant-centric operations. By continuously leveraging the synergy between short videos and live streaming, we enriched our high-quality content supply and optimized funnel efficiency. These efforts led for a significant growth in short video e-commerce GMV, which continued to outpace overall e-commerce GMV growth. In Q4 '25, we deepened AI integration across e-commerce scenarios delivering tangible efficiency gains for merchants while supporting their growth. The broader rollout of OneRec, OneSearch and other large language model technologies across the e-commerce scenarios continue to generate incremental value. powered by e-commerce knowledge graph and leveraging large models' world knowledge and reasoning capabilities, we strengthened our foundational understanding of products, videos and users. This enabled a more accurate long-term user-interest modeling, improved recommendation diversity and drove higher revisit and repurchase behavior. E-commerce content new generation capabilities have also advanced during the fourth quarter. Features such as live streaming highlights and AI-assisted content creation further strengthened merchants across scenario operating capabilities, propelling step change growth in both content output and GMV. To improve operating efficiency, we launched an AI-powered order analysis feature in Q4, helping merchants identify abnormal orders more effectively, reduce pre-shipment refund rates. Next, regarding our live streaming business. In Q4, live streaming revenue was RMB 9.7 billion. We remain focused on fostering healthy live streaming ecosystem during the quarter, oriented towards high-quality, value-driven content and reinforcing the platform's community-centric core. For live streaming supply, we continue to intensify in professional operations of our core competitive categories, including group live streaming and multi-host live streaming, while strengthening coordinated development across multiple categories. This enriched our live streaming content operations portfolio and drove us to develop improvements on the supply side, better serving users diversified preferences. Our Grand Stage deepened integration between online and offline scenarios supporting the incubation of distinctive streamers on our platform while increasing user engagement. On the product side powered by Kling AI video generation capabilities, our AI universe gives a series with customizable special effects, enhanced interactive feature experience, dynamic motion rendering and visual aesthetics. As of the end of the fourth quarter, the number of cumulative AI Universe gift creations succeeded 1 million. In addition, we expanded the application of the AI capabilities in our live streaming rooms, empowering streamers with AI Interaction Assistant and AI Digital Avatar Solutions to improve streamers' service efficiency. In Q4, our live streaming+ model extended the boundaries of the live streaming ecosystem while also unlocking additional commercial value. Through refined operations, our Ideal Housing and Kwai Hire business deliver both quality improvement and efficient gains. In Q4, the average monthly number of Ideal Housing paying clients increased by over 40% year-over-year. Finally, our overseas business progress. In Q4, we remain firmly committed to our high-value growth strategy, supporting a virtuous business cycle across our overseas business. Despite a complex market dynamics, we achieved a steady growth in overseas business. On the traffic front, while improving customer acquisition efficiency and optimizing our user growth structure, we strengthened the user mind share for the Kuaishou community by expanding the supply of content with a distinctive Kuaishou characteristics, further broadening our core user base. Brazil, our key markets of our overseas development, maintained stable DAUs and time spent per DAU. For online marketing services, we captured the industry opportunity to expand brand presence in Brazil, growing our client base across diverse industries. In addition, we upgraded our products and solutions and actively exploring the new content-driven marketing scenarios, including short videos to improve client performance visibility and unlock new growth momentum supporting our client's long-term development. Our e-commerce business in Brazil achieved a steady year-over-year growth in GMV transaction scale and order volume in Q4, supported by AIGC driven improvement in e-commerce content and quality and operational efficiency and aided by more refiner logistic cost to management, our overseas profitability improved significantly. Looking back over the past year despite multiple challenges, we anchored our core AI-first strategy, leveraging our profound technological expertise, a thriving diverse content ecosystem and continuously enhanced infrastructure and commercial footprint. We collaborated with ecosystem partners to drive systematic growth. Looking ahead, although challenges will intensify, we remain steadfastly guided by our user needs. We're deeply cultivated the building of a one inclusive and a universally accessible digital community, while continuously deepening the seamless integration of AI technologies across our business. This empowers our merchants and marketing clients to effectively elevate their operational productivity. Staying true to our long-term vision, we will deliver a superior user experiences, build broader platform for our partners and create a more sustainable value for our shareholders, collectively unlocking new growth opportunities in the AI era. That concludes my prepared remarks. Next, our CFO, Bing will review the company's financial data for the fourth quarter and full year 2025. Bing Jin: [Interpreted] Thank you, Yixiao, and hello, everyone. Looking back to the past year, we significantly progressed our AI strategy and achieved remarkable results, leveraging our advanced AI capabilities. We strengthened Kuaishou's content and commercial ecosystems, delivering high-quality growth across both our operational and financial metrics. We continue to refine our user growth and retention strategies, resulting in an average DAUs reaching 410 million for the full year. At the same time, we deepened the application of AI large model across multiple business scenarios delivering superior experience for our users, creators and business partners while further improving our operational efficiency. For the full year of 2025, total revenue grew 12.5% year-over-year to RMB 142.8 billion. Adjusted net profit reached RMB 20.6 billion, up 16.5% year-over-year with an adjusted net margin of 14.5%. Importantly, we achieved this growth while continuing to scale our investments in AI, making steady improvements to the group's overall profitability throughout the year. Now let's take a closer look at our Q4 financial performance. Our total revenue grew 11.8% year-over-year to RMB 39.6 billion in Q4. The increase was mainly driven by growth across normal marketing services, e-commerce and Kling AI. Online marketing services revenue increased 14.5% to RMB 23.6 billion in Q4 from RMB 20.6 billion in the same period last year. The growth was primarily driven by AI-powered upgrades to our online marketing product solutions which improved the conversion efficiency and grow higher spend from our marketing clients. Revenue from other services, including e-commerce and Kling AI business reached RMB 6.3 billion in Q4, up 28% from RMB 4.9 billion in the same period last year. The increase was mainly driven by growth in e-commerce GMV, which boosted our e-commerce commission income. And by the continued expansion of our Kling AI business by continuously refining Kling AI's financial models and developing more innovative features, we have expanded this to a range of applications for professional creators and driven new breakthrough in commercialization. In Q4, our live streaming revenue was RMB 9.7 billion. We continue fostering a rich healthy live streaming ecosystem. At the same time, we refined operations across our core categories, providing users with a more diverse high-quality content, leveraging the end powered product innovation. We also drove greater user engagement through high-quality live streaming content. Cost of revenues increased 9.2% year-over-year to RMB 17.7 billion in Q4, accounting for 44.9% of total revenue. The increase was mainly due to higher revenue sharing costs and related taxes in line with our revenue growth. In Q4, our gross profit grew 14.1% year-over-year to RMB 21.8 billion. Gross profit margin was 55.1%, up 1.1 percentage points year-over-year. Turning to expenses in Q4. Selling and marketing expenses were RMB 11.4 billion compared with RMB 11.3 billion in the same period last year. Selling and marketing expenses declined to 28.8% of total revenue, down from 32% in Q4 last year, reflecting the stronger effectiveness of our sales and marketing. R&D expenses increased 20.1% year-over-year to RMB 4.1 billion, accounting for 10.5% of total revenue. Increase was really due to higher employee benefit expenses, including share-based compensation expenses and increased investments in AI. Administrative expenses was -- were RMB 930 million compared with RMB 8.7 million in the same period last year. And administrative expenses accounted for 2.4% of total revenue, largely flat year-over-year. Group level net profit for Q4 was RMB 5.2 billion. Group level adjusted net of profit rose 16.2% year-over-year to RMB 5.5 billion with an adjusted net margin of 13.8%. Our balance sheet remains robust. Cash and cash equivalent, time deposit financial assets and restricted cash totaled RMB 104.9 billion as of December 31, 2025. Net cash generated from operating activities in Q4 was RMB 7.3 billion. Additionally, we actively delivered on our commitment to shareholder returns based on the market conditions. As of December 31, we had repurchased approximately HKD 3.12 billion or around 56.78 million shares, representing about 1.32 percent of our total shares outstanding for 20. Next, I'll provide a quick overview of our financial performance for the full year. For the full year of 2025, our group's total revenue reached RMB 142.8 billion, up 12.5% year-over-year. This includes online marketing services revenue of RMB 81.5 billion, which rose 12.5% year-over-year. Revenue from our online -- our live streaming business increased by 5.5% year-over-year to RMB 39.1 billion. Revenue from other services, including our e-commerce business, totaled RMB 22.2 billion, an increase of 27.6% year-over-year. Gross profit margin expanded by 0.4 percentage points year-over-year to 55% in 2025. Our adjusted net profit for the full year of 2025 was RMB 20.6 billion, up 16.5% year-over-year with an adjusted net margin of 14.5%. Looking ahead, we will continue to prioritize the user needs and we remain committed to investing in AI, leveraging our leading AI capabilities. We will drive further innovation across Kuaishou's content and commercial ecosystems, maintaining our core competitive edge in the rapidly evolving market and delivering high-quality and sustainable long-term growth for the company. Here concludes our prepared remarks. Now we can open for Q&A. Operator: [Interpreted] [Operator Instructions] The first question comes from Lincoln Kong from Goldman Sachs. Lincoln Kong: [Foreign Language] Congrats on the solid fourth quarter results. My question is about Kling AI. So we have seen an accelerating pace for various video generation models across the industry, including CDAS 2.0 launching recently. So what's the impact for the overall industry and to Kling itself. And therefore 2026, what are the strategy or the plans for Kling in terms of our model capability, product upgrade as well as monetization? Unknown Executive: [Interpreted] Thank you for the question. As we mentioned before, large video generation models are highly complex, both the input and output modalities are open-ended, which allows for considerable flexibility in technical pathways and product strategies, leaving significant room for innovation. At this stage, we believe video generation technologies and products are so far from maturity, but especially from diverse players in the ecosystem can help exonerate industry advancement and better meet user needs. Recent accelerated updates to large video generation models, including CDAS 2.0 and others have brought positive momentum to the industry. While lowering the threshold for everyday users to create content, they also have increased the penetration of AI video generation across a wider range of applications scenarios, effectively expanding the overall market. CDAS 2.0 adopts the multimodal input architecture, which aligns with the Kling01 model we released in December last year, underscoring our revisionary early positioning in multiple iterations centered on multimodal capabilities. Kling AI continues to maintain globally leading position in both model and product capabilities. Kling AI was ranked among the top video generation models by artificial analysis.ai with exceptional benchmark scores. Regarding character consistency and controllability, fiscal realism and stability in complex scenarios, including AI 3.0 model series demonstrate stronger performance reinforcing Kling AI's differentiated advantages among professional creators and enterprise clients. Kling AI played a key role in the production of virtual singing and visual effects in the recent hit drama supports into cloud shares produced by film and TV. It delivered high quality and commercial-grade content while significantly reducing production costs. The partnership is a primary example of Kling AI's commercial value in top-tier film and television production. It validates our focus on film and television production scenarios, as the live strategic direction. In terms of revenue, Kling AI maintained a strong month-over-month growth throughout the year, reaching an annualized revenue run rate or ARR of over USD 300 million in January. Based on what we are seeing now, we are confident that Kling AI's revenue in 2026 will more than double. Regarding Kling AI's model iteration over the past year, we have consistently evolved in the unified native multimodal path. When we launched the Kling AI 2.0, we introduced the concept of multimodal visual language or MVL which enables creative expression by combining multiple modalities and addresses the limitations of pure text interactions. With the release of the Kling01 large model in December 2025, we advanced the MVL interaction architecture even more, enabling multimodal inputs across text, image and video. Around the same time, we launched our Kling 2.6 model for simultaneous audio visual generation, multimodal product capabilities. In February this year, we launched the Kling AI 3.0 model series, developed under an all-in-one product framework and this series towards full multimodal input and output within a single model. Looking ahead, we plan to expand the many modalities in our models to further enhance controllability and video generation, including modality for motion and facial expressions. We will also focus on addressing the configuration and consistency challenges of complex scenarios. Meanwhile, on the product front, we will keep advancing our AI agent capabilities to enable fully automated end-to-end content creation. The goal is to empower our models to automatically plan storyboards based on user needs, ensure consistency across characters and scenarios and simultaneously generate well-aligned audio and visual design lighting, visual term and camera movement. Overall, Kling AI remains committed with its vision of empowering everyone to craft [indiscernible] stories with AI. We will continuously refine our model and product capabilities, sustaining Kling AI's global leadership in technology, product and commercial monetization. Operator: [Interpreted] The next question comes from Daniel Chen of JPMorgan. Qi Chen: [Interpreted] So my question is related to the AI investment strategy. So besides the multimodal and video generation area which related to Kling AI, where do -- what are the other segments that management thinks are worse, more investment in the future? Unknown Executive: [Interpreted] Thank you for the question. Regarding the direction of our AI investments, beyond the multimodal video generation domains, we will continue to invest in the research and development of an application of large models across our content and commercial ecosystem scenarios such as large generative recommendation models and large multimodal understanding models. In terms of the large generative recommendation models, over the past few quarters, we have seen significant potential for generative models in recommendation scenarios and we will continue to explore in this direction. For example, in our online marketing recommendation system, we are exploring deeper integrations between generative models and our ranking architecture, shifting from single request optimization to long-term value modeling. In terms of the model capabilities, by leveraging our lens to introduce a stronger logic reasoning, inference and broader world knowledge, we are attempting to break the data feedback loop problem found in traditional recommendation systems. Concurrently, we are building a native, highly concurrent and scalable next-generation ranking architecture for large recommendation models. Through system design and foundational engineering upgrades, we aim to ensure that the expansion of computing power and parameter scale translate into performance improvements. In the direction of the large multimodal understanding models, our proprietary multimodal foundational large language KwaiYii empowers Kuaishou's content understanding infrastructure. In core short video and live streaming scenarios, KwaiYii performs video parsing and user behavior inference effectively driving improvements in the user time spend and retention metrics. Moving forward, we'll upgrade our AI capabilities from one-way passive Q&A to a long-term contextual understanding and a complex task processing further expanded the application to core monetization scenarios such as online marketing services and e-commerce and develop practical intelligence assistance with multimodal interaction capabilities to drive greater commercial value. In 2026, we will also explore the application of agent capabilities across other various business areas. For example, in online marketing scenarios, we are developing an AI agent that delivers automated marketing placement for our e-commerce merchants. This covers the entire workflow from intelligent product selection, creative editing and AI-generated materials, smart bidding and dynamic pricing and customer support and post placement data analysis, lowering the threshold for clients to place marketing materials and improving placement of performance and cost stability. Additionally, we will also explore sales AI agents for lead focused sectors, helping clients improve lead conversion efficiency and reduce customer acquisition costs. In e-commerce scenarios, we will improve the user search experience through the development of a search and recommendation agent, driving higher user search-based order volumes. We will also explore agent-based automated computing power optimization. We will further share our progress on these fronts with you at appropriate time. Finally, we will also advance the construction of the new computing power centers. Computing power is the core foundation and underlying support of our AI development, meeting the company's demand for R&D iteration, model training and inference enhancement. We have integrated the construction of computing centers into our strategic planning, aiming to solidify the computing foundation for AI development. By reserving expansion space to accommodate long-term needs, these centers will deeply support core tasks such as AI algorithm optimization and large model training, empowering our AI innovation with a robust computing foundation. In summary, we will continue to deeply calibrate the R&D of core technologies and their implementation across multiple scenarios. With firm computing investments and a deep AI talent pipeline, we will empower our content ecosystem and realize continuous growth in commercial value of our ecosystem partners. Thank you. Operator: [Interpreted] The next question comes from Thomas Chong of Jefferies. Thomas Chong: [Interpreted] On e-commerce, how should we think about the growth strategies in 2026? How should we think about the trend this year and the growth opportunities? Unknown Executive: [Interpreted] Thanks for the question. Our broad focus for 2026 remains on returning to the essence of Kuaishou's content-based e-commerce and on maximizing our strengths as the content platform. Our growth strategy spans across 3 areas. First, we'll focus on the supply side reforms to continuously refine supply and consistently offer good products. As mentioned earlier, in Q4 2025, we launched a Voyage Initiative to provide a targeted support for top-tier brands. It's designed to help them quickly achieve strong start and sustained growth within the Kuaishou ecosystem. In 2026, we will also invest in more resources on the supply side, primarily across 4 areas: merchant traffic, product, operations and services. Our focus will extend beyond brands to include merchants in the key industrial zones. We already identified 100 priority industrial zones and we are actively managing them. Meanwhile, we are working closely with our e-commerce industry team, small- and medium-sized merchant team and service providers to empower our new merchants. As the e-commerce market matures and macroeconomic dynamics remain challenging, the relationship between platforms and the brand is being reshaped. Platforms are evolving from single transaction roles to collaborative partners that grow alongside merchants. As we empower merchants more effectively, we also plan to refine the platforms, the supply ecosystem and provide users with a wider variety of products. Second, we will continuously improve in paying user acquisition and penetration. Currently, there's still significant growth potential in a number of e-commerce monthly average paying users. In 2026, we'll focus on exploring and better understanding users' interest in e-commerce content. We will also optimize our traffic strategies and leverage effective subsidy mechanisms and across scenario synergies to boost paying user conversion and scaled growth within superior products. Third, we will further optimize resource integration. This quarter, we have seen some preliminary success in implementing traffic synergy. Moving forward, we aim to deepen the integration between e-commerce and commercialization, enhanced coupon synergy, improved subsidy efficiency and optimize the overall resource allocation and investment efficiency. We believe that the inherent conversion advantages of content-based e-commerce will continue to drive its penetration in the online retail market. Over the past year, categories such as men's and sportswear and fresh food grew rapidly. We expect these verticals to maintain their growth momentum this year. As we just mentioned about ramping supply in 2026 and leveraging intelligent operational tools to help merchants reduce costs and improve efficiency while offering them a clear, more certain path for growth. We expect even more structural growth opportunities in content-based e-commerce. In 2026, we expect Kuaishou e-commerce to achieve steady, high-quality growth. Under the promise of high-quality growth, we will further strengthen our e-commerce monetization capabilities and deepen the foundational capabilities of our omni platform marketing solution and smart placement products. We expect that the core incremental growth for e-commerce marketing service revenue will come from 3 areas. First, scale expansion. By focusing on key verticals and broadening industry supply, we aim to scale monetization through e-commerce marketing services in categories such as cosmetic sports and outdoors, fresh food and home furnishings. Second, efficiency improvement. We will actively bring in more brand clients, optimize client composition and integrate resources to drive aligned growth for both GMV and marketing spending. Women's apparel and health care will be a particular focus where we can enhance monetization efficiency. Third, sector expansion. We will expand into sectors where we lag our competitors, such as maternal and children pad and consumer electronics, identifying clear opportunities in driving breakthroughs. In addition, we are also looking to continuously improve monetization efficiency in shelf-based e-commerce. By expanding omni domain product supply, we can increase merchants' marketing budgets on product cards. In short, guided by the e-commerce growth strategy and monetization road map we outlined for 2026, we will take a steady, disciplined approach. We will focus on the right long-term initiatives while leveraging our content platform strengths to better meet the consumption needs of our users. Operator: [Interpreted] The next question comes from Felix Liu Lee of UBS. Felix Liu: [Interpreted] Sorry, just let me finish the English translation in addition to e-commerce, what are the main advertisement industry growth opportunities in 2026? And how do we plan to capture these opportunities? Unknown Executive: [Interpreted] Thank you for your question. From a sectoral perspective, we believe the key growth opportunities this year will mainly come from 3 sectors: lifestyle service, comic-style short plays and AI applications. In the lifestyle service sector, we have seen a continued shift in user behavior from traditional search platforms toward content platforms. Short videos and live streaming formats are more effective at building user trust, reducing decision-making friction and improving conversion efficiency. In addition, the lifestyle service sector continues to deepen its online penetration for merchants in sectors like agriculture, materials, education and automotive. Online platforms are gradually becoming key channels for our marketing and customer acquisition and the platform level will continue to upgrade our products to help merchants reach their potential customers more effectively, while enhancing our in-platform interaction capabilities to improve conversion rates. Moreover, clients in the lifestyle service sector are mostly small and medium-sized merchants that require strong customer service and operational support. Through our AIGC marketing material solutions, we help small- and medium-sized merchants generate marketing materials at a low cost. In addition, our AI-powered customer service solutions to enable merchants to provide 24/7 online support. In the content construction sector, as AI technology significantly improves content production efficiency and lowers production costs, the emerging content format, comic style short plays is advancing rapidly. As a top-tier player, Kuaishou has the dual advantage of our mature short-play ecosystem and the world-leading video generation model by deeply integrating content and technology, where building a comic-style short-play ecosystem that spans the entire value chain from tools and content to distribution. Additionally, we introduced a full-scale comic-style short-play support program covering computing power, traffic and other resources. These continuously enrich the platform's comic-style short-play content supply and boost online marketing spending in this category. Since the second half of last year, the total spending from online marketing services driven by Kuaishou's comic-style short-play has increased rapidly. In March this year, peak daily marketing spending exceeded RMB 15 million. The AI application sector is also what we view as another key growth driver for 2026. As the AI technology continues to advance and new applications emerge, the industry remains in a rapid growth phase. We expect depending on the relevant sectors to continue growing significantly in 2026. Against this backdrop, we will strengthen and refine our operations for our clients, continuously optimize short and long-term retention metrics, helping clients maximize the user lifetime value, all of which will prompt AI application clients to increase both their marketing spending scale and commitment on our platform. In summary, for 2026, harnessing our product upgrade content ecosystem development and refine our operations for our clients in priority sectors. We aim to better capture incremental growth opportunities in the lifestyle service sector, comic-style short-play and AI applications, driving solid growth in our online marketing services revenue. Huaxia Zhao: Operator, last question, please. Operator: [Interpreted] The next question comes from Yuan Liao from Citic. Yuan Liao: [Interpreted] You have repeatedly mentioned the construction of computing power centers. So my question is, could management share your plan scale of AI-related CapEx in 2026? And the key area of your investment? So how will this CapEx investment affect your overall profit margin? Bing Jin: [Interpreted] Thanks for the question. As Yixiao said, over the past year, we have fully deepened our AI strategy, our multimodal large leader generation model, Kling AI has achieved impressive results in technology and advancement, product duration and commercial monetization. At the same time, AI has delivered strong value empowering our content and commercial ecosystems, reinforcing our commitment and confidence to continue investing in AI. In 2026, we expected the group's total CapEx to reach approximately RMB 26 billion, an increase of about RMB 11 billion compared with 2025. This covers computing resources for Kling AI's large models and other foundational models as well as routine server procurements such as off-line data storage and processing and investments in data and computing center infrastructure. The increase in CapEx for Kling AI's large models is partly due to higher inference computing needs from our expanding user base and revenue scale. It also takes into consideration of our major Kling AI model upgrades scheduled for the year, which require additional investment in training computing power. With advancement of model iteration in the future, we will also flexibly allocate computing resources between inference and training to maximize the efficiency of computing resource utilization. I would also like to emphasize that we are highly focused on cash flow management and maintaining ample cash reserves in 2025 despite approximately RMB 15 billion in CapEx, the group delivered nearly RMB 12 billion in free cash inflow for the year. For 2026, even with increased CapEx, we aim to continue maintaining positive free cash flow at the group level for the full year. We believe that every investment today will efficiently translate into future profit drivers. As we stay focused on long-term technology investments, we will maintain disciplined financial management and ample cash reserves. Our robust balance sheet will empower the group's sustainable high-quality growth in the AI era. Thank you. Huaxia Zhao: That concludes the Q&A session. Thank you, operator. Operator: [Foreign Language] Huaxia Zhao: Thank you, operator. [Foreign Language] Operator: Thank you once again for joining us today. If you have any further questions, please contact our capital market and IR team at any time. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by, and welcome to PDD Holdings Inc. Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your host today. Sir, please go ahead. Unknown Executive: Thank you, operator, and hello, everyone, and thank you for joining us today. PDD Holdings earnings release was distributed earlier and is available on our website at investor.pddholdings.com as well as through the Globe Newswire services. Before we begin, I would like to refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make certain forward-looking statements. This call also includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to GAAP measures. Joining us today are Mr. Chen Lei, our Co-Chairman and Co-Chief Executive Officer; and Mr. Zhao Jiazhen, our Co-Chairman and Co-Chief Executive Officer. Our VP of Finance, Ms. Liu Jun, is unfortunately on medical leave. Delivering the prepared remarks today will be Mr. Li Jiong, our Finance Director. Jiazhen and Lei will make some general remarks on our performance for the past quarter and our strategic focus. Jiong will then walk us through our financial results for the fourth quarter and fiscal year ended December 31, 2025. During the Q&A session, Lei and Jiong will answer questions in Chinese and will help translate. Please kindly note that English translation is for reference only. In case of any discrepancy, statements in the original language should prevail. Now it's my pleasure to introduce our Co-Chairman and Co-Chief Executive Officer, Jiazhen. Jiazhen, please go ahead. Jiazhen Zhao: [Foreign Language] Unknown Executive: [Interpreted] Hello, everyone, and thank you for joining our earnings call for the fourth quarter and fiscal year 2025. In 2025, we celebrated the 10th anniversary of the company's founding, and it is also the year in which we made our largest investments in high-quality development. For the first time in the e-commerce industry, we launched a 100 billion support program to support merchants. The entire company joined efforts in stepping up our support to farmers and merchants. And during the shareholders' meeting at the end of last year, we improved our corporate governance structure by introducing the code share structure and further sharpened our strategic focus to investing deeply in the supply chain and concentrating on high-quality brand-oriented growth to drive the entire supply ecosystem to move up the value chain. In the past year, we delivered steady results. This quarter, the group's revenue reached RMB 123.9 billion, growing 12% year-on-year, while full year revenue reached RMB 431.8 billion, up 10% year-on-year. Both this quarter and the annual net income decreased year-on-year, which primarily reflects our sustained investments on both the supply side and demand side. As we have communicated in the past, we prioritize long-term value generation by nurturing our ecosystem rather than short-term financial results. And benefiting from long-term investments on both supply and demand side through initiatives like the RMB 100 billion support program, the platform and supply chain ecosystem have been moving steadily in the right direction. Key participants of the supply chain, such as agricultural regions and industrial belts have become core pillars supporting the platform and ecosystem, while also bringing consumers more affordable, high-quality products. With the continued investments under the RMB 100 billion support program, dedicated projects such as Duo Duo Local Specialties, new quality supply and logistics support for remote regions have gradually broadened our support from top merchants and SMEs to every segment of the supply chain, helping businesses across all categories pursue differentiated growth. This has enabled the transition from merely supplying products to pursuing quality and to brand building, greatly improving supply chain efficiency and overall industrial capabilities, while at the same time, create room for profit and innovation for agricultural regions and industrial belts. In the fourth quarter, the Duo Duo Local specialties team visited agricultural regions such as Anyue lemons, Pu'er coffee, Wuhan seeds, Meizhou pomelos, Wenshan blueberries, Fuzhou abalone and Lianyungang seaweed. Through customized One Product One Plan support programs, the team addressed issues such as the lack of product standardization and low value add. These efforts guided farmers and growers to adopt standardized planting, premiumization and deep processing, effectively increasing the added value of agricultural products and retaining more profits in the places of origin, thereby enable sustainable growth in specialty agriculture industries. In industrial belt, we accelerated the execution of new quality supply program by doubling down on our support efforts. Our dedicated teams visited manufacturing clusters such as Yiwu Accessories, Pinghu down jackets, Hunan Spicy Snacks, Anhui Roasted Seeds, Tianjin Potato Chips, Zhongshan Small Appliances and Shanghai Chocolate and delved deep into every segment of the supply chain from raw materials to components. Through a combination of fee reduction and support, we helped unlock the potential in the supply chain, driving an overall upgrade in supply chain operations and helping industrial belt transition from commoditized competition to brand building. While stepping up our investments in the supply chain, we also unlocked the consumption potential in remote regions through our logistics support program, driving new growth opportunities for merchants. In the fourth quarter, building on the success of this campaign, we continue to tackle the last mile of parcel delivery into villages across multiple provinces and cities, extending the benefits of new e-commerce from western provinces to vast rural areas. To date, we have deployed and built end-to-end delivery networks, including country-level transfer warehouses and village level pickup points in over 10 provinces and municipalities. We also covered the transshipping fees for orders delivered to villages, bringing more remote rural areas into the free shipping zones. In terms of trust and safety, we continue to improve the business environment and further enhance the service levels for both consumers and merchants. During the spring festival, we rolled out a series of food safety measures, including compliance checks on business qualifications, reviews of food advertisements, controls on full live streaming, protection of miners, IP protection and the development of a food database, all to safeguard the food safety for consumers during the festivities. In our global business, despite the drastic changes in external environment, we delivered steady growth over the past year, mainly reflecting the competitive advantages built through our long-term focus on the supply chain. At the last shareholders' meeting, we announced our all-out efforts in investing in the transformation of the supply chain and in building another Pinduoduo. This remains our duty and primary focus. Over the past few months, the 3-year strategy we committed to during the Annual General Meeting has been translated into concrete actions and fundamental changes are taking place within the business and our organizations. In the next phase of our journey, our strategic priority will not be business diversification, but rather concentrating on the high-quality development of the supply chain. Leveraging our strength in the supply chain accumulated over the years, we will reinvent the platform and propel the ecosystem of the value chain. 2026 marks PDD's 11th year and a new starting point as we head into our next decade. We are starting a refresh and moving forward with an all-in attitude and a persistent focus on execution. We will dedicate more talent and resources to deepen our investments in the supply chain, accelerating its upgrade and transformation. We believe that in the next 3 years, we will have the opportunity to build another Pinduoduo. Now I'll hand it over to Chen Lei for further remarks. Lei Chen: Thanks, Jiazhen, and hello, everyone. 2025 marked our 10th anniversary. As Jiazhen just mentioned, we took on greater responsibilities this past year and launched the RMB 100 billion support program to move back to the virtual ecosystem. We also established a co-chair structure to further improve our governance and firmly anchored our company's strategic focus on the high-quality development of supply chain. Through these efforts, we continue to create long-term value for consumers, for merchants, the industry and society has been nearly a year since we launched RMB 100 billion support program. During this time, we continue to reinvest in our ecosystem through measures such as fee reductions, merchant support, trust and safety initiatives. Our dedicated team has gone deep into agriculture regions and manufacturing hubs to have hundreds of regions establish standardized production system and to explore differentiated and brand-oriented growth models. This effort has significantly improved the efficiency and quality of supply chain operations, driving the supply chain transformation from scale driven to value driven. This also brings more high-quality affordable products to our consumers. Our consistent investment in the supply chain have unlocked strong consumer demand on Pinduoduo platform. The platform delivered strong performance during major promotions such as June 18, Double 11 as Spring Festival. [Quality products] from different regions flow through geographic boundaries and offering consumers more diverse selection and further enhancing their quality of life. Our global e-commerce business continued to deliver steady growth and has reached meaningful scale in most countries we serve, accomplished in 3 years was to build a Pinduoduo business 10 years to complete. However, over the past year, the global geopolitical landscape has grown more complex. Trade and regulatory policies across different countries and regions continue to evolve. This has introduced greater uncertainty to our global business and will impact and even reshape our development model. In this context, we need to rely more than ever on the collective capabilities of our supply chain ecosystem. Therefore, we will continue to anchor our strategy in investing deeply in supply chain capabilities and direct more efforts, capital and resources to its transformation. We aim to empower our merchants and manufacturers to become innovators with go-to-market capabilities, developing consumer insights, coming up product size and building brands. This will drive towards high-quality and brand-oriented growth, creating real value for consumers. Over the past few months, we have been making steady progress on the execution of 3-year strategy adopted at a shareholders' meeting, and we are pleased to see some results. In the fourth quarter, our long-term investment in agriculture research achieved new results. Last October, for the second consecutive year, we were invited to attend World Food Forum hosted by UN Food and Agriculture Organization, representing Asian enterprises. We shared our experience and achievements in supporting digital agriculture innovation, and we also sponsored 2 great agriculture research teams that took the stage at the forum, bringing new energy into agriculture research and development. Since the start of 2026, competition in e-commerce sector has continued to intensify around new business models and new technologies. At the same time, the global environment has become more complex than last year with increased uncertainty in the economic and trade climate as well as in regulatory policies across various countries and regions. This will inevitably bring more challenges and weigh on our future performance, putting pressures on our profitability in short term. However, we will continue to uphold our long-term philosophy and faithfully execute our strategy of investing deeply in the supply chain, dedicating more resources to give back to the industry and the society. And now I will turn the call over to Li Jiong, who will walk you through our financial performance for the fiscal year of 2025. Jiong Li: Well, thank you, Lei. Hello, everyone. This is Jiong. Now let me walk you through our financial performance in the fourth quarter and fiscal year ended December 31, 2025. In terms of income statement, in Q4, our total revenues increased 12% year-over-year to RMB 123.9 billion and 10% year-over-year to RMB 431.8 billion for full year 2025. This was mainly driven by the increase in revenues from both online marketing services and transaction services. Revenues from online marketing services and others were RMB 60 billion this quarter, up 5% compared to the same period 2024. Our transaction services revenues this quarter were RMB 63.9 billion, up 19% versus the same period of 2024. Moving on to costs and expenses. Our total cost of revenues increased 15% from RMB 47.8 billion in Q4 2024 to RMB 55.2 billion this quarter. For the full year, our total cost of revenues increased 23% to RMB 188.8 billion, mainly due to increased fulfillment fees, bandwidth and server costs and payment processing fees. On a GAAP basis, total operating expenses this quarter increased 10% to RMB 41 billion from RMB 37.2 billion in the same quarter of 2024. On a non-GAAP basis, our total operating expenses increased to RMB 39.3 billion this quarter from RMB 35.1 billion in Q4 2024. Our total non-GAAP operating expenses as a percentage of total revenues was 32% in Q4. For full year 2025, total non-GAAP operating expenses were RMB 140.7 billion, up from RMB 122 billion in 2024. Looking to specific expense items. Our non-GAAP sales and marketing expenses this quarter were RMB 34 billion, up 9% versus the same quarter of 2024. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenues this quarter was 27% compared to 28% in Q4 of 2024. For the full year, non-GAAP sales and marketing expenses increased from RMB 109.1 billion to RMB 123.3 billion in 2025. Our non-GAAP G&A expense were RMB 907 million in Q4 versus RMB 998 million in the same quarter of 2024. Our annual non-GAAP G&A expenses were RMB 3.2 billion in 2025 versus RMB 2.8 billion last year. Our research and development expenses were RMB 4.4 billion in the fourth quarter on a non-GAAP basis and RMB 5 billion on a GAAP basis. On a GAAP basis, operating profit for the quarter was RMB 27.7 billion versus RMB 25.6 billion in the same quarter 2024. Non-GAAP operating profit was RMB 29.5 billion versus RMB 28 billion in the same quarter 2024. Non-GAAP operating profit margin was 24% this quarter compared with 25% for the same quarter 2024. For the full year, non-GAAP operating profit was RMB 102.6 billion compared with RMB 18.3 billion in 2024. Net income attributable to ordinary shareholders was RMB 24.5 billion for the quarter and RMB 99.4 billion for the full year. In the fourth quarter, basic earnings per ADS was RMB 17.50 and diluted earnings per ADS was RMB 16.51 versus basic earnings per ADS of RMB 19.76 and diluted earnings per ADS of RMB 18.53 in the same quarter of 2024. Non-GAAP net income attributable to ordinary shareholders was RMB 26.3 billion for the quarter and RMB 107.3 billion for the full year. In the fourth quarter, non-GAAP diluted earnings per ADS was RMB 17.69 versus RMB 20.15 in the same quarter of 2024. That completes the income statement. Now let me move on to cash flow. Our net cash flow generated from operating activities was RMB 24.1 billion in Q4 and RMB 106.9 billion for the full year of 2025, compared with RMB 29.5 billion in the same quarter of 2024 and RMB 121.9 billion in 2024. As of December 31, 2025, the company had RMB 422.3 billion in cash, cash equivalents and short-term investments. Thank you, and this concludes my prepared remarks. Unknown Executive: Thank you, Jiong. Next, we'll move on to the Q&A session. Today's Q&A session, Lei and Jiazhen will take questions from analysts on the line. We could take a maximum of 2 questions from each analyst. Lei and Jiazhen will answer questions in Chinese, and we will help translate. Operator, we are open for questions. Operator: [Operator Instructions] Your first question comes from Alicia Yap with Citigroup. Alicis a Yap: [Foreign Language] I have 2 questions. First is that the company made some organization adjustment at the shareholder meeting at the end of last year. So currently, the company is operating in over 90 markets and at the same time, also face new challenges from the complex regulatory environment. So how does the company maintain the flexibility and also the quality of execution in such an environment? And then second question is, over the past quarter, we have seen a slowdown in the growth of e-commerce platform in China and the company's online marketing revenue growth also show a slowdown over the past 2 quarters. So could management share with us your view on the current state of China e-commerce market and where the next phase of growth for the industry might come from? Jiazhen Zhao: [Foreign Language] Unknown Executive: [Interpreted] This is Zhao Jiazhen. Let me take your first question. Over the past few years, our global business has indeed achieved some progress, now serving nearly 100 markets and achieving meaningful scale. And throughout this process, our corporate governance and the development of internal talent have lagged behind the business growth, and that leaves us difficult to keep up in many areas. At the same time, the international geopolitical landscape is evolving rapidly with trade and regulatory policies across regions changing quickly and becoming increasingly tightened. This places new demands on our company as a whole. And therefore, we believe there is both an opportunity and a necessity to undertake a systemic and structural transformation of our organization, culture and corporate governance. And of course, this will be a gradual process. The culture, structure and the appointment of new leaders that was announced at our shareholders' meeting last December is the beginning of this systematic transformation. In the period ahead, we will dedicate greater energy, capital and resources to upgrading and reinventing the supply chain and to achieve an overall transformation of our supply chain operations. I will also address the second question. As you mentioned, over the past few quarters, we have seen e-commerce industry enter a new phase of intensified competition and slowing growth. In this new stage, our strategy of investing deeply in the supply chain was formulated. It was formulated from the recognition that an e-commerce platform should not just be a simple transaction platform, rather, it can and should do more and creating greater value for all participants across the entire supply chain. Our deep investments in the supply chain covers multiple aspects and initiatives recently such as Duo Duo local specialties and logistics support for remote regions are all projects empowering the supply chain to be more inclusive. Here, I will also highlight 2 specific programs. The first program is free delivery to villages. This is a new project we piloted in the fourth quarter of last year, aimed at addressing the challenges of high logistics costs and merchants lack of incentives to shift to remote rural villages, bringing more villages into the free shipping zone. And currently, we have built last-mile logistics infrastructure, including transit warehouses at the country level and pickup points at the villages level across multiple regions in China and with the platform covering the transshipping fees for orders delivered to these villages. And under this new model, merchants only need to send their products to the transport warehouses and the transportation from the warehouse to the village level pickup points is then handled by the transit warehouse. And building on our existing experience, we applied the transshipping model to the last-mile delivery to the villages, improving the shopping experiences in remote areas and helping our merchants to tap into new market opportunities. The second example is new quality supply. For merchants willing to improve their product quality and services, the platform empowers them by providing industry insights and supply chain support. These measures support merchants to upgrade their operations across the entire product life cycle from R&D and production to manufacturing and sales and driving the transformation of the supply chain system. There is actually a lot the platform can do here. For instance, in product development, traditional approaches often rely on trial and error. However, within today's ecosystem, critical product information is compiled by our merchant development teams and promptly relate to the merchants. Together with traffic support for new product testing, these measures enable merchants to iterate their products with more success and improve the ROI of their R&D investments. And these are 2 examples of our efforts to upgrade the supply chain. Faced with slowing industry growth and heightened competition, we are proactively choosing to channel resources into building a high-quality supply chain. Our investments in foundational capabilities like new quality supply and delivery to villages will become the driving force behind the company's sustainable and healthy growth in the next decade. Operator, we are ready for the next analyst on the line. Operator: Your next question comes from Kenneth Fong with UBS. Kenneth Fong: [Foreign Language] The company global business has experienced some ups and downs. Since last year, we have seen high-profile regulatory inquiries in some key markets and significant changes in trade policy highly relevant to our operations. Could management share your thoughts on the current external environment and under such conditions, where is your global business strategic focus in the next phase? And my second question is about the profitability. The company profitability over the past 2 quarters has experienced some fluctuation. So could management share how different business model launch that might impact the profitability? And how should we think about the company long-term profit margin level? Lei Chen: [Foreign Language] Unknown Executive: [Interpreted] This is Chen Lei. I will take your first question. Over the past period, we have indeed received inquiries from regulatory authorities. As our global business grew rapidly and reached a meaningful scale in different countries, it is understandable that this has drawn surprise, concerns and closer scrutiny. However, our management believes that the current regulatory scrutiny will lay a solid foundation for our next stage of growth and will also provide direction for iterating our model amid the rapidly evolving international political and regulatory landscape. Since the launch of our global business, we have consistently focused on the long term. Building on our deep roots in the supply chain, we are committed to achieving sustainable development in each market and creating real value for consumers. As our business skills and regulatory environment across regions change rapidly, we deeply recognize that regulatory compliance is the baseline requirement. As a company operating within local communities, it is our fundamental responsibility as an e-commerce platform to meet local needs and stay true to our core mission, fulfill our duties and contribute meaningfully to the societies we operate in. Therefore, our management team invests significantly in business compliance. However, trade policies, taxation, data regulations, product compliance requirements and other regulatory frameworks are undergoing significant changes across different countries and regions. These requirements often vary considerably and can sometimes contradict one another, inevitably bringing greater challenges and uncertainty. We are actively learning, adapting to these changes and continuously enhancing our compliance capabilities to create sustainable value for society. You also mentioned changes in global trade policies. Since the beginning of last year, we have indeed seen some shifts in trade policies in many major markets. Ensuring business compliance, the team has quickly iterated our business model based on the regulatory environment and market conditions in different regions to deliver reliable services to consumers. This is closely tied to the supply chain capabilities we have accumulated over the years. Therefore, moving forward, the strategic focus of our company's global business will remain on investing in supply chain capability. Every aspect of this directly impacts the consumer shopping experience, and accordingly will be a key area of our investment. Thank you. Jiazhen Zhao: [Foreign Language] Unknown Executive: This is Zhao Jiazhen. Let me answer your second question. First, I want to emphasize that currently, the company is still in a strategic investment phase. The external environment and competitive landscape are changing rapidly. And to meet the consumers' evolving needs, we are working closely with our merchants to explore and launch new business models that is suited to the new conditions. Any new model from launching to a full rollout requires the platform to commit substantial resources in its early stages. Whether it is exploring the new business models or making strategic investments in the supply chain, these are fundamental and long-term initiatives. The timing difference between investment and return will inevitably have a direct impact on our performance in certain stages. As we have communicated on multiple occasions, between short-term financial performance and the long-term value of the platform ecosystem, we will resolutely choose the latter. And therefore, as we continue our strategic investments, coupled with a complex and volatile macro environment, it could be normal to see fluctuations in our profit margins from quarter-to-quarter. And over the past few months, the strategy we announced at the shareholders' meeting is being translated into concrete projects. The business and organization are undergoing deep transformation. And we suggest not to focus too much on the profitability of a single quarter, but rather pay more attention to the high-quality development of our platform ecosystem because only with a healthy platform ecosystem and a robust supply chain, can the platform achieve sustainable growth in the long-term intrinsic value. Operator, let's move on to the next analyst on the line. Hi Joyce, please go ahead. Unknown Analyst: [Foreign Language] I will translate myself. My first question is related to the profit margin as well. Since last year, the company launched several investment initiatives, including last year's RMB 100 billion support program and the management just mentioned heavy investment in the supply chain in the remarks. Could management elaborate a bit on how the company thinks about the investment and return cycles for these projects? And what will be the long-term impact on the company's financial performance? My second question is online retail sales showed very strong growth momentum in the first 2 months of the year. Could the management share the company's view on the consumer market like regarding categories with faster growth in the market? Does the company have targeted strategies to capture new opportunities in the fast-growing product categories? Jiazhen Zhao: [Foreign Language] Unknown Executive: [Interpreted] This is Zhao Jiazhen. I'll answer your question. About a year ago, we further recognized the importance of the long-term development of the ecosystem, and we launched a series of merchant support initiatives such as the RMB 10 billion fee reduction and RMB 100 billion support programs, committing tangible resources to help the merchants and the industries, creating more room for innovation. Our management unanimously agrees that as the platform grows into a public platform with social influence, we should consider the company's development from the broader perspective of public interest and the long-term health of the industry ecosystem. The strategy of focusing on core business and investing deeply in supply chain upgrades that was announced at the shareholders' meeting at the end of last year is an extension and reinforcement in this direction. And after years of development, the e-commerce industry's ecosystem is becoming more mature and merchants demand on the platform have also become more diverse. The platform's role has evolved from initially being a transaction platform to now becoming a comprehensive business partner. Accordingly, the support that merchants need the most from the platforms has also extended from traffic support to all aspects of their operations, including R&D, production and sales. This requires us to go deeper in our operations to come up with targeted support plans tailored to different industries and thereby building a more competitive supply chain. Such investments involve thousands of merchants and cannot be achieved overnight. We are prepared for long-term and patient investments and are very pleased to see that many of these investments have already yielded some results. For example, with the support of the new quality supply project I just mentioned, some merchants have chosen to reinvest the fee reductions provided by the platform into expanding their R&D teams and upgrading production lines. And together with the platform's digital solutions, they have started on a path of product differentiation and transformation. These long-term structural investments will not be immediately reflected in the financial performance in the short run, but they are a crucial part of the long-term sustainable growth of the platform and ecosystem. We will diligently implement these long-term projects by reinvesting concrete resources back into the ecosystem. We target to lower merchant costs, enhance supply chain quality and improve consumer experience. Through investing in the supply chain, we will seek to reinvent the platform and move the ecosystem up the value chain. And regarding your second question, we are also very pleased to see the improvement in the overall consumption market. However, at the same time, we also clearly recognize that in today's competitive landscape, we still face some challenges. The future performance of e-commerce platforms will increasingly be dependent on how much incremental value they can create for the entire supply chain rather than relying solely on traffic acquisition and allocation. And therefore, at this juncture, we have made a firm decision to invest deeply in the supply chain. And for different product categories, our merchant development teams will work closely with sellers. And based on industry insights, we will provide them with tailored industry solutions to help merchants achieve new quality transformation and driving the high-quality development of the supply chain. And we firmly believe that these investments are essential for the e-commerce high-quality development in the next stage, and we are committed to patiently furthering these efforts in the long run. Thank you. Thank you, Joyce. And thank you, Jiazhen. Thank you for joining us today. We look forward to speaking with you early again next quarter. Thank you, and have a great day. Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.
Operator: Welcome to the Winnebago Industries Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the call over to Joan Ondala, Vice President, Treasury and Investor Relations. Ms. Ondala, please go ahead. Joan Ondala: Thank you, operator. Good morning, everyone, and thank you for joining us to discuss our fiscal 2026 Second Quarter Results. This call is being broadcast live on our website at investor.wgo.net, and a replay of the call will be available on our website later today. The news release with our second quarter results was issued and posted to our website earlier this morning. Please note that the earnings slide deck that follows along with our prepared remarks is also available on the Investors section of our website under quarterly results. Turning to Slide 2. Certain statements made during today's call -- conference call regarding Winnebago Industries and its operations may be considered forward-looking statements under securities laws. The company cautions you that forward-looking statements involve a number of risks and are inherently uncertain, and a number of factors, many of which are beyond the company's control, could cause the actual results to differ materially from these statements. These factors are identified in our SEC filings, which we encourage you to read. In addition, on today's call, management will refer to GAAP and non-GAAP financial measures. The reconciliation of the non-GAAP measures to the comparable GAAP measures are available in our earnings press release. Please turn to Slide 3. Hosting today's call are Michael Happe, President and Chief Executive Officer of Winnebago Industries; and Bryan Hughes, Senior Vice President and Chief Financial Officer. Mike will begin with an overview of our second quarter performance as well as a forward view of the market. Bryan will discuss the associated drivers of our financial results and our fiscal year 2026 guidance. Mike will conclude our prepared remarks, and then management will be happy to take your questions. And with that, please turn to Slide 4 as I hand the call over to Mike. Michael Happe: Thank you, Joan, and good morning, everyone. Winnebago Industries delivered a solid second quarter, reflecting focused execution on our overarching enterprise strategies and our fiscal year 2026 first half objectives. Despite a challenging market environment, our teams performed with discipline, protecting profitability, managing controllable costs and advancing the product and operational priorities that matter most to our long-term competitive positions in the RV and Marine industries. Across our portfolio of premium differentiated brands, we have built a broad and durable outdoor recreation platform that spans multiple customer segments, price points and lifestyle use cases. That breadth is increasingly valuable in a more selective demand environment and positions us well to compete for profitable share as demand conditions improve in the future. We are introducing meaningful new products across our business lineups, especially recently in the Motorhome RV segment within the traditional C category with technological differentiation and targeted focus on affordability and value accessibility to our premium brands. We are also being deliberate about where we invest and grow. Our emphasis on driving share in higher-value segments, such as Class A diesel, Class C diesel and the growing Super C category reflects our strategic focus on retail dollar and profit reach through resilient premium categories. That discipline is evident in our results, even as unit share has fluctuated in certain industry segments, our RV retail dollar share has remained resilient. On the Winnebago-branded Motorhome business, we have made considerable progress in the restoration of this flagship line through the first half of fiscal 2026. The team is on its plan through the first 6 months with much more traction planned in the back half of the year. While several initiatives are still in initial stages, and are expected to build and become more apparent over coming quarters. The prospects for this business in the future are definitely improving. The progress there really reflects the same Winnebago Industries enterprise strategies. We are applying every day across our portfolio, empowering best talent, building relevant premium brands and winning products, elevating the total customer experience, expanding digital capabilities and connections and driving portfolio synergy and excellence. On the Towable RV side, our wholesale share reflects deliberate efforts to reinvigorate our Winnebago Towables business with recent new products and revitalized several critical grand design products attacking the meat of the market. We have leaned into models like Access within the Winnebago brand and Grand Design's Transcend line, gaining important shelf space in supportive dealer showrooms, while also moderating some highly promotional product segments to support inventory health and overall channel stability. We will discuss our Marine businesses in a few minutes, but I would like to highlight a brand that does not receive enough attention at times and that is Lithionics, our mobile portable power line. This 2023 acquired platform continues to be an increasingly vital part of what differentiates our enterprise profile, focused on delivering professional-grade safe, portable, reliable battery power solutions. Lithionics strengthens our competitive differentiation today and supports future profitable growth as we expand the technology beyond RV into Marine and Work Vehicle applications. Our overall financial performance through the first half of fiscal 2026 reflects the strides we have made to deleverage our balance sheet, strengthen cash flow and reduce controllable costs. We have urgency in these areas to position ourselves as soon as possible to accelerate our capital allocation priorities for the future benefit of this company. Our teams have done an excellent job since last April of 2025, managing tariff headwinds and intentionally improving SG&A leverage. Bryan Hughes will walk through those numbers in more detail shortly. Turning to Slide 5. Retail activity across the second quarter remained aligned with a seasonally slower retail period of the year, but also reflected a challenged near-term consumer sentiment environment with comps lower than the same period a year ago. Additionally, retail both at the dealers, but also at certain consumer retail shows through the January, February months were impacted by adverse weather events in key regions. Dealers continue to manage inventory cautiously, keeping ordering and stocking closely aligned with retail conditions. Wholesale activity has remained disciplined with shipments also moderating throughout the seasonally slower period. The RV Industry Association's spring road signs outlook calls for modest industry shipment growth in calendar 2026, with total volumes forecast to increase by approximately 2% year-over-year. That outlook continues to assume a first half of calendar year 2026 weighted towards seasonal softness with improvement expected in the back half of the year as retail demand stabilizes. It also assumes mix performance across segments, including resilience in fifth wheels and a more gradual recovery in certain motorized categories. Our own internal RV wholesale planning remains intentionally more cautious than this outlook. With a focus on retail-driven ordering patterns and disciplined production pacing as conditions evolve. As we move into the critical spring and summer selling seasons, we expect retail activity to build and we are well positioned to respond with product as dealers desire. Inventory management remains a priority. During the second quarter, RV inventory turns reached approximately 1.5x, exhibiting normal seasonal shipping patterns as well as increased dealer demand tied to recent Winnebago Towables and Grand Design Motorized product introductions. Dealers are supporting these new business strategies and building inventory positions where they believe in future retail share attainment opportunities. While overall inventory turns at the end of Q2 versus backward retail, we're slightly lower than what we would like to see at this time of year. We are very much focused on continuing to be a good partner to our dealers going forward in pursuing a 2x inventory turn goal at some point in calendar 2026 as seasonal retail accelerates. Turning to Slide 6. At the Florida RV SuperShow in January, we showcased how our product portfolio is evolving around changing RV ownership and travel behaviors. Across Winnebago, Grand Design RV and Newmar, the products we featured from Winnebago Sunflyer Class C to Grand Design's Solitude fifth wheel and Lineage Motorhome platforms to our Newmar Freedom Aire Luxury C introduction. All these emphasize livability, ease of ownership and differentiated features, serving both first-time buyers and experienced owners. Strategically, the unveiling of new products just mentioned reinforce the direction of our product roadmap, a deliberate focus on products that remain relevant across market conditions, support dealer inventory discipline and contribute to brand strength over time. Our approach to innovation is intentional, emphasizing mix, execution and returns. On Slide 7, our Barletta Boats business continues to hold the #3 position in U.S. aluminum pontoons, with a 9.1% retail unit market share over the trailing 12 months through January. The 3-month SSI unit retail market share is running even higher in the lower double digits range. Barletta's brand positioning and product mix remains consistent, supporting even higher retail dollar share versus the #1 and #2 competitors. However, to serve an even wider audience across the recreational boating space, we have expanded the Barletta lineup with the introduction of the Sanza series of products. Starting at $49,995 for a tritoon model, well equipped with 150-horsepower engine, a cover and in-floor storage. The Sanza extends the Barletta experience to new buyers looking for affordable access to premium brands, while maintaining the trusted craftsmanship, comfort and industry-leading customer service support that define Barletta grade. Moving to Slide 8. Barletta also captured its fourth consecutive Discover Boating Minneapolis Boat Show Innovation Award, recognizing our leadership in bringing industry-first ride stabilization technology to the pontoon segment through our partnership with Seakeeper Ride. This recognition underscores the team's sustained focus on meaningful innovation that elevates the on-water experience for our owners. That same commitment on customer-centered innovation is evident within our Chris-Craft brand as well, where we recently introduced the all-new Launch 27. The Launch 27 is a reimagined premium Day Boat that blends the brand's timeless design and unparalleled fit and finish with modern technology, enhanced comfort in standard Seakeeper ride stabilization. In January, the Launch 27 earned a 2026 Innovation Award at the Discover Boating Miami Boat Show, highlighting its sleek hull design and advanced technology. Importantly, this award reinforces Chris-Craft's leadership in thoughtful, owner-focused innovation. Product quality and innovation remain core to our strategy. And these marine awards validate that conviction. Both Barletta and Chris-Craft have also been recognized with the National Marine Manufacturers Associations Customer Satisfaction Index Awards, reflecting consistently high owner satisfaction across our Marine portfolio. Moving to Slide 9. In January, we released our seventh annual corporate responsibility report, outlining how we continue to integrate sustainability, safety and governance into the way we run the business. Two highlights from our most recent report. One, we have made meaningful improvements in workplace safety in the last decade and, again, in fiscal 2025. And two, we have now reduced our absolute Scope 1 and Scope 2 emissions by about 15% versus our 2020 baseline. Both are clear indicators of disciplined execution embedded in our day-to-day operations across the organization. Now let me turn the call over to Bryan Hughes for the financial review. Bryan? Bryan Hughes: Thank you, Mike, and good morning, everyone. Starting with our consolidated results on Slide 11. As Mike noted, our results continue to demonstrate disciplined execution across a diversified portfolio. Even as retail demand across RV and Marine remains uneven. Consolidated net revenues increased 6% year-over-year as a strong performance in the Motorhome RV segment more than offset decreases in Towable RV and Marine. Growth in the Motorhome RV segment was driven by Grand Design RV's continued expansion with strong growth in Winnebago and Newmar brands contributing as well. Gross profit increased due to growth in the topline and when combined with SG&A reductions due to our cost savings initiatives, Operating income improved 51% from the second quarter of fiscal 2025, resulting in adjusted EPS of $0.27, 42% higher than last year. Turning to our segment results, beginning with Towable RV on Slide 12. Net revenues declined by 9%, primarily attributable to a shift in product mix toward lower price point models and lower unit volume, partially offset by selective price adjustments. Segment operating income margin of 4.2% for the second quarter of fiscal 2026 was down 20 basis points from prior year, primarily due to volume deleverage and product mix, largely offset by selective price adjustments and cost containment initiatives. Through the first half of fiscal 2026, segment operating income is up 3% and versus the same period last year on a roughly comparable 3% increase in net revenues. Our dealer inventory increase in the Towable RV segment, is related to the new Thrive in the Winnebago brand and the continued success of the Transcend in the Grand Design lineup. When combined, these 2 lines explain the entire increase in the Towable RV segment's dealer inventory when compared to the prior year. Moving to Slide 13. Our Motorhome RV segment reflected a net revenue increase of 29%, with volume momentum across our Newmar, Winnebago and Grand Design Motorized brands. Net revenues are running 21% ahead of fiscal 2025 through the first half of the year. Operating income performance in this segment primarily reflects improved volume leverage, with additional support from targeted cost and operating efficiency initiatives. Segment operating income margin improved 270 basis points year-over-year to 2.4% in Q2. The same step change in profitability is evident in our first half segment performance, resulting in an operating income margin of 2.6% compared with negative 0.8% in the first half of fiscal 2025. Turning to Slide 14. Our Marine segment results reflect the industry operating environment we anticipated with retail demand remaining muted and dealers maintaining a cautious approach to inventory and wholesale activity. Segment net revenues decreased by 3%, primarily due to lower unit volume and product mix, partially offset by selective price adjustments. Operating income margin of 3.7% was down 300 basis points from last year's fiscal second quarter due to higher warranty expense and volume deleverage. Through the first half of fiscal 2026, Marine segment operating income margin was 5.3% versus 6.7% in the same period last year. Revenue was flat year-over-year. Turning to Slide 15. We continue to make tangible progress on deleveraging actions consistent with the priorities we've outlined over the past several quarters. A key proof point with our February redemption of $100 million of 6.25% senior secured notes due 2028, funded through cash generation over the past several quarters. This action demonstrates our confidence in the durability of our cash flow even as market conditions remain inconsistent. The redemption meaningfully reduces gross debt and contributes to reduced interest expense, reinforcing the discipline underlying our capital allocation framework. Importantly, it also preserves financial flexibility as we enter the seasonally stronger back half of the fiscal year. We continue to maintain healthy cash balances, and cash flow from operations improved year-over-year through the first half of 2026, driven primarily by improved earnings with working capital performance providing additional favorability. Turning to guidance on Slide 17. For fiscal 2026, we are maintaining our full year revenue and adjusted EPS outlook, while updating reported EPS with the details as follows: consolidated net revenues in the range of $2.8 billion to $3.0 billion; reported earnings per diluted share in the range of $1.50 to $2.20 compared with $1.40 to $2.10 previously. The increase versus the prior range reflects updated assumptions related to items excluded from adjusted EPS; and finally, we continue to expect adjusted earnings per diluted share in the range of $2.10 to $2.80. Segment performance continues to reflect a mixed demand environment. In Towable RVs, we expect revenue to be softer than fiscal 2025, while remaining focused on maintaining operating margins. In Motorhome RV, we expect both revenue growth and improved operating margins compared to the prior year. In Marine, Retail demand remains soft and as a result, we expect full year net revenues to be below fiscal 2025 levels. Looking to the third quarter, we expect continued strength in Motorhome RV to be offset by softer conditions in Towable RV and Marine, resulting in consolidated revenue that is flat to down versus prior year levels. On that revenue base, we expect adjusted EBITDA and adjusted earnings per diluted share to be roughly in line with the prior year. Our outlook remains subject to macroeconomic conditions, including the direction and severity of recent geopolitical developments and their potential impact on commodity prices. With that context in mind, our fiscal 2026 outlook remains grounded in actions within our control. We continue to focus on disciplined execution and advancing our strategic initiatives which we believe position us well to deliver on our financial objectives. Now please turn to Slide 19 as I hand the call back to Mike for closing comments. Mike? Michael Happe: Thank you, Bryan. Winnebago Industries begins the second half of fiscal 2026 on solid footing to drive sustained earnings improvement, a view that holds even if the industry recovery continues to be stubborn. Over the last several quarters, going back to the second half of fiscal 2025, we have been quite intentional about the business improvement changes we are making. We have broadened our portfolio across key segments and price points. We have strengthened the balance sheet and improved financial flexibility. We have made deliberate decisions to better align our fixed cost base and variable expenses, especially within our RV segments to reflect the reality of today's demand environment. Our teams have proactively navigated tariff headwinds and unexpected cost pressures with agility and diligence. And I am especially pleased in our ability to continue executing the controllables and mitigating risk effectively as conditions evolve. We are, again, doing what we said we would do. As we move through fiscal 2026, our focus is clear: execute what we can control; protect profitability, while balancing retail share in our target segments; strengthen our financial flexibility and protect and bolster our ability to invest in our people, brands, products and operational excellence initiatives that we believe will drive sustainable and superior returns in better