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Operator: Good morning. My name is Rob, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Dollar General Fourth Quarter 2025 Earnings Call. Today is Thursday, March 12, 2026. [Operator Instructions] This call is being recorded. Instructions for listening to the replay of the call are available in the company's earnings press release issued this morning. Now I'd like to turn the conference over to Mr. Kevin Walker, Vice President of Investor Relations. Kevin, you may begin your conference. Kevin Walker: Thank you, and good morning, everyone. On the call with me today are Todd Vasos, our CEO; and Donny Lau, our CFO. After our prepared remarks, we'll open the call up for your questions. And Emily Taylor, our Chief Operating Officer, will join us for the Q&A session. To allow us to address as many questions as possible in the queue, please limit yourself to one question. Our earnings release issued today can be found on our website at investor.dollargeneral.com under News & Events. Let me caution you that today's comments include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, such as statements about our financial guidance, long-term financial framework, strategy, initiatives, plans, goals, priorities, opportunities, expectations or beliefs about future matters and other statements that are not limited to historical fact. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These factors include, but are not limited to, those identified in our earnings release issued this morning under Risk Factors in our 2024 Form 10-K filed on March 21, 2025, and any later filed periodic reports and in the comments that are made on this call. You should not unduly rely on forward-looking statements, which speak only as of today's date. Dollar General disclaims any obligation to update or revise any information discussed in this call unless required by law. Now it is my pleasure to turn the call over to Todd. Todd Vasos: Thank you, Kevin, and welcome to everyone joining our call. I want to begin by thanking our teams in our stores, distribution centers, private fleet and our store support center for all their work to serve our customers and each other in 2025. We are proud of these efforts and pleased with our strong operating and financial results for both the fourth quarter and fiscal year 2025. We have not only stabilized our core business, but we've laid the groundwork to drive meaningful growth over both the near and longer term. For today's call, I will begin by recapping some of the highlights of our fourth quarter performance as well as sharing our latest observations on the consumer environment. After that, Donny will share the details of our financial performance, financial outlook for fiscal 2026 and updated thoughts on our long-term financial framework. I will then wrap up the call with an update on our strategy, including our strategic growth pillars. Turning to our fourth quarter performance. Net sales increased 5.9% to $10.9 billion in Q4 compared to net sales of $10.3 billion in last year's fourth quarter. We grew market share in both dollars and units in highly consumable product sales once again during the quarter, in addition to growing market share in nonconsumable product sales. Importantly, we believe our continuing growth in sales and market share demonstrate the relevance of our unique combination of value and convenience for our customers. Same-store sales increased 4.3% during the quarter and included healthy growth in customer traffic as well as average basket size. The growth in average basket was driven by an increase in average unit retail price per item, partially offset by a decrease in average number of items. From a monthly cadence perspective, while January was the strongest period of the quarter and included a benefit from consumer stock-up activity ahead of winter storms, all 3 periods delivered comp sales growth above 3.5%. For the fourth consecutive quarter, we delivered broad-based category sales growth with positive comp sales in each of our consumables, seasonal, home and apparel categories. Notably, sales in the combined nonconsumable categories outpaced a solid increase in consumable sales also for the fourth consecutive quarter. In addition, we finished 2025 with 3 consecutive quarters of meaningful growth in customer traffic, reflecting the essential role we play for our customer and communities as we help them save time and money every day. Customers across all income brackets continue to stress the importance of finding value as they shop, and we are meeting this need as we continue to grow penetration with households of all income levels. And while we continue to be pleased with our pricing position against competitors and other classes of trade, we know value is multifaceted, especially for our core customer. As a result, beyond our goal of keeping prices within 3 to 4 percentage points of mass retailers, we continue to offer compelling value through our extensive offering of more than 2,000 items at or below the $1 price point. These items are clearly resonating with the customer as evidenced by the strong performance of our Value Valley offering, which is comprised of more than 500 rotating items all priced at $1. In fact, during the quarter, this offering delivered a comp sales increase of 17.6%, once again outperforming the chain average. These results represent meaningful acceleration compared to prior quarters, further building on the strong results we've been delivering in this area. In addition, $1 items in our seasonal business for the quarter delivered our highest sell-through rates, reinforcing the value our customers continue to place on this important price point. Our strong value proposition is complemented by the convenience of nearly 21,000 stores located within 5 miles of approximately 75% of the U.S. population and a robust and growing digital presence to serve a wide variety of new and existing customers, all of which has uniquely positioned us as America's neighborhood general store. In summary, we're proud of our Q4 and 2025 results, which were well ahead of our expectations. We are well positioned to continue driving profitable sales growth and capturing growth opportunities while creating long-term shareholder value. Now let me turn the call over to Donny. Donny Lau: Thank you, Todd, and good morning, everyone. Now that Todd has taken you through the top line results for the quarter, let me take you through some of the other important financial details. Unless we specifically note otherwise, all comparisons are year-over-year, all references to EPS refer to diluted earnings per share, and all years noted refer to the corresponding fiscal year. For Q4, gross profit as a percentage of sales was 30.4%, an increase of 105 basis points. This increase was primarily attributable to a reduction in shrink, higher inventory markups and lower inventory damages, partially offset by an increased LIFO provision. Our shrink mitigation efforts once again contributed to strong gross margin expansion in the quarter as we delivered a 62 basis point improvement in shrink versus prior year, even while lapping a 68 basis point improvement in Q4 2024. For the full year, gross margin expanded by 107 basis points, driven by an 80 basis point reduction in shrink. Notably, this reduction positions us ahead of the goals embedded in our long-term financial framework, and we expect further improvement over time. Turning to SG&A, which as a percentage of sales was 24.9%, a decrease of 165 basis points. The primary expenses that were a lower percentage of sales in the quarter include impairment charges primarily due to the store portfolio optimization review completed in 2024 and retail salaries, partially offset by higher incentive compensation. Moving down the income statement. Operating profit for the fourth quarter increased 106% to $606 million. As a percentage of sales, operating profit increased 270 basis points to 5.6%. As a reminder, our Q4 2024 operating profit includes an approximate $232 million negative impact associated with the impairment charges I just mentioned. Net interest expense for the quarter decreased to $52.3 million compared to $65.9 million in last year's fourth quarter. Our effective tax rate for the quarter was 21.8% and compares to 16.2% in the prior year. Finally, EPS for the quarter increased 122% to $1.93, which exceeded the high end of our expectations. Our Q4 2024 results include an approximate $0.81 per share negative impact associated with the impairment charges I mentioned earlier. Turning now to our balance sheet and cash flow, where we continue to make significant progress in strengthening our financial position. Merchandise inventories were $6.3 billion at the end of Q4, a decrease of $379 million or 5.7% compared to the prior year and a decline of 7% on an average per store basis. Importantly, the team continues to do a terrific job reducing inventory while driving sales and improving in-stock levels. Overall, we're pleased with our inventory position and moving forward, are focused on growing inventory at a rate below our sales growth. In 2025, we generated significant cash flow from operations of $3.6 billion, which represents an increase of 21.3%. Our strong cash flow generation provides flexibility to reinvest in our business, while at the same time, further strengthen our balance sheet and liquidity position. In fact, as previously communicated, we redeemed $550 million of senior notes during the fourth quarter. This was well ahead of their scheduled November 2027 maturity and brings the total level of senior note redemptions in 2025 to $1.7 billion. We also paid a dividend of $0.59 per common share outstanding during the quarter for a total payment of approximately $130 million. Our capital allocation priorities continue to serve us well and remain unchanged. Our first priority is investing in the business, including our existing store base as well as other high-return growth opportunities such as new store expansion, remodels and other strategic initiatives. Next, we seek to return cash to shareholders through our quarterly dividend payment and when appropriate, share repurchases, all while maintaining our goal of less than 3x adjusted debt to adjusted EBITDAR in support of our commitment to middle BBB ratings by S&P and Moody's. Overall, we're pleased with our strong financial results in 2025, which were significantly ahead of our initial expectations for the year. These results are a testament to the strong execution by the team and the ongoing positive impact of key growth initiatives across the business. I'd like to now discuss our financial outlook for 2026. Our current outlook reflects continued progress against our key growth initiatives. It also considers our efforts to mitigate cost inflation and the potential for continued uncertainty, particularly in consumer behavior. In addition, keep in mind that we entered the year well ahead of schedule on several of the goals initially contemplated in our long-term financial framework, which we introduced on our Q4 2024 earnings call last March. Taking all this into account, for 2026, we expect net sales growth in the range of 3.7% to 4.2%. Same-store sales growth in the range of 2.2% to 2.7%, and EPS in the range of $7.10 to $7.35. Our EPS guidance assumes an effective tax rate of approximately 25% and includes an anticipated negative impact of about 150 basis points from the expiration of the Work Opportunity Tax Credit on December 31, 2025, resulting in an approximate $0.13 reduction to EPS. We expect capital spending in the range of $1.4 billion to $1.5 billion, which is in line with our capital allocation priorities and designed to support ongoing growth. In addition, our Board of Directors recently approved a quarterly cash dividend payment of $0.59 per share for Q1 2026. And while our guidance does not contemplate share repurchases this year, they remain an important part of our broader capital allocation strategy at the appropriate time. Now let me provide some additional context as it relates to our outlook for 2026. As a result of severe winter storm activity in the first 2 weeks of February, including periods of temporary store closures, sales results were negatively impacted to begin the year. Since that time, we've been pleased with the solid rebound in top line performance. With all of that in mind, we expect Q1 comp sales to be in the low 2% range. For the full year, we expect continued gross margin expansion though to a much lesser extent than 2025 as we lap the strong performance from prior year. We expect this improvement to be driven by our key gross margin drivers, which Todd and I will discuss in further detail shortly. On the expense side, we expect modest SG&A deleverage in 2026. While we expect to benefit from a more normalized incentive compensation level, this benefit will be partially offset by continued investments in key initiatives, including remodels and IT modernization. Overall, we're excited about our plans for 2026, particularly following our strong 2025 results, and we're confident in our strategy to deliver against our long-term financial framework goals. With that in mind, I will now provide an update on certain components of our long-term financial framework. I'll start with an update on how we currently see the path towards our 6% to 7% operating margin target over the next 3 to 4 years. Within gross margin, our plans include building on our efforts to further reduce shrinking damages. And while we have made significant progress on both fronts, particularly with shrink, we see opportunities for continued improvement as we move ahead. More specifically, we now anticipate shrink and damages combined will contribute approximately 50 basis points of incremental gross margin expansion as we continue to optimize our inventory position, improve in-store execution, and reduced store manager turnover. We're also executing against a combination of other gross margin drivers, including DG Media Network, nonconsumables merchandising, supply chain productivity, and category management. Importantly, many of these initiatives are still early in their maturity curves. In total, over the next 3 to 4 years, we expect these combined initiatives will contribute at least 120 basis points of gross margin improvement, including approximately 50 basis points from our DG Media Network. With regards to SG&A, we continue to target reductions through initiatives designed to simplify work and drive greater efficiencies, reduce repairs and maintenance expense and stabilize growth in depreciation and amortization. And while the goals in our framework assume a modest degree of SG&A deleverage, we're excited about the potential to deliver savings in these areas while supporting continued growth across the business. Finally, we are pleased to continue to return cash to shareholders through our strong dividend. We are also looking forward to resuming share repurchases at the appropriate time. Overall, our framework is centered on driving strong top and bottom line growth and improving profitability while continuing to invest in high-return growth initiatives and ultimately returning significant cash to shareholders. Importantly, we are working to further strengthen and accelerate where we see opportunity, our path to achieving these goals. In closing, we're pleased with our strong operating and financial results in 2025 and excited about our plans to drive continued growth in 2026 and beyond. We're confident in our business model and our long-term approach to driving sustainable growth while creating long-term shareholder value. With that, I'll now turn the call back over to Todd. Todd Vasos: Thank you, Donny. As we look to build on our momentum in 2026, we're focused on 4 strategic growth pillars: enhancing the customer experience, elevating our brand, driving greater enterprise-wide efficiencies, and extending our reach. I will take the next few minutes to discuss each of these and how we are working to accomplish our goals. First, with the customer at the center of everything we do, we are focused on enhancing the customer experience. We believe we have a tremendous opportunity to gain additional market share with both new and existing customers as we look to drive trips within both in-store and digitally. In store, we expect to further enhance the customer experience in 2026 with the introduction of a new store format and even more relevant merchandising programs, including our nonconsumable initiative. We have reimagined our traditional store format by creating a new layout in response to what customers have told us they want from their shopping trip. This new format is designed to be more open and inviting, resulting in greater browsing and treasure hunt shopping as customers are exposed to more categories as they navigate the store. We tested this new format in a portion of our 2025 remodel projects and are pleased with the incremental sales lift and relative sales outperformance compared to traditional remodels. Ultimately, we believe this format will help drive both increased transactions and ticket as the store provides for an even fuller fill-in trip. As we look to build on our success in 2025 and further increased penetration of nonconsumable sales, we have exciting plans to drive growth in our discretionary categories. More specifically, we're continuing to evolve and expand our offering. And following the highly successful brand expansion in 2025 with brands such as Dolly Parton, kathy ireland and others, we expect to launch at least 15 new brands in nonconsumable categories in 2026. In addition, as we look to showcase even more value in nonconsumable categories this year, while continuing to drive profitable sales growth, we also plan to capitalize on a number of other exciting opportunities in these areas, including building on our proven closeout buying strategy, launching a loyalty program in key nonconsumable categories and growing nonconsumable sales through shoppable social marketing. Notably, our goal is to increase nonconsumable sales penetration to as high as 20% by 2029. This would represent meaningful gross margin expansion and is an important component of our long-term financial framework. In addition to the multitude of in-store initiatives in place, we are also advancing our digital initiatives as we seek to further enhance the omnichannel consumer experience at Dollar General. We have established a robust digital ecosystem in recent years with more than 7 million monthly active users on our DG app and a total of more than 100 million marketable customer profiles. Our digital offerings are an important complement to our expansive physical store network and a key driver of incremental value and convenience for our customers. As we look to drive future growth, we are focused on scaling our delivery options, personalizing the experience for our customers and growing the DG Media Network. We have significantly expanded the reach of our delivery options available to customers and are now delivering customers through approximately 18,000 stores and with our own myDG delivery offering, as well as through third-party partners, DoorDash and Uber Eats. Collectively, these delivery options have significantly enhanced the convenience proposition for our customers with more than 80% of the orders delivered in 1 hour or less while also extending our value offering to a wide range of new customers who were previously underserved by delivery options in their community. As we continue to see larger basket sizes than an average in-store transaction and very strong repeat visit rates, our rapidly growing delivery platforms are becoming a more meaningful sales driver. In fact, we estimate delivery sales contributed approximately 80 basis points to our comp sales growth of 4.3% in Q4. Looking ahead, we have ample opportunity to further drive incremental sales growth through customer experience enhancements, increased customer awareness and expanded loyalty opportunities including a planned pilot of a subscription program. As we see continued growth in our digital properties, one of the most significant components of our digital initiative is our DG Media Network, which enables a more personalized experience for our customers while delivering a higher return on ad spend for our partners. Our DG Media Network strategy is focused on accelerating on-site performance through improved search, sponsored products and a stronger e-commerce experience while expanding our ability to capture emerging off-site spends across social, connected TV and video. We're also creating more opportunities for advertisers to participate inside our stores that are connecting digital and physical experiences. Over time, we believe this approach positions the -- our entire advertising network as a strategic lever to drive profitable sales growth, enhance the customer experience and strengthen loyalty across our myDG ecosystem. In 2025, as partners continue seeking access to our unique customer base, we delivered approximately $170 million in retail media network volume, which is highly accretive to gross margin. Overall, our digital strategy is an important component of our in-store customer experience and a key driver within our long-term financial framework. Our second strategic pillar is elevating our brand. We believe we can drive significant sales and margin growth in this area through strategically investing in our mature store base while diligently executing on the basics of retail. In turn, we expect to deliver an elevated experience for both our customers and employees. Our mature store investments will be centered around 2 established remodel programs, Projects Renovate and Elevate. As a reminder, Project Renovate is our traditional remodel program, which impacts 100% of the store and includes adding or replacing coolers as well as upgrading to the latest store format. These projects are focused primarily on stores that are 7 or more years removed from their last touch. In 2025, we introduced an incremental remodel program called Project Elevate, which is designed to further grow sales and market share in portions of our mature store base that are not yet old enough to be part of a full remodel pipeline. These projects include physical asset enhancements, merchandising updates, product adjacency adjustments and category refreshes, all of which impact up to 80% of the total store. We continue to target annualized comp sales lift of approximately 6% in Project renovate stores and approximately 3% in Project Elevate stores. In addition to higher sales, customer surveys indicate that both projects have had a positive impact on customer sentiment, each scoring more than 100 basis points higher post remodel as compared to the rest of the chain. Our store employees are also excited about the enhancements and the positive impact on their ability to serve our customers. In fact, following project completion, both remodel programs have lower store manager turnover rates compared to the chain average. Importantly, these improvements contributed to an overall reduction of more than 375 basis points in company-wide store manager turnover in 2025. We have ample opportunity to continue elevating our brand through these projects and continue to expect to execute 2,000 Project Renovate remodels and 2,250 Project Elevate remodels. Our third strategic growth pillar is driving greater enterprise-wide efficiencies. We are actively pursuing a number of opportunities to drive greater efficiencies and lower costs throughout the organization, including increased supply chain productivity, further simplification of our stores, inventory optimization, and increased use of artificial intelligence. Within our supply chain, we are committed to integrating technology that can enable improved execution and drive greater productivity while maintaining operational flexibility. In turn, we expect to see higher levels of employee engagement and lower employee turnover in our supply chain, which will further enhance productivity. Regarding transportation, we continue to leverage our private truck fleet for approximately half of our outbound transportation needs across the network. A private fleet truck represents savings of approximately 20% compared to the cost of a third-party provider, and we believe continued growth can drive substantial savings in the years ahead. Ultimately, our supply chain initiatives can support greater execution and efficiency while contributing significantly toward the operating margin goal in our framework. These efforts can also support work simplification in our stores, along with the continued focus on case pack fit, which reduces the amount of time spent stocking shelves as well as SKU rationalization and inventory optimization. Finally, while we are still early in our AI journey, we are building an AI operating system for the enterprise focused on reshaping our workflows to improve productivity and enablement. We believe that over time, these efforts can improve our customer-facing applications while accelerating our value delivery, decision automation and continuous process improvement, lowering SG&A per unit of work and driving efficiency and processes throughout the organization. Our final strategic growth pillar is extending our reach. We continue to extend our unique combination of value and convenience to new communities across the country. In 2025, we opened 581 new stores in the U.S. and we plan to open an additional 450 new stores in 2026. Approximately 80% of our stores are in rural communities of 20,000 or fewer people and we see substantial opportunities to continue growing our store count and serving new customers for many years to come. Importantly, these projects continue to be one of our best uses of capital and are an important part of our growth strategy. In addition to our new Dollar General store growth, we continue to test and learn and refine our strategy for international growth in Mexico. We had a total of 16 Mi Super Dollar General stores at the end of 2025 and now expect to open approximately 10 additional stores in 2026. While our core business proposition of value and convenience continues to resonate with customers in Mexico, we are leveraging our learnings and customer, real estate and merchandising insights to further extend our reach and capture more of these exciting growth opportunities. Finally, we are also pleased with the recent performance of our pOpshelf stores, which had strong comp sales that exceeded our plans in 2025. Importantly, we also continue to leverage learnings from pOpshelf and apply them to our nonconsumable approach in Dollar General stores, which has supported our strong growth in these categories. Looking ahead, we remain excited about these concepts and its potential to be a meaningful contributor as we further extend our reach with customers of both banners. Overall, we're excited about our plans for 2026 as well as our initiatives to drive long-term growth. We believe these strategic growth pillars provide even greater strategic focus and clarity as we continue to advance our progress toward the goals laid out in our long-term financial framework. As I conclude my prepared remarks, I want to reiterate that we are pleased with our strong performance, confident in our business model and financial framework and excited about the tremendous opportunity that we have in front of us. I want to thank our approximately 194,000 employees for their great work in delivering strong results in 2025, and I look forward to all that we will accomplish together in 2026. With that, operator, we would now like to open the lines for questions. Operator: [Operator Instructions] And the first question comes from the line of Matthew Boss with JPMorgan. Matthew Boss: Congrats on a nice quarter. So Todd, could you speak to the consistency of comps that you saw in the fourth quarter, drivers of acceleration in both the traffic and transaction and just elaborate on comp trends that you've seen in the first quarter outside of the impact from the storm? And then Donny, on the bottom line, could you just walk through the puts and takes for operating margins that you've embedded in this year's outlook, notably, the drivers you see remaining with gross margin? Just your confidence in the 6% to 7% operating margin by FY '28 plan. Todd Vasos: Great. I'll start. And Donny, I'll let you jump in. Yes. Matt, our comps, we felt really good about them in Q4. Actually, when you think about Q4, as my prepared remarks talked or Donny's, we were 3.5 at least across all 3 periods. I think it's important though to note that November and January were the strongest. And December, again, still above, right at that 3.5, but the weaker of the 3, if you will, if you call it, 3.5 weeks. So I would say that if you look past the storm impact in January, November and January were pretty consistent, quite frankly. So feel good about that comp. And I would tell you the drivers real quickly, really, it's value, value, value at this point for the [indiscernible] that we hadn't talked about leading up to Q4, but I would tell you as she moved through Q4, value became even more important depending on the areas that she was shopping, not only in our consumable areas but in our nonconsumable areas. What I'm proud of on the drivers is nonconsumables outshined again the strong consumable sales number. And that, for us, is very important, but also for our consumer, it shows that value is important to her. Here's how I would line up the importance of the sales line for Q4 and quite frankly, as we move into Q1. Private brands, the $1 price point and a strong everyday low price. Those are the benchmarks for what our customer is looking for. On that $1 price point, Matt, we saw a very strong take rate across both consumables and nonconsumables, highest sell rates -- sell-through rate, excuse me, on our nonconsumable areas in the $1 price point. And I would tell you that drumbeat has continued in Q1. In Q1, past the storm, we feel good about where the sales are, actually right back to where we thought they would be. So very good to see. But that first couple of weeks in January, due to the storm, set us back just a bit. But we're right back in the game, feel good about it. And I think that consumer really needs a Dollar General at this point as we look ahead with all of what's ahead of that consumer, including the macroeconomic pressures that are out there and the geopolitical pieces that we're all watching very closely. Donny Lau: And Matt, in terms of the margin drivers for 2026, before we jump into that, I thought I'd just touch quickly on Q4 because I do think it set a little bit of context as you think about 2026. And so from a Q4 perspective, especially pleased with the 105 basis points of expansion we saw during the quarter, and that's even with the 32 basis point headwind from LIFO. As you saw, the standout was once again shrink followed by markup. We liked what we saw in the damage line, which was a pretty meaningful contributor in the quarter as well. And I'll tell you, we're especially pleased with the 107 basis points of expansion for the full year, even with the 40 basis point LIFO headwind. And so overall, for Q4, we're really pleased with the performance exiting the quarter and really pleased to see the momentum we're building against our key margin drivers, which positions us well to move into 2026. On the SG&A line, the primary drivers really here were the prior year lap of the impairment charge. Just to be clear here, though, the majority of that, we do consider discrete. Some of it is a little bit more normalized. And we are lapping -- or we'll be lapping next year higher incentive comps. So pretty outsized in 2025, lapping a below normal rate in 2024. So as we think about that setup, as we move into 2026, we do expect another year of gross margin expansion to a much lesser -- to a lesser extent than 2025, just we are lapping that 107 basis point full year improvement from last year. In terms of tailwinds, we expect continued but more modest improvement in shrink. Again, we're lapping 80 basis points of improvement in the prior year. We expect continued improvement in damages, which again was a meaningful contributor in 2025, and continued momentum across our other gross margin drivers, which we touched on, including the DG Media Network, what we're seeing out on our consumables, we're seeing some nice contribution from supply chain and category management as well. In terms of the headwinds, we are watching the changing tariff environment. We are watching the potential for the changes in higher gas prices. But overall, we do continue to believe there are more tailwinds and headwinds and feel really good about the momentum we're seeing on this front. In terms of SG&A, we do expect modest deleverage on the SG&A line. We are lapping that, the higher incentive count so we expect more normalized incentive count, compensation levels this year, but we're also expecting continued investments in our key growth initiatives and IT modernization and remodels are a couple to call out. But overall, I'd say our expectations for SG&A are pretty much in line with the annual targets outlined in our long-term financial framework. The one thing I did want to touch on for 2026 is the tax. We anticipate a full year tax rate of 25%. That compares to 23% in 2025. As I alluded to in my prepared remarks, this includes about 150 basis point headwind from the exploration of the work opportunity tax credit at the end of 2025, and that will result in an approximate $0.13 reduction to EPS. And just as a reminder, the work opportunity tax credit, it's a federal tax credit available to employers who invest in job seekers or barriers to employment. So think veterans, some are youth employees, SNAP recipients and residents of rural renewal counties. The good news here is Congress has extended the program 3 times in the past 10 years. And so while there are no guarantees they'll do it again, there is precedent. In all cases, that extension has provided for full catch-up provisions. So more to come here, but we're watching it closely. And then just quickly, in terms of our confidence level in the op margin targets of 6% to 7%, what I'd tell you is we feel really good about our ability to deliver against that goal. I think one way to think about it, and Todd mentioned it in his prepared remarks, but we really do believe we stabilized the core business, stabilized the core business in 2025. And while there's still work to do, one of the things that's most encouraging to me is when you look across many of our key operating metrics, including things such as in-stock levels and on-time deliveries and inventory per store, among others, we're seeing strong improvement versus 2023 levels. And in many cases, we're seeing sequential improvement quarter-over-quarter, which tells us we're really building momentum across the business. And I think that's what was reflected in our strong Q4 and full year financial results. And so when you add it all up, seeing good momentum across many aspects of the business, we're ahead of schedule and some of the initial goals contemplated in our long-term framework. And importantly, we'll continue to accelerate our path to achieving these goals where we see opportunity. And one of the things that I think will be helpful as we move forward is as you think about our priorities for 2026 and beyond, they really are underpinned by the 4 strategic growth pillars that Todd alluded to. And in short, I think they're going to really help guide our decision and investment as we move ahead. And so overall, a lot of reasons to be optimistic as we move forward. And I really do believe we're well positioned to grow sales, enhance margin, increase profit and capture more share going forward. Operator: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: As a follow-up to that last question, if you put the marginal together, we just don't have the interest, but it looks like it's kind of flattish year-over-year, maybe up a little bit. So if you look at operating margin, if you can just speak to that. And then, let's say, your comp comes in, I don't know, 3% or so. Are you leveraging expenses at that level? Does it need to be a bit higher? I'm not trying to be cute with 3%, but just trying to think about what are the tiers where we start to see more meaningful SG&A leverage such that whatever you've built into '26 ends up being better. Donny Lau: Yes. No, thanks, Simeon, for the question. I think you're thinking about things the right way. As I alluded to, we do expect gross margin improvement, but to a much lesser extent in -- versus 2025. And to your point, that will be partially offset by modest SG&A deleverage. And to your point also, the amount of SG&A deleverage will be somewhat dependent on our comp sales performance for the year. And more specifically, we do expect deleverage will occur until we're slightly ahead of that 3 points of comp. All that said, what I'll tell you is we feel really good about the guidance we provided today based on what we know today and especially in light of the evolving landscape, including some of the uncertainties that I mentioned, whether it's tariff rates or gas prices or consumer behavior. But keep in mind, we're well ahead of several of the goals contemplated in long-term financial framework. And just to contextualize, right? When we introduced the framework last March, we contemplated that the more meaningful contributors to gross margin in the first 2 to 3 years would be shrink and damages. So think more operational in nature. And we expect the benefits from other gross margin drivers ramping throughout this time frame and contributing more over time. And that expectation hasn't changed. What has changed is the margin recapture opportunity from shrink and damages has occurred at a much higher and faster rate than we initially contemplated. And the good news is we now expect even more benefit from these drivers than we initially thought. And the other gross margin drivers are progressing generally in line with our original expectations. And so in short, what's most encouraging for me is as you think about 2025, we were able to capitalize on opportunities to really accelerate our progress towards our long-term goals. And we're going to continue to focus on opportunities to further accelerate where we can. But overall, there's still a lot of the year left, but I like how we're positioned coming into 2026. And again, I think there's a lot of reasons to be optimistic as we move forward. Todd Vasos: And Donny, I would just add. On that SG&A rate, in that long-term framework, AI is not contemplated within that framework. And we've got a nice jump start there. And more to come as we continue to unfold the AI initiatives here at Dollar General. But I would tell you, they're squarely focused on 2 big areas, one being the customer and driving more sales and profitability with the customer, but also number two, the efficiencies that will come with -- through our supply chain, through our stores and, of course, all back of house with AI. So that should be a nice top spin as we move over the next couple of years as well. Operator: Our next question comes from the line of Robby Ohmes from Bank of America. Robert Ohmes: Actually two, just inflation. Can you talk about how much inflation helped in the fourth quarter? And then given the LIFO charges, maybe just walk us through what the inflation expectations are in consumables and nonconsumables and what's driving that for 2026? And then the second thing would just be I'd love to hear -- I know you guys started doing a lot of SKU reductions. What's been the benefit there? Is there more of that coming this year? And what are you -- how is that helping sales comps, margins, et cetera? Donny Lau: Yes. Maybe Robby, I'll take the first question. In terms of inflation, we are seeing inflation consistent with what others have referenced. So very low single digits as you think about consumables and nonconsumables. So pretty balanced there. I think in terms of the amount of inflation we're seeing, I mean, again, one way to think about that as a LIFO provision. It was a $45 million impact in the fourth quarter, so essentially 32 basis points. And so just as a reminder, LIFO reflects the cost increases, primarily based on the current tariff rates as well as what's been absorbed by vendors. And so something we're watching closely, but that's -- our expectations are embedded into our full year guidance. Todd Vasos: And what I'll do is just quickly start, but I'd like to pass over to Emily Taylor to talk a little bit about the SKU reduction. But it's been the cornerstone of part of our stabilization of retail. And I would tell you that the team has done just a fabulous job over the last 2 years, quite frankly, in reducing inventory. And there's more to come. So Emily, maybe if you were to talk about that. Emily Taylor: Sure. We've had aggressive SKU reduction plans really over the last few years, over 1,500 SKUs have been taken out the assortment. And I'll echo what Todd said. The team has done an excellent job of navigating that while also supporting growth in the business. We do have a net reduction plan for '26, and the team is well underway on getting that executed. Some of the benefits that come from it, and Todd mentioned inventory reduction, certainly has been helped with the SKU reduction in addition to a lot of other work that's gone around inventory optimization. But also, it ultimately supports the simplification effort that we've had, not just as it relates to our store activity but also our entire supply chain. And I'll call out a couple of other things that have really helped that effort. The team has also reduced floor stands pretty significantly in stores, which has helped reduce the overall really clutter inside our stores, and that continues to be executed as done. And then from a supply chain perspective, our DCs are executing more aggressive seasonal sorts, which helps to make sure stores are able to get product to the shelf faster, and we've seen great results there. Todd mentioned case fit earlier, that continues to be a focus of the team, which also supports overall SKU reduction inside the store. And it really does come together to support higher and better in-store conditions, which we're measuring in terms of clean, in-stock, recovered and engaged, and all metrics as it relates to that are up significantly versus prior year. So really excited about the results that the team's achieved and really believe it gives us momentum as we move forward to continue to drive these results. Operator: The next question is from the line of Rupesh Parikh, Oppenheimer. Rupesh Parikh: So two quick ones for me. So just from a modeling perspective, anything to highlight from a quarterly cadence perspective on the bottom line? And then with your nonconsumable efforts, just overall confidence in sustaining momentum, what's performed better than expected? And what are you assuming for trade in this year? Donny Lau: Yes. So I'm happy to take the first question, Rupesh. I think not a lot to add versus what we've already talked about in terms of the margin side of the house. Again, expect another year of margin expansion. We talked about the tailwinds and the headwinds. We talked a little bit about the SG&A and tax. The one thing maybe I will touch a little bit on is just overall, how we think about the headwinds and tailwinds for sales. And so from a tailwind perspective on the sales line, we are seeing great momentum across many of our initiatives, specifically what we're seeing out of remodels and nonconsumables. And as Todd alluded to, private label and digital, quite frankly. And all of this is really resonating with the customers. And I like the growth we're seeing with new customers and the trade-in customers and feel really good about our plans to retain a lot of them. And overall, spending remains pretty resilient from a consumer perspective. And also keep in mind, right, the OBBA, we do expect the tax relief to come in. We think that we'll be able to capture our fair share and hopefully more, and we're still early in the season there. In terms of headwinds, as Todd touched on, we also touched on in our prepared remarks, we do expect a modest impact, negative impact of sales just driven by the 2 weeks in Q1 by the winter storm activity, including temporary store closures. And consumer sentiment does remain cautious and stagnant, and inflation remains sticky and the macro environment continues to evolve, and we touched on tariffs and gas prices already. But overall, what I would tell you is really encouraged by our sales trends, feel good about the guidance we provided based on what we know today. And again, there's still a lot of year left. We'll see how things play out, but the goal is for us to be there for the customer, and we're really focused on delivering as much sales as possible. Todd Vasos: Rupesh, thanks for the second part of that question. I'm also going to pass it over to Emily in just a moment. But we're really proud of that nonconsumable business that we have cultivated and grown over the years, but definitely refocused over the last year and now leading into '26 with a lot of great momentum. I would tell you that with value being at front and center and the cornerstone of what the consumer is looking for, there's no better place to shop than Dollar General when you think of that especially in that nonconsumable world. And I would tell you that the customers really -- is really seeing that benefit. And then lastly, I would just tell you before I pass it over to Emily for some more detail is that our pOpshelf group has really done a nice job inside their stores, but also in helping inform our nonconsumable direction and businesses in the mother ship, if you will, or the Dollar General store. So that has really helped and will continue to help on both sides of the equation. Emily Taylor: Yes. And I would just say I'm very excited about the trajectory in the nonconsumable business. I mean Q4 is fourth consecutive quarter of positive same-store sales, fourth consecutive quarter of nonconsumables outperforming our strong results in the consumable area. And it really is a result of the great work that the merchant team has done to set up that area of our store. We are offering more for the customer today, not just in terms of value in this space, but also in terms of newness, and that's really helping to drive the results. So we've talked a lot about our brand partnerships, really focused on Dolly, kathy ireland, both very successful launches for us in '25. But as we move forward, the team has much more aggressive plans in place, and we're excited to bring that to life. I won't take you through the whole list, but 15 brands will launch this year, and I think it will resonate very strongly with the customer. Again, emphasizing that value component but also the surprise and delight that the team has worked so hard to bring to life in this space. In addition to assortment changes, though, I don't think it can be understated that launching shoppable social is a big game changer for us in this space. This is a brand-new way of shopping for a category that shoppers do tend to engage digitally more than with the rest of the store. And so bringing that to life through our delivery network that we built out in the nonconsumable space really changes the way our customer can interact with this area of our store. In addition to that, the team will keep working on making sure that we're bringing the right value to life, whether that's through direct purchase programs or through closeout buying, and the team looks at that closely. We think there's more opportunity on closeout again to drive even better value, but also find those surprise items, surprise brands perhaps that a customer wouldn't expect inside our store. So I think it all comes together to say, it helps explain the great trajectory that we're already on but also gives us a lot of confidence in building on that as we move ahead. Operator: The next question come from the line of Kate McShane with Goldman Sachs. Katharine McShane: We were wondering with regards to the delivery that you've been so successful at rolling out. It has seemed fairly seamless. But we wondered what you've had to do on your end to ensure the customer experience has continued to be positive. And if there's any kind of incremental labor that has been needed as a result of rolling this out. Todd Vasos: Kate, thanks for the question. Great to hear from you. I would tell you that it has been fairly seamless. Now as you would imagine, with a company our size and scope that we were paddling pretty hard on the backside to make it look seamless. The important thing is for the consumer, they have loved the initiative so far. As you imagine, we're only a couple of years into this. And last year, being quite frankly, a very strong year for us. And you heard that 80 basis points of our comp in Q4 was delivered through that delivery mechanism. I would say that as I look forward, the great thing about the delivery program for me is that the customer is already resonating and we're just getting started, right? And so we've been on the third-party journey for the last couple of years, but really just launched in earnest myDG delivery in 2025. And that's really where we'll get the majority of the leverage to include that media network, which has already contributed greatly to the gross margin, and we'll continue to do so. And Emily, you may want to give us just a couple of bullet points on delivery. Emily Taylor: Yes, sure. So from a delivery perspective, really excited about it. I'll address some of the focus areas for us in delivery. I mean, certainly, in stocks matter a lot as it relates to the ability to fulfill the delivery orders. And that's where our in-stocks in Q4 were up about 250 basis points above where they were same time period last year. So we'll continue that focus. And that, of course, helps our in-store business as well as delivery. We're also very focused on the digital experience for the customer. And so we have enhancements that are coming out that I think our customers are going to be very excited about, including an improved and expanded search capability, which is very important for the customer. It's also important for the media network. But all in, excited about what we're seeing out of delivery. I'll give a couple more points. We see our existing customers who use delivery shop us more often with this capability, which is exciting to us. We see new customers at a very high rate getting exposed to Dollar General through our delivery channels, and that's also very exciting. So what we really like is it's highly incremental to sales, and it is a profitable business for us. And then just as Todd mentioned, it supports our efforts around media network as well. And this has really helped to drive the business to the $170 million that we quoted in the prepared remarks. And as we move ahead, we see continued opportunity there as well. Advertisers love that we offer a unique and unduplicated reach into the communities that we serve for them. And we have a lot of initiatives underway to help drive this business forward as we move ahead, and the expansion of Media Network, of course, grows as we're able to grow our digital assets and delivery certainly helps us do that. So it's very much cojoined with our strategic priorities going forward. Donny Lau: Yes. And the thing that probably excites me the most, everyone, is really -- I do believe this represents 2 incremental profit pools for us, right? So as Emily alluded to, delivery is highly accretive from a sales and profit perspective, right? Media Network is highly accretive from a profit perspective. And the beauty of it is, right, they are self-reinforcing. And so as we continue to grow delivery, we'll continue to grow DG Media Network, which in turn should help fill even more delivery growth. And so really excited about what this could mean for the business. And the great news is we're still early days, but a lot of opportunities as we move ahead. Operator: Our next question is from the line of Kelly Bania with BMO Capital. Kelly Bania: Just wanted to go back to the bigger picture of the margin discussion. It sounds like shrink, obviously, the outlook is 50 basis points higher than your prior plan from last year. Can you just talk about the processes or reasons of why that should go higher? I think you also commented that inventory should maybe start to grow maybe less than sales, but albeit grow? And then on the flip side, I think it sounds like the DG Media contribution is maybe a little bit lower than what it was previously. Is that accurate? And can you just talk about what kind of digital penetration and growth you need in order to achieve the targets that you've outlined today? Todd Vasos: I'll start, and Emily, you could fill in a little bit on the Media Network and what we're seeing there. I would tell you that we feel really good, Kelly, about where we're headed on that shrink side and damage side. This is nothing new for Dollar General. We know what to do here. I said that over a year ago, and I said that when I first came back in the chair in 2023. And we've executed very, very nicely. We believe that there's still more to come. We were -- I wouldn't say conservative, but knowing that the macro environment had changed some since 2019, we leaned into that 2019 levels of shrink to be able to get back to. But we're starting to see where it could be back to 2017 type of levels even. And so the team has done a great job. But again, there's no big silver bullets there. It's really execution. It's taking the self-checkout units out, turning them into assisted lanes was a big win, staffing that front end 100% of the time, a big win. And then the inventory control is a huge opportunity, has been and will continue to be, especially as we move forward in the damage side of the equation while shrink has moved a lot faster in the positive for us, damages have moved positive, but not at the same pace. We believe that '26 is the year '26 here will be the time for damages to move at that quick rate. Matter of fact, just out of the chute, yes, only one period in, in Q1, we're already seeing that on the damage line and happy about what we're seeing there. So more to come, more to like there. And how I would think about that in totality is it gives us, and Donny mentioned, a much more confidence in achieving even at higher ends of the framework that we put out there. So that's how I would look at it as an investor. But Emily, you may want to just talk a little bit about the Media Network and all the great things that we've got there. Emily Taylor: Sure. So just first, as a reminder, we started the Media Network here at Dollar General back in 2018. The team has done a really nice job building it into the $170 million business than it is today, but we do see a big opportunity as we move ahead to continue to increase that. Some of the specific opportunities that we see would first be growth in owned and operated properties. So this is in our app, our website and our stores as well. From an app and website perspective, the search that I mentioned previously that matters so much to our customer is also very important to advertisers, and that is going to roll out this year, and we're excited to bring that to life. From an in-store perspective, we are rolling out new opportunities, including an in-store audio program this year. And in-store media overall, which is, of course, right at the point of purchase where our customers really appeals to the advertisers that we have in the network because of the high returns that they see and because of the scale that we can deliver with our 21,000 stores. And at the same time, as we're focused on growing owned and operated, we are expanding our off-site footprint as well, looking into more expanded social placements, connected TV and video. And as we roll that out, we do have in place closed-loop measurement for our advertisers so that they're able to see returns and, of course, so that we can monitor and measure and help drive those as well. So really a lot going on in the media network that gives us good confidence that we can continue to grow it. And as we said, growing delivery matters a lot as we increase our audience size. And so I do think that also gives us a tailwind as we continue to scale that business. Operator: Our last question will be coming from the line of Seth Sigman with Barclays. Seth Sigman: Great progress. I wanted to focus on free cash flow, which has increased pretty meaningfully over the last year again. A lot of things working. Can you talk a little bit more about that opportunity to further optimize inventory? But also payables, that's been a big benefit here. What's changing? How much more can that go? And then finally, related, how do you think about returning to the market for buybacks? How should we think about the time frame? Donny Lau: Yes. No, I appreciate the question. And maybe I'll just take a step back and talk a little bit more about capital allocation, which will kind of dovetail a little bit more in the cash flow generation ability of this business, which obviously is very substantial. Yes, as we alluded to in the prepared remarks, our capital allocation parties really haven't changed there at Dollar General. Yes, that the goal is really we want to ensure ample liquidity. I think about it as maintaining a fortress balance sheet. But we also want to obviously maintain the investment-grade credit rating. We're going to invest in high-return projects. We're going to maintain the dividend. And then we want to return excess cash to shareholders through share repurchases where appropriate. That said, the focus has been on deleveraging of the balance sheet in order to really further improve our leverage metrics while continuing to enhance our flexibility. And the great news is, right, just given the significant improvement in cash flow this year, again, as a reminder, operating cash flow was up 21%, $3.6 billion. And so even when you exclude CapEx, the cash flow yield of the business is pretty substantial. Just given the strength of that, it did provide us the opportunity to redeem a total of almost $1.7 billion in senior notes in 2025. And the beauty about this is it helps to further strengthen the balance sheet, reduce future interest expense and provide even more flexibility going forward. To your question on share repurchases specifically, while our guidance does not assume the repurchase of any shares this year. Share repurchases are an important component and driver of the long-term financial framework. And the model contemplates we restart our repurchase program in 2027. And so more to come here, but feel really good about the progress we're making from a balance sheet and liquidity perspective. And then in terms of cash flow, obviously, something we're very focused on. We think there's still opportunities to optimize inventory levels in our position. And we do expect continued AP leverage as we move ahead. But not to the extent that we saw in 2025. Operator: Ladies and gentlemen, this will conclude our question-and-answer session, and will also conclude today's conference. We thank you for joining us today and for your participation. You may now disconnect your lines, and have a wonderful day.
