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Zach Spencer: Good morning, and thank you for joining Comstock Inc.'s Full Year 2025 results and business outlook. I'm Zach Spencer, Director of External Relations. Today is Tuesday, March 24, 2026, we are streaming live and this session is being recorded. A recording will be posted shortly after we adjourn in the Investor Relations section of our website. Today, we filed our Form 10-K for the year ended December 31, 2025, and issued a press release summarizing year-end results. Both documents are available on our website. As a reminder, Comstock is listed on NYSE American with the ticker LODE. Joining me today are Corrado De Gasperis, Comstock's Chief Executive Officer; and Judd Merrill, Comstock's Chief Financial Officer. After their prepared remarks, we will take questions. We received more than 35 questions in advance of the call. If you have additional questions during the call, please use the Zoom Q&A window, and we will address as many as time allows. Today's discussion will include forward-looking statements. Actual results may differ materially due to risks and uncertainties detailed in our SEC filings. Full risk disclosures can be found in our filings on the Investor Relations page and on the SEC website. With that, it is my pleasure to introduce our Chief Financial Officer, Judd Merrill. Judd you may begin. Judd Merrill: Thanks Zach and thanks for everyone being on this call. I have a few remarks, and then we'll turn it over to Corrado, but I just want to look at the company dashboard here and just announced from a CFO's perspective, 2025 was really a transformational year for Comstock. We really doubled the size -- doubled our asset base. We strengthened and simplified our balance sheet. We eliminated legacy debt and other legacy obligations and we fully positioned the company for its next phase of growth. And our balance sheet really is the strongest it has been and it's positioned to be even stronger as we monetize noncore assets, and it's giving us kind of a speed advantage on our recycling competitors. Our capital structure is also very clean and our shareholder base continues to strengthen. We continue our targeting and our outreach for what is still relatively a less known story. Less known metal story, less known financial execution and monetization priorities. And at the same time, we are beginning to see the early results of that investment, particularly in metals. Our commercialization efforts are moving us into a second more sophisticated phase. Here are some specifics that all freeing up cash and cash equivalents are stood at 56-point -- or approximately $56 million at March 20, 2026. And our common shares outstanding are 74 million shares at March 20, 2026. And this is reflecting the recent offering which ended up being really outstanding, if not transformational. It's a change in our shareholder base with significant Hood River, Gratia, MA Capital, those are just 3 that represent the top -- some of the top investors that we have an engagement with them and support has been amazing, including what we just recently announced enhancements to our Board. And really, all this is critical part of our foundation for building a global multibillion potential company and a testament of the capabilities that we have positioned. We did complete that second oversubscribed equity offering earlier this year, which brought in about $57.5 million gross proceeds, which was approximately $53 million net of offering expenses. And again, this was really driven by the demand from leading institutional investors. And what it does is it removes the largest single risk to the spend needed to capture the solar market. These funds allow us to deploy our first industry scale metals recycling facility without distraction. Secure and permit and fund facility #2, which positions us to corner the entire Southwest market right here from Nevada. We announced and build additional permitted storage sites like California, Ohio, Texas and others accelerate our refining solution and capability, including strategic partners and really position us for the best, fastest monetization of SSOF and our other noncore assets. When we look back when we started 2025, it was with huge developed potential, but really no capital resources and many, many counterparty obligations that we required to able to develop our platforms. We have effectively eliminated those obligations from our balance sheet. We did have revenues too. Comstock Metals had revenues for 2025 that was approximately $1.4 million compared to 2024 which was about $0.4 million. In addition to the reported revenue, we did generate additional billings, approximately $2.2 million in 2025. We call it deferred revenue and that's associated with our early operations. So about $3.5 million for all of 2025, just as we guided to. It's also important to note that our 2025 results included several nonrecurring items associated with the transformation of our balance sheet. These costs include debt conversion and extinguishments as well as noncash impacts from changes in the fair value of derivative instruments, which is all now behind us. So last year was a deliberate effort to simplify our capital structure and eliminate legacy obligations. And these actions, we believe, significantly strengthen the company going forward. And from a liquidity standpoint, we are in a strong position. We believe our current cash, combined with expected revenues from metals recycling later this year and priority asset sales and monetization, all that keeps us strong and in a leading position as we execute on the metals plan. And lastly, we are lining up and diligent seen and positioning more traditional nondilutive sources, which includes grants and industrial bonds, which we will qualify for and we'll have access to once our first facility is up and running this year. So those are my remarks. I'll turn it over now to Corrado to dive deeper into our metals progress and monetization. Corrado De Gasperis: Thanks, Judd. Thanks, everyone, for being here. We probably have a record attendance for this call. So I'm really -- I'm excited about the update. Let me start with the announcement that we made just after the market closed today, which for us is incredibly exciting and encouraging. As Judd mentioned, at the end of January, we had a robustly oversubscribed offering. We had tremendous quality of institutional investors. He named a few, Hood River, MA Capital, Gratia. I mean the list continues on down to a solid 25, 30 institutions that joined. What was even more encouraging was Steve Pei, Gratia, Craig and Mike Kaufman, the interest that was taken in the company is very, very high, including site visits, including reviews and tours of all of our assets and quite frankly, extremely constructive engagement about support and help for how do we position this company to be a truly global, truly dominant, metal recycling company. I think that reflects a view that our technology is differentiated. I think it reflects a view that we have a really, really early adopter head start. I think it reflects a view that we did make good progress with this balance sheet. If you go back to the shareholder letter from last January, it was a tough letter, but the message was we need to clean things up. We need to get recapitalized and we need to fund these growth businesses. So if people go back and look at that letter, we could say, wow, we made huge progress. But now we have that posture. So the hard work is now the execution. And how do you take a platform that's regional? Sure, half of the end-of-life market is in the Southwest region. United States, absolutely Nevada and these Nevada permits and platform positions us to capture it. But it's much bigger than that. The United States has over 1.3 billion panels deployed. They're coming end of life rapidly, and that's only 1/8 of the world. The world has just as big of a dilemma, 8x relative to the U.S. So the conversation was around expanding governance, expanding international business competency, accessing capital markets competency. So we're thrilled to announce the addition of 3 new independent directors. Donald Colvin, who has extensive and frankly, complex financial management background, but a very, very strong solar industry experience being the Chair and a Board member of a public solar manufacturer of global footprint and just the global public company governance posture from chairing boards to chairing audit committees. And then Steve Pei, as I mentioned, with extensive, I mean, quite remarkable capital markets background, entrepreneurial, what was intriguing was the notion of investing in smaller early-stage companies and watching them become national or international successes and watching those values increase dramatically. And then Bob Spence, who has an exceptional background in refining, in recycling and electrification recycling to boot, including international operations, 30-plus international sites in public and international governance experience, both from audit, from acquisition, from oversight. We really could have spent a couple of years working on the searching and recruiting and aligning and onboarding of our Board. We really jump-started that. So I think from a perspective of really, really strong platform that can really handle all of the things that are coming, sweeping across the U.S. We've got a really good plan for that. But this won't stop there. This market is just extraordinary. So we're welcoming our expanded Board. And I guess the final takeaway is when 2 of your top 4 investors are represented on your Board, that screams a lot. We couldn't be more thankful Steve Pei of Gratia. Michael Kaufman at MAK, Craig and the rest of the team that just worked so, so diligently to make all this happen for us. We thank you very, very much. And for 2026, that team, that governance structure, that capital base is aligned, right? We're aligned on these objectives, which is very, very much, first and foremost, to monetize our noncore legacy mining assets. We've gone from a few years ago talking to less than credible people to talking to marginally capable people to now being engaged with very, very serious mining counterparties that absolutely like what we have here, what we've maintained here, which is a great mining district, great resources. If there's any question about this decision, let me put everybody's mind at rest. Every dollar that we take from the mining assets and put into the recycling assets multiplies exponentially. And let's be clear, if we were going to mine these assets it would take $30 million, $40 million, maybe $50 million of capital to put a mine into production. That's with an existing resource and a permitted platform. There would still be a lot to do. So in that context, it's money that doesn't go to solar recycling. That's a nonstarter for us. It never was a starter for us, frankly. But every dollar that we can then pull out of that nonproductive asset and put into the recycling business, I think a few of you heard me say, our mining assets, which we believe have good value and are very attractive, have about 2.5 million ounces of silver in situ just in the Dayton resource alone. And yes, that would take 6 or 7 years to mine once the mine got up and running. 2 of our facilities in Nevada, which we now know where they're going to be and they're up and getting up and running, would produce that much silver annually, okay? That's just 2, not 7. So you can see the difference in throughput and cash generation from what you could call 2 different silver mines. We also want to monetize our noncore legacy real estate. I'm going to give you more transparency on that today simply because we finally came to sufficient progress, both with Sierra Springs' Board and company and with third parties that are very, very interested in these assets. The value is higher, the ownership is higher. So the amount that we're going to monetize here, hopefully, will be pleasantly higher than anyone might have been expecting. So we're going to do both of those things. Green Li-ion, we also want to monetize. It's less within our control. The company is making extraordinary progress, truly exceeded my expectations in terms of their journey to profitability. They have an operating facility in Oklahoma. We own 13% of the company. And they've announced that they're going to move into a public listing in Australia sometime later this year. So once Green Li-ion is successful in its endeavor to becoming a public company, then we'll have a much easier and clearer exit strategy for that investment. We've worked very, very hard on all these monetization items. This is the crux of the corporate objectives. We've had to put more capital into Sierra Springs but at great gain. That wasn't clear before because the deals weren't structured and they weren't announced, but they are now structured. And we've already taken effectively what was just under 17% of Sierra Springs to well over 36%, 37%. That number could end up easily at well over 50% for something that we think has hundreds of millions of dollars of value. We don't think that based on conjecture, there is monster engagement in Northern Nevada right now because if you're able to secure sufficient power to the land, it's in immediate demand. If you're not able to secure sufficient power to the land, there's no interest, okay? So we're on the verge of something very meaningfully here. I think 2026, credibly now, we'll see monetization of mining, monetization of noncore real estate. And frankly, timing couldn't be better. So we're really all about supporting the exponential growth of the metals business, not just for national dominance really for setting the global standard in this recycling business. We crushed it in '25. And when I say we, I mean the metals team, Fortunato, Paul, Kayla, I mean, they got the permits, first of its kind. Leo was absolutely instrumental in supporting us, one of our Board members in navigating through that regulatory regime. We didn't only get first-of-its-kind permits. We were held to what we originally thought was a ridiculously high standard. But now with hindsight, it looks like it will be very difficult for any existing competitor that we know of to even set foot in Nevada and even get permits within 2 years. So to the extent Nevada sits on 50% of the end-of-life market, certainly between now and 2030, now and 2035, wow, we're literally on the beachhead of a battle that doesn't see any competitors anywhere near of what we've positioned here. We don't want to stop in the Southwest region because that's only half the market. We want to get to the rest of the U.S., and that will come, as Judd said, with less resistance and much more rapidly. We also have designed the engineered process for recovering the metals from our tailings. I'll give you a little bit more color on that. But we did that with leveraging a handful of partners between universities and companies that have existing assets and existing infrastructure that allows us to take Fortunato's engineered design and very efficiently test up to a demo, which we hope to have here by the end of this year. So all that work in 2025 really positioned us to move fast, right? So what do we want to do? We want to get this facility up and running. Substantially all of the equipment has arrived. The ovens are arriving now and the ovens literally represent -- I just looked at the final truck schedules, represents 20 full 18-wheelers. So you start to get a sense of the magnitude of this process and these systems. Some of you have come and visited and I'll show some pictures of some of the equipment as it's getting assembled here. But it's all coming in, we're on schedule. It wouldn't be right to say that 3 or 4 weeks of slippage hasn't occurred, but that was already buffered in our schedule. So commissioning in Q1, operating in Q2 holds. We're very happy about that, bringing the thing online. And another thing that's happening is that we're starting to see -- it's almost like if you're in the fourth quarter of a football game, you're starting to see some of our competition, take a knee or move aside. Really, that's an analogy to say that our customers, the true utility scale companies that are now very seriously engaged in a very big end-of-life problem. They're almost only -- they're certainly not talking to the 2 or 3 people that we previously talked about as showing up most often. So there's a really good trend there. Something even more strategic is happening. Some of these institutions are either very, very large or part of even larger organizations, and they've engaged us for more strategic things. You've heard me talk about co-locating on one of the sites or venturing into a third or fourth site. This all ties to getting market share, right? So we want to dominate the market share. We're very happy with how those underlying conversations are going. And we've identified the second site. We are pinning it down, final stages. The permits actually have already been submitted. So we're excited about it. It will be in Clark County. It will be just outside of Las Vegas, exactly where we wanted to position the second site for this Southwest region. And California is permitted up and running. Ohio is coming up in line. Those right now are primarily either storage and/or transition activities, prep activities, logistics activities. There's no processing. There's no processing that we're planning at all for California, but certainly, Ohio would evolve into that, and we're looking as well at a specific site in Texas. So that side of things are moving very, very quickly and we're continuing all of those efforts. '26 is going to be -- as foundational as '25 was '26 is going to show the light. '26 is going to show the large industrial system running. It's going to show it turning profitable. It's going to show volumes increasing. And you're going to see revenue goes from $100,000 a month to $200,000 a month to $1 million a month to $2 million a month. That's our profile for 2026. And we don't see any reason why that isn't going to come together just like that. So we don't need to talk that much about silver demand. Every one of you that I've talked to seems to understand the supply and demand equation for silver and is very bullish on it. Even with some pullback, we're sitting at $70 silver, which is above anything that we've modeled in our process. As I mentioned previously, even at $60 silver, our offtake revenue isn't $125 a ton. It's $375 a ton. So we already have an enhanced profile given the current realities. You see the inside of 600 Lake in this picture, that was 7 months ago. Now when you look at the inside of 600 Lake, it's assembling equipment. That shine that you see on the floor there is an epoxy that we had to lay down that outlines perfectly the footprint of the large system. You can't see the ends of the footprint. It's extremely large, 80, 90, 100 feet of processing, fully integrated, fully automated. We are testing the robotic arms. We are assembling the front-end crushers. We are pulling together all of the equipment. And we're heavily finalizing the grading and the preparation. Fencing is going to go up next week for the storage. And it just gives you some context here. If you're looking at this picture, hopefully, that building there in the background is where our demo facility sits, okay? So we're talking about major -- I kept saying like this enormous expansion or massive expansion for storage, you're starting to get a sense of it. I was annoyed earlier, one of our investors posted 4 beautiful pictures. They must have been circling the site or something. I criticized my team and said, these guys are getting better pictures than I'm getting. So if you're on Twitter or X, you can see some even more elaborate pictures of this development that's happening real time. And the holy grail is not getting $125 a ton for tailings or $375 a ton for tailings. Those numbers reflect us capturing 50% or 60% of the silver value and leaving the silicon metal and leaving the copper and depending on the types of panel, leaving the gallium or the tellurium or the iridium behind, what we've applied it for a grant on and what we've already started the development work on is being able to capture the substantial majority, we'd love to say substantially all of the value from those critical metal recoveries from the tailings. So we've been ridiculously busy site preparing. We've been ridiculously busy receiving equipment. We've been busy expanding the market, and that would be satisfactory. But it's been exceptional that the team has made and forced the capacity to design this refining solution. We don't -- when we say we feel like we're a couple of years ahead in recycling, we're humble about that. We're not arrogant about it. We want to expand it. We want to assume we're 1 day ahead. We don't want to assume we're 2 years ahead. But we're talking about recycling. We're not talking about refining. We don't see anybody even talking about these types of refining solutions. And the reason this is so important, and I think the reason our capital base is so interested is 3.5 million panels last year would load one of our production lines. In 4 years, that number is going to be 33 million. We would need 10 production lines to do that. And I'm not sure if people appreciate it. One production line that $13 million of one production line can do 3.3 million panels a year. But that facility that you just saw, it was permitted for 2.5 production lines, really 3 production lines with the capacity of doing 250,000. So if this Southwest region does anything close to what we think it's going to do, it's doubling the capacity, 2.5x in the capacity of that facility will have literally 0 permitting lead time. 0 permitting lead time. It's already permitted. What it will require, of course, is equipment ordering lead time, which we can let the market tell us when to trigger that. And this is the old map that most of you have seen. But for any of you that haven't, here's Arizona, Nevada, California. These are the 1.3 billion, 1.4 billion panels that are deployed in the U.S. The fatter the circle, the older the panel. That's why these 2 facilities in Nevada are so critical and why we're going after this half of the market so diligently, so vigorously. But an enhanced metal value, you're not talking about $55 million or $60 million of cash flow from one facility running full. You're talking about $75 million to $80 million for one facility running full. And that doesn't consider the enhancement that would come with the refining solution. Now let me just spend a little bit more time on this monetization of noncore assets. Some of you may have seen previously a higher NPV that we calculated for our mining assets. That number was correct. It stays correct. But as I said earlier, these assets take some capital to put into production. As I said earlier, we're engaged with some very, very serious counterparties. They have capital. That's, I guess, the litmus test for me on, are they serious? They have capital. They have capital to deploy, and we're talking about a range of value of, let's say, $50 million or $60 million. We're not necessarily talking about all cash upfront, but we are talking about full monetization. What we would like to do is sell it for all cash or we'll sell it for cash with some very relevant or meaningful milestones. Any dollar that we pull out of nonproductive assets to put in our solar business, we believe, is a home run. With the Sierra Springs, we have been allocating capital to that. You'll see that it increased. But we have agreement now to convert that into ownership at extraordinary values. And I'm going to talk about that a little bit more. I'm going to give you a little bit more color. But I've been busy with this because it's super active, right? Nevada went through a monstrous hyperscale data center expansion. It's listed right now as fifth or sixth in the U.S. with projects under construction with 29 projects under construction, and it's every big name. We have an industrial park very, very close to us, not the Tahoe-Reno Industrial Park. Everybody knows about that. Another one that's very close to us in Silver Springs that is out soliciting industrial lands for this purpose, and they secured access to power other than the grid. The grid is tapped out. The grid is not available until God knows when. So we secured similarly access to that power required some small financial commitment initially, a small bond, $1 million, $1.5 million of posting, which was easy, but it opened up the whole world for us. Now we've got -- I'll be very frank, like I'm behind in being responsive to them. And if that's annoying to you, it should be because it's annoying to me. But the dollars that we're talking about are not $45 million or $50 million like we talked about before. It's a couple of hundred million. And that doesn't include our properties that we own 100% and directly. So as you can see, it's in everybody's interest for us to prioritize and monetize these assets. The mining assets last year, we acquired the Haywood quarry. You see it right here, this Haywood target on the map. We also sold some of the northern properties, which are now taken off of this map. But in selling those northern properties, we also got these green -- there's about 240 acres that we added that fully support and surround both the mining of the Dayton asset and the processing for the Dayton asset. We have those 230 acres at no additional consideration. So between the Haywood property, which is ideal for processing Dayton and those other properties, which fully support the mining and the processing of Dayton, we've made this much more salable much more monetizable. And as I said earlier, we're fully engaged. When we first announced that Haywood purchase, some people were like, I thought we weren't interested in mining. I thought we were trying to monetize the mining. And I just want to make it clear, that's exactly what those moves were designed to position us for. And these properties, they're flat, they're expansive and they're very, very attractive to real miners. So we're really having productive conversations. Judd is getting very, very close, and I really appreciate that helping that support. Now just more transparency on Sierra Springs because there's approval on the Sierra Springs side, right? There is approval for Comstock to take the lead, for Comstock to drive this thing to the finish line, for Comstock to enable this bigger monetization. And of course, Comstock needs to benefit dramatically from that capacity. What where we are is we're sitting in the largest opportunity zone, if not the largest, one of, by far, the largest opportunity zones in the United States. It's not only an expansive amount of land sitting right by Lake Tahoe, the fact that it's 10 miles from the California border and maybe more importantly, 1 truck day away from 7 different states and 75 million people is one of the biggest reasons that all of these data centers and all of these manufacturing companies are locating here. The other reason is that it's the environmental climate is almost perfect for optimal cooling of these data centers. But it's even more than that. It's literally Nevada -- Northern Nevada is literally one of the safest places in the country when it comes to the hazard map or the disaster avoidance map. We don't have hurricanes. We don't have hailstorms. We don't have all of these impediments. And so it's not coincidence that Google, Apple, Microsoft Switch, Tract and at least 2 dozen more are locating here for mega hyperscaling. And for us, it was when USA Parkway was built from a nonexistent road to a dirt road to a 4-lane super highway, connecting Reno right down into Silver Springs where my better lucky than good comment keeps coming out. We were sitting right there ready to receive that ball. It's still somewhat pioneering 2 years ago. Everything was happening in the Tahoe-Reno Industrial Center. Everything is happening up in Fernley. And people kept saying, well, what about Silver Springs? What about Silver Springs? Well, if you look at the map this way, you see this connecting highway. Tesla's gigafactor is really what put us on the map, but the data centers are really what exploded the map. It comes right down to our properties. You see the Comstock load here just 30 minutes down the road, Highway 50, and then you see the congregation of this asset here. I haven't spoken about this much because we spend -- Fortunato and the team spent 110% of their time on Comstock Metals. I like to think I spend 50% of my time supporting Comstock Metals. I want that to be 90% of my time. Judd is handling the monetization of the mining assets. I'm handling the monetization of Sierra Springs. And I think it's also important to say I've never took a penny from Silver Springs. I've never gotten any compensation from Sierra Springs. I only own stock there because I bought it with my own money, and I've agreed to rectify that. Like we are going to align my interest only and solely with LODE. There is no even debate or discussion about it. I've already committed to it, right? What you're going to see with hopefully some foresight, but certainly soon with hindsight is that load investors own something very, very valuable here. As exciting as monetizing something that's worth a couple of hundred million potentially would be, what can be done with that money in solar recycling is a whole other level of excitement. You can read up all the articles about what's happening in Northern Nevada. It's very easy to see them. But what's really important to see is that -- when I talk about these values, I'm not pulling them out of the air. When we first started this thing, we were getting these properties for dirt. I mean, literally dirt cheap with almost like water rights coming for free. But Industrial Park was at $2 to $3, $4 a square foot. Then it was $4 to $5 a square foot. Then it was $6 to $8 a square foot. Then Microsoft lands and starts pushing $10 a square foot. Those are incredible numbers. If those numbers -- if we're even close to those types of numbers, my numbers will be understated. So when Tract CEO came out and said that they're going to invest $100 billion in the next 10 years in Northern Nevada. And that means from the Peru shelf right up here by Switch to right across the street from our properties in Silver Springs. There's 3 major developments that they're breaking ground on right now. If you don't understand it or if you'd like to see it, it will only take you 20 minutes for Reno to see Monster trapped platforms being built and positioned. So that only enhances the value like everything in this area. And if you look at this map, the airport being the blue center, everything else in color around us is part of our portfolio that I want to monetize for us, except the top of #11 here. That's where Microsoft came in. And then right alongside of it, Tract is coming in. So you go from literally being out in the middle of nowhere on the loneliest highway in America to USA Parkway plugging into us to track and Microsoft coming in across the street. I mean it's extraordinarily exciting, but none of it would mean anything if the he Great Basin natural gas transmission company didn't show up 4 months ago and say, we're going to spend a couple of billion dollars, and we're going to expand gas into this area, into firmly into Tri-Center, literally right into Silver Springs. If they didn't come out and say that, we'd still be talking about why the hell are we going to -- why can't we sell these properties. But with that power commitment, the game has changed dramatically, and we're going to see something really exciting happen. So it took a little bit longer than I was expecting. I apologize. But Zach, please let's just jump into Q&A. Zach Spencer: All right. Thank you, Corrado. As I mentioned at the beginning of the call, we received more than 35 questions prior to the call. And I can see that we have a number of additional questions coming through Zoom. And Corrado, you did touch on a lot of these questions that we have. So perhaps you can just provide a little more color. And pardon me if I do repeat the question. Okay. The first question is, how do you allocate your time versus Judd's time versus the rest of the team's time. Corrado De Gasperis: Yes. So I think right now, in fairness, Judd's spending -- obviously, you can see the time we spent from a corporate perspective on recapitalizing and funding and now over the last month or so on the governance. So that's really positive and took a little bit more of our time critically, critically constructive and needed. I think probably I will spend 40% to 50% of my time, and I expect Judd the same on monetizing these noncore assets, okay? It's a priority. And thank God, the metals team is full, and they'll spend 110% of their time. They do nothing but metals all day long and all night long. But I do feel like if we were directly just a solar panel recycling company, just a metal company, we would go from having a strong, capable, sufficient management team to overwhelming force. And so I think ultimately, we'd like to see 80% metals, 20% corporate. But that will only happen once we monetize the assets. So 50% ours, 50% corporate, but that 50% is heavily dedicated to monetizing these assets. And the prerequisites needed to monetize those assets. Zach Spencer: All right, Corrado, thank you for that. What is the pipeline of solar panels that will be available to recycle through the Silver Springs facility once it is open? Corrado De Gasperis: Yes. So that's one of the most major fronts of our efforts. We're signing master service agreements. We're signing master service agreements all the time right now. We've signed a couple of extraordinary ones with e-recyclers, the folks that have already established recycling businesses. That's about 10% to 15% of the market. We generally think about the major utilities as being 80% of the market. And so what's happening right now is we're signing up -- we're -- I don't -- I can't think of a major utility that we've had a setback on -- and that includes NextEra, Florida Light and Power, everyone is pretty familiar with RWE, Nevada Energy, which is a Berkshire Hathaway, Berkshire Energy company, Brookfield. Edison. I mean we're really making hay with signing these folks up, right? The second point is we're signing up. I think we may have just signed up. We're not yet allowed to release it specifically, but one of the largest, if not the largest e-recyclers in the country, right? So those are the people we want to engage. We've also signed up our first actual solar manufacturing company, which I was talking to Don about this as we were going through the Board process. But the solar manufacturers are not really our customers. They do have some amount of breakage and waste. So they're steady Eddie. They ship us a truck or 2 a week, but they're a very, very small part of the end-of-life market. Of course, they're the beginning of life market. But they also point us to their customers, and they also integrate us with their returns. And so that's all coming along. But to answer your question, locking in the customer is the most critical prerequisite, making sure that we're qualified through their audits and their certification processes. It's not a super long lead time process, but it's a pretty meaningful lead time process. So we've been doing that steadily for the last 2 years. And so as I think I mentioned earlier, and there is a breakthrough, too. There's a number of customers who -- their attitude is where you're certified, you're qualified, you're wonderful. When the big machine is up and running, we'll start sending more panels because we want our certificate of destruction pretty rapidly, okay? So but the profile should be a couple of hundred thousand dollars a month to $0.5 million a month to $1 million a month to $2 million a month. $2 million a month is $25 million -- $24 million, $25 million run rate of revenue that will be remarkably profitable, and then we just grow it from there. We still believe that by the end of 2027, Facility #1 will be running full. Facility #2 should be in the 20% to 30% capacity utilization range. But those are really rough estimates, right? Because we don't see a smooth linear up progression here. We see a lot of spiking. We see a lot of deferred maintenance. We see a lot of deferred recycling. So once we click in, then the spikes will be bumpier. We have the capacity to handle it, and then we have the storage to handle it. Now one critical point here. We are now being engaged by not just the largest utilities, but the owners of the largest utilities, very strategic discussions. There is a recognition here that they need to lock up some capacity, right? So it's finally coming through and those hope to have some very meaningful discussions this year. What I mean to say is we're having very meaningful discussions now, very meaningful outcomes this year in terms of what specifically that will mean, right, to forward volumes. It's coming, right? It's just -- it's slower than anyone would ever hope, but the -- setting the foundation is the critical thing. One of the ways I've described this to people is if our business this year was 20,000 or 30,000 tons, the same exact customer flow in 2030 would be 300,000 tons. Right? These are the customers who are going to see a 10x increase in their end of life. They may even be higher because they're going to lead that increase in end of life, the 3.5 million from last year to 33 million in 2030. So we're positioning for great -- almost organic growth. It's kind of a perverse or backwards way of thinking about it, but locking in the customers that really have the biggest installations means locking in the biggest end-of-life replacement scheme. Sorry for that. It was a little long-winded, but... Zach Spencer: This might be a short one for you. Where do we stand with the delivery of the first recycling facility in terms of timing and cost? Corrado De Gasperis: So we have -- I think we received all of our equipment and started to receive the components for the oven. I just -- It was mentioned it earlier, I just looked at the shipping schedules for the ovens. It's literally like 20 monster 18-wheel truckload containers. I was surprised at the magnitude of the logistics, right, to get those ovens to us. Those are starting -- the schedule said they start coming next week. They stop coming within 2 weeks, then we have everything. And then we've already started installation. We've already started testing and commissioning the equipment. If those ovens had arrived 4 weeks ago, they would be sitting around because the sequence is pretty precise in terms of what needs to be installed and tested and then processed. So in that regard, we feel again, maybe 3 or 4 weeks of slippage that was fully buffered in our plans, right? So we'll be up and running in Q2, and I think that's going to be a huge milestone. Zach Spencer: And speaking of Sequence, please review the timetable for the second recycling project. So its initial revenue and probable location. Corrado De Gasperis: Yes. Yes. It's going to be outside of Vegas. Clark County for sure. That's where all the infrastructure is. There's more infrastructure in Clark County in Vegas than there is in Silver Springs, frankly. We have a site. We're in final stages of locking down the terms. We've already submitted the permit because we know where the site is. I think the question is when do we order the equipment. Last time I asked Fortunato, he said as soon as we possibly can because the equipment lead times from -- when we first -- we raised the money in August, we ordered the equipment the next day. We were looking at a 5- to 6-month lead time. It turned out to be 7 to 8, okay? So if 7 to 8 is the real lead time, although I think there's some arguments now that we've gone through this process that it would be shorter, then we probably want to order the equipment sooner rather than later. So if you're quoting equipment in May, you could have it arriving in December, the process should look and feel maybe 3 months faster from a calendar perspective than the first facility or could mirror it very closely, right? Commissioning in Q1, operating in Q2. I'd love to see commissioning in Q4 operating in Q1. And as soon as we order the equipment, we'll be able to communicate that. Zach Spencer: Okay. And sticking with Comstock Metals, you've outlined a 7-facility national model with a central refinery hub. What is the capital requirement per facility at the scale you're targeting? Corrado De Gasperis: So we've always said recycling facility 12 to 15, okay? And really, that range is tied to if we're leasing a facility, it's $13 million. That's where we're ending up, right, with facility #1. If we had to buy a facility, you might have to put a deposit down, it might be $15 million, maybe $16 million at the most. So it's a nice tight range. It's not a lot. $12 million to $15 million, we'll stick with, maybe $13 million to $16 million is buffered. That's a good number. And that's for each facility. As you heard earlier, $75 million plus in cash flow and they're running full. So that profile is beautiful. The central refinery, though, is still conceptual, like we are certainly not going to build 7 refineries. Ideally, there could be 1 maybe very centrally located. For the math on that is if a recycling facility is taking in 100,000 tons and 10% to 15% are tailings, you're going to get midpoint, 12,500 tons of tailings per year per facility. If you have 7 facilities, that's 100,000 tons of tailings. That's a pretty good sized refining operation. You could start with one in Nevada, and that would be -- if you did that, you'd probably either have one big one there or you might have one on the West Coast, Nevada-based, one on the East Coast, then you'd have 2. We don't know the answer to that yet. We still need to get to FID on the engineering, but we're projecting the capital for one large refining operation like that 100,000 ton of intake level to be about $30 million, right? So in the scheme of -- in the universe of refining capital, it's low, right? When people talk about aluminum refineries and pyrolytic refineries and smelters, they think in the billions, like not in our scenario. We're very precise, very fine industrial tailing. So that's more what we're looking like. I hope that answers the question. Zach Spencer: Corrado, pivoting to SSOF. The values sound high. What are the prerequisites for monetizing these assets? And what's the time line? Corrado De Gasperis: Yes. So I think, look, there's probably 5 prerequisites. Let's just think them through. industrially zoned land, check, flat developable land, super check, water rights, check, fiber check, electricity, right? That fifth one is where as we sort of hit the wall, if I could give people context, right, the Great Basin Transmission Company came out with an open bid. This is a FERC-regulated utility bid. We committed to like 50,000 dekatherms a day. I think they got bids for 800,000 dekatherms. So if our number is 300 megawatts, their number is 15x that, 13x that. So that's real. That's certified. That tells you what's happening in Northern Nevada in terms of people needing, wanting and committing capital to power. So what we need to do is we need to close out on the land position. There's still some capital required to do that, close out on the land position, have clean title, clean and final environmental reports. We've already done Phase 1 previously, super clean, so no issues. You just need to be updated, right? Water rights certification we have thousands of acre feet of water rights. That allows for a lot of flexibility with the data centers. Some are -- there was a phase of all electric cooling, then the grids ran out of electricity. Now everybody is hell bent on the technologies that reduce water in data cooling, but you got to have water rights, right? So if we do those 3 things, right, just perfect the land, perfect the power, I feel there's a little capital there, but there is also administrative work, like probably 60 days' worth of work. That timing would be perfect, data room would open up and then 60- to 90-day process. So we're looking at -- we're absolutely looking at 2026, getting this done in 2026. Zach Spencer: Thank you, Corrado. We do have a question on Bioleum management. Please provide an update on the Bioleum team. Corrado De Gasperis: Absolutely. So I think most people appreciate that in March of last year, Marathon Petroleum invested directly into what was previously known as Comstock Fuels. And then in May, a large investor came in with another direct investment. It's about $35 million in total of, call it, Series A investment directly into the newly reestablished Bioleum Corporation. There's a really strong core group of founders, I say 10 people, David Winsness, Rahul Bobbili, but there's Chad, Michael Black. There's a strong group of founders there, but there's an even bigger group. There's probably 40 professionals. And let me just say this. Their whole claim to fame, they're equivalent of Fortunato's zero landfill, highly efficient thermal solution is their ability to unlock lignin in woody biomass. So we call it lignocellulosic technology. But that company's roster includes like Dr. Christian Dahlstrand from Sweden, Dr. Marcus Jawerth from Sweden, Dr. Colin Anson from Madison, Jordan Thutt from Wausau, Dr. Elvis Ebikade from New York, originally from Nigeria, Dana Hatch, Bob Rzmirek, Andrew Hell, these are all chemists and chemical engineers. And then you have Dr. Gregg Beckham at the National Laboratory of the Rockies, previously known as NREL, Dr. Yuriy Roman at MIT. Like you're literally talking about the top 10 lignocellulosic professionals like in the world. And what their coming out with here is the highest yielding lowest carbon ability to take waste into low carbon fuels. But it kind of -- people probably feel -- so that's the management answer, right? Chad Michael Black is the President. Chad is leading this incredible group, right, of primarily engineers and material scientists, right, to final investment decision that allows them to move into biorefining. We haven't gone stealth per se with Bioleum, but there was a concerted effort for them to be independent for them to have their own capital source, for them to ultimately go Series B and IPO. So as you hear me talk about monetizing assets, I don't -- I'm happy to be supportive. I'm happy to be helpful and I am intimate with what they're doing. But their success will be our success, right? We want to put our calories into growing a literally international dominant metal recycling business. Zach Spencer: Thank you, Corrado. Looking at our mining assets, what is the timing on the potential monetization of the mining assets? Would it be a JV deal or something different? Corrado De Gasperis: I think I'm hopeful that the timing is sooner. We are in pretty deep conversations. We are pretty specific around terms. And we're only talking to people that have credible and immediate -- not immediate, but credible and almost immediate access to capital. Like we're not talking about people who are blue skying possibilities here. So the people that we're talking to have done quite a bit of diligence, like, I would say, a tremendous amount. But just from a legal, administrative final processes, you're probably looking at 75 to 90 days. Is it guaranteed -- could something bust for sure, but we're feeling pretty good about it. Zach Spencer: Thank you for that. Pivoting again, is there any intention for issuing additional shares in the near term, resulting in any more dilution? Corrado De Gasperis: No. I would like to repeat, though, what I had said earlier. We had 7 or 8 years of excruciatingly poor access to the capital markets, bad structures, bad efforts, probably with hindsight, using a junior mining penny stock structure to capitalize to high-growth innovative technologies was not the smartest thing in the world. But at the same time, we did it, right? We created an incredible opportunity. And I think our investors that stuck with us and our new investors that came in are really, really, really going to profit from that scenario. If there's a perception that we enjoyed raising the capital that way or the dilution that resulted and even more painfully, the low valuation that comes from having other than intermediate and longer-term capital partners, we hated it. So just in case anybody is curious, like we hated it. But we did get this business launched, and we're running now. But what's more important is we have capital partners. We have capitalized and funded. And I think if we had no noncore assets, the positive of that would be that we would be more fully dedicated to metals. But the positive of having them is, as I said earlier, if we monetize those assets and redeploy them, if we monetize those assets and redeploy them, then we have a bonanza on our hands here. We are derisked from distraction. We are derisked from having to slow down. We see some of our recycling competitors struggling to raise capital. We've seen some take capital from very bad sources and do a 180-degree turnaround on their strategy. So we're just going to keep flying forward, and we don't see any -- we have no -- we don't see any reason looking forward, right, that we would have to raise money. If something unknown happened, and we can talk about it, but like we don't see it unequivocal, no. Zach Spencer: Thank you, Corrado. We're coming up on time, and I think we've covered several important questions. If we did not get to your question, please send it to ir@comstockinc.com. and we'll do our best to respond either directly or we'll post the response on X. For anyone who is not following us on X, our main account is at Comstock Inc. Please follow us. Corrado, before we wrap up, please give us some final thoughts for the final week of Q1 and the rest of 2026. Corrado De Gasperis: Yes. I'm super excited about our new Board members. They've already reached out wanting to start engaging and coming back out to visit. I'm super excited about the work leading up to the annual meeting in May. I think that if you can come to the meeting in person, we're going to take a bus down to Silver Springs. And on the way to Silver Springs, we'll go to the Tahoe Reno Industrial Center and you'll see about 10 million square feet under construction on the way to it. It's probably relevant to point out that 600 Lake Avenue, this incredibly ideal location for solar panel recycling and 800 Lake Avenue, the Monstrous like storage facility right next door, our Sierra Springs properties. Sierra Springs owning those properties allowed us to pivot very, very quickly into the solar recycling business. And I think with hindsight, speed is the winner in all fronts here. And then stay tuned for customer announcements, stay tuned. We're going to -- we'll be more active next week, the week after the week after and the week after with pictures of the ovens, the assemblies, the commissioning and then panels starting to go through the machine. We're really at the inflection point here of 3.5, 4 years of incredibly hard work. So pretty exciting. Zach Spencer: Thank you very much, Corrado. That concludes Comstock's year-end 2025 earnings call and business update. Thank you all for joining us. Corrado De Gasperis: Thank you all.
Jason Honeyman: Thank you. Good morning, and welcome to Bellway's half year results. As usual, I'm joined by Shane and Simon. We've lots of our senior management team also with us today. If I could take you to the first slide. We delivered a good first half performance despite a softer selling period through much of 2025. Half year volume increased to 4,700 homes. That delivered an operating margin of 10.5%. We have an order book of 4,400 homes and a strong land bank largely unchanged at 94,000 plots. Now since the start of the calendar year, trading conditions have markedly improved with a notable pickup in both homebuyer interest and reservations. However, the ongoing conflict in the Middle East clearly has the potential to dampen customer demand and clearly increases the risk of higher inflation. That said, to date, we have not seen any material impact upon sales rates. And for FY '26, given our half year results and our order book, we remain on target to deliver operating profit in the region of GBP 320 million to GBP 330 million. The full year is likely to deliver a higher volume than previous guidance with an operating margin similar to the half year. And while margin headwinds may well continue delivering higher volumes will certainly drive cash generation, and that very much supports our program to be more capital efficient. I will provide the usual detail on ops and outlook later, but first, for our results and update on capital allocation with Shane. Shane Doherty: Thank you, Jason, and good morning, everyone. As Jason said, we've delivered a robust performance in the first half despite ongoing challenges in our industry, supported by the order book at the start of the year and despite subdued trading throughout the autumn, volume output increased by 2.7% to 4,702 homes. There was growth in both private and social output and the proportion of social completions was in line with prior year at around 21%. The ASP was up by 3.7% to just over GBP 322,000 and in line with expectations. The increase in the ASP was driven by geographic and mix changes with headline pricing remaining broadly stable. Turning to gross margin. There was a 20 basis point reduction to 16.2%. This slight reduction reflects the benefit of higher-margin land in the mix, which was offset by incremental incentive usage, the absence of any HPI and low single-digit build cost inflation. These factors are also reflected in our order book and combined with the expected contribution of bulk sales in the second half, we currently expect gross margin in FY '26 to be similar to that achieved in the first half. These margin dynamics, together with embedded cost inflation carried in our work in progress are likely to remain a headwind to margin, at least in the near term. And there are clear risks of potentially higher build cost inflation stemming from the ongoing conflict in the Middle East. We'll be in a better position to comment on the potential impact of FY '27 when we report in our June trading update. Looking further ahead, we are working through our WIP balance and growing proportion of our output will benefit from newer high-margin land. With a stable market supported by a more favorable HPI BCI dynamic as seen in previous cycles, we are well positioned to drive ongoing improvements in our margin in future years. In line with our strategy to invest across the group to deliver greater efficiencies and long-term growth, the admin overhead increased to GBP 86 million, and the full year number is expected to be between GBP 170 million and GBP 175 million. Our investments include our new timber frame factory, combined with strategic investments across IT and strength in commercial and finance teams, which means we now have the right structure in place to effectively deliver on all of our strategic priorities. We expect that, that level of increase will not repeat in future years, whilst obtaining operating leverage from it as we drive towards 10,000 units if market conditions improve into the medium term will obviously be a key focus also. The effect of the increased overhead investment, together with the movement in gross margin led to a 50 basis point reduction in the underlying operating margin to 10.5%. Underlying PBT was slightly higher at GBP 151 million, and I'm pleased to report that the interim dividend has been increased by almost 10% to 23p per share. This slide has covered the group's underlying performance. Adjusting items shown in more detail in the income statement in Appendix 1. These include GBP 300,000 to admin expenses relating to the previously announced CMA investigation. The other adjusting items relate to build safety, which I will cover later in the presentation. Turning to our balance sheet. It is robust and well capitalized with a strong land bank and WIP position at its core foundation. These are key focus areas for our capital efficiency drive and critical to our plans for increasing cash generation. I will cover this in more detail shortly as part of our capital allocation strategy. First, to highlight the key balance sheet movements, reflecting our largely land replacement only land strategy, the land balance of GBP 2.5 billion has reduced slightly by around GBP 38 million since the year-end. During the first half, we entered into new land contracts on deferred terms totaling around GBP 130 million, and settled line creditor payments of around GBP 180 million. This led to period-end land creditors of GBP 290 million, representing 12% of our land balance. As previously guided, and as part of our strategy to run the business with a more efficient capital structure, there will likely be an increase in the use of land creditors over the medium term. The range is expected to be between 15% and 20% of land value, which is similar to historic norms. Jason will cover our land bank in more detail later. The work in progress balance, which includes site WIP, show homes and part-exchange properties reduced by GBP 39 million to GBP 2.3 billion. Breaking that movement down into 3 component parts. Firstly, the value of show homes remained flat, reflecting our broadly stable outlet position. The value of part-exchange properties rose by just over GBP 20 million. Part-exchange is an important selling incentive for customers. And whilst its usage increased, it has remained disciplined and represents a relatively modest 6% of our completions. Finally, site WIP reduced by GBP 61 million to just over GBP 2.1 billion. And this highlights some good early progress with our capital efficiency drive, which we spoke about to you in detail last October. To finish on the balance sheet, as you will see from the bottom of the slide, our adjusted, our adjusted gearing, including land creditors, remains low at 10.3% and our net asset value per share has now risen to just over GBP 30. We've continued to make good progress on build safety, and I'm pleased to report that the overall provision remains broadly stable. With regards to movements in the provision, in addition to the GBP 6.5 million adjusting finance expense, which was in line with previous guidance, there was a very modest net increase of GBP 4.2 million in the build safety provision through cost of sales, which relates to the refinement of overall cost estimates. We have now completed the terminations on all of our legacy buildings in England and Wales in accordance with the joint plan. Our provision is based on robust assumptions and prudent cost estimates for both internal and external works on the 457 buildings in scope for remediation. We have started our completed work on 172 buildings with the majority of spend expected by FY '30. We've spent GBP 212 million on legacy build safety since the start of the program, including GBP 21 million in the first half of FY '26. The strengthened team at our dedicated Build Safety division is focused on completing works as promptly and as efficiently as possible. For FY '26, we continue to budget for total spend of over GBP 150 million, although I must caveat that this level of spend remains dependent on receiving requests for payment from the government for works carried out on our behalf for the build safety fund totaling around GBP 90 million. I think it's important to point out today that for prudence, our shareholder returns capital allocation modeling assumes significant disbursements around build safety over the next 3 years. The provision at the 31st of January '26 was GBP 507 million, and I'm confident that we are well provided for the remediation works required across the legacy portfolio. In terms of recoveries, we've recognized GBP 81 million to date. We do, of course, continue to actively pursue further supply chain recoveries. But as these are not virtually certain at the balance sheet date, no additional reimbursements have been recognized. Turning next, just to remind you of our priorities for capital allocation, which we covered in detail last October. In short, it is a flexible framework with our strong balance sheet and well-invested land bank as the foundations of the business, which support our balanced approach to continue to invest for growth and delivering enhanced returns for shareholders from increased cash conversion and generation. As part of our strategy, we are sharply focused on driving greater efficiencies and our WIP balance presents a significant opportunity for much greater cash generation, which I will cover next. We generated good operating cash flow in the first half. The cash flow bridge chart shows the movement from a small net cash position to ending the period with modest net debt at GBP 72 million, in line with our plans to run a more efficient balance sheet and increase returns to shareholders. To run through our key movements, you can see the decrease in total WIP that I referenced earlier amounted to GBP 39 million. In relation to land, the monetization of land through cost of sales was GBP 283 million. This was slightly lower than the cash spent on land and together with the movement in land creditors, this led to a GBP 38 million decrease in land on the balance sheet in the period. After other working capital movements and tax, the operating cash generated before investment in land, build safety spend and distributions to shareholders was GBP 314 million. As a result, the conversion of operating profit to adjusted operating cash flow was 2x. As I highlighted in October, we are aiming to maintain the conversion level at a minimum of 2x over the 3 years to FY '28. As I've said previously, adjusted cash flow is the fuel for future investment opportunities in the business and ultimately, greater value creation and returns for our shareholders. In this regard, we invested GBP 302 million in land, including settlement of land creditors and dividend payments and share buybacks totaled GBP 105 million. We also spent GBP 21 million on build safety, which I referenced earlier. After taking account of all of these disbursements, we closed the half year with net debt at a modest GBP 72 million. I will now cover our cash generation targets for the second half, which I think is important in the context of what we're discussing this morning and the tougher trading backdrop that may emerge, together with our longer-term ambitions in the context of driving shareholder value against this potential backdrop. As I've said many times, driving WIP efficiency is a key area of focus across all of our 20 operating divisions and a significant opportunity for the group to deliver cash generation. We've increased our volume guidance for the year by between 100 and 300 units on our original volume guidance of 9,200 units. And the combination of this increased monetization with tighter controls around WIP spend will see us increasing our operating cash flow conversion targets significantly year-over-year. As the chart shows, operating profit will grow by between GBP 20 million and GBP 30 million year-on-year in FY '26. But we expect operating cash flow will increase substantially more than that by between GBP 100 million and GBP 150 million year-on-year. This leaves the company in a strong position to drive future value for shareholders by continuing to drive volume appropriately against this tougher trading backdrop. This will provide greater opportunity to invest in more high-margin land and potentially returning more excess capital to shareholders. Overall, we are targeting adjusted operating cash flow of between GBP 750 million and GBP 800 million for the full year. Looking beyond FY '26, we have a greater proportion of units at an advanced stage of build than a couple of years ago, which should support a faster monetization of our WIP balance. This drive for improvements in WIP turn and to lower our WIP balance will enhance asset turn and support cash generation. This will help fund our build safety disbursements, further land investment and returns for shareholders. We'll maintain our underlying dividend cover of 2.5x, and this will be supplemented by returns of excess capital. In this regard, we are making good progress on our GBP 150 million share buyback launched in October with around GBP 64 million completed so far, and we have a clear intention of returning excess capital in future years. To finish my section, a summary of guidance for FY '26. We, of course, recognize the risks to inflation and customer demand from the ongoing situation in the Middle East. Notwithstanding this and supported by a robust first half and our current order book, we are well placed to deliver FY '26 underlying operating profit in the range of GBP 320 million to GBP 330 million. So for guidance, we are targeting volume of between 9,300 and 9,500 homes, the final outcome of which is dependent on completions from our bulk sales pipeline. The average selling price will be around GBP 325,000 with the increase over FY '25 driven by mix. It's important to point out when we give that guidance, we are not in any way giving that guidance in the context of any potential negative impacts that it might have on FY '27. It's all based on the strong work that we've been doing, monetizing our WIP and broadening the pipeline of opportunities that we see both in private sales and potential bulk sales. The admin overhead will be between GBP 170 million and GBP 175 million. We currently expect the operating margin to be similar to the first half level at around 10.5%. The finance expense will be around GBP 20 million, and adjusted operating cash flow is expected to be strongly ahead of prior year at between GBP 750 million and GBP 800 million. Finally, land spend is expected to be in the region of GBP 500 million to GBP 600 million, reflecting our largely replacement-only land strategy. Despite the headwinds facing our industry, I'm confident that our self-help and drive for capital efficiency will mitigate the impact on our strategy to increase cash generation and value for shareholder returns. I'll now pass back to Jason, who will cover the operational review and outlook. Jason Honeyman: Thank you, Shane. But now for trading. In the first half, we achieved a private sales rate of 0.47 with January being our strongest month at 0.6, and that momentum has continued to build into the start of the spring selling season. With regard to the mortgage market, improved affordability and changes to lending criteria have both contributed to those better trading conditions. That said, recent increases in mortgage rates due to the events in the Middle East clearly has the potential to impact upon future demand. And that brings me on to current trading. In the first 6 weeks since the 1st of February, we have achieved a private sales rate of 0.66 and bulk sales made an additional but modest contribution of 57 homes. And from a geographical and mix point of view, the picture hasn't really changed much with Scotland, the North of England and the Midlands all remaining stronger than the South. But those regional differences are quite pronounced with Midlands and upwards all delivering a strong sales rate of around 0.75, significantly higher than the 0.5 being achieved in the South. Headline pricing remains firm, although incentives are full at 5%. And we find that prices for houses are more robust or more resilient than those for flats. And as I referenced in my introduction, the last 2 weeks of our current trading period have coincided with the conflict in the Middle East. Both of those weeks have delivered a consistent sales rate of 0.65 or the equivalent of 155 private homes per week. We continue to progress bulk sales to support both this year and next. We are over 85% sold for FY '26, hold an order book of over GBP 1.5 billion or 5,300 homes as at the 13th of March. The next slide shows our land bank totaling some 94,000 plots, half of which are owned and controlled and half are strategic. Now I'm happy with the size and the shape of the land bank. It supports our short-term growth ambitions. We are still buying land but with caution. In the period, we contracted on 4,700 plots across 15 sites including 1 site in Scotland for 1,900 homes that was converted from our strat pipeline. And strategic land continues to play an important role in our growth ambitions. Within this financial year, we will have 80 strat planning applications or around 17,000 plots in the system. And to put that into context, that has increased threefold in just 2 years. And that is a significant change in our business. And these strat plots will support both margin recovery and outlet numbers from FY '28 onwards. Overall, we have detailed planning consent on over 95% of our plots to meet our volume for FY '27. And as a consequence, we've got good visibility on outlets. We're on target to open 55 outlets this year and a further 55 to 60 next year. And we expect average outlet numbers to hold at around 240 for both this year and the next with growth up to 250 in FY '28. With regard to planning, I would describe planning reform as positive rather than perfect. Overall, and outside of London, the planning environment is generally supportive. Moving on to costs. Overall, cost inflation remains modest at around 1% or 2% and we currently have no issues with regard to availability, either labor or materials. That said, we are very mindful of the heightened inflationary risk caused by the events in the Middle East. And as a consequence, our focus on being more cost efficient seems ever more relevant today. And I'll give you a few examples of our approach to saving costs to support margin. Firstly, we intend to phase out the Ashberry brand as it is proving too expensive to fund a separate brand to sell just 9% or 10% of our volume. We plan to adopt a single brand approach that will play on our 80-year history. It will be clearer to the customer, a digital-first approach, less expensive and without any overall impact upon outlet numbers. Secondly, we will shortly launch our new house type range, the Bellway Collection, which has been designed to be timber-frame friendly. And by that, I mean, optimize panel widths and ceiling heights to improve both speed and efficiency and also reduce waste in the process. And with our new house type range, our single brand approach, we have the perfect platform to personalize homes and offer extras and additions on a much greater scale to drive incremental revenue and profit growth. And thirdly, we successfully opened our timber frame facility, Bellway Home Space back in January. And we have already started delivering timber kits to our divisions. Our investment in technology that supports Category 2 closed panel systems is hugely important as I firmly believe that Cat 2 is a key part of the future of housebuilding. And one final point before outlook, build quality and customer service. I'm pleased to report that we are rated as a 5-star housebuilder for the 10th consecutive year. But more important is our position with HBF's new scoring system, which has been designed to be more challenging. Housebuilders are now measured by their customers at both 8-week and 9-month intervals and based upon both quality and service. Bellway have achieved an overall score of 4.38, the highest of any national listed housebuilder, a phenomenal effort by our ops teams and a direct result of their hard work. And finally, outlook. We're on track to deliver a volume of 9,300 to 9,500 homes. As you've heard from Shane, regardless of the wider backdrop, we have a sharp focus on improving cash generation, and we expect to deliver a significant increase in operating cash flow this year. And should we find ourselves in a prolonged turbulent period. Our business is in good shape. We have a flexible capital allocation framework and a strong and experienced management team and are well able to navigate our way through any challenges. Thank you. Now happy to take questions. Allison Sun: Allison from Bank of America. Two questions from my side. So first, if the -- let's assume the market activity will be muted given all the impact. Are you guys ready to give out more incentives or not? I think are we expecting maybe incentives will go beyond 5% for the rest of this year? And the second question is what type -- what kind of inflation assumption you put in your fire safety remediation work? Jason Honeyman: Sorry, I didn't get the second question. Allison Sun: The inflation assumption you have for the fire safety remediation work. Jason Honeyman: So I'll take the first and you take the second. With regard to incentives, it was our intention at the start of the year to tighten up that incentive level to support margin growth into '27. Today, that looks a little bit too optimistic. But no, I don't have any plans to increase incentives. They're at a level that we're happy with, and we're delivering a sales rate that we're quite comfortable with. Can I hand over to you? Shane Doherty: Yes, 3% on the inflation, [ build ] safety. Aynsley Lammin: Aynsley Lammin from Investec. Just two for me, please. Just trying to understand the change in guidance a bit more, more volume and obviously less margin. Is that driven by kind of changing view of the market, what you expect going forward? Or is it just more opportunities to do some bulk sales and you can release some of that WIP? Any color around that would be quite interesting. First question. And then just on the second question, I guess, a bit more color again last couple of weeks, have you seen any change in cancellation rates, the vibe on the ground in terms of the sales rates? Is it kind of beginning to feed through in confidence what we're seeing in the mortgage market? Jason Honeyman: Thanks, Aynsley. Shall I'll start with the last question and I'll hand back to you. No, sales rates, Aynsley, have held up and likely to hold up through March. And when I think about it in a little detail, it's probably not too much of a surprise. If you're planning to buy a home now, you probably made a decision a month or 2 ago, and you've already got the benefit of a mortgage offer, which probably looks quite good value Aynsley at the moment. So no -- we've seen no immediate impact. And I think our buyers and customers in the market have got a little bit of crisis fatigue. We've been through Brexit and pandemics and Ukraine and Middle East. So there's a bit more resilience amongst our buyers. But I would expect that sales rates to soften into April, not now because you'll see the impact of the margin increase. And I don't think it will be material. I just think it will dampen a little bit. And all that's caveated to what's going on in the Middle East. But you'll probably see a softening into April, but not significant. Shane Doherty: Yes. In terms of the guidance, it's probably along the lines and what we flagged when we came out in early February. It's very much probably reflective of what we were seeing in the first half of the year. It's probably easy enough to forget that now because I like the crisis fatigue. That's what it feels at the minute. But the run-up to the budget was a difficult time for everyone. And what we did in the run-up to the budget was we traded appropriately in relation to the value creation thesis that we set out last October, which is that we will drive pricing as appropriately as we need to. But sales rates in the run-up to Christmas were less than 0.5% across the sector. So what you're seeing is the margin uptick that we're seeing coming through is really just reflective of the fact that with good visibility with good forward order book coming into the year, sales rates have picked up. And whilst the kind of 50 basis point margin reduction seems quite significant, those margin reductions become exaggerated, unfortunately, in a market like this where there is very little HPI for the reasons that Jason has outlined and you have kind of BCI running even at 1% or 2%, that is going to hit you to the tune of about 50 basis points on your margin. So that's all you're talking about. It's probably GBP 2,000 per unit in overall terms. It's a pretty small number. The market has picked up quite significantly in the early part of this year across all of our divisions. And if that sales rate was to maintain, I think it's important to make that point, notwithstanding the caveat we put around the emergent situation, that sales rate was to hold at kind of 0.65. We will be looking at a kind of -- we never gave formal guidance into next year, but we did talk about the fact that we were going to get to 10,000 units. So if you storyboard that from the original guidance that we gave, 9,200, 96,000, maybe 10,000, we would have assumed off the current sales rates that we would still be forward sold to the tune of probably 35% of getting to a 9,000, so a flattish volume next year, notwithstanding the emergent situation. So that volume uptick that we're seeing is not at the expense of the overlying market growth opportunity that's still there. And it's very easy to kind of talk yourself into a doom loop because of what might happen at the moment. But the broad reality is as you look out beyond maybe whether it's the end of this year or beyond next year, the demand-supply imbalance still holds. Jason talked about the strat land margin coming through. There will be good, strong underlying margin progression coming through our business. And we've got good volume opportunity, and we've got 20 outlets. So really, what you're seeing at the moment is just us trading appropriate through what has been a challenging environment and emerging from that with little debt and the ability to return capital to shareholders. Zaim Beekawa: Zaim Beekawa, JPMorgan. The first is just to come back on the incentives. Can you give some indication on the cash, noncash portion? And then secondly, in light of the mortgage volatility you sort of alluded to and potential impact, what's your view on your own shared equity scheme like some of your peers? And then third, if I could go on the bulk sales, sort of any indication on the discount on those bulk sales compared to maybe a year ago or 6 months ago? Jason Honeyman: Should I start with? Shane Doherty: Yes. Jason Honeyman: Sorry, on incentives, it's mostly cash and some additions. I did want to set out a chart to show you the regional differences across -- because you can understand there's probably more in the South than there is in the North at the moment. But nothing surprising in what you see regarding incentives. And in terms of -- shall I do shared equity products. We don't think they're a big part of the market. I get a little bit frustrated because they can confuse customers when you've got a whole series of schemes across the industry. And I've always preferred a housing association on something government backed that people can trust and look into. So we look at it and watch with interest to see if that market moves, but I've got no ambition to bring out a bespoke shared equity product at the moment. Sales are good enough. Shane Doherty: What I'd say in relation to bulk is -- I'm not trying to dock the answer. What we do is we tend to take an NPV approach to bulk pricing, and that's kind of using a 10% hurdle rate because whilst you may need to reduce your baseline pricing, you will find savings in other areas, not least your sales costs will be lower and also your running cost as a site can be lower as well, and you may have forward funding opportunities. So looking at it through all those lenses, when we baseline that against private pricing and sales rates and if it has -- and using a hurdle rate of 10%, if that's NPV accretive, then we'll go after that deal. What I'd say in broader macro terms in terms of buyer appetite, it's a lot stronger now than it was 12 months ago, insofar as a lot of the indicative pricing that probably was coming back 12 months ago was reflective of where interest rates were, and you could be looking at maybe 20% discounts on pricing, which is not something that we'd be interested in. But certainly -- and it's not reflected in the numbers at the moment, but it's certainly reflected in our pipeline of opportunities. The gentleman sitting in front of you there is actually living and breathing it at the moment, the 2 actually. We've got a significant pipeline of bulk opportunities, and we'd be confident that we'll see some of that coming through between now and year-end. Jason Honeyman: Can I just add to that? So there's lots of questions here about incentives. But from a bulk point of view, we did about 600 homes last year. This year, we'll probably do something similar. It's not a major part of our business. And incentives across the board, we've got a strong order book. Our sales rates are good. We were very well organized as we come out into January in the new year. So we've maximized what opportunity is there in the market. And I've got no intention to start discounting properties and being desperate. We can make good decisions. We're in a good place. So I think we're fine at the moment. William Jones: Will Jones from Rothschild & Co Redburn. Three as well, please. First, around build costs, if that's okay. Just what you've heard from manufacturers since Iran kicked off, visibility you've got generally and whether you have any framing of how you might look at your build cost basket in an energy context, any sensitivities around that? Second, on the balance sheet and the returns, helpful guidance on the operating cash flow for the full year. Do you have any view at the moment as to how that might shake out, net cash net debt, please? And when you think about the ongoing buyback, hopefully, beyond the current year, how would you think about the sensitivity of that to -- broadly speaking, to a lower profit environment if it came through? Or do you think that actually continuing to optimize the assets would mean that, that buyback can carry on? And then the last one just around Ashberry, just a reflection there. What, I guess, proved different to your expectation to make it too expensive? And any implications do you think on sales rates as that winds down? Jason Honeyman: Okay. I'll pick up build cost in Ashberry and I'll hand back to Shane, Will, if that's okay. On build costs, most of our supplier agreements are fixed from the start of '26 and generally last for around 12 months. If it gets really bad, Will, that counts for nothing. We know that we've been through the pandemic. All we've seen to date is lots of suppliers asking for increased delivery charges, haulage costs, fuel surcharges, those sorts of things, which is all manageable. What has got our interest is where you've got high energy-dependent materials such as bricks, blocks, concrete chips and those sorts of things. So that's where we'll keep an eye on to see if there's any movement there. And like everyone, Will, we look every morning for a quick resolution to the problems in the Middle East to hope they don't transpire, but time will tell. So at the moment, mostly delivery and haulage costs is what's coming our way. And on Ashberry, we did a thorough review of our brands. And I don't want to suggest for a moment that a one-brand approach is better than a multi-brand approach, but it certainly is for Bellway because Ashberry, after our research, our customers were confused with the product. And some people in this room used to get confused when you ask me about what is Ashberry and what does it do? And I found that Ashberry was confusing our customers because it was asking for or selling the same product on the same site, and it was more expensive. So we decided to refresh that Bellway brand. We're going to offer 3 tiers of specification going up to Bellway premium. It's going to be very digital focused, both in our sales offices and on the Internet. And we think we'll make savings and be less confusing to our customers and deliver the dual outlets where we can. And you must remember, Will, we don't have lots of large sites. We've got handfuls of them where we can offer a dual outlet without making any sort of serious impact on outlet numbers. Shane Doherty: So in terms of net debt, I mean, I anticipate at the moment, like it's probably worth just saying stripping out the build safety component, if I just assume that's constant, even though I expect that might come in slightly lower, even allowing for that, I think our net debt figure is probably going to be in the region of GBP 100 million, GBP 120 million type range between now and year-end. And that would probably see the buyback running at probably close to maybe GBP 100 million, GBP 120 million by year-end as well. So you have a decent clip of that coming through within that. So we're in good shape from a cash perspective. The only thing, as I say, Will, I could bring that down would be if the build safety spend is lower. But I think it's important to talk about it in the context of it being at normal run rate. So I think that gives us a lot of confidence in terms of the fact that the capital allocation strategy is working against the backdrop of kind of 2 tough economic events running in the background and lower margins, we're still throwing off cash, and that is the underlying strategy going forward. We'll have plenty of cash to buy land. We'll buy land probably -- I won't quite say on a net replacement basis. We may make some incremental investment if we do it, though, it's because it's a compelling opportunity. So we'll be very much focused on the returns to shareholders, I think, in the context of the cash that we'll continue to generate. And the fact that we've identified between 100 and 300 units this year, that's effectively ring-fenced upside from an operating cash perspective, even if it's not necessarily coming through on profitability. But as we all know, the share price is trading at a fundamental discount at the moment to what its net asset value is. And we look at our strat land opportunity. We look at the land margin upside that's coming through. And so it's very compelling for us to continue to look at buyback opportunities in that context. Rebecca Parker: I'm Rebecca Parker from Goldman Sachs. Just 2 questions. In terms of your outlet opening program, just wondering if you could talk to a bit around why you're expecting, I guess, outlets to be flat into '27. And I think the guidance for '28 has slipped by about 10 outlets there. And then secondly, on that increased proportion of higher margin land coming through, when do you expect that contribution to have more of a material impact? Is that more into 2028? Or can we start to see that come through in '27? Jason Honeyman: Rebecca, I'll start on outlet numbers. The growth -- let's start with '28, we'll go back to '27. So the growth is a product of our strat land coming through the system. Those 17,000 plots. So if that comes good, we'll get a natural increase in outlet numbers. Outlets are flat this year and next, probably because we had a big jump back in '23, '24, where we opened 80 outlets in 1 financial year. And we've just been buying replacement land. So it's difficult to see how we can grow outlets without that strike coming through. So we've held them flat. And then as long as we get a decent run through the strat planning system, then we're likely to see a little bit of growth again. Shane Doherty: In terms of margin progression, again, it's probably easier to talk about that in the context of how we were planning this before. And we have to take note of what we're hearing at the moment in terms of all the stagflation risks that are there in terms of potential BCI risk and interest rates going up. But we know that, that can also change quickly. So therefore, I think to answer your question most effectively, it's probably worth just talking about what the underlying margin upside that we were seeing coming through on the land bank. So in simple terms, gross margin this year is going to be around 16.3%. We had in our head that, that could be probably getting up to 18%, maybe even 18.5% over the next 2.5 years as you get to FY '28. So you would have been looking at margin progression of probably 17% and then 18%. And I think the big question, Rebecca, that we're all asking is what impact is that 17% now coming under as a result of what's happening globally. I think the comfort that you can take today is that hedging, it seems to be order the day at the moment. Everyone is talking about hedging in the context of BCI and stuff like that. I think our land margin uptick that you're seeing coming through is an effective hedge for what's potentially coming down the track in terms of higher interest rates and potentially higher costs. So that's the most effective way I can answer that question at the moment for you. Jason Honeyman: Can I -- sorry, Rebecca, can I just add to that because we've taken a more sober view of the outlook. We take the view that even if the war stops in the morning, there's still going to be a ripple of cost inflation in the system. That's already in existence. It's unlikely that the trading environment is going to change from a deal led market. So there's no house price inflation in the market. So we've just taken a more cautious realistic view of what's happening in the world. And then we see margin progression probably feeding through back end of '27 into '28. That's a sensible view to take today. Alastair Stewart: Alastair Stewart from Progressive. A couple of questions, please. First, in terms of the trading over the last 2 or 3 weeks, I think we're on week 4 now from what I hear. But in terms of that, you've been clear in terms of the weekly sales rates been holding up. But in terms of anecdote from sites, if there is any reticence anywhere among your potential buyers, is there a trend? Is it more traders up are more comfortable than the first-time buyers? And is there a regional disparity in terms of comfort about the situation? That's the first question. In terms of the second, it's more of a sector-wide question. You're chasing the supply chain for recoveries. Everybody says that. But in terms of the bigger picture, are you and other housebuilders chasing -- do you see more upside in terms of recoveries from, say, big materials groups who have strong balance sheets, but also very strong lawyers? Or is it from the supply chain that probably have very little legal status, but no balance sheet to depend on really? Jason Honeyman: I'm just going to start recoveries with Simon, who can talk -- turn around without a microphone it would be fine. Simon Scougall: Hear me now? That's better. So it's aimed at not just the supply base and their insurance, of course, it is also aimed at the larger suppliers and manufacturers. So we're very actively considering our options there. And there's quite a bit going in that space. I can't say any more at this moment in time, but we are very determined to secure as much recoveries as we can from as wide a pool as possible. Alastair Stewart: But just if you had to take one side of the divide, the big guys, the small guys, who do you think you've got most chance to get? Simon Scougall: Well, it's a real mixed bag because even the small guys as it were, we're looking at them from their insurance position. So it's big guys behind them. So it's a real wide pool that we're looking at. But just to reassure, there's lots going on in that area. Jason Honeyman: And I'll come back to your trading point, Alastair. And I'm not sure I was surprised, but there's certainly resilience amongst our buyers because they have got crisis fatigue. It seems to be -- it's just too often, but I'm not naive enough to think it won't come and get them in the end, but everyone is very sensitive to the news at the moment. So I certainly think that March will continue with -- until we get to the end of March, there will be some decent sales rates we'll deliver. And there's new spring buyers coming to the market, there may be a little more caution where people take the view, well, I might just wait for this war to end because mortgage offers are going to -- mortgage rates are going to come down. So there will be more caution in the market. I don't think significant, but I think it will just take the gloss off the very good sales rates that people in this room have been delivering so far this year. Christopher Millington: Chris Millington, Deutsche. First one, just following on what you just said there, Jason. If we're going to see a slowdown in April, do you think you would have seen anything in inquiries, visitor levels? Is anything happening to that extent at the moment? Well, let's go one at a time. Jason Honeyman: Yes. We've just noticed visitor rates slowed down this week, which leads me to think that's not inquiries. It's what passing traffic. So serious buyers are still there, Chris. So just starting to moderate. And when you say sales start to slow down, I don't think we're going to move back to 2025. I just think the gloss will come off ourselves. We've been working quite hard to deliver that sales rate. But it seems to me it's a little bit inevitable unless something changes in the news, Chris, in the short term. That's my view. Christopher Millington: Next one is about buying land. I mean as you say, you're on replacement, but you're still expending a lot of money. How do you deal with kind of the price cost inputs when you're going through trying to work out whether or not you should be committing to this stuff in times like this? Jason Honeyman: I think that's a very good point. And last October, I spoke to you about we're going to adopt a replacement-only policy, Chris, for land because that was going to help Shane's capital efficiency program. I'm not sure we'll ever do that this year. That's the level of caution. And you're quite right, until I can understand what that ripple of cost inflation that is almost inevitable going to come into the market, it's probably best to buy as little as possible or just the good deals that you've got on the table. That's probably my approach. Christopher Millington: Sorry, I've got 2 more, but one is pretty quick. Affordable. Any sign that market is starting to wake up at all? Or is it still pretty? Jason Honeyman: Yes, murmuring. And certainly, the new grant round that comes into play now and next month has got the housing associations more active. I mean we'd like to materially move that market and start delivering more affordable homes and get building, Chris. But it's moving better. It was stuck. It's now got some life in it. Christopher Millington: And sorry, my last one. Just about this land bank evolution. You've hopefully given that slide about pre-'24 plots, post '24 plots. Perhaps you can give us a little bit of help with the margins in each category or just talk around kind of what benefit that would have given you. Jason Honeyman: Well what I was going to do in -- I might get Simon to do a presentation to you on strat land in October, so we can show in a bit more detail. But sometimes on strat land, there's lots of hope. So I'd like to see those 17,000 plots come through the system. So that crystallizes the land value and the margins, Chris. So certainly, it's margin accretive. I'm not sure we can spell out today what that all means. Can you add anything on that, Shane? Shane Doherty: Simon, do you want to? Simon Scougall: I'll add one quick one there. Back to the margin point that Jason was talking about. Strat land obviously has the benefit to us because you get a discount to market value in the option terms we agree. But the other benefit is that we're not agreeing land value until we've got planning permission, a detailed planning permission. So half of our land bank there hasn't got a land value yet ascertained, which clearly benefits from what we're talking about with the risk in Middle East and build cost inflation, et cetera. We'll agree a price relevance at the time. So it would be better margin protection as well as a consequence of that. Charlie Campbell: Charlie Campbell at Stifel. Just one actually, just on the WIP and obviously, well plans in place to reduce that. And as you said, you've made good progress. Does that get more difficult in a slower sales environment where buyers are more choosy, more careful and maybe want to see more finished stock on the ground. Just wonder how you juggle the WIP reduction in a more difficult market. Jason Honeyman: Can I start? May be you can look at the headlines. Yes. We put the properties on the market, Charlie, that are more advanced. So that's what's for sale. So we're not particularly selling anything other than stock. So we engineer what we sell on those sites. And I wouldn't describe today's market as bad. A selling rate in 2/3 of the U.K. at 0.75. It's not bad at all. It's in the South of England and the Southwest of England, where we're probably a little bit more sensitive to the investment in WIP and sales rate. Are you okay to talk about the headline numbers, please, Shane? Shane Doherty: Yes. Well, I mean, I think you've probably answered the bulk of the question insofar as, look, clearly, there's a volume correlation in terms of how many units you're selling. That's the tightest control you can have around WIP. But we have put a lot of hygiene -- additional hygiene controls in place around WIP spend in itself as well. So clearly, if we're in a situation where unit output wasn't where we anticipate it's going to be next year, that would actually have an impact on with monetization. But we are well set up to manage our WIP spend proactively in relation to that. And we can see that in terms of KPIs that we have in place around a number of foundations, number of unreserved production. All of those percentages are substantially lower than where they were a couple of years ago. So if we maintain those at that level and run our business that way, you will see a commensurate reduction in WIP spend vis-a-vis what you're monetizing. But clearly, the opportunity to get to 10,000 units and doing that without overspending on WIP is where the significant cash monetization opportunity is. Kate Middleton: A few from me, if possible. So Kate Middleton, Panmure Liberum. The first one is just on timber frames and vertical integration. So just wondering how many of the business units are currently utilizing timber frames and whether the rollout is phased or more discretionary and perhaps how that will link in with the new house types that you're bringing in? The second is on cancellation rates and if you've seen any movement on those since the beginning of this year? And just finally, I know you've alluded to no real house price inflation, but just wondering whether on a regional perspective, you're seeing any underlying variation in ASPs at all? Jason Honeyman: Okay. I'll do those. On timber frame, we've started on our journey, and we've got 7 divisions out of 21 feeding into our facility. And we'll -- until we get up to speed and more proficient at it, we'll keep it with just those 7 surrounding the factory. The next step for us was to scale it up within the factory, work 2 or 3 shifts in a day and possibly in the future, build another factory somewhere else in the U.K. That's our thoughts. In terms of cancellations, we've not seen anything yet. Who knows what's going to happen in the month of April? I certainly don't. And sorry, your third question was on. Kate Middleton: Whether you're seeing any regional underlying movements in ASPs? Jason Honeyman: No, we haven't. You always get a good site that's selling really well that you might be a bit braver on. I think the market is sensitive. It's deal led. Our next step won't be to push house prices. It will be to reduce incentives, which is sort of the same thing, but you're keeping your headline the same. So it will be in those better selling areas in Scotland and the North of England, we've discussed as a team, should we reduce incentives down to 2%, for instance. I'm not quite brave enough to do that just yet, but maybe across the spring, early summer. Is that okay? All done? Thank you very much, indeed. Thank you. Shane Doherty: Thank you.