days ahead. It is worth stepping back and recognizing the broader context. Outdoor recreation remains a large, resilient and economically meaningful sector, contributing more than $1 trillion in direct and indirect economic output and supporting millions of jobs here in the United States, according to the newly released data from the Department of Commerce. Participation in outdoor recreation remains strong and is an integral part of our customers' physical and mental wellness. While our specific industries are operating in a more measured demand environment, amid a dynamic macroeconomic and geopolitical backdrop. The long-term fundamentals of the category and candidly Winnebago Industries continue to support sustained engagement and investment over time. Our lifestyle is strong and Winnebago Industries is strong as well. We are mindful of the evolving situation in the Middle East. And while it is too early to assess any direct impact on our businesses, we are monitoring developments closely and their potential impact on consumer demand and input costs. Notwithstanding that backdrop, our confidence for the future comes from the progress we have already demonstrated and from our team's continued focus on our 5 core enterprise strategies that define how we operate and compete. Now Bryan and I are happy to answer your questions this morning. Operator, please open the line for the Q&A session. Operator: [Operator Instructions] Our first question comes from Joseph Altobello with Raymond James. Joseph Altobello: First question on inventory. Obviously, you ended this quarter at 1.5 turns. The target is 2 turns by the end of this calendar year. So how much of that is coming from you guys undershipping demand over the balance of the year? And how much of that is what you believe will be improved retail? Michael Happe: Joe, this is Mike. It will be a combination of several factors. Certainly, we anticipate seasonal retail momentum to take place as it does every spring and summer. From an industry wholesale estimate standpoint as you probably are aware from our comments. We are a little bit on the conservative side. And so our assumptions on both industry wholesale shipments for the remainder of our fiscal year and the calendar year and embedded in our guidance is in line with us improving turns to the level that you just cited. Bryan Hughes, in his prepared comments, also mentioned in the Towables RV segment that the significant majority, if not the entire driver behind Towable RV turns at the present time, is the support of the Winnebago-branded Towable line that we're revamping, primarily the Thrive and Access product that is shipping into dealers, many of whom are new to that brand as well as support for Grand Design's Transcend model. And so we anticipate that, that pre-prime retail season load-in will diminish a bit from a shipment standpoint and the natural course of retail and unit replenishment will take over. So we do anticipate our inventory turns on the RV side to improve in both quarter 3 and quarter 4 and throughout the rest of calendar '26. Joseph Altobello: Got it. Very helpful. And then to follow up on that, you mentioned obviously the geopolitical events. And I know it is early, but any sort of discernible impact on consumer demand here in March from the conflict with Iran? Michael Happe: Joe, we could not draw any straight line to any short-term market performance factors or even input operational costs into our business quite yet from the conflict overseas. We are monitoring that situation very carefully. We certainly understand that, that is weighing on the minds of consumers and dealers as they contemplate obviously, investments in the lifestyle for consumers and in inventory from a dealer standpoint but we have not seen any adverse effects quite yet from the conflict. . Operator: Our next question comes from Alice Wycklendt with Baird. Alice Wycklendt: Maybe I want to dig in a little bit more and see if you can share on the impact of weather, the cadence of trends over the course of the quarter and maybe what you've seen since quarter end some of those weather impacts have eased? Michael Happe: Yes. Well, let me talk about the second quarter retail environment that we witnessed. We did have some good retail shows both on the RV and Marine side. In fact, our largest retail shows happen to be some of our best shows. But apart from those large shows, the rest of the retail show season was candidly in line with general industry retail conditions throughout that particular period for us, the months of December, January and February. We did see some weather events in the months of January and February that did have an impact on specifically some of the retail shows, but in some cases, good portions geographically of the U.S. that hampered retail for a week at a time. These are generally our lowest retail selling months of the calendar year. So we don't anticipate that weather will continue to be a theme for the remainder of our fiscal year or calendar year '26. We'll see how that goes. Concerning retail in the month of March, I would say we are generally seeing a retail environment in March that is healthier than what we saw in the months of January and February. Internally, we have 3 weeks of retail collected already from this particular month. And I would say 2 of those 3 weeks were certainly better. And the third week of those 3 weeks was similar. So net positive in terms of the general direction of retail in March versus what we had seen in January and February. But we're obviously monitoring that every day, every week and hope we continue to see that mini trend continue here in the near future. Alice Wycklendt: Great. And then obviously, a lot to unpack with the Iran conflict, but maybe we can just isolate gas prices and talk about how the RV market has typically reacted to higher prices, at least in the past and maybe what you'd expect here? Michael Happe: Yes. I think you would want to break that topic or question down in 2 ways. One, how does it impact people who are already in the lifestyle and own RVs. And generally, the manner in which we see an impact there is that people don't necessarily take less trips. They just travel less distance to experience the RV lifestyle. And so we believe that the lifestyle itself is healthy from an engagement standpoint and we do not anticipate people doing less camping, but they may go less far to do that camping. Certainly, from a new product purchase standpoint for customers that are in the marketplace. The concern there is that the perceived affordability of the lifestyle is elevated because it costs more to fill up that fuel tank on either your towing vehicle, if you're buying the Towable or that Motorhome coach. But we generally don't see as big of an impact on new purchases as you might expect when gas prices are elevated at the pump. These are generally planned purchases, often associated with life-changing events like retirements or kids getting older, bucket list that need to be checked off. So we're not yet factoring in a significant decline on new product purchases yet. We'll want to see how long gas prices are elevated directly related to the Middle East conflict and discern whether the impact to consumers last. The last topic I do want to mention is that there are some positives when some of these geopolitical events happen historically. There are times when Americans choose to travel differently. They may take less trips to Europe. They may take less cruises across international waters. And instead, they turn to domestic road trips, which actually turns out to be a tailwind for us at times historically. So again, it's too early to come to a conclusion on any of the comments I just made. We are monitoring the situation carefully, but those are some of the opinions we have on possible dynamics and impact. Operator: Our next question comes from James Hardiman with Citigroup. Sean Wagner: This is Sean Wagner on for James. I guess, just following up on the inventory. If you're targeting 2x turns at some point in calendar year '26. Is there any color you can give on where you expect Towable and Motorhome turns to finish the fiscal year? Will you get close to 2x this fiscal year? Michael Happe: Sean, thank you for the question. We won't share specifically the future projected breakdown by category. I can just tell you, our business leaders have the same goals in mind. The turns performance of our portfolio varies by brand and business. And it also varies at times, as I mentioned earlier, by the introduction of new products or new strategies. But in macro, our intention and plan for the rest of the year, again, as included in our guidance assumptions, is to drive those field inventory turns back very close to 2.0 by the end of our fiscal year and certainly by the end of our calendar year. There can be things that aid or disrupt that, but that is certainly our intentions at the time. I will take this opportunity to mention the quality of the inventory in the field as well. We track very carefully how much of our inventory is current model year, prior model year and prior 2 model years. And I can tell you from a positive standpoint that we have seen a significant improvement in aged inventory across our RV and Marine portfolio at the end of quarter 2 fiscal '26 versus the end of quarter 2 fiscal '25. The number of units on prior model year and prior 2 model years are meaningfully down as we sit here today. And the number of current model year units as a percentage of the whole is increased which is a good thing because we want consumers looking at the very latest. And often, our sales allowance or sales support dollars for dealers are very targeted at aging inventory. And so the less aging inventory we have, we think we're in a better competitive position in the market, but we're also spending less dollars from an inefficiency standpoint to clear out that old inventory. So our teams are focused on it, and that will be part of the story as we talk about the quantity and the quality of field inventory going forward. Sean Wagner: Okay. And I guess on the topic of your unchanged guidance. Have your -- I know you said it's too early to sort of draw any conclusions from the geopolitical events, but have your underlying interest rate assumptions within your guide changed at all based on the current macro environment? And can you remind us what those were? Bryan Hughes: Yes, this is Bryan. I think as we all know, some of the interest rate expectations, including the reductions that we're pricing in the market previously are easing and are turning the other direction. A lot of it -- it's too early to tell what the impact of the geopolitical events right now will be on oil prices, interest rates, labor market and things of that nature. So I would not say that we made a significant adjustment of any kind underneath our guidance that is anticipating at an extremely different interest rate environment right now. It's just too early to tell on what direction things will go. Sean Wagner: Okay. But I guess if interest rates aren't cut this year or are even raised, let's say, does that drastically change your thinking for the industry and for the year? Bryan Hughes: No, I mean that's one of the factors we would consider as we come forward with our range on the industry. And so that would impact ultimately the outcome in all likelihood. But that's why we have the range that we do from 315,000 to 345,000 units of wholesale shipments. . Operator: Our next question comes from Patrick Scholes with Truist. Charles Scholes: With elevated gas and oil prices in the news, could you just give us an update on where you stand with progress with your eRV 2 electric prototype? Michael Happe: Patrick, thank you for the question. We do not have a commercial strategy in place currently for an all-electric Motorhome vehicle. As you recall, by your question, several years ago, we were active with, first, the pilot of all-electric Ford platform. And we did, in fact, produce a very small number of those and engage a few dealers on consumer engagement around those. We have made the decision more than a year ago now to not proceed Ford in the present environment with an all-electric Motorhome platform at this time. And that was a combination of, candidly, chassis partner feasibility on the right platform, combined with learnings from consumers about what was acceptable from a functional standpoint, but also a value standpoint in the market. So at this time, we are not competing with any alternate power technologies from a propulsion standpoint, but as you know, we are very focused through our Lithionics brand on doing everything we can to play our part in the electrification of house power that is oftentimes the removal of the generators from the house platforms on an RV or a boat and substitute that with the lithium battery power package. So that really is our electrification strategy right now, the House power platform that we have through -- in Lithionics. Operator: Our next question comes from Tristan Thomas with BMO Capital Markets. Tristan Thomas-Martin: Mike, just a clarification question. When you said 2 or 3 weeks so far in March were better. Is that relative to year-over-year or better than January and February? Michael Happe: From our perception standpoint, the months of January and February were actually quite similar from a retail standpoint. I know the industry has not released February retail yet for RVs. But we anticipate that when that information is released, that you'll see retail be very similar at the industry level to January. My comments around our internal Winnebago Industries RV and Marine retail for the month of March is that we have seen a net positive 3-week trend as compared to the months of January and February, meaning March is better, not quite where we'd like it to be ultimately, but certainly a better start to the early spring period than what we were seeing earlier. And I will tell you there are some bright spots in some of those early results, including our Winnebago Towables brand, which we're very energized about. We've seen very strong early results on Winnebago Towables in March that validates some of the dealer support we're getting and some of the new products that we've launched. So very early signs. Things can change from a volatility standpoint week-to-week based on our reporting processes and the way that we capture retail. But I think what I'm mentioning this morning is in line with a few of the RV dealer surveys that have happened by some of the sell side here within the last couple of weeks. So let's cross our fingers and hope that trend continues. Bryan Hughes: Tristan, just I'll add to that. This is Bryan. I think you're inquiring not about the absolute so much as the growth rates year-over-year. And that's what Mike is referring to in March that the year-over-year comps are showing some stability for those first 3 weeks. Tristan Thomas-Martin: Okay. But not up year-over-year. Is that accurate based on your comments? Michael Happe: We won't share specific numbers, Tristan. They are improved versus January and February. Tristan Thomas-Martin: Okay. And then just a question around Grand Design share trends in the quarter, a little bit under some pressure. What's driving that? And then kind of how do you reverse that, specifically the Towable side? Michael Happe: Yes. We have seen some Grand Design unit retail share pressure in the last year, a good chunk of that comes from the intense competition we're seeing on fifth wheels in the market with several good competitors, both from a legacy standpoint, but also some of the newer competitors in the last 4 or 5 years. The team at Grand Design is very engaged in the fifth wheel segment. We've introduced the Omega Frame, which we believe is one of the most durable, strongest frames now in the market. We recently came out with a composite leakproof roof that is beginning to be rolled out across the Grand Design line, but beginning with, I believe, the Solitude line on the fifth wheel side. We have partnered closely with many of our dealers on rightsizing the programmatic and promotional support around those fifth wheel models in the retail environment. We have seen less degradation of share on the travel trailer side. And in fact, Grand Design over the last 5 years has generally been gaining share on travel trailers over an extended period of time, but we've seen a little bit of share dilution there as well, primarily due to the emphasis on affordability and some of our competitors who have much higher capability in high-volume, load differentiation mix products. So we're probably battling affordability, primarily on travel trailers. We're battling some competitive intensity on fifth wheels. And so the team is working on brand strength, product strength, dealer improvements in terms of support just across the line. I will tell you that we do have plans in the future to expand the Winnebago Towables line into fifth wheel products at some point. We have not announced what that first product would be, nor the timing of that, but that is on the roadmap. So we'll compete even differently in the future with 2 Towable brands in some of these spaces, not just one primary large one. So thanks for the question. Operator: Our next question comes from Bret Jordan with Jefferies. Bret Jordan: On the fifth wheel category, and obviously, it's a tough market from a share competition standpoint, is that -- is the broader category under similar pressure in the sense that you're talking about people looking for a lower price point access to RV? Michael Happe: Well, I think that theme, Bret, exists candidly probably across the whole of the RV industry, value affordability. People certainly are still shopping for premium brands, but looking for a sharper accessibility from a value standpoint to those brands. We are seeing some activity on fifth wheels around private labels with some of the larger retailers in the RV space. That is a strategy that is a little less mature than you see on the travel trailer side, but that is ramping up a bit. So it's a combination of factors. I believe consumers looking for value, really good competition. Dealers thinking about the category in the evolving way as well. And our teams will have to continue to adapt. I want to make this point, though. Winnebago Industries is not the Grand Design fifth wheel company. And our share and opportunities to drive our business forward come from 9 different revenue streams within the company. And fifth wheels right now is just one of those 9. And so I am very pleased with the diversification and the breadth of Winnebago Industries and our ability to use certain parts of our portfolio that do have momentum like Newmar, like Barletta, lately here like Winnebago Towables to offset some of the softness we see from time to time in different parts of the portfolio. We've also been doing some work recently on unit share versus retail dollar share. At our quarter 3 earnings call in June, we will unveil some of the data from some of that analysis. But our retail dollar share at an enterprise level, particularly for the RV industry is very competitive, and in fact, is much more resilient than our recent unit share. And that comes from some of the great work that's happening in the Motorhome segment, specifically, with new business launches like Grand Design Motorhome racing to 4% plus share here recently after 2 years of being in the market. So we're going to be very focused. Don't get me wrong. We're going to be very focused on addressing some of the share pressure that we're seeing on fifth wheels, but I can also assure our investors that we are going to be very focused on driving good news and positive momentum across the other 8 revenue streams that we have in our portfolio as well. And that is, I think, part of the secret sauce as to why we are maintaining our guidance for the back half of the year because we believe that the whole is healthy enough to maintain a statement of confidence here this morning. Bret Jordan: Okay. And then in Marine, I think you called out warranty and volume deleverage as impacting margin. Could you sort of parse those 2 out? Is there anything that's extraordinary going on the warranty side of Barletta? Bryan Hughes: No, nothing extraordinary, but not like a larger single event that caused us to do a recall or anything. It was just a few that aggregated into a higher current quarter warranty expense recognition. So that's really the driver there. Operator: Our next question comes from Noah Zatzkin with KeyBanc Capital Markets. Noah Zatzkin: I guess, first, could you kind of comment on the margin improvement initiatives in Motorhome and provide an update there? Bryan Hughes: We've talked about this in the past, Noah, that there are several things underway. And brand by brand, we are undertaking those initiatives. I'd say, as we've said in past quarters, the Winnebago Motorhome transition to profitability is probably longer in nature and did not have a significant impact in the current quarter, but we expect it to have improving impacts in the several quarters ahead of us. We are still enjoying the ramp-up of the Grand Design Motorhome entry, and that entry has gone very well. And then similarly, on the Newmar side, the margin enhancement in that business over the past several years and in the more recent quarters have continued to bear fruit. So we're very pleased with that. I would say, in general, that's the storyline. We have further improvements we're expecting in the Winnebago Motorhome business as it relates to margins, specifically. Some actions have already been taken. Others are underway. Certainly, important in that evolution on margins in the Winnebago brand is continued product introductions that demonstrate innovation, differentiation in the marketplace, and we look forward to those in coming quarters. Noah Zatzkin: And then just maybe any updated thoughts on tariffs and maybe the expected impact versus prior? I know everything is still fluid. Bryan Hughes: Yes, pretty fluid environment, as you suggested there. I think the teams have done a very good job, I'll say, specific to the margin conversation. The teams have done a very good job of assessing the impact of tariffs, monitoring them very closely quarter by quarter, month by month, mitigating the impacts with vendors, as partners, and doing a very good job of minimizing the impact of tariffs and then where necessary pricing for those tariffs and making sure that the pricing matches the overall inflationary impacts. So that is ongoing work. I'd say the recent decision by the Supreme Court on IEEPA to be offset in many respects by new tariffs in the 122 category. Our still being evaluated. I do not expect that transition from IEEPA to 122 to have a material impact on our margin story or on pricing. I think that they will largely offset each other if not even be a little bit favorable, but that too is something that we're monitoring very closely. Operator: And our final question comes from Mike Albanese with StoneX. Unknown Analyst: I know it can be difficult to discern amongst various macro factors, but any implications you're seeing from expected tax refunds within dealer traffic or lead generation essentially setting the table for higher conversion, into Q3, particularly in regions where the SALT cap was increased or really, is that just too difficult to parse out from typical seasonality? Michael Happe: Yes. Good question, Mike, and thanks for that question. We do track through various sources, some of the tax refund trends that are happening in that particular sort of season. And it does appear that the size of tax refunds are in a positive way elevated for citizens and possible consumers versus a year ago. It is probably too early as those checks or deposits are arriving from a refund standpoint to understand if that will impact us materially. It certainly can't hurt as consumers claw back a few more dollars and decide what to do with that. So there's -- as you know, there's a lot of noise in the environment in terms of elements weighing on consumers' mind from a sentiment standpoint, but also some of the inflationary pressures some of which were mentioned on the call with possible gas price elevation. So we'll see how that goes. We'll have a better idea here probably in the next 60 to 90 days. There have been times, though in -- with past policy legislation that has been tax friendly to consumers where dealers have cited that consumers do have a little bit more breathing room to be able to throw at a down payment on a new RV or boat. But a little early to tell, but early signs in the tax season are positive from a refund size standpoint. So we'll continue to monitor. Unknown Analyst: That's good context. And then hopefully, a good one to end it on here, but since you decided to highlight Lithionics this morning, can you just provide more color on it as a competitive differentiator? What's out there? Why is it better, I guess? And then are you seeing that translate or can you attribute any share gains directly to that, whether that be a lot wins with dealers or resonating with the consumer, et cetera? Michael Happe: Yes. Thank you for the question, and it's a good topic to end on. We acquired Lithionics in the middle of 2023. And the reason we acquired Lithionics, there were multiple reasons, but one of which was that they were really and are really the gold standard in lithium battery packs, battery management systems. Since 2023, their penetration into the RV market has expanded. We have picked up new customers, including several of our OEM competitors, and we have very good working relationships between Lithionics and several RV OEM. We've expanded our product line significantly from primarily battery pack systems and BMS to include other types of mobile power products. battery starter generators, alternators, inverters and the like. We have also begun to certify some of our product catalog for use in the Marine industry. There are similar applications for these types of products in the Marine industry, and we've begun to accelerate expansion of Lithionics business development into other categories, including work trucks and other specialty applications. There's also an aftermarket element to the Lithionics business. If you either have a different battery system or no battery system at all, you can work through a qualified installer to install a Lithionics system. They are safe. They are reliable, they are durable. They are constructed like very few other battery packs in the market are. And the team just does business the right way. The last thing I'll mention that should be of note to the investor community is the profitability on this small business from a yield standpoint is significantly higher than our Finished Goods business. It is a strategic technology vertical. Certainly, some of the business we do is captive to our own brands. But the business we do on the outside comes at a fair healthy margin that allows us to contribute back to enterprise profitability, but also reinvest in the Lithionics business. So we view the blue ocean for Lithionics products as significant in the future. And we'll stay very focused on being the quality supplier in that space and not the low-cost supplier. Reliability and safety are very valued by consumers around battery products. So thank you for the question. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Joan Ondala for closing remarks. Joan Ondala: Thank you all for joining us this morning. We look forward to keeping you all updated on our progress. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Avshalom Shimi: [Audio Gap] differ materially from those projected, including as a result of changing industry and market trends, reduced demand for our products, the timely development of our new products and their adoption by the market, increased competition in the industry and price reduction as well as due to risks identified in the documents filed by the company with the Israeli Securities Authority. Online with me today are Mr. Shai Babad, Strauss Group's President and CEO; and Mr. Tobi Fischbein, Group CFO; and myself, Avshalom Shimi, Head of Investor Relations. We will begin with a review of the annual results by CEO, Shai Babad, and then move on to the financial highlights of the quarter and 2025 presented by CFO, Tobi Fischbein. We will then move to the Q&A session. Shai, the floor is yours. Shai Babad: Thank you very much, Avshalom. Again, we apologize deeply for the delay. The computer fell in the last moment after everything was ready. [ Murphy ] is slow, and we had to upload everything on a new computer. But let's start, and I'll try to be brief and to the point. Next. Next. The highlights of 2025. We have a very strong double-digit growth in 2025 and also a very strong double-digit growth in the last quarter of Q4 of 2025. In the year of 2025, we also managed to regain back our margins and improve the profit -- operational profit and the operational profitability, with margins reaching 9.6% without our kitchen activity, which is very, very close to the strategic guidelines that we gave. In net profit in the last quarter, we managed to improve the results by 100%, getting to ILS 150 million in one quarter of net profit, which is a substantial improvement and also to the free cash flow. In addition, lately, we acquired Yoki and we made a very substantial and large M&A in Brazil, which I will mention a little bit later. We also are in the journey of our productivity, and we can say that we are online with all the productivity targets that we set ourselves with, in line with the strategy. There's also been a lot of innovation that was done from diversified innovation to disruptive innovation with the new launches of Coffee and [ Shabbat ] machine in our water purification systems that was done in Q4. And last but not least, in the north of Israel, we launched a new plant for alternative milks under the Michael Strauss, our Founder, Campus, which was launched in October 2025. When we look at the results, we can see that here, there's a 15% growth all over the year, organic growth and a 12%, almost 13% growth in revenues in net sales in the last quarter. This is in addition to also volume increase that we had during this year. So most of the increase in revenue came from price increase, mainly in our Coffee International business, but not only. We managed to increase price to actually increase market share in most of the categories in which we play, in categories and very strong categories in Israel, overall categories in which we play in, we managed to increase market share by 1%. But also in Brazil, we maintained a very -- our position is #1, increased market share, but also increased prices. We can see here the EBIT improvement all over the year from almost ILS 800 million to almost ILS 1.7 billion -- sorry, is ILS 1.07 billion in EBIT. It's the first time that we actually crossed the ILS 1 billion in EBIT without our kitchen activity. And net sales remained with a smaller improvement from ILS 418 million to ILS 450 million, mainly due to tax payments and financial costs that Tobi will elaborate later. But in the last quarter, as you can see, already there is an improvement in the net profit and our ability to roll through our operational profit to our net profits. And in cash flow, of course, you can see also there is an improvement from last year with a negative cash flow. This year, we managed to get back to a positive cash flow with a very strong cash flow in the fourth quarter. When we look at our Israeli activities, as I mentioned before, we managed to increase market share in almost all our categories here. There was a lot of innovation that was done in Israel, which I'll talk about very soon. In Health & Wellness, while increasing sales and growing in sales, we also improved our EBIT. When we look at last quarter, EBIT in Health & Wellness, we kind of -- we stayed the same, but this is mostly because of marketing efforts that were done this quarter in Health & Wellness because of the launch of the new plant in the North for alternative milks. We invested more than ILS 14 million in marketing efforts in addition to what we've done last year, and this is the difference. But overall, Health & Wellness, good growth in revenues, also improvement in operational profit and in margins. When we look at Fun & Indulgence, here because of our confectionery business and because of cocoa prices, we went a little behind. And we can see that in the last quarter, there's already an improvement, as we've mentioned in our confectionery business. Looking into 2026, this will continue to improve and we'll see substantial improvement in our confectionery business, which will yield results that will be close to what we used to have in 2021. And also in Coffee, we managed to improve margins. And as you can see, of total overall in Israel, we grew by almost 6%. Operating income stayed the same because of cocoa prices because of its effect on the business in our confectionery business, which is starting to improve rapidly Q4 and also looking into 2026. And therefore, operating profit kind of remained the same with a very positive outlook into 2026. This is a little bit to show you a little bit of our innovation. In innovation, we have diversified innovation, stretching our brands from one category to another. You can see the milky brand here that -- [indiscernible] which is another yogurt was stretched into that brand. Also in Alpro, we stretch our confectionery brands into Alpro. You can see that we are going very much into the -- also improving innovation into the functional segments of Pro yogurts with proteins, drinks with proteins, and our Pro brand is being expanded. We can also see the disruptive innovation that was done in this year with the first time carb-free drinks, which is alternative -- which is imitation of the protein that comes from a cow that is produced through fragmentation with yeast or mushrooms, and therefore, we can produce milk that is just not being produced from cow and the same with cheese. We launched this in Israel, and we see already sales that are starting to grow. And with our new opening of our new plant in Israel as well, there was a lot of innovation and a lot of investment in new engines of growth that we've put in place. Next. When we look at our Coffee international activities, so this year for Strauss, it was the coffee year. We see substantial improvements in our business -- in our International Coffee business, mainly through prices increase that was done. You can see revenues increased and eroded by 30 -- almost 31% while operating income more than doubled itself on the coffee -- on the total coffee business. We can see here, Três Corações, our Brazilian business with tripling its revenues. Here, it's a very important to say. We saw a very unique and very good results in Q4 for our Brazilian business. We don't think we'll be able to maintain the same margins going forward, but of 12% or 11%, but we do believe we have a new platform in Brazil. And instead of the 3% or 4% margin that we used to have, we think we can be around the 8%, 9% margins going forward for this year. So -- we did maintain a new platform. It's not going to be as high as Q4, but it is going to be very strong operations in Brazil in the R&G. In addition, in the non-R&G, we are continuing to expand our activity in the non-R&G as part of our strategy to hedge -- to naturally hedge the green coffee volatility prices with the coffee activity with the non-R&G activity in Brazil. And one of the steps that we took, which is in line with the strategy was the Yoki acquisition, which I'll say a few words later on. When we look at our Water business, so we increased our installed base and revenue grew due to that, although there was a war, and we see also the impact this year that our growth is lower than what we are planning because of the war. But in parallel to that, we managed to maintain the profits, the operating profit of ILS 115 million each year. Israel grew its profit. But in China, as mentioned in the last quarters, Xiaomi gave a very hard competition and therefore, we went on to a tech mode in which we gave a lot of discounts, and we have reduced price in many cases and also put new platforms into the market. This has cut off our total profits from China. And therefore, the total result remained the same. The good news is that we already see in Q4 that we managed to come back to being a very strong #2 player in market share. We gained market share back in China. We managed to sell in a double-digit growth in the last quarter. We also managed to become #1 in the off-line sale and #2 in the online sale, altogether, #2 in the market, pushing Xiaomi back. We do think this stomach will continue with us into the next few quarters until we'll be able to get profits back on a high level in China. But overall, when it comes to revenue and growth and market share position, we managed to get that back. Next. When we look at our productivity, so we are in line with our productivity active -- targets that we set for this year. We will reach, we believe, within the target and even exceed the target between the ILS 300 million and ILS 400 million. This helps us a lot to achieve our results, to improve operational profit and to improve profitability. There's a lot of streams that are working. I'm not going to repeat all the streams that we talked in the last calls, but there's procurement, there's logistics supply chain in each one of them, there's marketing, RGM. In all of them, we are working very hard. And we are building capabilities, which will help us for the next upcoming years to even to continue to enhance, deepen and improve productivity. A word on strategy. If you look at the strategy that we mentioned in 2024 until the end of 2026, so we kind of ticked the box on all the targets and missions that we set in the strategy. We talked a lot about a strong home base in Israel with optimizing the portfolio in Israel, with double down on the core, with growing more than 5% in the segments that we decided to stay. We reduced SKUs from 1,300 to 780 in Israel while maintaining a higher CAGR than 5%. We've managed to improve margins. With the turnaround, we are expected to do in the confectionery business this year. We believe that the Israeli business will be fully on track with the strategy that we set. We're doing a lot of innovation activity. We built two engines of growth in Israel with the milk drinks and protein drinks and protein by itself. And on the other hand, the new factory that we build with alternative milks and the new factory that we built in the north that will be -- that will enable us to give all our brands in alternative milk version as well. So this is regarding Israel. Regarding the engine growth of Brazil, we said that we need to maintain and to improve -- maintain our position as first in market share, but also to improve our R&G profitability and total profit. And we've managed to do that. We've managed to have done that. If you look at the last 3 quarters, you can see that in quarter 2, quarter 3 and quarter 4, the results in Brazil have improved substantially. We are not going to be able to maintain the same margins as we saw in margin in quarter 4, but the margins will stay high. There's new platform of profitability for the R&G and this is also a tick on what we said in the strategy. On the other hand, the non-R&G is growing also more than 5% each year in the non-R&G activity in Brazil. We also managed M&A activities that we will do in the strategy and also that we can take with the acquisition of Yoki. So overall, we hedged -- we are hedging our activity with the R&G to be less exposed to the volatility of green prices on the one hand. But on the other hand, to continue to push for healthy growth, in the aim of becoming one of the largest dry food companies in Brazil. When we talk about our international water player, as an international water player, we talked a lot about multi-products in the water business. We launched 5 new products from affordable products to premium products, to under the same products to functional products such as the Shabbat and the soda products. Some of those products will be launched also outside Israel. We've managed to turn around our U.K. business in our water business as well. In China, we are opening now the second plant this year, which will enable us to push more on productivity, to reduce cost, to strengthen profitability, but also push growth. And all this is based also on the pillar of future ready and resiliency with performance improvement, which is all the productivity work that we have done and the resiliency that we built in the culture and the health of the organization through upskilling, reskilling leadership models and a lot of activities that we are doing in the streams of our health -- the health of our organization. One word, which is very important for me to say about the Yoki business. There was some eye lifted when we acquired Yoki with effect of why General Mills sold it and why do we buy it and the business is losing money. So I just want to make some sense out of this all. General Mills sold the activity for two major reasons. They have published this in their notification when they sold, so I feel free to mention this. One is their focus on global brands. They want to enhance their exposure to global brands and to focus very much on the global brands and not on local brands. And the other is their scale and their infrastructure in Brazil, which wasn't big enough to support profitability in Brazil. On the other hand, this is exactly in line with our strategy because our strategy is to support loved local brands. We will never have -- I wouldn't say never, but our strategy does not aim or focus on global brands. On the contrary, it focuses only on how do we take local loved brands and leverage those in order to make sure that we build strong brands. We know how to bring innovation and synergies into those loved local brands. If you look at our journey in Brazil, what we've done in our local loved coffee brands, which were #3 and #4 in the market and JD, which is a global brand was #1. We managed to exceed and to become the #1 player in coffee with loved local brands. With Yoki, it's the same thing. We are taking now under our wings very large local brands, very nonlocal brands. And what we have are very high synergies. When it comes to distribution, when it comes to logistics, we are reaching in Brazil more than 400,000 points where Yoki before through third party reached only 100,000 points. When we talk about scale and infrastructure because of our coffee business in Brazil and because of our already existing infrastructures in Brazil, we have much larger scale to support Yoki -- and very high synergies to support Yoki. And therefore, when we look at all the synergies, logistic synergies, distribution synergies and also G&A strategies -- SG&A synergies by combining and merging headquarters and management positions, we believe that within 18, 24 months, we will be able to turn around the business to make it profitable. And I think if our plans will work, we might be able even to do that sooner than that. And therefore, buying this company for 0.4 multiplier on revenues with the synergies that we have. And with our abilities and infrastructure that we have in Brazil, we believe that we'll be able to do a turnaround, and we believe that it's a very, very good fit to our existing business and very much in line with our strategy to become a larger food and dry -- dry food, sorry, a company in Brazil on the one hand. On the other hand, to continue to grow our non-R&G activity to hedge the vulnerable -- the volatility and the vulnerable that we have, the vulnerability that we have because of green coffee prices. And that was the rationale of the deal. And I must say that we are very confident about that, especially after building the new platform that we have now in the R&G in Brazil. And just to conclude before the last slide, looking to now, I talked about the qualitative targets of our strategy. I just want to remind us all the long-term financial targets that we set ourselves in the strategy. So we talked about a 5% CAGR. We are in line with that. We will actually exceed that by the end of 2026. We talked about margin expansion between 10% to 12%. If you look at Q4 of 2025, we are already at 9.6% margins. We don't know yet how 2026 will finish. There's a lot of unknowns regarding cost of goods and what will happen and how will that affect. But I think that we are in line right now to reach the target that we set on the lower part of it. So we feel confident also with that target so far. When we talk about productivity, as I mentioned before here, we are in line and even exceeding the target. When we talk about investments, we are investing a lot in digitalization, in improving our infrastructure, in opening capacity constraints in Israel mainly, but not only, we have reached capacity constraints where demand is much higher than what we are supplying to the market. So we are investing to put more lines to open those bottlenecks and to make sure that we can meet demand. And last but not least, focusing on the core. We said that 85% from 65%, 67%. 85% of our activity will be core. Core means growing 5% or more sustainable, having margins between 8% to 10% sustainable and being the #1 or #2 in the market. And in all of those criteria, I think that when we check all those criteria, 85%, as we've mentioned, of our activity will be by the end of 2026 core activity with the turnaround of our confectionery business. Already today, more than 80% is under the core. So overall, we think that we are accomplishing the targets of our strategy. And here, it's very important to note. These days, we are already working on the new phase of our strategy for years '27 to 2030. We will publish the new strategy out by H2, the second half of 2026. The focus will be on continuous healthy growth and expanding the business while we will leverage loved local brands in geographies in which we play and also in new geographies in which we want to enter. We will push hard on productivity, and we will enhance the build and the growth of our core activities as well. And all that will be out by H2, while we'll finish working on the new strategy. And we'll put the new strategy out to the market with the new guidelines of where we think -- what we think we can achieve and where the strategy will take us by H2. So stay tuned. And the last thing that I want to mention is our work in ESG. This is highly important for us. We continue working on improving our products by reducing sugar, by reducing nitrogen, by making sure that our products, the quality of our products are healthier. And also by increasing the portfolio of healthy products within our portfolio. So we go into proteins. We are enlarging. We are growing our dairy business. We are growing as we invested in alternative milks, in parallel, to make our portfolio more nutritious and more healthier. We are working on sustainable supply chain with working with our suppliers that they meet demands. Of course, our water business and extending our water business helps us a lot with reducing plastic bottles and helping the earth. We are investing a lot of time on people and communities, especially now during the war in Israel, but also in the war in Ukraine and Russia, helping the communities and helping our people and we're investing a lot of that. And of course, governance. There's been jumps ahead in governance in the company where we have our own risk assessment team that was embedded already 1.5 years ago in Strauss and we upgraded our ability in risk of risk analysis. And on the other hand, internal control and auditing -- internal auditing actually was built through a local team, inside team inside the company from external adviser. So those front line, second line and third line of defense are being built within the company. And therefore, you can see, I think the rating that we have through the different rating companies on ESG is very high, and we take it very, very seriously. So with that, thank you, and -- we'll move it to Tobi for the financial results. Tobi Fischbein: Thank you, Shai. On Slide 15, we have a Q4 net sales, which totaled ILS 3.2 billion, up 10.2% year-on-year. Growth was broad-based across all businesses with strong contribution from our Coffee International segment, offset by currency impact from stronger Israeli shekel vis-a-vis local currencies in most of our foreign activities. On Slide 16, full year 2025 net sales reached ILS 12.5 billion, up 11.6% year-on-year. All core segments contributed to this performance. Strauss Israel delivered solid mid-single-digit growth despite the impact of divested activities. Coffee International sales grew 30% in shekel terms to record high sales. And Strauss Water achieved steady growth, driven by a larger installed base in Israel and in the U.K. On Slide 17, Q4 2025 group EBIT was ILS 282 million, up 62.3% year-on-year with 8.9% EBIT margin, up from 6.1% in Q4 of 2024. For the full year, group EBIT grew 35.6% to a record ILS 1.02 billion with an 8.2% EBIT margin. The strong growth and profitability improvement was driven largely by our Coffee International business and productivity gains across the group. On Slide 18. In Q4 2025, Strauss Israel's EBIT was ILS 136 million, up 13.6% year-on-year. Coffee International's EBIT increased by 270% to ILS 173 million. And Strauss Water's EBIT remained flat at ILS 40 million. For the full year 2025, Strauss Israel EBIT totaled ILS 530 million, up 0.4%. Coffee International more than doubled its EBIT to ILS 493 million, and Strauss Water contributed ILS 115 million, flat year-on-year. On Slide 19, we see the net income. In Q4, the net income attributable to shareholders more than doubled to ILS 151 million, reflecting strong EBIT growth. Full year net income reached ILS 450 million, a 7.6% increase over 2024, driven by EBIT improvement while impacted by higher finance expenses, mainly due to a stronger shekel and higher interest expenses in Brazil as well as higher tax expenses due to the profit mix and release of provisions in 2024. On Slide 20, we see the cash generation improved significantly. In Q4 2025, we generated free cash flow of ILS 554 million, an increase of ILS 110 million year-on-year. For the full year, free cash flow turned positive at ILS 215 million versus negative ILS 51 million in 2023. These gains were driven by higher business profitability and lower CapEx. Slide 21. We ended 2025 with net debt of ILS 2.2 billion, slightly higher than a year ago, while our net debt-to-EBITDA ratio improved to 1.6x at year-end compared to 1.7x a year ago, underscoring our strong financial position and moderate leverage. On Slide 22, we see Strauss Israel's sales performance. On Slide 23, Strauss Israel Q4 2025 sales were ILS 1.34 billion, a 4.4% increase year-on-year. Growth was driven by Health & Wellness higher volumes and improved mix as well as our Snacks and Confectionery segment while Coffee Israel had pricing actions, mitigating green coffee cost inflation and slightly lower volumes following the Coffee-To-Go divestiture. On Slide 24, we see Strauss Israel full year sales. And we see them reached ILS 5.46 billion, up 5.6% versus 2024. Health & Wellness segment sales grew 2.7% through increased volumes and better product mix, offset by the divestiture of the Ultra Fresh business. Snacks and Confectionery saw double-digit growth, driven by pricing, volume and mix. Coffee Israel delivered high single-digit growth following pricing actions and volume growth, offset by the exit of the Coffee-To-Go chain. On Slide 25, Strauss Israel Q4 2025 EBIT increase and margin improvement were driven by improved profitability in Coffee Israel and in Snacks and Confectionery. While in the full year 2025, profitability gains in Health & Wellness and in Coffee Israel, combined with successful productivity initiatives helped offset much higher raw material costs used in the confectionery business, resulting in stable overall yearly EBIT. On Slide 26, we turn to Coffee International, our global coffee business, which delivered exceptional growth in 2025. Coffee International highlights on Slide 27. We see a record performance in our International Coffee segment. Q4 of 2025 net sales were ILS 1.6 billion, up 24% year-on-year. Q4 EBIT jumped to ILS 173 million, a 270% surge versus Q4 of 2024, expanding the EBIT margin to 10.9% from 3.6% a year ago. For the full year, Coffee International sales reached ILS 6.2 billion, up 31% and EBIT more than doubled to ILS 493 million for an 8% EBIT margin. On Slide 28, we see our Brazil joint venture, Três Corações has achieved strong double-digit growth in Q4 driven by pricing actions to offset green coffee cost inflation and continued expansion into non-R&G categories, offsetting slightly -- offset slightly by a weaker Brazilian real. In Central and Eastern Europe, we saw volume increases and successful pricing adjustments led by focused sales execution, gaining market share across all our key markets, Poland, Romania, Ukraine and Russia. These factors led to an overall 24% sales growth in Coffee International for Q4 of 2025. On Slide 29, we see the full year Coffee International net sales grew 30.8% in shekel terms and over 45% in local currency in Brazil. Três Corações had a record year in Brazil. The CEE region also delivered robust performance in 2025 with effective price management and volume growth across the region. Slide 30, for the Três Corações, our Brazilian JV results. We saw Três Corações has posted outstanding results with Q4 of 2025 net sales at BRL 3.59 billion, up 23.9% year-on-year and EBIT of BRL 464 million, up 364% with Q4 EBIT margin of 12.9% versus 3.5% in Q4 of 2024. For the full year 2025, Três Corações achieved BRL 14.1 billion in sales and BRL 1.26 billion in EBIT, an increase of 226% year-on-year, bringing annual EBIT margin to 8.9%. These records were driven by excellent sales execution and pricing management to mitigate green coffee cost inflations, continued growth in non-R&G products and operational efficiencies. Moving to Slide 31, to discuss our Strauss Water segment, actually on Slide 32. Strauss Water delivered steady growth in 2025. Q4 2025 sales were ILS 237 million, up 7.4% year-on-year, driven by a larger installed base in Israel and in the U.K. and also by an improved product mix. Q4 EBIT was flat at ILS 40 million. For the full year 2025, sales reached ILS 895 million, a 5.5% increase and full year EBIT reached ILS 115 million, unchanged from 2024. Solid growth in Israel and in the U.K. was offset by softer results in our China water JV with higher due to increased competition. On Slide 33, we see higher Strauss Water performance where we saw high single-digit top line growth in local Chinese currency. Q4 of 2024 sales at HSW were CNY 543 million, up 7.5% year-on-year. However, net income for the quarter declined 48% to CNY 42 million as we invested heavily in marketing amid intensified competition, but we are able to maintain market leadership position. For the full year 2025, HSW's revenue grew 8.7%, while net income totaled CNY 179 million, down 25% from 2024, reflecting higher costs to successfully protect our market position in China. Let's move back to Avshalom for the Q&A session, please. Avshalom Shimi: Thank you very much, Tobi. We will now move on to the questions you have sent. So we have the first question coming in, and I will read it out. Has the current conflict created any new near-term challenges or impediments to operations? Shai Babad: So not in a substantial way. There are -- we have to still continue to monitor that. We have two missions in this period of war. One, we put two main focuses on target. One is business continuity to make sure that all our factories all around the country in the north and in the south are continued business operations as usual, and we continue to produce. And so far, we've managed to do that. And second, to take care and to make sure that we take care of our people and our frontline workers and everyone in the company. And in those two missions, we are highly at focus. So far, we managed to pull and to maintain and to provide business continuity to the consumers here in Israel. It all depends on the length of the war. We think that as long as the war is not going to take more than a couple of months, then this will be able to continue. If not, we'll need to examine and reexamine our activity. But so far, there's no real implications of the war. Avshalom Shimi: Thank you, Shai. And we move to the next question. What kind of productivity initiatives remain for this year? Shai Babad: So we continue with -- we have 8 streams of productivity initiatives. One is working capital, other one is logistics, S&OP, manufacturing, revenue management, marketing, ROI, working capital, and I'm missing one, I think, right now. And in all of those streams, there are targets that were set for each year. We're continuing to work on that to improve procurement, which is one of them as well. We're continuing to improve each one of them working with a very detailed and deep plan in each of those streams with stream leaders that are working on that productivity, and that will continue until the end of 2026. While we will issue our new strategy 2027 ahead, we will also put a new plan in how do we deepen enhance our productivity with also AI coming into life and into our industry and also into our company. So with all that will be out when we get into 2027 to 2030 strategy with the new plan to enhance productivity. But so far, we are still in the original plan, and we are on track. Avshalom Shimi: We have -- thank you, Shai. We have another question. Can you elaborate why or how are you confident about the ability to generate synergies and make the turnaround for Yoki? And are there any low-hanging fruits that you can discuss? Shai Babad: So yes, as I mentioned before, the fact that we reached 400,000 points in distribution today in Brazil. And that today in Brazil, we sell around BRL 14 billion already of dry food, mainly coffee, but not only in Brazil. The synergies that we have and the connections that we have with all the retailers. When we talk about logistics and logistics costs in Brazil of warehouses. Here, we see many low-hanging fruits in which while we will embed Yoki activity into our activity, those synergies will come into life. During the due diligence process, which is a very long process, we have actually examined that. And some of the categories in which Yoki are doing now in corn, for instance, we have already today in Três Corações as well. So when we look at their categories in the categories in which we in the cost, logistic costs and distribution costs that they have, in parallel -- in comparison to our logistics costs and distribution costs, we see a lot of potential of synergies there. On the other hand, we also have headquarters and SG&A costs, which we believe that once this will be embedded in one company, there's a lot of headcounts, which we we'll be able to let go. And there's a lot of headquarters and managers that can be actually synergized and combined. And also there, we see a low-hanging fruit. The third is also the potential to grow sales by higher exposure. When we reach 400,000 points and they reach 100,000 points, we have much higher exposure to the market with high connection. And General Mills mentioned it by themselves that their scale of infrastructure today in Brazil is not strong enough or not support enough in order to make the business profitable, which is in contrary, the opposite to what we have in Brazil, through the Três Corações business. If this was just a stand-alone business by itself without all the infrastructure and the logistics and warehouses and the distribution that we have in Brazil, then of course, we wouldn't have had any synergies and any [ hanging ] fruits. The fact that those dry food categories are in line, totally in line with our dry food categories in some cases, are the same categories because we are producing the same products and selling the same products in the market under different brands. And the fact that they have such -- Yoki is such a strong loved brands in Brazil, we see a very, very high match with Três Corações loved known local brands in Brazil. So when we take those loved local brands with our loved local brands, and we add to that our synergies of logistics, distribution and our ability through the exposure to exceed sales and also the merge of headquarters and reduce of headcounts, we see many hanging fruits that through a very thorough and deep work that will be done by the management of Três Corações. We believe that within 18 to 24 months, we'll be able to do the full turnaround, and we actually believe that we might be able to do it even before. We also have experience in that. This is not the first M&A that we are doing in Brazil, the family and the Três Corações and the [ Limor ] Brothers family are managing the company in Brazil have done. There have been businesses within the coffee and not only coffee that we've bought along the years, and all of them were very successful because they're all built on the same synergies. So we also experienced on how do you take and merge loved local brands from Brazil that were not in our portfolio and to embed them in our portfolio, whether it's in coffee or whether it's in other categories. So to your question, we feel very confident that we'll be able to do the turnaround. We've done a very thorough due diligence, checking those synergies. And we -- the proof is up to us. We have to actually show and perform to see that what we say, this is what will happen. And luckily for all of us, we'll meet here again in 18 to 24 months, and we'll see the results. But we are very confident, as I mentioned. Avshalom Shimi: Thank you for that, Shai. And I see we don't have any further questions. So I will now return the call to Shai for closing remarks. Shai Babad: So as you can see from the results -- thank you, Avshalom. As you can see from the results, we had a very successful year with a double-digit growth in revenues with improved financial parameters all through our P&L with much higher operational profit with higher margin and also in the last quarter also, our net profit already improved. We are entering 2026 with a very good back wind. And we hope that the trends that you've seen in the last quarter of 2025, and in '25 will continue in 2026. In Brazil, it will not be to that extent, but it will be a new platform. We are looking into the turnaround of our confectionery business in 2026, which will also help us improve our results. And we are looking to see how the engines of growth that we put in place such as the new line in [indiscernible] milk drinks or such as the new line -- such as the new factory in the north of alternative milks in Campus Michael, those will actually will help us and to contribute to continued growth and to continue improving our results. And with Brazil, we are looking into doing a successful implementation of our Yoki business. And more than all, we are also looking into -- and these days, we're working very hard on our new strategy for 2027 to 2030, to show how we're going to continue and to set a path of how we're going to continue this healthy growth and continue to expand the company, mainly in the global arena and less in Israel. And how do we leverage our power, our infrastructure, our innovation capabilities into loved local brands in those different geographies and continue our path of growth. Last but not least, those are very difficult times in Israel. So I just wish for everyone to be safe. I wish that our soldiers will come back home safely and that the war will be over as soon as possible that everybody can go back to normal days. Until then, we will be continuing to working very hard to make sure that we, on the one hand, provide business continuity. And on the other hand, take care of our people, and take over our people in the front line that are working on those factories that are under the attack. And I just wish all of us quiet and happy days. And for the coming Easter and coming Passover, anyone is celebrating. So also happy Passover and Happy Easter to all of us. And we hope to see you here soon in our first quarter and to continue to show you the positive trends that we've been showing in the last quarters. Thank you. Avshalom Shimi: Thank you, Shai. And thank you, guys, for joining Strauss Group's Fourth Quarter and Full Year 2025 Results Earnings Call. And this concludes our call for today. Thank you.
Avshalom Shimi: [Audio Gap] differ materially from those projected, including as a result of changing industry and market trends, reduced demand for our products, the timely development of our new products and their adoption by the market, increased competition in the industry and price reduction as well as due to risks identified in the documents filed by the company with the Israeli Securities Authority. Online with me today are Mr. Shai Babad, Strauss Group's President and CEO; and Mr. Tobi Fischbein, Group CFO; and myself, Avshalom Shimi, Head of Investor Relations. We will begin with a review of the annual results by CEO, Shai Babad, and then move on to the financial highlights of the quarter and 2025 presented by CFO, Tobi Fischbein. We will then move to the Q&A session. Shai, the floor is yours. Shai Babad: Thank you very much, Avshalom. Again, we apologize deeply for the delay. The computer fell in the last moment after everything was ready. [ Murphy ] is slow, and we had to upload everything on a new computer. But let's start, and I'll try to be brief and to the point. Next. Next. The highlights of 2025. We have a very strong double-digit growth in 2025 and also a very strong double-digit growth in the last quarter of Q4 of 2025. In the year of 2025, we also managed to regain back our margins and improve the profit -- operational profit and the operational profitability, with margins reaching 9.6% without our kitchen activity, which is very, very close to the strategic guidelines that we gave. In net profit in the last quarter, we managed to improve the results by 100%, getting to ILS 150 million in one quarter of net profit, which is a substantial improvement and also to the free cash flow. In addition, lately, we acquired Yoki and we made a very substantial and large M&A in Brazil, which I will mention a little bit later. We also are in the journey of our productivity, and we can say that we are online with all the productivity targets that we set ourselves with, in line with the strategy. There's also been a lot of innovation that was done from diversified innovation to disruptive innovation with the new launches of Coffee and [ Shabbat ] machine in our water purification systems that was done in Q4. And last but not least, in the north of Israel, we launched a new plant for alternative milks under the Michael Strauss, our Founder, Campus, which was launched in October 2025. When we look at the results, we can see that here, there's a 15% growth all over the year, organic growth and a 12%, almost 13% growth in revenues in net sales in the last quarter. This is in addition to also volume increase that we had during this year. So most of the increase in revenue came from price increase, mainly in our Coffee International business, but not only. We managed to increase price to actually increase market share in most of the categories in which we play, in categories and very strong categories in Israel, overall categories in which we play in, we managed to increase market share by 1%. But also in Brazil, we maintained a very -- our position is #1, increased market share, but also increased prices. We can see here the EBIT improvement all over the year from almost ILS 800 million to almost ILS 1.7 billion -- sorry, is ILS 1.07 billion in EBIT. It's the first time that we actually crossed the ILS 1 billion in EBIT without our kitchen activity. And net sales remained with a smaller improvement from ILS 418 million to ILS 450 million, mainly due to tax payments and financial costs that Tobi will elaborate later. But in the last quarter, as you can see, already there is an improvement in the net profit and our ability to roll through our operational profit to our net profits. And in cash flow, of course, you can see also there is an improvement from last year with a negative cash flow. This year, we managed to get back to a positive cash flow with a very strong cash flow in the fourth quarter. When we look at our Israeli activities, as I mentioned before, we managed to increase market share in almost all our categories here. There was a lot of innovation that was done in Israel, which I'll talk about very soon. In Health & Wellness, while increasing sales and growing in sales, we also improved our EBIT. When we look at last quarter, EBIT in Health & Wellness, we kind of -- we stayed the same, but this is mostly because of marketing efforts that were done this quarter in Health & Wellness because of the launch of the new plant in the North for alternative milks. We invested more than ILS 14 million in marketing efforts in addition to what we've done last year, and this is the difference. But overall, Health & Wellness, good growth in revenues, also improvement in operational profit and in margins. When we look at Fun & Indulgence, here because of our confectionery business and because of cocoa prices, we went a little behind. And we can see that in the last quarter, there's already an improvement, as we've mentioned in our confectionery business. Looking into 2026, this will continue to improve and we'll see substantial improvement in our confectionery business, which will yield results that will be close to what we used to have in 2021. And also in Coffee, we managed to improve margins. And as you can see, of total overall in Israel, we grew by almost 6%. Operating income stayed the same because of cocoa prices because of its effect on the business in our confectionery business, which is starting to improve rapidly Q4 and also looking into 2026. And therefore, operating profit kind of remained the same with a very positive outlook into 2026. This is a little bit to show you a little bit of our innovation. In innovation, we have diversified innovation, stretching our brands from one category to another. You can see the milky brand here that -- [indiscernible] which is another yogurt was stretched into that brand. Also in Alpro, we stretch our confectionery brands into Alpro. You can see that we are going very much into the -- also improving innovation into the functional segments of Pro yogurts with proteins, drinks with proteins, and our Pro brand is being expanded. We can also see the disruptive innovation that was done in this year with the first time carb-free drinks, which is alternative -- which is imitation of the protein that comes from a cow that is produced through fragmentation with yeast or mushrooms, and therefore, we can produce milk that is just not being produced from cow and the same with cheese. We launched this in Israel, and we see already sales that are starting to grow. And with our new opening of our new plant in Israel as well, there was a lot of innovation and a lot of investment in new engines of growth that we've put in place. Next. When we look at our Coffee international activities, so this year for Strauss, it was the coffee year. We see substantial improvements in our business -- in our International Coffee business, mainly through prices increase that was done. You can see revenues increased and eroded by 30 -- almost 31% while operating income more than doubled itself on the coffee -- on the total coffee business. We can see here, Três Corações, our Brazilian business with tripling its revenues. Here, it's a very important to say. We saw a very unique and very good results in Q4 for our Brazilian business. We don't think we'll be able to maintain the same margins going forward, but of 12% or 11%, but we do believe we have a new platform in Brazil. And instead of the 3% or 4% margin that we used to have, we think we can be around the 8%, 9% margins going forward for this year. So -- we did maintain a new platform. It's not going to be as high as Q4, but it is going to be very strong operations in Brazil in the R&G. In addition, in the non-R&G, we are continuing to expand our activity in the non-R&G as part of our strategy to hedge -- to naturally hedge the green coffee volatility prices with the coffee activity with the non-R&G activity in Brazil. And one of the steps that we took, which is in line with the strategy was the Yoki acquisition, which I'll say a few words later on. When we look at our Water business, so we increased our installed base and revenue grew due to that, although there was a war, and we see also the impact this year that our growth is lower than what we are planning because of the war. But in parallel to that, we managed to maintain the profits, the operating profit of ILS 115 million each year. Israel grew its profit. But in China, as mentioned in the last quarters, Xiaomi gave a very hard competition and therefore, we went on to a tech mode in which we gave a lot of discounts, and we have reduced price in many cases and also put new platforms into the market. This has cut off our total profits from China. And therefore, the total result remained the same. The good news is that we already see in Q4 that we managed to come back to being a very strong #2 player in market share. We gained market share back in China. We managed to sell in a double-digit growth in the last quarter. We also managed to become #1 in the off-line sale and #2 in the online sale, altogether, #2 in the market, pushing Xiaomi back. We do think this stomach will continue with us into the next few quarters until we'll be able to get profits back on a high level in China. But overall, when it comes to revenue and growth and market share position, we managed to get that back. Next. When we look at our productivity, so we are in line with our productivity active -- targets that we set for this year. We will reach, we believe, within the target and even exceed the target between the ILS 300 million and ILS 400 million. This helps us a lot to achieve our results, to improve operational profit and to improve profitability. There's a lot of streams that are working. I'm not going to repeat all the streams that we talked in the last calls, but there's procurement, there's logistics supply chain in each one of them, there's marketing, RGM. In all of them, we are working very hard. And we are building capabilities, which will help us for the next upcoming years to even to continue to enhance, deepen and improve productivity. A word on strategy. If you look at the strategy that we mentioned in 2024 until the end of 2026, so we kind of ticked the box on all the targets and missions that we set in the strategy. We talked a lot about a strong home base in Israel with optimizing the portfolio in Israel, with double down on the core, with growing more than 5% in the segments that we decided to stay. We reduced SKUs from 1,300 to 780 in Israel while maintaining a higher CAGR than 5%. We've managed to improve margins. With the turnaround, we are expected to do in the confectionery business this year. We believe that the Israeli business will be fully on track with the strategy that we set. We're doing a lot of innovation activity. We built two engines of growth in Israel with the milk drinks and protein drinks and protein by itself. And on the other hand, the new factory that we build with alternative milks and the new factory that we built in the north that will be -- that will enable us to give all our brands in alternative milk version as well. So this is regarding Israel. Regarding the engine growth of Brazil, we said that we need to maintain and to improve -- maintain our position as first in market share, but also to improve our R&G profitability and total profit. And we've managed to do that. We've managed to have done that. If you look at the last 3 quarters, you can see that in quarter 2, quarter 3 and quarter 4, the results in Brazil have improved substantially. We are not going to be able to maintain the same margins as we saw in margin in quarter 4, but the margins will stay high. There's new platform of profitability for the R&G and this is also a tick on what we said in the strategy. On the other hand, the non-R&G is growing also more than 5% each year in the non-R&G activity in Brazil. We also managed M&A activities that we will do in the strategy and also that we can take with the acquisition of Yoki. So overall, we hedged -- we are hedging our activity with the R&G to be less exposed to the volatility of green prices on the one hand. But on the other hand, to continue to push for healthy growth, in the aim of becoming one of the largest dry food companies in Brazil. When we talk about our international water player, as an international water player, we talked a lot about multi-products in the water business. We launched 5 new products from affordable products to premium products, to under the same products to functional products such as the Shabbat and the soda products. Some of those products will be launched also outside Israel. We've managed to turn around our U.K. business in our water business as well. In China, we are opening now the second plant this year, which will enable us to push more on productivity, to reduce cost, to strengthen profitability, but also push growth. And all this is based also on the pillar of future ready and resiliency with performance improvement, which is all the productivity work that we have done and the resiliency that we built in the culture and the health of the organization through upskilling, reskilling leadership models and a lot of activities that we are doing in the streams of our health -- the health of our organization. One word, which is very important for me to say about the Yoki business. There was some eye lifted when we acquired Yoki with effect of why General Mills sold it and why do we buy it and the business is losing money. So I just want to make some sense out of this all. General Mills sold the activity for two major reasons. They have published this in their notification when they sold, so I feel free to mention this. One is their focus on global brands. They want to enhance their exposure to global brands and to focus very much on the global brands and not on local brands. And the other is their scale and their infrastructure in Brazil, which wasn't big enough to support profitability in Brazil. On the other hand, this is exactly in line with our strategy because our strategy is to support loved local brands. We will never have -- I wouldn't say never, but our strategy does not aim or focus on global brands. On the contrary, it focuses only on how do we take local loved brands and leverage those in order to make sure that we build strong brands. We know how to bring innovation and synergies into those loved local brands. If you look at our journey in Brazil, what we've done in our local loved coffee brands, which were #3 and #4 in the market and JD, which is a global brand was #1. We managed to exceed and to become the #1 player in coffee with loved local brands. With Yoki, it's the same thing. We are taking now under our wings very large local brands, very nonlocal brands. And what we have are very high synergies. When it comes to distribution, when it comes to logistics, we are reaching in Brazil more than 400,000 points where Yoki before through third party reached only 100,000 points. When we talk about scale and infrastructure because of our coffee business in Brazil and because of our already existing infrastructures in Brazil, we have much larger scale to support Yoki -- and very high synergies to support Yoki. And therefore, when we look at all the synergies, logistic synergies, distribution synergies and also G&A strategies -- SG&A synergies by combining and merging headquarters and management positions, we believe that within 18, 24 months, we will be able to turn around the business to make it profitable. And I think if our plans will work, we might be able even to do that sooner than that. And therefore, buying this company for 0.4 multiplier on revenues with the synergies that we have. And with our abilities and infrastructure that we have in Brazil, we believe that we'll be able to do a turnaround, and we believe that it's a very, very good fit to our existing business and very much in line with our strategy to become a larger food and dry -- dry food, sorry, a company in Brazil on the one hand. On the other hand, to continue to grow our non-R&G activity to hedge the vulnerable -- the volatility and the vulnerable that we have, the vulnerability that we have because of green coffee prices. And that was the rationale of the deal. And I must say that we are very confident about that, especially after building the new platform that we have now in the R&G in Brazil. And just to conclude before the last slide, looking to now, I talked about the qualitative targets of our strategy. I just want to remind us all the long-term financial targets that we set ourselves in the strategy. So we talked about a 5% CAGR. We are in line with that. We will actually exceed that by the end of 2026. We talked about margin expansion between 10% to 12%. If you look at Q4 of 2025, we are already at 9.6% margins. We don't know yet how 2026 will finish. There's a lot of unknowns regarding cost of goods and what will happen and how will that affect. But I think that we are in line right now to reach the target that we set on the lower part of it. So we feel confident also with that target so far. When we talk about productivity, as I mentioned before here, we are in line and even exceeding the target. When we talk about investments, we are investing a lot in digitalization, in improving our infrastructure, in opening capacity constraints in Israel mainly, but not only, we have reached capacity constraints where demand is much higher than what we are supplying to the market. So we are investing to put more lines to open those bottlenecks and to make sure that we can meet demand. And last but not least, focusing on the core. We said that 85% from 65%, 67%. 