Operator: Greetings, and welcome to the KLX Energy Services Holdings, Inc. Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard. Thank you, Ken. You may begin. Ken Dennard: Thank you, operator, and good morning, everyone. We appreciate you joining us for the KLX Energy Services Holdings, Inc. conference call and webcast to review fourth quarter and full year 2025 results. With me today are Christopher J. Baker, President and Chief Executive Officer, and Jeff Stanford, Interim Chief Financial Officer. Following my remarks, management will provide commentary on its quarterly financial results and outlook before opening the call for your questions. There will be a replay of today's call that will be available by webcast on the company's website at klx.com. There will also be a telephonic recorded replay available until 03/26/2026, and, of course, there is more information on how to access these replay features that was in yesterday's earnings release. Please note that information reported on this call speaks only as of today, 03/12/2026, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also, comments on this call will contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of KLX Energy Services Holdings, Inc. management; however, various risks, uncertainties, and contingencies could cause actual results, performance, or achievements to differ materially from those expressed in the statements made by management. The listener or reader is encouraged to read the Annual Report on Form 10-Ks, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K to understand certain risks, uncertainties, and contingencies. The comments today will also include certain non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in the quarterly press release, which can also be found on the KLX Energy Services Holdings, Inc. website. I will now turn the call over to Christopher J. Baker. Christopher J. Baker: Thank you, Ken. And good morning, everyone. Before we discuss our results, I would like to take a moment to say our thoughts and prayers are with all of the military personnel serving in the Middle East in the midst of this significant conflict. KLX Energy Services Holdings, Inc. has very close ties to our military. There are almost 100 veterans that work for KLX Energy Services Holdings, Inc., and so many other veterans and their family members in the broader oilfield services space that we are all connected in some way. So, again, our thoughts and prayers to all of our men and women in the military for a safe return. We sincerely thank you for your service. Now for our 2025 performance. 2025 was another solid year for KLX Energy Services Holdings, Inc. despite a choppy market, and we finished the year on a high note. The fourth quarter delivered our strongest profitability of the year with adjusted EBITDA and adjusted EBITDA margin both at 2025 highs. Throughout 2025, we continued to optimize our corporate cost structure and thoughtfully invested in our product lines while leaning into gas-weighted asset allocation as we realigned certain product service lines and benefited from capacity rationalization in the industry. KLX Energy Services Holdings, Inc. continues to execute against the playbook that we have outlined on prior calls. We focus on higher-margin, technically differentiated work, lean into cost discipline, and are very intentional and diligent about where we strategically deploy capital and people. Operationally, the Northeast/Mid-Con segment was the standout in the quarter. Despite typical winter weather and year-end budget dynamics, that segment held revenue essentially flat sequentially and, again, expanded margins, driven by robust demand in our gas-directed work. Our dry gas exposure continued to grow as a share of the portfolio, and gas-levered revenue has steadily been marching back toward prior cycle peaks. In fact, dry gas revenue in this segment increased 5.3% quarter over quarter and 44% when you compare 2025 versus 2024, with broad-based gains across most of the product service lines we operate in this segment. On the other side of the ledger, the Rockies and Southwest reflected the realities of the macro environment. The Rockies were impacted by severe weather and customer budget exhaustion late in the year, and the Southwest experienced lower activity or reduced oil-directed rigs in the Permian. Even in that backdrop, Southwest margins expanded as we optimized our product and service mix, which is exactly the kind of blocking and tackling that is firmly within our control. Across the business, we continue to cut the suit to fit demand by aligning our footprint and cost structure with activity levels. We reduced headcount while protecting service quality. We maintained healthy metrics for revenue per rig and revenue per headcount, and we drove a meaningful reduction in our corporate costs year over year. Our efficiency metrics remain solid. In Q4, revenue per rig was approximately $297,000, the second-highest quarter of the year, and we delivered more than $40,000 of EBITDA per rig for the second time in 2025. Revenue per headcount also held up well, consistent with our focus on aligning staffing with activity. I would like to take this time to personally thank everyone at KLX Energy Services Holdings, Inc. for their hard work, dedication, and persistence, which allowed us to achieve the above results in an admittedly challenging macro environment. Our employees' commitment to safe, efficient, and quality work performance is what drives KLX Energy Services Holdings, Inc. and is the basis of the strong customer relationships that help us stand out from competitors. With that overview, I will now turn the call over to Jeff to review our financial results in greater detail, and I will return later in the call to discuss our outlook. Jeff? Jeff Stanford: Thanks, Chris. Good morning, everybody. Starting with the fourth quarter, we generated revenues of approximately $157 million, which was in line with our Q4 guidance. As expected, revenues decreased due to seasonality and budget exhaustion. We generated approximately $23 million of adjusted EBITDA, our highest quarterly adjusted EBITDA of the year, and an adjusted EBITDA margin of about 14%, also the high for 2025. The margin performance reflected favorable product line mix, ongoing cost reductions and normal fourth-quarter accrual unwind as well as impacts from our fleet refresh, asset rationalization, and other year-end items. By segment, Northeast/Mid-Con revenue was essentially flat sequentially at $69.6 million, up about 0.5%, while delivering another quarter of adjusted EBITDA margin expansion to 25.3% and $15.1 million of total adjusted EBITDA, driven by gas-directed activity. Within that segment, dry gas revenue increased 5.3% quarter over quarter, continuing the trend of our gas-levered revenue base growing as a share of the portfolio. In the Rockies, revenues declined to $46.3 million, roughly 9% sequentially, primarily due to weather, seasonality, and customer budget exhaustion. Adjusted EBITDA declined to $6.9 million, or 15%. In the Southwest, revenue declined about 10% to $50.9 million from the third quarter, mostly tied to budget exhaustion and softer oil-directed activity in the Permian. Adjusted EBITDA increased to $6.8 million, or 33%. On corporate costs, we made measurable progress. Corporate adjusted EBITDA loss improved to approximately $6.3 million in Q4, down from $6.6 million in Q3. For the full year, corporate adjusted EBITDA loss was around $26 million, bringing us back toward the 2021–2022 levels. This reflects structural G&A rightsizing, including approximately a 12% decline in total headcount when comparing average Q4 2025 headcount versus Q4 2024. Turning to capital allocation, net CapEx for 2025 was approximately $33 million. For 2026, we expect gross capital expenditures of approximately $40 million, down from $49 million in 2025, and net CapEx in the range of $30 million to $35 million, with the vast majority of that devoted to maintenance CapEx. Cash flow generation was strong in Q4, with cash provided by operating activities at $13 million, slightly lower than the $14 million in Q3 due to the aforementioned seasonality and budget exhaustion affecting the bottom line. Unlevered free cash flow was $15 million, a 43% increase over Q3. Total debt at year end was $258.3 million, including $222.3 million in senior notes and $36 million in ABL borrowings, down from Q3 total of $259.2 million. We ended the year with available liquidity of approximately $56 million, including availability of approximately $50 million on the December 2025 asset-based revolving credit facility borrowing base certificate and approximately $6 million in cash and cash equivalents. Of note, due to the New Year's Eve holiday timing, 12/31/2025, we drew approximately $8 million in cash to fund the first payroll of 2026. From a balance sheet perspective, our capital lease obligations grew from their low point in 2025 due to our previously discussed fleet refresh initiative but will amortize down quickly through 2026, and we expect a meaningfully lower capital lease balance at year end. In addition, our coil leases roll off at the end of 2026, which will eliminate approximately $8.2 million of annual lease payments from our cash outflows beginning in 2027 and create incremental cash flow. During the fourth quarter, the company paid senior note interest expense two-thirds in cash and one-third in PIK. We will evaluate future cash versus PIK decisions based on market conditions, and company leverage and liquidity. As of the first two months of 2026, the company paid 25% cash and 75% in PIK. We were in compliance with all covenants under our senior notes. At year end, our net leverage ratio was 4.07x versus a covenant of 4.5x, and the covenant was scheduled to step down to 4.0x at 03/31/2026. As we work through the 10-K filing, stress testing for market risk indicated a potential need for a covenant relief in future periods. We took the proactive step to amend the indenture and provide adequate cushion for the next five quarters. The amendment provides that the covenant will remain 4.5x through 03/31/2027, resuming to the original step-downs as of 06/30/2027. The amendment also excludes capital lease balances from the leverage ratio calculation during the same period, affording us incremental flexibility to fund CapEx, M&A, and other capital needs. With that, I will hand it back over to Chris for his concluding remarks. Christopher J. Baker: Thanks, Jeff. Let me start with the market backdrop and how we are thinking about 2026. We are approaching the year with a constructive but measured outlook. We expect the first quarter to be the low point for the year, reflecting the familiar seasonal combination of customer budget resets, slower restarts of completion programs, and weather-related disruptions. Beyond Q1, we see a path to a gradually improving market led by gas-directed basins, where we believe incremental rigs are more likely to show up before we see a more meaningful recovery in certain oil-directed markets. This, of course, is tenuous given the Middle East situation, and we will continue to monitor for oil-directed activity inflections. Our portfolio is increasingly aligned with that opportunity set. The Northeast/Mid-Con and other gas-focused basins have been areas of momentum for us, and we expect them to remain important contributors as potential areas of growth on a relative basis. In oil-directed basins, particularly the Permian, we are managing through what has been a slow, extended downturn by rightsizing our footprint and cost structure to current demand while maintaining the flexibility to respond when conditions improve. Finally, in terms of how we are framing 2026 revenue, our internal budget contemplates a year that is broadly flat to slightly up versus 2025, with the majority of improvement weighted toward the second half of the year, yielding results that trend toward the stronger run rate we delivered in 2025. That framework will be updated as the year progresses and we gain more visibility into customer plans and basin-level activity. From a Q1 perspective, we are forecasting revenue of $145 million to $150 million, down approximately 3% from 2025 despite rig count being down 8% over the same period. This forecast does include the impact of Winter Storm Firm, where we lost approximately four to five revenue days in many product service lines in certain districts. Looking forward to Q2 2026, we expect revenue to rebound to the $160 million to $170 million range, which is higher than Q1 2025. Industry consolidation and capacity rationalization remain important themes across the oilfield services landscape, and we believe KLX Energy Services Holdings, Inc. is well positioned to be a net beneficiary. We have seen a number of smaller competitors exit the market in the last several months, which helped remove inefficient capacity and support a more rational competitive environment. On capital and fleet readiness, our philosophy has not changed. We continue to invest at a level that maintains our asset base and keeps us ready for a market inflection. At the same time, our capital program is disciplined and predominantly maintenance-oriented, which we believe strikes the right balance between prudence and preparedness in the current environment. With that, we will now take your questions. Operator, thank you. Operator: We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Steve Ferazani with Sidoti & Company. Christopher J. Baker: Please proceed with your question. Steve Ferazani: Good morning, Chris. Morning, Jeff. Appreciate all the two positive surprises, very similar to what you reported in 3Q, in that, at least compared to our estimates, Northeast/Mid-Con was stronger and your margins were much stronger than we were modeling. Can you provide— and you covered this in the call, but I was hoping for a little bit more color, particularly on the strength in Northeast/Mid-Con, which normally would expect to see some hit late in the year because of weather. Christopher J. Baker: Good— first of all, good morning, Steve. Appreciate the question. I think if you look at the segment as a whole, when you think about Mid-Con through our ArcoTex to the Northeast, it is a pretty geographically diverse segment. But if you look at segment-level rig count aggregated, rig count increased about 6% across that entire segment quarter over quarter. Our dry gas exposure, as we referenced in the call, increased 5.3%, and furthermore, to your question, I think all of the service lines held up exceptionally well. It is a continuation of the theme, and I think you asked a similar question last quarter. We saw an early start in the Northeast last year that sustained through Q4, and we were not sure how well it would sustain through November and December post-Thanksgiving because that is a very seasonally impacted business. But we saw the Mid-Con continue with completion programs through the year end. We continue to see wins in our accommodations business, our flowback business in East Texas. And so, yes, it held up exceptionally well. Margin, of course, held up well, and, yes, look, we would forecast a slight decrease in revenue in that segment in Q1, predominantly tied to the previously discussed Winter Storm Firm, which really hit the Mid-Con pretty hard. But overall, we expect continued improvements throughout 2026. Steve Ferazani: And then the overall margin improvement, how much of that do you owe to product line mix versus efficiencies versus what clearly has been some cost reductions? Is it very much a mix, or would you weigh it more towards one or the other? Christopher J. Baker: I think— it is a great question. In the Northeast/Mid-Con specifically, I think it is both, I guess. But, yes, it is really lack of white space, really absorption of fixed costs, staying sustainably busy, and product line mix. Steve Ferazani: Helpful. Switching to the Southwest, when I look at that revenue line, was that primarily the impact on your completion product lines, and I am assuming that continues at least through the first part of Q1. Christopher J. Baker: Yes. It is a combination. We actually saw some on the drilling side of the business. Rig count stayed pretty flat. I think it was up from a segment level when you combine all of the Southwest basins by about 2%. But, yes, we did see some budget exhaustion and completion programs tailing off going into the fourth quarter. Some of our PSL and asset realignment rotations that we referenced on the call were really pulling certain assets out of the Southwest segment, pushing them into the Haynesville, so that attributes to some of the revenue decline. Steve Ferazani: That makes sense. Okay. That is helpful. In terms of how you are thinking about CapEx and cash as we go into 2026, and knowing that we have markets that can move in different directions given the uncertainty that is out there, how are you thinking about CapEx and cash flow as we enter the year, knowing it can clearly change? Christopher J. Baker: Look, the world is in turmoil, and we are not budgeting for increases, clearly. Our budget was set before the events of eleven days ago, twelve days ago really kicked off. And so we are targeting gross capital spending of $40 million. That is down from $49 million on a year-over-year basis in a year when we think revenue is flat to up. And so I think that speaks to, A, we do not have a lot of end-up need for incremental CapEx in our business. We have continued to spend to support the business, and we think that we will continue to see some asset rationalization— DBR tools, lost-in-hole, etc.— that will drive net CapEx down into the $30 million to $35 million range. That is all subject to change based on market inflections, but I think we are doing the appropriate level of spending and being prudent, so we are staged and ready to go for any market inflection. Steve Ferazani: Got it. And if I could talk just about the PIK option, how you are thinking about that, and then the covenant relief. It looks— typically you have very significant working capital seasonality, and typically 1Q is your significant cash outflow. The covenant relief, is that primarily related to what we see as typically the working capital build in Q1, which would potentially put you at a closer point to where it was going to step down to? And how do you think about the relief now in your comfort level over the next few quarters? Jeff Stanford: Hey, guys. Good morning, Steve. This is Jeff Stanford. Great question on that. The waiver— we know, closing our books out, doing our year-end budget, going through the year-end audit— we are going through all these things at year end. We do look at stress testing of that, so you look at certain ramifications if this happens or that happens. Going through that stress testing, we entered into it more as a proactive measure, give us some cushion for the future periods, goes out five quarters or fifteen months, so we feel really good about that. It gives us a lot of cushion there. But a lot of things happen as you move forward. Working capital is one piece of that, but also, as you stress test the model, what does it look like? So that provided us a good proactive measure to make sure we had cushion for future periods. That is the main reason that we entered into the waiver. As far as the PIK option, I think your first question— we PIKed 75% in January and February of this year. We did PIK 33% of it in Q4. The PIK option on the note is designed for flexibility. We utilize that flexibility as we see fit. So, in this case, we PIK some, we pay some in cash, and we look at it, kind of throttle up and down as we need to. Market dynamics, liquidity, leverage considerations are taken into account in our algorithm. That is how we want to do it. That is what we did in the past and what we are doing the first two months of this year. That is how we look at the PIK option. We do like that flexibility and use it as needed. Steve Ferazani: Got it. That is helpful. And, Chris, I know it is way too early to really have an outlook on this, but what is your take on the potential impact from the Middle East conflict if it is extended? If it is not, what do you think— and I know there are a lot of different outcomes— but just how you are looking at it on your business and what the potential outcomes could be. Christopher J. Baker: It is a great question. Just one thing I want to clarify on the PIK, to Jeff's point. Recall our leverage ratio includes capital lease balances as debt. That capital lease balance at year end is going to amortize off pretty significantly this year. And so there is an amount that you can PIK where you can stay, all else equal, basically net-debt neutral. And so that is another consideration that we factor in when we think about overall leverage profile. Returning to your question, it is a great question regarding the Middle East conflict, and as we said at the outset, thoughts and prayers to the servicemen and women that are over there. If you think on a historical basis, Steve, we have typically seen a 60- to 90-day lag in activity increases or decreases post commodity prices moving. What we saw in April was almost an immediate reaction, but we definitely saw kind of 45–60 days, a material reduction in rig count post “Liberation Day” with the tariffs and when commodity prices change. We have not seen— so I think what that speaks to is the cycles have gotten shorter, and that is for a couple of reasons. Operators do not have a lot of duration and tenor in their rig contracts today. They are going pad to pad, well to well, etc., and so they react in much shorter time frames than they have historically. We have not really seen any reaction to $100 crude yet, and we think most operators are taking a wait-and-see approach. They just set their 2026 budgets. It is hard to say. What I will say is, as of this morning, the forward strip— you can do forward swaps at $72-plus in December ’26— but the strip, and the tail of the strip, is clearly much more conducive to Lower 48 activity. The other point would be, from a KLX Energy Services Holdings, Inc. perspective, we do not actually have to see incremental rig count to see increases in our own activity. If you think about our completion, production, intervention business line, we benefit from increases in refrac activity, workovers, well intervention, stimulation of existing wells. We have talked a lot over the last year about how the refrac market, specifically in the Bakken, to a lesser extent in the Eagle Ford, slowed down through 2025. We are keeping our ear to the ground, trying to stay close to customers. We will see how protracted the situation becomes, how much energy infrastructure in the Middle East is damaged, and what happens to commodity prices, and I think specifically the tail over the next month. But, as you know, KLX Energy Services Holdings, Inc. has the right asset base. We have the right technology and people. If customers elect to ramp activity, we will absolutely be there and be prepared to participate. Steve Ferazani: That is great. Thanks, Chris. Thanks, Jeff. Christopher J. Baker: Appreciate it, Steve. Thanks, Steve. Ken Dennard: Thanks, Steve. This is Ken. John Daniel— he had to drop, but he emailed me some questions, and so I am going to read them to you so that way, he will hear them on the replay. Fair enough. John Daniel: There continues to be a push by some operators to move to simulfrac operations. Can you speak to your frac business and customer base and let us know what trends you are seeing? Christopher J. Baker: At a high level, specifically in the Mid-Con, we have not seen the huge adoption of simulfrac relative— on the same pace— that we have seen in other basins. We clearly are participating in simulfrac in the Permian and other basins in a very material way with our frac rentals business, wellhead isolation business, etc. That is not to say that the Mid-Con has not adopted simulfrac, but I think there are numerous reasons for the slower adoption rate, one being the acreage profile, operator size, in some instances pad sizes, lack of electrical infrastructure when you think about comparing to the large electric spreads in the Permian. We have seen some adoption. I would say, on a stage count basis, if you think about our forecast for this year, we are probably somewhere between 25%–30% simulfrac, and that is up year over year, but it clearly does not have the propensity that you would see in the Permian. John Daniel: So if not mistaken, that is not a basin that has seen a lot of new capacity in some years. So would it seem that attrition would be a little more pronounced, or is that too optimistic on my part? Christopher J. Baker: John is always optimistic, but tying back to the first part of the question, simulfrac definitely adds a layer of complexity— incremental horsepower needs— that some providers just are not adept at managing either from a rate or pressure perspective. A lot of providers are limited to 100 barrels a minute under 10k. As you think about attrition within the basin— and I am sure John is on the call; I am sure he is aware— the general industry said there were about 10 spreads sold last year to international locations. Most of those spreads were Tier 2 equipment. There was some horsepower that left the basin. But as you think about the basin today, it is amply supplied. I do not think we are short horsepower by any stretch, and barring any material pickup in activity— back to Steve’s prior question around the Middle East situation, commodity prices— barring any material pickup in activity, I think John is probably optimistic that attrition is going to drive overall results. I think it is a pretty balanced basin today. John Daniel: Second topic is coiled tubing. We have heard at least one coiled tubing company suspending operations in recent months, and we believe some of those assets may be reconstituted by some other folks. At the same time, there are a very small number of units being built. Thus, on one hand are those who have struggled and those who are doing well. Can you give us your thoughts on the U.S. coiled tubing market? Do you see the sector beginning to rationalize itself, or is that something you expect will occur in the next year or two, if at all? Christopher J. Baker: That is a broad question. I will jump in on the first point. We have definitely seen some attrition of units. We have seen over the last couple years— one player exited the market about two years ago and that equipment candidly vanished. I am aware of the player that John is talking about. The majority of the optimal assets were reconstituted into and absorbed by a pretty sizable player in the business today. There were some assets that landed in a startup. We are aware of another situation that is currently active with another smaller player exiting the market altogether. So, yes, I think the business is shaking out, but for different market dynamics. If you think about the Bakken, that has shrunk as a coil market. We have seen players move equipment out of the Bakken, either back to Canada or down to the Permian and other basins, Waco, and so there has been a lot of coil decline in certain regions due to the length of the wellbores surpassing capacity of the units in those regions and the growth of snubbing and stick pipe. Pivoting to the second part of his question, from a new build perspective, John is correct. There are very few new build units that are under construction, and the ones that are are solely focused on ultra-deep, extended-reach laterals. That is where the market is heading. The routine frac screen-outs, wellbore cleanouts have become fewer and fewer, and so a provider has to have the expertise, the scale, to manage all of the technologies required to complete four-mile laterals with coiled tubing. That is multiple ERTs, coil connectors, string and fluid design— they all have to be optimized. Risk and pipe costs are increased, and operators are monitoring ROP KPIs in real time, and switching costs are candidly minimal as they are trying to think about the risk-reward and efficiency gains of coil versus alternatives. Candidly, I think that is where KLX Energy Services Holdings, Inc. has an advantage with our in-house proprietary mud motors, our extended reach tools, as well as additional technologies that we are bringing to bear to extend the commercially viable life of coiled tubing and expand the addressable wellbores. Operator: Good. Okay. This concludes our Q&A session. I would now like to turn the call back over to Christopher J. Baker for final comments. Christopher J. Baker: Thank you once again for joining us on this call today and for your continued interest in KLX Energy Services Holdings, Inc. We look forward to speaking with you next quarter. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Operator: Good morning, and welcome to the 2025 Financial Results Conference Call and Webcast. As a reminder, all participants are on a listen-only mode, and this conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1. You may also signal an operator by pressing star. I would now like to turn the conference over to Jennifer North, Head of Investor Relations. Ma'am, please go ahead. Jennifer North: Thank you, operator. Good morning, everyone, and welcome to Avino Silver & Gold Mines Ltd.'s Q4 and Year-End 2025 Earnings Call and Webcast. To join this webcast and conference call, there is a link in our news release of yesterday's date, which can be found on our new website under Investor Center, then News and Media. In addition, a link can be found on the home page of the Avino Silver & Gold Mines Ltd. website. The full financial statements and MD&A are now available on our website under the Investor Center tab, then Reports and Financials. In addition, the full statements are available on Avino Silver & Gold Mines Ltd.'s profile on SEDAR+ and on EDGAR. Before we get started, I remind you to view our precautionary language regarding forward-looking statements and the risk factors pertaining to these statements, and note that certain statements made today on this call by the management team may include forward-looking information within the meaning of applicable securities laws. Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results to be materially different than those expressed by or implied by such forward-looking statements. For additional information, we refer you to our detailed cautionary note in the presentation related to this call or on our press release of yesterday's date. On the call today, we have the company's President and CEO, David Wolfin; our Chief Financial Officer, Nathan Harte; our Chief Operating Officer, Carlos Rodriguez; and our VP of Technical Services, Peter Latta. I would like to remind everyone that this conference call is being recorded and will be available for replay later today. The replay information and the presentation slides from this conference call and webcast will be available on the website. Also, note that all figures stated are in U.S. dollars unless otherwise noted. Thank you. I will now hand over the call to Avino Silver & Gold Mines Ltd.'s President and CEO, David Wolfin. David? David Wolfin: Thanks, Jen. Good morning, everyone, and welcome to Avino Silver & Gold Mines Ltd.'s 2026 outlook discussion, followed by a Q&A. I will start with the discussion on operations and overall performance, and then I will turn it over to Nathan Harte, Avino Silver & Gold Mines Ltd.'s CFO, to discuss the financial performance for this period. Please turn to Slide 5. We are transforming Avino Silver & Gold Mines Ltd. from a single-mine operator into a multi-asset Mexican mid-tier producer. Avino Silver & Gold Mines Ltd. achieved a number of important milestones in 2025, underpinned by strong performance at the Avino mine and the commencement of development and material extraction at La Preciosa. The 2025 year represents a return to being a primary silver producer as silver production represented over 50% of our consolidated silver-equivalent production and puts us on our way to our long-term target. Our continued investment in infrastructure development and mine optimization reflects a disciplined approach to being a scalable multi-asset production platform. As we look forward, our focus remains on executing the next phase of our growth strategy and delivering long-term value for shareholders. The first key driver contributing to our success in 2025 was our continued disciplined approach to financial management and capital allocation. At the end of the year, Avino Silver & Gold Mines Ltd. achieved record revenues of $92,200,000 and held cash of $102,000,000 and a working capital position of $99,000,000, providing another quarter of strong financial performance. A strong balance sheet will provide the foundation to support our transformational growth plan to become a Mexican-focused mid-tier primary silver producer. Nathan will provide a detailed overview of the financials later in the call. Next, key drivers stem from increased development tonnage at La Preciosa. We commenced extraction, haulage, and processing of mineralized development material from La Osa during the quarter at an average rate of 200 tons per day. In total, 11,995 tons of material were processed at the Avino milling and processing facility, which is located 19 kilometers away from the entrance of the La Preciosa mine. The third driver reflected portfolio optimization, highlighted by the August announcement of the acquisition of outstanding royalties and contingent payments on La Preciosa. This milestone reinforces the consolidation of ownership at La Preciosa, improving project economics and operational flexibility. Removing third-party obligations reduces complexity and strengthens Avino Silver & Gold Mines Ltd.'s asset portfolio. We believe this enhances shareholder value by strengthening our portfolio and positioning Avino Silver & Gold Mines Ltd. for sustained growth. Another key driver underpinning our results is the commitment we have made to strategic exploration and drilling that further unlock additional resource potential. We reported drill results from La Preciosa in October 2025, which followed up from August 2025 drilling, and also announced further holes in January. The results exceeded our expectations. Highlights included 7.9 meters true width of 1.6 kilograms of silver and 2 grams gold, including 15 kilograms of silver and 1.55 grams gold over 0.37 meters of true width. Another significant intercept was over 5 meters of true width of 787 grams silver and 0.5 grams of gold. The full results are available in the news release, which can be found on our website. The intercepts are significantly higher than the average grades outlined in our current resource, highlighting the potential we aim to capture by using underground mining methods. In addition, larger widths encountered at both La Gloria and Abundancia were a welcomed surprise, underscoring that there is still much to learn about the deposit despite the 1,500 drill holes on the property and substantial exploration investment performed by previous operators. Since acquiring La Preciosa, we have learned that recent drilling intercepts suggest wider vein structures on Gloria. The original mine plan is evolving to reflect improved geological understanding. Optimization opportunities are being identified that could reduce mining costs. We have engaged independent engineers to deliver a strategic plan that looks beyond the original project scope. The next driver was increasing silver revenues at the right time, a return to primary silver with 54% silver revenue in Q4, and record revenues, operational cash flow, and free cash flow generation in Q4. Our final driver for Q4 and year-end included stronger metal prices alongside increasing market recognition. Higher metal prices at the end of 2025 and into early 2026 have supported our strong performance. Avino Silver & Gold Mines Ltd.'s continued growth and strength in market recognition resulted in being named fifth among the top-performing companies on the Toronto Stock Exchange 2025 TSX 30. For the three years ended 06/30/2025, Avino Silver & Gold Mines Ltd.'s share price performance increased 610% and the market capitalization increased 778%. In addition to this, Avino Silver & Gold Mines Ltd. has been added to several ETFs: MarketVector's Junior Gold Miners Index and VanEck's Junior Gold Miners ETF, the GDXJ, Global X Silver Miners, and more. ETF inclusion signals institutional recognition while improving liquidity and expanding global investor access. These achievements demonstrate the meaningful progress made in advancing Avino Silver & Gold Mines Ltd.'s transformational growth strategy while reinforcing the company's investment case. Moving to Slide 6, we turn to our Q4 and year-end 2025 production results, which were released in mid-January and reflect steady operational performance. On this slide, we show our production results compared to Q4 and year-end 2024, with production remaining consistent at approximately 2,600,000 silver-equivalent ounces while total mill feed increased 14% year over year. On Slide 7, we highlighted production by operation, showing contributions from both Avino and La Preciosa for the year. We are particularly pleased to add just under 12,000 tons of La Preciosa material to our production results. At this time, I will now hand it over to Nathan Harte, Avino Silver & Gold Mines Ltd.'s CFO, to present a record financial performance for Q4 and year-end 2025. Nathan? Nathan Harte: Thank you, David, and thank you to all of you for taking the time to join us as we recap a record year with our financial and operating results for the fourth quarter and full year 2025. Here on Slide 8, we have an overview of some key financial and operating highlights, and our improved balance sheet, with the full table on the next slide. In the fourth quarter, we generated record revenues of over $30,000,000 and a further record of $92,000,000 for the full year, despite lower ounces sold. With higher silver production, the fourth quarter marks a return to primary silver with revenues of 54% being generated from silver in the quarter, with expectations of that to continue into 2026 and beyond. Gross profit was $17,800,000, and on a cash basis, $19,000,000 after removing non-cash expenses. The gross profit margin was 58% inclusive of the non-cash items and 62% excluding these items. This is significantly improved from the 43% margin in the fourth quarter of last year, as well as the 46% in the third quarter. Avino Silver & Gold Mines Ltd. earned its highest-ever earnings for Q4 and the full year 2025 with $10,500,000 in net income, or $0.06 per share, in the fourth quarter, beating last quarter's record of $7,700,000 and $0.05 per share. For the full year 2025, net income was $26,600,000, or $0.17 per share. Fourth quarter adjusted earnings were a record $16,300,000, or $0.10 per share, compared to $10,000,000, or $0.07 per share, in Q4 of last year. The 2025 full-year adjusted earnings were a record $46,500,000, or $0.29 per share, compared to $21,000,000, or $0.15 per share, in 2024. Operating cash flows and free cash flow both improved in the fourth quarter compared to last year as well as compared to the previous quarter. We generated operating cash flows before working capital adjustments of $19,000,000, or $0.12 per share. For the full year, Avino Silver & Gold Mines Ltd. generated $35,300,000 in operating cash flows, or $0.22 per share, with figures being quarterly and annual records. Fourth quarter free cash flow generation was $15,600,000, excluding La Preciosa development cost, and the annual free cash flow generation was just over $24,000,000. Moving to liquidity and treasury, our cash position was a record $102,000,000 at the end of the year and working capital was just shy of $100,000,000. Avino Silver & Gold Mines Ltd. has no secured debt other than leases on operating equipment at both Avino and La Preciosa mining operations. And coming to Slide 9, we see all other financial metrics for the fourth quarter and full year, as well as the year-over-year changes. As everyone can see, almost all categories saw meaningful increases. Highlighting again some of the key per-share metrics for the quarter where we saw $0.06 earnings per share and $0.10 on an adjusted earnings basis. Operating cash flows before working capital changes were $0.12 per share, and free cash flow generated excluding La Preciosa was $15,600,000, translating to $0.09 per share. For the year, net income was $0.17 per share, and adjusted earnings were $0.29 per share. Operating cash flows before working capital changes were $0.22 per share, and free cash flow was $0.16 per share, or $24,300,000. Here on Slide 10, we have an overview of operating results on a per-ounce and per-ton basis, as well as margins at our operations. Cash cost per silver-equivalent payable ounce for 2025 was $16.13, a 9% increase compared to $14.84 in 2024. All-in sustaining cash costs were $23.75 for the year, a 15% increase from $20.57 in 2024. On a per-ton basis, cash costs were $53.69, which was down 3% compared to $55.43 in 2024, and all-in cost per ton were flat compared to 2024, both years being around $78 per ton, demonstrating the consistency of our operation. Our mine operating income and margins for 2025 were significantly increased from 2024, with margins at 53% on the year and $48,500,000 in mine operating income generated, once again demonstrating the leverage producers have in this price environment. In the fourth quarter, we did see some increase in costs for a few reasons, one being the addition of processing La Preciosa development material. I do want to remind everyone that this is development material running through the mill. We are in a unique position that a lot of the development at La Preciosa is in ore and has allowed us to offset some of the costs associated with development work we would have had to do regardless. These costs for La Preciosa are not indicative of long-term cost per ounce and per ton expectations. However, at current metal prices, each ton of development material mined is being done so at a profit. Another item to highlight is that the movement in silver price did have an impact on our silver-equivalent payable ounce calculation, which did have an impact on our cash cost per ounce figures and all-in sustaining cost per ounce figures. Using prices from our forecast at the end of 2025 of $30 silver, $2,700 per ounce of gold, and $9,200 per ton of copper, our cash cost per ounce for the fourth quarter and full year would have come in at $16.50 and $15.17, respectively, in line with our expectations when we set out 2025. On an all-in sustaining cash cost basis, a similar story is told with the silver price impacting figures. Using the same budget prices, our all-in sustaining cost per silver-equivalent payable ounce was $26.68 for Q4. Our full-year 2025 figure would have been $22.43, once again more in line with expectations. We look forward to further economies of scale as La Preciosa begins contributing more and more to our overall production profile in 2026 and the coming years. Going back to the revenue side, here are our expectations for production by metal moving forward. Given the recent price movement in silver, we expect that the silver portion as it relates to revenues will be higher than the estimated production-by-metal figures shown here. In the fourth quarter, Avino Silver & Gold Mines Ltd. generated 54% of its revenues from silver, marking the first quarter with over 50% in silver revenues since we were operating the San Gonzalo mine prior to 2020, and delivering on our promise of a return to primary silver for our future. At this point, I will now turn it back over to David to run through upcoming activities. David Wolfin: Thanks, Nathan. As we summarize our key goals for 2026, our focus remains on strategic exploration and drilling to unlock the full potential of our resource base. This includes the integration of AI technology to enhance data analysis, improve target generation, and increase overall exploration efficiency. We are currently integrating our historical and ongoing geological data into AI-driven models to support the resource and reserve expansion and to identify new exploration opportunities. In 2026, we have planned approximately 30,000 meters of drilling, 15,000 meters allocated to each of the Avino and La Preciosa projects. We also look forward to releasing updated mineral resource estimates and announcing our inaugural mineral reserves at the end of the first half of the year. At La Preciosa, our goal is to reach a production rate of 500 tons per day. As outlined on Slide 13, I would like to again highlight the company's growth strategy. Within a 20-kilometer footprint, we have three key assets including the operating mill complex, which currently processes material from Avino and La Preciosa. We have access to water, power, and tailings storage, critical infrastructure that supports our ability to expand production efficiently. Collectively, our assets host 277,000,000 silver-equivalent ounces in the measured and indicated mineral resources and an additional 94,000,000 silver-equivalent ounces in the inferred mineral resources, providing a strong foundation for future growth. All of our operations are in the safe jurisdiction of Durango, in an area of rolling farmland with several small communities located near both the Avino and La Preciosa projects. We are proud to be one of the largest employers in this area, supported by a 100% Mexican workforce drawn largely from the surrounding communities. Alongside our operational growth initiatives, we continue to advance our CSR programs across both Avino and La Preciosa, supporting local communities and contributing to long-term social and economic development in the region. Our investor relations team is currently preparing the company's second annual sustainability report, which will be published on our website upon completion. The report is intended to provide transparency on how responsible mining practices, strong governance, and community engagement support Avino Silver & Gold Mines Ltd.'s operational performance and long-term growth. Avino Silver & Gold Mines Ltd.'s strong operating foundation supports our long-term growth strategy. As you can see on this slide, our goal is to scale up by 2029 through contributions from our three key assets. By leveraging our existing infrastructure assets and resource base, we believe we are well positioned to execute our growth plans efficiently and effectively. We concluded the quarter and the year with more record-breaking financial metrics, which reflect the strength of our strategy and the dedication of our team, both of which drive our success as we pursue the next phase of growth. On behalf of the leadership, thank you to our entire team for your efforts and contributions. With a clear growth strategy, a strong balance sheet, and significant resource potential across our assets, we believe Avino Silver & Gold Mines Ltd. is well positioned to create lasting value for our shareholders. We will now open for questions. Operator? Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. As a reminder, if you would like to ask a question, please press star then 1 on your telephone keypad. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is coming from Heiko Ihle with H.C. Wainwright. Your line is live. Heiko Ihle: Hello, David and team. Thanks for taking my questions. So just thinking out loud here, there is obviously a newfound fear in the market. I am just trying to see what you think this will do to M&A opportunities. I mean, we have got silver at $85 and we have got gold just below $5,200. Are the opportunities that you are seeing offset by the fear in the market, or do you see discount rates being at a place where there might be interesting things out there? Just what are you seeing? Nathan Harte: Hey, Heiko. Nathan here. I will take that one. We always say this, but everything is for sale at the right price. I do not think the markets will generally dictate fully all the M&A moves in the industry. Given current prices and the discount rate environment, there is obviously some good stuff out there. But if we are looking at specifically how it affects us, we are focused on organic growth and what we already have. Heiko Ihle: Fair enough. Speaking of the things you already have, the price environment has changed markedly over the past three, six, twelve months. What are you seeing with labor costs, and should there be anything that we should change in our model compared to where we were a year ago? Nathan Harte: I will take this one again, Heiko. On labor cost, we saw a huge jump in 2024 and 2025. Obviously, the post-COVID inflation hit everyone in the mining industry. That has stabilized a little bit based on what we are seeing, but in a rising price environment, there is generally a little bit of cost creep, so we are doing our best to manage that. We are not expecting any material changes at this time. Heiko Ihle: Okay. So once we get the Q1 numbers, we can use those and trend-line them a bit. Nathan Harte: I would say that is fair. Thanks. Heiko Ihle: I will get back in queue. Thank you, guys. Nathan Harte: Thanks, Heiko. Operator: Our next question is coming from Jacob G. Sekelsky with Alliance Global Partners. Jacob G. Sekelsky: Hey, David, Nathan, and team. Thanks for taking my questions. Just looking at the strong balance sheet, I am curious if there are any levers you feel you might be able to pull in order to accelerate some of the planned work at La Preciosa. David Wolfin: We just ordered a new jumbo, so that is going to help. Basically, it is underground development work, so we are working on that. SRK Engineering is revising and looking at a larger mine plan. These are the things that we are looking at. Anything else? That is it, Jake. Jacob G. Sekelsky: Okay. That is helpful. And on that larger mine plan scenario, when do you think we might see some news on that front? Peter Latta: Hey, Jake. Peter here. We are evaluating a few different scenarios and we want to take our time with it because it is a volatile environment. We really want to evaluate a number of different options because we do have optionality with the deposit, with the size that it is, and how we integrate those two operations now, including how that dovetails with oxide tailings, that third leg in the stool. We are taking our time with that optimization. Jacob G. Sekelsky: Got it. Okay, that is all for me. Thanks again. Peter Latta: Thanks, Jake. Operator: Thank you. Our next question is coming from Richard Larson, who is an investor. Sir, your line is live. Richard Larson: Hello? My question is about your share count and your at-the-money. I realize silver prices have kind of struggled for fifteen years or so. It is tempting to issue shares to strengthen the balance sheet. Looking out two, three, four years, you could be doing 8,000,000 production at margins of $60 over kind of mine operating income. I am wondering what is your strategy on potential capital returns or at least minimizing the amount of share dilution? And how are you thinking about that on the balance sheet going forward? Nathan Harte: It is a fair question. Nathan Harte here. Shareholder returns are prevalent in the industry and it is a big discussion point at this time. We do have a few levers we are looking at and some things that are in the works. But at this time, we are focused on delivering the organic growth, and that will require capital. Having said that, the use of the ATM has really been as we have hit 52-week or all-time highs. Now, with a bit of a market pullback, we are staying put at this time. Richard Larson: Okay. Thank you. Appreciate it. Operator: Thank you. Our next question is coming from Joseph George Reagor with ROTH Capital Partners. Your line is live. Joseph George Reagor: Hey, David, Nate, and team. Thanks for taking my questions. Jake kind of touched on this already, but thinking about the fact you have over $100,000,000 on the balance sheet, and I realize you are going through options, is it fair to say that we can start assuming there will be some form of mill expansion coming within the next year or two? David Wolfin: Absolutely. That is a safe assumption, Joe. We are doing the work right now to figure out what is the appropriate size and whether it is at just Avino or if we build a new one, potentially both. We will let the market know once we have made some ideas and decisions on that. Joseph George Reagor: Okay. That is fair. As you think about the operating cost side, inflation has been putting a lot of pressure on everybody. Are there any optimization things that you can do to bring down operating costs, or given margins are where they are, is that not a huge focus? Nathan Harte: As you mentioned, inflation has hit the industry more so in previous years, not necessarily in the last year or so. As far as operating costs go, we are seeing fairly consistent operating costs. There is some volatility with diesel and gasoline prices, but on the labor side, we are seeing fairly stable increases as we reward our employees, but fairly stable overall. David Wolfin: The tonnage cost. Nathan Harte: Our cost per ton has been steady. The evidence is in our cost per ton year over year, and it is very steady. Joseph George Reagor: Can you remind us how much exposure you have to diesel prices? What percentage of cost is fuel? Nathan Harte: It is not overly high, unlike some fairly capital-intensive operations out there. We are not talking high double digits or anything like that. I would have to give you an exact number offline if you want, but in Mexico it is fairly subsidized by the government, and so prices do not get too out of whack. Joseph George Reagor: Fair enough. I will turn it over. Thanks, guys. Nathan Harte: Thanks, Joe. Operator: Thank you. Our next question is coming from Chen Lin with Lin Asset Management. Your line is live. Chen Lin: Thank you, David and Nathan, for taking my questions. A great year. Congratulations. I am just curious, because some of my questions already got answered. Do you see any chance, with the changing Mexico to a more pro-mining environment, that La Preciosa can potentially be an open pit, or are you going to continue the underground operation? David Wolfin: Thanks, Chen. That is one of the scenarios in the four scenarios we are looking at. Coeur did a feasibility study back in 2013, so it is outdated. We are revisiting that. Chen Lin: Okay. So if potentially Mexico opens for the open pit, what kind of impact would that have for your production outlook? Or would you need to upgrade your mill much more significantly? Nathan Harte: Chen, Nathan here. It is premature to put any numbers on it, but if anyone wants to have a look, that study is still available on SEDAR+. But yes, obviously it would be a lot of growth. Chen Lin: Okay. Great. Thank you. Operator: Thank you. If you have any further questions or comments, please. Okay. As we have no further questions in the queue at this time, I would like to hand back over to management for any closing remarks. David Wolfin: Thank you. It has been a year and a final quarter of record-breaking achievements, and we remain focused on executing our organic growth plan. We look forward to building on this momentum and delivering additional milestones and sustained growth for the Avino Silver & Gold Mines Ltd. shareholders. Thank you again for participating in our conference call. Have a great day. Operator: Thank you. Ladies and gentlemen, this does conclude today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Inc. Fourth Quarter and Full Year 2025 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Sumit Kundu, Investor Relations. Please go ahead. Sumit Kundu: Thank you, operator, and good morning. Welcome to Ballard Power Systems Inc.'s fourth quarter and full year financial and operating results conference call. With us on today's call are Marty Neese, Ballard Power Systems Inc.'s CEO, and Kate Igbalode, Chief Financial Officer. We will be making forward-looking statements that are based on management's current expectations, beliefs, and assumptions concerning future events. Actual results could be materially different. Please refer to our annual information form and other public filings for our complete disclaimer-related information. I will now turn the call over to Marty. Marty Neese: Thank you, Sumit, and good morning, everyone. Today, I will review fourth quarter and full year results. Additionally, I would like to walk you through the structural changes underway at Ballard Power Systems Inc. and the foundations we are laying and building towards sustained positive cash flow over the next two years. Let me begin with last year's performance. I am pleased with our results in Q4 and across the full year. In 2025, we delivered record engine shipments, approaching 800 engines and more than 75 megawatts of power. That represents 38% growth in megawatts shipped compared to 2024. The majority of these shipments were into Europe and North America, with particularly strong activity in Canada. These shipments translated into full year revenue of $99 million-plus, up 43% year over year. We also secured our largest marine order to date, a 6.4-megawatt award from ECAP Marine and Samskip, and on Tuesday, announced our largest commercial agreement with New Flyer of 50 megawatts. But the real shift in 2025 was not just growth. It was structural progress toward our goal of becoming cash flow positive within the next two years. We have made decisive changes to align our cost structure with market realities and position Ballard Power Systems Inc. for durable, sustainable performance. We reduced our cash operating costs in Q4 by 41% compared to the same period last year, fundamentally resetting our cost base. We are now seeing the financial impact of that reset. In Q4, we achieved a positive 17% gross margin and a positive 5% for the full year, both representing meaningful improvement year over year. While quarterly performance is not yet ratable due to seasonality, the margin profile