Operator: Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the BioCardia Year-end 2025 Financial Results and Business 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 the call will be available approximately one hour after the end of the call. I would now like to turn the conference over to Miranda Peto of BioCardia Investor Relations. Please go ahead, Miranda. Miranda Benvenuti: Good afternoon, and thank you for participating in today's conference call. Joining me from BioCardia's leadership team are Peter Altman, President and Chief Executive Officer; and David McClung, the company's Chief Financial Officer. During this call, management will be making forward-looking statements, including statements that address BioCardia's expectations for future performance and operational results, references to management's intentions, beliefs, projections, outlook, analyses and current expectations. Such factors include, among others, the inherent uncertainties associated with developing new products technologies and obtaining 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 and cautionary statements described in Biocardia's reports on Form 10-K filed with the SEC today, March 24, 2026. The content of this call contains time-sensitive information that is accurate only as of today, March 24, 2026. Except as required by law, the company 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 Dr. Peter Altman, BioCardia's President and CEO. Peter, please go ahead. Peter Altman: Thank you, Miranda, and good afternoon to everyone on the call. BioCardia's mission is to develop and enhance therapies to treat cardiovascular disease. We are doing this today with 3 primary platforms, our CardiAMP, autologous minimally processed cell therapy, our CardiALLO allogeneic off-the-shelf mesenchymal cell therapy and our Helix transendocardial biotherapeutic delivery system, which is used by both our CardiAMP and CardiALLO cell therapy programs. Our lead program remains the CardiAMP cell therapy for roughly 1 million patients in the United States and 150,000 patients in Japan with ischemic heart failure of reduced ejection fraction. These are patients who've had coronary disease may have had a heart attack and have subsequently developed heart failure characterized by a larger dilated heart that unfortunately pumps inefficiently. Cardiac therapy includes CD34 and CD133 cells that have long been recognized as endothelial progenitor cells that promote new capillary formation. Preclinical data also provides support that these cells reduce fibrosis in the heart. Based on these mechanisms to effectively treat microvascular dysfunction, CardiAMP cell therapy is introducing a new therapeutic modality to the significant unmet need in ischemic heart failure that is primarily managed today by neurohormonal modulation. The clinical outcomes with this approach have been excellent. We now have complete and final data from 3 clinical trials of the CardiAMP therapy with the latest results from our Phase III CardiAMP HF trial presented as a late-breaking clinical trial at the Technology and Heart Failure Therapeutics Meeting this month. The presentation was titled Autologous Cell Therapy may occur pathological ventricular remodeling in chronic ischemic heart failure of reduced ejection fraction patients selected for favorable cell characteristics. The key takeaway from these new results is in this title. The Cardiac HF echocardiography clinical results, which measure heart chamber sizes over time, by a truly blinded world-class echocardiography core laboratory, show reductions in left ventricular volume disease when the heart ventricle is fully dilated with a p-value of 0.06 and when the heart is fully contracted with a p-value of 0.09. For the prespecified subgroups of patients having elevated biomarkers of heart stress, the differences between the treated and control patients were both clinically meaningful, greater than 20 milliliters per meter squared and 15 milliliters per meter squared, respectively, and statistically significant with a p-value of 0.02 and p of 0.01, respectively. This echocardiographic data further supports our previous results of reduced fatal and nonfatal major adverse cardiac and cerebrovascular events and improve quality of life in the treated patients. They are similarly strongest in the prespecified subgroup of patients having elevated biomarkers of heart stress. When considered together with the significant reductions in left ventricular end systolic volume, and left ventricular end diastolic volume in the treatment group versus the control group, these results provide a basis for linking intramyocardial mononuclear cell therapy with suppression of pathological ventricular remodeling and beneficial clinical outcomes. This trial result is also considered consistent with observations from other heart failure of reduced ejection fraction therapies showing an association between suppression of pathological ventricular remodeling and improvement in mortality. This data is consistent across all 3 of our clinical studies, which saw reduced major adverse cardiac and cerebrovascular events and improved heart function. I also note that 2 of these trials were randomized, double-blinded clinical trials, which provide the greatest scientific rigor and the least investigator bias to study outcomes. This is the data we will soon be discussing with the Food and Drug Administration in the United States and which we have been discussing with Japan's Pharmaceutical and Medical Devices Agency or PMDA, regarding potential for approval with the rigorous post-marketing studies to collect further evidence with respect to both safety and efficacy. We expect to soon submit the Q-sub request on approvability of the CardiAMP system to FDA Center for Biologics Evaluation and Research, or CBER, based on the safety and compelling signals of patients benefits with elevated biomarkers of heart stress from our 3 clinical trials. This discussion is expected to focus on our already FDA-approved CardiAMP cell process platform to extend existing labeling from in vitro diagnostic use to a therapeutic indication for ischemic heart failure of reduced ejection fraction. The dedicated Helix transendocardial delivery catheter has a presubmission actively under review by FDA Center for Devices and Radiological Health. In Japan, we expect to soon have our formal clinical consultation to align with PMDA on the acceptability of the existing clinical data from our 3 trials to show -- to allow us to submit the CardiAMP system. If PMDA determines that existing clinical data is acceptable with respect to safety and efficacy, submission for Shonin approval would likely soon follow. BioCardia is not alone in seeking approvals to provide therapeutic options to these patients and the physicians who care for them today. Japan has recently granted conditional approval to another allogeneic cell therapy for ischemic heart failure that involves the placement of sheets of cells on the surface of the heart in a surgical procedure. A U.S.-listed company has announced that they will be filing for a biological licensing application for their allogeneic cell therapy to also treat patients in a surgical setting. We expect a third company will also soon be applying for approval for surgically delivered cells. The need here is great, and we wish each of these peers and potential future delivery partners every success ahead. In parallel to these efforts, to wrap up the CardiAMP HF trial and seek approvals based on this data, we have initiated the CardiAMP HF II confirmatory clinical study. CardiAMP HF II focuses on the patients who are the greatest responders in CardiAMP HF and applies all of our learnings with regard to endpoint and trial design. In October and November, University of Wisconsin at Madison and Henry Ford Health System in Detroit, Michigan and enrolled their first patients in CardiAMP HF II, respectively. Emory University in Atlanta, Georgia has also been activated as a study site. With Morton Plant Mease in Clearwater, Florida, there are 4 centers actively enrolling in this study today. If FDA supports an earlier approval, there is potential the trial design will be modified and become our post-marketing registry. There is also potential the CardiAMP HF II trial may benefit from the previous trial and a shorter pathway to approval be identified. We will have clarity here soon. We have made progress on our CardiAMP cell therapy clinical program for chronic myocardial ischemia and for our CardiALLO allogeneic cell therapy for heart failure. The status of these efforts is in our earnings announcement today. There could be significant upside from these clinical efforts in the near term. We have 4 catalysts before us in the next quarter. First, the FDA CardiAMP Heart Failure Q-submission for approval pathway under breakthrough designation has been drafted and is under legal review. We are targeting submission as soon as possible. Second, we have a formal clinical consultation scheduled with Japan PMDA on approvability of CardiAMP cell therapy. Third, we have an FDA substantive feedback meeting scheduled on approvability of our Helix transendocardial delivery system via the de novo pathway. And fourth, we have an abstract on CardiAMP and chronic myocardial ischemia that has been accepted for oral presentation at EuroPCR in May. I will now pass the call to David McClung, our CFO, who will review our fourth quarter 2025 financial results. David? David McClung: Thank you, Peter. Good afternoon, everyone. I'll now provide an overview of our financial results for the year ended December 31, 2025. Total expense accretes approximately 3% year-over-year to $8.3 million in 2025 and compared to $8.1 million in 2024. The primary driver of this change, research and development expense, increased to $5 million in 2025 compared to $4.4 million in 2024. The 13% increase was primarily due to the cost of closeout activities in the cardiac heart failure trial. Inception of enrollment in the CardiAMP HF II trial during the year and regulatory activities to advance CardiAMP in Japan. We anticipate R&D expenses will increase modestly in 2026 as we continue advancing our therapeutic candidates in both the United States and Japan. Selling, general and administrative expenses decreased 10% in 2025 to $3.3 million as compared to $3.7 million in 2024, primarily due to lower professional fees coupled with reduced share-based compensation expense. We expect 2026 SG&A expenses to remain close to these 2025 levels. Net loss increased modestly to $8.2 million in 2025 from $7.9 million in 2024. Net cash used in operations was approximately $7.5 million during the year into 2025. That's down from $7.9 million in 2024. The company ended the year with cash and cash equivalents totaling $2.5 million, very comparable to the $2.4 million as of December 31, 2024. We expect our cash burn will be relatively consistent in 2026, continuing our track record for carefully managing the use of resources and capital. This concludes management's prepared remarks. We are happy now to take questions from attendees. Operator: [Operator Instructions] And the first question will come from Joe Pantginis with H.C. Wainwright. Lander Egaña-Gorroño: Hello, everyone. This is Lander on for Joe. We have a few. So let me start with the echo data presented at THT. So I wonder if you can provide some color on the p-values for the diastolic and systolic volumes in the complete population? And how do you think this data can support the narrative you're presenting to the PMDA? Peter Altman: Thank you for the question, and I really appreciate your eye on the Echo data. So this data is remarkably lovely data. And just -- I'll start off for everybody, typically, in these trials for all these therapies, very few companies have long-term truly blinded echo data. It's a very rare thing, and we have it in this trial. And the Core laboratory at Yale University is world-class. And so your question, Lander, was across all patients, the p-values are not statistically significant, but they're approaching it but to even see that kind of trend is wonderful. So our expectation is that our approvals both in the United States and in Japan will not be for the full cohort, but will be for the subgroup with elevated NT-proBNP. And because those patients -- NT-proBNP is a marker that's released when the heart is under stress. And so when you have high stress in the heart, it continues to dilate. And so what we're seeing is that those patients who are decompensated and are continuing to dilate, the mononuclear cell therapy appears to stop that process. So that's what's exciting about this data. So we see it across the full population with a p-value just above the key 0.05 threshold. But in the subgroup, we're looking at p-value of 0.02 and 0.1 for echo measures. And these are large magnitude changes that were presented at the THT conference. Another value proposition above and beyond just talking to regulators with respect to this data, Lander, is this data is compelling to cardiologists who are trying to advance therapies for their patients and the patients that we have treated are on guideline-directed medical therapy. So the patients in this trial have already been advanced on everything that's available to them that's not extremely invasive and they still are dying at a rate of approximately 10% per year. The big limit in heart failure is that nothing is changing mortality. And here, we're seeing a therapy that not only appears at a high level to be reducing mortality in MACE, but it's also showing these changes in left ventricular volumes that have a long history of being correlated with reduced mortality as well. So I think there'll be a lot of excited in the cardiology community, and that will translate into excellent enrollment in the CardiAMP Heart Failure II trial when we put our full weight behind it. Lander Egaña-Gorroño: Perfect. That's helpful. Yes. And do you have an estimate of the CardiAMP submission to the FDA if everything goes according to plan? And how are you thinking about the potential requirements for post-marketing studies and their execution? Peter Altman: So for CardiAMP HF, we are -- as I shared in my remarks, we're imminently going to file for a discussion on approvable pathways. So they already have all of the data from the trial. We will be providing other analyses that have been done, but that's imminent. I expect the time line will be, because this has FDA breakthrough designation, it will be under a standard Sprint discussion, which I estimate is roughly a 45-day turnaround. And then the subsequent -- if they're supportive, it will take time for all of the details regarding a submission to be put forward. And there's 2 approval pathways. Even though it is regulated by CBER, it is a device system. And so the approval pathway, again, CBER, the Center for Biologics Evaluation and Research. The device pathway has both the PMDA and the de novo pathway. And because of the safety profile we see with CardiAMP, it actually could go down the de novo pathway, which is really interesting. De novo is for devices that are safe. And there's no safety issues that I'm aware of right now with respect to CardiAMP. So if that's the door that's open and we decide to pursue it, it could be a very short time line. and relatively straightforward to secure approval. But if it's a PMA pathway, which has certain strategic advantages, it could be a little longer. The key question for FDA and for Japan PMDA, is this data acceptable for safety and efficacy for market release. Now your second part of the question, Lander, was, how do you think about the post-marketing study post-marketing studies, you cannot have patients come in and not have an option to therapy can't truly randomize. So we would expect these to be relatively extensive studies on many hundreds of patients that we would follow over time, and we will be collecting long-term survival data potentially echo data, potentially biomarker data, it's something to be discussed with respect to the agency's guidance on this from each area. Those measures I just identified are standard measures. So it wouldn't necessarily put an enormous undue burden on BioCardia, echo measures and NT-proBNP measures and understanding survival could be done relatively cost effectively in an open-label setting. So that's how we think about it. Clearly, it's a partnership with the regulatory bodies on their past experience and securing their support based on this data is really the focus. Lander Egaña-Gorroño: Perfect. That makes sense. And you already talked about this a little bit, but how do you see CardiAMP HF competing or not with other cell therapies for heart failure that are currently in regulatory discussions? Peter Altman: So with respect to what I called the 4 pillars of therapy in heart failure are the patients that's guideline-directed medical therapy that's established. All of the patients in our CardiAMP HF and in our CardiAMP HF II trial are already on guideline direct to medical therapy. So it's not instead of but really it's in addition to, and we're seeing these benefits in addition to. With the newer cell therapies that are seeking approval in the United States, they're all surgical delivery so far. I believe that they've all expressed interest publicly on pursuing different approaches for minimally invasive delivery such as we are pursuing and we could be helpful to them there. I see the competitive landscape as one where at the end of the day, I think CardiAMP will always remain one of the leading therapies because of how straightforward it is and how cost effective it will be. At the same time, this is the nature of waves of therapy development. There will ultimately be head-to-head trials for different therapies and it's good for patients if they have different therapeutic options and they're well studied. My sense is from an efficacy perspective, I actually think the CardiAMP therapy is amongst the most robust therapeutic data that's out there. If you look at the magnitude of changes we're seeing compared to all of the pivotal trials for the guideline-directed medical therapy, the magnitudes are compelling. And so it's going to be interesting. I think the key thing is to continue to collect data for evidence of both safety and efficacy. And like all great therapies, things will evolve solely over time. But I'm not concerned about the competitive issues. I think it's great for these patients that there's a number of folks pursuing therapies because the need here is enormous. In the United States, just in our indication, it's 1 million patients. So that's how we see it. Operator: [Operator Instructions] The next question will come from James Molloy with Alliance Global Partners. James Molloy: I was wondering if you could talk a little bit about the enrollment in the HF II trial. I know a few patients enrolled. Talk about sort of how the how that's building any anecdotal sort of stories from the enrollment, the challenges they're facing or maybe the challenges you are facing? And what's sort of the best centers best practices are using to sort of get folks into this HF II trial? Peter Altman: Yes. No, great question, Jim, and I really appreciate you being on the call. So if you actually look at our updated corporate presentation that we just came out a little while ago, we have pictures of 3 of clinical teams at these sites for CardiAMP HF II. And we put the pictures in there, first off, because it's really these centers that do all the work. But second, because you can see everybody's smiling after these procedures. And that's the signal of how well it's going as we're doing these procedures and also the relationships around doing this work. Enrollment numbers right now, we haven't detailed, but we're starting this enrollment slowly because almost all of our clinical team is focused on the efforts, enormous efforts in taking a Phase III trial data set through for regulatory submission. But all of that is coming to a head. And the beauty of this effort is that, that data will be a primary driver in enrollment ahead. So our expectation is as soon as we complete these conversations with PMDA and FDA, we'll know whether or not the CardiAMP HF II trial should continue to be a randomized double-blind trial or should be migrated to a potentially open-label post-marketing study, and that impacts our efforts. And second, if it stays a randomized trial, our team will have the strength of this data set which will help on the enrollment side. So we have quite a few sites that are interested in getting involved in the study. It's primarily a bandwidth and a resource basis for why that has not gone faster, but that will come soon ahead. So I hope that answers your question, Jim. James Molloy: It does indeed. And then maybe moving over to the CMI. We're looking for the 6-month data here at the EuroPCR in Paris in May. What sort of good that equivalent, which should we be looking for as that data comes rolling out? Peter Altman: So I think that the data is as we've shared sort of a top line. I think you'll get more visibility into the physician and patient experience in that in that trial. And I think the interesting thing about the CMI trial is, right now, there's not a lot of options for patients with CMI. And the main value of -- we're right now not driving forward aggressively in enrolling the randomized portion of that trial, where we sort of put it on pause to focus on the heart failure program but from a business development perspective, it effectively doubles the market potential of CardiAMP HF. And so if we had resources, we could very easily advance the CardiAMP CMI trial all the way through its pivotal cohort. But those are some of the things that we're talking about in business development settings. James Molloy: And how would you characterize the environment for potential partnerships currently? Peter Altman: That's a big question. Right now, there's a lot of folks focused on different things. I'll keep you posted. I think in the past, we've been rather forthcoming on all the conversations we have with respect to our various assets and platforms. And I think what will happen, Jim, is with the first cardiac cell therapy approved in Japan on the 19th of February. This is still pretty brand-new stuff for all of those folks in business development who we're used to looking at years of runway with cash flow, I think there will be great interest. I think the interest in CardiAMP CMI will primarily be driven by the interest in CardiAMP HF. And my sense is with CardiAMP HF on a path to potential an early approval in the U.S. or in Japan, there will be great interest and support in CardiAMP CMI as well as in cardio. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Peter Altman for any closing remarks. Peter Altman: Thank you, Nick. Our efforts advancing our cell-based therapies for ischemic heart failure are showing important benefits for patients through the treatment of microvascular dysfunction. Our base plan remains to complete the confirmatory CardiAMP HF II trial while we engage with FDA and PMDA on potential near-term approvals. On behalf of our entire BioCardia team, I thank all shareholders for their continued support as you make our efforts possible. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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 BioStem Technologies Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] And I would now like to turn the conference over to Trip Taylor with Investor Relations. You may begin. Philip Taylor: Good afternoon, everyone, and thank you for joining our conference call to discuss BioStem's Fourth Quarter 2025 Financial Results and Corporate Highlights. Leading the call today will be Jason Matuszewski, the company's Chairman and Chief Executive Officer; Barry Hassett, the company's Chief Commercial Officer; and Brandon Poe, the company's Chief Financial Officer. Before we begin, I'd like to remind everyone that our remarks may contain forward-looking statements based on management's current expectations. These involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated. These risks are described in our filings with the OTC markets. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date made. The company undertakes no obligation to update them unless required by law. Finally, this call also includes references to non-GAAP financial measures. A reconciliation to comparable GAAP measures and related information can be found in our earnings release posted on the Investor Relations section of BioStem's website. With that, I'd now like to turn the call over to Jason Matuszewski. Jason Matuszewski: Thank you, Trip, and good afternoon, everyone. Today, I'll focus on the progress we made through the fourth quarter and more recently as we continue to diversify the overall business. The addition of BioTissue's surgical and wound assets in January has meaningfully diversified our business expanded our presence in the hospital-based settings and increased our exposure to commercially insured patient populations. We also reallocated our resources towards these sites of care reducing our exposure to CMS reimbursement changes that are impacting the physician office setting. As a result, BioStem looks profoundly different today than it did just a few months ago. To start is important to explain how we now think about our business in terms of sites of care that represent different customers that we serve. Our 2 focus areas consist of the hospital setting and the physician office setting. When we talk about the hospital setting, it includes hospital inpatient, hospital outpatient departments or HOPDs and Ambulatory Surgery Centers or ASC customers. When we talk about the physician office setting, it includes office and mobile wound care customers. Physician office made up the vast majority of our customer base prior to the acquisition of the BioTissue assets. We address these 2 settings differently and have established a commercial structure to serve these sites of care most efficiently and effectively. Going forward, you will hear us refer to the hospital business and the physician office business. In the fourth quarter of 2025, our revenue consisted only of sales to the physician office customers. It was a solid finish to the year with fourth quarter revenue of $10.1 million. Also, in the fourth quarter, we published top line results from our DFU clinical trial, demonstrating clear superiority of our bio retained process product over the standard of care. In the coming months, we expect to publish further analysis of the DFU trial and top line results for our VLU study. The results from our randomized controlled trials support the clinical effectiveness of our bio retained technology and position us extremely well across all sites of care as the market begins to focus on the clinical benefit of products rather than price. As expected, transition for the treatment of Medicare patients is underway in early 2026 as clinicians are adjusting their patient management protocols in response to the payment changes instituted by CMS on January 1, 2026 and the direct impact on practice economics as well as heightened documentation requirements and an ongoing threat of audits. As a result of these impacts to providers, physician office revenue will be significantly lower for 2026 versus 2025. The newly acquired product lines are performing as expected. Importantly, the demand we saw at year-end reinforces the underlying value of our clinically differentiated products, and we believe it is a positive indicator as patient flow in these settings works towards a new equilibrium. Now I want to provide our view of our recent acquisition and our focus moving forward in 2026. Consistent with our long-term strategy to expand the business and offer more products and more markets in the relentless pursuit of healing, we acquired BioTissue's surgical and wound assets at the beginning of the year. Importantly, this combination meaningfully expands our business by diversifying our opportunity across multiple sites of care growing our revenue streams with additional products and broadening our payer mix. I want to take a deeper dive into the test rationale for the acquisition and explore 4 core priorities that have shaped how we view the business, reinforcing our confidence in our strategic direction. First, we have significantly diversified our end markets. Our physician office business is the foundation on which BioStem was built. It encompasses our perineal tissue allograft products serving patients with chronic wounds, primarily diabetic foot ulcers, venous leg ulcers and pressure ulcers across physician office settings inclusive of mobile wound care. BioStem's next phase of growth is anchored in our hospital business with a clear focus on driving adoption across clinical specialties and expanding commercial payer coverage. This business includes products used in complex surgical cases across hospital inpatient, hospital outpatient and ambulatory surgery center settings, providing access to procedures that are more commonly reimbursed by commercial insurers. By deepening our presence in these settings and align with payer priorities, we are diversifying our revenue mix and unlocking new pathways for payer coverage. As we expand into additional sites of care, patient populations and procedural applications, we are also meaningfully reducing our reliance on CMS-driven reimbursement in the physician office and mobile wound care settings. This diversification is particularly important in today's evolving reimbursement landscape where commercial payer alignment and site of care flexibility are increasingly critical to sustain growth. Second, we have significantly expanded and differentiated our product portfolio. At the center of this acquisition, our 2 well-recognized allograft brands in surgical and wound care, the Neox and Clarix product families. These products are supported by a strong body of published clinical and technical evidence and are widely adopted by physicians across the country. Importantly, Neox and Clarix introduced a new category of proprietary cryopreserved wet tissue allografts to BioStem's portfolio. distinct from our existing dry tissue in the VENDAJE a product family, which is derived from our proprietary BioREtain technology. This expands our capabilities across multiple tissue formats and provides physicians with differentiated options depending on the clinical need, handling preferences and site of care requirements. The Neox and Clarix lines span a range of configurations designed to address the full spectrum of clinical need. Neox products are optimized for chronic wound care in complex hospital in surgical settings, while Clarix products are primarily used in reconstructive and surgical applications. Together, these product families expand our portfolio of placental and umbilical cord tissue allografts offered in cryopreserved lyophilized and room temperature form factors. The recently acquired portfolio additions boast more than 25 years of clinical experience and more than 1 million patients that have benefited from the technology. With the addition of BioTissue's processing technologies, BioStem now holds 3 proprietary platforms, BioREtaine, CryoTek and SteriTek positioning the company with a broader and more versatile technology stack across both dry and cryopreserve tissue products. Third, and one of the most important strategic elements of this acquisition is the immediate extension of our commercial footprint with access to the hospital care setting. Spearheaded by Barry Hassett, who was recently appointed as our Chief Commercial Officer, we are in a stronger place than ever to execute on our long-term goals. Our commercial model is evolving into a broader multichannel strategy as we are integrating BioTissue's experienced national sales force of more than 25 direct sales representatives and managers and more than 30 independent sales agents. In addition, the reassignment of major GPO contracts provides immediate access to the hospital inpatient, outpatient and ASC customers. While Barry will speak in more detail about how we plan to leverage this platform. At a high level, this expanded commercial infrastructure meaningfully increases our reach and positions us to compete in sites of care where we have historically had limited presence. Finally, this acquisition will allow us to scale our operational excellence. On the operational side, we have entered into a manufacturing and supply agreement with BioTissue for a minimum of 12 months post close of the acquisition. This ensures continuity of supply and quality as they will continue manufacturing the Clarix and Neox products for us during the integration period. Following that 12-month period, we intend to execute a technology transfer and bring manufacturing of the acquired products to our in-house facility in Pompano Beach. Importantly, the unit economics related to the tech transfer are extremely compelling for BioStem. Our gross margins on the acquired products during this 12-month supply period are expected to be approximately 60%. This gross margin includes the impact of a cost-plus markup of 23% for BioTissue. BioStem's existing manufacturing operations have historically delivered margins in excess of 85% among the highest in the industry for the past several years. As we bring these products in-house, we expect significant gross margin expansion on the production of Clarix and Neox products as we eliminate the markup and leverage our own vertically integrated manufacturing facility. This is expected to more than offset the future royalty payments and be an important driver of future profitability improvement as we scale the business. Now let me turn the call over to Barry, who will touch more on our growth drivers and our commercial strategy. Barry Hassett: Thanks, Jason. At this point, we are allocating substantially all of our internal commercial resources toward the hospital and related sites of care where reimbursement is heavily driven by commercial payers and there are stronger unit economics supporting the treatment of Medicare patients with chronic wounds. In parallel, we continue to partner with Venture Medical to serve the physician office and mobile settings that have been significantly impacted by recent Medicare payment changes as that market works through this transition. Following the acquisition, we now have a comprehensive product portfolio that positions BioStem with a strong foundation as well as the opportunity to expand into a number of high-value surgical specialty markets. including orthopedics and sports medicine, particularly foot and ankle, urology and colorectal surgery, women's health plus chronic wound care in the hospital outpatient setting. Together, these segments represent a combined market opportunity of approximately $23 billion, and we believe our expanded universe of end markets enhances our ability to drive long-term growth. To capture this opportunity, we have identified several key strategic initiatives that we believe will support the continued execution of our commercial strategy and position the business to drive rapid and sustainable growth. These initiatives include: expanding our sales force to broaden our geographic penetration, increasing medical education to accelerate adoption through peer-to-peer engagement, expanding payer coverage, and executing our product road map. Collectively, we believe these efforts will deepen market penetration, expand our customer base and drive long-term revenue growth. First, from a sales force perspective, we currently have more than 25 direct sales representatives and managers along with more than 30 independent sales agents, providing national reach and supported by major GPO contract coverage. Initially, this team will focus on hospital and surgical settings, where we are establishing BioStem's presence across key call points mentioned earlier. As the year progresses, we anticipate continued ramping of the sales organization to include at least 40 direct representatives and additional independent sales agents to expand geographic coverage and our ability to serve additional hospitals and clinicians. Second, with regard to medical education, we are launching a comprehensive initiative, including national physician symposium industry-sponsored professional society symposia, local dinner programs and online webinars designed to offer peer-to-peer education delivered by experienced clinicians. Third, increasing patient access to our BioREtain products. The publication of our DFU and VLU studies positions us to drive adoption of our products through value analysis committee approvals at the hospital system level. The DFU study is a Level 1 randomized controlled trial that demonstrated the statistically significant superiority of BioREtain processed allografts when compared to standard of care under a very rigorous patient selection protocol and endpoint evaluation. This is the type of rigorous data required by [ MACs ] to authorize purchases. Separately, we will be initiating efforts to utilize this clinical data to expand commercial payer coverage. Lastly, advancing our product pipeline. We will launch our BioREtain preserved dry products through the new commercial team in the second quarter of 2026, exposing that portfolio of products to the hospital customer base. We also expect to launch a new medical device product, pending clearance by the FDA, which is one of the key post-acquisition milestones that is part of our integration of the Neox and Clarix portfolios. In parallel with all these activities in hospital-based sites of care, Venture Medical will continue to serve the physician offices, mobile wound care and alternate site settings such as long-term care facilities, where they have deep relationships and proven execution as well as an ever-broadening portfolio of solutions to serve patients with chronic nonhealing wounds. Now I'll turn the call back to Jason for our 2026 outlook. Jason Matuszewski: Thanks, Barry. As you can see, we have taken meaningful steps to reposition the business, and we believe we are now operating from a position of strength with a clear and actionable path forward. The foundation we have built, including expanding commercial infrastructure, differentiating the product portfolio and continuing to strengthen our clinical evidence foundation positions us well to capitalize on this $23 billion opportunity. Turning to our outlook. Our hospital business is performing in line with historical levels of the acquired assets through our early integration activities. We believe there is a significant opportunity for growth in this business following the completion of the commercial organization integration and ramp in sales rep productivity as we execute our multifaceted growth strategy. In the physician office business, we believe the recent reimbursement changes will ultimately benefit BioStem. We are confident in our ability to gain market share with our clinically validated products over the long term. In the near term, the confusion in the market is indicative that this substantial transition will take time to be digested and operationalized by clinicians. In the meantime, this has led to significant declines in our physician office business to date in Q1 versus Q4 of 2025. We expect the physician office market to stabilize in the second half of 2026, paving the way for sequential revenue growth improvement. With that, I'll turn the call over to Brandon to walk through our fourth quarter financial results. Brandon Poe: Thanks, Jason, and good afternoon, everyone. Turning to our fourth quarter results. Our revenue totaled $10.1 million compared to $10.5 million in the prior period and $22.7 million in the fourth quarter of 2024. We're able to achieve revenue largely flat to the prior period despite continued competition from higher-priced products under the ASP plus 6% reimbursement model. Gross profit for the fourth quarter was $9.8 million, representing gross margin of 97% compared to $9.3 million and 88% in the prior period and $19.1 million and 84% in the fourth quarter of 2024. The sequential increase in gross margin was a result of a mix shift towards our products that do not carry a licensing fee. Operating expenses for the fourth quarter totaled $17.3 million compared to $7.8 million in the prior period and $10.6 million in the fourth quarter of 2024. The sequential increase was primarily driven by $8.8 million in potential uncollectible accounts receivable due from our distributor venture medical. During the fourth quarter, Venture saw a slowdown in payments from certain venture customers due to delays or denials in payments by CMS to those customers. Ultimately, this resulted in a slowdown in payments from venture to BioStem. In many cases, the amounts recorded for these potential uncollectible accounts are under active appeal. Our agreement with Venture allows for an extension of payment terms for those accounts that are under active appeal with CMS. And for accounts where CMS reduces or outright denies claims, our agreement allows for a reduction in payment amounts by Venture to BioStem. We continue to monitor very closely the efforts made by Venture to resolve these outstanding potential uncollectible accounts and will take steps to collect on this balance in the future. The fourth quarter allowance for uncollectible accounts is onetime in nature, and we do not expect additional significant uncollectible accounts that would materially impact future results. In other operating expenses, sequential increases in legal costs and commercial head count to support the BioTissue asset acquisition were partly offset by lower spend on our clinical trials. Moving to the balance sheet. Our cash balance was $29.5 million at the end of the fourth quarter compared to $27.2 million at the end of the prior period. Following the closing of the BioTissue asset acquisition on January 21, 2026, our cash and cash equivalents balance was approximately $16 million. Given that we are largely through the quarter, I want to add to Jason's comments and provide additional color on our outlook for Q1. In the quarter, the hospital business is performing in line with historical levels of the acquired assets. With the acquired assets being on track in Q1, adjusted for a January '21 start date and the physician office being down significantly, as Jason noted, we anticipate Q1 revenue to be in the range of $5 million to $6 million. In the second half of the year, after completing integration activities, expanding our sales force and beginning execution on our strategic plan, we expect to drive sequential and year-over-year growth in the hospital business. And with the physician office market expected to stabilize in the second half of the year, we see an opportunity for sequential revenue growth in that business. We are confident that our newly diversified business includes all the foundational elements to support market share gains and drive BioStem towards category leadership. I also want to provide a brief update on the status of our 2024 and 2025 financial audits. As you know, we appointed KPMG as our independent auditor in October of 2025 and they have been actively working to complete the independent audits for both fiscal years. We expect to finalize the audits in the very near future. This important step toward our planned NASDAQ uplisting is progressing as expected and we will provide updates as key milestones are reached. Lastly, from my comments, I would like to welcome Jodi Ungrodt brought to BioStem. Jodi has recently joined our Board of Directors and has stepped into the role of the Audit Committee Chairperson. Jodi is a seasoned adviser to life science companies and spent nearly 3 decades at Ernst & Young, working with companies through initial public offerings, business combinations and other transformative events. I am personally excited to have Jodi join the team, and I'm looking forward to working with her. Please refer to the press release that was published this past Monday for more information about Jodi's appointment. With that, I'll turn the call back to Jason. Jason Matuszewski: Thanks, Brandon. As I look ahead to 2026, the hospital business is positioned to represent a strong majority of our revenue, supported by growing adoption of the Neox and Clarix portfolios across our expanding hospital and ASC channels. Our focus remains on diversifying our end markets, differentiating our product portfolio and expanding our commercial footprint with access to the hospital care setting. BioStem has entered 2026 and as a more diversified hospital-focused business with increasing alignment to commercial reimbursement and reduced exposure to physician office and Medicare reimbursement dynamics. We will leverage our commercial strategy, including expanding our sales force to broaden our geographic penetration, increasing medical education to accelerate adoption through peer-to-peer engagement, expanding payer coverage and executing our product road map. With a broader product portfolio, expanded commercial reach and strengthened operational foundation, we believe we are well positioned to deliver more durable, sustainable growth and emerge as a market leader in advanced regenerative medicine. Operator, you may now open the line for questions. Operator: [Operator Instructions] And our first question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. Swayampakula Ramakanth: This is RK from H.C. Wainwright. Jason and Brandon, so a couple of quick questions, the first one being on the BioTissue accretion part of it. With the BioTissue surgical assets generating about $29 million in 2025 and given -- considering the upfront cost and also you're bringing in 20 direct sales folks and integrating them, when in 2026 do you think that segment would be EBITDA positive on a stand-alone basis? Brandon Poe: Yes. RK, this is Brandon. I'll try and take that question. So I think we said previously that, that business, when you look at what we brought over from a revenue perspective, the $29 million you mentioned, along with the team we brought over, we felt like that was an EBITDA positive business as a stand-alone. Now that obviously doesn't include the support functions like finance or HR or other G&A type functions. So I think generally, we feel like that business really it currently is EBITDA positive based on what we brought over. And I think over time, we'll continue to leverage that to cover the fixed costs of some of those overhead components that I just mentioned. So that's kind of where we are. We're not really giving guidance for 2026, and we talked about Q1 simply because where we are, but that's how we think about the profitability of that business right now. Swayampakula Ramakanth: Okay. And then on -- just for a second question on the VENDAJE, now that the VENDAJE is placed in the 12-month status quo category, can you give us some idea of what would be needed for that to move to the covered status, let's say, in 2027 cycle. Just so that we understand you'll be able to get a better reimbursement number? Jason Matuszewski: Yes, I can take that, RK. Jason here. When we're looking at what was considered status quo or covered or not covered from an LCD perspective. that LCD ultimately was rescinded. And so we continue to go forward on our clinical trials, the DFU study as well as the LTU study. As we mentioned in the call, we're looking to publish full readout of that DFU study here near term in the next few months as well as top line results of the VLU study, that data, we feel strongly can support whatever the new potential LCD or NCD or coverage policy that CMS decides to create. But we also realize that, that process is going to require the full commenting period as well as previous LCDs. So we don't anticipate I guess, anything coming and LCD effective by year-end because we'll still need to go through that whole LCD approval process. But we also feel strongly that the data that was created and presented late last year on DFU as well as hopefully having VLU data, at least top line results mid to late this year. will support a status of covered versus status quo if that's even, frankly, an option by CMS. Operator: And our next question comes from the line of Jeff Johnson with Baird. Unknown Analyst: This is [ Dane ] on for Jeff. Maybe I'll go back to a little bit Brandon's comments about the outlook here and maybe I'll be a little bit more focused on the cash flow side. But talking about after the close of the BioTissue being at $16 million, obviously, it looks like gross margins will step down with those BioTissue assets being a greater percentage of the business and then investing more in the expanded sales force going direct and then potentially even the onetime $10 million payment, I believe, pending that FDA clearance. So just kind of where do you sit from a cash flow runway standpoint, where you sit right now? Brandon Poe: Yes. Jason, I can take that. Yes, thanks for the question. This is Brandon. Yes. So yes, you're right. We're $16 million -- we closed the deal on January 21. And I'd say we're -- by the end of Q1, we'll be a little bit below that. We're currently a consumer of cash generally, and that's largely due to the physician office business dropping off pretty significantly in Q1 due to the changes that we've seen through CMS and the reimbursement. And so I think you're going to see us consume cash here for the majority of 2026. So from a runway perspective, and I'm excluding the $10 million pay you just referenced. We've got cash certainly in the late Q3 or longer, certainly nowhere earlier than Q3. And the $10 million payment that we expect to make that's tied to me for those tied to the milestone for a 510(k) clearance. It's connected to our BioTissue asset acquisition. Our expectations right now is that will be later, probably second half of 2026, and that could call that could obviously change that situation. We're actively -- just so you're aware, we're actively looking at opportunities to bring cash into the business, one, to finance that $10 million payment, but really ultimately to drive the commercial growth that we referenced on the call about driving commercial growth, driving the hospital engine and really supporting and driving that business. And that's really where we're looking for some additional financing, but to answer your question directly, I'd say late Q3 right now is really where we expect our cash to run to. Unknown Analyst: Okay. That's helpful. Yes. And then maybe where you ended off there. I mean how do you guys see the cross-selling opportunity here between the hospital and the physician setting? And any early insights that you've gained just in the first 2 months here since closing that deal? Jason Matuszewski: Yes. We actually have Barry Hassett on the call as well today. So I'm going to extend that question over to Barry to address. But just on a high level, we've really seen initially some good success and excitement from the BioTissue team that came over in the transaction. And we feel there's a high degree of promise associated with it. If you guys remember backwards, the BioTissue team at the time of ASP plus 6 and some of the other reimbursement methodologies never had an access to sell a higher ASP product in the physician office segment. So they're somewhat constricted to the hospital segment as well as the ambulatory surgery center and the OR and what attracted us to acquiring those assets. And so when we look at kind of creating neutrality around pricing, it really lends to the relationships they've built in the hospital outpatient as well as the OR and ASCs to extend our existing product lines as well as the core Neox and Clarix product family to support adoption of those products in a physician office second. But I'll hand it over to Barry to add a little bit more color there. Barry Hassett: Yes, Jason, I think you hit on all the right points as far as the BioTissue team not really previously having the opportunity to sell heavily into the office setting because of where the price positioning was and now the market being neutralized there. So we view this very positively because they have a lot of relationships in that space. And we believe the 2 best technologies on the market to go out and go after that business. I think you need to consider, as we mentioned, the physician office space is down right now. That's across the entire segment. All of the all of the companies in this space are reporting that. And there's been a pullback on the use of skin substitutes in that space as it absorbs the new payment environment and kind of figures out how it's going to move -- how it's going to move forward. In the meantime, we're keeping an eye out for potential uptick in patient treatment in the hospital outpatient space, specifically with regard to chronic wounds because with the new CMS payment scenario, that outlook has actually improved as we switched over from 2025 to 2026. Operator: And our final question comes from the line of Bruce Jackson with Benchmark. Bruce Jackson: I wanted to go back to the gross margins with bringing the BioTissue products in-house. When do you think you couldn't have those products in-house. And then how do the gross margins expand from there? How long is it going to take to get back up to the 85% range? Jason Matuszewski: Thank Bruce, for your question. Brandon, I don't know if you want to jump in there? Brandon Poe: Yes. Yes, I can. This is Brandon, Bruce. Thanks for the question. Yes. So Jason mentioned on the call, 60% is gross margin is where we see it now. That's really impacted by the markup that we're paying for the service to buy a tissue to continue to manufacture the products that on behalf. When that goes away, not only do we recoup sort of that markup, but we also feel like we've got a vertically integrated facility. We know how to make these products. We're very good at it. We've shown it over the past. So not only we lose the markup, we also think that we can do it more efficiently. We know their COGS generally, and our COGS for very similar products are less, frankly. And so I think our expectation is that after 1 year, that's what the manufacturing of the tech transfer agreement allows us to bring that in-house. And we've got a little bit of work to do on our side, not a ton of work, but a little bit of work to bring that to our facility. Our expectation is that sometime mid-Q1 or shortly after the 1-year anniversary, we'll bring that in-house. And we've got expectations that we get back up to plus 80% for those specific products. That's the intent right now, and we're moving towards that. I mean the 1 thing that goes against us a little bit is there is a royalty payment on the back end that we've talked about. So again, the $15 million upfront, $10 million for the 510(k) and then there's an up to $15 million down that royalty payment. But even with that royalty payment, which at some point will go away, we still feel like we can get close to that 80% gross margin pretty quickly. Jason Matuszewski: And Bruce, I'll just add a little color. Just to add a little color on the operational side of things. So Andrew Van Vurst, our COO and Co-Founder, has already been hard at work in putting the team in kind of an operational mode to look at how do we start thinking about tech transfer and what are the processes in CapEx and requirements and things of that nature that we need for our facility to support manufacturing, the Clarix and Neox family products. And really working with the BioTissue team as well. We're looking to try to target that we have pretty much everything ready to set and go as soon as we hit that 12-month mark. And so that's kind of been our goal and why we already started just a month or so into owning the assets, started those conversations about tech transfer and looking at how do we from an operational perspective, execute on a successful tech transfer and accelerate as fast as we can to improve those gross margins. Bruce Jackson: Okay. Great. And then my follow-up on the VLU study, last quarter, you said it was recruiting a little bit faster than expected. When do you think you're going to have that one wrapped up? Jason Matuszewski: I think last quarter, we were seeing good enrollment in Q3. In Q4, we actually had a little bit of slower improvement in the VLU study. So most still targeting to try to get a top line readout here in the middle of this year. But we did see a little bit of slowdown in enrollment over the holidays in Q4. Operator: And ladies and gentlemen, that concludes our question-and-answer session and today's call. We thank you for your participation, and you may now disconnect.
Operator: Good day, and welcome to the Cheetah Mobile Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Helen Jing Zhu, Investor Relations of Cheetah Mobile. Please go ahead. Jing Zhu: Thank you, operator. Welcome to Cheetah Mobile's Fourth Quarter 2025 Earnings Conference Call. With us today are our company's Chairman and CEO, Mr. Fu Sheng; and our company's Director and CFO, Mr. Thomas Ren. Following management's prepared remarks, we will conduct the Q&A section. Please note that the management's prepared remarks are presented by AI agent. Before we begin, I refer you to the safe harbor statement in our earnings release, which also applies to our conference call today as we will make forward-looking statements. At this time, I would now like to turn the conference call over to our Chairman and CEO, Mr. Fu Sheng. Please go ahead, Fu Sheng. Sheng Fu: Good evening, everyone. Thank you for joining us. In 2025, we finished stabilizing the business and built a stronger foundation for Cheetah Mobile. During the year, our total revenue grew 43% year-over-year, driven by continued growth in both our Internet business and AI and Others segments. In the fourth quarter, AI and Others already accounted for half of total revenues, reflecting the increasing contribution of our new growth initiatives. More importantly, we achieved full year non-GAAP operating profitability, our first time in 6 years. Our Internet business remained resilient in 2025, generating approximately RMB 460,000 in adjusted operating profit every working day. This consistent operating cash flow forms the financial backbone of the company and allows us to invest in robotics and AI in a disciplined and sustainable way. Our second highlight is robotics, which is emerging as a key structural growth driver. For full year, robotics revenue grew approximately 31%. In the fourth quarter alone, robotics revenue reached about RMB 60 million, up 94% year-over-year and 43% quarter-over-quarter. A voice robot in China achieved 100% year-over-year growth for 3 consecutive quarters, accounting for high single digits of the fourth quarter's total revenues. This progress is driven by our strategic focus on core strength in voice robotics and the integration of AI agent technology to enhance product experience. We are now seeing our voice robot become a must-have solution in receptions, guided tours, retail environment, hospitals and service halls as they deliver proven measurable value. We recently introduced a new version of our voice robots, which comes with built-in skills like guiding, patrolling and advertising, enabling end customers to start using them right away, our robotic arm business mainly in serving overseas markets is making up high single digit of the first quarter's total revenues. We focus on long-term demand from research institutions and the R&D teams that value openness and the customization. This customer base is sticky and repeatable, supporting long-term demand, building on our proven indoor autonomous mobility technologies. We are introducing a smart wheelchair, targeting developed regions such as Western Europe and North America. This product is positioned as a premium solution for users who value safety, independence and confidence in daily mobility. We are seeing a clear shift in demand as users increasingly value safety, assistance, and intelligent features in mobility products, while scalable solutions in the market remain limited. By applying our experience in service robots we are able to meaningfully improve the user experience. During my own recent recovery, I personally used our smart wheelchair and saw a clear improvement in safety and convenience. Importantly, we can deliver these benefits without significantly increasing the costs compared to traditional high-end electric wheelchairs, making this a more practical and accessible product for users. We have entered into framework agreements with established mobility brands who will manage branding, distribution and aftersales services. Initial shipments are expected to begin in the second quarter of 2026, representing an early-stage commercial validation of this product category. Across the industry, more companies are starting to test and deploy service robots. We believe the next 1 to 2 years will be a validation phase, where ROI and reliability will matter most. You don't need a robot that looks like a human. You need a robot that works every day, delivers measurable value and it's easy to operate at scale. This is exactly where our current products are positioned. Our Internet business remains strong, generating steady cash flow, which allows us to invest in AI in a disciplined and sustainable way. For more than a decade, we have built utility applications serving hundreds of millions of users. This product DNA shapes how we approach AI, rather than competing in model development we focused on turning AI capabilities into practical tools that help users complete real tasks. During the Chinese New Year, I spend a lot of efforts experimenting with an AI agent system built on the OpenCloud framework starting from a single agent that could barely complete basic tasks, the system evolved into a multi-agent team capable of running tests continuously. In one scenario, the system generated personalized New Year messages for more than 600 colleagues and managed the entire sending workflow automatically. What we see emerging is not simply a new AI tool but a new way to organize digital work. AI agents can automate entire workflows from information gathering to processing and distribution, significantly improving productivity. Building on these learnings, we introduced EasyClaw based on OpenCloud and open source agent framework for both domestic and overseas markets. EasyClaw is our AI coworker platform that helps users create and deploy task-oriented AI agents capable of executing real-world tasks autonomously. At this stage, we focus on execution capability rather than scale. We are already seeing a continued increase in user engagement as reflected in the rapid growth of our total token usage. We are building EasyClaw into an agentic operating system that changes how users interact with software and machines. By integrating EasyClaw into our PC products, we are improving user experience and driving higher conversion and ARPU. In robotics, EasyClaw allows users to program and customize robots using natural language, lowering customization barriers. This helps us deploy faster, reduce cost and scale more easily, making our products more competitive. Some investors may ask how we compete with our training foundation models. We believe the real advantage in the agent era lies not in the model itself, but in the systems built on top of it, including task orchestration, tool usage and cost management. By leveraging open ecosystems and leading APIs, our product can evolve as models continue to improve. Finally, our global DNA remains a core competitive advantage. We continue to expand both our AI tools and robotics businesses internationally with a disciplined approach. Looking ahead to 2026, we do not provide specific financial guidance, but we see continued structural improvements. We believe our robotics business will maintain strong growth momentum as commercial validation deepens and become a more important part of our revenue mix. At the same time, AI-enabled products will gradually enhance engagement and monetization efficiency across our software ecosystem. We will increasingly apply AI internally to accelerate the development, aiming to further improve operational efficiency. As we grow, we will continue improving transparency and disclosure, credibility to data and our focus remains clear. Execute with discipline and net results compound over time. Cheetah is entering its next phase of development combining digital coworkers through AI agents and physical coworkers through service robots supported by real operating cash flow and disciplined financial management. We are building the foundation for our next stage of growth. Thank you. Thomas Jintao Ren: Thank you, Fu Sheng. Hello, everyone, and thank you for joining us. Unless otherwise stated, all financial figures are presented in RMB. 2025 marked a year of meaningful operational recovery and improved financial discipline for Cheetah Mobile. During the year, we continued improving operating discipline and cost structure across the company. We concentrated resources on commercially validated use cases in robotic products and practical AI applications, while leveraging open source ecosystem and third-party models to improve R&D efficiency and optimize infrastructure costs. This approach allows us to accelerate iteration without significantly increasing fixed costs. For the full year 2025, total revenue grew approximately 43% year-over-year to RMB 1,150 million. Although we reported a GAAP operating loss of RMB 179 million for the year, this represented a substantial improvement compared with operating loss of RMB 437 million in 2024. On a non-GAAP basis, operating profit reached RMB 14 million compared with a non-GAAP operating loss of RMB 232 million, in the prior year, reflecting improved operating leverage. We ended the year with USD 215 million cash and cash equivalents. Turning to our segment performance. Our Internet business continued to serve as a stable cash generating platform for the company in 2025. Revenue from Internet business increased 19% year-over-year to RMB 615 million with Internet revenue, Internet value-added services revenue increased 21% year-over-year in 2025, contributing 65% of segment revenue, supported by both paying user growth and ARPU expansion. In addition, we observed that many users subscribe for periods longer than 12 months, reflecting the recurring nature of our utility applications and strengthening revenue visibility. In terms of profitability, the Internet business generated approximately RMB 115 million in adjusted operating profit in 2025, maintaining healthy margins and strong operating cash flow. As Fu Sheng mentioned earlier, the Internet business generates roughly RMB 460,000 in adjusted operating profit per working day which provides predictable cash flow to support strategic investments in new initiatives. Looking ahead, we expect the Internet business to remain stable and profitable while continuing to provide financial flexibility for the company to invest in long-term growth opportunities. Turning to our AI and Others segment. Revenue from this segment increased 85% year-over-year to RMB 535 million in 2025, as a result, this segment accounted for 46.5% of our total revenue compared with 35.9% in 2024, reflecting the growing contribution from our emerging businesses. Within the segment, the robotics business continued to scale since the second half of 2025, making up 27% of the segment's revenue and 13% of total revenue in 2025. Robotics revenue increased 31% in 2025 driven by deployment of voice robot in China and continued demand for robotic arms in overseas markets. Other businesses, namely overseas advertising agencies, service and multi-cloud management platform within this segment also contributed significantly to revenue growth, benefiting from increasing overseas expansion by Chinese enterprises. At the same time, we continued to improve operating efficiency to more selective investment and disciplined cost control. For the full year, adjusted operating loss from the AI and Others segments reduced by 42% year-over-year to RMB 274 million as we continued scaling the business while maintaining disciplined investments. Turning briefly to the first quarter performance. Total revenue reached RMB 309 million representing a 30% year-over-year increase and a 7% quarter-over-quarter increase, while Internet revenue declined slightly year-over-year, in the fourth quarter it increased quarter-over-quarter as we continue shifting toward a subscription-driven business model. In addition, user subscription revenue within the Internet segment increased 32% year-over-year and 16% quarter-over-quarter as we chose to focus on subscription business model, which supports a healthier product and user experience. Revenue from the AI and Others segment reached RMB 153 million, accounting for nearly half of total revenue in the quarter. With this segment, robotics revenues increased by 94% year-over-year and 43% quarter-over-quarter to about 19% of the fourth quarter's total revenue. Other than that, our revenues from overseas advertising agency service and multi cloud management platform also contributed to this segment's year-over-year growth. On a non-GAAP basis, the company generated operating profit of RMB 15 million in the fourth quarter compared to RMB 42 million operating losses in the same period last year. We believe the improvement we achieved in 2025 reflected structural improvements in both our cost structure and revenue mix. Looking ahead, our priorities remain clear: disciplined growth, continued improvement in operating efficiency, balanced and disciplined capital allocation with stronger financial discipline, clearer strategic focus and increasing contribution from our emerging businesses, we believe the company is entering a more stable and predictable operating phase. Thank you. We are now ready to take your questions. Operator: [Operator Instructions] The first question today comes from Thomas Chong with Jefferies. Thomas Chong: [Foreign Language] Unknown Executive: [Foreign Language] Jing Zhu: Operator, can we move to the next question? Operator: The next question comes from [ Nancy Lu ] with JPMorgan. Unknown Analyst: [Foreign Language] Unknown Executive: [Foreign Language] Jing Zhu: Operator, please move to the next question. Thank you. Operator: The next question comes from Cheng Ru Li from Guoyuan Securities. Cheng Ru Li: [Foreign Language] Unknown Executive: [Foreign Language] Jing Zhu: Operator, please move to the next question. Thank you. Operator: The next question comes from [ Yongping Diao ] with Guotai Haitong. Unknown Analyst: [Foreign Language] Unknown Executive: [Foreign Language] Jing Zhu: Thank you, operator. Please move to the next question. Operator: The next question comes from [ Jie Zhu ] with GF Securities. Unknown Analyst: [Foreign Language] Unknown Executive: [Foreign Language] Jing Zhu: Operator, please move to the next question. Operator: The next question comes from [ Wei Feng ] with Mizuho Securities. Unknown Analyst: [Foreign Language] Unknown Executive: [Foreign Language] Jing Zhu: Operator, please move to the next question. Operator: The next question comes from Lydia Lin with Morgan Stanley. Chenyueya Lin: [Foreign Language] Unknown Executive: [Foreign Language] Jing Zhu: Operator, please move to the next question. Operator: The next question comes from Vicky Wei with Citi. Yi Jing Wei: [Foreign Language] Unknown Executive: [Foreign Language] Jing Zhu: Operator, please move to the next question. Operator: The next question comes from Zeping Zhao with ICBC. Zeping Zhao: [Foreign Language] Unknown Executive: [Foreign Language] Jing Zhu: Yes. Thank you. Operator, please check if we have any further questions. Operator: We have no further questions at this time, which concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Jing Zhu: Thank you so much for joining our conference call today. And if you have any further questions, please do not hesitate to let us know. Thank you so much. Bye. Sheng Fu: Bye-bye. Operator: The conference has now concluded, and we thank you for attending today's presentation, and you may now disconnect your lines.