85% of our activity will be core. Core means growing 5% or more sustainable, having margins between 8% to 10% sustainable and being the #1 or #2 in the market. And in all of those criteria, I think that when we check all those criteria, 85%, as we've mentioned, of our activity will be by the end of 2026 core activity with the turnaround of our confectionery business. Already today, more than 80% is under the core. So overall, we think that we are accomplishing the targets of our strategy. And here, it's very important to note. These days, we are already working on the new phase of our strategy for years '27 to 2030. We will publish the new strategy out by H2, the second half of 2026. The focus will be on continuous healthy growth and expanding the business while we will leverage loved local brands in geographies in which we play and also in new geographies in which we want to enter. We will push hard on productivity, and we will enhance the build and the growth of our core activities as well. And all that will be out by H2, while we'll finish working on the new strategy. And we'll put the new strategy out to the market with the new guidelines of where we think -- what we think we can achieve and where the strategy will take us by H2. So stay tuned. And the last thing that I want to mention is our work in ESG. This is highly important for us. We continue working on improving our products by reducing sugar, by reducing nitrogen, by making sure that our products, the quality of our products are healthier. And also by increasing the portfolio of healthy products within our portfolio. So we go into proteins. We are enlarging. We are growing our dairy business. We are growing as we invested in alternative milks, in parallel, to make our portfolio more nutritious and more healthier. We are working on sustainable supply chain with working with our suppliers that they meet demands. Of course, our water business and extending our water business helps us a lot with reducing plastic bottles and helping the earth. We are investing a lot of time on people and communities, especially now during the war in Israel, but also in the war in Ukraine and Russia, helping the communities and helping our people and we're investing a lot of that. And of course, governance. There's been jumps ahead in governance in the company where we have our own risk assessment team that was embedded already 1.5 years ago in Strauss and we upgraded our ability in risk of risk analysis. And on the other hand, internal control and auditing -- internal auditing actually was built through a local team, inside team inside the company from external adviser. So those front line, second line and third line of defense are being built within the company. And therefore, you can see, I think the rating that we have through the different rating companies on ESG is very high, and we take it very, very seriously. So with that, thank you, and -- we'll move it to Tobi for the financial results. Tobi Fischbein: Thank you, Shai. On Slide 15, we have a Q4 net sales, which totaled ILS 3.2 billion, up 10.2% year-on-year. Growth was broad-based across all businesses with strong contribution from our Coffee International segment, offset by currency impact from stronger Israeli shekel vis-a-vis local currencies in most of our foreign activities. On Slide 16, full year 2025 net sales reached ILS 12.5 billion, up 11.6% year-on-year. All core segments contributed to this performance. Strauss Israel delivered solid mid-single-digit growth despite the impact of divested activities. Coffee International sales grew 30% in shekel terms to record high sales. And Strauss Water achieved steady growth, driven by a larger installed base in Israel and in the U.K. On Slide 17, Q4 2025 group EBIT was ILS 282 million, up 62.3% year-on-year with 8.9% EBIT margin, up from 6.1% in Q4 of 2024. For the full year, group EBIT grew 35.6% to a record ILS 1.02 billion with an 8.2% EBIT margin. The strong growth and profitability improvement was driven largely by our Coffee International business and productivity gains across the group. On Slide 18. In Q4 2025, Strauss Israel's EBIT was ILS 136 million, up 13.6% year-on-year. Coffee International's EBIT increased by 270% to ILS 173 million. And Strauss Water's EBIT remained flat at ILS 40 million. For the full year 2025, Strauss Israel EBIT totaled ILS 530 million, up 0.4%. Coffee International more than doubled its EBIT to ILS 493 million, and Strauss Water contributed ILS 115 million, flat year-on-year. On Slide 19, we see the net income. In Q4, the net income attributable to shareholders more than doubled to ILS 151 million, reflecting strong EBIT growth. Full year net income reached ILS 450 million, a 7.6% increase over 2024, driven by EBIT improvement while impacted by higher finance expenses, mainly due to a stronger shekel and higher interest expenses in Brazil as well as higher tax expenses due to the profit mix and release of provisions in 2024. On Slide 20, we see the cash generation improved significantly. In Q4 2025, we generated free cash flow of ILS 554 million, an increase of ILS 110 million year-on-year. For the full year, free cash flow turned positive at ILS 215 million versus negative ILS 51 million in 2023. These gains were driven by higher business profitability and lower CapEx. Slide 21. We ended 2025 with net debt of ILS 2.2 billion, slightly higher than a year ago, while our net debt-to-EBITDA ratio improved to 1.6x at year-end compared to 1.7x a year ago, underscoring our strong financial position and moderate leverage. On Slide 22, we see Strauss Israel's sales performance. On Slide 23, Strauss Israel Q4 2025 sales were ILS 1.34 billion, a 4.4% increase year-on-year. Growth was driven by Health & Wellness higher volumes and improved mix as well as our Snacks and Confectionery segment while Coffee Israel had pricing actions, mitigating green coffee cost inflation and slightly lower volumes following the Coffee-To-Go divestiture. On Slide 24, we see Strauss Israel full year sales. And we see them reached ILS 5.46 billion, up 5.6% versus 2024. Health & Wellness segment sales grew 2.7% through increased volumes and better product mix, offset by the divestiture of the Ultra Fresh business. Snacks and Confectionery saw double-digit growth, driven by pricing, volume and mix. Coffee Israel delivered high single-digit growth following pricing actions and volume growth, offset by the exit of the Coffee-To-Go chain. On Slide 25, Strauss Israel Q4 2025 EBIT increase and margin improvement were driven by improved profitability in Coffee Israel and in Snacks and Confectionery. While in the full year 2025, profitability gains in Health & Wellness and in Coffee Israel, combined with successful productivity initiatives helped offset much higher raw material costs used in the confectionery business, resulting in stable overall yearly EBIT. On Slide 26, we turn to Coffee International, our global coffee business, which delivered exceptional growth in 2025. Coffee International highlights on Slide 27. We see a record performance in our International Coffee segment. Q4 of 2025 net sales were ILS 1.6 billion, up 24% year-on-year. Q4 EBIT jumped to ILS 173 million, a 270% surge versus Q4 of 2024, expanding the EBIT margin to 10.9% from 3.6% a year ago. For the full year, Coffee International sales reached ILS 6.2 billion, up 31% and EBIT more than doubled to ILS 493 million for an 8% EBIT margin. On Slide 28, we see our Brazil joint venture, Três Corações has achieved strong double-digit growth in Q4 driven by pricing actions to offset green coffee cost inflation and continued expansion into non-R&G categories, offsetting slightly -- offset slightly by a weaker Brazilian real. In Central and Eastern Europe, we saw volume increases and successful pricing adjustments led by focused sales execution, gaining market share across all our key markets, Poland, Romania, Ukraine and Russia. These factors led to an overall 24% sales growth in Coffee International for Q4 of 2025. On Slide 29, we see the full year Coffee International net sales grew 30.8% in shekel terms and over 45% in local currency in Brazil. Três Corações had a record year in Brazil. The CEE region also delivered robust performance in 2025 with effective price management and volume growth across the region. Slide 30, for the Três Corações, our Brazilian JV results. We saw Três Corações has posted outstanding results with Q4 of 2025 net sales at BRL 3.59 billion, up 23.9% year-on-year and EBIT of BRL 464 million, up 364% with Q4 EBIT margin of 12.9% versus 3.5% in Q4 of 2024. For the full year 2025, Três Corações achieved BRL 14.1 billion in sales and BRL 1.26 billion in EBIT, an increase of 226% year-on-year, bringing annual EBIT margin to 8.9%. These records were driven by excellent sales execution and pricing management to mitigate green coffee cost inflations, continued growth in non-R&G products and operational efficiencies. Moving to Slide 31, to discuss our Strauss Water segment, actually on Slide 32. Strauss Water delivered steady growth in 2025. Q4 2025 sales were ILS 237 million, up 7.4% year-on-year, driven by a larger installed base in Israel and in the U.K. and also by an improved product mix. Q4 EBIT was flat at ILS 40 million. For the full year 2025, sales reached ILS 895 million, a 5.5% increase and full year EBIT reached ILS 115 million, unchanged from 2024. Solid growth in Israel and in the U.K. was offset by softer results in our China water JV with higher due to increased competition. On Slide 33, we see higher Strauss Water performance where we saw high single-digit top line growth in local Chinese currency. Q4 of 2024 sales at HSW were CNY 543 million, up 7.5% year-on-year. However, net income for the quarter declined 48% to CNY 42 million as we invested heavily in marketing amid intensified competition, but we are able to maintain market leadership position. For the full year 2025, HSW's revenue grew 8.7%, while net income totaled CNY 179 million, down 25% from 2024, reflecting higher costs to successfully protect our market position in China. Let's move back to Avshalom for the Q&A session, please. Avshalom Shimi: Thank you very much, Tobi. We will now move on to the questions you have sent. So we have the first question coming in, and I will read it out. Has the current conflict created any new near-term challenges or impediments to operations? Shai Babad: So not in a substantial way. There are -- we have to still continue to monitor that. We have two missions in this period of war. One, we put two main focuses on target. One is business continuity to make sure that all our factories all around the country in the north and in the south are continued business operations as usual, and we continue to produce. And so far, we've managed to do that. And second, to take care and to make sure that we take care of our people and our frontline workers and everyone in the company. And in those two missions, we are highly at focus. So far, we managed to pull and to maintain and to provide business continuity to the consumers here in Israel. It all depends on the length of the war. We think that as long as the war is not going to take more than a couple of months, then this will be able to continue. If not, we'll need to examine and reexamine our activity. But so far, there's no real implications of the war. Avshalom Shimi: Thank you, Shai. And we move to the next question. What kind of productivity initiatives remain for this year? Shai Babad: So we continue with -- we have 8 streams of productivity initiatives. One is working capital, other one is logistics, S&OP, manufacturing, revenue management, marketing, ROI, working capital, and I'm missing one, I think, right now. And in all of those streams, there are targets that were set for each year. We're continuing to work on that to improve procurement, which is one of them as well. We're continuing to improve each one of them working with a very detailed and deep plan in each of those streams with stream leaders that are working on that productivity, and that will continue until the end of 2026. While we will issue our new strategy 2027 ahead, we will also put a new plan in how do we deepen enhance our productivity with also AI coming into life and into our industry and also into our company. So with all that will be out when we get into 2027 to 2030 strategy with the new plan to enhance productivity. But so far, we are still in the original plan, and we are on track. Avshalom Shimi: We have -- thank you, Shai. We have another question. Can you elaborate why or how are you confident about the ability to generate synergies and make the turnaround for Yoki? And are there any low-hanging fruits that you can discuss? Shai Babad: So yes, as I mentioned before, the fact that we reached 400,000 points in distribution today in Brazil. And that today in Brazil, we sell around BRL 14 billion already of dry food, mainly coffee, but not only in Brazil. The synergies that we have and the connections that we have with all the retailers. When we talk about logistics and logistics costs in Brazil of warehouses. Here, we see many low-hanging fruits in which while we will embed Yoki activity into our activity, those synergies will come into life. During the due diligence process, which is a very long process, we have actually examined that. And some of the categories in which Yoki are doing now in corn, for instance, we have already today in Três Corações as well. So when we look at their categories in the categories in which we in the cost, logistic costs and distribution costs that they have, in parallel -- in comparison to our logistics costs and distribution costs, we see a lot of potential of synergies there. On the other hand, we also have headquarters and SG&A costs, which we believe that once this will be embedded in one company, there's a lot of headcounts, which we we'll be able to let go. And there's a lot of headquarters and managers that can be actually synergized and combined. And also there, we see a low-hanging fruit. The third is also the potential to grow sales by higher exposure. When we reach 400,000 points and they reach 100,000 points, we have much higher exposure to the market with high connection. And General Mills mentioned it by themselves that their scale of infrastructure today in Brazil is not strong enough or not support enough in order to make the business profitable, which is in contrary, the opposite to what we have in Brazil, through the Três Corações business. If this was just a stand-alone business by itself without all the infrastructure and the logistics and warehouses and the distribution that we have in Brazil, then of course, we wouldn't have had any synergies and any [ hanging ] fruits. The fact that those dry food categories are in line, totally in line with our dry food categories in some cases, are the same categories because we are producing the same products and selling the same products in the market under different brands. And the fact that they have such -- Yoki is such a strong loved brands in Brazil, we see a very, very high match with Três Corações loved known local brands in Brazil. So when we take those loved local brands with our loved local brands, and we add to that our synergies of logistics, distribution and our ability through the exposure to exceed sales and also the merge of headquarters and reduce of headcounts, we see many hanging fruits that through a very thorough and deep work that will be done by the management of Três Corações. We believe that within 18 to 24 months, we'll be able to do the full turnaround, and we actually believe that we might be able to do it even before. We also have experience in that. This is not the first M&A that we are doing in Brazil, the family and the Três Corações and the [ Limor ] Brothers family are managing the company in Brazil have done. There have been businesses within the coffee and not only coffee that we've bought along the years, and all of them were very successful because they're all built on the same synergies. So we also experienced on how do you take and merge loved local brands from Brazil that were not in our portfolio and to embed them in our portfolio, whether it's in coffee or whether it's in other categories. So to your question, we feel very confident that we'll be able to do the turnaround. We've done a very thorough due diligence, checking those synergies. And we -- the proof is up to us. We have to actually show and perform to see that what we say, this is what will happen. And luckily for all of us, we'll meet here again in 18 to 24 months, and we'll see the results. But we are very confident, as I mentioned. Avshalom Shimi: Thank you for that, Shai. And I see we don't have any further questions. So I will now return the call to Shai for closing remarks. Shai Babad: So as you can see from the results -- thank you, Avshalom. As you can see from the results, we had a very successful year with a double-digit growth in revenues with improved financial parameters all through our P&L with much higher operational profit with higher margin and also in the last quarter also, our net profit already improved. We are entering 2026 with a very good back wind. And we hope that the trends that you've seen in the last quarter of 2025, and in '25 will continue in 2026. In Brazil, it will not be to that extent, but it will be a new platform. We are looking into the turnaround of our confectionery business in 2026, which will also help us improve our results. And we are looking to see how the engines of growth that we put in place such as the new line in [indiscernible] milk drinks or such as the new line -- such as the new factory in the north of alternative milks in Campus Michael, those will actually will help us and to contribute to continued growth and to continue improving our results. And with Brazil, we are looking into doing a successful implementation of our Yoki business. And more than all, we are also looking into -- and these days, we're working very hard on our new strategy for 2027 to 2030, to show how we're going to continue and to set a path of how we're going to continue this healthy growth and continue to expand the company, mainly in the global arena and less in Israel. And how do we leverage our power, our infrastructure, our innovation capabilities into loved local brands in those different geographies and continue our path of growth. Last but not least, those are very difficult times in Israel. So I just wish for everyone to be safe. I wish that our soldiers will come back home safely and that the war will be over as soon as possible that everybody can go back to normal days. Until then, we will be continuing to working very hard to make sure that we, on the one hand, provide business continuity. And on the other hand, take care of our people, and take over our people in the front line that are working on those factories that are under the attack. And I just wish all of us quiet and happy days. And for the coming Easter and coming Passover, anyone is celebrating. So also happy Passover and Happy Easter to all of us. And we hope to see you here soon in our first quarter and to continue to show you the positive trends that we've been showing in the last quarters. Thank you. Avshalom Shimi: Thank you, Shai. And thank you, guys, for joining Strauss Group's Fourth Quarter and Full Year 2025 Results Earnings Call. And this concludes our call for today. Thank you.
Operator: Thank you for standing by. Welcome to Kingsoft Corporation Fourth Quarter 2025 and Annual Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Yinan Li, IR Director of Kingsoft. Please go ahead. Yinan Li: Thank you, operator. Ladies and gentlemen, good evening, and good morning. I would like to welcome everyone to our 2025 fourth quarter and annual results earnings call. I'm Li Yinan, the IR Director of Kingsoft. I would like to start by reminding you that some information provided during the earnings call may include forward-looking statements, which may not be relied upon in the future for various reasons. These forward-looking statements are based on our information and information from other sources, which we believe to be reliable. Please refer to the other publicly disclosed documents for detailed discussion on risk factors, which may affect our business and operations. Additionally, in today's earnings call, the management will deliver prepared remarks in both Chinese and English. A third-party interpreter will provide a consecutive interpretation into English. During the Q&A section, we will accept questions in both English and Chinese with automated interpretation provided by the third-party interpreter. On-site translation is solely to facilitate communication during the conference call. In case of any discrepancies between the original remarks and the translation, the statements made by the management will prevail. Having said that, please allow me to introduce our management team who joined us today: Mr. Zou Tao, our Executive Director and CEO; and Ms. Li Yi, our acting CFO. Now I'm turning the call to Mr. Zou Tao. Tao Zou: [Interpreted] Hello, everyone, and thank you all for joining Kingsoft's 2025 First Quarter and Annual Results Earnings Call. In 2025, we remained committed to technology empowerment and focused on enhancing our core capabilities. Kingsoft Office Group continued to prioritize its core strategy of AI collaboration and internationalization, deepen its presence in the AI office market and development of future-oriented intelligent office products tailored to the all scenario office needs of both individual and enterprise users. In the online game business, we further deepened our expertise in classic wuxia IP and actively expanded into diversified game categories and global markets. In 2025, the group's total revenue reached RMB 9.68 billion, representing a year-on-year decrease of 6%. Among this, revenue from the office software and services business recorded revenue of RMB 5.93 billion, up 16% year on year and maintaining steady growth. Revenue from the online games and others business amounted to RMB 3.75 billion, up (sic) [down] 28% year on year, primarily due to the high base in the same period last year and the decline in revenue from existing games. After release in early 2026, Goose Goose Duck has received positive market reception and has surpassed 30 million cumulative new users. This demonstrated our potential in expanding into new game genres and injected fresh growth momentum into the online games business. Now I will walk you through the business highlights of the full year and fourth quarter 2025. In 2025, Kingsoft Office Group continued to advance its core strategy of AI collaboration and internationalization. Total annual revenue reached RMB 5.93 billion, up 16% year-on-year. Fourth quarter revenue reached RMB 1.75 billion, also up 17% year-on-year. The company is pursuing a dual-track approach encompassing office AI reconstruction and upgrade and AI office native exploration. On one hand, it is driving a comprehensive intelligent upgrade across its existing WPS component suite to reshape the full scenario office experience. On the other hand, it is exploring an agent-native office paradigm, with its office AI agent WPS Lingxi evolving into an all-around AI office companion marking an entry into the era of office AI agents. WPS 365 has undergone a comprehensive AI-driven upgrade, establishing a multidimensional framework that spans technology infrastructure, collaboration systems, intelligent search, and digital employee ecosystems comprehensively empowering enterprises in their digital and intelligent transformation while enhancing office collaboration and operational efficiency. The Company's international expansion is progressing steadily with completed product upgrades and overall model development, now offering global integration office capabilities. For WPS individual business, the user base continued to expand steadily, with both domestic and international operations achieving quality growth. Total annual revenue reached RMB 3.63 billion, up 10% year-on-year. The growth trend continued in the fourth quarter with revenue reaching RMB 918 million, the year-on-year growth rate accelerating to 14%. The cumulative number of annual paid individual users in domestic reached [indiscernible] million, up 11% year-on-year. By the end of 2025, WPS AI's monthly active users surpassed 18 million, representing a year-on-year increase of 307%. Overseas market, the cumulative number of paying users grew substantially with particularly stronger growth among large-scale users. The monthly active devices for the overseas PC version reached 42.5 million, up 54% year-on-year. WPS 365 business, we maintain high quality and rapid growth. Total ad revenue reached RMB 720 million, up 65% year-over-year. Fourth quarter revenue was RMB 210 million, also up [indiscernible] the fourth consecutive quarter of year-on-year growth about 16%. We continue to advance products and service upgrade guided by the core principle of integration, intelligence [Audio Gap] industries specifically additions. The company further consolidated its advantage among central and state-owned enterprises, while accelerating expansion into private enterprises, foreign-invested enterprises, and local state-owned enterprises, while also advancing channel ecosystem development to further enhance its market presence. In 2025, WPS 365 continued to improve the implementation of AI technology in office scenarios. Our official digital employer has already achieved a large-scale standardized delivery. In early 2026, WPS 365 officially integrated enhancing our core capabilities, injecting growth momentum to improving the quality and [indiscernible] enterprise collaboration and office work. This intelligence further enrich our AI office ecosystem. For WPS software business, total annual revenue reached RMB 1.46 billion, up 15% year-on-year. Fourth quarter revenue reached RMB 530 million, up 15% year-over-year. We actively participated in bids for domestic office software by central and local government. We continue to maintain a leading share in both flow-layout and fixed-layout document software market. We continue to advance the implementation of government digitalization projects support the development of digital platforms in multiple regions and effectively empower the intelligent upgrading of government office operations. In the fourth quarter, our flagship PC game JX3 Online enhanced its costume design through technological upgrade and its aesthetic style was widely praised by players. The version optimization and service upgrades completed at the end of 2025 have received positive market feedback, and we will further increase investment in game play and narrative experience. Our classic JX series PC games and its inherited mobile games like World of Sword: Origin continued to iterate on content and versions, maintaining stable operations in both domestic and overseas markets. Social deduction game Goose Goose Duck officially launched in January 2026. It recorded over 5 million new users on launch day, surpassed 30 million cumulative new users, and ranked #1 on the iOS free chart for most of the past two months. Driven by word-of-mouth and organic traffic, it penetrated the broader social circle. Two casual games from the Angry Birds series also received publishing licenses and are expected to launch in China in 2026, further enriching our casual games portfolio. Starsand Island, our cozy pastoral life simulation game began early access in February 2026. With its unique art style and game play, the game established a strong reputation among core players worldwide. Going forward, we will actively optimize the products based on player feedback to lay a solid foundation for the official version launch in the second half of the year. Looking ahead, Kingsoft Office Group will deepen the application of AI agent technology across full-scenario office environments, strengthen the core competitiveness of WPS 365 as an intelligent collaboration platform, and accelerate the execution of its internationalization strategy. For online games business, we will continue to focus on premium content development and global publishing, sustain the vitality of classical IPs, and foster the growth of new game genres to achieve sustainable growth. We will deepen technological innovation and commercial expansion, actively expand global market opportunities, and create long-term value for our shareholders. Yinan Li: Next, I would like to invite Ms. Li Yi to introduce the financial performance for the fourth quarter and annual. Yi Li: Thank you, Zou and Yinan. Good evening, and good morning, everyone. As for the financial results, I'm starting for the Q4 use RMB as a currency. Revenue decreased 6% year-on-year and increased 8% quarter-on-quarter to RMB 2,618 million. The revenue split was 67% for office software and services and 33% for online games and others. Revenue from the office software and services business increased 30% year-on-year and 50% quarter-on-quarter to RMB 1,750 million. The increases were primarily attributable to the growth across 3 principal business of Kingsoft Office Group. The steady increase of WPS individual business was primarily driven by the expanding number of paying subscribers attributable to continuous interaction of AI capabilities and improvement in intelligent office experience. The strong growth in WPS 365 business was mainly driven by the deep integration of document AI and collaboration capabilities, along with continued customer expansion among private and local state-owned enterprises. The growth in WPS software business was mainly supported by sustained demand from government and enterprise clients, further consolidating our leading position in the flow-layout and fixed-layout document market. Revenue from the online games and others business decreased 33% year-on-year and 3% quarter-on-quarter to RMB 868 million. The decreases were mainly due to decline in revenue from certain existing games. Cost of revenue increased 5% year-on-year and decreased 1% quarter-on-quarter to RMB 471 million. Gross profit decreased 8% year-on-year and increased 10% quarter-on-quarter to RMB 2,148 million. Gross profit margin decreased by 2 percentage points year-on-year and increased by 2 percentage points quarter-on-quarter to 82%. Research and development costs increased 30% year-on-year and 6% quarter-on-quarter to RMB 953 million. The increases were primarily driven by increased headcount and AI-related expenditure, reflecting our strategic focus on advancing AI and collaboration capabilities. Selling and distribution expenses increased 36% year-on-year and decreased 18% quarter-on-quarter to RMB 462 million. The year-on-year increase was mainly due to high marketing expenditures in both office software and services and online games business. The quarter-on-quarter decrease was mainly due to high base from promotions for new game launches in the prior quarter, partially offset by increased spending on marketing activities for Kingsoft Office Group. Administrative expenses increased 33% year-on-year and 40% quarter-on-quarter to RMB 202 million. The increases were mainly due to higher personnel-related expenses and increased depreciation arising from the completion and operation of our Wuhan campus. Share-based compensation costs increased 55% year-on-year and 15% quarter-on-quarter to RMB 92 million. The increase was mainly due to the grants of awarded shares to the selected employees of certain subsidiaries of the company. Operating profit before share-based compensation costs decreased 48% year-on-year and increased 70% quarter-on-quarter to RMB 606 million. Net other gains for the fourth quarter of 2025 were RMB 819 million compared with losses of RMB 74 million for the fourth quarter of 2024 and gains of RMB 13 million for the third quarter of 2025, respectively. The gains in this quarter were mainly due to that we recognized a gain on deemed disposal of Kingsoft Cloud as a result of the dilution impact of the issue of new shares of it. Share of losses of associates were RMB 132 million for the fourth quarter of 2025 compared with losses of RMB 148 million and profit of RMB 5 million for the fourth quarter of 2024 and the third quarter of 2025, respectively. Income tax expense was RMB 220 million for the fourth quarter of 2025 compared with expenses of RMB 212 million and RMB 66 million for the fourth quarter of 2024 and the third quarter of 2025. As a result of the reasons discussed above, profit attributable to owners of the parent was RMB 975 million for the fourth quarter of 2025 compared with profit of RMB 460 million and RMB 213 million for the fourth quarter of 2024 and the third quarter of 2025. Profit attributable to owners of the parent, excluding share-based compensation costs was RMB 1,026 million for the fourth quarter of 2025 compared with the profit of RMB 496 million and RMB 277 million for the fourth quarter of 2024 and the third quarter of 2025. The net profit margin, excluding share-based compensation costs, was 39%, 18% and 11% for this quarter, the fourth quarter of 2024 and the third quarter of 2025, respectively. And now on the year 2025. Revenue decreased 6% year-on-year to RMB 9,683 million. Office software and services made up 61% increased 60% year-on-year to RMB 5,929 million. Online games and others made up 39% and decreased 28% year-on-year to RMB 3,754 million. Gross profit margin decreased by 2 percentage points year-on-year to 81%. Operating profit before share-based compensation costs decreased 47% year-on-year to RMB 2,072 million. Profit to owners of the parent was RMB 2,004 million for the year of 2025 compared with a profit of RMB 1,552 million for the last year. The group had a strong cash position towards the end of 2025. As at 31st December 2025, the group had cash resources of RMB 27 billion. Net cash generated from operating activities was RMB 2,292 million and RMB 4,787 million for the year ended 31st December 2025 and 31st December 2024, respectively. Capital expenditure was RMB 342 million and RMB 426 million for the year ended 31st December 2025 and 31st December 2024. That's all for the introduction of our operational and financial results. Thank you all. Now we are ready for the Q&A section. Thank you. Operator: [Operator Instructions] We will now take our first question from the line of Liping Zhao of CICC. Liping Zhao: [Interpreted] I have 2 questions on the gaming business. So first, after Mr. Zou recently took on the role as the CEO of Xishanju, what strategic adjustments have been made regarding to the future development of the gaming business? And are there any opportunities or possibilities for implementing AI to improve efficiency in the game development? And second, we have observed that Goose Goose Duck is performing well in terms of popularity. Could you share some insights on the current user base and retention metrics? I'd also like to understand the time line for future monetization and potential incremental contribution to the overall revenue and profit. Tao Zou: [Interpreted] So first off, I'd like to talk about the Goose Goose Duck. And so actually, since we have launched on the 7th of January, we [Audio Gap] research of over 30 million new users. And up to now, generally speaking, and the total users could be quite stable at the 3 million up and down. So we are actually doing this planning started from the spring festival up till the summer holiday. We're going to prepare a series of different versions and with different stages, and we would like to have a stable and continuous stable game. And this is actually for the mid- and long consideration for this game is that firstly, through this launch, we could actually have some of the remaining data, and we have confidence that for the continuous version, we could [indiscernible] generation. And so we could make the BAU higher. This is actually the most important priority for us. And it means that we need to make enough users. And once the product has launched, for the income perspective, we didn't do that much work on it because for the industry -- for the game industry, the average performance in the future, we will consider about the payable rate and also the up value. We still have a very big space for it. But for this game, since launch up to now, the total performances is more than like over our expectations. In the future, we still have a very big space for the growth. And in the future, we also would like to launch in the game space. And from the users' perspective, like we would like to make it stable and make it continuously stable. And then step-by-step digging the commercialization possibilities. This is the first stage is that we need to make sure this version is stable, have a good quality service and also with different version, make sure that the total quantity of the users online is good enough and then furthermore, make it higher. So in the long-term perspective for this IP, we're going to consider how to have like expand different surroundings products and also for the other accessories, we have different ideas for it. So let's put it in the future. But currently, the most important thing is that have a stable operation and make the users like to have a higher user quality. So actually, for this first question, it is quite complex. I would like to make it simplified is that since I become the CEO on the 1st of December last year, [indiscernible] is already 3 months past. So generally speaking, firstly is for the service of the [ fit of the thought ] and also for the JX3 for the business is actually the basic of our business. So we would like to continue for the investment of the basic space. And in the past few years, we always have a lot of very like [indiscernible]. And although we have collected some infections of the external competition and infection. But generally speaking, the customers are quite -- the customer quality is quite stable. That is why we believe that -- so currently, the customer service, we're going to provide a better service for our customers and higher quality for them, especially for the content. This is actually our guarantee, the basic guarantee. Second is that we need to make some projects which doesn't have like strategic way. We need to do some adjustment and also maybe shrink that business. It means that we could have enough space, enough ability to make it into the middle and long-term strategy, especially for we're going to have some strategic value. So currently, it's not that convenient for me to release some of the information about it. But probably in May, when we do this seasonal report, it's going to be more convenient for me to have an official introduction for it. And thirdly is about relevant to the second part of the question is that the AI is going to be a completely new area. It's already arrived, especially for our sales. And we can see is that for the industry of their game, actually for the manufacturing and production of the game, in many years, we have a lot of like a revolution. It's not just to have a high efficiency, but this is actually completely changed the way of the mode production. And since I became the CEO on the 1st of December last year, and we could completely carry out of the AI, the different policies, especially not only for their staff thinking and also the platform of the AI building. In the future, we're going to based on this platform to doesn't have that much like identification for the position, but we're going to like to highlight the innovation through the platforms of AI construction in the future, mostly that the creator is going to create the game on the platform. They're going to have a lot of the creation. They're going to have some meaningful content. And internally, we're going to select some excellent projects and commercialize and promote it into this market. So simplified is that we think in the whole industry organization, the content creation organization will completely change and also the way of working will be completely changed. So basically, based on the platform's creation on the AI, everybody is going to be a producer and everybody is going to be the creator for the content. And this is actually everybody could do the creation. This is the time. The time has arrived. So I have strong confidence for it. And in the past few years, the AI tools have completely like become more mature. And especially this year, the whole industry for the products, we have no doubt about it, AI has already come. That is why I think that the time is already matured. And thirdly is for the positions, they have actually a strategic meaning. And the last year for the game, we [indiscernible] has launched, it doesn't have reached our expectation and also the performances of old game is a little bit slow. But this is actually we make analyze internally and make a conclusion. And this is actually a good point for us because we could deduct some of the old things and also we are conducting new. I think that when we move forward on this, we're going to have more space, and this is going to be our opportunity for season. And in the future under this mode, we're going to have a higher product efficiency. And so that is why I think that sometimes the bad news is not actually a bad thing. So like from the challenges and difficulties last year, we actually have some challenges facing, but this is going to let us get to welcome this a new page for Seasun. Operator: We will now take our next question from the line of Linlin Yang of Guangfa Securities. Linlin Yang: [Interpreted] I have 3 questions. The first is what is the progress of our AI business as well as the development and commercialization of industry-specific models and products. The second question is about the AI industry. Recently, the view that AI will display traditional software while the core business of Kingsoft WPS has not been materially affected so far. But there is uncertainty regarding the expansion of value-added service. What is your opinion about this question? And when you serve enterprise customers, what are their key demand for AI? And what capabilities do you need to strengthen? And recently, Xiaomi has MiMo with a trillion parameter large language model as well as a line of associated models. In what ways will the MiMo model further empower and enhance the WPS business? Tao Zou: [Interpreted] So we would like to answer the first 2 questions, and then Mr. Lei is going to answer the third question. And so this is actually quite busy that since last April, we have set up the AI product center. And this year, we actually have the full hub. We would like to cooperate with the Kingsoft Cloud to have some collaborations altogether. So actually, the Kingsoft Cloud, we already have delivered some of the products like, for example, the Kingsoft [indiscernible] and also internally the target for the like assessment, we already used some of the products. And we made a conclusion since last year that we would like to really get into the typical industry and trying to figure out the way of the road AI hold to have this empowered for different industries. So the key point of this year is that we need to target for the element -- the target the aim, especially like we can see that this year, the open cloud is show that appeared and it's very popular the whole world. So this is actually a great remind for us. AI is going to have empowered for different person. AI could be able to empower for enterprises, and they have different ways to show up. And all of this could be able to be realized. So we will not only need to based on the initial thinking, actually, the key things of this year is that we [indiscernible] scenario and also to focus on different industries to get into that industry. And this is actually the biggest differences between last year and this year is that last year, we are trying different roles and trying to localize in different ways. Maybe that AI works for that industry. But this year, we have to get deeply into typical industries in probably 1 to 2 different regions and then make actual work. This is actually like the AI product center development and also progress. Jun Lei: So I would like to answer the second question is that based on my understanding is that the AI is the influence for the AI [indiscernible] if they are saying that -- if we are saying that AI is going to eat up software is not -- so I don't personally agree on this statement because as we know is that for the big language model, AI has to bring that I would like to using like digitalization system to have like restructured the AI currently. So this trend is quite significantly recently. And since 2023, we have the restructure. I can see that AI is the core thing. And as developed in the past few years, AI has constantly strengthened and more and more be recognized by people and simplified saying that this is actually the whole restructure for the [indiscernible] so AI could actually -- if we are seeing that AI is going to eat up the software, the description is not accurate because the software is compared with hardware. So what is exactly software and hardware. So like this year, you can see that the AI scale, I would like to using like the digital system to expand that, especially for the basic on the AI risk structure for the software and compared with the hardware, like, for example, [ Doba ] this is software, right? But today, we can see is that -- and compared with the previously, they have a bigger function. They have the better interaction and also have more like different multiple functions and abilities, which we cannot imagine previously. So this is actually our understanding. But additional software, they are different because the AI software could be replaced the traditional software. That is for sure. But AI is not going to eat up the software because that is not scientific. This is my opinion since 2023. And also the influence for the office is that since 2023, AI has showed up. I discussed about my opinion. So during that time, we can say is that AI could be strengthened, like keep strengthen the ability in the future. That is why right now, we have changed the name as office because 2023, we initially used office AI, and then we used the change name as AI office. So this is constantly of my first question answer is that initially, the AI ability is not that strong enough. That is why we need to use office to strengthen the AI ability. But as the AI ability has become stronger and stronger, like, for example, we have the native AI office development since 2023, then WPS 1.0, 2.0 and 3.0, especially last year, we have launched Lingxi, and this is actually a constant development. And up to now this year, 2026, it's significantly clear that Office AI is going to be the big part. And all of us is going to use. All of that is like AI office. So this is the second point, which is super for this time since 2023. And also for the WPS AI membership since last year, we could increase 307% since last year. The reason is that last year -- the first -- last year, we have launched the Lingxi that version. So this is actually the second part I like to answer this question. And third part is about Xiaomi. So Xiaomi has launched MiMo-V2-Pro. So no matter for the communication meeting with Kingsoft or the cloud communication meeting, that is based on One Plus and that is the Xiaomi's big model for MiMo. And for Kingsoft and Xiaomi, we are actually AI like mixer. And Xiaomi would like to do this big model but Kingsoft we are not. So as time when we have AI launched, especially recently, Xiaomi has launched that our own AI and the performance is actually quite good. So we can see that the ability of Xiaomi is increasing all the time. And the key thing is that we need to make our competition ability stronger and also to have our own [indiscernible] strengthen their AI ecosystem construction. As time goes by, the whole like Kingsoft series products could have like a very competitive ecosystem together like development together with Xiaomi. Yinan Li: [Interpreted] Hello. Thank you for joining us today, and this will conclude our presentation for the 2025 Fourth Quarter and Annual Results Earnings Call. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Zhihu Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] Today's conference is being recorded and webcasted. At this time, I would like to turn the conference over to you, Yolanda Liu, Head of IR and Capital Markets. Please go ahead, madam. Yolanda Liu: Thank you, Hadi. Hello, everyone. Welcome to Zhihu's 2025 Fourth Quarter and Full Year Financial Results Conference Call. Joining me today on the call from senior management team are Mr. Zhou Yuan, Founder, Chairman and Chief Executive Officer; and Mr. Wang Han, Chief Financial Officer. Before we begin, I'd like to remind you that today's discussion will include forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. As such, actual results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in our public filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Additionally, the discussion today will include both GAAP and non-GAAP financial results for comparison purpose only. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to our earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our IR website at ir.zhihu.com. Today, Victor Zhou, an AI agent, representing Mr. Zhou Yuan, will deliver prepared remarks in English on his behalf. As Victor is still being refined, we appreciate your understanding. Victor, please go ahead. Yuan Zhou: Thank you, Yolanda. Hello, everyone, and thank you for joining Zhihu's fourth quarter and full year 2025 earnings call. I am Victor Zhou, and I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, Founder, Chairman and CEO. In 2025, we achieved our first ever full year non-GAAP profit. This historic milestone validates our strategic transformation and underscores the structural durability of our operational leverage. Full year 2025, adjusted net income reached RMB 37.9 million, on a substantial turnaround from the adjusted net loss of RMB 96.3 million in 2024. Our community engagement continues to thrive. In Q4, average daily time spent per user increased to over 41 minutes on the platform. Our ecosystem of trusted creators remains vibrant, consistently delivering authentic and high-quality content across diverse fields. At the same time, we accelerated AI integration within our community. The synergistic evolution of our high-quality content times the expert network times AI capabilities continuously strengthened Zhihu's competitive mode in the AI era. In 2025, we successfully optimized our business structure. With a healthier commercial ecosystem, total revenue trend improved meaningfully in the fourth quarter, driven by a double-digit sequential increase in marketing services. Entering 2026, amid the surging AI adoption, we are leveraging Zhihu's unique advantages to scale AI-driven commercialization, including rapidly building industry-leading export data solutions and deploying AI productivity tools to accelerate IP monetization of our Yan'an Stories franchise. These initiatives will unlock new commercial opportunities for Zhihu. These efforts are anchored by a robust self-sustaining ecosystem. The powerful synergies between high-quality content, our expert network and expanding AI capabilities have created a positive feedback loop, driving heightened community, activity and interaction. In the fourth quarter, our data engagement metrics strengthened significantly. Average daily time spent per user increased sharply both year-over-year and sequentially to over 41 minutes. Substantial year-over-year growth in positive user interactions also drove notable improvements in both short- and long-term new user intention. High-quality content on our platform continues to surge. In Q4, daily creation of high-quality content rose by over 20% year-over-year, contributing to over 31% growth for the full year. Notably, professional AI-related content increased by over 30% year-over-year. As the global AI landscape has shifted from capability races to architectural innovation and system integration, Zhihu remains a leading forum for prominent researchers and frontline engineers to share insights, unpack complex topics and debate key issues. At the vanguard of the AI revolution, our community hosted extensive high-level discussions on key topics such as DeepSeek's Engram architecture, Qwen's new RIF's winning mechanisms, and the continuous iterations of Kimi and Zhipu. The conversation has moved from stronger models to effective system deployment, emphasizing tiered agent architectures and workflow redesign in products like Open Cloud and Cloud Co-Work. The debut of Unitree Robots at the Spring Festival Gala, together with Tesla and the figures progress towards a mass-producing humanoid robots have filled a critical analysis of embodied AI road maps as founders and the employees from leading AI enterprises personally engaged on Zhihu to answer questions and address concerns. Our platform remains attractive space where AI innovations are first explained, validated and responsibly disseminated. We continue to leverage AI to upgrade our community governance and content mechanism. By replacing many operations with algorithm-driven automated workflows, we enhanced community governance ,efficiency and precision. We introduced new metrics for trustworthy contents recognition and promotion ,while integrating user feedback into our evaluation framework. These measures effectively reduce system noise, dynamically suppressing low-quality content and elevating the overall user experience. Professional creators remain the backbone of Zhihu's expert network. In the fourth quarter, daily active high-tier creators grew by double digit year-over-year. A number of verified honored creators rose by nearly 30% as we continue to strengthen incentives for top-tier creators while supporting their efforts to expand industry influence. Our Zhihu 2025 annual review highlighted exceptionally robust high-tier creator engagement. In AI and technology, leading AI companies, including DeepSeek, Moonshot, Tongyi Qianwen, ByteDance Seed, Zhipu and StepFun actively engaged on our platform through their official accounts. Creators with frontline industry and R&D backgrounds consistently shared cutting-edge insights on our platform, contributing to major industry discussions. For the full year, AI-focused creators grew by approximately 16%. In fundamental sciences such as astronomy and chemistry, high-profile creators actively joined our flagship online and offline science programs. Their authoritative content sparked a widespread discussion beyond our community, driving higher search interest for related topics. On the product side, Ideas remains the primary channel for high-frequency knowledge sharing by professional creators, while Circle facilitates engagement around common interest. For the full year, average daily content volume on Ideas grew 73.5%, and the average daily interactions doubled. This momentum persisted in the fourth quarter with double-digit sequential growth across both metrics. We also increased support for mid-tier creators during the quarter, fostering a dynamic growth-oriented ecosystem. Leveraging AI agents, we significantly improved our efficiency in identifying and nurturing talent. In Circles AI-powered proms and standardized tools lowered creation variants and enhanced content distribution. As a result, average daily content creation in Circles surged over 100% sequentially with daily views up 72%. Beyond the AI-driven efficiency gains in content operations, creator support and ecosystem management, Q4 also saw accelerated advances in our foundational AI capabilities enhancing experiences for both creators and the users. In search, creation and consumption, we continue to deepen the integration of AI into the Zhihu community experience. In search, we completed an AI upgrade to our integrated search in December, introducing cross topic content aggregation and hot trend summarization to create a new entry point for high-quality content discovery. We also tailored the answer formats to different query types, which drove a double-digit increase in click-through rates for our AI direct answer cards and meaningfully increased average AI search interactions per user through more multi-turn conversations. In creation, AI is increasingly becoming a practical tool for creators on Zhihu. Since the fourth quarter, we have rolled out features such as content publishing and one-click enhancement powered by intelligent editing, automated formatting and image pairing capabilities. These tools lower the barrier to creation, improve readability and distribution efficiency and help creators turn ideas into shareable content more efficiently. We are also introducing multimodal capabilities such as AI-generated illustrations and image summarization to make long-form content more visually engaging and improve user conversion in the feed. In consumption and circulation, AI is helping Zhihu content transcend traditional community boundaries through external ecosystem partnerships, we are extending our content capabilities into more intelligent assistant scenarios. Within the community users are beginning to use AI in common thrives for fact checking and professional explanation, which supports more authentic interaction and follow-up discussions. Meanwhile, our AI reading panel on PC has improved the efficiency of long-form reading through one-click summarization and terminology explanation and is beginning to generate more valuable interest signals for future recommendation and monetization. Now turning to commercialization. Our efforts to optimize our commercial structure have yielded notable results. With a healthier business ecosystem, total revenue has entered a recovery phase, reaching RMB 643.5 million in the fourth quarter as the pace of sequential decline continued to narrow. This shows a clear top line recovery trajectory. At the same time, we are exploring new scalable AI-powered monetization avenues with an unwavering focus on long-term value and operational excellence. Let's take a closer look at our performance by segment. In the fourth quarter, marketing services revenue reached RMB 234.8 million, up 24% sequentially as our adjustment cycle bottomed out. Disciplined execution in optimizing client mix and upgrading commercial products capitalizes momentum, strengthening our appeal to high-value clients. We elevated the overall client quality, deepened industry penetration and accelerated new customer acquisition. In the fourth quarter, ARPU rose significantly among clients in high-value verticals such as technology and e-commerce. We also reached the new segments in sectors such as automotive and health care. In December, we hosted the Electric Club New Knowledge Technology Conference, which brought together automotive engineers, autonomous driving specialists and leading tech experts from the Zhihu community to explore NEV safety and intelligent upgrades. The event drove 140% year-over-year increase in participating clients enabling industry leaders like BYD, Mitsubishi and Voyah to articulate their technological strength and the safety value through targeted engagement and build trusted content assets. On commercial product upgrades, we leveraged our trusted content and expert network to expand the community-driven monetization and amplify the commercial value of our key IPs such as Zhihu Science Season and Zhihu Reviewers Jewelry. Revenue from IP-related projects increased 21% year-over-year, supported by deeper brand collaborations across our IP portfolio. At the same time, our Idea Plus solution gained strong momentum during the quarter. By offering a lightweight precisely targeted format, Idea Plus extended our native advertising capabilities into short-form content, significantly shortening the path from discovery to purchase, capitalizing on 106% year-over-year increase in daily ideas, interactions. Idea Plus achieved a 62% sequential increase in client numbers and 200% sequential growth in average daily client spend. In 2026, supported by a healthier commercial ecosystem, we aim to drive continued recovery and sustainable long-term growth in marketing services. Next, turning to the business we currently report on the paid membership, which we increasingly see evolving into a broader content and IP operations business. Paid membership remains a revenue contributor of this segment. In the fourth quarter, average monthly paid members reached 12.2 million, generating RMB 333.5 million in revenue. Short-term membership fluctuations aligned with expectations as our structural adjustments prioritize fundamental improvements in service experience and profitability to support a smooth transition during this phase, we are exploring new growth drivers, initiatives to improve member retention and ARPU are yielding results. Q4 average ARPU increased by 1.4% sequentially and overall quarterly renewal rates improved by 2.7 percentage points. Beyond the paid memberships, we are maximizing content IP's value across media adaptations and licensing. IP monetization revenue, which is currently recognized in other revenues grew more than fivefold year-over-year in the fourth quarter and doubled for the full year, underscoring the significant growth potential of this business. The monetization potential of our Yan'an Stories IP continued to translate into tangible results. In December, 2 adapted short dramas Fang and Xia, and The Seventh Year Of Secret Love For My Childhood Friend premiered on Tencent Video, quickly ranking among the platform's top releases. Fang and Xia set all-time popularity record for vertical short dramas on the platform, while Seventh Year Of Secret Love For My Childhood Friend topped the charts and sparked widespread discussion across social media. These results demonstrate our IP's strong adaptation potential and mainstream appeal. During the quarter, we released our short story influence list for the third consecutive year recognizing 62 outstanding works and 20 authors. The selection includes both mature IP already adapted into film and television as well as a pipeline of high-quality titles with strong multi-format development potential. Together, these initiatives highlight our scalable pathway for long-term value creation, cultivating high-quality content, structuring an IP portfolio and extending it across multiple formats to unlock compounding growth. Looking ahead, rapid advances in multimodal AI and the rising industry productivity are expected to further expand monetization opportunities for Yan'an Stories IP creating new growth potential for our content and IP operations business. Building on this, we are exploring a new format for IP development, AI-powered comic dramas and emerging formats driven by demand for lightweight content and improved generative model efficiency. Positioned upstream, Zhihu leverages a dense network of high-quality creators and rich content assets giving us a natural advantage as a stable source of premium IP. Strategically, we will pursue a dual-track approach of IP licensing and in-house incubation. We will also collaborate with platforms and studios to unlock mature IP value, while building in-house AI production capabilities. Turning to other revenues. Beginning in the third quarter to improve profitability, we consolidated our vocational training and the new initiatives into other revenues, which totaled RMB 75.2 million in Q4. We believe 2026 will mark another leap in AI productivity complemented by rapid expansion of real-world applications. Leveraging Zhihu's unique strength we are accelerating exploration of AI-related monetization. We also see growing potential in export data solutions as competition among other ends, increasingly shifts from scale alone to alignment, quality and real-world generalization, high-value, traceable and structured data is now the core driver of model performance. With our long-standing expert network and authentic discussion scenarios, Zhihu is well positioned upstream in the supply of high-quality knowledge and insights and we believe we can be among the earliest platforms in China to systematically define and commercialize high-value data solutions. To support this opportunity, we are developing our export data solution capabilities. At the same time, we are also exploring how to engage experts more deeply in data construction and labeling processing that supports model training and alignment. In summary, achieving full year non-GAAP profitability in 2025 marks a pivotal milestone for Zhihu, validating the resilience of our strategy and the strength of our execution. In 2026, we remain committed to prioritizing disciplined operations, while accelerating AI integration across our community and commercial models. We are sharpening our strategic focus and optimizing resource allocation. In our established businesses, we will continue to prioritize ecosystem health and the user experience, leveraging AI to drive efficiency gains and elevate content quality. At the same time, we are doubling down on AI-driven monetization innovations to cultivate new scalable growth engines. We are confident that 2026 will usher in a new era for high-quality growth for Q4, defined by the further realization of our unique AI capabilities and monetization potential. With that, I will hand the call over to our CFO, Wang Han, whose remarks will be delivered through his AI voice agent. Han, please go ahead. Wang Han: I will now go over our fourth quarter financials for a complete overview of our results, please refer to our press release issued earlier today. 2025 represents a structural upgrade in Zhihu's financial profile. As Victor noted, we achieved our first full year non-GAAP profitability milestone. Financially, this progress was driven by sustained cost discipline, improved operating leverage and tighter expense control, while maintaining healthy gross margins. For the full year, we recorded non-GAAP net income of RMB 37.9 million, and our non-GAAP operating loss narrowed by 33.6% year-over-year. These results reflect the cumulative impact of our multi-quarter structure optimization and provide a strong foundation to build on as we enter 2026. Now turning to the fourth quarter. Our total revenues for the quarter were RMB 643.5 million compared with RMB 859.2 million in the same period of 2024. The year-over-year decrease continue to reflect our ongoing efforts to optimize revenue mix and focus on sustainable, high-quality growth. Notably, the pace of sequential decline continued to narrow, reinforcing a clear top line recovery trajectory. Our marketing services revenue for the quarter was RMB 234.8 million compared with RMB 315.9 million in the same period of 2024, while the year-over-year decline reflects our proactive refinement of service offerings, the sequential trend was notably positive. Marketing services revenue grew 24% sequentially, marking a clear inflection point in our recovery. This momentum was driven by stronger client quality, deeper industry penetration and the successful ramp-up of new commercial products. Paid membership revenue was RMB 333.5 million compared with RMB 422 million in the same period of 2024. Average monthly subscribing members were 12.2 million. The year-over-year decline in membership was expected and reflects our deliberate prioritization of unit economics over scale. That said, we delivered sequential improvements in both ARPPU and renewal rates during the quarter, which we view as early validation that our retention initiatives are gaining traction. Other revenues were RMB 75.2 million compared with RMB 123.1 million in the same period of 2024. The decrease primarily reflected the strategic refinement of our vocational training business, partially offset by growth of revenues generated from our intellectual property derivatives business. Our gross profit for the quarter was RMB 344.8 million, compared with RMB 540.7 million in the same period of 2024. Gross margin was 53.6% compared with 62.9% in the same period of 2024. The decrease in gross margin was primarily due to our ongoing efforts to broaden and enhance content offerings for all users. Our total operating expenses for the quarter were RMB 608.7 million compared with RMB 528.8 million in the same period of 2024. The increase was primarily due to a onetime non-cash goodwill impairment charge of RMB 126.3 million, which was primarily associated with our prior acquisitions, mainly driven by lower valuations amid the current market conditions. Excluding this item, underlying operating expenses continued to decline year-over-year as we further streamline spending across key areas. Selling and marketing expenses decreased by 13% to RMB 275.2 million from RMB 316.2 million in the same period of 2024, driven by more disciplined marketing spend and lower personnel-related expenses. Research and development expenses decreased 16% to RMB 123.1 million from RMB 146.6 million in the same period of 2024. The decrease was primarily driven by ongoing improvements in our research and development efficiency. General and administrative expenses were RMB 84 million compared with RMB 66 million in the same period of 2024, primarily due to higher share-based compensation expenses. Our GAAP net loss for the quarter was RMB 210.8 million compared with RMB 86.4 million in the same period of 2024. On a non-GAAP basis, adjusted net loss was RMB 39.4 million compared with adjusted net income of RMB 97.1 million in the same period of 2024. As of the 31st of December 2025, we held RMB 4.5 billion in cash and cash equivalents, current and non-current term deposits, restricted cash and short-term investments compared with RMB 4.9 billion as of the 31st of December 2024. As of the 31st of December 2025, we repurchased 31.1 million Class A ordinary shares on the open market for an aggregate value of USD 66.5 million. In addition, throughout 2025, we repurchased a total of 16.6 million Class A ordinary shares through the company's trustee for an aggregate value of USD 23.4 million, representing 6.29% of the total issued ordinary shares. Looking ahead, we will further enhance earnings quality and scalability by prioritizing higher-margin, more capital-efficient revenue streams. We will continue to strengthen our monetization capabilities and explore new AI-powered revenue models, while leveraging Zhihu's core strength, high-quality content, a respected expert network and advanced AI capabilities, coupled with disciplined capital allocation, including share repurchases. These actions will reinforce our financial resilience and support sustainable long-term value creation. Operator: [Operator Instructions] We will take our first question. Your first question comes from the line of Xueqing Zhang from CICC. Xueqing Zhang: [Foreign Language] Thanks management for taking my question. And my question about your financial outlook. So firstly, what's the earnings outlook in 2026 and how to balance the investment with the cash flow and the profitability? Wang Han: [Foreign Language] Unknown Executive: [Interpreted] This is from Zhihu CFO, Wang Han. So first, 2025 demonstrated that Zhihu can achieve profitability. But more importantly, we believe, given our unique assets and positioning Zhihu's opportunity set in the AI era is meaningfully larger than what we current scale reflect. So we are not pursuing a single path of delivering profitability this year, more profitability next year. And then turning to dividends. At our current scale, that would not generate a particular meaningful level of returns for our shareholders. So what we want to do instead is stay focused on the opportunities created by AI and invest behind them. At the same time, this does not mean we will abandon the bottom line discipline that we worked hard to achieve or return to the old model of burning significant cash for growth. We will be disciplined in selecting new initiatives concentrating our investments on areas with visible ROI potential and a strong fit with Zhihu's core strength. In other words, we want to deliver growth in new AI-driven revenue stream. At the same time, to keep the overall bottom line on a healthy and responsive track. Thanks for the question. Operator: Thank you. We will take our next question. Your next question comes from the line of Daisy Chen from Haitong International. Kewei Chen: [Foreign Language] I'll translate it myself. As of current stage, what is your strategy in terms of our commercialization? And what are the company's core priorities for 2026? Wang Han: [Foreign Language] Unknown Executive: [Interpreted] So thanks for your question. I will get started with my answers. This is from Zhihu CFO, Wang Han. So in terms of the priority and the strategy in 2026, these are mainly centered on 2 tracks. First of all, in our core community business, we want to continue using AI to improve efficiency and deliver a better product experience for our users and the content creators. At the same time, to maintain stable revenue and a healthier level of operating profitability. In other words, we want to -- our core business to maintain steady, while becoming increasingly AI-enhanced and financially stronger over time. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] At the same time, we want to fully leverage Zhihu's unique assets to develop new AI businesses. As I mentioned earlier, the new initiatives we choose will not be built around aggressive cash burn. We will focus on areas where we can see a path to a healthy cash flow. Right now, we are mainly focused on 2 areas. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] The first is AI-enabled short-form drama and comic adaption. As text to video and image to video models continue to evolve. The production chain is becoming increasingly streamlined. In that process, the scarce asset is high-quality upstream IP, and that is not something that can be acquired overnight, simply by spending heavily. Zhihu's advantage is not only that we have accumulated a large library of high-quality copyrighted content, but also that we have a highly active creator ecosystem that continue to generate new ideas and new IPs. More importantly, AI-generated short drama and the comic style content have already shown that users are willing to pay for this type of AI content. So we believe this is one of the most promising areas where focused investment could generate meaningful and scalable AI revenue for us. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] The second area is data -- AI data services. At a time when many AI applications are still operating with heavy cash burn, there are only a few categories in the ecosystem that can capture structurally attractive economies. One, of course, is represented by companies like NVIDIA. Another on a relatively smaller but still very attractive scale is high-quality data area. In U.S. companies such as Scale AI, Surge AI and McClure has grown rapidly within just a few years by providing high-quality data services to leading LLM developers, while also demonstrating a healthy cash flow characteristics. So with our strong export network and depending on understanding of high-quality model data, we believe Zhihu is well positioned to provide differentiated data solutions for all of these AI developers. At the same time, our community can continuously service new areas of expertise, emerging knowledge, and involving capabilities that LLMs have not yet fully covered. This gives Zhihu a very differentiated advantage in this field. And we believe this is also a business with a clear opportunity to generate positive cash flow. Wang Han: [Foreign Language] Unknown Executive: [Interpreted] So in a word, what we want to deliver is a stable core business that continue to upgrade through AI with improving product capability and a healthy financial profile. Alongside new AI revenue streams that can grow in a disciplined way. The goal is not to pursue growth through excessive spending, but also -- but to build a new AI business with visible monetization potential and a path to positive cash flow. Thank you for the question. Operator: [Operator Instructions] We will take our next question. The question comes from the line of Vicky Wei from Citi. Yi Jing Wei: [Foreign Language] So could management share some data that will help us better understand the impact of AI on the Zhihu community? And additionally, with regard to product upgrades and user experience enhancement in the coming year, what new initiatives does Zhihu have in place? Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreted] Thanks for your question. I will take this question. This is from Zhihu CEO, Zhou Yuan. So first of all, the impact of AI on our community has not been passive. Over the past few quarters, we have been actively driving this accelerating and deeper integration between AI and the Zhihu community with a clear focus on improving such as content consumption, creator experience and so on. Broadly speaking, the positive changes from AI adoption can be seen across 2 groups: our core retained users and our new users. Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreted] Starting with our core retained user, AI is helping users and creators better understand and connect with each other, which further strength the social nature of a real human interaction on our platform. In 4Q, both the coverage and frequency of the positive user interactions on the platform increased year-over-year. We are also seeing users actively call on AI capabilities, aka Zhida. In the comments section for things like fact checking, explaining professional topics and the following training discussions. Importantly, this is happening without disrupting the community atmosphere. Instead, it is helping drive -- is helping drive more interaction and the follow-on discussion among real users. More recently, we launched AI reading panel on PC, with features such as one-click summaries and explanations of professional terms. It has meaningfully improved the reading efficiency of long-form content and significantly enhance the deep reading experience for our core users. Yuan Zhou: [Foreign Language] Unknown Executive: As we mentioned earlier, daily newly added high-quality content in the community grew by over 20% year-over-year in 4Q. But beyond content volume, while we are more -- what we care more about is a positive shift in user and the creators' behaviors. So through like AI capabilities, such as intelligence editing and multi-model associated creation, we're continuing to lower the barrier. So we can see like in the per user's interaction improved significantly in this quarter. Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreter] For new users entering the community, AI is also lowering the barrier to content discovery, joining discussions and participating in interactions. In 4Q '25, the direct MAUs of Zhihu Zhida continued to grow by more than 260% year-over-year, while next month's retention improved by about 83% year-over-year. In February '26, average daily search queries per DAU increased by more than 16% compared with November '25. Yuan Zhou: [Foreign Language] Unknown Executive: [Interpreter] As we shared previously, we mentioned that we completed another upgrade of AI capability within Zhihu's main search to further integrate Zhida with our broader search experience and making it a new entry point for high-quality content for our users. So we see this happened in December. And after this upgrade, search can present more suitable answer formats based on different types of queries. Since launch, user coverage of a AI Zhida cards have increased meaningfully. CTR, click-through rate saw double-digit improved and average AI searches per user also increased noticeably. Yuan Zhou: [Foreign Language] Operator: Continue to standby, the conference will resume shortly. [Technical Difficulty] Unknown Executive: [Interpreter] Okay. I will continue to deliver answers from our CEO, Zhou Yuan. So for the looking forward perspective, our plans are focused on 2 areas. First, we will continue investing in the experience gains we are already seeing from AI, both in terms of enabling more social interaction and efficiency for core return users and new users. So this direction here is already quite clear, and we have been building toward it step-by-step. On top of that, we are preparing to upgrade the Zhida's core capability from AI search towards an agent-based experience. We believe this could bring broader product experience upgrades to users across community. Although there is still an innovation and execution process ahead of us, and we will continue to work through that rollout. So this is from Zhihu CEO, Zhou Yuan. Thanks for your question again. Operator: Thank you. That concludes today's Q&A session. I will now turn the call back to Yolanda for additional or closing remarks. Yolanda Liu: Thank you once again for joining us today. If you have any further questions, please contact our IR team directly or Christensen Advisory. Thank you. Thank you all. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Hello, everyone. Thank you for joining us, and welcome to the York Space Systems Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I will now hand the call over to Christopher Evenden, Vice President of Investor Relations. Please go ahead. Christopher Evenden: Hello, everyone, and welcome to York Space Systems Fourth Quarter and Full Year 2025 Earnings Call. With me on the line are Dirk Wallinger, our CEO; and Kevin Messerle, our CFO. Please note that our earnings press release is available at ir.yorkspacesystems.com. In addition, we have posted an earnings presentation to accompany our prepared remarks on the same website. Lastly, after the call we will post a transcript of our prepared remarks and an audio replay of this call. For those listening to rebroadcast of this call, we remind you that the remarks made herein are as of today, Thursday, March 19, 2026 and have not been updated subsequent to this call. During this call, we will refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings press release. We will also make statements that are considered forward looking, including those related to our 2026 outlook, future growth prospects, backlog, growth of market share, growth strategy and capabilities and future health of our spacecraft. Listeners are cautioned that our forward looking statements involve certain assumptions and are inherently subject to risks and uncertainties that can cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors and other discussions included in our prospectus filed with the SEC on January 30th, 2026 and in our subsequent reports filed with the SEC including our upcoming annual report on Form 10-K for the year 2025. After the completion of prepared remarks we will open the call for questions. Now I will turn the call over to Dirk. Dirk Wallinger: Thanks, Chris. Hello, and welcome to York's Fourth Quarter and Full Year 2025 Earnings Call. I appreciate you all taking the time, and I'm happy to be speaking with you. 2025 marked an inflection point in our business. We grew revenue by 52% year-over-year, and we exited the year with clear line of sight to profitability in 2026. Kevin will get to the details of that in a moment. Our financial results are a reflection of the business milestones we reached during the year. Given this is our first earnings call, I'll provide some context on how we got here. I founded York in 2012 with one purpose, to disrupt the traditional space industry. At that time, it was an era of multibillion-dollar satellites built over decade-long time lines. And it was clear to me that if the United States continued on this path, we'd lose the second space race to our adversaries. We needed the ability to design, build and deploy large constellations of satellites on significantly accelerated time lines. That meant transforming how we manufacture, launch and operate satellites, shifting from bespoke programs to a fully industrialized model. That's exactly what York was built to do and what we've been executing on since 2012. As the mission prime, we own the full satellite life cycle from design and manufacturing through launch, operations and sustainment. Our multi-platform approach is built around a standardized modular family of spacecraft that range from 200 to more than 2,000 kilograms. We architect our platforms as integrated systems, combining flight-proven hardware with proprietary flight and mission operations software. That integrated software-hardware approach is designed to allow us to seamlessly coordinate across 3 different operation centers, task across our global network of close to 50 antennas and procure and integrate launch services. Executing as the mission prime enables us to monetize the full mission life cycle and maintain control over most of the aspects required to execute our vision. That integrated approach is what has set York apart and what has enabled us to deliver reliably at speed and scale. 2025 saw us deliver on that founding vision. We launched 23 satellites into orbit in 2025 alone. We emerged as a leading provider of the Department of Defense's Proliferated Warfighter Space Architecture, measured by spacecraft on orbit, number of contracts and mission types. We acquired a global ground station network and software-defined operations platform, effectively eliminating ground communication bottlenecks to support our end-to-end mission architecture. And we fine-tuned our industrialized production process with every satellite we build. We've achieved multiple technical feats, including in-plane, cross-vendor and space-to-ground optical laser communications. York demonstrated K-band connectivity, orbit maneuvering and remains the only provider ever to demonstrate Link 16 from space to ground. Together, these demonstrations validate our ability to integrate advanced capabilities into cohesive, secure architectures designed to meet the evolving needs of the warfighter. These milestones reflect years of deliberate execution and sustained intentional investment. From the outset, we've aligned every major decision around enabling the rapid cost-effective production and operation of satellite constellations critical to U.S. mission success. With U.S. government demand accelerating rapidly, we are positioned to deliver at scale. Our IPO strengthened our capital base and operational flexibility, enabling us to accelerate execution and further extend our lead over competitors. Now I'd like to highlight the 2025 achievements that we expect to have the biggest impact on our future. Most significantly, on September 10, we launched 21 satellites for the Department of Defense. This low earth orbit constellation is designed to provide secure, resilient communications and data transport for U.S. and allied warfighters. We delivered our satellites to orbit 1 month ahead of our nearest competitor, and we confirm the health of all spacecraft within hours of launch separation through our own classified mission operations center here in Denver. We are excited about the launch of our second plane of satellites for Tranche 1. These spacecraft were the first operational communication satellites in orbit for the PWSA, and we understand they will play a key role in communications infrastructure, underpinning America's next generation of space-based defense systems. Our multi-platform approach enables us to execute across nearly every Golden Dome mission set, including communications, signals intelligence, remote proximity operations, earth observation, synthetic aperture radar and visible imaging. Our S-CLASS platform launched in 2018 and has flown across multiple missions and constellations, establishing a repeatable flight-proven foundation. We expanded that architecture with our LX-CLASS platform, which shares approximately 80% of its hardware and nearly all of its software with the S-CLASS. That design commonality validated our manufacturing model and reinforces the strength of our integrated hardware and software ecosystem. Building on that foundation, we introduced our largest M-CLASS platform in 2025, extending the same core architecture to support payloads in excess of 8 kilowatts of power. By leveraging the same flight-proven hardware and software stack, M-CLASS enables us to scale into higher power mission sets without redesigning the underlying system. This significantly broadens our addressable market across national security, civil and commercial markets. As part of our plan to continue expanding our share of the market, I am happy to share that we recently finalized $187 million commercial contract for a 20-plus satellite constellation built on the M-CLASS platform. This is our fifth commercial contract and the first constellation of a series of constellations for this customer. Our platform and turnkey ecosystem approach is designed to lower cost, streamline and derisk procurement, accelerate build times and significantly reduce capital intensity. Recognizing that ground infrastructure is foundational to proliferated architectures, we acquired ATLAS Space Operations in the third quarter of 2025. As proliferated constellations scale, ground infrastructure becomes a critical constraint. The pressure is particularly acute when dozens of satellites are deployed simultaneously at launch and require rapid checkout and orbital phasing, as was the case with our numerous constellation launches. By bringing ATLAS into our ecosystem, we expanded our global ground network, reduced dependency on constrained third-party capacity and reinforced our integrated end-to-end mission model, enhancing space-to-ground resilience. ATLAS was essential in enabling us to confirm the health of 21 satellites launched in September quickly. As a wholly owned subsidiary, ATLAS will continue to operate independently under its existing brand, serving its diverse portfolio of customers across the industry. Another key mission in 2025 was Dragoon. Launched in June, Dragoon is notable because we went from contract execution to orbit in just 7 months, a 75% reduction in delivery time line versus a typical 30-month program. York was approached with an identified agency need, and we then reallocated a satellite in production to this mission. We integrated a completely new capability and delivered the spacecraft in orbit successfully. York is probably 1 of maybe 2 providers, which have demonstrated this ability. Another milestone in 2025 was our commercially procured communications mission for NASA, the BARD mission, developed in collaboration with NASA's Space Communications and Navigations Program and the Johns Hopkins Applied Physics Laboratory executed more than 100 on-orbit communication activities. BARD successfully demonstrated forward and return link connectivity to NASA's tracking and data relay satellite system, validating interoperability across multiple commercial K-band relay networks. These demonstrations confirmed the feasibility of seamless roaming between government and commercial communication services. BARD is an important opportunity as a potential pathfinder for modernizing NASA's legacy TDRS architecture into a proliferated LEO network. Such a transition would expand connectivity, reduce latency and enable faster commercial pace technology refresh cycles while preserving compatibility for existing users and unlocking new mission capabilities. We anticipate the BARD mission to be extended to address an expanded series of demonstrations, further showcasing our large customer base and wide mission capabilities. In addition to our mission execution, we also strengthened our strategic position in January by going public. Our decision to go public was grounded in long-term strategy and informed by a clear assessment of market timing and growth trajectory. The capital we've raised provides us flexibility to seek opportunities to grow our TAM through M&A and adjacent market products, grow inventory to provide unmatched scheduled deliveries, expand the manufacturing advantage we currently have over our competitors and scale our network ecosystem. Our recent acquisition of Orbion Space Technologies is a good example of the first point. Orbion is a Michigan-based manufacturer of flight-proven electrical propulsion systems that has already delivered at scale for York missions. Acquiring the company helps us reduce supply chain risk, which improves schedule certainty and enables us to align our technology road maps with the growing constellation scale demands across the sector. Similar to ATLAS, Orbion will continue to operate as a wholly owned U.S. subsidiary of York, serving customers across the broad space industry. Both acquisitions reinforce our deliberate strategy to integrate critical mission capabilities across York Space ecosystem, propulsion, ground operations and end-to-end mission execution. Future M&A may address strategic elements of the supply chain. Some may help us grow our TAM, some may do both. The second use of proceeds will be to build inventory of our satellite platforms. We demonstrated the velocity of our manufacturing process in September by being first to orbit for the PWSA Tranche 1 contract. We demonstrated we can reduce in-orbit delivery by up to 75% with inventoried spacecraft. And we are one of the very few in the industry with proven platforms mature enough in their life cycle to provide this capability. This presents a significant strategic competitive advantage and can also enable us to recognize revenue on accelerated schedules. Our time to orbit was already a differentiator, one we've built through over a decade of manufacturing satellites, but we believe the ability to leverage existing platform inventory provides a step function improvement, further widening the gap between us and our competitors. Demand signals are very encouraging. The government is currently reengaging and the Pentagon is moving quickly to execute their missions. We believe there is a clear understanding across the government that the global threat environment is deteriorating and that investment in space domain awareness, missile defense, connectivity and counter space capabilities are essential to America's security. Proliferated architectures have become the preferred approach for resiliency and fight through capability. We are also seeing a pronounced push to diversify supplier bases in other areas of the market as cost and speed take on greater importance, especially as proliferation is only feasible if satellites can be made affordably enough to deploy in large quantities. York's 2025 performance metrics validate the mission I set when I founded the company. From day 1, our goal has been to serve as a mission prime for proliferated systems. Today, we've built the foundation, scalable satellite manufacturing, a unified software stack across platforms and an integrated space terrestrial ecosystem. Today, York is executing at scale across national security and commercial missions, with 33 satellites currently on orbit, mission operations centers supporting 5 active missions and 2 operational constellations. We are preparing for our eighth launch overall, which will see another 21 York satellites reach orbit on a fully dedicated launch vehicle for the second time. We are executing on our 12th contract and advancing work on our sixth constellation contract, underscoring York's ability to deliver repeated, reliable performance across multiple programs while continuing to scale production and mission execution capacity. York's proven mass production cadence demonstrates its strong competitive advantages, enabling the company to field multiple flight proven platforms with decades of flight heritage, demonstrated on our performance and the ability to deliver fully populated launches at scale. Our latest commercial constellation contract win further demonstrates York's ability to win across numerous markets and customers. For all these reasons, we believe York is well positioned to meet the evolving needs of the United States Government and commercial customers. And with that, I'll hand the call over to Kevin. Kevin Messerle: Thanks, Dirk. As Dirk said, 2025 was a transformative year for York. By successfully delivering on a broad set of contracts, we were able to significantly grow revenue and take significant strides towards profitability. Revenue for the year was $386.2 million, up $132.7 million or 52% on the prior year. Substantially, all of our revenue derives from long-term fixed firm price contracts and is recognized using a percentage of completion method. We believe this approach most accurately tracks the business and it provides generally a steady progression of revenue throughout a program. Year-on-year growth in revenue was primarily driven by increased completion against 2 of our Transport Layer Tranche 2 contracts. Gross margin percentage, which includes allocated labor, overheads and D&A, was 20%, up 7 percentage points year-on-year, driven by improved mix as newer programs became a larger part of the whole and a reduction in negative EAC adjustments. EAC is estimate at completion and is our estimate of final program costs and margins. We have built cross-functional teams at York that reevaluate these on a program-by-program basis every quarter. Turning to operating expenses. While our revenues increased 52% year-on-year, our SG&A plus R&D expenses only increased 8% for the same period. We also incurred approximately $12.1 million of onetime transaction costs associated with our M&A program as well as IPO-related professional fees. The ability to scale our revenue while tightly controlling expenses is the primary driver of our improvement in adjusted EBITDA from 2024 to 2025, and we expect that trend to continue through 2026. On the operations front, we had 710 employees at the end of the quarter, of whom almost 75% are directly involved in the design and manufacture of satellites or delivery of mission services. Just to touch on our liquidity. As of December 31, 2025, our cash and cash equivalents were $162.6 million and availability under our revolving facility was $150 million for total liquidity of $312.6 million. On January 30, 2026, we completed our IPO of 18.5 million shares of our common stock at a public offering price of $34 per share. We received net proceeds of $582.6 million, net of underwriting discounts and commissions and offering costs, bringing our total liquidity at January 31 to $895.2 million. We make use of a number of non-GAAP metrics to inform our management of the business and to give investors insight into our core business drivers. These include contribution margin and adjusted EBITDA. We define contribution margin as revenue less material costs. Historically, 85% to 90% of our direct cost for our program, excluding overhead allocations and D&A, have been material costs. So it is incredibly important for us to price our contracts at a healthy margin above our single largest cost, material cost. We target a 35% contribution margin on all new business. Contribution margin in 2025 was 32%, an increase of 2 percentage points from 2024's 30%. We don't disclose program level margins, but I will broadly say that margins on our newer programs have been quite a bit higher than our older programs. We attribute this improvement to our increased ability to project material costs based on years of experience with actual production runs, together with a more rigorous pricing process that includes the use of appropriate management reserves. To further reduce margin risk, just as we operate under firm fixed price contracts, we largely hold our suppliers to the same. We grew contribution margin dollars by $47 million in 2025 to $122 million, an increase of 63%. Loss per share was $0.89 for the year. Capital expenditures for 2025 were $8.9 million as compared to $18 million in 2024. As Dirk touched on in his remarks, our manufacturing process is highly flexible and very efficient, and this has enabled us to keep CapEx very low by the standards of the industry. Turning briefly to the quarter. Revenue for Q4 was $105 million, up 38% on Q4 2024. Gross profit margin was 20%, operating expenses were $38.2 million. Contribution margin was 33% and adjusted EBITDA was negative $1.4 million, up from the negative $4 million last year. Looking ahead, we expect revenue for the year to be in the range of $545 million to $595 million, up 48% year-over-year at the midpoint. Over 70% of this is expected to come from our existing backlog, with the remainder anticipated to come from new business in the back half of the year. With regards to new business, our current expectation is for government contracts to start to be awarded towards the middle of the year, and York intends to compete strongly for them. And now I'll hand it back over to the operator for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of John Godyn of Citi. John Godyn: Appreciate it. I wanted to -- there are a few things to follow up on, but I guess the one that I'll focus on is this acquisition, Orbion. Maybe you could just talk a little bit more about that, how it came about, what the terms were. And I was curious if this was the deal that was contemplated in the S-1. There was a note in the S-1 about a letter of intent for an acquisition. Was this that? Or was it a different one? Dirk Wallinger: Yes, sure. Happy to dive into that one a little bit. Thanks, John. I appreciate the question. Yes, it is the acquisition that we are contemplating from the S-1. We're really excited about Orbion for a few different reasons. We've launched a good amount of satellites at this point. We've worked with a wide range of propulsion providers. Orbion was really a clear winner as far as their ability to execute, their ability to perform. Their hardware has performed really well in orbit. It's a really great team to work with. So we're excited about bringing that on. And it kind of goes to the vision of when we were doing the IPO, right? We spoke about the 4 different things that we were going to do and how we're going to go on offense. And one of those was some inorganic associated with bringing great technologies kind of in-house so we could align our technology road map, kind of give them a better vision of where the market was headed, where we were headed. So that they could be more successful in developing those products kind of right out the gate. And that kind of communication is going to be critical because we're already a leader as far as costs and schedule go. But with Orbion with us now, we'll be able to align that technology road map, give them assurance of the kind of size of production cadence they're going to need in the coming years. So that they'll be really prepared to deliver for us. And so they've been a phenomenal performer for us for years now. And so we think this will make them an even better performer for us and the rest of the market as well. So they will continue to execute as a wholly-owned subsidiary. John Godyn: That's fantastic. And do you guys -- are you willing to give us a sense of how much revenue that's contributing to this year? And then just on M&A in general, are there any other acquisitions contemplated that we should be aware of? Dirk Wallinger: Yes. Kevin, correct me if I'm wrong. I mean I don't think that we're breaking out them individually, right? I think it's -- we're going to still report at the top level, right? Kevin Messerle: We're not issuing specific guidance, John, on Orbion, but we can confirm that it's included in our consolidated guidance figure. Dirk Wallinger: And to the latter question about additional M&A, I mean, I do think there's some opportunity for some additional M&A. I think people in the industry and in this segment kind of see what we're doing. They're very excited about it. They want to be a part of it. And so there'll be some other things where like Orbion, they make sense, right? They're the best technologies. It will help us continue to drive down cost even further and make that advantage that we have larger, but then also kind of align that so that our schedules continue to be the best in the sector. So I think there could be some more opportunity for that. And then there's also opportunities where we might start to look at kind of adjacent markets and things like that. Operator: Your next question comes from the line of Seth Seifman of JPMorgan. Seth Seifman: I wanted to start off talking about some of the opportunities for new business that you mentioned coming later in the year. Is it some of the Golden Dome opportunities moving maybe to the left of initial expectations for 2027? Is it in the intelligence community? Is it the next tracking layer? And what are the prospects to exit this year with a backlog that's bigger than where it is now? Dirk Wallinger: Well, yes, I mean, I think that we feel pretty great about that, Seth. So I appreciate the question. I thought the pretty exciting part of the call was where we mentioned that we just won a new constellation for M-CLASS for a commercial customer. A 20-plus constellation. It's the first constellation of many planned for this customer. So I thought that was an exciting part. I thought that, that would add to the backlog. But -- so obviously, that's pretty exciting for us as well. As General Guetlein has kind of attested to and been more public in general with regard to Golden Dome and National Defense just in general. I mean, it's got -- everyone focuses on the name Golden Dome, but the reality is it's National Defense, right? So independent of what it's called. He's spoken a lot more about the absolute need to lower the cost, to move faster and then to leverage existing acquisition vehicles. We checked the box on all 3 of those. And so I think that's why we're starting to see a little bit more come out about National Defense and Golden Dome, what that's going to be. I can't go into any more details right now other than to say that it's a late-breaking news that we have not won 1, but we've won 2 IDIQ contracts now for different classified customers. So on this call alone, we have not only our healthy backlog and our ability to convert that backlog into revenue, which Kevin reported on, we've won a new commercial contract for the first of many constellations for our M-CLASS. And then we have now won 2 IDIQs for different classified customers. So we feel very bullish about the position that we're in. I think generally, though, I mean, just as a commentary, you're not going to hear a ton about Golden Done. General Guetlein has been pretty clear that most of the work is going to be classified, and that's kind of what we're seeing, right? We're seeing contracts being awarded on the classified side of things. So I'd be happy to talk more about those contracts that we've won for the different classified customers, but that will be kind of coming in the next few weeks as we kind of sketch those out in a little bit more detail on what we're allowed to discuss and what we're not. So we're still working on that. But hopefully, that gives you more insight. I mean I think that we're in a pretty bullish position with our performance and our ability to just between IPO and now, we've already added quite a bit more to the backlog. So I think we feel like we're in a good position, and we're going to execute like we always do. Seth Seifman: Excellent. Excellent. Maybe to follow up then on the commercial win there. I guess the pieces of the TAM that you guys have laid out in the past were pretty national security oriented. So how do we think about that commercial piece coming into it and how -- maybe the size of that relative to the other pieces of the TAM and how significant that could get within your mix? Dirk Wallinger: Yes. I mean I feel focus historically has been on National Defense, but that's mostly because the reality is that's where the dollars were. That's where the contracts were. So we won the contracts that were available to us and we did a very good job on them and executing on them as well. And so that success led to more contracts. So we're happy with that. But I'm very -- I'm more and more bullish every day on what commercial can do. Unfortunately, we can't disclose who that customer is right now, but I'm very excited about the mission and what they're doing. It's very much aligned with the trends that we're seeing today. And also what I think we're going to see is a lot more growth in this area. Really, traditionally, commercial has kind of struggled with kind of getting that kind of total gravity, I guess, for lack of a better term, on really garnering the attention it needs and the dollars it needs to really be at scale. But we're really seeing that shift. We're also seeing this administration say that they want to leverage more commercial, which obviously encourages investment in it as well. So I'm in hopes this is the first of many. I mean, I know for this customer alone, this is the first of many in the constellations that they're going to deliver to orbit. So we're obviously very happy to be in the position with that. But I think in general, commercial, we're just going to see more and more. The nice part is you kind of have a giant surge in national defense, right, which is a great market for us. And we're now showing some pretty significant diversity in customer base on that front. And then to have some big commercial wins is really great, too. So I think both markets are going to surge. Obviously, I think that we're in a good position to win that work. We just got to continue to execute as we have been, deliver at scale. And I think both of those markets are going to see healthy growth for many years to come. No one is saying we need less satellites in the future. Operator: Your next question comes from the line of Peter Arment of Baird. Peter Arment: Dirk, just maybe just to circle back a little bit on your comments about kind of Golden Dome/the National Defense contracts. Has there -- we're dealing with a lot of investors are kind of very focused on if there's been a material change in what you view the PWSA kind of architecture is. I was wondering if you could just maybe shed light. Do you view it to be materially changing? Or is it just morphing into the various classified versions of Golden Dome? Just any insight would be helpful. Dirk Wallinger: I think it's along the lines of what you said in the latter part there. So look, if it's called PWSA, if it's called Space Data Network, if it's called pLEO, whatever the name is, the government is definitively moving towards it. And they're delivering contracts pretty quickly now out to performers who are going to execute on this. They need this executed really quickly. So I don't think it's about, hey, does PWSA, is that going away? Is MILNET going away? There's nothing going away. Communications is not only absolutely critical for Golden Dome and missile and National Defense in general, it's the most important thing. Nothing else happens without communication. So I think it's more of there's definitely a realization that this is going to be the architecture of the future for the United States. And if it is going to be the architecture for the United States that it needs to be more coordinated, right? That's a general theme that we're hearing across anything, whether that's space, whether that's sea, land, air, it has to be more coordinated. So I think a lot of the "shifts" I guess, that you're seeing in PWSA Transport or MILNET or what have you, isn't really about do we need this? It is about we do need this, how are we going to get them to talk to one another. And maybe we should look at that in more detail and definitize that more before we continue on kind of separate disparate paths, which is kind of what got us into the challenges in the United States faces today is we have lots of amazing capabilities, but they're disparate and they don't talk to one another. So I think it's really more about that is whatever the name is, it doesn't matter, it's needed. I think it's just more about let's make sure that they're going to talk to one another because we shot ourselves in the foot like a couple of times over this. So let's not do that anymore. I think it's really more about that, like that's the mentality. Peter Arment: Got it. That's helpful color. And just it is exciting, obviously, with the new commercial win that you announced in February. Could you maybe talk a little bit about expectations of delivery of those 20-plus satellites just over what time line? Dirk Wallinger: Yes. So T1 is an operational system. And as such, the readiness of the system is controlled information. So I can't discuss actual launch date, but we are very far along on production, and I think shipping is imminent. I probably can't get any more specific than that. Operator: Your next question comes from the line of David Strauss of Wells Fargo. David Strauss: Dirk, I wanted to ask about in the fiscal '26 DoD budget that was passed, I think, end of January or early February, there was still a whole bunch of Tranche 1 and Tranche 2 funding in there. So have you actually received all of the Tranche 1 and Tranche 2 funding? Is that reflected in backlog today for you? Or is there still a fair amount of funding that has to come through and be put into your backlog related to Tranche 1 and Tranche 2? Dirk Wallinger: I believe it's all included in the backlog. But Kevin, maybe if you think I'm mistaken, you can speak up. Kevin Messerle: No, that's right, Dirk. What we report as backlog are only exercised options and only funded exercised options. So it's all -- our backlog is entirely funded. David Strauss: Okay. So even though that wasn't -- the funding wasn't passed until January after the end of your 2025 year, that's in the backlog or it isn't in the backlog? Kevin Messerle: So let me try it this way. So all of the programs that we're on, right, have funds appropriated for them. And then just the way just to get into some of the nuances of how the government funding works is, yes, as we move into different fiscal years, they will then technically fund it, right? So the funding does come over time. I think the bigger point is that all these programs, the money is budgeted and set aside for it. But yes, there is a technical sort of nuance of how the -- over time, the actual money moves technically to that program. So within our backlog, again, it's all exercised contracts or exercised options within those contracts. We don't include unexercised options. A lot of those are the right of launch O&S portion. So that's not included in the backlog. And then to your point, things over time when the funding actually moves it, we don't move our backlog up and down by the funding amount just because it's a very small portion that's not funded, and we know that the funds are there. It's just more of a technicality of when they occur. David Strauss: Okay. And then can you talk about kind of your current build rate? What are you producing at today? And what kind of build rate underlies the 2026 revenue guide as compared to 2025? Dirk Wallinger: Yes. I mean -- so I would say that build rate is definitely not going to be -- is not the challenge for us. We're not building up our production in hopes of meeting the demand that we have or meeting future demand. Quite the opposite. So York has invested pretty heavily in our production capacity. In our Willow facility alone, we have all the capacity to meet all the production needs through 2028, right? So that's Willow alone. It does not include production capacity at our Wazee facility, which is a little bit smaller, but nonetheless, a completely different production facility. And most importantly, our Potomac facility, which is actually 4x larger than our Willow facility. So we've actually built out, invested in and are prepared for massive production numbers on the order of up to 1,000 satellites a year. So that's what we've invested in, and that's what our capacity is today. And that's a little bit of a differentiator between a lot of other companies who are still trying to prove their first product. And even after they prove their first product, try to get to scale. And so that's a little bit different for us. So everything at just our Willow facility alone meets all our projections through '28, and we have 4x more capacity in our Potomac facility. So we're very well positioned for the growth that we expect going on through '26, '28, '29. Kevin Messerle: Yes. I'll just maybe add a few things here, Dirk. There's a pretty helpful slide we have in our earnings deck. I think you should all have access to that either now or after the call. But it's Slide 8, and it shows that right now, we have 33 satellites on orbit. But then we provide some general guidance to the satellites that we have currently in our backlog being produced. It's 107, and we expect all 107 of those to be launching over the course of '26 and '27. As Dirk mentioned earlier, we can't provide specific launch timing for specific programs. That's controlled information. But what we can say is, broadly speaking, we'll have a total of 140 satellites on orbit by the end of 2027, if not sooner. And so the way to think about how that ties to our -- you touched on our revenue. Again, over 70% at the midpoint of our guidance is backlog. And that's really just pretty highly predictable revenue stream. It's driven off our cost incurrence. And we have a pretty mature at this point, supply chain. And we have daily and weekly discussions depending on the vendor and the program. But it's all to say we have a pretty good line of sight into the tempo of that revenue. And it's all generally tied to the higher theme that over the course of the next 2 years, we're going to be putting 107 satellites into orbit. And that actually does not include -- that 107 number I'm citing does not include to be clear, that new commercial constellation. We're still working with that customer to fine-tune some of the expectations for launch dates there. Operator: [Operator Instructions] Your next question comes from the line of Austin Moeller of Canaccord Genuity. Austin Moeller: Just my first question here. Given the funding already included in Big Beautiful Bill and the fiscal year '26 budget for Golden Dome, what funding do you think might be allocated in this $450 billion reconciliation bill for space that they're talking about? Do you think it might include more satellites or more ground infrastructure for Space Force and DoW? Dirk Wallinger: I mean at the 10,000-foot level, it's going to include more for both, for sure. Space is absolutely going to be critical to the National Defense and what we're doing in the future. But that does include a significant amount of ground effort as well. Ground will need to tie, like I said, all the disparate systems together. That's kind of the main challenge that we have is we have all the capabilities we need. We need to be more efficient in how they talk to one another. So ground will be a huge part of that. building out ground is important. And that's one of the IDIQs that I mentioned was a contract win for us is about York helping to contribute to that, us helping to contribute on how you operate hundreds and thousands of satellites in orbit, how you feed that information and how you distribute that information and disseminate it. And satellites are really the best way of disseminating information. It's kind of above the entire battlefront. So there's going to be a significant amount for both ground and satellites, for both. Now all that said, our pipeline that we've identified and we have to update it, I'm sure, but we have $11 billion in identified pipeline right now. So that's seemingly only going to grow. I've seen more requests for more funding for some of our more recent engagements as well. So our identified pipeline is $11 billion, and that was before a lot of the growth that you're talking about here. Austin Moeller: Okay. And as the production lots for Golden Dome or PWSA grows with additional contracts for that constellation or those constellations, what gives you confidence in maintaining the target gross and contribution margins going forward? Is it just the strong execution record and timely delivery and best-in-class product? Dirk Wallinger: Yes. I mean it's -- for us, it's always the 3 main metrics is that best capability, best performance, best schedule, which we meet on all those fronts. But historically, we have executed at a price point that is half the price of our competitors. And we've done it with the margins that we are very close to now. And we think that we have opportunity to increase that because we're only becoming more and more efficient. So just as a kind of a side story, I guess, or an example is critical design review is one of the most critical reviews for any of our programs. I can say that for the T1 program at CDR, we had 65 engineering heads working that program. And at the same critical design review for T2, we had 15, right? So we are seeing significant improvements in our efficiency and our ability to execute. So Kevin, I mean, you might have some more comments on those margins there, but those are the margins that we plan to. Those are the margins that we price to. Those are the margins that we execute on. And we've been doing it at those margins at half the price. But Kevin, I don't know if there's more to add. Kevin Messerle: No, I think you covered it really well, Dirk. What I would say is that, yes, given that we are already half the price of our competition, we're starting from a pretty enviable pricing position, right? So I don't feel like we need to certainly lower price at all. I think our strategy, as Dirk has outlined in the past is probably maintain this pricing. We make nice margins at it. But what we can do and what we are doing, right, is as our supply chain matures and we're ordering more volumes, we're going to see just our supply base or our cost base start to come down, right? So definitely, I think, there's more upside to contribution margin. Just from a sort of an accounting perspective, some of these vertical integration plays that we've done, those are highly accretive to contribution margin. Just the way that the intercompany math works with their profit margin basically getting kind of canceled out. So it's all to say, I feel very good about contribution margin growing from here. And another aspect of that, frankly, is we've been producing at large scale for a couple of years now, which is something a lot of our competition probably still has ahead of them. And so we've learned just a lot by being in the trenches and fielding these large constellations. So we -- there's no more surprises of things that we perhaps forgot to price in when we bid a contract a couple of years ago. Just that's what you get from the level of experience and repetition that we've had. So we don't expect any surprises on the material cost side. And again, the trend will be to continue to drive down our supply chain costs. Operator: Your next question comes from the line of Ryan Koontz of Needham & Co. Ryan Koontz: And I want to ask kind of big picture here with regards to the '26 guide and I see over 70% of that's already in backlog. But if you can expand on the kind of -- the types of revenue or the mix of revenue that's not currently in backlog that you'd expect to see in '26 for us. Kevin Messerle: You want me to start -- Ryan, what I'd say is that we are expecting new business award activity to start to pick up as some of these dollars get allocated in the eventual sort of spending agencies that will ultimately be awarding the contracts. We think that's going to take a little bit of time. We think once we kind of get to that midyear and into the second half, we're going to start to see some pretty robust award activity, and that's the basis of our range of $545 million to $595 million of rev. So we do think most of that will be from our traditional Department of Defense government sector, whether that's PWSA or Golden Dome or IC. One of the themes Dirk has touched on today is that wherever it comes out of, we're a bit agnostic to that because we just believe the capabilities we have are -- position us well across the board. There'll be a little bit of commercial, that new commercial contract. We're not anticipating substantial revenue recognition from that one this year. So I would say it's going to be largely second half government defense awards and a little bit of commercial. Ryan Koontz: Helpful. That's really great. And anything on the supply chain you'd call out as challenging these days. We hear about it in other areas of tech getting tough. But any particular areas you're concerned about having to invest maybe extra working capital to be prepared? Dirk Wallinger: Yes. I mean we do hear a lot about supply chains now. But I think that we're a little bit differentiated in that sense. And how I mean that is we are at production capacity now, which means that we were tackling supply chain issues several years ago. And so I think it's a little bit new for folks trying to ramp up now, but we've done that investment. I think acquisitions like Orbion are very, very helpful in the sense of we can better plan with our partners on kind of what kind of numbers we're going to need and when, and we can co-invest if that's required. And so we've done a lot of that already. And so our supply chain is very robust, very secure. We worked these issues many years ago. We did things like buy solar arrays in bulk ahead of a need, ahead of challenges that were coming ahead. We co-invested on some laser capability to stand up production on that. But again, that was for a tZERO contract. So we've basically retired a lot of that investment we needed to make in our supply chain. We're kind of more now in improvement cycle where we're trying to improve it, make it more efficient and make it a little bit better. But us kind of delaying schedule and things like that because of supply chain is a problem that we looked at a couple of years ago, and we feel like we have a good handle on it. I think when we did the IPO, we did talk about that we were going to inventory a lot of our spacecraft. We're in a unique position to be able to do that. We have a very large backlog. We have a consistent product. We know that it works. We know that it works in orbit. And so we are going to invest in some inventory, which should help with the supply chain challenges as well. The reality is something being delayed is only really a problem if you're already behind, right? But if you are ahead of the need and ahead of a schedule and have an inventory product, if something shows up 3 weeks later than it should have, but you have inventory spacecraft and you have ahead of a need, then you're able to kind of sustain those impacts. So that's where we're focused more is standing up, basically supporting our supply chain to be more efficient, and then we're going to build inventory spacecraft. And that's going to really take that kind of lead time out of the equation for us. Ryan Koontz: Great. And one just quick clarification there. If you're building that inventory and shipping from inventory, is that a different form of rev rec than traditionally? Kevin Messerle: No. What it does is effectively accelerate the revenue recognition. So as Dirk said, we want to be smart about building up some satellite platforms in inventory. And then that way, our BD folks can be empowered to say, hey, how quickly do you need this mission flown because we've proven, I think, Dirk touched on in his prepared remarks with our Dragoon mission, right? We -- ATP to orbit was 7 months, which is pretty unheard of. So what that will do is we'll kind of build up the cost structure on the balance sheet and inventory. And then once we get that allocated to a particular revenue-generating program, it will be a very fast cycle of rev rec. So it will be pretty exciting to see that happen. Operator: Your next question comes from the line of Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu: Congrats on your first quarter. Maybe if I could ask first on just the margin comments and the pricing. You guys offer an affordable solution. What's driving some of the higher margins? I know you talked about the supply chain improvements. What is that? Is that more like supply chain pricing? And how do we think about the volume leverage? And maybe if we could clarify on Orbion, how do we think about the revenue contribution there given that's a vertical integration play as well? Dirk Wallinger: Kevin, why don't you talk to that? Yes. Kevin Messerle: I'll touch on that. Yes, we'll start with the Orbion one. So the way it works, broadly speaking, when we acquire a company like Orbion, and like ATLAS, it's the same thing for ATLAS. So they do York business and non-York business. So when our consolidated numbers are put out, the net impact is just on the non-York business. Because the way it works from an accounting perspective is that our -- their York business, that revenue gets canceled out and the associated COGS from us. So their revenue is our COGS, so to speak, those net out in the elimination. So again, they are baked into our projections. They're not a, I would say, not a substantial portion of our 2026 guidance because, again, we're buying companies that we already buy a lot of stuff from. And then so that kind of -- it's more of a margin improvement. I touched on earlier, the more -- when we do these type of vertical integration acquisitions, they're very accretive to contribution margin, right? Because we're basically stripping out what otherwise would have been profit margin that we were paying to a third-party vendor. Now that just kind of stays within the family, so to speak. So that's a big driver of increased contribution margin and gross -- overall gross margin. So that's how that works. And then just in general, I think you had a question about margin. So our margins improved year-over-year, our gross margin by about 700 basis points. And that's really a result of a couple of things. It's program mix. So our newer vintage program, so a lot of the growth in revenue in 2025 came from our Tranche 2 transport layer programs, alpha and gamma. Those were programs that we were -- we priced when we had a lot of reps in our system through T0 and T1. So we priced that really well, and those are higher margin. In general, our newer programs are higher margin. So it's a factor of mix -- and then we also had reduced negative EAC adjustments in fiscal '25. And again, that's another sort of proof point of a maturing business and maturing sort of pricing rigor and cost rigor. We don't expect to see any sort of meaningful negative EAC adjustments as we move forward. So it's really those 2 things that drove the nearly 700 basis point margin -- gross margin improvement in '25. Sheila Kahyaoglu: Got it. That's very clear. And then maybe if you could just provide a quick update on how you're thinking about Transporter Tranche 3 and just the path forward for that mission. Dirk Wallinger: Yes. As I kind of talked about a little bit earlier, there's no doubt that communications is going to be a major part of Golden Dome and National Defense in general. I believe that it's going to be restructured under something called the Space Data Network, where they're working through that architecture and what that will look like now. My best guess, and it's a guess, is that I think transport will probably be part of that Space Data Network, and it will interlink with the other systems. So it kind of goes to what I was saying before of, they're realizing that these systems cannot be disparate and unique, and they need to be part of a larger architecture that works together. And my feeling is that I think transport will definitively be a part of that. I think that they're working the details of that architecture now and how that will work. Obviously, I think, that we're in a really phenomenal position to win significant parts of that given that we've already performed so well on tZERO, T1. We're already under contract for T2. So I think our delivered capabilities, flight heritage and the fact that we're the first time to launch every single time kind of speak to us being able to deliver that mission successfully. So I think it's going to be part of space data network. And I think that they're working that architecture now, and we feel like we're in a strong position to win that work. Operator: I will now turn the call back to Dirk Wallinger for closing remarks. Dirk Wallinger: Yes. So essentially, I just wanted to say thank you for everyone taking the time who've been -- those -- a lot of folks who have been following us for a little bit. I appreciate you learning more about what we're doing. Hopefully, you can see that we have really strong engagement, the ability to execute. We have a lot of missions in front of us, which we're excited to get into. We're seeing our base grow significantly from not only the kind of proliferated LEO national defense systems we've historically worked on. We're seeing new contracts with multiple classified customers. We're seeing large constellations being secured for commercial customers as well. So we're really excited about the future. We hope that you'll keep following along with us, and I appreciate everyone for taking the time. So thank you so much yes. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Kingsoft Cloud's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nicole Shan, IRD of Kingsoft Cloud. Please go ahead. Nicole Shan: Thank you, operator. Hello, everyone, and thank you for joining us today. Kingsoft Cloud's fourth quarter and fiscal year 2025 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com as well as on PR Newswire services. On the call today from Kingsoft Cloud, we have our Chairman and CEO, Mr. Zou Tao; CFO, Li Yi; Senior Vice President, Mr. Liu Tao; Senior Vice President, Mr. Tian Kaiyan; Vice President, Ms. [indiscernible]; and Associate Vice President, Mr. [indiscernible]. Mr. Zou will review our business strategies, operations and other company highlights, followed by Ms. Li, who will discuss the financial performance. We will be available to answer your questions during the Q&A session that follows. We will be conducting an interpretation. Our interpretation are for your convenience and reference purpose only. In case of any discrepancy, management statement in our original language will prevail. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors are included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law. Finally, please note that unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB. It's now my pleasure to introduce our Chairman and CEO, Mr. Zou. Please go ahead. Tao Zou: [Interpreted] Hello, everyone, and thank you, and welcome to Kingsoft Cloud's Fourth Quarter and Fiscal Year 2025 Earnings Call. I am Zou Tao, CEO of Kingsoft Cloud. Since the beginning of 2025, the global AI industry has reached a series of milestones from the democratization sparked by the DeepSeek moment to the active competition among multimodal software models from the leap of embodied AI into the physical world to OpenCloud's closed-loop capability of understanding and execution. AI is evolving with unstoppable momentum linking across models, agents, computing power through industrial applications, reshaping every sector. As a tightly integrated component of the AI 5-layer take, cloud computing is now meeting an unprecedented surge in demand for intelligent computing. This year, we stayed committed to our high-quality and sustainable development strategy, embracing the opportunities in AI era, strengthening our capability through solid execution. We have delivered impressive results, achieving strong financial performance while forging lasting business strength. First, we recorded a historical high quarterly revenue, reaching RMB 2.76 billion, representing a year-over-year growth of 24%, among which revenues from public cloud services increased by 35% to RMB 1.9 billion. Our intelligent computing services keep driving our growth. The gross billing of AI business reached RMB 926 million, representing a 95% year-over-year and contributing 49% of our public cloud services. Second, growth in our ecosystem and external business segment is progressing hand-in-hand. On one hand, our ecosystem partnerships have remained strong and continue to deepen. This quarter, Xiaomi and Kingsoft ecosystem revenue reached RMB 804 million, a 63% year-over-year increase, accounting for 29% of total revenue. For the full year 2025, related party transactions with Xiaomi and Kingsoft ecosystem partners reached 94% of our net annual C, almost hitting the limit. On the other hand, our external customers, including leading enterprises across a wide range of high-growth industries, also shown confidence in our products and services, accounting for around 70% of total revenue. Furthermore, revenue from our top 5 non-ecosystem customers grew by 44% year-over-year, sustaining strong growth momentum. Last but not least, profitability continued to improve this quarter with adjusted gross margin increasing quarter-over-quarter to 17.1% and adjusted operating margin reaching 2.0%. We have achieved operating level profitability 2 quarters in a row, and our self-funding capability has shown sustained and significant year-over-year improvement. Now I would like to walk you through the key business highlights for the fourth quarter of 2025. In terms of public cloud services, revenue reached RMB 1.9 billion this quarter, representing a year-over-year increase of 35%. From a customer perspective, in 2025, AI continued pushing its boundaries, driving industries to fully embrace it, diversifying our customer base. Beyond leading AI enterprises and Internet giants, we now also serve automotive manufacturing, autonomous driving, embodied AI and fintech sectors, et cetera. We've solidified our cooperation within the Xiaomi and Kingsoft ecosystem while capturing new external opportunities. From a product and services perspective, we keep pushing the limits of cluster scale, supporting large-scale training and explosive inference demand. Notably in this quarter, we delivered a new inference cluster for top video streaming platform, serving over 100 million users. We also secured a major fintech customer using our token-based inference service who speak highly of our stable model and computing power services. On supply chain front, despite market uncertainties, our well-established and resilient supply chain built through years of experience allowed us to plan ahead strategically and stock key components dynamically to ensure sustainable business growth. Now in terms of enterprise cloud, revenue reached RMB 859 million this quarter, a significant quarter-over-quarter increase of 18%. Driven by the AI Plus policy, industrial intelligence solutions have become a key growth driver. The demand for specialized vertical models, real-world applications and strict data compliance makes cloud services more essential than ever in advancing industrial intelligence. The AI business of enterprise cloud is paving the way for steady long-term growth, not only representing a $1 trillion market opportunity, but also playing a critical role in driving the technological leap across industries. As a B2B cloud service provider with solid technology expertise and enterprise service capabilities, we are well positioned to capture these industrial transformation opportunities. In the area of enterprise services, we achieved key breakthroughs in high-end manufacturing industry. We provided stable and high-performance computing service to the top enterprises to support their process in intelligent manufacturing, industrial vision and AI R&D. In health care space, we launched a data agent-based AI application in health care intelligent operation process, marking a paradigm shift from digitalization to intelligence. This analysis through natural dialogue platform enables natural language insights into DRG cost control, moving hospital management from retrospective statistics to proactive intervention. While significantly lowering the barrier to data application, we have further solidified our technical moat and differentiated competitive advantages in high-value medical AI scenarios. In public services area, we partnered with telecom operators to provide sustainable and stable high-performance computing clusters for the public services sector, successfully entering key markets like Shanghai. We believe that by leveraging Kingsoft Cloud's deep vertical expertise and enterprise service experience, intelligent computing opportunities in the enterprise cloud segment represents a massive industrial frontier, generating synergies with our public cloud business. In terms of products and technology, we are building a next-generation computing services system for LLM training, inference and industrial intelligence, offering full stack capabilities from computing services to model as a service. Our technology upgrades from basic cloud computing to an AI-first AI-native cloud architecture contributing for digital and intelligent transformation across sectors. We focused on the technologies catering to model training and inference scenarios, aiming to provide highly stable, highly efficient and ready-to-use intelligent computing services. This quarter, our StarFlow platform keep upgrading with the launch of MCP, aka model context protocol cloud, process optimization and AI search features to help enterprises develop and deploy AI agents through a unified platform, gradually building a new ecosystem centered around agent-based operations. For enterprises with private deployment demand, our Galaxy Stack provides heterogeneous GPU management, rookie network and intelligent container scheduling capabilities. We also feature full stack localization with indigenous adaptation to empower intelligent transformation across verticals. Standing at a new starting point, looking ahead, we're truly excited by the limitless possibilities that lie before us. We will remain committed to our high-quality and sustainable development strategy by embracing the immense opportunities presented by the AI era, developing along with the industry and refining our core technologies. We will continue to capture the market opportunities, both within and beyond our ecosystem, optimizing the operations of our assets to enhance profitability and thereby create value for our customers, shareholders, employees and society. I will now pass the call to our CFO, Ms. Li Yi, to go over our financials for the fourth quarter and fiscal year 2025. Thank you. Yi Li: Thank you, Mr. Zou and [indiscernible], and thank you all for joining the call today. Before we walk through the details of financial results for the fourth quarter and fiscal year 2025, I would like to highlight the following aspects. First, our revenue has achieved record high, RMB 2,761 million this quarter, representing a year-over-year growth rate of 24%. Within that, revenue from public cloud services was RMB 1,902 million, increased by 35% from RMB 1,410 million in the same quarter last year. Unprecedented explosive demand for our AI business drove a 95% year-over-year billing growth, which totaled RMB 926 million. Second, profitability has seen substantial improvement. Driven by shift in our revenue structure, our adjusted gross margin continued its upward trend, rising to 70% from 60% in the previous quarter. Adjusted EBITDA margin reached 28%, up 12 percentage points from 60% in the same quarter last year, though down from 33% last quarter. The year-over-year growth was fueled by a large contribution from AI-related business, where [indiscernible] represents the primary cost component. The sequential decrease was mainly due to a nonrecurring subsidiary received last quarter, which established a high baseline. Notably, we have achieved adjusted operating profit for 2 consecutive quarters, reaching RMB 55 million this quarter, which was a 2% margin. These results validate our ability to monetize intelligent cloud opportunities and our strategic focus on high-quality enterprise services. Third, our cash and cash equivalents achieved RMB 6,018 million, strengthening our ability to further support the investment into AI business. Now I will walk you through our financial results for the fourth quarter of 2025. This quarter, total revenue were RMB 2,761 million. Of this, revenues from public cloud services were RMB 1,902 million, up 35% from RMB 1,410 million in the same quarter last year. Revenues from enterprise cloud services reached RMB 859 million during this seasonally strong quarter, which was characterized by a high volume of project completion. Total cost of revenues was RMB 2,296 million, up 27% year-over-year, which was mainly due to our investment into infrastructure to support intelligent cloud business growth. IDC costs increased by 30% year-over-year from RMB 725 million to RMB 812 million this quarter. The increase was mainly due to the increasing needs of [indiscernible], which serves the expanding AI business. Depreciation and amortization costs increased from RMB 323 million in the same quarter of 2024 to RMB 741 million this quarter. The increase was mainly due to the depreciation of newly acquired and leased servers and network equipment, which were mainly allocated to our AI business. Solution development and service costs increased by 50% year-over-year from RMB 557 million in the same quarter of 2024 to RMB 642 million this quarter. The increase was mainly due to the solution personnel expansion. Fulfillment costs and other costs were RMB 40 million and RMB 61 million this quarter. Our adjusted gross margin for the quarter was RMB 471 million, increased to 10% year-over-year and 20% quarter-over-quarter. It was mainly due to the expansion of our revenue scale, the enlarged contribution from AI business and the cost control of IDC racks and servers. Adjusted gross margin increased from 60% last quarter to 70% in this quarter, which was mainly due to the high contribution from enterprise cloud. On the expense side, excluding share-based compensation costs, our total adjusted operating expenses were RMB 459 million, increased by 3% year-over-year and increased 9% quarter-over-quarter, of which our adjusted research and development expenses were RMB 181 million, increased by 7% from same quarter last year. Adjusted selling and marketing expenses were RMB 111 million, increased by 3% year-over-year. Adjusted general and administrative expenses were RMB 168 million, decreased 1% year-over-year. Our adjusted operating profit was RMB 55 million, increased by 124% from adjusted operating profit of RMB 24 million in the same period last year. The improvement was mainly due to the expansion of our revenue scale and gross profit as well as the expense control. The total expense as a percentage of revenue keeps decreasing. Adjusted operating profit margin increased from 1% in the same period last year to 2% this quarter. Our non-GAAP EBITDA margin was RMB 785 million, increased by 180% from RMB 360 million in the same quarter last year. Our non-GAAP EBITDA margin achieved 28% compared with 60% in the same quarter last year. It was mainly due to our strong commitment to AI cloud computing development, strategic adjustment of business structure, strict control over costs and expenses. This quarter, our capital expenditure, including those financed by third parties and right-of-use assets obtained in exchange for finance lease liabilities were RMB 496 million. For the full year 2025, our total revenue achieved RMB 9,559 million, increased by 23% from RMB 7,785 million in 2024, among which revenues from public cloud services were RMB 6,634 million, increased by 33% year-over-year. Revenues from enterprise cloud services were RMB 2,925 million, increased by 5% year-over-year. Adjusted gross profit was RMB 1,542 million, increased by 40% from RMB 1,358 million last year. Adjusted gross margin was 60%, decreased from 70% last year, which was mainly due to the high cost for servers and other hardware equipment. Adjusted operating loss was RMB 152 million, narrowed significantly from RMB 431 million. Adjusted operating profit margin was minus 1.6% narrowed from minus 12.5% last year. Adjusted EBITDA profit was RMB 2,336 million, increased by 266% from RMB 639 million last year. The adjusted EBITDA margin was 24%, improved by 60% from 8% last year. Looking ahead, we aim to capitalize on the explosive growth in demand by further investing in infrastructure, enhancing service stability, managing liquidity risk and improving operating efficiency. We remain focused on AI-driven strategy, providing customers with high value-added cloud services. That's all for the introduction of our operational and financial results. Thank you all. Nicole Shan: Thank you, operator. This concludes our prepared remarks. We are now happy to take your questions. Please ask your question in both Chinese and English, if possible. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from the line of Liping Zhao from CICC. Liping Zhao: Congrats for the very good 4Q results. I have 2 questions here. First, Xiaomi recently launched the MiMo-V2 series models, which have received positive market feedback. How should we view our role and positioning within Xiaomi's AI strategy? And what strategies will be implemented around Xiaomi and Kingsoft service going forward? And secondly, how does the management view the current pricing uptrend in the cloud service industry? Has the company already adjusted prices for AI computing services? Or are there any related plans in place? To what extent are those price adjustments driven by demand or driven by the upstream procurement cost pass-through? Tao Zou: [Interpreted] The answer comes from our CEO, Mr. Tao Zou. So a little bit of background. So back in 2024, I think that was in August, we had an internal discussion around the development of AI and models for the whole Xiaomi and Kingsoft ecosystem. So the idea was that the whole Xiaomi and Kingsoft ecosystem will form a [indiscernible] portfolio of solutions where -- a whole system where Kingsoft will stay disciplined and not really developing our own large language models, which is left to -- for Xiaomi to develop. So the MiMo model and its widely recognized performance is actually an implementation and manifestation of our overall AI strategy within the Xiaomi and Kingsoft ecosystem. And secondly, back in 2025, so 1 year later from the internal discussion session, from a KC perspective, we formed a strategy that's called 1+N. So the 1 here actually refers to the Xiaomi MiMo model, which is the key to KC's inference strategy. So in the future, we will continue to adhere to this strategy, which essentially means that within the ecosystem, we will continue to serve the Xiaomi and Kingsoft ecosystem. And for external customers, we will also try to monetize our model as-a-service capabilities, thereby not only in the training area that we were able to make our revenue and profits, but also we will make our contribution in the inference era that is approaching. Tao Liu: [Interpreted] So the answer comes from our SVP, Mr. Liu Tao. So as a bit of background again. So in the Q3 last year, we had anticipated the significant pricing increase from the supply chain side. And therefore, we had dynamically and strategically stocked up some of the key components. So we did have -- so we were actually prepared for this -- what's unfolding today. Now in terms of the price hike that you were asking, so we stick to 2 principles. Number one, if we already -- for some of the customers and business where we already have contracts in place and where we have the stocking of the underlying resources, we tend to not increase the pricing. However, for some of the new customers, new contracts, especially with significant increase of usage, there's going to be significant price hiking in these kind of scenarios. Now also in terms of profitability, one thing is that we will actually try to pass through some of the upstream cost increases to our customers. And secondly, for -- we also -- depending on the demand, right, we also try to increase some of the price to reflect and increase our profit. Operator: Our next question comes from the line of Wenting Yu from CLSA. Wenting Yu: The first question is that some of your cloud service partners have announced they will shift their cloud business more towards [indiscernible] from the traditional server rental and also the subscription model. Will KC adopt a similar strategy? And how do you view the impact of this trend on industry competition and long-term profit margins? And the second question is regarding the impact from the [indiscernible] engine. It is adopting a relatively low price strategy. And how do you view the impact on the industry and also on potentially our business this year? Tao Zou: [Interpreted] Okay. So regarding your question on the shifting to model as a service strategy, we have noted some of the other peer companies who released their results earlier than us mentioning it. However, my view is that this is not actually some new concept. It is actually one of the inevitable stage of the development of AI as well as large language models from the training that we do to create them to a certain stage that they become applicable and workable in our day-to-day work and life. So in relation to our own inference-related work, model as a service work, we actually launched the StarFlow platform, as we mentioned in the prepared remarks last year. And because we are a neutral platform, we were able to host essentially all of the open source models, including also the model coming from Xiaomi to provide model as-a-service business, where this is essentially actually the fastest-growing business in the history of the company. Actually, so we talked about the Xiaomi MiMo model earlier, the way that we're providing services for Xiaomi MiMo model is also a model as-a-service business. And also for some of the large language model customers that we used to -- and we're still providing training services to them, we also provide model as-a-services business to them as well to cater to their inference needs. Now as to your second question about the price change for [indiscernible], I haven't really noticed that particular piece of news. However, the general market dynamics today is that on one hand, we're seeing explosive growth on the demand side. And we're seeing a particularly high price hiking from the supply chain side. So I do not personally think that under such circumstances, changing price to a lower level would actually be implementable and applicable in the real world. Now what I have focused more is the price hiking information from, for example, AliCloud. We have worked with them together. We have been in the industry together for many years, and this is the first time that we've seen them hiking their price. And also an addition from our SVP, Mr. Liu Tao, is that there is a difference between the catalog price and the actual price that the companies that offer as cloud players and our customers engage into. So the change in catalog price is more of a marketing kind of purpose, and it does not necessarily mean the actual price that companies enter into business. Operator: Our next question comes from the line of Timothy Zhao from Goldman Sachs. Timothy Zhao: My first question is on your financial outlook. Just wondering if you can share some color on how we should think about the revenue, EBITDA, operating profit growth outlook for this year? And also on the capital expenditure plan, what is your thought and considering the balance sheet and also the prepayment from certain customers, do you think it's possible to further raise your CapEx plan given the rising AI demand? And secondly is regarding the third-party revenue in the AI outlook. Just wondering if you can share more detailed color on your -- what specific product or what type of customers are driving the third-party AI growth? And also what is the breakdown and outlook between the mix of AI training versus AI inferences? Yi Li: All right. I will take the CapEx first. For 2026, we expect total CapEx and control assets to exceed RMB 10 billion, representing expansion from 2025 level. On funding structure, we expect approximately half of our CapEx is targeted to be covered by customer prepayment arrangements, which will significantly reduce safe funding requirements. Additionally, we plan to access more assets through short- and long-term leases with payment structure and operating cash flows to minimize upfront capital encumbrance. For the funding position and financing needs, we currently have no equity finance plans. 2026 capital expenditure are secured through 4 channels. First, proceeds from our 2025 financing; and second, customer operating receipts; and third, the strategic customer prepayments; and the fourth, the commitment credit facilities from banks and financial institutions. Incremental resource requirement will be made primarily through leasing to preserve balance sheet flexibility. For the guidance for the 2026, we expect our growth rate will accelerate and the EBITDA rate will improve much in 2026 as well. Unknown Executive: [Interpreted] So if you look at the past results as described -- as discussed in the prepared remarks, the -- for the top 5 non-ecosystem customers combined revenue for year-over-year basis revenue growth was 44%, which is really strong growth. So those would include Internet companies, autonomous driving and robotics. And then in terms of looking forward into the year of 2026, we do see extremely large demand coming from outside of the ecosystem. And to some extent that such demand is actually higher than the demand from our ecosystem. So the final revenue or financial results coming from that demand will actually be determined -- will actually be dependent on how much resources we're able to secure and deliver to such customers. Now from the perspective of products and solutions, we have -- we're actually seeing more than half of the potential demand coming in for inference versus training. And then for the StarFlow platform, which we discussed earlier, it's growing really fast for that business, and we're seeing better profit margin coming from that particular business. And this is a result, of course, from the very good application, very good application and increasing penetration for agents and core applications. Thank you. Nicole Shan: Thank you. Due to time constraint, this concludes our Q&A session. Thank you once again for joining us today. If you have any other questions, please feel free to contact us. Look forward to speaking with you again next quarter. Have a nice day. Thank you all. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good morning, and welcome to KalVista Pharmaceuticals 8-month Fiscal Year 2025 Financial Results and Corporate Update Conference Call. [Operator Instructions] I would now like to turn the call over to Ryan Baker, Head of Investor Relations for introductory comments. Ryan Baker: Thank you, operator, and good morning. As previously announced, the company changed its fiscal year from ending April 30 of each year to ending December 31 of each year. There was an 8-month transition period from May 1, 2025, to December 31, 2025. With that in mind, earlier today, KalVista issued a press release reporting financial results for the 8 months ended December 31, 2025, and provided a corporate update. A copy of the release is available on the Investors section of our website. Before we begin, I'd like to remind listeners that today's discussion will include forward-looking statements. These statements are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our SEC filings for a discussion of these risks. KalVista undertakes no obligation to update forward-looking statements, except as required by law. I will now turn the call over to our Chief Executive Officer, Ben Palleiko. Benjamin Palleiko: Good morning, and thank you for joining us. 2025 was a pivotal year for KalVista, highlighted by the successful multinational launch of EKTERLY, the first and only oral on-demand treatment for hereditary angioedema. Since launching in the U.S. last July, we've seen high rates of early adoption, increasing physician engagement and positive patient feedback. Together, these signals reinforce our belief that EKTERLY has the potential to transform the treatment of HAE. As we build on this foundation, we remain focused on launch execution in the U.S. and Germany, expanding access globally and continuing to generate clinical and real-world evidence to support the long-term growth of EKTERLY. The momentum we are seeing in the launch translated into $35 million in global net product revenue in the fourth quarter, bringing revenue from launch through December 31, 2025, to $49 million and reflecting steady and consistent growth during the first 6 months of launch. Turning to the U.S. launch. As of February 28, we've received 1,702 patient start forms and activated 724 unique prescribers across the United States since the launch last July. These metrics reflect broad engagement across the HAE community and strong awareness among both physicians and people living with HAE. One of the most encouraging signals we are seeing reflects what we believe to be favorable utilization trends. Refills now represent the majority of prescriptions and revenue, indicating that individuals who have tried EKTERLY are continuing to use it to treat attacks. This pattern suggests sustained usage and growing confidence as people living with HAE incorporate EKTERLY into their ongoing management of attacks. We are also expanding the global footprint of EKTERLY. In Germany, the launch is off to a strong start with early adoption trends tracking similarly to those we see in the United States. In Japan, our partner, Kaken Pharmaceutical, has initiated launch activities following EKTERLY being listed on the National Health Insurance reimbursement schedule. And in Latin America, we recently announced a partnership with Multicare Pharma to commercialize sebetralstat across several key markets. Collectively, these efforts are expanding access to EKTERLY and strengthening our global commercial presence. Looking ahead, our focus this year is on advancing the pediatric opportunity for EKTERLY, extending its availability to this high unmet need population. We plan to submit an NDA in the third quarter of 2026, seeking approval for its use in children ages 2 to 11, which could support a potential U.S. launch in 2027. Alongside commercial progress, we continue to strengthen the clinical evidence supporting EKTERLY. At the recent AAAAI and Western Allergy meetings, we presented new analyses highlighting the potential for sebetralstat to help people treat more attacks earlier with sustained efficacy and high satisfaction. By reducing barriers to treatment, sebetralstat supports early intervention, which is associated with an improved treatment response. We are particularly proud that EKTERLY was recently recommended as a first-line treatment for adolescents ages 12 and older in the international guideline on the diagnosis and management of pediatric patients with HAE. The first-line recommendation for EKTERLY so soon after becoming commercially available, underscores the strength of our clinical data and reinforces the importance of ensuring individuals have immediate access to on-demand therapy. Overall, our objective remains consistent to establish EKTERLY as a foundational treatment for HAE worldwide. Based on feedback from physicians and patients, it is becoming increasingly clear that the ability for people to treat all attacks quickly and conveniently with an oral therapy represents a meaningful advancement in HAE management. While we are still early in the launch, we believe we have built a strong base across commercial execution, clinical evidence and regulatory progress to drive long-term growth and deliver lasting benefit for the entire HAE community. With that, I'll turn the call over to Paul to discuss the new clinical data presented at AAAAI and the Western meetings in more detail. Paul Audhya: Thank you, Ben. The recent Western and AAAAI scientific meetings, we presented several new analyses from the sebetralstat clinical trial program, including updated findings from the KONFIDENT-S open-label extension study. These data further expand our understanding of the clinical performance of EKTERLY and the evolution of treatment patterns with an oral on-demand therapy. First, looking at the longitudinal data presented at Western, we observed that sebetralstat performed consistently and effectively in nearly 2,500 attacks treated through September of 2025. What was particularly encouraging was that the use of the second dose occurred in only 19.3% of attacks and EKTERLY showed a decreasing trend over repeated attacks to about 12%. The use of conventional injectable treatments occurred in only 5.1% of attacks, which also trended downward toward 2%. While there have been no head-to-head trials, these data are favorable in the context of what has been published in the literature for other on-demand treatments. These findings are also evidence of growing confidence with sebetralstat as patients gained experience. This sustained clinical performance was mirrored by high and durable patient satisfaction, with 91.1% of attacks rated as neutral to extremely satisfied and a median overall score of very satisfied. This leads to AAAAI, where we reported a clear preference for sebetralstat over conventional injectable treatments in the KONFIDENT-S study. A unique part of the open-label, real-world study design was that patients were allowed to choose either sebetralstat or their historic injectable treatment for each attack depending on their preference. Under these conditions, participants chose to treat over 84% of their attacks with sebetralstat. Further, as the study progressed, the preference for sebetralstat grew as patients treated more attacks. Collectively, these findings from confidence reinforce a powerful narrative. EKTERLY is a preferred on-demand therapy, enabling patients to treat the vast majority of attacks, treat them early, and achieve high levels of sustained satisfaction after switching from injectables. Importantly, these results also reflect the trends we are seeing commercially, including growing physician confidence and increasing adoption by people living with HAE. Finally, I am pleased to highlight that these clinical insights are already being translated into global standard-of-care recommendations. The newly released international pediatric HAE guideline recommends EKTERLY as a first-line therapy for adolescents aged 12 and older. The guideline committee issued a strong recommendation based on our robust clinical data published in high-tier, peer-reviewed journals. Importantly, the guidelines emphasize that early intervention and ready access to on-demand treatment are the keys to better outcomes. This directly supports our findings that oral therapy has the potential to remove the barriers that have historically caused adolescents to wait nearly 8 hours before treating an attack with injectable therapy. With that, I'll turn the call over to Nicole to provide an update on the commercial launch. Nicole Sweeny: Thank you, Paul. We launched EKTERLY in the U.S. on July 7, 2025, and now approximately 9 months into the launch, we continue to see steady growth driven by increasing prescriber engagement and positive patient experience. As Paul outlined earlier, data presented at the AAAAI showed the high confidence health care providers have in prescribing EKTERLY and the high satisfaction their patients are having with the drug. Momentum to adopt EKTERLY continues to build. For January and February 2026, we recorded 384 new start forms, which brings the launch to date start form total to over 1,700. The U.S. HAE population is estimated to include approximately 9,000 patients. And based on our current start forms, almost 20% of individuals with HAE have initiated EKTERLY. We have now received start forms from 49 states and have recently expanded into Puerto Rico, further broadening access to therapy. On the prescriber side, during the first 2 months of 2026, we added 144 prescribers, bringing the launch-to-date total of unique prescribers to 724. The breadth and depth of EKTERLY use across all prescriber tiers continues to grow in a linear fashion. 