of the business is strengthening and is foundational for us to achieve our profitability goals. Most notably in Q4, we generated $11 million in cash flow from operating activities, which underscores our structural actions are working, and we are making measurable progress towards our profitability targets. With significant improvements in our cost structure and operating discipline, the next phase is clear: expanding revenue and gross margins. Our plan centers on five near-term focus areas: improving commercial terms, product cost reductions, enhanced fleet service offerings, expanding product reach, and business model innovations. Let me briefly touch on each. First, commercial terms. Throughout 2025, we strengthened our commercial foundation. Our newer agreements reflect more comprehensive pricing structures and balanced commercial terms, including protections against tariff exposure, exchange rates, inflation, and precious metal volatility. These changes improve transparency with our customers, enhance margin visibility, reduce earnings variability, and support stronger long-term partnerships. Our customers have been constructive in these discussions as they are navigating similar cost pressures with their customers. In some cases, finalizing these improved structures has shifted certain order announcements into 2026. But the result is higher quality agreements that better protect long-term value for both parties. A recent example is the commercial agreement with New Flyer, their largest commitment to Ballard Power Systems Inc. to date, covering 500 FCmove-HD+ engines, or 50 megawatts. This is an exciting opportunity to support New Flyer as more and more U.S. transit agency customers adopt fuel cell buses. Increasingly, these customers are understanding the value proposition offered by fuel cells, including superior range, especially in cold weather, and lower infrastructure costs related to charging infrastructure. We also expect additional activity in stationary and rail markets in the coming months. Our second focus area is product cost reduction through a holistic approach. We are systematically cost-reducing our products using three key levers: negotiations, execution, and innovation. Our supply chain and sourcing teams are securing and adding new alternative lower-cost suppliers, while our operations team continues to increase productivity and improve manufacturing process yields. We are also innovating in areas that increase performance, simplify our products, and design in more durable components. Nothing reflects this approach better than the FCmove SC. This platform achieves a 40% reduction in total part count while simultaneously improving power density, durability, and capability. Fewer parts translate directly into lower-cost materials, simplified assembly, and enhanced maintainability and serviceability. We are also advancing Project Forge, our high-volume bipolar plate automated manufacturing line, which is on track to begin serial production midyear. This line has fewer processing steps, higher volumes and throughput, improved quality, and process yields. Further, it combines enhanced in-line metrology and state-of-the-art automation, resulting in plate cost reductions of up to 70% at full volume. Together, these systemic approaches significantly improve our cost position, strengthen gross margin, and enhance the competitiveness of our products. Third, we are focused on leveraging our installed base through enhanced fleet services offerings enabled by product-level intelligence. We now have thousands of fuel cell engines operating globally, supported by a deeply experienced service organization and nearly 300 million kilometers of real-world operating experience. Every engine is equipped with a remote data unit, which transmits engine performance data. Each product is smart and adds to the collective intelligence of our installed fleet. Today, our smart engines provide a trove of performance data, enable preventive and customer maintenance, and insights into enhanced customer uptime. In the near future, additional insights will provide the foundation for prognostic and enhanced maintenance services, both co-located with our customers and from our remote operations center in Canada. This installed footprint creates a significant opportunity to expand recurring revenue under Ballard Fleet Services, including long-term service agreements, parts supply, technical support, operational monitoring, customer technician training, and ongoing stack servicing. Ever-increasing fleet intelligence and added services will provide performance benefits to our customers while expanding our fleet services business over time. This service-led approach increases revenue visibility, strengthens customer intimacy and retention, and adds a more stable recurring component to our business mix that scales with every unit and for years after initial delivery. Our installed base is becoming a compounding asset, supporting both customer success and sustained financial performance. We believe this is a significant source of long-term competitive advantage and differentiation, and we will continue to invest in our fleet services capabilities. Our fourth focus area is expanding in near-term markets. We are leveraging our technology platforms and durability expertise to expand into mature and rapidly growing market segments. One example is materials handling. This is a market where cost and durability are critical. By applying our technical and operating experience gained in heavy-duty applications, we have developed a stack that delivers superior total cost of ownership due to its longer lifetime. Another example is stationary power. We are increasingly focused on replacing diesel gensets and powering data centers. While PEM fuel cells have traditionally been positioned as backup solutions, we believe our technology can also support peak power and, in certain applications, even primary power where hydrogen supply is available. We have deployed solutions for a wide variety of off-grid, microgrid, high-uptime, and critical infrastructure applications. These have ranged from historical telecom backup installations to peak shaving and, more recently, to powering TV and film productions and very large construction sites. Our stationary power products have generated over 100,000 hours of power, which is nearly ten years equivalent of reliable service. This scalable, flexible power generation capability is now being deployed and evaluated for multi-megawatt data center applications in select target markets. Our engines provide clean, quiet, emissions-free power with very high reliability. These highly bankable features ease permitting and are welcomed in any jurisdiction. We look forward to continuing to advance our product offerings to address the growth in these exciting markets and will provide additional updates in the coming months. Finally, our fifth focus area is unlocking broader access to the hydrogen ecosystem. In addition to advancing our technology, we are innovating in commercial and operating models that lower both the financial and technical barriers to adoption. As customers evaluate hydrogen solutions, upfront capital costs, infrastructure complexity, and long-term performance risk remain key considerations. We are addressing these through flexible commercial and financial structures, service-based offerings, and partnerships which simplify integration and reduce risk. Innovative business models will provide our customers with complete solutions, including financing models that will allow a win-win value proposition and simplified development. As part of these solutions, we are offering extended warranties based on our proven durability and comprehensive service capabilities. As adoption becomes easier and more predictable, our addressable market expands, creating a virtuous cycle of scale, cost reduction, and growth, while at the same time improving the full-solution value we deliver for our customers. These five focus areas act as a one-two punch in tackling both the revenue and margin side of our cash flow equation, offering a realistic near-term path for achievement. Finally, let me close with a few thoughts. Over the past year, we have fundamentally strengthened the foundation of the business. We improved financial performance, reinforced our commercial discipline, delivered record volumes, reduced our cost structure, and expanded margins, all while navigating a complex market environment. We have a path to improve revenue and margins to build a business designed to generate sustainable positive cash flow within the next few years. With over $500 million of cash, and lower cash utilization, we have the additional flexibility to deploy capital strategically in support of this goal. With a well-managed cost structure, improving gross margins, and a focused execution plan, Ballard Power Systems Inc. is entering its next phase with greater financial and operational clarity. We are very grateful for our long-term customer relationships and are deeply committed to continuing to deliver more and more solutions of value to serve them. Core to our progress are the people of Ballard Power Systems Inc. I want to thank them for their dedication and professionalism. The improvements we delivered in 2025 are a direct reflection of their expertise and commitment. We are confident in the path ahead, and we are committed to deliver fuel cell power for a sustainable planet. With that, I will now pass the call over to Kate to review the detailed financials. Kate Igbalode: Thank you, Marty. 2025 delivered strong financial performance across revenue, margin, and cost structure. As Marty highlighted, fourth quarter revenue was approximately $34 million, up 37% year over year. Full year revenue exceeded $99 million, up 43% from 2024, based primarily on record engine sales approaching 800 units, or over 75 megawatts of delivered power. Our Q4 gross margin improved to 17%, a 30-point increase year over year. Our full year gross margin was positive 5%, up 37 points from 2024. The improvement in gross margin in 2025 as compared to 2024 is due primarily to a decline in onerous contract provisions, product cost reduction initiatives taking hold, and lower manufacturing overhead costs as a result of the global corporate restructuring. Total operating expenses for the full year were approximately $109 million, 32% lower than the previous year due to the rightsizing of our cost structure. This was at the middle of our guidance range, which was between $100 million and $120 million. If we exclude restructuring and related expenses of $23 million, our total operating expenses in 2025 would have been approximately $86 million, below the lower end of the guidance range. In 2026, we expect total operating expenses to range between $65 million and $75 million. Our total capital expenditures in 2025 were $10.2 million, at the midrange of our revised outlook between $8 million and $12 million. In 2026, we expect capital expenditures to moderate further and be between $5 million and $10 million. As Marty highlighted, we are absolutely thrilled with the cash flow progress we have achieved in the fourth quarter. While we have cyclicality in our revenue and do not expect this type of performance to be ratable yet, this is a huge milestone for us. Even more impressive is that this was achieved with nearly all of our revenue from fuel cell product sales. Another huge highlight is that our cash usage for the full year of 2025 was down nearly 50% from 2024, underpinning the improved foundation and financial stability of the organization. We ended the year with nearly $530 million in cash, up $1.4 million from Q3, no bank debt, and no near- or mid-term financing requirements. As we have emphasized on this call and on previous calls, we remain steadfast on disciplined spending, growing our top line revenue, expanding our margins, and maintaining our financial health. With that, I will turn the call over to the operator for questions. Operator: Thank you. We will now open for questions. The first question comes from Baltic Dejo with National Bank of Canada. Please go ahead. Baltic Dejo: Good morning, and thanks for taking my questions. So just on the restructuring side, as you alluded to in the prepared remarks, 2025 OpEx would have been around $86 million, and the midpoint of your guide would imply another $16 million of reduction relative to that. So would you say that the large items have been harvested? And just as a follow-up on that, what are the key drivers of the incremental cost contraction? Kate Igbalode: Thanks for the question, Baltic. So I think that if we are looking at the year-over-year changes, we do not anticipate any additional major restructuring that we saw in 2025 or 2024 to be in the cards for 2026. So I think that the midpoint of our guidance range is a reasonable expectation for our overall cost structure in 2026. And if you could just repeat and clarify the second part of your question, that would be helpful. Baltic Dejo: Yes, just the cost drivers of the incremental contraction. And the first part was are the large items already been harvested, which I think you have touched on? Kate Igbalode: Yes, I would say that they have been, and I would say that the key pieces that we are focusing on, I think that we have really right-sized our overall cost structure at an organizational level. And now it is continuing to drive cost out of our products through additional innovation initiatives, manufacturing efficiencies, and product scaling. So I think you are going to start to see cost reduction show up more on the product side relative to the overall OpEx side. I do not know if you have any other comments on that, Marty. Marty Neese: I would just say that it is really a combination of looking for every penny structurally from the bottom up of the company. Essentially in 2025, kind of a zero-based budgeting approach and re-baseline everything we spend money on. And so that work is starting to pay off in our structural approach, specifically around some of the operating expenses that are variable in nature. Baltic Dejo: That is great color. Thank you. And just one more if I may. Just with these magnitude of reductions, there are always trade-offs in scope prioritization or the pace for it. These actions materially altered your R&D roadmap or the timing of the mission of key initiatives just as you aim to accelerate now? Value from your bus vertical as evidenced with the announcement a few days back. Marty Neese: Materially, we have taken the approach that we are leveraging our product portfolio and prior investments to get as much out of them as we can. So you think about material handling, we had a very long history of material handling and we extended our know-how in that segment to create a new product that we are getting very good feedback that that extended durability product is going to be well received. A similar approach can be taken when you think about heavy-duty applications that can be used for stationary power, if you will. Some of our prior investments in heavy-duty applications can be transferred, if you will, from, let us say, a heavy-duty trucking environment, and the core technology is extensible to a stationary power application when packaging is done differently or configurations are done differently. So that is a way to say the R&D is more focused on how to extract as much value as possible from innovations that have already been materially realized and have been reduced to practice. The longer-term innovations is a different aspect, and I would put that as more in the three- to five-year kind of range of outlook before we need to do something significantly different in our approach. We have a good runway of product portfolio and existing innovations that we can commercialize, and we are getting really, really strong feedback that these products are going to hit the market well. Baltic Dejo: Thanks. Great color. I will leave it there and turn over the line. Thank you. The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Robert Duncan Brown: Good morning. Just wanted to follow up on the New Flyer contract. Great news there. What is the sort of duration of that contract or potential? And how do you see that ramping? Marty Neese: The contract itself is for 500 units, and we are not discussing the duration of the contract. We are more focused on the actual megawatts and unit volumes. And then, of course, we have a long-standing partnership and relationship with New Flyer. It is not really predicated on a quarter here or a quarter there. We have flexibility to work strategically with them to realize their growth ambitions as well as our own, and that is the way we have characterized the relationship. Realize that also includes a long-term service tail that goes with everything we are doing. So that is part of the compounding set of assets. The bigger the New Flyer fleet gets, the more that service tail grows, and the deeper we get in the relationship with them, which is proving to be extraordinarily helpful and valuable for both of us. Robert Duncan Brown: Okay. Great. Okay. That is good color and helps you—I mean, that visibility helps you plan your operations, I am sure. And then second, on the stationary market, how much of a kind of new product portfolio do you need to enter that market? Or can you take what you have and really expand there? And maybe a sense of just the opportunity in the stationary market at this point for you? Marty Neese: Yes, I will just say it in general. We have an XD product, and that XD product and HD products that preceded it or are in conjunction with it—both of those products can address the stationary market, depending on how they are configured and packaged. So really the work is the configuration and packaging. When I say packaging, it is the arraying of multiple engines to do different quantums of work, if you will. Whether that is a single unit that is for a mobile diesel genset replacement or whether that is an array of units that is scaled up to 20-plus megawatts, up to 50 megawatts. The packaging and the numbering up of those core engines, that HD or XD capability, is really being well received. At the same time, we are also making additional innovations so that we can get more kilowatts out of each one of those stacks. So think of that as, if you could imagine getting from 100 kilowatts to 120 kilowatts, up to 135 or 150 kilowatts per engine, and then numbering that up. So that helps drive both performance and cost down and starts making the numbering up more and more attractive from a total cost of ownership and deployment level. Robert Duncan Brown: Okay, great. Thanks for the color. Congrats on all the progress. I will turn it over. Operator: The next question comes from Dushyant Ailani with Jefferies. Please go ahead. Dushyant Ailani: Hi. Thank you for taking my question. I just wanted to touch on one piece real quick. I wanted to dig in on stationary, if that is okay. Could you maybe talk a little bit more in terms of the opportunities, the timing that you are seeing, and also how does the XD and HD compare with other competing offerings that you are seeing or the conversations that you are having with your customers? Marty Neese: Yes. So let us see if we can unpack that a little bit. So the stationary power market—known to all on this call for sure—everyone understands the time-to-power mandate, if you will. So when you see constraints in the global landscape of where data centers are being promulgated, there is a very strong opportunity for us to have a ready-now product to address those needs for power now. So we are seeing more and more interest in that regard. And when I think of that, that is really supporting a thesis along the behind-the-meter side of things in stationary power for now. And then over time, as constraints ameliorate, you might see those transition from behind the meter to be grid-connected, but this is seven to ten years from now. So there is a very strong value proposition for our fuel cells to help solve that time to power if packaged and arrayed correctly. At the same time, our costs and the products were designed to go into largely heavy-duty trucking. So if you can compete at the engine level in heavy-duty trucking, it suggests a very strong capability on a cost-per-kilowatt basis relative to other solutions that are out there that are not PEM fuel cells, but maybe other kinds of fuel cells. And on a cost per kilowatt or a total installed cost of ownership, we feel like we have got a really good value proposition emerging, which will help significantly address the market. Dushyant Ailani: Understood. Thank you. I will turn it over. Operator: The next question comes from Jeffrey David Osborne with TD Cowen. Please go ahead. Jeffrey David Osborne: Thank you. Good morning. Kate, maybe for you. I saw that the year should be back-end loaded, but any hints on the first half versus the second half relative to the makeup of 2025, or sequentially how we should think about Q1 versus a year ago or the prior quarter? Kate Igbalode: I think, as we have discussed and we have seen historically, a 40/60 split H1/H2 is a reasonable expectation for 2026. And I think, as Marty commented in his remarks, we are also really looking into how we can further level-load and smooth out our quarter-over-quarter variability and seasonality across the board in terms of operations, our cost structure, etc. But I think a reasonable planning assumption for this year would be that 40/60 split. Jeffrey David Osborne: That is helpful. Thank you. Marty, maybe for you, just with the refined focus that you have had—you have highlighted stationary this time around, a couple of analysts have asked about that—but if you look back prior to you joining Ballard Power Systems Inc., I think FCWave, ClearGen 2, you had a test with Vertiv and others. Can you just further elaborate on what is so unique about the XD and HD combined with new packaging relative to Ballard Power Systems Inc.'s—I do not want to say failed attempts, but challenged attempts—four or five, six years ago in the stationary power market? I am just trying to understand what is new in light of, at least in many parts of the world, hydrogen availability is still challenged. Marty Neese: Yes. So if you historically rewind the clock a little bit, you have to think about the product wins that we had in 2023, 2024 that were more scaled products like the ones you referenced. Those would have been conceived in the 2020, 2021 timeframe. All of this is the pre-ChatGPT moment. So everything went vertical once the AI moment happened. So the products that we designed prior to the AI boom, if you will, were more designed for off-grid, for microgrids, for island power, things of that nature. And the customers at the time had perspectives that they were doing very similar types of products: “Hey, can we do a one-megawatt microgrid to be deployed in an island-type application?” Things have changed. That is not what the customers want today. So we have had a number of workshops—and I say multi-day workshops with large technical team engagement—with customers who are serving hyperscalers and others, and we are getting a much clearer view of what people care about today and what our product needs to enable. And I have already alluded to a significant portion of it, which is not surprising. It has got to be speed and cost. And speed and cost are front and center with what we are doing. And that is unlocking a significant amount of interest and, taken together with the bridge power requirements that are out there with some of the gap in the market, with some of the delays and constraints and bottlenecks across the AI landscape. It is power that is the problem, as everyone on the call knows, of where the stationary market is going. So we have a role to play in that. We do not know exactly what size or what quantum or what level, but we definitely have a product that meets the market and we will have a role to play in that. And then we have to fight for our share after that based on delivered performance and delivered cost and the ability to really listen deeply to what the customer cares about and package a solution that meets what they want, more capably than the examples you provided from 2021, 2022, and the pre-ChatGPT moment, if you will. Jeffrey David Osborne: Got it. Maybe just one quick follow-up on that. Would the focus be on Europe and Canada, given greater availability of hydrogen as a fuel relative to natural gas? I am just trying to understand where the commercialization efforts would be placed. Marty Neese: Yes, that stands to reason. Those are our home markets. And the number of products or projects progressing to FID—I think the Hydrogen Council referenced some $35 billion in year-over-year projects advancing to FID. All of those projects cannot just feed the refinery business or the industrial application. They are keenly looking for offtake partners such as the kinds of partners that would be associated with integrating fuel cell power or others with data centers of all stripes. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Marty for any closing remarks. Please go ahead. Marty Neese: Thank you for joining us today. It has been a pleasure speaking with all of you. Kate, Sumit, and I look forward to speaking with you next quarter, and thanks again, everyone. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Good morning, ladies and gentlemen, and welcome to the Lifetime Brands, Inc. fourth quarter 2025 earnings conference call. At this time, I would like to inform all participants that their lines will be in a listen-only mode. After the speakers' remarks, there will be a question-and-answer portion of the call. If you would like to ask a question during this time, please press star and 1 on your touch-tone telephone. Please also note today's event is being recorded. At this time, I would like to introduce our host for today's conference, Jamie Kirchen. Mr. Kirchen, you may go ahead. Jamie Kirchen: Good morning, and thank you for joining Lifetime Brands, Inc. fourth quarter 2025 earnings call. With us today from management are Rob Kay, Chief Executive Officer, and Laurence Winoker, Chief Financial Officer. Before we begin the call, I would like to remind you that our remarks this morning may contain forward-looking statements that relate to the future of the company, and these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance, and factors that could influence our results are highlighted in our earnings release. Other factors are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof, and are subject to change for future development. Except as required by law, the company does not undertake any obligation to update such statements. Our remarks this morning and in our earnings release also contain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included in such release is a reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP. With that introduction, I will now turn the call over to Rob Kay. Please go ahead, Rob. Rob Kay: Thank you, and good morning. A year ago, we entered 2025 knowing it would be a challenging year. What we did not fully anticipate was just how dynamic the external environment would become. The tariff escalations, retail customer disruption, consumers' reactions, and the operational demands were all significant. And yet, when I look at where we stand today, I am proud of how our team performed and where we finished the year. Let me walk you through the key dynamics that shaped both the fourth quarter and the full year and the decisions we made, including those that carried short-term costs, and why they were right for our business. Overall, what drove Lifetime Brands, Inc.'s 2025 performance was the macro environment largely shaped by U.S. tariff actions and the market's reaction to them. The biggest impact of this was the second quarter implementation of 145% tariffs on goods sourced from China following the Liberation Day tariffs implemented on many countries throughout the globe. This resulted in wide-scale disruption and in some cases cancellation of orders for our products, both by our customers and internally by Lifetime Brands, Inc., as the immediacy of the implementation would have resulted in selling products at a loss. As the year progressed, and some stability was introduced on tariff rates, Lifetime Brands, Inc. was a first mover in implementing price increases across all our channels to offset the tariff cost. While this initially hurt our volumes, as we were selling our products at a higher price than most of our competition, the market eventually caught up and pricing parity was restored. However, Lifetime Brands, Inc. benefited from enhanced profitability due to the price increases, which led to improved performance relative to the overall market and many of our peers. In particular, we note that bottom line results showed positive year-over-year growth by 2025. Contributing to this performance was our pricing strategy, a comprehensive cost efficiency and reduction program, and improved results in our international business. First, as we told you earlier in the year, the impact of the 145% tariffs on China-sourced product was significant. It negatively impacted shipments in the second quarter and flowed into disruption in the third. We specifically called out that some of that deferred volume would come back in 2025 with a fuller normalization expected in 2026. As you can see, we benefited in the current quarter with some resumption in shipment levels from missed second quarter shipments, particularly in tabletop and kitchenware. The most visible example is Costco, our largest year-over-year decline in any single customer through September. They pulled back sharply on tabletop programs as tariff uncertainty peaked. But as conditions stabilized, a portion of those programs shipped in the fourth quarter, and we performed very well with Costco in Q4. That recovery was a meaningful contributor to our strong finish. The second major factor driving performance was Lifetime Brands, Inc.'s decision to move first on pricing to offset tariff costs. We did not wait to see what the market would do. We built a detailed plan with each of our customers, communicating the rationale clearly, and implementing the increases. As I mentioned above, there were short-term consequences. In the third quarter, we were priced higher than the market, and that created some volume headwinds. A portion of our shelf performance suffered while competitors had not yet moved. But by the fourth quarter, the market had largely caught up. Pricing parity had returned across all our categories. And because we had been selling at higher prices earlier than most, we captured better margins during that window. If you look at our results, particularly the bottom line, you can see that clearly. We had a modest outperformance on the top line, but we significantly exceeded expectations on the bottom line. Our first mover pricing decision was a key contributor to that outcome. The third element of our Q4 performance was cost discipline. Variable costs naturally flex with volume, but we also took deliberate action on our cost structure throughout the year. We streamlined infrastructure, and SG&A came in at $38 million in Q4, down 12% versus the prior year quarter. That is a meaningful reduction, and it reflects real work done on the cost base. Combined, these three factors drove a strong quarter and finish to the year. The fourth quarter came in ahead of expectations, and I think the results speak to the strategy working. Revenue was modestly below prior year, which we anticipated, but margins expanded and the bottom line was strong. Laurence will take you through the detail in a moment. While the year was challenging due to tariffs, we took the decisive actions I have discussed to mitigate their effects. Given the circumstances, we performed well, as evidenced by our results. In the fourth quarter, adjusted income from operations was up over 30% from the prior year quarter and full-year adjusted EBITDA was over $50 million despite a 5% decline in net sales. We continue to experience positives from our investment in new product development. The DALL E brand grew to approximately $18 million for the year, an increase of over 150%, a great reflection on where the strategy is gaining traction. We are encouraged by the trajectory heading into 2026. Our International segment continued to demonstrate resilience. For the full year, International sales came in at $56.7 million, up 1.7% as reported. On a constant currency basis, International was down modestly at 17%. A solid result given the backdrop, particularly as we gained share in national accounts in light of a continued decline in independent shops, which historically have been the core of the European customer base. On Project CONCORD, our international restructuring initiative, we made continued progress throughout the year and the financial benefits are flowing through. That said, I want to be transparent. The final phase of CONCORD implementation was delayed modestly due to legal and structural constraints that took longer than anticipated to work through. We expect those to be fully resolved and implemented in the first half 2026. The direction here remains clear, and we remain committed to completing CONCORD and realizing the full benefits of the program. As announced early last year, we also took deliberate action on our distribution infrastructure, announcing the relocation of our East Coast distribution center to Hagerstown, Maryland. The facility will span approximately 1,000,000 square feet, adding 327,000 square feet of incremental capacity over our current New Jersey facility, which it will replace and is expected to commence operations in 2026. This move is consistent with how we approach the business, identifying where we can drive long-term efficiency and positioning Lifetime Brands, Inc.'s operations to support our multiyear growth initiatives while significantly containing Lifetime Brands, Inc.'s future distribution expenses. As we enter 2026, we do so with momentum, a leaner cost structure, and a clearer sense of where the opportunities are. On guidance, consistent with our historical cadence, we intend to provide detailed full-year 2026 guidance in conjunction with our first quarter results in mid-May. At that point, we will have a clearer line of sight into the year and can speak to it with the specificity you deserve. What I can tell you now is that recovering sustainable top line growth is the priority. We have done the work on the cost base and proven we can protect margins. Now the focus shifts to driving volume through our existing customer relationships, through the brands and product lines that are gaining traction, and through the pipeline of strategic activity that we continue to develop. Finally, I want to acknowledge that this type of year—navigating real disruption while delivering results that exceeded where we started—does not happen without an exceptional team. I am grateful for everyone at Lifetime Brands, Inc. who stayed focused, executed under pressure, and kept our commitments to customers and shareholders alike. With that, I will turn the call over to Laurence to review the financials in more detail. Laurence Winoker: Thanks, Rob. As we reported this morning, net income for 2025 was $18.2 million, or $0.83 per diluted share, compared to $8.9 million, or $0.41 per diluted share, in 2024. Adjusted net income was $23 million for the fourth quarter, or $1.05 per diluted share, as compared to $12 million, or $0.55 per diluted share, in 2024. Income from operations was $20 million for 2025 as compared to $15.5 million in 2024. And adjusted income from operations for the fourth quarter 2025 was $26.4 million compared to $20.2 million in 2024. Adjusted EBITDA for the full year 2025 was $50.8 million. Adjusted net income, adjusted income from operations, and adjusted EBITDA are non-GAAP measures, which are reconciled to our GAAP financial measures in the earnings release. The following comments are for 2025 and 2024, unless stated otherwise. Consolidated sales decreased 5.2% to $204.1 million. U.S. segment sales decreased 5.5% to $185.3 million. Sales were favorably impacted by the increase in selling prices to mitigate the impact of higher tariffs on foreign-sourced products. However, retailers' buying disruption and consumers' dampened spending reaction to the high tariff environment dampened demand in our industry. Within this segment, product line decreases were in kitchenware and home solutions, partially offset by an increase in tableware. International segment sales decreased 2.3% to $18.8 million, and excluding the impact of foreign exchange translation, the decrease was $1.4 million, or 6.8%. The decrease came from the U.K. e-commerce. Gross margin increased to 38.6% from 37.7%. U.S. segment gross margin increased to 38.8% from 37.6%. The improvement was driven by lower ocean freight rates, some favorable product mix, and the timing of inventory cost recognized under FIFO inventory accounting. These factors more than offset the adverse effects of tariffs in the current quarter. For International, gross margin decreased to 30.8% from 38.6%, driven by higher customer support spending in the current period. U.S. segment distribution expenses as a percent of goods shipped from its warehouses was 8.3% versus 9.1%. The decrease was attributable to improved labor management efficiencies largely resulting from the fully implemented new warehouse management system in our West Coast facility and the effect of higher tariff-induced selling prices without a commensurate increase in expenses. International segment distribution expenses as a percentage of goods shipped from its warehouses was 19.8% versus 18.1%. The increase is due to higher sales to prepaid freight customers and the expansion of sales into the Asia-Pacific region. Selling, general, and administrative expenses decreased by 12% to $38 million. U.S. segment expenses decreased by $3.2 million to $29.6 million. As a percentage of net sales, the expense decreased to 16% from 16.7%. The decrease was driven by lower employee expenses, including incentive compensation. International SG&A decreased $1.5 million to $3.1 million. As a percentage of net sales, the expense decreased to 16.7% versus 24.2% due to lower advertising expenses as well as foreign currency transaction gains. Unallocated corporate expense decreased $500,000 to $5.2 million due to lower employee expenses, also including incentive compensation, partially offset by higher professional fees. Interest expense decreased by $600,000 due to lower average borrowings and lower interest rates on our variable-rate debt. For income taxes, the benefit rate is primarily driven by the release of a valuation allowance against deferred tax assets reported in the second quarter. Looking at our debt and liquidity, our balance sheet continues to be strong, notwithstanding the higher working capital needs that resulted from tariffs. At year-end, our liquidity was $76.6 million, which includes cash, plus availability under our credit facility and receivable purchase agreement. And our adjusted EBITDA to net debt ratio at year-end was 2.9 times. Lastly, as Rob discussed, the relocation of our East Coast distribution center is expected to begin operating in the second quarter, and I will add that the costs of exiting the New Jersey facility and starting up the Maryland facility, including capital expenditures, are expected to be at or below our forecast. This concludes our prepared comments. Operator, please open the line for questions. Operator: Thank you. We will now begin to conduct our question-and-answer session. If you would like to ask a question, please press star and 1. A confirmation tone will indicate that your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys to ensure the best sound quality. One moment while we poll for questions. Our first question today comes from Matt Caranda from Roth Capital. Please go ahead with your question. Matt Caranda: Hey, guys. Good morning. I know you do not typically give full-year official guidance until the first quarter, but I would like to hear a little bit more about building blocks for growth in 2026. I know you said you intend to grow in the year. Maybe you could just talk about some of the puts and takes around the price that you took in 2025 that sort of wraps into 2026, new product launches, existing growth with some of the successful lines like Dolly. I guess some of those are maybe a little bit offset by volume declines more recently, but just how do you think about those factors qualitatively as we kind of think about the forecast for 2026? And any commentary on seasonality this year would be appreciated as well. Rob Kay: I mean, from a seasonality perspective, we are expecting more of a normal seasonality. There were disruptions in 2025 that were tariff-oriented, which put a total curve on normal seasonality. So I think we do not expect it to not normalize in 2026. Some of the things you mentioned—pricing increases, which is kind of a one-time event—happened throughout 2025. So the impact of those will be fully felt because they were fully implemented in 2025. So you get the full impact of that in 2026, which, of course, the caveat is who knows what is going to happen. From a new product introduction, I know that we have been introducing a much greater amount of new product than a lot of competition just because times are tough and a lot of people are paring back. But a couple of areas we are seeing good traction. One, we talked about the Dolly brand. That is actually expanding beyond the dollar channel where we have firm commitments. And while we had tremendous growth in 2025, we expect that trajectory to continue in 2026. So we see some good growth there. Our food service initiative—that is a business where you have to build a book of business, and then it becomes a bit of an annuity for a period of time. And particularly, Mikasa Hospitality has gained a lot of traction. So, while a small base, we expect substantial increase in those revenues in 2026. The end market in 2025 for food service establishments was very challenged. You saw new store openings decline. You saw franchises and the like, store closings throughout a lot of multiunit. Unknown where that heads in 2026. The industry thinks it will go up, but nonetheless, we have gained market share and, not end-market driven, we will see some nice growth in that area in 2026. So those are some of the key drivers. Hopefully that gives you some perspective there. Matt Caranda: Yeah, that is helpful. Thanks, Rob. We wanted to also hear a little bit about what you are hearing from your large retail customers in terms of willingness to take on inventory. What does sell-through look like or POS data that you are seeing in kind of your key SKUs versus sell-in? And how are you thinking about that for 2026? Rob Kay: We have seen a pretty large divergence from channel to channel, with certain channels performing very strong from a POS perspective, and certain ones being weaker. We saw a continuing trend in the fourth quarter that we have seen over the last couple of years, that there has been an uptick in e-commerce. So the holiday season continued the trend that we saw in 2024 where a lot of consumers waited to make their purchases from historical purchase cycles because they knew they could get delivery rather quickly, and that helped e-commerce in the fourth quarter, therefore drove full-year performance. So that trend should continue. But there is high bifurcation. From the perspective of what you see from time to time, particularly with larger retailers, and we saw some of this in 2025, they pull back on safety stock issues. So there is a divergence between sell-in and sell-through. We saw some of that in 2025. We do not expect that to be a major impact in 2026. And part of that is some of the people that have done that have pared back a lot, and if they pared back more, they would harm their sell-through, their velocity, which is obviously not in their interest to do so. So we do not expect that to be a factor in 2026. Matt Caranda: Okay. Very helpful. And then maybe just one more if I could. The net leverage at the end of the year looks good, under 4x. I wanted to just hear how you guys are thinking about cash priorities this year. Obviously, you have a lot of organic growth initiatives in place. But then you have the European restructuring that is still maybe ongoing or maybe just recently implemented. How do you balance the organic investments that you need to make versus the M&A funnel versus buying back your stock? Just wanted to hear a little bit about sort of capital allocation decision-making for 2026. Rob Kay: So there is actually a lot of internal growth initiatives that we are pursuing, but they are not capital intensive, except for the DC, which we have already—there is not too much on the come for that. And we also will get the benefit of the $13 million of the government funding, mostly from Maryland. That will offset. So not really any issue and any constraints there, and plenty of availability. We have no intention to change anything on our dividend, our dividend policy. We will look to ultimately restructure our debt arrangements because at this point, in terms of life of that, we are not in the ability to buy back stock, so we are not using cash at this point to do that because we have agreements with our lenders in place. But we will ultimately restructure that and allow us to do so when we do that. And the M&A environment is the strongest I have seen in decades for strategic because, first of all, financials are investing. So our competition for a longest time has been financials at very, very high valuations. So valuations have been down. But a lot of businesses that are institutionally owned, there is something that needs a larger company or infrastructure help. To move product from a China-based system to a distributed geography, you need a lot of infrastructure to do that, both from a supply chain and quality. It takes a lot of effort and work. And with the fluctuations of moving it all over the place, a lot of smaller, less capitalized people are having troubles, let alone the systems and everything to deal with the constant pricing fluctuations as tariffs change and evolve. So that combination has made it very attractive. So we are seeing real deal flow at real valuations that we have not seen literally in decades. So we have some large opportunities we are looking at. You do not know if they will come through, but it is one of the things that we wrote off on a couple of things that we are working—not wrote off, but expensed in the fourth quarter—related to that. And we will see some highly accretive opportunities if we can execute. Matt Caranda: Okay. Sounds great. Appreciate all the detail, and I will turn it over. Operator: Next question comes from Brian McNamara from Canaccord Genuity. Please go ahead with your question. Brian McNamara: Hey. Good morning, guys. Thanks for taking the questions. So this is your best Q4 EBITDA margin that we can recall with sales down, even better than 2020 and 2021 when sales were up. So gross margins were nicely up, presumably from the benefit of tariff pricing. But I am curious what drove SG&A lower and how sustainable that is? Rob Kay: Yes, it is a great question, Brian. So it is sustainable. It is all a function of how fast we want to grow. And if we have opportunities and there is a good return on that, we can increase investment, which would increase your infrastructure and SG&A, but with a return. So in the current state of the business, with what we have on the plate, including the growth we intend for 2026, there is not a need for investing in SG&A. We will also see the further benefits one way or the other with our international operations, which will continue to benefit those line items. Laurence Winoker: Brian, let me just—Rob's going to give me something on his U.S. gross margins, the comment I made about the FIFO inventory. We had talked about how we were increasing our sales price to offset the tariff, which should have a negative effect on the gross margin percentage, neutral to dollars. But because we still have some pre-tariff inventory, we are seeing some benefit there. But that is not going to continue. As that rolls off, it will come back a bit. Rob Kay: Right. Just wanted to—sorry to belabor—but as you know, Brian, you have seen us for a little bit. In any given, particularly quarter reporting period, you are going to get margin fluctuations based upon mix—channel mix particularly, but also product. Brian McNamara: Understood. So next I am curious, which of your brands saw sales increases in 2025? Outside of Dolly, as overall sales decline for a fourth straight year, what gives you guys confidence that the top line inflects this year? Rob Kay: The main confidence that we see there is the disruptions that we saw in 2025. And again, in the fourth quarter, we got some rebound of things that did not ship from Q2 and Q3, but we will have a much more normalization in a lot of the core business in 2026 because some of that did not come back in 2025 and will in 2026. So that is going to be a natural driver for our business. We talked about Dolly will continue to grow. We are seeing good traction there. In cutlery, we have had a tremendous run for a few years, and a lot of that is new product implementation. Our Build to Board line went from nothing; it created a whole marketplace. The growth trajectory of that piece of cutlery will not continue from the trajectory of growth, but we established a new business, and we will maintain. And there are some other things in that line that we are introducing that, hopefully, will produce some good growth. There are some things we have not disclosed that are new that get us into a new space totally, or internal investment that hopefully will hit 2026. If not, it will hit 2027. But, unfortunately, I cannot disclose that at this moment, but there are some things that are total organic internal initiatives that are completely new that hopefully will drive some nice growth for us. Brian McNamara: Great. And then just on the brand growth for the year, any brands perform better than the company average? Rob Kay: Yeah. So, I mean, Taylor had a phenomenal year. Taylor is a great business. From the retailer to our customers' perspective, it is very attractive to them because what they track generally as a key metric, which is the velocity and the margins that they make, it is very profitable for them. It is very good, and it had a very good year across the board in 2025. Again, that trajectory will not continue in 2026, but we had a banner year, and that continues to do well. Farberware, across different things, very strong, and Farberware is our growth engine. KitchenAid, we lost some share a couple of years ago at Walmart. That has run through our numbers. We sold some of that that hit us in 2025, so that is actually the opportunities, and we relaunched the kitchen tool piece of that with a new line that is getting tremendous traction. And we also introduced just recently for 2026 a KitchenAid storage product, which we think is beautiful, but is getting, more importantly, acceptance in the marketplace. So that, not in 2025, but 2026 is looking pretty good—KitchenAid. Brian McNamara: Great. And you mentioned the Dolly brand—obviously sales up really nicely, up 150% for the year. How big is that now? And what is your expectation for sales growth contribution or shipments in 2026? Rob Kay: In 2024, we started that program. It was a small base. So part of that 150% was off a small base. We shipped $18 million in 2025. We will have substantial growth in 2026 as well. Brian McNamara: Got it. Okay. And then finally, obviously, topical given the war in Iran at the moment. Can you remind us how you are positioned on freight in terms of spot versus contract, your cost exposure to oil and resin, anything else we should be mindful of there? Rob Kay: There are so many questions—it may take an hour to answer. But a couple of things on that front. What we are seeing is container rates are starting to go up, and we will probably start to experience that. We have very attractive long-term contracting for freight. But the reality of what happens in very high escalating periods is the shippers start to ignore those, to be honest. So long-term contracts are a benefit, but sometimes there is only so much that you can benefit, and you will get some of it, but not all of it, in very high inflationary ocean freight environments. We do very little business in the Mideast. We will not get much disruption there. We will get no disruption. We actually have a lot of upside that may not come on some new business, but either way, it is not material. Our European business is in jeopardy of seeing some supply disruption because the shipments are coming in a different— it is going to be longer if they have to go around Africa and the like. But we think our inventory levels are not going to impact that. And from a cost of goods sold perspective, your plastics have resins. Resins are impacted by petroleum cost. We have not seen anything. We will see how that plays out. But if you look at it as a total percentage on a bill of material basis, it is not going to have a huge impact on it. Brian McNamara: Great. Very helpful. Thanks very much. I will pass it on. Operator: Our next question comes from Anthony Lebiedzinski from Sidoti & Company. Please go ahead with your question. Anthony Lebiedzinski: Certainly nice to see the better-than-expected results here in the fourth quarter. So it sounds overall like you guys should be able to maintain your SG&A cost. As far as your distribution costs, those also came down in the fourth quarter. How should we be thinking about that line item? And I have a couple of other questions as well. Laurence Winoker: On the distribution, as I noted, our West Coast facility is running very efficiently given the new warehouse management system—that is working quite well. And as I noted, as an expense as a percentage, because we had selling price increases but there was not any meaningful cost increase, we will continue to see that expense benefit as a percentage. And we think there will be some, let us say, mild disruption expenses perhaps when we move into the Maryland facility. But we anticipate those, and we have done this—we have done it many times, these moves. We are putting that new warehouse management system in that facility, so we are anticipating it to run quite well. Rob Kay: And on SG&A—this also goes to Brian's question a little bit—the moves we have taken are sustainable. The only thing where you will see some bounce back in 2026 versus 2025 is, from a target and incentive compensation perspective, we paid out hardly any—typically nothing to management. And with improved performance in 2026, there will likely be corresponding payment of incentive compensation. But that is not the bulk of the SG&A cost reduction that was achieved. The cost reduction was achieved in 2025. Anthony Lebiedzinski: Got it. Okay. Thanks for that. And then, in terms of the International segment, Laurence, you may have said this, but perhaps I missed it. But in terms of the operating loss for the quarter, for the year, can you provide comments on that? Laurence Winoker: Yes. There was a loss. It was not as pronounced as we had in 2024. As Rob mentioned in his comments, we are not done. The CONCORD—and we will call it CONCORD 2.0—continues. And there are some other things that we had hoped to achieve, but there are legal and other roadblocks that slowed us down. We are looking to achieve those during 2026. Anthony Lebiedzinski: Okay. Got it. And then just a couple of other things here. As far as the fourth quarter, you had a tax benefit, which you addressed, Laurence. How should we think about the tax rate for 2026? Any sort of commentary there on that? Laurence Winoker: Sure. I know it is very hard with our numbers to figure out tax rate, but we should be in the high 20% range, and that is based on the thing that—I will just say we have some unusual occurrences this quarter, more unusual than others. But what distorts our provision historically has been the loss internationally where, because of a history of losses, you cannot record a tax benefit, and that would distort it. So as we get the International operations to breakeven or better, our tax rate should be in the 27%–28%, and that is a combination of the U.S. federal rate and state. Anthony Lebiedzinski: Gotcha. Got it. Okay. And then lastly, as far as the Maryland distribution center, it sounds like it is very well on track. So in terms of thinking about the CapEx for this year, do you guys have a ballpark estimate of what that could be? Laurence Winoker: We are anticipating it to be below budget, but we are very confident we can achieve the budget. I think we should beat it. For CapEx, we had originally forecasted $9 million. It may be perhaps less than that, a little less. And we spent a couple of million of it in 2025. So, let us call it around $7 million for that in 2026. But also bear in mind, there will be a little offset compared to historically, because we will not have the maintenance that we typically have in our New Jersey facility, because we are putting in new racking and other things, so in the Maryland facility there will be maybe another $1 million benefit against what we would otherwise spend for routine maintenance. Anthony Lebiedzinski: Understood. Well, thank you very much, and best of luck. Laurence Winoker: Thanks. Thanks, Anthony. Operator: Ladies and gentlemen, I am showing no additional questions at this time. I would like to turn the floor back over to management for any closing remarks. Rob Kay: Thanks, Jamie. Thank you, everyone, for listening and your interest in Lifetime Brands, Inc., and we look forward to further dialogue in the future. Have a great day. Operator: With that, everyone, we will be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your lines. Rory Rumore: Everyone else has left the call.