Operator: Greetings, and welcome to the Achieve Life Sciences Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Nicole Jones, Vice President, Strategic Communications. Nicole, please go ahead. Nicole Jones: Thank you, operator. Good morning, everyone, and thank you for joining us today. From Achieve Life Sciences, we are joined by Rick Stewart, President and Chief Executive Officer; Dr. Mark Rubinstein, Chief Medical Officer; Jaime Xinos, Chief Commercial Officer; and Mark Oki, Chief Financial Officer. The management team will be available for Q&A following the prepared remarks. A replay will be available later today using the information in the earnings press release or by visiting the Achieve Life Sciences website. Today's conference call will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations and future potential operating results of Achieve. Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties, and other factors, including, but not limited to, the factors set forth in the Company's filings with the SEC. Achieve undertakes no obligation to update or revise any of these forward-looking statements. Please refer to Achieve documents available on our website and filed with the SEC concerning factors that could affect the company. I'll now turn the call over to Rick. Richard A. Stewart: Thank you, Nicole, and good morning, everyone. The NDA submission in June 2025 started the transformation of Achieve from a pure-play clinical development company into a commercially focused enterprise. Our primary objective now is to make cytisinicline available to the 25 million patients who smoke and nearly 18 million who vape. The need for a new nicotine dependence treatment like cytisinicline has never been greater. Achieve is committed to providing the new therapeutic tool to patients seeking to break free from the cycle of nicotine dependence. I'm incredibly impressed by the commitment and resilience of the entire Achieve team and their dedication to addressing the nicotine dependence public health crisis in the U.S. Key highlights in 2025 include: firstly, the submission of the New Drug Application or NDA for the smoking cessation indication and its acceptance by the FDA, moving us one important step closer to becoming the first new FDA-approved treatment in 20 years. Secondly, Achieve's vaping cessation indication was one of the first recipients of the Commissioner's National Priority Voucher. Recognition of cytisinicline as a national priority is an incredible achievement of the work conducted by Achieve and the importance of cytisinicline in tackling the previously intractable problem of nicotine dependence. The Commissioner's voucher gives us an accelerated pathway to be the first and only FDA-approved vaping cessation treatment. Thirdly, our clinical team delivered on all planned regulatory milestones and generated encouraging clinical data across our program during the year. This includes concluding the ORCA-OL long-term exposure trial, which underlined cytisinicline safety profile, demonstrating strong tolerability and excellent patient satisfaction data. We should not underestimate the importance of the findings from the ORCA-OL safety study, which demonstrated the tolerability of cytisinicline over long-term, 52-week exposure to treatment. Dr. Mark Rubinstein will elaborate in a minute. And lastly, post-hoc data published in Thorax, a leading peer-reviewed medical journal, demonstrated that cytisinicline significantly improved smoking quit rates compared to placebo in adults with chronic obstructive pulmonary disease. There are 6 million COPD smokers in the U.S. today with few options to help them quit. Their level of nicotine dependence must be high, as continued smoking exacerbates COPD symptoms and impairs the efficacy of COPD drugs. The positive data on COPD patients highlights the expansive scope of opportunities for cytisinicline in terms of the range of comorbidities that could potentially benefit from treatment, and broad range of health care providers who would be interested in its benefits. Our commercial team has moved forward decisively towards building a scalable, data-driven commercial model that will position us to launch successfully. Our model is built to address the rapidly evolving health care environment, where approximately 75% of primary care physicians will no longer meet with medical reps. Achieve's omnichannel digital platform provides precision targeting of physicians and patients, which will allow us to identify high-volume prescribers and the patients motivated to quit, deploying resources efficiently and maximizing impact per dollar spent. AI is a critical enabler in this evolution. We'll be using advanced analytics and machine learning to enhance decision-making, automate customer engagement, and generate predictive insights about which messages will resonate most with target audiences, positioning us to continue building an efficient commercial organization that punches well above its weight. We also just announced that we have selected Adare Pharma Solutions, a U.S.-based manufacturing organization that will produce cytisinicline drug product as we prepare for potential commercial launch and future demand. We believe this partnership will secure our supply chain, reduce risks associated with international pharmaceutical importation, and may lower overall costs, including the risk and uncertainty for tariffs on international imports of drug product. I'm pleased to report that work has commenced and our technology transfer to Adare is already underway. The Adare partnership provides redundancy in our supply chain, allowing contingency capacity in the U.S. The manufacturer named in the cytisinicline NDA recently had an FDA Good Manufacturing Practices inspection with 2 observations related to solid oral dose manufacture, which are being addressed through an ongoing communication of its remedial action plan with the FDA. By establishing U.S.-manufacturing with Adare, we increase confidence in our supply-chain security as we advance towards a planned commercial launch of cytisinicline expected in the first half of 2027. We remain focused on bringing cytisinicline to patients as quickly as possible, and our decision to work with Adare positions us to launch with the manufacturing reliability and the operational readiness our patients and stakeholders expect. Now, let me take a moment to remind you why our team is so passionate about bringing cytisinicline to market. Recent data issued by CDC estimated that in 2024, approximately 25 million adults in the United States smoked cigarettes. It's estimated that more than 15 million attempt to quit every year. Smoking remains the leading cause of preventable death in the U.S., claiming approximately 500,000 lives annually and costing over $600 billion each year in health care cost and loss productivity. The comorbidities are devastating. To name a few, respiratory disease, cardiovascular disease, metabolic disease and cancer. We also know that 60% of the nearly 18 million adult e-cigarette users in the U.S. want to quit, and adult nicotine e-cigarette use is on the rise. However, there is no FDA-approved treatment for e-cigarette cessation. Patients are frustrated, physicians are frustrated. The narrative around nicotine dependence needs to change. We've seen this transformation happen with obesity. When GLP-1s emerged, they helped society recognize obesity for what it truly is, a medical condition, not a personal failure. Nicotine dependence deserves the same recognition. It's a neurobiological condition rooted in how nicotine alters brain chemistry and creates physical dependence. It's a medical condition and it demands medical treatment. That's why we launched our Will Power awareness campaign in January. This is the beginning of us reframing the conversation to help people understand that quitting takes more than Will Power alone and an effective treatment exists. The bottom line is that Achieve is not quitting on people who smoke. The parallels between obesity and nicotine dependence are not lost on many investors. unmet medical needs, same physician call points, same cost to society. In summary, our science is strong. We're advancing through the regulatory review process with the FDA, working constructively towards approval. Our commercial infrastructure is taking shape with real progress in 2025, and we're actively building for launch. With that, let me turn it over to Dr. Mark Rubinstein, who will detail our regulatory progress and the data that continue to reinforce cytisinicline across patient populations. Mark Rubinstein: Thank you, Rick, and good morning, everyone. We have made tremendous progress in 2025 for cytisinicline from a clinical and regulatory standpoint. Since our last earnings call, we've continued to validate cytisinicline's clinical profile through peer-reviewed publications and scientific conference presentations. We were pleased to present findings from a pooled analysis of over 1,600 participants from our Phase III trials at the Society for Research on Nicotine and Tobacco or SRNT conference a few weeks ago. This analysis examines cytisinicline's efficacy across participants with different prior treatment histories and quit-attempt patterns. Regardless of whether the participants had previously tried varenicline, Bupropion or nicotine replacement therapy, or whether they had made 4 or fewer quit-attempts versus many more, we saw consistent efficacy. These data show that if approved, cytisinicline will offer a new quit option for patients, including those for whom medications have failed. This consistent efficacy across patient subgroups shows that past setbacks should not discourage people from trying again. For millions of people who have tried and failed, cytisinicline offers real hope. We also presented late-breaking survey data from our year-long ORCA-OL study that demonstrated voluntary, self-reported patient experiences with extended cytisinicline use up to 52 weeks. This survey of data from people who chose to continue treatment beyond the 6- or 12-week standard courses offers insight into long-term tolerability and impact. Patient experience is hugely important for those trying to quit smoking, and is encouraging to see trial participants describing meaningful benefits, including successful quitting and improvements in physical health. We have also been accepted to present research at the 2026 American Thoracic Society Conference in May and look forward to updating you in the coming months. On the e-cigarette front, we received the FDA Commissioner's National Priority Voucher for cytisinicline in e-cigarette or vaping cessation, a significant recognition of the public health urgency. The CNPV is designed to provide enhanced FDA communications and an expedited NDA review time line to 1 to 2 months compared to a typical 10 to 12 months. We are now laying the groundwork for our ORCA-V2 Phase III trial for vaping cessation, including selecting trial sites and identifying principal investigators. In summary, 2025 has strengthened our clinical and regulatory position significantly. We're advancing through the FDA's review process with an active dialogue with the agency. We remain confident that cytisinicline has the potential to deliver the first FDA-approved treatment for nicotine dependence in 2 decades. With that, let me turn it over to Jaime. Jaime Xinos: Thank you, Mark. When I look back at where we started at the beginning of 2025 and where we stand today, I'm struck by the incredible progress our commercial team has made in just over a year. We've built the foundation for a launch-ready infrastructure from the ground up while remaining lean and right-sized for our current stage requirements. We've established partnerships, deployed advanced analytics, created an AI-powered asset factory, and are positioning ourselves to execute at scale. I'm deeply grateful to the entire team who have been instrumental in bringing this vision to life. As a reminder, our commercial execution rests on 3 critical priorities: availability, or ensuring supply-chain readiness so that cytisinicline can reach the patients who need it; access to secure coverage and affordability; and awareness, which is educating the right patients and health care professionals at the right time about this transformative new option. Every initiative is data-driven, and every decision is tied to measurable impact with the goal of making cytisinicline accessible to the millions of Americans struggling with nicotine dependence. Now, I'll provide updates on each of our 3 priorities. First, let's look at availability. Implementation with our third-party logistics provider is well underway. We are on track with our state licensing and have secured more than half of the required licenses to date. Additionally, we have now completed the administrative and logistical setup with our specialty pharmacy hub partner. We believe these foundational steps will be critical to ensure patients can obtain cytisinicline and that prescriptions written are prescriptions filled. On the access front, our focus remains on securing rapid, broad, and affordable coverage for cytisinicline. In Q1, we continued discussions with prioritized payers to share our clinical data. Feedback from these ongoing discussions will be critical in finalizing our pricing, access, and contracting strategy as we move closer to launch. On awareness, our focus is establishing Achieve's reputation as a trusted, science-driven partner and shifting how patients and providers think about nicotine dependence. As Rick mentioned, we launched our Will Power campaign, which directly challenges the outdated narrative that quitting smoking is simply a matter of personal determination. The campaign featured visuals that reimagine vintage cigarette advertising, but instead of selling cigarettes, they're selling Will Power as a miracle product. It is deliberately provocative because the message is clear. Will Power alone is not enough. We will continue to strategically deploy this campaign throughout 2026 to drive ongoing conversation and awareness around nicotine dependence as a medical condition requiring a medical solution. Beyond this, we are leveraging technology and AI tools to generate rapid, evidence-based and regulatory-compliant content that will fuel our launch. To use a bit less marketing jargon, this means we are able to build things faster using fewer resources. Through our partnership with Omnicom, we developed a marketing engine designed to shave weeks off the development, review, and approval of brand messaging, promotional, and educational materials. This is just one example of how modern tech and data are improving our ways of working at Achieve. We've also established our unified data ecosystem and our custom-built marketing technology foundation to support hyper-targeted, personalized customer engagement and measurement. Finally, we've completed detailed customer segmentation to better understand how to reach and meet the needs of our future patients and prescribers. As we look ahead, we are building plans for optimizing sales deployment and non-personal promotion to key audiences at launch and beyond. We will look to deploy the Will Power campaign in select audiences, complete our data and performance-measurement capabilities, and finalize media channels and plans. We are confident in our ability to execute and scale effectively and deliver long-term value for patients, providers, and shareholders. I'll now turn it over to Mark Oki for financial updates. Mark Oki: Thank you, Jaime. Let me walk through our financial position and results. As of December 31, 2025, cash, cash equivalents, and marketable securities totaled $36.4 million. Total operating expenses for the 3 and 12 months ended December 31, 2025, were $14.7 million and $54.9 million, respectively, reflecting our ongoing investment in regulatory, clinical, pre-commercial, and commercial infrastructure activities. Our total net loss for the 3 and 12 months ended December 31, 2025, was $14.7 million and $54.7 million, respectively. As always, we continue to evaluate financing options and cash management strategies, and we will provide updates if and when appropriate. I'll turn it back to Rick for closing remarks. Richard A. Stewart: Thank you, Mark. In closing, I'm pleased with our regulatory, clinical, and go-to-market efforts, which underscores the momentum behind Achieve Life Sciences and our unwavering commitment to addressing the critical unmet needs of nicotine dependence. As we look ahead, I want to highlight 3 critical value drivers for our Company. First, receiving NDA approval and successfully launching cytisinicline for smoking cessation. This is our near-term priority, and the team is executing with discipline and purpose. Discipline is important to ensure there is a controlled and successful launch. Second, the growing recognition of the significant opportunity represented by our vaping indication. With the Commissioner's National Priority Voucher and the urgent public health need around e-cigarette cessation, we have the opportunity to be first to market with a treatment for an indication where no approved options currently exist. Finally, both of these are underpinned by our digital commercial platform, the AI-powered data-driven infrastructure we built that positions us to launch efficiently and scale rapidly with precision targeting and measurable impact. To the millions of Americans who are ready to break free from nicotine dependence, Achieve Life Sciences is not quitting on you. We are dedicated to this urgent need. The standard of care in smoking cessation has not evolved in 2 decades, and we are about to change that. I'm grateful to our patients, clinical investigators, regulatory partners, investors, and our incredible Achieve team for their unwavering dedication to this mission. Together, we're building something meaningful. We're not quitting on you. We will not quit until we deliver a treatment that changes the standard of care for nicotine dependence and helps people live free of nicotine. Lastly, we're limited in what we can say about our interactions with the FDA while the NDA is under review. And as I said earlier, the communications are normal for this stage of the review process. I look forward to updating you on our progress. Thank you for your time, attention, and continued confidence in Achieve Life Sciences. Operator: [Operator Instructions] Our first question is coming from Thomas Flaten from Lake Street. Thomas Flaten: Perhaps for Jaime, the launch timing for the first half of '27, can you talk a little bit about the critical path between a late June NDA approval and the first-half launch? Is this primarily scale-up on the commercial side? Is it potentially product supply? Can you just talk a little bit about that gap that's created there? Jaime Xinos: Sure. Thanks for the question, Thomas. So obviously, we need drug in order to be able to go to market. And so that is our first consideration is when can we get drug into the supply chain to get it out into the hands of patients. So everything that we need to do on the trade and distribution side will be ready to go as soon as we have drug. So we have our 3PL setup, as I mentioned during the call, serialization, our specialty-pharmacy vendor, all of those requirements for copay and access, all of those will be aligned and ready to go at launch. The rest of the time that we'll be spending over the next 6 months with a little bit of -- or the additional 6 months gives us an opportunity to get some additional data into the marketplace and to the scientific community, and also work on -- work towards additional partnerships with advocacy and potentially policymakers. So it does afford us a bit more time to get a few other operational things activated as well. Richard A. Stewart: If I can add to that, if you look at it from a strategic standpoint, given the scale of the market that we're actually addressing, we took a decision that we need to make sure that we have got all of the processes in place to maximize or optimize the product launch. So, I think Jaime and the team are doing a terrific job on that front and Craig on the manufacturing side is doing an excellent job. So I think taking time to get it right is critically important for the success of the launch. Thomas Flaten: And then with respect to manufacturing, you did mention the observations during the GMP inspection. And did you imply -- maybe perhaps I'm reading too much into it, that the manufacturer in the NDA will not be supplying commercial product rather Adare will? And then, what implications does that have for folding Adare into the process now during the NDA review? Richard A. Stewart: Yes. I think the critical part of this is that the PDUFA date remains the 20th of June of this year. That is what the FDA has set, and that's what we're working toward. But of course, any time that there's any observations, we've already made the decision to transfer manufacturing to the U.S. given the geopolitical situation. So, we basically just accelerated that. So, at the moment, the PDUFA date remains exactly the same. And I think, given the scale of this opportunity, it's prudent to ensure that we have contingency supply. It's prudent to ensure that we've got onshored manufacturers here in the U.S. Operator: Our next question today is coming from Jason Butler from Citizens Bank. Jason Butler: On all the progress in 2025. Two from me. Can you just talk a little bit more about where you believe awareness currently is with health care providers and what additional work you'll be doing in 2026 to continue to build awareness of cytisinicline and the data? And then second, is there anything you can say about FDA dialogue on the vaping indication since you got the CNPV? Richard A. Stewart: Jaime, do you want to address the commercialization? Jaime Xinos: Sure. Thanks for the question. Regarding HCP awareness, I would say it's not been a priority to date to do broad-spread awareness about the product. And a lot of that has to do with what you are allowed to say in a pre-approval environment. So obviously, disease state education is one channel that we can provide information in a regulatory-compliant way, but one of the decisions that we've made is that we understand that everyone knows that smoking is bad for you, and there's really not a huge need to go out and spread that message. And so what we've been doing is conserving our resources so that when we get closer to launch, we can do a stronger push from an educational perspective that is specific to data about the product and when the product is going to be in the hands of physicians so they can use it with their patients. So we're scaling it adequately based on the need to do disease-awareness education, or lack thereof, in a smoking-cessation indication. I think as we get closer to launch, we will be ramping up more opportunities, and you're already seeing us do that around some of the conferences where we will be presenting data and where we have. So, ATS is a huge opportunity that Mark mentioned, where we're going to have some new data that we want to get out into the hands of -- into the medical community and into the hands of physicians. So, it's something that we are scaling up as we get closer to launch, but we've been very conservative in our efforts so far in how we spend money prior to them having the solution in their hands to give to their patients. And then, Rick or Mark, I'll turn it back over to you to discuss FDA dialogue on vaping. Mark Rubinstein: Sure. So right now, to date, our discussions with FDA around vaping have largely been around approval for the protocol itself. And we hope to continue engagement as the study progresses. Richard A. Stewart: I think if I can add to that, we're already in site-selection. So, it is progressing at a pace. So I think the key is that we're anticipating a commencement in the first half of this year. So, yes, it's moving along at the pace. And I noted also the public forum that the FDA is putting together the 20 -- I think it's the 14th of June coming up. So, I think there's some debate around the validity of the CNPV. But for us, we think that the opportunity is huge as being the first-in-market for a vaping-cessation product. And that's clearly an underserved market, as there are no treatments there. But -- so I think that's going to be a real area of focus and interest. Operator: [Operator Instructions] Our next question is coming from Brandon Folkes from H.C. Wainwright. Brandon Folkes: Congrats on all the progress. So, just coming back to the manufacturing, does your U.S. commercial launch time line of 1H 2027, does that assume a June 2026 approval or potential later approval? What level of flexibility should we think about in terms of when in 1H '27 you may launch? Anything to read into in that broad time line? And then, maybe on a similar vein, are you looking to add Adare to the NDA before the June approval? Or is this potentially something to qualify them post-approval? Richard A. Stewart: I'll take the answer in reverse order. Yes, it's going to be post the June approval. I think the key now is to focus in on the approval and also to ensure that we put a stake in the ground, frankly, in terms of the first half of '27 for the product launch quite simply because of all of the activities that need to go into it to ensure that we've got product to go into channel to make sure that all of the commercial operations have completed their activities. So, I think there's nothing to read into it other than we got a couple of observations that our third-party manufacturer is currently addressing with the FDA. There's a little bit of opacity around that, of course, because it's a discussion between the FDA and the manufacturer. But as far as we're concerned, on the flip side, we're always in favor of transparency. So we'll keep you in the picture with respect to that as things move along. Brandon Folkes: That's very helpful. Maybe lastly from me, just given the lead time between a potential June approval and a 1H 2027 launch, how should we think about insurance coverage at launch? Should we think about this similarly to normal launches? Or could we have better than normal insurance coverage at launch, obviously, given the indication, but also given that lead time to have those discussions? Jaime Xinos: Thanks. I'll take that question, Rick. So regarding payers, yes, we have been out actively having conversations in the regulatory compliant pre-approval information exchange opportunities that we do have. So we've had about 40 touch points with payers in the first quarter. We've attended PCMA. We've actually had inbounds from payers who want to have conversations with us. So, we are obviously on the radar. They are very interested. They recognize the differentiated profile of cytisinicline and the clear unmet need. Obviously, we know there's still 25 million people who smoke in this country who need treatments that will help them stop. So, the ongoing conversations are very encouraging. We also know that the Affordable Care Act requires coverage of smoking-cessation treatments. So, that certainly helps in our favor at launch and beyond. And regarding timing, the actual clock really starts building for the demand when the drug is in channel. So, we will have more time to have more conversations, but we won't start building demand. Any initial restrictions to access, such as new-to-market blocks, those still will require a ramp period from time of drug being distributed and in hands of patients to the timing of the bleed out that it takes in order to get on formulary for some of those plans. So, we're still tracking a slow ramp for the initial 6 months of launch. Operator: Our next question is coming from Justin Walsh from JonesTrading. Justin Walsh: I'm wondering if you can provide additional color on the robustness of the raw plant material supply-chain. Are third-party suppliers able to meet expected demand if Sopharma is unable to do so? Richard A. Stewart: Excellent question, Justin. Yes, as I mentioned before, we have been stockpiling the starting material for some considerable time. And by the time we get to launch, we believe we'll have more than 3 years supply of starting material for the amounts required for in-market sales. So -- and we will continue to add to that stockpile. We don't really see the inventory going much below 3 years for the foreseeable future. We've been buying in for quite a few years now. And the starting material has a 3-year shelf life, but we basically will reprocess it as we -- as it's required to be used. Justin Walsh: And one more for me. I'm wondering if you can comment on the cytisinicline dosing schedule and if there's any concern that a potential pill burden could limit real-world compliance or commercial uptake. Richard A. Stewart: I'll hand that one over to Dr. Mark Rubinstein stage. Mark Rubinstein: Sure. That's a great question. We actually have found, just after completing our ORCA-OL, where people actually use the pill 3 times a day for up to a year, that not only did people not find it excessively burdensome, but our completion rate and the number of people who adhered to the protocol was incredibly high. A lot of participants reported that they felt that their highest cravings were around mealtime. And so actually, even though you don't have to take cytisinicline with meals because it's TID, it's perfectly -- it can be perfectly timed around meals. And they found that it was reassuring to take something to address their cravings right around the time periods that they would have their highest cravings. And again, our adherence rates in all of our trials and our OL trial, which was 52 weeks was incredibly high, over 75%. Operator: Next question is coming from John Vandermosten from Zacks. John Vandermosten: In December, there was an ICER report that came out that calculated some prices for cytisinicline. And I was wondering if you've seen that. And then wondering how that compares with your internal calculations and what prices you're thinking about when that comes about next year. Richard A. Stewart: Jaime? Jaime Xinos: We have definitely seen the report -- thanks for the question. Yes, we have seen the ICER report. We were involved in the process, providing information when requested that was appropriate for their consideration. I think, importantly, what it did highlight is that they have affirmed there is a substantial unmet need despite currently available treatments, and that payers should make cytisinicline immediately available. And as far as pricing goes, we're not going to comment on our pricing because we've obviously not set that yet, and we're not ready to have those conversations with payers on an exact price. So, we'll leave it at that, but we are pleased with the recommendation that ICER made. John Vandermosten: And then a few questions on manufacturing. I guess I wanted to frame it first. Where does it stand with a synthetic manufacturer of API? And then I believe there are 3 different entities, perhaps, that you're working with. There's Adare. I believe there's a European manufacturer and then there's Sopharma. How does that all fit together? Richard A. Stewart: Right. So, some pieces of a jigsaw puzzle. Look, I think the key here is that the synthetic is an end process, put it that way. It's not an easy process, and I think I've stressed this before, we're making substantial progress on that front. But I think in terms of the 3 manufacturers, we start off with Sopharma. Sopharma was not included in the NDA because we had concerns over their FDA inspection-readiness. I was down in Sofia about 3 weeks ago, and Sopharma have made substantial progress with respect to their inspection-readiness. And we'd expect -- we're going to intend to add them to the NDA once it's approved. I think in terms of the third-party manufacturer, the key there is that, as I mentioned, we've got these observations that we're monitoring very, very carefully, and they're collaborating with the FDA to rectify any kind of observations and the remedial action associated with it. And then ultimately, the transfer of manufacturer to the U.S. has largely been driven by a desire to have contingency and redundancy in our overall supply chain. And given the uncertainty around tariffs in particular, and also MFN and that kind of stuff, we decided some time ago to actually move manufacturing into the U.S. So, timing-wise, we're anticipating that Adare should be available to be added to the NDA in the third quarter, that kind of time frame. So does that answer the question? Operator: Yes. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. Richard A. Stewart: Well, I'd just like to thank you all for your continued interest in Achieve Life Sciences. We've made terrific progress this year. And I just want to put it into context, 15 years ago, Tony Clarke, who is the Co-Founder of Achieve and I have this idea that cytisinicline could do immense societal benefit with a desperate need for a new treatment for nicotine dependence for smoking cessation. At that point, vaping didn't even exist. Over the years, we've worked tremendously hard. The initial 8 years was Tony Clarke and I actually funding the company ourselves. And since we -- over the last 7 years, we've made fantastic progress to address this huge unmet medical need. And we really do believe that we're at this brink -- on the brink of actually great success and having the ability to treat patients who have got very few options to quit. So, I'd just like to say thank you for your continued interest in the company, and we look forward to updating you. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good afternoon. My name is John, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2026 First Quarter Earnings Conference Call. [Operator Instructions] The conference call is being recorded, and a replay will be accessible on the KB Home website until April 24, 2026. And I will now turn the call over to Jill Peters, Senior Vice President, Investor Relations. Thank you, Jill. You may now begin. Jill Peters: Thank you, John. Good afternoon, everyone, and thank you for joining us today to review our results for the first quarter of fiscal 2026. On the call are Jeff Mezger, Executive Chairman; Rob McGibney, President and Chief Executive Officer; Rob Dillard, Executive Vice President and Chief Financial Officer; Bill Hollinger, Senior Vice President and Chief Accounting Officer; and Thad Johnson, Senior Vice President and Treasurer. During this call, items will be discussed that are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future results, and the company does not undertake any obligation to update them. Due to various factors, including those detailed in today's press release and in our filings with the Securities and Exchange Commission, actual results could be materially different from those stated or implied in the forward-looking statements. In addition, an explanation and/or reconciliation of the non-GAAP measure of adjusted housing gross profit margin as well as other non-GAAP measure referenced during today's discussion to its most directly comparable GAAP measure can be found in today's press release and/or on the Investor Relations page of our website at kbhome.com. And finally, please note all figures are based on our quarter ended February 28, and all comparisons are on a year-over-year basis unless otherwise stated. And with that, here's Jeff Mezger. Jeffrey Mezger: Thank you, Jill. Good afternoon, everyone. We are pleased that our first quarter financial results were within our guidance ranges. Operationally, our divisions continue to execute well, and we achieved our highest community count in many years, contributing to year-over-year growth in net orders. Perhaps most importantly, we have returned to a mix of sales that are predominantly built-to-order, which we believe will enable us to achieve 70% built-to-order deliveries in the second half of this year. We have a renewed focus on this core strategy as a central component in strengthening our company going forward. With the lag between sale and delivery for built-to-order homes, we expect to continue growing our backlog. A larger backlog will provide many benefits, including greater predictability in our deliveries and higher gross margins than we achieved on inventory sales, typically in the range of 300 to 500 basis points. As to the details of our first quarter results, we produced total revenues of about $1.1 billion and diluted earnings per share of $0.52. We continue to have significant financial flexibility and remain balanced in our capital allocation, investing for growth while also returning capital to our shareholders. We repurchased 843,000 shares of our common stock at an average price below our current book value per share, which we believe is an excellent use of our cash, accretive to both our earnings and book value per share and a factor in improving our return on equity over time. Inclusive of dividends, we returned almost $70 million in capital to our shareholders in the first quarter. In addition, we continued to expand our book value per share compared to the year ago period to over $61. Consumers have been faced with a variety of challenges over the past 2 years, and the conflict in the Middle East that began at the end of February has added another layer of uncertainty. Against this backdrop and taking into consideration that our net orders in the first quarter were below the level we needed to hold our prior year -- our prior full year delivery guidance, we are lowering our range for the year. Rob McGibney will provide more color on this in a moment. Before turning the call over to Rob, I want to congratulate him on his promotion. As part of our long-term succession plan, Rob assumed the role of President and Chief Executive Officer on March 1, and I transitioned to Executive Chairman of the Board. Rob is a proven results-oriented leader with a deep understanding of our business gained over the past 25 years with the company. He began his career at KB Home in our Las Vegas division, historically our largest and most profitable, where he rose to Division President and then continued on in roles of increasing responsibility within the company. Rob has worked side-by-side with me during the past 5 years while running our homebuilding operations and both the Board and I are confident that he is ready to lead KB Home forward. With that, I'll turn the call over to Rob. Rob McGibney: Thank you, Jeff. I am honored to step into the role of CEO and excited about KB Home's future. With our distinguished brand, differentiated product offerings and industry-leading customer service, there are significant opportunities to create value for both our homebuyers and our shareholders. In addition, our strong financial position provides us with flexibility and the ability to support growth of our business over time. One of the traits that defined our operations in fiscal 2025 was consistency in our operational execution that led to meaningfully improving our build times and tightly managing our direct costs. We will continue to focus on these key areas in fiscal 2026 together with our renewed focus on our built-to-order strategy. We are confident the multiple advantages of our BTO model will ultimately result in a stronger company. We remain optimistic about the long-term housing market with favorable demographics supporting higher demand over time, together with the structural undersupply of homes. Near term, buyers continue to demonstrate the desire for homeownership and the ability to qualify, although tepid consumer confidence, elevated mortgage interest rates and affordability pressures have stifled underlying demand. More recently, the conflict in the Middle East has created more uncertainty for an already cautious consumer. In the first quarter, healthy traffic in our communities, a steady conversion of traffic to sales, the lowest cancellation rate we've experienced in the past 4 years and our higher community count drove a 3% year-over-year increase in net orders. While the growth in net orders is clearly a positive at 2,846, our sales were below what we needed to maintain our prior full year delivery guidance, as Jeff noted. The meaningful improvement in cancellations reflects high-quality committed buyers who are ready and able to purchase a home and also supported net orders at an average absorption pace of 3.5 per month per community. Although this pace was slightly lower year-over-year, we remain focused on our long-standing annual average target of 4 net orders per community to optimize our assets. Most importantly, our order mix demonstrates a deliberate and strategic shift in how we are positioning the business for the long term. We are returning to our core built-to-order model, a foundational element of how KB Home operates. This is how our teams are trained, how we manage our communities, and how we create value. While this will result in a temporary trough in deliveries for the first half of the year, as the higher level of BTO homes we are selling now will benefit our third and fourth quarter deliveries and we have intentionally slowed our inventory starts, it is a purposeful reset that positions us to be a stronger, more predictable company in the second half of the year and beyond. We are making considerable progress increasing our built-to-order sales. They represented 44% of our net orders in October, growing each month through the first quarter. We exited February at 68%. And in the early weeks of March, we are now above 70%. Built-to-order homes typically generate between 300 and 500 basis points of incremental gross margins compared to inventory homes and as a result, have a greater percentage of BTO deliveries will drive higher margins -- having a greater percentage of BTO deliveries will drive higher margins. As we increase our mix of built-to-order homes, we are building a solid backlog, a solid sold backlog that has not yet started construction. This backlog provides greater visibility into future deliveries and revenues, improves efficiency in our starts and production processes and gives our trade partners clearer line of sight into their upcoming workloads. In turn, this predictability supports better execution and over time, contributes to more favorable cost structures. We can leverage the pending starts into more favorable bids and keep our trade partners on our job sites, which is more efficient and further improves build times. Internally, our cost structure benefits from managing the even flow production. With the makeup of our net orders in the first quarter, together with our expectations for BTO sales in the second quarter, we anticipate reaching a turning point in the second quarter in growing our backlog relative to the prior year period. As a result, we expect to drive sequential increases in deliveries as we move through the back half of the year. More broadly, we view this as more than just a mix shift. It is a reset back to our core operating model that extends well beyond the current fiscal year results, which will allow us to operate with greater precision, less volatility and stronger alignment among sales, starts and deliveries. It reduces the need for speculative inventory, lowers our exposure to pricing swings and supports more disciplined capital deployment. Over time, we believe this will translate into a more durable and differentiated business, one that is better positioned to generate sustainable margins and returns across cycles. We also expect our deliveries in the second half of this year to reflect a more favorable regional mix with increased contribution from our Northern California businesses. Our communities in these markets have historically had higher ASPs and higher margins. More of these community between now and with deliveries projected in the third and fourth quarters and beyond, we expect to see the benefits in our financial results. Finally, with greater delivery volumes at higher ASPs in the second half of the year, we expect to regain operating leverage on the fixed cost component of our gross margin. Our ability to build homes more efficiently continues to be strong. We had already achieved our company-wide target of 120 days from home start to completion on built-to-order homes in the fourth quarter of fiscal 2025, yet we further improved in this critical area in the first quarter, with a sequential decrease to 108 days. This is an important factor in the value proposition of a BTO home from a customer standpoint relative to the time it takes to purchase a resale or an inventory home. Shorter build times also allow our customers to lock their mortgage rates more easily and cost efficiently. In reducing our build times, we have now meaningfully expanded our selling window within the year. Last year, it took us about 5 months to build a home, which meant early spring was the latest we could sell BTO homes for same-year delivery. Today, with build times closer to 3.5 months, we can continue selling BTO homes for same-year delivery into the summer. The result is simple. More of what we sell this year turns into deliveries and revenues by year-end, which improves both our volume and cash flow. We ended the first quarter with 276 active communities, the highest count we have had in many years, up 8% year-over-year. We achieved 37 grand openings in the first quarter, in line with our target, and project another 30 to 35 community openings in our second quarter. These new communities will contribute to a peak for community count sometime within our second quarter at the height of the spring selling season. With more communities, we are positioned to drive more sales and our new communities typically sell at a stronger initial absorption pace, benefiting from the newness and excitement of grand openings and supported by our disciplined community opening process. As we look beyond the second quarter, depending on the pace of sellouts, we expect the community count to step down somewhat in the second half of the year. Our production is in better balance today with a total of 3,353 homes in process, split between 70% sold and 30% unsold. This balance aligns with our expectation to increase our BTO deliveries to at least 70% of our total in the second half of this year. As to direct costs, we continue to benefit from lower trade labor expense in most markets, but there is some pressure on material costs from lumber. We are managing our lumber locks strategically and drawing on our deep supplier relationships to limit cost increases while also continuing to actively rebid our local and national contracts as well as value engineer our products and simplify our studio offerings to help manage our overall direct cost. Before I wrap up, I will review the credit profile of our buyers who finance their mortgages through our joint venture, KBHS Home Loans. Our capture rate remained high with 81% of buyers who finance their homes in the first quarter using KBHS. Higher capture rates help us manage our backlog more effectively and provide more certainty in closing dates, which benefits our company as well as our buyers. In addition, we see higher customer satisfaction levels from buyers who use our JV versus other lenders. The average cash down payment of 16% was fairly steady as compared to prior quarters, and equated to over $72,000. On average, the household income of customers who use KBHS was about $133,000 and they had a FICO score of 743. Even with 1/2 of our customers purchasing their first home, we are still attracting buyers with strong credit profiles who can qualify for their mortgage while making a significant down payment or pay in cash. 11% of our deliveries in the first quarter were to all-cash buyers. In conclusion, we continue to navigate market conditions with a focus on strong operational execution and disciplined adherence to our built-to-order model to drive results. We are confident that our personalized product offerings and transparent pricing approach are compelling for our buyers. Further, with an increasing number of communities in attractive submarkets set to open in our second quarter, and expected higher percentage of BTO deliveries as well as an anticipated regional mix weighted towards higher ASP, higher margin Northern California deliveries later this year, we believe we are well positioned for stronger results in the second half of fiscal 2026. And finally, as we continue to align our overhead to our delivery volume, we have taken steps to reduce our cost, including an unfortunate but necessary 10% year-over-year headcount reduction. While it takes a little time to see the impact of these measures in our financial results and our SG&A ratio is also a function of our revenue level, we do expect this ratio to be lower in the second half of 2026 as well. And with that, I will turn the call back to Jeff. Jeffrey Mezger: Thanks, Rob. We have a favorable lot position owning or controlling over 63,000 lots at the end of our first quarter, 41% of which were controlled. Our growth strategy remains primarily centered on expanding our share within our existing markets with the geographic footprint that we believe is positioned for long-term economic and demographic growth. Our approach toward allocating our cash flow remains consistent and balanced. We are achieving our priorities of positioning our business for future growth, managing our leverage within our targeted range and rewarding our shareholders through share repurchases and our quarterly cash dividend. We are maintaining our land investments at a level that will support our current growth projections and invested about $560 million in land acquisition and development in the first quarter with roughly 60% of our investment going toward developing land we already own. In closing, I want to thank our entire KB Home team for their commitment to serving our homebuyers and the discipline with which they've been executing our built-to-order model, which we believe will result in a stronger company going forward. Although market conditions remain challenging, we are focused on the appropriate levers to drive improved results, renewing our focus on built-to-order, reducing our build times, lowering our costs, opening new communities and staying balanced in our capital allocation. We plan to continue our share repurchase program in fiscal 2026 with between $50 million and $100 million of repurchases plan for our second quarter. Following the end of the spring selling season, we expect to have more clarity on our year. As a result, we anticipate providing margin guidance with our 2026 second quarter earnings announcement in June. We are committed to delivering long-term shareholder value, and we look forward to updating you as the year continues to unfold. Now I'll turn the call over to Rob Dillard for the financial review. Robert Dillard: Thanks, Jeff. I'm pleased to report on the first quarter fiscal 2026 results. As Jeff and Rob said, we continue to manage the business with discipline, with a focus on optimizing every asset by pricing to the market maintaining a healthy pace and delivering our built-to-order advantage. We expect that this strategy of providing a personalized home that the customer prefers will also benefit our financial performance as we shift the delivery mix towards higher-margin built-to-order homes in 2026 and beyond. In the first quarter of fiscal 2026, we were within our guidance range with total revenues of $1.08 billion and housing revenues of $1.07 billion, a 23% decrease on a year-over-year basis. We delivered 2,370 homes in the quarter. This result was near the midpoint of our guidance range as we continue to experience moderate demand from a cautious consumer. Deliveries benefited from a 22% reduction in build times for built-to-order homes to 108 days, a 9% sequential reduction. Lower build times increase capital efficiency and benefit volume, as Rob discussed. Average selling price declined 10% to $452,000 due to regional and product mix and general market conditions. Average selling price declined 3% sequentially due primarily to regional mix. Housing gross profit margin was 15.3% and adjusted housing gross profit margin, which excludes $2.2 million of inventory-related charges, was 15.5%. Adjusted housing gross profit margin was 480 basis points lower, primarily due to pricing pressure, higher relative land costs, regional mix and lower operating leverage. We continue to manage cost effectively and achieved an 8% reduction in total direct construction costs per unit. SG&A as a percent of housing revenue increased to 12.2% as lower costs were offset by a decrease in operating leverage. SG&A expense decreased 14% due to reduced selling expenses associated with lower unit volume and fixed cost controls. SG&A benefited from a favorable impact of an $8 million insurance recovery. While such recoveries occur from time to time, the absolute size and relative impact of this quarter's recovery was greater than usual. Homebuilding operating income for the first quarter decreased to $33 million or 3.1% of homebuilding revenues. Net income was $33 million or $0.52 per diluted share benefiting from a 13% reduction in our weighted average diluted shares outstanding. Turning now to our guidance. Our guidance for the second quarter and full year 2026 reflects the current uncertainty of the new home market, which we believe has been impacted by affordability concerns and recent geopolitical tensions. We continue to focus on controlling the controllables and have improved our operations with lower build times and lower costs. We believe that this operational improvement, combined with our strategy to shift to a higher mix of built-to-order homes will further benefit our financial results in the second half of 2026 and beyond, as Rob detailed in his comments. In the second quarter of 2026, we expect to generate housing revenues between $1.05 billion and $1.15 billion, based on expected deliveries of between 2,250 and 2,450 homes. Housing gross profit margin, assuming no inventory-related charges, is expected to be between 15% and 15.6% for the second quarter of 2026. Price will continue to be the primary driver for margin pressure as we balance price and pace for the remainder of the year. Margins are expected to be impacted by higher relative land costs, regional mix, and reduced operating leverage as deliveries are expected to remain below prior year levels. We expect to continue to partially offset this margin pressure with lower direct construction costs per unit. We continue to expect margins to improve in the second half of 2026, driven largely by positive operating leverage from typical seasonality and a more favorable regional mix with a shift to higher-priced, higher-margin West Coast communities as well as our strategy to increase the mix of built-to-order homes delivered. The second quarter 2026 SG&A ratio is expected to be between 12.4% and 13% due to expected reduced operating leverage despite cost controls. We had solid results, reducing both fixed cost and direct construction costs in the first quarter, and we expect this to continue in the remainder period of 2026. We expect our SG&A ratio to decline in the second half of the year due to lower fixed costs and increased volume. Our effective tax rate for the second quarter is expected to be approximately 19%. The tax rate is expected to trend higher in the second half of 2026 due to reduced impact of energy credits. For the full year 2026, we expect housing revenues of between $4.8 billion and $5.5 billion based on between 10,000 and 11,500 deliveries. This full year guidance is based on current market conditions. We anticipate refining full year guidance and providing additional details as we gain further clarity on the spring selling season. Turning now to the balance sheet. We continue to manage our capital with discipline. With a dual focus on funding growth and returning excess capital to shareholders with over $5.7 billion in inventories, a 1% sequential increase, we believe that we are well positioned to fund growth in the near and long term. We own our control over 63,000 lots, including approximately 26,000 lots that we have the option to purchase. We continue to invest in growth, as indicated by the $567 million we invested in land and development, while also exercising discipline through our rigorous underwriting standards, that resulted in abandoning contracts to purchase 3,400 lots at a cost of $2.2 million. We believe that this rigorous land process has improved the quality of our land inventory and will benefit future profitability. We're confident that we'll continue to identify and execute land opportunities, matching our consistent cash flow and considerable liquidity. At quarter end, we had total liquidity of $1.2 billion, consisting of $201 million in cash and $1 billion available under our $1.2 billion revolving credit facility. As with last year, the $200 million in utilization of our revolving credit facility is seasonal in nature. We have no debt maturities until June of 2027. We will continue to be thoughtful in managing our capital structure to ensure we capitalize on favorable market conditions to refinance any maturities. We continue to target a debt-to-capital ratio in the neighborhood of 30% to support our strong BB positive credit rating. We are comfortable with our current 32.9% ratio. Our strong balance sheet, combined with the returns from our operations has enabled us to return over $1.9 billion to shareholders in the form of dividends and share repurchases in the past 4.5 years. In this period, we have repurchased 37% of our shares outstanding, which we believe is the highest percentage of shares repurchased during this time among our peer companies. Returning capital remains a core part of our focus on delivering strong total shareholder returns in all market conditions. In the first quarter, we paid $17 million in dividends, representing a 1.8% yield, and we repurchased 843,000 shares for a return of capital of $50 million. We ended the quarter with $850 million available under our current repurchase authorization. We expect to repurchase between $50 million and $100 million of common stock in the second quarter. As we look ahead, our strategy is to enhance our results through increased operating rigor as we shift our delivery mix towards higher-margin built-to-order homes. We believe that this operating strategy when combined with our shareholder-focused capital strategy will maximize shareholder value over the long term. With that, we'll now take your questions. John, would you please open the line. Operator: [Operator Instructions] And the first question comes from the line of Matthew Bouley with Barclays. Matthew Bouley: So first, I guess based on the numbers you gave around inventory homes, it seems like the built-to-order orders really improved kind of beyond what you get just from cutting spec starts. So my question is, obviously, we talk about the sort of gross margin benefit, that's pretty clear. But when you talk about mixing the business back to built-to-order, maybe this will be a preview of your Investor Day a little bit. But what does that kind of more full and visible backlog do for your sales folks, your operators, what changes around your thought process on production and starts? Just any more color on why the business overall runs better relative to spec production. Rob McGibney: Sure. Matthew, thanks for the question. When we look at our built-to-order business, as I mentioned in my prepared remarks, it's really part of our DNA. It's how we set up things. It's how we look at the world, it's how we train our salespeople. So we're not surprised to see the shift to built-to-order. And part of it is just we haven't been starting the specs so we're not competing with ourselves in our own communities with both heavy spec load as well as build-to-order. But the benefits that it provides to the business in predictability. The first place I would go is that we've got this backlog of sold not started homes that we can leverage that gives us a cadence where we can operate on even flow production. That benefits all across the board, whether that's on our fixed cost or just managing to a consistent level of construction in our communities. Plus we can use that cash, if you will, of homes that we have sold not started because it also gives our trade partners visibility. And most of the markets that we're operating in right now, we're seeing starts are down pretty significantly year-over-year, and there are trade partners that are hungry for work. So that's the first place that we point to with this guaranteed sequence of starts that's coming up. You mentioned it, but one of the obvious ones is the big margin, incremental margin that we see within the same community, selling built-to-order versus the inventory. And from a customer's perspective, our view, my view is that we're creating something different. And it's not just treating a home like a commodity or a widget, where people take what's out there and available, but they're getting to create their own personal value by picking their lot, picking their floor plan, picking their elevation, going through the design studio process and really making that home their own and designing it to fit their needs and their lifestyle and fit their budget as well. Matthew Bouley: Okay. Got it. No, that's super helpful. Second one, just kind of jumping into the guide. So mean you talked about, I guess, removing roughly 1,000 deliveries from the full year guide. Q1 orders were up year-over-year. I know you mentioned that it wasn't the level you needed to hold on to the guide. What I'm trying to get at is, I guess, was that Q1 order number, the entire driver of the guidance change? Or is this -- should we also think you're trying to reflect any more recent shifts in the market in March or any other changes on kind of the progression towards built-to-order. Anything else that's kind of changed relative to when you gave this guidance in January? Rob McGibney: Yes. It's really the combo of the things that you mentioned. Part of it is the orders. Our orders while was a positive year-over-year comp, and we're pleased with the transition to more BTO sales, they were below our internal expectations that we had and how we built the plan for the year. As we get into the early part of March, there's a lot of noise out there. And we mentioned in our prepared remarks, this conflict in the Middle East that started right at the end of February. And we saw pretty good sales results in the first week of March. But the last couple of weeks have been a little softer than what we would like to see or what we normally get this time of year. And we just don't have a lot of visibility right now as I don't think anybody does into how long this conflict may go on, and how it's going to impact consumer psyche and confidence. But we feel that right now, it's weighing on the consumer. So those are really the 2 reasons why we adjusted the guide and provided a little wider range than we normally would for full year deliveries and revenue because of the lack of visibility we got into the short-term kind of acute nature of the market right now. Operator: And the next question will come from the line of John Lovallo with UBS. Matthew Johnson: This is actually Matt Johnson on for John. I appreciate the time. I guess, first, if we could just talk about gross margin a little bit. If I recall, I think last quarter, you guys had expected 1Q to be the low point for the year on gross margin. Now it looks like at the midpoint of your outlook, you're expecting 2Q to be down from 1Q. So can you guys just give us some more color on what's driving that kind of -- what's giving you guys confidence that margin will, in fact, ramp from 2Q to 3Q? And then just if you guys could give us some numbers, I think you gave some numbers on the mix of BTO versus spec orders, but if you give some numbers around the mix of BTO for spec deliveries in 1Q versus 2Q, that would be great. Robert Dillard: Yes. As we thought about the sequential mix on where gross profit is going to go, I think that we think it's actually relatively flat as we're guiding to a range, we're putting a range out there that we feel comfortable with. I think that if you think about the drivers individually between quarters sequentially, we don't expect meaningful changes in price, but we do expect to continue to get some delivery cost reductions. So I think there should also be some mix factor in there that's going to be driving it down before we see the ramp. As you think about the second half of the year, it's something that we've been talking about in the past, the shift of ETO should accumulate to an increase in gross profit margin. We do expect some seasonal unit uplift that we would -- that we've kind of -- that's implicit in the guide, that should have some uplift in margins. And then also further cost reduction should have a benefit as well. So it's really those 3 factors that we think are going to benefit the margins as we go through the year. We have pretty confidence in that because we're selling the houses now and marketing the houses now. And that's one of the benefits of the model is that we know the margins of the BTO house before we build it, whereas with the spec, you kind of never know until it's done. Rob McGibney: I'd add to that as we look out towards the back half of the year, I mentioned it in my prepared remarks, that we have a lot of things that are just structurally different that we see that are going to lift margins. And Rob mentioned the shift to BTO, leverage on fixed with greater scale. But a big one that I mentioned is the shift or the transition back to a bigger, better business in Northern California. So as we look to the back half of the year, we're getting deliveries from communities, from stores that are open in Northern California today that have a much higher ASP and have very healthy margins. And as those become deliveries, some of these average selling prices are between $1.2 million to over $2 million. So it has a big impact on the overall company margins, and we see that happening today. If you think about Northern California, we've gone through a little bit of a trough here with communities over the last couple of years. It used to be one of our biggest, most profitable businesses. And in that area of the country, it takes a really long time to bring lots to market. So we've been working on these things for years. They're finally here, we're delivering, and we like what we see, and it's going to provide a real tailwind for margins on the back half of this year. Matthew Johnson: Yes. That all makes a lot of sense. I appreciate all the color there. I guess then if I could just follow up on the direct costs, specifically, I think you guys said they were down 8% year-over-year, which is really strong, obviously, although it sounded like there are some puts and takes within that. So I guess if you guys could just talk a little bit more about the impact from materials versus labor within that? And then just any -- obviously, it's early days here, but any disruption from what's going on in the Middle East, just broader supply chain kind of what you're hearing from your suppliers in terms of potential price or availability impacts there? Rob McGibney: Yes. Overall, you noted the number year-over-year. We've made good progress with the things that we can control and value engineering our products and rebidding and renegotiating, reworking our national contracts. So that's all structural and will stand. Lumber has started to tick up here recently, and we've got various locks in a lumber strategy where we have different lock periods for different divisions. And there's potentially some tailwind or headwind coming from that as we relock some of these depending on what happens with lumber. But we think that our strategy is sound there, and I don't think that it's going to be a significant impact and likely it may just be an offset to further direct cost reductions that we'd otherwise be able to go out and get and achieve. As far as the impact from the situation in the Middle East, it's just really difficult to tell. With oil prices being higher, certainly, that can bleed into land development and vertical construction. And then a lot of the products that go into a home, there's petroleum that's involved in those products at some point. So potential cost increases there, we're hopeful that we can continue to offset that with some of the proactive things that we're doing, but it really is a total unknown at this point. We haven't seen it yet. It hasn't showed up yet in our cost. Operator: And the next question comes from the line of Stephen Kim with Evercore ISI. Stephen Kim: Yes, the move to BTO is very clear. It's obvious that there's some margin benefits there. With it, though, you're probably also going to see, you would think, slower backlog turns and maybe a temporary drag on cash flow. I'm trying to get a sense for what we should be thinking in terms of a going forward backlog turnover ratio in 2017 to 2019, pre-COVID, you were kind of running at like your exit rate of the year, your fourth quarter, which usually was your highest, was like kind of in the low 60s. I'm wondering, is that like kind of a reasonable level that we should be thinking about for the business to kind of return back to that kind of a level? Or do you think you can do better than that? I noticed you said your build time was like 3.5 months, that would imply a backlog turnover ratio of like 86%. So I mean just some guidance here or some color would be really helpful. Rob McGibney: We don't really think about the business that way. But I think somewhere between that 60% number and the 80% number is probably where we'll fall. The backlog turn that we've had has kind of been a false read versus what our typical business is because we're going into a quarter, and we may have 500, 600, 700 sales -- same-quarter sales and closings of inventory turn that weren't in that beginning backlog number. So it's pumping up that ratio. With our build times where we've got them, and we build the plan from the ground up when we do our quarterly and full year plans. And we're banking on the cycle time improvements, the build time improvements that we've gotten so far. But I think 70% -- 60% to 70% is probably a good target. Yes. Jeffrey Mezger: Steve, just to clarify one other thing. Our built-to-order approach is actually better with cash. If you think about carrying a couple of thousand spec homes that you have to sell and close, they're fully loaded and all the cash is out, and we're setting this up where it's real-time deliveries, the home gets completed, the loan is approved and the buyer goes and close. So it's actually better cash management. If you can just roll through the WIP sold at the percentage we're targeting. Stephen Kim: Got you, okay. That's really helpful. Then another side effect of moving to more BTO is that it potentially exposes you to higher cancellation rates. I know cancellation rates are super low this quarter. And it's -- one of the things I've been thinking about is that your customer deposits as a percentage of ASP are about 2%, which is pretty low even relative to other built-to-order builders, and I know you've traditionally run with some lower customer deposits than other builders. And I'm curious if you could sort of talk about why that is, why you adopt that as part of your strategy? And is that something that you might change going forward? Rob McGibney: Steve, I'd say it's something that we always evaluate, and we might change going forward depending on market conditions. When market conditions are really strong, it's easier to command a higher deposit. But today, with the way things stand, we don't want to let that deposit upfront be a major obstacle to somebody purchasing their home. And my view on it is that when somebody comes in and buys the personalized home and they go through that process that I described earlier, and they're creating their own personal value that's unique to them. That's as much of a hook is getting them to stay in the deal as the deposit is. So we don't anticipate that we're going to have real issue of cancellations. The backlog quality that we've got, the buyer profile is very healthy. They're creating their own value in their home. And we feel good about how we're positioned with that. Operator: And the next question comes from the line of Michael Rehaut with JPMorgan. Michael Rehaut: I wanted to first just revisit kind of the first quarter and March to date sales trends, which was obviously behind the guidance reduction? And also just better understand, if possible, how the year-over-year sales pace trended throughout the first quarter in terms of December, January, February? And if there's any incremental color in terms of at least on a year-over-year basis, how that kind of played into March. Rob McGibney: Sure. Our sales cadence or the order cadence progressed generally as we would expect seasonally, really improving each week as the quarter unfolded. And so we mentioned we delivered 3.5 sales per community for the quarter. And December was a slower start for us and put us behind on our year-over-year comp. Then we saw solid momentum through January and February and ultimately finished the quarter up 3% year-over-year. As to March, as I said, the last couple of weeks of March have been a little softer than we would have liked. And this conflict in the Middle East, I think, which kicked off right at the end of February, beginning of March, there's clearly some near-term pressure on the consumer psyche from that. And that's one of the things that's limiting some of the visibility in the short term. But as I mentioned before, we just -- we don't know how long that's going to go, or how long this will weigh on the consumer, but we've reflected that in, I think, appropriately in our guidance by taking a more measured approach with that, including a wider full year revenue and delivery range than we normally provide at this point. Michael Rehaut: Okay. That's helpful. I appreciate that. And I guess, secondly, with regards to the gross margin outlook for the back half. I know you talked about ASPs and the mix benefiting from California, more California in the back half of the year. I think it would be extremely helpful if there's any way to kind of size or give any type of rough degree of magnitude or range, 50 bps, 100 bps, 200 bps, however you want to characterize it, but any way to quantify perhaps the degree of magnitude of improvement that you're expecting in 3Q and 4Q gross margins relative to your 2Q guide. I think it would be very, very helpful for people to try and get their arms around, modeling and trying to anticipate what level of improvement you're thinking of at this point? Robert Dillard: Yes, Michael, there's a couple of key factors that we're thinking about that have been driving that second half margin uplift that are giving us a lot of confidence. The first one that we've talked about in the past is the BTO shift. And if you can just do the rough math around increasing BTO mix from where it is today to around 70% and then the 300 to 500 basis point differential in the margin there that equates to about 50 basis points of margin uplift as you get to that BTO mix and where we're targeting. Further, we've got regional mix in there, which is relatively meaningful. The difference in gross profit and some of those higher-margin communities can be as much as 1,000 basis points, and it's something that will have a meaningful impact just on that with the price. So things that you should consider there is that there will be a shift in the ASP that's just associated with mix, and there will be a shift in the profitability that's just associated with mix as well. Other factors are the reducing cost and then the uplift in units, which could have -- we're not really calling that, and that's the component that we're still thinking about, but that's anywhere historically in the range of 0 to 100 basis points. Operator: And the next question comes from the line of Alan Ratner with Zelman & Associates. Alan Ratner: Thanks for all the details so far. First, just on the pricing side and the strategy. Obviously, with the shift to BTO, I know you've also been focused on more of a base price model as opposed to a heavy incentive model. I'm just curious, as you look at your portfolio, obviously, there's uncertainty in the market and maybe there might need to be adjustments on the pricing side. What have you seen over the last month or 2 in terms of pricing at your communities? Do you feel like you've hit that point of where pricing has stabilized. I know you mentioned orders were a little bit below your expectations for the quarter. So are you still seeing a meaningful percentage of your communities where pricing is still drifting lower? Rob McGibney: Alan, as I always say, it's really a community-by-community story. Overall, pretty stable. About 70% of our communities during Q1 either had no change, or they had some level of small price increases. They were outpacing what our optimal projections are. We did have still about 30% of our communities where we've moved price down further and different degrees, depending on the community as we just work to find the market and optimize that asset. So changes from quarter-to-quarter. But again, that is a community-by-community focus, it changes, not just on a metro level, but a submarket level and then down to within the community, and degree of change, it can be anywhere from -- it might be a $2,000 change, or it might be $10,000 change. But we're making these incremental movements to try to hit the optimal pace to get the best return result out of each community. Alan Ratner: Got it. Okay. That's helpful. And then second, on your backlog, which is obviously growing here. I'm curious how you're thinking about the risk of higher rates now that rates are beginning to creep up again. And I guess what I'm trying to get at is, if you go back a couple of years ago, obviously, when rates surged, people that enter the contract expecting to close at a certain mortgage rate. You either had difficulty qualifying at that higher rate, or simply didn't want to move forward at that higher rate. And I know you're trying to get away from incentives and rate buydowns, but how are you thinking about the folks that might have written contracts over the last month or 2 when rates were 25, 30, 40, even 50 basis points lower than they are today. Is there a risk there? Are you working with those buyers to lock in a rate or a buy down a rate if necessary to get them to qualify. Just curious how you're thinking about that if rates do continue to move higher here? Rob McGibney: Yes, it's a good question. I'd say if you go back to what you were drawing the comparison to before in different markets, one of the things that was challenging for us there is the way that build times had expanded. And when you're getting up to 8 or 9 months from sale to close, you're exposed to a lot of rate volatility in that time period. And now that we're building in 108 days, we've got less time exposure there. Certainly, with rates being as volatile as they have been over the last couple of weeks, there's some exposure to a limited number of the homes that we've got in backlog. But generally, we're trying to get the buyers locked in with a loan before that home starts at least, if not before. So it's limited exposure to a subset of houses that we have in backlog, mostly in our sold not started yet universe. And if we need to and find that we have to, we're not so rigid on the no incentive approach that we're not willing to help out and do something to buy that rate down to keep that buyer basically in the same position. But it's something that we'll evaluate as we go. And rates have been bouncing around wildly from day to day. So when we hit the low spots, we're going to work to lock as many buyers as we can. Operator: And the next question comes from the line of Susan Maklari with Goldman Sachs. Susan Maklari: My first question is on the SG&A. You mentioned that you did some head count reductions. Can you talk about how comfortable you are with where the business is running today, and how we should think about that potential benefit and the flow-through of that coming in over the upcoming quarters? Rob McGibney: Well, Susan, I would say that the adjustments that we made were to adjust to the new reality of what our deliveries and our revenue and our production levels are. So as we look ahead, if the market were to improve and volumes go back up, I think there's some structural change in there that we'll be able to get the benefit of. But the moves that we've really made on headcount and other fixed cost changes are to rebalance and reposition things with where we now think revenues are headed for the year. Susan Maklari: Okay. All right. And then turning to land, can you just talk a bit about what you're seeing there? Has there been any adjustment on the land market? And what you're watching for to potentially start to ramp up some of your spend on that side? Rob McGibney: So we're still in the land market. We're searching every day for the right deals that fit our profile and that fit the return hurdles that we believe that we need to drive profitable growth over time. It's been a little more challenging on the land front to drive a lot of deal flow because the market has been pretty sticky with price. And there's patient land sellers that generally have not adjusted to the new reality of what's happened with sales prices and demand over the last year or so. As we look at our existing portfolio of deals or deals that we have under contract to purchase, we're having success with landowners in renegotiating terms. That's generally been the easiest thing to renegotiate, which is helpful on the financial side of things, too, because often, that means we're doing a structured takedown instead of a bulk purchase, or we're able to kick out the closing to tie back close of escrow on the land much closer to when we can start turning dirt in development of the lots or in some cases, actually going vertical on the houses. But overall, I think there's still some adjustment that's got to happen in the land market, to reduce the gap between the bid and the ask. At the same time, there are still sellers out there that have adjusted. And that's what we're really focused on is building up our portfolio with new deals that fit our return hurdles today based on current conditions and current pricing and costs. Operator: And the next question comes from the line of Mike Dahl with RBC Capital Markets. Stephen Mea: You've actually got Stephen Mea on for Mike Dahl today. I was hoping to dive more into the BTO versus inventory dynamic. The messaging of BTO typically being like 300 to 500 bps above inventory isn't really helpful. But I was hoping you could impact how this dynamic has been rolling through your most recent orders given all the adjustments to the base price you've had to make in all directions given the choppiness of the market but are you trending on like higher end, lower end, or is there any sort of potential expansion or shrinking of this delta like embedded within your outlook? Rob McGibney: Are you referring to the margin difference or the percentage of sales? Stephen Mea: The margin difference. Rob McGibney: I would say that, that stayed pretty consistent. We're able to -- we've got visibility on that on both the closing side as well as the sales side and haven't seen much of a change there. It's been pretty consistent in that we've got that 300 to 500 basis point delta where built-to-order margins are better than inventory. One of the things that I think we're starting to see now is as we have cleared out some of the inventory, and you don't have as much in a community, and there's buyers for that community that may want or need that quick move in because they've got an apartment lease or something that's coming up. So in communities where we've only got a handful of inventory, and we're primarily selling BTO, there's a little bit less of a reduction in the margin on those inventory sales versus where in the past, we've had quite a few to choose from, both in inventory that's completed as well as build to order. So as we're making this transition to the build-to-order, I think we're definitely getting higher margins on the build-to-order sales, and it will probably help somewhat on the inventory that we do have as well. Stephen Mea: Got it. That's so helpful. And then lastly, just a very broad question, just what you're seeing in your markets at a regional level, if you could speak to any notable pockets of strength and potential areas that are lagging just would be helpful to get a heat check considering all of the choppiness that's out there. Rob McGibney: Sure. Every market's got its own story. And there's places in each metro that are still doing just fine and selling very well, and there's places within the metros that are challenged. But from a regional perspective, we're seeing relative strength on the West Coast, including most of California, Seattle and Boise, Las Vegas continues to perform very well. Texas remains more competitive. Houston has held better with Austin and San Antonio, both grappling with higher inventory and just a very competitive market to secure those customers who are ready to transact. Florida is a little more mixed. Orlando and Jacksonville, I'd say are seeing better demand than Tampa right at the moment. But overall, pricing in Florida, I think, still has stabilized. It's just that the level of demand isn't quite producing the volume that we'd like to see. But every market's got its own story, and each metro has got those communities that are performing well and those that aren't. It appears to be maybe a little bit of a flight to quality with the top submarkets performing better than maybe some of the drive to qualify -- drive to qualified type communities, but that's not the bulk of our business anyway. Operator: And our final question comes from the line of Sam Reid with Wells Fargo. Richard Reid: Actually, I just wanted to confirm your start pace in the first quarter. I can back into that based on your homes in production, but maybe just wanting to confirm the number because I believe the math would imply something less than 1,000 units versus, say, the 1,800 that you started in Q4. And then maybe just piggybacking off of that, how start pace versus sales pace should look as we move through Q2, Q3 and Q4. Rob McGibney: Yes. So we've -- as we've mentioned, we've intentionally been pulling back on the spec starts and matching our starts to our built-to-order sales. So our starts were down, but it was right around 1,800. I believe it was 1,805 in the first quarter. So as we look ahead into Q2, we expect to generate more BTO sales and generate our starts from those sales. And right now, we've got a healthy backlog of homes that haven't started yet that are at the sold not started stage. And that's going to feed our starts over the next couple of months. Richard Reid: That's helpful. And then if it was already covered, I apologize. But maybe could you just give me the final expectation for Q2 on spec versus built-to-order. And any context on what spec versus build-to-order look like on orders for the first quarter? Rob McGibney: I walked through the cadence on that earlier. So I don't know, Rob, if you have the overall average. But we exited February at about 68% BTO. And January and December were slightly below that. But kind of looking at that as the rearview mirror. So as we go forward, we know we left -- we exited February 68%. Early March, we're tracking above 70%, and we think we'll maintain that or get at least 75% as we move through Q2. Operator: Ladies and gentlemen, thank you. That does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Absci Corporation fourth quarter and full year 2025 business update conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, we will open for questions. To ask a question during the session, you will need to press 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today’s call is being recorded. I would now like to hand it over to our first speaker, Alex Khan, Corporate Vice President, Investor Relations. Please go ahead. Alex Khan: Thank you. Earlier today, Absci Corporation released financial and operating results for the quarter and full year ended December 31, 2025. If you have not received this news release or if you would like to be added to the company’s distribution list, please send an email to investors@absci.com. An archived webcast of this call will be available for replay on Absci Corporation’s Investor Relations website at investors.absci.com for at least 90 days after this call. Joining me today are Sean McClain, Absci Corporation’s Founder and CEO; Zach Jonasson, Chief Financial Officer and Chief Business Officer; and Ronti Somerotne, Absci Corporation’s new Chief Medical Officer. Before we begin, I would like to remind you that management will make statements during the call that are forward-looking within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to differ materially from those anticipated and you should not place undue reliance on forward-looking statements. These include statements regarding the development and clinical progress of ABS-201, anticipated clinical trial design, enrollment, and timelines; expected clinical data and their timing; anticipated characteristics and product profile of ABS-201 as a drug product; our target product profile and attributes; the potential for an expedited development pathway, including the possibility of advancing directly from Phase 1/2a into Phase 3; our planned engagement with the FDA regarding development strategy; and potential market opportunity and commercial prospects for ABS-201. Certain statements may also include projections regarding potential market opportunity. These estimates are based on various assumptions, including potential regulatory approval, the final approved label, and the evolving competitive landscape, any of which could cause our actual addressable market to differ materially from these projections. In addition, certain research findings discussed today reflect participant responses to a hypothetical product profile and do not represent clinical results for ABS-201. Additional information regarding these risks, uncertainties, and factors that could cause results to differ appears in the section titled “Forward-Looking Statements” in the press release and on our website issued today, and in the documents and reports filed by Absci Corporation from time to time with the Securities and Exchange Commission. Except as required by law, Absci Corporation disclaims any intention or obligation to update or revise any financial or product pipeline projections or other forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, March 24, 2026. With that, I will turn the call over to Sean. Sean McClain: Thanks, Alex. Good afternoon, everyone. Thank you for joining us for our fourth quarter business update call. We had a strong fourth quarter. ABS-201 is in the clinic, and we have dosed our first three SAD cohorts in our Phase 1/2a headline trial with favorable emerging safety data. We expanded into endometriosis as a second multibillion-dollar indication, and we published what we believe is the first demonstration of de novo, full-length antibody design to zero prior epitopes. I will walk you through each of these today. Also on the call today is Dr. Ronti Somerotne, our new Chief Medical Officer. Ronti spent nearly two decades in clinical development across multiple therapeutic areas at Amgen, BioMarin, and most recently Vertex, where he served as SVP of Clinical Development and Translational Medicine. At Vertex, he was instrumental in the development of Gernabix, the first NaV1.8 inhibitor approved for acute pain, leading it from late-stage development through FDA approval. That registrational experience is exactly what we need as ABS-201 advances toward proof of concept and, if successful, into registrational trials. He will walk you through the clinical development program in detail shortly. I also want to acknowledge Andreas Boesch who retires this month. Andreas built our drug creation organization from the ground up, integrated our AI design capabilities with our wet lab platform, and recruited the leadership team that will carry that work forward. He will continue as co-chair of our scientific advisory board. Andreas has been more than a colleague to me. He has been a trusted partner and a friend. Our development operations are in excellent hands on the foundation he built. Our KOL advisory networks for both AGA and endometriosis continue to expand. You heard from Professors Paz Sinclair and Dr. Goldberg at our December seminar, and we have now assembled a dedicated endometriosis advisory board of esteemed experts that is actively shaping our Phase 2 trial design and endpoint selection. In December, we hosted a seminar on ABS-201 for AGA. We trained the Absci Corporation team and several of our KOL advisers. A full replay is available on our website. Durable hair regrowth remains a significant unmet need in AGA, with current approved therapies showing meaningful limitations in long-term efficacy for patients. ABS-201 was designed with the aim to change that. During the seminar, we presented human ex vivo data demonstrating the prolactin mechanism in androgenetic alopecia. Working with Professor Paz using translational human ex vivo scalp models, we showed that ABS-201 stimulates hair growth by regenerating the stem cell niche. Inhibition of prolactin receptor signaling correlates with prolongation of anagen and restoration of growth signaling, preservation and expansion of the stem cell niche, and potential for follicular reconversion from vellus to terminal hair follicles. Importantly, ABS-201 showed growth-promoting effects without exogenous prolactin, meaning it effectively neutralizes locally produced intrafollicular prolactin signaling. The clinical implication is significant. We believe ABS-201’s mechanism is not limited to patients with elevated systemic prolactin but that it can engage the target in anyone who has active local prolactin receptor signaling. ABS-201 was engineered with an extended half-life designed to support infrequent dosing. In preclinical studies, it demonstrated a three- to four-fold longer half-life than the competitor antibody. We believe this profile may enable a convenient dosing regimen of just two to three administrations for durable, multiyear hair regrowth. Looking at our clinical timeline, we anticipate sharing preliminary safety, tolerability, and PK data for our ongoing headline trial in the first half of this year. That will be followed by an interim 13-week proof-of-concept data readout, including exploratory efficacy endpoints, in the second half. Full 26-week proof-of-concept data will come in early 2027. Ronti will discuss the trial progress in more detail shortly. As a reminder, we intend to use safety, tolerability, and PK from the ongoing ABS-201 study to support initiation of the Phase 2 clinical trial in endometriosis in Q4 this year. The engagement we have had with endometriosis patient advocacy groups and KOLs has reinforced our conviction. This condition has been underserved for decades, and patients need better options. Endometriosis is estimated to affect approximately 10% of women of reproductive age worldwide. There is currently no FDA-approved disease-modifying therapy. Current medical and surgical management strategies have significant limitations. ABS-201 targets a non–sex hormone pathway distinct from existing hormonal therapies. Our preclinical data, combined with positive Phase 2 results from a competitor anti–prolactin receptor antibody validating the mechanism in humans, support the potential to modify disease progression, address both pain and lesion growth, and offer a differentiated safety profile. Beyond ABS-201, our other programs—ABS-101, ABS-301, and ABS-501—continue to progress. Each of these we see as better suited for a partner, and we remain engaged in discussions with multiple strategic parties. This allows us to focus our resources on ABS-201 and invest in additional early-stage programs. Our strategy is to go after underexplored targets in large markets where unmet need is significant and competition is low. That is where the platform creates the most differentiation and where we see the highest return on our R&D investment. To put a number on it, we have advanced our first two programs from AI design to IND in approximately two years at roughly $15 million investment per program, compared to an industry standard of four to six years and $50 million or more. Earlier this year, we published details on OriginOne, our generative AI platform for de novo antibody design, integrated with our lab-in-the-loop validation. OriginOne designs full-length antibodies against zero prior epitopes—targets with no reported complex structure. It generates lead candidates by screening fewer than 100 designs per target, with atomically accurate predictive structures and confirmed functional activity. But the value of the platform is measured by the assets we create. We are expanding our pipeline and expect to advance additional programs. We will provide updates as those programs mature. With that, I will turn it over to Ronti to walk you through the ABS-201 clinical program. Ronti? Ronti Somerotne: Thanks, Sean. Good afternoon, everyone. It is great to be here. My name is Ronti Somerotne, and I am thrilled to be joining the Absci Corporation team as Chief Medical Officer. I am a cardiologist and internist by training, and I have had the opportunity to work at great organizations such as BioMarin and Amgen, and most recently Vertex Pharmaceuticals, where I served as Senior Vice President of Clinical Development and Translational Medicine. I have been fortunate enough to lead clinical development of groundbreaking therapies during my career, including Gernabix at Vertex, the first NaV1.8 inhibitor approved for moderate to severe acute pain. I am excited to join Absci Corporation at such an important time as we continue on our journey to use our integrated AI and wet lab platform to create new and differentiated medicines to improve the lives of patients in need. In the near term, I am excited to be advancing our ABS-201 program for both AGA and endometriosis through the clinic. Both of these programs could represent significant advances compared to available therapies. I have been involved with multiple complex clinical trials spanning pain, cardiovascular disease, nephrology, and other diverse disease areas, and I am impressed by the Absci Corporation team’s rigorous approach to the ABS-201 clinical trial designs. I believe Absci Corporation has built a differentiated platform and, as a drug developer, I am enthusiastic about the opportunity to contribute to the advancement of our pipeline, including ABS-201, at this stage of the company’s growth. We are advancing the clinical development of ABS-201 for two indications with significant unmet medical need: androgenetic alopecia and endometriosis. Our ongoing Phase 1/2a headline trial is a randomized, double-blind, placebo-controlled study efficiently serving both as a first-in-human study of ABS-201 while also providing preliminary proof-of-concept data in AGA. The AGA POC component is incorporated into the multiple ascending dose part of the trial. The primary endpoints are safety and tolerability, while secondary endpoints include PK, PD, immunogenicity, target area hair count, target area hair width, and target area darkening and pigmentation. We will also collect patient-reported outcomes data. The trial is enrolling up to 227 healthy volunteers with or without AGA. The single ascending dose (SAD) portion of the trial is testing four intravenous dose groups for safety, tolerability, PK, and PD. The SAD portion of the trial will be followed by three subcutaneous multiple ascending dose (MAD) groups in healthy volunteers with androgenetic alopecia. While the MAD portion of the study also looks at safety, tolerability, and PK/PD, we have powered the MAD portion to demonstrate proof of concept in AGA. We plan to share 13-week interim proof-of-concept data in the second half of this year, followed by 26-week data in early 2027. With the 13-week data, we hope to demonstrate directionally positive hair growth compared to baseline, which would translate to even more robust growth at the 26-week readout and beyond. These results will be consistent with our understanding of the mechanism of action and supported by a naturally occurring nonhuman primate model for AGA. Furthermore, we have ongoing engagement with the FDA regarding an efficient clinical development strategy that could support expedited clinical development, with the potential of advancing directly from Phase 1/2a into Phase 3 registrational trials. Today, we are pleased to share that we have successfully dosed the first three cohorts in the SAD portion of our ongoing Phase 1/2a headline trial. To date, ABS-201 has been well tolerated with favorable emerging safety data. Additionally, emerging PK data support the current dosing regimen in the headline trial as we have modeled. We are on track to dose SAD cohort four as well as the first MAD cohort. For endometriosis, we plan to use data from the Phase 1/2a headline trial to provide safety, tolerability, and PK assessments that will support Phase 2 clinical development beginning in Q4. We anticipate an interim proof-of-concept readout from this trial in 2027. With that, I will pass it over to Zach to discuss our strategy, partnerships, and outlook, and to provide an update on our financials. Zach? Zach