29 of the top 30 HAE prescribers in the country have prescribed EKTERLY for multiple patients. As is typical in the early stages of a launch, we expect some quarter-to-quarter variability in certain metrics. The severe winter weather this quarter affected physician office activity and processing of start forms. We believe this is a temporary dynamic and does not reflect any fundamental change in the underlying demand for EKTERLY. Prescriber engagement also continues to expand. On average, we are adding approximately 3 new prescribers each day, and we recently recorded a milestone where 10 new prescribers activated in a single day. These trends reflect increasing awareness and growing physician confidence as experience with EKTERLY builds. As Ben mentioned earlier, as of Q4, refills represent the majority of units and revenue. This is an important indicator of the real-world utilization patterns and growing satisfaction with EKTERLY. We are seeing uptake among both high-burden patients as well as patients with more moderate disease activity, reflecting the value of an oral therapy that can be used anytime, anywhere. This quarter, we conducted a routine market research survey with both patients and health care providers. Health care providers indicated the oral administration and ability to treat attacks early as the top drivers of EKTERLY use. Further, patients prescribed EKTERLY indicated an increase in attack treatment rate since switching to EKTERLY. It is very encouraging to see initial signals that EKTERLY is delivering on its promise of enabling early treatment and treatment of all attacks for individuals living with HAE. Operationally, we remain focused on enabling broad patient access, supporting reimbursement and onboarding and ensuring a high-quality patient experience through our support services. We believe satisfaction is driven not only by the product itself, but also by the services and support we provide to individuals and physicians. In fact, despite our relatively recent entry, our patient hub services team recently received the highest ratings from health care providers on the quality of patient and access support of any company in the HAE space. Overall, we continue to see growing familiarity with EKTERLY, high levels of patient and physician satisfaction and increasing confidence in the role EKTERLY can play in HAE management. We believe EKTERLY is well positioned to become the foundational therapy in the treatment of hereditary angioedema. With that, I will now turn the call over to Brian to review our financial results. Brian Piekos: Thanks, Nicole. As a result of changing our fiscal year-end from April 30 to December 31, the results we are reporting today reflect the 8-month transition period from May 1, 2025, through December 31, 2025. For comparability, we are presenting the 2025 results against unaudited financial information for the same period in 2024. As previously announced, net product revenue for the 8-month transition period ended December 31, 2025, was $49.1 million, including $35.4 million generated in the 3 months ended December 31. Fourth quarter revenue benefited from our specialty pharmacy customers adding inventory ahead of the holiday shutdowns, which they were able to work through in January. Total operating expenses were $160.2 million compared with $117 million in the prior year period. Cost of revenue was $3.1 million and reflects expenses directly associated with product sales. Inventory sold in 2025 is not reflected in cost of revenue because it was manufactured prior to FDA approval and expensed to the R&D line at the time produced. Research and development expenses were $33.4 million compared with $52.2 million in the prior year period. The decrease primarily reflects lower clinical trial costs as the KONFIDENT trials wind down, reduced discovery activities, the reclassification of certain medical affairs expenses from R&D to SG&A beginning in the fall of 2024 and the capitalization of manufacturing costs following FDA approval in July 2025. SG&A expenses were $124.7 million compared with $64.9 million in the prior year period, driven primarily by commercial launch activities and the continued build-out of infrastructure to support the commercialization of EKTERLY. Operating loss for the period was $112 million compared with $117 million in the prior year period. As of December 31, 2025, we had $300 million in cash and investments, which we believe is sufficient to fund the company to profitability under our current operating plan. Overall, this period reflects our transition to a global commercial organization with the direct launch of EKTERLY in the United States and Germany. The investments made in 2025 position us to support continued commercial execution. Looking ahead, we expect operating expenses to remain relatively consistent when adjusted for a 12-month period, with the exception that cost of revenue will increase meaningfully as we sell through the remaining zero-cost inventory. With respect to the non-financial KPIs, starting with the first quarter 2026 earnings call, we will report patient start forms and unique prescribers for the 3-month period ended that corresponds to the financial results of that reporting period. With that, I'll turn the call over to Ben for closing remarks. Ben? Benjamin Palleiko: Thank you, Brian. We are very encouraged by the early launch trajectory of EKTERLY and the strong response from people living with HAE and physicians. With continued U.S. growth, expanding international launches, and a pediatric filing ahead, we believe we are well positioned for 2026 and beyond. Our focus remains on disciplined execution, expanding access globally, and delivering on the full potential of EKTERLY for the HAE community. Operator, we'll now open the call for questions. Operator: [Operator Instructions] Our first question comes from Tazeen Ahmad with Bank of America. Tazeen Ahmad: Congrats on another strong quarter. Can you talk to us about how do we think about the uptake for the ex-U.S. launches? You guys have made it to 20% of U.S. patients in a short amount of time. So can you maybe talk about the nuancing in the country specifically, let's say, Germany and Japan, to help us with how to think about uptake in general? And then for peak sales, what do you expect the split to be for revenue between U.S. and ex-U.S. Benjamin Palleiko: Sure. Thanks for the question, Tazeen. I'll start off and then I think Nicole can give some more detail. So at a high level, the German trends we've seen are tracking more or less the U.S. trends. It's obviously a much smaller marketplace, but the patient uptake has been quite strong. And I think we're comfortable that, that growth is going to look a lot like it looks in the U.S., again, just from a smaller base point. Japan, we did launch, but just factually, it's too early to tell. We did our -- we had our first sale in Japan last week. So it's probably a little early to extrapolate from that trend at this point, but more to come here as that launch progresses. And then with regard to peak sales splits, in general, the U.S. obviously represents the vast majority of sales for effectively any pharmaceuticals product. And so it will be somewhere in the 85/15, plus or minus a few points in either direction, U.S. sales over time. As we've said consistently, ex-U.S., the vast majority of the world is overwhelmingly on-demand only. You don't see a lot of modern prophylaxis use outside the U.S. But again, just because the pricing dynamics tend to be so much different from a unit standpoint, it may be pretty sizable. But from a dollar standpoint, it will always be a relatively small proportion. Operator: Next question comes from Paul Matteis with Stifel. This is Julian on for Paul. Congrats on the strong progress. Can you just tell us a little bit about the types of patients that have started on therapy over the last couple of months in terms of phenotype and how they may compare to the end of last year? And further, you also talked about how the end of the year may have been impacted by the holidays and you still showed some linear growth in start forms. Just curious over the next couple of months, if you expect to continue to see increased linear growth? And anything that we should think about going into 1Q with respect to inventory or GTN would be helpful. Nicole Sweeny: Sure. So thanks for your question. In terms of patients adopting EKTERLY we're very pleased to continue to see that the high-burden segment, we continue to increase our share with that segment in particular, as we look at the past few months of 2026. We're also very encouraged to see the broadening though of our patient base of growing both those patients with both mild and moderate burden of disease. And to us, that just really signals the broad appeal of EKTERLY to the entire population. And then in terms of the holidays, certainly, we do believe that demand is very strong in the fundamentals in terms of just the attractiveness of the profile for both patients and physicians. But we did certainly see earlier this year as many companies that the severe weather that impacted several states with multiple storms certainly did have a negative impact on demand in terms of the ability for patients to get into the offices to see their physician as well as for staff to complete administrative steps to complete paperwork for start forms. Benjamin Palleiko: Brian, do you want to talk about Q1? Brian Piekos: Sure. We, like other high-priced specialty medicines will have a small impact to Q1 gross-to-net associated with co-pay assistance. It's kind of small in magnitude of order and temporary in terms of just getting through the deductible reset process. Operator: Our next question comes from Stacy Ku with TD Cowen. Stacy Ku: We have a couple. So first, maybe could you comment on how refill trends are progressing in 2026 and where you think things could settle just given really the high demand you're seeing for EKTERLY. So that's the first question. And then a couple of quick follow-ups. Are you able to comment on the high-burden patients where you are in the penetration of that patient bolus? So that's the second question. And then the third, we appreciate you providing forms through February. Are you able to comment high level if the rate of patient start form adds is similar in March? Are you seeing kind of the same dynamic that we've seen in Q4? I appreciate you following up on that. And Nicole, aligned with the processing of start forms, could you just further discuss your comment there? Is it just the normal seasonality around deductible resets, payer changes, et cetera? Nicole Sweeny: Sure. Sure, absolutely. And I appreciate the question. So in terms of refills, we're very pleased to see that we're really maintaining the trends that we've discussed on previous calls and that refills, we're seeing patients anywhere between 1 to 3 cartons per refill as well as the high-burden patients continue to refill more frequently than when we look at those with more mild and moderate burden. And we've seen -- again, we've discussed that looking at claims data for some of the other on-demand therapies, those more mild-to-moderate burden patients are refilling just a few times a year, and we see that the high-burden patients refilling certainly more frequently. In terms of the share of the high-burden patients, we continue to grow. We're roughly around 1/3 at this point in time. And so we're pleased to see that continue to grow quarter-over-quarter. And really just the attractiveness of the profile continue to draw that particular segment of the market. And then just looking -- could you just remind me of your questions with regards to seasonality, just to make sure that we're answering it appropriately. Stacy Ku: Yes. I just want to make sure we can maybe further just dissect your comment of processing of start forms, just the processing aspect of it. Is it around the normal seasonality from high deductible resets, payer changes, et cetera, as we think about kind of the short-term Q1 dynamics? Benjamin Palleiko: Stacy, it's Ben. Just -- I think there's a couple of seasonality things we've tried to highlight here and maybe we're mixing a little bit together. The first is the fact that in Q4, we've said fairly consistently the wholesalers, the PBMs -- the wholesalers ended up with higher-than-average stock towards the end of the year. And also, we do think that patients took on more drug in Q4, whether that was for increased need or just in anticipation of the kind of standard Q1 deductible resets, we'll never really know. But we fairly consistently said the volumes were probably higher in Q4, driven by some of these seasonal factors. And that -- some of that resets in Q1. And so we've just been trying to tell people that that's kind of a normal course activity. With regard to the start forms, we've consistently said, and we believe this trend will continue that we expect the launch to be consistent and linear. That does not mean, I think when Nicole was trying to highlight those, it will be consistent and linear, but there will be fluctuations quarter-to-quarter, and we don't attach any fundamental significance to them. It's just driven by a number of factors. What she was, I think, trying to highlight was the fact in January and February, you had several bouts of extreme weather in the U.S. and that absolutely impacted physicians' offices. There were certainly days in January and February when we had zero start forms simply because all the offices were closed. And so that does have a little bit of impact on some of the numbers we've talked about so far. But again, it's not a fundamental thing. It's just a weather thing. And also, she was trying to highlight the fact that when physicians' offices are closed, the start forms, which the physicians' offices have to process just don't get processed and so -- and to convert them to commercial. And so there's just some factors like that. We're just trying to make sure everyone is aware of as we roll through Q1. But the high-level message is we believe in the linearity of the launch to a greater or lesser degree. And I think we're very comfortable with the way things are progressing and nothing about this we're trying to suggest any shift in our anticipation of the future growth. Operator: Our next question comes from Maury Raycroft with Jefferies. Unknown Analyst: This is Amy on for Maury. Congratulations on the strong quarter. We have 2 questions. One is a follow-up. Can you talk more about EKTERLY currently the refill rate and the dynamics? And how do you think the refill pattern will evolve in 2026 as the patient base broadens? The second question is, can you talk more about how you see the sales shaping up for the rest of the year? And would you be possible to share guidance at some point? And if not, what are the possible gating factors to do that? Benjamin Palleiko: Yes, I'll start with the second question, and then Nicole will pick up on the refill rates. Again, I think as is the norm with companies of our stage in the launch and activity level, we're just not in a position to provide guidance at this point. Again, for us, every quarter is the first quarter we've done this. And so for us to make any long-term projections right now, I think we're -- would probably not be helpful and may be defeating to everybody's activities. So what we do try to do is just convey what we do -- what we are seeing that's been consistent, and that just ties back to what I said to Stacy a minute or 2 ago just about how the launch continues to be to be quite consistent in terms of patient demand metrics. And all the other metrics that flow from that, patient commercial starts, refill rates, all that stuff also continues to trend in a favorable direction with really no dramatic shifts noted or expected. With that, I'll turn it over to Nicole to talk about the refill question. Nicole Sweeny: Sure, absolutely. So as mentioned earlier, with refills, we typically see 1 to 3 cartons per refill. And so when we discuss our high-burden patients, those individuals are typically receiving more on the 2 to 3 cartons on a regular basis and that regular basis being every 1 to 2 months. And then when we take a look at those that have more mild to moderate burden of disease, they're really averaging more in the lower end of that 1 to 3, so typically 1 to 2 cartons and the frequency of which we would expect would really line up more with what we see with some of the other on-demand therapies in terms of them refilling approximately 3 to 4 times a year. Operator: Our next question comes from Joseph Schwartz with Leerink. Will Soghikian: This is Will on for Joe. Congrats on the progress this quarter. So it's great to see the penetration into the U.S. market continue to grow at such a strong rate at this very early stage in the launch. And as we think about it moving forward, where do you expect things to eventually settle out? And what kind of peak penetration are you targeting? And how does that inform the growth of the on-demand market from $650 million to $1.5 billion? Benjamin Palleiko: Yes, sure. Will. We believe this market over time should overwhelmingly convert to oral therapies. The injectables, obviously, everyone knows this, they're quite efficacious. They've served patients well for the past decade. But I think it's fairly obvious from just how EKTERLY has done to date, we've entered a new era here of therapeutics in HAE and orals that offer all the benefits of the injectables with none of the burdens of the injectables just are a better option for patients, just the classic sort of dominant choice. And so we do believe that over the next several years to a very high rate, the market should transition to orals. So that's a key underlying expectation here. And as part of the transition to orals, what you should also see is treatment rates go higher. Right now, again, it's kind of commonly accepted, and this has been talked about many times in many different venues that something between 50% and 65%, call it, 60% plus or minus of attacks are treated at all nowadays. So setting aside the fact that late treatment is right, you've only got slightly more than half of attacks under any circumstance that are treated, period. And so the point there is that as that attack rate goes up, obviously, the usage of therapeutics to treat these attacks will obviously be substantially increased as well. And so the point there is that the market overwhelm overall just gets larger. And that's really, again, just driven by the fact that when you have a better option to treat your attacks with, you'll treat more of your attacks. So we think the story of the on-demand market coming back to your dollar size is driven largely by just that central fact of the fact that you have now have just a much better choice. And so when you get to those numbers you just talked about, really, that's not even, in our minds, an aggressive growth belief. If you took the units that are sold today, which is right around -- last year was right around 87,000 units. At the moment, the vast majority of those units are, in fact, generic icatibant. And so that's -- the reason for the dollar size of the market today isn't anything having to do with lack of demand. It's just the fact that most of that demand is sold at a low price. Clearly, as we've talked about before, we're converting patients in this marketplace over to EKTERLY from all the therapies, which includes a lot of folks coming from generic. And so obviously, every time those folks switch from a generic, they're moving to a branded therapy. And so the overall market dollar size, if you will, increases with each conversion. And so really, that $1.5 billion TAM you mentioned a minute ago isn't, in our minds, an enormous lift. It's really just presuming that you convert the vast majority of the market over to orals. So again, a lot of generic moves to branded pricing. And you have some -- and that -- the number you mentioned doesn't really become terribly ambitious in this manner, but it assumes that there's some growth in the marketplace based upon this higher treatment rate we talked about. And then on top of that, we've talked about a number of other more marginal impacts, people coming off of prophylaxis, things like that. But fundamentally, that number is really just reflecting more or less the current units converting over to branded and then some increased treatment share, which, again, I don't believe in the context of that number you talked about is terribly ambitious. Operator: Our next question comes from Serge Belanger with Needham. Serge Belanger: Nice 1Q preview. I guess, first, regarding payer reimbursement and access, any updates there? And I think in the past, you had mentioned that most of the patient starts or prescriptions were being almost universally covered under medical exception. Just curious if there's been any change on that front. Secondly, I think in the past, you've talked about potential use of EKTERLY as a short-term prophylactic. What does that market opportunity look like? And do you need to conduct clinical trials to capture that opportunity? Benjamin Palleiko: Serge, it's good to hear from you, and thanks for all the questions. I think maybe Nicole can talk a bit about the reimbursement metrics. And then I think we'd like to bring Paul into the conversation here and have him talk about the short-term prophylaxis, the work we're doing in that space and why we think it's important. Nicole Sweeny: Sure. I'm glad to speak to you about the access side of things. We continue to convert paid patients across all the payers. Right now, we are leveraging a mix of medical exception as well as the EKTERLY policies where we have them in place. Those policies commonly are PA to label. There are some instances where we give a step through icatibant, but given the experience that people have with that product, we're able to move those patients through without delay. Right now, our payer team is very much focused on really those remaining large PBMs who we expect to formalize policies in the coming months. So from our view, we're very much on track and looking to have really that steady-state access realized later this year in 2026. Paul Audhya: Serge, in terms of the STP opportunity, we currently still thinking about this from a research perspective. And so there are ongoing studies. We've currently seen use in about 50 procedures that are fairly invasive. And so far, the medication seems to work quite well. We're going to share the data at upcoming clinical conference. And we are initiating an additional trial to look at use in short-term prophylaxis. The reality is today, similar to the more general framework that injectable therapies are challenging to use in the setting of short-term prophylaxis where the recommendation remains strong that for patients undergoing procedures that they have an STP, that is typically recommended as an IV C1 inhibitor. This gives patients an additional option to consider using their oral on-demand therapy instead. And so we're still evaluating what the opportunity there is. But the data to date are pretty encouraging and it's a space to watch. Ben, I don't know if you want to add anything to that? Benjamin Palleiko: Yes. Serge, it's really just to tie. I mean, STP, pediatrics, at a high level, what we're really looking to do is continue to provide EKTERLY in places where we think it can address a meaningful unmet need. We haven't talked much about pediatrics today, but clearly, that's a space where it's not a lot of patients, but the current options are very much undesirable. And so we think that EKTERLY, even though it's not going to come for another year or so, still will offer an opportunity for folks to really address the unmet need in this young population in a much better way than they can currently. And so it may not be a huge economic pickup for us. But in terms of just expanding the availability of EKTERLY to populations that really could get benefit from it, we think it's substantial. And STP is exactly the same thing. I don't think we're presenting this as an enormous step-shift in terms of revenue opportunities. But there's a high need nowadays for better ways for patients to treat themselves prior to their procedures. Based upon the data we've seen so far, we think EKTERLY holds a lot of promise in there. And so this really all this comes under the tent of EKTERLY, really, we do expect to become the foundational therapy for HAE management. And this is just 2 more ways that we expect to accomplish that. Operator: Our next question comes from Jon Wolleben with Citizens. Catherine Okoukoni: It's Catherine on for Jon. I have kind of a quick follow-up question to the kind of thought of patients switching from icatibant. Are you seeing any like -- is it too early to be seeing any dent in the amount of prescriptions for generic icatibant? And is any of that data going to be kind of captured by you guys have shown just kind of track how the launch of EKTERLY is impacting that generic market? Benjamin Palleiko: So a couple of things here. First of all, the vast majority, as you would expect at this point in the launch -- of people who are transitioning EKTERLY still are in the process of switching over to EKTERLY. And so it's largely -- when we talk about the 1,700 start forms, it's start forms. Not all of those people have moved to commercial. And so you would -- the number is still small enough that I think you probably wouldn't see a tremendous impact to date in that data, if you were to look at it. But I do think that as you play through the year, that will start to become more apparent. But factually, we're still relatively early in the launch from a commercial shipments perspective. And so it's going to take a little bit longer for what you talk about to play through. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon. Thank you for attending today's Q4 and Full Year 2025 Marchex Earnings Conference Call. My name is Tamia, and I will be your moderator for today's call. [Operator Instructions]. I would now like to pass the conference over to your host, Frank Feeney, Chief Operating Officer at Marchex. Francis Feeney: Good afternoon, everyone, and welcome to Marchex's business update and fourth quarter and full year 2025 conference call. Joining us today are Russ Horowitz, our Chairman of the Board; Troy Hartless, our President, and Brian Nagle, our Chief Financial Officer. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements, including references to our financial and operational performance, and actual results may differ materially from those contemplated by these forward-looking statements. Risks and uncertainties that could cause these results to differ materially are set forth in today's earnings press release and our most recent annual or quarterly report filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements for subsequent events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The earnings press release is available in the Investor Relations section of our website. At this time, I want to turn the call over to Russ. Russell Horowitz: Thank you, Frank. I'm going to start off with a few thoughts and then hand the call over to Troy, Brian and then Frank again. The main item I'd like to reiterate is that we feel the company is at a very positive inflection point, both strategically and operationally. We've come a long way in expanding our customer footprint, evolving our product and technology capabilities and starting to create real sales momentum. With this progress and deeper strategic understanding, which is against the backdrop of the very real and very massive AI revolution, we've gained proprietary insight into what we believe may be a much bigger market opportunity, one where we evolve beyond mainly providing strategic analytics to vertical market-leading companies, to one where we accelerate delivering more comprehensive solutions that address high-value impact needs across the entire customer acquisition and optimization journey. At the end of the day, our customers fundamentally rely on our AI-driven strategic insights to more efficiently drive growth-oriented customer acquisition. We believe there is a significant opportunity for us to rapidly expand into highly measurable AI-powered bundled solutions, which provide the strategic insights our customers need, the automated actions those insights inform and the outcomes those actions achieve. We believe that there are significant untapped opportunities within our existing customer base and within each of our current verticals. We believe selling such bundled solutions across this entire customer value chain can accelerate our business and make us much more valuable within our vertical markets, as AI opens new product possibilities that can help businesses grow meaningfully while driving efficiencies. At Marchex, we view ourselves as a meaningful AI beneficiary, based on how rapidly we are now able to leverage AI to develop and deploy new products into our customer base that can deliver high customer value as well as new company revenue opportunities. In fact, we're being relied on to help many customers navigate the rapidly evolving and complex world of introducing AI and evaluating agentic possibilities to impact customer acquisition and retention. We see significant new business potential in introducing agentic workflows for customers who are integrated on the new Engage platform. Additionally, AI is making our business more agile and efficient to operate. The combination of these factors, including our vast amount of first-party data and vertical expertise are key elements in our improving outlook for meaningful business acceleration as we move through the year. With that, I'll hand the call to Troy to briefly discuss the fourth quarter. Troy Hartless: Thank you, Russ. In the fourth quarter, we achieved our goal of the primary completion of our technology platform migration by the end of the year. While this involved our migrating approximately 1,000 customers to the new platform and some resulting revenue dilution and offsets, we believe that we are now in a strong position with our ability to leverage new AI capabilities and more rapidly deliver innovative solutions to our customers. With this significant infrastructure project finally behind us, in 2026, we believe that we are well positioned to focus on accelerating our revenue growth and delivering margin expansion during 2026. Over the course of the past year, Marchex has significantly expanded our product platform capabilities for customers and prospects. Over this time, we have launched our new unified user interface across Marchex's product suite, new vertical AI capabilities and various other new products and features, and there is much more to come over the course of 2026 and beyond. In addition, with the previously announced proposed acquisition of Archenia. Marchex and Archenia have created a collaboration framework, and we have been jointly developing and selling initial products that reflect the combined capabilities of the two companies. Product examples of this collaboration, which leverage Marchex's data and AI signals and Archenia's AI tool sets and user interface, include conversational AI agents, which increase customer bookings and appointment rate and AI-verified outcomes, which drive increased revenue on a pay-per-event basis. We are currently in trials with a handful of customers and expect to launch more next month and beyond. While these combined selling efforts are early, we have had initial positive indications of adoption of the combined solutions for Marchex's existing customers in the Home Services and Auto Services verticals. We believe our ability to sell these and other combined solutions, which reflect the bundling of AI-driven insights, actions and outcomes to our installed customer base, will be a meaningful revenue growth catalyst in 2026 and beyond. As a reminder, we have a core focus on select very large vertical markets where the combination of our expanding AI capabilities, built on years of operating with first-party data across these verticals, give us the ability to deliver unique solutions for world-class market-leading companies. To that end, we deliver industry-specific AI solutions for automotive, auto services, home services, health care, advertising and media as well as other industries and sub-verticals. With that, I will turn the call over to Brian to provide an overview of the fourth quarter financial results. Brian Nagle: Thank you, Troy. Revenue for the fourth quarter of 2025 was $10.8 million, which is down from $11.5 million for the third quarter of 2025. We saw favorable impact of new sales and existing customer up-sells benefit the company in the quarter. We also saw some offsets to that growth due to migration activities from our legacy platforms onto our new Marchex Engage platform. For operating expenditures, we saw efficiencies throughout the business as we benefited from the realignment of the organization and the completion of certain technology platform initiatives during 2025. We anticipate that our gross profit margins can continue to improve over time as we are carrying an overall lower cost structure going forward, which could enable meaningful future operating and financial leverage for the business as new products and features sell through. On the balance sheet, cash decreased to $9.9 million from $10.3 million at the end of the third quarter of 2025. The decrease in cash was primarily due to the timing of customer payments at the end of the quarter. Moving to guidance. Revenue in the first quarter of 2026 reflects the migration revenue dilution from the final platform switchover in December 2025, which impacted revenue run rates entering 2026. With this noted, in the first quarter of 2026, we currently anticipate that revenue will be in the range of fourth quarter 2025 levels and that adjusted EBITDA will be $500,000 or more. Based on the growth initiatives previously noted by Troy and other positive factors, we currently anticipate that for the second quarter of 2026, revenue will sequentially increase as compared to the first quarter of 2026, with adjusted EBITDA potentially increasing to more than $1 million. In addition, with our ongoing product and feature launches on the new technology platform, we currently anticipate that we can see sequential quarterly revenue increases during 2026 and that over the course of the year, we can see revenue growth on a run rate basis in the 10% range from 2025 year-end levels. We also currently anticipate that in the course of 2026, the combination of anticipated increasing revenue growth, combined with lower overall operating expenses can lead to adjusted EBITDA margins of 10% or more. With that, I will hand the call over to Frank. Francis Feeney: Thank you, Brian. I would like to take a moment to provide an update on the Archenia transaction. In November 2025, Marchex announced that we had entered into an Agreement In Principle or AIP, to acquire 100% of the stock of Archenia from its stockholders. A special committee of Marchex's Board of Directors consisting solely of independent directors approved Marchex entering into the AIP because certain of the sellers are related parties. The AIP contemplates the parties entering into a definitive purchase agreement relating to the transaction. Conditions to entering into the definitive agreement include receipt of audited financial statements of Archenia for such periods as required by SEC rules and receipt of a customary fairness opinion by a financial adviser selected by the special committee. Archenia has engaged RSM US LLP to audit the Archenia financial statements and the special committee has engaged Craig-Hallum Capital Group, LLC as its financial adviser. Conditions to closing the transaction shall include approval of the transaction by a majority of Marchex's disinterested stockholders. The closing date, in the event a definitive agreement is entered into and the transaction is approved by disinterested stockholders, is anticipated to occur in June 2026. For your reference, Archenia is a performance-based customer qualification and acquisition company, which transforms consumer intent into AI-verified outcome-based results. Leveraging advanced AI signals, natural language analytics and automated decisioning, Archenia detects consumer intent and advertiser value in real time, optimizing customer acquisition campaigns dynamically across channels. With machine learning models that continuously refine qualification accuracy and ROI, Archenia enables its customers to pay for verified AI-validated outcomes such as appointments, sales and high-intent conversations. We believe that our potential combination with Archenia, if successfully consummated, would create a vertically-focused AI-driven customer acquisition and outcome optimization platform, integrating deep insights, automated actions and verifiable outcomes. Additionally, we believe that the expanded AI-driven product offerings across insights, actions and outcomes, could create more ways to win new business with the bundling of solutions could create customer value, stickiness and risk mitigation. We believe that the potential combined company could have the opportunity to achieve greater revenue scale and growth, higher margins, expanded market reach and enhanced strategic flexibility, which could include, first, a potentially expanded addressable market with opportunity to cross-sell and bundle. We believe the combined ability to sell insights, actions and outcomes would meaningfully expand our addressable market into a new large vertical markets. Additionally, we believe we could have the ability to relatively quickly offer or bundle Archenia's outcome-based solutions to many of Marchex's insights-based enterprise customers. Second, greater potential revenue, scale and growth. Marchex believes that revenue run rates for the potential combined company are approximately $15 million quarterly or approximately $60 million annualized, which could grow in the 15% to 20% range in the course of '26. Third, we see the potential for adjusted EBITDA expansion. We believe that our adjusted EBITDA margins are anticipated to trend up to 10% or more in 2026 and that Archenia could contribute additional positive adjusted EBITDA beyond these levels. And finally, Rule of 30 to Rule of 40 trajectory. For reference, the Rule of 30 to 40 metric represents the combination of annual revenue growth rates plus adjusted EBITDA margins. If we're able to achieve the anticipated revenue run rate growth in the 15% to 20% range and combine this with improving adjusted EBITDA margins of double digits, the combined company could be positioned to potentially achieve these Rule of 30 to 40 metrics over time, which we believe helps highlight the unique opportunity of the combined company if consummated. With that, I will hand the call back to Russ for closing remarks. Russell Horowitz: Thank you, Frank. I want to close out today's call by thanking all of our investors, partners and other stakeholders for your ongoing support. Additionally, I want to deeply thank our employees for their unique expertise, sense of urgency and continued commitment while we execute on what we believe is an increasingly dynamic opportunity. And with that, I'll hand the call back to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Ross Koller with Koller Capital. Ross Koller: I have a few on the go-forward business. First, Russ, can you provide any color on how the selling efforts for the combined capabilities are going so far? What kind of feedback are you getting? Russell Horowitz: Yes. Look, so far, the joint sales calls have been very positive and very much strategically operational. We've so far prioritized creating and selling the products that bring together the best of the combined capabilities of both Marchex and Archenia and where the customer data clearly highlights how the customer problem, our unique solution to it and the value impact that we can deliver. And we've had just a short amount of time to get this started, we actually already have multiple orders in hand from the installed customer base for these new products. We're now focused on launching and scaling these opportunities, and we think as we grow the list of customers adopting these products and then start stacking the wins together, we're going to see a very positive cumulative revenue effect. In today's release, we specifically referenced that we're out there selling conversational AI agents and AI-verified outcomes on a pay-per-event basis into the auto services and home services verticals. This is going to be continuing expanding with additional customers and also move into other verticals as well. Ross Koller: Awesome. Russ, can you talk about the opportunity set inside the installed base? I mean, what percentage of the base could be targeted to the new capabilities? And how large can the company grow just inside that base? Russell Horowitz: It's a really good question, and it's one we spend a lot of time assessing. If you think about our business overall, our top 50 customers represent about 80% of our revenue. And when we look at the new product capabilities, we believe that they are very relevant and very applicable to the vast majority of those top 50 as well as other customers beyond the top 50. In the past, Marchex has stated our belief that we have a $100 million revenue opportunity overtime. On a combined basis, we believe that the $100 million revenue run rate is much more tangible and achievable much sooner even with just the existing customer base. The joint sales efforts so far are validating that these are the right initial revenue goals and the right prioritized approach. So with everything we've learned so far, we just view this all as a profitably focused sprint to $100 million in revenue run rate. Ross Koller: Awesome. And Russ, lastly, can you walk us through the IR strategy going forward and how you'll be reintroducing the story to investors? And how are you thinking about the current stock valuation? Russell Horowitz: Well, yes, I'll start with the second question first. Look, clearly, we don't -- we feel the current stock price doesn't reflect our value or even the incremental value we believe we're in the process of both creating and validating. But we understand it's up to us to deliver the financial results and provide the customer and product stories for people to understand our value impact and to start seeing us the way we're really now seeing ourselves, which is a dynamic and unique company. And specifically, we're an exciting emerging AI growth story. So we think we're at an inflection point. We know the burden is on us to prove it with our results. But getting to the first part of your story, kind of with all this in mind, we just recently hired a new IR firm, PondelWilkinson, to help us get a lot more active in reaching out to new investors and helping us tell our story and make sure that we're really landing this, in a way we think is differential and unique. So we're going to be much more active, particularly with the Archenia transaction potentially closing shortly. Beyond that, when we think about our stock, throughout our history, we've had times where we've done stock buybacks. We've done self-tender offers. We've declared regular and special dividends, and as a reminder, right now, we do have an existing $3 million share buyback program authorized. So we're going to continue to assess all of our options. But again, first and foremost, under any scenario, we know the best way to get our value recognized is to outperform and communicate well. So that's what we're focused on right now, particularly since our May reporting cycle is only 6-weeks away. And we're excited for May to come because we think we're in a position to hopefully reinforce with some of those stories and some of those points of progress and pointing to how the results can unfold through the course of the year. Appreciate those questions. Operator: The next question comes from Mike Latimore with Northland Capital Markets. Vijay Devar: This is Vijay Devar for Mike Latimore. A couple of questions. The first one, did bookings grow sequentially and year-on-year? Russell Horowitz: Yes. On the first one, bookings were similar to the prior quarter. And when you look at the seasonal impact, we view that as a favorable result. And when you look at the trajectory kind of beyond the quarter, but month-to-month, particularly as we're getting out there with new solutions, we see accelerations of bookings as we're ending Q1 and going into Q2 in a way that we think can potentially meaningfully move the math. Vijay Devar: Okay. And how about call volumes following normal seasonal patterns? Russell Horowitz: Yes. Right now, call volumes have been relatively consistent in the past at times, we've spoken about those as being a bit of a drag that we need to overcome as part of our growth. But right now, not as much the case as it has been historically. Right now, the primary variables are customer expansion, up-selling the new products and getting the benefits or stacking effect of what we're starting to see unfold based on the joint efforts to go sell the combined capabilities. Beyond that, we are having success with some up-sells, and I do believe that we are in a position to win more new customers on the traditional products. But the real catalyst that we see is with these products that really unlock the strategic insights into action and outcome-based products, and we're getting a lot of validation with the early sales efforts, and we see the opportunity to significantly expand within the existing base, which is the quickest way, again, for us to really favorably move the math on our financial results. Operator: There are currently no more questions remaining at this time. So I'll pass it back over to the team for closing remarks. Russell Horowitz: Look, I just want to thank everybody for participation in the call, the very thoughtful questions, and again, reiterate with our investors and stakeholders the appreciation for your ongoing support, and we look forward to seeing and hearing you again very shortly with our forthcoming May announcement as well. Thank you, everybody. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Remgro Limited Interim Results Presentation. [Operator Instructions] Please note that this event is being recorded. I will now hand over the conference to Chief Executive Officer, Jan Durand. Please go ahead, sir. Jan Durand: Good morning, everybody. Thank you for joining us this morning, and welcome to our interim results presentation for the 6 months period ended 31st of December 2025. Today, we'll unpack our financial performance for the first half of this financial year. And has become our standard approach, we will also spend time on the performance of our key portfolio companies that continue to shape our overall results. With that in mind, the outline of today's presentation will be as follows. Firstly, I will give an overview of the salient features of our performance, including the wins that reflect our focused execution against our strategic priorities. Secondly, our Chief Investment Officer, Carel, will give an update on some of the key corporate actions that are central to our portfolio simplification and optimization journey. Then Neville, our CFO, will take you through the financial results in more depth. And finally, I will turn to updates from our major investments. The CEO of Mediclinic, Ronnie; and the CFO, Jurgens, will speak to Mediclinic's results and progress on strategic priorities. Then after that, the Managing Director of Heineken, Jordi and his newly appointed Chief Finance Officer, Radovan, will together do the same for Heineken Beverages. And then the CEO of Maziv, Dietlof will do the same for CIVH. And finally, the COO of RCL, Paul, will provide highlights of the results they reported on earlier this month. I will then close off the presentation by looking at our areas of focus going forward before opening the floor for questions. This morning, I'm extremely pleased to present interim results that show sustained strong earnings growth across our portfolio. Even more encouraging is that this earnings momentum has translated into strong cash generation at the center, enabling us to return value to our shareholders with a significant uplift in our interim dividend. For this period under review, headline earnings increased by 38.5%. And alongside this, cash earnings at the center strengthened materially with dividends received at the center up roughly about 34%, supporting an interim dividend increase of approximately 80%, a significant return of value to our shareholders. The main drivers of this earnings growth were stronger contributions from Mediclinic, CIVH, Rainbow and Heineken Beverages. Ignoring the distributions over the period, our INAV increased by 1.6% over the period, which is more modest than the growth of our earnings and a function of valuation movement across our listed and unlisted portfolio. But this is a good indication that the increase in the underlying earnings of our company substantially reflect our own valuation models. As I reflected on this marked progress, it is clear that these results demonstrate the resilience of our portfolio, the benefits of disciplined, focused execution and strong partnerships with our various management teams. By the same token, it would be remiss of us not to reflect on the impact of the operating environment, which we and our investee companies continue to operate, which I'm sure this audience is all too familiar with. Global trade tensions, geopolitical instability and muted domestic growth remain persistent headwinds. Although extensively analyzed the speed of changes and the resultant unpredictability make forecasting the impact difficult at this stage. Very importantly, for us, we must not forget about our colleagues of ours that work in the affected regions. Our thoughts are with them in these difficult circumstances, and we applaud them for the resilience and the courage that they show. Instead of dwelling what is outside our control, though, our focus remains where it matters most, managing what is within our control, strengthening the performance of our core businesses, progressing portfolio simplification and maintaining disciplined capital allocations. These have underpinned the gains we are presenting today. On this slide, I want to highlight a few of the positive outcomes that this strategic focus has yielded. I have spoken about the robust growth in earnings and sustained momentum, which we have now seen consistently over multiple reporting periods. This, we believe, speaks to the strategic clarity and disciplined execution. I am pleased with the commitment of our executive teams at the underlying investee companies, which in partnership with Remgro is actively driving performance, which can be seen in the strong contributions from our previously challenged investees. We're especially pleased with the long-awaited implementation of the CIVH/Vodacom transaction, which positions us to capture the growth potential we've articulated for some time. We've also made some strong progress in simplifying the portfolio, including the sale of our remaining interest in BAT, the distribution of our media assets and more recently, the monetization of part of our interest in FirstRand, which has significantly derisked our balance sheet. The proposed restructuring of the Mediclinic -- of the Mediclinic business further aligns this investment to our strategy and simplifies the group further. The results of all of these deliberate efforts can be seen in the cash generation profile I spoke of earlier, with our sustainable dividends received up by almost 34%. In addition to this incredible growth, special dividends received have also further strengthened our balance sheet and offer a strategic optionality to navigate the current volatility, but also in pursuing future growth opportunities. Ultimately, these results are a clear payoff from strategic clarity, focused execution and consistency. Very importantly, whilst we are and must celebrate these wins, performance optimization with a dynamic execution across our portfolio remains key to maintain this momentum, particularly with reference to some of our business that are still facing some challenges currently like RCL, especially regarding regulatory issues and the challenging market dynamics, but Paul will elaborate on this further. We also experienced some sharp focus on the volume pressures through aggressive pricing trends that we see in the overall beverage market that impacts Heineken Beverages. Jordi will also go into that in a bit more detail. Even so, we remain confident in the long-term growth potential of the portfolio. Today's results show that our focus is working, and our job is to remain sustain this momentum. The question of our capital allocation posture understandably featured prominently in all discussions. We think about capital allocation through 3 pillars: strengthening the balance sheet, supporting portfolio growth and delivering value to our shareholders. The strengthened balance sheet of us has created a solid foundation for growth while enabling a meaningful improvement in returns to our shareholders through higher dividends and other value-accretive returns of capital. We continue to consider and evaluate options to crystallize value and including -- that includes share repurchases. We are actively assessing new investment opportunities with greater emphasis on building our new business development pipeline. Key for us is that we view our strong balance sheet as a critical and strategic asset, particularly in this period of heightened volatility. We have been intentionally conservative in our cash preservation posture and believe that this positions us well to act on growth opportunities as they come. I will now hand over to Carel to provide an update on our key corporate actions. Carel Petrus Vosloo: Thank you, Jannie, and good morning, everyone. I wanted to provide an update on corporate actions at 2 of our investee companies. The first one of those is at CIVH, and shareholders would be familiar with the Vodacom transaction that we've been talking about for the last number of years now. So -- as shareholders would remember, Vodacom injected cash and shares into Maziv for a 30% shareholding in Maziv and then also acquired shares at the CIVH level for ZAR 1.8 billion, and that resulted in a pre-implementation dividend from Maziv and then -- from Maziv into CIVH and from CIVH ultimately to shareholders. As Jannie mentioned, we're very pleased to have got this transaction done towards the end of last year. Vodacom brings a very strong strategic partner to our business. It allows us to accelerate the scaling of the network, including to previously underserviced communities, also gives us greater balance sheet flexibility and really pleased to finally have got this done. The second transaction is the second leg of the Herotel acquisition. Again, we remind shareholders that Herotel is a service provider, mostly in secondary towns or secondary cities and rural towns. They've got an incredibly strong management team, a really great recipe for rolling out infrastructure in this segment of the market and a great complement to what we currently have in Vumatel. So again, very excited at the prospect of getting this transaction done. It increases our infrastructure, our economies of scale and improving unit economics. So just to reflect a little bit on the time line for these 2 transactions, where we've come from to where we are. It's now almost 5 years ago when we initially announced the Vodacom transaction at the back end of 2021 and fair to assume it had a fair run-up to get to that point of announcement. So it feels like we've been busy with this for a while. But soon after that, we announced the first leg of the Herotel transaction. So the acquisition of that first 48% that was in early parts of 2022. And then things took a little while, but very pleased in August last year to finally get the approval from the competition authorities for the Vodacom transaction. And then relatively soon after that, at the beginning of December, we implemented that transaction. Just to remind people, when Dietlof here to speak about the results for CIVH, that's up to the end of September. So it doesn't yet include the Vodacom assets in those numbers. But obviously, in time to come, we'll see the impact of that. Back to the time line then in December of last year, we were then also pleased to obtain the competition authorities approval for the second leg of the Herotel transaction. And the only CP that's outstanding there is the Casa approval. And we hope that would be imminently forthcoming. So to remind people what that then looks like in terms of the shareholding structure. Previously, CIVH used to own 100% of Maziv. Vodacom now is introduced alongside CIVH with that 30% interest. They obviously bring their assets and the cash or they brought their assets and cash and in the process of integrating those assets into Vuma and DFA. At the bottom of the slide, you can then also see whether the warehousing vehicle that trust sits as a shareholder in Herotel with a 49.9%. And when that transaction is approved, hopefully, Herotel would end up with 99.9% of -- Vuma would end up with 99.9% of Herotel. Maybe it's a slightly more interesting slide. Hopefully, we -- there are so many moving parts on the valuation of CIVH that we thought we should unpack them separately. And the first part that we thought would be useful to explain to shareholders is just the impact that the Vodacom transaction has on our valuation as existed at the end of last year, so at the end of June, our year-end, June '25. So this is not an updated valuation that you will see later, and Neville will talk to that. But just to give you an impression of the impact of the valuation on our the impact of the transaction on the valuation as it stood. So ZAR 15.8 billion was the INAV value that we attributed to CIVH. If you then add the Vodacom assets and shares that they brought and apply our pre-dilution interest to that, that increases the value by ZAR 7-odd billion. Vodacom rather CIVH then paid a pre-implementation dividend, which was upstream from Maziv. So Remgro's share of that was ZAR 2.66 billion. So that comes out of the value. And then, of course, we diluted by 30% alongside other shareholders for Vodacom's entry. That takes another ZAR 5.7 billion out. And then we applied the discounts that were embedded in our valuation to the Vodacom assets that were added, but we also slightly increased noncontrolling discount to the overall valuation. And after all of that washes out, you will see that the valuation ends up almost at exactly the same place where it started, the 15.8% after you take into account the dividend that's been received and now sits in cash in our hands. So just what remains for CIVH on these, let's call them legacy transactions. On the Vodacom side, investors would remember there was also a 5% option for Vodacom to buy an additional 5% in Maziv effectively directly from Remgro. That transaction, the price for the transaction is a fair market value that will be determined at that point in time, but there is an underpin to that price of ZAR 43.7 billion. That number might not sound particularly familiar, but just to explain that, the transaction value for the base deal was ZAR 36 billion, and that stepped up to ZAR 37 billion for this option. Then you have the ZAR 11 billion of assets and shares that came in from Vodacom less the pre-implementation dividend that came out of Maziv of ZAR 4.2 billion, and that gets you to the ZAR 43.7 billion. So that's the floor value, if you like, for the exercise of this option. We extended the option period to the end of March 2027. Then on the Herotel side, upon approval of the second leg on the acquisition of the 49.9% stake from the trust. CIVH will acquire those shares and then we'll inject those shares into Maziv for additional shares. The price for that, again, would be at fair market value as would be determined at that point in time, but again, with the underpin of ZAR 2.75 billion. Vodacom would likewise bring cash for that same amount. That's ZAR 8.25 million at the full price, and that cash would be upstream from Maziv into CIVH, and that would effectively restore CIVH or rather Vodacom's 30% stake in Maziv. So a few sort of complicated steps, but the only thing to tune into there is the end product would be that Herotel would sit inside or 99.9% of Herotel would sit inside Vuma and CIVH would have an additional ZAR 825 million round of cash. On to the second transaction that we -- or second [indiscernible] want to talk about, which is Mediclinic. Towards the end of last year, we announced the proposed transaction and the in-principle agreement that we reached with MSC to exchange our respective interest in Hirslanden and Mediclinic Southern Africa. So as per the announcement, what we had agreed is that after this exchange, Remgro would end up with 100% of Mediclinic Southern Africa and MSC with 100% of Hirslanden. And that will be done on a value-for-value basis, so basically exchange it for equal value. And we would continue as 50-50 owners of the rest of the business, which is our Middle Eastern business and then also the 29.8% stake that we own in Spire. An important feature of that transaction is that the exchange ratio or the values that we used were arrived at with the balance sheets as they existed at the end of June last year. So to keep the integrity of those valuations, we've got a lockbox in place on both the Southern Africa side and in Hirslanden. And simply what that means is that the value and the cash that accrues in those respective entities are trapped in those entities for the benefit of the future owners. So to the extent that there are dividends that need to flow out or capital injections that need to go into either of those businesses, that would be adjusted and then there would be a sort of cash equalization mechanism to cater for that. The future operating model is in progress, but what will ultimately happen is that the group services will be increasingly decentralized and we'll get to a point where each 3 of those regions can basically operate as independent businesses. We foresee that there would be some limited transitional services that would be provided. But substantially, the businesses will be able to operate on their own. Just to recap on the rationale, which we had set out in the announcement as well. We believe that aligning the shareholding with the markets where the respective shareholders have the deepest understanding and the greatest conviction on strategy that would improve the agility in execution. And certainly, from Remgro's point of view, we think that it aligns with our own investment thesis of having ownership, full ownership of a market-leading asset in our home market that we know and understand. Just to remind the audience what it is about Mediclinic Southern Africa that Remgro finds attractive. It's a large hospital group. We've got 20-odd percent share of the private hospital market, 50 hospitals, 15-day clinics, really strong management team, market-leading EBITDA margins and consistently healthy earnings and cash flow generator. The picture is not particularly complicated of how it will change. You'll see at the moment, our partners, MSC and ourselves own into a vehicle that owns -- that owns 100% of the 3 regions and then also the stake in Spire, as we mentioned, and that will simply change so that those 2 regions, Switzerland and Southern Africa are owned by the shareholders directly. A few more sort of steps and gymnastics to get there, but the picture in the end is quite easy to tune into. Hopefully, a slide that's helpful to for investors just to understand how we get to the answer. There's no new information on this slide. So this is information that is available either in the initial announcement and on the Mediclinic results announcement for September. But we thought helpful perhaps to step people through how one gets to sort of a value equality between these 2 regions. We announced in December that the implied EV/EBITDA multiples for Southern Africa and Switzerland were 6.3 and 9.4%, respectively. So if you apply those multiples to the last 12-month EBITDA as that existed at the end of September, and then you can calculate the enterprise value and just to look at the dollar enterprise values for South Africa, that means just short of $1.6 billion in the case of Hirstlanden that comes to $3.3 billion, almost $3.4 billion. So clearly, Hirstlanden is a meaningfully bigger business if you just look at the enterprise value. But then in the second last column, you can see we overlay the debt and other, which is mostly the noncontrolling interest. And that then reduces the equity value in both businesses to around $1 billion. Again, these are not the exact numbers as per our valuation. The main reason being that this is using balances as of the end of September as we published and also FX rates at the end of September. As I mentioned before, our valuation date was at the end of June. So the actual numbers are slightly different, but we still thought a useful indication to help people just to understand how one would get to roughly equal values. And then lastly, just to say what remains to be done. We're in the process of finalizing agreements and negotiating the final terms. We will hope to get that done as soon as is practically possible. That will obviously allow us to file the regulatory filings and get that process underway and also to continue to work on the separation and finalizing the operating models for the various businesses and then obtain the relevant third-party consents are required, none of which we think would be problematic. So we look forward to updating shareholders again in future on progress. But with that, I'll hand over to Neville to take us through the financial results. Neville Williams: Thank you, Carel, and good morning, everyone.The key message of this interim results announcement is that the earnings growth momentum experienced during the 2025 financial year continued during this first half of this current financial year, culminating in the strong growth in headline earnings. So for the period -- the 6-month period under review, Remgro's headline earnings increased by 38.8% from ZAR 3.7 billion to ZAR 5.2 billion, while headline earnings per share increased by 38.5% from ZAR 6.72 to ZAR 9.31. This graph depicts an overview of the main drivers of the increase in headline earnings and can be summarized as follows. The increase in headline earnings is mainly due to increased contributions due to improved operational performances from Mediclinic up by 55%, their contribution. Rainbow, up by ZAR 280 million, which is more than 100% due to the surge in profitability. CIVH up by more than 100%. And this represents a breakthrough to sustained profitability. And Heineken Beverages also in a positive turnaround phase, up by more than 100% from a low base. Also, there was an increased contribution from TotalEnergies, up by ZAR 330 million, mainly due to a once-off transit pipeline cost refund received during this period. And the increase was -- there was also lower finance costs due to the redemption of the preference shares during the prior period, and that's an increase of around ZAR 95 million. This increase was partly offset by a lower contribution from RCL Foods, down by 31%, largely driven by weaker performance from the Sugar business unit. We will provide more detail on these operational results during the presentation. This graph depicts the evolution of and growth momentum of dividends received at the center since financial year 2021. The bottom line is the interim period and the blue line is the full year momentum. Dividends received from investee companies is the main component of our cash flow at the center. In line with the growth momentum in cash flow and headline earnings during the 2025 financial year, Remgro experienced strong cash flow generation at the center for this period under review, mainly due to a 34% increase in sustainable ordinary dividends received from investee companies amounting to ZAR 2.4 billion. In the previous period, we've received ZAR 1.8 billion from investee companies. And this amount excludes the special dividends related to corporate actions, mainly the CIVH pre-implementation dividend. Just want to emphasize that the Board takes into account a full year view of cash flow at the center when considering the interim and the final dividends for the year. This graph provides an overview of the material changes in the valuations of our unlisted investments as well as the movement in market values of our listed investments during the period under review. Remgro's INAV per share increased by 1.6% from ZAR 292.34 at 30 June 2025 to ZAR 297.3 at 31st December 2025. And they will see the main drivers impacting positively on the growth in INAV includes an increase in net cash, up by ZAR 3.7 billion, increase in market value of our listed investments first rand up by 20% and Discovery up by 6% and Rainbow by 21% as well as increases in valuations of some of our unlisted investments, HeinBev up by 12% and Siqalo Foods up by 9%. These increases were partly offset by a decrease in the market value of OUTsurance, which was down by 8.5% and RCL Foods down by 8.2% as well as the unbundling of eMedia holdings. So if you look at the block there on overall, on average, the material unlisted investments valuations increased by 2.3%, while the listed market values decreased by 3.7% -- if you look at the block, the INAV before net cash and CDT actually decreased by 0.5% and from ZAR 0.5 billion to the ZAR 1.6 billion is the uplift in the cash balance from period to period. The net cash increased by ZAR 3.7 billion, mainly due to the CIVH pre-implementation dividend of ZAR 2.66 billion received upon the completion of the CIVH/Vodacom transaction in December 2025. Total increase in INAV is 3.4% if adjusted for distributions made during the period under review, which include the final dividend of financial year 2025 of ZAR 2.48 as well as the special dividend of ZAR 200 that was paid during this period under review as well as the unbundling of eMedia Holdings. The value was around ZAR 0.75 per share. I want to make a few remarks about our valuation methodology. We use standardized methodologies and apply them consistently ensuring the methodology is aligned to best practice. We continue to use the discounted cash flow methodology as our primary valuation approach and use calibrated peer multiples as reasonability checks of our outcomes. During the 6-month period, discount rates came down, but we were careful to also moderate the terminal growth assumptions to reflect lower implied long-term inflation. We believe the outcome is valuations which are reasonable but conservative and can stand up to scrutiny. The following graphs show the movement of the valuations and implied multiples of the 5 largest unlisted investments in Remgro's portfolio. These investments represent approximately 83% of Remgro's unlisted portfolio. Changes in portfolio valuations reflect a mix of different factors across the various investments. In most cases, changes have mainly been driven by lower cost of capital with some adjustments to financial forecast and a moderation of terminal growth assumptions, as noted earlier. Overall, looking at the multiples, they have remained reasonable when compared to a calibrated peer set. Moving into results overview per pillar. Similar to our year-end presentation and in addition to the INAV and headline earnings disclosure per pillar, we also disclosed the cash dividends received for the 6 months as well as the last 12 months headline earnings and dividend yield for improved transparency. The health care pillar consists of Mediclinic, which is the single biggest investment in Remgro's portfolio and contributes approximately 24% to INAV and approximately 26% to headline earnings. If you look at the valuation of Mediclinic, just remarks on the process. At year-end, we use a third party to perform an independent valuation, which is audited by EY's valuations team. At interim, our corporate finance team prepares the valuation, applying a methodology which is closely aligned with the third parties' methodology. Remgro's valuation of its 50% stake in Mediclinic Group increased by 7.4% in U.S. dollars. That's Mediclinic's reporting currency in the context of improved overall performance resulting from good execution on key business priorities in each region. With the rand strengthening by 6.6% over the 6-month period, that valuation increase translates to 0.2% in rand terms. The valuation is an aggregate of the DCF of the latest business plans for each of the 3 regions. The implied EV over EBITDA multiple is 9.5x, calculated using Mediclinic September 2025 published results. This represents a blend of the multiples of the 3 component parts, each of which we compare to a relevant peer set. Ronnie and Jurgens will unpack Mediclinic results later in the presentation. The consumer products pillar consists of RCL Foods, Rainbow, Heineken Beverages, Siqalo and Capevin and contributes approximately 16% to INAV and 29% to headline earnings. The platform showed mixed performance for the period. RCL Foods, Siqalo and Capevin saw a decline in headline earnings for the period with Rainbow increasing substantially. Dividends contribution also improved due to contributions by RCL Foods, Siqalo and Rainbow compared to the comparative period. RCL Foods contribution to headline earnings decreased, as I said, by 31%, while the underlying headline earnings from continuing operations decreased by just under 22%, largely driven by challenges experienced by the Sugar business unit during the period under review. Paul will elaborate in more detail on RCL Foods results later in the presentation. The contribution by Rainbow increased substantially by 110% to ZAR 535 million from ZAR 255 million in the comparative period. We are very pleased with Rainbow's results for the 6-month period, and Martin and his team do a great job unpacking those results in the recent webcast that is available on Rainbow's website. I would also encourage you to view that there. HeinBev's valuation for its 18%, Rainbow's valuation for its 18.8% interest in HeinBev increased by just under 12% over the 6-month period to ZAR 7.5 billion. In summary, the increase in the valuation is attributed to factors including improved operating margins and decreased cost of capital, offset by reduced terminal assumptions. HeinBev's contribution to headline earnings amounted to a profit of ZAR 155 million, delivering a turnaround from a loss of ZAR 11 million in the comparative period. This solid financial performance was underpinned by margin expansion and disciplined cost management. Jordi and Radovan will elaborate in more detail on Heineken Beverages' results later in the presentation. Siqalo Foods valuation increased by 9.1% over the 6-month period. Siqalo operates in a persistently challenging trading environment, marked by ongoing commodity cost pressures and constrained volume growth. The valuation benefited from a lower cost of capital, offset by slightly moderated financial forecast. The headline earnings contribution amounted to ZAR 237 million, representing a decrease of 6.7%. As said before, the trading environment remained challenging due to constrained economic growth with consumers still under financial strain. Their business volumes remained constrained and decreased by 2.7%, mainly due to the spirits category market volume declining by 2.1% over the last 12 months. The profit margins held steady due to a price increase implemented in March 2025. And by focusing on savings initiatives, the business managed to offset some inflationary costs and increase brand marketing investments. The financial services pillar contributes 21% to INAV, 15% to headline earnings and 17% to dividends received at the center. OUTsurance Group is the most significant investment here. Their contribution to headline earnings increased by 14.3% to ZAR 713 million, mainly due to OUTsurance Holdings normalized earnings increasing by 12.6%. The increase in earnings was driven by strong performance in South Africa and solid organic growth. OUTsurance Group released their interim results on the 11th of March 2026. The valuation of Remgro's 57% stake in CIVH increased by 2.7% from ZAR 15.8 billion at 30 June 2025 to ZAR 16.2 billion. This ZAR 16.2 billion excludes the CIVH pre-implementation dividend of just under ZAR 2.7 billion, which Remgro received. And on a like-for-like basis, including the dividend, the valuation increase is 19.6%. With the implementation of the Vodacom investment into Maziv in December 2025, Remgro's effective stake in CIVH's operating subsidiary, Maziv reduced from 57% to approximately 40%. It is pleasing to see CIVH's potential is now starting to deliver meaningful financial performance with strong structural fiber demand and expanding network and greater penetration, Maziv has delivered good revenue and earnings growth through increased subscribers and average revenue per user. The valuation benefited from a reduced cost of capital, partially offset by an increase in discounts as Dietlof will describe later, including those due to the capital structure changes. Given the valuation date of 31st December 2025, the valuation includes the Vodacom assets at acquisition cost with customary Remgro discounts applied rather than adding a forecast DCF for these assets. The 30 June '26 valuation will be done on a business plan with these assets fully integrated into the respective businesses of DFA and Vumatel. CIVH's contribution to headline earnings amount to a profit of ZAR 123 million, reflecting a sustainable breakthrough into profitability from a loss of ZAR 141 million in the comparative period. And these earnings is accounted for up to 30 September 2025. Dietlof will elaborate in more detail on