Operator: Greetings, and welcome to the ProFrac Holding Corp. Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Messina, SVP of Finance. Thank you. You may begin. Michael Messina: Thank you, operator. Good morning, everyone. We appreciate you joining us for ProFrac Holding Corp. conference call and webcast to review our results of the fourth quarter and year ended 12/31/2025. With me today are Matt Wilks, Executive Chairman, Ladd Wilks, Chief Executive Officer, and Austin Harbour, Chief Financial Officer. Following my remarks, management will provide high-level commentary on the operational and financial highlights of the fourth quarter and full year 2025 before opening up the call to your questions. A replay of today's call will be made available via webcast on the company's website at pfholdingscorp.com. You want to know more information on how to access the replay is included in the company's earnings release. Please note that the information reported on this call speaks only as of today, Thursday, March. You are advised that any time-sensitive information may no longer be accurate as of the time on any replay listening or transcript reading. Also, comments on this call may contain forward-looking statements within the meaning of the United States Federal Securities Laws, including management's expectations of future financial and business performance. These forward-looking statements reflect the current views of ProFrac Holding Corp. management and are not guarantees of future performance. Various risks, uncertainties, and contingencies could cause actual results, performance, or achievements to differ materially from those expressed in management's forward-looking statements. The listener or reader is encouraged to read ProFrac Holding Corp.'s Form 10-K and other filings with the Securities and Exchange Commission which can be found at sec.gov or on the company's investor relations website section under the SEC filings tab to better understand those risks, uncertainties, and contingencies. The comments today also include certain non-GAAP financial measures, as well as other adjusted figures to exclude the contribution of Flotek. Additional details and reconciliations to the most directly comparable consolidated and GAAP financial measures are included in the earnings press release which can be found on the company's website. I will now turn the call over to Matthew D. Wilks. Matthew D. Wilks: Thank you, Michael. I will kick off with some high-level remarks about our recent performance, market outlook, and strategic initiatives. Ladd will expand on the performance of our businesses, and finally, Austin will discuss our financial performance. Our results in the fourth quarter improved from Q3 with total adjusted EBITDA increasing 49% on an improvement across our two largest segments: stimulation services and proppant production. This performance was driven by better-than-anticipated activity levels, strong operational execution with optimized uptime, and the early benefits of our cost and capital management initiatives. Notably, our proppant production segment delivered exceptional results, benefiting from increased volumes and improved logistics efficiency that helped us maintain strong margins. Ladd will elaborate on this in a few minutes. Looking at 2025 as a whole, the year presented a challenging backdrop for the completions industry. Tariff-driven economic uncertainty and OPEC's decision to increase supply in early April rattled commodity prices and prompted widespread operator deferrals of near-term activity. Throughout the summer and early fall, operators remained cautious as they balanced hedge books, return commitments, and commodity exposure against continued commodity volatility and broader economic and geopolitical uncertainty. Against this backdrop, the market ebbed and flowed at relatively subdued activity levels. What enabled us to navigate 2025 effectively and emerge well-positioned for 2026 was the fundamental strength of our business model. Throughout the year, our vertical integration and asset management platform were instrumental, providing the operational flexibility and cost advantages that differentiate our performance during difficult market conditions. However, this is not just about weathering downturns; it is about having the structural advantages that allow us to compete more effectively across cycles. The recent conflict in the Middle East resulting in disruptions to tanker flows through the Strait of Hormuz, in addition to the damage to Gulf energy infrastructure, are likely to continue to have a meaningful impact not only on near term, but also potentially on medium term physical supply and demand balances. The severity and duration of these factors remains fluid; however, if disruptions prove lasting, the path to sustainably higher oil prices may crystallize. The conflict in the Middle East is playing out against the backdrop where the setup in North America for onshore activity remains compelling. As we have noted for several quarters, activity has been running below levels needed to sustain flat shale production, and we expect that gap to close as operators accelerate activity to combat natural decline. On the gas side, expanding LNG capacity and rising power demand continue to support a favorable outlook. Layered on top of that, we believe capital discipline across the hydraulic fracturing industry combined with ongoing equipment attrition and restrained new additions sets the stage for supply-demand tightening as activity picks up. Any sustained disruption to Arabian Gulf supply could be the catalyst that pulls the timeline forward. When that acceleration comes, we believe ProFrac Holding Corp. is well positioned to benefit. Some of the same attributes mentioned earlier, including vertical integration and how we manage our asset base, as well as our position in dual fuel and electric technologies, are what keep us squarely where operator demand is highest and position us to move decisively as the cycle turns. Turning to the first quarter for a few moments, we experienced a significant weather impact in January that created near-term operational challenges. Winter storms affected our operating regions during a period when operators were also taking a measured approach to activity amid broader macro uncertainty. However, momentum has been building as we moved through the quarter, which has been encouraging. Our calendar has tightened, activity levels have improved, and with oil prices recovering since the start of the year, operators' sentiment has strengthened. Key to being well positioned for the dynamics we have seen this for several quarters is the work we have done internally to strengthen our cost structure. On our November call, we introduced a business optimization plan targeting annualized savings of $100,000,000 at the midpoint by the end of 2026. This consists of $35,000,000 to $45,000,000 in labor-related COGS and SG&A reductions, $30,000,000 to $40,000,000 in non-labor operating expenses, and $20,000,000 to $30,000,000 in capital expenditure efficiency. We are pleased to report strong progress across all three components of this program. On capital expenditure efficiency, we have already achieved at a minimum the midpoint of our targeted range and expect to be at the higher end of the $20,000,000 to $30,000,000 target. The early benefits of these capital savings were visible in our fourth quarter results, where we delivered a significant beat on net capital expenditures in frac. Austin will provide more detail on what this progress means for our 2026 capital expenditure outlook in a few moments. On labor-related savings, we have fully implemented the cost reduction measures such that we are currently running at an annualized savings rate that positions us at or above the midpoint of our $35,000,000 to $45,000,000 target range. For non-labor operating expenses, we have achieved approximately one-third of the targeted savings on an annualized basis, primarily from fully implemented SG&A reductions. The larger component of this category related to repair and maintenance and asset-level operating expenses remains in earlier stages of implementation and should accelerate as we move through the year. We continue to expect to achieve the full $30,000,000 to $40,000,000 range as these initiatives mature through the second quarter. Taken together, we believe these actions meaningfully improve our cost structure and position ProFrac Holding Corp. to generate stronger returns as market conditions improve. Alongside those efforts, technology differentiation remains a key focus. Let me take a few minutes to walk through our latest technology initiatives, which I believe represent a meaningful and underappreciated part of the ProFrac Holding Corp. value proposition. When we announced our strategic partnership with Seismos back in August, we talked about bringing closed-loop fracturing to the industry, combining ProPilot surface automation with Seismos’ subsurface intelligence to enable real-time optimization during active pumping. The partnership has been performing as we envisioned, and we believe recent field trials have validated the approach. But as we deployed this technology and collaborated with our customers, it became clear the closed-loop control was just one piece of a larger opportunity. Today, I want to discuss Makena, our complete well optimization suite, that we believe takes everything we built with Seismos and ProPilot and extends it into a unified platform that spans the entire completion life cycle. Makena integrates treatment design, real-time measurement, mid-stage intervention, frac hit detection, live pad-level tracking, historical analytics, supply chain optimization, and water quality analysis into a single continuous architecture. Central to Makena’s architecture is a new generation of AI engineering agents that we think of as digital employees embedded directly into the workflow. These agents monitor, interpret, and act continuously across the completion life cycle. Challenges that historically required physical intervention, mechanical testing, or brute force diagnostic runs can now be identified and resolved through a software update. What makes Makena particularly powerful is how it builds on ProPilot 2.0’s foundation. ProPilot served as both a cost optimization tool and an execution precision enabler designed to reduce labor requirements and maintenance expenses while delivering the coordinated pump control and millisecond-level response time that makes closed-loop fracturing possible. Without ProPilot’s execution stability and predictive maintenance capabilities, we could not achieve the rapid, repeatable actuation that Makena requires to translate subsurface intelligence into immediate operational adjustments. Design assumptions now flow directly into execution monitoring. Intervention decisions, designed by our customer, are interpreted algorithmically and executed immediately through ProPilot. Subsurface response is validated in real time, and all of that learning feeds back into future design optimization. What we believe is that this is not only about making one stage better; it is about creating a continuous improvement engine that potentially improves perforations in every stage, every pad, and every program. Ladd will walk through how this works operationally and what we have experienced to date. In summary, we closed 2025 with momentum. Q4 EBITDA was up 49% sequentially, demonstrating the strengths of the business model and cost initiatives, and positioning us to capitalize when the market inflects. Weather headwinds early in the quarter have given way to strengthening fundamentals. While Q1 began with operational challenges, our calendar has tightened with activity accelerating. Our $100,000,000 cost optimization program is ahead of schedule. Labor savings have been fully implemented, CapEx efficiency is tracking to the high end of target, and non-labor reductions are progressing. Makena represents the next evolution in completion technology. By unifying ProPilot’s surface automation with subsurface intelligence into a complete optimization platform, we are not just improving individual stages; we are building a continuous improvement engine. With that, I will turn it over to Ladd, who will provide more detail on our segment performance. Ladd Wilks: Thanks, Matt, and good morning, all. Building on what Matt covered, let us start with stimulation services. As we mentioned on our November call, we were encouraged by signs of stability in the first several weeks of Q4. As noted, deferred September activity returned to the calendar in October, and we successfully kicked off a multi-fleet contract with a large operator early in the quarter. Activity was much more consistent in Q4 relative to our expectations. On fleet utilization and pricing, we maintained a consistent fleet count in the low 20s throughout the fourth quarter into Q1. More importantly, we saw improved utilization and operational efficiency across our active fleets, and pricing remained relatively stable quarter over quarter. What I would emphasize is the meaningful impact our cost and capital savings initiatives had on our margin performance in the fourth quarter. We began to see the early benefits of these programs flow through our results, which was a key driver of our strong adjusted EBITDA performance and contributed significantly to our ability to deliver improved margins. In that reference, January presented weather-related headwinds that impacted operations across both our stimulation and proppant businesses. The winter conditions created operational disruptions that we estimate have resulted in approximately $8,000,000 to $12,000,000 of adjusted EBITDA impact in the quarter, more heavily weighted towards stimulation services. That said, since weather conditions improved, our calendar has tightened and activity has picked up. While we expect Q1 results will be softer than our strong fourth quarter performance, primarily due to the January disruption, the operational momentum we are experiencing positions us well heading into the second quarter. Now turning to proppant services. Matt referenced the strength of Alpine Silica's performance in the fourth quarter. After some challenges in Q3, revenues in the segment stepped up approximately 50% and segment adjusted EBITDA doubled in Q4. We delivered strong operational execution throughout the period with volumes reaching over 2,000,000 tons. Q4 benefited from solid demand across our key markets. Coupled with exceptional operational performance and high uptime, we were able to maximize our production efficiency and cost absorption. From a geographic perspective, West Texas remained a significant contributor to our overall mix, along with continued gains in South Texas. Our cost control initiatives, especially on the logistics side, were a key driver of our ability to maintain strong margins and drive improved profitability in the quarter. In Q1, we expect volumes to be down quarter over quarter. Weather disruptions in January, combined with some operational challenges that impacted production levels, created headwinds after the strong execution we saw in Q4. Customer demand remains solid and as conditions normalize, we are focused on returning to the operational performance that drove our fourth quarter results. Looking ahead, we continue to see momentum building in the Haynesville, where we secured significant customer wins on both the frac and sand side. We expect activity in this basin to continue increasing as we move through 2026, further diversifying our revenue base. Now let me circle back to the technology discussion Matt introduced and get specific about what Makena does on location. The closed-loop module remains our core real-time optimization capability, using acoustic friction analysis to detect perforation efficiency issues and prescribe immediate interventions that ProPilot executes with millisecond-level response. Makena is designed to extend this by integrating a broad operational context into a unified decision engine. Treatment design flows directly into execution monitoring. Intervention decisions are made algorithmically and executed immediately through ProPilot’s precision control. Subsurface response is validated in real time, and all of that learning feeds back into future design optimization. This integration of frac hit indicators, water quality data, supply chain optimization, and fleet health monitoring can create a continuous improvement engine. We believe field results demonstrate the impact. Closed-loop intervention reduced cumulative perforation efficiency degradation by 33% compared to untreated stages. More importantly, every stage adds to our historical database, potentially improving design refinement across entire programs. With that overview of our operational performance and technology progress, I will turn it over to Austin to walk through our financial results in detail. Austin Harbour: Thanks, Ladd. In the fourth quarter, revenues were $437,000,000 compared with $403,000,000 in the third quarter. We generated $61,000,000 of adjusted EBITDA with an adjusted EBITDA margin of 14% compared with $41,000,000 in the third quarter, or 10% of revenue. For the full year 2025, revenues were $1,940,000,000 with adjusted EBITDA of $310,000,000 and an adjusted EBITDA margin of 16%. Free cash flow was $14,000,000 in the fourth quarter, negative $29,000,000 in the third quarter. For the full year 2025, free cash flow was $25,000,000. As Matt outlined, we have been executing on our business optimization targeting $85,000,000 to $115,000,000 of annualized savings and have made strong progress. Within the fourth quarter specifically, we estimate the combined cash impact of labor, non-labor, and capital expenditure savings was approximately $45,000,000, with labor savings accounting for roughly $10,000,000, non-labor approximately $10,000,000, and the remaining $25,000,000 from CapEx savings. Of note, labor and non-labor savings were executed throughout the quarter. As a result, our progress on these initiatives does not reflect the full potential quarterly impact. Turning to our segments, stimulation services revenues were $384,000,000 in the fourth quarter and improved from $343,000,000 in the third quarter. Adjusted EBITDA in Q4 was $33,000,000 above the $20,000,000 we reported in Q3, with margins increasing to 8.7% versus 5.7% in Q3. The improvement was driven by our more consistent activity levels, better fleet utilization, and early benefits from our cost savings initiatives. For the full year 2025, stimulation services revenues were $1,680,000,000 with adjusted EBITDA of $209,000,000 and an adjusted EBITDA margin of 12.4%. Our proppant production segment generated $115,000,000 of revenue in the fourth quarter, materially higher than the $76,000,000 of revenue we reported in the third quarter. Approximately 43% of volumes were sold to third-party customers during the fourth quarter, versus 39% in Q3. Adjusted EBITDA for the proppant production segment was $16,000,000 for the fourth quarter, which was two times the $8,000,000 we delivered in Q3. On a margin basis, EBITDA margins increased to 14% in the fourth quarter versus 10.5% in Q3. Strong segment performance reflected approximately 2,000,000 tons of volume, high equipment uptime, and effective logistics optimization, particularly in West Texas and South Texas markets. As Ladd touched on, for full year 2025, proppant production revenues were $336,000,000 with adjusted EBITDA of $57,000,000 and an adjusted EBITDA margin of 17%. Our manufacturing segment generated fourth quarter revenues of $43,000,000 versus $48,000,000 in the third quarter. Approximately 18% of segment revenues were generated from third-party sales, consistent with Q3. Adjusted EBITDA for the manufacturing segment was $4,000,000 in line with Q3. For full year 2025, manufacturing segment revenues were $212,000,000 with adjusted EBITDA of $19,000,000 and an adjusted EBITDA margin of 8.7%. Selling, general and administrative expenses were $43,000,000 in the fourth quarter, in line with the third quarter. We expect to see continued improvement in SG&A as we execute on our cost savings initiatives. Turning to the cash flow statement. Cash capital expenditures were $37,000,000 in the fourth quarter, down slightly from $38,000,000 in the third quarter. For the full year 2025, CapEx totaled $170,000,000, a material improvement from 2024’s $255,000,000 in CapEx. As Matt discussed earlier, the progress we have made on capital expenditure efficiency has been one of the most encouraging outcomes of our business optimization program. The discipline and execution our teams demonstrated in 2025 gives us confidence in our ability to continue to execute as we move through 2026. To that end, we expect total capital expenditures in 2026, including Flotek spend, to be in the range of $155,000,000 to $185,000,000. Excluding Flotek, we expect our CapEx to be in the range of $145,000,000 to $175,000,000, split between maintenance-related and growth-oriented investments. This guidance reflects our continued commitment to capital discipline while ensuring we maintain our competitive positioning, equipment reliability standards, and the flexibility to capitalize on market opportunities as conditions improve. Turning to cash. Total cash and cash equivalents as of 12/31/2025 were approximately $23,000,000, including approximately $6,000,000 attributable to Flotek. Total liquidity at year-end 2025 was approximately $152,000,000, including $135,000,000 available under the ABL. Borrowings under the ABL credit facility ended the year at $69,000,000, a $91,000,000 reduction from September 30. At year-end, we had approximately $1,050,000,000 of principal debt outstanding, with the majority not due until 2029. We repaid approximately $136,000,000 of long-term debt in 2025. As background, recall that in June, we executed a series of transactions to provide incremental liquidity through 2025, including an initial $20,000,000 issuance of additional 2029 senior notes and commitments for additional tranches at our discretion. We completed the remaining $40,000,000 of that program in December. As discussed on our November earnings call, we also monetized the $40,000,000 Flotek seller note early in the quarter, selling it to a Wilks affiliate at par. Lastly, in Q4, we amended the Alpine term loan to reduce quarterly amortization payments from $15,000,000 to $7,500,000 for 2026 and deferred leverage ratio testing by one year to March 2028. Subsequent to year-end, we closed on an additional $25,000,000 issuance of 2029 senior notes to B. Riley in January, building on the senior notes program we completed in December and further strengthening our liquidity heading into 2026. In addition, earlier this month, we extended the maturity of our senior unsecured revolving credit facility by six months to September 2027, providing further flexibility in our capital structure. The facility now has a capacity of $275,000,000. As we look ahead, we remain disciplined and opportunistic in how we manage our balance sheet, and we will continue to evaluate ways to further strengthen our liquidity and flexibility as market conditions evolve. That concludes our prepared comments. Michael Messina: Operator, let us open up to Q&A. Operator: Thank you. And at this time, we will conduct the question and answer session. Your first question comes from John Daniel with Daniel Energy Partners. Please state your question. John Daniel: Matt, Ladd, I was hoping you could provide a little bit more color on the new technology. Is it software that gets installed in the data van? How does it get rolled out? And what will be the sales cycle in terms of educating customers on what it can do? And how long is your expectation for that education process? Matthew D. Wilks: Definitely. So it is installed on every fleet and ProPilot is our frac automation. It is on every single fleet; it is in the data van. And then Makena is the customer-facing software for well optimization. It allows the customer to pull in real-time data from offsetting wells as well as data from the same well, same stage, and to write rules on how the equipment should respond to that data. So we are extremely excited about this. A great way to think about it is what we are seeing across the entire industry is that operators are only getting about two-thirds of the perfs open on each well. So if there are 15,000 perfs, they are only getting about 10,000 of them actually open. And so our technology allows us to go in, recognize that in real time, respond to it, and initiate what we call interventions to increase the number of open perfs. We cannot improve the resource. We cannot change the rock. But we can open more perfs. We have been able to see where we can open as much as 1,500 extra perfs on a well. Where your D&C cost is $12,000,000 and you are only getting 10,000 perfs open, you are spending $1,200 per open perf. So if we can open an extra 1,500 or 2,000 perfs, that is creating anywhere from $1,800,000 to $2,400,000 of D&C costs that would otherwise have been left behind on each well. John Daniel: Okay. I am curious, and if you said this in the release, I apologize for missing it, but when you have tested this with your customers, did they share with you what the production uplift might have been through the technology? Matthew D. Wilks: You know, it is too early to tell, and it is a slippery slope for us to get into promising well results or an increase in production. Ultimately, it comes to whether or not these perfs are open or closed. If that perf is closed, we are not getting hydrocarbons out of it. But if I can open these additional perfs, that is a better way for us to measure our success and it also has a quicker time cycle. For us to see enough production and work with an operator to get enough data, we would be looking at just one well anywhere from six to nine months before we really get the appropriate feedback. But then we get into the complicated process of trying to establish how much of that production, what were the changes, what other items were going on at the same time, and what is directly attributable to our technology. But just keeping it simple and focusing on whether or not these perfs are open is the best unit of measure and way to establish progress. John Daniel: Okay. And then, I guess, one final one. Not looking for a specific number here, Matt. Q1 down relative to Q4, but just given the cost that you are pulling out, sort of the run rate right now in March, I am assuming Q2 is probably better than Q4? Is that the would be that big gut feel? Matthew D. Wilks: That is a fair assumption. John Daniel: Okay. Thank you. Thank you. Operator: Your next question comes from Saurabh Pant with Bank of America. Please state your question. Saurabh Pant: Hey, good morning, Matt, Ladd, and Austin. Matthew D. Wilks: Morning. Morning. Saurabh Pant: Matt, I know you alluded to some of this in your prepared remarks. What is going on in the Middle East on the margin, I am assuming it does help the U.S. land market a little bit, and I know you were talking about improving operator sentiment. Are you getting more phone calls? Are there more conversations? I know it is too early for anything to show up on the ground, but are you having more discussions? And just along those lines, theoretically, if there is a call on equipment, I know you said you have low-20 frac fleets out there. How easily can you bring more fleets out? And how should we think about any potential CapEx that you would need to spend on bringing fleets out? Matthew D. Wilks: Yes. It is an exercise that we continue to run through. I think things are happening pretty fast over in the Middle East, and what we are looking at is how much of this disruption is temporary from just the strait being closed compared to structural supply and demand imbalances on a go-forward basis from these attacks on infrastructure. Then there is also the possibility of artificial demand as national security interest for each state is reassessed, and we are likely to see some increased reserves on a go-forward basis that should be very constructive for the supply and demand balance. As far as the onshore market here, we are fielding a lot of calls. There are a lot of conversations going on. So far, most of it is centered around DUCs being pulled forward, as well as more robust dense calendars associated with existing activity. It is too early to tell whether this is going to result in a material increase in rig count, but we are watching it very closely and it is interesting to see how our customers are responding and behaving in real time. Hopefully, we will have more to talk about in the near future. Probably the biggest impact regardless of a call on more horsepower and activity is diesel prices have shot through the roof. In some instances, the daily quote has essentially doubled from where it was just a few weeks ago. That is creating a lot of opportunity for us to be better partners with our customers. Where we see customers that typically run all-diesel fleets, the fuel bill is now more expensive than horsepower, and it creates a premium for fuel-efficient fleets. When you look at dual fuel where you can eliminate as much as 70% of your diesel cost or an electric fleet where you can eliminate 100% of it, it is more important now than ever. We can see margin expansion while also saving our customer money and insulating or hedging, giving them a physical hedge against an unanticipated or expected rise in fuel costs. Saurabh Pant: Right. That makes a ton of sense, Matt. That is super interesting. And then, Austin, I have one for you. You talked about this in the prepared remarks about how you strengthened your balance sheet and liquidity, including we saw earlier this week some of the amendments you made to your credit facility. But as we look forward, in terms of just opportunities to deleverage outside of just organic free cash flow, maybe just talk a little bit on what you are thinking, how you are evaluating the balance sheet deleveraging opportunity, and what you may want to do from this point onwards? Austin Harbour: Yes, thanks, Saurabh. With respect to our balance sheet, I think you can tell that we actively manage that, right, and we are constantly looking at a number of opportunities and strategies to optimize what the leverage profile looks like, what the liquidity profile looks like, and then balance that against capital allocation opportunities that we have internally. So as we look forward, I think we will continue to actively manage it and we will continue to focus on making sure that we have liquidity not only to run the base business, but also as opportunistic investments come around. And as we think about the flexibility to be able to respond to this market and also to be able to make investments in some of our other subsidiaries. Saurabh Pant: Okay. Makes sense. Thank you. Thanks a lot, Austin, for that answer. And Matt as well. Thank you. I will turn it back. Operator: Your next question comes from Dan Kutz with Morgan Stanley. Please state your question. Dan Kutz: Hey, thanks. Good morning, and congrats on the quarter. Operator: Dan, could you please go ahead with your question? Dan Kutz: I am sorry. Can you repeat that question? Operator: Dan Kutz, your line is open. All right. Okay. We will move on to the next question. Dan, could you press star-1 again to queue up? Your next question comes from Patrick Woollet with Stifel. Please state your question. Patrick Woollet: Hey, it is Pat Olin on for Stephen Gengaro. Thanks for taking the questions. You highlighted the Q1 2026 results to soften sequentially in the pressure pumping segment, and I know the weather in January plays into that. But you also talked about the frac calendar tightening since then, so I was just wondering if you could give some color on maybe a run-rate basis on how you see the segment exiting Q1 compared to Q4. Matthew D. Wilks: Yes. I think our exit in Q1 is going to be in line to slightly better than what we saw in Q4. It is just that disruption early in the quarter; you do not get those hours back, you do not get those days back. But it did compress the balance of Q1 and has given us a really tight schedule to run and benefit from higher utilization. Patrick Woollet: Okay. Thanks. And you talked about the $8,000,000 to $12,000,000 impact to EBITDA from the weather disruptions. Is this sort of like lost EBITDA or just pushed out to the right and recoverable? Austin Harbour: I would view it as pushed out to the right and recoverable. Certainly, it will be lost in Q1, right? To Matt’s point, we cannot get those days back, right? But as we think about the calendar tightening even further as we move through the quarter and also into Q2, I think ultimately we will be able to earn that back. It is just not all going to come back in February and March. Patrick Woollet: Alright. Thanks. And then if I could just squeeze in one more, if you could just talk a little bit about the guide for the proppant segment. It seems like demand is relatively flat quarter over quarter into Q1. Could you maybe touch on the operational challenges you highlighted? Are those sort of weather-related? And then, you sort of talked about maybe some strength into Q2. Is this driven by maybe better operational efficiency? Or is that demand-driven? Matthew D. Wilks: It is a little bit of both. The disruption early in the quarter impacts your sand mines disproportionately because your wash plants, your working inventory, those freezing temps—these facilities are in areas where you are not used to dealing with this kind of a weather impact. So it is pretty disruptive whenever you get a weather event like this, and it impacts your sand mines a little bit more than it does your frac fleet. With that being said, the operational efficiencies and the quality of our backlog—we have got everything that we can make sold. So now it is just an exercise in execution, and we are starting to see the best performance out of these assets and believe that there is a lot more opportunity in continuing to see that best demonstrated performance climb. Patrick Woollet: All right. Thanks for the color. I will turn it back. Operator: Next question comes from Dan Kutz with Morgan Stanley. Please state your question. Dan Kutz: Hey, good morning, and congrats on the quarter. Sorry about that. I think my headset cut out. So you guys had flagged that you think we are running below production maintenance activity levels in the U.S. currently. Just wondering if you have any guess or any sense for how much higher completions activity would have to be at more of a maintenance-level run rate? Thanks. Matthew D. Wilks: Yes. I think it is easier to look at it from completed lateral feet per month, and depending on the quality of the inventory, you are looking at anywhere from half a million feet to a million feet a month that is below sustainable levels. Dan Kutz: Great. Thanks. That is helpful. And then it sounds like you guys had flagged recently that, in tandem with the cost-out initiatives, you are kind of managing the deployed fleet count to a more range-bound level that leaves some spare capacity on the side. Just wondering if you could talk through what that horsepower, what the plans are for that. Is it going towards bigger fleets, towards continuous fracs? Maybe used to minimize maintenance costs, or maybe some of that just gets stripped and gets retired. But, yeah, just wondering how the spare capacity that you guys have is being utilized or what the plans for that are? Thanks. Matthew D. Wilks: Definitely, that is a great question. The way that we are looking at things right now—tempting and interesting in the environment that we have—is we are going to remain disciplined and keep our fleet count where it is at unless we see a true call on assets and that activity. I think things are too up in the air right now. We are seeing the calendars fill up, seeing DUCs being pulled forward. But once we see this inflection point where there is a true call on activity—of increasing rigs and a demand for frac fleets commissioning full dedicated spreads rather than a few wells here and there pulling DUCs forward—once we see a motivated push to deploy CapEx from operators, we will respond appropriately at that time. And we do have spare capacity. It is just a question of where we are going to put our priorities and focus our capital allocation. At this time, we are going to stick to our plan, stay disciplined, and look for opportunities to create value for our customers. I will highlight, without a call on activity, just the shakeup in the fuel markets is a huge risk for our customers. With the number of fuel-efficient assets that we have, I think we are in a great position to be a great partner with them to help them save money, de-risk their capital allocation, and also to do it while seeing margin expansion on our side. We can help them save a lot of money on fuel and we have been in a low diesel price environment that has really muted the value of these fuel-efficient fleets. But now that you are seeing diesel rise up as quickly and abruptly as it has, it has created a really interesting environment for us to improve our relationship with our customers and get paid handsomely for it. Saurabh Pant: All makes sense. Thanks a lot. I will turn it back. Matthew D. Wilks: Definitely. Thank you. Operator: Thank you. And ladies and gentlemen, no further questions at this time. I will now turn the call back over to Matthew D. Wilks for closing remarks. Matthew D. Wilks: It is good to wrap up 2025. We are excited about 2026. We are managing our business in a very disciplined and thoughtful way. We appreciate everybody's time and look forward to connecting on our Q1 call. Thank you. Operator: Thank you. This concludes today's call. All parties may disconnect. Have a good day.
Paul Johnson: Good morning, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to Stellus Capital Investment Corporation's conference call to report financial results for its fourth fiscal quarter ended 12/31/2025. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, this conference is being recorded today, 03/12/2026. It is now my pleasure to turn the call over to Mr. Robert Ladd, Chief Executive Officer of Stellus Capital Investment Corporation. Mr. Ladd, you may begin your conference. Okay. Thank you. Robert Ladd: Thank you, Paul. Good morning, everyone, and thank you for joining the call. Welcome to our conference call covering the quarter and year ended 12/31/2025. This morning's call will be longer and more in-depth than previous calls. We have five topics to cover. First, the financial results for the fourth quarter and year ended 12/31/2025, asset quality, including commentary regarding software exposure, outlook for 2026, our share buyback program recently announced, and our investment advisor joining forces with Ridge Post Capital. Joining me this morning is Todd Huskinson, our Chief Financial Officer, who will cover important information about forward-looking statements as well as an overview of our financial information. Paul Johnson: Thank you, Rob. I would like to remind everyone that today's call is being recorded. Please note that this call is the property of Stellus Capital Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Todd Huskinson: Audio replay of the call will be available by using the telephone numbers and PIN provided in our press release announcing this call. I would also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call may also include forward-looking statements and projections; we ask that you refer to our most recent filing with the SEC for important factors that could cause actual results to differ materially from these projections. We will not update any forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.stelluscapital.com under the Public Investors link or call us at (713) 292-5400. Now I will cover our operating results for the fourth quarter and year. I would like to start with our life-to-date activity. Since our IPO in November 2012, we have invested approximately $2.8 billion in over 220 companies and received approximately $1.8 billion of repayments, while maintaining stable asset quality. We have paid $333 million in dividends to our investors, which represents $18.27 per share to an investor in our IPO in November 2012, which was offered at $15 per share. In the fourth quarter, we generated $0.29 per share of GAAP net investment income, and core net investment income was $0.29 per share also, which excludes excise taxes. During the quarter, we also realized gains of $5.5 million on five equity positions, which resulted in total realized income for the quarter of $0.48 per share. Net asset value per share decreased $0.23 during the quarter from two components: The first was $0.11 per share of dividend payments that exceeded earnings, which was necessary to continue to pay out spillover income balance from 2024. The second was net realized losses of $0.12 per share related primarily to two debt investments. On the capital front, on December 31, we repaid the remaining $50 million of the $100 million of 2026 notes prior to their March 2026 maturity. Turning to portfolio and asset quality, we ended the quarter with an investment portfolio at fair value of $1.01 billion across 115 portfolio companies, unchanged from $1.01 billion across 115 portfolio companies as of 09/30/2025. During the fourth quarter, we invested $34.1 million in four new portfolio companies and had $18 million in other investment activity at par. We also received four full repayments totaling $37.9 million, five equity realizations totaling $7 million, which resulted in a realized gain of $5.5 million, and received $9.1 million of other repayments, both at par. At December 31, 99% of our loans were secured, and 92% were priced at floating rates. Average loan per company is $8.8 million, and the largest overall investment is $19.2 million, both at fair value. Substantially all of our portfolio companies are backed by a private equity firm. Overall, our asset quality is slightly better than planned. At fair value, 81% of our portfolio is rated a one or two, or on or ahead of plan, and 19% of the portfolio is marked in an investment category of three or below, meaning not meeting plan or expectations. We added one new loan to our nonaccrual list and removed another from the nonaccrual list during the quarter. Currently, we have loans to five portfolio companies on nonaccrual, which comprise 7.5% of the total cost and 4.1% of the fair value of the total investment portfolio, respectively, which represents a slight increase from the prior quarter. We are always focused on diversification, including by industry sector. We have investments in 24 separate industry sectors, and we have approximately 10% in high-tech industries. Over the last months, there has been a lot of press about the impact of artificial intelligence on large-scale SaaS software industry, which has resulted in concern around investment firms’ exposure, both private equity and private credit, to the sector. Let me first say, Stellus does not have exposure to the large-scale SaaS software sector. Rather, we have a small number of loans to software companies that are related to the SaaS space but are better characterized as industry-specific, tech-enabled solutions. This group consists of five companies out of 100 portfolio companies with debt investments and comprises 6.8% of the loan portfolio, the largest position is 1.8%, both at fair value. Each one of these companies provides integral products and services that are embedded in the businesses that they serve. They are using AI to enhance the software and information they provide and, in many cases, are dealing with proprietary data. A common theme for these software businesses is that they are using AI to enhance their value proposition rather than the customer being able to do this all internally with AI. In summary, we believe AI will enable these and many of our portfolio companies across a variety of industry sectors to improve the speed and quality of information, and we do not believe that AI will supplant the need for what our portfolio companies provide. Let me add, each of these companies is owned by a substantial private equity sponsor, is well-capitalized with material equity below us, has modest leverage, and EBITDA that is stable to increasing. The risk rate of these companies is either a one or a two, meaning on or ahead of plan. We will continue to monitor these companies closely as we do with all of our portfolio companies. Importantly, looking forward, we would be surprised if AI had a material negative impact on the recovery of our loans to these companies. And now I would like to turn the call back over to Rob to cover the outlook and a few additional topics. Robert Ladd: Okay. Thank you, Todd. As we look ahead to 2026, I will cover four topics. First, the outlook for Q1 and Q2; the recent announcement concerning our advisor’s plans to join Ridge Post Capital’s platform; a $20 million share buyback program; and our view on the private credit sector overall. So outlook for Q1 and Q2. Today, our portfolio is approximately $996 million across 115 portfolio companies. With the turbulence that we have all been observing, M&A activity has slowed some after a very robust fourth quarter for us. Therefore, we expect in 2026 a portfolio at the current level or slightly less. We expect continued equity realizations in Q1 of approximately $2 million, resulting in a $1 million realized gain. Regarding dividends, in January we declared the dividends for 2026 of $0.34 per share in the aggregate, payable monthly. We expect to keep the dividend at this level of $0.34 for the second quarter, which will be declared in early April, of course subject to Board approval. Just looking at our stock price today that is a little under $9 a share, the second quarter dividend is a 15% annualized yield. Now turning to Ridge Post. On February 5, we announced that our external manager, Stellus Capital Management, agreed to be purchased by Ridge Post Capital, formerly known as PTEN. Ridge Post is a leading private capital solutions provider that similarly serves the lower middle market. Stellus will continue to be managed by its current partners, who will retain control of its day-to-day operations, including investment decisions and investment committee processes. We like to say there will be no changes in how we operate. Todd Huskinson will continue to be Stellus Capital Investment Corporation’s CFO, and I will continue to serve as the company’s Chairman and CEO. Now turning back to Ridge Post. Ridge Post Capital, which has more than $43 billion in assets under management, invests across private equity, private credit, and venture capital and access-constrained strategies, with a focus on the middle and lower middle market. We believe that our advisor joining Ridge Post Capital is a very positive development for a number of reasons, the most important of which is the anticipated investment opportunities that Ridge Post Capital will open up for Stellus Capital Investment Corporation and our affiliates. Ridge Post’s largest strategy is a lower middle market private equity firm specializing in North American small buyouts through primary, secondary, and co-investment vehicles known as RCP Advisors, which is based in Chicago. RCP Advisors has invested with more than 200 lower middle market private equity firms and is typically the largest or one of the largest LPs in the PE funds in which they invest. As you will recall, all of our lending is to companies owned by lower middle market private equity firms. As part of Ridge Post Capital, we expect to see a material increase in investment opportunities coming from those PE relationships, many of which we do not currently have. Given the nearly identical size profile of the RCP sponsor relationships and our sponsor relationships, we think we have a meaningful opportunity to increase the top of our funnel for new origination opportunities. We are excited by this new growth opportunity and we believe it will benefit all shareholders. The transaction with Ridge Post Capital is expected to close in mid-2026, subject to BDC board and BDC shareholder approvals, and other customary closing conditions. Let me add, some of our shareholders have asked, are you selling Stellus Capital Investment Corporation, our public company, or Stellus Capital Management, to Ridge Post Capital? We are not. Stellus Capital Investment Corporation will remain publicly traded. Our leadership will remain the same, as I mentioned earlier, and our independent board members will also remain in place. Our shareholders will continue to own Stellus Capital Investment Corporation stock. Now turning to share repurchase. Our Board of Directors recently approved a stock repurchase program of up to $20 million. This decision reflects the current trading level of our shares, which are at approximately a 30% discount to recently reported net asset value. Historically, our stock has traded at or above NAV for many years. At the current price levels, we believe repurchasing shares represents a compelling opportunity to generate meaningful value for our shareholders. This authorization will remain in place for at least one year. And finally, I am going to turn to private credit today. Given the significant press coverage of perceived stress in private credit, we thought this would be a good time to share our view of private credit overall. I will first cover our strategy versus larger managers; second, a reminder of our history in private credit; and finally, the importance of private credit for the U.S. economy. Stellus Capital focuses on direct-originated senior secured loans to lower middle market, private equity-backed companies rather than participating in large, broadly shared loans or nationally syndicated credits. This represents a fundamental difference between the Stellus platform, including Stellus Capital Investment Corporation, and many of the larger private credit managers and larger BDCs. Larger managers are lending to all types of companies, many without deep-pocketed private equity owners, and some with complex capital structures or off-balance-sheet vehicles. And now a reminder of our history. First, we are one of the longest-tenured active private credit managers, with a history of investing that is 22 years across 400 companies and $10 billion of deployment. The Stellus management team has an investing history that has been resilient across multiple macroeconomic cycles, including the Global Financial Crisis of 2008–2009, COVID-19, the global pandemic, and periods of other market volatility such as the international tariff disruption of 2025. Second, our asset quality across the portfolio has remained stable over time, with a weighted average risk rate of approximately two, which corresponds to investments performing on plan. All of our loans have financial covenants. All but one of our portfolio companies are backed by a private equity sponsor, and all have substantial equity below us at the time the loans are made. Third. All of our investment vehicles, with our public company, have the same investment mandate. All lend to the same businesses. We have no competing strategies or distractions. All of our work is focused on doing well for our shareholders and investors. And lastly, fourth, we have a long history of equity co-investments alongside our debt investments. This is where we buy a small piece of equity in the companies we lend money to, usually 5% of the total portfolio at cost. The equity co-investments have resulted in substantial equity gains. For Stellus Capital Investment Corporation, this has generated approximately $98 million of net realized gains life-to-date, with a historical return on equity co-investments of greater than 2.5x. And now I will turn to private credit, the private credit sector more broadly. We believe there is a lot of opportunity for growth in the private credit space, especially in our market, the lower middle market. In our market, there is a tremendous amount of dry powder in lower middle market private equity firms, who are our client base, if you will. When they buy private businesses, we are there to finance the purchases. The best data we have would indicate there is approximately 10x the dry powder to invest by lower middle market private equity versus the amount of dry powder in lower middle market private credit providers. We will be there to provide the financing. Finally, for private credit overall, the need for this capital is very large. Why? Private credit in our country fills the large gap that commercial banks cannot provide. The reason for this is commercial banks are typically levered 10 to 11 times and are mostly lending out retail and commercial deposits. As a result, their risk profile is very tight, and they are highly regulated to safeguard these deposits. Private credit providers are not highly levered (typically 1 to 2 times), and we are not investing bank deposits. We are investing equity capital coupled with modest institutional leverage. I will say both banks and private credit providers are focused on protecting their capital bases. Private credit, though, has the flexibility to provide more leverage, earn higher returns, and can participate in the equity upside of our portfolio companies. Together, private credit and commercial banks are the growth engine of our U.S. economy. So the takeaway for our shareholders is we have a long history of investing in private credit. We think there is a lot of opportunity to invest going forward in the lower middle market, where we have always been, and also to provide strong returns for our shareholders. And with that, I recognize today’s call was longer than normal. We hope that it was helpful to better understand our business and the industry we operate in. And with that, Paul, please open up the line for Q&A. Paul Johnson: Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And one moment please while we poll for questions. The first question today is coming from Christopher Nolan from Ladenburg Thalmann. Christopher, your line is live. Christopher Nolan: Hey, guys. Good morning. Thank you for all the detail, Rob. Given the change in the ownership of the external manager and the share repurchase initiative, will there be a change in the leverage targets for Stellus Capital Investment Corporation? Robert Ladd: Thank you. Good morning, Chris. And no. Good question. There will not be a change in our targeted leverage for Stellus Capital Investment Corporation, which, as you will recall, is approximately 1:1 on the regulatory test and approximately 2:1 including SBIC debentures. Christopher Nolan: Okay. And then, turning to SBA for a second, what is the remaining capacity in the SBA, and should we be looking at that to be a growth engine for you guys in the first half of the year? Robert Ladd: Yes. So ultimately, we have quite a bit of new capacity that we will have in the SBA. We, as you may have noted in Todd’s remarks and in our press release, paid down $39 million of debentures on March 1 under our first license, which brings a total of $65 million. So that would be one example. We have $65 million of new debentures that we will be able to take out, plus more when we obtain our third license. So it is a good question. A lot of growth from here, given that we have repaid $65 million of debentures so far. Christopher Nolan: Great. And final question. I noticed that you have done some subsequent investments to Venbrook and Real Estate Services, both of which are nonaccrual. Can you give a little detail of what is going on with those guys? Robert Ladd: Yes. So, of course, we do not talk much about the detailed companies, but these are companies where we have been working with others to provide additional capital to see them through a rough spot. The Partners is a realtor business based in the Midwest, and Venbrook is an insurance agency. These are small advances to further the companies’ operations during a little bit of a slow period. Christopher Nolan: Great. That is it for me. Thank you, Rob. Robert Ladd: Thank you, Chris. Paul Johnson: Thank you. The next question will be from Brian McKenna from Citizens. Brian, your line is live. Brian McKenna: Okay, great. Thanks. Good morning, everyone. So just a bigger-picture fundraising question for you guys as it relates to the broader Stellus platform. What are you hearing from some of your institutional investors in terms of having some incremental exposure to the lower middle markets and moving some capital away from the large-cap managers in the upper middle markets? And I am curious—we will see how the environment plays out from here—but given maybe the dynamic there, could we actually see a scenario where fundraising at Stellus starts to accelerate over the next year or so? Robert Ladd: Yes. Good morning, Brian, and thank you for the question. We have definitely seen, for the overall Stellus platform, an increasing interest in the lower middle market where we operate. This is coming from large institutional investors that have noticed in some of their larger managers some overlap in different credits and found our type of investing interesting. We have definitely seen an uptick in that area, and this would be, of course, across the Stellus platform. Brian McKenna: Yep. Okay. Got it. That is helpful. And then, Rob, you have clearly done a great job managing the business throughout a number of cycles and operating environments over the past 20 years or so. I think you have a great perspective as well. And so, while each cycle and period of dislocation is always a little bit different, history always rhymes. So what past experiences can you lean on today to make sure you are prudently managing your business in the current environment? Robert Ladd: Yes. I would say, historically, it is important in times like this to not be over-levered, which we are not, and I would add that the private credit industry is not. So modest leverage is helpful in these times. Certainly, we are very focused on strong underwriting throughout periods, and you may have heard us say before that when we look at a new company, we are thinking we are going to have a recession within the first 18 to 24 months. Whether we are is another matter, but we underwrite to that. So we will continue that diligent underwriting, expecting if this company got into trouble or there was an economic cycle down, how would it behave or how does the sector behave? So I think strong underwriting will continue for us. And then I would say, we will be very selective about opportunities. My guess is, too, that you may see some improved pricing in our sector. In other words, spreads may widen a little bit to the benefit of our shareholders. But I would say throughout our investing period, this goes back 20-plus years, what we have found in our part of the market, again the lower middle market, is that we have always had large equity checks below us, we have always had financial covenants, and therefore well-capitalized businesses from the start. So, again, I think it is the same that we have been doing historically. But we will be very focused and cautious if we think things are turning. We think there is a lot of noise in the system today that is less about the quality of the portfolios in private credit. Brian McKenna: Alright. Thanks so much. I will leave it there. Robert Ladd: And thanks so much, Brian, for joining. Paul Johnson: Thank you. The next question will be from Justin Marchandt from Capital. Justin, your line is live. Justin Marchandt: Hey, guys. Good morning. On for Eric today. I just want to talk a little bit more about the Ridge Post transaction. Sounds like a good fit for your investment strategy. When do you expect to see the full benefits of increased deal flow and opportunities, should the deal go through in mid-2026? Robert Ladd: Justin, thank you for joining. So, again, as you pointed out, subject to the various approvals, this transaction would close in the summer of this year. We have had initial conversations with the RCP subsidiary, if you will, Ridge Post, and we think there is a great opportunity there. So our hope and plan would be that as we get to this summer, we will hit the ground running. And I think that collectively, we think there is lots of opportunity to open up. So I would say that, not to be overly optimistic, but I would imagine this will kick in in 2026. Justin Marchandt: Okay. Alright. That is great. And then looking at PIK income, it has been a significant increase year-over-year. Are these portfolio companies prioritizing growth, or are there operational issues? And what kind of strategies can you implement to get borrowers back to cash pay? Robert Ladd: Yes. So, although our PIK income has increased, we are still at the low end of our competitor set. We do not go into a new loan with PIK income, and by the way, we understand in the upper market lenders will go into a new credit with some PIK income; we do not. At the outset, all the loans are cash pay. So if you see PIK income with us, it would mean that the company needs some relief from a cash flow perspective. And typically, when we have some PIK aspect to the income, it means that the private equity owner is contributing new capital. So this, we think, is a good trade for both parties. For that PIK to come down, it will be that those companies that needed relief have improved their performance, or we have exited the investment—in other words, the company has been sold or refinanced. So that is the nature of our PIK income, not something that is planned on the front end. Justin Marchandt: And then last one for me. Just on the new base distribution still kind of above the 4Q NII run rate, what sort of levers can you guys pull to get earnings back to or above the new distribution? Or is there a potential to right-size the distribution rate later on this year? Robert Ladd: Yes. We are striving to improve the NII. I would say that if SOFR stays where it is, which perhaps it will for a while, this will be helpful to us. The new leverage that we would receive under a third license from the SBA will get the portfolio back up. Again, as I mentioned, quite a bit of increased portfolio that was resolved from our third license getting recapitalized. So this would be helpful as well. And again, we always strive to receive the best returns on the loans we are making, and so we will continue to work on that. But it would be a combination of things. In any event, we do have a fair amount of spillover from last year, and so as a result, we will have this level of dividend, at least, through the second quarter. And we will reevaluate it. We will have more to talk about this summer as we hopefully get into our third license with the SBA. Justin Marchandt: Okay. Thanks for taking my questions today. Robert Ladd: Thank you, Justin. Paul Johnson: And the next question will be from Robert Dodd from Raymond James. Robert, your line is live. Robert Dodd: Hi, guys. A lot of my questions have been answered, and I appreciate the color you gave at the beginning on how much exposure you have to software or AI risk assets. That kind of feels like last month at this point. On something else, what would you say your exposure is in the portfolio to higher energy prices? Obviously, oil is up, could go meaningfully higher potentially. We do not have a lot of direct oil and gas production, obviously, but there is feed-through to other areas in the economy if oil prices do continue to rise or spike again. Could you give us any color on what the exposure is in the portfolio to that kind of issue? Robert Ladd: Yes, Robert. Good morning. First, as you indicated, we have no direct exposure to the oil and gas industry. I would say that we also, as a matter of underwriting, have a handful of principal tenets, one of which is to not have commodity price risk exposure. So this would transcend direct oil and gas exposure. I think that the larger impact would be just the impact on the consumer if this started to cause consumer stress. We do have some businesses that are exposed to the consumer spending, but I would say not a material amount. So do not expect any material impact, certainly directly with companies. It would end up being more of whether it causes some change in the overall economy, which, my personal opinion, I would not expect. Not to get into the war and to run, but I would expect this will probably moderate over time. But again, I would not expect it to have a material impact on the portfolio. Robert Dodd: Got it. Thank you. On the more stressed assets in the nonaccruals you have, do you have right now a kind of expectation—guess, but about the timeframe for resolution of some of those? Because obviously, to that point right now, there is a decent slug of the portfolio that is not income-producing and maybe could be again at some point in the future. What is the kind of timeline there? Robert Ladd: Yes, sir, Robert. This would certainly range by individual company, so I will not get into that specifically. But I would say that we are having some that are coming off nonaccrual, and we did one in the fourth quarter that came off nonaccrual. I think you will see a gradual change over the next 12 to 18 months with regard to the portfolio. I would say that if something is nonaccrual, it is being or has been restructured, and that we as a lender group and typically the owner, because they are not able to pay interest, are looking for exits to monetize the position, reinvest that capital, and then have earnings on it again. But I think, naturally, it is typically a year to 18-month process as you go. Some may take longer, some may take shorter. So I cannot cover specifics, but a gradual resolution, I would say, throughout 2026 and into 2027. Robert Dodd: Got it. Thank you for that. If I can, one more, just a general question. You mentioned you might see improved pricing. Obviously, the marketplace has been extremely competitive over the last 24 months, with spreads coming down, and there are some early signs maybe that is going to move. What is your confidence that spreads will in fact widen sustainably over the next year or two versus near-term indications being just a short-term phenomenon? I realize that is a really tough question, but any thoughts there would be appreciated. Robert Ladd: Sure. First, the public loan indices have widened materially over the last 60 days, but we have not seen that in the private market that we operate in yet. This will be driven by more than one factor. One would be capital flows—it appears to be less capital coming to the industry, the sector currently. The next would be perceived risk and discipline by the underwriters. Unfortunately, I cannot predict whether it will occur, but we certainly have the ingredients of what we are observing to cause spreads certainly not to get tighter and potentially to widen. Public markets are reflecting it; we have not seen it yet in the private area where we operate, but certainly the ingredients for it are there. Robert Dodd: Got it. Thank you. Robert Ladd: Thank you, Robert. Paul Johnson: Thank you. There were no other questions at this time. I would now like to hand the call back to Robert Ladd for closing remarks. Robert Ladd: Thank you, Paul, very much, and thanks, everyone, for joining the call. Thank you for your support, and we look forward to speaking with you again in early May as we report the first quarter. Paul Johnson: Thank you. This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to CION Investment Corporation's Fourth Quarter and Year-End 2025 Earnings Conference Call. Our earnings press release was distributed earlier this morning before market opened. A copy of the release, along with the supplemental earnings presentation is available on the company's website at www.cionbdc.com in the Investor Resources section and should be reviewed in conjunction with the company's Form 10-K filed with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of numbers of factors, including those described in the company's filings with the SEC. Joining me on today's call will be Michael Reisner, CION Investment Corporation's Co-Chief Executive Officer; Gregg Bresner, President and Chief Investment Officer; and Keith Franz, Chief Financial Officer. With that, I would like to turn the call over to Michael Reisner. Please go ahead, Michael. Michael Reisner: Thank you, and good morning, everyone. Before I address our quarterly results, I want to step back for a moment and highlight what I believe is the most important takeaway from this quarter. We believe that our core first lien portfolio which represents approximately 81% of our investments continues to perform well. Weighted average interest coverage across our portfolio increased quarter-over-quarter from 1.94x to 2.6x. And EBITDA growth in our portfolio companies primarily continues on a positive trajectory, and our risk rated 4 and 5 names held steady at approximately 2.4% of the portfolio at fair value. We added 1 new term loan to nonaccrual status during the quarter, Healthway. And overall, nonaccruals remained essentially flat compared to the prior quarter at 1.78% of the portfolio at fair value. I would also note that our software exposure stands at approximately 1.8% of the portfolio at fair value, a reflection of our long-standing and intentional decision to avoid that sector. For investors who have expressed concern about software concentrations in BDC portfolios broadly, we believe our positioning should provide meaningful comfort and Gregg will speak further to our sector discipline. Overall, we are not seeing the material cracks in private credit that the press has been eager to report. Now turning to our NAV. Our net asset value decreased 7.4% quarter-over-quarter the $13.76 down from $14.86 at the end of September. I want to stress that this decline was driven almost entirely by unrealized mark-to-market adjustments and a handful of equity positions, specifically, 4-wall entertainment, David's Bridal and Avison. These are unrealized marks, not realized credit losses. And as we have discussed on prior calls, our