Jonasson: Thanks, Ronti. Our strategic priority is executing the clinical development of ABS-201 in both AGA and endometriosis, given the significant potential return on investment these programs offer. In particular, our lead program in AGA represents a unique opportunity. We believe this program has the potential for streamlined clinical development and a potentially significant commercial opportunity in the cash-pay market, if the program is successfully advanced through development. As Ronti discussed, we are currently executing an efficient Phase 1/2a trial design to position us for registrational studies that could enable a potential FDA approval in the 2030 timeframe. We expect the registrational trials to enroll rapidly and to cost significantly less than typical registrational trials for other large indications. Our market research, some of which was shared during the ABS-201 KOL seminar in December, supports the commercial potential of ABS-201 as a new premium category of AGA therapy. Results from the survey we commissioned, which included 610 participants experiencing AGA, support our belief that there is a meaningful demand for a product with the ABS-201 anticipated minimum target product profile. The TPP evaluated in the survey assumed a level of hair regrowth comparable to that reported in the literature for high-dose oral minoxidil, but with a potential durability of two to three years. The hypothetical profile also contemplated a six-month dosing regimen consisting of approximately three subcutaneous administrations, as compared to currently available oral or topical treatments that require daily or twice-daily administration. Key highlights from the consumer survey include 87% of men and 69% of women surveyed indicating they would be extremely likely or very likely to ask a healthcare professional about ABS-201 if it were available on the market today. Moreover, these figures increased to 92% and 89%, respectively, for men and women who are currently using oral standard of care, for example, oral minoxidil. And over two-thirds of men and women who are currently using another hair loss product said that they would be extremely or very likely to try ABS-201 as first line if it were available. These results, together with data from our survey of key opinion leaders, are supportive of potentially significant adoption of ABS-201 among AGA consumers, if the product is successfully developed and approved. Based on our market research, we estimate a potential total addressable AGA population for ABS-201 in the United States of approximately 15 to 18 million consumers. Assuming a two- to three-year treatment durability, the total potential annual treatable patient volume could range between 5 to 9 million consumers per year. Our survey data suggest this segment of the AGA population would be interested in purchasing a product with ABS-201’s anticipated profile at a premium price relative to the current standard-of-care treatment. Accordingly, based on all of our market research, we believe the total addressable market for ABS-201 in the United States could be substantial, with some estimates exceeding $25 billion on an annual basis. While we believe our estimates are reasonable and based on available data, actual market size and ABS-201’s ability to capture any portion of said market will depend on numerous factors, including clinical trial outcomes, regulatory approval, pricing, and competition. This program may offer additional commercial upside as the headline clinical trial is also designed to explore whether ABS-201 can achieve other aesthetic outcomes such as restoration of hair pigmentation. If such outcomes are demonstrated in clinical studies and supported by regulatory approval, they could open up additional significant markets beyond AGA. If ABS-201 is approved, we believe we will be well positioned for commercialization in the United States. Existing go-to-market channels and provider networks appear to be suited for a premium product with the anticipated ABS-201 target product profile. Approximately 80% of consumers seek hair treatments from dermatologists, med spas, and plastic surgeons, which together offer over 30,000 potential retail locations across the United States. We have begun establishing relationships with these practitioner market channels, and looking ahead, we aim to continue to create awareness among this practitioner community and, when appropriate, to establish direct patient engagement. As ABS-201 moves forward toward major potential value inflection points, we plan to continue progressing our internal preclinical programs as well as our partnered programs. In all, we remain highly focused and committed to diligently allocating our capital and resources to programs that offer the greatest potential return on investment. Turning now to our financials. Revenue in the fourth quarter was $700,000 as we continue to progress our partnered programs. Research and development expenses were $25.3 million for the three months ended December 31, 2025, as compared to $18.4 million for the prior-year period. This increase was primarily driven by advancement of Absci Corporation’s internal programs, including direct costs associated with external preclinical and clinical development of ABS-101 and ABS-201. Selling, general, and administrative expenses were $8.6 million for the three months ended December 31, 2025, as compared to $8.8 million for the prior-year period. Additionally, we recorded a $5.1 million gain on the settlement of the company’s contingent consideration during 2025. This resulted in net proceeds of $8.7 million of unrestricted cash. Cash, cash equivalents, and marketable securities as of December 31, 2025 were $144.3 million, as compared to $152.5 million as of September 30, 2025. We believe our existing cash, cash equivalents, and marketable securities will be sufficient to fund our operations into 2028. We remain focused on opportunities to generate additional nondilutive cash inflows that could come from early-stage asset transactions associated with our wholly owned internal programs and/or new platform collaborations with large pharma. Our current balance sheet supports our execution of key upcoming catalysts, including potential proof-of-concept readouts for both AGA and endometriosis. We are also well positioned to continue progressing our early-stage pipeline and to advance new partnership discussions in line with our business strategy. With that, I will now turn it back to Sean. Sean McClain: Thanks, Zach. 2025 was a defining year for Absci Corporation. We dosed our first patient with ABS-201, expanded into a second multibillion-dollar indication, and published what we believe is the first demonstration of de novo antibody design to zero prior epitopes. In 2026, we expect to deliver on our catalysts: preliminary safety and PK data for ABS-201 in the first half, interim 13-week proof-of-concept hair regrowth data in the second half, and initiation of our Phase 2 endometriosis trial in Q4, subject to data and regulatory review. Full 26-week proof-of-concept data for ABS-201 in AGA will follow in early 2027. We have clinical momentum, the balance sheet to reach proof of concept in both indications, and the team to execute. Thank you for your continued support. Operator, let us open the call for questions. Operator: Thank you. As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Please stand by while we complete the Q&A roster. One moment for our first question. Our first question will come from the line of Vamil Divan from Guggenheim Partners. Your line is open. Vamil Divan: Great. Thanks. Thanks so much for taking the question. So I guess obviously a lot of focus on 201 and a common question we have been getting from investors is just what we should be looking for, what you are looking for in terms of target product profile, especially from an efficacy perspective. Obviously, there are not a lot of great options out there for others that are in development. I realize it is still a little bit early, but just if you can give a better sense of what you are hoping to see from an efficacy perspective. We obviously have the minoxidil options that are out there. We have competitors in development. Just where do you hope to see this land given that it will be an injectable? It sounds like it may be more of a premium-priced product. What are you hoping to see from an efficacy perspective? Thank you so much. Sean McClain: Thank you, Vamil. It is a great question, and what we are looking to achieve—and I will have Zach go into more details on this from our consumer quant study—but talking to physicians as well as patients, we believe that if we achieve a durable treatment as well as being able to achieve at or above minoxidil efficacy, we will definitely have a very attractive TPP. And, Zach, please feel free to walk through more of the details on that, given the consumer quant study we had just completed. Zach Jonasson: Thanks, Sean. And, Vamil, I would just note that the TPP that ABS-201 embodies, or we think will embody, is really a new category therapy that we hope will deliver not only efficacy but durable efficacy and convenient administration. So, to Sean’s point, if the effect size in terms of terminal area hair count—and the growth in terminal area hair count—is consistent with high-dose oral minoxidil, so 35 to 40 hairs per square centimeter, we think that is a home-run product. And that is supported by the research we have done with consumers and KOLs. We think there is a significant product even below that threshold. But I think at that threshold, it is a very significant product we would characterize as a home-run product. And keep in mind, that is additive with the other features of the profile, which would include durability and that convenient dosing of just a few injections. Vamil Divan: Okay. Thanks. And one other one—oh, sorry. Sean McClain: Go ahead. Vamil Divan: I was just going to also mention that, you know, if you look at the stump-tail macaque data, it was well above that. So we do even have room to run on this. I think as Zach said, this is a home-run product, but from what we are seeing from the stump-tail macaque and even ex vivo data, you know, it could be well above that as well for an upside scenario. Okay. Thank you. And then one other one, just a follow-up, is on the safety side. So I think the words you use are “favorable emerging safety profile.” So I do not know what you can elaborate at this point. What have you seen from the cohorts that have gone through the SAD portion? Thank you. Ronti Somerotne: Yes, absolutely. Thanks. So it is early in the trial, but at this point, there is no evidence of any on-target or off-target safety signal based on our review of the safety data accumulated to date. It is encouraging so far. Operator: Thank you. One moment for our next question. Our next question will come from the line of Brendan Smith from TD Cowen. Your line is open. Brendan Smith: Great. Thanks for taking the questions, guys. Maybe just another one quick on 201. I guess, kind of given other pivotal studies in the space and maybe even in your conversations with FDA to date, maybe first, is it fair to expect that six-month primary endpoint you are using in the MAD is the same duration of follow-up you would expect for a registrational study? And then separately, just on the drug creation partnership, I think you flagged at least one new one with big pharma this year. Can you maybe just tell us, even qualitatively, how those conversations are going? We get asked all the time, like, kind of given all the money pharma is spending internally on AI, what are they still coming to Absci Corporation for, and how should we really think about them leveraging the platform within the confines of those deals? Thanks. Sean McClain: Thanks. Ronti, do you want to answer that first one, and then Zach can take the second one? Ronti Somerotne: Yes. So we have not yet engaged FDA on the design of our Phase 3 program. We are going to. One of the reasons we are excited about the 13-week interim readout is that it is going to give us a much better idea of what the Phase 3 program will look like. But certainly, other companies are developing a six-month pivotal endpoint with another six months of long-term safety data follow-up. So there are some predicates in the field. But we are going to look forward to our 13-week interim and give you more details on that once we see the data. Zach Jonasson: Thanks. And I can comment on the partnership discussion. We continue to have productive discussions with pharma regarding platform partnerships. I do think it is important to note that we are focused on doing the right deal, not doing a deal, and so we are currently actively negotiating and looking at deal structures that could work for us. And I would comment as well, we have a healthy pipeline of internal programs that are being developed today. We have not yet announced several of those. But we will be looking to initiate partnering discussions around those programs later in this year. Brendan Smith: Got it. Thanks, guys. Operator: One moment for our next question. Our next question comes from the line of Brian Chang from JPMorgan. Your line is open. Brian Chang: Hey, guys. Thanks for taking our question this afternoon. Sean, I think you said in your prepared remarks, you said 101, 301, and 501 continued to progress. Each of these you see better suited for partner. Just to clarify, are all of them now on the table for partnerships, or do you think that you will want to develop 301 or 501 a bit more internally? Thanks. Sean McClain: Thank you. That is a great question, Brian. Just given our focus in particular in I&I, given ABS-201, we believe us developing oncology does not make sense, and so with 301 and 501 being in oncology, we think that this is much better suited for a partner. We do have an earlier-stage pipeline that is developing where we should be nominating DCs this year that have not been announced that are in I&I, and these, you know, we could potentially take forward ourselves assuming that the cash balance sheet is there, and then we also have the optionality to partner those as well. So we have definitely been hard at work building up that I&I pipeline. Brian Chang: Got it. And maybe just one quick one on safety. I know you touched on this a little bit already. Just is the profile that you are seeing in terms of safety consistent with what you have seen in nonhuman primates, and are you seeing any particular impact of interest? Just curious if you can give us a little bit more color on how we should think about the TEAE profile. Ronti Somerotne: Yes. We have looked at the TEAEs. There is really nothing that would point to any sort of mechanism-related safety signal or off-target mechanism-related safety signal. We are looking very closely at labs, and, you know, other than onesie-twosie things, there is no pattern of anything at this point. But, again, I have to caveat that it is early in the study without a ton of people exposed. Sean McClain: I will also say, given the encouraging profile, it definitely lines up really nicely with what you see from other studies—HMI-115—hitting a similar target as well as a few other assets that have been developed in oncology. You can see safety signals there for this particular pathway, and then you also have loss-of-function mutations in the prolactin receptor, and these individuals were perfectly healthy, just did not have the ability to lactate. So I would say from what we have seen in other studies as well as these loss-of-function mutations, it tracks very nicely to what we are seeing in our own study. And as Ronti said, it is early days, but very encouraging. Brian Chang: Great. Well, thank you so much for your time. Operator: Thank you. One moment for our next question. Next question will come from the line of Kripa Devarakonda from Truist Securities. Your line is open. Kripa Devarakonda: Hi. This is Alex on for Kripa. Congrats on all the progress. We had a question on 201 as well. Some of the investors that we talked to express caution about the ability for a molecule to get into the hair follicle to inhibit the prolactin receptor. Can you talk about the data that supports the ability for the molecule to engage the target, or if there is any reason to believe otherwise based on your perspective? Thanks. Sean McClain: Yes. So you are definitely not going to have the penetration you would have in—or the biodistribution, I should say—in other organs. But there is definitely ample blood flow going into the follicle, and again, you saw the data with the stump-tail macaques. You saw the data as well with the mice. And so, based on that, we have no reason to believe you would not be able to get an antibody into the follicle. And the way we modeled the receptor occupancy was using a known biodistribution coefficient for the scalp and hair follicle, which is much lower than other tissues. Ronti, I do not know if you have anything else you want to add on that point. Ronti Somerotne: No. Thanks, Sean. I think the animal data are very encouraging, suggesting that there is adequate tissue penetration with other antibodies and even in 201 and work. Kripa Devarakonda: Great. Thanks, everyone. Operator: Thank you. One moment for our next question. Next question will come from the line of Debanjana Chatterjee from JonesTrading. Your line is open. Debanjana Chatterjee: Hi. Thanks for taking my question. So, we have seen some recent updates for AGA candidates, including clascoterone, and also oral extended-release minoxidil is gaining traction. So how, like, you know, could you remind us how you envision an anti-PRLR antibody to be used relative to such agents assuming that they are approved? And also, do these new developments or agents shift the bar for success that you have in mind, particularly in terms of expected target area hair count improvement? Sean McClain: It is a great question. First off, I think the success that, you know, Veradermics and others are having is really great. I think, at first, it shows that there is a huge unmet medical need for androgenetic alopecia and, you know, it affects over 80 million Americans. And there is treatment that is needed. And we see what we are doing as very synergistic. I think even with oral minoxidil, you know, patients still are not—some patients are not seeing the full hair regrowth that they would like to see. Additionally, with a lot of these medications, you have to take it once or twice daily. And if you have the potential to, you know, take two to three doses over six months and then have durable hair regrowth after that, we see that being very attractive, assuming that you can reach the efficacy of oral minoxidil. And so that is really where we see this as being a premium product, really being able to rejuvenate the hair follicle and get that durable hair regrowth. This is a brand-new novel mechanism. You know, oral minoxidil, finasteride, they have been around for a long time. And the biology that we have seen here, it does appear that prolactin is kind of furthest upstream, really driving the hair loss. And you can see that in the ex vivo studies we have done. And so, overall, we think that this is a potential paradigm-shifting asset within AGA. But, again, we are really excited that other companies such as Veradermics are having the success that they are having because it does shed a light on how important this space is. Zach Jonasson: I will add to what Sean said, too. We saw that in our survey. We saw a very high level of interest in the target product profile for ABS-201 across the board for men and women. But when we segment out participants who have AGA who are currently using minoxidil—oral minoxidil—the interest level goes up even higher. So we saw 92% of men, 89% of women, who are currently using oral minoxidil said they would be highly inclined to go seek out the product—so extremely or very likely to go to a healthcare professional to obtain ABS-201—if it were on the market today. I think what you are seeing there are a couple things. One is the attractiveness of the TPP and the convenience, and patients wanting something that is durable and convenient. And then also some dissatisfaction with standard of care, in particular oral minoxidil, because you really have to take that once a day or, in some cases, twice a day to see the efficacy. And then, as Sean pointed out, the efficacy can be very variable across patients. Some patients do not see much. Some patients will see pretty decent efficacy. And then finally, there are some side effects with oral minoxidil as well, which some patients experience, including unwanted hair growth and a shedding cycle that may happen when you first go on the drug. So I think if you roll it all together, the TPP here really resonates with the AGA community because it sort of checks off the boxes of being durable and very convenient to administer—you can imagine a “set it and forget it” sort of solution. And we do believe long term, there will be a significant number of patients who probably use both products. Debanjana Chatterjee: Okay. Thank you. Operator: Thank you. One moment for our next question. Our next question will come from the line of Gil Blum from Needham. Your line is open. Gil Blum: Good afternoon, and thanks for taking our questions. Maybe a bit of a math question. You said three cohorts were dosed. Should we assume this is about 24 patients at this point? Ronti Somerotne: Yes, I have to look at the actual math, but I do not think that is too far off. Sean McClain: It is a rough ballpark there, Gil. Gil Blum: Okay, that is fair. I do have a question specifically for Dr. Ronti. Can you discuss some of the expected challenges in developing a drug for endometriosis, especially when assessing involvement of pain measures? It seems like you have the right experience here. Ronti Somerotne: Yes. It is interesting because these are really pain studies, and pain studies require a lot of thought in how you select your sites, how the patients are selected, and how the placebo effects are mitigated. And so, I have learned a lot over the last three years working in pain. And I do not know if this has been previously appreciated in endometriosis studies, but these are the things that I think about, because in addition to treating the underlying biology, which we hope that ABS-201 will certainly do, we have to think about the end in mind, and at the end, these are numerical rating scores. So we have to be extremely thoughtful in how we write the protocol, select our sites, and then oversee the conduct of the trial. Gil Blum: Alright. Maybe a last one for Zach. How should we think about resource allocation between AGA and endometriosis? Zach Jonasson: Thanks for the question, Gil. I think both opportunities are very significant. I think we talked about the unmet medical needs in endometriosis and really not much competition there. We also think a similar view applies to AGA, where this would be a completely new category of therapy. So when we think about resource allocation, these are both programs where we think the potential ROI is very significant. And then the other thing that these programs allow us to do is take advantage of a streamlined development path. So, as Ronti noted, we will be using this Phase 1/2a trial that is ongoing today for AGA. We will use the SAD portion of that as safety to support initiating a Phase 2 trial in endometriosis later this year. So we are leveraging the current trial to support moving into proof-of-concept studies in endo very rapidly. And I think one other comment I will just make on the AGA trials is we are really excited there because those trials recruit very rapidly. When we think ahead to registrational studies, we think about trials that can recruit very rapidly and that will be significantly less in terms of invested capital to execute than you would see for other traditional indications that would be for large market opportunities. But I think you look at these two together and, when we look at these programs internally, we obviously have other things we can pursue, but these really stand out as unique opportunities. So we are really excited to pursue them. Gil Blum: Alright. Excellent. Thanks for taking our question. Operator: Thank you. One moment for our next question. Our next question comes from the line of Sean Lammen from Morgan Stanley. Your line is open. Sean Lammen: Good morning, Sean and team. Hope everyone is well, and congrats on all the progress. I have a question back on the platform, and we do get a lot of inbound on potential AI “crowding,” if you like to call it that. But in the March deck, you emphasized OriginOne and the zero prior epitope design as key differentiators. Based on some of your 2025 interactions with potential partners, where do you see the strongest external validation relative to other AI-enabled discovery companies? And where is skepticism still the most common? Sean McClain: Yes. So I would say first off, pharma has very much embraced AI. I mean, I think it is progressing faster than we have anticipated in some regards and then not as quickly in others. But overall, I would say pharma’s appetite on this—and whether it is partnering or building out internally—is very strong. And I think the validation that we have been able to show in the preprint and the extensive validations toward the zero prior epitopes, I think, has been some of the most rigorous work that has been published to date. And I will note that a lot of these models are not being disclosed, whether it is within this industry or the LLMs. And, you know, we disclosed the methods and how we went about doing it. And we are now applying this to our internal pipeline to really be able to create differentiated assets. And I think with the emergence of agentic AI, really being able to start to have this fully autonomous workflow where you can have an agent help you look at targets, help you identify the epitope, and then that feeds directly into the de novo model and then helps you design the killer experiment and rapidly develop assets that quickly and rapidly test hypotheses. And so I would say that we are very excited about the future and where things are at. And, yes, it has been an exciting start of the year. Zach Jonasson: Thank you, Sean. And to stay at the comments, when we look at the value of doing a platform deal versus doing an asset deal, the value on an asset deal is significantly higher, and you can risk-adjust that and it is still a multiple. And so I think what we are really excited about is leveraging the OriginOne models, which we have been working on for the past year, to develop pipeline assets that we could either take forward or we could partner. And we have a number of those that Sean mentioned that we are bringing towards DC this year that could become excellent candidates for partnering activity. Sean Lammen: Right. Thank you both. Operator: Thank you. And one moment for our next question. Our next question will come from the line of Charles Wallace from H.C. Wainwright. Your line is open. Charles Wallace: Hi. Thanks for taking my question. This is Charles on for RK. So a question on 201 and kind of distinguishing between how internally you are thinking about the market opportunity for the two different indications. You mentioned earlier that both indications probably would be favorable, but maybe to dig a little more. You mentioned you provided a peak sales of more than $4.5 billion in endometriosis for 9 million patients. And then for AGA, I think you are targeting 5 to 9 million patients per year. So I am just curious, should we assume that the endometriosis opportunity is going to be the larger opportunity because it is a therapeutic? Or is that maybe not the right assumption? Sean McClain: Both of these indications are very large indications. One in ten women are estimated to have endometriosis worldwide. That is a very large population, most likely underdiagnosed due to poor standard of care and poor diagnostics in the space. And then, obviously, AGA is a massive opportunity—huge patient population as well, 80 million Americans in the U.S. And so, again, we see these as both very large opportunities. I think, at the end of the day, AGA is likely a larger opportunity. But at the end of the day, these are both very exciting opportunities from just a market size perspective. Charles Wallace: Okay. Great. And maybe just a follow-up. So given that, you know, endometriosis would be more of a therapeutic payer market, while AGA would be a cosmetic kind of self-pay market, how do you anticipate pricing would be once—if both came to market? Would it be similar or different? Zach Jonasson: Yes. So we cannot disclose what we think the actual price point will be. We would not announce those until day of launch. But I can tell you in our own internal analysis, we think the pricing for both of them—and given that endometriosis will also be predicted to have insurance coverage—we do not think there will be an arbitrage opportunity there. And so we think we are in a good position to leverage the development efficiencies of pursuing both indications with ABS-201. Charles Wallace: Great. Thanks for taking my questions. Sean McClain: And maybe before we close out the call today, I just wanted to share one exciting piece. I will actually have Ronti share that to close out the earnings call today. Ronti, over to you. Ronti Somerotne: Thanks, Sean. As we said, the SAD/MAD study is going well. We are on track, and in fact, we hope to dose our first MAD portion participants towards the end of the week. So we are very pleased with the progress. Operator: Thank you. With that, thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Good day, and thank you for standing by. Welcome to the Gemini'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 Ryan Todd, Head of Investor Relations. Please go ahead. Ryan Todd: Thanks, operator, and thank you, everyone, for joining this morning for Gemini's Fourth Quarter and Full Year 2025 Earnings Call. My name is Ryan Todd, Head of Investor Relations at Gemini. Joining me on the call today are Gemini's founders, Cameron and Tyler Winklevoss; and Interim CFO, Danijela Stojanovic. Yesterday, we released our fourth quarter and full year 2025 financial results. During today's call, we may make forward-looking statements, which may vary materially from actual results and are based on management's current expectations, forecasts and assumptions. Information concerning the risks, uncertainties and other factors that could cause these results to differ is included in our SEC filings. Our discussion today will also include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our Investor Relations website and on the SEC's website. Non-GAAP financial measures should be considered in addition to, not as a substitute for GAAP measures. We'll start today's call with prepared remarks and then take questions. And with that, let me turn the call over to our founders, Cameron and Tyler. Cameron Winklevoss: Thanks, Ryan. Cameron here. 2025 was a remarkable year for Gemini. We crossed the threshold into the public markets and became a public company on September 12 after being a private company for over a decade. On that day, the price of Bitcoin was $115,000. Since then, Bitcoin has traveled down to $60,000 and then back up to around $70,000 where it hovers today. A reminder that one of the biggest challenges for crypto builders and investors is its cyclical nature. And a reminder that in order to move beyond these cycles, you need to build beyond them. We started as a Bitcoin company. We became a crypto company. We are now becoming a markets company. If Gemini's first decade was building a bridge to the future of money, today, we are building a bridge to the future of money in markets via a super app. Our first foray into people's daily financial lives beyond buy, sell and store crypto began with the Gemini credit card, which delivered strong growth last year. In 2025, card sign-ups grew nearly 15x and credit card revenue reached $33.1 million, up 185% year-over-year. Many of these Gemini credit card customers engage with Gemini multiple times a day to earn crypto rewards when they spend with the Gemini credit card. December marked a new era for Gemini with the launch of Gemini Predictions. We believe prediction markets will be as big or bigger than today's capital markets. They offer a profound and boundless opportunity to leverage the wisdom of the crowds and the power of markets to provide unique insights into the future. Our investment in securing a designated contract market DCM license from the CFTC to launch our own prediction marketplace positions us as an early mover on this new and exciting frontier. We have been building and operating regulated marketplace infrastructure for over a decade: sequencers, matching engines, order books, real-time settlement, post-trade reporting, custody infrastructure and more. This is a big part of what we do best. Our prediction markets are new instruments running on infrastructure we already know how to build and operate. As a result, we chose not to partner with a third party or license someone else's technology and instead build it ourselves. And in doing so, this also means we have chosen to invest in developing the unique operational capabilities for creating and resolving thousands of contracts on a daily basis, a new and fascinating challenge with growing complexity as we expect the cardinality of these markets to continue to explode over time. In short, we built Gemini predictions from the ground up because we want to own and operate our prediction markets end-to-end for the long term. We believe in the power of markets. Bitcoin is a store of value that is a product of market forces. The best economies are market-based. Markets are truth over the long term, and we believe that we are just figuring out how to apply them to the world around us. From politics to economic indicators, business, tech, culture and sports, prediction markets are forecasting the future more accurately and more quickly than traditional posters, experts and the media. This is a profound change in the world's source of truth and an equally profound solution to the loss of trust in our institutions and resulting epistemological crisis. The printing press created the fourth estate or the public press. The Internet created the fifth estate or decentralized public press. Prediction markets are creating the sixth estate. Decentralized information, combined with the integrity and accountability of markets [indiscernible] in the game. Like money, markets are an innovation and technology that continue to evolve thousands of years after they were first invented. From the birth of the bond markets in the Italian city states in the 12th century to the launch of the first stock market in Amsterdam in the 17th century to electronic trading replacing the open outcry of humans in trading pits on Wall Street in the 21st century, markets continue to grow and develop. Just when you thought the money experiment had reached its terminal steady state, Bitcoin emerged. Just when you thought markets were done maturing, prediction markets caught fire. Gemini was founded to help build and shape a new era of money. Today, we have a similar opportunity to help build and shape a new era of markets. Unfolding in parallel is the meteoric ascent of AI. Once these strains of technology, money, markets and AI converge, we believe they will supercharge each other in dramatic and novel ways that generate new economic activity that we are uniquely positioned to be at the center of and help build and shape to. This caldron of Promethean fire could make progress in these fields up to this point appear rather quaint. We have long felt that it is only a matter of time before we have more machines as customers than humans. Machines can't open a bank account, but they can easily plug into protocols and use crypto to become rational economic actors. Humans may have built crypto, but crypto is not so much money for humans as it is money for machines. We're just starting to see this take shape. Here's one example. For the first decade, we had 3 API protocols: REST, WebSockets and FIX. We're now adding a fourth, Model Context Protocol, or MCP, an open-source API interface designed specifically for AI agents like large language models or LLMs. While we believe AI is going to change the composition of our customer base, it's already changing the composition of our workforce and how we work. Up until recently, the impact of software engineers could differ by an order of magnitude or 10x. Great engineers would have 10x more impact than good engineers. AI has completely changed the game, expanding this paradigm by another order of magnitude at a minimum, making a 10xer, now a 100xer. Critically, we are seeing that this step change holds true for every engineer who adopts AI in their workflows. And it also holds true for non-engineering work as well. Doing more with less has never been more true or possible, and we believe this trend line is only just beginning. Notably, the force multiplier effect of AI for Gemini and our workforce is quite new. It wasn't until the end of last year that AI agents for coding and software development had a splitting of the atom moment. While different pockets of our technology organization have been experimenting with AI and their workflows for a while, AI was not core to them. For example, late last summer, when we were in the middle of our IPO roadshow, AI was used in only 8% of the code being written and shipped to production. In December, however, the future arrived. Models hit an inflection point and in combination with the internal tools we built for [indiscernible] management, AI is now too powerful not to use at Gemini. Today, AI is used in more than 40% of our production code changes, and we expect that number to climb close to 100% in the not-too-distant future. Not using AI at Gemini will soon be the equivalent of showing up to work with a type writer instead of a laptop. As a result, we have reduced the size of our workforce by roughly 30% since the start of 2026. We believe that a smaller organization leveraging the right tools isn't just more efficient, it's actually faster. Gemini started in America in 2015. Since then, we expanded our areas of operation to more than 60 countries. These foreign markets proved hard to win in for various reasons, and we found ourselves stretched thin with a level of organizational and operational complexity that drove our cost structure up and slowed us down. And we didn't have the demand in these regions to justify them. The reality is that America has the world's greatest capital markets and America has always been where it's at for Gemini. Furthermore, we are encouraged by the stated goals of the current SEC and CFTC and their efforts thus far to make the super app possible in America and usher in a new golden age of markets. So we decided it was time for us to focus and double down on America. This will allow us to build more meaningful and powerful relationships with new and existing customers. To that end, in addition to reducing the size of our workforce, we have reduced the areas in which we operate by exiting the U.K., EU and Australian markets. We expect this will help reduce our total expenses in line with our headcount reduction and meaningfully accelerate our path to profitability even in the backdrop of the current crypto market, simplify, consolidate, then accelerate. We love being a public company, perhaps a somewhat surprising statement when looking at the performance of our share price over the past 6 months since we've been public. But rather than being dispirited, we are motivated. And while it's never fun to see your stock drop, we love the feedback loop. It forces us to confront what is working and what is not working, and it makes us sharper. It's challenging, but absolutely the right challenge. We view this feedback loop as one of the greatest benefits of being a public company as growers losing a race provided invaluable feedback on the changes you needed to make in order to win. The path to the Olympics is paved in lost races and the invaluable learning that comes from them. So we welcome the feedback and love the challenge. 2025 marked the end of Gemini 1.0 and 2026 marks the beginning of Gemini 2.0. This starts with our shift into becoming a markets company with Gemini predictions and using the same infrastructure to power our perpetual futures contracts once these contracts are allowed in the U.S. And it continues with our plan to launch U.S. equities as the next phase of our platform, giving our customers access to the largest, most liquid markets in the world. Altogether, we have developed the foundation and building blocks for a super app, where users will be able to fulfill their existing and future financial needs all in one place, amazing awaits. Danijela Stojanovic: Thank you, Cameron and Tyler, and great to speak with everyone. Before I turn to the numbers, I'll briefly note that I stepped into the interim CFO role earlier this year after serving as Gemini's Chief Accounting Officer since May of 2025. I've been closely involved in the company's financial reporting, the IPO process and the prior 2 quarters as a public company. The broader finance organization remains fully in place, and there has been no disruption to our financial reporting or operational execution. I will begin with a few key takeaways from the quarter before walking through the results in more detail. First, revenue grew sequentially despite a materially weaker crypto trading environment in Q4. Second, the business continued to diversify meaningfully. Services revenue more than doubled year-over-year and now represent over 1/3 of our revenue. And third, the restructuring actions we announced earlier this year repositioned the company with a significantly lower cost base going into 2026. Now turning to the results. Net revenue for the fourth quarter was $56.4 million, up 13% from $49.8 million in Q3. This growth occurred despite a more challenging market backdrop. The biggest driver of that change was volatility in the crypto market. Bitcoin fell nearly 47% from its October high, and that environment put real pressure on trading volumes and transaction fees. The credit card business kept growing through it, which helped offset some of that, but Q4 was a harder macro quarter than Q3. I'll walk through the key components. Transaction revenue was $26.7 million, up slightly from $26.3 million in Q3 on spot volumes of $11.5 billion compared to $16.4 billion in Q3. Retail volumes came in at $1.6 billion and institutional at $9.9 billion. As a reminder, we earn fees from both retail and institutional customers with rates varying by order type, instant orders at the top of the range and active trader orders lower. While volumes declined, transaction revenue proved relatively resilient. This reflects improvements in fee economics across both retail and institutional trading as well as a mix shift in retail trading towards higher fee order types. Services revenue for the quarter was $26.5 million, up 33% sequentially from $19.9 million in Q3. This category continues to grow quickly and represents one of the most important structural shifts in our business. A few things worth calling out here. Credit card revenue was $16 million, up 87% from Q3's $8.5 million. We added nearly 30,000 new card sign-ups in the quarter compared to 64,000 in Q3, and receivable balances grew to $219.8 million. Staking revenue was $5.1 million, down 13% from Q3's $5.9 million, largely reflecting lower crypto asset prices during the quarter. However, we continue to see adoption of staking across the platform, including through auto staking features integrated with the credit card rewards program. Q4 was our first full quarter with Card Auto staking rewards live, which came alongside the Solana card launch in October. That feature is a great example of natural multiproduct engagement in providing customers a way to stake organically. They pick a stakable reward. It gets staked automatically on every card transaction and their staking customer without any extra steps. Staking balances at quarter end were approximately $509 million. Staking fee rate adjustment we made in Q3 also ran through a full quarter for the first time. Let me turn to expenses. Total operating expenses for Q4 were $171.7 million, essentially flat compared to Q3. Compensation and headcount expenses declined to $72.3 million from $82.5 million in Q3, reflecting lower stock-based compensation expense. Stock-based comp in Q4 was $36 million. Headcount at quarter end was 650 compared to 677 in Q3. Importantly, the roughly 30% workforce reduction that occurred in early 2026 is not yet reflected in those numbers. That impact starts flowing through in Q1 of 2026 with the full run rate savings expected to be reflected by Q3 and beyond. As of March 1, total headcount was approximately 445. Sales and marketing was $39 million, up from Q3's $32.9 million, reflecting the continued growth and momentum of the credit card portfolio and increased cardholder spending, which drove higher crypto rewards during the fourth quarter. As we've said consistently, we treat marketing as a variable line and calibrate it to what we are seeing in acquisition performance and growth opportunities. For the full year, sales and marketing was $97.1 million or $52.5 million, excluding credit card rewards and promotions, which remained in line with the $45 million to $60 million range we previously guided to. Transaction processing expenses were $7.3 million, down from Q3's $8.6 million, reflecting lower trading volumes during the quarter. Transaction losses were $6 million, down from Q3's $7.7 million. This includes a provision for credit losses on the card of $2.8 million, which remained broadly consistent with the prior quarter. Overall, credit quality across the card portfolio continues to remain stable as the book scales. Technology and infrastructure was $22.3 million, up from Q3's $20.3 million, mainly reflecting higher cloud infrastructure and software licensing costs as the platform scaled. General and administrative was $24.9 million, up from Q3's $19.3 million, driven mainly by higher professional services and ongoing public company operating costs. Full year tech and G&A came in at $154.6 million, in line with our guidance range. Now turning briefly on to full year metrics. We served approximately 601,000 MTUs as of December 31, up 17% year-over-year, reflecting continued growth in engagement as users adopt additional products across the platform. Full year net revenue was $174 million compared to $141 million in 2024, up 24% year-over-year. Transaction revenue for the year was $98 million, while services and interest revenue reached $76 million, representing a significant and growing portion of our overall revenue base. This shift towards services is a key structural change, reducing dependence on trading activity. Services and interest revenue came in ahead of the $60 million to $70 million range we provided at our third quarter earnings call. This was driven primarily by stronger-than-expected card flows with more than 116,000 new card sign-ups during the year in response to card addition launches such as the XRP card. We saw growth across several other services categories. Custodial fee revenue increased 25% year-over-year, driven by higher average crypto assets under custody. We also recognized approximately $4.8 million of advisory revenue related to services provided to a strategic customer as well as $1.2 million from new on-chain offerings, including integrations and token listing services. As we continue expanding the platform, we see increasing opportunities to drive monetization across multiple services as users engage with additional products beyond trading. Total operating expenses for the full year were $525 million versus $308 million in 2024. The year-over-year increase was driven largely by 3 main things: first, stock-based compensation tied to the IPO, including the Q3 bonus accrual that settled in equity; second, the significant marketing investments we made after going public to drive card growth; and third, continued spend in technology, compliance and public company infrastructure costs. These investments were deliberate and the restructuring actions we announced are designed to reset the company's cost structure going forward. Full year adjusted EBITDA was a loss of $258 million, which is inclusive of $33.4 million of net realized and unrealized losses. On a GAAP basis, full year net loss was $582.8 million. It is important to note that a substantial portion of the net loss relates to noncash items. These include $178.5 million of fair value losses on our prior related party instruments and mark-to-market adjustments on crypto assets as well as $85 million of stock-based compensation expense associated with the equity awards issued in connection with our IPO. We believe that adjusted EBITDA is a useful way to look at the underlying performance of the business. That said, our adjusted EBITDA result is not where we want it to be, and we've made decisions since year-end that are designed to change that. Now briefly on the balance sheet. We ended the year with approximately $252 million in cash and cash equivalents. The largest cash outflow in the quarter was the $117 million repayment of the Galaxy loan, which was completed in Q4 and removed that obligation from our balance sheet. As a result, we enter 2026 with a simpler balance sheet and lower debt levels. Following the restructuring actions announced earlier this year, we expect our normalized operating cash losses to decline meaningfully. Going forward, our focus is on continuing to narrow the gap to profitability through disciplined cost management and growth in higher-margin services revenue. The card warehouse facility had $154.4 million outstanding at year-end against $188 million in pledged receivables, supporting capacity of $250 million. As the receivables book grows, we'll execute additional funding capacity to support expected growth. On restructuring costs, the $11 million in pretax charges associated with the Gemini 2.0 plan will land almost entirely in Q1 of 2026 and are expected to be cash charges. They cover the U.K., EU and Australia wind down and the headcount reductions. Timing on some of the international pieces will depend on local consultation requirements, but we expect the full plan to be substantially complete by midyear. We expect these actions to simplify the organization and reduce our operating cost base going forward. Before I turn to the full year outlook, let me share what we are seeing so far in Q1 2026. Through February, trading volume was approximately $5.3 billion, down from Q4 levels as broader trading activity has continued to soften. On the card, payment volume has exceeded $330 million with over 150,000 open card accounts. And on predictions, approximately 15,000 users have traded since launch across more than 12,000 listed contracts. Total monthly transacting users across the platform were approximately 606,000. As always, we urge caution in extrapolating partial quarter activity. With that context, let me turn to how we're thinking about fiscal year 2026. At this time, we are not providing total operating expense guidance for the year. With the restructured cost base still taking shape and the macro environment that is difficult to forecast, we think the more useful approach is to frame the key expense categories individually. The restructuring actions we implemented earlier this year began flowing through the cost structure in Q2. Since year-end, we have reduced headcount by approximately 30% from peak levels. Because 2025 compensation reflected the full year at pre-restructuring staffing levels, the year-over-year decline is more moderate than the underlying headcount reductions. We expect compensation, excluding stock-based comp and restructuring charges to decline 15% to 20% relative to 2025. Stock-based compensation is expected to total $100 million to $115 million in 2026. 2025 included only 2 quarters of stock-based compensation at post-IPO levels following our September listing. The full year figure is higher in absolute terms, but the quarterly run rate is stabilizing as the IPO-related grant cycle normalizes. Technology and G&A is expected to range from $155 million to $190 million. The lower end reflects the post-restructuring normalized base. The width of the range reflects the variable costs that scale with card and trading activity, and we plan to narrow this range as we gain visibility through the year. Marketing expenses, excluding rewards and promotions, are expected at 10% to 15% of revenue, depending on market conditions and the opportunities we see in our highest returning acquisition channels. On the revenue side, our credit card product remains the principal engine for acquisition and growth. Predictions are still early, but with more than 15,000 users since December, we see early traction as encouraging, and it is central to where we are taking the company. While 2025 was the most expensive year in the company's history, given our IPO, the card investments and international expansion, the actions we've taken since then are designed to ensure that 2026 looks very different financially. Overall, we believe that the organization we enter 2026 with is leaner, more focused and positioned to drive improved operating leverage as we continue to scale our business. Together, we expect these dynamics to result in an improvement in adjusted EBITDA in 2026 as we operate with a more disciplined cost structure and a more diversified revenue base. To summarize, 2025 was a year of significant transformation for Gemini. We went public, scaled our credit card program, expanded and diversified revenue through services, launched prediction markets and took decisive steps to reset our cost structure. We enter 2026 with a simpler organization, a lower expense base and a more durable business model. We see the core story of Gemini today as straightforward. The business is becoming less dependent on crypto trading volumes and increasingly driven by recurring and diversified platform revenue. And with that, we will now turn to questions. Thanks, everyone. Ryan Todd: [Operator Instructions] Our first question comes from James Yaro at Goldman Sachs, who asks, could you update us on the drivers of the recent executive departures and how this fits into your new strategy? Cameron Winklevoss: Thanks for this question. So this summer was a different world. And when we IPO-ed in September, the price of Bitcoin was about $115,000 per coin. Of course, the markets dropped significantly from that point in time. But in addition, our ability to build a super app in America with predictions, there's now a path forward for that. And with the inflection point of AI, we have determined that we can move faster as a smaller, flatter AI-enabled organization that is still, of course, very much founder-led. So we think that we have the right team and the right organizational structure for today and tomorrow. Ryan Todd: Our next question comes from Matt Coad at Truist, who asks, you continue to see traction growing your user base despite the rough crypto market backdrop. What do you believe is driving this user growth? And how do you plan to cross-sell prediction markets into this large and growing user base? Danijela Stojanovic: Thanks for the question. I think I can start here and then maybe kick it off to Cameron or Tyler to speak a little bit more on predictions. So we're very pleased by the continued growth we see in our user base, particularly given the broader market backdrop. I think one of the key drivers here is we're continuing to see meaningful user acquisition through our credit card program and just alongside broader engagement driven by new products that we're introducing and diversifying our revenue base, such as predictions. So we'll hand it over to see if Cameron or Tyler want to touch on predictions a little bit more. Cameron Winklevoss: So Gemini started -- when we started in 2015, we were a Bitcoin company. And people came to us and they could buy, sell and store Bitcoin. Over time, we became a crypto company, and we added additional money words like stake, where users could stake their assets with us. And then we added the Gemini credit card, and that's become an active part of people's financial lives who want to earn crypto back every time they swipe. And we're going to continue to add things to our product where users have reasons to do more with us over time. And eventually, like a number of these activities will continue to be independent of crypto cycles. And I think that we're excited to see the engagement with prediction markets, our credit card and other things that we're going to bring to the Gemini app so that people don't have a reason to go elsewhere. Ryan Todd: The next question comes from Adam Frisch at Evercore, who asks, can you help us frame the path to sustain positive stand-alone card economics, specifically the relative contributions from rewards optimization, lower acquisition costs, provision and credit normalization and cheaper broader funding capacity? Danijela Stojanovic: I can take this one. Thanks for the question, Adam. So we're really encouraged by the progress that we made in Q4, reaching near breakeven on the card. The card business has scaled really quickly, and we believe it has a clear path to profitability as the portfolio matures. There's a few primary levers that we think of. So first, on the revenue side, we're seeing strong growth driven by interchange as spend increases. And then also important to note, interest income is still under earning relative to the size of the receivables space. So as the portfolio seasons and matures, interest income becomes a meaningful tailwind. And then on the cost side, we have several levers really. So rewards are the largest expense today, but these were intentional and front-loaded to drive adoption and really establish the credit card, and it worked. We went from roughly 30,000 open accounts at the start of '25 to now over 150,000 as of March 1. And when you think about it, the Bitcoin card has only been out for about 9 months, XRP for about 5 months. So we're just getting started with this program. And rewards are really fully within our control, and we expect to optimize those over time. And to add to that, we've also really been pleased with the organic sign-up direction on a smaller spend base. We're still averaging well north of 100 sign-ups a day, which is more than double where we were a year ago. And then we're also seeing improvements in bank fees as we scale, which will reflect better underlying economics. And then from a credit perspective, the performance is trending in the right direction. We see loss rates stabilizing and also continuing to improve as the book matures. And then finally, on funding. So while funding costs are now coming into the model, we expect those to become more efficient as the portfolio grows and also as financing options expand. The expansion of the funding facility is really an important step. And longer term, we see opportunities to lower the cost of capital and diversify funding sources as the portfolio grows. So putting it all together, we're already near breakeven on a pre-provision basis and the path to sustained profitability is driven really by a combination of portfolio seasoning, cost optimization and scale-driven efficiencies. So we don't need one single lever to do all the work. It's really incremental improvements across each of these areas that we believe will drive the card business into consistent profitability. Ryan Todd: The next question comes from Michael Cyprys at Morgan Stanley. 15,000 users have used Prediction Markets through the end of February. How has that translated to revenue? Where do you see the growth potential from there? How do you compete versus peers that have a higher number of active users? Cameron Winklevoss: Thanks for this question, Michael. So we will provide an update on revenue in the near future, but it's very early at this point. But we are very encouraged with the fact that 15,000 customers have already engaged with this marketplace, which is brand new, and we did not have even a quarter ago. So we're very excited that our users are engaging with the product. We continue to grow that number on a daily basis and add many new contracts to the offering. I think crypto is a great example. I think we started with monthly contracts. We are now down -- moved down to weekly, daily, hourly, 15-minute and just offering all these different types of intervals and ways for people to hedge and trade around the price of crypto, and we're just getting started. So we're very encouraged. I think that looking at the market as a whole, it's also very early for this market, and we see the pie only growing from here. And we think we're one of the few people who are building the full end-to-end marketplace for predictions. And we're excited that our customers -- it's resonating with them. Tyler Winklevoss: Great. And just to add on to that, we've been building technology trading systems in marketplaces for well over a decade. So this is -- this is -- these are the kind of things that we know how to do very well. We have a website, we have a mobile app. We have API interfaces. And we've been doing market surveillance. We know how to onboard customers, KYC them and build great trading and marketplace experiences. So this is very much an extension of the over a decade of experience and expertise that we've developed over the years. Ryan Todd: The next question comes from John Todaro at Needham. John Todaro: How are you thinking about capital raising and liquidity if we assume crypto volumes remain lower than 2025 levels through 2026 and 2027? Danijela Stojanovic: Thanks for the question, John. So we really appreciate it. And we're planning the business with a conservative set of assumptions, which include a scenario where volumes remain below '25 levels through '26 and '27 as well. And from a liquidity standpoint, we've taken really meaningful steps to reduce our cost base and improve cash efficiency. And really, we're focused on scaling a more durable recurring revenue streams that are less dependent on trading volumes. So our main focus is to execute on our operating plan with that discipline in mind. But with that said, we're always evaluating opportunities to strengthen our balance sheet and support sustainable growth. And if there are opportunities for this on attractive terms, we would consider them. But we're, first and foremost, focused on demonstrating the operating improvements and letting the results really create the conditions for any future transaction or capital raise. But the key point is that we aim to build a model that can sustain itself across cycles and not one that depends on near-term recovery in volumes. Cameron Winklevoss: Yes. So look, as founders, we've been building Gemini for over a decade. We don't just have our skin in the game. We have our entire bodies in the game. We're deeply committed to Gemini and the mission and very excited to continue building it and as we expand the mission into the super app. And I think one of the things that we've talked about is that, that really helps us break free of the crypto cycles and give customers things that they can do throughout their daily financial lives, whether it's using a credit card or trading predictions. We're hoping to launch U.S. equities as well, investing in U.S. capital markets and really building out a more durable story of revenue and engagement that moves beyond simply buy, sell, store or say, crypto, which is obviously very core to the business, but we want to build on that and give our customers more reasons to use Gemini. And we're seeing the beginnings of that. And I think we're really excited to keep doing that. So even if crypto prices do remain depressed for some prolonged period of time, we will be building other products that continue to drive engagement and growth of our business. Ryan Todd: The next question comes from Pete Christiansen at Citi. What is Gemini's OpEx discipline going forward? And has management put in place guardrails that helps ensure eventual profitability at the EBITDA level? Danijela Stojanovic: Thanks for the question, Pete. So OpEx discipline is a core focus for us coming out of the restructuring. We've reset the business to a lower fixed cost base, and we put clear guardrails in place around any incremental spend. So that includes being very selective on headcount growth and tying it directly to revenue or strategic priorities and also continue to manage marketing as a variable lever really based on ROI and market conditions. And so that's a real lever that we can dial up or down depending on market conditions and requiring clear payback threshold for any new investments. And just as importantly, we've become much more focused as an organization, so prioritizing a smaller set of high-impact initiatives and exiting or scaling back areas that just didn't meet our return thresholds. And that really allows us to concentrate our resources and our capital where we have the strongest product market fit and demand. So we believe that the organization is now structured to drive really operating leverage as volumes and engagement recovers. And what's important to add is we don't need to meaningfully re-expand the cost base to achieve our growth target. A lot of the growth from here really comes from just better monetization of our existing user base and also just leveraging the infrastructure that we've already built. So I'd say the right way to think about this is we have a relatively stable OpEx base coming out of the restructuring with modest or highly targeted investments layered on top rather than us returning to a broad-based spending. And if 2025 was the year of investment, I'd say 2026 is really the year of focus and discipline. Ryan Todd: The final question comes from Dan Dolev at Mizuho. Given the regulatory and competitive landscape in crypto and prediction markets, what are the biggest external risks you're managing against in 2026? And what would you point to as your most underappreciated competitive advantage? Cameron Winklevoss: Thanks for the question, Dan. So I think one of the things that we want to talk about is the fact that, obviously, there's a lot of effort to pass a crypto market structure bill. And I think what is very encouraging to see is the SEC and the CFTC in parallel are doing great work to bring about the super app era independent of a bill. And so while we are hopeful that a good bill will ultimately get passed, there is a lot of great work going on at both agencies to create a path for super apps in the event that a bill does not pass for whatever reason. So we believe like the future for crypto in America has never been brighter. And I think that sort of there is a lot of great work being done that we're excited about. I think the second point that I'd like to make is that we are one of the, I think, the few end-to-end prediction marketplaces that also has a crypto marketplace within the same organization. And so we believe there's a lot of synergies for people who want to trade, for example, a Bitcoin event contract, but also be able to trade spot Bitcoin within the same place and hopefully eventually perpetual futures down the road in U.S. equities. And so I think that being an end-to-end marketplace for both predictions and spot as opposed to plugging into another marketplace, we believe that's an advantage for us going forward. Ryan Todd: At this time, there are no more questions. Thank you all for listening, and we'll talk to you soon. Operator: That concludes today's conference call. You may now disconnect.
Operator: Good afternoon, and welcome to the Spectral AI Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Devin Sullivan, Managing Director of the Equity Group. Please go ahead. Devin Sullivan: Thank you, Gary. Good afternoon, everyone, and thank you for joining us today for Spectral AI's 2025 Fourth Quarter and Full Year Financial Results Conference Call. Our speakers for today will be Vincent Capone, the company's Chief Executive Officer; and Thomas Speith, our Corporate Controller. Before we begin, I'd like to remind everyone that during this call, certain statements made are forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including statements regarding the company's strategy, plans, objectives, initiatives and financial outlook. When used in this call, the words estimates, projected, expects, anticipates, forecasts, plans, intends, believes, seeks, may, will, should, future, propose and variations of these words or similar expressions or the negative versions of such words or expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the company's control that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. As such, listeners are cautioned not to place undue reliance on any forward-looking statements. Investors should carefully consider the foregoing factors and the other risks and uncertainties described in the Risk Factors section of the company's filings with the SEC, including the registration statement and other documents filed by the company. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. With that, I'd now like to turn the call over to Vincent Capone, Spectral AI's Chief Executive Officer. Vince, please go ahead. Vincent Capone: Thanks, Devin, and thank you all for joining us today. We issued our earnings release this afternoon, which contains additional details of our operating results. We will also file our 10-K with the SEC later this evening. Today, I will focus my remarks on our year-end review and corporate developments, and our Controller, Tom Spieth, will take us through our key financial metrics. We will then open the conference call up for questions. 2025 was a pivotal year for Spectral AI, in which we made great progress along a number of fronts in support of achieving our primary goal of commercializing the DeepView system for the burn indication. The DeepView system is a diagnostic tool that empowers medical personnel to make quick data-driven decisions regarding whether a burn wound will heal on its own or if it requires significant medical intervention. This currently unmet clinical need is dramatically magnified in the event of a mass casualty burn incident, where the ability to triage burned patients rapidly and properly would be crucial in allocating valuable resources and managing the surgical burden. Our DeepView system is designed to assist the U.S. government in preparing for any such mass casualty event. As many of you may be aware, a hallmark event for our company was the June 2025 submission of our de novo application to the FDA. This submission was the culmination of years of work by our talented, hard-working and dedicated team. Following our submission and as anticipated, we received an additional information notification letter from the FDA, which we timely and completely responded to just earlier this month. We are maintaining an active dialogue with the FDA, and its feedback has been consistent with our expectations. We are hopeful for a positive response from the FDA before the end of the second quarter of this year. Now to give a review of the 2025 year. In March 2025, we completed our burn validation study. This 15-month study represented one of the largest burn trials ever conducted in the United States with data obtained from 164 adult and pediatric patients across 15 burn centers and emergency departments in the United States. In this study, the DeepView system significantly outperformed the clinical judgment of burn physicians. Following our anticipated FDA clearance, we will initiate an outcome study to measure the real-world impact of the DeepView system within the hospital setting. This study will focus on the benefits across patients' journeys and clinician workflows. The results of the burn validation study were submitted as part of our de novo application to the FDA. More broadly, the use of our DeepView system in these burn centers and emergency departments raised awareness of the technology among a larger set of likely users of the device if approval from the FDA is ultimately obtained. By way of scale, in the United States, there are approximately 125 burn centers, 700 trauma centers and 5,400 federal and community hospitals with emergency rooms where the burn patients are most likely to present upon injury. Let me next turn to a discussion regarding our BARDA contract. We have had a long-term significant and strong partnership with the Biomedical Advanced Research and Development Authority since 2013. Its support has been instrumental in our product development to date and most notably related to the Project BioShield contract that we signed in September of 2023 with a value of up to $150 million, $55 million of which were awarded at that time as part of the contract's base phase. This BARDA funding has supported product development as well as funding extensive U.S.-based studies to validate our DeepView technology and our AI algorithm in emergency departments, trauma and burn centers. Last week, as we announced, BARDA reaffirmed its commitment to the development of the DeepView system by awarding Spectral AI $31.7 million of advanced funding to accelerate and support additional feature aspects of our innovative AI-driven diagnostic device. In connection with this award, we have also committed to provide an additional $9.7 million to the total overall development costs associated with these advancements. The acceleration of the second phase of our BARDA contract will enable us to expedite further development of the DeepView system, most notably with our total body surface area measurement tool and our EHR integration. Our contract with BARDA upon an FDA approval of our device also includes a provision that will allow BARDA to subsidize an initial sale and distribution of up to 30 DeepView systems in burn centers in key regions across the United States. This contract also allows a further subsidy by BARDA for an additional 140 DeepView systems in burn centers and trauma Level 1 emergency departments across the United States. Internationally, the DeepView systems that we have placed in the United Kingdom have generated positive user feedback. As previously shared, we have obtained UKCA authorization for the burn indication in 2024. In 2026, following a positive FDA determination of our de novo submission, we will be updating our UKCA authorization to include the improved DeepView system as we have submitted it to the FDA. Thereafter, we anticipate initial sales in the U.K., Australia or the Gulf Cooperation Council nations to begin in late 2026 following such UKCA expanded authorization. While there will be a transition phase following our anticipated FDA approval, we will begin commercial activities in earnest in 2026 with our existing manufacturing relationships and expanding our sales team to facilitate the first commercial sales in our company's history. We believe we have a clear strategy to drive rapid market adoption, both inside and outside of our BARDA relationship. I would also like at this time to share some additional information about our handheld device, which we continue to develop as part of our Department of Defense contract through the contracting consortium called MTEC. In late 2025, we signed a no-cost extension of our current Phase II contract to extend it through June 30, 2026. Consistent with our current contract requirement, we anticipate delivering a fully functioning prototype of our handheld device by the end of the second quarter of 2026. After such time, we will also determine if there are any additional scope items that we can complete as part of that contract before the end of the third quarter of 2026. Phase II of the MTEC contract is scheduled to be reviewed and awarded by the end of the fourth quarter of 2026, and we are hopeful that we will be asked to bid on such work. We also anticipate leveraging any approvals at the FDA for our cart-based DeepView system as a predicate to our handheld device. At such time, we will look to obtain a 510(k) approval of our handheld device after receiving approvals for the cart-based DeepView system, currently under review by the FDA. Before turning things over to Tom, I am happy to say that we entered 2026 in the strongest liquidity and financial position in our recent history, and certainly during my tenure with our company. Our cash position of more than $15 million at year-end tripled from December 31, 2024, and we have aligned our operating expense profile with our strategic priorities. This allows us to pursue our growth objectives, both preapproval and hopefully, post approval from a position of strength and with a sufficient cash runway. While I have participated on numerous calls in the past, I also want to recognize that this is my first call as the company's Chief Executive Officer; I want to thank the Board for their continued confidence in me as well as the amazing team of people I am fortunate to work with every day. They are driving our success. I am grateful to lead Spectral to bigger and better things. With that said, I'll now turn over the conference call to Tom for a review of our financial results. Thomas Spieth: Thanks, Vince. As Vince noted, we had a strong year and believe that we have the financial performance in place to continue our R&D efforts and evolve into commercial business. Beginning with the fourth quarter. Research and development revenue for Q4 2025 was $3.8 million, compared to $7.6 million, reflecting the anticipated reduction in research direct labor, clinical trial and other reimbursed study costs relative to 2024, as the company moved closer to completion of the base phase under our contract with BARDA, we call the BARDA PBS contract. Gross margin for Q4 2025 was 39.8% compared to 44.0%, due primarily to a lower percentage of reimbursed direct labor as a component of overall revenue from the BARDA PBS contract. General and administrative expenses in Q4 2025 were $4.0 million, down from $4.5 million in Q4 of 2024, and reflecting lower spend on third-party accounting and legal providers. Net income for Q4 2025 was $0.6 million, or $0.02 per diluted share compared to a net loss of $7.7 million, or a negative $0.41 per diluted share in the fourth quarter of 2024. Net income in Q4 2025 included a $4 million gain in the fair value of the company's warrant liability as compared to a net loss of $5.4 million. Now we turn to the full year. Research and development revenue decreased to $19.7 million from $29.6 million reflecting the anticipated overall reduction in the company's reimbursed costs associated with the BARDA PBS contract during 2025, following the company's submission of its de novo application to the FDA. Gross margin was stable at 45.4%, compared to 44.9%, reflecting a consistent mix of direct labor as a percentage of the total work performed on the BARDA PBS contract from the prior year. G&A declined to $17.5 million from $19.9 million, reflecting a continued focus on operating efficiencies at the company. Our net loss for the year was $7.6 million, or a negative $0.29 per diluted share compared to a net loss of $15.3 million, or a negative $0.85 per diluted share, primarily due to the change in the fair value of the company's warrant liability, reduced borrowing related costs of $1.5 million, net of amortization of debt discount and improved operating efficiencies. As of December 31, 2025, we had approximately 30.7 million shares outstanding. With respect to our financial condition, as of December 31, 2025, cash improved to $15.4 million from $5.2 million in December 31, 2024, reflecting previously announced debt and equity financings completed during the year as well as warrant and stock option exercises. Total debt was $8.5 million. I will now turn the call back to Vince. Vincent Capone: Thanks, Tom. Before turning things over for questions, I would like to address our 2026 outlook. For 2026, we are forecasting revenue of approximately $18.5 million, which includes the effect of the new BARDA funding. This guidance does not include any significant contributions from the sale of the DeepView system. With that, I will open up the floor to any questions. Operator: [Operator Instructions] Our first question is from Ryan Zimmerman with BTIG. Ryan Zimmerman: And let me just start by saying congrats on the BARDA funding, and Vince for new role. Maybe as we think about your transition into a commercial organization, this year, Vince, you could talk to us a little bit about kind of how you're thinking about preparing for commercialization, what you need to do to get the organization ready to be a commercial organization and so forth. And then I have a few follow-ups. Vincent Capone: Sure. Good to hear from you, Ryan. So I mean, there's a few things that we're working on in preparation for what we believe will be hopefully, FDA approval. Some of that is, we've already started our search for a new Chief Commercial Officer. We have also engaged Deloitte Consulting to help us with our strategic plan for commercialization moving forward, both in the U.S. and overseas. That is already underway. We continue to have plans in place to expand our sales team. I'd like to do that in concert with the hiring of a new Chief Commercial Officer and that should get us in a position where we're ready to see sales inside and outside of BARDA in late 2026. Ryan Zimmerman: And just to be clear, let's assume that the approval comes on time, the 30 systems that are distributed to burn centers around the U.S. How do you think about the commercial activity that is generated from that? Because if you're not necessarily selling those systems, maybe because, again, BARDA is distributing them. Just how do you think about kind of what that does to the business model? Or how should investors think about that over time? Vincent Capone: We're -- well, so ultimately, each health system will make its own determination on really how they want to treat the device, if we can install it into their facilities, right? Whether it's purchase or lease, it's a different -- it's different from us. It's a different revenue recognition from a company perspective, but we foresee an opportunity for us to be in place with each center that we can place a device at. Hopefully, with a 3-year contract for both improvements in the software, the software licensing, and then the delivery of the device maintenance. So you package that whole thing together. Again, it's going to depend on the health system on how we, as a company, treat that revenue stream, but we think that we're well positioned to see. I don't see that adding a lot to our revenue number for 2026, but that will be obviously significant in 2027. And clearly much so -- much more so in 2028, where you have the layer on of the different -- of all the different levels of installations. Ryan Zimmerman: Okay. And then with this new BARDA contract, which was great to see, we didn't expect -- we certainly did not expect this kind of guidance, which is great, again, very positive to see for 2026. What kind of things are you going to be working on with this additional money from BARDA to enhance DeepView that allows, like I imagine you have to be speeding up some things, maybe pulling forward some opportunities just given the development revenue that you're getting now as part of this contract. And so what does that do for DeepView for sitting here a year from now looking at some of the capabilities and some of the investments you've made over 2026? Vincent Capone: Yes, I love that question. We have so many things that we see as kind of line of sight. We're going to be doing a label expansion. I think that's probably going to be one of the first things you see where we're going to pick up different areas of the body. We'll look to do a label of expansion. We're going to do further work on our TBSA, total body surface area, offering to make it better for the doctors, better for the physician assistants, better for the nurses. That is a process that we've worked on significantly to get it to this point, and it's part of our FDA submission. But the next iteration of that is going to be much better, and the next iteration after that, if there is one, will be even better. So add that into improved EHR integration, I mean, at a minimum, we're also working on things that are -- we've heard from other users. We're going to improve the battery. We're going to improve some of the user interfaces. This refinement, I think, is going to make our device even that much more valuable in a burn center. Operator: The next question is from Carl Byrnes with Northland Capital Markets. Carl Byrnes: Congratulations again on the BARDA advance, particularly prior to DeepView's approval here, and also Vince your promotion in your new role, congrats there. But with respect to the 31.7 BARDA advance, I'm wondering if you can kind of tell us a bit how you expect that to hit in '26 and '27. And the same with respect to the $63 million remaining on the contract or thereabouts in terms of filling Clin2, Clin3, and Clin4, I would call them obligations, but the buckets there over fiscal '26, '27 and '28. I know that's a lot. But any sort of visibility you can give would be awesome. Vincent Capone: Well, I think we're clearly pleased that BARDA was able to accelerate the second phase of the contract for us in advance of FDA approval. They've been a valued and frankly, a very supportive partner for us. This does a number of things for us. It's going to open up the opportunity for us to really begin in -- if we can gain FDA approval to really begin to start manufacturing devices with the new de novo system in place, really start in earnest with hospital systems for the placement of these devices, and that's part of the contract acceleration. I can't get into too many weeds on the terms of the contract as to what it will do in 2028, but we have economic outcome studies that we plan on doing. We have an expanded label work that we're going to do internally for expanding our label on what the indication is for, there's outcome studies that we were going to start in earnest sooner rather than later. All of this is great for us as an acceleration and providing us with getting to the part where we can provide better patient outcomes to burn patients and providing a better alternative so that we can help the health care system be in a position to really treat these patients in a more timely and more efficient manner. Operator: The next question is from Ram Selvaraju with H.C. Wainwright. Raghuram Selvaraju: Just 3 quick ones. Firstly, can you just remind us of the time frame within which you anticipate the entirety of the BARDA funds to ultimately be disbursed? Secondly, I was wondering how you're looking to approach the fine-tuning or revising of revenue guidance as and when the DeepView system achieves FDA licensure. And then lastly, with respect to the potential optimization of DeepView's value outside of the United States. I was wondering if you could perhaps say a few words on that. Vincent Capone: Sure. Happy to do so. Three pretty broad questions, but let's kind of walk through that. The BARDA contract in and of itself, I believe, extends until 2030. But if you take a look at the acceleration that really runs mostly through 2028. So that contract is going to help us with revenue earlier rather than later. And that's the time line for the entire BARDA contract. Ultimately, as things progress, that time line may be moved up, but that's the terms of the BARDA contract in and of itself, but you're going to see an acceleration through 2028. Refining and revising our forecast on revenue. As I said to Ryan, some of this is dependent upon health systems, and how they want to treat the actual deployment of the device. However, they treat it is going to really impact our revenue recognition. But for us, the installation to burn centers is obviously a pivotal event even if it -- even if the revenue is recognized, say, over a 36-month period. But you layer that on with the software licensing piece that is going to benefit them as we make improvements you're going to see that kind of stacking of installations in '27 and 2028 as we move along the continuum of installations, both in burn centers and EDs and Level 1 trauma centers. And that's within and without BARDA. And I'd like to make that point pretty clear. I mean we look to commercialize this in the United States with BARDA's assistance, but not solely exclusively through BARDA's assistance. And that's the same thing with respect to our U.K., our GCC, and our Australian international sale opportunities, we're going to modify our UKCA authorization to expand it to what is in the current DeepView system that's under de novo review with the FDA. And at that point, then we will pivot and look to deploy those devices overseas. And that revenue model may be different, as those health systems and some of them are nationalized, and how they wish to treat the sale of the DeepView systems abroad. Again, I put little stock in those numbers for 2026, they may be larger, but you'll see more of that as a larger component of revenue clearly in 2027 and in 2028. Operator: The next question is from John Vandermosten with Zacks. John Vandermosten: Vince, what does the training force look like? And how will you go about training the trainers for this? Because I assume you're going to have a group go out and get everybody up to speed on how to use them when you do the implementations. Vincent Capone: John, good to hear from you. We have a group of a fairly decent staff of BMEs currently in place here. And we're going to expand there. We have that in the budget for 2026 on expanding both our sales reps, and our biomedical engineers here at Spectral. And it's going to be kind of -- it's going to be in concert with both the BMEs, and our sales force to make sure we get out there and train many of these centers when they take the device, how to use it. The device -- and I know you've seen it, but I'm just going to say it for others that haven't, it's intuitive. And so we have a Q4 to make sure that the image capture is the right distance. And we're working on a number of different additional features to it to make it even more user-friendly. So yes, we're going to need to expand our training force. We plan on that. We plan on expanding our sales force. I'm just excited about where the company ended in 2025. Our cash number is significant. I think, we're in the best financial position we've ever been in, especially during my tenure here, which is now into my fifth year. And so I'm excited with what we have and where we're going, and we'll marry our training force to meet the expansion of where we're going. John Vandermosten: And do you have a number in mind in terms of how many individuals that might be for to train? Vincent Capone: I don't. I mean I have an estimate in my head. We're talking we're talking -- we're not talking hundreds. We're talking a much smaller number than that. But I'm pleased that we're working in concert with Deloitte Consulting to make sure that we have the right path forward. John Vandermosten: Okay. And how much time after clearance do you think you'll need to place the first units? Vincent Capone: John, I wish I had a crystal ball, right? All I know is it's going to take us a little while to manufacture the devices. But my hope, and as we've said this before, my hope is that we place devices in late 2026 and you'll see a significant pivot in 2027. John Vandermosten: And last question is just on looking forward in terms of the allocation of R&D spend. I know you've got snapshot. There are some indications outside of burn. And then also, you've talked about the future evolution of the DeepView cart. And then perhaps, I guess, development of AI technology or just the AI ML side of things, how do you see that breaking down going over the next year, 2027, perhaps and beyond in terms of that R&D spend. Vincent Capone: Well, I will tell you that we're definitely going to do a label expansion with head, hands and feet. I mean that's definitely going to be there. We've looked at a different -- a number of different opportunities for us. A number are being presented to us from third parties. I think the lowest hanging fruit will be the label expansion, the work on that. There may be another indication, whether it is critical limb ischemia and things related to that, whether it's amputations, or whether we partner with, maybe a wound bed - a wound company to check biofilm markers or wound bed preparedness we continue to see that as a near-term additional indication. But look, we're excited on where we ended up 2025. We're excited about BARDA's commitment to us with an additional 30 -- almost $32 million. We're excited to bring this to the burn community, and then expanding thereafter. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Vince Capone for any closing remarks. Vincent Capone: Gary, thanks. In closing, I would like to again thank our investors for their continued support of our company. I'm excited to deliver on our commitment to develop and commercialize our DeepView system, which we believe will significantly improve patient outcomes. With our strong cash position and continued advances in our product development, I am pleased with where we are to date and where we are going in the near future. Thank you all for your attendance and interest in our company. Have a good evening. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to Intrusion Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please note this conference call is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Josh Carroll with Investor Relations. Josh Carroll: Thank you, and welcome. Joining me today are Tony Scott, President and Chief Executive Officer; and Kimberly Pinson, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our website. Before I turn the call over to Tony, I'd like to remind everyone that the statements made during this conference call related to the company's expected future performance, future business prospects, future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Please refer to our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's conference call. Any forward-looking statements that we make on this call are based upon information that we believe as of today, and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. During the call, we may use non-GAAP measures if we believe it is useful to investors, or if we believe it will help investors better understand our performance or business trends. With that, let me now turn the call over to Tony for a few opening remarks. Anthony Scott: Well, thank you, Josh, and good afternoon, and thank you all for joining us today. Fiscal year 2025 was a year that had an unexpected beginning and an unexpected ending along with a number of significant product milestones along the way. At the beginning of the year, we improved our balance sheet by fully eliminating our then outstanding debt and Series A preferred stock. At midyear, we rolled out production of our critical infrastructure solution to help safeguard essential assets like water, power and telecom facilities. In the third and fourth quarter, we expanded our access to our Shield Cloud solution by making 2 variations of the product available on the AWS marketplace. And towards the end of the year, we announced our partnership with PortNexus to provide secure network protection for their MyFlare safety technology, which is being deployed at schools in several states. In conjunction with PortNexus, we also launched the P.O.S.S.E program, which will give sheriffs and other law enforcement agencies critical network protection for their public safety networks. And our pilot experience with the P.O.S.S.E program is encouraging with a high adoption rate so far. And finally, we ended the year with an unexpected delay in the extension of the earlier mentioned critical infrastructure contract with the Department of War. And I'll start my detailed remarks with some more insight about this unexpected end-of-year development. Kim will provide more details on the overall numbers shortly, but our fourth quarter revenues decreased by 12%, compared to the prior year period as a result of the delayed timing of an expected contract extension for our critical infrastructure technology. But for this delay, we had expected to show quarter-on-quarter increases in revenue, and greater year-over-year increase in revenue overall. Now to be clear, the cost of providing the services for this critical infrastructure solution are included in our operating expenses, but the expected revenue is not and will show up in later periods when the contract is extended. The timing of this contract extension was and remains affected by the operational and administrative constraints associated with the U.S. government shutdown, which limited agencies' ability to initiate and process contract actions during that period. And the situation is further impacted by the events related to the war in Iran unfolding currently. This delay in funding reflects a broader trend, affecting companies with U.S. government contracts, particularly those operating within the defense sector. And while we're disappointed by this delay, we do believe that we will be able to recognize this revenue during the first half of 2026 once procurement activity normalizes, and we are continuing to support and enhance the solution that we have provided, and we look for further expansion of this solution in other regions in 2026. We're proud of our partnership with the U.S. Department of War and the critical role we play in protecting national security through our advanced cyber capabilities. We continue to view the critical infrastructure solution that we have rolled out with the Department of War as one of the key drivers of future growth, especially as cyber threats become more frequent and more sophisticated. To convert this opportunity into future growth, we've recently taken targeted steps to enhance our sales efforts and go-to-market strategy, and I'll discuss these initiatives in more detail shortly, but they are specifically designed to expand our customer base across the private sector as well as federal state and local government markets. Turning now to some fourth quarter developments. During the quarter, we announced the launch of our Shield Cloud offering on the AWS marketplace, expanding the opportunity for customers to access our Shield technology. Additionally, we've launched our Shield Cloud offering on Microsoft's Azure platform and it's now live. With availability across both leading cloud marketplaces, we've meaningfully expanded our sales reach, which will help enhance our customer pipeline and drive future revenue growth. On top of this customer access expansion effort, we've also continued to strategically invest in R&D to help provide enhanced offerings to our customers. This is evident by the recent launch of Shield Stratus, a cloud-native packet filtering solution that inspects every connection and blocks known threats immediately without the complexity or re-architecture required by traditional firewalls. Shield Stratus integrates seamlessly with AWS gateway load balancer and is a great addition to our Shield ecosystem. Now on to some of the more recent developments during the first few months of 2026. As you may recall, we began a partnership with PortNexus in 2025, who chose to embed our Shield endpoint solution into their MyFlare solution that helps provide enhanced security for education and law enforcement customer endpoints. In February, we expanded our partnership with PortNexus by launching the P.O.S.S.E program that utilizes our Shield On-Premise technology to help protect law enforcement from cyber threats. The program achieved high levels of adoption during the initial pilot. And in the pilot program, Intrusion Shield technology identified and stopped dozens of active threats. The program is now scaling across Texas, Missouri, Oklahoma and Iowa through our partnership with PortNexus. And this partnership provides distribution access to hundreds of sheriffs' departments, schools and government facilities, so an exciting development, and we look forward to working closely with PortNexus to help expand this program and increase the adoption of our technology. We also recently took steps to expand our business development efforts with the hiring of Valencia Reaves as our Public Sector Vice President of Sales; and Patrick Duggan is our Director of Channel Sales & Partnerships. These 2 additions to our team will help strengthen our U.S. business development efforts across the government sector and our channel partners. Now briefly on to our financials for the quarter and the year. Total revenues for 2025 were $7.1 million, up 23% year-over-year. This top line growth was largely driven by the contract expansion with the U.S. Department of War that I touched on earlier. Fourth quarter revenue was $1.5 million, a decrease of [ 25% ] sequentially, which was the result of the delay in the incremental funding of the Department of War contract that I previously referred to. Our operating expenses also saw a slight increase during both the quarter and the year. This increase in our expense reflects deliberate strategic investments to strengthen our business and position us to achieve our goal of creating sustainable growth and long-term profitability as well as the costs associated with the critical infrastructure deployment and operation I mentioned before. We've made meaningful progress against our goals, and we believe we're on track to breakeven operations. And finally, before I turn the call over to Kim, I'd like to wrap up by addressing some of the recent AI trends that we're seeing in the cybersecurity space. As I'm sure many of you are aware, the recent emergence of cloud code security has caused a bit of a shakeup in the cybersecurity space as some fear of this tool will change the industry by eliminating defects in software. However, I do not view this development as a threat to cybersecurity companies such as Intrusion, but more as a promising tailwind for the industry. While improved code quality is more than welcome, it's only one aspect of the landscape of cybersecurity vulnerabilities. And in fact, the rapid adoption of AI has materially increased cybersecurity risk as it has significantly reduced the cost, the technical expertise and the time required to develop and execute highly sophisticated and scalable attacks. As a result, this is only going to increase the need for cybersecurity solutions, such as the ones that we provide to our customers that help catch these malicious actors before they can cause harm. With that, I'd like to turn the call over to Kim for a more detailed review of our fourth quarter and full year financial results. Kim? Kimberly Pinson: Thanks, Tony, and good afternoon, everyone. Fourth quarter results totaled $1.5 million in revenue, a decrease of 25%, compared to the prior quarter, and 12% when compared to the prior year period, as noted earlier on the call. This was due to the delayed incremental funding of a major U.S. government contract. The timing of this award was affected by funding and procurement constraints associated with the U.S. government shutdown and continuing resolution, which affected agency's ability to approve and initiate new contract actions during the period. We believe the delay in this contract award is primarily timing related and anticipate that a substantial portion of the delayed revenue associated with this contract will be recognized in future periods. Consulting revenues totaled $1.1 million in the fourth quarter, compared to $1.5 million in the prior quarter and $1.3 million in the prior year quarter. Shield revenues totaled $0.4 million in the fourth quarter, compared to $0.5 million in the prior quarter and $0.3 million in the fourth quarter of 2024. We anticipate that the sale of our OT Defender solution and other departments of the U.S. government as well as commercially will contribute to future growth. Additionally, during 2025, we partnered with PortNexus to integrate our Shield technology into its MyFlare Alert School Safety solution. Although sales to PortNexus did not materially impact 2025 revenues, the expanded pipeline for this offering is expected to support future Shield revenue growth. Fourth quarter gross profit margin was 74%, which was slightly down from the prior year period. For the full year, gross profit margin was 76%, down approximately 93 basis points versus 2024. Operating expenses in the fourth quarter of 2025 totaled $4 million, an increase of $0.3 million sequentially, and $0.8 million year-over-year. The fourth quarter increase both sequentially and compared to prior year was primarily driven by higher sales and marketing expenses reflecting increased participation in trade shows and expanded brand awareness and product marketing programs. For the full year, operating expenses totaled $14.5 million, an increase of $1.7 million, compared to 2024. In addition to the increased sales and marketing expense, the full year increase primarily related to onetime savings realized in 2024 from the negotiation or cancellation of existing contracts, which contributed $0.5 million in savings in 2024. Increased share-based compensation of $0.8 million from equity grants made in the first quarter of 2025 and cost of living and merit increases of $0.3 million. Net loss for the fourth quarter of 2025 was $2.8 million or $0.14 per share, compared to a net loss of $2 million for the fourth quarter of 2024. The increased fourth quarter net loss is the result of the reduction in revenues resulting from the delay in the incremental funding of government contract and increased operating expense. Net loss for the full year was $9.1 million or $0.46 per share, a $1.3 million increase from the prior year. Turning to the balance sheet. From a liquidity perspective, on December 31, 2025, we had cash and cash equivalents of $3.6 million. Looking ahead, we plan to seek a small debt financing in the near term to help further support our growth initiatives. We have already begun to have some initial discussions, and we'll provide an additional update on the debt financing during our first quarter earnings call. With that, I'd like to turn the call back over to Tony for a few closing comments. Tony? Anthony Scott: Thank you, Kim. 2025 was a year of meaningful progress for Intrusion from a product development standpoint and was marked by several key improvements, including new products. And while this progress was encouraging, we're not satisfied, and we realize that we have some significant work ahead of us. As we look to the remainder of '26, we will be doubling down on our sales efforts to expand our customer base to further improve our top line growth. We're confident that we have both the right people and the products in place that will help us achieve our goal of creating sustainable growth and long-term profitability. And before I wrap up, I want to extend my gratitude to our employees. The progress we've made this past year is a direct reflection of their dedication and hard work. And to our shareholders, we deeply appreciate your patience and steadfast support throughout this journey. And with that, I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Your first question is coming from Scott Buck from H.C. Wainwright. Scott Buck: Tony, I'm curious, can you provide a little more granularity on the unit economics of the P.O.S.S.E program? Like what is the average contract value for a typical sheriffs' department deployment? And what do the sales cycles look like with your partnership with PortNexus? Anthony Scott: Sure. Well, the device that they select will depend a lot on the network bandwidth that they need at the sheriffs' department. So those could range from a few thousand dollars up to tens of thousands of dollars depending on the size and bandwidth requirements of the particular sheriff. In the case of the pilots, we use some of our lower-end appliances. So it's a few thousand dollars in terms of unit pricing on those. But what I'm encouraged by is when we -- as we've experienced everywhere else, once we show the network traffic that's getting through the traditional firewalls and other technologies they have in place and also show the outbound traffic that should be blocked -- that's not currently being blocked, it makes the sale pretty quickly. So we're seeing a high adoption rate and we're going to expand into these other states, as I mentioned on the call. And the way it works is we loan them a unit, it goes in for a week to 10 days. We do a report and show them the traffic that we see and would have blocked if we've been in place, and they love it. So we're doubling down on that. We're increasing the number of POC units, and we'll see where it takes us. So that's kind of the way it works. Scott Buck: That's very helpful. And then I wanted to clarify something in your prepared remarks. Did you say that had you not had the delay from the government contract during the quarter that we would have seen sequential revenue growth from the third quarter? Anthony Scott: Yes. Yes. That is correct -- that is correct. Yes, we were expecting to report growth, both for the quarter and -- quarter-on-quarter and year-on-year above and beyond what we reported on the year-on-year. Scott Buck: So it's safe to assume that contract delay cost you at least $0.5 million in the quarter? Anthony Scott: Yes. Scott Buck: Yes. Perfect. And then, Kim, I wanted to ask about sales and marketing expense. I think it's the highest quarterly level of spend, maybe ever. Is this the new run rate? Or given some of the comments during the call, could we expect further investment in sales in 2026? Kimberly Pinson: We will continue to invest in sales and marketing. What we saw in the first quarter approximates the run rate, but we will see some increases from here. Anthony Scott: Scott, I'd also add, we're looking for cost efficiencies elsewhere. So it's important for us now to improve that sales and marketing muscle, and we'll look for other efficiencies elsewhere as we buttress up that capability. Scott Buck: Okay. So we may not see as material an increase in total operating expense because some of those dollars will... Anthony Scott: Could be offset... Scott Buck: Could come from other buckets? Anthony Scott: Yes. exactly. Operator: Your next question is coming from Ed Woo from Ascendiant Capital. Edward Woo: Did I hear you right that you said for the delayed contract that some of your expenses have already flown through the P&L already... Anthony Scott: That's correct. We've taken all the expenses associated with that. We just are not able to recognize the revenue at this point. Edward Woo: Okay. And then... Anthony Scott: I'm sorry? What that means is when the revenue does come, it will show up in a subsequent quarter, but the expense will already have been recognized. Edward Woo: Okay. So that would be a 100% margin when it comes through? Anthony Scott: Pretty nearly, yes. Edward Woo: Okay. And then are you seeing any -- what about the sales cycle pipeline for commercial customers? Have you seen any delays, any lengthening of sales cycle? Any concerns that you're hearing from Chief Information Officers out there? Anthony Scott: Beyond the government sector, no real change. I think the one concern that we hear all the time is that the dwell time for threats is getting shorter and shorter and shorter, which means you have to react faster than ever, once some suspicious activity is noted. And I think that bodes well for Intrusion's technology because we don't rely on the presence of malware or other known signatures, we're heavily focused on reputation, which means that we can stop things in real time versus waiting for something bad to happen and then have to react to it and then remediate and so on. So we're currently having some discussions with MSSPs and so on who are attracted to that kind of capability because it helps get out in front of these attacks versus waiting for an attack to actually happen. Operator: Your next question is coming from Howard Brous from Wellington Shield. Howard Brous: A couple of questions. Tony, critical infrastructure customers that you have, can you give us a general sense of what kind of customer it is? And is he happy with the work? Is this basically expandable for that particular customer? Anthony Scott: Yes. So this solution is protecting critical water infrastructure in the Asia-Pac region, and the customer is very happy with the solution. It's working as designed, and we continue to support it. And I think there's tremendous opportunities for this to expand beyond the region where it is now. We're doing one island right now in Asia-Pac. But as you know, there's a lot of islands that the Department of War has interest in, in that particular region. And so I think the revenue opportunity that comes from this is multiplied by the number of islands that still need this kind of protection. And that's not to mention the domestic facilities as well, which fall under Homeland Security jurisdiction generally. And with our new sales capability that I mentioned on the call, we're targeting those places as well. And we've got great customer reference from this initial deployment. So we're pretty excited about the revenue opportunity in '26 and going forward. There's a lot of this critical infrastructure around, whether it's water or telecom or electrical grid kinds of things, and our solution is tailorable to each of those environments. Howard Brous: So let me digress for a moment and talk about schools children. You install this in a school, and my understanding it's in every school room, every classroom and can be activated by a teacher if there is a potential event happening, where somebody is coming into the school with a weapon. Is that fair comment? Anthony Scott: Correct. Yes, that's the PortNexus solution that we're partners with. Yes. Howard Brous: Right. So you've got thousands of school districts throughout the country, why isn't everyone adopting this? It protects our children. There's nothing more important than that. How are you going about marketing this? Anthony Scott: Well, with PortNexus, we're attending events, where school administrators look for technology. We're also marketing, as we mentioned, to the sheriffs' department because -- or whoever the local law enforcement agency is that's associated with a particular school district because it takes the combination of them to really adopt the solution. The good news is it's very inexpensive. I've mentioned a couple of people. It's the kind of thing that, in many cases, the local PTA could fund even if the school couldn't afford to do it. But you're right. I think once you see the demo of this capability and the situational awareness that it brings to the law enforcement of people within seconds of an event occurring, it's a why wouldn't we want to have this kind of thing. And so we're really looking forward to 2026 to expand this greatly across lots of markets in the U.S. Howard Brous: And how your reception so far has been? Anthony Scott: It's been outstanding, yes. Again, once you see it, you go, dah, why would I ever want to be without this kind of thing. And parenthetically, I'll say it could apply to other public venues as well. It doesn't necessarily only get marketed to schools. But any place where people gather and there's a potential for disruptions, whether it's active shooters or fire or any other kind of an event that might be disruptive, it's really important for law enforcement to get situational awareness as quickly as possible. And this PortNexus solution allows for multiple perspectives to get that situational awareness as well as alerting the authorities very quickly when an event happens. It shaves minutes off of that critical first few minutes when you have a potential to avert disaster. And I don't know anybody who's ever seen it that doesn't think that's a good idea so... Howard Brous: Anything to protect our children is a very good idea. Can you talk about... Anthony Scott: You got it. Howard Brous: No doubt about that. Talk about the kind of cost? Is it per student, per classroom, per school? Anthony Scott: It's per classroom. The PortNexus solution would go into the classroom in the case of a school and attached to or become part of the smart whiteboard that's in the classroom and then school resource officers and teachers and anybody else that should be registered -- gets registered to that location. And then in the event of an incident, the panic button gets pushed, a text goes to all the preregistered cell phones. It turns the cell phone into lights up the camera and the microphone and the GPS signal and all of that gets fed to the law enforcement authorities along with video from the fixed cameras that usually are already installed in the school. So when an event happens, the law enforcement authorities have great situational awareness and location information from multiple perspectives, it's invaluable. And we license to PortNexus the network protection aspect of it. So the revenue we get comes from the number of classrooms and then the number of schools within the school district. Howard Brous: And the margins on this are high margins... Anthony Scott: So for us, it's very high, yes, because we don't actually have to go do any install or anything. We just license our software, PortNexus' team is responsible for the installs and first-level support and so on. So it's almost pure profit for us. Howard Brous: This is a big deal. Anything to protect our children, that's a good thing. Anthony Scott: You got it. Operator: Your next question comes from James Green. Unknown Analyst: My question concerns the potential emerging technologies and the ability for your technology to interface with those things. And I'm specifically thinking about as we move forward into a day in an era, where we have humanoid robots and we have autonomous cars, we have an imminent threat, where if they're compromised they can be an immediate danger if someone compromises it. Anthony Scott: Hello. I think we may have lost you, or I couldn't hear the rest of your question. Hello, can anyone hear me? Operator: Apologies. James Green's line has disconnected. Anthony Scott: Okay. Well, I think the question was -- I'll try to answer as best I can. Yes, there's more and more software, more and more autonomous things, whether it's robots or everything in your house, the emergence of AI and everything, I think widens the aperture for cybersecurity risk significantly. And our fundamental belief is that if you're not monitoring the network that all of these things need to operate on, if you're not monitoring it in real time packet-by-packet in multiple places in your network, you're likely to miss important things that would allow you to avert a disaster. And that's what Intrusion Shield does. We look at every packet in near real time and we make a decision about whether that packet is likely good or likely bad or unknown in some cases, and we make a decision. And I have used the analogy, it's like having continuous blood monitoring in your body. Most people get their blood drawn once a year when they go to physical exam, but some bad condition might have existed for almost a year, and you wouldn't know it until you get your blood drawn and get it tested. In our case, we're doing the equivalent of looking at every single drop of blood in the body all the time, every time it moves through the body, and that allows us to very quickly detect when there's something untoward going on. And so I think that type of protection is what's going to be more and more and more important as things move forward, specifically with AI and more and more software in our lives. The threat landscape just got a whole lot bigger and needs to be monitored and managed. Operator: And James Green, your line is connected and live. Unknown Analyst: Sorry, I accidentally got the line disconnected, so I missed the beginning of what you said. But since I missed the beginning, my question was, based off those emerging technologies, et cetera, is the current form factor or technology that you all utilize? Is it easily interfaced with those potential technologies? Or is there some minor alteration necessary to be able to utilize them in that? Anthony Scott: Yes. We -- yes, so the answer to that is we can attach to the network in any form that it occurs, whether it's wired or wireless or in the cloud or in a data center or in a home for that matter. And the important thing, as I was saying in my earlier answer is to be really safe, you need to be monitoring the network each and every packet all the time and monitoring from multiple places in your network to be assured that everything that is going on in the network is desirable and necessary even in some cases. So yes, we're very flexible in that regard. And we have put the R&D effort into making sure we can handle increasingly large bandwidth as that becomes a necessity. So I think we're well prepared for the future in that regard. Unknown Analyst: Okay. And 1 other question, which is since we have all these scenarios where people are going to have local agentic things running on their own potentially private networks walking back off a cloud, the speculation that companies might be trying to have all their things working within their own system, is there a way in which the technology deals with the agentic element even internally? Anthony Scott: Yes. I think to the degree that all of these agentic tools will use the network that allows us to monitor what that activity is. And I think you're going to see in 2026, I've made this prediction a number of times, you're going to see some pretty big accidents caused by unrestrained AI, where people lose something that got out of control somehow, whether it's privacy violation or whether it's a violation of releasing intellectual property in an unwarranted way. Who knows what it could be. But I think it's easily predictable that that's going to happen in '26. And for us, the only safeguard against that kind of thing is continuous real-time network monitoring, so that the nanosecond something bad happens that you can stop it and shut off its activities. So we think we're in a good spot as all of these things come to fruition. Unknown Analyst: So like within a local network, if there's agentic misbehavior, it can be controlled from being able to infect ones outside connected potentially? Anthony Scott: Yes. Yes. One of the characteristics of malware already today, even without AI, is what's known as a call home, an infected device inside the network makes a call home to a command-and-control server externally and looks for instructions in some cases or just reports its presence in the network, where it finds itself resident and then often waits for instruction on what to do next, launch a phishing campaign or launch some sort of other kind of attack. And Intrusion technology is particularly good at stopping those call homes that would otherwise be very dangerous. Now I'll say what we don't do is we don't go fix the device that had the problem. We just point you to it and say, this device over here has apparently got a problem. It's generating call homes to undesirable place. But most managed service providers and managed service security providers and institutions already have the tools to do remediation. What they lack is the early detection of that activity, and that's where Intrusion comes in. Operator: [Operator Instructions] Your next question is coming from Jerry Yanowitz [indiscernible] Unknown Analyst: Tony, last quarter, you opened your comments by saying you're pleased to report that during the third quarter, we continue our path towards achieving our goal of creating sustainable growth and long-term profitability. Today, you opened by saying you're on the path to breakeven operations. My question is, in what quarter do you expect to have those breakeven operations? Anthony Scott: Well, can you tell me when we're going to have another government shutdown or CR... Unknown Analyst: Assuming no government shutdown and no CR, what quarter would you expect to have breakeven operations? Anthony Scott: I would -- well, it depends on new contracts that we signed. As I mentioned, we think this critical infrastructure solutions got pretty big legs. Our first contract for that was a $3 million roughly annual contract, and it wouldn't take too many more of those to get us to that goal. So it's all dependent on timing in '26 of when we would get those. But we think we're in a good position to land more of those in '26 than we did in '25 and whether it's 2 or 3 or whatever. Unknown Analyst: Would you be extremely disappointed if you weren't breakeven in the third quarter of this year? Anthony Scott: Yes is the answer. I was disappointed that we weren't breakeven right now, to be honest with you. We thought we were on a path to get there more quickly than we have been, and that's life. And there's probably some mistakes that we made that we, in retrospect, would do differently. But I think -- I still think we're on the right path, and I'm pretty optimistic that '26 is our year. Unknown Analyst: All right. So by the third quarter, we should expect to see that as shareholders? Anthony Scott: I would hope so, yes. And I'm a shareholder, so... Unknown Analyst: You have skin in the game, so I appreciate it. Anthony Scott: Yes. Operator: Thank you. At this time, there are no other questions in the queue. I'll turn the call back over to our host, Mr. Tony Scott, for any closing remarks. Anthony Scott: Well, as I said before, I just want to thank everybody for your interest in Intrusion. As I said at the beginning, it was a year that was unexpected in many respects. And I look forward to the progress that we can make in '26 with a little more stability and a little more predictability coming our way. We've made, I think, all the right investments in our tech. We've begun the strategic investments in our sales and marketing capability that, frankly, we've lacked over the last couple of years. If I had to look back, I probably was a little too slow in building up that muscle. But I'm very pleased with the team that we have now, and they're showing remarkable ability to get us into places that -- and talk to people that we hadn't been talking to over the last couple of years. So that gives me hope. These are experienced sales and marketing people, and it's just a pleasure to work with them and see the progress every single day. So I'm appreciative of everyone's patience. I know it's been a long grueling road. But I remain optimistic and excited about what we can do together in '26. So appreciate everybody's time today, and I look forward to speaking with you at the next earnings call or maybe some announcements even before then. Thanks. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Hello, and thank you for standing by. Welcome to AAR Corp. Third Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to Chris Tillett, Vice President, Investor Relations. You may begin. Chris Tillett: Good afternoon, everyone, and welcome to AAR's Fiscal Year 2026 Third Quarter Earnings Conference Call. We're joined today by John Holmes, Chairman, President and Chief Executive Officer; and Dylan Wolin, Chief Financial Officer. Presentation we are sharing today as part of this webcast can be found under the Investor Relations section on our corporate website. Comments made during the call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. These risks and uncertainties are discussed in the company's earnings release and the Risk Factors section of the company's annual report on Form 10-K for the fiscal year ended May 31, 2025. In providing the forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events. Certain non-GAAP financial information will be discussed during the call today. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are set forth in the company's earnings release and slides. At this time, I would like to turn the call over to John Holmes. John Holmes: Great. Thank you, Chris, and welcome, everyone, to our third quarter fiscal year 2026 earnings conference call. I'll begin with key messages for the quarter on Slide 3. First, this was another outstanding quarter for AAR. Our focused business model is driving growth that is delivering durable results in both commercial and government end markets as evidenced by our third quarter performance. . Second, we continued our momentum in the quarter and delivered 25% growth in total sales, 31% growth in adjusted operating income and 26% growth in both adjusted EBITDA and adjusted earnings per share for the period. We saw growth across each of our parts, repair and software platform activities in the quarter. Total sales increase included 14% organic adjusted sales growth led by 36% organic growth in our new parts distribution activity. Third, we are continuing to execute across key initiatives advancing our strategic priorities. For example, in Repair & Engineering, the integration of HAECO Americas is ahead of schedule, and our hanger expansions are on track with Oklahoma City now complete, and I am expected to be operational later this summer. In parts supply, ADI is performing above expectations, and we continue to drive outsized growth in our new parts distribution activities. Also, our Trax software platform continues to gain momentum by growing its base of recurring revenue with new and existing customers. Finally, we are carefully managing our balance sheet for their strategic flexibility as we maintain our disciplined approach to capital allocation. We ended the third quarter with net leverage within our target range, supported by our strong operating cash flow in the period. Before I go to Slide 4, I would like to welcome Dylan Wolin back to AAR as the company's new Chief Financial Officer. Dylan was with the company from 2017 to 2024, it was instrumental in developing the strategy we are executing today. I would also like to thank Sarah Flan again for doing an outstanding job as our interim CFO over the last few months. I'm proud to be part of such a strong team. I also want to talk for a moment about the current environment. We are closely monitoring the events in the Middle East that have been in constant contact with our customers. And many of our customers have said publicly, Fundamental demand for air travel remains wrong with bookings at record levels even since the start of the conflict. While some customers may make modest capacity adjustments, at this time, we are not anticipating any meaningful impact to their maintenance schedules or need for parts. They continue to tell us they are preparing for a busy summer travel season, and we are planning accordingly. What's more, AAR is competitively positioned as an independent value-added aftermarket solution provider, which makes us a compelling solution for our customers as they look to reduce spending when fuel costs rise. Additionally, one of the benefits of AAR portfolio is our exposure to government and defense end markets. Over the decade, this balance between government and commercial markets has been a real advantage. On that note, the government side of our business is benefiting from a general need for increased operational readiness in the U.S. military. Our government customers today comprise roughly 30% of our sales and represented across all segments. AAR has a long history of working on some of the most critical aircraft for the U.S. military, including the C-17, the P-8, the C-40, the F-16 and the C-130, and it was programs like these that helped drive 19% increase in government sales this quarter and contributed to the strength of our results. Now on to Slide 4. We achieved 36% organic growth in new parts distribution driven by our 2-way exclusive distribution model. Volume and government distribution have been increasing steadily over the last year, and this quarter represented a 55% organic increase over this period last year. Also in Parts Supply, our acquisition of ADI outpaced expectations for the second quarter in a row, and ADI's adjusted margins were accretive to the company in the quarter. In repair and engineering, our Oklahama City facility completed its hangar capacity expansion in the quarter and began aircraft inductions in early March. We expect first revenues from these maintenance lines in our fourth quarter. Our component MRO business saw key wins from major U.S. and international carriers for expanded scopes of work, and this is a testament to our strategy to utilize our whole portfolio to drive more business to the higher-margin component MRO activity. Our HAECO Americas integration is progressing ahead of schedule, and we expect the full integration process to be complete in the earlier part of the 12- to 18-month window we provided previously. We also expect our acquisition of Aircraft Reconfig Technologies, or ART, to close in the fourth quarter. In our software activities, Trax had another record quarter as a result of growth with the addition of new customers as well as existing customer upgrades. Trax's agreement with Delta continues to ramp, already Trax has been deployed to more than 2,000 users across Delta, and we expect this to increase to more than 6,000 users in the coming months. Our Expeditionary Services business was recently awarded $450 million in a multiyear government contract to provide specialized talents to forward deployed military units as a result of increased operational tempo overseas. We are pleased with our results this quarter and the growth that we saw across the company. And I would now like to turn the call over to Dylan to go through the financial results in more detail. Dylan Wolin: Thanks, John. Looking at Slide 5. Total sales in the quarter grew 25% year-over-year, including 14% organic adjusted sales growth to $845 million. We drove revenue growth in each of our parts supply, Repair & Engineering and Integrated Solutions segments. Sales to commercial customers were up 27%, while sales to government customers were up 19% over the same period last year. For the quarter, 73% of our sales were to commercial customers and the remaining 27% were to government customers. Adjusted EBITDA in the quarter increased 26% year-over-year to $102.1 million and adjusted EBITDA margin increased to 12.1% from 12.0% a year ago. Adjusted operating income was up 31% to $86.2 million and adjusted operating income margin improved 50 basis points to 10.2%. The margin improvement in the quarter was driven by part supply and integrated solutions, including tracks and government programs, despite the expected short-term impact on margins from our recently acquired HAECO Americas business, at which we are in the process of rightsizing the revenue base, adjusting the cost structure and deploying our proprietary processes. Excluding HAECO Americas, adjusted EBITDA margin in the quarter would have been 70 basis points higher or 12.8%. This was the most critical integration quarter for HAECO Americas, and we expect sequential margin improvement going forward as we move through the remainder of the integration process. Finally, I'll mention that we recorded a gain in the quarter due to the accounting for our HAECO Americas acquisition, resulting in a bargain purchase. The gain reflects the excess of the fair value of the assets acquired over the purchase price and is excluded from our adjusted results. Adjusted diluted EPS was up 26% year-over-year to $1.25 per share, driven by our strong operational performance. Turning to parts supply on Slide 6. Total part supply sales grew 45% from the same period last year to $392.5 million. We had yet another quarter of above market growth in new parts distribution, which grew 62% in total and 36% organically, excluding the impact of our ADI acquisition. Sales to commercial customers were up 36% and sales to government customers were up 86%, driven by 55% organic growth in government distribution sales. Third quarter adjusted EBITDA of $59 million, was up 59% and adjusted EBITDA margin grew 130 basis points to 14.9%. Adjusted operating income rose 56% to $53.6 million, and adjusted operating margin increased 100 basis points to 13.7%. Higher margins in the period were driven by both the performance of the existing business and the addition of ADI. Now on Slide 7, for Repair & Engineering. Total sales increased 23% to $265 million. Sales growth was driven by the existing hanger operations, growth in our component repair shops as we continue to add new capabilities and customers and the year-over-year impact of the HAECO Americas acquisition. As I mentioned earlier and consistent with the outlook we described in last quarter's call, margins were negatively impacted in the quarter as we take actions at the recently acquired HAECO Americas operation to rightsize the revenue base, adjust the cost structure and improve processes. Segment margins were also impacted by the transition of work out of our Indianapolis facility, which we are in the process of exiting. Specifically, adjusted EBITDA margin decreased 190 basis points to 11.0% and adjusted operating margin decreased 150 basis points to 9.6%. We expect our revenue shaping, cost structure and process improvement actions to be completed towards the earlier end of the 12 to 18-month post-closing time line that we articulated previously, and for the quarter that we just ended to be the low point in terms of margin impact. Accordingly, we expect in the third quarter of fiscal 2027, our actions will result in the same quality and efficiency levels as we have achieved in our other airframe MRO facilities. And for Repair & Engineering margins to return to pre-acquisition levels. We expect the transition out of the Indianapolis facility, which is our highest cost site to continue into the fourth quarter of our fiscal 2027 and to realize further margin improvement once that is complete. Looking at Integrated Solutions on Slide 8. Sales increased 3% year-on-year to $167.8 million, driven by Trax and government programs. Third quarter adjusted EBITDA of $19 million was up 18%, and adjusted EBITDA margin grew 150 basis points to 11.4%. Adjusted operating income of $15.5 million was 25% higher with adjusted operating margin increasing from 7.6% to 9.2%. Improved margins were driven by mix shifts towards higher-margin contracts within government programs as well as by growth and higher margins at track. Turning to the balance sheet on Slide 9. We had a strong cash flow quarter, generating $75 million in cash from operating activities. Net large decreased to 2.17x net debt to adjusted EBITDA, comfortably within our target range of 2.0x to 2.5x. With that, I'll turn the call back over to John. John Holmes: Thank you, Dylan. Turning now to Slide 10 for an update on our outlook for the remainder of the fiscal year. For Q4, we are expecting total adjusted sales growth of 19% to 21%. Organic adjusted sales growth for Q4 is expected to be between 6% and 8% as we lap what was a very strong Q4 last year. This excludes the debenture of landing gear as well as the impact of fiscal 2026 acquisitions. We expect Q4 operating margin of 10.2% to 10.5%. Our outlook for Q4 has improved from what was implied in our guidance last quarter, given the ongoing strength we see across our markets. As a result, our full year expectation is for total sales growth of approximately 19% and for organic sales growth of approximately 12%, which is up from our prior outlook. . Finally, on Slide 11, I'm excited to share that AAR will be hosting an Investor Day on May 12 in New York City. AAR has been driving strategic transformation over the last several years, and we have a more focused, complete range of aftermarket solutions in parts repair and a software platform that worked together to drive growth. As the last several quarters have shown, this strategy has yielded results. At our event in May, we plan to share our strategic vision of how we will continue to cement our position as the independent leader in aviation aftermarket through our repositioned portfolio, focused strategy and differentiated culture. We hope to see many of you there. Before we open it up for questions, I'd like to thank our talented team members around the world as they drive excellence in quality, safety and service and the work we do for our customers. I'd also like to extend a thank you to our customers and shareholders for their ongoing support of the AAR. With that, we'll turn it over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Ciarmoli with Truist. Michael Ciarmoli: I guess, John, just on the topic everybody is asking about with oil prices kind of what we're seeing with some of the carriers trimming capacity. I mean historically, you've been in this business long enough. I mean, is there some sort of proxy you could give us how long do we need to see elevated fuel or once we start seeing some of these capacity cuts by the airlines, will that -- if it will at all translate into your business and fully realizing nobody is parking planes yet. They're just maybe trimming some routes. But any color you could give us there from a historical context? John Holmes: Yes. I would say that the #1 thing is -- and I appreciate the question. The #1 thing is that fundamental demand for air travel remains very strong. That's what you're hearing from all of our major customers. And obviously, we're hearing that from them every time we talk. And they've continued to see record bookings even after the conflict started. I would say, just to your point, what you're seeing now are modest capacity adjustments and they're not impacting any airlines individual fleets. . And so adjustments like that are not going to have any meaningful impact on the demand for Parts or Maintenance. So at this point, we feel very good. All the customers are talking to us about strong bookings and being prepared for a very busy summer, and they're making those plans with an assumption that fuel prices are going to remain elevated through that period of time, which we view as encouraging because they're factoring that in, yet their demand signals to us are still very strong. Michael Ciarmoli: Okay. Okay. That's helpful. And then maybe just on the more positive side, I mean, you guys continue to do really, really well on distribution that organic 36% on new parts, can you maybe just disaggregate that for us a bit? I mean, what was kind of new wins? What was same sale -- same-store sales, maybe pricing? I mean, just really strong growth. I mean you guys are doing a great job there. John Holmes: Yes, we're very proud of the continued growth we see in distribution, and our model there is clearly resonating. To your question, about 2/3 of the growth was same-store sales, so continued growth from contracts that have been in place for some time. And the remaining 1/3 was mostly new contract wins a little bit of price across all of them, but the majority of the growth, about 2/3 of the growth came from growth from existing contracts. Michael Ciarmoli: Got it. Is it -- the name jump out. Was it engine-related, airframe-related avionics, any -- or strength across the board that you're seeing? John Holmes: Great, across the board. But again, I would highlight the continued growth in Defense distribution. We've got a great offering there, and that was 55% organic in the quarter. And that though, we've been seeing a build. That wasn't a one-off. We've been seeing a build in growth in defense sales to the government. And certainly, our offering is resonating, and it reflects this administration's clear prioritization of sustainment and readiness. . Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe to follow up on Mike's question. As you think about your new parts distribution business in Repair & Engineering, I know we're only seeing modest capacity cuts. How do you think about how quickly behavior has changed historically and what your visibility looks like in each? John Holmes: Yes. I mean we've got solid visibility currently through the quarter and the guidance we just provided, and I would extend that to the summer as well because that's what everybody is planning for right now. We've been in constant contact with the customers, -- we have not seen any material change in demand for maintenance lines or component repair. And you would have to see, I would say, a much more significant changes to their fleet plans for that to have any meaningful impact on our results. The other thing I would say is that if I think about this moment that we're in relative to historical mods, AAR is in a much different position in the marketplace. And I would say that we've been so focused on delivering superior service and quality to our customers that we feel pretty confident that they would deprioritize other vendors before they did anything with us. Sheila Kahyaoglu: Got it. And maybe if I could ask another one, really great execution this quarter. You held margins flat sequentially and are guiding to an improvement in Q4 given -- even with the HAECO dilution that's ongoing. So maybe can you give us some flavor into the sources of the outperformance? You called out ADI and HAECO outpacing expectations. Anything else notable? John Holmes: Those would be the big ones. ADI, the second quarter there of outperformance. HAECO, it's a lot of work. It's a lot of work to complete that integration. As we mentioned, this was the most critical quarter and we've been able to move some of our timetables up. So happy to say if we're going to be at the earlier window. I would also highlight this was a really strong quarter for Trax. Great momentum from a sales and margin perspective with Trax. And that's something we've been focused on growing, as you know. . Operator: Our next question comes from the line of Ken Herbert with RBC Capital Markets. Kenneth Herbert: Maybe first, If we look at your commercial aftermarket, John, the commercial business broadly, how much of that business would you characterize as book and shift for short cycle versus more sort of backlog driven? And I know, obviously, a lot of the heavy MRO piece of the business is now much more backlog-driven than maybe it was previously. But is there a way you would frame up that maybe that way to look at your business? John Holmes: Yes. As you pointed out, heavy maintenance is definitely backlog-driven. Much of the distribution business is backlog driven. Those are, I would say, the 2 -- and obviously Trax with us in its own category, but those would be the 2 long-cycle elements of the business. component repair tends to be a bit more short cycle. And also -- and obviously, USM is a shorter-cycle business. But the majority of the revenue now in commercial between distribution and heavy maintenance is longer cycle. Kenneth Herbert: Okay. Helpful. And obviously, really nice cash generation in the quarter. Can you give any commentary on what we should expect fourth quarter, which typically seasonally is very strong from a cash generation standpoint? And maybe any highlights either for you or Dylan on specifically some of the -- what we saw in the third quarter in terms of the strength? John Holmes: Great. Yes. No, we were really pleased with the cash flow results and customers paid us on time. So we're appreciative of that. And as it relates to the outlook for the rest of the year, we are planning to be cash flow positive in Q4 and again -- and cash flow positive for the whole year. . Operator: Our next question comes from the line of Scott Mikus with Melius Research. Scott Mikus: Quick question. I know it's still early in the war in Iran. How long does this potentially have to drag on before it starts maybe impacting your ability to source any of the parts you need in your part supply business? And then in contrast, could the worst stimulate demand for your component repair business if airlines are seeking to reduce maintenance costs to offset the higher fuel costs? John Holmes: Yes, great question. I wouldn't expect at this point that the war or the conflict at any length of time would impact the supply of material. I mean, unless you're talking about USM specifically and certainly, if for any reason, you see more aircraft retirements and subsequent teardowns, how that would result in more supply for that material. But in terms of the war or the conflict stimulating demand, Yes, I mean it could stimulate demand in a number of ways, obviously, on the defense side, and we're highlighting a few of those in the results. But then also, I mean, we are in many ways, a lower cost alternative to OEMs and other providers. We have seen this in prior cycles where we're able to win business as an alternative to OEMs with airlines what to reduce their costs. Scott Mikus: Okay. Got it. And then I wanted to follow up, the organic growth guide in the fourth quarter implies a deceleration but you should be getting some revenue contribution from the OKC capacity expansion. So is that kind of just some conservatism baked into the guidance? Or is there any pull forward into this quarter from a top line perspective? John Holmes: Yes. No pull forward into this quarter. Really, the impact you're seeing in Q4 is just lapping a really tough comp from last year. We had a really strong quarter in Q4 last year in a number of ways. And the guide there is reflective of that. But the guide is improved from what we implied with the Q3 guidance we gave last quarter. Operator: Next question comes from the line of Noah Levitz with William Blair. Noah Levitz: Yes. To start off, you gave a lot of good color on Trax and the implementation. But kind of drilling in on that, you mentioned that Delta, that the partnership with them has been deployed to 2,000 users and you expect 6,000 in the coming months. I'm curious like the 6,000 like the ninth inning? Or are you still early innings in the Delta deployment? And then following off of that, can you give a little bit more color on the time line for track establishing kind of that part Smartplace aspect of the business? John Holmes: Yes. Great set of questions. So I'm glad you asked about the Delta implementation. So kind of two ways to think about the Delta implementation. It's the whole thing will take approximately 3 years, and we're coming up on 1 year into that, and there's 3 modules. The first module is, I would say, basic functionality deployed across a large user base. So we've got basic functionality up and running. . And were deployed roughly 1/3 of the way across the user base of Delta. So that -- once all those 6,000 users have this first module in hand and working, that completes the first phase. The next 2 phases, Phase II and III, we'll be focused on deploying additional functionality to that large user base. And that is still -- and that's where the material ramp-up in the activity and the revenue delta will occur. And so that will start a few months from now and ramp through over the following, call it, 6 or 7 quarters. And then as it relates to the parts marketplace, something we are still very focused on and we do expect to go live on that and launch it yet this calendar year. Noah Levitz: Awesome. And then just 1 follow-up. The defense business is, I mean, more or less killing it, the 55% organic growth and government distribution is really impressive. In the slide deck, you do mention that higher-margin government work was a positive contributor. I think more so in the Integrated Solutions segment, is that something that you're expecting to continue as more or less like a new norm? Or was that more like a positive benefit this quarter that was somewhat unexpected. How should we think about specifically government margins on an improving basis going forward? John Holmes: Yes. You are referring to the margin improvement in the government portion of integrated solution government programs specifically. And that reflects sort of a mix shift towards higher-margin programs within government programs, and we do expect the benefit of that mix shift to continue going forward. Operator: Our next question comes from the line of Michael Leshock with KeyBanc Capital Markets. Michael Leshock: I wanted to follow up on the HAECO question, just given that that's progressing ahead of schedule. I know there was a cost element to the synergies there, but could you talk about how that integration is progressing in terms of cost-outs or operational efficiencies or just overall utilization, is there any way to bucket the primary drivers of that integration going ahead of schedule? . John Holmes: Yes. So just to describe it in a little bit more detail. We've got to rightsize the business in a couple of different ways. They had -- it was a much larger business in terms of revenue than how we intend to run it. because that revenue was not profitable. So we are continuing to close up those aircraft that we no longer be customers with us and ship them off. That work is getting done. At the same time, we're also making difficult decisions around the size of the workforce because we want to size the workforce to the new revenue base that we have. Those changes have been made. And when we say this was the most critical quarter. The changes to the size of the workforce to align with the new revenue base, all of those changes have been made. So that's in place. The last 2 major pieces are moving the work out of our Indianapolis facility and moving that into other AAR facilities, majority of which will go to HAECO and the GreenVille site and the happening now. And that's happening now. So that's the next significant phase. In the final phase that will be complete after all of that, but it's all going on in parallel is the implementation of our systems. We are certainly taking our rigor and our expertise in deploying it on the floor today. But ultimately, the paperless system that we've developed and utilized most of our AAR hinders, we want that fully deployed inside of the HAECO facilities as well. So that would be the very last piece to complete. But again, all of that at this point is pacing ahead of schedule. And it's a really heavy lift. You got a lot of moving parts there, but very proud of the way the team is executing. And also really happy with the way the HAECO team has embraced the culture that we're promoting. It's been a really good fit. Michael Leshock: Great. And then within Integrated Solutions, just given the recurring revenue nature of the Trax business as well as the new customer integration and ongoing upgrade cycle, should we expect growth there to be fairly linear going forward within the segment? Or is there anything that could drive lumpiness ahead? John Holmes: Overall, Linear, you do get lumpiness every now and then because of the way we book new implementations just based on the software and milestone accounting. So that does create some lumpiness in the results there. But the recurring revenue, which is the base of the business that we're most focused on growing that we expect to be linear. And again, we've doubled the size of track since we bought it. They were a $25 million business when we closed that pacing north of $50 million now. And based on the customer updates, their upgrades as well as new customers that we've captured we see a path to doubling that again from $50 million to $100 million. Operator: Thank you. Ladies and gentlemen, at this time, I would like to turn the call back over to John for closing remarks. John Holmes: Great. Thank you very much, and thank you for joining us today. We continue to execute with a high degree of discipline, and we are energized by the opportunities in front of us and really appreciate the support and interest in AAR. . Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon. My name is Kevin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Paysign Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. The comments on today's call regarding Paysign's financial results will be on a GAAP basis unless otherwise noted. Paysign's earnings release was disseminated to the SEC earlier today and can be found on the Investor Relations section of our website, paysign.com, which includes reconciliations of non-GAAP measures to GAAP reported amounts. Additionally, as set forth in more detail in our earnings release, I'd like to remind everyone that today's call will include forward-looking statements regarding Paysign's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance is summarized at the end of Paysign's earnings release and in our recent SEC filings. Lastly, a replay of this call will be available until June 24, 2026. Please see Paysign's Fourth Quarter and Full Year 2025 Earnings Call announcement for details on how to access the replay. It's now my pleasure to turn the call over to Mr. Mark Newcomer, President and CEO. Please go ahead. Mark Newcomer: Thank you, Kevin. Good afternoon, everyone, and thank you for joining us today for Paysign's Year-end 2025 Earnings Call. I'm Mark Newcomer, President and Chief Executive Officer. Joining me today is Jeff Baker, our Chief Financial Officer. Also on the call are Matt Turner, our President of Patient Affordability; and Matt Lanford, our Chief Payments Officer, both of whom will be available for Q&A following our prepared remarks. Earlier today, we announced our fourth quarter and full year financial results for 2025, which demonstrated continued strength and exceptional growth across all key metrics. For the full year, revenue increased 40.5% to $82 million. Net income increased 98% to $7.6 million and adjusted EBITDA increased 107% to $19.9 million. Importantly, operating margins increased 723 basis points, providing clear evidence that we've reached a key inflection point where future revenue growth should drive increasing operating leverage and profitability. We continue to deliver strong growth in our patient affordability business. Annual revenue grew 168% year-over-year, reaching $33.9 million compared to $12.7 million in 2024 and claims processed increased by approximately 79%. For those newer to our story, our patient affordability platform helps pharmaceutical companies ensure patients can access high-cost medications by administering co-pay assistance programs. In 2025, our platform helped deliver nearly $1 billion in financial assistance to patients, supporting access to high-cost therapies for more than 840,000 individuals. At the same time, we help manufacturers better control how those dollars are spent, which is one of the key value propositions we provide. A key differentiator of our platform is our dynamic business rules technology, which helps pharmaceutical manufacturers avoid unnecessary costs associated with co-pay maximizer programs. In 2025 alone, this solution saved our clients over $325 million. And this year, we have already saved our clients almost $150 million. That level of savings represents a meaningful economic benefit for our customers and highlights the value of our platform. We added 55 programs during the year, bringing total active programs to 131 across more than 70 patient affordability clients. A mix of transition programs and new launches contributed to both immediate and long-term revenue growth. Our programs span both retail and specialty pharmacy as well as in-office administered and infused products. Oncology and other cancer treatment products remain a significant portion of our program base and biologics represent approximately 50% of claim volume across the platform. We continue to see strong expansion within our existing client relationships. For example, following the onboarding of one of the nation's largest pharmaceutical manufacturers in 2024, those programs scaled successfully throughout 2025. and we added 4 additional programs from that same manufacturer during the year. This type of expansion within large pharmaceutical clients highlights both the scalability of our platform and the durability of demand. Paysign now has active programs with 6 of the top 10 U.S. pharmaceutical manufacturers ranked by revenue. Next month, we attend the Asembia Specialty Pharmacy Summit here in Las Vegas. As in prior years, we are seeing strong interest from potential clients evaluating our solutions, and we enter the conference with a robust pipeline. Over the past several months, we've had conversations with shareholders, analysts and prospective investors to help them better understand the patient affordability business and the broader industry landscape in which we operate. Increasingly, those discussions have touched on legislative, regulatory and policy-related topics. So I thought it would be helpful to ask Matt Turner, our President of Patient Affordability, to provide some additional context. Matthew Turner: Thank you, Mark. Before addressing some of the questions we've been hearing from investors and analysts about potential headwinds to our business, I want to briefly give an overview of how our patient affordability business fits within the broader health care ecosystem. Our platform is focused on helping pharmaceutical manufacturers support patient access to high-cost branded therapies, primarily within the commercially insured patient population. These are typically branded medications where out-of-pocket cost can be significant and where co-pay assistance programs are essential to ensuring patients can begin and stay on therapy. At the same time, our platform helps manufacturers better manage how those assistance dollars are deployed, particularly in an environment where payer dynamics can introduce inefficiencies into the system. That combination of improving access while also driving economic value is what underpins the demand for our solutions. With that context, I'll address a few areas we've been asked about. First, on the expansion of the direct-to-consumer, also known as DTC and cash pay models, these programs have existed in various forms for over a decade and are not new. They were built primarily for products with little or no commercial insurance coverage. That is a very different segment from where we operate today. For the types of high-cost branded therapies on our platform, where list prices can be tens of thousands of dollars, which represents approximately 90% of the drugs in our platform, cash pay and discount alternatives are simply not a viable solution for most patients. Commercial insurance, combined with manufacturer co-pay assistance remains the most effective model for patients. As a result, we view DTC expansion as a complementary solution in certain cases, but not a meaningful substitute for our core business. Second, regarding pharmacy discount programs such as GoodRx, TrumpRx, Cost Plus or similar offerings. These products have existed for more than 20 years and serve an important role in reducing cost for lower-priced generic medications or for those patients without insurance. They are not designed for nor do they compete with branded specialty medications where commercial insurance and co-pay programs are the standard of care. Our business is squarely focused on that branded drug segment and the more than 850 specialty drugs. So these programs are simply not relevant to what we do. Third, and perhaps most important, given the current policy environment on legislative and regulatory considerations, most of the activity around co-pay accumulator and maximizer programs have taken place at the state level. And despite ongoing discussions and congressional committees, there has been no meaningful federal action to date nor do we expect any in the foreseeable future. The key reason is simply structural as a large portion of commercially insured Americans are covered under employer-sponsored health plans governed by ERISA, which limits the impact of state-level regulations. We do not see that as changing. As a result, these programs continue to operate despite changes in state laws. Importantly, demand for our dynamic business rule solutions, which helps manufacturers navigate maximizer programs continues to grow. As Mark said, this year, we have already saved our clients almost $150 million that would otherwise have been absorbed by those programs. So stepping back, we continue to monitor the competitive and regulatory landscape closely. But based on what we see today, we do not view these dynamics as a material threat to our business. If anything, they continue to reinforce the need for solutions like ours, which is reflected in the continued growth of our business and pipeline. Our differentiated dynamic business rules capability is a driving tangible ROI for our pharma customers while we enhance affordability for hundreds of thousands of consumers. Back to you, Mark. Mark Newcomer: Thank you, Matt. Turning to our plasma donor compensation business. In 2025, plasma compensation contributed $45.6 million in revenue, representing a 4% increase over 2024's $43.9 million. We believe the business will continue to exhibit revenue growth driven primarily by center filling excess capacity rather than new center openings. That said, we do expect a modest number of new center openings in 2026, maintaining our market share of just under 50%. We exited 2025 with 595 centers, an increase of 115 centers over the previous year, and we continue to engage the remaining plasma collection companies who are currently not our customers. We believe our expanded suite of donor management and engagement tools we acquired last year creates additional opportunities to grow our footprint in this space. As we await FDA 510(k) review of our donor management system, also known as a BECS or blood establishment computer system, we are actively working to integrate the BECS with a number of plasmapheresis device and strengthen our relationship with those manufacturers to make installations and transitions to our solution as seamless as possible. This integration is included in our latest filing with the FDA. Our broader suite of solutions continue to receive positive feedback from blood and plasma collection organizations across the United States, Europe and Asia, and we are highly encouraged by the long-term growth potential of this business. 2025 marked a meaningful step forward as our patient affordability business scaled and became a central driver of growth and profitability, while our plasma business continued to provide a stable foundation. We believe we are still in the early stages of our patient affordability opportunity and enter 2026 with strong momentum in which to build upon. With that, I'll turn it over to Jeff for additional details on our quarterly and full year-end financial results. Jeffery Baker: Thank you, Mark. Good afternoon, everyone. As Mark highlighted, the fourth quarter and full year results reflect both strong growth in our patient affordability business and the early benefits of operating leverage across the platform. For 2025, total revenues increased 40.5% to $82 million. Pharma industry revenue increased 167.8% to $33.9 million, driven by the addition of 55 net patient affordability programs launched during the past 12 months and a corresponding increase in monthly management fees, setup fees, claim processing fees and other billable services such as dynamic business rules and customer service contact center support. Process claims increased over 79%. This growth reflects continued expansion of our platform and increasing demand for solutions that improve patient access while helping manufacturers better manage their co-pay assistance spend. Plasma revenue increased 4% to $45.6 million, primarily due to the addition of 115 net plasma centers adding during the past 12 months, offset by a decline in average plasma donations per center as plasma inventory levels were elevated throughout much of 2025. This led to a reduction in our average monthly revenue per center as compared to the same period in the prior year. We exited the year with 595 centers versus 480 centers at the end of 2024. Other revenue increased by $671,000 or 36.2%, primarily due to the growth in usage in the number of cardholders of our payroll, retail and corporate incentive programs. More importantly, we are beginning to see the benefits of operating leverage across the business. Total operating expenses were $41.4 million, an increase of 32.6%, well below the revenue growth we experienced, which, coupled with our improved gross profit margin to 59.4% versus 55.1% drove our operating margins to 9% versus 1.7% in the prior year. We have reached an important inflection point where our fixed costs can support meaningful scalability without commensurate increased expenses. So we expect further improvements in these metrics throughout 2026. This is consistent with what Mark described earlier as patient affordability becomes a larger part of our business, we expect to see continued improvement in margins and operating leverage. Here are a few other important details to point out for the fourth quarter and full year results. For the fourth quarter, our earnings before taxes increased to $2.5 million versus $1.2 million the same period last year. Fourth quarter net income was impacted by a higher effective tax rate of 45.4%, which reduced earnings per share by $0.02 per fully diluted share versus the prior period. The fourth quarter adjusted EBITDA, which is a non-GAAP measure that adds back stock compensation to EBITDA was $5.4 million or $0.09 per diluted share versus $2.9 million or $0.05 per diluted share for the same period last year. The fully diluted share count for the quarters used in calculating the per share amounts was $61.6 million and $55.5 million, respectively. We exited the year with $21.1 million in cash, almost double from the prior year. This excludes any impact to pass-through receivables and payables we periodically have related to our pharma patient affordability business. We also continue to have zero bank debt, funding operations and our Gamma acquisition through operating cash flow. Turning to our outlook for 2026. We expect revenue of $106.5 million to $110.5 million, representing 30% to 35% year-over-year growth, with plasma and pharma contributing equally and other revenue contributing $2.5 million. Considering the seasonality in both our main health care businesses, we expect plasma revenue to be the lowest in the first quarter with tax refunds going out and ramp up throughout the remainder of the year, while we expect pharma revenues to be the highest in the first quarter and decline throughout the remaining of the year as patient affordability claims ramp down. This outlook reflects continued momentum in our patient affordability business, which we expect to remain the primary driver of growth. Gross profit margins are expected to be between 60% to 62%, reflecting increased revenue contribution from our pharma patient affordability business. Operating expenses are expected to increase 20% over 2025 as we continue to make investments in people and technology. Of this amount, depreciation and amortization expense is expected to be between $9.5 million and $10 million, while stock-based compensation is expected to be approximately $5.5 million. Given our large unrestricted and restricted cash balances and the current interest rate environment, we expect to generate interest income of approximately $3.1 million. Our full year tax rate is estimated to be between 22.5% and 25%. Net income is estimated to nearly double over 2025, reaching a range of $13 million to $16 million or $0.21 to $0.26 per diluted share and adjusted EBITDA to be in the range of $30 million to $33 million or $0.49 to $0.53 per diluted share. The number of fully diluted shares for the year is estimated to be 62.3 million. For the first quarter of 2026, we expect revenue of $27 million to $27.5 million, representing a 45.2% to 47.8% growth over first quarter 2025 and expect to have 137 active patient affordability programs and 589 plasma centers exiting the quarter. Margins are expected to expand across the income statement versus the same period last year, equating to an operating margin between 20% to 22%, net margin between 17% to 19% and adjusted EBITDA margin between 34.5% to 36.5%. Fully diluted earnings per share is estimated to be $0.07 to $0.08, while adjusted EBITDA per share is estimated to be $0.15 to $0.16. Overall, our outlook reflects continued strong growth driven primarily by our patient affordability business, along with further margin expansion as we scale. With that, I would like to turn the call back over to Kevin for questions and answers. Operator: [Operator Instructions] Our first question is coming from Jacob Stephan from Lake Street Capital Markets. Jacob Stephan: Congrats on a really nice quarter here. I appreciate all the color on the pharma industry. One thing I kind of wanted to touch on a little bit. So we're kind of hearing some pharma services providers that the drug manufacturers have actually been kind of less active recently with regards to new initiatives. I'm wondering if you're seeing any difference in behavior with your pharma manufacturers over the last few months here. Matthew Turner: No. I mean, this is Matt Turner. I would argue that it's just the opposite. If you were at JPMorgan and listening to the conversations there, nobody is slowing down anything. We were sitting there listening to Dave Ricks, the CEO of Lilly, and he was talking about the billions of dollars they're pumping into AI and the fact of doing a deal every 9 days. And almost all the presentations there really pointed to not a slowdown by any means. Everybody's pipelines are really strong right now. Almost every manufacturer has some form of a weight loss or GLP-1 type product in line. FDA calendar for PDUFA this year looks really good. So no, I mean, I don't really see a slowdown. I would say that the push for innovation is growing overall. And I think that's obviously what we've been trying to provide for the last 7 years as we built out this vertical really is the innovation side of things. So no, I don't see a slowdown from our perspective at all, especially not in the patient affordability business. Jacob Stephan: Okay. And maybe -- I mean, you did kind of touch on the GLP-1 opportunity. I'm wondering what that looks like for you guys? Do you have any current GLP-1s on the platform? And how are you thinking about attacking that market going forward? Matthew Turner: Yes. So that's -- we don't have any of the 2 larger GLP-1s that are for weight loss nor do we have the diabetes products. Those are largely retail plays, and we're certainly making a push. We've been making a push in that area. Those drugs have been in market now for a little bit. If you look at those products as well, they're very much -- they're much more of a DTC product than they are a traditional co-pay type product. It's not to say the co-pay offers aren't out there, they are. But it represents a very small subset of that actual volume is going through co-pay. So there's not a ton of upside on a GLP-1 product used for weight loss. There would be if you're looking at the diabetes side. We have one client that has the GLP-1 product. I think [indiscernible] that's coming to market. I think we're in an excellent position to win that business as we do have a very good portion of their retail as well as almost all of their specialty products. So I think we're in a very good spot to pick up a GLP-1 in the next 12 to 18 months. And I think that's as much as I can really say there. I don't -- we don't have any commitment saying that it's ours or anything and plus we don't know what the volume is going to look like there. But yes, we're certainly trying to make inroads to get access to more of those programs. Jacob Stephan: Got it. And then maybe just last one for me. Jeff, you made an interesting comment about fixed cost potentially kind of plateauing, minimal additions kind of needed. I'm wondering, from just looking at the math, that looks like around a $22 million to $23 million quarterly kind of cost basis. I'm wondering if you could kind of give me some more color on that. Jeffery Baker: Yes. So the comment really on the -- when we talk about fixed cost is like the base cost of what our business has been in 2025. So we looked at our OpEx of $41 million. The incremental costs that we have to add going forward as the business grows is certainly a lot less than what it has been historically. If you look at 2024, we were pushing -- SG&A growth was pretty much tracking with revenue growth. 