CIVH results later in the presentation. The industrial pillar companies are mostly profitable on a sustainable basis and consistent dividend payers with high cash conversion ratios as seen in the contribution to headline earnings and dividends received, also with attractive earnings yields and dividend yields. The valuations are also not very demanding. Looking at Air Products valuation increased by 3.1% in the period. The small increase in value is largely as a result of a decreased cost of capital, offset by slightly lower financial forecast, reflecting the tough operating environment. Total Energies valuation reduced by 2.4% in the 6 months. The decrease in value was mainly driven by balance sheet changes, combined with a lower terminal growth rate applied. From a results perspective, Air Products' contribution to headline earnings increased by 11.4% to ZAR 380 million. This increase is due to moderate growth in tonnage and supply chain businesses strong performance in the pipeline business and improved volume and margins in packaged gases, driven by effective commercial management and ongoing cost discipline. TotalEnergies contribution to Remgro's headline earnings increased by more than 100% to ZAR 311 million, but this increase was mainly driven by a once-off transit pipeline cost refund, Remgro's portion being ZAR 218 million in this period and a good marketing performance, partly offset by lower sales due to refinery supply constraints experienced during this period. The net cash at the center increased by ZAR 3.7 billion to ZAR 12 billion over the reporting period and mainly due to the CIVH pre-implementation dividend of approximately ZAR 2.7 billion. In addition, to the FirstRand stake at the market value of -- on 31st December 2025, and that ZAR 6.8 billion is the after CGT valuation. The total liquidity at the center amounted to just under ZAR 19 billion. Since December 2025, ZAR 52 million FirstRand shares have been disposed of for an after CGT proceeds of ZAR 4 billion. I think the gross proceeds was just under ZAR 4.9 billion. As already said, Remgro experienced strong cash flows at the center for the period under review, mainly due to a 34% increase in ordinary dividends received from investee companies amounting to ZAR 2.4 billion. The comparative 6 months, the amount was ZAR 1.8 billion, and this excludes the pre-implementation dividend of ZAR 2.7 billion, which is included in the special dividends received bar of ZAR 2.8 billion. Remgro also sold its portfolio stake in BAT for net proceeds of ZAR 1.1 billion and paid a special dividend of ZAR 2 per share during the period under review, landing at an increase of ZAR 3.666 billion for the period under review. This graphs depict the evolution and steady growth in dividends paid since 2021. That's a low base because that year was impacted by the COVID pandemic. Remgro doesn't have a specific dividend policy, but the general guidance is a payout ratio of approximately 50% of the cash flow at the center or a 2x cover ratio. And that's depending on the specific circumstances impacting solvency at liquidity at the time of declaration and also considering the foreseeable future. You'll see that in 2025, the cover or the payout ratio was 50% -- and I think that conservative posture was at that stage in September when the Board decided on a dividend, the CIVH/Vodacom transaction hasn't yet been concluded. So the interim dividend, Board declared an interim ordinary dividend of ZAR 1.73 per share, up by 80.2% from the ZAR 0.96 per share in the comparative period. The rationale for this increase is that based on the strong liquidity position, the Board has adjusted the dividend cover to approximate 1.5x for the foreseeable future. In addition, also the weighting between the interim and final dividends have also been adjusted towards the interim dividend Therefore, the increase of 80% is more pronounced at this interim stage and is not an indication of future dividend increases. So this brings me to the end of my presentation. I will now hand over to Ronnie and Jurgens to talk through Mediclinic's results. Carel van der Merwe: Thank you, and good morning. Before I start, I would like to just mention that the conflict in the Middle East is top of mind for us at Mediclinic at the moment, and Jurgens will unpack the situation in a few minutes. To position our strategy and key priorities at Mediclinic, we will start by providing a fresh perspective on the market shifts that continue to take place and our strategical and tactical responses there too. Throughout our history and perhaps more importantly, as we move forward, Mediclinic's success will depend on our ability to adapt, evolve and consistently deliver expertise you can trust. That commitment continues to anchor our strategy. In setting our strategy, we consider the following key external pressures that impact on how we define our business. First of all, consumers. In the current and future environment, consumers expect same or next-day health care access, proactive communication and also convenient community-based or virtual care. Second is payers. As a consequence of the rising cost of health care globally for various reasons, payers are increasing tariff pressures and steering care towards lower care settings. And thirdly, competitors. In this dynamic environment, our competitors are consolidating the market and new competitors emerge, leveraging digital channels to capture the front door access to health care. And our response is to defend and strengthen our inpatient core while building a broader, cost-efficient health care ecosystem. In doing so, we aim to, first of all, strengthen our core business by establishing systemically relevant clinical powerhouses that anchors our reputation and also our service offering. Secondly, to expand our clinic -- outpatient clinic and day case networks and deepen our home care services as well as outpatient services, establishing a spectrum of service and operational footprint, also increasing the touch points with clients and driving scale. Thirdly, to invest in superior client experience, ensuring that clinical care is epic center of what we do and embed -- also embed digital solutions to facilitate access to coordinate care, to orchestrate referrals as well and thereby driving lifetime value for our clients. Our North Star remains clear. We aim to be the provider of choice, enhancing the quality of life in every interaction with our clients. Then moving on to progress on priorities. Our key priorities that are aligned with our broader strategy are aimed at focused and decisive execution to sustain growth while improving performance. With reference to the key priorities discussed in December of last year, we continue to make good progress. In our results for the 6 months ended 30 September '25, which we will discuss in more detail later, Jurgens will do that. We've seen strong volume growth across all 3 divisions as well as care settings. This growth has been complemented by a shift in specialty mix towards a higher acuity as well as continued growth across our continuum of care, reflecting in our strategic initiative towards clinical powerhouses as well as growth in related businesses. Alongside growth, we are optimizing performance improvement and driving operating margins through improved efficiency. As communicated before, we are in the process of our operating model review aimed at, amongst other things, driving cost efficiency, empowering our facilities to drive growth and being agile to respond to the market changes. We set ourselves a target of total savings of up to $100 million by the end of financial year '27. To achieve this, each division has set clear objectives through defined initiatives over a 1- and 2-year horizon. Up to the end of September '25, our combined progress reached $63 million of savings. We remain confident in our ability to reach and hopefully even surpass our target savings. Throughout the group and particularly in the Middle East, we are establishing clinical powerhouses supported by digital access to health care services. In September last year, we consolidated Mediclinic Al Noor Hospital and Mediclinic Airport Road Hospital in Abu Dhabi into a single integrated flagship medical powerhouse at an extended Airport Road campus. The consolidated 265-bed facility at more than 74,000 square meters and supported by an additional investment of AED 122 million represents a significant commitment to clinical excellence, advanced infrastructure and superior client experience. In November '25, we launched a new app in the Middle East, which has extended our referral network as well as our virtual platform in the region. Through a combination of growth and efficiency, together with disciplined capital allocation, we've reduced leverage and improved our return on invested capital. With the improvement in earnings, our return on invested capital has now reached 5.1% from 4.2% in March '25, while our leverage ratio has improved in the recent reporting periods to the current 3.1x. And then I'm handing over to Jurgens. Thank you. Jurgens Myburgh: Thank you very much, Ronnie, and good morning, everyone, and thank you for the opportunity. The group delivered pleasing results for the 6 months ended 30 September 2025, driven by underlying volume growth, particularly in the Middle East, a favorable specialty mix and continued implementation of the operating model review, as referenced by Ronnie. Revenue increased by 10% to $2.6 billion and is up 5% in constant currency terms, driven by strong growth in patient activity across all 3 divisions and care settings and a favorable increase in the specialty mix driving average revenue per admission. Adjusted EBITDA increased by 23% to $397 million, up 18% in constant currency terms. The group's adjusted EBITDA margin was 15.5%, supported by a combination of revenue growth and cost efficiencies. Adjusted earnings were up 91% at $159 million, reflecting the strong operating performance, together with the reduced depreciation and amortization and net finance charges. The group delivered cash conversion of 84%, impacted by low collections in Switzerland and Southern Africa, and we continue to target 90% to 100% conversion rate at year-end. Looking at this in more detail by division and starting with Switzerland, revenue was in line with the prior period at CHF 930 million, driven by an increase in underlying volumes, offset by the impact of ongoing negotiations on doctor tariffs in Western Switzerland, affecting our hospitals, in particularly Geneva and Lausanne. Inpatient admissions grew by 0.6% and general insurance mix increased to 53.3%. Adjusting for the impact of Geneva and Lausanne, inpatient admissions grew by 1.8% and the insurance mix was more in line with the prior period. The occupancy rate was 53.4%. Outpatient and day case revenue increased by 7% to CHF 211 million, contributing some 23% to total revenue during the period. As a direct result of the ongoing turnaround project, including the effective management of employee benefit and contractor costs, operating expenses declined by 2% compared with the prior period, delivering a 14% increase in adjusted EBITDA to CHF 122 million. The adjusted EBITDA margin increased from 11.4% to 13.1%. Adjusted earnings increased from a loss of CHF 1 million in 1H '25 to a profit of CHF 31 million in the first half of this financial year. In year-to-date trading, Switzerland continues to be impacted by the volume shortfall in Western Switzerland. This notwithstanding -- as a consequence of good volume growth across the rest of the business and continued progress in our turnaround project, we're targeting marginal revenue growth and stable EBITDA margins in this financial year on the back of what was already a very good second half of the previous financial year. The ongoing tariff disputes exacerbated by the change in outpatient tariff dispensation will impact our cash conversion in the region over year-end. Looking then at Southern Africa, revenue for the period increased by 8% to ZAR 12 billion. Compared with the first half of last year, paid patient days increased by 2% with day case growth exceeding inpatient growth. Occupancy remained stable at 69.9%. Average revenue per bed day was up 5.3% compared with 1H '25, reflecting year-on-year tariff increases and specialty mix changes. Adjusted EBITDA increased by 12% to ZAR 2.2 billion, resulting in an adjusted EBITDA margin of 18.5%. Adjusted earnings increased by 36% to ZAR 861 million. In year-to-date trading, the division has continued to see steady growth in bed days sold and this, together with disciplined cost management, is targeted at delivering revenue growth ahead of inflation and stable EBITDA margins. Finally, then in the Middle East, in trading up to the end of February 2026, the month before the conflict started, the Middle East experienced good revenue and EBITDA growth on what was already a strong comparative period in the second half of the previous financial year. The consolidation of our facilities in Abu Dhabi City has surpassed our expectations. Consequently, we were anticipating revenue growth for FY '26 in the mid- to upper single digits and an incremental improvement in the EBITDA margins. The onset of the conflict in Iran and its proliferation to the broader region has introduced significant volatility in the short term and uncertainty in the medium- to long-term performance of the business. Our primary concern, of course, lies with the safety of our people and patients, and we sincerely appreciate the resolve shown up to now. In the month to date, this is now for March of this year, trading has been extremely volatile with some days materially below and others above expectations and is further obscured by Ramadan and the Eid holidays. In the medium term, over the next 6 months, we're preparing for an impact on volumes due to the at least temporary movement of people out of the region. The longer-term impact on the performance of the business will depend upon the intensity and duration of the conflict indirectly and more directly on its impact on the population of the UAE and the broader macroeconomic environment. Our business in the Middle East is financially and operationally robust, and we will prepare ourselves for every eventuality depending on the outcome of the conflict. In the meantime, we closely integrated with the health care authorities and facilities in both Abu Dhabi and Dubai, seeking to provide care to those who need it and making sure we do so in a safe environment for our patients and staff. With that, I'll hand over to the Heineken team. Jordi Borrut: Thank you, and good morning, everybody. My name is Jordi Borrut, and I'm accompanied -- I'm the Managing Director of Heineken Beverages, and I'm here accompanied by Radovan Sikorsky, who's recently joined as our Finance Director, but who has been at Heineken for nearly 30 years. Moving to the presentation. Before I -- we go into the results, I'd like to highlight the macroeconomic environment and the opportunity for Heineken Beverages in the countries where we operate. If you look at the map, Heineken Beverages is a company that operates in 13 markets across the Southern Africa, as you can see, with the main markets being, of course, South Africa and Namibia, but also important markets like Kenya, Botswana, Uganda, Tanzania. And we have a strong local network of local productions in South Africa and Namibia and Kenya with in-market distributors and commercial operations. And like in some of the more developed markets where we see a muted growth in the alcohol consumptions, in the case of Heineken Beverages, the market and the footprint where we operate still offers a significant headroom for growth. And that's true for the international markets outside South Africa and Namibia because if you look at the key markets, we have a strong population of nearly 200 million inhabitants with a growth of about 2% to 3% per year and a significant headroom for alcohol consumption driven by low per capita of many of these markets. It is true that our main market remains South Africa, but there again, although the per capitas are higher there. As we said, the market remains resilient and continues to grow at about 2% to 3% per annum with significant opportunities for Heineken beverages in some categories like in beer, where our market share is still below 20%. Finally, we've got opportunities driven our multi-category portfolio, which allows us to tap into different consumer occasions segments and price points, leveraging our portfolio that we've now been able to manage and execute in a better way. And we have a capital-efficient organization. As we produce mainly in South Africa and Namibia for the entire African markets, allowing us to leverage the production capacities of this market. Moving to the next slide. I'd like to reflect on the 5 priorities, which if you recall from last year, these are the same priorities we highlighted a year ago. The difference is that post integration since September '23, the main focus for the company was, of course, the integration of the 2 of the 3 entities. And in that side, we focus on Pillar 4 and 5 which was about the efficiency, leveraging the synergies, driving down the fixed and variable expenses and also creating a one company from a people perspective. With that being achieved now with our case fill and service levels having improved significantly, the organization being now stable, our focus has shifted to the top line growth. And that's basically the top 3 pillars in our strategy. And looking at those 3 pillars, I'll start with the first one, winning in beer. This reflects mainly in the South African market, where, as I said, we have the biggest opportunity for growth, and it's the largest category in South Africa. Here, we want to continue to drive growth through our portfolio, mainly in Amstel and Windhoek in the mainstream categories and continue to premiumize Heineken post the shift from its nonreturnable to returnable bottle as well as to optimize the profitability of the category. If you look at the second pillar, build brands with power. This talks about our drive to build strong power brands at national level. We have, as Heineken beverages, more than 60 brands now across the different categories. So we've been very choiceful to select the 12 key brands such as Savanna, Bernini, Amarula, that we really want to drive nationally as power brands. But next to that, we want to complement and we are complementing this brands with local strong regional brands that have a very strong connection with consumers in those markets, such as Richelieu or Viceroy and that's the power of the combination of the strong national with local regional brands. The third pillar talks about customers and consumers and how we want to drive a closer connection with consumers and customers through partnership with our route to markets and retailers. We've been improving significantly our capabilities there with joint business plan with better insights and information, which we want to leverage to offer better propositions to these consumers and customers. Now the focus on this top line growth doesn't mean that we will abandon the 2 other pillars that remain critical to our business. And as you will see, by results explained by Ronnie, has been the main driver of our performance. So we will continue to drive efficiency in variable expenses, and we will continue to drive engagement score. Currently, our engagement score sits at 80%, and that's 12 percentage points better than 2 years ago post integration, which is a testimony of the good work and the unified culture of the company. By the way, we've been ranked the #1 top employer in the FMCG in South Africa recently. Now moving to the next slide, just to highlight on the key commercial activities continuing in the top line growth that we've executed throughout the peak season, specifically in this first half, 6 months. Without going into all the details, I would like to stress that our execution commercially has improved significantly in the last year. And that we measure in the way we execute the campaign compliance execution as well as the number of outlets we visit and execute against. It's important to say that the organization now is organizing channels. And that's reality for South Africa and for Namibia. And that's relevant because different channels have very different roles for consumers in the alcohol segment. The what we call fragmented channel is the most important one, and that's where we have the largest sales force. There, we do flagship activations, but we drive visibility and availability of our brands. Then we have the modern trade channel where -- the drive is to joint business plan with our retailers and drive shelf visibility and in-store execution and leverage the strength and the power of our portfolio. And finally, more than on-premise channel, which is not so relevant from a volume perspective, but it's very important from an image perspective, where our teams are focused on experiential execution and focus on the top-tier on-premise outlets to drive partnerships. With that visibility on the commercial key activities, I'll pass the word to Rado to give us a highlight on the financial performance of these first 6 months. Radovan Sikorsky: Thank you, Jordi. Good morning, everybody. Nice to be here at the Remgro Analyst Conference. Yes. So the result, it's a nice green picture for us, I have to say. We have nice revenue growth of 2% coming to over ZAR 31 million, which is nice to see. We see that the second half, the HBSA, the local South African operation is really coming to the fore. So that's nice to see as well. And if we look at the earnings, a really strong growth, right? So a strong performance overall. Now the margins have expanded very nicely in terms of our mix. But a lot of work has been done on productivity, on the variable costs in terms of driving efficiencies there as well by the supply chain team. And of course, we're getting the leverage of the revenue on our fixed cost which is driving a really strong bottom line performance, as you can see on the slide. In terms of our cash performance, also very strong cash performance coming through really strong in the peak, our cash flow management. So in the seasonality of our business, in the last 3 months, very strong cash flow performance, which has really helped us in terms of improving our net debt performance there as well. So if we go to the next slide, so just overall, a bit more on his summary. You can see in the waterfall, the ZAR 392 million increase in headline earnings, the profit before tax, that is really the underlying part of the business, which is now largely coming through in terms of the total performance of the business, but also in terms of the ZAR 370 million, which is a combination of the equity earnings that we are getting from some of our minority holdings, that's also coming through nicely as well. And we had a few one-offs that we are cycling from the previous year as well. And of course, there is the increase in our taxation with the improved result, bringing us to a reported headline earnings of ZAR 824 million and that adjusted for the IFRS amortization, we come to a total of just over ZAR 1 billion headline earnings for the 6-month period. Jordi Borrut: Thank you, Rado. Now moving to the final slides of our presentation. If you look at the revenue, as Rado explained, our revenue growth at 2%, still below our long-term ambition of revenue. But important to mention that revenue was mainly driven by the beer category, which performed significantly well with Amstel and Windhoek doing well and robust gains beer across the Africa regions in general. Ciders was resilient with Savanna being a resilient brand and Bernini as a standout performance. And then we have negative performance on wine and spirits, specifically on the boxed wine on the value wine and on spirits on the gin and spirits business, although important to reflect that on the brown spirit where we have our strength, we performed much better, brandy and whiskeys. If you look at the next slide, looking at the revenue contribution for market, what you will see is that South Africa remains the biggest contributor of revenue but Namibia has an important role to play in revenue and also in profitability. I want to remind the -- that Namibian breweries is stock listed in the Namibia Stock Exchange. And you can see the full results in their website. And finally, HBI, the international business outside South Africa and Namibia, delivered strong growth in top line. And as we said before, we see huge opportunities in the potential of these markets as we expand our footprint across many of these new opcos. In conclusion, moving to our last slide, the macroeconomic environment remains volatile with a slow economic in South Africa, although we see stabilization. And it's important to mention that the alcohol consumption, specifically in South Africa continues to be resilient, as I said before. And rather than being suppressed, it's shifting to different segments. So we see a consumer shifting to value and more premium. And the good news is we can play in both through our portfolio and price points. Of course, we are monitoring the conflict of Iran. It has a significant an impact in our HBI volume, which is not significant. The volumes we sell in the Middle East from a commercial perspective are not significant, are mainly in the non-beer and they are not very relevant in the scope of HBI and Heineken beverages, but the impact is more in the oil and the transport impact that it will have, it can have in our company and we're monitoring that very closely. Although we don't see any supply chain disruption at this stage and we don't see talking to our partners and suppliers. From an industry, the markets, as I said, continues resilient, but there's a heightened competition, both from the competitors and illicit market that is really affecting us, specifically on the spirits and on the white spirits. But we continue to see many opportunities, first, because of the strength of our portfolio. We have really broad portfolio that allows us to tap into different occasions and price points. Innovation continues to be a pipeline for growth as we have seen in the previous 6 months and we will continue to drive a disciplined cost and capital allocation, as we've shown in the results. Finally, we see a margin recovery, and we expect to continue delivering a margin recovery in the next years. Thank you so much. And now I'll pass on to Dietlof for CIVH. Dietlof Maré: Thank you, Jordi. Good morning, everybody. I would like to do the presentation in 3 steps, a little bit of a strategic overview, then a market analysis, and then the financial update. So I think close to our purpose, we believe in connecting South Africa, changing lives, giving data and abundance to South Africa. And I think with that, we're unlocking the scale and we play a part in this digital future of South Africa. And that's the purpose and our belief, and that's what we believe we must need to actually change our South Africa do business and compete with rest of the world. So if you look at it from a Maziv point of view, the focus was really to increase the free cash flow. And we did that in different ways. We monetize the assets. So we've got very strong consumer Vuma assets. So really looking at penetration rates. We looked at the value of it, we looked at ARPUs, generating as much cash on these assets as possible. Then we also looked at DFA, the enterprise side. We had to really monetize the network. And we took 12 million fiber kilometers of fiber out the grounds, and we rehabilitated the network to monetize basically that asset. The result of that was a 31% increase in free cash flow before CapEx of ZAR 1.5 billion. But I think more important, and we did touch on that was this positive momentum on the headline earnings across the group. And that's what we have to continue, and we obviously have to sustain that going forward. So from a DFA point of view, really the upgrades, the 12,000 kilometers that we replaced in the metros were key for us. We're future-proofing the network. We're getting closer to the end customer, getting closer to the premise of other end customers, giving us the ability to install quicker, to obviously look at the customer experience side and to create value for especially the fibre to the business sector in South Africa. What is very positive is also our fiber to the sites and fiber to the towers, that underpins our cash flow across the group and across the enterprise segment. This is linked to these blue-chip MNO companies, long-term contracts. And we're building the business around this sustainable revenue within the sector. So we still saw a 7% increase in linked growth across the enterprise segment. Although we slowed down a little bit linking stores because we were upgrading and rehabilitating the network a little bit. We had to obviously control that, that impact our revenue a little bit. And it did increase our cost a little bit because we had to do huge amounts of work on the stabilization and rehabilitation of the network. But we future-proof the network. So we've got a new fiber technology in very close on the DUDCs, which is this underground, dry underground cabinets very close to the premise of the businesses and buildings in South Africa. So we believe we'll see the benefit. We will see the short- to medium-term benefit of that. From a Vuma side, really focusing on the penetration rate. We took the penetration up to 44%. We also improved the economics network versus the revenue conversion, seeing a revenue growth of 15% across the group. And really, I mean, we started building because of the holding pattern of not building really under the Vodacom deal. We started slowly building again 200,000 homes over the period. But we slowly, slowly getting the uptake to go and getting the engine to move to obviously address the underserved areas in South Africa. From a massive Vodacom point of view, very positive news for us as a group. It took a little bit long for us to get the deal over the line, but the deal is over the line. I think we're seeing a strengthening of our balance sheet, and that will enable us to accelerate the growth and expand it scale throughout South Africa. What we love is that we've got this untapped, unconnected market in South Africa that we can actually play in with a huge demand for fiber. Enterprise growth, yes, we have to include and integrate the assets from Vodacom into the business as quickly as possible and then monetize on the assets and drive the additional EBITDA that comes in from the deal. I think that's the key focus for us on Vodacom. Really, if you look at the DFA side of the business, stable cash flows underpinned by obviously the fiber to the sites and fiber to the tower businesses. What we see in the market is 5G rollout, really, really accelerating across South Africa. And with 5G and 5G densification comes access to fiber. You can't densify 5G and roll out 5G across South Africa without fiber solution. And that plays into our hands a little bit on the site sides of the business. There's 47,000 sites across South Africa, long-term contracts, blue-chip companies, all the MNOs. And we have got that relationship with those MNOs. So we got 12,600 sites connected to fiber. It's a 1% growth. It's 120 sites that we connected over the time. It's a little bit linked to our metro coverage at this point. But as we expand, as we incorporate some of the Vodacom assets, I mean, that footprint will increase. But what this does is, as you chase towers, you will -- you also open up businesses to fiber-to-the-home, fiber to the business and additional revenue streams as you build out your network from the metros. So very positive segment for me within the DFA, stable at this point. From a business connectivity point of view, this is where we're seeing 400,000 customers across South Africa. And it's broken up in 2 parts. You've got a metro connection side, that's building the access within these metros out. And we're seeing -- even though we didn't connect so much, we were controlling the connections a little bit on driving our network because of the network rehabilitation. We still saw it grow by 4% year-on-year to 6,000 links. But interesting, and more exciting is the fiber-to-the-business connections where we see with modernizing the networks, we saw a growth of 9%, although we were controlling it a little bit. We saw 9% on links to -- just under 55,000 links across South Africa. So we're seeing the strong SME demand for affordability and reliable fiber. And I think that's the thing. Linked to customer experience, this is the critical thing that we believe we should get right to monetize the network from a business and a metro point of view. Vumatel, biggest fiber to the home provider in South Africa. Over 2 million homes passed. Uptake of increase -- uptake 44% across the base. So what we're seeing is very stable growth in the core. We're seeing Reach and Key also growing exponentially. But what we're seeing is there's also this expansion segment that we have to address because the need is there for connected South Africa. So we split that always into the 3 segments. The core segment, 2.2 million homes in that segment. It's quite a mature market. It's penetrated. It's 34% overbuilt. We got a very good market share in this of 41%. You can see there we didn't build a lot of homes as the market is quite penetrated. But we saw a stable 3% to 4% growth in subscribers. That uptake going to blend it across the base at 45%. But what we've seen more positively is that our early adopter areas, the areas that we built right in the beginning is touching 77%, 80% uptake, which is very positive. From a reach point of view, very good markets, 5.6 million homes, very little overbuilt. We got a big market share in this segment. 1.1 million homes we've passed in the segment. You can see we didn't build a lot over the last period, only 3% because we were in the holding pattern because of Vodacom, but we're slowly, slowly now driving that build out because of the stronger balance sheet and then also the deal that was confirmed. Subscribers grew by 21% across the base. And the uptake going to 43%, which is for us, a phenomenal story, which we will just build on monetizing this asset. What we're seeing is Key and Reach areas that's -- the only differentiation there of split there is the household income. That's under 5,000 and a month income in the key markets. But what we see is, as we go into the reach markets, which are becoming a little bit smaller, you're actually touching the key markets as well. So we're going to start combining these markets because if you pass the reach homes you have to connect the key homes as well because they're a little bit interlinked. So really, these are the markets. This is where we're going to expand. This is where we're going to build the 1 million homes that we committed at the commission. And this is where we believe that the future revenue growth will come from -- in the organization. If you look at it from a financial point of view, strong financial results, 11% revenue growth year-on-year, 11% EBITDA growth, but I think back to the headline story earnings story, positive in Vumatel, positive in CIVH, and DFA maintaining a positive headline story. And this is what we want to build on. So if you look at the revenue, 15% in Vumatel, 50% growth year-on-year to ZAR 2.1 billion and EBITDA, 18% up to ZAR 1.5 billion for the period under review. But more importantly, we're seeing very positive movement on operating earnings of 60% year-on-year of over ZAR 1 billion relating then back to a headline earnings of ZAR 254 million for the period, a 287% increase. DFA remained stable, 4% growth, I think, impacted a little bit by the links that we slowed down on a little bit of additional cost in the structure that will normalize going forward, but still a strong 4% growth year-on-year in revenue, 4% EBITDA growth, operating earnings 2% up ZAR 592 million, and then 10%, strong 10% growth on headline earnings to ZAR 219 million. From a CIVH point of view, revenue 11% up to ZAR 3.7 billion, EBITDA, ZAR 2.4 billion, also 11% up, but more positive is obviously the operating earnings 49% up and then a very, very positive movement on the headline earnings to ZAR 216 million for the period under review. So as I said, focused on free cash flow. So really, we saw a strong free cash flow coming in backed up by the EBITDA growth. We saw the 11% growth on EBITDA. But what you also see is cash after tax and interest also growing by 31% year-on-year. And I think that's very, very positive. And then if you look at the additional cash generated of ZAR 256 million year-on-year, giving us then a very positive net cash surplus for the year. If you look at the future, I think for the future, we will continue monetizing the asset, I think, really driving the uptake and the value propositions that we deliver on our current fiber-to-the-home assets. We have to capitalize on the network upgrades and rehabilitation that we do. And the segment that we're going to focus on really is the fiber to the business segment where we were seeing this huge demand of growth going forward. Then we're obviously going to integrate the Vodacom assets into the business quickly and monetize it as fast as possible. That's both metro fiber and the fiber-to-the-home type of assets. And then with a stronger balance sheet, we have to obviously start expanding, again, start building the way we used to build and really making sure that we keep our market share within the fiber-to-the-home space in South Africa. Lastly, I think we must keep executing on this positive headline earning story that we showed in this result presentation. Thank you. P. Cruickshank: Thanks, Dietlof. Good morning, everybody. Just moving into some headlines for RCL Foods. I will focus most of today's conversation on sugar and the dynamics that are playing out in that market and touch briefly on our other business units. But just few very briefly updates on progress against our top strategic priorities, and I'll just call out a few of the more material ones under right growth in Future Fit, which are our 3 strategic pillars. Starting with net revenue management, and that is the frequency and depth of our promotional activity across our brands, with savings exceeding our own internal targets in that space. so progressing well. We have some innovation projects in baking, which have been launched within the period and then also post the period, one being sourdough bread and buns in KZN, and Gauteng more recently, in March, our PIEMAN'S POCKETS innovation launch. And whilst early days in both, early signals are good, and those innovations are gaining traction. Building brand equity in a branded food business is crucial. Our equity scores across our brands have improved in the period. And despite our results, we continue to commit our investment into those brands to ensure that our equity remains strong and grows. And we don't start saving money against our marketing spend. Lastly, to call out as continuous improvements with low inflation and a consumer under significant pressure, which has been touched on in other segments of the presentation. Continuous improvement and savings targets remain crucial to protect the consumer from price increases that may come through. From a numbers perspective, we went through this in our results, but all numbers across the board are unfortunately negative, mainly driven by sugar, which I'll unpack in more detail, including our return on invested capital dropping below 10%. Just EBITDA performance, waterfall, and I'll just focus on the middle section. And the waterfall unpacks most of the reconciling items related to the prior period on the left with the one reconciling item in the current period being IFRS 9, which is immaterial. So EBITDA down 14.9%. Let me start with groceries. Improved performance in groceries driven by margin improvements in culinary, largely a result of continuous improvement in net revenue management activities, which I referred to earlier as well as improved volumes in our pet food business. Baking is a story of 2 halves, milling and breads volume under pressure and down in both of those segments, but being offset by improved performance in specialty and our PIEMAN'S business. and sugar the story that I'll unpack in a lot more detail, ZAR 250 million down on the prior year. Just to unpack the long-term historical performance, and this really is about putting context to the sugar result, but let me start with the gold bars at the bottom, and that reflects the other parts of the business, predominantly made up of groceries and baking. Steady improvement over the last 5 years, with the exception being F24 which was the load shedding year, which impacted our Randfontein plant significantly, but in that context, the other parts of the business continued their steady improvement, but overshadowed by the sugar performance of ZAR 387 million EBITDA for the period. The important context is we consistently said that '24 and '25 were record years, and that has unfortunately played out. But the ZAR 387 million, you can see the impact in context of the prior period, call it, '22 and '23 also significantly down. And I'll talk to you why in a minute. But it does give you a good indication of the volatility of sugar and the impact it plays on RCL Foods' portfolio. Just unpacking the sugar industry dynamics, and there's 2 parts here, the dollar-based reference price and Tongaat. I'll come back to why we talk about a competitor and why it's important in a minute in our results. But let me start with the dollar-based reference price. And effectively, that's the referral to the tariff that is in place to protect the sugar industry. Let me just start with why is the tariff important in sugar? And international sugar markets and prices is effectively a dump price. All international producers exceed their local supply. It's an economies of scale initiative and to make sure that you protect your local production for fluctuations in our agricultural performance, you generally oversupply, have excess supply than your local market. And as a consequence, the international price, which is often referred to in cents per pound is a dump price onto the market. All countries that are invested in sugar have a protection mechanism in place, including ours. Our challenge is ours is currently underwater. So it is cheaper to import because the dollar-based reference price has not moved with inflation since it was implemented in 2019. Detailed on the slide is some of the truing and fraying between ITAC and SASA. What I'll just focus on is that the second bullet ITAC is subsequently declined both applications in January '26 and launched their own investigation, which we think will speed up the review and hopefully arrive at an answer sooner rather than later, and we're optimistic in that regard. Delays have obviously had a significant impact. This has been going on since October '24. And to date, 160,000 tonnes of imports came into South Africa. Deep sea imports as we refer to them, coming through the ports a further 30,000 tonnes has come in subsequent to the 31 December cutoff for the period. And just to explain that, effectively, what happens is that tonnage displaces local sales and forces the industry to export that volume at a significant discount. So your revenue adjustment from the decrease price between local price and exports is effectively what displaces your profit and it flows straight to the bottom line, and that's how [ ZAR 250 million ] is made up. Just to talk about Tongaat and why it's important is that the industry works on a division of proceeds model. So all revenue that is sold, be it local or export is pooled and based on a formula is allocated between the millers and the growers with 64% of that proceeds going to the growers. This mechanism is put in place to ensure that there is fairness between millers and growers and to protect the growers in times of strife like we have now. So that is why Tongaat survival from a commercial perspective is important. They filed for provisional or the Business Rescue Partners filed for provisional liquidation on the 12th of February. That case will be heard in the middle of April, and there is significant activity and counter applications that are in place. So we are not sure at this point how that may actually play out. Just on the final point, I spoke about the commercial reasons for Tongaat to survive but there's also a social reason, and they have significant impact of KZN, particularly in the rural communities. And we are hopeful that a solution will be found as soon as possible. This is also been ongoing for many years, and they went into business rescue in October 2022. And then finally, looking forward, just to touch on one thing that's not on the slide, as we mentioned a couple of times in the presentation is the war in Iran and the impact from a food perspective on fuel and other fuel-related costs, particularly into packaging and supply of raw materials into our plants. At this point, and it's very difficult, almost impossible to control this to fuel supply. There's no indications of concern. We get regular updates and are monitoring that carefully. We do move significant volumes of raw materials around the country and obviously finished product. So it is worrying and it's something that we are monitoring closely. The impact of the oil price and its cost impact will be assessed as we go along with, obviously, price increases being a last resort to mitigate that impact across the group, and we'll monitor that as we go. Just I've spoken about sugar, so I'm not going to touch on that one. I'll just briefly touch on pet, and we refer to restoring service levels in our pet food business and the audience will be aware that subsequent to us reporting our results, we did recall pet product from the market, and we are busy getting our plants back up and running, which will hopefully be fully -- in full production soon. And then we move into a phase of rebuilding our brands and service levels as a consequence of that impact. And I think I'm handing over to Jannie. Jan Durand: Thank you, Paul. Earlier in this presentation, I touched upon the macroeconomic environment which we operate in currently and as you all are aware, Ronnie and Jurgens has spoken about our direct interest in the Mediclinic. And so it's really affecting us as well. And so in February, the global backdrop has become even more volatile with the Iran U.S. conflict now creating a genuine energy market shock, the sharp market swings we've seen reflect growing concern about sustained disruption in the region central to global energy flows and the potential for broader destabilization spill over. And I think nobody knows what's going to happen. I don't even think President Trump knows what he wants to do there exactly. And the degree of volatility seen in the market since reflects a market that is struggling to price the risk of sustained disruption in the region that remains central to global energy flow. You've all seen the chart 20% of oil flow through that. But the indirect impact on fertilizers, the agricultural sector is also a concern for us. This reinforces our concern that the consequences of a prolonged conflict may be broader and more destabilizing than the immediate headlines suggest. In contrast, the South African backdrop continued to improve since December with modest growth momentum, easing inflation and continuous progress in the reform agenda. Nonetheless, household remain -- pressure remains acute and global volatility for [indiscernible] these gains. This is actually the reality of the backdrop against we're actually operating with now. And also we're going to operate within the second half of the financial year. We expect some impact but our strength and fundamentals, consistent delivery and a resilient balance sheet position us well to navigate these uncertainties and challenges. As I round up, I want to pause and remind us of our strategic priorities with the execution of up until now has given us enough proof points of success. As you can see on the slide, our priorities remain unchanged. They are not short term. That requires a sustained and deliberate attention and today's results show clear progress in this regard. Looking at the year ahead, I'm excited to continue building on the progress of the current year. We will do this through continued active partnership with our management teams and co-shareholders to drive sustainable performance in our underlying portfolio. We'll keep sharpening and simplifying the Remgro portfolio as we've done now while pursuing disciplined value-accretive capital allocation opportunities in a manner that takes into account the risk posed by the current operating environment. Our sustainability priorities remain a key area of focus, and we are committed to improving disclosure, strengthening the ESG alignment across the group and advancing climate-related scenario analysis. We will be better placed to talk to our progress on this at the year-end. These remain the 3 key priorities for us as a management team, which we believe, done right, will aid our efforts in achieving our goal of crystallizing value for our shareholders. Beyond our portfolio, South Africa's muted GDP growth, strained consumers and high unemployed rates continue to pose challenges. The indirect effects of the current conflict will magnify this impact, the quantum which are difficult to predict right now. As I said earlier, our portfolio is certainly not immune from this impact. We are realistic about the scale of these challenges, but our team is energized, resilient and committed to applying creative solutions where needed. This will enable us to make a positive contribution for the benefit of our shareholders and the wider community in which we operate, and that is also in line with our purpose. I'm grateful for the tireless work of our teams and respective management teams and encouraged by what we've been able to deliver as reflected in today's good results. I really thank you for your time, and I thank you for my colleagues for their time for doing this presentation, and we will now open the floor for questions. Thank you very much. Operator: [Operator Instructions] I will now hand over to Lwanda to go through webcast questions. Lwanda Zingitwa: Thank you, and good morning. Lots of congratulatory messages Jannie and the team on a great set of results and particular excitement about the dividend level. Maybe just to get into some of the simpler questions before we go over to Ronnie and Jurgens on a lot of questions around the Middle East. The -- just on the cash buildup, and this is for you Jannie and Carel, how should we be thinking about the buildup in the group? Is it a question of special dividends to expect in the future? Or are we talking about potentially additional investments in the portfolio, appreciating that it's difficult at this stage to make assumptions around the market. Jan Durand: I think just on the cash buildup, I think in uncertain times, it's the optionality and also the defensiveness of sitting on the cash is quite -- give us some comfort. I mean, not long ago, we were sitting on debt. So we didn't time the war, but I think it's now for the time being, it's good to sit on that cash to have in reserve for what might happen going forward. I think what you will see, as Neville has explained in the dividend payout, we've reduced the cover ratio. And that is what we'll continue to evaluate. If we sit on a significant cash pile that we think is defensive, we might even look -- relook at some of those cover ratios and pay a higher dividends. Doesn't really matter if it's a special or a normal dividend. I mean, from our perspective, a dividend is capital return to the shareholders. But its also does nicely to link the normal dividend due to the underlying cash flow on a yearly basis, what you receive and what you pay out in an investment holding company. So I think we might see some increased dividend, but it depends on the circumstances going forward. And it's quite unsure of what might be happening going forward. I don't know if you want to add anything to that, Carel? Carel Petrus Vosloo: No, Jannie, I think you've covered it. Lwanda Zingitwa: And for you, Carel, can you just talk through the valuation of Capevin and whether there's been any further interactions with Campari on a way forward? Carel Petrus Vosloo: Yes. Certainly Lwanda. So the Capevin, just for context, is ZAR 1 billion, I think, that we're carrying it at roughly that sort of level. So a relatively modest exposure. But to give you a sense, we've taken the value down a little bit. I think we were at around [ ZAR 15.5 ]. Now we're at about [ ZAR 13.5 ]. So it's a bit lower than where it was. That's a long way away from the most recent meaningful transaction in the shares or specifically the Campari shares to get to that question. There's certainly many ongoing conversations with Campari, the fellow board member with us on the Board, so we engaged with them frequently, but certainly not on anything to do with our respective shareholdings. It is -- and now we'll be clear that the values at which we are currently carrying the stock, I don't think resembles at all, but we think the value of this investment is, we are very calm and reassured by very high-quality brands and assets that we have. This is a particularly difficult time for the spirits industry and we will be patient. I can't speak for Campari and their plans, but we're certainly focused on doing the right things for the business in the near term. Lwanda Zingitwa: Thanks, Carel. And while you're in valuations, do you anticipate any changes or material changes in how you think about valuations on the back of changes in bond yields that have taken place since December? Carel Petrus Vosloo: That's obviously something that's an important input into our valuations. So in the last 6-month period, bond yields came down a fair bit I think it was 170-odd bps that the risk-free rate came down. We were very thoughtful and careful not to get over our skis on taking the impact of that straight through the valuations. So we were -- we made sure that we also temper longer-term growth rates to reflect lower long-term inflation assumptions that are now embedded in the long-term yields and also where we thought it was necessary to apply a bit more moderation to forecast, we also did that. So firstly, to say that I think we were careful in not allowing the lower yields to run away with our valuations. Do we expect that, that could be a headwind going forward? So we did have a look at the impact of yields between the year-end and where we are now, and there's obviously been a bit of an uptick not nearly giving back all the gains that were made in the 6-month period. But certainly, some of it was given back. So I expect there will be a bit of a headwind, and we will need to assess that at the end of the year. Lwanda Zingitwa: Thanks, Carel. And Ronnie and Jurgens, I think Jurgens covered some of this in the presentation, but there's quite a number of questions on the Middle East and the impact of the war. And maybe if we group them into 3 themes, 1 being how do we think about the impact from an occupancy perspective? And then secondly, being the impact of your reliance on the expert community on your volumes? And then the last one being supply chain disruptions impacting hospital suppliers that you would ordinarily import into the Middle East? Carel van der Merwe: Thanks, Lwanda. I'm going to start, and then I'm going to hand over to Jurgens. I just want to make 3 broad comments. The first one is, first of all, the safety of our staff and our patients are of utmost important to us. That's priority number one. The priority number 2 is business continuity, which at the moment is a day-to-day affair basically because things change on a daily basis. And then point number 3 is scenario planning for the immediate short and medium term, which is what we're busy with. They have many moving parts currently. But to get into more of the detail of the questions, Jurgen's over to you. Petrus Myburgh: A couple of things. Firstly, when we talk about the significant volatility that we've had in March so far, just to give a little bit of context to that. Firstly, it's been Ramadan, and that in and of itself has a somewhat disruptive impact on the business. That was followed as is the case with the Eid holidays. There was a movement of the spring school break within the month as well. And then, of course, the war and the start of it in the beginning of the month and the continuance of it throughout the month. And so as I indicated when I spoke about this earlier is, obviously, at the start, we saw an impact on particularly our outpatient volumes. But as this has progressed, we've seen some days that are significantly below what we'd expect it to be and some days above where we expect it to be. And so qualitatively, we can talk about this as being a volatile environment and really difficult to predict at this point. And as a consequence, quantitatively saying that what we have in the Middle East is a financially and operationally robust business that's in the process of planning for every eventuality. And that's incredibly important because whatever that eventuality looks like, as Ronnie indicated, short, medium to long term, short term, we do expect people movements to take place, and we do expect that to impact our volumes, let's say, up to the end of what would be their summer to the end of August. But more medium to long term, how do we think about the growth prospects of this business and how does it impact some of our planning and how do we look at the balance between organic and inorganic growth within that context as well. So I think qualitatively, this throws up many considerations and all of which we're currently working through, but just quantitatively difficult to try and be predictive about this given the volatility that we're experiencing. Lwanda Zingitwa: A question for Jordi and Radovan online. Just the performance of Heineken since December, so how trade has been since the peak period and how you think about that in the context of the concentration of public holidays in the month of April? Jordi Borrut: Yes. Thanks. So as you can imagine that the first quarter of the year is difficult still to read, first, because in this first quarter, typically, all the companies increased prices following the excise announcement. And that price increase has changed significantly across different companies. And that has a big impact pattern in the buying of the route-to-market distributors. So there's a very significant change and differences in the price increases and the buying patterns and then Easter hasn't come forward, which means also the buildup of volume for the Easter holidays is also different. So in that sense, it's still a difficult quarter to rate. It would be much better to read it at the end of April. Having said that, what we see overall, the underlying trend is that the market, as I said before, remains resilient, which is good news, and we continue to operate at a trading level, which is in line with our expectations. So I think so far, that's what I would say. Lwanda Zingitwa: Thanks, Jordi. Similar question for you, Paul, on the food side and how trade patterns have been since December. And maybe a second question, while we're at it is whether we can expect sugar prices to rise with the potential rise of commodity prices on the back of the conflict? P. Cruickshank: Thanks, Lwanda. So a similar trend in food consumption demand over the last 2.5 months, which previously has been volatile, 1 month up, 1 month down, and we're seeing that trend continue. Volume remains challenged, and it is a bit of a fight to get to that volume amongst all the food producers. So no real change to what we saw in the first 6 months from a volume perspective. Jordi touched on the switcher Easter that obviously plays out in March in our world because most of the demand and power falls happening now. I touched on pets and that quantum is unknown. And obviously, we haven't been supplying the market fully over the last while. So that is having an impact. Then moving to the second question on sugar. So the international price of sugar has moved up from about $0.14 to $0.1570 per pound, somewhere around there. So that would have an impact on imports into South Africa. We have heard that Brazil is obviously switched to ethanol. That is the luxury that they present themselves with and we've heard that a number of supply contracts have been canceled out of Brazil for sugar. So that will play positively into the import situation in South Africa. Our sugar industry in South Africa has not taken a price increase for 18 months. And obviously, there is a lot of having a significant impact on the ZAR 250 million problem that we have between one period and the other. The price -- will there be a sugar price increase? In my mind, that is dependent on the tariff. Almost entirely, if the tariff comes, we will need to take a PI as industry. And there will be an agreement with that tariff on what that PI will be as there was with Masterplan 1, which was you can do multiple times a year, if you like, but it needs to be within the parameters of inflation. So that's what we expect to be part of that condition. Lwanda Zingitwa: Thanks, Paul. Ronnie and Jurgens, any guidance you can give on the plans to exit Spire as yet? Carel van der Merwe: So Spire has been under strategic review for a while, and there's a possible sale process going on. It was announced over the weekend on Monday that discussions with 2 parties have been -- came to an end or a possible sale, but there are still discussions with other parties going on. So that's on the one hand. On the other hand, we're working closely with management as well as with the Board to look at all sorts of scenarios and the eventualities. So in the instance if there is no sale at the moment, how do we reposition the business? How do we develop the business further from a strategic perspective? And how do we improve the performance of the business, given the current scenario in the U.K. market, where NHS commissioning has dropped significantly. Lwanda Zingitwa: Thanks, Ronnie. And the last question on the webcast, Carel, it would be strange if it didn't come up, but what is it that is holding back buybacks and given that the discount to INAV remains elevated and your cash levels are also elevated on the back of the first when stake sale? Carel Petrus Vosloo: So Lwanda, I think the same answer as Jannie gave earlier. So I think some of the things that we're concerned about and that caused us to be cautioned are things that are playing out in the market. Investors would have heard from -- even our Chairman of the AGM that there's a cautiousness about where we are. And I think that's reflected in our current posture on the capital structure. And that remains. If we had to ask what stands in the way, that's the biggest thing that stands in the way are sort of cautious posture at the moment. But we will obviously assess that as time moves on and events unfold. Lwanda Zingitwa: Thanks, Carel. Can we take questions on the Chorus call, please? Operator: Of course. The first question we have comes from Shane Watkins of All Weather Capital. Shane Watkins: Congratulations on a much improved performance. I must applaud you and your team. I really just wanted to follow up on what Ronnie was saying regarding Spire because the concern that I have is that what is good for the Spire Board may not be the same thing that is good for Mediclinic or indeed Remgro. And if I'm dead honest, it's not clear to me that the Spire board has shown themselves to have good judgment in the past. So I just wonder what you guys can do to clean up the structure and exit this investment. I don't think everyone's interest are necessarily aligned in the situation. Carel van der Merwe: Thank you, Shane. You're correct. Not everybody's interests are aligned of all the stakeholders that are in this situation. However, I just want to mention a couple of things. I think, first of all, as we've always been quite clear. We look at long-term value creation for shareholders in this instance, at Spire as well. We've never been interested in all sorts of short-term actions or activities. If it's not going to be in the long-term best interest of the business, its employees, its patients and its shareholders. So that -- having said that, we're working closely with the Board, with the Chair, the current Chair and with management on figuring out what are -- what's going to be the best way forward for this business, should there be no sale process at this point in time. And those are the things we have control over. So -- or not necessarily control, but we can give strong inputs into that. And that's what we're busy doing and we're making use of our own experiences and insights into health care in general to do so. It's a very difficult trading environment at the moment for all the reasons that have been outlined in the press and what I said about NHS commissioning. Shane Watkins: Ronnie, are the buyers that remain legitimate and serious buyers? And by when do you think the process may conclude either way? Carel van der Merwe: Cannot say. It's a process that we don't have access to at the moment, as you can imagine. Carel Petrus Vosloo: Shane just to add, there obviously very narrow timelines which we can comment on these sort of things. So even to the extent that Ronnie had insights, he might not be free to share those. I think we take that commentary on board, and we'll reflect on that as well. But I think difficult for us to be more specific than that. Shane Watkins: Okay. I mean I think the point that I was just making earlier was that for you, it's not so much important at what price you exit, but rather that the structure is cleaned up where there may be other parties that are more price-sensitive or sensitive as to how their role may change, if the transaction took place. Petrus Myburgh: Yes. Understood. Fair comment, Shane. We take it on board. But as Ronnie -- the operationally a couple of things going on. And then obviously, from a corporate transactional perspective, but then also what other value drivers are there within the business, transformational value drivers that we can pursue that drive sustainable long-term value for the business. And I think in that regard, we're aligned with the Board in how we think about that and the avenues through which we can seek to achieve that. So -- but thank you. Comment taken on board. Shane Watkins: Okay. Well, I just want to conclude by applauding the Remgro team on a significantly improved performance. It's great to see. Operator: At this stage, there are no further questions on the conference call. Jan Durand: If not... Lwanda Zingitwa: There are no further questions. Jan Durand: Nothing on the web. Okay. Then just thank everybody for attending, and thanks to all my colleagues for all the efforts and things that have gone into the results and the presentation. Thanks, everybody. Have a good day. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Good day, and welcome to Modiv Industrial, Inc. Fourth Quarter 2025 Conference Call. [Operator Instructions] On today's call, management will provide remarks and then we will open up the call for your questions. [Operator Instructions] Please note this event is being recorded. And I would now like to turn the conference over to Sara Grisham, Chief Accounting Officer. Please go ahead. Sara Grisham: Thank you, operator, and thank you, everyone, for joining us for Modiv Industrial's Fourth Quarter and Full Year 2025 Earnings Call. We issued our earnings release after market close today, and it's available on our website at modiv.com. I'm here today with Aaron Halfacre, Chief Executive Officer; Ray Pacini, Chief Financial Officer; and John Raney, Chief Operating Officer and General Counsel. Before we begin, I would like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words or phrases. Statements that are not historical facts, such as statements about our expected acquisitions and dispositions and business plans are also forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I would like to turn the call over to Aaron. Aaron, please go ahead. Aaron Halfacre: Thanks, Sara. Hello, everyone. I hope you're doing well. Crazy times. So I know I'm looking forward to this call. I'm sure you are, too. Let me start off by saying that Sara just read the standard preamble that everyone has that talks about forward-looking statements. And I spend the vast majority of my time thinking about forward things. But the historical things and the things that are measured, the accounting are really important. And I just -- this is a point in time because this is going to be Ray's last earnings call, even though Ray is going to be with us for the remainder of the year, it's his last official earnings call, and John is going to be taking over the helm. And I just really want to speak and thank our team. So Sara, John, Winnie, Lamont, Jason, all the accounting team, in particular, which is candidly more than half of our company, does such a good job and they make my job easier so I can spend all this time talking about the forward thinking things and dealing with these things that don't always have measurable outcomes. And that messy part of it that I do is that much easier because of how good they are. So I appreciate that they're all here and just wanted to welcome Sara to the call, even though she's always been there in the background, she's going to be part of the call now along with John going forward. And of course, Ray. So with that, let me sort of -- shifting gears. I'm sure we're going to have a whole host of interesting questions. I have no idea if I can answer your interesting questions, but I will do my best. But first, let's let Ray have the stage and do his thing. Ray? Raymond Pacini: Thank you, Aaron. I'll begin with an overview of our fourth quarter operating results. Rental income for the fourth quarter was $11 million compared with $11.7 million in the prior year period. The decrease in rental income reflects expiration of our lease with Costco on our office property in Issaquah, Washington, which was sold to KB Home on December 15, 2025, and expiration of our lease with Solar Turbines on an office property in San Diego, California, which we plan to market for sale upon receiving approval from the City of San Diego for a lot split. Fourth quarter adjusted funds from operations, or AFFO, was $4 million compared to $4.1 million in the year ago quarter. The $30,000 decrease in AFFO reflects a $554,000 decrease in cash rents, which was partially offset by a $299,000 decrease in cash interest expense, $138,000 decrease in preferred stock dividends, a $40,000 decrease in property expenses and a $15,000 decrease in G&A. AFFO per share decreased from $0.37 per share in the prior year period to $0.32 per share for the fourth quarter of 2025. The decrease in AFFO per share was primarily due to a 1.7 million share increase in diluted shares outstanding, which reflects previously disclosed issuance of operating partnership units during the first quarter of 2025, along with the issuance of common shares in our ATM and distribution reinvestment plan. Interest expense for the quarter was $1.1 million higher than the comparable period of 2024, primarily due to amortization of off-market interest rate swaps. With respect to our balance sheet and liquidity, as of December 31, 2025, total cash and cash equivalents were $14.4 million, and we had $30 million available to draw on our revolver. Our $262.1 million of consolidated debt outstanding consists of a $12.1 million mortgage on one property, excluding a $12.1 million mortgage on the Santa Clara property that was owned by tenants in common and therefore, not consolidated as of December 31, 2025, and $250 million of outstanding borrowings on our $280 million credit facility. Following the January 2026 extension of our credit facility, we do not have any outstanding debt maturities until July 2028. Based on interest rate swap agreements we entered into in January 2026, 100% of our indebtedness as of December 31, 2025, held a fixed interest rate with a weighted average interest rate of 4.15% based on our leverage ratio of 45.1% at quarter end and the January amendment to our credit facility. I'll now turn the call back over to Aaron. Aaron Halfacre: Thanks, Ray. Let's just -- operator, let's just go to questions, it'd just be easier. Operator: [Operator Instructions] And your first question comes from the line of Gaurav Mehta from Alliance Global Partners. Gaurav Mehta: I wanted to ask you, I think in your -- in the press release, you talked about receiving multiple offers and spending some time on one of those and not pursuing it. So I just want to get some more color on what those reasons were for not pursuing the offer. Aaron Halfacre: I figured you'd ask that. And I don't really have an answer that I can give you other than to say that we, at that moment, didn't see a secure path forward. So we stepped back from discussions. And I think that -- I think fundamentally, there was -- the vast majority of the stuff there was good. It's just that we -- our job is to protect our investors and to make sure that we have put forward the requests that we need to make sure that our investors are going to get what they're going to get. And it was just a process. I think that it was a generally positive exchange. And sometimes these things happen where it's just like it's not quite flowing. So that's about all I could say. It doesn't give you much. But as it relates to that, we just -- in that particular moment, we didn't see a secure path forward. And so we stepped back from discussions. Gaurav Mehta: All right. Maybe on 2026, I was wondering as far as asset recycling, should we expect any -- are you guys expecting to sell any assets this year? And then maybe some comments on the acquisition environment that you guys are seeing? Aaron Halfacre: So yes, on a go-forward basis, the recycling will -- as I mentioned in January, we will start to pick up in earnest. I'd say the stuff that's happened in the last 2 or 3 weeks might -- is going to cause -- it's hard, right? It's hard for pipelines. It's hard for dispositions because you've got rates just gyrating all over, and that just really stings confidence for buyers and sellers in general. And I think appetite is always there, but it's hard. It's just hard. If you're a buyer, you're pricing in a huge margin of safety because you could be wrong. And if you're a seller, you don't want to sell and do a deal that you would regret literally 30 days later, right? And so the landscape has changed a lot. So I think -- the near term, it's a little bit harder, a little bit cloudier, but it's not -- candidly, it's not any different than before. But let's assume that the trend long term, barring $200 barrels of oil is that we will eventually find REITs returning to favor. I think all of us here on the call probably presume this at some point. It's certainly been long in the tooth, and we would have liked to see it sooner, but this is the narrative we have. So we will continue to honor our recycling. I think the way we're thinking about the recycling and this is a couple of different phases. The first phase is really looking at like we have some noncore assets, particularly office. Those are going to get -- we're going to get rid of those, right? There's only 2 office properties we have. One is Solar, which, as you know, went -- or not Solar. It's the property in San Diego that was formerly leased to solar turbines. They left at the end of September. That's why we had a little bit of falloff, which is inevitable in rents in the fourth quarter. That property is a great property to sell to an owner user. We've actually had quite a bit of interest for it. The interest has been above the appraised value of the property. The reason why we haven't sold it yet or the flip side, the reason why we haven't leased it is that it was or it is on the same technical parcel as our WSP property. So they're right next to each other. This is a property that was acquired by the prior legacy team. We've had it. We have been working through the bureaucratic process that is not uncommon in any county or city since 2021, 5 years now trying to get that parcel split in -- so that it has its own parcel and we can sell it separately. We are so close to that. We are at a final very detailed scrutiny like filing -- refiling parcel maps. I mean there could be little things like ADA slopes on things. All that stuff is done. We're super close to that. Once we have that in hand, then we will take that property to market. The reason why we haven't leased it is because, look, I think the owner -- the right user of that is an owner user or some sort of tenant who might want a 5-year lease or might want a gross lease or -- we want long-term industrial manufacturing tenants on that lease basis, you can't -- that's not going to fit that box. That box has a better use. So we will sell that one. That's an office property technically. It's really a flex space. If you look at it now from when it was before, it's like completely open, clean shell, it's ready to go, right? So that will get sold. My guess right now, if you were to put a gun to my head, that's like, call it, $7 million to $8 million, right? So it's not a huge number. The other office property is OES. OES has this purchase option. We're talking to them. They -- like it's a blue -- I mean that's an investment-grade tenant, but it's a government, right? That's got -- we think that's a super sticky asset, but it's not a net lease manufacturing asset. So we're going to -- and it is office. It's a balancing act we've waited. We don't -- if we sold it 2 years ago, I'd probably sell like a 10 cap. I mean who wants to do that when you've got really good rent that's coming in. And so we have to be patient. But at some point, you're like, okay, you got to should or get off the pot. And so we'll clean that one up. And that's -- that will happen ideally by the end of the year. I don't -- we're going to be thoughtful about the timing. We're not going to force it, but it's moving forward so no longer to wait. So that's the obvious part. People ask about the Kia dealership. It's a noncore asset. That one is -- the conundrum of that one, that is a layup to recycle, right? We've seen interest in that one, not offers, but interest at or below the cap rate that it's appraised at. It's a very attractive asset, but it's a big one. It's $70 million, call it, property. That was a 1031 -- I mean excuse me, an UPREIT transaction from about 5 years ago. So we have a really low tax basis on that one. So it's super sensitive. And so if you're going to sell it, you have to make sure you already know what to buy. And to buy, I don't want to buy a $70 million industrial manufacturing facility. I would be better served buying sort of 3 $23 million industrial manufacturing facilities and rolling it into it, right? And so that will be an accretive transaction because we'll talk about the forward pipeline here in a bit. But that cap rate that it's selling at, we would sell the Kia is at least and if not more, 100 basis points tighter than what we can redeploy it. So that would be generated. But we have to line that up because you can't just take it to market. You would get bids undoubtedly. A lot of those bids would be fast closing bids. And then you would be left with a short window to 1031 designate. So we're -- we'll be patient on that one in terms of noncore. That will happen when we find the right target to roll it into. So setting that noncore aside, obviously, we move the office. And then from there, we have a lot of short WALTs. And our short WALT philosophy is that we will do our darnest to see if they will extend. We will have conversations with them. We are starting to have those conversations if they're willing to extend and not just extend like 2 years, like they can really give us something that makes us decide we might want to keep it for longer term or if they don't, realizing that let's just clean up the WALT. Even though they're great tenants, I think our goal is -- our vision is let's get to a rock-solid portfolio long term. We understand that as leases get shorter and you see this in sort of O and W.Carey, that you get down to the option periods and CFOs and things like that typically just -- they just exercise 5-year renewals, 5-year renewals, they exercise their option periods. That's normal. But we have a period of time right now that we can positively -- have a positive arb by selling certain assets, even if they're shorter WALT and creating more AFFO by reallocating them into longer WALT and having a more solid portfolio. So we'll spend time this year looking at -- Northrop was one of those properties -- we got an unsolicited offer that came in. It was worth our time. It was worth our energy. We gave them -- we were patient with it. We were not in rush for them to do their due diligence. We were not in rush for them to close because we do need to roll it into a replacement property ideally. There's other uses for it, too. I won't get into that, but we could use that money fungibly, but that was one that is an example. That's a property that it's a short WALT. We got an offer that was compelling and we took it. So that's on the plate. We will see more of that activity. Separate from that phase is we have a few industrial credits that I would probably like to recycle through. There are nothing wrong with them. They're perfectly fine. They're just smaller. They're less institutional. And so they would -- I think recycling those at the right time, and that might be this year, it might be early next will allow us to just clean ourselves up that much more. And when I say clean up, it doesn't mean more dirty. It just means I want to polish it as best we can because I think the process that we've been through with these