equity book can introduce meaningful quarter-to-quarter volatility into our NAV. We have always been transparent with the market about this potential volatility, and this quarter, this volatility caused our NAV to decline. We believe this potential volatility should be evaluated in the context of the portfolio, this core lending book is demonstrably healthy and whose equity positions retain long-term appreciation potential. Gregg will walk through each of these names in detail. I'm also pleased with our capital markets execution during and subsequent to the quarter. We raised $172.5 million in senior unsecured notes during the fourth quarter across 2027 and 2029 maturities. And subsequent to quarter end, we raised an additional $135 million in unsecured public baby bonds due in 2031, a combined $307.5 million in unsecured borrowings that further strengthens the flexibility and duration of our balance sheet. Keith will discuss both transactions in greater detail. but we believe that continued access to the unsecured debt markets at these levels reflects the confidence institutional investors have in our credit profile. We also repurchased approximately 556,000 shares during the quarter at an average price of $9.37 per share, which we continue to view as prudent and accretive use of our capital. Looking ahead, we continue to see a resilient underlying economy. While we are mindful of the ongoing geopolitical uncertainty, the underlying domestic economy continues to show resilience, and we believe conditions remain broadly supportive for our portfolio of companies for the remainder of 2026. Our portfolio companies, the vast majority of which serve business-to-business end markets in the U.S. middle market generally continue to perform in line with or better than our expectations. Despite the volume of cautionary commentary in the financial press around private credit, we are simply not seeing broad-based deterioration in our portfolio, and we remain confident in the durability of our first lien focused strategy for the remainder of the year. With that, now I'll turn the call over to Gregg to discuss our portfolio and investment activity during the quarter. Gregg Bresner: Thank you, Michael, and good morning, everyone. Prior to covering our investment and portfolio activity for Q4, I would like to expand on Michael's comments regarding our nominal level of software exposure within the portfolio. We ended the quarter with 3 software portfolio companies totaling 1.8% of portfolio fair value or 2% on an amortized cost basis. All 3 of these software companies were underwritten on a performing positive EBITDA basis with a weighted average net tranche level of approximately 4.4x EBITDA at closing. We have no ARR loans in the portfolio. As a firm, we have historically not invested in software as we were unwilling to lend against an ARR growth methodology with negative EBITDA profile at closing. We view the ARR software profile more as a venture-oriented investment with equity-like risk that require return levels well in excess of the yields typically offered on first-lien debt investments. In terms of our Q4 investment activity, we remain highly selective with new portfolio investments, and we're focused on transactions within our portfolio of companies. We also were effectively at full investment during most of the quarter and work to balance the timing of expected investment pipeline investments versus repayment amounts while maintaining our targeted net leverage range. Overall, we had fewer exiting repayments for the quarter versus our Q3 level as certain repayments drifted into Q1 of 2026. During the quarter, we passed on a historically higher percentage of potential investments in new portfolio companies based on credit and pricing considerations. While secondary credit market conditions were choppy in Q4 due to speculation regarding tariffs and interest rate policies, the government shutdown and market concerns regarding potential cracks in private credit, there remained a significant bifurcation for the new issue market. New issue pricing continued to be driven by the hangover of record 2024 private debt fundraising, which translated into lower coupon spreads, higher leverage levels and looser credit documents in the market. We focused our Q4 activities on incremental opportunities with our portfolio companies. We believe our continued investment selectivity and proportional deployment levels help us to invest in first lien loans at higher spreads when compared to the overall private and public loan markets. The weighted average yield for our new direct first lien investments for the quarter based on our investment cost was the equivalent of SOFR plus 6.43%. As we discussed in previous quarters, the majority of our annual PIK income is strategically derived from either highly structured first lien investments where our PIK income is incremental to our cash coupon. Together, these categories represented approximately 75% of our total PIK investments in Q4. Approximately 73% of our PIK investments are on portfolio companies risk rated either 1 or 2 and 99%, risk-rated 3 or better. As a result, we believe this PIK income does not compare to restructured PIK driven by a deterioration in credit. Turning now to our Q4 investment and portfolio activity. Our Q4 investment activity consisted of a co-lead investment in 1 new portfolio company, strained dental management and incremental add-on investments and secondary purchases in existing portfolio companies, including adaptive laser, American Clinical, Averson Young, BDS Solutions, Carestream Health, Coin Mark, David's Bridal, Statin Med and Work Genius. We additionally refinanced the first lien debt of SleepCo Brooklyn Bedding and Camden with our initial club partners. During Q4, we made a total of approximately $76 million in investment commitments across 1 new and 14 existing portfolio companies, of which $66 million was funded. We also funded a total of $12 million of previously unfunded commitments. We had sales and repayments totaling $79 million for the quarter, which consisted of the full repayment of the first lien term loans for MOS Holding and NorthStar travel. As a result of all these activities, our net funded investments decreased by approximately $1 million during the quarter. As Michael referenced, our NAV decrease during the quarter was driven primarily by declines in the unrealized mark-to-market value of our equity portfolio that was concentrated within a subset of equity investments, including, 4-wall Entertainment, David's Bridal and Avison Young. The common theme among these names is what we internally refer to as the COVID elongation cycle as each of these names were significantly impacted by both COVID and the labor market inflation and interest rate shocks, which sequentially followed, which resulted in the restructuring or recapitalization of balance sheet to rebuild the platforms. The reduction in the equity mark of Juice Plus was driven by a reduction in trailing quarterly revenue performance against its fixed cost base as the company worked to complete its restructuring in the third quarter. With its recapitalized balance sheet in Q4, the company immediately pivoted to operational initiatives and investments to transform its product offerings and sales infrastructure to optimize its go-to-market strategy that is more in line with consumer health and wellness trends and spend. The company has been executing on product development, sales management and information technology initiatives to reposition for growth and profit improvement over the medium term. The market value of our equity investment in Entertainment was negatively impacted by reduced trailing EBITDA performance driven primarily by industry factors, including reduced live event activities from cancellations and lower TV and film production as the sector rebuilds pipelines from the writer strut that delayed the release queue of new scripts and production content. The company successfully restructured its balance sheet in the summer of 2025 and repositioned its sales, business development and CapEx to focus on an expected rebound in both event and production activities. The company is expecting significant EBITDA improvement in 2026 and has already secured a number of high-profile event wins for 2026. As we have mentioned on previous quarterly calls, we expect to see significant quarter-to-quarter volatility in the marks of David's Bridal equity due to the larger overall relative size of our investment as well as the highly seasonal nature of the company's operations and working capital profile. The decline in the Q4 marked primarily reflects the typical seasonal increase in debt as the company builds inventory ahead of the critical bridal season, which historically begins in mid-January. In addition, we invested incremental capital to accelerate the company's growth of its Pearl segment which is a high-growth, higher-margin digital marketplace platform that expands the company's market participation beyond the $5 billion wedding dress segment in the broader $65-plus billion wedding services industry. The Q4 equity marks in Avison Young were negatively impacted by incremental debt raised in Q4 at the top of the capital structure to support the company's investments in sales and other infrastructure in advance of the expected increase in commercial real estate activity in 2026 and 2027. This incremental increase in the quantum of debt negatively impacted the value of Averson equity tranches. CION participated in the latest debt round, it continues to believe this company is well positioned for the expected rebound in commercial real estate. Our investments in Juice Plus, David's Bridal and Avison Young are representative of our opportunistic first lien investment strategy where we acquire either restructured or lightly syndicated first lien loan tranches in quality companies at a discount to par due to technical reasons where we expect to have active roles in the processes that drive the recovery and realization of the investments. Historically, we have been able to realize healthy earnings on our first lien restructured or recapitalized transactions. Illustrative examples include our investments in Longview Power, YacMat, Heritage Power and Dayton Superior. We also had a number of portfolio companies where the equity marks increased for the quarter due to strong financial performance and our projected outlook, including Longview Power, Palmetto Solar and play boeing. From a portfolio credit perspective, our nonaccruals increased slightly from 1.75% of fair value in Q3 to 1.78% in the fourth quarter. This increase was from the addition of 1 new name to nonaccrual, our term loan investment in HW acquisition or Healthway. Healthway initiated a primary revolver raise in the fourth quarter that ultimately funded in early 2026 and contained a substantial lower component that effectively shifted value from the term loan to the revolver tranche. While CION participated in the revolver upsize and ultimately benefit on a total position value basis, from the incremental accretion in the revolver tranche versus our pro rata ownership of the term loan, the shift in value resulted in nonaccrual status for our term loan holding. On an absolute basis, nonaccruals continue to be in line with historical experience, and we are pleased with the continued credit performance of our portfolio, particularly in the current environment. Overall, our portfolio remains defensive in nature with approximately 81% in first lien investments. Approximately 98% of our portfolio remains risk rated 3 or better. Our risk-weighted 3 investments, which are investments where we expect full repayment, but are either spending more engagement time and/or I've seen increased risk to the initial asset purchase increased from approximately 10.4% in the third quarter to 11.5% in Q4. I'll now turn the call over to Keith. Keith Franz: Okay. Thank you, Gregg, and good morning, everyone. During the fourth quarter, net investment income was $18.3 million or $0.35 per share compared to $38.6 million or $0.74 per share reported in the third quarter. Total investment income was $53.8 million during the fourth quarter as compared to $78.7 million reported during the third quarter. The decrease in total investment income was driven primarily by lower interest income earned on our investments, as a result of certain investments being restructured in the prior quarter and other yield-enhancing prepayment fees and accelerated OID that did not reoccur this quarter. We also had lower transaction fees earned from origination and restructuring activities when compared to the prior quarter, which was slightly offset by an increase in dividend income received from 1 of our investments during the fourth quarter. On the expense side, total operating expenses were $35.5 million compared to $40.1 million reported in the third quarter. The decrease in operating expenses was primarily driven by lower advisory fees due to lower investment income earned during the quarter. At December 31, we had total assets of approximately $1.9 billion and total equity or net assets of $708 million with total debt outstanding of $1.1 billion and 51.4 million shares outstanding. Our portfolio at fair value ended the quarter at $1.7 billion, and the weighted average yield on our debt and other income-producing investments at amortized cost was 10.7%, which is slightly down from 10.9% in the third quarter. At December 31, our NAV was $13.76 per share as compared to $14.86 per share at the end of September. The decrease of $1.10 per share or 7.4% was primarily due to unrealized mark-to-market price decreases in our portfolio, mostly from price declines in our equity book, which was slightly offset by the creative nature of our share repurchase program during the quarter. We ended the fourth quarter with a strong and flexible balance sheet with over $1 billion in unencumbered assets, a strong debt servicing capacity with an interest coverage ratio of over 2x and solid liquidity. We had over $120 million in cash and short-term investments and another $100 million available under our credit facilities to further finance our investment pipeline and continue to support our existing portfolio companies. In terms of our debt capital. At December 31, we continue to have a healthy debt mix with about 65% in unsecured and 35% in senior secured. About 70% of our debt is in floating rate, which aligns well and creates a natural hedge with our mostly floating rate investment portfolio. A well-diversified debt structure is focused on unsecured debt in order to maximize our balance sheet flexibility and at the same time, creates a strong buffer for our financial covenants. At the end of the quarter, our net debt-to-equity ratio increased to 1.44x from 1.28x at the end of September, and the weighted average cost of our debt capital was about 7.35%, which is slightly down from the third quarter due to lower SOFA base rates quarter-over-quarter. The increase in the net leverage ratio was impacted primarily by the quarterly decrease in NAV and an increase in the average debt outstanding during the quarter. During the quarter, total debt increased by $48 million due to the timing of paying down our senior secured debt with a portion of the net proceeds raised from the unsecured debt offering in December. During the quarter, we issued $172.5 million of senior unsecured notes from certain institutional investors, consisting of $125 million in senior unsecured notes with a fixed interest rate of 7.7% due 2029 and $47.5 million in senior unsecured notes with a fixed interest rate of 7.41% due 2027. Subsequent to year-end, on February 9, we completed a public baby bond offering, issuing $135 million of new senior unsecured notes with a fixed interest rate of 7.5% due 2031, which listed and commenced trading on the New York Stock Exchange on its ticket symbol, CICC on February 12. The net proceeds from these offerings were used to fully repay our $125 million in senior unsecured notes due 2026 that matured in February, and the remaining net proceeds will be used to further reduce our outstanding senior secured bank debt. Now turning to distributions. During the fourth quarter, we paid a base distribution to our shareholders of $0.36 per share, which is the same as the third quarter base distribution. For the full year in 2025 we declared and paid total distributions of $1.44 per share, all of which was from our quarterly base distributions. As a result, the trailing 12-month distribution yield through the fourth quarter based on the average NAV was about 9.9% and the trailing 12-month distribution yield based on the quarter end market price was 14.9%. As previously announced, we changed the timing of paying base distributions to our shareholders from quarterly to monthly beginning in January 2026 to better align with our shareholder expectations. And as announced this morning, we declared our second quarter base distribution of $0.30 per share, which is the same as the first quarter. The second quarter base distribution will be paid monthly in April, May and June at $0.10 per share per month. Okay. With that, I will now turn the call back to the operator, who will open the line for questions. Operator: [Operator Instructions] And the first question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start with a question on leverage. And you noted that, that was up in the quarter, and some of that was driven by the fair value marks in the equity portfolio, but it's run fairly above kind of where you've run in the past. So just curious on your thoughts for the appropriate level of leverage today and how you plan to kind of manage that over the next year or so? Keith Franz: Eric, it's Keith. Yes. So in terms of the elevated leverage, I think the way that we're looking at it is over the next few quarters, some organic growth in the NAV positions may help -- but ultimately, we expect to use some of the scheduled on scheduled repayment activity we typically receive to delever. . Erik Zwick: That's helpful. And -- next question, just on PIK income. I think you've previously indicated the desire to reduce the contribution from income. Looking at the results in 2025 that was up on both absolute dollar terms as well as a percentage of total investment income. So First, just wondering, could you provide a split of kind of tick by design versus restructured PIK? And do you still have plans to kind of aim to reduce that overall contribution? . Gregg Bresner: Eric, it's Gregg. From your characterization, we -- as we do this about 75% of our PIK is by design where it's either incremental cash interest or we structured it intentionally that way on a deal basis. So it's about 75% based on those classifications. With respect to going forward, our PIK is concentrated in a few names that we do expect to refinance over the next 12 to 18 months. So we do expect that number organically to come down significantly as those deals repay. . Erik Zwick: I appreciate the update there. Last one for me. In the press release, you noted that the weighted average interest coverage for the portfolio increased quarter-over-quarter from 1.9 to if I round, which is nice to see. I'm curious if that was primarily a reflection of just lower interest rates flowing through the portfolio or if you're also seeing some improvement in EBITDA as well. Gregg Bresner: It's a combination of both. It's a combination of increased EBITDA as well as the reduction in base rates. So it's -- the base rate is obviously more about, but we did see EBITDA growth over the quarter. . Operator: This concludes the Q&A session. I'd like to turn the call back over to Michael Reisner for closing remarks. . Michael Reisner: Great. Well, I want to thank everybody for tuning in today, and we'll be back to you in a couple of months with our Q1 results. Take care, everybody. . Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Greetings, and welcome to the Algoma Steel Group Inc. Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, as a reminder, this conference is being recorded. It is now my pleasure to introduce Laura Devoni, vice president of human resources and corporate affairs. Please go ahead. Laura Devoni: Good morning, everyone, and welcome to Algoma Steel Group Inc. Fourth Quarter 2025 Earnings Conference Call. My name is Laura Devoni, vice president of human resources and corporate affairs, and I will be moderating today's call. The prepared remarks are Rajat Marwah, chief executive officer, and Mike Moraca, our chief financial officer. As a reminder, this call is being recorded and will be made available for replay later today in the Investors section of Algoma Steel Group Inc.'s corporate website at www.algoma.com. I would like to remind you that comments made on today's call may contain forward-looking statements within the meaning of applicable securities laws, which involve assumptions and inherent risks and uncertainties. Actual results may differ materially from statements made today. In addition, our financial statements are prepared in accordance with IFRS, which differs from US GAAP, and our discussion today includes references to certain non-IFRS financial measures. Last evening, we posted an earnings presentation to accompany today's prepared remarks. The slides for today's call can be found in the Investors section of our corporate website. With that in mind, I would ask everyone on today's call to read the legal disclaimers on slide two of the accompanying earnings presentation and to also refer to the risks and assumptions outlined in Algoma Steel Group Inc.'s fourth quarter 2025 management's discussion and analysis. Please note that our financial statements are prepared using the US dollar as our functional currency and the Canadian dollar as our presentation currency. As a reminder, the company changed its fiscal year end from March 31 to December 31, resulting in a nine-month fiscal reporting period ending 12/31/2024. For ease of comparison, we will focus our comments today on the three- and twelve-month periods ending 12/31/2025 and 2024. Please also note that amounts referred to on today's call are in Canadian dollars unless otherwise noted. Following our prepared remarks, we will conduct a question and answer session. I will now turn the call over to our chief executive officer. Rajat? Rajat Marwah: Thank you, Laura. And good morning, everyone. Thank you for joining us to discuss our fourth quarter and full year 2025 performance. Before I get into our results, I want to acknowledge this is Mike's and my first earnings call as CFO and CEO, respectively, roles we formally assumed on January 1. I also want to recognize Michael Garcia, who led this company through one of its most consequential transformations and who left Algoma Steel Group Inc. in a fundamentally strong position. Employee safety remains our top priority and a core value. The scale of activity on our site today with the end of blast furnace operations and our EAF running around the clock demands an unwavering focus on safe execution, and I am proud of the discipline our teams have demonstrated throughout this transition. Every milestone we achieved in our transformation must be earned with the same commitment to sending every employee home safely, every day. Before I get into the details of the quarter, I want to highlight three key themes. First, the 50% US Section 232 tariff has permanently altered the landscape for Canadian steel producers. With the American market effectively closed to us, we have responded accordingly, exiting our primary blast furnace and coke oven operations, pivoting our entire commercial strategy towards the Canadian market, restructuring our cost base, and accelerating our transformation that positions Algoma Steel Group Inc. for the realities of this new trade environment. Second, we have the financial foundation to execute. The Canadian $500,000,000 in government-backed liquidity support combined with our ABL facility provides the runway we need to advance our transformation, reduce cash burn, and pursue new opportunities to diversify the business. Third, our operational pivot is not a plan. It is underway. Blast furnace and coke oven operations have been wound down. Our first EAF unit is running on a full 24-hour schedule, and our second unit remains on schedule. Our strategic focus is now squarely on delivering high-value products for the Canadian market. Let me expand on each of these. The extreme tariff environment on steel imports and derivative products from Canada remains the defining challenge for our industry. The unprecedented 50% tariff implemented in June fundamentally broke the cost structure and broader business model that Canadian producers, including Algoma Steel Group Inc., had built over decades. The consequences extended well beyond the US border, creating an oversupply of coil in Canada and driving domestic transactional price as much as 40% below comparable US levels across many categories. For the full year, besides the impact of lower pricing, we absorbed $225,000,000 in direct tariff cost. These are not cyclical headwinds. They represent an unprecedented structural shift that required a structural response. Our fourth quarter financial results reflect that reality: lower shipments, elevated costs, and continued pressure on realized pricing as the Canadian market absorbed excess supply. Shipments to the US were approximately 30% lower than the average US sales over the previous three quarters as we began our exit from the US market. Against that backdrop, our plate mill stands out as a genuine competitive advantage. As Canada's only producer of discrete plate, we are not subject to the same oversupply dynamics that are compressing coil pricing. Demand for plate products across infrastructure, construction, and defense remains healthy, and we expect plate production to increase sequentially as our year ramps through 2026. This is exactly the market position we are leaning into. Next, let me talk about our EAF, the heart of our transformation and the foundation of Algoma Steel Group Inc.'s future. Ramp-up activities are progressing in line with expectations. The furnace and melt shop assets are performing as designed, with stable metallurgical quality and process control demonstrated across a broad range of plate and hot-rolled coil grades. The Q1 power system and other critical process components are operating reliably on a full 24-hour-per-day schedule, a significant milestone from where we were just one quarter ago. As of 12/31/2025, cumulative investment in the project stood at $920,000,000, and we continue to expect a final aggregate cost of approximately $987,000,000. Alongside this operational progress, we have taken deliberate steps to strengthen our strategic and financial position. Mike will walk you through the details of our liquidity actions later in the call. But I do want to highlight one development that speaks directly to where this company is headed. In January 2026, we announced a binding MOU with Hanwha Ocean Company Limited, a long-term strategic arrangement with an aggregate potential value of $250,000,000 US dollars, including a $200,000,000 US dollar contribution towards the potential development of a structural steel beam mill and up to $50,000,000 US dollars in anticipated product purchases connected to the Canadian Patrol Submarine Program. This is a meaningful signal of Algoma Steel Group Inc.'s emerging role as a critical partner in Canada's defense and industrial supply chain. Taken together, these actions reflect a deliberate strategic repositioning. We are moving away from our historical model as a cross-border commodity producer and towards something more focused, more resilient, and more aligned with Canada's long-term industrial priorities. By concentrating on as-rolled and heat-treat plate products, along with selected coil products for the domestic market, we are optimizing for margin quality rather than volume, deepening customer partnerships, and reducing our exposure to tariff-distorted global markets. Repositioning achieves three things. We supply Canadian industry with the high-quality plate products needed for infrastructure, manufacturing, and defense. We create operational stability that supports continued investment in our transformation. And we reinforce Algoma Steel Group Inc.'s role as a critical supplier in Canada's industrial future. In short, we are evolving from a cross-border commodity producer to a Canadian-focused steel supplier with lower cost, lower emissions, and greater long-term resilience. The work is not finished, but the direction is clear, and the foundation is in place. Thank you. I will now turn the call over to Mike for a deeper dive into our financials. Mike? Mike Moraca: Thanks, Rajat. Good morning, and thank you all for joining the call. Before I get into the details, I want to remind listeners that our functional currency is the US dollar; we present our results in Canadian dollars. The Canadian dollar strengthened approximately 5% over the course of 2025, moving from roughly C$1.44 per US dollar at year-end 2024 to approximately C$1.37 at 12/31/2025. I would encourage you to keep that currency backdrop in mind as we go through the numbers. Our fourth quarter results included adjusted EBITDA that was a loss of $95,200,000, which reflects an adjusted EBITDA margin of minus 20.9%, and cash used in operating activities of $3,000,000. We finished the quarter with a strong balance sheet including $77,000,000 of cash, availability of $195,000,000 under our revolving credit facility, and $417,000,000 available under the large enterprise tariff loan facility. Now let me dive into key drivers of our performance. We shipped 378,000 net tons in the quarter, down 31% versus the prior-year quarter. The decrease in shipments was largely attributable to the impact of US tariffs, which, as Rajat said, effectively closed that market to our products. Net sales realizations averaged $1,077 per ton compared to $976 per ton in the prior-year period. The increase versus prior-year level reflects improvements in value-add product mix as a proportion of sales, partially offset by weaker market conditions. Plate pricing continued to enjoy a significant premium relative to hot-rolled coil during the quarter, driven by resilient demand. That resulted in steel revenue of $408,000,000, down 23.9% versus the prior-year period as the lower shipment volumes more than offset higher realized prices. On the cost side, Algoma Steel Group Inc.'s cost per ton of steel products sold averaged $1,332 per ton in the quarter compared to $1,032 per ton in the prior-year period, which was primarily due to tariff costs and worse fixed cost absorption due to lower steel production volumes. It is important to note that during the quarter, accelerated depreciation of blast furnace and basic oxygen steelmaking assets and stranded inventory related to the accelerated closing of the blast furnace was captured in cost of steel revenue. Cash used in operations totaled $3,000,000 in the quarter compared to a use of $77,000,000 in the prior-year period. The significant improvement was driven in large part by a meaningful release of working capital. Inventories at fiscal year end were $569,000,000 compared to $790,000,000 at the end of the third quarter, a reduction of approximately $221,000,000 in the quarter. That reduction reflects the deliberate wind-down of blast furnace raw material inventories as we exited that steelmaking route, as well as continued shipments of finished goods. We also saw a decrease in accounts receivable consistent with lower revenue levels. Taken together, working capital was a significant source of cash in the quarter, largely offsetting the operating losses, and we expect to see further working capital benefits in 2026 as work-in-process inventories are normalized and we recover significant income taxes receivable. Now let me run through the full year comparisons. We shipped 1,700,000 net tonnes for the full year 2025 compared to 2,000,000 net tons in calendar 2024. Net sales realizations averaged $1,080 per tonne compared to $1,107 per ton in the prior year, reflective of softer market conditions on average across the year, partially offset by improvements in value-added product mix as a portion of steel sales. This resulted in steel revenue of $1,900,000,000 compared to $2,200,000,000 in the prior year. On the cost side, Algoma Steel Group Inc.'s cost of steel products sold averaged $1,216 per ton for the year, compared to $1,054 in the prior year, primarily due to tariff costs and worse fixed cost absorption due to lower steel production volumes. Adjusted EBITDA for the full year was a loss of $261,400,000, representing an adjusted EBITDA margin of minus 12.5%, compared to an adjusted EBITDA gain of $22,400,000 and an adjusted EBITDA margin of 0.9% in calendar 2024. The decrease was primarily attributable to lower shipments. Cash flow used in operating activities for 2025 was $66,000,000 compared to cash generated of $82,000,000 in calendar 2024. The decrease year over year was primarily due to factors previously discussed. As mentioned earlier, inventories at fiscal year end were $569,000,000. That compares to $879,000,000 in 2024, a reduction of $310,000,000 over the year. Before I turn it back to Rajat, let me make a few comments on our calendar first quarter 2026 results so far. Due to persistently weak market demand, we expect shipments this quarter to be sequentially lower than the fourth quarter. We expect to see better pricing and cost performance, which should result in adjusted EBITDA that is directionally better as compared to calendar fourth quarter 2025. I also want to briefly note that we are aware of the pending litigation with US Steel in Ontario and arbitration in the USA regarding an iron ore supply agreement. As that matter is now in litigation, we are not in a position to comment further on it today. I would like to now turn the call back over to our CEO, Rajat Marwah, for closing comments. Rajat? Rajat Marwah: Thanks, Mike. Let me close with this. 2025 was the most challenging year in recent memory for Canadian steel producers. The 50% US Section 232 tariff dismantled the cross-border business model that had defined this industry for decades, flooded the Canadian market with excess supply, and forced every producer to fundamentally adjust how they operate. We were not immune to those pressures, and our financial results this year reflect that reality. But what I am most proud of is how this organization responded. We did not wait for conditions to improve. We were compelled to make difficult decisions, accelerating the wind-down of our blast furnace and coke oven operations ahead of our original timeline, pivoting our commercial strategy towards the Canadian market, and securing the financial resources to execute our transformation without compromising our future. Those were not easy calls, and they required conviction, speed, and coordination across every part of this business. None of this came without real human cost. The accelerated transition required us to wind down our blast furnace and coke oven operations earlier than planned, and that had meant issuing layoff notices to approximately a thousand of our colleagues, effective later this month. I want to be direct about this. Those are not just numbers. They are people who helped build this company. We have worked with our unions and government resources to put mitigation programs in place, and I am committed to the view that this is not the end of the story for Algoma Steel Group Inc.'s workforce. We are actively exploring product diversification initiatives to expand our footprint and support Canadian industrial policy, and we applaud the Canadian and Ontario governments for the measures they have taken to support the Canadian steel industry. The result is a fundamentally different Algoma Steel Group Inc. Our EAF is running around the clock, performing as designed, and producing FalTer, our sustainable low-carbon steel brand, at scale. This is the sustainable steel this company has invested years and nearly $1,000,000,000 to bring to life. We are Canada's only producer of discrete plate, with a modernized plate mill, a purpose-built low-carbon steelmaking platform, Canadian $500,000,000 in government-backed liquidity to support our next phase of growth. Defense and shipbuilding demand for our plate product is real and growing. We are already shipping Davie Shipbuilding for the PolarMax program, and the Hanwha Ocean MOU opens a further compelling path into Canada's defense and industrial supply chain. We enter 2026 not defined by the headwinds we faced, but by the ground we gained while facing them. The foundation for long-term value creation is in place, and I am extremely confident in the direction of this company. To our employees, what you accomplished in 2025 was extraordinary. You navigated a period of profound uncertainty and change with professionalism, dedication, and resilience, and you did so while keeping safety at the forefront every single day. I look forward to building on what we have started together. Thank you very much for your continued interest in Algoma Steel Group Inc. At this point, we would be happy to take your questions. Rajat Marwah: Operator, please give the instructions for the question and answer session. Operator: We will now be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Our first question is from Katja Jancic with BMO Capital Markets. Katja Jancic: Hi, thank you for taking my questions. Maybe starting on the shipment side, you mentioned first quarter shipments sequentially are going to be lower. But can you remind us how you are thinking about full-year shipments? And then also how this is going to be split between plate and sheet? Mike Moraca: Hey, Katja. Good morning. It is Mike. I think that over the course of the year, we expect to have total shipments between 1,000,000 and 1,200,000 tons. There will be a little bit of a ramp as we are building up our capacity at the EAF, and we will see slightly lower shipments in the first quarter, but ramping up to a run rate in that 1,000,000 to 1,200,000 tons as the year progresses. So slightly lower in Q1, but growing over the course of the year. Katja Jancic: And then on the mix? Mike Moraca: The mix will be roughly 50/50, I would say, on the plate and sheet based on what we see today. Katja Jancic: Okay. And maybe just shifting gears to your cost side. Can you talk about how much of your energy cost are exposed to the current spot market? Mike Moraca: Sure. I think that we are generating power from our own natural-gas-fired power plant, so there is commodity price exposure to the natural gas price. And we do consume power directly from the grid, which is subject to Ontario's spot rate pricing. So, it is a nice mix to have because we do have the ability to generate our own power. So if the Ontario pricing does swing up to a higher price, we are generating our own as a safeguard. Further to that, as you know, we have the Northern Electricity Advantage Program, which is specific to Northern Ontario-based producers and does give us a C$20 per megawatt advantage on our power pricing. Katja Jancic: And just on the natural gas, are you hedged at all, or are you fully on spot for your own power supply? Mike Moraca: We generally would have fixed price for the most volatile months of the year, which is traditionally the winter months where we have fixed pricing. And then the other months where there is less volatility, we would take it on spot. Katja Jancic: Okay. Thank you. Operator: Our next question is from Ian Gillies with Stifel. Good morning, everyone. Mike Moraca: Morning, Ian. Ian Gillies: Can you provide an update on what you are seeing as it pertains to plate pricing in Canada? Obviously, over the last number of months, there have been some new government initiatives to try and keep imports out of the country, and I am just curious on how that is progressing and whether you are seeing that flow through into your price book. Rajat Marwah: Sure. So the pricing on the plate side is holding up. It is much better than the sheet pricing. On the sheet side, we are seeing a 40% lower pricing from the index. On the plate side, it is less than that. It is ranging anywhere between 15% to 20%. The pricing is definitely better. The measures that the government is taking definitely are helping. It is slow coming in right now, but we see a lot of inbounds coming from customers and some new customers for steel, and that is encouraging. Ian Gillies: As it pertains to the HRC side, and pricing being 40% lower, can you just help reconcile that pricing discount versus what we might be seeing in the Fastmarkets Canadian price quote that is now out that is saying Canadian steel prices are around $800 a ton right now? Rajat Marwah: I do not know how those pricing are calculated by Fastmarkets, but the pricing in the market is roughly 40% lower. And it makes a lot of sense as well when you see what the tariffs are and what is happening in Canada. Over time, what we have seen is that pricing started strengthening a little bit in Canada where it was better. But overall, it is hovering around a 40% discount to the index. Ian Gillies: As it pertains to the beam mill, can you maybe outline how or critical milestones that you think may be achieved or may be announced over the next, call it, twelve to eighteen months? Because it feels like bidding is moving along reasonably quickly, but formal contracts will not be announced until 2028. So just curious there. Rajat Marwah: So from our perspective, we are working on the beam project. It is a big project. So we are doing engineering, cost estimates, and timelines. We are also working on the market side. There is not much that I can share right now, but what I can say is that the beam market is one where the supply is less than the demand in Canada, and we are very well suited to support that market with our EAF. Now from Hanwha’s perspective, that is one of the components of, let us say, the whole project. Their application has been in, and I think the government is really moving pretty fast to decide which one will get it. I think the government will do the right job in finding the right partner for Canada. But from our perspective, we are moving fast on our assessment of this project, and once we have more details around it, we will definitely come out and disclose on the key milestones. Ian Gillies: And last one for me. As you think about how the business progresses through the remainder of this year, where do you think CapEx ends up for the full year? And is there really much left on the EAF at this point? Mike Moraca: Ian, I think that we have said we are at $920,000,000-ish or so. We do not expect any change in the total project budget. So we will incur those capital costs over the first half of this year as we ramp up the second EAF. As for sustaining CapEx, I think we are seeing a step-change lower as we have taken blast furnace and coke-making facilities out of the mix. So you should expect to see significantly lower sustaining CapEx in line with what we had mentioned in the past of being close to around $80,000,000 a year. Ian Gillies: And one last one, actually. On the scrap side, can you just provide an update on how that has gone so far as it pertains to the EAF? And how your JV is working as well on the sourcing side? Rajat Marwah: It is going pretty well. The scrap availability and supply and the use is going pretty well. The JV is working fine, and we are ramping up pretty fast from that. So we are pretty happy with the way things are moving on the scrap side and also the availability. Ian Gillies: Okay. Thank you very much. I will turn it back over. Operator: Thanks, Ian. Thank you. There are no further questions at this time. I would like to hand the floor back over to Laura Devoni for any closing comments. Laura Devoni: Thank you again for your interest in our fourth quarter 2025 earnings conference call and for your continued interest in Algoma Steel Group Inc. We look forward to updating you on our results and progress when we report our first quarter results in the spring. Operator: This concludes today's conference. Thank you again for your participation. You may disconnect your lines at this time. Thanks, Paul.
Operator: Good day, and thank you for standing by. Welcome to the HighPeak Energy, Inc. 2025 fourth quarter earnings conference call. At this time, participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during the Q&A session, please press *11 on your telephone. You will then hear an automated message indicating your hand is raised. To withdraw your question, please press *11 again. Please be advised today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Steven W. Tholen, Chief Financial Officer. Please go ahead. Steven W. Tholen: Good morning, everyone, and welcome to HighPeak Energy, Inc.’s earnings call. Representing HighPeak Energy, Inc. today are President and CEO, Michael L. Hollis; Executive Vice President, Ryan Hightower; Executive Vice President, Daniel Silver; Senior Vice President, Chris Monday; and I am Steven W. Tholen, the Chief Financial Officer. During today’s call, we may refer to our March investor presentation and press release which can be found on HighPeak Energy, Inc.’s website. Today’s call participants may make certain forward-looking statements relating to the company’s financial condition, results of operations, expectations, plans, goals, assumptions, and future performance. Please refer to the cautionary information regarding forward-looking statements and related risks in the company’s SEC filings, including the fact that actual results may differ materially from our expectations due to a variety of reasons, many of which are beyond our control. We will also refer to certain non-GAAP financial measures on today’s call, so please see the reconciliations in the earnings release and in our March investor presentation. I will now turn the call over to our President and CEO, Michael L. Hollis. Michael L. Hollis: Thank you, Steve. Good morning, everyone, and thank you for joining us. I thought about kicking off things today by walking through our 2025 results and the execution of our business plan, but that feels like a whole different world today. I am far more energized by what lies ahead than by revisiting what is already behind us and implemented. For anyone interested in a deeper look at the changes that brought us to this point, our prior quarter’s investor presentation and earnings call transcript offer a comprehensive overview. So with that, let us turn the page and talk about 2026 and how we are positioning the company to move forward with purpose, confidence, and a whole lot of momentum. In today’s fast-moving geopolitical and commodity landscape, we are approaching 2026 with focus and discipline. Our focus is clear: protect profitability, maximize cash flow, and strengthen the foundation of our business, not pursue growth for its own sake. Over the past several quarters, we have taken a hard, honest look at every part of our business, and that work continues today. It has given us a firm handle grounded on financial discipline and operational excellence. This means a plan we can fully and confidently execute within cash flow, sustaining stable production with minimal capital intensity, and driving further efficiency gains to expand margins. Our top financial priority is strengthening the balance sheet. As commodity prices rise, incremental cash flow will be directed first toward debt reduction and liquidity improvement. To support that objective, we are taking several decisive steps. First, we right-sized our annual capital budget to ensure our development program stays within cash flow even in a much softer price environment. Second, we expanded our hedging program to reduce exposure to volatility and secure pricing that supports continued investment and debt reduction. Third, we suspended our dividend, which will increase annual liquidity by an estimated $20 million to $25 million. The reality is the market was not giving us credit for the dividend, and most of the investors we speak with regularly have shared that same perspective. We believe that capital is far better deployed strengthening the balance sheet and building long-term value for our shareholders. We are positioning the company to thrive not just for the next couple quarters, but for years to come. Our 2026 development plan is intentionally conservative and built for durability. It is anchored around one drilling rig and roughly one completion crew, which positions us to drill about 30 wells and bring 36 to 38 wells online over the course of the year. We designed this pace of development with three clear objectives in mind. First, to ensure we operate fully within cash flow, covering every financial obligation even if oil prices settle in the mid to upper $50s. Second, to maximize free cash flow in a stronger commodity environment so we can accelerate debt reduction. And third, to maintain strict cost discipline across the organization. Given the recent strength in oil prices, this is an opportune time for us to lean into debt reduction and continue improving our financial footing. Our 2026 program also reflects a balanced approach between investing in new wells and optimizing our existing base production. You can see that balance clearly in our capital allocation. Our capital budget is nearly 50% lower than last year, while unit lease operating expenses per BOE are modestly higher as we invest in targeted initiatives to enhance base production. The result is a development program built for capital efficiency, highlighted by an estimated 65% increase in production per dollar invested. And the early results are encouraging. Quarter-to-date, production is averaging more than 46,000 BOE per day. That is roughly 10% above the midpoint of our 2026 guidance range, even after accounting for the impacts of Winter Storm Firm. Based on today’s market environment, we believe production in the low to mid-40,000 BOE per day range represents a sustainable baseline for our 2026 budget and our plans to reduce absolute debt. Stepping back, it is important to recognize how the market is valuing companies like ours today. In the current environment, SMID-cap E&Ps are rewarded for durable free cash flow, balance sheet strength, and meaningful high-quality inventory depth. What they are not rewarded for is headline production growth. Now there are a few realities shaping our industry right now. Core Permian inventory is becoming increasingly strategic. Tier one shale inventory is finite. Future wells will naturally move down the quality curve as inventory tightens. And preserving and expanding high-quality inventory is what drives long-term value. Now with that in mind, our guiding principle is straightforward: return on capital employed matters more than production growth. Disciplined development today allows us to protect and preserve our tier one inventory for a future time when our financial capacity and a strong, sustained commodity environment align. What are we doing to support this strategy? Our disciplined approach centers on several key priorities. First, we are protecting liquidity and reinforcing our financial position by eliminating the dividend and expanding our hedge position. Second, we are moderating drilling activity so the business remains cash flow neutral even if oil prices move down into the mid to high $50s, while still positioning us to accelerate debt reduction if prices remain strong. Third, we are investing in optimizing across our base production, generating incremental volumes and cash flow without the capital intensity that comes with drilling new wells. And finally, we have continued to delineate additional high-return inventory across our acreage, expanding the long-term opportunity set for the company. Taken together, these actions position HighPeak Energy, Inc. to increase free cash flow, reduce leverage and potentially lower our cost of capital in the future, preserve premium inventory for periods of sustained stronger commodity prices, expand our strategic optionality—whether through drilling, production optimization, or potential accretive M&A—increase long-term NAV realization for shareholders, and ultimately, implementing these key priorities will strengthen the value of our equity. Let me take a moment to talk about our capital allocation philosophy, because it is the backbone of long-term shareholder value. Our approach, again, is straightforward and disciplined. We will protect the balance sheet; a strong financial position gives us the flexibility to navigate commodity cycles and act when appropriate and opportunities present themselves. We will prioritize high-return investments; every dollar we deploy must earn its place, whether it is drilling a new well, optimizing existing production, reducing debt, or pursuing strategic opportunities. We will preserve premium inventory; tier one drilling locations are finite across the industry and disciplined development today safeguards the long-term value of those assets. And finally, we will focus on generating sustainable free cash flow that strengthens the balance sheet, allows us to potentially lower our cost of capital in the future, and ultimately supports a higher long-term equity valuation. When you look at the 2026 development plan through that lens, every decision—from reducing activity levels, eliminating the dividend, expanding our hedging program—is designed to enhance the durability and long-term value of the business. Simply put, our goal is not to grow the fastest. Growth should be the outcome of a well-executed, financially solid plan. This does not happen overnight. HighPeak Energy, Inc.’s goal is to build a resilient, valuable company that delivers for shareholders over the long haul. A key part of our capital efficiency strategy in 2026 is the continued optimization of our existing production base. These efforts include targeted well workovers, artificial lift enhancements, and other operational improvements designed to increase recoveries from wells already online. Projects like these typically generate strong returns on invested capital and allow us to unlock additional value from assets we already own. It is a practical, high-return way to drive incremental volumes and cash flow without the capital intensity of new well drilling. Let me now provide a quick operational update across our core development areas. At Flat Top, our results in the North Borden area—see slide 6 of our presentation—continue to demonstrate strong performance in both the Lower Spraberry and Wolfcamp A. These wells are delivering outcomes comparable to what we see in our core Flat Top area, which reinforces the quality and consistency of this acreage. The northernmost row of wells in our North Borden area is the only part of the field that will require minimal incremental infrastructure, and we expect that work to take place in tranches beginning in late 2026 and into 2027. Now in the core of the Flat Top area, we will continue developing Lower Spraberry and Wolfcamp A locations using the infrastructure already in place, driving corporate efficiency higher. In the Northeast Flat Top area, highlighted by the small red box also on slide 6 of our March investor deck, six wells experienced anomalous water inflows. We completed remedial work on several of those wells and are seeing encouraging early results. Because of the presence of the water flows, our 2026 plan includes no new drilling in the Northeast Flat Top area. Instead, we are focused on maximizing value through the remediation and optimization of the existing producing wells. Importantly, the impact to our long-term inventory is minimal. Even if we chose not to drill any additional wells in this area, it would affect only 18 Wolfcamp A locations that we carry in inventory, as we do not carry any additional zones in inventory for this area. We are also seeing encouraging progress in delineating the Middle Spraberry across both HighPeak Energy, Inc. and our offset operators. There are now nine successful producers, and we expect that momentum to continue with roughly six additional delineation wells planned between HighPeak Energy, Inc. and our offset operators in 2026. Our long-term objective for the Middle Spraberry is clear: convert more than 200 Middle Spraberry locations at Flat Top into fully delineated sub-$50 breakeven inventory. At Signal Peak, we will continue developing our core area in the Wolfcamp A and Lower Spraberry, both of which continue to deliver strong, consistent results—see slide 7 of the presentation. Beyond those core zones, Signal Peak holds substantial upside. We have demonstrated Wolfcamp D performance across the field in two different landing zones. With results that closely track one another, the resource is clearly present across the acreage, and it is not going anywhere. We have not drilled a Wolfcamp D well in roughly three years; however, during that time, the industry has made meaningful strides in optimizing deeper wells. We will continue to evaluate the development of the Wolfcamp D to determine when the economics fully support those wells competing for capital. We also see additional long-term potential in the Middle Spraberry, Wolfcamp B, and Wolfcamp C formations, which add further depth and optionality to our inventory over time. Our drilling results and technical work continue to reinforce what we believe is one of the deepest premium inventories among SMID-cap operators. Today, HighPeak Energy, Inc. has more than 2,600 total drilling locations across the stacked Spraberry and Wolfcamp formations. At our current cadence of drilling, that includes more than 30 years of high-return inventory in the Wolfcamp A, Lower Spraberry, and Middle Spraberry alone, over 100 total rig-years of inventory across the full stack. This level of inventory depth meaningfully differentiates HighPeak Energy, Inc. from most of our peers. One point that we believe the market continues to underappreciate is the growing scarcity of tier one shale inventory across the Permian Basin. The industry has spent the last decade or so developing its best rock, and the reality is that premium locations are not infinite. As that inventory tightens across the basin, the strategic value of companies that still hold significant high-return drilling inventory will only increase. Our responsibility is to develop those locations with discipline, maximizing the long-term value for our shareholders. When we think about the value of this company, several key components stand out. First, our existing production base, a highly visible, reliable source of cash flow that underpins the business today; and at current valuation levels, HighPeak Energy, Inc. is trading close to the PV-10 proved-developed value. But the real long-term value lies with the untapped inventory. That inventory includes approximately 200 proved undeveloped locations in our core zones, more than 400 additional premium Wolfcamp A and Lower Spraberry locations, over 200 Middle Spraberry locations progressing toward the sub-$50 breakeven delineation, and further upside potential in the Wolfcamp B, C, and D zones. All of this is complemented by our continued focus on optimizing existing production, which enhances returns and strengthens the value of our asset base over time. In closing, our focus in 2026 is on returns and resilience, not headline growth. We will apply strict capital and operational discipline to protect the bottom line. We will prioritize free cash flow generation. Any incremental free cash flow will first be directed toward reducing leverage and strengthening the balance sheet, positioning us for a lower cost of capital over time. We will remain precise and selective in how we deploy capital, concentrating on high-return inventory, base production optimization, and disciplined delineation of additional premium locations. At our current development pace, our premium inventory alone represents decades of high-return drilling, even before accounting for the additional upside we can continue to delineate across our acreage. And as tier one shale inventory becomes increasingly scarce across the industry, the strategic value of remaining core drilling locations will only continue to rise. Ultimately, we are building a company designed to generate strong returns across commodity cycles, improve long-term NAV realization, and strengthen our equity value. And it all starts with reinforcing our financial foundation. Before I close, I want to recognize our employees. The progress we have discussed today is a direct result of their hard work, grit, and professionalism. Day after day, they show up, tackle challenges, and keep this company moving forward. Their commitment, both in the field and in the office, is the backbone of everything we are building. Again, I am deeply grateful for what they do. With my comments now complete, operator, please open the call up for questions. Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press *11 on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press *11 again. Our first question comes from Noah Hungness with Bank of America. Your line is open. Noah Hungness: Yeah. I just wanted to start off here, Mike, if you could add any more color on some of your cost reduction and production optimization efforts that you have implemented over the last six months? Michael L. Hollis: You bet, Noah. Thank you for the question. Obviously, it is what we do every day, so it is not like this was an initiative started, you know, a quarter ago. But to kind of walk through some of the cost reductions that we have seen both on the capital side and on the expense side. We have done a lot of optimization on how we are drilling and completing these wells. Obviously, we get a little faster every day—drilling, a little faster completions. We have also optimized the completion chemical program, the perforation schemes, how we are landing these wells, as well as kind of structural changes to how we complete these wells like utilizing final frac today versus what we were doing in the first part of 2025. So there is a lot on the capital side being more. On the expense side, we are doing a lot of production base production optimization. So think lowering pumps, changing the type of artificial lift that we utilize, utilizing some chemical opportunities that we have for, you hate to say, restimulation, but being able to pump some things downhole that can increase production and, what—yeah—your return from the wells, as well as remove some of what they call skin damage that allows more of the fluid to flow into the well. So we have a program ongoing doing that. And overall, we have had lower commodity prices over the last couple quarters which, you know, again, not that we do not do this every day, but we constantly rebid, reevaluate, look structurally at what we are doing with our infrastructure, how we treat the wells chemically, and go out for bids very routinely. So we are seeing some cost savings on that front. Not just how we are drilling the wells, but just the unit pieces that go into it and staying on top of that and making sure we are getting the best price for HighPeak Energy, Inc. Noah Hungness: That is helpful. And then for my second question, could you maybe help us think about the split of TILs across your development area for 2026? So what does the split for, you know, Lower Spraberry versus Wolfcamp A versus Middle Spraberry look like? And then also, the different development areas that you have helped highlight this quarter, so, you know, North Borden versus your core Flat Top versus your core Signal—if you could just give us any color there. Michael L. Hollis: You bet. So the good news is what we are drilling for the foreseeable future will look almost identical to what we have done for the last year and a half. Right? It is about 70% of the capital will be spent in Flat Top, the northern block. And, again, that happens to be about the acreage split between the blocks, Flat Top and Signal Peak. So 30% give or take of the capital in Signal Peak. Think 90+% of that capital will be Wolfcamp A/Lower Spraberry co-development. The other 5% to 8% of capital will be Middle Spraberry, and some of the Middle Spraberrys will be co-developed with the Lower Spraberrys as well, but it will be in the Middle Spraberry, not in just the A and Lower Spraberry. Now the split between, you know, again, in the Northern Borden versus Flat Top Core—almost 50/50 for the Flat Top area. That 70% will be almost 50/50 between North Borden and Flat Top Central, I guess you would call it. One point to make is, as I said in the prepared remarks, we will not drill any wells like we did in 2025 in that little red box that is on slide 6 of our presentation; there will be no drilling in that area in 2026. Noah Hungness: And so you are TILing a few more wells than you are drilling this year. Can we assume that the percentages you talked about on the drills are going to be pretty similar to the TILs this year? Michael L. Hollis: Absolutely. Because it was basically the same percentage of drills last year. So those TILs go into 2026. And you make a great point. We are completing, you know, call it roughly seven more wells than we are drilling this year. We brought into 2026 something close to 20+ wells, called, you know, operational DUCs. And then if you kind of math out where we will be at the end of the year, we should carry out into 2027 roughly 14 to 15 DUCs, again setting us up very nicely in 2027 to be able to effectuate exactly the same plan that we have in 2026, again, for further strong reduction in absolute debt. Noah Hungness: That is helpful color. Thank you. Michael L. Hollis: Yes, sir. Thank you. Operator: One moment for our next question. Our next question comes from Jeff Robertson with WaterTower Research. Your line is open. Jeff Robertson: Thank you. Good morning. Mike, on slides 10 and 11, you show the production profile and CapEx and the capital intensity. Can you talk a little bit about where the company’s corporate decline curve was at the 2026 and where you think it might be at the ’26 end, and how that plays into the notion of increasing capital efficiency over time and delevering the balance sheet in ’26 and ’27? Michael L. Hollis: You bet, Jeff, and thank you for that question. I may step back a couple of years prior to that instead of starting just on, you know, ’25 and ’26. It is really important. Again, building a company from absolute greenfield all through the drill bit, and building up to close to 50,000 BOEs a day, we had to drill a lot of new wells with several rigs. So if you go all the way back to kind of the exit of 2024, corporate decline rate was, call it, mid-40%. So, again, pretty steep because you have a lot of new wells. At the end of 2025, we were down to about 38% corporate because, if you recall, we had slowed down at the, you know, kind of midpoint of ’24 and into ’25. We slowed way down. And then even midpoint of ’25, we went down to one rig. So as you look forward into 2026, of course, you came into the year right at 38%. At our current cadence and what we will continue to do for at least the foreseeable future, you can expect about 2% decline in corporate decline rate. So the 38% we came into the year with, we should exit the year into 2027 at, you know, 36% or so. And to your point, as your corporate decline goes down, the amount of CapEx needed for maintenance CapEx to hold your production flat also comes down by that kind of relation. Jeff Robertson: Does HighPeak Energy, Inc.’s amortization on the term loan start again in the third quarter? I think it is about $120 million a year. So if you were to be—if, let’s just say, over the next four quarters beginning this year, $120 million a year is roughly $1 a share, based on 125 million shares outstanding. Are you trying to position the company where you could accelerate the amortization of the term loan? Michael L. Hollis: Absolutely. So, Jeff, and the great thing is the amortization is a set rate, right? It is $30 million a quarter. The great thing about where we sit with the term loan is that we have the ability to pay down any amount on the term loan at par. So to your point, we can take any additional free cash flow that we are generating with this capital-efficient program in 2026, in the backdrop of commodity prices being higher today. And, you know, I think it is a little—literally me. Right? We are geared very heavily to oil price. And as you mentioned, where else could you find in the public world where you have such a high gearing to the debt level that we have? To your point, in this environment, we will be able to pay down debt at a much accelerated rate, and for every $125 million we pay down, as you absolutely said correct, it should be roughly $1 per share. And in today’s price environment, that is close to a 20% increase in market value. By doing exactly the same thing in the next year, you should have similar results except you pay down more debt and there is kind of a snowball effect because we do have a high cost of capital, call it 10+% interest, and it would be reasonable to assume that later down the road, once we get the financial house in order by staying very disciplined, we will have opportunities to hopefully lower that cost of capital going into the future. Jeff Robertson: Thanks. And so, lastly, on operations, Mike, is there anything structurally with respect to, say, water handling or anything else in the field that you are working on in 2026 that might offset some of the production optimization spending that you outlined? Michael L. Hollis: So, you know, the good thing is anything we do to optimize production increases the revenue that we have in, lowers all of the per-BOE metrics that we have. Now, on the water system, the great thing is the water system is there. It is paid for. It has been there for a while. We just utilize what we already have, which makes both on the capital side for recycled water for stimulations, as well as disposal of any of the produced fluids, very, very efficient. And when you look at the capital reduction or what we like to call the intensity of capital needed to produce a certain level of volumes of hydrocarbons, it continues to go down over the last couple years. If you go all the way back to 2023, HighPeak Energy, Inc. spent $1 billion. In 2025, it was, you know, call it $500 million. 