2025, really strong improvements there. In 2026, we think there's even more operating leverage to win out of that business. So when you look at it, we're going to do a good job trying to control our costs. We're only looking for SG&A to grow 20%. And when you peel the onion back, keep in mind, some of that growth is related to the acquisition we did in March. It wasn't even in for a full year in 2025. So you have a full year of amortization in 2026. And then you have some stock comp increase about $1.5 million year-over-year. So take those 2, if you -- however you want to look at that and adjust it out or whatever, but our controllable SG&A is really looking very leverageable. Operator: Our next question today is coming from Gary Prestopino from Barrington Research. Gary Prestopino: I couldn't write down fast enough. Did you say you were going to exit Q1 with about 137 pharma programs? Jeffery Baker: Yes, that's correct. Gary Prestopino: And then -- and what did you say for the plasma? Was it 589? Jeffery Baker: 589. Yes, we had -- in the first quarter, we had 5 centers get sold to a competitor. So they left us and then 1 center closed. So there are 6 -- those are the 6 centers. Gary Prestopino: Okay. Okay. That's fine. And then just getting back to when you were talking about like the GLP-1s versus your high-cost branded pharmaceuticals. Is there any difference in the revenue per claim process there if you're doing basically kind of lack of a better word, it's not really a specialty drug, like, say, a cancer and oncology drug? Matthew Turner: Yes. So I mean each claim type, right, is going to have different potential transactional fees that will attach to it. If you look at the specialty -- and I would say that overall, if you just look at a base, say, pharmacy claim or medical claim, it doesn't really matter if it's specialty or pharmacy, we're going to make on that claim processing fee, we're going to make about the same. But when you look at the bolt-ons that can happen in the specialty space, they compound pretty quickly. A dynamic business rule claim is worth far more to us. than just the singular co-pay claim. So while the volume around retail products like GLP-1s or any of the cardiovascular drugs, if you go back historically and look at like Crestor, Lipitor, Plavix, Modern Day Brilinta. Sure, there's a lot of volume there, but your chance to make -- to kind of add on the additional functionality that can generate larger revenue is just not there on the retail side, which is one of the reasons we highly target the specialty space because we can make far more money on 1,000 DBR claims than we can on, say, 20,000 retail claims. So profit potential and even bottom line margin is far superior in the specialty space. That being said, we are working to bring on more retail brands so that we have a very weighted and comprehensive portfolio of products. Operator: Our next question is coming from Jon Hickman from Ladenburg Thalmann. Our next question is coming from Peter Heckmann from D.A. Davidson. Peter Heckmann: I had a follow-up, Jeff, on -- in terms of thinking about the guidance for 2026, you talked about equal contribution from plasma and pharma. I assume you're talking about from a dollar of revenue perspective. And if so, that still represents a pretty significant acceleration on the plasma side. I didn't hear in your prepared comments why that might be. And so if you could provide a little bit of additional color in terms of whether that's an increase in revenue per center or anticipation of a big addition of net centers for the year. Jeffery Baker: Yes. So -- the revenue comment -- the comment on the [ Equal ] business was revenue, both from the plasma and the patient affordability or pharma side. The one of the main drivers in the plasma, if you recall, we had 132 centers in June and July. So we're going to have those uncomped until that time, so midyear. So you're going to see the growth of plasma with those numbers for the first half of the year be much stronger than the second half of the year, obviously. My expectations haven't changed with plasma is that in a normalized year, it's about a 5% grower, and it's a very good cash cow, and we manage the business accordingly. Mark Newcomer: And let me give a little more color on the plasma revenue growth. The increase in collection efficiencies associated with the latest hardware upgrades effectively gives the average plasma center approximately 10% greater capacity. So a good way to look at that would be for every 10 centers, a collector can now get 11 centers worth of capacity, which is reducing the demand for new center openings. So that just -- it gives them the ability to collect more. Peter Heckmann: I see. That's helpful. Okay. And then just going back to the Nuvec system. Any feedback so far from the FDA or any thoughts in terms of the potential time line there for the completion of the review? Mark Newcomer: Yes. I mean it's currently under review. We expect to hear back from them within the next 60 days. And that's kind of about as much as I'll go into at this point. But so far, everything is very positive. We've gone into our substantive review with them. Operator: Our next question is coming from Jon Hickman from Ladenburg Thalmann. Jon Hickman: Could you give us some sense of where you are on the pharma side with your kind of part of the market? What's the TAM here? And where -- like are you in the second inning, third inning of growth here? Or can you elaborate? Matthew Turner: Yes. So we -- this is Matt. We always hesitate to give the TAM because it's very difficult for us to give a TAM for something that you can't -- you just -- there's no way to exactly tell the dollars are wrapped up in marketing amounts and everything else and nobody discloses exactly how much money they're paying these vendors. So we estimate the TAM is somewhere between $500 million to $850 million at any given time. We think with some of the offerings that we have, specifically the dynamic business rules that we are pushing that TAM higher as we're able to generate revenue from some of these unique offerings that we're bringing to the table. Also, as we continue to build this out and add more features, add more products, we think the TAM can expand even further upwards to $1 billion. Asking about kind of what inning we're in, I think we're in the first inning. There's still a lot of growth potential here. We don't see anything slowing down when it comes to new program acquisition. And if you look at the growth that we're doing year-over-year and not just from a dollar perspective, right, just from also throwing in the number of programs that we're adding in. Last year, it was 1 every 6-point-something days we were putting a new program up. And hopefully, this year, we have similar metrics as far as the number of programs that we're pulling in. But it's -- we're nowhere near the middle of this at all. We're very much in the beginning. And I think we'll continue to see very strong growth out of this vertical for many years to come. Jon Hickman: So a follow-up. So are you inviting competition here? Are people starting to pay attention to what you're doing? Mark Newcomer: There's always really been competition. Matthew Turner: I mean -- yes. Mark Newcomer: I mean we've come into the market and really gone up against the competition. And by bringing new functionality, new features to the market, that's part of the reason why we're winning the business. Matthew Turner: Yes. This was a very stale business that had become almost commoditized. It was treated like just picking something off of the shelf. And that made it very easy for some manufacturers. And of course, they enjoyed that when things like maximizers and accumulators weren't an actual threat to their bottom line. And as that has emerged as a bigger threat, the need for innovation was there. Unfortunately, kind of the legacy dinosaurs in the industry just never reacted. So yes, there's some new players popping up. It just -- that happens every time there's an industry that's ripe for disruption. I would say the good thing for us is we were ahead of that, and we also helped to cause a lot of the disruption. If you look at how we have sold into this industry, we have -- we've really shaken a lot of things up and forced manufacturers to rethink how co-pay programs should function as a whole, how they should pay for them. The open book pricing that we brought to the table where we're not making shading money that we can't tell people how we're getting paid, like that really was a disruptor to this marketplace. And if you kind of look at our -- the catapult that we had for growth, you go back to, I think it was 2023 when we -- in June, July, when we put out a webinar around pricing transparency and a lot of things in that area. That was really part of the lift off for us because we did show the industry there's a better way to do this. You can still make money, you can still have everything that you need. Just we can do it in a way that we're not robbing you blind behind your back, which is what a lot of other competitors were doing. Jeffery Baker: And another thing, Jon, when we look at our competitive advantage, certainly, that's one very important one. Another one is -- and we take it for granted as a payments company, but our competitors don't have the same say, insight into -- for their pharma customers' programs like we do. I mean we give our customers a web portal. They come in, they can see bank balances. They can see transaction data. They see a lot of information that we're able to provide them so they could figure out if their program is successful or not. And we take that as for granted as it's kind of table stakes as a payments company, but there -- our other competitors don't have that because they're not payments companies. And then the last thing is the dynamic business rules. I can't stress enough the fact that with 97% efficacy on first fill that's completely agnostic to the consumer that is getting their drug that we're able to identify whether that transaction is related to a Maximizer program or not. That's huge. It's unheard of and nobody else in the market has that technology. Jon Hickman: Okay. One more question. So Matt, what are you most worried about here on this side of the business? Matthew Turner: That's a tough one. I don't know that right now, we really have a lot of worries. We -- it's pretty positive on our side. If you look at what we've built out, I would say, going back 3 years, it was a lot around personnel and how would we scale this inside with people. It was about finding talent at that point that we could bring in and that could help the organization grow. And we spent the last few years really doing that. We invested a lot of time and energy in bringing the right people in creating a pathway for people that were really good to be able to grow inside the organization. And now that we have that in place, as you look at over the 55 programs that we brought in last year, we didn't have a growth issue when it came to dealing with people. We had already actually built the systems around that. So we were able to just drag people in, drop them into the right place. We have established training curriculums now. It's become a much easier lift for us. So I would say I don't really have any fears at the moment. It's all positive for us right now. And we look forward to the continued growth that we have. We're looking forward to expanding on the partnerships that we currently have. Jon Hickman: Nice results. Matthew Turner: Thank you. Operator: Our next question is coming from Gary Prestopino of Barrington Research. Gary Prestopino: Yes. I just have a follow-up. Did you give -- Mark, did you give any indication of your pipeline on the patient affordability side? I mean, at times, you have said that you feel pretty confident you're going to exit the year at x amount of programs. Could you maybe just comment on that? Matthew Turner: This is Matt. So I don't know that we've ever given that guidance this early in the year. And I'll also kind of point back to our selling cycle is for most of our opportunities is in the 90-day area. We know what the pipeline looks like right now for a number of opportunities. I think we would probably comment on that as we got a little more further down the year, exited the Asembia conference, things like that. That's really where we kind of start to narrow down what we think the pipeline will look like between now and the end of the year. Plus it gives us a chance to do a better evaluation of the FDA PDUFA calendar and what opportunities out of that, we believe are truly winnable for us. So yes, I don't think we can give a number of programs this early in the year. But hopefully, we can do that in the next quarter if everything lines up right. Gary Prestopino: All right. And you guys are doing really well. And obviously, the stock market has been a miniature disaster in the last couple of months here. Doesn't look like, obviously, the fundamentals of the business are reflected in the stock price. And I'm just wondering, as you go around and talk to investors, is it that they don't understand what's going on with your company? Is there, say, a fear that artificial intelligence is going to serve maybe your ability with your dynamic business rules? What can you pinpoint as to what is some of the hesitation among investors to grasp the story? Jeffery Baker: Yes, Gary. So when we talk to investors, everybody obviously understands the plasma business. It's kind of like retail same-store sales type stuff. And I think the biggest -- the market has been in a show-me state sort of stake with the operating leverage from the patient affordability business. Now there's a lot of noise out there always with direct-to-consumer. If you remember back when Donald Trump was going to solve all the pricing issues, he had his own Donald Trump pharmacy and he had his direct-to-consumer initiative. And quite frankly, I mean, they announced that I think there were 30 drugs or something whatever. We had 2 of them on there. And the pricing on the direct-to-consumer side for -- and again, those are cash paying customers was cheaper if you had insurance than if you paid directly to the consumer. So -- and keep in mind, there's roughly 160 million people out there on private insurance. That's what these co-pay programs are for. It's not for the cash paying customers. So I think there has -- I think people don't necessarily understand co-pay. I know for a fact, they don't understand co-pay. And we're going to work really hard in 2026 to tighten that message to make sure people understand that there is a copay -- the co-pay really exists. There's a market for co-pay. We have a better mousetrap that nobody else has, and it's showing up in the numbers. And now this year in 2025, you definitely saw the operating leverage possible. I mean our operating margin goes from 1.7% to 9%, and that's not insignificant. And then based on the guidance that I've given, we expect that to go up substantially in 2026 and beyond. So we -- I can't control the stock price or the investor community or whatever, but I think the numbers speak for themselves and eventually, the market is efficient over the long term. Matthew Turner: And one thing I'll add to, if you look at the other competitors that we have in the marketplace. If you go and look at Cencora, you look at McKesson, they both own co-pay offerings, right? But it's such a small part of their balance sheet that it never gets brought up in an earnings call. So we're really the first public company that's out here talking about this to where analysts are trying to absorb this information because for us, it's not a rounding error for McKesson, for Cencora, this represents a de minimis part of their overall portfolio. So I think it's also given the Street a chance to catch up to see this as a new offering in the market. And hopefully, they'll get behind this, and we'll have more people understand it. I think the private equity market understands this well. There's a number of private equity funds that have purchased assets like this privately. If you were to go look at the private markets, there's a lot of M&A activity happening in this space, not just the co-pay space, but patient services as a whole. It's constantly changing. So we had a chance to go down to the Cantor, HCIT conference and meet with a bunch of people and just listen to what they had to say. And it's -- there's a lot of activity in this space. It's just not in the public market. So I think that's part of the headwind for us, too, is explaining that and having people understand that this is -- there's a bigger amount of money at play here than what it just seems like on our side. Gary Prestopino: What about from the standpoint of your competitive advantages, those dynamic business rules? Is there a feeling out there? And I guess this is a stupid AI question, could AI somehow usurp what you're doing in the market? Matthew Turner: So I mean, I kind of -- I joke with clients when we talk on the phone that AI can do anything that you can dream of. I just don't know when it's going to be able to do it. I mean AI -- we don't view AI as a threat. We're working internally to build out our own AI-based systems to help us make our algorithm stronger so that we spot maximizers and accumulators easier. I think the other part of that to say is that just because they change what they're doing one time doesn't mean that we won't be right there changing it to find it. And not to go into a ton of detail, but once I have one patient, and I know that patient is impacted by a maximizer, I can -- it doesn't matter what the plan does. I can back into that patient because I know they were a maximizer patient yesterday. They're probably a maximizer patient today. So we don't think that's really a threat to our business model. We see AI on our side is actually a positive, and we're going to be implementing more of that on the patient affordability side to help us have a stronger, more robust product across our vertical. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. Mark Newcomer: Thank you, Kevin. In closing, we delivered strong results in 2025. We remain confident in our long-term strategy. I want to thank you all for joining us today, and we look forward to speaking with you again in Q1. Operator: Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Ladies and gentlemen, welcome to the Drägerwerk Full Year 2025 Earnings Call. I'm Moritz, your Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Drager, CEO. Please go ahead, sir. Stefan Dräger: Very good afternoon, and thank you for joining our conference call on our financial results for the fiscal year 2025. I have with me today Gert-Hartwig Lescow, CFO, as well as Tom Fischler and Nikolaus Hammerschmidt, both Investor Relations. We would like to take you through the results with the presentation that we made available on our web page this morning. Following the presentation, we will open the floor to your question. Let's get started on Page 5 with the business highlights. In 2025, we continued our successful course and generated the highest net sales in our company's history. Both divisions and all regions contributed to this. At around EUR 3.5 billion, net sales were slightly above our last forecast and around EUR 25 million above the level of the exceptionally strong coronavirus year 2020. Unlike during the pandemic, this is a new record that we achieved entirely without a special economic situation. Thanks to the operating momentum, our earnings before interest and taxes also developed very well. EBIT rose by more than 20% to around EUR 233 million despite difficult conditions. The EBIT margin increased by roughly 1 percentage point to 6.7%, also exceeding our last forecast. This shows that we are making progress in improving our profitability. Order intake also developed very well as with net sales, both divisions contributed to growth. This underlines the continuing demand for our Technology for Life and gives us a positive outlook for the future. Positive is also the key word with regard to our cash flow development, which Gert-Hartwig Lescow will explain later. We have also performed well on the stock market. Last year, our common shares rose by more than 1/3, while our preferred shares even increased by almost half and were included in the TecDAX. This means that we are once again one of the 30 largest listed technology companies in Germany. This listing increases our visibility on the capital market and could make us even more attractive to investors. In mid-January, we published our preliminary business figures for 2025 and our forecast for 2026. Our shares then rose significantly again and reached their highest level since July 2017. This shows that investor confidence in Dräger is higher than it has been for a long time. Our first goal remains to increase profitability such that our EBIT margin is the same as the last digit of the calendar year as we have more goals that are strategic to steer the company. We are strengthening our innovative power and expanding our competence in the systems business and further expanding our services and recurring business. In our Medical division, we are particularly driving forward the marketing of network solutions. To this end, we launched a large marketing campaign in 2025. Our goal is to strengthen Dräger's position as the leading provider of connected solutions in the hospital sector. That said, we are also launching a big wave of SDC-based solutions. That is service oriented device connectivity, the new standard for interoperability of medical devices according to IEEE 11073. It creates new functionalities and therefore, added value. With our new Silent Care Package, for example, we contribute to solving one of the biggest problems in the ICU by reducing the alarm noises. In the Safety division, connectivity is becoming more important, too. Our fire ground monitoring system, for example, helped us to win the Paris Fire Department as a new customer in 2025. Speaking of firefighting, we also received the important approval for our PSS AirBoss SCBA, in North America, reaching a milestone for strengthening our position in this key market. In addition to our core business, we are consistently investing in new business opportunities in areas such as clean tech and defense. Last year, our defense business grew significantly. We are well on track to triple our defense sales to more than EUR 300 million by 2028. I will talk about the other highlights on the past fiscal year, the dividend and the outlook at the end of our presentation. I would first like to explain in more detail on Page 6, what challenges we had to overcome last year. So Page 6, headwind compensated. Ladies and gentlemen, 2025 was a very successful year, particularly in light of the difficult condition. In 2024, we have benefited from positive one-off effects from the sale of a nonstrategic business activity that was the smoke and fire alarm systems in the Netherlands and some real estate loss in the United States. This has boosted our EBIT by around EUR 22 million. In the past year, we missed these effects and also faced strong headwinds from tariffs and currency. The tariffs imposed by the U.S. government had a negative impact of roughly EUR 26 million on our EBIT. Around EUR 21 million out of this was attributable to the Medical division and around EUR 5 million to the Safety division. In addition, EBIT was impacted by currency effects initiated from the White House and propagated over the world totaling to around EUR 45 million. Thereof, EUR 28 million were attributable to the Medical division and around EUR 16 million to the Safety division. So overall, we had to compensate opposing effects of more than EUR 90 million. The fact that we even overcompensated these effects is a clear proof of our resilience. We were, therefore, able to improve our profitability even under difficult conditions. Let's take a look at the margin development of recent years on Page 7. Following the significant loss in '22, we have shifted our focus from net sales growth to earnings growth. We have thus set ourselves the goal of increasing our EBIT margin by an average of 1 percentage point per year from 2024. The focus on profitability in accordance with our corporate objective #1 has worked well so far. After the strong turnaround in '23, we were able to improve our EBIT margin by roughly 1 percentage point in both '24 and '25. While positive one-off effects, in particular, contributed to the improvement in '24, the improvement in '25 came mainly from the operating business. This is a development that we very much welcome. And we have our strategic, our corporate objective 2 is innovation and our corporate objective 3 is systems business and recurring business. Now I would like to hand over to Gert-Hartwig to explain our business development further. I will then turn back with the dividend and the outlook. Gert-Hartwig? Gert-Hartwing Lescow: Thank you, Stefan. I would also like to extend a warm welcome to everyone joining this conference call for our results for the fiscal year 2025. Please turn to Page 6 for a view on the Dräger Group. As usual, I will be stating currency-adjusted figures, and I will be referring to growth rates. As Stefan mentioned, demand for our Technology for Life remains strong. Overall, orders increased by 7.7% to around EUR 3.6 billion. In Q4, orders rose by 5.6%. Both divisions contributed to growth in both reporting periods. Net sales climbed by 5.3% in the full year and by 8.7% in the fourth quarter. This was due to good development in both divisions and all regions. Like for orders, the Americas region and the EMEA region were the biggest growth drivers. At around EUR 3.5 billion, net sales -- reached 2025, the highest level in the company's history. In addition to the high order intake, this was mainly due to the strong year-end business. Benefiting from the record net sales in December and the margin improvement in the Medical division, our group's gross margin rose slightly by 0.3 percentage points to 45.2% in the full year. Functional expenses rose by 4.6% in 2025 after they had been positively impacted by one-off effects of around EUR 32 million in the prior year. These effects included the net sale of a nonstrategic business in the Netherlands and the sale of real estate in Spain and the U.S. Excluding these one-off effects, the increase in functional expenses in 2025 was only 2.5%. This increase is attributable to higher personnel expenses, which went up due to collective wage increases in Germany and higher number of employees, among other things. Despite the missing positive one-off effects in '24 and the negative currency and tariff effect in '25, our EBIT increased by more than 20% to around EUR 233 million. Consequently, our EBIT margin rose from 5.8% to 6.7%. The mentioned headwinds were overcompensated by the high order intake, the strong net sales momentum and the improved gross margin. In addition, the strong year-end business contributed to the resilient development. Our EBIT improved by around 37% in the fourth quarter, while the EBIT margin declined to 13.7% from 10.6% in that period. The full year EBIT development is in line with our medium-term goal to increase the EBIT margin by 1 percentage point per annum on average. Guided 2026 EBIT margin includes an additional margin improvement on the higher end of the guidance range. The result of the strong increase in earnings, our DVA in 2025 improved by roughly EUR 36 million to around EUR 9 million. Let us now take a closer look at the development of the 2 divisions, starting with the Medical division on Page 10. Following a slight increase in the prior year, our order intake in the Medical division rose by roughly 9% in 2025. This was primarily due to the high demand for our anesthesia machines, ventilator services and consumables. In addition, we received a major multiyear order for hospital infrastructure systems for Mexico, which significantly supported the above-average growth in the Americas region. Demand also developed positively in the other regions, particularly EMEA. In the fourth quarter, order intake rose by 2.2% as the decline in APAC and EMEA was overcompensated by significant growth in Americas and a high demand in Germany. Driven by growth in all regions, net sales in the Medical division increased by 7.4% in 2025 after decline in the prior year. In Q4, net sales rose by 13%, thanks to considerable growth in EMEA, Americas and Germany. Net sales in the APAC region were around 3% below the prior year level. Our gross margin in the division rose by 0.6 percentage points to 43.6%. The negative currency and tariff effects were overcompensated by the favorable product and country mix. In Q4, on the other hand, the gross margin decreased by 0.6 percentage points due to higher inventory write-downs. Functional expenses climbed by 5.7% in 2025, having been positively impacted in the prior year by one-off effects of around EUR 15 million from the sale of real estate and the adjustment of the product. Without these effects, the increase in 2025 amounted to only 3.7% with higher personnel expenses being the main cause. The EBIT of the Medical division doubled to EUR 57 million after a decline in the prior year. Consequently, the EBIT margin rose from 1.5% to 2.9%. In Q4, the EBIT increased significantly to by around 40% to roughly EUR 80 million, thanks to the strong year-end business. As a result of the strong increase in earnings, our DVA in the Medical division improved considerably in 2025 from around minus EUR 50 million to minus EUR 23 million. I will now turn to our Safety division, which delivered another good performance. We are now on Page 11. Our Safety business continues to grow. Order intake rose by more than 6% in 2025. This was primarily due to the high demand for engineered solutions and gas detection devices. In addition, respiratory and personal protection products as well as alcohol and drug testing devices contributed. The EMEA and Americas regions recorded a significant increase in orders, while the APAC region also developed positively. In Germany, demand declined after we had received a major order for NBC protection filters in the prior year. However, industrial demand in Germany is also generally restrained at present. Net sales increased by 2.6% in the fiscal year, driven by positive development in the EMEA and APAC regions. In Germany, net sales were roughly on par with the prior year, while the Americas recorded a decline. In Q4, net sales rose by just under 3% as the decline in the Americas and Germany was overcompensated by the growth in EMEA and APAC. Our gross margin in the division remained stable at 47.3% in 2025 with the negative currency and tariff effects being offset by the more favorable product mix and price adjustments. In Q4, the gross margin slightly decreased by 0.2 percentage points. Functional expenses went up by roughly 3%, having been positively impacted from the prior year by one-off effects of around EUR 17 million from the sale of a nonstrategic business area and from the sale of real estate. Excluding these effects, functional expenses fell by 0.4%. The capitalization of development costs led to a reduction in functional expenses in the reporting year. The EBIT of the Safety division increased in 2025 by 6.4% to around EUR 176 million, while the EBIT margin rose from 11.3% to 11.9%. In Q4, the EBIT climbed by around 33% to roughly EUR 77 million as a result of the strong year-end business. The EBIT margin also improved significantly by 4 percentage points to 16.5%. Our DVA in Safety division increased by around EUR 9 million to around EUR 113 million, coming from around EUR 104 million in the prior year. All in all, a very positive development in our Safety business. Let's move on to some key ratios on Page 12. Thanks to the strong growth in earnings, our cash flow from operating activities improved significantly by around EUR 71 million to around EUR 238 million in 2025. At the same time, outflow from investing activities rose from just under EUR 55 million to around EUR 98 million. Among other things, this was due to a supplier loan granted and the purchase of further shares in an investment. Moreover, the sale of our fire alarm systems business in the Netherlands and the sale of the property in the U.S. have led to a considerable inflow in 2024. All in all, our free cash flow amounted to around EUR 140 million, which is a considerable improvement of around EUR 60 million compared to the prior year. Since free cash flow was on par with net profit, the cash conversion rate amounted to 100%, the level we also expect for the current year. As a result of the decrease in free cash flow, cash and cash equivalents rose significantly by about EUR 22 million to EUR 282 million. This led to a considerable decline in net financial debt by around 25% to EUR 123 million. That said, the ratio of net financial debt to EBITDA declined from 0.5 to 0.3, keeping our leverage at a very healthy level. With regard to net financial debt, we expect the figure to increase in the current year. A large distribution center is currently being built in Lübeck where we intend to consolidate various logistics warehouses in the future. Dräger will rent the property on a long-term basis, which under IFRS results in a higher lease liability. This, together with higher investments is in turn a key driver for the higher expected net debt in 2026 with an increase of around 4% to EUR 1.7 million capital employed -- EUR 1.7 billion capital employed rose much lower than our EBIT. Therefore, our 12 months return on capital employed went up from 12.1% to 14.2%. Net working capital was around 2% higher than in the prior year at around EUR 755 million. Due to the good business development, in particular, our equity ratio stood at around 52% as of December 31, coming from roughly 50% at the end of the prior year. Let's take a closer look at our EPS on Page 13. With the increase in earnings since 2022 that Stefan Drager mentioned at the beginning of his presentation, our EPS has also improved continuously over the past years, coming from around minus EUR 3.50 per share in 2022, earnings per common share climbed to more than EUR 7.40 in 2025. At the same time, earnings per preferred share rose from around minus EUR 3.40 to roughly EUR 7.50 per share. Again, this clearly underlines the progress we are making in improving our profitability. Now I hand back to Stefan Drager for the outlook, starting with our dividend proposal on Page 14. Stefan Dräger: Thank you, Gert-Hartwig. Well, in line with our dividend policy, we intend to distribute around 30% of our net profit to our shareholders. Since our net profit has increased significantly, we will also increase the dividend significantly again for the third time in a row since 2023. We intend to propose a dividend of EUR 2.21 per common share and EUR 2.27 per preferred share for our Annual Shareholders Meeting in May. Our equity ratio is clearly over 50%. Provided that the equity situation remains as positive as it is now, we will continue to distribute at least 30% of our net profit in the coming years. That said, let's move on to our outlook for 2026 on Page 15. Ladies and gentlemen, with good demand, record sales and significantly improved earnings, 2025 was a very successful year. This is even more apparent when you consider the headwind from a difficult economic environment. Our operating business is showing good momentum. Both order intake and order backlog are at a high level. We, therefore, want to increase net sales again in the current fiscal year. In 2026, we expect an increase in net sales from 2% to 6% of net of currency effects at an EBIT margin between 5% and 7.5%. Both divisions are likely to contribute to net sales growth and a positive EBIT. We will continue to counter the U.S. import tariffs by raising prices. In the past fiscal year, we developed a package of measures to compensate for some of the customs duties. We expect this compensation to be more effective during the course of the 2026 fiscal year than before. For '26, we expect the level of custom duties at group level to be similar to the prior year overall. The burns in the Medical division are likely to be significantly higher than in the Safety division where we have more possibilities to concentrate and forward with improved prices. The corporate planning, therefore, the net sales and EBIT forecast for '26 are based on the assumption that custom duties will remain at the level of the reporting date for the annual financial statements. However, when we recall the Greenland discussion over a certain weekend in this spring, this is not guaranteed and it motivates us to further pursue increased profitability to be able to live through the challenges and uncertainties. When it comes to the war in Iran, we do not see any material impact on our business so far. We are present in the Middle East with our own Dräger people in Saudi Arabia and Dubai. Our local employees are doing well so far. In general, the region remains a growth market for us. Risks from the war depend heavily on its duration and regional extent and its impact on the global economy. We are able to mitigate this through our high level of diversification. We are very broadly positioned in terms of markets, products, geographies, business mechanics and customers. This strengthens our resilience and gives us a positive outlook to the future. With this, I would like to end the presentation and hand over to the operator to open the floor for your questions. Operator: [Operator Instructions] And the first question comes from Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: Firstly, just on the Middle East situation as you just confirmed that you don't expect any kind of larger impact. Can you just confirm that there's also not any kind of expected impact from the developments basically in terms of supply chains and inflation? That would be question number one. Secondly, can you just provide an update on the ventilation market? We have seen quite some changes basically with Mindray -- I am sorry, with Medtronic and Bayer actually exiting the market. And I think Mindray is now entering in the U.S. market. I mean it's also a high base. Do you continue to expect actually significant growth in this market segment? Any update on the developments here would be helpful? And then thirdly, as you called out corporate objective #3 to increase the kind of recurring business at Dräger, can you just provide some kind of flavor where do you stand these days percentage-wise? And any kind of targets that you can share in that regard? Stefan Dräger: Well, on the Middle East, yes, I confirm that we do not see a material impact of the war on our business at the moment in the foreseeable future. Including the supply chain, there is no -- not to our knowledge, a significant impact on any specific component of production that we can see so far. We have taken some measures in the past to work with our suppliers more carefully with whom we work and have some reasonable stocking levels for our inventory for components. So we, of course, cannot compensate for all seasonal effects, and we will remain interdependent from the world and the supply chain. However, I confirm there is no impact that we can see from the current conflict in the Middle East. What I do see though is that the energy prices will remain worldwide on the current level and not return to the level they were like 6 weeks ago, including the electricity gas and fuel at the gas station. However, our sensitivity to energy in real is quite limited. So that has no material effect on our outlook and prognosis. Your second question, Mr. Reinberg, on the ventilation. So yes, there are 2 major players have exited the market. And, yes, Mindray is there. We, on the other hand, we do not see a significant effect or even, I would say, threat from Mindray having a more comprehensive offer in the U.S. Where we see more and we see they are more active is in Africa in remote regions where they have also political -- Chinese government has political influence in financing some of the African governments or very obvious direct influence and control on government and purchasing decisions. There, we are out. On the more developed markets I won't say it is a significant new development or a threat. On a global scale, yes, it is a good copy of Dräger with similar offerings and a similar portfolio on both the geographical scale and portfolio. So it is a very viable market companion, not only on ventilation, but in many modalities to watch geographically mostly in Africa. Your question on our corporate objective #3, which is developing the business model further from transaction-based device selling towards interoperability and systems business competence and actually doing, including recurring businesses, services based on contracts instead of transactions. Yes, we can say that last year, we crossed the EUR 1 billion threshold in services and some countries in Europe, our sales, the majority already is in services more than in devices, including our home market in Germany, but some other European countries as well, services sales is greater than devices. Oliver Reinberg: And can you share any kind of targets like where you want to go with this kind of offering? Stefan Dräger: Yes, the goal is to grow this further as it is a good way to defend our business over a business that is purely on cost like some of the business mentioned from Mindray in Africa where the decision is not alone, they have a larger share of mind, they are more deeply entrenched with the customer in offering the service. It is -- we have a better understanding of the customer needs and it's more challenging to replace the assets on a pure device that is -- the trend is that it may become a commodity. Operator: And the next question comes from Harald Hof from mwb research. Harald Hof: As we talked about the Iran conflict already, just 2 questions left from my side. The first one is talking about the tariffs. The situation has changed significantly. So what does this mean for Dräger? And will you apply for reimbursements? And the second question is how has the defense activities developed so far in 2026. Gert-Hartwing Lescow: Happy to. So firstly, there is a couple of developments firstly, the court decided that the tariffs that the Trump administration has put in place is not legal. And we have, in fact, also filed for a reimbursement. As of today, it is open, how fast the courts will decide and when or if we will in fact be paid out. And secondly... Stefan Dräger: It's not part of the plan. Gert-Hartwing Lescow: It's not part of the plan at this point. So if there was a significant payment that would be upside, so to speak and the signals have been mixed, how quickly that can happen. I think you've read the news, to courts as far as I remember, have decided they are not allowed to delay it, but so far, nothing has happened. So there is a chance that we can recollect some of our tariffs. Having said that, given that the previous tariffs have been declared illegal, the Trump administration has put in place another set of tariffs which are a little bit lower by 5 percentage points, but there are in fact for full year instead just 2/3 of the year. And if that is -- when those run out after 150 days, there are other potential tariffs to be enacted the one that may run. The so-called Section 122 tariffs may be replaced by Section 301 and Section 222 and we would expect that, that will actually take place in the second half of the year. So when it comes to effective tariff burden, we still assume that they will remain in place. And as we have seen earlier this year, and as Stefan Drager pointed out, sometimes, there is even a discussion about additional Greenland tariffs or not. But so far, we expect actual tariff burn to be of the same magnitude as last year. Stefan Dräger: Okay. And your other question on the defense business. Well, in general, we benefit in both divisions. The medical also benefits if there is the need, for instance, to additionally serve 1,500 wounded soldiers that come per day from the Eastern front. They're currently preparing and planning for that needs capacity in the German hospital system or the field hospitals or hospital war ships. But that is regular medical equipment. But we say we would not directly classify that as defense business. What we do call such is part of the safety portfolio that can be specific products for personal protection like the classical gas mask for a soldier or gas detection equipment, filters for military vehicles to protect those who protect us in our freedom to operate our democracy. And last year, around the same time of the year, we predicted that would actually more than triple until the year 2028 to approximately EUR 300 million. Well, already last year, we saw a good development, and we crossed the EUR 100 million threshold with these elements of the portfolio. And we confirm that we think in 2028, it can be EUR 300 million because there are quite some opportunities out there. Harald Hof: Just a quick follow-up. When talking about tariff reimbursement, do you communicate volume? How much is the figure that could be reimbursed? Stefan Dräger: We communicated that we paid the EUR 26 million. Gert-Hartwing Lescow: That's actually the net effect. So to the degree that it will be the net effect, it will be in that order. The gross effect is in turn higher runs around EUR 30 million, and that would be the impact if we get full reimbursement without the need to pass on anything to customers in that context. And as I said, at this point, we view that as perhaps not speculative, but we have not received a clear indication that we should account for that in the near future. But we'll keep you posted, obviously, when that situation changes. Operator: And the next question comes from Pierre-Yves Gauthier from AlphaValue. Pierre-Yves Gauthier: My question relates to your capital spending. You had quite a big surge in '25. Is that likely to last? Or is it some sort of a bump that we will not see in '26, '27? Gert-Hartwing Lescow: The part of the higher investment are due to a loan, which actually has to be accounted for to one of our suppliers, which have to be accounted for under IFRS as an investment. I'm not sure whether that is -- that actually was one of the reasons for the bump. And that we do not expect in '26 nor later. We do, however, as I pointed out in the presentation, have to account for an investment for a rental agreement. Again, that's due to the statement. So all in, we expect an increase in the investment volume from around EUR 103 million to EUR 110 million to EUR 130 million. And the substantial portion is, in fact, the long-term rental agreement, which is as these things are not cash effective for the full amount in the period of '26, but over the course of the rental agreement. Operator: And we do have a follow-up question from Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: Three, if I may. One on China. Can you just provide an update what you see there on the ground? I mean, it's not a huge market, but any kind of pickup would be helpful to just get the latest dynamics here. Secondly, I think Q1 nearly comes to an end. Any kind of light you can share how you started into the year? And then last question, just on currencies. I mean, if -- I think in the last call, we guided for quite a significant impact. If currencies stay where they currently are, can you just give us any kind of flavor what kind of isolated margin impact you have? Stefan Dräger: I can -- Stefan speaking. I can pick the start in '26, where we started with a good order backlog after the order intake at the fourth quarter was also very good. And so with this, we had a good start in '26 and the order intake and sales at this moment is according to our expectations and planning. So it's on the way to deliver on our forecast and prognosis. Gert-Hartwing Lescow: And with regards to the FX development, in addition to the headwind that we had in '25, we overall see a further deterioration, but not by another similar amount. Our currency headwind when we look at net sales is around 1 percentage point. And when it comes to the EBIT margin, it's between 30 to 60 basis points. Stefan Dräger: I think Mr. Reinberg, this is important to figure in when you compare our actual '25 result, in particular, the EBIT margin and the prognosis for '26 because the prognosis for '26 and the whole planning for '26 is based on less favorable exchange rates. So if these develop and they would be the same as last year's actual exchange rates, then the outcome, of course, would be better than the current forecast and prognosis. But it's -- from our perspective, not safe to assume that it would be the same. So we have our best guess included into the planning. And that is the major reason if you wonder why our forecast does not show a stronger improvement because our goal is to improve our profitability by 1 percentage point per year. So on average, that is unchanged. Oliver Reinberg: China? Stefan Dräger: Yes, China, we didn't touch China. There is no relevant news on that. That is relatively stable and continues to be on a much lower level than it used to. Operator: [Operator Instructions] So it looks like there are no further questions. So I would like to turn the conference back over to Stefan Drager for any closing remarks. Stefan Dräger: We thank you very much for all of you being with us today during our annual results conference for '25. Thank you for your questions and the interaction. We look forward to meeting you again either online or preferably at some point in time in the not-too-distant future in person. Have a pleasant afternoon and evening. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Ladies and gentlemen, welcome to the 2025 Results and 2026 Outlook Conference Call. I am Mathilde, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Weber, CEO. Please go ahead. Stefan Weber: Thank you, Mathilde, and good afternoon, everybody in Europe. Good evening, everybody in Asia, and good morning and early 6:30, have a good starting to the day from Dana Point, California. As usual in the past years, we are spread over the world. The only person right now in our Milan offices is the CFO as he should be. He's sitting on the money that we need to spend in the upcoming period. Our Chief Medical Officer, Ravi Anand, is right now preparing for the SIRS, Schizophrenia International Research Society Conference that starts tomorrow. And I am attending the conference of ROTH Capital at Dana Point. So welcome to this call. I hope you have had a chance to download the slide deck that we are going to guide you through, and I will start with Slide #4. So if we look back at the last 15 months and the period that we are reporting about, and I will then do the outlook for '26 and hand over to Ravi for the new science and R&D progress and then to Roberto for the financials and the AGM EGM that is upcoming. If we look back, this has really been a period that couldn't have been much better. We practically hit all the quick points. We made all the milestones. But what I want to tell you already now is that for the upcoming 12 to 15 months, we might see even better outcome. So be prepared for that. If we look back, and that is all about evenamide and schizophrenia for the moment. We have to start with the deal that we signed in December 2024, the validating deal with EA Pharma from the Eisai Group. We did that deal with one of the top 10 Japanese pharma groups with a CNX experienced company, and there were some reasons. We wanted to validate our unique mechanism, the only drug that modulates glutamate in schizophrenia. We wanted to validate being the first add-on therapy in schizophrenia. We wanted to validate our claim that this is the drug that is the only one that qualifies to work in the vast majority of schizophrenia patients who are poor responders or treatment resistant to the current medication. We wanted to get an indication of the intrinsic value of that compound, which by analysts was after that deal was signed, estimated to be more than EUR 1.5 billion. And finally, we wanted to get the cash to perform our Phase III study because at that time, the markets were very challenging on equity. We got all that and since we signed the deal, and that is the starting point of the 2025 success story, we collected EUR 48 million, which was exactly the money we needed to advance our evenamide into the decisive pivotal study program called ENIGMA-TRS. And as you know, that is split in 2 studies. One is ENIGMA-TRS 1, that is a 600 patients, 1-year double-blind placebo-controlled study, which was finally enrolling first patients in August after we had gotten the approval for the overall program in May. This study is right now actively enrolling on all target continents, and Ravi will give you more update on the status. Importantly, in December then, we could start ENIGMA-TRS 2, the second pivotal study. So 2 shots at target even if 1 sufficiently positive study should do to get this drug approved. We started ENIGMA-TRS 2 in the U.S. study centers with UCLA and since then have added Johns Hopkins and the other studies centers are ready to initiate, and we have submitted the documentation in all the other countries in which we want to enroll patients. So this study is up and rolling now. And again, Robbie will give you an update. And then importantly, just by the beginning of this year, 2026, we could inform markets that also our partner, Eisai Group has initiated their Phase III program. So right now, I can say this is the most advanced clinical program in schizophrenia. We are right now running 3 pivotal studies in total with more than 1,300 patients in the world. And as you will hear later on, we expect results from the 12 weeks readout within this very year. Now we did have absolutely thrilling. I'm moving to Slide 5. We did have absolutely thrilling 1-year results from a study in treatment-resistant schizophrenia when evenamide was added to best-selling antipsychotics. And we did have the first highly statistically significant efficacy results from Phase III study called 8A, but there was plenty of questions given the new mechanism and the new positioning. So it was very important that all the clinical results of the past have by now been peer reviewed and published in the papers. We have presented them at numerous conferences. All the space is now being educated about the benefits of this drug in those patients in which today's medications just don't do good. But it was very important last year in August that Pittsburgh University came up with a piece of research, which could explain for the first time why in the pivotal -- why in the Phase II and Phase III studies, we saw that ever increasing efficacy, doubling, tripling responder rates by 1 year, 50% patients no longer qualify as treatment resistant and for the first time ever, treatment-resistant patients being reported to be in remission for 6 months. We didn't know why and how our drug would do that. And I think Pittsburgh has provided substantial explanation how this drug does so by qualifying schizophrenia as a disease that is substantially caused a hippocampus, a section of the brain where today's drugs simply don't hit, and that is why they do not improve negative symptoms, neuro cognition and why they only have limited benefits in symptoms. So that work of Pittsburgh now peer-reviewed and substantial support for the positioning of our compound and the explanation of the benefits we have shown. Again, starting this year, early 2026, we got another validation that is on a new composition of matter patent on crystalline forms of evenamide, which has the potential to extend our exclusivity to 2044. That would be 17 years post the expected approval of our compound, which we expect by end of '27. This patent has been submitted a year before, but ahead of time, the European Patent Office declared their decision to grant this patent in Europe in early January. The same patent is right now in the process of being reviewed, and we expect it to be approved also in all the other key territories, importantly, including the United States, where, again, this would give us exclusivity until 2044 and thus 17 years post the expected approval of this drug. On the corporate ends, moving to Slide 6. All the excitement about our results and the initiation of the U.S. study triggered 3 U.S. analysts to start covering Newron and the fourth one joined from Europe. So we got plenty of new coverage. We saw doubling or tripling liquidity in the stock. We are right now trading between 0.7% and 1% of the stock every day, which is clearly showing us that we get better coverage around the world and more people looking at our stock. This is a process that must be continued and even further improved. Very importantly, we also resolved 2 key issues on funding. Number one is that with existing shareholders and new shareholders from Europe and Asia, we signed a funding agreement in February this year, which will give us access to up to EUR 38 million, of which EUR 15 million are already in the bank, EUR 11 million will come before this year is over with no milestones attached and then the EUR 12 million remaining will come conditional to positive results of our pivotal studies by end of the year. That money being in the bank, we now have the funds to complete our ENIGMA-TRS 1 and 2 studies to the 12-point readout. So we will have all the money to report on the primary endpoint after 12 weeks and the secondary endpoint, and we will be able to advance our drug into NDA submission, and we will have a number of months of reserves beyond that point in time. And the second component of improving our financial situation was that we reached agreement with the European Investment Bank that all future payments under our loan agreement would be delayed at least by 2 years and a quarter to not before June 2028. So we are now in a very good financial situation. We have 3 pivotal studies rolling, and we have all the cash required to get to read out. On the corporate end again, our Board of Directors is already 1 year that Chris Martin has become our new Chairman. And I have to say that it is a marvelous cooperation between management and Chris, very much appreciated. He succeeded Ulrich Kostlin who was our Chairman for the 12 years before. In order to now complete the new setup of our Board of Directors and have completely independent directors on the Board, both Patrick Langlois after 18 years of service on the Board and Luca Benatti, after 12 years of service on the Board. Luca was the last founder of the company, have declared they will not stand for reelection in this year's shareholders' meeting. And I think we can say that we have found 2 outstanding new candidates for the Board, George Garibaldi, who is a highly respected industry [indiscernible] with years of experience and Paolo Zocchi, senior ex-partner in the top 4 audit company who are proposed for election by our shareholders as independent nonexecutive directors in the upcoming shareholders' meeting. So what should we expect for this year, 2026 and early 2027? And I'm moving to Slide #7. I think it is worth to start from the end. If you look at where we want to be in the end and you remind yourself what are our peers. And the peers, the latest companies with one product nature in schizophrenia were Karuna and Intra-Cellular. And Karuna was acquired once they had submitted the NDA for their 1 product company -- for their 1 product to the FDA. They were acquired for $14 billion by Bristol-Myers and Intra-Cellular were acquired after they had launched their own compound in the United States, commercialized it for a few years up to $680 million sales with a market cap of $9 billion. They were then acquired by J&J for $15 billion. We are now the most advanced follow-up to those companies. So what are we missing? Well, to be fair, we are missing positive results from our Phase III program, and we will be getting to those results in the next 12 months. Then what they had, what we do not have, they were listed on NASDAQ. And that is something we cannot ignore because as we have lately seen again, about 2/3 of the global biotech money is traded in the United States. So clearly, if you want to have full access to capital markets and you want to get a fair price, you should also have your shares listed on that largest stock exchange. So what we need to do is we need to work the path towards the results of our pivotal program. We need to prepare our NDA dossier. The initiation of the work must start way ahead of the results. Then something which is important that evenamide does not only work in schizophrenia, but like all the other compounds like Intra-Cellular's drug that has gone big in bipolar. This drug will also work in additional indications, and I'm also thinking of the elderly patients with dementia and psychotic episodes. This should be a perfect drug for those patients. And that is where additional indications should be pursued and Newron should start working on those. Clearly, on the corporate side, we should strengthen our institutional shareholder base, and we are working with a number of supporting agencies to do that. And now this all takes us to the shareholders' meeting of April 2023 of this year because there is things that we can do on our own with the means we have and the tools we have and there's steps where we need the support by our shareholders, and we need to get the tools from our shareholders. And you have probably seen the agenda of the shareholders' meeting. There's the usual household stuff like approval of financials, then there's the important elections of the Board. And then you will see that we have also put on the agenda of the shareholders' meeting a capital increase authorization for 15% of the capital. I do believe this is a moderate request, and it's clearly a compromise between aggressive strategy and the wish of some shareholders not to see any dilution. Clearly, the intention is that those shares would be used to advance evenamide in indications beyond schizophrenia and to support us towards submitting the NDA dossier and getting our drug approved. Clearly, also those shares might be used for a listing of our shares on a U.S. stock exchange like NASDAQ. And these are all procedures that need months and months of preparations. So what we are asking our shareholders for right now is not to approve a capital increase that will be put in place tomorrow, but what we ask them for is to give us the tools and the instruments that we need to start preparations and execute transactions at the right time, which also clearly means at the right share price to the right parties. So if the question is, is an IPO and uplisting of Newron stock to NASDAQ an option today, the answer is probably not because we are missing key ingredients, including share price results and other components. What we ask our shareholders for is support, providing us the tools and allowing us to initiate the process. So your question might well be, so is it worth? What is the opportunity, and that takes us to Slide #9. What we have to offer today is truly the opportunity to transform schizophrenia treatment with evenamide. This is the first compound that offers glutamate modulation in schizophrenia, and we start understanding how much more important it is to go beyond the dopaminergic pathway drugs that have dominated schizophrenia in the last 70 years. This is a huge market opportunity. We talk about 1% of the global population, but the vast majority of patients is not well treated by today's medication. The vast majority of patients is poorly responding or treatment resistant. So what it needs is a completely new mechanism of action, that is what we offer. And what we need is the first ever add-on treatment to be approved in schizophrenia. What we need is the option for doctors not to change the current medication, but to add a drug with no additional side effects of relevance, but with additional incremental benefit. No risk of relapses, reduced risk of hospitalization, suicidality. That is the promise of such a new mechanistic drug, an add-on to the current medications. As evenamide is the first and so far only drug that qualifies as an add-on to any antipsychotic of relevance, including importantly, including clozapine, and Roberto will talk to that. What we offer is highly exciting 1-year Phase II results of evenamide as an add-on to antipsychotics as well as highly statistically significant first Phase III results in a 4-week study in poorly responding patients. What we have seen is excellent tolerability, the most prevalent side effect being nasal pharyngitis in the Phase III study. I have already spoken about the potential of evenamide beyond schizophrenia that must clearly be evaluated. And we have also covered the topic of the strong IP protection. Right now, we have a Composition of Matter in the U.S. of 2035 and Process Patents to 2042 -- this new Composition of Matter 2044, that would be 17 years of a truly innovative treatment in schizophrenia, protection and market exclusivity post approval. That all said, it's my pleasure to hand over to Ravi on Slide 10 for the update on science and clinical. Ravi Anand: Thank you, Stefan, and good morning and good afternoon to everybody else. So I think I'm going to start with Slide 10, and I think this is a schematic presentation of how we currently view schizophrenia. And this has been brought out by the University of Pittsburgh and some of the universities. Contrary to common belief, the schizophrenia symptomatology does not begin in the basal ganglia, but in the hippocampus. The hippocampus controls the rate of abnormal firing from the dopamine receptors in the basal ganglia. When it's not working, there is hyperfiring from the dopamine receptors, and that leads to some of the symptoms of schizophrenia. What has also become very clear is that the hippocampal nuclei control negative symptoms, control cognition. So you need to have a drug working there. All current antipsychotics work at the level of the basal ganglia where you have the dopaminergic receptors. And therefore, they will never be able to reach the hippocampal nuclei, and that is one of the reasons why we don't see any benefits in negative symptoms or cognition with currently available drugs. Evenamide at the level of hippocampus, it has no activity at the basal ganglia at all. And the data that I'll show you will convince you based upon the work done by Pittsburgh University that it works on all these facets. I'm moving now to the next slide, Slide #11. So this is the experiment done. I'm very briefly describing this experiment. You should really take the effort to read the paper, which is fully published and it's on the Newron website. In this experiment, what was done by Pittsburgh University Research is they take rats, they give them a DNA alkylating agent called MAM. MAM changes the brain structure, changes the cytoarchitecture. The progeny, which are born basically show many of the symptoms and signs of patients with schizophrenia. So it's a neurodevelopmental hypothesis model of schizophrenia. You see hyperactive firing from the hippocampal pyramidal neurons, and that is reduced in this -- that this model creates and then basically get reduced by evenamide. What we see is the ventral pigmental area, dopamine neuron population activity is hyper and again, that is normalized by evenamide. Some of the most important findings are that the effects of evenamide outlast its presence in the brain and there's no way to explain it because the drug has a very short half-life, and this is way beyond that. This suggests that we are having the induction of long-term plasticity, which would be a very welcome thing for patients with schizophrenia. And then as I said before, you will see data which suggests that basically evenamide improves cognition and improves negative symptoms in these animal models and likely, we'll be able to do that in patients. If I move to Slide 12. This is a wonderful experiment, a little difficult to understand, so you need to just concentrate on it. If you look at the first bucket, that's looking at the effects of neurons. We're looking at the active dopamine neurons per track and how they're firing. If you look at the first 2 bars, there's no difference because it's only normal animals, so there's no effect of evenamide. The next 2 bars, you see the black bar, which is high up. That's because that's showing you increased abnormal firing in the MAM-treated animals. But the same MAM-treated animals, when they get evenamide, you can see there's a significant reduction. This is within 1 hour and the drug half-life is about 25 minutes. If you look at the second hour, there's no drug remaining. The drug has no active metabolite. There's no sequestration. But you see that the activity is actually increasing. The difference between the black bar and the blue bar is increasing. So even when the drug is not there, it's producing a benefit. And if you look at the third hour where there's no chance even of getting the drug around, the effect of evenamide is going on increasing. It's reducing further and further the abnormal dopaminergic file. Nobody is able to explain this. We can't really fully explain this, except that this is a very welcome finding because what it suggests is that patients will continue to benefit from this drug for long periods of time. Moving on to Slide 13. Now negative symptoms are present in all patients with schizophrenia. Even when patients improve from positive symptoms, negative symptoms don't improve. And one of the main reasons why patient functioning does not improve is because of the presence of negative symptoms. Now in this model what you're seeing out here, we have a rat in the middle. The rat has a choice to go to a toy chamber where there's a toy or to a social chamber where there's a real rat. Rats are very inquisitive animals. They love to interact with each other. So therefore, what will happen? Next slide, if you see now what is in the next slide is happening is, we are looking at the MAM-treated animals. There, there is no difference between the toy chamber rat, the time spent sniffing or the real one. But if you look at the second -- the third and fourth bar, you can see the MAM-treated animals are not able to distinguish between the toy, whereas the evenamide-treated animals recognize, which is a real rat and they're spending a significantly more time on that. And this is not because there's any effect on locomotion, which is shown by the other graphs, but because the animal now which is socialized. Any socialization is a prominent feature in patients with schizophrenia. And this suggests that this drug will improve social interaction. If I now move to the next slide. This is now looking at novel object recognition. This is a test of cognition. We take the rat, we give it an object. It familiarize it cells by sniffing. We then take it away, 1 hour later, we introduced the old object and the new object. The rat which is inquisitive, will memorize that, oh, this is the old object. I'm not interested. I want to go to the new object. Does this really happen? In the non-treated animals who have lost a lot of the neural architecture, there is no difference between the vehicle and the evenamide-treated animals -- in the evenamide treated because there's no deficit. But if you look at the non-treated animals, cognitively, these animals are impaired. The amount of time they spent on the wrong model, which is the Toy, the old object has gone down. Evenamide is able to protect against that, and there's a significant improvement. So you're seeing an improvement in negative symptoms, you're seeing an improvement in cognition. We've already seen an improvement in firing rates. All this leads us to the clinical data, which is shown in the next slide. And then basically, I will walk you through that. So what have we seen until now? This is Slide 18. Evenamide has shown efficacy in virtually every study performed, whether it be a 4-week study, in early patients, a 4-week study in patients who are inadequate responders and a 1-year study in patients with treatment-resistant schizophrenia. In all these studies, it was given as an add-on treatment. The benefits of our ranging, they are seen on positive symptoms, they are seen on negative symptoms. The drug is very well tolerated. The attrition rate is less than 5%. The most common adverse event is nasopharyngitis, which means missing and the same incidence as placebo. What we've seen in the first Phase III study that we did in patients with inadequate response more or less confirm the results that we saw in the open-label study in treatment-resistant schizophrenia. It's one of the very few first times that I've ever seen that I -- all efficacy endpoints came out significant in the Phase III study, which is the 8A study, and this is published also. All the endpoints reach statistical significance. And basically, what we are seeing is the side effect profile is so benign that you cannot tell the difference. Now we are basically looking at this, these results and the animal results because we are doing a 1-year study, where you expect to see efficacy continuing to improve over 1 year. Just to remind everybody, in schizophrenia, we generally have improvements in 3 weeks, 4 weeks, but rarely after that. That's why the FDA advises the sponsors nowadays to limit the study to 4 weeks because after that, there's no real improvement. I move on to Slide 19 to show you the study 8A, which I talked about, the potentially pivotal study, which has now been published everywhere. It's a 4-week study done in 11 countries, 291 patients were patients who are on second-generation antipsychotic, received either 30-milligram bid of evenamide or placebo. All second-generation antipsychotics were allowed in this study, and the patients had to be psychotic. The design is shown on the next slide. What we did in this study is at the very beginning of the study, we took blood samples to make sure that patients were really poor responders and noncompliant patients. We had the blood samples analyzed to make sure the concentration of the antipsychotic was at the right level to be able to ensure that they were getting a therapeutic dose. 30% of the patients had no measurable plasma levels, which tells us that they were noncompliant rather than inadequate responders. This study took us much longer to do because of this of the difficulty of finding patients who are compliant with medication. Ultimately, we got 291 patients. And as you can see, the study went up to 4 weeks, which was the endpoint of the study. The drugs that were allowed in the study, the second-generation antipsychotics are listed at the bottom, and they constitute about 90% of all second-generation antipsychotics in the market. Slide 21 shows you the side effect profile of the drug. If you just look at the bottom part of the table where you see preferred term, the most common adverse event is nasopharyngitis. The incidence is almost the same as placebo. Again, then headache, which seems to be more -- almost the same as in placebo. What is more important is what you do not see [indiscernible]. You do not see any extrapyramidal symptoms. You don't see tremor, you don't see rigidity, you don't see akathisia. You don't see weight gain, you don't see diabetes. You don't see sexual dysfunction, no abnormal changes in the ECG or in the liver function test or kidney function test. No blood pressure changes at all. No severe sedation, no severe excitation. So it's a remarkably silent drug, which is ideal as an add-on treatment. If we now go to the next slide, Slide 22. This gives you the primary results for the study. In line with the expectations from FDA and from ICH requirements that the primary measure should be the PANSS total score. So we designated the PANSS as the primary estimate for the study. The analysis are done in the ITT population. And as you can see from the fourth row, the null hypothesis, meaning there's no difference between drug and placebo is rejected with a p-value of 0.006. And the core secondary measure, which is the CGI of severity, meaning clinical global impression of severity is also significantly reduced with a p-value of 0.037. But that's not all. If you look at the next slide, this is showing you now the slope of the curve over a 4-week period of time. Obviously, this is not long enough. But you can imagine that if this study were to go on longer, the placebo group will keep on flattening, the drug group keeps on improving. And based upon this, we have designed the next studies. This is the next slide is showing you the simulation in which we are imagining what would happen at week 12 and what would happen at week 26 and 24. What you can see is based upon the data from the previous studies, it seems like at week 12, we would have about a 10 to 14 point difference -- a 12- to 14-point difference from baseline, that is likely to be highly significant. Similarly, if you go to 26 weeks, we expect that basically we'll have a difference between 14 and 19 points compared to baseline, and that's likely to be highly significant. Now I'm showing you some very interesting data. These have been published again. We looked at what happens to other antipsychotics when evenamide is added. Firstly, to our surprise, the clozapine patients, clozapine is the most effective antipsychotic. And even those patients when they get evenamide improved by about another 3 points compared to clozapine alone. But more surprising than that is olanzapine. Olanzapine is probably one of the most effective antipsychotic, has never come out second to any antipsychotic in the trial. And those patients, when they receive evenamide, they improve by about 5 points more than they get olanzapine alone. And this difference is statistically significant. Overall, it looks like whenever you get patients receiving evenamide on top of a second-generation antipsychotic, they improve. And this leads us to believe that this could be a drug which could help all patients who are not doing well on their current medication. But what are the other results like in this study? So you can look at this, Slide 26, where basically we're showing you the PANSS responder analysis, clinically significant. In other words, 20% improvement, which is considered clinically significant in treatment-resistant patients with poor responders. You can see the effect is increasing over time and at day 29, which is significant. This rate, if it continues, you can imagine at week 12, we will have a very large difference between patients who are responders on current treatment as well as those who are current treatment and evenamide. But it's not only on the PANSS, we now look at the CGI of change. This is an analysis, which looks into account -- takes into account only those patients who show much improvement, not minimal improvement, only much improvement. And once again, by day 29, you can see almost a doubling of the number of patients who are responders on evenamide. Again, a very nice outcome. And if we continue this projection forward to week 12 and 26, we will have a very significant outcome. Now I'm now going to just very briefly mention the pivotal ENIGMA trials which are currently ongoing. And I'm now on Slide 29. This is the TRS 1, the treatment of schizophrenia 1 study. This is a 52-week study. The first study ever done in treatment-resistant patients, which is placebo-controlled and 52 weeks. All patients have to be on treatment -- have to be diagnosed as treatment resistant. They are -- we confirm this by taking blood samples at the beginning, 3 times in 42 days to make sure that they are really taking their medication and even then they are not responding. Then the data are going to an independent eligibility committee, which really decides that these patients are actually treatment resistant. Then only the patients get randomized to 15 or 30 milligram of evenamide or placebo add-on. And the study is very tightly monitored, and we will look at the primary results at 12 weeks and the next results at 26 weeks and the last results at 52 weeks. And these results are the basis for which we will get the registration. The 12-week endpoint is really necessary for showing the drug in an antipsychotic and will be the basis with which we file for regulatory approval, the first regulatory approval, both in CHMP in Europe as well as in the U.S. The second TRS study is a shorter study. It's a 12-week study that is currently ongoing also, but that study has only got 400 patients into the 600 patients. And that study has just started. It's got approval in virtually all of the countries that we wanted to. And then basically, we expect that this study will also complete fairly quickly. We expect the TRS-1 study to complete enrollment by the end of August, which will provide us results by the end of the year and lead to hopefully to an NDA filing around the first to second quarter of next year. The TRS study will come in close behind that, so we will be able to include the results in that package. With that, I turn it over -- we have done a lot of congresses this year, sorry. And you can see that on the Slide 32, we have a listing of all the congresses that we are presenting at. It's been a very busy season for us. Everybody is recognizing the value of evenamide and making up to a new mechanism of action. And all this paper, we have published a lot of papers, which you can also get from there. With that, I turn it over to Roberto. And thank you for your attention. Roberto Galli: Thank you, Ravi, and good morning and good afternoon to everybody else. So I'm on Slide 34. As you know, Newron is listed at SIX since December 2006. And since June 2019, we are also traded at Dusseldorf Stock Exchange, et cetera. By the end of the year 2025, we had 20 million -- around 20 million shares outstanding. Currently, they are EUR 20.8 million because of the capital increase Stefan was mentioning to you before. And always at the end of December 2025, we have outstanding call option and derivative or warrants, if you prefer, of up to 1.6 million, of which 50% more or less were related to call options and the remaining 50% were the warrants that we granted to EIB. Let me welcome 3 new U.S. banks among our analysts, and I'm talking about Wainwright, ROTH Capital and Lucid, and they are on top of the already existing ones, so Baader, RX Securities, ValueLab, Edison and Octavian. I'm now moving to Slide 35. Let's just talk about a few numbers. License income decreased. But of course, in 2024, we booked the downpayment of the Eisai deal. So no surprise here. And the value you can see are mainly related to the Myung In deal down payment and certain milestones that we got from the TRS 1 study progression. The other income, even if it's not a big amount, I want to talk about those because I'm referring the R&D tax credit benefit that we were able to book after 4 years of no additional benefit. And I'm talking about a couple of million, so EUR 1.9 million. What I want to tell you on top of this R&D tax credit is that accumulated, so since 2025, we got EUR 25 million of benefit. And so far, we have used EUR 22 million. The financial results net decreased by about EUR 3 million. And the main reason is a technicality and IFRS technicality because according to IFRS, we are supposed to evaluate the warrant fair value and this value because of the increase in the share into increased by EUR 2.5 million. Please note that there is no cash impact related to this effect. On the very last, I want to talk about the income taxes. Last year, for the very first time, we paid income taxes, while this year, the amount you see are only the withholding tax paid on the milestone and now payment received from the deals I was mentioning to you before. In Slide 36, so I'm showing you the balance sheet on the left and the cash flow on the right. So let me start from the balance sheet. What you see in the current asset in 2024 that is EUR 51 million is mainly the receivable related to the 8A Pharma deal that became cash. And this is why you see the increase in cash in 2025. While in the liabilities, the EIB loan last year was booked mainly in the noncurrent liabilities. And this year, you see everything in the current liabilities. But as Stefan was mentioning to you before, 1 week ago, we obtained from EIB the chance to delay the debt till end of -- sorry, till June 2028. On the right, you can see mainly the bar on the working capital and the green -- it's green because it's generating cash and it's exactly the effect that I was mentioning to you before. So the cash in -- the cash we received in January and of the revenue that we booked in December 2024, partially compensated by decrease in brand and other payables. If we move to the last slide. So on April 23, 2026, at 10 a.m. CET, we will have our general meeting. In the agenda, in the ordinary part of the agenda, the first point, as usual, is the approval of the financial statement. The second point is the approval of the new member of the Board of Directors. Stefan has already thanked both Patrick and Luca for being with us for so many years. And let me reiterate this concept because we really well appreciate their work and then I'm also willing to introduce to you, George Garibaldi and Paolo Zocchi as new nonexecutive directors. On the extraordinary part, we will amend -- slightly amend, let me say, the bylaw in a few articles, and this is due because after 20 years and COVID, a few laws have changed and so we are willing to align the text of our bylaw to the new and amended shareholder laws. The second and the third point are a capital increase. On the second point, we are asking shareholders to grant 5% for option plans of capital increase. And in the third point of the agenda, we are asking for 15% of capital increase also potentially for an uplisting at NASDAQ and the point 4 is strictly related to point 4, 3 because the creation of ADR serves for the NASDAQ listing. Everything has been already uploaded or will be uploaded in our website. So if you want to look for additional information, please do not hesitate to visit the website. And with that, I think I'm done. Stefan Weber: So I guess it is time for the Q&A session. I hand over to Mathilde from Chorus Call to introduce us to the questions by the parties who have registered for such. Operator: [Operator Instructions] The first question comes from the line of Ram Selvaraju from H.C. Wainwright. Raghuram Selvaraju: Congratulations again on a landmark year in 2025. You really are to be congratulated on how many fronts Newron advanced on. Firstly, I wanted to ask about your feelings regarding additional indications for evenamide beyond schizophrenia. In particular, we have seen evidence that other antipsychotic drugs, while perfectly serviceable in schizophrenia, actually turn out to be even better in other indications that are ancillary to schizophrenia that may constitute even larger markets. So I was wondering if you could perhaps comment on this. If there are other indications in which you believe evenamide is particularly well suited to have a therapeutic effect, what might these be, whether that would be bipolar disorder, patients with mixed depression and schizophrenia symptoms or others? Ravi Anand: Thanks, Raju. You basically took my hands away from me. I would expect this drug to be highly effective in patients with bipolar disorder. Secondly, I think I would definitely like to go for treatment-resistant depression with psychotic features. And lastly, patients who have behavioral symptoms of dementia but cannot take second-generation antipsychotics. There, I think this drug, because it doesn't affect any neurotransmitter system will be very well tolerated and not have the increase in mortality that we see with all the other drugs. Raghuram Selvaraju: That's very helpful. And I think we're all familiar with the intracellular therapies example that demonstrated just how large a market opportunity there could be for an antipsychotic with applicability beyond schizophrenia. Secondly, I wanted to ask about the information you presented regarding the ability of evenamide to augment the efficacy profiles of multiple second-generation antipsychotics. And if you could perhaps drill down on that a little bit further for us and give us a sense of whether there is a particular subclass of those second-generation antipsychotics that you consider evenamide to be particularly well suited to be combined with? And if so, what might be the kind of your top 1 or 2 choices? Obviously, you furnished a lot of information, in particular on clozapine, but I was wondering if you had additional granularity to provide. Ravi Anand: Sure. I think clozapine because it's the most obvious candidate because when you talk about treating schizophrenia and clozapine, all the drugs, even though it's not used that much. Second, I think what has really been surprising for me and not just in 1 study, but in almost 2 to 3 studies has been the effect in combining it with olanzapine. And as you know, olanzapine and clozapine share certain features. So then the question comes up, really, is it basically because of the fact that both of these drugs are affecting D2 and D1. And -- but then what we see also is that is also affecting risperidone. It's also improving patients with aripiprazole. So I think this improvement facet is probably unrelated to the neurochemistry. It's a generalized effect on brain where it is acting in a way it's more like an antidepressant and produces some degree of configuration change in the brain receptors, which makes them amenable to treatment with the other drugs. I think we are monitoring this very carefully now in the Phase III study, and we're trying to collect plasma levels to exclude pharmacokinetic interaction as a reason for this. Raghuram Selvaraju: With respect to the effect you showed of evenamide kind of having a long-term persistent impact even when the drug is no longer necessarily biologically circulating in the system. I was wondering if you could comment on, first of all, the long-term strategic plans at Newron to potentially explore the possibility of developing a long-acting injectable of evenamide. And if that is the case, how this information indicating long-term persistent effect of evenamide might dovetail with those efforts? Ravi Anand: No, absolutely. I think as you probably know, some of the companies in Europe, which have been led the charge to develop formulation changes, especially in France and for TEVA, for instance, we are going to be in early discussion with them soon. I think to me, it's really a mystery almost that a drug which has only got a half-life of 25 minutes is affecting changes beyond 3 hours. But also in patients, we have a short half-life of 2.5 hours, but the effect seems to persist for more than 12 to 14 hours. So I think a long term, a depot formulation would have to be a very different type, but it would be a fantastic thing because a drug which is very well tolerated, doesn't produce EPS, doesn't produce sexual dysfunction could be ideal for giving long term, not only to the confirmed schizophrenia patients, but to those patients who are early on in their career, like the first episode patients or the at-risk patient population, that would be the way to go for those new formulations. And we would definitely explore that once we are done with the NDA. Raghuram Selvaraju: And I think it's well documented that the long-acting injectable segment of the schizophrenia market is by far the fastest growing and at this point, probably the most lucrative. One last question from me. When do you expect U.S. office action on the COM patent that was already granted in Europe that would extend protection to 2044? Ravi Anand: Stefan? Stefan Weber: Yes. Ram, thank you for joining. Thanks for the questions. So we are right now in discussions with one of the leading U.S. IP consulting firms, and we are in discussion with the leading expert on crystalline form and solid formulations in the United States. We are discussing the strategy. As you know, there is 2 ways of getting a fast-track treatment of the Composition of Matter application in the United States. We are right now evaluating both. And I guess we will take a decision within the next few months. Depending on that decision, we might well see this patent being treated and decided upon before this year is over. And that means we might get that same patent application approved in the United States as per our expectation in this year still, which would be remarkable. Operator: The next question comes from the line of Joris Zimmermann from Octavian. Joris Zimmermann: Joris Zimmermann from Octavian here. Two from my side. The first one on your cash reach guidance throughout 2027. You mentioned that this includes EUR 50 million already received from the new financing plus another EUR 10 million that you expect later in the year. Question is on the remaining, I think, EUR 12 million from that new financing that is not reflected in this guidance. So that would provide you a further extension of the cash reach. And also in terms of the amended European Investment Bank repayment schedule, I would assume that this is already included in the guidance. Roberto Galli: Okay. So let me start from EIB. Yes, EIB is absolutely included in the guidance, of course. As per the additional EUR 12 million, I am a very cautious CFO. So given that we are talking about something that is related to the data, I have kept this upside from these projections. So if data will be positive, most likely, we will see an additional injection of EUR 12 million. And this will, of course, increase the availability of cash in Newron most likely till the end of 2027. So this will give Newron additional, let's say, 6 to 9 months of time to strike the most appealing deal because of the positive data, yes. Joris Zimmermann: One more question on the potential new indications and also a bit on the funding in that regard. You outlined the potential indications where you expect most benefit of evenamide. So in terms of your plans, how would that likely impact funding in the near to midterm? Is that already something in the plans? Or is that still to be decided upon? Ravi Anand: I think it largely is still to be decided upon, but some initial activities are already included in the plans. Operator: We now have a question from the line of Arron Aatkar from Edison Group. Arron Aatkar: Just two for me here. First of all, I just wanted to confirm that the ENIGMA-TRS 2 top line readout will also be in Q4 '26. I think I've seen some approaches where it's specified and others where it's not mentioned. And for this as well, would this come simultaneously with ENIGMA-TRS 1 if so, or will they be separate announcements? Ravi Anand: Okay. Let me answer this. I think ENIGMA-TRS 1 is very, very, very, likely to be within this year. ENIGMA-TRS 2 is a borderline case, whether it's towards December or early January, things of this time. But both of them would be available to be included in the filing for regulatory approval. The announcements would definitely be separate. Arron Aatkar: Okay. Perfect. And my second question, I think you kind of covered it, but I was just looking at the licensing income of EUR 8.6 million. It sounds like that includes upfront payment from Myung In Pharma and also some milestone payments from both partners. Just wanted to clarify if you could provide like a breakdown on how much of the licensing income was upfront versus milestone payments from the 2 partners. Roberto Galli: Yes. So the EUR 8.6 million are more or less 50-50, let's say, 30% related to Myung In and the remaining part related to additional milestone coming from EA Pharma. Sorry, I cannot be much more precise because I cannot disclose the final figures. But these are more or less the percentages. Arron Aatkar: Okay. That's very helpful. My other questions have sort of been covered off already. So no more from me. I just wanted to say congratulations again on the recent progress. Look forward to following the story. Operator: The next question comes from the line of Joseph Hedden from Rx Securities. Joseph Hedden: Just wondered if you could say a little more on recruitment into the ENIGMA studies. Any information on how many patients today or progress in terms of are you on track with where you expect to be? Ravi Anand: Yes. That's always a challenge. As you know, the regulatory process has become very prolonged nowadays especially the one in Europe, which takes forever and then the contracting progress though. So at present moment, I would say that 75% of the sites that we wanted to have initiated have already initiated. And we are basically just about coming up to where we should be. We have over 300 -- approximately 300 patients who have been enrolled in the program in the TRS 1. The TRS 2, as I said, has just got approval. So it's a little bit behind. But I think keeping the progress of TRS 1 in mind, I think we're very, very confident that we should be able to complete the enrollment on time for TRS 1 and then subsequently, the effort for TRS 2. The TRS 2 is a shorter study. It's only a 12-week study, and it's a smaller number of patients, only 400 patients compared to the 600 plus for TRS 1. So we should be okay with the enrollment time lines. Joseph Hedden: Okay. And then on the BD side, just wondering what you think the likelihood of any other regional deals ex U.S. for the ENIGMA results later this year, what's the likelihood do you think? Stefan Weber: Thank you, Joseph, for the question. This will clearly depend if any interested