offers and the interest and -- it's helped us say, hey, if we do these things and extract the value for our shareholders, then we're going to be in a really solid position. Outside of that, we have a few -- and I mentioned this before in January, sort of some opportunistic assets that are great assets. They may not be manufacturing assets. They are certainly lower cap rate assets that at the right time, if we got ready or we had clearly identified things to buy, we would roll those as well, right? And so you will see more activity over the course of the year, barring something bigger and strategic happening, you'll see more activity in the course of this year. And yes, we're not -- those weren't just words, those were actions that we're going to take. I think the interesting thing about all this is they're all -- as I mentioned before, they're all tax sensitive in terms of we have low basis. If we don't redeploy them in 1031, investors are going to have taxable events. And we just -- that's not how you're supposed to manage the REIT. So we're trying to be thoughtful about that. But -- so the selling of the assets is actually pretty easy. You can happen pretty quickly and you -- a lot of brokers ready to go. If you put a property on there, you probably are sold in 60 days if you really wanted to, but comfortably 90. The problem is finding replacement properties that line up. And I'd say over the course of our journey, I've gotten and the team has gotten a lot more selective in the terms of you want really good manufacturing products. So the product that they're manufacturing has got to be really good. We've gotten that right. You want to make sure that the lease structure is really good. You want to make sure that the financials of that tenant are really good. You would ideally like that tenant to only have one source of manufacturing, which is your thing or you have control all their manufacturing so that you can't get rejection, make sure you proceeding, God willing if it ever happens, but you're addressing that through credit. And you'd also really like to have good location as best as you can. And then on top of that, a good cap rate. Those are a lot of fine wish list, and you can't be the princess and the pea about it. You have to really be compromised in marginal areas if you have to, but we don't have to right now, and we've been patient. But the pipeline has been episodic. It's been erratic. We started to see pipeline come out in January. Some of it is just like we still -- sometimes we're still waiting for the OMs, right? They're like, and it's like the OEMs haven't come out. Well, why? Because the person on the other end is concerned about selling, right? We might want to be bidding with a margin of safety. They're wanting to sell with security. But they know they're going to get -- this is a stable ground and that they go and go out in the market, they're going to execute on what they think they are and in fact, they're going to just change on them. So it's a little bit of weird time in that regard. And so we're looking at our box, the buy box, making sure we're looking -- we're looking at a lot of things. I'd say price talk about overall is interesting. If you go look at the $22.19 NAV per share we have, which like everyone has an NAV, right? Some people use a street analyst NAV. Most REITs have an internal NAV of some sort. We have -- our internal NAV happens to be done by a blue-chip appraisal firm, Cushman & Wakefield, and they've been doing it for, I don't know, 6 years. there's consistent history if you go piece it together. And so you're like, appraisals are full of s***, right? They don't -- they're not real, but they actually are pretty indicative. I would tell you that we have -- I can think of 3 properties in our portfolio in the last 6 months where we have received unsolicited offers that are at or below the cap rate that is implied in our appraisals. So -- and we've all -- I think we all understand, particularly now in this environment that there's a fairly large disconnect between private real estate and public real estate and public real estate is just taking it on the chin repeatedly. So we understand that. So that $22.19 NAV, I think round numbers, it's an implied 6.8% cap rate. First, you think, well, you're not trading anywhere near that, and we're not. And price talk, we've seen and the price talk is maybe like an appraisal, it is indicative of something. It doesn't mean it's transactional, but it's in the range of possible. There's a $200 million portfolio going out there today. It has a tenancy that's very similar to our largest tenancy in terms of the sector. And it's got -- they're talking 6.75% on that one. We saw another property where someone was talking 6.75%. Now that's broker talk. They're leading a little bit. Do I think it's going to trade there? Probably it's going to trade wider than that, might be 7%, might be 7.25%. But clearly, you're seeing stuff between 6.75% and 7.5% right now. You just got to find the right thing. Sometimes you'll find something that might -- if something is 7.5% and it's just dog doodoo, you don't want to pay 7.5%. If something is great and it's a 7%, then you can do it. But sometimes there's dog doodoo that 6.75% too. Everyone is trying to do their own thing. But I would say that the pipeline right now, and it's a little bit of a strobic effect when you see it, sometimes it's there, sometimes it's not, like back on, it's tighter than it was a year ago. It does feel tight to me. Whereas a year ago, I was probably saying 7.5% to 7.75%, now the talk has gotten tighter. I think that might be a little bit of the optimism that we saw 3 or 4 weeks ago. And now I'm not really hearing calls for the last 2 weeks, but I think everyone is kind of holding their breath, right? I mean the first weekend with the conflict, we were like, oh, is this going to be like the last time where we just bombed them and then we went back to our business. And then no, it's not extended. And then we've gotten all as a collective, gotten ADHD. We're like, oh, no, it's been an 18-day war. I mean, historically, we had wars that lasted for years. So I don't know if you can hold your breath on this one. It might be over soon, it might not be. It's certainly volatile, and you certainly got to stick to your knitting. But it's a long-winded way of saying that we see opportunity. We're looking at it. We're just being extremely thoughtful. It takes an inordinate amount of patience, which is very hard to do. It's very hard to do. It's not fun. It's not sexy. It's -- I wish I was an AI company. That would be fun. But we're not. So sorry for the long-winded answer. I hope that helps. Gaurav Mehta: I appreciate it. That's all I had. Operator: And your next question comes from the line of Jay Kornreich from Cantor Fitzgerald. Jay Kornreich: In line with a lot of your comments there, obviously, a lot of questions on the macro perspective at the moment. And I guess if we could just wrap up all those comments you just made about the transaction front and how you're thinking about that going forward. Do you still feel on track to get the portfolio to the 100% pure-play manufacturing industrial over the next 24 months? Or does maybe the time line shift just with everything that's going on at the moment? Aaron Halfacre: Yes, I do because I always like to underpromise and overdeliver whatever the phrase is. So that 24 months, I think if things are rosy and the market starts hitting its stride, that's a 12-month process, right? So it can be a lot tighter. Again, the bottleneck is having the right assets to acquire and the right assets to acquire will become much more evident when the market gets a little bit more stable. So -- and theoretically, just putting out our portfolio, I could -- if I identify the right portfolio of assets as an example, and I had the right timing to buy them, that I could almost in effect, do it in one fell swoop, right? So just mathematically, if you think about it, it's not going to happen likely because it's hard to find these things, but it doesn't mean it can't happen. It doesn't mean we are not looking. But if you found a $100 million portfolio of assets that you like that you could line up to purchase that met your box, and then you sold your -- you could take your assets out to market, they would all be reversed 1031 or forward 1031 designated exchange and you're done in one fell. It's the pipeline that matters. So yes, I do think 24 months is very realistic and doable. Jay Kornreich: Okay. I appreciate that. And then just one follow-up. And I recognize that there's a little commentary you can provide on the potential acquisition offers that you received. But can you maybe just from a different angle, talk about what's perhaps brought you more on the radar of others more recently as an acquisition target, maybe relative to a year ago? Is it the state of interest rates? Is it the progress you've done on the asset recycling efforts? Is it something else? Just what do you think has brought you more into the light of others looking for a portfolio like yours? And how do you expect additional potential inbounds moving forward? Aaron Halfacre: That's a good question. So I think, look, we've seen REIT M&A -- the discount for public REITs to private real estate has been persistent. We started to see REITs get picked off. In some ways, you could argue why hasn't there been more M&A volume, but there's still been a decent amount of M&A activity, right? So in our space, you obviously had the real germane thing you had sort of Fundamental, which was not public, but they got taken out by Starwood. You had Plymouth taken out. You had Peakstone taken out. Broader than that, you got Alexander & Baldwin, you just had the NSA deal. We've had a lot of different names get consumed. I think a lot of them were smaller cap names, which means that there's a greater buyer pool of people who can afford to take those out. So I think there's been a trend where for a while now, I mean, if you had raised a value-added opportunistic fund in '23, you've got a 3-year investment window maybe or you raised it in '24, you've got a 3-year deployment window that you had to get it deployed. At some point, people are starting to deploy and they were waiting and they're waiting. And I think we saw early signs -- we started seeing signs as early as the third quarter of last year where activity started to pick up, and we've seen a fair number of those things. And so once that starts happening, people start looking, right? If you're -- once you decide you're a seller, then you're potentially a seller, so that attracts buyers. But if you're starting a buyer, you start to look for things to buy, right? And so I think that's been the first thing. I think the near-term volatility in rates and global economic pictures, it's frustrating that on the margin. But again, I don't think it's changing directionally where things are at is that people see attractive positive leverage, long-term positive leverage opportunities in public real estate, either public to public or like we saw with Public Storage or it's a public to private, right? And we've seen this at different times. And look, there are probably too many REITs out there. There are too many undercapitalized REITs out there and we are in one of those buckets. We understand people say why did you ever go public? Well, we -- at the time we were a nontraded REIT, and we knew that we didn't provide immediate liquidity, we would be gating and no one wants to gate as BREIT, ask Starwood REIT that thing. They're much bigger, so they can afford to do it, but no one wants to do that. So we provide liquidity for that generation of investors, and we've recycled. And we've just been in a rough time. But we've created a valuable portfolio. I don't -- I can't -- off the top of my head, I would think our share price is a ridiculously wide cap rate to the assets. And so that's what's attracting people. They're like, hey, you've got 14 years, you've got 2.5% in place. You've got manufacturing tenants that don't have obsolete -- arguably that the real estate is already obsolete in the sense that it's not whizbang. It's been doing this stuff for 40 or 50 years. It's really good durable real estate, and it's still here, right? If you bought a 2018 vintage data center, it's already obsolete. You're already having to replace all the guts on it other than the shell of a box. If you bought a 1999 warehouse, it's obsolete, right? Our stuff arguably is not that sexy. It's older real estate, but it doesn't have any more obsolescence value. You're buying a core income-producing value. And with the EBITDA rent coverage and the fixed charge coverage ratio of our tenancy, it's a strong portfolio. And if you look long term and think, hey, long term -- not right now, though, because if you look at in the futures market, the ZB or the UB in the long bond area, they've sold off, right, which is counterintuitive in the short term with the war, they typically rally, but they sold off, which base rates gone up. But if you think longer term that we'll have a yield curve that suggests that long-duration assets with low leakage in terms of NOI and particularly the advent that we can start putting private capital into retired 401(k)s and things like that, there's a natural demand for this nice pool of portfolio. We are synergistic, right? I'll give you the color that the people looking at us, we're not looking for the team. They're looking at the assets. I wish they were looking for the team. It would be fun to do that, but they're looking at the assets. And you can -- this portfolio, you can strip out -- it's pretty simple. You can strip out the G&A and it becomes accretive. We're not opposed to selling. We're just wanting to make sure it's the right value for our investors because we're not desperate. We're not going to just give it away that might be a great payday for me because all I do is I have equity like everyone else, but we're going to do the right thing. And the right thing will come about. And in the meantime, we're going to pay that $0.10 a share per month and get done. But -- so I think the interest is because there's really good value coupled with there's people who have money and they're starting to decide they want to make allocation. I think the last element is, look, there are arguably 4 small cap industrial REITs that I can think of -- and maybe you can include ILPT in there, so maybe that's 5. But of those 5, ILPT and Gladstone are externally managed. So good luck with that, right, getting the whole of those. And the other 3 were Plymouth, Peakstone and us. And clearly, we're the smallest. And so I think that's part of it, too. There's just like if you want to pick up this sector or you like the space, there's not a whole lot you can do, right? So that's where we're at. Operator: [Operator Instructions] Your next question comes from the line of John Massocca from B. Riley Securities. John Massocca: So I know you kind of talked a lot about the inbound interest after the January '20 update. But I guess, given that you've seen that, does that maybe spark an interest in running a kind of strategic alternatives process earlier than that, I guess, maybe that kind of post 24-month time line that was kind of talked about in that update. Just kind of curious how that changes your mindset, if at all. Aaron Halfacre: I think that -- I think the interest suggests to me that people know there's value here and that they know that we can clean up the portfolio. And look, again, the portfolio is not dirty, but if it's more polished, it's going to be more valuable. And so they see a window of opportunity if they can take it out cheaper than what it will be in the future, that's their job. Their job is to try and take it -- keep the upside for themselves and give you a few shekels. I think what this suggests to me is that barring someone closing that value gap -- and again, closing that value gap does not mean $22. Let's just all be clear. No one is going to do that. No investor in the right mind or buyer in the right mind is going to do that. But there's no upside, right? They don't -- they want it bad. They just buy a bond, right? So they need upside, but our investors need upside. And so there's -- it's a dance of where that is. But what it suggests to us is that if we didn't have -- like if you look at -- if I'm going to go buy a used car, and that car has got a little bit of rim rash in the back wheel or there's a little bit of scratch. I'm going to use that to get lower price. But what we have the ability to do is clean that -- polish that portfolio up. And so that it's even more valuable. So if you flash forward in this environment, let's think about where we're at right now. We're in a super crazy rate environment, right, where people are dealing with inflation and bonds are doing this, it's crazy. And you're like, what do you expect if you went and ran a process now or in 6 months, right? If you did it where you flash forward, you clean up your portfolio, you're humming, you're good, the rate environment is stable. Maybe it's lower, but it's certainly stable. You've clearly gotten what it is. You know you can extract more value, and you've done that. And let's say that is in 24 months. Let's just put that hypothetical situation there. In that 24 months, our investors, assuming no change in our dividend, no increase or decrease in our dividend, which, look, I'm not going to decrease in the dividend, but let's assume no increase either. That's $2.40 of income in the next 2 years and a higher value of your portfolio to execute. So you would try to buff out the scratches. You would try to get rid of the rim rash. You would get yourself in an environment where your type of car that is for sale is in demand. And so doing so prematurely would suggest 1 of 2 things in my mind, would suggest doing so prematurely is running a shred process to be clear, which suggests either, one, your leadership doesn't want to do it or can't stomach it. And look, it's not fun sometimes, but we got -- we don't have weak stomach here. Or two, do you think you can't do any better? Otherwise, why would you do that? Why would you shortchange the investor? You just wouldn't. If there an opportunity comes along that closes the value gap and you say, well, okay, this is pretty good. This is going to give them a chance to redeploy their capital or this is going to be another public currency where they can get -- continue to get dividends and part in the REIT upside. There's a lot of different ways to look at this. If someone could do that better, we're all ears. But it doesn't mean just because you've gotten interest that you should not sell, right? If you've gotten really -- and if you did go into an offer unless it was an offer where you felt secure and there was no go-shop associated with it, you're effectively having a process there. So that's -- I think really thinking about it philosophically to think about what does the strat als process suggest. I think there's been a lot of REITs out there that have -- that are undergoing strat als processes, even if they're quiet or they're done some publicly. And there are -- I don't know if this is the right time to do that. Why are you trying to sell right now if you have to. If someone wants to, that's one thing. But why would you try to sell? John Massocca: Okay. That makes sense. Maybe on a more detailed level, and apologies if I missed this in the prepared material. What were the terms of -- or the potential terms of the Melbourne, Florida office sale? Or is that kind of TBD? Aaron Halfacre: The terms are well known, but I'm not to us. And I -- as a respect to that buying party and respect to us, I like to keep those silent until after the fact. Suffice it to say is we have slightly over $400,000 of earned money that's gone hard. And this has been a process. We've given them a long -- this was not a fast deal. It was an organized methodical one. And so once it closes, I'll inform you of what it was. And I'll tell you right now, just to be clear, what we don't have right now, and we're working on that, we don't have a replacement property identified yet. We don't need to worry about this one. So that's okay in terms of the tax sensitivity. Why is that? Well, because we're selling Kalera, and let's just all be honest, we took a loss on Kalera. And so that creates a tax loss that shelters the gain on this one. So we have a little bit of time to be thoughtful about the redeployment of that. But it's scheduled to close in the second quarter. And once it closes, which my guess is we will -- well, we will absolutely tell you what happens on it once it closes. John Massocca: Okay. And maybe with Kalera, the former Kalera property in mind, can you remind us what the kind of, I guess, cost of carry was for that in 4Q or kind of the OpEx costs associated with that asset in 4Q that's going to go away now that you sold it in January? Like roughly. Aaron Halfacre: Ray, do you know roughly on top of -- it's not -- it wasn't terrible... Raymond Pacini: Yes. I mean I think it was running about $20,000, $30,000 a month. John Massocca: Okay, that's it for me. And Ray, appreciate all the help over the years that you've shown on these calls. Operator: There are no further questions at this time. Please proceed. Aaron Halfacre: Everyone, thank you so much. I know we came out a little bit later. That was because of the aforementioned offers. I don't like to come out as late, but it didn't seem -- we are a pebble in -- causing a ripple in the ocean that is raging right now. So I appreciate all that did join. Wishing you the best of luck for your families and your portfolios and talk to you again for next quarter. Thanks so much. Operator: This concludes today's call. Thank you for participating. You may all disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to Journey Medical's Full Year 2025 Financial Results and Corporate Update Conference Call. [Operator Instructions] Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of this call will be available approximately 1 hour after the end of the call for approximately 30 days. I would now like to turn the conference call over to Jaclyn Jaffe, the company's Senior Director of Corporate Operations. Please go ahead, Jaclyn. Jaclyn Jaffe: Good afternoon, and thank you for participating in today's conference call. Joining me from Journey Medical's leadership team are: Claude Maraoui, Co-Founder, President and Chief Executive Officer; Joseph Benesch Chief Financial Officer; and Ramsey Alloush, Chief Operating Officer and General Counsel. During this call, management will be making forward-looking statements, including statements that address among other things, Journey Medical's expectations for future performance, operational results, financial condition and the receipt of regulatory approvals. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Journey Medical's most recently filed periodic reports on Form 10-K and Form 10-Q, the Form 8-K filed with the SEC today and the company's press release that accompanies this call, particularly the cautionary statements in it. Today's conference call includes non-GAAP financial measures that Journey Medical believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non-GAAP financial measure to net loss, its most directly comparable GAAP financial measure, please see the reconciliation table located in the company's earnings press release. The content of this call contains time-sensitive information that is accurate only as of today, Wednesday, March 25, 2026. Except as required by law, Journey Medical disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Claude Maraoui, Co-Founder, President and Chief Executive Officer of Journey Medical. Claude Maraoui: Thank you, Jaclyn, and good afternoon to everyone on the call today. 2025 was a milestone year for Journey Medical as we successfully launched Emrosi, our internally developed best-in-class oral treatment for the inflammatory lesions of rosacea. Emrosi was made available to pharmacies in late March of last year, and our promotional activities began in early April. I am pleased to report that during the 3 quarters of 2025 in which Emrosi was commercially available, the product achieved $14.7 million in net sales. With regard to our full year 2025 performance, we delivered total net product revenue growth of 11%, and we improved our gross margin by nearly 3.5 percentage points compared to the 2024 period. Importantly, our business was able to make solid financial progress despite pressure on our Accutane franchise and other legacy products due to generic competition. With regards to our focus on improving profitability of the business, I am pleased to report that we generated positive adjusted EBITDA as well as positive EBITDA in the fourth quarter of 2025. Given our expectation for continued sales growth and additional leverage from our established commercial sales organization, we expect to remain adjusted EBITDA positive in 2026 and the foreseeable future. With our solid cash position of approximately $24 million, I believe that Journey is well positioned to execute on our business plan and grow sales and profitability with the resources that we have in place. One of the key highlights for 2025 is the strong prescription volume that we generated with Emrosi. Total Emrosi prescriptions were approximately 53,000 since promotion began in April of last year, which we believe is a very strong start. In the fourth quarter alone, total prescription volume for Emrosi grew nearly 50% sequentially compared to the third quarter last year, and growth is continuing in Q1 of this year. Our sales organization continues to promote the superior efficacy of Emrosi compared to the only other branded oral rosacea treatment, Oracea, in addition to Emrosi's placebo-like safety and tolerability profile. Notably, the extremely positive head-to-head results against Oracea and placebo in Emrosi's Phase III clinical trials are playing out in the real world. Physician feedback continues to be very positive, and the rising refill rate for Emrosi continues to demonstrate that patients are pleased with the results. Emrosi's superior efficacy and rapid onset of action compared to Oracea with effects seen in as little as 2 weeks are key benefits that we believe are supporting the demand and patient refill behavior. Along with the high satisfaction rate that we are seeing with our current customers, we continue to expand adoption of Emrosi in more dermatology practices. We ended 2025 with approximately 3,200 unique prescribers of Emrosi, reaching our initial goal of prescribers in the top deciles that routinely write for Oracea and similar products. While we were able to meet our initial prescriber target quite rapidly, we continue to increase this number. And today, we are disclosing that over 3,500 unique dermatology prescribers have now written at least 1 script for Emrosi. I'll now provide some additional color on our managed care and market access progress for Emrosi as this is an important component of the value inflection that we expect in 2026. Prescription demand continues to track ahead of reported revenue. That dynamic is primarily driven by the timing of downstream health plan coverage decisions and formulary implementation cycles, which are progressing as expected for a newly launched branded dermatology product. At present, approximately 100 million commercial covered lives have access to Emrosi. This includes contracts in place with 2 of the top 3 group purchasing organizations in the United States. These agreements provide the framework for broader downstream payer adoption as individual health plans complete their internal review and P&T processes. As we mentioned on our third quarter earnings call, we anticipate contracting with the third major GPO by late Q1 or early Q2 of this year, and we remain on track to meet this objective. Importantly, we are not solely focused on breadth of coverage, but also the quality of coverage, including tier positioning, step edit requirements and prior authorization criteria to ensure that the value of Emrosi's differentiated clinical profile is appropriately recognized. As coverage expands and formulary policies mature throughout 2026, we expect to see improved reimbursement rates, reduced reliance on our co-pay bridging program and an increase in Emrosi sales and overall operating margin expansion. Our sales professionals continue to focus on building new prescription demand for Emrosi as we believe it is important to broadly develop positive physician and patient experiences with the brand. In addition, critical mass and prescription volume also factors into the evaluation of reimbursement and pricing policies with the downstream health plans. Along with the strong prescription demand, our market access discussions are supported by several important clinical and publication milestones. These are Emrosi's head-to-head superiority data versus Oracea, the publication of Emrosi's Phase III efficacy and safety results in JAMA Dermatology and the updated treatment algorithms from the National Rosacea Society. These third-party validations are meaningful in payer evaluations, particularly as plans assess clinical differentiation and long-term health economic impact. We believe that Emrosi's rapid onset of action, placebo-like tolerability and superior facial clearing and lesion reduction profile position it well for continued formulary inclusions. As these initiatives materialize, we expect a meaningful inflection in revenue conversion relative to prescription demand. While we have commented on our expectations for positive EBITDA this year, we plan to offer more detailed financial guidance later in the year once we have better clarity on the downstream health plan adoption of Emrosi. I mentioned earlier that Emrosi's positive Phase III clinical trial results were published in JAMA Dermatology and that the National Rosacea Society updated their treatment algorithms, highlighting Emrosi's position as an effective therapy for rosacea treatment. Both of these publications were issued in the first half of 2025 and support Emrosi's superior clinical efficacy in treating rosacea, its favorable safety profile and the product's convenient once-daily oral dosing. This year, we expect to announce up to 3 new journal publications on Emrosi. We also believe that Emrosi has potential to be incorporated into the consensus treatment guidelines for rosacea, which should support further market and health plan adoption. In addition, we remain active at key dermatology medical conferences across the United States to build awareness and momentum behind the Emrosi brand. Last year, we presented clinical data at 2 medical conferences, the Society of Dermatology Physicians Associates Summer Conference in June and the 2025 Fall Clinical Dermatology Conference in October. We plan to attend an exhibit at this year's American Academy of Dermatology meeting at the end of this month, where we kicked off Emrosi's launch last year. Given the market penetration that we have achieved so far with rosacea prescribers, we believe that this large-scale conference will help us further increase brand awareness and prescriber adoption of Emrosi. Additionally, we expect to exhibit and potentially present a clinical data later this year at other dermatology conferences. With regard to our broader product offering, we plan to launch 1 or 2 additional incremental dermatology products later this year. We believe that the launch of these products can also benefit from our dermatology conference presence in addition to direct promotion by our sales organization. And with that, I'll turn the call over to our CFO, Joe Benesch, to review our 2025 financial results. Joseph Benesch: Thank you, Claude, and good afternoon to everyone. I will now walk you through our financial results for the full year 2025. Total revenues for the year were $61.9 million, representing a 10% increase compared to $56.1 million for 2024. The increase reflects incremental net product revenue related to the successful U.S. commercial launch of Emrosi. Turning to margins. Gross margin for 2025 was 66.2% compared to 62.8% in 2024. The improvement reflects a favorable product mix with higher margin contributions from Emrosi and QBREXZA, along with lower overall inventory period costs. SG&A expenses totaled $44.4 million for 2025, up approximately 10% from $40.2 million for 2024. This increase reflects additional operating activities to support the launch and continued expansion of Emrosi. We reported a GAAP net loss of $11.4 million or $0.47 per share basic and diluted for 2025 compared to a GAAP net loss of $14.7 million or $0.72 per share in 2024. On a non-GAAP basis, both EBITDA and adjusted EBITDA improved year-over-year. EBITDA improved by $5.2 million, narrowing from a loss of $9.2 million in 2024 to a loss of $4 million in 2025. Adjusted EBITDA was a positive $2.9 million for the full year 2025 compared to $800,000 in 2024, reflecting further progress towards our goal of sustainable profitability. We ended the year with $24.1 million in cash compared to $20.3 million at December 31, 2024. Working capital at year-end was $29.4 million, up from $13 million a year ago, an increase of $16.4 million. In summary, we delivered a year of strong execution. We achieved year-over-year revenue growth driven primarily by the launch and uptake of Emrosi, improved gross margins versus the prior year, reflecting a more favorable product mix and operating leverage, resulting in narrow net losses and positive adjusted EBITDA. Importantly, we closed 2025 with a healthy cash position that we believe supports our ongoing operations and commercial growth into the foreseeable future. Looking ahead, we remain focused on disciplined expense management and margin expansion as we continue to scale Emrosi's commercial footprint and strengthen our product portfolio. With this focus, we believe we are well positioned to deliver improved and sustainable profitability over the upcoming quarters. Thank you very much. I will now turn the call back over to Claude. Claude Maraoui: Thank you, Joe. To summarize, 2025 was a transformational year for Journey Medical as Emrosi had a strong market debut and became our flagship commercial product. We generated approximately 53,000 total prescriptions for Emrosi in 2025 after launching the product in April, and scripts continue to show strong sequential growth as we head toward the product's first year on the market. Notably, the run rate for Emrosi total prescriptions exiting 2025 calculates to over 126,000 annually. We are continuing to expand the base of unique prescribers for Emrosi after meeting our initial goal of 3,200 dermatology writers in 2025. With approximately 15,000 dermatologists in the U.S., 17 million Americans suffering from rosacea and over 6 million rosacea prescriptions written in 2025, we believe there is significant room for Emrosi to grow and become a leading dermatology brand. Importantly, the growing base of Emrosi prescribers enables more and more patients to experience Emrosi's best-in-class efficacy and rapid onset of action relative to Oracea, the only other branded oral rosacea treatment. In the third quarter, we saw approximately 1 refill for every new prescription written for Emrosi. And at the end of 2025, the ratio was at 1.4 refills to each new prescription. Given the chronic nature of rosacea, characterized by frequent episodes of relapse, the long-term value of each rosacea patient can be significant to our business. We believe the prescription trends so far demonstrate that we are making good progress and that initial patient experiences are converting into long-term brand loyalty. As a result, we expect the ratio of refills to new Emrosi prescriptions to continue to grow. While our base business came under some pressure last year due to competitive challenges, we continue to grow our sales, expand our gross margin, and we achieved our objective of becoming EBITDA positive exiting 2025. In 2026, we expect to continue improving upon the financial performance as adoption of Emrosi grows, downstream health plan coverage increases and Emrosi sales accelerate and track more closely with prescription growth trends. While we focus on building the Emrosi franchise, we also plan to launch up to 2 niche dermatology products this year to augment our base business and our revenue growth. We believe that this year, we will demonstrate the leverage that we have in our business, given our established dermatology commercial infrastructure and Emrosi's significant growth potential. And with our solid balance sheet, we believe that we are in a strong position to deliver on our business plan and execute on our core objectives, which are as follows: to improve the lives of patients, offer dermatology health care providers innovative treatment options and create long-term value for our shareholders. Thank you. Operator, we are now ready to open the lines for Q&A. Operator: Thank you. [Operator Instructions] First question comes from Scott Henry with Alliance Global Partners. Scott Henry: A lot of progress and certainly profitability is a huge accomplishment. So congratulations for that. I did just want to dig in a little bit on the Emrosi prescriptions. I guess, first, just the trends. Q1 has been kind of flattish, but it did kind of tick up in December. So I don't know if some people bought ahead of time and the trends just taking time to flow out. Obviously, the co-pays reset. I just want to get your thoughts on Q1 prescriptions. And more importantly, do you think you've kind of finally got back up to a steady state where we should expect growth on a weekly basis? Claude Maraoui: Scott, thanks for the question. Yes, I think as we leave Q4 and enter Q1, as you mentioned, there certainly is the new insurance deductible resets. So that typically will slow patient visits to their doctor. I think you add that as well to the severe storms up and down the East Coast. They were pretty brutal and severe. I think that's a factor as well. And then overall, even in February, you've got shorter months. And so all of these compounded, it's hard to really compare Q4, which typically would be one of the strongest quarters, to Q1 as a reset. I can tell you, like you also just mentioned, March has come back in very strong. And we still anticipate and expect that our Q1 total prescriptions will surpass our Q4 number. So we haven't lost any steam at all, and we continue to expect substantial growth with Emrosi moving forward. Scott Henry: And do you feel that sequentially, your momentum is building, so Q2 should be well stronger than Q1? Is that your kind of internal feel at this point in time? Claude Maraoui: Yes. You're going to see a nice build and momentum with this. Again, if you think about it, 53,000 scripts in just 9 months. When we look at Q4 with the 27,000 annualized, you're looking at 126,000 scripts for the year, and we certainly expect to be well past that overall. So we've got momentum on our side. This is a phenomenal message. The efficacy is established. We have superiority against Oracea. We're focused on Oracea. And the fact that it has -- Emrosi has rapid onset, not only as early as 2 weeks, Scott, but we work in half the time that Oracea does. So in 8 weeks, we are equivalent to Oracea in 16 weeks of therapy. So that really catches the attention of HCPs and dermatologists. And the fact that we have this great proprietary formulation, the lowest strength minocycline on the market, 25% immediate release, 75% extended release, so we call it modified release, and it's really working well. It's offering safety like placebo side effects. So I think all of that together is really good. I will add one more thing. We are planning to increase our sales force in single digits here, and that should be ramped up no later than the first part of Q3. So we'll also have extra people on the ground across the states. Scott Henry: Okay. And just one more question, which is a little bit in the weeds. The challenge in predicting revenue for any quarter is heavily dependent on how much revenue comes in per script, which can be a function of inventory and many other things. And I think Q2, it was about [ 380 ], which was a big inventory build. So we have a lot higher number. Q3 was, using my numbers, was about [ 270 ], which is, I think, where we thought it would kind of stay because that's around where you would expect with a gross to net adjustment. But Q4, it came in at closer to [ 180 ]. So a lot lower revenue per script. So kind of 3 questions go into that. One, why do you think it is? Is that the co-pay? Is there something unique that happened? Two, where do you think it goes to in terms of -- is [ 270 ] still an achievable target? And three, when do we think we get to that steady state? Revenue per script, hard to predict in the short term, but easier to predict in the long term. Just so any color you could give there would be appreciated. Claude Maraoui: Sure. Yes, absolutely. So using your methodology in terms of calculating what the script level was for Q4, I believe you mentioned [ 180 ]. That is not a good indicator in terms of our long-term net pricing. And certainly, I would not use that number there. As we look at the progress we've made throughout the year, and the first quarter was Q2 for us commercially when we launched. We had about 7,000-plus prescriptions. We moved that up in Q3 up to 18,000 prescriptions. And then we hit 27,000 prescriptions in Q4 to close out the year. So the commercial team and the marketing team have done an excellent job going out there and getting adoption and so forth with acceptance with our physician base. And it's really provided very good patient experiences that dermatologists are seeing. So we've really accelerated the ramp on the prescriptions. And what you're really seeing is simply a function of reimbursement. So the mix of reimbursed prescriptions and those that come under our co-pay bridging program were more in -- portion of the scripts were not being reimbursed and therefore, hit our co-pay assistance program. So that's really what you see there. In 2026, we've said that we've signed up 2 of the 3 top GPOs. We expect the third GPO here to come on board imminently. So that's a good positive for us. And again, reimbursement will change that mix in that gross to net. Also, I would tell you that with the launch in April and our 1-year anniversary coming up, a lot of the plans have the new-to-market block or the new-to-market moratorium. And that will be lifted and allow us to have, again, more impact as we move through 2026. So we believe coverage is going to come on this year, and it's going to be a breakthrough year for Emrosi for sales as well as profitability. So that gross to net has a lot of upward pressure on it. Operator: The next question comes from Mayank Mamtani with B. Riley Securities. Mayank Mamtani: On the last point, Claude, on the gross to net with 2 of 3 GPOs coming on board and the third imminently also coming on board, can you maybe just give us a little bit more color like you did on your full year expectation? Again, I understand you may not give us revenue guidance, but like you gave us the script volume expectation for this year relative to what you analyzed in the fourth quarter. What is sort of your base case gross to net for this year now that you're sort of going to get past the 1-year mark. It would be helpful if you can maybe bracket something quantitatively. Claude Maraoui: Sure. So I guess 2 parts to your question. In terms of managed care and health care plans, I'm going to have Ramsey Alloush, our Chief Operating Officer, jump in and give you some background on that. Ramsey Alloush: Yes. Sure, Mayank. And just to briefly answer your question, we expect -- I'm not going to speak really quantitatively, but we do expect improvement throughout 2026, gradual quarter-over-quarter. And as we hit certain milestones with national formularies and getting adoption for Emrosi to become a covered drug on formulary, we expect, again, incremental gain in terms of gross to net. The first year of any launch, as Claude mentioned, you're typically going to have new-to-market block and these moratoriums where payers and plans are really going to want to see the drug play out. They're going to want to see how it's looking in the real world, what demand looks like, and they want to assess it financially as well. So our first 12 months was really focused on what we like to call Phase I, which is the GPO contracting, and we contracted with the 2 largest in 2025 with the third year to come on board. And that really grants us, if you will, access, which is really the framework, the universe of commercial lives, which once we sign this third GPO, we'll have access to over 150 commercial lives. Now access and coverage are 2 different things, right? Access is the framework. Coverage, we define a little bit more narrowly. Coverage is where you have these national plans that can now adopt under the GPO contracts and actually do. And what we like to consider a frictionless type of a transaction where you're likely to get a patient to adjudicate all the way through to a prescription is what we call quality coverage, and that's a single-step therapy or through any oral and potentially or any topical or not a double step, but a single step through either one of those. And so now that we've reached sort of that 1-year anniversary mark, we've already sort of preempted in terms of these national formularies that we're having discussions with. We have continued negotiations, continued clinical. I think from the clinical side, it's a no-brainer. And so where they're assessing it is what is the budget going to be, what's the budget impact, what does financial modeling look like, adding Emrosi. Of course, it behooves the GPO to have Emrosi on formulary for their plan participants because these are rebate dollars for them. So that helps them and that helps the system. So that's the way they look at it. And so we do expect incremental growth here on the gross to net, and that's really a function, as Claude mentioned, of reimbursement, which ultimately will put less and less pressure on the co-pay. But during the launch, of course, you're going to have demand lag -- revenue lag your demand. We're focused on wide stream adoption. The commercial team has done an excellent job with doctors, with new patients, refills and so on and so forth. Our job is on the back end, really, as you mentioned, that gross to net and optimizing that. Unfortunately, in the ecosystem, we don't really control timing. So from a timing perspective, Phase I is nearly complete here with the third to come on board. And really, the hard work will continue getting formulary coverage for Emrosi, and that's where you'll start to see improvement in gross to net in '26 and throughout '27 and beyond. Mayank Mamtani: Super helpful color. Go ahead. Claude Maraoui: Mayank, if I can follow up a little bit, too. You're asking for some -- to quantify a little bit. Look, the run rate annualized out of Q4 is 126,000 prescriptions running into 2026. We certainly expect to be well above that. But I think it's important to really look at NRxs and TRxs. And the current ratio in Q4 was for every 1 new prescription, we were getting 1.4 refills. So together, you're at 2.4 per patient and our 16-week clinical trials. So there was 4 months of therapy there. We believe and anticipate that the refill rates will continue to grow with this product. And I'd like you to remember that this is a chronic condition. As fantastic as Emrosi is, it's still not a cure. So patients will get symptomatic relief, they'll get their clearing, but then they will relapse and come back and have a flare-up. So the value of each of these new patients that come on in 2025, we're going to get a number of those coming back to us in 2026. It's hard to give you and quantify a number of that, but keep that in mind. And additionally, we are going out there as the field force is on a consistent day-to-day basis, asking for new prescriptions for these patients that are coming in that are actually new. So it becomes a snowball effect here over time. So time is on our side. Obviously, the long-term view, we've got great IP going out to 2039. But in the short term here in 2026, we can already take advantage of that. So those numbers are going to be real important. And right now, we're doing about 4,000 new prescriptions per month on a basis, and we expect that number to rise throughout the year. Mayank Mamtani: Yes. We're definitely closely following that. And then you mentioned some presentation publications for Emrosi. Any ones we should be particularly paying attention to from a health economic standpoint or things like durability, even return patients you're seeing in real world that you just alluded to? And finally, these 2 niche derm product launches that you talked about, maybe just put the picture together on how you're thinking of marketing, overall spend beyond the sales rep incremental spend that you talked about, just so we understand how first half versus second half looks like from a bottom line standpoint? Claude Maraoui: Sure. Yes. So regarding the 2 products that we can potentially launch here, we're definitely seeing one play out. We see that happening in the second half of 2026 here and possibly 2. So that's how that outlook is doing. We're calling that part of the base business and -- in the base business in 2025, and that's all business outside of Emrosi. We did about $46 million in revenues. We expect that base business to continue to be stable. We feel like the regression that we saw in Accutane has done its part. That was about $6.5 million or so that we went down in revenues. So all prescriptions are looking strong from Q3 to Q4. It's been stable. And we have good trends right now with Accutane in Q1 of 2026. So the added product and the launch, we do have expenses already built into our budget. This would be in a P3 position and where we would have pulse promotion with this, utilizing our full and entire sales force. We're not taking our eye off of Emrosi. That will be obviously first out of the bag for us and dominating compensation programs for our representatives. The second product will continue to be QBREXZA, followed by the launch product as we introduce it into the marketplace. Not really giving too much details on that just due to competitive reasons. So we'll give you more information as we get closer on that, Mayank. Mayank Mamtani: The publication presentation for Emrosi? Claude Maraoui: So yes, we're expecting 2 to 3 publications, and we're just -- those we have to keep in terms of what those aspects are. They're obviously all about Emrosi, but we'll let you know, and we should expect to see at least one of them hit here in the very near future. So we'll give you information as we can. Operator: The next question comes from Brandon Folkes with H.C. Wainwright. Brandon Folkes: Congrats on the progress. Maybe the first one from me. Can you just help us understand the inventory movement in Emrosi and the broader portfolio in 4Q? I know you talked about the overall working capital balance at year-end. So I'd just be interested in terms of inventory in the channel at year-end across the portfolio. And then I'll ask the same one now, and it sort of tacks on to what's been asked already. How do gross to net now at this stage of the launch compared to your expectations prior to launch and when we had talked about and framed peak sales in the past. Any way to characterize sort of where you are on the gross to net now versus how you thought about gross to nets and how that would track before launch? Claude Maraoui: Okay. Sure. So we'll take the first part regarding the inventory. Very much on track with units sold and prescriptions on demand. So -- and that's pretty much across the entire line. So that is well within standards. Then on the second part, you mentioned gross to net and where it's come to our expectations. I think we're on track, certainly. So far today's numbers, [ 280 ] as the average for 2025. That certainly is within line and expectation. So that's certainly meeting our internal expectations. And again, that's what was just mentioned here on the call by another analyst. So that's number one because we don't typically give out our gross to net numbers. In terms of where we expect our gross to net, right now, I would tell you that the expectation moving forward is an increase due to the reimbursement progress that we're going to make with the downstream health care plans. So the expectation is upward pressure as we move forward into 2026. Joe, if there's anything else you'd like to add on that? Joseph Benesch: No, I think just to expand on what you said, our real goal is to maximize the gross to net and optimize the gross to net, optimize the margins and optimize the over product contributions from all products into the EBITDA and adjusted EBITDA numbers. So just to expand on what you said. Claude Maraoui: Yes. And finally, I think you asked about the peak sales regarding Emrosi. Look, we're very bullish. We see this product as becoming one of the leading branded dermatology products out there in medical therapeutics. This is a ripe target market, 17 million people suffer from this, well over 6 million prescriptions are being written for this target market on an annual basis, and we're just really getting going here and our adopter base in terms of where we ended the year hitting our target of 32 unique prescribers. We've broken our targets into deciles. We've made some really strong penetration in those, especially the decile 6 through 10. So we feel pretty good about how we're moving along here. And being added to the potential guidelines of the National Rosacea Society in the upcoming months, I think, is just more validation for the brand and acceptance. So I think it's looking really positive as we continue to move forward. Brandon Folkes: And one just clarification, if I may. You mentioned upward pressure. Are you talking about net revenue per script going up or gross to net going up? Claude Maraoui: Yes, meaning that as reimbursement goes up, less subsidies from our co-pay assistance program will be utilized. So the profitability of an Emrosi script would be going up. Gross to net would be going up in a positive manner. Operator: The next question comes from Thomas Flaten with Lake Street Capital Markets. Thomas Flaten: Joe, there was a pretty substantial increase in accounts receivable in the fourth quarter. Is that cash we can expect you to recognize as we go through '26? It was just an unusual number for you guys. Any commentary on that? Joseph Benesch: Yes. So really, I can't tell you. Some of the [ accounts ] we have collected most but not all of that cash, so it will impact our first quarter. I think it was just more of a timing thing at year-end. Nothing major there, just the timing of the orders. Thomas Flaten: Got it. And then sticking with Joe, as Emrosi continues to gain better coverage, [ GTMs ] improve, and it becomes a bigger component of your revenue line, how should we think about gross margins as we roll through '26? Joseph Benesch: Yes. So really happy with the margins and how they're progressing. Of course, the product sales mix is always going to be the biggest driver. So as Emrosi and QBREXZA, our high-margin products, become more of that mix, we're going to continue to see better margins. And in addition, we really try to manage the -- and optimize the period costs that go through, the shipping costs, testing costs, et cetera. So we've made a lot of leeway into decreasing those costs. So looking forward, I expect some really nice margins going forward into 2026 and beyond. Thomas Flaten: Great. And then, Claude, the product launches that you mentioned, are these products you already have in-house? Is it [ BD ] on the come? And anything you can do to characterize kind of conditions they serve, overall market size that you're addressing? Anything just to give us some more context would be great. Claude Maraoui: Yes. I would look at them as really incremental product additions into the portfolio to really assist in helping the base business. And again, that's defined as everything outside of Emrosi really grow and expand in the internal product that we've been developing as well as an additional licensing deal. So in terms of the categories, I'll get into that later in the year as we come closer to launch, Thomas. Operator: This concludes our question-and-answer session and Journey Medical's Full Year 2025 Financial Results and Corporate Update Conference Call. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon. This is the chorus call conference operator. Welcome, and thank you for joining the Fincantieri Full Year 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Folgiero, Chief Executive Officer and Managing Director. Please go ahead, sir. Pierroberto Folgiero: Good afternoon, ladies and gentlemen, and welcome to Fincantieri's Full Year 2025 Results Call. We are proud to share with you the outstanding results achieved in 2025, which highlights Fincantieri's ability to capture the opportunities offered by the favorable macro trends in our markets, while maintaining financial discipline and ensuring flawless execution of our backlog. In 2025, we delivered tangible progress in the implementation of our strategy, exceeding expectations and creating significant value for all our stakeholders. This provides an exceptionally strong foundation on which to build the group's growth trajectory set out in the new 2026-2030 business plan. We achieved a double-digit revenue and EBITDA growth a strong margin expansion supported by continued efficiency initiatives and a profitable business mix, leading to the highest net profit in our industry at EUR 117 million, more than 4x higher than 2024. We also recorded a new all-time high in both order intake and total backlog, confirming the strength of our commercial positioning and remarkable growth potential. On the financial front, the group continues to make rapid progress in its deleveraging path with net debt-to-EBITDA up to 2.7x ahead of 2025 guidance provided last February at the Capital Markets Day. And there is more to come with new cruise and underwater orders already secured in early 2026 and a robust defense pipeline expected to translate into major contracts in the coming months. We also recently completed a rights issue of EUR 500 million via an accelerated book building process that allows us to further enhance our financial flexibility and provides optionality to support our selective inorganic growth strategy, also through M&A opportunities as well as to bring forward our deleveraging targets. It is worth noting that this capital increase was approved by the EGM in June 2024, in conjunction with the approval of the EUR 400 million rights issue completed in July 2024. And it's also to be noted that the free float as a result is now up 36%. Let's move to Page 4 for a summary of the financial and commercial highlights of the year. In 2025, we exceeded all targets set out in our guidance, further revised at the Capital Market Day, demonstrating the group's ability to deliver on its commitments and consistently outperform expectations. Revenues increased by 13% year-on-year, reaching approximately EUR 9.2 billion, supported by strong market tailwinds in the Shipbuilding segment and by the rapid expansion of the Underwater business. EBITDA margin grew significantly to 7.4% vis-a-vis 6.3% at the end of 2024. This increase is the result of the structural evolution of cruise into a profitable and cash-generative business and by the increasing contribution of defense and Underwater to revenue mix. The net debt EBITDA ratio improved to 2.7x, well ahead of the guidance provided at the end of 2024 and better than the revised guidance provided in February 2026. Finally, net profit reached the record level of EUR 117 million, demonstrating the remarkable turnaround achieved over the past three years and confirming the structural growth and profitability of the group. These results confirm the remarkable turnaround achieved by the group over the past three years, okay? Our revenues between 2022 and 2025 grew with a compounded average growth rate of 7.3% while our EBITDA increased by 3x over the same period. Our net income is now structurally positive. Lastly, our deleveraging process has been impressive, reaching 2.7x with further significant reduction projected going forward. Turning to Page 6. We delivered an outstanding commercial performance in 2025 with a record high order intake at EUR 20.3 billion and the book-to-bill equal to 2.2x compared to 1.9x in 2024, underscoring the strong demand in our core businesses, especially in building which posted an impressive 42% year-on-year growth. As a result, total backlog reached an all-time high of EUR 63.2 billion, equivalent to approximately 6.9 years of work based on full year 2025 revenues, ensuring strong visibility on the future growth. Let's now move to Page 7 to have a look at our order book. 2025 was also marked by the flawless backlog execution with 24 units delivered. We have a full slate of deliveries scheduled through 2036, with visibility further extended to 2037 thanks to the already mentioned order by Norwegian Cruise Line secured in early 2026. As of year-end 2025, our backlog includes 97 units, 36 in cruise, with the first two jumbo ships scheduled for delivery in 2029 and 2030, 20 in defense, five in underwater and 36 in offshore and specialized vessels, providing solid and long-term visibility for the years ahead. Let's move to Page 8 for an overview of the commercial opportunities ahead. The current macro trend offered significant growth opportunities in all of our business segments, which are actively monitoring as we speak. Of more than 500 commercial opportunities, we have looked at, we have selected a number of these to pursue through our participation in tender processes for an amount of approximately EUR 32.5 billion. In the past months, we have already successfully secured a number of orders, including important orders from NCL, Crystal, Viking and TUI in Cruise, orders in naval from the Italian Navy and ordering offshores for four vessels from Ocean Infinity and the largest order ever for WASS, for Torpedoes from the Saudi Navy. As I mentioned in our Capital Market Day, we also see short-term opportunities in naval in the coming months for approximately EUR 5 billion from the Italian Navy, the DDX, EPC call 2, LSS3 from export countries for frigates, from service contracts for the Middle East countries and from new programs from the United States Navy. Notably, last month, the United States Navy issued a request for proposal for a vessel construction manager to oversee the construction of the new medium lending ship class, identified Fincantieri Marinette our USA subsidiary as one of the two shipyards to be awarded for the construction with initial allocation of four vessels. Moving to our outlook for 2026, we confirm the guidance provided during the Capital Market Day with revenues in the range of EUR 9.2 billion to EUR 9.3 billion, EBITDA of approximately EUR 700 million with an EBITDA margin of around 7.5%. Adjusted net debt to EBITDA ratio at approximately 2x, which equates to 1.3x, including the capital increase completed in February 2026. Finally, net profit is expected to be higher than in 2025. Turning on Slide 10. Let me provide some color on the recent capital increase via ABB we successfully completed in February. As we communicated, the EUR 500 million capital increase is intended to further enhance our financial flexibility and provides optionality to support our selective inorganic growth strategy. Also through M&A opportunities, in particular in relation to unconventional underwater solution, where we see significant opportunities to expand our position. We are looking at the selective number of potential targets, which we will update you on the coming months. Now I will hand over the call to Giuseppe, who will discuss 2025 financial results in more details. Please Giuseppe. Giuseppe Dado: Thank you, Pierroberto. Let's move on, on Page 11, where we can comment order intake. Again, like we said before, EUR 20.3 billion, all-time high with a growth of over 32%. And a book-to-bill ratio well above revenues, 2.2x. This reflects the sustained growth in Fincantieri commercial pipeline that is supported across all segments by strong demand. Shipbuilding among these segments continued to deliver strong order intake reaching almost EUR 18 billion, up 42% compared to last year. Of course, these very strong order intake brings another -- a record total backlog at $63.2 billion, and I'm moving on Page 13, that covers almost 7x 2025 revenues and these results confirms the impressive growth trend already seen in 2024 and further increases long-term visibility of the business. Backlog grew by almost 33% to EUR 41.1 billion, up from EUR 31 billion in 2024. And we also have a very strong soft backlog that increased to EUR 22.1 billion compared to EUR 20.2 billion of 2024. We delivered 24 units from 11 different shipyards, 5 for cruise, 7 for defense and 12 for offshore. On Page 14, financials. Revenues reached almost EUR 9.2 billion, up 13.1% year-on-year with a strong contribution from shipbuilding that posted a 15.1% growth compared to 2024 within shipbuilding. Cruise revenues grew by 12.5% year-on-year. With production levels characterized by capacity saturation on the current shipyard footprint and reflecting the significant backlog acquired. Also, the Defense segment recorded a 20.7% increase year-on-year, partly driven by the finalization on the first quarter of 2025 of the contract for the sale of two PPA units to the Indonesian Ministry of Defense. Those two units were both delivered in the second half of the year. The underwater segment posted as well a sharp increase in revenues, up 88.2% and this comes from the consolidation of WASS submarine systems from January 2025, but also from the very strong performance of Remazel engineering that had a revenue growth of 25% year-on-year. And together with the accelerated advancement of the U212NFS submarine program for the Italian Navy. As with the offshore and specialized vessels and the Equipment Systems & Infrastructure segments, they both were substantially in line with 2024. On the following page, EBITDA. Well, at the group level rose sharply by almost 34% year-on-year to EUR 681 million with the margin up to 7.4% from 6.3% reported in 2024. Shipbuilding EBITDA grew by 29.3% to EUR 451 million with an EBITDA margin of 6.8%, up 0.8 percentage points compared to last year, this comes thanks to very favorable pricing dynamics. And improving efficiency in the cruise business. As a whole, the cruise business has improved also in terms of net working capital, thanks to the better payment terms. And of course, on top of it, there is the increasing contribution of the Defense business. The underwater, as expected, I would say, delivered an EBITDA of EUR 117 million with the margin of 17.6%. And this confirms the sector's premium profitability that we discussed on the Underwater Day in May. The offshore specialized vessel EBITDA reached EUR 72 million with an EBITDA margin growing to 5.3%, consolidating its positive path to margin improvement. The Equipment, Systems and Infrastructure segment delivered a strong contribution to the group's profitability. With EBITDA rising by 33% and EBITDA margin reaching 8.2% versus 6.1% in 2024. Drivers of this growth are, in particular, a significant contribution by the mechatronic business and higher margins in the Electronics and Digital Product cluster. And of course, last, but not least, the infrastructure cluster improved as well. On the following page, net profit for a record level, EUR 117 million the highest ever recorded by Fincantieri and over 4x the results we reached in 2024. This record result reflects the material growth in EBITDA partially offset by the increase in D&A, but this is mainly driven by the purchase price allocation following the acquisition of WASS Submarine Systems completed in Q1 2025. Of course, the effect will diminish throughout the years on this. EBIT increased to EUR 368 million from EUR 246 million in 2024. And last, but not least, thanks to our very strong financial discipline. The group benefited from a reduction in financial expenses. And this, of course, comes partly from the lower average debt recorded during the year. And also a positive contribution was provided by the decrease in the asbestos-related litigation cost, which declined for the third consecutive year. On the following page, the leverage impact and debt maturity profile at the end of 2025, adjusted net debt amounts to roughly EUR 1.3 billion. And of course, in order to ensure full comparability with 2024, these figures -- this figure includes noncurrent financial receivables, notably the loan granted to Virgin Cruises previously included in 2024 net debt and reclassified as noncurrent following the maturity extension agreed in December. Excluding these current -- these noncurrent financial receivable, net debt stands at EUR 1.8 billion roughly. Leverage ratio, net debt over EBITDA improved to 2.7x significantly lower than the 3.3x recorded as of year-end 2024 and further improving on the 2025 guidance provided in the Capital Markets Day, which was 2.8x. The leverage ratio, including noncurrent financial receivables stands at 1.9x EBITDA. As we have previously mentioned, we have generated in 2025 significant cash flow from operations, which, excluding the cash outflow for the purchase of WASS in early 2025, translates into a free cash flow generation of more than EUR 250 million. We have a very well distributed debt maturity profile with no significant long-term debt maturities until 2028, and we can rely on a solid capital structure with no covenants roughly 90% fixed rate liabilities, this is obtained through derivatives. Furthermore, the senior unsecured Schuldschein placement for EUR 395 million completed in July 2025, contributed to extending our maturity profile and reducing our average interest rate. After that, I will now hand the call back to Pierroberto for his closing remarks. Thank you. Pierroberto Folgiero: Thank you, Giuseppe. Let me now summarize our key takeaways on Page 18. During 2025, we have delivered record commercial and financial results with net profit, order intake and total backlog reaching an all-time high. These results provide a strong foundation for the years ahead in the execution of our 2026-2030 business plan. Margins further improved year-on-year, thanks to the structural evolution of Cruise into a profitable and cash-generative business and to the higher contribution of Defense and Underwater to the revenue mix. We benefit from an impressive backlog visibility further extended to 2037. This supports our margin profile through working capital optimization, capacity saturation and improved procurement efficiency. The current global geopolitical environment offers substantial growth in defense, which we expect to translate into new significant orders in the coming months. We are consolidating our position as the leading orchestrator in the underwater domain, expanding both our product offering and business development capabilities also through targeted acquisitions and strategic partnerships. The successful completion of the capital increase last February demonstrates strong market confidence, while providing additional financial flexibility and optionality to pursue the selective M&A strategy. We are only at the beginning of a secular growth trends, and we are ready to capture this opportunity. With that, we are now open to take your questions. Operator: [Operator Instructions] The first question is from Antonio Gianfrancesco of Intermonte. Antonio Gianfrancesco: I have two. The first one is on the year-to-date Cruise orders from Norwegian and Viking. Could you give us some indications on the margin profile of these new contracts compared to the current backlog? And more broadly, even on Cruise business. At Capital Markets Day in February, you indicated the profitability for the Shipbuilding division at 7% for 2026. Could you give us an indication about the evolution of the profitability in the Cruise segment for the coming years? The second one is on the recently announced memorandum of understanding with Navantia on European Patrol Corvette program. Could you please help us to better understand how you see this translating into actual order intake. And in particular, I was wondering if you consider this memorandum of understanding as one of the key building block behind the EUR 5 billion defense pipeline in six months, you indicated at the Capital Markets Day. Pierroberto Folgiero: Thank you for your questions. Cruise orders, NCL and Viking, we are not accustomed to disclose precise margins. We would rather prefer to let you appreciate what is behind this pickup in the percentage margin in this profitability. So basically, as we have been saying and doing and pursuing the Cruise business is going in the direction of saturation, saturation, meaning perfect "absorption of fixed cost" on the one hand, on the other hand, long-term visibility and backlog provides for long-term partnership with supply chain and vendors. So we can achieve, I would say, optimization in the terms and condition pricing, for example, of what we can achieve from supply chain. So the more we go in that direction, the more we see a reinforcement of profitability in the cruise, which is also benefiting from an additional dynamics on the revenue side on the pricing side. So on the cost side, saturation and procurement optimization. On the revenue side, there are positive developments in terms of pricing. So the scarcity effect is allowing us to increase our bargaining power with ship owners and somehow improve our negotiate position. Let me also add that there is a third dynamic in Cruise, which is not again related to the cost, which is not related to the revenues, but it's related to the risk profile. So the beauty of this long queue of order intake has to do with the fact that our not prototype ships but are repetitive ships. So many of the latest announcements, many of the latest awards are repetitive of an existing ship repetitive version of an existing ship, which is a terrific sorts of derisking. And conversely, it increases the possibility to convert contingencies accrued into extra margins at the right moment. So there is a series of concurrent effects that are driving our expectation of Cruise better and better. Let me add the fourth information which has to do with terms and conditions, payment terms and conditions. So we are also succeeding in improving to the maximum possible extent payment conditions in the direction of improving the working capital dynamics accordingly. Which dynamics is, as you may know, already improved by the stabilization of volumes, which is the prerequisite in order not to absorb working capital. So no precise answer. Sorry for that. For commercial regions, for strategic reasons, but as many site information as possible in order for you to appreciate what is behind this enhancement in profitability. Similarly, we believe that the Cruise for the years to come, which was your second question, will continue to improve margins. So the multiple engines I was describing before are expected to gain pace, gain traction, change gear and give us more and more satisfaction in the years to come. So we are definitely convinced that this, I would say, environment is truly healthy for Fincantieri Cruise division. On your second question about Spain about EPC about Navantia, I think it's a very important step, it is not an MOU only. It is beginning of a new, I would say phase in the European cooperation, the EPC program, which is a Corvette is in the process of moving to the second phase, which is the second call from EDF, from European Defense Fund, which is the relevant entity that is supporting with specific grants the development of this European Corvette. Italy and Spain and France are already there. Other nations are expressing interest namely Romania, namely Greece. So it is expected to be, let me say, kind of higher WASS of the sea, which will be remarkably powerful for European demand, but at the right moment also for exports out of Europe. So it's a way to align requirements among different navies with the aim of optimizing costs, the absorption of nonrecurring costs and creating an interchangeable interoperable platform that could be very competitive also at export level. Your question is if the ship is going to be ordered tomorrow morning, which is not the case because the EPC program is going from the initial engineering to the engineering for construction step. What is very important is that all the nations are expected or the founding nations, namely Italy, Spain and France, are expected to soon express their commitment to order their number of ships to this new entity. So very soon, we are going to move this platform from a paperwork to a construction exercise, with commitments, which, by definition, will be for many units with commitments coming from the founders, from the founding nations. I think that's it. Operator: The next question is from Marco Vitale of Mediobanca. Marco Vitale: The first one is on the outlook. If you would provide us some source to say indications in terms of what you expect by divisions. We noted that you say, sales target implies a flattish revenue trend. And I was wondering if you could add some few details on what are the key, say, underlying dynamics across business lines for year 2026 outlook. The next question on the, say, new U.S. program, the LSM that you mentioning, if you could do, we had read some, say, few articles. If you could add some say, details on the potential timing in terms of both order collection and also P&L impact that you expect from the new program. Last question is about, say, more general in terms of supply chain and discussion with the main cruise operator. We noted that the current, say, rise in geopolitical conflicts are also triggering as a side effect, lower tourist volumes for Cruises. I was wondering if -- I mean, if you share any insight in terms of the discussion you had with the main cruise operators could reassure your long-term business pipeline that you have with them? Pierroberto Folgiero: First question about 2026 outlook. Our business is very beautiful because it depends on the backlog. So 2026 revenues are not going to be disclosed by Fincantieri but will be self-disclosed by the deployment of the backlog existing at the end of 2025. So it's -- that's the beauty of being a project-driven company. So with respect to 2026, we have the production curves coming from the backlog we have already secured. And 2026 will be the year in which in terms of expectations, we expect a "kick in" of the defense order intake, which we experienced in 2025, as we experienced in 2025, it's a process of finalization and materialization, which is a little bit bureaucratic, but it is there, it is there. So that's what we -- that's why we expect 2026 to be so visible in terms of order intake. And obviously, it will become revenues accordingly as you deploy a few, I would say, project backlog for the future. So there's nothing weird. There is nothing unclear. It is, I would say, very visible and very -- it's the schedule. It's a schedule of production. And again, 2026 will be, at the same time, very interesting for the rest of the profit and loss. So I believe is already clear that our percentage margin is in the process of improving and also the net result as we have already appreciated 2025 versus 2024, our net profit is showing signs of, I would say, vitality. So I wouldn't call it flattish, revenues, my point, revenue is vanity. It's much more important that you look at what is happening at margins what is happening at the bottom line. And at the same time, what is happening in terms of order intake, which is the most interesting part of my answer. Moving to the geopolitical part of your question. Yes, we are aware that when you talk -- when you discuss, when you elaborate, about tourism, the concept of war, the concept of instability is, I would say, typical case of concern, but never happened. So people continue to travel obviously, not exactly in the overheated place. So obviously, if you have a resort in an overheated place. It is not going to be fully-booked, but the tourism can somehow adjust, I would say, trajectory, itinerary in a way that is smart enough to find beautiful places to go and cruise. So that's my overall elaboration about your point. Practically, we are not experiencing any negative feeling from the side of ship owners. Conversely, we continue to see a lot of energy, a lot of interest in occupying future slots for the sake of a long-term growth. Let me also add that we are securing orders in the Cruise business, which is the "Touristic" business all the way to 2037. So we strongly believe that from that time on the situation will be stabilized. U.S. On U.S., we received as the rest of the market very positively. The announcement of the U.S. Navy procurement with respect to the expected awards of the LSM series of ships to Fincantieri Marinette as one of the two, I would say, dedicated nominated shipbuilders. The process of transforming this announcement into an order is, I would say, expected to be very fast in the very short term. So let me say discussions are happening while we speak. Again, we don't rely in the short term on U.S. for volumes. So the agreement we achieved with U.S. is an agreement whereby we are kept harmless. So for the time being, it is not a business of volumes. So we don't look for volumes there. We don't need volumes there. Having said that, the agreement has multiple legs, one of the legs is the allocation and award of new classes of ships to the shipyard. And the agreement was achieved in the end of 2025, and we are receiving this communication from the Navy so early and so quickly. So let me say, we are very positive with respect to U.S. to U.S. We are very happy that