2026, half that number. Now, I do not want anyone to think 2027 is going to be half of 2026. It will be slightly lower because we do have some infrastructure that we have planned and in the budget in 2026 that is not going to happen in 2027. So think $15–20 million cheaper total CapEx in ’27 to effectuate the exact plan that we have for ’26. The company will continue to get more efficient. And as you laid out earlier with the corporate decline dropping each year, that also helps accelerate that corporate efficiency. Operator: Thank you. Michael L. Hollis: Yes, sir. Thank you. Operator: Once again, ladies and gentlemen, if you have a question or a comment at this time, please press *11 on your telephone. And I am not showing any further—actually, one moment. We have a follow-up question from Jeff Robertson with WaterTower Research. Michael L. Hollis: Perfect. You ready for one? Jeff Robertson: One question that came up on the November conference call was the distribution of shares by the HighPeak entities. Is there any update you can provide on the planned distributions in 2026 and 2027? Michael L. Hollis: Yeah. Good morning, Jeff. Good question. When we rolled into the 2026 calendar year and oil prices were kind of in the mid to upper $50s at the time, we got with the majority investors in the partnership and ended up extending for an additional year, which will allow us to get into, hopefully, a healthier market environment for fund distribution timing. We do have the flexibility to do it throughout the calendar year, or we could kind of go all the way through 2026 and start the distribution in early 2027. Operator: Okay. Thank you. Jeff Robertson: You bet. Operator: And I am not showing any further questions at this time. As such, this does conclude today’s presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Q2 fiscal 2026 earnings discussion for Oil-Dri Corporation of America. At this time, participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. If you would like to ask a question during the session, please press star then 1 on your telephone. You will then hear an automatic message advising you when your hand is raised. To withdraw yourself from the queue, please press star then 1 again. I would now like to turn the conference over to your speaker for today, President and CEO, Daniel Jaffee. Please go ahead. Daniel Jaffee: Thank you, and welcome, everybody. We are in virtual mode, so we have people dialing in from all over. We very much appreciate you getting your questions in early. That gave us a chance to develop our responses and prioritize, so thank you for doing that. With me today is Susan Kreh, our CFO and CIO; Aaron Christiansen, our VP of Operations; Christopher Lamson, Group Vice President of Business-to-Business and Strategic Growth Initiatives; Wade Robey, VP of Agriculture and President of Amlan International; Laura Scheland, Vice President and General Manager of our Consumer Products Division; Bruce Patsey, our Vice President of Fluids Purification; Mervyn de Souza, VP of Research and Development; Tony Parker, our VP, General Counsel, and Secretary; and Leslie Garber, our Director of Investor Relations. I am going to turn it over to Leslie for our Safe Harbor provision. Leslie Garber: Good morning, everyone. I also want to note that John Blake, VP, Corporate Controller, is on the call today. On today’s call, comments may contain forward-looking statements regarding the company’s performance in future periods. Actual results in those periods may materially differ. In our press release and in our SEC filings, we highlight a number of important risk factors, trends, and uncertainties that may affect our future performance. We ask that you review and consider those factors in evaluating the company’s comments and in evaluating any investment in Oil-Dri Corporation of America stock. Thank you for joining us. Now I am turning it back over to you, Dan. Daniel Jaffee: Great. Thank you, Leslie. As always, I am going to have a few comments, but I am really going to turn it over to the team to walk you through a lot of the details and what went on in the quarter. I am very proud of the results. We had a very, very, very strong quarter, especially given the way we navigated through the storm called Fern. I am not going to get into that too much because I know Susan is going to cover it, and Aaron is probably going to cover it. All I am going to say is it was another validation of the commitment and the caring that our global teammates have for doing everything they can to create value from sorbent minerals and help deliver value to our shareholders because we had a lot of heroic effort. We absolutely emphasized safety first, making sure that everyone took care of their family. They were without power; they were without water for some period of time. It was really a dynamic situation, and we navigated it very, very well. I am just very proud of the team. Susan, I am going to turn it over to you to walk us through the quarter. Susan Kreh: Sure. Thank you, Dan. In order to preserve the most time for the Q&A portion of this call, I am going to highlight a few financial matters and then address any of your other questions during the Q&A session. During our second fiscal quarter, Oil-Dri Corporation of America continued to deliver strong financial performance. However, when I reflect back on the second quarter, what makes me so proud to be a part of this team is how everyone, especially our operations leadership, handled the situation with winter storm Fern. They played a team game and demonstrated agility in using our plant network to service our customers, and they did so while embracing the core values of our culture. Those core values shone brightly when the first thing that the operations team addressed as the magnitude of the storm impact unfolded was the safety and well-being of our teammates, followed closely by a focus on taking care of our customers, both of which are key pillars of our We Care values. Aaron, I hope your team is listening and that they know how much the rest of us appreciate what they did to handle such a major disruption and handle it so well. Switching gears back to financial performance, I want to highlight our continued ability to generate strong cash flows. During the second quarter of our fiscal year 2026, Oil-Dri Corporation of America generated EBITDA of $22 million, which was in line with the $22 million of EBITDA generated during the same quarter a year ago. For the first six months of fiscal year 2026, Oil-Dri Corporation of America has generated cash flows from operating activities of just over $28 million. Our strong ability to generate cash was an enabler in building our inventories. The elevated levels of inventory going into January played a key role in being able to service our customers while several of our production facilities experienced outages resulting from winter storm Fern. Our strong cash position also supports our continued investments in growth and infrastructure projects in our manufacturing facilities. We ended our fiscal second quarter with cash and cash equivalents of $47 million. Our outstanding debt at the end of the second quarter, including current maturities of notes payable, was $40 million, meaning that at this point in time, we have more cash than debt, and we are extremely well positioned to make continued investments in our business to support our strategic growth initiatives, such as a couple of the new product launches that we will see in the second half of this fiscal year. In summary, our strong financial performance and our strong cash position, coupled with our deep cultural values of being a team-based organization with a focus on our people and our customers, enabled our resiliency during a major weather-related disruption. I will take your questions during the Q&A if you have any specific accounting or financial questions. With that, Dan, I will turn it back over to you. Daniel Jaffee: Okay. Great. Before I open it up to the Q&A, we had a great board meeting yesterday, and I was not being facetious when I said, look. The one constant—I have been doing this job since 1995, so I have not been promoted in 31 years. You have seen a lot of dynamic growth the last three to five years, and a lot of that was seeds that were planted maybe three years before that. For the fun of it, I was clicking on my app this morning, and if you look at our one-year growth rate on the stock price, it is 36%. When I click the two, it jumps to 88%. When I click the five, it jumps to 258%. I am sincere in saying that is a direct result of the incredible work that our team does on a global basis every single day, led by the people you are hearing on this teleconference. When you invest in Oil-Dri Corporation of America, you are investing in the team, and we have a phenomenal team. I want to thank them publicly for the incredible job they do. Leslie, I will turn it over to you now for the Q&A. Leslie, I am not hearing you. Leslie Garber: I am here. We will now open for questions. Please submit your questions using the Ask a Question field on the webcast and click Submit. Our first question comes from John Bear from Ascend Wealth Advisors, and he asks: Several years ago, Oil-Dri Corporation of America made it known that considerable CapEx cost would be undertaken over a three- to five-year period to upgrade and modernize plant and equipment. Recognizing there are always unexpected developments that pop up, how far along is that effort? Have the major initiatives been accomplished, and can we expect that those costs will diminish over the next few years? Aaron, will you please take that? Aaron Christiansen: Thanks, John. I appreciate the question. As we approach the completion of our fourth year of elevated capital spending, I would say the program has really progressed as intended. We have executed our plan with strong discipline, addressing some foundational areas of the business, including revitalizing portions of our mine fleet, advancing power, air, and other critical infrastructure, and prioritizing core processing assets. Really importantly, we do not view this as a discrete project with a defined endpoint. Although previously communicated as a three- to five-year endeavor, that was an initial belief. Our approach to capital allocation, ongoing, is to increasingly anchor to our long-term replacement cost of our asset base with a focus on sustaining high uptime, optimizing capacity, and consistently meeting customer service expectations. I often say to Dan and Susan, I am the steward of our asset base and manufacturing plants. Reliability and service performance that our customers experience is directly tied to having a manufacturing network that is flexible, continually ready to perform, and that remains central to how we think about capital going forward. Susan and Dan both paid me compliments in the way we managed through winter storm Fern. I will make a direct connection to the ability to have our entire asset base ready to perform when we mashed the pedal coming out of that storm and to use our plants in a way that is flexible and somewhat atypical in the weeks that followed the storm. I hope that answers your question, John. Leslie Garber: Perfect. The next question comes from Ethan Star, and he asks: What is the sales increase in agriculture and horticulture products, and is the increase in sales sustainable? Are you still finding new customers who want to include Verge granules in products they manufacture? I am going to turn that over to Wade. Wade Robey: Yes. Thank you, Leslie, and thank you, Ethan, for that question and for noting the excellent performance we have seen in that division in the first half of this year. There are really two parts of the market that we serve, and I will segregate those for you quickly. The first is what I will call the broad-acre market, which would be directed at grains, oilseeds, or pulses. That is the large-scale farming side of the business that we target with the fine ag products that we sell. The second would be on the turf and ornamental side, where we focus with engineered granules like Verge. In both cases, we have seen good performance out of those segments in the first half of the year. The broad-acre side is really driven mostly by planted acres, and we have seen increases in those planted acres over the last year, which allows our ag retailer partners, who are our customers, to service more acres, and that drives sales. That has been good growth, and we expect that to continue, kind of normal to historic patterns. On the turf and ornamental side, again, it is the engineered side of the business where we target with Verge. That has been good for us as well, and we have seen new product opportunities or new application opportunities come in, specifically with some new customers we have been developing. Those granules are used in products like insecticides or in products like specialty fertilizers for the turf and ornamental markets. Those markets have both been strong. We remain very bullish on the growth of that side of the business as well. Overall, we expect to see good performance over the next couple of years as we continue to expand with current customers and they expand their respective markets as well. Leslie Garber: Great. Thank you. The next question comes from Robert Smith from Center for Performance Investing, and we also have a couple of other questions that are similar: Will there be new product innovation introductions of note during the second half? Which areas, and can you share any color of expectations as to their importance? As always, thank you. I am going to have Laura Scheland cover that. Laura Scheland: Sure. Hi. Good morning. Thanks for the question. At Oil-Dri Corporation of America, we are always dedicated to innovation and improved consumer experience with our robust R&D and product development teams, as evidenced by our recent and new product launches in the past fiscal year and this fiscal year. I am excited to report on some updates there. In recent past years, we launched our EPA-approved antibacterial litter and are excited and pleased with the progress and increased distribution during this fiscal year. Also, last quarter, I reported on three new Cat’s Pride crystal items that test better than competition with 30 days’ guaranteed odor control. We are pleased with these items and performance in the market and the distribution that is growing. I am very excited to announce a new expansion of our crystal litter portfolio just in the past month: a new health monitoring litter that provides great peace of mind to consumers. We are excited to see our proprietary health monitoring formulation that we put a lot of effort into develop—not just what is currently in market, but even improved formulations for real, vibrant color indications. In addition, last quarter, I reported on our new Cat’s Pride scoopable pail that launched in the fall at Walmart. In the second quarter, we added an additional Cat’s Pride Total Odor Guard pail exclusively at Walmart, and they are excited with that expansion of branded items. Additionally, we just launched a new line of Cat’s Pride Max Power Pro items that are exclusively online in our stand-up bags and are designed and optimized for e-commerce fulfillment. We are really excited about the progress of our innovation geared to offer consumers the best experience and to partner with our strategic customers to satisfy their needs and desires and maximize for the growing e-commerce segment as well. Thank you. Leslie Garber: Great. The next question comes from Curry Manikandan from Copeland Capital: Can you give more details on underlying drivers spiking in renewable diesel sales? What are the bottlenecks in Golden Passat and MCP? When can we expect it to be steady? Bruce Patsey: Yes. I will respond to that. This is Bruce Patsey. Currently, the blender’s tax, or the blender’s rebate, was removed, and a producer’s rebate was put in place. This caused a little disruption at some of the renewable customers and actually reduced production as they were trying to figure out how much money they would get back from the federal government. We did see a slowdown. Secondly, the feedstock oils that were brought into these plants changed a little bit, and no longer is there a rebate for feedstocks that come over from China or foreign markets into the U.S. With that, the plants are adjusting. Currently, there is a 45Z rebate put in place, and as these companies start to work with that more in the future, I am sure we are going to see some growth in that renewable market in the coming quarters. Leslie Garber: The next question comes from Ethan Star: Are you selling the co-packaged lightweight litter to the same customer you sell other co-packaged litter to, or is it being sold to multiple customers? Christopher Lamson, please address that. Christopher Lamson: Thanks, Leslie, and thanks, Ethan, for the question. Unfortunately, our contractual obligations really do not allow us to share either the names of the brands or partners that we are working with. That being said, I would like to highlight that the revenue that you saw and that we mentioned in the press release is really a combination of a multiyear, cross-functional effort from our team and the partner to bring our first offering in the lightweight segment that is a contract manufacturing item for us. While we are really excited about the new business and the revenue and profit stream that should be created for us going forward, we are just as excited about what it does for the lightweight segment. You have heard me, and more recently Laura, talk time and time again that our strategy is about growing the lightweight segment. We have a nice-sized pie of it, and we will continue to have that nice-sized pie, but we really want to grow that pie. We think, candidly, as much as there is a big revenue gain here, having a strong player with strong brands participating in the segment with a great product that we worked with them to develop over the last couple of years will continue to do just that. Laura would tell you that segment growth is really continuing to work. If you looked at Nielsen data, you would see that growth rates in the lightweight segment are well ahead of the rest of the segment. In fact, it is the single biggest driver of growth in total cat litter over the last year. We are both pleased about the revenue, and we are pleased about the strategic impact this will make for us for a long time. Leslie Garber: Thank you. John Bear asked: In the recent 10-Q, you indicate that the year-over-year six-month per-ton manufacturing costs were up, but per-ton transportation and packaging costs were lower. Can you speak to the current trends in your manufacturing costs as well as transportation and packaging cost trends? Are the latter improvements due to your efficiency efforts or the macro environment? Aaron, will you please address that? Aaron Christiansen: Yes, John, that is another thoughtful question. There are a few elements in your question; I will try to unpack them one at a time. Starting with manufacturing costs, the year-over-year comparison reflects a combination of timing and normal volatility with no single underlying driver or trend. As both Susan, Dan, and I already discussed, we experienced meaningful operational disruption late in the quarter from winter storm Fern, which included temporary production outages at multiple U.S. plants. That created some short-term fixed-cost absorption pressure as well as some variable costs that came with the event. In addition to the timing of the weather—the winter storm late in January—labor-related inputs, in particular benefits, continue to be an area of cost pressure for us, which is not uncommon in the industry. We have seen that flow through our results. I will add here, our repair costs continue to stabilize, directly related to your prior question and the ongoing reinvestment of capital into our asset base. Turning to transportation, we operate in markets that naturally fluctuate, and recent periods reflected a more balanced freight environment. That being said, we tend to view freight performance less through the lens of spot conditions and more through execution and how we take advantage of those spot conditions. I want to thank and recognize our freight and logistics team for the great work they do to align the right carrier partnerships, network design, and operating discipline to consistently meet customer service expectations—wildly high on-time performance that commonly exceeds 90%. Maintaining strong on-time performance while managing freight costs requires daily coordination across the organization; that remains a core operational focus for us regardless of market conditions. We would always be better than market conditions through our operational execution. On packaging input costs, inputs have been relatively stable overall, with offsetting pressures across different materials and sourcing categories, including tariffs. I will remind the audience that a very large portion of our packaging materials are domestically sourced. We are less exposed to tariff costs than many competitors. Our focus here, as elsewhere, is on structural capability—standardization, specification, diversification where appropriate—and supplier engagement and partnership. Rather than short-term commodity movements, we are focused on long-term strategy with the right partners. Those efforts help us manage variability over time, but we do not view them as eliminating exposure to broader cost dynamics. Overall, we continue to manage the business for reliability, service, and long-term operating resilience, recognizing that cost inputs will move differently across categories and time periods. Leslie Garber: Thanks, Aaron. We have two questions regarding Amlan, one from Ethan Star and one from Robert Smith. I am going to read one of them because Wade Robey will touch on both: Despite the rough quarter for Amlan, what progress are you making with Amlan, and do you expect sales growth for Amlan over the long term? Wade? Wade Robey: Yes. Thank you, Leslie, and thank you to both of you for that question. I appreciate the opportunity to address the performance in the first part of the year for Amlan. As was mentioned in the press release, we did lose a key account, which has impacted our performance to date quite a bit, which is reflected in the numbers. This is really a function of the extraordinarily large size of the accounts that we target in many cases—around the world, not just in the U.S. market, but in LatAm and in Asia Pacific as well. These accounts are enormous in size. That benefits us greatly on the positive side when we gain a new account; it can hurt us on the downside if we lose an account, albeit temporarily. In this case, we did have an account loss very early in the fiscal year, and since then, we have been working very, very hard to recover that business with our distribution partner. They are actually the seller of the products to the account directly and through our distribution network. The second thing we have been doing, which we always do, is work to broaden the base of our customers. This has the best effect long term to mitigate the impact of any single account loss. Those two actions are what we have been focusing on. None of this changes the outlook we have for the business or the excitement we have around these markets that we are targeting for Oil-Dri Corporation of America. The animal nutrition, animal feed additive markets are very large around the globe, as you know, and they tend to be high-margin, high-value markets. We are continuing the strategy, continuing our approach, and are just working hard to recover the loss that we saw early in the year. Leslie Garber: Thank you. Next question is from Robert Smith: From what you see now, what are the headwinds and tailwinds of the oil and gas situation—first with respect to the Fluids segment and then corporate-wide? I am thinking of sustainable aviation fuels, renewables, and then costs. I am first going to have Bruce Patsey address that regarding renewable diesel and Fluids Purification, and then I am going to turn it over to Aaron Christiansen about cost. Bruce? Bruce Patsey: Yes. Thanks for the question. The conflict that is causing increased fuel costs, obviously for us at the pump, also helps increase the margin for our end users that are using our products to make renewable diesel. We are seeing a slight uptick in orders right now, and they are trying to produce more oil to get out into the market. The tailwinds, I guess, for our end user in this case would be if this price stays up high for a long time, the suppliers of the feedstock oil are going to pass increases on to them, which will then negatively impact their margins. At this point, if it stays a 30- to 60-day issue, I think we will see an uptick with that business. That is my answer. Thank you. Aaron Christiansen: Great. Leslie, I will speak to it from a cost perspective. Robert, I will remind you and other investors that several years ago, Oil-Dri Corporation of America resumed the practice of forward buying a portion of our consumed natural gas very mathematically and algorithmically. We purchase strips of natural gas to buffer and dollar-cost average our forward exposure. I deliberately continue to avoid the word “hedge.” We are not trying to beat the market. We are trying to dollar-cost average over time and then buy our organization time to understand where prices are going and, where appropriate, pass those costs along in the marketplace as utility costs rise over a period of time. Periods like we are experiencing right now are the points in time that our current strategy provides me great comfort, knowing that we are not exposed to substantial changes in cost short term and have time to react as we see where prices go longer term. Leslie Garber: Thank you. We have one last question from Robert Smith: Are you already at work using artificial intelligence in the microbiology center to identify targets for new product development for your clay? Mervyn, I will turn that over to you. Mervyn de Souza: Thanks, Leslie. I appreciate the question, Robert. I think we all know artificial intelligence has become a household term now that is in almost every walk of life, both with positive and negative outcomes. Across Oil-Dri Corporation of America and within the R&D team, as I have mentioned in the past, we have a very thoughtful and deliberate approach when it comes to the use of AI to drive us towards both increased efficiency and effectiveness. We are working on integrating both human and artificial intelligence into our day-to-day operations as they become relevant, both for new product development as well as for improving our existing products, to deliver innovative solutions to our Oil-Dri Corporation of America customers. Leslie Garber: Wonderful. Thank you. That is the end of the Q&A portion. Dan, do you have any closing remarks? Daniel Jaffee: Yes. I just want to thank the investors for very thoughtful and on-point questions. It shows you are long-time holders, and you have been very invested in the strategy and growth of the company over many, many years. Your knowledge of where we create value and where we have opportunities is clear by the questions you are asking. Thank you for that. Thank you to the Oil-Dri Corporation of America team. We will be looking forward to our third-quarter teleconference in around 90 days. Operator: This does conclude today’s program. Thank you all for joining, and you may now disconnect.
Operator: Please be advised that today's conference is being recorded. Good morning, ladies and gentlemen. Thank you for joining us today for MindWalk Holdings Corp. third quarter fiscal year 2026 earnings call. MindWalk Holdings Corp. trades on the Nasdaq under the ticker HYFT. Today's call will be led by our Chief Executive Officer, Jennifer Lynne Bath, and our Chief Financial Officer, Richard Areglado. A copy of our financial statements and MD&A is available on our website at mindwalkai.com. A replay of today's call will be available on MindWalk Holdings Corp.'s investor relations website following the conclusion of today's call. Before we begin, please note that today's discussion includes forward-looking statements. These statements are based on current expectations and involve risks and uncertainties that may cause actual results to differ materially. For more information, please refer to our filings with the SEC and Canadian securities regulators, including our most recent Form 20-F. Unless otherwise noted, all financial figures discussed today are in Canadian dollars. I will now turn the call over to Jennifer Lynne Bath. You may begin. Jennifer Lynne Bath: Thank you very much, and good morning, everyone. This quarter, MindWalk Holdings Corp. reported its third consecutive year-over-year revenue increase and advanced three pipeline programs toward data readouts. In addition, we recently signed our first one-year enterprise Lens AI platform contract. I will walk you through each of those. On revenue, year over year, we have grown three quarters in a row in a market where pharmaceutical demand for AI-driven discovery is accelerating. On the commercial model, our largest enterprise AI client recently signed a one-year Lens AI platform contract, the first of its kind for us, shifting a part of our revenue from project-based to contracted and recurring. On our pipeline, dengue, GLP-1, and influenza each have data anticipated in the near term. Please let me take those in turn. MindWalk Holdings Corp. just reported its third consecutive quarter of year-over-year revenue growth. Revenue was $4,200,000 this quarter, a 52% increase from $2,700,000 in the same quarter last year. MindWalk Holdings Corp.'s U.S. revenue, our most important commercial market, doubled year over year. That growth reflects a deliberate strategic focus on the U.S. market. North America is where AI-driven discovery demand is concentrated and where the regulatory environment is actively pulling pharma toward domestic partners. We have invested in U.S. commercial presence, including business development and sales resources in the Boston and Cambridge area. Separately, we have also established biologics services operations in the Boston and Cambridge area. Both reflect the same strategic direction. Our clients are pharmaceutical and biotech organizations with their own R&D capabilities. They engage us when the challenge exceeds what conventional tools can address. Which brings me to the second thing I would like to highlight. Recently, our largest enterprise AI client signed a one-year Lens AI platform contract. This contract is structured as a recurring revenue model, revenues being recognized monthly. To be precise about why this matters, until now, our revenue has been primarily project-based. Clients engage us for a program, we deliver, we invoice. That model produces good revenue, but it requires continuous reselling; every quarter starts close to zero. A platform contract is structurally different. It is contracted, recurring, monthly revenue that does not require reselling. It delivers value consistently, which is exactly what Lens AI is designed to do. Lens AI is actively being rolled out across our broader client base, the one-year contract is one we are scaling. Now let's discuss specifically what Lens AI, powered by HIFT technology, demonstrated this quarter. At its foundation is HIFT, our patented biological representation system that operates on the invariant functional layer of the sequence space. Sequence-based AI tools identify patterns in surface similarity. HIFT, conversely, operates on functional architecture, the layer that governs what the molecule does, not just what it looks like. Lens AI puts that capability into practice, integrated across our laboratory operations, now connecting in silico insight directly to bench-level execution. When our scientists design experiments, they identify targets, and they interpret results. That capability runs through the process end to end. Two results this quarter illustrate what that means. First, we advanced our functional adjacency capability, the ability to identify molecules that produce the same therapeutic effect despite having very low sequence similarity. For a pharma partner, this means that Lens AI can detect competitive threats and IP collision risks that conventional sequence analysis would not find. IP protection on this capability has been initiated. Second, in our influenza program, Lens AI has now screened over 2,000 highly diverse influenza sequences spanning influenza A, influenza B, avian, and swine origin sequences. Across all sequences analyzed, HIFT identified a single conserved functional feature that is present in every single one, a conserved functional feature that represents a potential design target for a broadly protective immunogen. For MindWalk Holdings Corp., dengue is proof of concept; influenza is repeatability. Now our pipeline advancements. Dengue infects 390 million people annually. The WHO considers it a top 10 global health threat. After 60 years of research and billions of dollars of investment, the world still does not have a vaccine that reliably protects against all four serotypes without risk of making the disease worse. Two vaccines have reached the market. Neither solved the core problem. Sanofi's Dengvaxia was restricted in 2017 after it was found to increase severe dengue risk in seronegative patients through antibody-dependent enhancement, also known as ADE, and was permanently discontinued in Brazil this year. The vaccine effectively stimulated a primary infection in seronegative recipients, priming them for enhanced disease on subsequent natural exposure. Takeda's Qdenga showed a different failure mode. It demonstrated no efficacy against serotype 3 in seronegative individuals, and remained skewed toward dengue 2. Takeda withdrew its FDA application in 2023. You see, the problem is not generating an immune response. Both of those vaccines do that. The problem is generating a balanced response across multiple serotypes. An imbalanced response triggers ADE, and that makes the patient sicker. The two vaccines that have reached the market both took a tetravalent approach and hoped the immune system would respond equally, but it does not. Across all sequences analyzed, HIFT identified a single conserved functional constraint present in every single dengue sequence, a potential basis for a broadly protective immunogen design. This is a discontinuous epitope; it is invisible to conventional sequence alignment tools. HIFT found it because it operates at the level of functional biological architecture, not surface sequence similarity. Instead of asking the immune system to respond equally to multiple different things, we are training it to recognize one thing that is present in all serotypes. Balanced immunity is built into the design, not hoped for in the final outcome. Currently, rabbit immunization studies for this program are complete. Binding confirmation, which is confirming that the immunized animals generated antibodies that bound to that conserved epitope, is expected yet this week. Upon confirmation, we move to multiserotype neutralization tests with our independent collaborator. No prior program has demonstrated a single epitope immunogen generating neutralizing antibodies across all serotypes that it was immunized for. This is what neutralization data will first test. We are at this preclinical stage, but the hardest scientific questions actually get answered here. In vitro GLP-1 receptor activation was confirmed by an independent third-party assay. Results demonstrate activity relative to semaglutide, a market-leading GLP-1 therapy. We have worked with a pharma collaborator with recognized expertise in this area. They have shared what they consider important to see as this program advances. We are developing the program with that input in mind. Beyond the GLP-1 pathway itself, we have identified a dual regimen linking GLP-1 biology to a second nonoverlapping longevity pathway. We will continue to update the market as this program advances. Our influenza program is advancing on the same design logic. As of this week, we are moving toward manufacturing of the lead in silico candidate. We will update the market as that program continues to develop. U.S. revenue doubled year over year, a direct result of our deliberate strategic focus on North America. AI-driven biologics demand is concentrated in this market, and the regulatory environment is increasingly favorable to domestic partners. We have established biologic services operations in the Boston–Cambridge area, and this strategic direction guided our decision to divest our European operations in favor of North American growth. We ended Q3 with $14,200,000 in cash. The Netherlands divestiture proceeds are being deployed deliberately into commercial growth, Lens AI and its pipeline assets, and our Canadian laboratory capabilities. Our team published a peer-reviewed study in Biomacromolecules, the American Chemical Society journal, in collaboration with Eindhoven University of Technology and Radboud University Medical Center. That work was grant funded and it demonstrates what our wet lab nanobody discovery is capable of and the great importance of this innovation. I will come back to this when I describe our B Cell LAMA platform launch. This quarter, we announced results from a client-driven research engagement in which our scientists generated and validated monoclonal antibodies and intrabodies capable of selectively targeting misfolded, pathogenic TDP-43 while leaving healthy TDP-43 intact. TDP-43 is implicated in ALS, frontotemporal dementia, and some Alzheimer's cases. Last week, we announced the launch of our B Cell LAMA, a nanobody discovery platform built on single B cell isolation from immunized llamas. Let me explain why this matters. Bispecific and multispecific antibodies require two heavy chains, and when those chains need two different light chains, the result is an explosion of possible combinations, only one of which is the product that you actually want. That chain-pairing problem has been one of the central engineering bottlenecks limiting bispecific drug development, and significant capital has been invested in platforms designed to work around it. VHH nanobodies eliminate the problem by design. They carry no light chain; there is no pairing ambiguity. And because they come from a naturally matured llama immune repertoire, they capture sequence diversity that engineered platforms structurally cannot replicate. Our peer-reviewed Biomacromolecules publication demonstrates what that produces. The molecule with the strongest binding affinity in our delivered zero functional activity. A construct built from the same nanobody building blocks achieved 10 to 25 times greater potency in multivalent format. Function-based selection, not affinity, is what matters. That is what B Cell LAMA is designed to deliver. MindWalk Holdings Corp. holds commercial rights to the jointly developed intellectual property from that work. B Cell LAMA operates alongside our 15 molecules advanced to the clinic. The full detail is in last week's announcement. Across our proprietary asset portfolio—GLP-1, dengue, and influenza—and at the request of investors, we are working with legal and financial advisers to design structured asset-level financing vehicles that will allow investors to participate at the program level while preserving parent company equity. Network is active and progressing. I will now turn the call over to Richard. Richard Areglado: Thank you, Jennifer, and good morning, everyone. As a note, all figures are in Canadian dollars and relate to continuing operations unless stated otherwise. Revenue for Q3 was $4,200,000, a 52% increase from $2,700,000 in Q3 of last year. As Jennifer noted, this is our third consecutive quarter of year-over-year revenue growth. U.S. revenue doubled year over year, $2,600,000 versus $1,300,000. The U.S. is named a strategic priority. AI-driven discovery demand is concentrated here, and our commercial investments are reflected in the numbers. For the nine-month period ending January 31, 2026, our revenue was $11,400,000 as compared to $7,900,000, a 45% increase as compared to the prior year period. Gross margin for the three months ended January 31, 2026 was 59% as compared to 65% in the prior year period. For the nine-month period ended January 31, 2026, gross margin was 58% as compared to 53%, a five percentage point improvement over the same period last year. Gross margin can vary depending on our mix of business. However, as we develop and increase adoption of the tools within our Lens AI platform, we would expect margins to expand. Moving on to operating expenses. For Q3 2026, R&D expense was $1,200,000 as compared to $900,000 for the prior year period due to the investments in the dengue, GLP-1, and B Cell LAMA programs and ongoing Lens AI platform development. For the nine-month period ended January 31, 2026, R&D expense was $3,500,000 versus $3,400,000 in the prior year. Sales and marketing for the three-month period ended January 31, 2026 was $1,800,000 as compared to $1,100,000 in the same period last year, reflecting our continued commercial expansion primarily in the U.S., with programs such as our expansion in the Boston area starting to yield revenue. For the nine-month period ended January 2026, sales and marketing expense was $4,300,000 compared to $2,700,000 for the nine months ended January 2025. G&A was $3,100,000 for Q3 2026 as compared to $2,800,000 for Q3 2025. G&A expense was $9,500,000 for the nine months ended January 2026 as compared to $9,100,000 for the prior year period. We expect G&A to remain flat to modest growth as we believe we have the infrastructure to support future growth. Net loss from continuing operations for Q3 2026 was $3,900,000 versus $22,000,000 in Q3 2025. Net loss in the prior year period included an impairment charge of $21,200,000. For the nine-month period ended January 2026, net loss was $11,200,000 as compared to $29,700,000 for the nine-month period ended January 2025, which also reflected the $21,200,000 charge. We are investing ahead of revenue in commercial infrastructure, pipeline programs, and platform capabilities with the expectation that these investments will yield returns. Moving on to the balance sheet. We ended the third quarter with $14,200,000 in cash. Cash used in operations was $10.1 million year to date, consistent with our planned investments. In summary, revenue has grown year over year, and we have demonstrated the ability to execute. We have developed a platform and products that bring value to our customers, and we continue to innovate with programs such as our recent announcement of our B Cell LAMA capability and functional adjacency. We have cash runway for operations and a capital structure to support the ongoing development of our proprietary pipeline assets. We believe this will continue to drive shareholder value. I will now return the call to Jennifer. Jennifer Lynne Bath: Thank you, Richard. Before we open for questions, I would like to leave you with this. Most AI approaches in biologics today operate on full biological sequences. They tokenize, they train, they generate. Many are powerful, and they are operating on a representation of biology that includes a great deal of noise. Evolution is a tolerant process. Most positions in a biological sequence can change without consequence. That variation fills the public databases that these models train on. A much smaller set of subsequences is invariant. They cannot change because essential biological function depends on them. These are the fingerprints that actually carry the information for life. HIFT is our patented representation of that invariant layer. No other company has the rights to use these patterns. That is the foundation of a durable competitive position because every result we generate, every insight we deliver, and every asset we build rests on a biological foundation that competitors cannot replicate. And it is producing results. We identified the dengue epitope conserved across all four serotypes, a target that 60 years of vaccinology did not find. We detected functional adjacency that sequence-based platforms missed and initiated IP protection on that capability. We screened over 2,000 influenza sequences and found a single conserved biological feature present in every single one. Our GLP-1 candidate activity relative to semaglutide, the market-leading GLP-1 therapy, was confirmed by an independent third party in vitro testing. We launched B Cell LAMA, a nanobody platform anchored by peer-reviewed evidence that function-based candidate selection outperforms affinity-based selection at the molecular level. On commercial, we are scaling the enterprise platform model, additional contracted recurring platform agreements with major pharma and biotech partners building a revenue base that grows independently of any single project. On pipeline, dengue neutralization data is our nearest-term pipeline readout. Dengue is proof of concept for what HIFT can do. Influenza is repeatability. Together, they make the platform case to pharma partners better than anything else that we could say. On asset financing, legal and financial advisers are engaged and structures are being designed across the proprietary portfolio. Before we open for questions, I want to leave you with this. The science is patented. The results are peer reviewed. The first enterprise contract is signed. The pipeline has meaningful data approaching. These three consecutive quarters of year-over-year revenue growth and U.S. revenue doubling are made possible by a platform that no competitors can replicate. This is the MindWalk Holdings Corp. investment case. Thank you. We will now open the line for questions. Operator: Thank you. We will now begin the question-and-answer session. To ask a question, please press star then the number one on your telephone keypad. If you would like to withdraw your question at any time, please press star 1 again. Please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Your first question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. Your line is open. Swayampakula Ramakanth: Thank you. This is RK from H.C. Wainwright. Good morning, Jennifer, Richard. Good morning. This is a great quarter, a lot of good stuff, and really exciting days for you. Thank you. Jennifer or Richard, in terms of the agreement that you just signed—the enterprise client agreement that you just signed on the recurring contract—I am trying to understand what drove this group to do this. What are the primary drivers? And then the second part of that same question is, how many of your other project-based clients are willing to convert into this monthly recurring model, let us say over the next six to 12 months? Jennifer Lynne Bath: Thank you, RK, and thanks for joining, and as usual, for your thoughtful questions. So your first question—what really drove this first pharma client to go ahead and sign this contract—that is a very good question. I think I like this in particular because giving me the opportunity to explain this also gives me the opportunity to demonstrate the validation that needed to occur before a client took this type of a commitment long term with us. I do believe this is a client I have referred to anecdotally historically one or two times, and this is a client who initially came to us having tried multiple other companies that said that they could utilize artificial intelligence to help solve some of their scientific challenges. The group was relatively dismayed. They said that in reality, none of those CRO partners or companies were able to turn back results that were as good as what they could do in the wet lab, and so they were apprehensive and they were doubtful. So when we first brought this group in, it was actually for fee-for-service work, and what we said to them is, you have programs that have been extremely difficult and you have worked on for over a decade. Let us take a crack at it. Let us apply Lens AI to it, and if we are not successful, then you do not pay us. But we really want to show you what we can do. We worked on that program for them, and we were successful, and they saw the outputs coming directly from Lens AI, and even some applications that MindWalk Holdings Corp. in Belgium, also known as BioStrand, built specifically for producing these outcomes in the program. They were tremendously happy with the results, and they have now contracted us, I am not sure, somewhere between seven to 10 times in total for different programs, and Lens AI has continued to successfully solve very challenging problems for them. That is really where we earned their respect and, I think, their trust for this Lens AI program, and that is what really brought them to the table to negotiate a platform license as a SaaS model. Our intent, obviously, is to leverage that experience with them to be able to bring on additional clients, for those clients to understand, and for us also to be able to share the positive experiences this group has had. That being said, for your second question, we are not providing specific numbers or timelines for additional contracts, but one thing that I think is really important to highlight and maybe was not highlighted enough in the earnings call is that Lens AI is now actively being rolled out across our broader client base. All the programs we are working on—not just the programs we are working on in Belgium where Lens AI lives, but also in Canada with all of our wet lab clients—somewhere close to 750 active clients, dozens of programs running at any given time, those results are all now finally coming back in the Lens AI portal. These groups are receiving secure login, and when they log in, they have access to this portal, and they can see the applications that are in there that truly change the way they have done drug discovery historically. Now they can utilize these applications, and instead of going to three, four, five, six other vendors to collect information, or chugging through the process over the course of 18 months to two years, they can literally take a subscription to utilize these applications beyond the base level to harness the power and get the results that they are looking for. Being at that point in this venture is very important to our company, something we have built toward and worked toward. It took longer than we hoped it would to get this software into the hands of these clients, and it is now happening not just across our therapeutic clients but clients who have contracted us for any sort of custom antibody work. With regard to that, when we think about additional contracts and bringing these new clients in, that is where we are really focused. We feel we have an extremely unique situation where these clients are already onboarded. We are in many cases their primary vendor, but in all cases, we are a vendor that is in their system, and we have already built their trust and their respect, and so we have a very unique segue into this market with those clients. Swayampakula Ramakanth: Thanks for that detailed answer. And if I may, second question is on the asset-level financing. I do understand lawyers and investors can take a long time to come to a conclusion about anything, but how much of that are you waiting for in terms of these four different projects or platforms that you have—thinking about the dengue, the GLP-1, LAMA, and influenza as well? Do you need to get to a conclusion with these groups before you move this forward, or are these all independent of each other and they are all moving forward? Jennifer Lynne Bath: That is a great question. The short answer is they are independent of one another as they move forward. A couple of things to keep in mind. When we look at financing these particular programs, one of the things that is easy to overlook is the fact that our program costs are not what you would expect from a traditional drug development company at this stage. Much of our work is in silico, but also much of our in silico work, our in vitro work, and even our preclinical work is either AI-driven or it is conducted in-house. That keeps our cost meaningfully lower than a conventional pipeline of this breadth would require, and it is also one of the structural advantages that we have building on the HIFT platform. As a result of that—and directly in reference to your question, RK—the capital that we currently have is capital that is enough to drive us significantly forward in these engagements. As a matter of fact, as was detailed by Richard, the R&D expenses are not up significantly over last year and yet cover not only our traditional R&D and the build-out of the B Cell LAMA platform, but also cover everything we have done to date here. That gives you, I think, a specific example of that. Now, when it comes to the asset-level financing, that is something that definitely, as these programs become more advanced, one of the things that we have ensured we have in place as we move forward is a professional team that has the experience in the clinical realm and the subject matter experience, with each of these families of viruses or the particular therapeutic or disease that we are targeting, in order to help drive this process along through the preclinical portion and the IND-enabling, the IND filing, and the clinical readiness. When we get to those stages, of course, the cost then does begin to increase. As to whether or not these portions at that stage can move forward prior to the asset-level financing, to some extent, yes, most definitely, once again because we do have a team set forward here with the internal expertise. But in addition to that, the asset-level financing is meant to support once we get to that stage. We have enough runway here that the lead time that it takes to actually get these ring-fenced should be one that enables us to bring in additional capital to support those by that time. Swayampakula Ramakanth: Thank you. I will get back into the queue. Thanks. Jennifer Lynne Bath: Thanks, RK. Operator: Thank you. There are no further questions at this time. We will now turn the call back over to Jennifer Lynne Bath for closing remarks. Jennifer Lynne Bath: Great. Thank you so much. The biggest thing that I want to say is thank you all. Thank you for joining us. Thank you for supporting MindWalk Holdings Corp. We look forward to sharing pipeline results as they become available, and we will speak with all of you on our Q4 and fiscal year-end 2026 earnings call. Thank you. Operator: This concludes today's MindWalk Holdings Corp. Q3 fiscal year 2026 earnings call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Flotek Industries, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If anyone has any difficulties hearing the conference, I would now like to turn the conference call over to Mike Critelli, Director of Finance and Investor Relations. Please go ahead. Mike Critelli: Thank you, and good morning. We are thrilled to have you with us for Flotek Industries, Inc.'s fourth quarter and full year 2025 earnings conference call. Today, I am joined by Ryan Ezell, Chief Executive Officer, and Bond Clement, Chief Financial Officer. We will begin with prepared remarks on our operational and financial performance, followed by Q&A. Yesterday, we released our fourth quarter and full year 2025 results, along with an updated investor presentation, both available on the Investor Relations section of our website. This call is being webcast with a replay available shortly after. Please note that the comments made on today's call may include forward-looking statements, which include our projections or expectations for future events. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from those projected in forward-looking statements. We advise listeners to review our earnings release and most recent 10-Ks and 10-Q filings for a more complete description of risk factors that could cause actual results to materially differ from those projected in forward-looking statements. Please refer to the reconciliations provided in the earnings press release and investor presentation, as management will be discussing non-GAAP metrics on this call. I will now turn the call over to our CEO, Ryan Ezell. Ryan Ezell: Thank you, Mike. Good morning, everyone. We appreciate your interest in Flotek Industries, Inc. and your participation today as we review our Q4 and full year 2025 operational and financial results. In the fourth quarter, we saw North American operators maintain the cautious posture initiated in the second quarter as they continued to navigate the return of OPEC+ spare capacity and persistent global trade volatility. Despite the dynamic geopolitical and macroeconomic challenges that have injected uncertainty within the market, the Flotek Industries, Inc. team remains steadfast in the execution of our corporate strategy, driving transformation, and delivering our third consecutive year of significant gross profit and adjusted EBITDA improvement. Through the powerful convergence of innovative real-time data and chemistry solutions, as shown on slide 3, Flotek Industries, Inc. has laid the foundation for a data-driven growth trajectory built on diverse recurring revenue, high-margin services, and proprietary technologies that create value for our customers and improve returns for our shareholders. Transitioning to slide 4, Flotek Industries, Inc. extended its track record of transforming the company into a data-as-a-service business model as our industrial pivot continues to gain momentum while expanding the total addressable market for future growth of the company. Furthermore, we delivered standout performance throughout 2025, resulting in increased market share in both of our complementary business segments. Data Analytics grew exponentially while Chemistry outpaced the market in a challenging environment through an unwavering commitment to safety, service quality, innovation, and total value creation. With that, I would like to touch on some key highlights for the quarter referenced on slide 7 that Bond will discuss later in the call. Q4 and full year 2025 saw the highest quarterly and annual revenues since 2017. The Data Analytics segment achieved its highest ever quarterly and annual revenue in company history. Our gross profit climbed 24% versus 2024 and 52% as compared to full year 2024. The Data Analytics gross profit accounted for 48% of the total company gross profit during 2025 as compared to only 8% in the quarter a year ago. Adjusted EBITDA grew over 123% year-over-year, while 2025 net income improved 191%. Finally, we completed the onboarding of our PowerTech assets and the strategic entry into Power Services in 2025. This sets the stage for high-margin recurring revenue growth in 2026 and beyond. All of these results were achieved with zero lost time incidents in the field operations, with our Prescriptive Chemistry Management and Raceland NTI team surpassing over 10 years without a lost time incident. I want to thank all of our employees for their hard work and commitment to safety and service quality, achieving these outstanding results. Now, turning to the larger picture for the energy and infrastructure sector, we share the viewpoint that despite the near-term volatility and uncertainty created by the ongoing conflicts in the Middle East, the fundamentals for hydrocarbon demand will continue to grow from the medium to long term. A rebalance of supply and demand is expected due to the combination of steeper decline rates for large percentages of unconventionals, diminishing overall reservoir quality, and minimal exploration success, which will create potential tailwinds for energy and infrastructure services. Substantial investment will be required to maintain current production levels, while additional spending would be needed to meet the expanding power demand driven by AI data centers and industrial reshoring, combined with the reliability issues of an aging transmission infrastructure. Our legacy pressure pumping customers continue to capitalize on the portfolio diversification opportunity provided by the demand for remote power generation. Flotek Industries, Inc. is poised to support these emerging opportunities with products and services that help protect their assets while optimizing their operational performance and fuel efficiency. With multiyear waiting lists for turbines and reciprocating engines, protecting these capital-intensive investments is critical, along with enabling reliability standards that exceed greater than 99% uptime requirements. Transitioning from the macro, let us dive into the details starting with slide 11 of the earnings deck. I want to spotlight the remarkable progress in our Data Analytics segment, which saw service revenues increase 381% in 2025 versus Q4 2024, elevating gross profit to 73% in Q4 2025 versus only 39% the same quarter a year ago. This transformational growth in data-driven service revenue is empowered by three upstream technology applications: Power Services, Digital Valuation, and Flare Monitoring, all of which are fueling significant advancements for our organization while generating recurring revenue backlog. The first is our Power Services, which has evolved from a novel analytical approach into a transformative solution for the energy infrastructure sector that we call PowerTech. What began as advanced analytics has grown into a comprehensive end-to-end fuel management platform, redefining performance standards and operations within the sector. Looking at slide 13, at the heart of PowerTech is our VariX analyzer, which goes beyond data collection to deliver custody transfer-grade measurements. It provides precise BTU, methane number, and volume reporting for royalties, invoicing, and performance guarantees. Complementing this, our patented conditioning and distribution trailers actively remove liquids and contaminants, conditioning high-BTU hydrocarbon feeds to meet exact turbine or engine specifications. But PowerTech is more than just a technology. It is about control. Our cloud-based portal enables the monitoring of live BTU trends, H2S alerts, Coriolis flow meter readings, and automated CNG blend controls, combined with custom alarm thresholds to automatically isolate off-spec hydrocarbon feeds and protect high-value turbines or reciprocating engines from catastrophic damage, thus minimizing downtime and operational risk while enhancing safety. More importantly, our velocity of measurement enables direct communication to the OEM engine to automatically adjust engine operating parameters and optimize engine performance. We do not believe there is another analyzer technology capable of executing at this level of real-time automation today. Finally, our 35+ Data Analytics patents position Flotek Industries, Inc. as a leader across the natural gas value chain. When considering our capabilities, we deliver unmatched monitoring, control, and safety for field gas operations. On 03/03/2026, Flotek Industries, Inc. announced its first contract within the utilities infrastructure sector, seen on slide 14. Leveraging our proprietary PowerTech platform, Flotek Industries, Inc. will partner with leading distributed power service providers to coordinate the installation of up to 50 megawatts of state-of-the-art power generation equipment, including advanced gas distribution and smart conditioning systems, to support critical federal disaster recovery initiatives. The impacted area was struck by a destructive wind event, which caused significant damage to local power infrastructure. This deployment harnesses real-time data analytics for unparalleled efficiency, ensuring resilient power that drives the community recovery forward. Under the contract, Flotek Industries, Inc. will supply and mobilize cutting-edge smart conditioning skids and advanced gas distribution equipment alongside natural gas-powered gensets. The gas distribution skid provides independent fuel control to each genset, allowing seamless maintenance without interrupting the power flow and guaranteeing uptime even in the harshest conditions. This week, we have boots on the ground evaluating the site selection and continue to work with engineers and customers to determine the site design, exact power demand, and full deployment schedule. Now let us transition to slide 15, where we will dive into our upstream application, Digital Valuation. This groundbreaking use case sets a new standard in the oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk for producing wells like never before through real-time digital twinning of the custody transfer process. By monitoring hydrocarbon quality and composition in real time, we have unlocked a new market for the industry and for Flotek Industries, Inc. On 10/29/2025, Flotek Industries, Inc. reported a historic milestone in natural gas measurement. The XBEG spectrometer became the first optical instrument to achieve the stringent reproducibility and repeatability requirements of the oil and gas industry standard for custody transfer, GPA 2172. The XBEG measurement unit is designed to enable more accurate volume and compositional data, thereby delivering greater transparency for royalty owners, operators, and midstream companies than traditional methods. We believe the XBEG speed, accuracy, durability, and qualification under the rigorous measurement standards outlined in GPA 2172 will provide a significant advantage in discussions with prospective customers as we aggressively expand this manufacturing field deployment. Since completing our XBEG pilot program in the third quarter of 2025, we exited the year with over $12.02 million per month in recurring high-margin revenue. Furthermore, 2026 is off to a great start with opportunities on the horizon, each of which can more than double our deployed active XBEG units. Let us move to our third upstream application, the Verical Flare Monitoring solution. We continued to experience strong operational demand in February 2025, with total Flare Monitoring revenue for the full year exceeding $2 million. As we proactively navigate the evolving regulatory landscape, particularly the EPA's flare monitoring and methane emission standards, we are deepening strategic partnerships with leading operators and flare technology developers. This collaborative approach not only ensures seamless compliance, but also delivers substantial operational efficiencies, meaningful methane reductions, and enhanced environmental performance for our clients. It is clear that our transformational strategy to grow the Data Analytics segment through upstream applications is gaining traction. We increased our upstream revenues from $2.1 million in 2024 to over $21 million in 2025, with gross profits expanding from $1.2 million in 2024 to $18.4 million in 2025. But what is most important is what it means for our stakeholders and investors. Our DAS-driven strategy ensures predictable recurring revenue and cash flow, delivering stability and long-term value. Our proprietary data technologies and superior measurement accuracy enable velocity and decision control and establish a high barrier to entry, secure client loyalty, and support our value-based service model. Finally, long-term high-margin subscriptions position Flotek Industries, Inc. for sustained growth and margin expansion, delivering significant shareholder value over time. Now, lastly, looking at our Chemistry Technology segment, it continues to deliver robust performance driven by the differentiation of our Prescriptive Chemistry Management services and our expanding international presence. Slide 18 highlights the resilient performance of our Chemistry segment, which delivered a 25% increase in total revenue for full year 2025 compared to 2024, excluding OSP payment, despite a 24% decline in the average North American frac fleet count over the same period, from 201 at year-end 2024 to 154 at year-end 2025, according to Primary Vision data. While we anticipate potential near-term commodity price volatility, we see encouraging indicators for cautious optimism in the back half of 2026 and beyond, and we continue to closely monitor operational and supply chain risks for international operations amid the ongoing conflicts in the Eastern Hemisphere. It is evident that our Chemistry team has executed our strategy flawlessly despite the near- to medium-term headwinds. While uncertainties around near-term activity levels persist due to macro factors that could affect the completion of the Chemistry market, we remain focused on defining these challenges and delivering differentiated chemistry and data services to provide our customers with industry-leading returns on their investment. Looking ahead, I am more confident than ever in Flotek Industries, Inc.'s momentum and our ability to drive sustained, profitable growth as we execute our transformative corporate strategy. We are firmly positioning Flotek Industries, Inc. as a high-growth technology leader in the energy and infrastructure sectors, accelerating innovation through the powerful integration of real-time data analytics and advanced chemistry solutions tailored precisely to our customers' evolving needs. I will now turn the call over to Bond Clement to provide key financial highlights. Bond Clement: Thanks, Ryan. Good morning, everybody. Our fourth quarter results cap an exceptional year in which we generated meaningful value for our shareholders. As highlighted in yesterday's presentation on slide 7, we achieved several important milestones, including our highest quarterly revenue since 2017, driven in part by the largest quarterly contribution from ProFrac in the more than four-year life of our supply agreement, and the first quarter in which our Data Analytics segment surpassed $10 million in revenue. The continued expansion of Data Analytics revenue is translating directly into enhanced product profitability. As Ryan