parties will be willing to pay fairly and dearly for the new patent life that we have just added. And we understand that some parties might want to see the patent being granted first. But at the same time, clearly, with the European patent office decision to grant our patent, our expectations have increased. And as we have no cash urgency or lack at this point in time, we would be confident to go full steam ahead towards the results from both pivotal studies and then decide on how to deal with all those territories at the maximum value for our shareholders. So that's the good news after getting all the funding done. We do not depend on income from licensing. But if there are fair offers, we will absolutely consider them. And yes, there could be other deals, but conditional to fair value, including the new patent life. Operator: [Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stefan Weber for any closing remarks. Stefan Weber: Thank you, Mathilde. Thank you all for joining this call. I hope we have been able to explain to you why we believe this was an extraordinary 15 months in the past. But let me be clear, you please should stay tuned for the next 15 months because this could be much more exciting even than what we have seen in the last 15 months. This is really the opportunity to turn this company into a completely different size of company with a drug that might be approved and with a drug that we might decide ourselves to commercialize to get to the peak value for our shareholders and to secure the sustainable future of this company. So please stay tuned. We are happy to keep you updated. Looking forward to the next opportunity. Have a great day. Goodbye. Ravi Anand: Thank you. Roberto Galli: Goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, and welcome to Cadeler's Third Quarter 2025 Earnings Presentation. Presenting today are Mikkel Gleerup, Chief Executive Officer; and Peter Brogaard, Chief Financial Officer. Please be reminded that presenters' remarks today will include forward-looking statements. Actual results may differ materially from those contemplated. The risks and uncertainties that could cause Cadeler's results to differ materially from today's forward-looking statements include those detailed in Cadeler's annual report on Form 20-F on file with the United States Securities and Exchange Commission. Any forward-looking statements made this morning are based on assumptions as of today, and Cadeler undertakes no obligation to update these statements as a result of new information or future events. This morning's presentation includes both IFRS and certain non-IFRS financial measures. A reconciliation of non-IFRS financial measures to the nearest IFRS equivalent is provided in Cadeler's annual report. The annual report and today's earnings presentation are available on Cadeler's website at cadeler.com/investor. We ask that you please hold all questions until the completion of the formal remarks, at which time in you will be given instructions to the question and answer session. As a reminder, this call is being recorded today. If you have any objections, please disconnect at this time. Mikkel Gleerup, you may begin. Mikkel Gleerup: Thank you very much, and thank you to everyone dialing in to listen to our presentation this morning/afternoon. Yes, I will ask everybody to read through the disclaimer in the presentation. So annual report 2025 and first, taking you through the highlights of 2025. Financial performance in Cadeler in 2025 were above our expectations. We ended at the top end of the range that we guided last year, ending the year with a robust contract backlog of EUR 2.8 billion, which really gives us that earnings visibility into the future that we have been discussing with our investors over the course of the last couple of years. We had 4 newbuilds scheduled for delivery in 2025, and they were all delivered on time and on budget. We added Wind Keeper to the fleet to support Nexra and our partners and really this new O&M service platform. We continued exceptional execution with significant progress made towards the delivering on the Hornsea 3 project. Wind Keeper upgrade successfully completed and multiple campaigns supported with vessel swaps. We have had strong utilization with vessels operating across the world in markets as Europe, U.S. and in APAC. Commercial highlights for the financial year '25. Scylla continued to work in the U.S. on Revolution Wind for Ørsted and have since shifted over to Sunrise Wind. The Wind Orca has been mobilizing for the Hornsea 3 project for Ørsted, where she will be executing the secondary steel scope. On Wind Osprey, we have been mobilizing for the EA3 turbine installation, which is a project we do for ScottishPower Renewables. On Wind Mover, we will shortly be commencing the turbine installation on the Baltic Power project, where she is taking over from another vessel that we previously had working on that project. The Wind Maker stays in Asia. And as we have announced over the course of the last couple of weeks, we'll be executing O&M campaigns for clients in Taiwan this year. Wind Pace came back from the U.S. after having supported the Vineyard Wind project and is also now mobilizing for the EA3 turbine installation project for ScottishPower Renewables. Wind Peak will continue to install turbines on the Sofia project for Siemens Gamesa. The Wind Keeper has been delivered to the client on an up to 5.5-year contract and is currently installing on the He Dreiht project for Vestas. Wind Ally is completing the last phase of the mobilization in Europe in Rotterdam and is preparing to go to the U.K. to start putting in monopiles for Ørsted on the Hornsea 3 project. And the Wind Zaratan project, for her 2026 is a transition year. We have decided to do some upgrades to Wind Zaratan, do some O&M work in Asia and then take the vessel back to Europe to start working both on O&M, but also on support jobs for foundation projects. At a glance, we now stand at 362 office-based employees, more than 800 seafarers. We have now installed more than 1,700 wind turbines, more than 900 foundations, a number that will go up significantly during this year due to the Hornsea 3 project and also have been working on more than 275 locations for operations and maintenance. So all in all, very busy and continuing to grow the business in the industry that is also growing with us. We have been discussing a lot with our investors and other stakeholders in the company, the transition to full scope T&I campaigns for the foundation work. And we have prepared a few slides to go through where we are now on the Hornsea 3 project and where we are as a company on the transition to taking on these full scope T&I campaigns. The company came from a charter-based day rate model where we could add services as requested by the client to now having a more integrated project delivery and construction platform, as we say, it's a solution-based offering to the clients. We have -- we used to have a very compact organization and moderate complexity in the organization, but also in the offerings we were offering to the clients. And now we are going into a much more complexity -- complex environment and really also where the organization has to deliver many different scopes from transport on heavy lift vessels to handling equipment in port, offloading, unloading very, very large pieces of equipment, storing them safely, Q&A on these products while we have them in our custody for the clients. We came from a utilization-driven model with a higher relative percentage margin to an execution driven with a higher absolute return and upside model on the T&I scopes. The vessels in the previous model was the primary revenue stream and where we today see vessels as strategic enablers to capture more scope as we take on these bigger projects for our clients. On Hornsea 3, trying to give you an overview of the time line for the first full T&I scope that we have embarked on. The project was signed in early '23, a very busy year for us signing both that project, but also working on the merger with Eneti, preparing for taking delivery of the vessel, a lot of supplier scopes starting to transport monopiles and secondary steel, starting to install monopiles and secondary steel and then also embarking on installing 50% of the turbines on the project and then commissioning and closing the project somewhere in '27. It is a very, very complicated project and something that we go into with a great deal of humility. But I think that I'm pleased to say that we are exactly where we want to be. And the Wind Ally delivered early, we were able to mobilize her in China directly from the newbuild yard and have taken her successfully back to Europe, finalizing mobilization now in Rotterdam before, as I said, starting to put in monopiles in April this year. Hornsea 3 really requires a lot of coordination. And we are also now experiencing being in the middle of the project, the complexity of the project and also the benefit of having built up the team and having worked close with our clients in terms of what was required to execute this because a project like this never goes to plan, I think it's fair to say. And we have also been met with requirements from our clients to change different things as we have worked since '23 and until today. But I'm pleased to say that we have taken on these challenges with our can-do attitude in the company, and we are exactly where we want to be in terms of being ready to install the project from April of this year. And a total capacity of 2.8 gigawatt when it's installed, 197 monopiles, 60 office-based staff working on it, 120 port and construction staff working out there for us in somewhere where there's a yellow dot on this map. We have 10 vessels in total, 3 from Cadeler working on the project. We are transporting more than 400,000 tonnes of material on the project. We have 10 ports involved and 12-plus partners involved in this. So in all fairness, a very complicated project, but also one where we are learning a lot. We've taken some pictures from the project to also demonstrate the scale of this project because I think it's hard to understand the size of these monopiles. All of them are the same size as the Los Angeles class submarine, and we are installing 197 of those in the U.K. from April this year and until 2027 and into 2027. We have also been working with our client to do a mockup trial of the secondary steel. These foundations are TPless, meaning that they don't have a transition piece on top. And that means that all the secondary steel is being installed by a tool that is being carried on board the Wind Orca that carries storage towers for secondary steel and then she's lifting the secondary steel on board on to the foundation in one lift with this tool. And together with our client, we build a mockup for this, a full-scale mockup in the port where we were able to test this tool and the functionality of this tool before going offshore. And it's been a pleasure to work with our client on these mockups and really refining the whole rehearsal of concept before we go into the actual execution offshore. And we have added some pictures on that as well. As we have been discussing, the changes in the project time line has led to increased, but delayed revenue for the foundation T&I. So Cadeler will earn more money on the Hornsea 3 project compared to what was originally envisaged when we signed the project. Not due to things that have happened on the Cadeler side, so to speak, but because our clients have had to change what they originally anticipated in terms of, for example, monopile delivery, whereas the monopiles coming from. Originally, we expected two fabrication yards, today we are working with four fabrication yards. That all means that we are receiving the monopiles in a different pace, but it also means that the project is stretching over a longer time and that we will be involved with some of the suppliers that we have on the project for a longer time. So what it means is that it's an increased revenue and an increased margin to Cadeler, but the project will stretch over a longer period of time. In terms of our commercial pipeline across the globe, I think I have to say that we are still continuing to grow, and we are still involved in a lot of projects and a lot of bidding on projects globally. Obviously, the European market is really the front runner in terms of new projects that we are working on. And as you can see from this slide, we are working on more than 50-plus open commercial opportunities in the market, and we are discussing projects with our clients, both for '27, '28, '29, 2030, but also well into the next decade, which gives us a very great deal of confidence in the market as such, but also a positive outlook for where we are going as an industry. And I'll come back to that a little bit later in the presentation. Asia continues to perform as well. We see new markets opening in Asia as we progress the ongoing market, which is Taiwan, Korea and Japan. We see also development now in the Philippines, but also development in Australia. And all in all, we are active where our clients want us to be active, and we are continuing to bid for projects in the region -- in a region that I would say is developing as expected. The U.S. market, it is what it is, and we have discussed it many times before. We don't see any short-term opportunities in the U.S. market, but we are still executing in the U.S. market. We sent the Wind Pace back to Europe from completion on Vineyard Wind, and we are now installing with the Scylla on the Sunrise Wind project. All in all, we expect to be busy in the U.S. for the years to come. And also, we are happy to engage with our clients for new projects in the U.S. region when that time is coming. We still sit on a significant backlog. Our backlog year-on-year has grown. We are standing at EUR 2.8 billion in backlog, which, as I said, really provides the earnings visibility that we would expect and also what we have communicated to our clients. We have things also that we are working on here that we have discussed in the market where we are preferred supplier on a foundation project that is not counted in our backlog, and it's also not sitting in our vessel reservation agreements because it has not reached that stage yet. But we still have work that will hit the backlog, and we are sure that in the coming quarters that we will have positive announcements around backlog development. As I said, the backlog stands at EUR 2.8 billion at the moment and 80% of the total backlog has reached FID. And we have discussed that before. And I think that that's really a sign of the quality of the backlog where we know that 80% has already been approved for the final investment decision at the client side, meaning that, that project has also reached a contractual milestone that is important for us. And as I said, we do have a preferred supplier agreement, a sizable preferred supplier agreement. And one of the things that we discussed around our Q3 announcement was that we had some projects in the site that we would like to secure. And one of them is what we have now a preferred supplier agreement on. It's for a significant foundation project in Europe and one of the projects that was important for us for our 2028 campaign. And I'm pleased to say that we have been moving ahead as we expected on that one with our client and that we are also now in the negotiation with the client to make this preferred supply agreement into a real contract. And on '27, '28 that we discussed at length in the Q3 presentation, I'm happy to say that in '27, we consider ourselves fully booked now. We are currently working with the yard to potentially deliver the Wind Apex slightly earlier because we have a client that is ready to take the vessel straight from the yard and into a project, meaning that we are -- with a few white spaces we have left in '27, we do consider that time that we want to keep available for clients should they run into some sort of supply chain issue and really have built a solid '27 for ourselves. In '28, we are also much more positive now than we were in Q3 due to the fact that we have secured the preferred supplier agreement on this large-scale foundation project and overall are seeing positive momentum for the '28 campaign overall. In terms of the progress on the newbuilds, Wind Ace, we are at 94% completion. The naming ceremony for the Wind Ace, the official naming ceremony will be on the 15th of April, and we are looking to deliver the vessel on time. On the Wind Apex, as I said, we are 34% completion, and we are currently discussing with the yard to do up to 1 month early delivery due to the fact that we have a client who would like to take that vessel straight from the yard and into a project for a sizable project on turbine installation. In terms of the progress from the yard, a few pictures as we always have. I think that I can say that on the Cosco shipyard side, things are progressing as planned. Not many surprises there and really pleasing to see that the collaboration we have with Cosco Shipyard continues to develop, and we are very, very pleased to work with Cosco Shipyard, the quality partner for us and for the development of the company. The fully delivered Cadeler fleet as it stands today with an average fleet age of 5 years, which I believe is a very good number to have, and really also shows that we have been building a young fleet that is ready to take on the positive developments of the future. Now, I will hand over to Peter for the financial highlights of 2025. Peter Hansen: Yes. Mikkel Gleerup: Peter Brogaard... Peter Hansen: Thank you very much. Yes, the financial highlights for '25. It was really a strong year seen from a financial and operational point of view. As Mikkel said, we ended in the high end of the range that we have guided revenue of EUR 620 million as compared to EUR 249 million. Equity ratio is now at 44%. It's a decrease as compared to last year. But it's also where we see it bottom out, the equity ratio and starts to increase again. Utilization also very high, 88.9% adjusted utilization as compared to 75% last year. And that is -- the adjustment is where we say, okay, we take out what is planned dry docking and transportation from the yard. We think that is a meaningful number to look at when we get all these new vessels delivered. Market cap of EUR 1.8 billion. EBITDA, EUR 425 million as compared to EUR 126 million last year. Net profit, important number for the shareholders, of course, EUR 280 million as compared to EUR 65 million last year. And as elaborated on a backlog of EUR 2.8 billion. Three months daily average turnover EUR 7.1 million on the stock exchanges. If we first look at the last 3 months of the year, Q4 '25, very, very strong quarter, EUR 167 million in revenue, an increase of EUR 82 million compared to Q4 '25, '24 and with the adjusted utilization of 87% cost of sales is, of course, going up with the delivered vessels. And SG&A also is up because of the ramp-up that we have talked about at previous releases where we build up the organization to be able to manage these foundation projects with increased complexity. Finance net isolated for Q4 is EUR 20 million, and that is a shift you see here in Q4 finances because we have capitalized borrowing cost to a greater extent while we had more vessels under construction. Now that the vessel has been delivered then a bigger part of the finance interest is going to the P&L, and that is something you will see in '26 as well. Of course, it's the same cash outflow, but it's just whether it's in P&L or it is in CapEx. EBITDA, I think very, very strong, EUR 104 million in a quarter where Ally and also Mover were not in operation as such, but in transport to first project. That was Q4 isolated. For the full year, some of the same remarks that we had in Q4, but also what we have seen during the year, it's fair to say everything has played out exact to plan. Revenue in the higher end of the guidance. Cost of sales, everything is as according to plan. SG&A the same. So we are very, very pleased with the financial result for '25, but also the underlying operation where we have control of the important things. EBITDA, EUR 425 million. Vessel OpEx per day is EUR 36.3 million, a small increase towards last year and I think also under control. Headcount onshore average 307. The consolidated balance sheet, now we have an equity of EUR 1.5 billion. an increase of nearly EUR 300 million as compared to last year. And we see the equity ratio of 44%. I think that is something we have all along said that approximately there where we will bottom out. And of course, it's a natural consequence of taking delivery of the vessels where your assets go up and your liabilities also go up correspondingly. We still have a CapEx program now on the Wind Ace and the Wind Apex, these installment with the yard that we show here. We have signed commitment for A Class Wind Ace and we are also having ongoing RCF facility of 148 million. So together with what we expect to raise of financing on the Wind Apex, we are EUR 637 million of total financing. We are in advanced discussion with Apex and are confident that we'll be able to sign that during '26. As you may recall, it's delivered in late Q2 '27. So we have really had the goal of signing a facility -- sign commitment 1 year ahead. So we are not paying unnecessary fees in commitment fees and so forth. Interest from banks are strong. So is it from the ECA. So it will be on similar term as you have seen on previous transactions. Cash, EUR 152 million. And you can see with the A Class payments we have outstanding, that's still a significant cash surplus. This is the financing overview. You can see here that we have the RCF A and B, we have not drawn up fully yet. And since Q3, September, we have signed a Holdco financing, a second one with HSBC and Clifford Capital unsecured loan, EUR 60 million with an accordion of EUR 0 million, and it was made on very similar terms as the original Holdco with HSBC and Standard Chartered. With Apex, I have talked to that, but that is progressing according to plan. We are very confident on that financing. Then there is the outlook for '26. I think what we guide is in revenue, EUR 854 million to EUR 944 million, and EBITDA, EUR 420 million to EUR 510 million. We have put up the comparison here, of course, '25 includes revenue that you are supposed to get in '28, but was postponed and we got termination fees for that. So of course, that should be adjusted for in the comparison, but a very strong outlook for '26. What is important to understand about the outlook in '26 is exactly what Mikkel has talked about earlier in the presentation. First of all, it's a transition year for Wind Zaratan, so isolated on '26, you could argue it is financially a transition year, but it will improve the returns in '27 and onwards. So it's actually a good year for Zaratan as it is an investment year. Wind Ally and Wind Ace will be delivered in Q3 '26, but will not go on any contract and have any contractual revenue in '26 simply because we will sell direct to first projects EA2 North. We have seen in the past that on some of the wind turbine installation vessels that we can do some work before first project, but it's simply not possible on a foundation project. And it's -- again, it's a good sign because the customer wants us to be at the site as early as possible. So we are simply doing everything that we can to arrive as early as possible we can in '27. And then this Hornsea 3, when -- Hornsea you can't look at Hornsea 3 isolated in one year. First of all, it's a project where you have revenue across several years we already had in '24, '25. But as illustrated by the slide, maybe the precent, we now see that the revenue on the project goes up due to changes on the project, not due to Cadeler-speific things, but due to something designed by the developer. But that means for Cadeler, two things. The total project goes up, earnings goes up, but the timing is different. So some is pushed into '27. So when you look at '26 and the outlook, you should also remember that. [indiscernible] evaluating that year. And back to you, Mikkel. Mikkel Gleerup: Thank you, Peter. As this is something that still remains very important between '24 and '25. We are -- we have been working on biofuel -- fuel blending in our fuels, and that has been successfully introduced across the fleet in 2025, together with our clients and our sustainability team. We have developed a new circularity strategy. We have more than 30% women in leadership, and that was achieved in 2025. We have set a new target of 40% women in leadership by 2030, and also on governance, the CSR leadership group established to execute key ESG priorities. In terms of our path to zero, we have set a target of a net zero target in 2035 and a 2030 target of 50% intensity reduction. Obviously, we are going up in intensity in the beginning, and that's largely due to the fact that we are delivering lots of vessels that are still burning fuel. But we have a path towards achieving our targets here, and we have maintained our targets. And it is as -- what is described on this slide, it's adoption of green fuels, it's enabling electrification, optimizing energy consumption, which we believe is one of the big things because really education and training of teams on board and clients is one of the real big savers here. And that is how we will achieve the first part of this journey. Second part of the journey is continuing to enable electrification and again, optimizing the energy consumption. And also as we start to see it, getting the green fuels on board, which will form a larger part in the second part of this journey. At the moment, the reality is that the green fuels are not available to us. So although we have a portion of our fleet on the newbuilds that can burn these green fuel types, we are not able to buy them at the quantity that we need them, and it would more be an R&D project at the moment. So we believe that the second part of the journey will have a greater availability of this fuel type, and that is something that we at least will support that with the demand for these green fuel types when it is available to us. In terms of commercial outlook, which, of course, is important because I think in all honesty, we are coming from a 2025 where we were facing a very negative narrative in general in the industry due to a lot of factors. We are seeing milder winds blowing over the offshore wind space and also continued growth of the industry and the deployment of offshore wind globally. And as we say here, after '28, '29, we expect a very strong growth towards the end of the decade. Europe has been raising the bar and as declared by the North Sea Summit, the 9 member states of the North Sea Summit have declared a target of 15 gigawatts per year outbuild between 2030 and 2040, and we are very, very pleased with a target like that, because that is, in our opinion, how you build a supply chain that you actually set a target what should the supply chain be able to push out per year in this region. And this is not the entire European target. This is for the member states of the Green Sea -- the North Sea Summit, sorry. So in all Europe will be a higher number than this. Outside the fact that there's an annual outbuild target, there's also a financial plan to how to achieve this. And that is also what has been lacking in the more arbitrary targets that were more setting a target for 2040, 2050 in the past. So all in all, we really are pleased with seeing these targets, and we believe that, that's a very strong data point for the future and also for the demand situation for the future. Another very real data point is the U.K. auction round 7, where the U.K. government awarded record volumes. Really, it was 70% above what was expected and the budget went up to 200% of what was the original budget. So also a very strong data point. But another strong data point is that the U.K. auction round 8 has already been shifted forward, so we can expect that already to happen in July 2026. And these are projects that are happening towards the end of this decade and the beginning of the next decade. So already today, we are in dialogue with clients for work that is taking place in '29, 2030, 2031, 2032, 2033 and so on. So that is a very, very positive data point for us. And then we also do see a lot of private capital coming back into offshore wind, Apollo committing USD 6.5 billion to acquire 50% of Hornsea 3 and KKR forming a joint venture with RWE for offshore wind projects, and there are many, many other examples of this. Altogether, strong growth in the space and in the industry. And as we have said, a much better feeling about the '28 situation for Cadeler, although we still recognize that for the industry, '28 for some can be a difficult year, then we say today that we have a much better feeling about 2028. We still believe that there will be an undersupply of capable vessels in the market, and that will start in '29, 2030. We believe that, in particular, on the foundation side to begin with, of course, because they go in first and then secondly, on the VTG side. It happens for a multitude of different reasons. It's efficiencies. It's the efficiency on the larger turbines. It's the more complicated projects. It's the raw efficiencies in terms of how many turbines and foundations these vessels can transit with, but it's also the fact that there are a lot of vessels that are reaching the end of the useful life in the beginning of the next decade. So vessels that are counted today because they, in theory, can install a turbine, they will not be counted after the beginning of the 2030 because simply they are falling out because they are coming to end of useful life. As the fleet stand today, Cadeler still sits on the largest fleet in the world, and we believe we have the most versatile fleet of really the Tier 1 assets that can support our clients with the targets they have for continued outbuild of offshore wind. We have also decided to distribute this slightly different and first look at which vessels do we believe are able to efficiently install 15-megawatt turbines, and the picture looks somewhat different here. And with the targets that are being set in the North Sea Summit by European government, by Asian governments at the moment, then we believe that there is still a significant undersupply as we come into the next decade of the capable vessels that will always be chosen first by the clients. And if we look on the foundation side, the picture is even more problematic if we want to deliver the targets that are currently being set and also backed up by auctions in many different countries around the world. A few words on Nexra, our business platform for the aftermarket services in offshore wind. We believe that the O&M market will continue to demand -- the demand increase will continue to grow, and we believe that the market is shifting towards long-term agreements. We have seen that with our agreement on Wind Keeper with Vestas, and I think there are other examples in the market as well. So we believe that the whole O&M story and strategy for Cadeler is an important strategy because it will create a longer and more transparent revenue stream on part of the fleet and also it will be able to generate utilization on the installation fleet if there are small gaps between installation projects. And that is important because we have always talked about the importance of keeping a high utilization. And hence, that is something that we really believe is a strong advocate for the whole development of the Nexra business platform. We also believe that Nexra will grow as a business and also at some point in time, potentially even be a bigger business than the installation business, but that is in the years out in the future. But of course, every time we install a turbine, the whole ecosystem for turbines installed grows, meaning that there are more work to do for the Nexra platform to service our clients with -- as it stands today, mainly -- the main component exchanges that we do from a jack-up. In terms of the development of Nexra and an update on that, I think that we saw it and have always seen it as a very strong market, a market that can stand on its own 2 feet, a market that is profitable and it's also a diversification of income streams for Cadeler. We signed the first contract for an O&M campaign in Taiwan and showing that when a vessel is sitting in a region that is complicated to transit back to, for example, Europe from, then you can do these O&M campaigns in the spot market and still upkeep a very healthy financial year for the asset. And I think that, that is something that is important because after this, we have also announced another project yesterday morning in the same region for the same vessel. There's a dedicated team for Nexra today, we are continuing to build the team. I think that it's also fair to say that we get positive feedback from our clients and the fact that we are now having a dedicated team to discuss aftermarket services with them because they have dedicated teams to handle that part of the value chain for them. We believe that as we grow, we will also be better at understanding the needs and the execution requirements and really a very, very strong mandate from all over this company here and from top to bottom to grow Nexra into the strength vehicle we believe it can be. We did strategic fleet expansion in Nexra last year with the acquisition of Wind Keeper, we believe that we did a very, very strong deal and executed very, very fast on this, but also was able to pin a contract -- a commercial contract to that vessel very, very soon after the acquisition of the asset. We took the vessel back to Europe. We did the modification to the vessel that we believe was necessary, and we are now working with the client on a project with the vessel and very pleased to see that. And O&M services in 2025 forms around 1/5 of our total revenues, and that also shows the significance of what we already are doing in O&M. Continuing the growth journey, as we have said, we are in an industry that growth and as we're also saying to you today, we are more positive and have a very positive and optimistic view about the years out in the future. And that is also why that we are looking at continuing the story of Cadeler. We evaluate opportunities to expand into attractive and synergetic systems -- segments, sorry, like, for example, the strategic O&M offering. We are open to both organic and nonorganic growth. We believe that scaling the organization and have a bigger, more versatile, more flexible offering to our client is something that the client is willing to pay a premium for and something that will also secure that Cadeler will always take more than our proportional share of projects in the industry simply due to the derisking of our clients' projects that we can provide. In terms of regional expansion, we are where our clients want us to be, and we are working with the projects that we believe in and the projects that we believe will go from development to FID and to finally execution. That is how we look at it. That's how we have always looked at it, and that's how we'll continue to look at it. We are monitoring and applying new technologies, and we believe that efficiency still will be driving a lot of the value in the industry and also a lot of the sustainability in the industry. So we are very open to discussing efficiency gains with our clients. And we are also willing to do our part in what was the North Sea Summit, which was really trying to make a more competitive offshore wind industry by being more efficient with what we do. And we believe that, that is definitely something we can do if we work together in the whole value chain. And then strategic partnerships have been one of the foundation and one of the pillars that Cadeler is standing on really making sure that we are developing structure -- strategy to strengthen our key strategic partnerships with our clients, including the long-term agreement that we believe is out there and also doing the scopes with the clients that, that they are asking for. So really trying to understand, be early with our clients, trying to understand what it is that they require from us and then be able to deliver that quality-wise and safety-wise when they need it. That is very important. In terms of key investment highlights, largest and most capable and versatile fleet. We believe that, that means redundancy for our clients. And as I already said, that is something that our clients are willing to pay a premium for and also what we believe will secure a more than proportional share of market to Cadeler. We believe that strong relationships and partnerships and our industry-leading position is also something that will be continuing to support the whole growth of the company. We have global reach and experience. We have worked in all key markets, and we are happy to continue to work in all key markets if our clients want us to do so. We believe there's a structural undersupply and an increasing market demand, and we are already starting to see signs of very, very, very strong demand as we move into the next decade. We have a strong track record and backlog, and we are very, very much looking forward to continue to work with our clients in the future. With that said, I think that we are moving into Q&A. Operator: [Operator Instructions] Our first question comes from Martin Karlsen from DNB Carnegie. Martin Karlsen: I understand that -- can you hear me okay, sorry, it was some... Mikkel Gleerup: We can hear you, yes. Martin Karlsen: I think I heard during the prepared remarks that you said the Wind Apex would be delivered early and do turbine work. Could you talk a little bit about the background for using the vessels for turbines and not foundations and the decision process behind that? Mikkel Gleerup: Yes, that is a good question. The reason we are discussing it directly that we are looking at delivering the Wind Apex early is because we have been asked whether we were looking at potentially delivering her late. And just to make clear that that is not a thought at all, it's the opposite. We have evaluated opportunities in the industry and the best opportunity, we believe, for Apex right after the yard is to embark on a turbine installation project. The reason for that is that working with the client on a turbine installation project potentially opens up opportunity for other things. And hence, we have decided that here, the best use of the capacity we do have available, as you also heard in my presentation, I said that we consider ourselves fully booked in '27 now. So basically, what we have available for clients now is becoming limited. And this is the opportunity we have for the client, and hence, we have decided to go with the client because we believe that it's the best overall decision for Cadeler to start with a turbine installation project. It doesn't mean that Apex will stay on turbine installation projects, but the first project will be a turbine installation project. So what it means is that she will earlier generate revenue compared to if we did a foundation project. And with the long -- duration of the contract we're looking into, that will also run into a significant part of 2028, but also a potential for something coming on the back of that with the same client. Martin Karlsen: Could you remind us about how much time and cost there would be to get it back to foundation mode? Mikkel Gleerup: So there is a mission spread, but that is typically part of the project. When you sell a foundation project, the client is contributing to the mission spread there. And typically, it would take somewhere around 2 to 4 months to put her into foundation mode with mobilizing all the equipment on the vessel. Martin Karlsen: And for 2028, you definitely came across as more optimistic, but it seems to be more Cadeler specific than for the industry as a whole. Can you talk a little bit to why Cadeler have been more successful than the industry for '28 and what has changed since last quarter? Mikkel Gleerup: Yes. I think that what we do say, when we talked about '28 after the Q3 announcement, we also said that it looked like a year that could be challenging for the industry. And what we are saying now is that we -- that is still the case. We believe that there are still some companies that will have challenges in 2028, but that we today feel much better about '28 than we did around the Q3 because there were still some things that we believed in at that point in time, but that had to happen. And now we are saying that we are seeing that, that is happening. And hence, we are much more confident on 2028. And one of them is, of course, the preferred supplier agreement on a large-scale foundation project. That is important for '28, but that's not the only thing. It is also how other things we are working on have progressed. So all in all, we are much more positive about '28. But it doesn't mean that everybody else will have the same feeling. But for Cadeler, that is the case. But I also think there is a progression from the Q3 call to now where we are saying today that 2027, we can say we're fully booked now. Martin Karlsen: And last question, you're about to get into a real cash-generating mode with all the newbuilds and delivered. Could you talk to how you look to allocate capital ahead between shareholder returns, delevering, and you also spent some time in the presentation today talking about growth opportunities. Mikkel Gleerup: Yes. I think that, as we have said before, capital allocation ultimately is a Board decision. But I think it's realistic to believe that we will be spending our capital in 3 buckets. One is to delever the company. One is to continue to maintain the position we have in the industry. And then the last bucket is, of course, returning capital to shareholders in some shape or form. And I think that if we look at where we are moving in terms of generating capital, all 3 buckets are possible at the same time. And I think that, that's where I will land it at this point in time. Operator: Our next question is from Jamie Franklin from Jefferies. Jamie Franklin: So firstly, I just wanted to clarify on Hornsea 3 and appreciate the useful slides in the presentation. If I look at Slide 12 specifically, as you understand it correctly, essentially, we're now going to have a much more progressive ramp-up in revenue through the year from that project. So it's going to be very back half weighted. And it looks like the expectation is first turbine installed around 3Q. So if I assume that the margin and EBITDA contribution should really start to sort of kick in from the second half. Is that a fair assumption? Mikkel Gleerup: Yes. I think overall, what you're saying is a fair assumption. And as we are saying that -- and of course, this is what is complicated to sometimes explain when you have projects and calendar years because overall, Hornsea 3 for us is a more value-creating project today than it was when we signed it. But the way the revenues and profits are stretched over time is different. And I think that, that is what we are trying to explain today, and it's due to decisions that have been made by others than Cadeler, but where -- it's in our interest, but also where we are contractually obligated to deliver on this new method. And I think one of the key things on the project without diving too much into the detail is that the flow of the foundations when they come into the project is slower. So we are not building up the buffer we had in the beginning. So the monopile delivery is over a longer period of time, and that is out of Cadeler's control. And it's due to things that is related to the fabrication yards on the monopile foundations. Jamie Franklin: Okay. Got it. And then secondly, just on operations and maintenance. So obviously, you've announced a few shorter duration awards to Nexra platform recently. And as you mentioned, there's been this 10-year O&M contract announced by one of your peers. Could you give us a sense of how you expect to balance the sort of longer-term agreements with the shorter-term contracts? Is the idea to sort of keep Zaratan and Scylla available for more spot O&M while Wind Keeper kind of takes the longer-term contracts? Or could we see you enter into a longer-term contract with a specific one client on those assets? Mikkel Gleerup: The question is, yes, that could be expected that, that would happen, but it all depends on the project economics. There are limits where we believe that it's better to stay in the spot market rather than to sign up to a long term. And for us, that is an internal evaluation that is happening between us and the team that is dealing with the clients on these long-term opportunities because obviously, there are benefits of having a long-term contract, but the benefit of that can be outweighed by, let's say, what you're sacrificing in terms of annual revenues. So for us, it's a balance. And if we believe that we can generate more money by having the vessel in the spot market and being available to our clients when they need us, then that is the decision we will go for. And I think we have discussed it before as well that one of the real benefits of being, let's say, active in the O&M market is the social capital you're building with your client because when they have problems, if you are able to come and help them and fix them, that is something that is very much appreciated and also where you're able to generate stronger relationships and partnerships with your clients. So I -- per se that the long-term agreement is not just what we are aiming for, but of course, if they are good enough, if they live up to our criteria, then we are happy to enter into them. Jamie Franklin: Okay. Very clear. And finally, there was a wind turbine installation vessel order announced by shipyard Hanwha Ocean for about $530 million last month, very high price tag, obviously, relative to what you paid for your newbuilds. Is there anything you can say in terms of what is driving those higher vessel prices? Is it simply a function of kind of shipyard capacity or material inflation? Any thoughts there would be helpful. Mikkel Gleerup: I think the reality that we are looking at today is that the shipyards are incredibly busy. So even if you wanted to deliver a vessel in short time, you were not able to. I know that this vessel is it looks on paper like a short time line, but that is mainly because they have been working on it a long time before they actually announced it. It's a vessel targeting the domestic Korean market with a lot of Korean companies going together in that vessel. It's a repeat M-Class vessel more or less that they have paid $530 million for. I think that the underlying practice for the price is a real tightness in the yards, but also in general, what it costs to build a jack-up today. And I think that there are, let's say, that is -- if you look at the price for ordering one vessel, I think that, that is -- you're probably seeing significantly increased prices to what we built at back in -- when we ordered our vessels. Operator: Our next question comes from Anders Rosenlund from SEB. Anders Rosenlund: Could you break down the order backlog indicatively on '26, '27, '28 and '29 and beyond? Mikkel Gleerup: Unfortunately, we don't do that, Anders. We only give guidance 1 year ahead. So we don't give guidance year-by-year on the backlog. Anders Rosenlund: Also, do you expect to see more of your competitors to place newbuilding orders for '29 and 2030 or beyond delivery given the outlook comments that you coming with today? Mikkel Gleerup: I believe that based on the supply and demand balance we are looking into in the beginning of the next decade and the tightness in the yards that I would be surprised if there were not several companies already looking in the yards. Operator: Our next question comes from Daniel Haugland from ABG Sundal Collier. Unknown Analyst: This is [indiscernible] from China Securities. And thank you for taking my questions. I have 2 questions. The first question is about the foundation installation business. And I noticed that actually the foundation business includes quite large preparation works and it has larger amount. And could you please share with us what's your target of the foundation business in the future? Would the volume or the amount be higher than next year? You just mentioned that next year, the future revenue would be -- maybe would be higher than the installation revenue. So could you please share with us about the foundation business in the future? And your target or your strategy? This is my first question. And the second question maybe for... Mikkel Gleerup: Can we take them one by one. Can we just take them one by one. Unknown Analyst: Okay, okay. Mikkel Gleerup: Thank you. I think that to answer your question, we have had a humble approach to the full scope foundation C&I projects. And in 2026, we will be executing the Hornsea 3 project. In 2027, we will be embarking on the EA2 project with ScottishPower Renewables. So we are on a journey here where we are building up together with our clients, two of the biggest developers in offshore wind worldwide. And together with them, we are building up these capabilities to ensure that we do this safely and with the quality that both we and they expect fairly. But our long-term target is, of course, to execute several foundation projects in parallel in a year. That is how we have built the fleet, and that is how we are building the team and, let's say, the protocols around this. So let's say, we have a fully delivered capacity three A Class vessels that are targeting the foundation market. And we would certainly expect that these three A Class vessels would all be doing foundation work in parallel at some point in time in the future. But when I address the fact that I believe that the O&M market could be as big as the installation market, it is because with the outbuild targets that we are seeing in the industry, there will be a lot of requirements for O&M. And hence, we say this, but we cannot say when it will happen or whether they will inflect or whatever. But we do believe that there will be a case for the fact that the O&M market as such will be a very value-creating market to be in and also potentially bigger than the installation market. Operator: Okay. Great. And the second question is about the financial expenses. And I noticed that in 2025, the financial expenses are a little bit higher. Could you give us some color about the financial expenses in the near term or in the 1 to 3 years? Because with our 2 vessels delivered in 2026 and 2027, these expenses cannot be go into the -- cannot be capitalized and this should be go to the P&L. And could you give us some colors about that? Peter Hansen: That is absolutely correct, and also what I talked to in Q4 where you saw net or -- finance net was around EUR 20 million. And that is what you should expect to see going forward and then less and less goes to CapEx when we get one vessel delivered here in '26, then it will be less '27, we get the last one delivered and then it will be to current plans, nothing that we can capitalize. So that is the picture we see. So Q4 is more representative for '26 than the full year. Unknown Analyst: Okay, great. Thank you so much. That's very helpful. Thank you. Mikkel Gleerup: Thank you. I don't know whether we missed Daniel from ABG. Operator: Yes, we have a question from Daniel. Daniel Vårdal Haugland: I was a little bit back in the line there. So I have a couple of questions on 2027 that you maybe can kind of enlighten me on because I think you now say that 2027 is getting fully booked from your perspective. So what type of utilization level are you kind of targeting or at least some kind of range when you're talking about kind of fully booked this because I think based on announcements, it looks like there's a lot of white space, but obviously, you guys have looked it through. So... Mikkel Gleerup: Yes, so I think... Daniel Vårdal Haugland: Any commentary on that would be helpful. Mikkel Gleerup: Yes. No, that's a totally fair question. I think we have guided from the beginning of the journey of utilization between 75% to 90%, and that is also the target in 2027. And that is an adjusted utilization because, obviously, to assume that a vessel is busy when it's transiting from Asia and back to Europe, for example, that is not possible, even though we would love to install turbines all the way. But -- so that's how we look at it. And then as Peter also said, when he went through his numbers that we exclude planned dry dockings and stuff like that. So the adjusted number, we are expecting between 75% to 90%. And for '27, yes, it is correct that we are considering ourselves to be at the moment fully booked. Daniel Vårdal Haugland: Yes. And just to clarify, then you kind of include this potential contract that you talked about for the Apex. Mikkel Gleerup: Yes, that's how we have to do it because there is a potential contract that is negotiated. And -- but of course, nothing is firmed before it's signed and there's ink on paper. But of course, when we are in a process where we believe that this is something that will materialize, then it's also something where we are saying with what we know today, we think that we are in a situation where we don't have much other stuff to sell. Daniel Vårdal Haugland: Okay. And one question on the Orca. It seems like that will be working together with the Ally on Hornsea 3 on secondary steel. It seems from the slide that you kind of indicate that going through Q1, maybe into Q2. Is that kind of correctly assumed? Mikkel Gleerup: Yes, it's correct that Orca is starting almost side by side with the Ally being mobilized now for the campaign to go to -- on to Hornsea 3, sorry. It was a valuation we did when we secured the project because it was our option to either go with an offshore construction vessel or with one of our jack-ups. There were benefits in the jack-up in terms of the weather downtime during the winter and hence, the progression on the project. And that's why -- and with the project economics, of course, that we were able to provide to our -- one of our own assets that we decided that the O Class vessel was the best option for the task. Operator: Thank you. That's all we have time for today, and thank you for your participation. I will now hand the floor back to Mikkel Gleerup for any closing remarks. Mikkel Gleerup: Yes. Thank you, everybody. And if we did not have time to take your questions, then you all know where to reach Peter and myself or Alexander. And we are, of course, happy to take offline discussions with all of you. But thanks a lot for taking the time to listen to us today. We're looking forward to catch up with you as we move ahead. Thank you.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Concentrix First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now hand the call over to Elise Brasell, Corporate Communications. Please go ahead. Elise Brasell: Thank you, operator, and good morning, everybody. Welcome to the Concentrix First Quarter 2026 Earnings Call. This call is the property of Concentrix and may not be recorded or rebroadcast without the written permission of Concentrix. This call contains forward-looking statements that address our expected future performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events or developments. Please refer to today's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and in our other public filings with the SEC. Also during the call, we will discuss non-GAAP financial measures, including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP EPS and constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the company Investor Relations website under Financials. With me on the call today are Chris Caldwell, our President and Chief Executive Officer; and Andre Valentine, our Chief Financial Officer. Chris will provide a summary of our operating performance and growth strategy, and Andre will cover our financial results and business outlook. Then we'll open the call for your questions. Now I'll turn the call over to Chris. Christopher Caldwell: Thank you, Elise. Hello, everyone, and thank you for joining us for our first quarter 2026 earnings call. Today, I'd like to start by giving you an overview of how we're thinking about the quarter, and then I'll turn it over to Andre to talk more about the specifics of our results. Overall, in the first quarter, we continue to win the right business, drive the right revenue mix and execute on our strategy, allowing us to come within our guide for both revenue and profit. Our solutions are driving value both from automating work or when combined with the human to drive performance. Our overall wins with technology are up more than 61% year-over-year in the first quarter, highlighting the shift in our go-to-market offerings and client acceptance. When we look at our bookings quarter-on-quarter, our signed annual contract value for solutions, including AI, more than doubled, and we're seeing sequential increases in expanding AI license consumption across our client base. Our pipeline of opportunities to continue to be solid and represent a continued progression and shift to a higher solution mix. Our proprietary iX suite of AI products our third-party technology partners and our deep domain expertise continue to be differentiators that open the door for us to win larger, more transformative deals with our clients. While this might initially compress some existing revenue and margin, when these programs reach scale and full production, the margin is accretive, and we generally see revenue growth across our portfolio of services into these clients. As an example, we closed, close to 60 enterprise iX suite deals in the quarter including our largest iX Hero contracts to date with 2 Fortune 50 companies. Both clients will use our proprietary AI technologies to modernize their ability to create more efficient personalized and effective interactions with their customers while allowing us to sell additional solutions into these accounts. Looking forward, we are continuing with our focus of securing complex work and high-value services in our client base, growing our share of wallet, using our extended offerings, allowing clients to consolidate work with us, leveraging our own IP and third-party platforms to differentiate ourselves in the market and driving internal efficiencies to fuel continued investment in areas of new growth. In summary, we delivered another quarter with revenue growth, and we are on track to meet our expectations for the year. We are winning the right business and successfully executing while making the right investments in the business for long-term revenue and margin growth. I would like to thank our game changers for their tireless pursuit of excellence with our clients and their trust and partnership that we have with our clients. With that, Andre, I'll turn it over to you. Andre Valentine: Well, thanks, Chris, and good morning. I'll review the details of the first quarter and then discuss our outlook for the second quarter, remainder of 2026. We delivered revenue of approximately $2.5 billion, an increase of 1.9% on a constant currency basis and over 5% on a reported basis. Looking at constant currency growth by vertical. Revenue from banking and financial services clients grew 13% year-over-year. Revenue from retail, travel and e-commerce clients grew 6% largely driven by growth with travel and e-commerce clients. Media and Communications revenues grew 3%, largely with clients outside the U.S. and global entertainment and media companies. Our technology and consumer electronics vertical and our health care vertical both decreased about 6% driven by lighter volumes than clients expected and shore mix. Turning to profitability. Our non-GAAP operating income was $295 million. The midpoint of the guidance range we provided on our last call. Adjusted EBITDA in the quarter was $348 million, a margin of 13.9%. Non-GAAP diluted EPS was $2.61 in line with the guidance range we provided in January. GAAP results for the first quarter reflect a $6 million loss on the sale of 2 small nonstrategic businesses. One of these sales closed in the quarter with the second expected to close later this year. The assets and liabilities of the pending sale are reflected in the balance sheet as assets held for sale. Total net proceeds from the 2 sales will be approximately $20 million. Our GAAP results for the first quarter and our expectations for GAAP results for the second quarter also reflect restructuring charges related to cost actions that we're taking to align our cost structure and invest in higher growth and higher profit areas. We expect the combination of the actions taken in the first and second quarters of 2026 to drive approximately $40 million in annualized savings over and above investments in growth. This will contribute to sequential profitability growth in the second half of 2026. Complete reconciliations of non-GAAP measures to the comparable GAAP measures are provided in today's earnings release. Adjusted free cash flow was negative $145 million [ in the ] quarter, reflects an increase in accounts receivable at the end of the quarter, resulting from the timing of cash receipts. The related receivables were all collected in the first week of March. As a reminder, free cash flow in our business is seasonal with negative free cash flow in the first quarter and robust free cash flow generation in each subsequent quarter. This pattern is expected to recur in fiscal year 2026. We're confident in repeating our previous guidance for between $630 million and $650 million in adjusted free cash flow this year. We returned approximately $65 million to shareholders in the quarter, which included repurchasing $42 million of our common shares or approximately 1.05 million shares at an average price of approximately $40 per share. The remaining $23 million in shareholder return was in the form of our quarterly dividend. In February, we issued $600 million of 3-year senior notes maturing March 1, 2029. The new notes carry an interest rate coupon of 6.50%. The proceeds from the new notes were used to retire $600 million of 6.65% senior notes that mature in August 2026. $200 million of the 6.65% senior notes maturing in August 2026 remain outstanding, and we expect to repay them with strong free cash flow in the second and third quarters. At the end of the first quarter, cash and cash equivalents were $234 million and total debt was approximately $4.75 billion, bringing our net debt to $4.51 billion. Our off-balance sheet factored accounts receivable borrowings were approximately $129 million at the end of the quarter. At the end of the quarter, our liquidity was nearly $1.4 billion including our $1.1 billion revolving credit facility, which was undrawn. To summarize, in the first quarter, we delivered revenue and profitability in line with our guidance range. We also took proactive steps to manage upcoming debt maturities while continuing to invest in growth. Now I'll turn to our outlook. For the second quarter, we expect the following: second quarter revenue of $2.46 billion to $2.485 billion. Based on current exchange rates, we expect an approximate 75 basis points positive impact of foreign exchange rates compared with the prior period. The guidance implies constant currency revenue growth for the quarter, ranging from 1% to 2%. As we've said, our goal is to be conservative in our revenue guidance, and we are being prudent with the current geopolitical situation. We expect second quarter non-GAAP operating income of $290 million to $300 million, this implies a non-GAAP operating margin of 11.8% to 12.1%. Second quarter non-GAAP earnings per share will be expected to be $2.57 to $2.69 per share, assuming approximately $67 million in interest expense, 60.9 million in diluted common shares outstanding and approximately 4.9% of net income attributable to participating securities. The non-GAAP effective tax rate is expected to be approximately 25% for the second quarter. Our expectations for the full year non-GAAP metrics remain unchanged from our earnings call in January and can be found in today's release. As I mentioned earlier, we continue to expect to generate between $630 million and $650 million in adjusted free cash flow this year. In addition to our strong free cash flow, we expect aggregate proceeds for approximately $40 million from asset sales, including the sale of the 2 businesses I mentioned earlier. The remaining proceeds will come from the sale of owned properties that are no longer being utilized. We are committed to reducing our net leverage to below 2.6x adjusted EBITDA by the end of fiscal 2026. In summary, our overall demand environment remains solid. The margin headwinds we have seen in recent quarters are being managed, and we are confident in our ability to drive year-over-year profitability growth in the second half of 2026. We're confident in the continued strong free cash flow generation of the business and our plan to reduce net leverage over the balance of the year and we are in a strong competitive position to drive long-term outperformance. Now operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya with Bank of America. Ruplu Bhattacharya: Chris, can you specify approximately how much revenue in 1Q was related to AI and the iX suite? And how are you pricing these solutions? And can you give us an idea of how you're looking at investments related to AI in 2026? Christopher Caldwell: So let me answer the questions in a bit of a backwards way. So just in terms of how we're pricing these solutions, our iX Hello solution, which is the fully autonomous solution that we have basically is priced by consumption. So we put it in for very small or de minimis fees. And then based on how many contacts that are fully automated, we get paid for. And so as you can imagine, when we put it in, we see a negative margin for the first little while. And then as it scales and grows, we see a positive margin similar to what you'd expect from a SaaS or software type of business. On our Hero product, it is a subscription basis, where we sell on a per-seat subscription of how many humans are actually using the product to drive the business. And as we talked about, at the end of last year, we ended Q4 at $60 million of ARR. We continue to add to that. We're not releasing numbers on a quarterly basis, but our expectation is to be at or above $100 million by the end of this fiscal year. If we reach that sooner, we will update you on that. But so far, we're actually a little ahead of plan from where we expected based on what we've sold within the first quarter. And we have a very, very strong pipeline going into the second quarter that we've already started to see some good uptake with -- on our proprietary AI products. In terms of the percentage of our business with AI within our business in Q1. Ruplu, the challenge that we have is that what we're seeing in the marketplace is that as you think about AI solutions, we're seeing clients adopt more than one AI solution, and sometimes they're adopting more than one AI solution from us. Sometimes, they're doing some things internally. So the way we look at it is of the revenue we service -- of the clients we service, how much of that has AI involved in it? And the reality is it's the vast majority of our clients are using our AI, their own AI, some other bits and pieces of AI. What we also look at is our success rate of AI implementations because in the marketplace, there's a lot of people who are talking about AI, but they're not getting the success rate. And we're seeing very, very high success rates. Very, very high success rates on our AI implementations driving real tangible value for clients. And so that's what we're very excited about as we're going into the second quarter. Ruplu Bhattacharya: Okay. details there, Chris. For my follow-up, Andre, can I ask you a question related to the cadence of margin improvement. If we look at the guidance, the implied operating margins go from 11.8% this quarter to about 12.5% in the -- for the full fiscal year. You mentioned a couple of things like there's cost reduction actions you're taking. I think Chris mentioned like the pipeline indicates a better mix. And I think you also said that margins improve over time in contracts. Can you help us get comfortable with how we should think about this margin progression? It looks like the EPS guide for next quarter is slightly below the Street estimates. So can you help us just think about how you're thinking about the ramp and what's giving you confidence that you can get to 12.5%, which would mean above 13% operating margin for the fourth quarter? Andre Valentine: Sure. Happy to do that, Ruplu. And the guidance is very much consistent with what we said entering the year, which was we thought that margins would be somewhat compressed in the first half, and then we would see sequential margin expansion in the second half of the year that would get us to year-over-year margin increases in the second half of the year. Driving that is certainly the result of the cost actions that we're taking in the first half. Other drivers are -- if you look at the revenue guide, there's roughly, depending on where you are in the guide, $100 million to $150 million of additional revenue coming online in the second half of the year over the first half. That's going to flow through at absorb the capacity that we've added into the business and will certainly drive revenue at a fairly high flow through as we go forward. Then you have some of the transformational deals, as Chris alluded to, getting to kind of full scale and full production and reaching the intended margins on those projects. And then that's really it. And so we have a great deal of confidence in our ability to drive the expansion in margin that begins. First, you see kind of stable to slightly expanding margin here in Q2, a bigger uptick in Q3 as we go sequentially, thanks to revenue coming online and the cost actions and then a further step up in the fourth quarter, which is kind of a traditional pattern of a step-up in margin as you go from Q3 to Q4. Ruplu Bhattacharya: If I can just ask a clarification on that. Andre, you had also mentioned in prior quarters that some customers, both in Europe as well as North America. We're looking to move operations offshore, and that was impacting revenues in the near term and the margins would have improved over time. Can you update us on how that is impacting results currently? Also, you had talked about supporting some customers whose volumes were not materializing and you had laid out 2 or 3 options that you had. Can you give us an update on where that stands? And are customer volumes coming back as you had expected? Or are you taking some remedial actions? Andre Valentine: Sure. Happy to do that. Well, yes, absolutely, the trend towards moving work offshore continues. As we talked about, I believe, on the last call, we have as we see it roughly 15% of our revenue is delivered out of North America and Western Europe that we think over time, as the capacity to perhaps move offshore, we provided in our revenue guide entering the year. for roughly a 2-point headwind from shore movement. We think we're still in line with that. And as we think about what that means from a margin perspective, particularly the commentary that I made about utilizing capacity that we've built ahead of revenue. A big piece of that is that shift offshore filling up capacity that we've added over the last couple of quarters in advance of that revenue. So that is how we would think about the impact of shore movement. Obviously, when those programs get offshore, margins are improved. When they get -- when the programs get the full run rate. Back to the commentary about volumes not materializing. As you recall last year, second half of the year, actually starting in the second quarter, we saw impacts from tariffs, delaying some programs. We said that, that would eventually -- we've worked that through the system through either having the volumes materialize or shedding the excess capacity that we've added in advance of those programs. That is pretty much playing out in line with our expectation. We saw improvement in that situation as we expected in Q1, and we think that's fully out of our system kind of as we exit Q2. Operator: Your next question comes from the line of Luke Morison with Canaccord Genuity. Lucas Morison: Starting with Andre. So you sold those 2 small nonstrategic businesses in the quarter for, I think you said, $20 million combined, obviously, pretty small, but can you just talk about the philosophy behind those divestitures? Is this potentially the beginning of a more active portfolio pruning effort? Were those more opportunistic? Are there other parts of the portfolio that you consider noncore? Just any help there. Andre Valentine: Yes, happy to do that. Yes, so we're not really looking to shed anything else at this point in time. We're always kind of looking at the portfolio of what we have in the business. These 2 businesses were quite small, not strategic, not growing, not accretive to overall margins. And so it just made sense to exit those. We'll continue to look at the portfolio over time and see if there are other things that make sense, but I wouldn't expect certainly nothing imminent there and nothing really that we're working on. Lucas Morison: Got it. Helpful. And then, Andre, the 2 verticals you mentioned that were down 6% in the quarter. I wonder if that was related to the customers that you were referencing in your last question. And then maybe double-clicking there. You attributed that to lighter volumes than clients expected and shore mix. Can you just help us disaggregate those 2 factors and then whether or not you have line of sight to those verticals stabilizing in the back half of this year? Andre Valentine: Yes. So I'll bifurcate the 2 because they're not exactly the same. So health care, we actually saw lighter volumes than expected, largely related to changes in Medicare membership for some of our clients as well as participation in the Affordable Care Act program. And so that impacted our revenues in the health care vertical. We don't see that really returning to growth here for a couple of quarters. And so that is kind of where that vertical stands. With respect to tech and consumer electronics, there -- the impact is a little bit around underlying volumes. Even as we consolidate a share within some of those clients, underlying volumes are down, a little bit of impact of automation there. That's about half of the revenue change there and then shore mix being the other half of that kind of 6% constant currency reduction. That vertical, you've seen some volatility in the past 8 quarters. Some quarters we grow a little bit, some we shrink. We think that could go up or down as we go through the second half of 2026 based on what we see in the pipeline and opportunities to continue to gain share within the client base. Operator: Your next question comes from the line of David Koning with Baird. David Koning: I guess my first question, just longer-term margins. I know you've had some puts and takes, but if we think back to, I think, '22 to '24, you had 14% or so margins. We're lower than that now. And I know there's some factors. But things that should make it go up, the Webhelp synergies, scale, shift to AI, offshore, like all those should be positive tailwinds can those tailwinds drive margins back to at least where margins have been or hopefully higher? And how fast could they get there? Christopher Caldwell: David, it's Chris. You're right. I mean when we look at the business and kind of some of those AI; implementation, the transformational implementation and look at sort of programs that are running at scale, running the way we'd expect and everything else that kind of goes along with it. We're in that range. And our expectation is we continue to build on that as we get some of these other programs up to scale as we put in the new AI. A lot of the Webhelp synergies we've invested in developing our AI and changing our go-to-market platform, which we talked about last year and this year. And as we talked about in the prepared remarks in terms of the annual contract values effectively doubling as we went into Q1 as we talk about sort of our attach rates increasing, all of those are going to kind of give us some momentum and leverage. I don't want to guide past 2026, but it's very clear to Andre and I, that our expectations is we get this back to historical margins and then we can progress past there. Timeline, I think, as earlier question around where we see our margins at the end of Q4 this year, you can start to see kind of how we're incrementing up to get back to those historic margins. David Koning: Yes. Okay. That's helpful on that. And then, I guess, banking was very strong in the quarter as was the retail segment. Maybe just refresh a little bit on those, is growth in those 2 sustainable? And is it some market factors happening right now or any one-off impacts that are happening? Maybe just kind of walk through those again. Christopher Caldwell: Yes. So banking, you saw last quarter was quite strong, and we expect there to be fairly strong strength through the course of the year, sort of high single-digit, low double-digit growth based. And what we like about it is that it's very widespread. We're doing very well in banking, BFSI across both fintechs, top kind of 200 global banks, sort of the traditional enterprise banks and some new entrants who are trying to disrupt the market. And so really, we're seeing broad-based success in that. What's really driving a lot of the growth is actually this combination of the solutions of the banks now coming to us for more complex work. So very large transformational deal we won last year that we talked about is in the BFSI. That's starting to come through to fruition this year and driving the performance and profitability as we expected. And we're seeing more of that coming through where traditionally, we haven't been able to sell some of our tech solutions into the banking and BFSI sector, and now we are. So we see that kind of sustained growth. In the travel, transportation and e-commerce sector, it's really both e-commerce and travel that are doing well. In the e-commerce side, we see that quite sustainable. We are winning net new clients as well as consolidating share in that. And again, it's a mix of the new solutions we're bringing to the table as well as people looking at our footprint and seeing benefit in how we can deliver consistently around the world. And then on the travel side, we've got a strong travel portfolio, both in short-term stays portfolio to longer stay portfolio to airlines, to consolidators to e-commerce platforms that deal with travel. And again, we're seeing broad-based support. And what we like is what's going into those accounts is, again, these kind of complete solution sets that's allowing us to get spend that historically hasn't been outsourced. Technology spend, which historically hasn't come to us and then consolidation as well. So we see that as sustainable as well. Don't ask me if jet fuel goes up to $200 a barrel. But at this point, we're very confident in what we can see with the pipeline in that -- in those verticals. Operator: Your next question comes from the line of Vincent Colicchio with Barrington Research. Vincent Colicchio: Chris, did you see any change or any signs of sentiment change or client behavior once the geopolitical issues started recently here? Christopher Caldwell: Yes. So Vince, we've talked to a significant amount of our clients. Some are being impacted, but very de minimisly so far, things have been fairly robust. Our exposure to this is about 1% of revenue, give or take, which is sort of our Middle Eastern operations. And so far, we haven't seen sort of an impact at this point in time. I think people are just being very, very cautious right now. But so far, it's fairly steady. Vincent Colicchio: And Andre, to what extent did excess capacity negatively impact margin this quarter? Andre Valentine: Yes. It's in the 20 to 40 basis point range. And so that as we think about opportunities to improve profitability as we get into the second half of the year, we think that -- and here I'm just really talking about the physical capacity mostly. As we grow into the physical capacity, we think we see a 20 to 40 basis point improvement in second half. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen. Welcome to the Glass House Brands Fourth Quarter and Full Year 2025 Earnings Call. Matters discussed during today's conference call may constitute forward-looking statements that are subject to the risks and uncertainties relating to Glass House Brands future financial or business performance. Actual results could differ materially from those anticipated in those forward-looking statements. The risk factors that may affect results are detailed in Glass House Brands' periodic filings and registration statements. These documents may be accessed via the SEDAR+ database. I'd also like to remind everyone that this call is being recorded today, Wednesday, March 24, 2026. On today's call, we have Kyle Kazan, Co-Founder, Chairman and Chief Executive Officer of Glass House Brands; and Chief Financial Officer, Mark Vendetti. Following prepared remarks, management will open up the call to analyst questions. Also joining for questions is Graham Farrar, Co-Founder and President. And with that, I'll turn the call over to Kyle Kazan. Kyle Kazan: Thank you, operator, and a hearty hello to all of you for joining today's call. For greater detail on results, please refer to our fourth quarter and full year earnings press release and full year financial filings. I am pleased to be speaking with you today. 2025 was a year of great progress and achievement for the U.S. cannabis industry and our company. It was also a year of challenges due to the events of this summer. Our entire team continues to rise to meet those challenges. And because of that, I am confident that we have built a stronger foundation for future growth. I am excited for the days to come. Our first half 2025 results and particularly those of the second quarter represented a new high watermark of execution across numerous key metrics, including biomass production scale, cost of production and operating cash flow yield. This strength provides a blueprint of achievable results for this company, and those results are just the beginning. 