we have created a new baseline, clearing all possible risks of the past. We don't need volumes. We need to procure the already achieved agreement translates with the velocity that we are experiencing together, but that's what we want to see. So we are very positive. And to cut the long story short, we believe that the contractualization is going to happen very, very soon. Operator: The next question is from Emanuele Gallazzi of Equita. Emanuele Gallazzi: I have three questions. The first one is a follow-up on the geopolitical topic. Very clear, your explanation on the ship owner side. I was wondering if you can discuss also on your cost side, which dynamics are you, let's say, seen on your input cost. The second one is on the capital increase or the M&A. You clearly mentioned that you are looking at some opportunity. If you can just discuss a little bit more on your strategy, if anything has changed post the -- or with the capital increase? And should we have to expect say, a big deal? Or are you looking more at small and selective deals adding technologies or know-how to your portfolio? And the last one is on WASS. We have seen two important orders coming from India and Saudi. Can you discuss more on deals? And have you seen an acceleration in the last month of, let's say, negotiation or tenders for WASS and generally speaking, for the whole underwater business. Pierroberto Folgiero: Thank you very much for your question. On your first question, we are in full control of the variables, of the economic variables that can be affected by the geopolitical issues or the famous geopolitical issue in the sense that the energy prices of Fincantieri are fixed for 2026. The same more or less is with gas procurement -- with gas oil procurement. So with respect to energy, we have the coverage in place for 2026 in order not to receive any, I would say, negative impacts. When it comes -- if we move to steel prices, it is the same in the sense that we have already fixed procurement costs, prices for approximately 90% of the quantities. So once again, we are in good shape. So energy and steel are the two major components with respect to which we are covered with respect to which we are continuing to monitor the situation. On your second question on M&A, we are very active. We have many dossier in our hands. We have very clear ideas of what we are looking for. Because we have been testing and shaping the market for this acceleration in the underwater in the last couple of years, all kind of transactions. There are different possible transactions. For sure, we are calling it, naming it selective M&A, meaning that we don't want to -- we are not looking for transformational M&A. So it is not something that is going to change the face of the company, but it's something that will sizably visibly accelerate the expansion in the underwater. So it has to do with the key technological blocks of the underwater, for example, propulsion systems. It has to do with another key component which is the electronics of the underwater. So any kind of software from command and control to telecommunications. And it has to do also with access to markets, including nondefense markets and business models. So we strongly believe that we can put on the table a lot of new technologies, and we are thinking in terms of M&A in order to envisage how to transform as quickly as possible those technology into integrated technologies, so our technology integrated with other technologies and how to accelerate the commercial reach in the direction of clients, not necessarily only on the defense side. So we will get back to you, but we are working hard in that respect. So we have a large business development and M&A team, which is being working and preparing since many months. And now that we have the capital increase ammunitions we will be more than happy to translate all this preparation into execution. On your third question, WASS is doing fantastically as Remazel is doing fantastically. So we are immensely happy of both acquisitions. Both companies are doing better than expected in any respect and are perfectly fitting with the rest of the group, creating synergies on the one hand, and expanding markets and giving access to adjacent market to Fincantieri commercial proposition. With respect to WASS, India and Saudi are very emblematic, are very indicative of the first and most evident item of the defense procurement in a moment like this. i.e., ammunitions. So the world realized that in the last years, many submarines or many naval assets were built, but with very limited, I would say, ammunition warehouses. So the defense expenditure is, first of all, an exercise of replenishment of warehouses. And in this respect, torpedoes are very clear and very evident. We are doing more than that. So we are evolving the product, thinking of how to adapt this kind of product to the world of drones. For example, in this respect, I think that WASS is ahead of the other competitors. So WASS is already able to supply drones with very light torpedoes, which is the new generation of surface drones. So yes, you want them to perform intelligence, surveillance and reconnaissance. That's the way military people call the first task of water drones underwater surface -- sorry, surface drones. But at the end of the day, you need also to go to a second phase, the second step, which is the step where the drone is also armed in order to be able to react on top of detecting the threat. This is what is happening also. So let me say WASS is remarkably centered, remarkably focused in this dynamic and then is working on the ad agencies. So what to do on sonars, how to be very effective on certain kind of sonar applications such as demining, which will be another priority, unfortunately enough, of the world. So it's going very well, and we are very happy with WASS. We are working also in order to expand the production capacity of WASS. So capacity boost is the title of the book for the new Fincantieri business plan and is consistently in a coherent way also the name of the book in WASS. So we are working in order to expand capacity because it's having a lot of demand that we need to increase capacity accordingly. Operator: The next question is from Gabriele Gambarova of Intesa Sanpaolo. Gabriele Gambarova: Just three from my side. The first one is on the SAFE program, the European Safe program, the EUR 150 billion program. I was wondering if you have any update on this program because it seems to me that this is a little bit in delay. This is my personal perception, but I don't know if you have any insight on this? The second demand. Then the second question is again on naval. I saw a slowdown in the top line in the fourth quarter 2025. I know that the backlog is very healthy. So I was wondering if you could give me some more detail on this trend we saw at the end of 2025, if there is an explanation, particular explanation. The second question, this is for naval. The second question regards the reverse factoring. I saw that it grew by EUR 200 million in 2025 to EUR 850 million. So I was wondering what could we assume for 2026, what is embedded in your guidance basically. And the last one regards M&A and the infrastructure. I saw that the business is doing very well is recovering after we closed the Miami, let's say, job order. I was wondering if you consider, if it's something that you would, let's say, assume to sell this business, which is doing well, but I think it's not core business. Pierroberto Folgiero: Very good. Thank you. On the SAFE program, let me disagree with you. Or partially agree with you in the Anglo-Saxon way, in the sense that SAFE is expected to be a fast track process, you know that there is a gate expected for June 2026. And we see all the horses running according to the race. So we don't see a delay. And again, it's for sure, a big rush because June is tomorrow morning. But all the, I would say condition precedents, condition precedent for SAFE to be activated on time out there. So I don't see your point. Again, it's a program that is asking nations to finalize a huge amount of contracts in a very limited time frame. So it is very difficult that you do it in advance. So the deadline is June. On the naval, again, all the production curves driving the revenue recognition not going according to expectations. So this is absolutely physiological. We have to consider that there is a change in the revenue curve of U.S., which is, for sure, to be considered when looking at last part of 2025 and 2026. Again, on the Naval, the point will not be the revenue level as rather the materialization of all the orders that we are expecting. On the factoring, I will leave the floor to Giuseppe, but let me remain with the microphone for an extra minute for infrastructure. So the infrastructure business is a source of satisfaction because of the turnaround we have achieved as a management team. So I think we did very well finalizing the bad experience in Miami, digesting all the tails and at the same time, preserving our reputation delivering impeccably what we had to deliver. So it's a sign of industrial strength, resilience, reliability, which is not obvious at all. The infrastructure business is, therefore, getting rid of Miami tails and therefore, expressing evidencing good margins, thanks to the discipline, thanks to the quality of our people. Let me say that the infrastructure business or at least a good part of it is proving to be, I would say, functional to Fincantieri strategy when it comes to naval basis, when it comes to protection of ports. So Fincantieri Infrastructure is a reality in marine works. And in the era of defense, in the era of expansion of defense infrastructure and in the era of expansion of protection of critical infrastructure to have a group of people that can take care of those jobs as a kind of end-to-end offering is proving to be interesting and successful. So let me say, at least a big part of Fincantieri infrastructure is leaving a second life in a sense, helping defense business of Fincantieri with an end-to-end offering. And at the same time, being the entry point of, for example, Fincantieri Underwater when it comes to protection of ports and protection of key marine and maritime infrastructure. So obviously, we retain all options opened. So we will leave also without Fincantieri infrastructure. It's not a best [indiscernible] component of Fincantieri business model. But as of today, we are very happy of having Fincantieri infrastructure in our group, because we are exploring and pursuing very interesting business model, whereby we integrate end-to-end the ship in the naval base, in terms of infrastructure works and we use them to enter the business of infrastructure protection with Fincantieri NexTech technologies, for example, on ports. On the factoring question, I leave the ground to Giuseppe. Giuseppe Dado: But it's very high. It's very simple. You can easily expect the same amount and the same levels we've reached in 2025. So this factoring is something that we put. It's something that helps our suppliers to finance themselves within their net working capital requirements. We expect to -- we factor in the same levels as of 2025. Operator: The next question is from Lorenzo Di Patrizi of Bank of America. Unknown Analyst: So the first one on Navis Sapiens. So you delivered your first vessel in February. Could you give us more color on the margin difference versus similar past vessels and what we should expect from the Navis Sapiens program in the next one, two years? And then secondly, so on the naval pipeline, actually on the pipeline in general, so you gave this figure EUR 32.5 billion. Can you give us more color on the pipeline outside of the EUR 5 billion in Naval. And also, for example, I'm thinking of India, in particular, is there an update there? And could you give us more details on what the country has in store in the next few years in terms of investments that you could benefit from? Pierroberto Folgiero: Thank you very much for your question. But let me say, Navis Sapiens is a transformational product. So the piece of news is that there is a ship sailing today where we speak which is having on board this new brain, which is a combination of new hardware and new software that is being validated by a ship owner in real life, in regular life. So this is the big news. This is the breaking news. Its transformational in the sense that it gives distinctiveness to Fincantieri offering simply because thanks to this new "instrument", the ship owner will benefit from improvement in the behavior of the ship and therefore, in the cost profile of the ship. So the first effect is that we are positioning Fincantieri product in a different way. So when you buy a Fincantieri ship, you will always buy a ship with a brain, then it will be up to you to leverage on this, and it will be up to you to install over the air, all the new applications, for example, for optimizing roots and consumptions or for optimizing maintenance and other key activities in terms of OpEx and costs. So consider it as a strategic step, which is, let me say, prolong in the future, way ahead in the future, the distinctiveness of Fincantieri product. Then obviously, it represents itself a product for our NexTech which is the technological pole inside Fincantieri organization. You know that we have created a joint venture with Accenture 70/30, which is practically writing the codes of this new system, which is made of a data platform according to the latest architecture laid upon our own automation systems. So in NexTech, we have a company that is taking care of automation system, and this company is now having on top of the layer of the automation system, this platform system. And the business model of NexTech will be to host on this platform as many third-party products as possible on top of selling internally produced internally developed applications to be sold to the ship owners on the platform. So it's a new concept. But the beauty of the story is that this concept is being adopted by one client. And it is on the air and is working very well. And we have in our business plan, some ramp-up of this product. And we have quite an extensive team working on that. And the initial results are very encouraging, and we are very happy with that. Second question is more color about naval order intake. I think there is no secret about the fact that the Italian Navy is expected to move the DDX program from the engineering study into construction. We are working relentlessly with the Navy with Orizzonte Sistemi Navali with Leonardo in order to quickly move forward in this respect. Then there are other initiatives with the same Italian Navy, for example, the LSS3, which is the third of the logistics ship class. And then there are a number of very hot non-Italian Navy prospects on which we are working a lot with respect to which we are very positive. Then obviously, the market is big. There are many opportunities. Again, we have a lot of tenders out in the short term, obviously, it has to be something that is already in the oven. It's ready in the kitchen. But in the surroundings of the kitchen, there are many, many, many opportunities. So it's very important that this good momentum kicks in terms of tangible orders. But again, we are not at all worried about what we're going to do in our naval shipyards. As you may know, we are already working in order to double our capacity. And again, if a couple of things happens, we are already fully booked even after doubling the capacity. India. India is an immense market with a very specific business model, which is the business model of Make in India. We are -- I would say, well known in India because we built two ships for them, two logistics ship for them, something like 10 years ago, more or less. There are many programs. We are in association with many local shipyards. The system is different because the naval construction of ships by law is to be awarded to state-owned shipyards. So it's very important to team up with the relevant ones. That's what we are doing. And then the second peculiarity of India is that in order to provide packages in terms of material, for example, you have to coproduce locally with partners. So this is something we are already doing. We are already working since years in the coal production and coal manufacturing of for example, certain components of propulsion systems. So the business model, it's a business model whereby you sell design packages, you sell material packages and then you cooperate in the construction with a local shipyard with a kind of construction management assistance. There are many programs that are going to be awarded in the next months. There is one that is very, very interesting, which is an LPD, which is a kind of small aircraft carrier kind of big ship. They have a big tender for LPD. But this is just an example of what we have been doing and how we are taking care and looking after the Indian market. Operator: The next question is from Sriram Krishnan of Deutsche Bank. Sriram Krishnan: Perfect. So I've got a couple of questions. The first one is actually on the Equipment division. Particularly the electronics cluster. Okay. So I just wanted to conclude that question which I had. So this question was on the Equipment division, particularly on the electronics cluster and the infrastructure. Clearly, despite modest growth in the top line. I think the margin was very impressive with the electronics business and in a very similar way, even in the infrastructure business, whether top line actually declined. And the margin was pretty impressive. So I wanted to understand, first, if there are any one-off items within this one in 2025. And how should we look at a sustainable margin of both these businesses in 2026 and going forward? That's the first question. The second question is to do with the U.S. order potential, the landing ships related to. We understand that you have received an order for four ships and the potential long term is well over 30. So I wanted to -- can you confirm if there will be only two shipyards involved in this program or there are more shipyards which are likely to be inducted into this? And as a follow-up or a very similar one, can you give us any update on the NGLS program as well in U.S. and which you are competing as well? Pierroberto Folgiero: On the U.S. part of the story, the U.S. Navy announced its intention to award for LSM to Fincantieri USA. And the contractualization is expected to happen according to contracts and negotiations that are going on in these weeks, in these days. As far as we understand, but it's not up to us, the construction strategy of the U.S. Navy is to select two shipyards, simply because according to their long-term planning, the expected number of ships is, if I don't go wrong more than 30, more than 30. So they want to have at least two parallel shipyards working together. Which is good, which is important, because it means that you create specialization, which is deeper requisite for performance and for reciprocal and mutual satisfaction. On the NGLS program, which was part of your second question, can you tell me more, please? Sriram Krishnan: So this is -- I understand I think Fincantieri Canada business apparently has won some sort of design and construction order with regards to the next-generation logistics program. I think overall size of this program is to procure somewhere around 12 to 13 ships in the long term. So I just wanted to understand where this leaves you are the only company who is involved in this one for the U.S.? Or how many ships are you envisaging as an order flow from this contract and so on? Pierroberto Folgiero: Well let me say, United States, we have a shipyard that is concentrated on civilian shipbuilding. And they are very active in barges and in other kind of ships. And then on top of it, we have company in Canada, it's called Vard Canada, which is very good in design packages either for coastal literal ships and for, I would say, commercial ships. So obviously, both entities are engaged in all the possible dynamics and projects in that part of the world. So I can, in general, confirm that there is a lot of action, a lot of movement and a lot of I would say, interest and commercial activity also in that segment, also in that quadrant. On the -- on your first question on electronics, I would rather give the floor to Giuseppe for some more detail. Giuseppe Dado: Yes. Well, I mean speaking of 2025 results vis-a-vis 2024 it's the other way. I mean, 2024 was affected by some one-offs and some write-offs that we did on certain projects. And therefore, the margin that we -- EBITDA margin that we achieved in 2025, 6.9%, is more, let me say, representative of what you're going to see in the coming years and in the business plan. With potentially, of course, some slow, but steady pickup throughout the years, thanks also to Navis Sapiens and all the innovation and deployment of new technologies that we envisage in the business plan. . Sriram Krishnan: And if I may just follow up on that one. How do you envisage the top line for infra business? We understand that things have stabilized a lot. Should we expect some sort of a pickup in business in intra? Or should things be largely stable? Pierroberto Folgiero: I'm sorry, the line is very bad. Can you repeat the question? We really can't hear you very well. Sriram Krishnan: My apologies. Is it any better now? Pierroberto Folgiero: Yes, yes, better. Sriram Krishnan: All right. Sorry about that -- my line. No, I just was following up with the infrastructure part as well. Do you think that this is going to be a largely stable sort of revenue for the info business going forward? Or how -- just wanted to view on the infra business at the top line level? Pierroberto Folgiero: The infrastructure business is having good prospects in France, again, driven by the backlog order intake which is becoming more and more evident. We have projected in the business plan, I would say, disciplined growth in terms of revenues, capitalizing on the, I would say, good returns and stable returns that we are -- that we have experienced in 2025. So the market is there in terms of marine works and other businesses of the company. The company is also focused on the steel fabrication. So steel structures, which are needed for multiple purposes, not only for shipbuilding, but also, for example, for bridges and things like that. So that's the second business of the company, they continue to experience stable demand. And so we are projecting it -- again, it is not where we want to put all our entrepreneurship. Our core business is elsewhere, but we're very happy that they are in good shape. And in particular, we are very happy when we can use them, as I was describing before, in order to increase the end-to-end offering of Fincantieri when we are interacting with the new Navy with an international Navy but also with our Navy. Whenever there is -- there are needed some marine works in order to accommodate the new fleet and also the new, I would say, technological infrastructure on top of physical infrastructure. So sensors, anti-drones, whatever is needed when you enlarge your base, your military base on top of your naval asset. Sriram Krishnan: Thank you so much, and apologies for the bad line. Pierroberto Folgiero: It was very good at the end. Thank you. Operator: Gentlemen, there are no more questions registered at this time. . Pierroberto Folgiero: Thank you very much to all. Goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Planet 13 Holdings Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] Thank you. And I would now like to turn the conference over to Mark Kuindersma, Head of Investor Relations. Please go ahead. Mark Kuindersma: Thank you. Good afternoon, everyone, and thanks for joining us today. Planet 13 Holdings Fourth Quarter and Full Year 2025 financial results were released today. The press release, the company's annual report, Form 10-K, including the MD&A and financial statements are available on EDGAR, SEDAR+, as well as on our website, planet13.com. Before I pass the call over to management, we'd like to remind listeners that portions of today's discussion include forward-looking statements. The forward-looking statements in this conference call are made as of the date of this call. There can be no assurances that such information will prove to be accurate, or that management's expectations, or estimates of future developments, circumstances or results will materialize. Risk factors that could affect results are detailed in the company's public filings that are made available with the United States Securities and Exchange Commission and on SEDAR+. We encourage listeners to read those statements in conjunction with today's call. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's press release posted on our website. Planet 13's financial statements are presented in U.S. dollars and the results discussed during this call are in U.S. dollars unless otherwise indicated. On the call today, we have Larry Scheffler Co-Chairman and Co-CEO; Bob Groesbeck, Co-Chairman and Co-CEO; and Steve McLean, Interim CFO. I will now pass the call over to Larry Scheffler, Co-CEO of Planet 13 Holdings. Larry? Larry Scheffler: Good afternoon, and thanks for joining us. Q4 was a better quarter where the work we've been doing begin to show up in the results. We're not yet where we ultimately want to be, but this was a meaningful step in the right direction. I'll walk through our operational performance. Steve will take you through the financials, and Bob will cover the strategic picture. In Q4, the SuperStore, including DAZED!, generated $9.2 million, essentially flat from Q3. The Las Vegas environment continues to be a genuine headwind. Visitor volume was down 6.3% year-over-year and the average visitor spending downtown fell 15.6% over the same period. As the destination experience built around the tourists, we feel both of these pressures. I'd also note that the F1 race in November displaced approximately 4 days of normal retail traffic at the SuperStore, and yet revenue still came in essentially flat with Q3. That tells you something about the underlying run rate of that business. Stripping out the F1 disruption, Q4 was actually a modestly better quarter than the headline suggests. Visitor volume on a sequential basis was flat, so the macro environment isn't deteriorating further, but we're not yet seeing the recovery that moved the needle at the SuperStore. Our neighborhood store network delivered $14 million in revenue with Florida representing $10.3 million of that total. I should note that the Florida results did include a onetime benefit from a loyalty accrual adjustment. Excluding that item and setting aside California, which we have now exited, we saw approximately 8% sequential growth over the remaining neighborhood stores in Florida, Illinois and Nevada. We called Q3 the trough last quarter and Q4 delivered the stabilization we expected. The foundation heading into 2026 is stronger. Combined, our SuperStore and neighborhood network generated $23.2 million in total retail revenue, compared to $21.3 million in Q3, a sequential improvement that reflects the stabilization we've been working towards. Wholesale revenue was $2 million compared to $2.1 million in Q3, though that decline was entirely attributable to winding down California operations. Nevada wholesale was up 38% sequentially, which reflects the hotels team restructuring we executed in Q2. It's encouraging to see the operational steps we took last year beginning to show up in the numbers, stabilization in the network -- in the neighborhood network, wholesale momentum in Nevada and a cleaner portfolio heading into 2026. The Nevada tourist environment remains a headwind, but we're positioned to benefit as year-over-year comparisons become more favorable. We've done the restructuring work. The 2026 focus is converting those actions into positive cash flow. With that, I'll turn it over to Steve to walk you through the financials. Steve McLean: Thank you, Larry. The operational stabilization that you described is showing up in the financial results, and I'll walk you through the details. In Q4, Planet 13 generated $25.2 million in total revenue compared to $23.3 million in Q3, sequential growth of approximately 8%. That improvement came during a seasonally soft period, which we view as a meaningful indicator that the operational work across our footprint is beginning to translate into the financial results. I do want to flag one item for modeling purposes. We completed the California divestiture in early Q1, which removes approximately $2.5 million to $3 million in quarterly revenue from the run rate going forward. Gross profit in Q4 was $11.2 million, representing a gross margin of 44.6%. That compares to a reported 21.3% in Q3, which was heavily impacted by a $3.5 million inventory reserve related to an excess of aged flower and concentrates in Florida. Q4 brings us back to where we expect this business to operate. We still see room to improve from here. The BHO lab approval in Florida will expand our product mix and strengthen pricing power. The California exit removes a market that was running well below our corporate margin profile, and the restructuring of our Nevada cultivation footprint removes costs that were a persistent drag on profitability. Bob will speak to the Nevada actions in more detail, but collectively, these are meaningful tailwinds that will increasingly show up in our numbers through 2026, and we expect gross margin to reflect that improvement in a material way. Sales and marketing expense declined 5% sequentially to $1.1 million, reflecting our continued focus on optimizing spend against profitability. G&A was essentially flat quarter-over-quarter at $12 million, with reductions in the period offset by higher audit and legal fees. We expect G&A to decline as the California overhead is eliminated, and we continue to find efficiencies across the organization. Adjusted EBITDA improved significantly in Q4, narrowing from a $4.1 million loss in Q3 to a $0.3 million loss, a $3.8 million sequential improvement. That result reflects the combination of revenue stabilization across our core markets and gross margin recovery. We're not satisfied with the loss, but the trajectory is clear and the path to positive adjusted EBITDA from here is well within reach. Turning to the balance sheet. We ended Q4 with $15.6 million in cash and restricted cash. The BHO lab was our last major capital project with construction complete, we do not anticipate meaningful CapEx in 2026. The California exit is a meaningful step in the right direction here. It removes a market that was consuming cash without a path to profitability, and its impact will be reflected starting in Q1. Combined with the revenue stabilization and margin recovery we've discussed, we expect our cash position to improve meaningfully throughout 2026. In summary, Q4 revenue improved sequentially, margins recovered to normalized levels and adjusted EBITDA moved materially in the right direction. The balance sheet actions and structural changes we've taken position us to continue that improvement through 2026. With that, I'll hand it to Bob. Robert Groesbeck: Thank you, Steve, and good afternoon, everyone. 2025 was a year of deliberate repositioning, exiting markets that were consuming capital without a credible path to profitability, strengthening our Florida foundation and bringing the cost structure in line with the realities of today's cannabis market. The results aren't yet where we want them, but the decisions we made last year were the right ones, and their impact is beginning to show up in the numbers, as Steve just walked through. The most significant structural step we took was exiting California, as mentioned. A market that had become a persistent drag on both margins and cash flow. We completed that transaction in the first half of February. While the exit creates a revenue headwind of roughly $2.5 million to $3 million per quarter, as Steve mentioned, that is more than offset by the margin and cash flow relief of removing an operation that didn't have a path to profitability in the current regulatory and competitive environment we encountered in California. Florida is where we are putting our resources. And the capital that was being consumed by California is now being redeployed into a market where we have scale, infrastructure and a clear path to improving returns. On the BHO lab, we've done everything on our end. The facility is complete, the infrastructure is fully in place and the application is pending with Florida regulators. Now this is entirely in their hands, and we remain hopeful for an approval by the end of Q1. When that approval comes, it closes a product gap that has put us at a disadvantage relative to competitors in the market for quite some time. It's been a long time coming, and we are ready to move the moment we get the green light. We also opened two new dispensaries in Q4, Pace near Pensacola and the land on the I-4 corridor between Orlando and Daytona. We also made important structural changes to our Nevada cultivation footprint. Baty was closed in January 2025. It was a high-cost, low output facility that was no longer defensible or viable in this pricing environment. Wagon Trail was closed at the end of December 2025 and represented the more significant cost reduction of the two. Both facilities are now dark. Importantly, we are still producing our full range of flower at Bell Drive with meaningful capacity available if needed. There being no reliance on third-party bulk flower. The consolidation of Bell Drive has also allowed us to meaningfully reduce that facility's cost structure. Taken together, these actions remove a persistent drag on Nevada profitability and position us to operate more efficiently as that market recovers. Those are the operational moves, the ones within our control. But for the first time in several years, the external environment is also beginning to shift in our favor. On March 18, the Clark County Commission passed significant new regulations targeting hemp retailers operating outside established compliance frameworks, cracking down on the sale of intoxicating hemp products and deceptive consumer practices. This is something Planet 13 has actively advocated for. For the past several years, we've watched unlicensed hemp operations proliferate across the strip, undermining both consumer safety and the competitive integrity of the licensed market. For years, that unlicensed proliferation, combined with the tourist headwinds in 2025, as Larry discussed, created real pressure on our Nevada revenues. These regulations are a meaningful step toward restoring the supply and demand balance this market desperately needs. The other significant regulatory development is the executive order from President Trump, directing support for rescheduling cannabis. If rescheduling is completed, 280E, which has been one of the most punishing structural burdens on licensed cannabis operators, is automatically removed. We don't have a firm time line, but for the first time, we have a federal attitude that is actively moving in the right direction. That has real implications for our balance sheet, tax position, our cost structure and earnings per share. It is the most consequential potential development the industry has seen today. After several years of navigating an increasingly difficult operating environment, tourist headwinds, illicit competition and a federal framework that penalized license operators, we are finally seeing the regulatory landscape move in our favor. Clark County and rescheduling are both meaningful tailwinds. And on top of that, the California exit and Nevada cultivation restructuring remove an internal drag that we chose to eliminate. We are not waiting on any of them. The work we are focused on every day is what we can control. Growing our Florida footprint, improving product quality, and continue to drive efficiency through cost structure. The goal for 2026 is straightforward, reach positive cash flow, demonstrate the earnings power of this portfolio and deliver on the commitment we've made to our shareholders. Looking ahead, Q2 will be the first clean quarter that reflects our repositioned portfolio. No California drag, improving Florida productivity, and a cost structure that is beginning to reflect the work of the past year. We expect that to be visible in the results moving forward. With that, I'll open it up for questions from covering analysts. Thank you. Operator: [Operator Instructions] And our first question comes from the line of Kenric Tyghe with Canaccord Genuity. Kenric Tyghe: If I could lead off on a BHO related question. It seems to be something of a moving target for reasons largely beyond your control, or at least certainly in quarter beyond your control. What gives you the confidence, or perhaps the hope that you will have this resolved by the end of this quarter? And if it's not, how material is that to your outlook? It certainly reads as if there have been some other pretty material improvements in Florida outside of the potential BHO lift. So any additional color or context there would be really valuable. Robert Groesbeck: Yes, I'll address the first part. And Steve, I'll let you address the financial side of it. From an operational standpoint, again, it's been a very frustrating endeavor. We've discovered over the last 6 months that securing timely approvals out of the OMMU in Florida has been difficult at best. And I can't really comment on why that is the case. We're not the only operator in that predicament. But we have literally submitted every single document required for approval. We've met every requirement of the OMMU. And we've gone through a series of RAIs back and forth. In every instance, we've provided timely responses. So I think we're there. And I think it's just a function now of staff getting into the application and giving us final approval. And we're currently optimistic that we've had multiple delays. And so we're realistic in that regard. But Steve, I'll let you address the financial impact of that. Steve McLean: Sure. And in addition to the BHO products, we've also had a big focus on the flower quality, the higher THC strains. We brought in some new strains that, in particular, grow well in greenhouse and our type of environment. We've had some third-party consultants go through that facility and optimize certain things. All of it is working in our favor and helping bring the quality of that flower up. And we're learning a lot in the process and all that stuff is going to -- is bearing fruit as we go forward, and we're seeing a lot of that. And there's also a lot of other products that we're looking at with various licensing partnerships with some of our other partners that will start to come online this year. So there's a lot of new products that are kind of going to help contribute to that. Overall, Florida, even now, it's cash flow positive. It's contributing. I think the worst is behind us, if you will. And I think the third quarter is really probably the low watermark there, and it's been -- the first quarter is looking a lot better, and we expect that's only going to continue. As far as like the actual revenue expected on BHO, it's hard to know at this point. So I'm hesitant to even throw numbers around, but it can only help having the additional products and in addition to the ones that I mentioned as well. Hopefully, that answers your... Kenric Tyghe: I appreciate the color Steve. That does. Maybe just if I close the loop then on the -- on my Florida questions. In terms of that Florida cultivation journey, I mean, you've highlighted improvements in yield, strain, strain availability, THC content, all positives. Where do you think you are on that journey today? And how much -- where do you think you're going? How far down the road are you? How far down the road you come? How much more runway do you think you have until you sit back and look at Florida as being fully dialed -- sorry, Florida cultivation being fully dialed? Steve McLean: Yes. Well, I mean, as far as our investment goes, I don't think there's anything more to do as far as investing money into the facility or anything like that. I think it's pretty dialed now, although it's tweaks. And as we go through and we discover which strains work better than others, we go heavier in those areas. We bring in newer strains that we try. And so this is going to be an ongoing evolution. It's never really going to end. We'll always continue to look at processes and things that will improve it. But I think we're pretty satisfied with what's coming out of there now. And I don't know that there's a ton left to do there. Operator: And our next question comes from the line of Pablo Zuanic with Zuanic & Associates. Pablo Zuanic: I mean, obviously, congratulations on the growth in Florida. I think you said $10.3 million in sales. That's about 35% sequential growth in the fourth quarter. So that's just a great number. And as you just explained, there's more upside into 2026. So I'm going to start with a bit of a follow-up to the prior question. But how quickly do you think you can start expanding SKUs, especially on the extract side of things with the BHO facility? How quickly can you start bringing in new brands, or licensing other brands into the market? I'm just trying to understand how quickly you can move the needle there. Let's start with that. Robert Groesbeck: Pablo, it's Bob. Great question. Again, I can't -- I'm not at liberty at this point to identify the parties we're negotiating with, or where we are in the process on bringing additional products into the pipeline. But we've made significant progress. We've got a number of approvals pending with the OMMU now on different product varieties and SKUs. And again, the bottleneck is just getting approvals out of the agency. And we're excited. We know that we'll have some exciting additional launches here next quarter, and we're continuing to build on those relationships. I wish I could be more precise than that right now, but it is actually -- it's tracking well. We've had very positive reception from the partners we're working with. And they're excited to be in Florida, and we're excited to be partners with them. So all I can say is stay tuned. And again, we should have some announcements out to the market here shortly. Pablo Zuanic: Okay. And then in terms of store count, what can we assume for 2026 in terms of net growth of stores in Florida? You opened two in the fourth quarter. I think there's been some shutdowns or relocations. If you can just talk about the footprint in Florida for 2026 plans? Robert Groesbeck: Yes, Steve, I'll let you address that on the CapEx side. Steve McLean: Yes. We have -- and I am excited about it. We are adding two additional stores that were already under contract. One in Sarasota that is -- it's already -- it's in the middle of the sort of the TI construction phase, and we expect that to be online in a matter of a couple of weeks to several weeks, not months. And then the second one is in St. Pete. And then beyond that, we're kind of in a -- kind of a wait and see on how that goes and how that lands and then we'll go from there. Pablo Zuanic: Okay. And then just one last one on Florida. Do you have any views in terms of where we are with the ballot process? I mean we all read the same headlines. They've been somewhat negative recently. Any comments you want to make there? Maybe there's reason to be more constructive in terms of the way things play out in November. But what do you think about that? Robert Groesbeck: Well, look, obviously, the headlines have been less than positive. I think, unfortunately, I believe Trulieve's initiated litigation, one of the larger MSOs have, or the ballot initiative organization. I'm not real optimistic in light of the decisions we've received thus far from the courts. It doesn't seem like -- I think there's a viable path. I think there's a lot of -- some significant issues on whether the votes were correctly tossed out or not countered rather, and these third-party noise with out-of-state canvassers. I wouldn't think the courts would give much attention to that. But unfortunately, they have. And the Supreme Court is really moved, lockstep with the governor's directives, and that's unfortunate. So there's not much time left here. So if something is going to happen, it's going to happen very shortly. We're going to miss the window to get the question printed on a ballot. So I wish I had more positive news. I'm just -- I'm not excited where we are. Look, I still remain convinced that Florida will transition to an adult market. It may not be this upcoming election now, unfortunately. But we're going to continue to scale and to operate and get better every day and compete in the market we're in. Pablo Zuanic: Yes. And then just one very last one. I mean, you've been very clear about what's happening in Nevada and obviously, about the sequential improvement, stabilization, you called it. Can you talk about any changes you've been doing more recently to the store, to the SuperStore itself, whether in terms of new services, assortment? I mean, we've heard before about museum and the lounge and all of that. But have there been any real tweaks or initiatives to boost traffic to the SuperStore? Robert Groesbeck: Well, yes, look, so we are fortunate to announce and we have announced, we have the cannabis -- what was originally the cannabis museum space completely under control. So that's back in our portfolio. We've been actively negotiating with several users of that space that would create an entertainment option for the complex. Again, I can't announce anything just yet, but we're very pleased with the discussions we've had, and we see that as a fantastic additive to the complex. And again, with DAZED!, we've seen a meaningful uptick there in traffic and revenue as we continue to promote the venue, get very high remarks from customers that have experienced the facility. So we're going to continue to do that. And then we've recently brought some enhancements into the facility itself, just artistic photo ops. We brought some of our materials up from the California location that we closed in Santa Ana and just create photo moments for customers, get them more engaged with the facility so they can share their experience with customers. And we've seen a real nice uptick there. And then also, we do have the restaurant open again. We're using a third-party contractor providing that service, but it's created -- or brought that amenity back, which has been very helpful and very well received by the customers. They like the opportunity to have not only food, but alcohol and cannabis under one roof. So we're going to continue to push that, market that, and we see good things. Operator: And our next question comes from the line of Brenna Cunnington with ATB Cormark Capital Markets. Brenna Cunnington: This Brenna on for Frederico. Congrats on the quarter. Just continuing on with Nevada and the SuperStore specifically. If I remember correctly, last quarter was a record quarter for DAZED!. Could we just get a little bit more color on how DAZED! did this past quarter? And any exciting things going on there? Robert Groesbeck: Thanks, Brenna. Steve, I'm going to turn to you to address -- you've got that on your computer there. I don't have it up on my screen. Steve McLean: Sure. And, DAZED!, it's actually been really exciting to see that facility kind of blossom over the last -- I'll call it, like 6 months now at this point. But it continues to exceed our plans. It's been a lot of fun for some of our partners and a lot of the customers to go in there for different events. And we've been having some fun with it. And I don't know what more to really say is other than it's really nice to see that facility do well and be successful. And I would say it's -- we're looking at about 25% plus revenue increase versus last year at the facility, and I see that continuing for the foreseeable. Brenna Cunnington: Amazing. Good to hear. So like in Nevada in general, like it's good to hear that the wholesale momentum is starting to come back. But it was mentioned earlier in the call that you're not seeing the recovery in the state that would be needed to really move the needle at the service store. So theoretically speaking, what would it take for Las Vegas to really come back? Robert Groesbeck: Oh boy, that's a -- Brennan, that's a tough question. Obviously, at the macro level, we need gas prices to go down. We need room rates to become more affordable and Las Vegas just to get more in line with what customers are willing to pay. There's a perception out in the universe that Vegas has become too expensive. And I think there's some merit to that in many respects. So I see some of the larger hotels now are putting together very, very significant discount packages to drive traffic. We believe that the short-term spike in gas will be short term rather, the spike in gas, which will benefit our continuing California traffic. But look, Vegas, the city went through a very significant downturn last year. And as the economy continues to improve at a macro level, we see Vegas coming back in a very significant way. We've been through this many times over the years. We've seen ups and downs here in the tourist sector. And it's going to come back and it will be as robust as ever. And we've got several mega resorts under -- one mega resort under construction with significant additions elsewhere, lots of traffic. We've got Major League Baseball coming soon. The only professional sports franchise we're missing is the NBA. And my guess is something will be inked this year for the next franchise. So it's an exciting time, and we're just getting positioned to take advantage of that. Now in light of the tourist drop, what we've done is repositioned to really go back and focus on the locals customers here. And we've made meaningful inroads there. And unfortunately, historically, we were about 80% of our customer base through the SuperStore was non-Nevadan. That's had a pretty significant impact on revenue and traffic. But now we've gone back to the locals and really kind of pushed this venue as well as an opportunity for them. And we're seeing results of a pretty aggressive marketing campaign to get them to this facility as well. So excited. Larry Scheffler: The only thing -- this is Larry Scheffler. I'll just add in that even though the tourism is down, I agree with everything Bob just said, but you got to realize we only touch 2% of the tourists coming to Vegas right now. So we have a lot of upside for us. What we've done. We've made major changes in our marketing department, in our social media outreach, stuff we've never done before. We had a little bit of -- for about 2 years, had a fairly weak marketing and social media department. We've made major changes on people heading it and support groups working underneath the new director. We're very happy with that. And I think all of you guys will see major changes and increases for Planet 13 upcoming this year. Brenna Cunnington: Okay. That's great color. And then just our final question is just looking at the margins. It's good to see that there's been a bounce back this quarter. So looking ahead and for modeling purposes, how should we be thinking about the gross margin and EBITDA margins in 2026? And what kind of cadence or margin build might we see throughout the year? Steve McLean: I'll take that. Sure. And look, the heavy lifting is kind of complete as far as reorganizing these cultivation facilities, pulling California out, especially in the last quarter and the trend that we were seeing there was very negative. In California, we saw a combined $1.7 million EBITDA loss. And so that was trending toward $2 million a quarter, and we've removed that from the go forward. So really excited to see what that does. Internally modeling this out and between that and what we've done in Nevada, we're expecting to see margins north of 50% starting in the first quarter. So really exciting versus where we've been in the last few quarters and having to battle through some of those challenges. From an EBITDA standpoint, it's a little more challenging, but we are expecting a positive EBITDA full year. I'm showing a small loss in the first quarter as we've had basically half of a quarter of California still in those results. But beyond that, every quarter looks positive. So that's all I can really give you at this point. Operator: And our next question comes from the line of Kenric Tyghe with Canaccord Genuity. Kenric Tyghe: Just a quick one on the hemp ban. It reads as if it's more material for you with your Vegas concentration than for Nevada more generally, just given the prevalence or sheer number of, let's call them, hemp stores operating in Vegas on the strip. Is that a fair characterization? And is there any way you could sort of handicap just how material that headwind has been and any potential sort of lift to the -- from that ban looking through '26? Larry Scheffler: Okay. So this is Larry Scheffler. Bob and I have been working on getting rid of these intoxicating hemp stores on the strip. As you know, licensed cannabis stores in the state of Nevada cannot be in the gaming corridor, about a mile either side of the strip, cannot deliver to the hotels. After 2 years' worth of work with the Clark County commissioners that control Clark County and the Las Vegas Strip, last Tuesday, they finally passed an ordinance outlying the hemp stores on the strip. They cannot sell any THC intoxicating flower, gummy squares or anything. In 120 days, that takes effect from last Tuesday. I spoke at the meeting, and we were -- in 2021, the state of Nevada did $1 billion in sales for licensed cannabis dispensaries. Last year, we did $700 million. That $300 million is attributable to being stolen from us by the hemp stores on the strip and in other areas in Clark County and Las Vegas. We paid tremendous amount of taxes, 3 or 4 or 5 other taxes that the hemp stores do not have -- do not fall -- do not have to pay. So we pay hundreds of thousands of dollars. So that is lost revenue to the state, the taxpayers of the state of Nevada. The Clark County commissioner saw that. Saw the dangers of mold and insecticides that is being sold on the strip with no testing whatsoever, other than the 0.3 testing to make sure it's hemp and in the right amount of THC when it's first harvested. They saw through all of it. They did a lot of work on this, a lot of studies. They're back to 6 to 0 in the boat. And again, the hemp stores selling these intoxicating hemp products on the strip will be done in 120 days. That's going to be a huge boom to us. We're predicting $1 million to $2 million per month we lost to the hemp stores on the strip because 81% of our customers are tourists. So that is another part that we anticipate a huge increase in revenue for us starting in 2026, the second half. Operator: And with no further questions, that concludes our question-and-answer session as well as today's call. We thank you for your participation, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Pizza Pizza Royalty Corp.'s Earnings Call for the Fourth Quarter of 2025. [Operator Instructions] As a reminder, this conference is being recorded on March 25, 2026. I will now turn the call over to Christine D'Sylva, CFO. Please go ahead. Christine D'Sylva: Thank you. Good afternoon, everyone, and welcome to Pizza Pizza Royalty Corp.'s earnings call for the fourth quarter ended December 31, 2025. Joining me on the call today is Pizza Pizza Limited's President and Chief Executive Officer, Paul Goddard. Just a quick note that our discussion today will contain forward-looking statements that may involve risks relating to future events. Actual events may differ materially from those projections discussed today. All forward-looking statements should be considered in conjunction with the cautionary language in our earnings press release and the risk factors included in our AIF. Please refer to our earnings press release and the MD&A in the Investor Relations section of our website for a reconciliation and other disclosures related to non-IFRS measures mentioned on the call. As a reminder, analysts are welcome to ask questions after the prepared remarks. Portfolio managers, media and shareholders can contact us after the call. I'll now turn the call over to Paul for a brief business update. Paul Goddard: Thank you, Christine, and good afternoon, everyone. Thanks for listening in. We always appreciate it. This afternoon, we released our 2025 4th quarter and year-end results, which you can find posted on our website. While the macroeconomic conditions continued to deteriorate over the course of the year, our fourth quarter performance highlights the resilience of our operating company and the strengths of our brands, people and core fundamentals. During the year, we opened 37 new restaurants, bringing our 3-year total to 130 new locations opened across Canada. We started off 2025 strong. And for the full year, Pizza Pizza restaurants delivered same-store sales growth of 0.7% and Pizza 73 achieved sales growth of 1.9%. In the fourth quarter, our brands achieved a combined same-store sales increase of 0.2%. Pizza Pizza restaurants experienced a slight decline of 0.1% and while Pizza 73 reported same-store sales growth of 1.8% for the quarter. For the third consecutive quarter, we were happy to see growth in Pizza Pizza's organic delivery channel, which helped increase the overall average check. However, at both brands, we did see a decrease in transactions as we faced heightened competition and felt the impact of reduced consumer spending. So we saw a more cautious consumer environment develop throughout 2025, but we remained focused on executing our strategy. And as a reminder, that's really leveraging the strength of our brands, delivering compelling everyday value propositions, anchored in our core products and supported by menu innovation and maintaining a strong seamless customer experience across all channels. So starting with brand strength, Q4 is always our most important quarter, driven by key occasions like Halloween and New Year's Eve along with the turn of our major sports partnerships. This year, Pizza Pizza launched a new partnership with Vladimir Guerrero Jr., ahead of the Toronto Blue Jays playoff run, while Pizza 73 partnered with Ryan Lomberg of the Calgary Flames to strengthen our hockey positioning. Overall, it was a highly engaging quarter for both our marketing team and our brands. We continue to build on successful programs like Score a Slice and Score a Pie at Pizza 73, promotions across NHL and NBA partners nationwide. These initiatives drive customers to our apps and enable ongoing engagement that encourages repeat visits. And for fans watching the games at home, we offered free game day delivery, where on game days, customers receive their orders of no delivery charge. And that's certainly been a very popular promo for people too, which we're really happy about. Our partnership with the Blue Jays super star Vladimir Guerrero Jr. or Vlad, as he is known, literally and figuratively hit it out of the park. The campaign featured our Double XL 18-inch 3-topping pizza at a value price point of $19.99 and giving Canadians across the country a large, shareable and affordable pizza to enjoy during the games. It was actually really exciting for us when he and his agent reached out to us directly. So that was a great time of last year. We're really excited and really kudos to our marketing team for really executing well on that with him. And this promotion really exemplified how we effectively leverage brand partnerships while reinforcing our value propositions. Turning to our second pillar, value. We remain focused on delivering strong value across our core products. This was particularly important as we lap the sales tax holiday in December 2024 and as we saw customers becoming more diligent in how they choose to spend their money. We reinforced our position as a value leader through a range of price-conscious offerings. At Pizza Pizza, everyday offerings like the $19.99 mix and match and $15.99 pizza and pop deals remain customer favorites, complemented by limited time offers like the 20 wings for $20 deal, demonstrating our consistent commitment to providing high-quality meals but under $20. At Pizza 73, we continue to promote the Double XL offer and brought back the popular holiday helper promotion during the December period. Our core pizza category remains resilient, supported by offerings across all price points from slices and pickup specials for value-focused customers to more bundled options designed for families, gatherings and special occasions. While value remains critical, staying top of mind through innovation is also important. Our innovation pipeline allows us to attract new customers, trade up our existing pizza mix with more premium offerings and deepened brand engagement. This quarter, as an example, Pizza 73 launched the Volcano Pizza, generating strong consumer buzz and millions of impressions on social media. And due to its success there at Pizza 73, the Volcano Pizzas were rolled out to Pizza Pizza in Q1 of 2026. All of these efforts are underpinned by our third and most critical pillar, customer experience. We serve customers through multiple channels, including in-store, by phone, and on our organic digital channels and also on third-party food delivery platforms. In a highly competitive landscape, delivering a seamless end-to-end experience is essential. So to meet and exceed customer expectations, we continue to invest in our digital ecosystem with plans to relaunch our website, mobile apps and loyalty platform in 2026. At the same time, phone ordering remains an important channel, accounting for roughly 1/4 of our orders. Our customer contact center is fully staffed to ensure minimal wait times. On Halloween, our busiest day in company history our systems performed exceptionally well due to our robust, highly scalable and reliable technology infrastructure and exceptional people working together. So congrats to the team on your effort there on Halloween, it was record-setting. And beyond ordering, we are focused on ensuring our restaurants are accessible, modern and welcoming. This quarter, we have 90% -- 95%, pardon me, of Pizza Pizza locations and 50% of Pizza 73 locations refreshed which will further enhance customer satisfaction and engagement. Turning to our restaurant network. We ended the year with 815 locations in Canada, nice to cross that 800 mark. And that includes 712 Pizza Pizzas and 103 Pizza 73 restaurants along with 4 international locations in Guadalajara, Mexico. During the year, we opened 12 traditional, 20 nontraditional Pizza Pizza locations as well as 5 traditional Pizza 73 restaurants. We closed 3 traditional and 11 nontraditional Pizza Pizza locations along with 5 Pizza 73 restaurants. And notably, 4 of the 5 Pizza 73 closures involve territory transfers to nearby locations. So it's really more of an aggregation exercise for a bigger territory, thereby minimizing any impact on overall sales. Looking ahead, we continue to see opportunities for growth within our restaurant network. However, we are taking a more disciplined approach, carefully selecting locations and formats to ensure long-term profitability, particularly in the context of rising costs. As I close out my comments, I expect that we will continue to face more headwinds across our system in the near future. Consumer confidence is still low. Businesses are facing rising costs, and there continues to be much uncertainty. However, we will continue to be there to provide our customers with the best food, made especially for them. Finally, I would like to thank you for the continued interest in Pizza Pizza, and I would like to thank our entire team of employees, franchisees and our operating partners for the support and resilience in this difficult macro operating environment. So thank you again for listening in, and I'll now hand it back to Christine to provide closing remarks and a financial update. Christine D'Sylva: Thanks, Paul. So just as a reminder, Pizza Pizza Royalty Corp. is a top line restaurant royalty corp. that earns a monthly royalty through a license agreement with Pizza Pizza Limited. In exchange for the use of the Pizza Pizza and Pizza 73 trademarks in its restaurant operations. Pizza Pizza Limited pays the partnership a monthly royalty calculated as a percentage of royalty pool sales. Growth in the corporates derived from increasing the same-store sales of the restaurants in the pool and by adding new restaurants to the pool. As previously announced on January 1, 2025, the royalties pool increased by 20 restaurants. So for fiscal 2025, there were 794 restaurants in the pool comprised of 694 Pizza Pizzas and 100 Pizza 73s. So briefly covering some financial results for the quarter. As Paul mentioned, same-store sales, the key driver yield for shareholders increased 0.2% for the quarter. Pizza Pizza restaurants were slightly down for the quarter, and same-store sales decreased by 0.1%, while Pizza 73 restaurants increased 1.8%. The combination of the 20 new restaurants added to the royalty pool on January 1 and the same-store sales resulted in an increase in royalty pool system sales and the corresponding royalty income. The partnership's royalty income earned as a percentage of royalty pool sales increased 2.3% to $10.6 million for the quarter. As a reminder, Pizza Pizza and Pizza 73 restaurants are subject to seasonal variations in their business. System sales for the first quarter of the year are generally the slowest while system sales in the last quarter are generally at their peak. Beyond royalty income, the partnership also earned some interest income on its cash and short-term investments. For the quarter, the partnership earned $31,000. This is a decrease from the prior year as the overall balance decreased and the interest rate applied on that balance decreased. Turning to partnership expenses. Administrative expenses, including listing costs as well as director, legal, professional and auditor fees decreased in comparison to the prior year. This quarter, they totaled $211,000 compared to $221,000 in the prior year. In addition to administrative expenses, the partnership is making interest-only payments on its $47 million credit facility. Interest paid in the quarter was $443,000. As a reminder, in March of 2025, the company renewed its credit facility for 3 years with maturity now set for April 2028. The balance of the facility remains unchanged. However, the credit spread increased slightly. Additionally, in April 2025, the partnership entered into new 3-year forward swaps. The 3-year interest rate swaps commenced when the existing ones expired. The new locked-in rate is 2.51%, which is an increase from the maturing swaps of 1.81%. So the all-in rate on the facility for the next 3 years will be 3.51% compared to maturing rate of 2.685%. So now after the partnership has received royalty and interest income and has paid its administrative and interest expenses, the resulting cash is available for distribution to its 2 partners based on our ownership percentage. Pizza Pizza Royalty Corp. shares in 73.8% of the partnership distributions. It pays taxes on its share of partnership earnings and the residual cash is available for dividends to company shareholders. Speaking about shareholder dividends, the company declared shareholder dividends of $5.7 million in the current quarter or $0.2325 per share, which was consistent with the prior year. The payout ratio in the quarter was 105% and resulted in the company's working capital reserve decreasing $300,000 and ending the year at $3.7 million. The $3.7 million working capital reserve is available to stabilize the dividends and fund other expenditures in the event of short- to medium-term variability in sales, which we have seen over the past few years. The company has historically targeted a payout ratio at or near 100% on an annualized basis, and any future dividend decisions will be made with this target in mind. That concludes our financial overview. I'd like to turn the call back to the operator to poll for questions. Operator: [Operator Instructions] Your first question comes from Derek Lessard of TD Cowen. Derek Lessard: I definitely think you guys are in an enviable position compared to your peers. Just on the -- like Q4 tends to be a little bit updated by the time everyone reports now, given that the quarter is kind of like it was 3 months ago, closed 3 months ago. Just curious, Paul, and you might have touched on it in your prepared remarks, but how do you -- maybe talk about the current environment, whether it's the consumer behavior you're seeing now, the macro backdrop. It's just obviously a lot more in the world than there was 3 months ago, and it seems to be changing daily, just to get your view on the overall market. Paul Goddard: Yes, it's a good insight, Derek, it's true. And you're right about the timing too, Q4 was a while ago. I think just generally, and I don't think this is a surprise to anybody, but just the macro environment, I think, just looks scarier than ever, really. I mean, right now, there's just so many things going on the geopolitical level. I mean there was so much concern on the, let's say, the U.S. tariff side a year ago, let's say, and that's still kind of the big question mark, but now it's sort of with all the geopolitical oil shock type thing happening in the Middle East and beyond. From an already sort of fragile consumer mentality, I think, things have gotten a lot scarier for the average consumer. So we just sort of sense that there's just greater caution. People are going to be extra careful, more careful than they already were being, I think, this year. So generally speaking, we do see that -- and we've come to this one before that people have pivoted from things like delivery to pick up in our case. They're still ordering, but we do notice people just generally ordering less, trying to save money and same on delivery platforms. I think some of them have seen reductions in volumes as well. So I mean I think it's just a scary market right now, very competitive. A lot of competitors are doing deep discounting. Everyone's desperate to get that value customer. And we are in an enviable place because we are known for value, which is great. And I think we did a great job with things like the XXL and even at Pizza 73, under $10 snack boxes and things like that. We have good offerings for people, but we do sense that overall transactions are challenged. I mean, just not only for us but others just in the macro picture is just not looking very good right now. Derek Lessard: Absolutely. And that's totally fair. I think it's clearly industry-wide. And I guess one question, too. So when you think about value, is it helping you guys win share in this environment? Or is it sort of -- is it primarily a tool to help everybody sort of hold the ground in a competitive market? Paul Goddard: Yes. It's very true. I mean it's really -- it's such a battleground for sure. And so I think we did have some data saying that in Q4, we did gain some share which is encouraging, but it's really a battle. It's really a slog out there. I mean we had some gains there, but not major, I would say. So we'll take it. We're happy with any gain in share right now, and we just need to push harder to get more, but it's -- we noticed as well, we had some data saying that pizza traffic transactions generally in Canada, I forget the source, but credible source saying that they're still growing and still positive, but it did drop off in the fourth quarter, the whole pizza sector. So we were -- we sort of felt that as well. And I think even North America wide, you're sort of seeing that trend, some pizza QSRs having some difficulties. So I think we actually, overall, we're very happy that we're able to eke out a positive year, but the macro environment is troubling. I mean, we see definitely headwinds, as I said, and we know how to pivot into that pretty well. But the fact that customers are hurting, and they're going to probably be ordering less food in general, not just from us but others. So we're conscious of that, and we'll have to be creative about how we deal with that, but it might be a while, I think, look, the way things are looking this year, there's just so much uncertainty in not only Canadian market, but geopolitically and globally with what's going on. I mean you can see things potentially with the oil shock continuing if you don't see a quick resolution, let's say in the Middle East and just the inflationary knock-on effects of expensive oil right down to the pumps and beyond, and that's a lot of important discretionary -- or nondiscretionary spend for a lot of people. So it really does have a massive trickle down, not only in Toronto, but all over Canada, all over the world. So we'll have to sort of see how that plays out. Derek Lessard: Absolutely. And I guess the -- are the competitive pressures more intense in certain markets? Or particularly urban or delivery heavy regions? Like how do you -- I guess, how do you manage that? Paul Goddard: Yes, I would say we tailor our marketing regionally anyway. We do notice differences. I would say -- we -- certainly in the urban environments where we're really well known for our established markets, I think, we still generally are pretty happy overall, but I mean it's patchy. I mean we'll get even in very successful urban markets that we'll do very successful in a geographic region, most stores, but you'll actually have a few stores that are anomalies there. And same with somewhere like BC, where we're certainly a newer brand there to most people. And a lot of those locations are more disparate. We're not -- we don't have huge urban concentration there yet, but it's a mixed bag. It's a mixed bag somewhere out there. And I don't think I would say it's because it's rural or less urban, let's say, it's just kind of the nature of it. It's -- we haven't really been able to ascertain regionally, there's certain weakness. It's more store by store. So we're trying to sort of make sure that we take lessons from the best performing stores, and we have kind of a very much internal optimization program internally to really motivate stores to hit a higher level in their performance. And then we try to share those learnings and do a lot of sort of community clustering of stores and get the operators to share their best practices and things like that. So it's kind of -- I don't notice anything specifically in certain regions. But I would say that we are happy overall with the organic delivery growth because that we've been really trying to push our organic apps and web. And I mentioned we are going to be making that even better. But we are really happy with how that's going and pickup wise, we do a great job as well, whether it's over the phone or through the app, for instance. So I think we do have those kind of multiple channels, which allow us some flexibility with good value offerings, but we are going to have to be extra creative going forward for sure because customers are hurting. Derek Lessard: Absolutely. And so I don't want to be the downer on the call, but I promise one last hard question on this. And I think you did talk about it in your prepared remarks. It feels like you're just -- in terms of your store development plans going to be a little bit more targeted given the inflationary pressures and the other pressures out there. Just maybe -- maybe just talk about how you guys feel about your pool of available franchisees. Paul Goddard: Yes. I think we're -- I mean, I think we feel pretty good about the pipeline for franchisees. I think probably what's more difficult is finding attractive real estate economics in the places where we want to be and also the construction cost. Because of the uncertainty, I think I commented on a prior call about cost of things like ovens, which we generally do source from the U.S. because they tend to be the best made and actually most affordable, but there's always tariff uncertainty. Are they going to -- they can rule it illegal, but I'm sure there's going to be some sort of attempt to still keep them in place. So we've seen some of the unit construction costs still be an issue. So it's not so much pipeline of the franchisee issue, we still see a lot of interest as it is. I guess, getting the real estate we want and the construction costs we want to make it a sort of very viable option. So -- and we often do see like, if anything, growth in the pipeline for franchisees, when times are tough like this. So I anticipate our -- I haven't seen our latest pipeline stats, but they're probably actually ballooning, but the other challenge is we don't always get franchisees where we want them, right? They'll say, "Well, I want to be in Toronto." And I'd say, well, we actually are pretty good in Toronto. We don't -- we have a little bit of growth here, but it's more of these rural locations across Canada or even some urban locations even in Vancouver. And in Quebec, we've got a pipeline of locations, sites we really like, but we're still -- I'd say we've been a little bit slower there lately selling some stores in the places that are not in urban Montreal. So that's really where we're -- getting the demand where the supply is, is sort of the trick. So we have been -- we're trying to be very responsible there and say, look, let's keep a really close eye on construction costs. We do have some ideas on how to just try and reduce our construction costs, maybe slightly smaller stores than we're already doing and certain materials and things like that. So that we still end up on budget. Because we are starting to see the beginning of -- we haven't seen it en masse, but I anticipate that we will see more headwinds with suppliers for different items, whether it's food, nonfood or construction with the headwinds that we see. Derek Lessard: Yes. Again, I think you guys are operating well given the environment. One positive is your -- is the performance at Pizza 73. Curious if you see -- is there any potential takeaways from that outperformance that you think you could roll out to the to the rest of the network, whether it's marketing, promo or anything else that's working for you out there that you might try at the Pizza Pizza banners? Paul Goddard: Yes. We always try and look at what are the things we can share across whether we take it West or bring it East. And 1 example, was that volcano thing, which we piloted out at Pizza 73 and it really did well there. And so we basically took a slightly different tone with it, but basically it's a very similar product with creamy garlic in the middle, which is popular here more so than Pizza 73. So that's 1 example. And I think just the create your own, the snack boxes out there, things like poutine, chicken under $10 price point have done well. And so that's something that we think, okay, perhaps we could promote those more heavily here. But here, obviously, we've got the slice market as well, and we've -- we've got a 2 for 6 slice model that's worked quite well, but we're looking at more of a $5 combo now that is more of a drink in a slice that we think will really help drive walk-in back here. But we always are looking to see which are the successful promos and positioning either brand. And we have -- we've got some new marketing resources relatively new that really -- I think it really hit stride there. Even though it's very much a battleground in Alberta too, but some of the initiatives we have, I think, are really getting some attention more with the Calgary Flames, the Edmonton Oilers with Gene Principe, the sportscaster now that's very famous and kind of did a cheeky TV commercial for us. So people notice that stuff and does seem to kind of put the Pizza 73 brand in a little more of a refresh light from what it was, I think, maybe being seen as before. So we always are looking at that from a marketing perspective and also IT and operations perspective, what -- how can we get the best of both brands. Derek Lessard: Yes. Okay. Perfect. And I guess without giving too much away, I know in your prepared remarks, you did talk about plans to upgrade the website and the app and again, without giving too much away. Just curious on what you are looking to accomplish with the revamp? Paul Goddard: Yes, I think it's just to get -- we're actually very happy with our loyalty program overall at Pizza Pizza. It has been very, very good. And we do see a lot of people that are very loyal as a result of it. But we think that there's just a way to enhance it in such a way that we just get -- frequency is a big one and just make us the preferred choice more often and just make it more multifaceted, a little easier to use and really just make it more intuitive on our web and apps. And we'll be putting dollars behind it once it's ready to really drive the benefits of the loyalty. So frequency. And then obviously, we're hoping to get more size and things too so that hopefully check does increase, albeit with a very value-conscious customer. But some of these things are built also for many years, right, not just this current environment. We're sure things will kind of bounce back at some point, but we still nevertheless need to build for the future. So I think we'll have value offerings that are threaded in with a loyalty program and that should help us, I think, hopefully get check and frequency really that and also just more traffic in general. So those are the levers because this will drive our same-store sales. Operator: [Operator Instructions] There are no further questions at this time. I would hand over the call to Christine D'Sylva for closing comments. Please go ahead. Christine D'Sylva: Thank you, everyone, for joining us on the call today. If you have any further questions after this call, please reach out to Paul and myself. Our information is on the release. And thank you for your continued support of Pizza Pizza, and we look forward to speaking to you again in May. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.