noted, in the fourth quarter, DA accounted for 48% of total company gross profit, a significant increase from just 8% in the prior-year period. Two really impressive metrics stand out as highlighted on slide 11. One, our Data Analytics gross profit for 2025 totaled just over $18 million, which represents more than two times the growth versus last year's total Data Analytics revenues. And second, the Data Analytics revenue during the fourth quarter exceeded DA revenue for the entire year of 2024. Both of these metrics highlight the exceptional growth that we realized in 2025. Total company revenue grew 33% from the year-ago quarter and benefited from a $22 million, or approximately 80%, increase in related-party revenue as compared to the fourth quarter of last year. Approximately $15 million of the ProFrac revenue increase was Chemistry-related, while $6.7 million was associated with the PowerTech lease agreement. External customer Chemistry revenue declined 30% from the year-ago quarter due in large part to slowing activity levels in November and December. However, external Chemistry revenues were still up an outstanding 26% for the full year versus 2024, despite the numerous headwinds in the upstream completion markets that Ryan touched upon earlier. Data Analytics had another solid quarter, with product revenue and service revenue up significantly from the year ago, driving the segment's highest quarterly and annual revenue ever. Data Analytics segment revenue represented 15% of total company revenue in the fourth quarter, up from just 5% in the year-ago quarter. PowerTech revenues totaled $15.8 million during 2025, and as shown on slide 11, since closing the PowerTech acquisition in the second quarter, these assets have been a clear catalyst for margin and profitability expansion, driving improvements not only within the DA segment, but also at the corporate level. As a reminder, based on the contractual terms of the lease agreement, PowerTech revenues in 2026 are expected to be north of $27 million, or an approximate 70% increase from 2025. So we continue to expect these assets to be a significant contributor to our 2026 results. Gross profit increased 24% and 52%, respectively, as compared to the year-ago quarter and fiscal year. Fourth quarter gross profit as a percentage of revenue totaled 22.5% and was impacted by a combination of product mix, as well as the approximate $5 million sequential reduction related to the shortfall penalty, which is a byproduct of the huge quarter of revenue we achieved with ProFrac. SG&A expenses increased compared to the fourth quarter of last year, primarily reflecting higher personnel costs, including stock compensation, as well as elevated professional fees, a portion of which relate to the company's first-time integrated audit requirement. Importantly, as revenue scaled, SG&A declined to 11% of revenue from 13% in the prior-year quarter, demonstrating improving operating leverage and the efficiency of our cost structure as the business grows. Net income for the quarter totaled $3 million, or $0.08 per diluted share, compared to $4.4 million, or $0.14 per diluted share, in the prior-year quarter. It is worth pointing out that the current quarter net income and diluted earnings per share as compared to the year-ago quarter were impacted by higher depreciation and interest costs, which are primarily related to the PowerTech acquisition, as well as a higher effective tax rate driven by non-cash adjustments related to the company's valuation allowance on deferred tax assets. The effective tax rate for the fourth quarter was approximately 35% compared to 7% in the year-ago period. We do expect the effective tax rate to normalize closer to 21% going forward, and we do not expect to pay cash taxes over the next few years other than minor amounts related to state income taxes. Earnings per share for the 2025 periods as compared to the year-ago periods also included a higher share count, a result of the 6 million share warrant issued in connection with the PowerTech acquisition. Although the warrant has not been exercised, the shares have been included in both basic and diluted share counts since the acquisition closed in the second quarter. As noted in yesterday's release, as of 2025, we elected to change our calculation of adjusted EBITDA to better align with the SEC's guidance on non-GAAP financial metrics. What this means is that for external reporting purposes, we will no longer add back non-cash amortization of contract assets to our adjusted EBITDA. All adjusted EBITDA references in the earnings release reflect the revised computational methodology. To compute adjusted EBITDA consistent with our prior methodology for purposes of comparison to our original adjusted EBITDA guidance, simply add the non-cash amortization of contract assets as disclosed in the press release to the revised adjusted EBITDA balances shown. That math suggests that adjusted EBITDA for 2025 under our previous methodology was approximately $10.1 million. Using the revised calculation, adjusted EBITDA was up 40% versus the year-ago quarter and grew 123% for the full year. Using either methodology, we were near the top end of the original or revised methodology guidance range on adjusted EBITDA. Wrapping up my comments, touching briefly on the balance sheet, we ended the year with $5.7 million in cash and $3.3 million drawn on our ABL. You will note that total assets increased to just over $220 million at year end, primarily as a result of the release of the valuation allowance allowing us to reflect our deferred tax assets on the balance sheet. With that, I will turn the call back to Ryan for closing remarks. Ryan Ezell: Thanks, Bond. Our 2025 results build upon our now multiyear track record of consistently posting improved financials as we successfully transform the organization to enter a new data-driven frontier. Our Data Analytics segment continues to deliver explosive growth with triple-digit revenue increases, expanding recurring revenue streams, and a robust multiyear backlog that provides strong visibility into future cash flows and margin expansion. Combined with our resilient Prescriptive Chemistry Management services, Flotek Industries, Inc.'s ability to execute strategic wins, advance asset integrations, and differentiate on a technology and returns basis will enable further capture of market share and delivery of continued top- and bottom-line improvement. We remain fully committed to shaping the industry's digitalized, sustainable future by leveraging chemistry as the common value collision platform, unlocking higher returns for our customers, and generating compelling opportunities for shareholder value creation. With our proven execution, expanding high-margin capabilities, and clear pathway to scalable growth, Flotek Industries, Inc. is poised for an exciting next phase of value delivery to our investors. Operator, we are now ready to open the floor for questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to cancel your request, please press star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star 1 should you wish to ask a question. Your first question is from Jeffrey Scott Grampp from Northland Capital Markets. Your line is now open. Jeffrey Scott Grampp: Good morning, guys. I was curious to start on the Power Services side, and congrats on the recent contract win there. Outside of that opportunity, can you just touch on the current pipeline of opportunities that you guys are working through? Curious with the maturity level of those conversations, what stage we are at, and how you are kind of viewing other opportunities potentially going into the full year for the rest of the year? Thanks. Ryan Ezell: Yes, Jeff, I would be glad to provide a little bit of color on that, because we are pretty excited about the advancements, and I will kind of refer back to some of the comments I made on our end-of-quarter call at Q3. We set up our PowerTech advancement of our business development units around three major steps. One is proving the validation of the measurement, then moving to levels of various control and integration, and then the final thing we do is full distribution and conditioning. I am proud to say that we moved into seven new customers successfully on the measurement side, with executed POs and successful field trials, and they are moving into longer-term duration contracts and looking at placing our new advanced NGS or smart skids as well as ESD. We have right now ongoing about six different operations in the field, and it is on top of our most recent announced win on the industrialized infrastructure component for utilities. So it is going really, really well. We have also begun, we have kind of brought forward what we are looking at on capital spend at building new pieces of equipment to go out to location, and so from that standpoint, I think we are still on track to hit that run rate of doubling the size of the fleet by the end of the year, if not maybe a little bit sooner. All those opportunities, and I think that the unique capabilities of our technology in some of these harsh conditions is opening up some unique pathways for us to hit some of these really stranded disaster relief power locations. That has been an interesting opportunity for us to unlock here at Flotek Industries, Inc. Jeffrey Scott Grampp: Great. I appreciate that. And on a related question, with the business model or kind of contract approach, if you will, on the utility infrastructure deal, do you guys view that as kind of a one-off specific to this customer need, or is that something you guys view as more repeatable for some of the other opportunities that you are discussing with customers? Ryan Ezell: No, I believe it is 100% repeatable, Jeff. I think that where our wheelhouse of strength is the monitoring, conditioning, and the setting up of the power generation equipment to be not only successful but operate safely, and the fact that we can do this in some of the harshest conditions on the planet for field gas, no matter isolation or how we look at it with a field gas, is that this allows us to work with some of the larger suppliers of power to pull them through jointly with what we do and work alongside of them and provide this power. So I think there are going to be a multitude of opportunities very similar to this, and we are hoping that the development of work of some additional power providers opens up some additional opportunities for us inside the data center and some of the more established infrastructure components around AI. Right now, I would say that the horizon looks that direction. It has worked to our liking so far, and we hope to have some more exciting updates on that as it progresses throughout Q1. Jeffrey Scott Grampp: Sounds great, Ryan. I appreciate the details. I will turn it back. Operator: Thank you. Your next question is from Rob Brown from Lake Street Capital Markets. Your line is now open. Rob Brown: Good morning. Congratulations on all the progress. On the Power Services contract, or the PowerTech contract, could you kind of clarify how that contract works? I think you said an initial six-month term, and then options beyond that, and I think you quoted kind of $1 million per megawatt, but just a sense of how that revenue flows and the timing of how you expect that to flow in? Ryan Ezell: Yes. I will tell you we are going to be providing continuous updates on this. Like a lot of these remote power gen processes, we are looking at a little bit of a conservative ramp. Our team has been on location all week. We are expecting to start to see this revenue probably in the starting parts to middle part of Q2, which would be initial mobilization and setup. The power will probably be split over two locations. One is providing power to the current community and its infrastructure and some of the services there, particularly the hospitals and things. Then there is a secondary location that will be powering additional housing that will be built to recover from what was destroyed. That is going to come in, I think, two phases. For us, we expect most of that to start the mobilization pieces in Q2 and start to build throughout the year. It does appear that on our initial offsets, this will have a high probability of progressing past six months, just for the sheer fact it will take longer than that to build the temporary structures of houses. Plus, they are looking at a full installation of an additional power plant at the end. So we are expecting this to get extended and be a good contract win for us. The unique model is that we were initially approached because of our unique capability in terms of conditioning any types or variable types of gas so that they can provide safe fuel source for operational gensets, and I think that allowed us to help go out and work with, call it, these power providers to bring and pull through. So I think we will see a similar model in these disaster relief components. I do not know how much that model works when we look at data centers because those are the big megawatt-type installations, but for these remote areas, it is a favorable business model for us to help work with the power providers on doing that. The other side would just be the pure conditioning aspect. Rob Brown: Okay. Got it. And then just to clarify, I think you said the PowerTech contract that you had was $27 million in revenue. Did that include some of this new award, or would that new award be incremental to that? Ryan Ezell: Yes. The new award is incremental. That is just the original work that we have on a dry lease program for five years, $27 million annually on those, plus an extension in year six at a market rate. The new industrial, or I should say utility services, contract is completely additive on top of that. Rob Brown: Okay. Great. Thank you. I will turn it over. Operator: Your next question is from Gerard J. Sweeney from Roth Capital. Your line is now open. Gerard J. Sweeney: Good morning, Ryan, Bond, Mike. Thanks for taking my call. Ryan Ezell: Hey, Gerard. How are you? Gerard J. Sweeney: I am doing well, thanks. I wanted to touch upon an area that I think you mentioned in your prepared remarks. You are doing, your systems can communicate directly with the engine, and that offers a unique ability to improve engine flow, efficiency, life of the engine. I think you are working with some important engine and turbine manufacturers. Can you go into a little bit more detail on what is happening on that front, and how that opportunity could emerge a little bit further in 2026 and 2027? Ryan Ezell: Yes. This is a really exciting platform for us when we look at applications inside of PowerTech. Without dropping any specific names, I will say the majority of the OEMs that we are working with are the nameplate companies that you see on the majority of these power gen sites, particularly on the reciprocating engine side. Essentially, what we have is, whether you are using a VariX or an XBEG unit, because most of these engines like to see a gas quality measurement once a day or once every few days just to see that they are in an operating realm where they set setpoints for potential adjustment, our capabilities allow data to be fed directly to the OEM engine every five seconds. This allows a closing in of setpoints and operational efficiency to where they really get tuned and dialed in to the best operational parameters to not only improve fuel efficiency and emission standards, but also reduce R&M costs for the engines. For us, there is potential for one unit to feed multiple engines, or we reduce it down to a simplified version of our XBEG units per engine. These projects have been solely focused on engine optimization and improving the overall performance. We would still be able to independently run our gas conditioning upstream from that, where we condition the gas prior to coming to the engine. Technically, it is a separate revenue stream. We have projects with four different OEMs on that at various levels. The longest-standing one has been in the works and research for about 18 months and has progressed pretty far down the road in the advanced field trials. We are hoping to have a little bit more clarity on what a potential long-term relationship looks like there and what that may come back here in 2026. We referenced some of these in a recent social media post with some of the success of the testing here at Flotek Industries, Inc. We are excited about that and do believe those will start to be monetized here probably by midyear, if not the back half of the year, as a potential addition onto a lot of these reciprocating engine operations. Gerard J. Sweeney: Is this a little bit different approach? The power side, obviously you have data centers, fuel gas, or frac fleets, etcetera, but this almost sounds as though this is purely an efficiency opportunity for the engines and improves— Ryan Ezell: 100% correct. The value proposition is there is what the NGS, ESDs, and NGSD do on the broad variety of conditioning, perfect horrible gas into much better operational parameters, and then there is what these individual units do per engine, optimizing the timing, firing sequence, fuel mixture, and everything to work them at their optimum rate to minimize derating or different components there, and then also help them in terms of the potential to reduce R&M maintenance throughout the year. Gerard J. Sweeney: Got it. Switching gears, you are starting to highlight opportunities that you have in the field or deployments. At some point, would you be able to break out or tell us how many Data Analytics units you have in the field for tracking purposes, or would this ever occur, or is that asking too much? Bond Clement: It could be asking too much. Ryan Ezell: It is our intent. We are going to get, and then probably where we are at the end of Q1, we are going to come back with where we are updated on the total number of, when I look at PowerTech, I would say the number of types of skids that we have out and operating, and then also combined with where we are doing measurements to improve distribution and PRV, pressure reduction valve units, etcetera. We will start talking a little bit more about these growth numbers, but what I would say is that if you look at our initial contract we had with the original PowerTech assets, we are progressing nicely to get to that doubling of the fleet in 2025. We will probably, as we start to initiate our guidance like we traditionally do at Q1, give an update on where that stands so it will help you align the guidance. Gerard J. Sweeney: Got it. I appreciate it. Congrats on a good quarter too. Thank you. Bond Clement: Yep. Thanks. Operator: Thank you. Your next question is from Donald Crist from Johnson Rice. Your line is now open. Donald Crist: Morning, guys. Ryan, on that last point of the PowerTech units, just to be clear, I believe you bought 22 or so from ProFrac, but then they were delivering another 8, so the doubling would be off that 30 number, right? Ryan Ezell: Yes. We actually received, we had all 30 units by, I am going to say, November time frame of Q4 is when we had taken them all in. So the number we are talking about, Don, is we have 30 individual units that make up what we call 15 pairs of operating assets, and our goal is to double that number based on the 30, or 15 pairs. Donald Crist: Okay. Just to be clear, and I wanted to touch more broadly on just the construction of whether it would be custody transfer units or skids or the carts that you put out for the flares. Just how is all that going? And I guess one for Bond, in addition to that, is how do we look at CapEx for this year? I am guessing it will not be that big, but just any kind of rough parameters would be helpful. Ryan Ezell: What I would say in terms of lead times here is that the absorption of XBEG units and our newer technology that we call the 2C unit, which is a dual-channel VariX, have been well received post the GPA 2172 passing of the standard. We have seen great progress. We sold out of the 2C units by February, and so we have advanced capital builds on a multitude of those, as well as XBEG units. We have advanced capital to those to start, really, because we are seeing some strong deployments where traditionally, Don, when we first had acquired or brought the Data Analytics division in, we were selling these things one to two off at a time. We are now starting to receive POs of double-digit numbers at a time. Some unique things about the way our operating system VariX works, some of the advancements we made in the software really helps to integrate these units and show day-to-day, within-the-hour value creation of those. We are seeing significant adoption and absorption of those. I would say we are not at a supply constraint yet, but what we are doing is we are making aggressive steps to rapidly expand that ahead of what we were thinking by this time in the year, and so we are allocating capital. Bond Clement: Yes, Don. Certainly, I think 2026 is going to be the largest year of CapEx we have had in quite a long time. I think our CapEx in 2025 was somewhere around $2 million. Just rough numbers, we would expect CapEx for 2026 to be somewhere between $10 million and $15 million. Obviously, from a funding perspective, we have the OSP, and then as it relates to equipment financing, we are evaluating options there as well. Donald Crist: Right. And that OSP should— Bond Clement: And that OSP should— Donald Crist: Right. More than double cover that $10 million to $15 million that you have to put out, right? And that should all come in the first quarter. Bond Clement: It will not double. The OSP, remember, we had a $7 million offset related to the PowerTech transaction, which was effectively deferred consideration. When you look at what the net OSP is at the end of the year, it is right at $20 million. But it surely goes a long way and satisfies from a cash or equipment perspective. Donald Crist: Right. And you will have cash flow through the year as well. So not a big deal there. And Ryan, I did want to ask, there is a lot of impact in the Middle East right now from what is going on with the hostilities, but you have spent a lot of time over there, and you sell a lot of chemicals into there. Just an update on how much product you have on the ground and the options of moving shipments, rather than going through the Strait, to other ports, maybe Egypt or something like that, and then shipping them in. Any kind of thoughts around that? Ryan Ezell: What I would say is I kind of stage these in pieces. Number one, the current operations have been going very well. We have had our operation teams on the ground, and we picked up some of that unconventional work that we have been speaking of, particularly in the Kingdom. It has picked up and is running very well, probably to the upper end of our expectation, and we are seeing a solid growth there. Just as we are starting to see that, we are starting to see, as you can imagine, the supply constraints in all the traditional sailing vessel methods that we would deliver, whether coming from inside the GCC and/or us bringing other chemicals in. Some of our specialty stuff has been a bit strained as of late, particularly due to the Straits and Houthi pressure, etcetera. We are identifying alternative pathways that will probably, in the near term, have a little bit of additional cost because they have to be touched twice. But our goal is to be a solid working partner for our customers there, and we have been ahead of this by about a month or two because we were concerned that this might happen. I do think right now our supply is relatively stable at this point, but there is no doubt that we are going to be all hands on deck, and we are going to utilize the multiyears of experience that we have in global supply chain and our expertise of being on the ground there and from the past to understand how we get there and level out. I do think we are going to use an alternative delivery method than the traditional sailing routes that we were doing, which will probably include a cross-country trucking methodology. We have done this before, Don. Also, the initial move out of there, we had some issues around COVID when we first sent chemicals in. We are familiar with this alternative pathway. It is just not the best on the margin profile, but we will make it work in the near term to make sure that we stay rolling with that revenue opportunity. Donald Crist: Okay. But just to be clear, other than some excess shipping costs, activities basically are unchanged right now, right? Things will move. Ryan Ezell: We have not seen much disruption in KSA. We have seen a few things that we were doing on the Data Analytics side, some measurement installs in UAE, and a few of those get pushed back a few weeks just because of the location and different pieces. Right now, we are having calls—Leon and the team are having calls basically every morning—and we are steadily running in KSA right now because the majority of this Jafarah field is used locally for energy inside the country. It will keep running pretty steady. Our bigger customers there, I would say it is business as usual, all things considered with the instability to their neighboring countries, but they are full speed ahead right now. Bond Clement: I will just caveat that a little bit. That is based upon what we know today, Don. It could change if this thing expands or extends. Donald Crist: Right. I get it. That is what I am hearing too, it is pretty much business as usual unless you are really on the coast. That is about it. I appreciate the color, guys. I will turn it back. Operator: Thank you. Your next question is from Josh Jain from Daniel Energy Partners. Your line is now open. Josh Jain: Good morning. Thanks for taking my questions. First one is just on the Chemistry side. Obviously, commodity prices are volatile, but wherever oil settles out over the next few weeks, hopefully in the next few weeks, any thoughts on how operators are ultimately likely going to handle sort of a higher commodity price deck than they were thinking coming into this year? I know you have not given guidance yet for the rest of the year, but I think the world was thinking sort of flattish CapEx, and that is what these guys have announced. Maybe just any insight, are you seeing more demand for Chemistry heading into the back half of this year and 2026 than you might have been thinking three to six months ago? Maybe just some thoughts there. Ryan Ezell: That is a great question, and it probably is as in-depth as I could look into the hazy crystal ball. Let me talk about things that I do see in the industry. I talked about them a little bit in terms of when you look globally around, you are going to see we still see the potential for demand to increase in that medium to long term, if not a little bit sooner, and you see that supply rebalance. What we are seeing is that there is definitely a reduction in the decline curve contribution because you have such a large percentage of unconventionals contributing to that stack. You are also seeing a little bit of decline in reservoir quality, which would tell me what they are focused on is getting the most out of what work they are doing, which means leaning in towards advanced technology, creating technologies, or stuff that improves overall performance. All those things lay into the wheelhouse of what we do well by providing real-time data measurements, making choices for that in our prescriptive engineering process with our PCM business. All those things work really well with what we want to do. Not only that, when you look at product margin basis, they typically run at a little bit better margin for us throughout the cycle. The interesting part is there is no doubt when you look at the products that we sold in Q4 of this year, we saw the frac fleet get to the lowest that it was since probably Q2 2021 coming out of COVID. We saw commodity prices around the same thing, but our revenue was eight times more than it was then, and we made significantly better gross profit. We have shown that resiliency through the cycle, and what I believe is we are going to continue in this near term to see a little bit of softness in the demand for the Chemistry parts, but I think we see that upside potential maybe in the back half of the year to start to answer some of the call here, and I think that will require some of the advanced technologies that Flotek Industries, Inc. is poised to position. The level of that, it is hard to say right now, but I do see a little bit of silver lining in the back half of the year and as we look at 2027. Bond Clement: I will just add one thing, Josh. I think it is going to be interesting to see how producers react relative to the hedge market. Obviously, the curve is still pretty backwardated, but I think, generally, even looking out past the spike out to the latter months, those numbers are probably a good bit higher than what expectations were for oil coming into the year. If operators have the opportunity and go ahead and lock in those prices over a longer term, obviously that underwrites higher CapEx. Josh Jain: For sure. I appreciate the color. Thanks for taking my question. Operator: Thank you. Your next question is from Gao Xi from Singular Research. Your line is open. Gao Xi: Good morning, gentlemen. Can you all hear me? Ryan Ezell: Yes. Gao Xi: Congrats on a strong year and continued execution. On your expected Data Analytics drive to be more than half of the company profitability, if we think about that qualitatively, how sensitive is that mix target to the timing of a few large PowerTech wins, or is that 50% threshold achieved even if a couple of projects slip right to the end of the calendar? Bond Clement: If you look at the fourth quarter, we were effectively there at 48% gross profit from Data Analytics. Just thinking about how the PowerTech lease agreement, which we talked about, will be 70% higher in 2026 versus 2025 just due to longer duration for the full year versus a partial year last year, we feel extremely confident we are going to exceed 50% in 2026 on the DA side. Operator: Thank you. There are no further questions at this time. I will now hand the call back over to Mike Critelli for the closing remarks. Mike Critelli: Thanks, Jenny. Join us at some of our upcoming investor events. On March, we will be at the 38th Annual ROTH Conference at Dana Point, California, taking one-on-one meetings with investors and participating in energy industry fireside chats. On May 26 to the 28th, you can catch us at the Louisiana Energy Conference taking meetings and giving an investor presentation. For all other events and the latest info, look at the events section of our website. We would like to thank everyone for joining us today, and stay with us as we continue on our convergence of real-time data and chemistry solutions. Thank you. Operator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may disconnect your lines.
Operator: Good afternoon, everyone, and thank you for standing by, and welcome to the Corvus Pharmaceuticals Fourth Quarter and Full Year 2025 Business Update and Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Zack Kubow from Real Chemistry. Please go ahead, sir. Zack Kubow: Thank you, operator, and good afternoon, everyone. Thanks for joining us for the Corvus Pharmaceuticals Fourth Quarter and Full Year 2025 Business Update and Financial Results Conference Call. On the call to discuss the results and business updates are Richard Miller, Chief Executive Officer; Leiv Lea, Chief Financial Officer; Jeff Arcara, Chief Business Officer; and Ben Jones, Senior Vice President of Regulatory and Pharmaceutical Sciences. The executive team will open the call with some prepared remarks followed by a question-and-answer period. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. Forward-looking statements are based on estimates and assumptions as of today and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by those statements, including the risks and uncertainties described in Corvus' annual report on Form 10-K for the year ended December 31, 2025, and other filings the company makes with the SEC from time to time. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. With that, I'd like to turn the call over to Leiv. Leiv Lea: Thank you, Zack. I will begin with a brief overview of our fourth quarter and full year 2025 financials and then turn the call over to Richard for a business update. Research and development expenses in the fourth quarter of 2025 totaled $9.9 million compared to $6 million for the same period in 2024. R&D expenses for the full year 2025 totaled $33.7 million compared to $19.4 million for the full year 2024. For both the fourth quarter and full year 2025, the increases in R&D expenses were primarily due to higher clinical trial and manufacturing costs associated with the development of soquelitinib as well as an increase in personnel costs. Net loss for the fourth quarter 2025 was $12.3 million compared to a net loss of $12.1 million for the same period in 2024. Included in the net loss for the fourth quarter of 2025 and 2024 were noncash losses of $0.7 million and $2.2 million, respectively, from Corvus' equity method investment in Angel Pharmaceuticals and a noncash loss of $2.3 million in the fourth quarter of 2024 associated with the change in fair value of the company's warrant liability. Total stock compensation expense for the 3 months ended December 31, 2025, was $1.6 million compared to $0.8 million for the same period in 2024. As of December 31, 2025, Corvus had cash, cash equivalents and marketable securities totaling $56.8 million compared to $52 million at December 31, 2024. In January, we closed an upsized underwritten public offering that included a premier group of biotech investors and generated net proceeds of $189 million including the net proceeds from this financing, pro forma cash at December 31, '25, was approximately $246 million, extending our cash runway into the second quarter of 2028. I will now turn the call over to Richard, who will discuss our clinical progress and elaborate on our strategy and plans. Richard Miller: Thank you, Leiv, and good afternoon, everyone. Thank you for joining us today for our update call. In 2025, we made significant progress advancing the development of soquelitinib, our first-in-class selective ITK inhibitor that is designed to rebalance or reset the immune system. This was highlighted by the presentation of final results from our Phase I/Ib trial in peripheral T-cell lymphoma in an oral session at the ASH Annual Meeting and the recent announcement of data from cohort 4 of our Phase I atopic dermatitis trial, which showed that soquelitinib could become a leading therapy for atopic dermatitis and potentially other inflammatory diseases. Shortly after the data announcement, we completed a $200 million financing, reflecting high investor interest in the opportunity for soquelitinib and ITK inhibition given our strong data to date, its unique mechanism of action and its broad potential to help patients across multiple areas of medicine. As a result, we are entering 2026 in a position of strength with ongoing enrollment in our Phase III PTCL trial, our recently initiated Phase II atopic dermatitis trial and the opportunity to expand into mid-stage trials for other important inflammatory diseases such as hidradenitis suppurativa and asthma later this year. Based on our current plans and anticipated time lines, our cash runway extends beyond key data readouts for all of these programs. On today's call, I will recap the highlights from our cohort 4 data announcement, share the latest on our plans to present additional data from the trial at an upcoming medical meeting and provide an update on our Phase II trial. I will also review our pipeline expansion plans and key upcoming milestones. The results from cohort 4 and the full Phase I trial show that soquelitinib's emerging clinical profile appears to provide substantial advantages in the treatment landscape for atopic dermatitis. One, it is an oral medication. Two, it has a novel mechanism of action that combines tissue selective and target-specific precision with ability to affect multiple inflammatory signaling pathways. Three, it appears safe and effective in a broad range of patients, including those who have received prior systemic therapies; and four, it produces durable responses with no disease rebound. Based on our market research, this profile would be considered a significant advancement for patients with atopic dermatitis. So we are excited that soquelitinib data further elevates its profile and potential. It shows one of the strongest EASI 75 results at only 8 weeks of therapy and the durability of responses with no disease rebound may provide the opportunity for new approaches to therapy of immune diseases, including the potential for soquelitinib to be an intermittent therapy. Overall, if the current profile continues to be supported by larger clinical trials, we believe soquelitinib will be very well positioned to be among the leading options for the treatment of patients with moderate-to-severe atopic dermatitis. I will now review key highlights from our recent data announcement. First highlight, efficacy. For cohort 4, which was designed as a randomized placebo-controlled trial with drug given over an 8-week treatment period, the mean percent reduction in EASI was 72% versus 40% for placebo that was statistically significant at 0.035. 75% of patients, 9 of 12 achieved EASI 75 and 1 additional patient was in EASI 74. 25% of patients achieved EASI 90 and 33% achieved IGA 0/1. 11 of 12 patients achieved EASI 50. The only nonresponder was a patient who was refractory to previous therapy with both Dupixent and Rinvoq. Two of the EASI 90 patients were resistant or nonresponsive to prior systemic therapies. 20% of placebo patients achieved EASI 75 or 17% if you include 2 patients that missed the day 56 evaluation and on later evaluation, never reached EASI 75. In addition, 2 placebos required rescue medication due to disease flares versus none in the active group. The 2 placebo patients who were EASI 75 were both patients who had not received prior systemic therapies. None of 7 placebo patients who received prior systemic therapy achieved EASI 75, whereas 3 of 5 active patients who received prior systemic therapies achieved EASI 75. The cohort 4 results confirm our hypothesis from cohorts 1 through 3, which is that extending the treatment duration would deepen responses. The data also show that soquelitinib is superior to placebo in every efficacy endpoint evaluated. And when compared to other agents, we believe the results obtained so far for soquelitinib place it among the most active agents, oral or injectable approved or under development for atopic dermatitis. Second highlight, durability. Starting with cohort 3, we took a more systematic approach to measuring the remission duration with a longer blinded post-treatment follow-up period of 90 days compared to 30 days tracked for cohorts 1 and 2. The cohort 3 data show that responses observed at day 28, the last day of treatment were maintained or slightly improved out to 118 days or 90 days without therapy. This compares to other systemic therapies for atopic dermatitis, which all show a rapid rebound in disease that starts as soon as 1-week after stopping therapy. We see no rebound phenomenon with soquelitinib, both in cohorts 3 and 4. We believe that the induction of T regulatory cells by soquelitinib could be responsible for this durable suppression of inflammation and sustained disease remission. We have seen this in preclinical experiments and biomarker data shows an increase in circulating Tregs in Cohort 3 patients. The demonstration of circulating Tregs is quite remarkable as usually, these cells are very rarely found in the blood. It is likely that these cells are migrating to and concentrating in sites of disease as we have found in our animal models. Third highlight, broad applicability. 35% of all patients enrolled in the Phase I trial had received prior systemic therapies, including 50% of patients in cohort 4. Dupilumab was the most commonly used prior therapy followed by JAK inhibitors and some patients received multiple prior therapies. This includes patients who were resistant to their last systemic therapy. In other words, they were nonresponsive to their prior treatment. Typically, patients that are treatment-resistant or who have gone through multiple prior therapies are more challenging, and this was confirmed when looking at the placebo patients in the trial. The response curve data showed that placebo patients who received prior systemic therapies do worse than those who did not receive prior therapies, indicating that prior systemic therapy is an unfavorable characteristic. However, the response curves for patients receiving soquelitinib are very similar across these groups, indicating that soquelitinib is not affected by prior systemic therapy experience. Together with our baseline patient characteristics, this also indicates that the patient population treated on our protocol was more unfavorable than those reported in most atopic dermatitis clinical trials. As noted above, in patients who received prior systemic therapies, the EASI 75 was 0% for placebo 0 out of 7 versus 60%, 3 of 5 seen in patients who received soquelitinib. So in terms of patient indications, our conclusions are that soquelitinib is active in patients who have received prior systemic therapies with outcomes no different than naive patients despite these patients having more unfavorable disease. Responses were observed in patients who are refractory to their prior systemic therapy. This supports our hypothesis regarding the novel mechanism of action for soquelitinib and the lack of resistance due to prior therapy experience. Fourth highlight, safety. No new safety signals were seen in cohort 4 with a longer 8-week treatment duration. In cohort 4 and the full Phase I trial, reported adverse events are similar in both placebo and active groups. No significant lab abnormalities were observed. There were no hepatic abnormalities, no changes in liver function tests. Infections were similar in treated and placebos and were minor. I'd like to make some additional comments on infection. We have received questions from investors regarding the potential for EBV viral reactivation. These questions are based on very rare reports in the literature of EBV infection in babies born with germline mutations in ITK. In a neonate, the immune system is primitive as T and B cells have not yet formed. Immune system maturation occurs during development and exposure to antigens. A germline mutation in ITK in the primitive developing immune system is completely different than transiently blocking the kinase domain of ITK with a small molecule drug in an individual with a mature immune system. We have seen no serious infections of any kind in more than 150 patients treated with soquelitinib across our lymphoma, atopic dermatitis and ALPS trials to date. This involves over 14,000 patient days of treatment with some patients on therapy for more than 2 years. In PTCL, most patients harbor EBV and other viruses such as CMV. In our Phase I lymphoma study, we identified over 30 patients with EBV virus detectable at baseline, that is before therapy in their blood measured using a PCR technique that is they are viremic. None of these patients or any other patient had any evidence of EBV reactivation or related illness during the treatment, which, in some cases, lasted over 2 years. And recall, these patients are extremely immunocompromised. One other thing to note, ITK inhibition spares Th1 cells, also known as Th1 skewing. Th1 cells are the cells responsible for eliminating viruses. Now beyond clinical results, biomarkers have been identified that support the novel mechanism of action with ITK inhibition that leads to immune rebalancing. Some of these biomarkers represent new discoveries. Briefly, the data show a decrease in IL-4, IL-5 and IL-17 cytokines, a small reduction in TARC, a reduction in Th2 cells and an increase in Tregs. In ongoing work, we are also finding very significant and interesting changes in the JAK/STAT signaling pathways that will be reported on later. With the additional information that is emerging both from the clinic and our biomarker analysis such as induction of Tregs, we believe that soquelitinib's novel mechanism of action and safety will allow for its utility in diverse indications in immune inflammatory diseases and in cancers. Our soquelitinib abstract was accepted for oral presentation at the Society for Investigative Dermatology, or SID Annual Meeting, which takes place in mid-May. We plan to present the Phase I clinical data, expanding our safety and durability data. We will also focus on our biomarker results in this presentation, which we believe will provide novel ideas regarding control of immune diseases. Our late-breaker abstract was not selected for presentation at AAD, which typically favors later-stage trials. Angel Pharmaceuticals, our partner in China, is enrolling their Phase Ib/II trial in atopic dermatitis. This is a blinded placebo-controlled trial that is evaluating a 12-week treatment regimen in 48 patients with soquelitinib doses of 100 milligrams BID, 200 milligrams QD, 200 milligrams BID and 400 milligrams QD. The patient eligibility and endpoints are the same as was used by Corvus. Depending on the results from the Phase I portion, an additional 60 to 90 patients will be enrolled in the Phase II portion of the study. This trial is open at leading centers in China that are very experienced in performing these types of trials. The study is conducted in close collaboration with the Corvus team. Results from the initial cohorts are expected late this year. Now I would like to discuss our Phase II randomized placebo-controlled trial in atopic dermatitis. We announced today that the trial has been initiated. This trial is planned to enroll 200 patients with moderate to severe disease randomized into 1 of 4 cohorts with 50 patients in each cohort. We will allow patients who have received prior systemic therapies. Doses of 200 milligrams QD, 200 milligrams BID and 400 milligrams QD will be examined along with placebo. The treatment duration is 12 weeks with an off-treatment follow-up period of 90 days. The primary end point is median percent reduction in EASI at 12 weeks, a typical endpoint for Phase II studies in atopic dermatitis. Other endpoints include EASI 75, EASI 90, IGA, PP-NRS and others. This will be an international study. We anticipate the data from this trial will be available in mid-2027. Outside of atopic dermatitis, we continue to enroll patients in our Phase III registration PTCL trial with an interim analysis expected later this year. We recently conducted a planned meeting of our outside independent Data Safety Monitoring Board. No safety signals were observed, and the study continues as planned. In December, at the American Society of Hematology or ASH Annual Meeting, we presented the final data from our Phase I/Ib clinical trial evaluating soquelitinib in patients with T-cell lymphoma. The data are supportive of the ongoing Phase III program showing that patients in the 200-milligram BID cohort, the same dose being studied in Phase III had a median progression-free survival of 6.2 months and a median overall survival of 28 months comparing favorably -- very favorably to results with other therapies. For example, median survivals with chemotherapy are less than 1 year and PFSs are less than 3.5 months. The data presented at ASH also shows soquelitinib's immunobiological effects and its mechanism of action of affecting T cell differentiation via ITK inhibition. These data support its potential in atopic dermatitis and a much broader range of immune and inflammatory diseases. We also continue to collect very exciting data from our ALPS or autoimmune lymphoproliferative syndrome clinical trial with 3 patients now on therapy for close to a year. We continue to collaborate with the team at NIAID and our current plan is to submit data for a potential presentation on the study at the ASH meeting in December. In terms of upcoming clinical trials, we plan to initiate a Phase II trial of soquelitinib for hidradenitis suppurativa and asthma later this year. There is strong scientific rationale for evaluating soquelitinib in HS, which is it is an IL-17-driven disease. In both in vitro and in vivo animal models, soquelitinib is a potent inhibitor of Th17 cells and reduces IL-17 production. Our trial design for HS is further along. At a high level, we are planning to enroll about 60 total patients with moderate to severe HS into 3 arms: 200-milligram BID, 400-milligram QD and placebo. The treatment period will be 12 weeks and the primary endpoints are safety and efficacy measured by HiSCR 50, HiSCR 75. The asthma study design is emerging and will likely involve about 150 patients treated for 3 months. In closing, our confidence continues to grow in the long-term potential for soquelitinib in atopic dermatitis, peripheral T-cell lymphoma and a broad range of additional inflammatory diseases. We are only beginning to unlock the full potential of ITK inhibition and immunomodulation, which could lead to new and better therapies for inflammatory, autoimmune and fibrotic diseases and cancers. We are building strong momentum with soquelitinib and our ITK platform, and we look forward to updating you on our progress throughout the year. I will now turn the call over to the operator for questions-and-answer period. Operator? Operator: [Operator Instructions] And your first question comes from Roger Song from Jefferies. Jiale Song: Congrats for all the progress you have made. Richard, maybe just one question related to the read-through from the data readout you will have before the Phase II, the global atopic dermatitis data mid next year. So you will have a PTCL potentially data and then also the China 12-week study data. So how should we think about the read-through from those data readouts to the Phase II AD maybe from the efficacy and then the safety perspective, particularly on the high-dose 400-milligram QD? Richard Miller: Okay. So we are anticipating that Angel Pharmaceuticals, who is conducting a placebo randomized trial and looking at different doses, will have some data from their initial couple of cohorts later this year. That would be the first data readout. That's going to be looking at 100 milligrams BID and 200 milligrams QD. But recall, they're going for 12 weeks. They're treating for 12 weeks. We've only gone up to 8 weeks. So that will be very important information for us. Then that data is unblinded. They look at that. We can report that. And then the next part of the study will look at 200 milligrams BID and 400 QD. That will be probably middle of 2027. Okay? So we'll get some data on more patients and things. Now in total, after that, the Angel goes on and does 40 -- what, 50, 60 or 60 to 90 patients in a Phase II study rolls right into that. In total, you're looking at around 140 patients or so. And that -- yes, 130, 140 patients, and that's totally completed by mid-2027 or early '27. So we'll have some data from them late this year, more data in first half of 2027. The PTCL trial will have an interim formal review in later this year. That has a futility analysis as part of it, so -- and safety analysis. And -- but the complete trial results are expected in late '27. Okay. Now what I talked about on the call was we do have also periodic safety -- outside independent safety reviews on the Phase III PTCL trial. We had one of those very recently and everything looked good, as I mentioned. Operator: And your next question comes from Li Watsek from Cantor. Li Wang Watsek: Two from us. Maybe just first on the data that you're going to present at the SID meeting in May. Rich, you talked about biomarker and durability data before. Can you just maybe set expectations for us? Richard Miller: Yes. Well, I can set expectations. The durability continues to look great. And in terms of biomarkers, the things I've mentioned previously, but we have discovered some new biomarkers, which is going to be probably the main part of the SID presentation, fascinating work around the T regulatory cells and some of the JAK-STAT signaling. And the key message there is that you're affecting different multiple cytokine pathways. Even though you're targeting a very specific enzyme restricted to T cells that can affect several different cytokines, all of which are important in inflammatory diseases like IL-5 and 4 and 17, et cetera. So plus we'll update the clinical data with the durability and a few other things. Li Wang Watsek: And then sorry, my second question is on the Phase II trial in HS. Just wondering what the benchmark that you're looking at, especially relative to the approved agents like IL-17 in the space, do you think in terms of efficacy, you have to match the biologics? Richard Miller: Well, first of all, we have to find the optimum dose, which we're going to look at a couple of different doses. But of course, the AD study informs us as well as the T-cell lymphoma study informs us on the HS trial. I would expect efficacy as good or better than what's out there, which is what the corrected HiSCR scores are, what, 25% or so. Operator: And your next question comes from Graig Suvannavejh from Mizuho. Graig Suvannavejh: Richard, congrats on the great progress we're seeing with soquelitinib across multiple indications. I just wanted to maybe touch upon a couple of things. First, just on your next data presentations, you did mention that maybe you did apply for late-breaker abstract to AAD. I think you gave us a reason why perhaps your abstract was not accepted, although I do think that Kymera does have a late breaker. I don't know their data set very well as I don't cover it, and so it's not at the top of -- or the tip of my tongue. But any thoughts on whether it is perhaps they had a bigger database because I do think that the just curious to get any thoughts there. Richard Miller: Well, Graig, what gets accepted abstracts that get accepted or even publications that get accepted. This is a capricious process, and there are a lot of factors. I don't know why they accept some and not others. I personally am shocked that Kymera with no placebo and an interesting study for sure. But I don't have an explanation for it. Graig Suvannavejh: There may not be a good one. I just thought I'd speculate... Richard Miller: I wouldn't get too worried about that. I mean I've had some really, really good papers get accepted at journals and be rejected at others. At the end of the day, it's -- 1 or 2 guys read some abstracts. I used to do it myself. You get a few hundred to review and you decide what looks good, whatever. So I don't know if I focus too much on any reasons on that. We're not very active in AAD. We've never done anything there. We don't have booths. We don't subscribe to their journals. I think that's another factor -- could be another factor, not sure. Anyway, SID is a good meeting. If anything, scientifically more rigorous, it is the meeting for early stage and translational biology and research. So we ended up, I think, in a very good place. Graig Suvannavejh: Okay. Great. If I could ask just on the Phase II trial in AD that you did start and congratulations there. I think you mentioned that data would be available in middle of 2027 and just trying to get a sense of in between now and mid-2027, will there be an opportunity for the company to provide some kind of update? Just trying to get a sense of news flow from that trial from now until mid-2027? Richard Miller: So that Phase II trial is placebo-controlled, randomized and blinded. No, we will not see that data until it's completed. And as I mentioned, the Angel trial is underway. That's also blinded and placebo controlled, but they can look at the data after each cohort, similar to what we did in our Phase I. So there will be a news flow from that in terms of the AD stuff. Graig Suvannavejh: Okay. And last question, if I could, just on hidradenitis suppurativa, just given coverage of some other companies that I have, I'm under the view that there are not very good preclinical models of HS and just wondering then how do you handicap success in HS when perhaps there are not very well established or good predictive models in HS? Richard Miller: You are correct, there are not good animal models for HS, but it's pretty clear in human studies that IL-17 is very important. Th17 and IL-17 are very important. And in fact, IL-17s are approved to treat it. So I think there's proof of principle already that if you can block IL-17, it should work. And we block IL-17 among the many other cytokines that we block. Hidradenitis suppurativa has a lot of different inflammatory cells, T cells, neutrophils, B cells, for example. And again, I think the advantage of soquelitinib is that since you're blocking multiple cytokine pathways, you actually affect many different lineages. And I think that's going to be important because when you look at the sites of disease, even in atopic dermatitis, you just don't see Th2 cells, you see a lot of different cells. So I think that, that's one -- I mean, I would say the best explanation for that is, hey, anti-IL-17 works in that disease. And we block it even better. Operator: And your next question comes from Jeff Jones from Oppenheimer. Jeffrey Jones: Since I think we've beaten HS to death, maybe talk about AD and how you guys are -- this is a different disease and indication than the dermatological ones. How are you thinking about dosing and your strategy there? Richard Miller: I think you mean asthma probably. Jeffrey Jones: Asthma, I'm sorry. Richard Miller: Yes, you mentioned AD. So well, as you know, atopic dermatitis and asthma frequently go together and drugs that work in one often work in the other. They seem to be part of the atopic syndromes. We have several -- now that's one where we do have several animal models and our drug works really well in those asthma models, 4 or 5 different models work. Soquelitinib works beautifully. In terms of dosing, I think it's the same dosing that we've talked about. The AD and PTCL studies inform the asthma. The asthma study is pretty much the same dosing regimens. There'll be no reason to change that. Jeffrey Jones: Okay. And then one... Richard Miller: Sorry, just to elaborate, remember, we have the best biomarker in the world, which is that -- and we've been doing this for years. You can give the drug, you take out the T cells from the patient, either in the blood or the sites of disease and you can measure quite accurately the drug sitting in the target. It is a clean quantitative assay. It blocks the function of that enzyme. That's a biomarker. And we know that when you give a 200-milligram dose, you pretty much completely block that. Sorry, Jeff. Jeffrey Jones: I appreciate that, Richard. And then on the ALPS trial, which you're doing with the NIH, can you maybe comment on how that -- the outcome of that might impact how you think about other indications or inform what you guys are doing? Richard Miller: So ALPS is a disease where you have such an overreactive autoimmune response to so many different things. They have antibodies to red cells and white cells and platelets and other things. And [indiscernible] and lymphocyte proliferation, abnormal lymphocytes. And we have seen really interesting results in our patients. So I think the -- that what we're learning there is similar to what we learned in lymphoma is that the drug is very active, it's safe and it's interfering with the signaling pathways that we would predict. Now I'm not sure I can say, okay, if it works in ALPS, it's going to work in lupus, even though the ALPS mouse equivalent is a model for SLE. But I don't think we're thinking of it that way. We're thinking of it as an indicator that we're affecting aberrant auto-inflammatory responses in a disease where there's no good treatments really. So it's kind of a model, if you will, but it's a human model. It is an orphan disease. There's no good therapies. Could you get approval for ALPS? Yes, you could. It's more of a childhood disease. We've been treating adults. We do intend to increase the number of sites, and we do intend to move down in age into children over the next year or so. We've been talking about that with NIH. So it's another indication, and it happens to be in autoimmune disease. Operator: And your next question comes from Aydin Huseynov from Ladenburg. Aydin Huseynov: Richard, congratulations for the tremendous progress so far this quarter in your pipeline in the drug soquelitinib. I got a couple of questions. So first, I wanted to ask about the near-term focus near-term Phase III readout interim analysis from the trial in PTCL. I was curious to hear any comments you may provide regarding the enrollment process so far? What types of PTCL you're actually enrolling? Is it NIS? Is it ALCL, follicular cutaneous? And what the physicians are using a standard of care prefer belinostat and pralatrexate? Just curious to hear overall dynamic of the trial. Richard Miller: Okay. So let's take that question first. So the trial is enrolling and it's going perfectly according to plan. The patients get randomized into either soquelitinib monotherapy 200 milligrams BID versus the investigator's choice of either belinostat or pralatrexate. Now recall, belinostat and pralatrexate are received conditional approval, accelerated approval maybe 15 years ago or so based on response rate in patients with relapsed PTCL. So in our discussions with FDA, that was the logical control arm. So soquelitinib versus those agents. Now it's not a blinded trial because you can't -- well, first of all, we don't usually do that in cancer, but you can't blind -- soquelitinib is oral, right, as we know. Belinostat and pralatrexate are given intravenously and have associated usual toxicities of chemotherapy, mucositis, blood count problems, things like that. So, so far, the trial is enrolling. We had our first safety monitoring board, and there were no new safety or different safety signals with regard to soquelitinib. Obviously, it's much safer than chemotherapy. So we win on every count on that. Now later -- now the types of patients that are enrolled are as stated in the protocol, are PTCL NOS, that's the most common one. We do allow anaplastic lymphomas that are ALK positive. The other big category would be what's called T follicular helper, which used to be what's called angioimmunoblastic lymphoma. So not CTCL. CTCL really is a little bit more of a chronic disease and is treated differently. So that's the reason not to include that in this trial. But it's pretty typical. These are the most common peripheral T-cell lymphomas. Now peripheral T-cell lymphoma, again, just to remind people, there is no fully approved treatment for relapsed disease. It has a median PFS and belinostat median PFS is 1.7 months. Pralatrexate is 3 months. And OSs are under a year. So those are really bad -- these are really bad disease. These are sick patients. I can tell you that we are very, very happy with the way the trial is going. And I think it could represent a very important breakthrough in hematology if we finish the trial and get the results that we're expecting. Does that answer your question? Aydin Huseynov: Appreciate that. I got another one for asthma, if you don't mind. Richard Miller: Sure. Aydin Huseynov: So yes, so regarding the upcoming trial design in asthma, do you plan to have a cohort with patients who may have both asthma and atopic dermatitis? And in your opinion, is there any accelerated path with small pivotal trial with patients with 2 diseases simultaneously. So essentially, that would allow soquelitinib to cure 2 diseases at the same time. And as we know, Dupixent is the only drug that treats both diseases, but maybe you can have it in one shot. Richard Miller: Well, that would be great. But I don't know -- so first of all, trying to get 2 indications on -- that's really very difficult. And you can get anecdotal information. I know some people report that. And we've had some anecdotal information about that. But the problem is you don't know how many patients are going to have both diseases concomitantly, how severe it is, what measurements you're going to use and how you power the study statistically for each disease. So it's really hard to do that. Anecdotally, it's something you would look at. You have to do a separate trial. And even Dupixent was separate trials for asthma and eosinophilic esophagitis and COPD and all those things. So it requires a separate trial. Now one thing we are considering is we're really very interested in, I would say, 2 things. One is this durability of response is quite interesting. And we think we have explanation for it. I think we have a very good immunologic explanation for it. It's very elegant and compatible with what's known about the immune responses and so forth. We also are very struck by the activity we see in patients who failed previous therapies. And I talked about that in my discussion here. So we are allowing and I don't know if I mentioned it, we are allowing patients who have failed prior therapies in our Phase II atopic dermatitis study. Now some people, many investors have been asking me, why don't you do a separate study in the resistant patients with atopic dermatitis. And that is something we are thinking about. That could be a smaller trial because the efficacy and the placebo do so -- the efficacy and placebo -- sorry, placebos do so poorly, you would presumably show a bigger difference with a fewer number of patients. But we are including both naive and experienced patients in our Phase II. I would do that in Phase III as well, which would enable you to get the total population of patients. But there's no doubt that with more and more therapies coming out in atopic dermatitis, the proportion of patients that are not treatment naive, that is that have failed the prior therapies, that pool of patients is increasing. And the pool of patients that is naive is going to decrease proportionately. Okay? So that the resistant patient becomes, I think, very attractive. So I would say the 2 exciting -- I mean, we have a lot of things that we're excited about with soquelitinib. It's oral and it's safe and all that other stuff. But the durability is, I think, a game changer, changes how you approach the disease. And I think the fact that you can think about frontline therapy or relapsed disease or multiple therapies, intermittent therapy. That's our -- it's the way we think about it. Aydin Huseynov: Congrats for the results. Operator: And your last question comes from Sean Lee from H.C. Wainwright. Xun Lee: To touch upon the durability a bit more. I think in the previous Phase I study, you guys followed the patients for up to 3 months. How long are you following these patients in Phase II? And is the study powering any way to really make a differentiation on the durability of this response? Richard Miller: So the Phase II trial has built in continued blinding of the trial out to 90 days beyond the therapy. So it's 12 weeks of therapy plus the 90 follow-up. That's baked into the protocol. However, the endpoint is the EASI score compared to placebo at 12 weeks, and that's the typical endpoint. To do something different would be sort of atypical. Now I think that in the future, this issue of how durable the responses are is something that you might study separately. But I think it stands to reason. I mean, we'll talk more about this, but we have over 90% of our patients don't relapse and follow-up now out to 3 months beyond the last dose. Over 90% of patients, disease just doesn't come back. Now you look at other agents, dupi, STAT6, whatever the IL-13s, IL-2s, whatever, these diseases come back pretty quickly. In my view, that's not a very good therapy. Best therapy is a shorter treatment duration. Disease goes away, you don't need to take your drug again for a long time, if at all, hopefully, but that's asking a lot. So the durability is important because it's important to understand why it's happening, does it pertain to other inflammatory diseases? In other words, how broad is that going to be? Is that unique to atopic dermatitis? Or is that something that you could think about for other autoimmune diseases? And that's why we're excited about that. But anyway, the answer to your question is in the Phase II, it is part of the formal follow-up is blinded, but it's not part of the statistical endpoint. The statistical endpoint is the typical one, which is EASI score at 12 weeks. Xun Lee: Okay. Got it. For the -- touching on the asthma study for our second question. As the upcoming study, will you be focusing on eosinophilic asthma with the Th2 high? Or are you targeting the more difficult to treat Th17 driven population as well? Richard Miller: We're probably going to -- so those are some of the things we're discussing now. We're leaning to taking everybody. Xun Lee: I see. Richard Miller: I'm actually -- Sean, I'm glad you brought that up because there's something -- some people say, well, we only treat Th2 disease. I don't know where that comes from. Some people said, "Oh, you're only selecting patients with atopic dermatitis that are Th2. First of all, I don't even know how to do that. But we're not doing that. Our atopic dermatitis patients are run-of-the-mill patients from U.S. centers. They have to have the necessary eligibility criteria, but we didn't enrich for any patient population. Most of our -- by the way, AD patients do not have eosinophilia. Their eosinophil counts are normal or little. So I don't think we're going to restrict it to the high EO asthma. Although I have to say the asthma study protocol has not yet been finalized, and that's still under discussion. Alright. Okay. Well, first of all, thank you, everyone, for participating in our call. We look forward to updating you throughout the rest of the year and beyond. Appreciate everybody's interest. Thank you. Operator: Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation, and you may now disconnect. Have a great day.