2025 was also the first full year of our strategic pricing model. This model is highlighted by our everyday out-the-door $9.99 price, including tax for a Farm Fresh 1/8 oz of our Allswell branded flower. The pricing model, combined with our team's strong execution, allowed our retail stores to consistently outperform the California market with same-store 10% year-over-year sales growth versus a 5% state decline in sales according to headset. Meanwhile, Allswell became the top-selling flower brand in California by volume. California remains the world's most fiercely competitive cannabis market. So our strength in flower and particularly our Allswell brand is something that we take great pride in. No one anywhere matches Glass House flower on price and low-cost quality. In 2025, we took steps to solidify our balance sheet and improve our financial flexibility and future cash generation. In March, we secured a new $50 million 5-year senior secured credit facility to replace our existing higher interest debt, while in July, we refinanced our high interest rate Series B and C preferred equity with the creation of a fully subscribed Series E offering. The Series E preferred equity carries a 12% interest rate paid annually, which replaced the 22.5% cumulative rate for the Bs and the Cs inclusive of the payment in kind function. In total, these financings meaningfully derisked our balance sheet without diluting investors and ensured that future capital raises would only be for strategic additions to the business. We also commenced a collaboration with the University of California at Berkeley to explore hemp-related research with aims that include the development of novel medicinal products. To our knowledge, this is the first and only collaboration of its kind in the industry, and we will leverage the experience gained as we proceed with our commercial hemp strategy and participate in any future CBD reimbursement programs. Unfortunately, our second half and full year results were impacted by unexpected events and the ongoing response to those events. As most on this call are aware, 2 of our farms were raided by federal agents on July 10 as part of a broader immigration crackdown for the California agriculture industry. In response to those events, we made the hard decision to completely revamp hiring and staffing practices for both employees and third-party labor contractors moving forward. We did this voluntarily and the resulting practices go well above and beyond what is required by both federal and state law. As outlined in prior calls, changes made and the resulting temporary staffing shortages prompted our scaling back of new planting and production in the second half of the year. Inclusive within the production, we had to delay some processing, which resulted in deteriorated product being available for sale. In the fourth quarter, we sold off the last of this older inventory. Fourth quarter and full year results reflect the impact of this temporary scale back. Fourth quarter revenue was $39 million, while in line with guidance and our expectation, this was down meaningfully from $53 million last year during the same period. Full year 2025 revenue was $182 million, down from $201 million in 2024. For both the fourth quarter and full year, the wholesale segment was where we suffered the significant drag to results as we produced reduced volumes and quality of biomass per sale. For the fourth quarter, we produced 159,000 pounds of biomass ahead of expectations, yet down from the 165,000 last year. For the full year, we produced 666,000 pounds, roughly 20% below where we were tracking at the start of July. Average fourth quarter selling price was $146 per pound, down from $220 in the fourth quarter last year, while full year average selling price of $177 per pound compared with $245 in 2024. I refer to our glasshouse selling price in these comments. It's important to note that while California pricing remains challenged, year-over-year declines in state pricing moderated in the second half of the year. So the weaker sales prices I referenced reflect our deteriorated product being available for sale and an unfavorable shift in our genetic strain mix. When we turned the farms back on for planning, our strain selection criteria was focused on those that we could quickly scale and not our usual eye on yield. For 2026, our post-harvest processing process has returned to normal levels. Meanwhile, these temporary conditions also caused an elevated cost of production. Fourth quarter cost of production was $129 per pound, up from $110 last year, while full year 2025 cost of production was $111, above our annual production cost target of $95 per pound. Lower selling prices and higher cost of production in wholesale dragged on our overall margins, resulting in a total reported gross margin for the fourth quarter of roughly 35% and an adjusted EBITDA loss of $3.3 million. Both were well below seasonal and recent levels. For the full year, gross margin was 42%, while adjusted EBITDA was approximately $17 million. For comparative purposes, at the end of the second quarter on a full year basis, our full year results were tracking well above our 2025 guidance at the time of $225 million in revenue with an adjusted EBITDA in the mid-$40 million range level. Looking ahead, Mark will provide explicit guidance, but I am pleased to say that these short-term hurdles are today largely behind us. We anticipate very strong growth in 2026 with progressive revenue scaling during the course of the year. Growth comes before factoring in the potential benefit of any sales outside of California for our cannabis plants, something that we continue to believe is achievable in the near term or any contributions from hemp sales. We have hemp plants growing and anticipate an initial harvest in the second quarter. We ended 2025 fully planted in each of our legacy greenhouses and with the first 1/3 of greenhouse 2 planted, giving our cultivation team the most acreage planted in Glass House's history. That acreage is now yielding at nearly full capacity, and you will see the full benefit of that scale reflected initially in products sold within the second quarter of 2026. The cultivation team led by Graham Farrar, has done a remarkable job of getting the greenhouses back on track to full capacity in a short period of time. In the 3 months following the raid, the number of cannabis plants in the greenhouses dropped 60%. Since bottoming out in early October, we have now roughly 20% more plants compared to early July, thanks to Greenhouse 2 and expect to add another 40% when Greenhouse 2 is fully planted by the end of the second quarter. In addition, we accelerated expansion plans with the build-out of the remaining 2/3 of Greenhouse 2 and the CapEx light retrofit and build-out of Greenhouse 4, our first commercial hemp endeavor. With current planting, we will harvest at roughly 1/3 capacity for Greenhouse 4 and will expand in the second half of this year. The second 2/3 of Greenhouse 2 will contribute to second half results while Greenhouse 4 is now planted. We expect the first crops to be available for sale this summer with plans to supply international hemp and smokeable CBD markets in the second half of this year. We are in active discussions with customers. And while we are not ready to provide explicit guidance on hemp contributions this year, we are confident that product will be sold at favorable prices relative to those currently achievable with California cannabis. Long term, we plan for greenhouse 4 production to be an eventual supplier to the reimbursable CBD market while also planning for the development of our final greenhouse, which is Greenhouse 3. Meanwhile, even with the staffing changes and more stringent controls we've implemented, our long-term cost structure remains intact. There has been a learning curve for both new employees and third-party labor contractors, but staff gain valuable experience every day. And based on the progress seen, we do not foresee a meaningful change in the cost of labor moving forward. I remind you of our $95 long-term annual target level for cost of production. We expect to be below that level in total for the final 3 quarters of 2026. Our low-cost production capabilities stem from our consolidated scale of capacity, the skill of our seasoned leadership team and favorable weather conditions in California. We will never have to pay the high and growing energy bills of indoor peers nor do we rely on third-party water supply. It is these benefits that have sustained us despite challenging California cannabis market conditions and will further separate the company whenever prohibitions are removed to open new markets. In addition to our operating results, there were many positive developments in our industry during 2025. On December 18, President Trump signed an executive order to reschedule cannabis to a Schedule III classification and authorize the development of a pilot program for reimbursable TBD products for Medicare participants. This order represents the most significant progress on drug policy reform in the past 50 years and reflects a longer overdue common sense acknowledgment of the beneficial medical and therapeutic properties of the cannabis plant. We are extremely pleased with these advancements as rescheduling and the reimbursable CBD program will permit greater normalization for the industry. Importantly, it should allow us to sell California grown production outside the state for the first time, greatly expanding our addressable market and allowing us to achieve more favorable pricing dynamics. As we continue to await Attorney General Pam bondi's final execution of this change, we are actively preparing for the opportunities ahead. We have meaningfully expanded our total cultivation capacity. We understand the reclassification of cannabis to Schedule III under the current administration can provide opportunities to export medical cannabis into international markets. As such, we have signed an agreement with a good Agriculture and Collection Practices or otherwise known as GACP consultant and are progressing towards a compliance audit. We anticipate that GACP will be a requirement for producers supplying the growing EU medical market and see it as a place where we can be strategically well positioned. We are also in active discussion with distribution partners in a number of countries for cannabis and hemp. Also in anticipation of the final ruling on rescheduling, we have established a special committee within our Board of Directors. The committee consists of Graham, Directors, Jay Nichols and Jocelyn Rosenwald, along with the newest addition to our Board, Alison Payne, the CMO of Heineken USA, along with me. The committee is tasked with oversight of new product and business opportunities beyond our legacy California cannabis business and immediate expansion areas, including the development of ongoing and future partnerships with companies in more traditional industries, including tobacco, alcohol and cosmetics. We believe widespread adoption of cannabinoid products within traditional consumer product industries is coming, and we are in active discussion to ensure that whatever form that takes its Glass House produced cannabinoids inside ensuring greater distribution and speed to market. With that, I'll turn the call over to Mark Vendetti, our Chief Financial Officer, to discuss our financial results for the quarter in detail. Mark? Mark Vendetti: Thank you, Kyle, and welcome, everyone. As Kyle highlighted, fourth quarter revenue was $38.9 million compared to $53 million in the same period last year. The decline stems from wholesale segment challenges that came as a result of stepback decisions made in the third quarter. We finished near the top of our revenue guidance for the quarter of between $37 million and $39 million, and would have exceeded it, but unexpectedly had to switch our CPG distributor in December, which decreased sales for several weeks and hurt revenue by between $0.5 million and $1 million. In addition, we had a loyalty program points adjustment in the quarter, which decreased retail sales by approximately $0.5 million. These decreased gross margin by a similar amount. For full year 2025, revenue was $182 million compared to $200.9 million recorded in 2024 as we produced at a lower overall scale. We produced 159,000 pounds of biomass in the fourth quarter, ahead of our 145,000 pounds of guidance, but down from 165,000 in the prior year period. For the full year, production was 666,000 pounds, up roughly 10% from full year 2024 levels, but down meaningfully from the 800,000 pound level we were tracking to going into the summer. Because of the reduced production volume and related inefficiencies, production cost per pound was $129 in the fourth quarter, roughly flat sequentially, but up from $110 last year. For the full year, cost of production was $111 per pound. We sold 155,000 pounds of wholesale biomass in the quarter, down from 165,000 pounds in the same period last year. For the full year, we sold roughly 643,000 pounds, up from 568,000 pounds in 2024. The average fourth quarter selling price for biomass sold was $146 per pound versus $220 last year, while the full year selling price was $177 per pound. Year-over-year price declines reflect continued California pricing challenges. However, more significantly, the sequential decline can be attributed to an unfavorable mix shift from flower to trim within the production mix and the product quality issues Kyle mentioned. For the full year, flower mix was in the high 20% range, while under normal conditions, it would have been expected to be in the high 30%. As a reminder, we have been selling higher levels of trim this year on account of improved cultivation practices which allow us to harvest and sell trim material that would have previously been disposed of. This has the effect of lowering our ASPs as the additional material is predominantly trim, which garners lower average selling prices. The greater trim volumes though were exacerbated in the second half of last year due to deterioration in product that was available for sale because of delays in processing as we faced temporary staffing shortages. As we move forward and bring on Greenhouse 2, we expect a new normal flower percent of sales in the mid-30% range. Fourth quarter consolidated gross profit was $13.2 million and gross margin was 34%. The gross margin compared to 43% in the fourth quarter 2024 with declines stemming from the lower average selling prices and higher production costs in the wholesale business. Gross margin within our retail segment improved year-over-year as a reflection of continued strong execution with our retail stores and despite a loyalty true-up. For the full year, 2025 gross margin was 42%, down from 48% in 2024, which equals the level we were tracking to heading into the summer. Fourth quarter adjusted EBITDA was negative $3.3 million, in line with the prior quarter, but down from $9 million in the fourth quarter last year. Adjusted EBITDA reflects the factors that impacted our gross margin performance as well as a modest increase in operating expenses. For the full year, adjusted EBITDA was $17 million, less than half of 2024 reported adjusted EBITDA and the mid-40 level we were guided in reporting first quarter results. Fourth quarter operating cash flow was negative $3.7 million, while for the year, operating cash flow was $11.4 million. Turning to the balance sheet. We ended 2025 with $23.4 million in cash and restricted cash compared to $29.8 million last quarter and $36.9 million at the end of 2024. Inclusive in cash spending was roughly $2 million in CapEx, which funded the continued build-out of Greenhouse 2. Additionally, the final cash number included approximately $2 million raised from the use of our outstanding ATM and $2 million received from ERTC tax credits. In addition, we paid roughly $2 million in federal income tax. For the full year, we received roughly $10 million in ERTC tax credits and have roughly $3 million in anticipated receipts outstanding. We do not have clarity on the timing of any subsequent ERTC tax credit receipts. In December and early January 2026, we completed our outstanding ATM receiving net proceeds of approximately $22 million. The shares were primarily issued to existing long-term investors with proceeds from the raid primarily going to fund the build-out of the remaining 2/3 of Greenhouse 2 and our greenhouse 4 expansion. Turning to guidance. As Kyle discussed, we ended the year back to being fully planted with legacy greenhouses and planted the first 1/3 of Greenhouse 2, giving the cultivation team the most acreage planted in Glass House history. The expanded cultivation and production will begin to be reflected in results during the first quarter, and thereafter, we are posed for meaningful growth based off our increased scale. Additionally, results will reflect incremental contributions from the final 2/3 of greenhouse 2 within the second half of the year, while we will also see initial contributions from our hemp commercial initiative with initial hemp plants expected to be harvested in late second quarter and contributing to results beginning in the third quarter. I remind that in total, Greenhouse 2 is capable of producing at roughly 300,000 pounds annually of biomass once fully operational. Our hemp greenhouse, greenhouse 4 will produce at a lesser scale given our prioritization of speed to market over greater efficiency. In time, we will further enhance the greenhouse to enable greater production capacity. We anticipate first quarter revenue to be approximately $39 million as we produce approximately 138,000 pounds of biomass, reflecting typical winter seasonality and the partial first quarter contribution of ramp scale. First quarter average selling price for wholesale biomass is assumed to be approximately $167 per pound, down from $192 last year, while cost of production will be approximately $161 per pound versus $108 last year. As Kyle referenced, starting in Q2, we anticipate our cost of production will be below our long-term annual target level of $95 per pound over the remainder of the year. As a result of the higher cost of production and lower sales price, we anticipate Q1 gross margin to be approximately 29%, which compares to 45% last year. Full year 2026 revenue is forecasted to be between $235 million and $245 million. While importantly, we note that for the second half of the year, we anticipate the company will be operating at almost a $300 million annual revenue run rate. Full year gross margin is projected to be roughly 48% this year and full year adjusted EBITDA is projected to be in the high $40 million range. Within our assumptions, full year wholesale biomass production is forecast to be approximately 1 million pounds of biomass, which is a 48% increase to 2025. We expect Q2 production to increase high single-digit percent versus Q2 '25 and production in the second half of 2026 to be more than double the second half of 2025. With the increased production, we expect the cost of production of approximately $100 per pound, which is a 10% decrease to 2025. Full year average selling price is expected to improve to the mid-180s per pound from $177 in 2025 as we expect quality and mix to improve versus 2025, particularly the second half of the year when compared to 2025. I remind you that anticipated hemp contributions are incremental to our forecast at this time, we are still deciding on the appropriate end market for supply. We anticipate no matter the end market, pricing dynamics for hemp to be favorable to the cannabis prices achieved in California. We expect first quarter ending cash to be approximately $27 million, while we forecast 2026 full year ending cash to exceed $50 million as we generate meaningful operating cash flow in the final 3 quarters this year. The forecast includes approximately $20 million CapEx to complete the full retrofit of Greenhouse 2, including adding new high-efficiency low-energy lighting and a CapEx-light retrofit of Greenhouse 4 for the hemp production. It also assumes we continue to pay the dividends associated with the preferred equity Series D and E totaling $11.6 million in 2026. And with that, I turn the call back to Kyle for his closing remarks before opening up the call to Q&A. Kyle Kazan: Thank you, Mark. As many of you know, last year, we lost George Raveling, a valued member of Glass House's Board of Directors, the Glass House family and someone who had a measurable impact on my life. While I could not be happier with the initial contributions from our newest Board member, Alison Payne, I miss Coach Dearly. Coach joined the Board when we went public in 2021 and brought with him extensive experience in marketing and corporate governance learned during his Hall of Fame basketball coaching career and time as a senior executive at NIKE. Additionally, Coach had a long and sought-after career as a motivational speaker and one of his favorite topics was resiliency and the importance and power of having a team or workforce that can be steadfast and productive in the face of challenge. I think of this topic as I reflect on the incredible effort put forth by the entire Glass House family to come back from the events of last summer and to expand in scale and business capacity. We could not have done it without each and every one of you from our team members and workers to customers, business partners and investors. I thank you for your support and look forward to the days ahead. While we applaud President Trump's signing of the executive order to reschedule cannabis, we appeal to him to pardon those many people sitting in federal prison right now for nonviolent cannabis offenses. As President Trump pardoned our current partners are Alice Marie Johnson and signed the first step Act into law, we believe that he will give these people their lives back. I am proud to work with my friend, Weldon Angelos and his Project Mission Green to release Parker Coleman and Ali or otherwise known as Jose [indiscernible] Jr., among many others. Finally, I remind everyone that we once again are planning to hold our annual investor session at the Camarillo Farm. This year, we have scheduled the event for Thursday, June 18, and I genuinely hope you can make it and we can meet you in person at the farm. Thank you again, and I will now ask the operator to open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Frederico Gomes with ATB Cormark. Frederico Yokota Gomes: I want to ask about the opportunities you have outside of California. You mentioned hemp, you mentioned smokeable CBD, you're trying to get JCP compliance. So there's a lot going on. Can you help us frame those opportunities, starting with, I guess, what is it that you can do today? And what is it that depends on regulatory changes with rescheduling or even the intoxicating hemp ban and the framework there? Just so we understand what is it that the immediate opportunity that doesn't rely on regulatory catalysts and what is it that relies on those catalysts happening? Kyle Kazan: So Frederico, thanks for always asking those good questions. We've got a lot of optionality. Graham, you want to jump in on this one? Graham Farrar: Sure. Yes. Frederico, thanks a lot for the good question. And you're right, there is a lot going on right now. It's a part of the challenge and also part of the excitement. So right now, what we're growing just for clarity in greenhouse 4 is smokable CBD flower. So that is flower that is compliant with California, existing federal farm bill as well as would continue to be compliant if the new, I'll call it, the McConnell language in November comes into play. So it will be at 30 days pre-harvest less than 0.3% total THC. So compliant across the board, both today as well as if the more restrictive regulations are put in place. Target for that is predominantly -- or it's exclusively outside of the U.S. I don't think there's a domestic market for smokeable CBD, but there does appear to be a good market predominantly in Europe for CBD flower. I think they do a number of things over there. Some people use it as a tobacco alternative, some people fortify it by adding hash and other components to it. Pricing, we're investigating. We've got our first crop in the greenhouse right now. Expect to harvest towards the end of April, early May with product -- finished form product by the end of May, early June is probably the time frame we're looking at. Predominant target for that is really just to figure out and explore the markets there. Obviously, you're talking about Switzerland at 1%, Spain, U.K., Germany, all our markets over there. That is green light regulatory point of view from today forward. And again, even if the farm bill language gets more restrictive, would still be compliant. The other things we're looking at is potentially what happens with the farm bill if those regulations get put out -- pushed out as there some rumoring there are. We're not expecting that counting on that or planning on that. But if it does happen, we have continued to express our interest in THCA flower markets both domestic and rest of world. Then you have the Schedule III stuff, which we're also all waiting and watching for. In that world, I believe that there would be a path from California to other medical markets. Obviously, some steps in the middle there, and that's something outside of our control. So if you come back to it, you look at smokable CBD flower we're doing now, eyes on the THCA or farm bill market, looking at Schedule III and then the final one is the Medicare CMS projects. Some information just starting to come out on that. The way that, that would work is that we could be a supplier to accountable care organizations of products that meet the farm bill requirements. So another place where what changes in the farm bill has an impact. We've got a BOM that we are really liking or getting fantastic feedback on, I think it could be helpful for those seniors. So getting that into that framework and/or other tinctures that are compliant with the farm bill either today and tomorrow are the targets there. Kyle Kazan: And Frederico, following up on that, you can imagine just from what you heard from Graham, we see a lot of different options depending on how things go. If things don't go our way, we still see options, just fewer, but it should not impact our ability to continue to grow in greenhouse 4. Graham Farrar: And a reminder, as Mark mentioned, nothing in any of our numbers include any contribution from greenhouse 4 or hemp. So whatever happens there would be accretive above the forecast we provided. Frederico Yokota Gomes: Got it. I appreciate that color. And then just a second question for me. Just your perspective on California pricing potentially improving. It doesn't seem like it's meaningfully priced into your guidance. So I guess it would be upside to that. But do you see that pricing -- a potential improvement in pricing this year or maybe next year? I mean, how are you looking at the outlook for pricing in California? Kyle Kazan: I think a lot of this is -- it's our best estimation, and I would always rather underpromise and overperform. Because, as you know, some of this is a little bit of kind of sticking your finger in the air. You just -- you don't know what you don't know. And in the past, we've been surprised where it shoots up. We're rarely surprised when it doesn't move up. So I think we're just being cautious, but we're hopeful that we will start seeing some improvements. A little bit of that is TBD, what happens with the Strait of Hormuz moves and inflation and things like that. So there's a lot going on in the economy in California and everything. So I think it's better for us to just be cautious and hopefully underpromise. Operator: Your next question comes from the line of Luke Hannan with Canaccord Genuity. Luke Hannan: I wanted to follow up on that topic of pricing, Kyle. I know you mentioned a lot of it is just you sort of stick your finger in the air and see where the wind is blowing. But can you frame up for us, I mean, what -- I know in the past, you've talked about how long these sort of down cycles last and then also have talked about Canopy that's exiting the market. Has there been any abatement in the pace of either the price declines or Canopy exiting the market? Kyle Kazan: I would say that was quarter 4 pricing. Mark, question about licensing, do you want to take that because I know that's something you track just for fun. Mark Vendetti: Yes, sure. Luke. Kyle Kazan: Real quick. By the way, Luke, I always love talking to you. Notice you didn't say anything about congrats on our big hockey win. Luke Hannan: Nor will I. Kyle Kazan: Too soon. I apologize, Luke. Go ahead, Mark. Mark Vendetti: So we've -- I'm going to say the second half of 2025 and just looking at the first 2 months of 2026, the number of active licenses in cultivation has actually remained pretty stable. And so I think we're at a point where the big shakeout has happened and the people who are left competing in California are the better operators. And at this point, it feels like we're in a bit of an equilibrium at this point. So I don't think we'll see significant decreases in the number of active licenses going forward, and we're not thinking that happens. So we're planning on, again, a tight market and a market that -- I'm going to say our numbers don't anticipate a rebound. And if they do, as Kyle said, it should be upside. Kyle Kazan: And one more thing, Luke, I would add, part of the reason why we are so focused on greenhouse 4 and watching different legislation breaks. If we get a few of those breaks, I would imagine that we're going to step on the gas in exporting outside the state of California. We certainly appreciate the results we've been able to accomplish in a pretty -- I mean, in an extremely difficult market. But that's one of the main excitement. One of the things that makes us most excited are the opportunities that we're seeing outside of California. So -- but I think you got your answer from Mr. Vendetti. Luke Hannan: I did, and then so if we frame up just 2026, super high level then as it is, if we think of the delta between '26 and '25, it's basically all driven by just more biomass production. You talked about the lower cost of production also for the final 3 quarters of the year being -- basically in our model, I think we basically have to get down to $90 a pound. I mean, is it fair to say that that's kind of your new long-term sort of target now after you've done all the work to change your cultivation? Kyle Kazan: Well, I would say real quick. I would say if you think of one of our big investors Mr. Codes named our grower, Michael Jordan. Michael Jordan was never satisfied with 4 titles or 1 title or even 5 titles. And I would tell you that M.J. and his team, I don't know if I would say, hey, this is where we hope to go at the end of the day. Remember, right now, we grow -- I'll let M.J. tell you how many strains we grow, but in a much more national marketplace, it's highly unlikely that we're not growing just 1 or 2 strains to really launch efficiency. So we're not at that point with interstate commerce in a big way at this point. But you'd have to think that there -- wherever M.J. is now, there's more titles ahead in a much more focused agriculture market. M.J., do you want to throw in? Graham Farrar: Sure. Thanks, Coach. Yes. So I think we really had kind of 3 targets. One is you can't get good until you get going. So we want to get back on our feet, get all the greenhouses replanted after 2025. We finished 2025 with all that square footage replanted and actually we have the most acreage under cultivation that we've ever had in Glass House history. We started harvesting through that in kind of week 6, week 7 of this year, so partway into Q1. And then at the same time, we launched into finishing the expansion of Greenhouse 2, which adds roughly another 700,000 square feet. That's the second 2/3 of that. And then we also planted Greenhouse 4, our first hemp greenhouse. It's about 300,000 square feet, and we're working on retrofitting the remaining 14 acres in that greenhouse as well. So then the next step is to bring back the efficiencies. So first, we rebuilt the labor team. We've got the greenhouses replanted, and now we're bringing the efficiencies back to get us back to where we were. And then we'll look at using and leveraging that scale to get even better than that in the future. Operator: The next question comes from the line of [Mark Cohodes] with [indiscernible]. Unknown Analyst: So I could take this a number of ways, but let's start with the changes in anticipation of Schedule III you guys have made, whether it's negotiations, work on uplisting, partnerships, international changes and things you've implemented and worked on since the December 18 executive order, then we'll move on from there. Kyle Kazan: So thanks for your question, Mark. Number one, when we -- and we announced it, but we put together that Board committee with Jay, Alison and Jocelyn. I would tell you that it's bearing results better than we'd hoped. So we're super excited about that. We have signed up some folks with deep Rolodexes in Europe, in hemp, hemp testing so that we have aligned interest in folks based on our success. So we're really excited about that. I'll let Graham talk about some of the great things that he's doing at the farm since the executive order announcement. Graham, do you want to -- or should I say, Michael? Graham Farrar: Mark, thanks for the question. Yes. So obviously, the announcement on the 18th was really exciting on a number of fronts. The fact that we had a President in the Oval office talking about the medical value of cannabis is something that all of us have been waiting for a long time. We're a decade in the glass house now, and that was always the thesis that the truth was going to happen. So even just to see those words uttered was a big deal. Of course, having the President Direct Pam Bondi and company to reschedule things from Schedule 1, which means no known medical value to Schedule III, which means it does have medical value and a low potential for abuse is huge. Looking forward to her actually putting that into effect. We're doing all the work that we can now to be ready for that to happen. Those are the things like Kyle mentioned, the GACP, which stands for good Agricultural and Collection Practices certification. That's a feed into what they call GMP or good manufacturing processes, and that allows you to feed into medical markets potentially in the U.S., but probably first in the rest of world where they already have approved medical cannabis. I think we fit in real well as a producer under the Schedule III rules or existing framework. I don't see any reason that we can't be registered as a bulk manufacturer under the DEA rules. Probably it would be a Form 225 registration that would allow us to work within that model and then export outside the U.S. into other medical models. Also, of course, a reminder of our partnership with Berkeley, where they have quite a few strains that are specifically targeted around minor cannabinoids, CBD, CBDV, THCV, EBG, lots of things that are not on the tip of people's tongues, but when you start talking about Medicare and therapeutic uses and improved outcomes for patients, a lot of things there that have a lot of value, both on a kilogram basis as well as to improving people's lives. So we're working on getting those set up. And then, of course, we've got the things coming outside with hemp and the other potentials in those markets where some of those products are already allowed. So we might be able to develop things that could be both used for Medicare here in the states as well as exported into other countries that already permit their use. So a lot of exciting stuff, and we're trying to lay the groundwork for everything soon any of those lights turn green, we're ready to jam on the gas. Kyle Kazan: And Mark, one other thing in those -- for those noncannabis companies that are in other industries that are looking over their shoulders knowing cannabis is coming. The nice thing is what we've built over the last 10 years is actually the world's biggest supply chain. And as cannabis becomes a normalized industry, we are in the unique position to be able to expand that supply chain, both outdoor and in greenhouse. And those companies recognize that, and we can do it at prices where you'd expect that those industries are used to commodity kind of pricing, and that's what we can absolutely deliver. So those conversations are really exciting, and it's nice to be in the position that we've been waiting so long for. Graham Farrar: Yes. actually want to build on that one more second, Mark. One of the things as we've been talking, as Kyle mentioned, to these other companies is historically, I think we've looked at California a little bit as a box, right? We're limited to California. But if you look around and think about where things are potentially going with cannabis, all of a sudden, that turns into a strategic advantage, right? A number of these companies the Sanofi and whatnot of the world, they cannot currently play with THC. We live in the world's largest THC market anywhere on the planet in the form of California, a $4-plus billion market where we can deliver high concentration THC to consumers with customer demographic data that would make a typical CPG company jump up and down, right, where we're actually looking at license registration level data, right, being able to say, here's the best thing for people who are 6 feet tall and 42 years old. Here's their favorite product, right? We have that ability and the ability to lead that market by being able to develop products that can handle THC before the broader market can, I think, is a real advantage that we can work with. We've got a product development platform that is better than anywhere else in the world here in California with our chain of 10, 11 and possibly growing retail stores. that's something that any CPG company will value who's looking towards the future and wanting to have products that exist when these lights turn green rather than just start working on them when the lights turn green. Unknown Analyst: Okay. Final 2 questions are, where are you guys in working on uplisting when the green light on Schedule III happens, i.e., how fast can that happen for you? And two, could you talk about the range of pricing you're seeing and expect to get in hemp, both out of state and overseas? Kyle Kazan: So I'll take the first one, and I'll let Graham talk about the second because it's the second one is pretty exciting. The first one, what I would tell you, Mark, is that there are a few companies, if everybody on this call does a ChatGPT to see what a company needs to do to qualify to be able to uplist to the NYSE or NASDAQ in regards to pricing, market cap, all that kind of good stuff. You'll see there are a handful, including Glass House that do qualify. And while it's not explicit as to whether the New York Stock Exchange and NASDAQ will take us, I would tell you that the good thing that we all know is that NASDAQ and NYSE are in good competition with each other to list companies and neither of them want to miss out on this industry if the other one goes ahead and takes them. So we are excited at the possibility. And at that point, I'll leave it at that. Unknown Analyst: And the pricing? Graham Farrar: Pricing, I mean, really, what we're doing here is market research. So we've got pricing all the way from better than California to really exciting. The real piece that we're working on now is actually having some product in hand to explore those markets. We've talked to a number of folks who are interested in willing to basically contract all the supply we expect. That's not our plan on this is because we want to see and do some price discovery out there. So once we have this first harvest sometime kind of mid-late June, I think we'll have a better resolution on that, but there definitely does seem to be a market. We're exploring how big it is, and then we'll be able to scale to fit that. We'll also redirect future planning based on the genetics and form factors that people are most interested in. But where I was somewhat skeptical on the CBD -- smokable CBD market, I've become more convinced based on the conversations that we've been having and excited to learn more about it. Kyle Kazan: And Mark, for what it's worth -- sometimes it's nice just to see words and actions. Graham and I are booked to -- in April to be at ICBC in Berlin and Spannabis in Spain. And so we are taking our time to -- and making the effort to go to Europe because we absolutely see an opportunity there. Operator: There are no further questions at this time. That concludes our Q&A session and today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Tuas Limited Half Year Financial Year 2026 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Richard Tan, CEO. Please go ahead. Richard Tan: Good morning, and thank you for joining us. I'm Richard Tan, Chief Executive Officer of Simba Telecom, the principal operating entity of the Tuas Group. Also on the call today are Mr. David Teoh, Executive Chairman of Tuas Limited; and Mr. Harry Wong, Chief Financial Officer of Simba Telecom. It's a pleasure to present the financial results for Tuas Limited for the half year ending 31st January 2026, covering the period which started 1st August 2025. Let me briefly outline today's agenda as shown on Slide 2. We'll begin with Harry, who will walk through the financial performance and key metrics for the year. I'll then provide an update on our operational progress, status of M1 acquisition and outlook for FY '26. We'll conclude with a Q&A session to address any questions you may have. Please note that all financial figures discussed today are denominated in Singapore dollars. With that, I will now hand over to Harry to take us through the numbers. Harry Wong: Good morning, everyone. My name is Harry Wong. CFO of Simba Telecom. I'll be presenting the financials of the Tuas Group. On Slide 3, you'll see that we achieved a notable improvement in the financial results during the first half of FY '26 when compared to that of FY '25. Revenue for the half year is $91.9 million, up from $73.2 million for the same period last year. Pre-acquisition costs amounting to $10.5 million was incurred. Excluding this, the underlying EBITDA increased 27%, up from $33.1 million to $42.1 million. We achieved a half year positive statutory net profit after tax of $8.2 million, which is a significant improvement on the prior period's profit of $3 million. Next, we look at the revenue and EBITDA on Slide 4. Revenue for the half year ending 31 January 2026 increased 26% compared to that of FY '25. With increased scale of the business, EBITDA margin has improved to 46% of revenue. Gross mobile ARPU for the year was 9.61%. The key driver of the EBITDA uplift is the increased subscriber base for both the mobile and broadband products. Our mobile plans include generous roaming data at every price point and broadband plans provide exceptional value including premium Wi-Fi 7 routers and home phone lines as part of the package. Slide 5 shows our sustained mobile subscriber growth since FY '23. As of 31 January 2026, we had about 1.412 million subscribers, representing a 13% increase over the past half year. Slide 6 shows the broadband subscriber base. As of 31st January 2026, we had approximately 46,000 active services. We have gained traction in this segment, and we have added 20,000 subscribers over the past half year. We proceed on cash flow on Slide 7. We continue to show positive cash flow. Opening cash and term deposit balance was $80.7 million. Net cash generated from operating activities was $50.1 million. The main cash outflow comes from acquisition of plant and equipment and intangible assets of $18.9 million, largely mobile network and some fixed broadband infrastructure. We raised funds from capital markets of $260 million in support of the M1 acquisition. This brings the ending cash and term deposits to $478 million as of 31st January 2026. Again, positive cash flow after CapEx for the year is a welcome achievement. I should note that pre-acquisition costs that have been accounted for in this half year has not become liable for payment during the first half or since then. This explains a good portion of the positive cash flow outperformance compared to EBITDA. With this, I will let Richard proceed with the business updates. Richard Tan: Thank you, Harry. Singapore's mobile market remains highly competitive. And over the past financial year, Simba has continued to focus on delivering stronger value across all price points. This strategy has clearly resonated with consumers, as reflected in our robust subscriber growth. We have further enhanced our mobile offerings by adding 2 popular roaming destinations, Japan and Australia as inclusions in the APAC tier to our higher-value plans. This enhancement is an important part of supporting our continued growth in the mobile segment. To serve our expanding customer base, Simba continues to invest in network coverage and overall user experience. I am pleased to share that we have achieved another significant milestone. We have surpassed IMDA's regulatory benchmark of 95% 5G outdoor coverage, well ahead of the 31st January 2026 deadline. Slide 9 highlights the reasons behind the strong momentum in our fiber broadband business. The accelerated growth is driven by a clear, simple and compelling value proposition through 10 gigabit per second symmetrical speeds complemented by a premium Wi-Fi 7 router, modem and the home phone line included as standard. We are also proud to share that Ookla has awarded Simba, both the fastest download speeds and most reliable speed titles for the second half of CY '25. Most listeners would have used Ookla to do a speed test on your connectivity and they are widely regarded as an accurate global leader in Internet testing and network intelligence. This recognition is a testament to our engineering excellence and our unwavering commitment to delivering the best possible service experience for our customers. Moving to Slide 10. We appreciate shareholders' patience as we await IMDA's decision on our proposed acquisition of M1. This is a significant transaction involving critical national infrastructure and on a combined basis, it will create Singapore's second largest mobile customer base. Both Keppel and Simba continue to work diligently through the regulatory process and we remain fully committed to securing the necessary approvals. And finally, the business outlook. The first half of the year has established a solid platform for us with sustained growth across both our mobile and fiber broadband segments. In line with this expansion, Simba's stand-alone CapEx for the full year is expected to range between $50 million and $55 million. We will continue to prioritize margin optimization and maintain disciplined cash management as we scale. I'll now hand back to the moderator for the Q&A session. Operator: [Operator Instructions] Your first question comes from [ Raj Ahmed ] from Citigroup. Siraj Ahmed: It's Siraj Ahmed. Can you hear me okay? Richard Tan: Yes. Siraj Ahmed: Just I have maybe 3 questions. The first one just on the -- maybe a multipart question on subs momentum. Pretty strong pickup in momentum in the half. Just keen to understand what drove that from your perspective, especially given your advertising and marketing spend is actually down year-on-year? Richard Tan: Okay. So obviously, the momentum has been strong for the first half. And in part, I think, it was -- you could say that it was due to our announcement of the M1 acquisition because people are seeing us in different light. They know that we are a serious player and we are here to stay, and we have been delivering very good value for -- across all of our service plan. So this has resonated obviously across the -- our customer base as well as people who have not come aboard yet. So we saw a very strong momentum for the first half of the year. Siraj Ahmed: And Richard, just because I'm into the stock as well, just in terms of first quarter versus second quarter, is there some seasonality or some sort of events that supports 1Q? I know 1Q is quite strong. 2Q is strong as well, but it was down quarter-on-quarter. Is this something that impacts from like a seasonality perspective? Richard Tan: This is the typical seasonality effect because, as you all are well aware, the November and December traveling period is always very strong in terms of people leaving Singapore for their holidays. So a lot of people will sign up prior to that. And then they will return. Everyone goes back to work and school back in January. So you are obviously noticing the seasonality effect. Siraj Ahmed: Right. Actually, that's a good segue for my question on -- just in terms of the current environment with fuel and everything like that. And given that traveling is a big part of your value prop as well. Are you seeing any sort of -- anything that you can call out based on current trends that you're seeing on that impacting... Richard Tan: The trends will be very similar to previous years. And we expect second year to -- second half of the year to continue to exhibit good growth as well subject to the usual seasonality effects that we have seen over the past 3 to 4 years. Siraj Ahmed: All right. Helpful. Last one. In terms of just the gross margin, it seems like the network, the COGS has gone up quite a bit. Gross margin is down year-on-year. And is there some one-off in that, that we should be considering? Richard Tan: Well, the -- what we have been focusing on more is the EBITDA margin and the EBITDA margin has actually grown by 1 percentage point. So I think that's the main thing to focus on. Operator: Your next question comes from Darren Odell from Peloton Capital. Darren Odell: Congratulations on a strong result again. Just in relation to -- on the cost, the $10.5 million one-off cost in relation to M1 acquisition. I was just wondering -- it was quite large. I was just wondering if you're able to break that down in more detail, please? Richard Tan: We are not providing any breakdown as of now, but it is a mixture of legal due diligence, tax due diligence, financial due diligence and financial advisory. So I think in the -- considering the size of the transaction it is actually very, very reasonable. Darren Odell: And just in relation to just broadband connections, which have obviously been very strong in the last half. What's the sort of backlog look for that? Or do we expect the same sort of momentum to continue in number of subscribers or to be increasing? How should we be thinking about that in the future? Richard Tan: What I can say right now is that we are working very, very hard to build on the momentum that we have established and the fact that Ookla has given us the award, puts us in a very, very good position to build on that momentum. Operator: Your next question comes from James Bales from Morgan Stanley. James Bales: I guess I'd like to build on those questions about the acceleration in mobile and the strength in broadband subs. You talked about it being a question of brand awareness, durability, value that is in the consumers' mind. Should we extrapolate that the acceleration that you've seen in the first half is sustainable throughout the year and into FY '27. Richard Tan: So to be specific, are you referring to mobile or fiber broadband? James Bales: Well, I'm referring to both. So I guess I'm a bit surprised on broadband, where there's a 2-year term. It's a commoditized product, all selling the NetLink service. How you've managed to scale that so fast and whether we should expect that, that continues in the same sort of way. Richard Tan: So I think you will have seen that our value proposition is very strong. We have included a lot of value and the router that we are offering, it's a really good relative product, no compromises because, for example, it has a true 10 gigabit a second Ethernet port. And we have also added home phone line as well. So with the awards that I've mentioned from Ookla, that puts us in the very good position and people have been signing up through word of mouth. They have experienced very, very good service from both Simba, and the performance has been great. And obviously, we've been spending on marketing as well to ensure that the awareness is built up across the board. So with that with that foundation laid, that has put us in very good standing in terms of continued growth for broadband. Mobile, I think we are very well established across all segments. And we have seen good gains in these different segments, which I have alluded to, and these include, for example, the mass market and foreign [ router ] segment is something that we have always been very strong in. So without a doubt, our penetration is now deeper. Our growth is more broad-based, so that gives us also a good foundation for continued mobile growth. James Bales: That's really good context. And then I guess the other question I had was around M1 deal completion. This has taken a lot longer than you thought. Can you help us understand the -- in your mind, what's changed? And you would have expected that this deal completed last year or in January when you first announced it. Can you help us understand why it's taken longer and whether your confidence in closing it has changed at all? Richard Tan: Well, as I've indicated in my presentation it is an important transaction. What I did not say for example, is that this is the first time that the market is undergoing consolidation. So obviously, there are all aspects of the matter that IMDA will need to weigh upon. So I'm not surprised, and we are -- both parties, meaning Keppel and Simba are working diligently to gain regulatory approval as we go through the process. Operator: [Operator Instructions] Our next question is a follow-up from [ Raj Ahmed ] from Citigroup. Siraj Ahmed: It's Siraj again. Just, Richard, just on a follow-up to James' question on the time line. Is there any sort of indication that's been given to you on potential completion time lines? Or is it just open-ended from your perspective? Richard Tan: I don't think it's appropriate for us to set any expectations with regards to the time line. All I would say right now is that the engagements on a joint basis with the regulator, they are ongoing. So I think that's very important in terms of keeping the dialogue going. Siraj Ahmed: Okay. Got it. On that as well, there was a -- I think there's a 6-month sort of agreement with Keppel in terms of the deal completing. Is that -- I'm guessing that's -- I think that in sort of end of March, I think, I'm guessing that's been extended. Is that fair, given both of you are talking with IMDA? Richard Tan: We are aware of it, and both parties are working to extend it. Siraj Ahmed: Okay. Last one, just on CapEx. I know that sometimes there is seasonality. I think first half was only $19 million. You're reiterating the CapEx guidance. I'm just wondering whether -- is it sort of -- you're keeping the second half seasonality because of the deal -- impending deal? Or is it just timing related? Richard Tan: A lot of it is timing related because we initially spent more on CapEx, for example, building out our 5G coverage. But obviously, we are keeping in mind the need for us to continue to support our growth, and that is why we're keeping to the $50 million to $55 million CapEx expectation for the financial year. Operator: Thank you. There are no further questions at this time. I'll now hand back to Mr. Tan for closing remarks. Richard Tan: Thank you all for your time and for engaging in our business update. The Board and management of Tuas Limited deeply appreciates your continued support. We look forward to delivering further value and growth in the months ahead. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I am Geli, your Chorus Call operator. Welcome, and thank you for joining the Public Power Corporation conference call to present and discuss the full year 2025 financial results. At this time, I would like to turn the conference over to Mr. Georgios Stassis, Chairman and CEO; Mr. Konstantinos Alexandridis, CFO; and Mr. Ioannis Stefos, Chief Investor Relations Officer. Mr. Stefos, you may now proceed. Ioannis Stefos: Hello, everyone, and thank you for joining today's conference call for PPC's full year 2025 results. We will begin with an overview of the group's results from our Chairman and CEO, Georgios Stassis, followed by a review of the financial performance for the period by our Group CFO, Konstantinos Alexandridis. After the conclusion of the presentation, we will open the floor for your questions during the Q&A session. The IR team will be available after the call for any follow-up discussions. With that, I will now turn the call over to Georgios. Georgios, please go ahead. Georgios Stassis: Hello, everyone, and thank you for joining us for today's earnings call. PPC had a strong performance for another year, in line with the strategic targets set in the business plan with adjusted EBITDA increasing to EUR 2 billion and net income at EUR 0.45 billion, demonstrating the extent of the transformation and the growth that has been achieved during the last years. This significant growth in profitability has allowed us to keep increasing dividend distribution in line with our plan, which provides for further improvement of shareholders' remuneration with a gradual increase of dividend to EUR 1.2 per share in 2028. Investments stood at EUR 2.8 billion, with the majority allocated to renewables, flexible generation and distribution projects, supporting a further step-up in profitability going forward. Despite high CapEx, our balance sheet position remains solid with a net debt-to-EBITDA ratio at 3.2x at the end of 2025, providing the necessary room to implement our investment plan in the next years. Moving to Slide 7. The last years have been directing capital towards renewable energy, flexible generation and distribution. As a result of these investments, we have been able to increase both the regulated asset base, as we will see later, but also the renewables and flexible generation capacity, which now represents 80% of our total capacity. In this way, year after year, we are increasing our renewables footprint, combining it with flexible generation assets, while at the same time, we have made significant progress in phasing out lignite, a process which is at the final stage, with the last unit of 700-megawatt plan to cease its operation by the end of this year. Deep diving now to Generation business on Slide 8. As you can see, we have increased the total installed capacity to 12.4 gigawatts, led by the continuous rollout of new renewable projects, which has outweighed the reduction of lignite capacity during the last year. Our total generation output has remained practically stable, however, with increased participation of renewables on the back of reduced production from lignite and oil. More specifically, renewables output increased to 6.9 terawatt hours, driven by wind and solar generation, reflecting the addition of new capacity, which outbalanced the weak performance of large hydro power plants for last year. As a result, renewables increased its share to 33% of our total output. On the flip side, lignite generation declined at 2.7 terawatt hours and oil at 3.6 terawatt hours, corresponding to 13% and 17% of total output, respectively. 2026 is a milestone for PPC generation activity since it marks the end of lignite-fired generation after many decades, making PPC coal-free. Last, gas generation had no change versus 2024, being, however, a very important component of our energy mix today, corresponding to 37% of our total output. As a result, CO2 Scope 1 emissions declined by 0.5 million tonnes compared to last year. And going forward, we expect further improvements since we will cease our lignite operations by the end of the year. Now moving to Page 9. Let me briefly describe the progress in renewable projects that we have achieved in the fourth quarter of 2025. Executing our strategic plan with discipline, we completed the construction of an additional 800 megawatts of capacity across Greece and abroad. The majority of these additions were solar projects, which exceeded the 700 megawatt in total, complemented by the first 59 megawatts of battery energy storage installed in Greece and Romania as well as 36 megawatts from a wind farm in Northern Greece. In summary, 546 megawatts of renewable projects across various technologies were completed in Greece, along with 272 megawatts internationally in the fourth quarter, leading to total additions for 2025 at 1.7 gigawatts, as we will see in more detail in the following slides. Going to Slide 10, let's see in more detail the additions that we concluded in the fourth quarter of 2025. First, in Greece, major projects totaling 550 megawatts were completed since the November Capital Markets Day. Specifically, we completed the last 30 megawatt of a 550-megawatt solar project located in the former lignite area of Ptolemais in Northern Greece. In the same region, in cooperation with RWE, we completed the final 623 megawatts of a 938-megawatt solar project. In the Ptolemais region, again, in the former lignite area, we completed the first 125 megawatt of a 490-megawatt solar project. The second 125-megawatt cluster is currently under construction, and the third cluster is scheduled to begin construction later this year. For wind, we successfully completed 36.4 megawatts in Central Greece in the region of Fokida. And last, an important milestone was also the completion of our first battery project in Greece in the former lignite areas of [ Ptolemais ] as well. Outside of Greece, in the fourth quarter, we added 272 megawatts of capacity from renewable projects, mainly solar across Southeast Europe, as depicted in detail in Slide 11. Starting with Romania, we completed solar projects of 215 megawatts in total in various locations, along with 9 megawatts of batteries, which will enable us to enhance dispatch optimization and capture value from balancing services and price arbitrage. At the same time, we completed 17.5 megawatts of photovoltaics in Italy and 30 megawatts in Bulgaria, increasing our footprint in these countries. Overall, as you can see, we keep a good pace of additions, delivering significant renewable capacity while continuing to expand our construction pipeline. All of the above are summarized in the next slide, Slide 12, which shows that we remain on track to achieve our 2028 renewables target of 12.7 gigawatt, as presented in our last Capital Market Day. We have added 1.7 gigawatt in 2025, standing now at a total of 7.2 gigawatts. And we have another 3.7 gigawatts that are either in construction, ready to build or in the tender process, having secured, in essence, 86% of the capacity that we target for 2028. There has been further progress in our pipeline also in terms of maturity, having moved during the fourth quarter -- last fourth quarter, approximately 600 megawatts into the under construction and ready-to-build stages from the permitting and engineering stage. And this process of adding new capacity, maturing additional projects is something that we have been doing many quarters now, and we will continue to do so as we advance multiple projects across Greece and internationally. Let us now move to Slide 13, which provides key highlights of our retail activity and the overall environment in Greece and Romania. Electricity demand was slightly decreased in both countries by minus 1.3% in Greece, reflecting milder average temperatures compared to 2024 and by 0.6% in Romania. Our electricity sales decreased by 1.9% compared to 2024, primarily driven by lower demand in Greece and a slight market share reduction in both countries. Deep diving in the retail activity in Slide 14, despite this intensely competitive environment throughout 2025, we successfully defended our market share while expanding beyond the commodity segment, demonstrating our ability to diversify and deliver impactful results. Customers remain our top priority. This is reflected in our strong top line performance across all customer satisfaction metrics and the continued improvement in the quality of our customer base. Notably, bad debt exposure decreased by 14%, as shown in the bottom right graph, driven by improved penetration and more effective management of higher-risk customer segments. On top of various targeted propositions that we launched during the year, SME, family and other and as artificial intelligence continues to shape market developments; we launched in Greece a virtual assistant support our customers. This is the first AI-powered digital assistant in the market, designed to elevate the customer experience by providing clear explanations of bill charges in simple language. For our activities in Romania, 2025 was a transitional year following the lifting of the price caps. As competition has been growing, we focus on protecting and strengthening customer relationships through targeted retention actions. Looking ahead, we expect 2026 to remain highly competitive. We will continue to focus on delivering value, strengthening customer engagement and maintaining resilience in an evolving market landscape. Just a few words for several synergy streams in the retail activity that we set up in 2025, we are in Slide 15. Kotsovolos has been key for this, providing the opportunity to launch a broad range of initiatives. Our collaboration has evolved from establishing a strong in-store presence and developing dedicated PPC shop-in-shop corners featuring our products to extending field services coverage that delivers essential energy solutions to customers and households, services that are fundamental to everyday living. Looking ahead to 2026, we plan to further strengthen our footprint within PPC shops while expanding our product and service portfolio to reach additional customer segments, addressing a broader spectrum of needs. Next, in Slide 16, a few words of certain KPIs of our Distribution business. We continue to invest significantly in 2025 with CapEx increasing by 2% year-on-year, in line with our strategy to enhance and digitalize our electricity distribution networks. The total regulated asset base now stands at EUR 5.7 billion from EUR 4.9 billion last year, mainly driven by the increase in Greece following material investments. The strong investment activity is also reflected in the improvement of the reliability indices of our networks in both Greece and Romania, while smart meters penetration continues its upward trend with further room to grow, especially in Greece. Turning to Slide 17. We can see how the implementation of our strategic initiatives, combined with active engagement have resulted to actual progress in several ESG ratings and scores within 2025. Specifically, our efforts have been recognized by S&P Global, EcoVadis, MSCI, ATHEX ESG and ISS, all of which upgraded PPC's ratings and scores. These improvements reflect tangible progress in several key areas such as environmental management, renewables portfolio expansion, corporate governance, ESG integration and transparent reporting. These advancements underscore our commitment to sustainability, mitigating business risk and fostering long-term value for all stakeholders. Let me now pass it on to Konstantinos for the financial performance analysis. Konstantinos Alexandridis: Thank you, George, and good afternoon to all. Moving next to Slide 19 for an overview of the trends for the main energy-related commodities. To begin with TTF, gas prices in early 2025 were initially strong, supported by reduced Ukrainian transit and cold weather conditions before easing as demand weakened and geopolitical concerns softened. Subsequently, prices declined under the milder weather conditions, strong LNG inflows and lower storage targets from EU with a brief rebound driven by firmer demand and tighter Norwegian supply. Later in the year, gas prices remained broadly stable before falling to their lowest levels towards year-end. Overall, gas prices recorded a moderate year-on-year increase of 5%. Turning to carbon. EUA prices opened the year sharply, but reversed after mid-February, pressured by declining gas prices and uncertainty around U.S. tariffs. Prices later recovered on the back of easing trade tensions and a U.S.-China agreement, although gains driven by geopolitical developments proved short-lived. The market remained relatively balanced for a period before a rally emerged towards September driven by compliance buying with prices peaking towards the end of the year. Overall, carbon prices also recorded a moderate year-on-year increase of 12%. Finally, looking at power prices, they spiked early in 2025, driven by higher TTF and EUAs, easing later in Q1 on the weaker demand and the higher solar performance. Prices rose in Q2, tracking TTF and EUAs, but stayed stable in June, though elevated despite geopolitical tensions, thanks to record renewables output. In the second half of 2025, weather-driven demand and lower renewable output led to a steady rise in prices. Moving now on Slide 20, where we can see the key financial figures for the period, showcasing the strong financial performance recorded in 2025 with increased revenues mainly due to higher power prices and the contribution of Kotsovolos. Adjusted EBITDA reached EUR 2 billion, up by 13% year-on-year, an uplift driven by higher contribution of integrated activities in our two key countries, Greece and Romania. Adjusted net income post minorities stood at EUR 0.45 billion from EUR 0.36 billion in 2024, up by 23% year-on-year. The proposed dividend for 2025 is EUR 0.60 per share from $0.40 per share in 2024, demonstrating our strong commitment towards the increase of distributable profits for our shareholders and in line with our commitment in the latest Capital Markets Day. A more detailed overview of EBITDA and net income evolution will follow later in the presentation. Investments at EUR 2.8 billion, focusing mainly on renewables, flexible generation and distribution. Free cash flow continues to be driven by elevated investment levels in line with our business plan. Net debt at EUR 6.5 billion at the end of December 2025, with net debt-to-EBITDA ratio at 3.2x as anticipated, given the progress in our investment plan. Proceeding to Slide 21 for the revenues evolution of the group, which recorded an 8% increase. The largest part of this increase is driven by energy sales, which are up by approximately EUR 0.5 billion as a result of higher power prices we experienced both in Greece and Romania for the full year. The rest is mainly driven by sales of merchandise coming from the operations of Kotsovolos, which have a full year effect in 2025. These two factors have been able to more than offset the impact of our revenues from volume decline related to market share reduction and a slightly reduced electricity demand in both countries, as George mentioned before. All this resulted to a total revenue of EUR 9.7 billion in 2025, up by EUR 0.7 billion versus 2024. Moving to Slide 22 for the EBITDA performance by business activity. As you can see in the left side of the slide, EBITDA has recorded a 13% increase year-on-year with the integrated business being the key driver for this growth. I will provide more color on this in the coming slides. International contribution at 22%, mostly driven by Romanian operations, which stood at EUR 440 million. Next, on Slide 23, a few words on the evolution of the integrated business. The improvement that has been recorded versus last year has been taking place on the back of improved performance in the retail business and green and energy mix throughout our footprint as we increase renewables capacity. In addition, this improvement has been also supported by the reduction of fixed costs associated with lignite activity as we progress with the phasing out of the relevant units. All these factors have been the basis of our commitments in our Capital Markets Day some months ago to improve our profitability in the integrated business by EUR 0.2 billion year-on-year. Now proceeding to Slide 24 for a view of the distribution activity. With regards to Greece, the demand decrease of 1.3% versus 2024 negatively affected the approved network usage revenues that will be compensated in 2027. In Romania, the Distribution business marked a slight decrease versus full year 2024, but this was driven by seasonal effects. Adjusting for construction works that have already been included in the 2026 allowed revenues, the 2025 performance would be higher than last year. Proceeding to Slide 25 for a deep dive on the EBITDA-to-net income bridge. The improved performance in terms of EBITDA that we've discussed in the previous slides has also been reflected in the bottom line with adjusted net income after minorities standing at EUR 448 million, that is a 23% increase versus last year. In terms of EPS, the year-on-year increase is slightly higher, reaching the 24% given the ongoing share buyback program. Adjustments included in the net income includes special one-off items with the largest being the provision for incentives for volume direct exit schemes that we implemented, the PPAs revaluation as well as the incremental depreciation from the asset revaluation of December 2024. Moving on to Slide 26 for the analysis of the investments. We continue to keep a high level of investments reaching EUR 2.8 billion in 2025 despite the reduction of 9% year-on-year. Importantly, 87% of our investments are directed to our distribution networks, renewables and flexible generation in line with our strategic priorities. Distribution has been the largest component, reflecting our focus on network utilization and resilience in both Greece and Romania. At the same time, we are significantly expanding our renewables footprint along with increased investments in flexible generation to support the stability and monetizing the surplus of generation. Geographically, the majority of investments are concentrated in Greece, accounting for 72%, while Romania represents a growing share of 23%. Overall, our investment program is clearly aligned with the energy transition, strengthening our asset base and supporting long-term earnings visibility. Let's now move on to Slide 27 for the free cash flow analysis of the group. The strong operational performance, combined with the positive working capital resulted to a significantly positive FFO of EUR 1.9 billion. The change in working capital had a positive impact of EUR 161 million over the period, supported mainly by CO2 and our hedging activities. With regards to CO2, we had a positive impact in 2025, which is mainly attributed to timing of payments and the overall working capital management. With regards to our hedging activities, initial margin requirements related to new positions declined, mainly as an effect of lower and less volatile gas prices towards the year-end, while at the same time, prior periods positions continued to wind down. Looking at the trade receivables and excluding state-related entities, we had a positive change in working capital by EUR 70 million, partially offsetting the increase of trade receivables from the state-related entities. We have been working with the state to reduce the overdue amount, and we expect in the first half of this year to have positive results. Finally, within category Other, we had a negative impact of EUR 92 million as a result of last year's overperformance in December '24, where some payments were shifted to 2025. Overall, free cash flow is in line with our estimates, given the significant capital deployment that we are doing throughout Southeast Europe and across technologies. Turning to Slide 28. Let me walk you through our debt profile and liquidity position. Despite the acceleration of our investment program, liquidity remains robust, supported by a well-balanced mix of fixed and floating rate debt. We also maintained strong liquidity headroom with $4.6 billion of undrawn committed credit lines as of year-end 2025. At the same time, ongoing refinancing initiatives and favorable interest rate trends have contributed to a reduction in our average cost of debt, which stood at 3.8% by the end of 2025. Our debt maturity profile remains well spread with no material concentration risks. Over the next 3 years, maturities amount to $2.6 billion, including $500 million related to our sustainability-linked bond maturing in July 2028. In October 2025, we successfully issued a EUR 775 million green bond due in 2030 priced at 4.25% coupon with strong investor demand and 3.4x oversubscription. The proceeds were used to redeem in full the aggregate principal amount of sustainability linked senior notes due in 2026 and support eligible green investments in line with our financing framework. The remaining maturities primarily relate to long-term loans and committed facilities, which we expect to refinance in the normal course of business. Finally, our credit profile remains at BB- with both rating agencies with S&P recently revising the outlook to positive, while Fitch affirmed the stable outlook. Next, on to Slide 29 for the net debt evolution and our leverage position. Net debt and consequently, net leverage increased in 2025 as anticipated, reflecting the acceleration of our investment program in line with our business plan. Net leverage currently stands at 3.2x and is expected to evolve in line with our plan. We remain fully committed to our financial policy, including the 3.5x ceiling we have set. Let me now pass it on to Georgios for his concluding remarks. Georgios Stassis: Thank you. Now moving on Slide 31. Before I conclude my presentation, let me reaffirm our guidance on key figures for this year. Our expected adjusted EBITDA is at EUR 2.4 billion, and we anticipate more than EUR 700 million in terms of adjusted net income after minorities, leading to an EPS of EUR 2.1, demonstrating a 58% increase versus 2025. We are on very good track to achieve these targets for several reasons, as we saw at the right-hand side of the slide. First, we have been experiencing mild weather conditions in the first quarter of 2026 so far, which have led to improved margin in our retail activity. Second, wind conditions have been quite strong from the beginning of 2026, benefiting our assets both in Greece and Romania, which combined with better hydrological conditions in Greece, contribute to a good start of the year. And third, we are at a quite advanced maturity stage for the 1.8 gigawatts of new renewables that we are targeting to conclude in 2026, being already at an approximately 50% readiness. Moreover, we feel very comfortable in delivering our targets for 2026 as well. Once again, we highlight our strong commitment for our dividend policy that is expected to reach EUR 0.80 per share from $0.60 per share in 2025, an increase of 33%. In our concluding slide, Slide 32, let me now wrap up with a few final points. Overall, we are delivering on our strategy with strong execution across all key pillars. Our 2025 performance reflects the benefits of our integrated business model. We continue to deploy capital in a disciplined manner with EUR 2.8 billion invested in renewables, flexible generation and distribution, supporting our future growth. We have made significant progress in our renewables installed capacity, adding 1.7 gigawatts in 2025. And at the same time, we are building strong visibility on our targets going forward, with 86% of the capacity that we target for 2028 being already secured. Our transition away from lignite is progressing as planned with full phaseout expected by end of this year, further improving our environmental footprint. This shift is strengthening the resilience and flexibility of our portfolio, enhancing our position in a challenging and evolving energy landscape. We are very confident in delivering our 2026 targets, and we prepare ourselves to be able to meet our targets beyond this year, aiming at sustainable value creation for our shareholders, our customers and the market in which we operate. Thank you all. And now looking forward to get your feedback and your questions. Operator: The first question is from the line of Di Vito Alessandro with Mediobanca. Alessandro Di Vito: I have three. First question is on the general energy outlook. I wanted to understand which could be the implications for PPC in case the current escalation in Middle East extends for a longer period of time? And on this matter, if you could remind us the sensitivity you have to power prices. The second question is around the political debate to lower power prices in Europe. I wanted some color on your contribution to this debate. And if you see the risk some political intervention, both at national and at European level? Third question is on your procurement strategy. I wanted to understand if the current disruption in LNG supplies could affect the procurement for your CCGT plants or for your gas supply clients? And maybe just the last one, a clarification during the explanation of the guidance, I heard 2026 net income above EUR 700 million. So I wanted to understand whether this is confirmed or not. Georgios Stassis: Okay. Thank you very much for the questions. Now let me start from the general outlook. Of course, we cannot estimate how this will end and when it will end. And nobody is able to do that right now. However, there are -- because we have some experience now and our experiences from 2022, where we had a major energy crisis and impacting very much also our continent. I want to outline some points. First of all, we do not have any physical delivery issues because we are not procuring from that area, from the Strait of Hormuz. While in 2022, you remember when the pipe was interrupted, we had to handle physical delivery problems as well, which was really a big mess. But we are not in this situation. Therefore, and as far as I understand, this is the situation of Asia, in particular, or some other companies, maybe in Europe, but not ourselves. And then, of course, you may understand that then we need to handle the issue of prices. Today, we think that -- I mean, if we take the today news, every day is a new situation, of course, it is at 60 -- around 60, 62, 63 in the gas TTF. Gas is of our interest. So if you remember, 2022, we handled prices of 350. So I hope we will not see these prices, of course. But still, it is -- we have the experience and the management to handle the situation, first point. Second point, we are -- I mean, we are -- we have an overall portfolio that has -- part of it is fixed. Our fixed customers is already fully hedged. So there's no impact in that situation. And of course, one could question if things go really high, how this will pass into the market. I believe that starting from as you know, from 2023, there was a European directive, which defined when Europe will be considered on crisis and has the limit reaching gas prices at 180. So we are far away from that level, thankfully. And I don't think we will be needed right now to handle any situation like that. In any way, however, this, because of our vertical integration is not -- has been proven also in the past that we never had a problem into managing this situation. If even in the scenario of infra marginal caps, it simply means that we will not have, let's say, huge windfall profits. And those will be used by the governments of Europe to be -- to supporting the citizens of Europe. So what I'm trying to say is that point one, right now, we are not in this situation at all. I'm not sure if we will be. And if and if we will go in a very extreme situation, the tools are available to be used also at the European level, have been used in the past, and we proved that we were not affected by that, and we don't believe we'll be affected as well. Now the other thing is that the timing of this crisis is coming in a period of time, which is spring. And this is very important because we just closed winter. And this is a period of time where renewables are boosting very much. We are mostly of low prices. So I think that there is time in front of us before we move to the heart of the summer where we will have another peak or when we will reach the point that the European storage facilities will start to be having the need to be, let's say, filling up. And that would be possibly an issue which will impact 2027. We don't believe we will have a major impact in 2026 also in such a situation right now. So we wait and see how the situation will develop. But I think we are extremely protected as PPC right now, having worked in our overall vertical integration and our own capability to manage our overall customer base. Now going -- to the second part of your question about the discussion that has emerged in Europe about the energy prices, this is a valid point, I believe. It is a concern for everybody. And I believe it is also a valid point for the industry, which is an important parameter. I have the impression that -- I mean, we will know today, tomorrow, how things will develop in the council, but I have the impression that mostly the discussion will focus around an ETS reform for the future. As you may be aware, ETS is supposed to be formed in July, and there is today already taken decisions from the past to remove quantities from the ETS market from the quote that would tighten the market further and would result in a price increase in ETS. I see personally that there is room in the discussion of the European leaders to make this transition smoother and not so steep in the coming years. And I think, and this is the most important thing, that this is exactly how we were forecasting the development to happen even before this discussion becoming relevant. If you look on our slides on the Capital Market Day in November, you will see that the kind of path we have for ETS prices are reasonable because we were assuming from that time that we don't believe that the current situation will be activated in the sense that we don't believe we will see crazy prices of the ETS market. So we have already budgeted with a very smooth pattern from 2026 to 2028, even beyond 2030. And I think the conclusion of the discussions in Europe will more or less go in that direction. And then having said that, there is another element as well, which is very important, which is our region, because we put all this into a perspective, but we need to think of our region as well because every geography is different. In the Southeast European region, the corridor between Italy, Greece, Bulgaria, Romania, Hungary, Poland, up to Ukraine, Moldova, all these kind of countries, Croatia; this is a corridor which is very tight from the capacity point of view. And on top of that, it has very old fleet. So because you have a sensitivity, even in our calculations with a lower EPS from our projections, we don't see the dam changing significantly because the assets that will be activated are quite mature and old fleet and into an area which is having a very old fleet. For all these reasons, I believe that we have been very prudent in managing our assumptions. And I think gradually, we are going in that direction. So we feel that not only for 2026, we are absolutely certain that we will deliver properly, but also for the coming years, we will be in line with our projections. Last, procurement. I didn't quite understood the last part of your question, but I can tell you that we don't feel any procurement issue as a result of the crisis right now in the rate. But if you can elaborate more of what you meant, I will be able to answer. Alessandro Di Vito: Yes. No, I think you already answered. I was asking about your procurement strategy and whether you would be affected by the disruption in the Middle East. But you already said that the fixed portion of supply is secured and you have no procurement from Middle East. The last question was on the net income for 2026, whether it is going to be around EUR 700 million or above EUR 400 million during the presentation, I had above, but I just wanted to make sure about the detail. Georgios Stassis: Okay. Listen, we just closed the year at EUR 450 million net result. I can tell you certainly that we will be in the area of 700. I could even tell you that we're having a good year today. So I would be most probably able to verify a number higher than this. But of course, we have -- we are in an environment of huge volatility. So the only thing I can confirm is the 700 level right now. Operator: The next question is from the line of Nestoras Katsios with Optima Bank. Nestor Katsios: Congratulations for your great set of results. So two questions from my side. The first one has to do with the data centers. Is there any update with your discussions on the data center front? And the second one is about [ Ptolemais ] 5. I understand that you will shut down this year. Are there any final investment decision for the future of [ Ptolemais ], I mean, some gas plant? Georgios Stassis: Okay. Let me start from the last because I think it's the easiest. I mean, for [ Ptolemais ] 5. I think we have already announced that we will convert it to gas, and we are already working in that direction. I think we will see it already in operation in gas from 2028 because we are already working in that direction. We have already secured the equipment we need. And I think we have sufficient time to do this transformation by 2028 early. So this is for [ Ptolemais ]. Now for the data centers, for those of you who are following our company, you may remember that we have announced our intention to develop a data center last April. It's almost a year, not even a year yet. And I told you from that day that I would expect -- I was expecting end of '26 to have some sort of real development. And this is our vision right now. However, we are in discussions with hyperscalers and those discussions are going a little bit better from what I thought. So I mean, we have progress. We have significant progress, but we are not there yet. This is the thing I can say right now. Operator: The next question is from the line of Karidis John with Deutsche Bank. John Karidis: I have four quick ones on just the telco business, please. The first question is, what was the CapEx in FY '25 in millions rather than billions? Secondly, how many customers did you have at the end of 2025? And how many do you have now? Thirdly, during the CMD, I asked you about the timing of the launch for voice services, and you said very soon. Could you please update me on that, hopefully, give me something like a date? And then lastly, a year ago, I asked you whether you were interested in mobile, and you said you were not. Has your view changed there at all? Georgios Stassis: Thank you very much for the questions. I can tell you that we have spent around EUR 200 million until now on this project. We have delivered more or less a network of 1.7 million, but only 1 million is commercially available. First, you create the backbone and then you make the remaining pieces. So very recently, we launched at the end of last summer, the service with a footprint of 500,000, let's say, households passed. And very recently, we opened from 500,000 to 1 million. I can tell you that we are currently connecting around 200 customers per day. This is the current pace we have. So you can calculate. I think we are quite happy with that because in that level, I think this in the coming months because it's too young, not even 6 months that we are working on that. In the current pace, we will probably reach a level of 250,000 in the coming months. And when we will open the remaining 500,000 and so on and so forth, I mean, going gradually as per our plan to 3.5 million; this means that with this trend, we will be reaching a level of around 700, 800 customers, maybe more per day. So we are very happy. We are learning as well from that. As you might have noticed, we are not pushing a lot advertising because we want to have a very good service on our customers. But very shortly, we will start pushing more commercially. So I'm expecting these numbers to pick up. But so far, so good. I mean, we are doing very well. We are very happy, and we will reach the target -- the number of target customers we have in our mind by the end of '28, beginning of '29. About voice, I think we are ready to launch it probably in June, June, July, we will launch voice. About mobile, we are not investing in mobile because our project is a very specific project. That's why we are so relaxed. I mean we are doing this -- we found this opportunity to roll out this fiber project only in Greece. It's not a big project for us versus our total CapEx. And we are in line exactly with the numbers we want to have day by day. So we will go gradually. We are not investing in the mobile. I can verify this 100%. Thank you. John Karidis: I'm sorry, could you please tell me how many customers you had in total at the end of 2025? Georgios Stassis: We have more than 12,000 customers. Operator: The next question is from the line of Walker-Hunt Ella with Citigroup. Ella Walker-Hunt: My first question relates to hedging. So in terms of power price exposure, could you tell us what's your hedge position at the end of the year? So how much in terms of terawatt hours have you sold forward and what duration? And then my second question is about the full-year results. So if you -- if we look at it on a quarterly basis, so the fourth quarter earnings were actually down almost 20% if you compare to the last year. So I was just wondering, what was driving that earnings contraction in the fourth quarter? Georgios Stassis: Okay. The first part -- what was the first part? The hedging, the hedging, we are at a level of more than 40% to 45% right now for the year for everything, all our position, not accounting the fixed customers, of course, that we have 100%, as I told you, on our fleet. Now for the fourth quarter, I mean, we navigated -- I mean, we have a sort of -- every year a sort of seasonality, and we are trying to govern the company also taking into account the market in general. So we chose to support more our customers at the end of the year. And -- but still, we brought our results. So -- but this has happened in many of our years, I mean, in the past years. There is a thin line where you need to keep the pace of growth in a reasonable level. And from quarter-to-quarter, we have and we have had differences like that in the past. This is normal. In the contrary, you will see that if you will compare this quarter, this current quarter when we will announce it because it's going well. With the quarter of last year, you will find exactly the opposite. But it is part of our -- the nature of our business. Operator: The next question is from the line of Pombeiro Mafalda with Goldman Sachs. Congratulations on the results. Mafalda Pombeiro: I only have two left, if possible. The first one would be any indication or guidance on the net debt levels for 2026, if you can share at least the main moving pieces? And the second one is just a clarification. Out of your retail sold volumes, could you please -- I understand that the part that is fixed contract fixed customers. So what percentage is that of the overall sold volumes? Georgios Stassis: Our fixed part is around 20%. And now Konstantinos will take the first one. One second, give us. Konstantinos Alexandridis: Yes. So the way we have set up the business plan that we discussed back in November is asking for additional investments. So we do expect that the more we are progressing, of course, leverage ratio will remain at the area of 3.3x to 3.4x. So that would be at an area in terms of net debt close to EUR 7.5 billion to EUR 7.7 billion. Operator: The next question is from the line of Anna Antonova with JPMorgan. Anna Antonova: Just a few from our side. So first, on the CapEx outlook for this year for 2026. I see that last year, you spent just a little bit lower than you guided below the EUR 3 billion. Is the CapEx for this year still expected around your target, which I think from the end of last year was EUR 3.8 billion? That's the first question. Georgios Stassis: Yes. We -- of course, from last year, the big deliveries of renewables started to arrive in our company. On the other hand, last year, we did our CapEx also with an acquisition. as we have noticed. But the last quarter, we brought 800 megawatts. So it's ramping up. And right now, we are going to deliver 1.8 gigawatt, and it's going fantastic. So we are able to confirm exactly our CapEx for this year. Anna Antonova: The second question is on the outlook for hydropower this year. I remember you commented during the call that in Q1, the weather conditions were quite favorable. So if you could maybe comment where you currently see the upside for hydro generation for this year compared to last year's maybe level, which was, I think, 3.4 terawatt hours. Georgios Stassis: Yes. Finally, we are having a good year on hydro after several years. We had the 3 bad years on hydro levels, and this is coming back this year. So I mean, I cannot predict exactly, but it's going to be for sure, more than last year. Operator: We have a follow-up question from Anna Antonova, JPMorgan. Anna Antonova: Just a quick follow-up question. So with all the events happening this year and higher power prices and kind of regulatory debate in Europe, can you comment if you see any downside to your targets for this year from the current conditions, both on the financials and on especially the lignite phaseout? You mentioned earlier the event of 2022, and I remember that at that time, the lignite decommissioning was a bit delayed due to everything that has been happening. So do you expect kind of any potential risks to the targets for this year? Georgios Stassis: Yes. And what was the lesson in 2022? We kept lignite because why? Not for economic reasons, because of lack of physical deliveries at that time in 2022. And what was the lesson? It was still more expensive than anything else. So we are not intending to keep it back by no means, especially now that we don't have any physical delivery issues. Other than that, I mean, knock wood, this is going very well this year. If it wasn't the Iran conflict, we would be able to be more optimistic, but we stay at this level right now. Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Stassis for any closing comments. Thank you. Georgios Stassis: Maybe we have a question. Operator: Yes. We have one more question from Mr. Alderman Richard with BTIG. Richard Alderman: Can you hear me? Georgios Stassis: Yes, please go ahead. Richard Alderman: Just one follow-up question on the hedging there. Just so we don't misunderstand what you're saying about the gas element of the hedging within your retail book, are you essentially hedged for what you see would be your average demand through the rest of the year from your retail book at this point? And then obviously, if there are variations within that and that costs you more, you would pass that through to customers who are not on fixed contracts. I'm just trying to understand... Georgios Stassis: This is indeed -- this is exactly correct what you said. Richard Alderman: Okay. Because there's been some discussion in the market as to whether you had exposure to that, but that's reassuring to hear. Operator: Ladies and gentlemen, there are no further questions now. I will now turn the conference over to Mr. Georgios Stassis for any closing comments. Thank you. Georgios Stassis: I think 2025 has been an important year. because this company proved that it reached a level of significant net result versus the past years. 2026 will be another year like that. Our growth is very important versus last year. And we feel confident we are exactly on target, maybe a little bit more. We will see how the year will develop. But so far, so good. So we are excited with the development of the company. We are already working very much for 2027, 2028. I believe 2026 is secured. And I think the coming years will be very interesting. Thank you.