Operator: Thank you for standing by, and welcome to ServiceTitan's Fourth Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]. I would now like to hand the call over to Jason Rechel, Investor Relations. Please go ahead. Jason Rechel: Thank you, operator. Welcome, everyone, to ServiceTitan's Fiscal Fourth Quarter 2026 Earnings Conference Call. With me are ServiceTitan's Co-Founder and CEO, Ara Mahdessian; Co-Founder and President, Vahe Kuzoyan, and CFO, Dave Sherry. During today's call, we'll review our fiscal fourth quarter and full year fiscal 2026 results. We'll also discuss our guidance for the first fiscal quarter and full fiscal year 2027. Before we get started, we want to draw your attention to the safe harbor statement included in today's press release and emphasize that information discussed on this call, including our guidance is based on information as of today and contains forward-looking statements that involve risks, uncertainties and assumptions. All statements other than statements of historical fact could be deemed to be forward-looking. Forward-looking statements reflect our views as of today only, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please take a look at our filings with the SEC for a discussion of the factors that could cause our actual results to differ. We also want to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with reconciliations to our GAAP financial measures are included in our earnings release, which we have furnished with the SEC and is available on our website at investors.servicetitan.com. Unless otherwise stated, all references on this call to platform gross margin, total gross margin, operating income, operating margin, free cash flow and related growth rates are on a non-GAAP basis. Finally, we've posted an updated investor presentation that can be found on the Investor Relations website at investors.servicetitan.com, along with a replay of this call. And with that, let me turn the call over to Ara. Ara? Ara Mahdessian: Thank you, Jason, and thank you for joining us. This quarter, we celebrated the 1-year anniversary of our IPO and surpassed a $1 billion of annualized revenue run rate. In fiscal year 2026, we delivered $961 million in total revenue, growing 24% year-over-year, led by 26% year-over-year Subscription revenue growth. We achieved these results by delivering 36% incremental operating margins and a meaningful change in free cash flow. When Vahe and I founded ServiceTitan, our vision was to transform the lives of hard-working contractors by helping them grow revenue and margins through automation. From day one, we imagine the world where technicians focused on serving customers in the field, owners focused on business outcomes and ServiceTitan increasingly handled the operational complexity in between. Running the trades business is like optimizing a multistage funnel. Contractors must generate demand, book appointments, dispatch the right tech, diagnose issues, present solutions, follow-up on unsold opportunities, manage inventory, process payroll and constantly analyze performance to improve probability. So, we built a singular end-to-end operating system, spanning every major workflow in the trades, from demand generation to call booking, dispatch, quoting, payments, inventory, payroll and supplier integrations. And we embedded best practices that drive revenue and profitability directly into the software, including marketing ROI tools to double down on the highest-performing campaigns, call analytics to improve appointment booking rates, good, better, best proposal systems to increase average tickets, pipeline tracking and outbound dialing to recover unsold estimates and more. And contractors who leverage these capabilities consistently drove significant revenue and profit expansion, but two constraints limited how far we could take them. First, utilization. Customers still have to manually execute many of these best practices. And second, deterministic software should only automate what was rules based. Much of the work still happens in ServiceTitan, but it remains manual, because they required judgment. AI removes both of these constraints. Because ServiceTitan is already where the work happens and where decisions are made, we are naturally the context layer and the orchestration layer, which allows us to automate work directly inside our platform with AI. And because for more than a decade, nearly every meaningful workflow in the trades has run inside ServiceTitan, we have amassed the deepest end-to-end proprietary data set in the industry, including marketing campaign performance tied directly to revenue and margin, call booking rates by call type and process, test productivity, close rates and average ticket by job type and folds generated, dispatch decisions linked to outcomes and more. This is structured transactional outcome level data across millions of jobs and over 80 billion in transaction volume over the past 12 months alone. Our execution layer puts this uniquely proprietary data into action and every additional job improves that intelligence, creating a flywheel where the system continuously learns and gets smarter, allowing us to deliver differentiated customer outcomes. What used to require a group of people manually coordinating across an operation, can now be orchestrated by the system itself, with humans and AI agents working together seamlessly where each player does what they do best, an AI agent that detects available capacity and automatically modulates demand generation to fill the board, virtual agents that answer inbound calls and book appointments with a human call center manager ready to step in with full context exactly when a customer demands it. A human tech who walks into a home, looks to a homeowner in the eye and diagnoses the problem, armed with an AI agent that automatically generates the right quotes. The work gets done faster, smarter and more reliably, not just because you can get AI to do some of the work through point solutions, but because data from adjacent workflows makes each decision smarter. And every handoff between players in the workflow is seamless on a singular platform. This is what an operating system for the trades looks like in this new world of AI. The Agentic operating system. First announced as the pilot program at Pantheon last fall, Max is the initial deployment of our Agentic operating system, bringing together the power of our core product, our existing Pro products and new AI capabilities, all orchestrated together. And the results from our first set of customers speak to the potential of Max. A customer in Southern California, [ team Router ], told me that instead of pockets of automation with Pro products, Max delivered an integrated end-to-end automation engine. In three months since migrating to Max, [ team Router ] has experienced a 50% increase in average ticket size, leading to an acceleration in total revenue growth, record revenue in December and greater than 50% year-over-year revenue growth in January. Best of all, [ team Router ] told me that they expect further improvements as they reach full utilization of Max. A separate residential plumbing customer told me that only months after going live with Max, EBITDA margins improved from 18% to 30%. The automated marketing, call booking, dispatching and capacity planning allowed them to reduce office staff from 7 to 2 for 19 techs in the field, all while increasing technician salaries, eliminating weekend work and even reducing end-customer pricing. These powerful results are possible because we are now automating and orchestrating the work already being done in ServiceTitan. On average, customers on Max will about double their monthly subscription revenue when fully ramped, and it is behind the power of these collective outcomes that we plan to meaningfully expand Max throughout the year, starting with the doubling of capacity in Q1. In addition to Max, we are seeing healthy ongoing growth of our existing AI native Pro products and early promising signs from our recently launched Virtual Agents. We're leveraging our massive proprietary data sets, entrenched an expanding ecosystem, brand leadership and distribution across more than 10,000 high-performing contractors to capitalize on our largest opportunity yet and bring this reality to life for the best operators. And our internal leverage of AI tooling is allowing us to accelerate development velocity to create more value faster than ever before. This is a landmark value creation opportunity. Bringing all of this for the year ahead, we have three core goals for FY '27, to continue executing on our multiyear growth factors, to bring our vision to life with the Agentic operating system for the trades, and to make a step function change in the velocity at which we execute for our customers. Vahe and I have made ServiceTitan, our life's work. With the benefits of AI, our vision is now unfolding faster than we could have ever imagined. I am inspired by the performance of our customers and by watching Titan's execute on the Agentic operating system for the trades. Let's hear about this execution from my Co-Founder, Vahe. Vahe Kuzoyan: Thanks, Ara. This really is an exciting time to be in the game. As we build the Agentic Operating System for the trades, there are some important stepping stones along the way. Today, I will highlight our performance in Q4 and talk about how we're accelerating our organizational velocity. We made substantial progress in FY '26 against each of our four major growth initiatives. Beyond the updates that are shared, I'd like to provide specific updates today on Commercial and Roofing. The Commercial capabilities we introduced at Pantheon, specifically construction and commercial CRM have been well received and have laid the foundation for go-to-market execution in FY '27. We are now positioned to seamlessly optimize the way the platform works together and to enter complementary new trades that we believe will build on progress towards becoming the market standard in commercial in FY '27. In Roofing, we made considerable progress over the past 12 months, as summarized by our outstanding partner, Vertex in the press release this afternoon, we helped a lighthouse customer in this market skyrocket to over $600 million in revenue in less than three years since being founded. Said Vertex's CEO, Dennis Elliott, "ServiceTitan has been a great strategic technology partner that has moved as fast as we do to design, build and implement a scalable platform that delivers consistent and great customer experience across the country". Our Roofing implementation playbook, insurance and estimating workflows and brand within roofing are each maturing as we lay the foundation for durable growth in exteriors. Shifting to our organizational velocity nothing Ara and I have said will be achievable without us being able to capture the magic of AI, both in how we build our products and generally run the business. This is an area I'm very passionate about and personally driving. Over the past few weeks, in particular, I've spent hundreds of hours deep in the matrix. I've touched it, smelled it, wrestled with it and know is here and that it's real. Every department and every role is expected to use AI to increase quality, efficiency and speed. I have personally witnessed mountains being moved when the right people are unleashed on the right problems. ICAI as an opportunity to improve and accelerate every process in the business, ultimately allowing us to accelerate the ROI we deliver to our customers. In fact, the ability to capture the magic of AI, was the primary skill we were looking for when searching for our Chief Technology and Product Officer, and I'm thrilled to report that we brought in quite a wizard. Our new Chief Technology and Product Officer, Abhishek Mathur joined us last month from Figma, where he oversaw AI research and the development of Figma Make and Figma AI. Abhi previously led product and engineering teams at Meta and Microsoft and will partner closely with me to make a step-function improvement in our velocity over the course of FY '27. The continued success that we are seeing in our primary growth vectors, the clear opportunity for ServiceTitan to deliver the Agentic Operating System for the trades and the notable improvements I've already seen in our internal velocity each contributes to my excitement for the year ahead. It is inspiring to see the acceleration in our vision, and I want to thank Titans everywhere for delivering value to our customers every day and our customers for your partnership and trust. With that, I'll turn it over to Dave to run through the financials. Dave? Dave Sherry: Thanks, Vahe. I'm proud of our execution to close out our first full year as a public company. Today, I'll run you through Q4 financial results and provide guidance for Q1 and for the full fiscal year 2027. For more detailed financial results, including details for the full fiscal year 2026, please refer to our press release issued earlier today. Q4 gross transaction volume, or GTV, was $19.8 billion, representing 16% year-over-year growth. GTV contribution from new customers remain consistent with prior periods. The combination of one fewer business and unusual weather led to about 300 bps lower GTV growth contribution from existing customers against a notably more challenging year-ago comparable. Q4 total revenue of $254 million grew 21% year-over-year. Subscription revenue of $192 million grew 23% year-over-year, led by strong growth in Pro, Commercial and New Trades. As a reminder, Q4 FY '25 Subscription revenue grew materially faster than prior periods, partially driven by the roughly $1.5 million benefit from atypical linearity and other onetime items. Usage revenue grew 22% year-over-year to $53 million. FinTech utilization remained strong again this period. We also benefited from monetization of our partner ecosystem, which does not directly correlate with GTV and from early growth in Virtual Agents revenue. Looking forward, we believe that growth from these factors could lead Usage revenue to grow more quickly than GTV in FY '27. Total platform revenue for Q4, the sum of Subscription and Usage revenue grew 23% year-over-year to $245 million. Q4 Professional Services revenue was $8.9 million. Net dollar retention was greater than 110% for the quarter. Gross dollar retention was greater than 95% for the full fiscal year 2026, and we exited the year with approximately 10,800 total active customers, up 14% year-over-year. Q4 Platform gross margin was 80%, an improvement of 330 basis points year-over-year. As a reminder, roughly 200 bps of this improvement resulted from the allocation of certain customer success expenses to sales and marketing. Total gross margin for Q4 was 73.8%, up 360 basis points year-over-year. Q4 operating income of $27.1 million resulted in operating margin of 10.7%, an improvement of 740 basis points year-over-year. Our FY '26 incremental margins of 36% outperformed our target due to the timing of hiring and Usage revenue overperformance. Q4 free cash flow was $35 million up from $11 million for the prior year fourth quarter. FY '26 free cash flow was $85 million, up from $15 million in the prior year. Due to our expectations for ongoing strength in free cash flow, we paid down the approximately $107 million term loan that was outstanding during Q4 and amended our revolving credit facility to retain and improve financial flexibility. A quick reminder of the seasonality in our business. We pay our annual cash bonuses in Q1, which leads to a negative free cash flow in the period. As always, we expect Q2 to be our seasonally strongest period on GTV, and we will host our annual customer conferences during Q3, which will elevate sales and marketing expenses in that period. With regards to business days, GTV will benefit from one additional business day in Q1 and also from one additional business day in Q2. Q3, we'll have one fewer business day, and Q4 will have a comparable number of business days with the prior year. Now shifting to formal guidance. Following stronger-than-expected incremental margins in FY '26, we expect to continue our 25% incremental operating margin framework over the full year FY '27. How we achieve these results this year may differ from prior periods on two dimensions. First, as we've said before, we don't manage our incrementals on a quarterly basis. And second, the mix of line item expenses may modestly shift relative to prior periods as we invest more aggressively in AI inference and internal tooling. For the first quarter, we expect total revenue in the range of $255 million to $257 million. We expect to generate operating income in the range of $27 million to $28 million. For the full fiscal year 2027, we expect total revenue in the range of $1.11 billion to $1.12 billion. We expect to generate operating income in the range of $128 million to $133 million. Underpinning our outlook is a sustainably high ROI that we deliver to our customers who operate in resilient trades that keep our economy running. We continue to perform well across our growth priorities while building the Agentic Operating System for the trades with greater operational velocity than ever before. With that, I'll turn the call back to the operator for Q&A. Operator? Operator: [Operator Instructions] Our first question comes from the line of Josh Baer of Morgan Stanley. Josh Baer: Congrats on a strong finish to the year. I wanted to ask about weather which kind of anecdotally or just from personal experience, pretty extreme so far in 2026. So I was hoping you could unpack a little bit of what you saw in Q4 results as far as January as well as what's in Q1 guidance, how much impact there was from cold weather and extreme weather so far this year? Ara Mahdessian: Thanks Josh and great question. There's really two parts to this. First, overall Q4 this year was quite warm. The NOAA state-level data recorded the third warmest period from November to January as compared to the 15th warmest last year. Second, there was a large ice storm in the last week of the quarter across much of the U.S. that kept technicians off the road. And while I don't want to get into the practice of discussing in-quarter GTV performance, but what I can say is that the way we size the impact of the storm was in part based on the results in early February as the latent demand from the storms was met. Josh Baer: Okay. Got it. And then just wanted to follow up on the incremental margin commentary this year, 36% that's way above the 25% target. I know you mentioned timing of expenses and top line out-performance. Any context for the mix of the two and really why shouldn't this level of type of incremental margin continue looking ahead? Ara Mahdessian: I'll take this one also, Josh. I think the incrementals this year were really driven by, as I said, those two factors, the overperformance in Usage and being behind in hiring. I think that there was an interplay between the two of them. By being a bit behind the hiring, it was harder for us to reinvest the capital that came off from the over-performance. As we look forward into FY '27, I think it's going to be the large investment yet in R&D. And I think that we have a lot of opportunities to do so with the AI. Also with [indiscernible], I feel pretty excited about our ability to attract world-class talent to deliver against the massive number of opportunities in front of us. Operator: Our next question comes from the line of DJ Hynes of Canaccord. David Hynes: And I'll also offer my congrats on next quarter. Dave, I'm going to keep pulling on that last thread. Josh asked about incremental margins and CAC payback kind of running ahead of plan. You talked about investments in R&D. I'm going to take the other side and ask about sales capacity investments that are planned for '26. Do you feel like the business could grow faster with more sales heads? Or is there more of an industry rate limit on growth? I guess what I'm asking is like, are you getting in front of all the deals that you should with the capacity you have today? And kind of how does that inform your strategy for '26? Ara Mahdessian: DJ, I think two things. First, we govern the way we invest in sales and marketing across all go-to-market in a 24-month CAC payback. This last year, we over-performed simply because Usage over-performed in the year. I think that we have opportunities to continue to invest, particularly against the AI initiatives. With that said, I feel like there is also a natural rate limit in terms of number of jump balls in a given year. Switching solutions is a major decision. And what we discovered over time is we try to force customers through more go-to-market initiatives to get them to switch. It ends up leading to more turns on the line. And so what we do is we think about this as a marathon, not a sprint. And we're driving towards that as we think about our go-to-market investments. David Hynes: Yes. Okay. Makes sense. And then maybe I'll give you a moment to breathe and bring in the rest of the team. Vahe, maybe you could just give us an update on what you're seeing in the commercial business. I'd love to get kind of current thoughts on competitive dynamics, bookings execution, pipeline opportunity, as we head in '26? Vahe Kuzoyan: Overall, Commercial is on track for what we -- big picture, wanted to happen when we made the move into Commercial. I think we are cementing our position as leaders in the space. The products that we are rolling out are being met with really positive signals from the customer base. And we're continuing to see kind of all aspects of the engine humming in terms of whether it's pipeline generation at the top of the funnel or it's successfully being able to onboard customers and actually deliver value, it's executing on all cylinders. Operator: Our next question comes from the line of Adam Hotchkiss with Goldman Sachs. Adam Hotchkiss: I guess to start, I appreciate the comments around the Max program. How do you think about the decision in terms of scaling that program? I think it's pretty notable that you plan to ramp that throughout the year and the Q1 comments were helpful. What are the limiting factors, if any? I know you sort of said that you're pairing folks with an executive in the initial cohort. What should the Max program look like going forward? And how should we start to see that impacting the model as we go into the year? Ara Mahdessian: Yes. This is a very top of mind topic for us. We see this not as some new feature that we're rolling out, but as literally the future of ServiceTitan. And we're following a very rigid process that sequentially first establishes product market fit by delivering the ROI to our customers and then focuses on the scaling aspect. Where we're at right now is we're seeing really positive signals on that first part. We feel really confident that we're in a great place there. And so we are just now with this next cohort, focusing on the scale aspects, and that really comes down to two factors: efficiently and quickly and effectively being able to onboard, number one, and then number two, it's really around scaling the program to all customers within that we serve. And so we're focusing on that efficiency of on-boarding as this next phase, and we're going to scale it out as quickly as we can while ensuring the success of the customers. And so it's about getting it right and we're playing the long game. We're not trying to optimize through short-term results at this point. Adam Hotchkiss: Understood. Really helpful. And then you ended your prepared remarks with one of your core goals being a step function change in the velocity of what you do for your customers. Maybe talk about the factors on the velocity side that make you feel confident in the step function? Is that just AI internally and AI through Max? Or are there other factors we should consider there? Ara Mahdessian: Yes. There's a lot of factors at play. There's the obvious kind of code production revolution that we're all seeing happen in front of our eyes. There's also another aspect of even if you had 1 million programmers, there's just things you could do today that were never possible before that are accelerating our ability to deliver value. And what we're seeing is when you mix all of that with the data that we have and the system of record launch pad to then deliver these capabilities. There is kind of a compounding acceleration that's happening. It's hard to say exactly how it manifests into the revenue forecast, et cetera. But personally, I've spent hundreds of hours over the last few weeks directly writing code, talking to customers and really being on the front lines with our team to roll these things out. And I mean, I'll be honest with you, it's real. This is something that I've touched, felt. I mean it's absolutely real, and we're really excited about how it flows out over the next few quarters. Operator: Our next question comes from the line of Michael Turrin of Wells Fargo Securities. Michael Turrin: Congrats on the end of the year. I'll just ask a two-parter both upfront. For Dave, can you just speak to what sort of assumptions are embedded in the fiscal year revenue guide around just overall demand backdrop, any new trade contribution and any Max contribution you're initially contemplating? And then for the team, just help us think through the adoption curve you could see with Max. I think you mentioned doubling capacity there. Was that sales-specific comment? And just help us think through the ramp you could see as that capacity ramps throughout the course of the year and into next? Ara Mahdessian: Thanks Michael, congrats on expanded roll over at Wells. And with regards to our guidance, the philosophy remains the same this year as the prior years, and I think we're going to continue to drive the business along the same framework. In terms of the macro environment, we have rolled forward what we saw in the last couple of quarters and pulled that there. In terms of Max, I think that we are really excited about the ROI Max is delivering. And that's the foundation upon which we're doubling the capacity. At the same time, its still early days here, and we're being quite intentional rolling it out. Vahe will talk a little more about that. But in terms of the guidance for now, what's baked in is essentially a roll forward what we've seen in our Pro products, as we see the efficiencies both for us and our customers in adopting Max increase, we may increase the expectations that it will deliver over time, and I'll keep you guys updated on that. Vahe Kuzoyan: And to give a little bit more color on the execution against that scaling plan. Phase 1 was really around establishing that the ROI was actually there and verifying it. Super high touch, we had executives involved and so on. The current phase is around delivering that same set of outcomes with this new batch of customers but doing so, in a much more scalable and automated way in terms of getting them activated on Max. And so depending on how successful we are in actually doing that, we should see the program scale, we think, in a very exciting way, but we're waiting to see and get some validation before we provide any additional guidance on what that's going to look like. Operator: Our next question comes from the line of Dylan Becker of William Blair. Dylan Becker: I'll echo the congrats here as well. Maybe for Vahe or Ara. On Vertex, I wonder how you guys are thinking about examples of some of these consolidators and their ability to scale rapidly, maybe if that is attracting more capital? I know there's already a strong PE ecosystem here. But is that shifting any dynamics there? Is that pulling you maybe into new trades that they're trying to front run, maybe just any kind of shift in the success of some of these models and the pace of success helping kind of contribute to the durability of that PE motion, if that makes sense. Ara Mahdessian: Great question. Our goal is to be great partners to both the leading sponsors in the trades as well as the largest operators. And of course, our job is to make them more money, and we continue to see strong growth from these customers. We've mentioned in the past that they are the cohort of customers that, we're the fastest-growing, highest adopters of our product, greatest utilization. And they indeed have been great partners in helping us expand into new trades. That is how we entered the Roofing market. And then lastly, next week, we will actually be hosting our largest partners and their sponsors in New York for our VEITHsymposium, to share notes on what we're seeing in the industry to learn from them and then also to talk about the future of AI for the trades and this Agentic Operating System. Dylan Becker: Perfect. That's helpful. And maybe, Ara, if I can stick with you. I know there's been some emphasis thus far on the capacity angle with Max, but I think you did call out too. There are customers that are deploying it today, they're seeing value, but they're kind of just scratching the surface and there's an expectation for them to ramp to maybe more of an end-to-end deployment over time. I think you said maybe that doubles the revenue base, but how you're thinking about kind of balancing the ramping of those customers that are utilizing Max today and going deeper alongside kind of the scaling and the breadth of scope of that project, if that makes sense? Ara Mahdessian: Yes. Certainly, there's a lot of excitement around bringing the power and capabilities and the incredible outcomes that we've seen with what Max is today to more customers. But as we've said in the past, one of the nicest things about this business is that under every rock is another opportunity. And as we think about this vision for the trades that Vahe and I've talked about automating dimension through call booking, dispatch quoting, follow-up, inventory, payroll and so on. There is still more opportunity for us to automate more workflows as well as increasingly automate a larger percentage of the workloads in those workflows. And so we're excited to do both. Operator: Our next question comes from the line of Jason Celino of KeyBanc Capital Markets. Jason Celino: Great. Dylan kind of stole my question a little bit, but maybe I'll ask it a different way. I think -- you said that edge customers on Max will double their monthly subscription revenue when fully ramped. Is that mainly from adopting the whole suite? Or are you finding that they're getting so efficient that they're able to expand technicians as well? Vahe Kuzoyan: Jason, I'll take this one. It's the average customer, when they adapt Max, their subscription doubles at full ramp. And that does not factor in the idea of expanded technicians. Jason Celino: Got it. Perfect. And then, Dave, I think you also in your prepared remarks, you mentioned that the guidance built in like early growth in Virtual Agents. Maybe can you talk about that a little bit? Is that like a new product? Or is that part of the Max offering? I just don't know if I've heard you talk about Virtual Agents before. Dave Sherry: Ara, why don't you talk about Virtual Agents for a second, I'll talk about what it means in our guidance. Ara Mahdessian: Virtual Agents handle inbound calls for our customers. This is a need that nearly every customer has, particularly in moments where they get a sudden surge of calls that come in, their existing team is unable to handle all the calls or when calls come in after hours. And as we all know, these calls represent very significant revenue opportunities. Each call can be between $500 to $50,000 in a potential job and so very important to handle each of these calls. We very recently launched our Virtual Agents to handle these calls. And while the product is very early, the interesting situation for our customers is number one, increasing workloads of surge volume being handled by our agents, increasing workloads of after our calls being handled by our agents, and then because there is very high turnover in the customer support representative function as our customers are seeing turnover in their CSR base, many are choosing not to necessarily replace that head count and allow the virtual agents to handle the incremental call volumes. Dave Sherry: And then I'll chime in a bit on what it means for our financials. Jason, while there -- an allocation to this -- Virtual Agent calls are included in some packages. In general, Virtual Agent sales are part of our usage consumption, they're an AI consumption product, that is on top of Max. The trajectory of the AI consumption is encouraging. It's still very early, which makes it hard for us to forecast. So I'll be honest, it's very little bit is embedded in our guide today. Operator: Our next question comes from the line of Parker Lane of Stifel. J. Lane: Dave, in your prepared remarks, I think you talked about partner monetization benefiting 4Q and that, that wouldn't necessarily be correlated with GTV. Could you just go a little bit deeper on what you saw there in the quarter and what the assumptions are going into fiscal '27 here? Dave Sherry: Absolutely. What I said there is that -- we have a part of our usage revenue is from partners and in our revenue share from them. That doesn't correlate directly with GTV. And so when GTV grew less quickly this quarter, it was more pronounced on our usage take rate. This is a growing part of our business, and so is the Virtual Agent. And so what I'm saying is that there's a chance that you'll see usage revenue outpace GTV growth this year. J. Lane: Got it. And Ara and Vahe when you look at your customer base, obviously, you have these customers that are in the Max program, they seem to be very proactive about AI adoption. Are there a pocket of customers who are maybe wait and see mode, trying to have ServiceTitan bring them along and maybe not as evangelized around the opportunity for AI? Just trying to understand what share of customers are actively looking for automation through the form of AI today? Ara Mahdessian: That's a great question. And there's certainly a spectrum of willingness. As we launched Max, we saw demand for the Max pilot that exceeded the supply that we could offer. And so there's a very meaningful portion of our customer base that is very eager and very aggressive about adopting AI. And kind of with like every other innovation in the past, we believe that as the customer outcomes are demonstrated and some of them you heard in my prepared remarks, it will be increasingly exciting for the vast majority of the customer base to benefit from the same outcomes by adopting Max. Operator: Our next question comes from the line of Terry Tillman of Truist Securities. Terrell Tillman: Sorry for the background noise. Ara, Vahe, Dave and Jason. Yes, two questions for me. The first one is, I really liked that a couple of quarters ago when you talked about that autonomous job other than the tech actually doing the work at the site. I'd love an update on any more anecdotal kind of evidence of that playing out where it's autonomous jobs or we've even seen where it's autonomous sites where it's actually there's not even much human labor at the site. Just anything you could share on more kind of data points on how that's coming along and then I have a follow-up. Ara Mahdessian: That is certainly the experience of the Max program is helping generate demand autonomously, book the appointment autonomously, dispatch the right tech autonomously, help generate the right diagnosis and quotes and then ultimately also handle inventory payroll and other back-office functions. So while what we shared many quarters ago may have been like the first experience of this. This is increasingly becoming the experience in Max. And then as for the actual work in the field, I'm not familiar with the specific example you're referring to. And while there may be slight exceptions where the amount of human effort is small at the customer site. The vast majority of what needs to be done at a customer's home or office still very much requires a very skilled technician who can build a relationship with the customer, diagnose the issue properly and then advise the customer through the options for solving that problem. Terrell Tillman: Yes. No, that's a good clarification. I actually meant on the contractor side when they add new sites, but that's a -- that's helpful. Just a follow-up question is Dave. It feels like there's a couple of things though that can help GTV in 1Q versus 4Q, if I was a good listener. There's one day more in 1Q versus 4Q. And it sounded like if the tech were off the road, like they were where I live, in that one week, we could see GTV growth a little bit higher in 1Q. And again, I also know usage revenue could be a variance with the GTV growth. But could you double click a little bit on GTV in 1Q. Dave Sherry: I think you nailed the components. We don't want to get into the -- in the process of giving in-quarter performance, but you nailed the two. One more business day and the latent demand from the ice storms that was met in early February. You got it right, Terry. Operator: Our next question comes from the line of Billy Fitzsimmons of Piper Sandler. William Fitzsimmons: Given some of the debates in software currently, I appreciated the focus in the prepared remarks around how AI enhances the platform. And one of the questions we get across our whole coverage list is kind of the extent to which the barriers to entry have potentially come down, whether that manifests in AI-native startups going after similar opportunities or whether customers will do it themselves. So on that note, first, it really doesn't seem like it based on the numbers, but have any of those things come up in customer conversations or had any impact on top of funnel demand in recent months? And then maybe second, in the prepared remarks, Ara you talked about how the on the proprietary data you've amassed -- and just to help contextualize it for us, can you provide some examples of some, some of those data sets or anecdotes around some of the things you're able to do with it that maybe a brand-new AI competitor would not be able to do? Vahe Kuzoyan: Sure. So in terms of the barrier of entry declining and the impact it has, we're keeping, as you would imagine, an incredibly close eye on it. We are not seeing it impact whether it's pipeline conversion, et cetera. And the way we're thinking about it is -- we're not just going to stand still and unilaterally disarm. We're going to take advantage of those same capabilities, and we're also going to be producing a lot more code, a lot more capabilities. And so I think net-net, it's going to be a positive for us because of the structural advantages that we have and our ability to create value from AI, whether it's through the data that Ara will go into in a second or distribution. We think that the net impact is going to be positive. And Ara, maybe you can talk to some of the data aspects that I think are going to make the difference. Ara Mahdessian: So you can certainly get some level of outcomes with point solutions. And maybe before Max, that was pretty much all that was possible. But there is a very meaningfully higher level of outcomes that is attainable through an end-to-end agentic OS. So first, the automation in any particular workflow, benefits quite massively from the data in adjacent workflows, like you don't want to optimize demand generation based on leads. You want to do it based on expected gross profit, and you can only do that if you have also the sales and margin data and you are the software for those workflows. You can't optimize the quoting process to maximize gross profit, if you don't have the visibility into price book inventory and so on and so forth. And so the neat thing is the manual version of all these workflows have already been executed and orchestrated inside ServiceTitan for the past 10 years and so we have all the proprietary data across them from like which marketing campaigns have the highest ROI. So what kind of call booking process maximizes call booking rates, what kind of quotes in the field maximize close rates and average tickets and so on and so forth. And so our thesis is we are the natural place, the natural orchestration execution and interface layers where this work gets automated, and we're seeing that in Max and we're seeing the incredible differentiated outcomes through Max. And at the end of the day, in markets where there's intense competition like in the trades, like there are all kinds of solutions available. Each solution has a corresponding level of outcomes, possible through them. We've seen time and again that our customers want the solutions that have the highest level of outcomes and hence our excitement around Max. Operator: Our next question comes from the line of Tyler Radke of Citi. Tyler Radke: Just curious as you think about sort of the rank order of trades that represent sort of your largest industry exposure. Can you just comment on sort of the ones that moved up the most? Or if there's sort of any change in the top 5? And how you sort of rank ordering those as you think about what's embedded in 2026? Dave Sherry: Sure. I think I'll take this one, Tyler. On last quarter's call, we talked about plumbing, HVAC electric and garage on the residential side being the largest grouping of customers. They're not the majority, but they're sort of the largest grouping. That continues to be true today. Commercial continues to be a meaningful growth driver for us. And I think we should expect that to be the case in the year ahead, Roofing as well an important growth driver for us. We have a number of other trades, but I think those are the ones, I'd call out for now. Tyler Radke: Got it. And congrats on the CTO announcement. Just curious as you think about sort of the investments that need to be made maybe on the platform level to enable things like Max and some of the future agentic. Like how do you think about the time frame for those? Are there certain modifications or additions you want to do to be able to bring in more intelligence and other data sources maybe from other systems that your customers have. If you could just kind of talk about the top sort of product and R&D initiatives under the new CTO. Vahe Kuzoyan: Yes, great question. So as Ara mentioned, we see the future as being an Agentic Operating System. And so there's some foundational elements that you need in order to do that well. There's an entire security and governance layer that you need to have in place to make sure that the AIs are doing what you want them to do and not doing what you don't want them to do. There's also an element of ServiceTitan already today has connective tissue to all these adjacent systems, whether it's accounting or payroll or budgeting data, et cetera. And so by creating that orchestration layer, that global context and being able to connect to all those sources, we think that's a foundational element of being able to build the Agentic OS, and so a lot of the other infrastructure work is really around hardening the connective tissue and really expanding the data layer to be able to handle not just the structured data that we've historically captured but an increasingly amount of unstructured data. And so these things are all happening on a continuous flow type of a thing. We're not waiting for any big bang to occur. And we think that the system is going to continue to evolve organically across all these various elements in a way that allows to continuously shift features to customers, iterate with customers and understand what really works and what doesn't. As Ara mentioned, we think our magic is the end-to-end and how some of these details interplay with each other. And so we're taking an iterative approach to the investments we're making to bring forward the Agentic OS and to make sure that we've got the right talent in place to execute on that vision. Operator: Our next question comes from the line of Brian Peterson of Raymond James. Brian Peterson: I'll keep it to one. Just related to Max, I know it's very early in the implementation here, but I'd be curious how do you think about the evolution of that with smaller customers versus larger customers? And any particular verticals that you think would be first to adopt? Ara Mahdessian: Great question. We see it as applicable to customers of all sizes, across all segments. And so we're very excited for all of them to see the same level of outcomes that our first pilot group is seeing. Vahe Kuzoyan: And the sequencing will likely be the maturity of our existing markets. And so the ones that are the most mature, we'll get it first. The ones that we're earliest in will get it to last. Our goal is to make sure that the time it takes between those two is as short as possible. But that's how we're thinking about the overall expansion and scaling strategy, is to nail it with the most mature groups and then scale it out to everybody. But we think this is a generalized technology that is relevant for all customer segments. Operator: Our next question comes from the line of Daniel Jester of BMO Capital Markets. Daniel Jester: Great. Just wanted maybe just a follow-up to the last question. If I'm a customer and I want to do Max, but I can't get into the program yet because of capacity. How does that change my calculus to attach Pro products today? Maybe said another way, is there any concern on your part that customers will delay buying decisions for Pro products because they see the Max potentially available to them in the next quarter or 2 or 3? Dave Sherry: I think that's certainly possible. And there's tough trade-offs we've got to make in general. And so it's hard to have only a small amount of capacity when we know the demand is much greater than that. And I'm sure there's all sorts of second and third-order consequences along the lines that you've mentioned. We think net-net, that nailing the product market fit and the ROI story and nailing the ability to consistently execute and deliver that ROI to every new batch is going to be much more important than any potential temporary losses in sales that result from the under-capacity. Operator: Our next question comes from the line of Andrew Sherman of TD Cowen. Andrew Sherman: Maybe for Ara or Dave, we've heard a lot about consumer financing lately, especially in this weaker consumer conference environment. Are you seeing the mix of financed projects go up and can that help drive up your rate this year and broadly help your customers win more business? Dave Sherry: I'll take this one. You nailed the second part of it when customers -- when our customers offer financing, it helps them increase average ticket and increase close rate, is an important level for them, and it's why we invest in driving consumer financing to be an integral part of our product. As regards to the macro environment, we've not seen a shift that we can identify to be the macro environment on the consumer buying as a percent of total. But we do think the overall trend is to have more because the impact it has on our customers' businesses. Andrew Sherman: Great. And just quickly on the marketing side. Have any of your customers seen an impact from Google Search. There have been some other software companies that have talked about this. But any indication from your customers that they want to change their marketing because of AI and maybe that could even drive more marketing Pro adoption? Vahe Kuzoyan: So in terms of the way in which trade businesses generate demand, we think that consumer behavior is obviously going to have a massive impact on how contractors are found. And so we're not necessarily seeing that be material in today's world based on what we're seeing -- but as we think about how our product matures and how we enable our customers to be successful, we're very, very intentional about making sure that in this new world where search has fundamentally changed, people have personal agents that are going out and doing stuff for them. That service tightened contractors are the best place to take advantage of that new world. Operator: Our next question comes from the line of Nick Altmann of BTIG. Nicholas Altmann: Awesome. Ara the comments on Max are super encouraging and how it's enabling customers to grow faster and improve margins. And it seems like the real unlock with Max is how it's utilized across the entire platform. So my question is kind of the inverse of Daniel's prior question. But when you look at your installed base today, are you seeing customers start to expand across the platform, add new products, consolidate their solutions on to ServiceTitan in anticipation of Max? Just any commentary on those customers who are maybe a little bit earlier in their journey and how their behavior is changing in anticipation of Max would be interesting. Ara Mahdessian: Yes. You know what's interesting is historically, this industry wasn't necessarily known as being, let's say, on the bleeding edge of adopting tech. And it's been actually really refreshing to see how in the new AI wave, that dynamic has really changed. And so just overall, even before Max, there was an incredible amount of interest from our customers to understand how to use AI within their business and so on. And that is only intensifying. So Max, I think, has brought a lot of attention towards the magic of having an end-to-end agentic layer. And so we are certainly hearing anecdotes of people saying, okay, well, I can't get into Max. But should I just buy all the products now and get ready for it and so on. And so I don't have much more than anecdotes like that to really share. But what I look at is just the overall demand around Max and the interest around it. And so that's, I think, the most important signal. It's our job to make sure that we have enough capacity to take on those that are interested. And so I think largely, it's a capacity issue right now that we're focused on. The demand side seems pretty strong and we anticipate to stay strong. Operator: Our next question comes from the line of Yun Kim of Loop Capital Markets. Yun Suk Kim: Given the early success that you're having with the Max program, is there any thought on revisiting your overall pricing strategy and model. You mentioned first transaction pricing model for the virtual agents. Do you expect perhaps shift to a pricing model that's more driven by GTV and transaction based and less driven by the number of service techs? Dave Sherry: I'll take this one. For now, Max is a single package that's priced like our core solution based on the number of technicians generating revenue in the field. This may evolve over time, but I don't think what will change is how we tie how we get paid to how we deliver value, and that's best captured for now as the linked to techs in the field, but that could evolve over time. Yun Suk Kim: Okay. Great. And then I just have a quick product question to Vahe. I think a couple of months ago, the company introduced an accounts payable automation product. if you can update us on what's the overall strategy around back office accounting and FinTech in general? And should we expect to see more products introduced in that area? Vahe Kuzoyan: Yes. So the overall thesis is really around creating incremental value that's not possible outside of service Titan. And so that's the magic behind our Money In and Credit Card business, is we can do things, not just around processing the transactions, but all of the steps prior to accepting payment and then after accepting payment. We think the same exact situation plays out in Money Out. In fact, we think that there's actually more opportunities because, as you'd imagine, money leaving the bank account probably needs more controls, than money coming into it. And so we're focused on building an end-to-end suite that really does things in a way that are differentiated that are not possible unless you have that end-to-end visibility. And we are planning on making some very exciting announcements around that very quickly or very soon. Operator: Our next question comes from the line of Scott Berg of Needham & Company. Scott Berg: Really nice quarter, one for me in the essence of time here. Most of the Max conversation has seemingly focused on residential trades. How do we think about the opportunities there on the commercial side, if any? My guess is it's probably not the first phase or 2 of what you all are thinking given what the commentary has been. But what are the options or opportunities there on the commercial side maybe over time? Vahe Kuzoyan: Sure. As we previously mentioned, we think this Agentic Operating System concept is a universal concept that applies to everybody. The way it would play out in commercial is likely going to be more reflective of the B2B nature of commercial contractors, the fact that their business model is relationship-oriented and it involves a different type of go-to-market motion, but all of those are still highly relevant to Agentification. And so whether it's our ability to identify great fit prospects or it's the ability to generate complex multistep communication, whether it's e-mail, text message, phone calls, et cetera. And then similarly, in the back office, there tends to be more complexity. So if you're managing a large construction project, and you have a former on-site who's sending all sorts of detailed notes to a project manager internally. That is the kind of experience we think agents are going to play a bigger and bigger role. And so if you look at our product development in terms of commercially oriented agentic capabilities. It's still a very target-rich opportunity. It's just a matter of sequencing. Obviously, we're going to focus on where we're most mature to let's say, maximize the value that we could drive. But on the commercial side, there are both things that are relevant to AI that are unique to commercial. And then there's also elements like the back office that are applicable to everybody. And so the ability to have a compelling AI-native agentic offering to commercial to construction, all our non-historically mature trades, we think is pretty universal. Operator: I would now like to turn the conference back to Ara Mahdessian for closing remarks. Sir? Ara Mahdessian: I just want to thank you all for joining us today. We appreciate that you have the opportunity to spend time with the best companies. And so we're honored that you've chosen to spend this evening learning more about our mission, and our journey ahead to transform the lives of all these hard-working contractors. I want to thank you, and we're excited to speak to you very soon. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the Q1 FY 2026 Adobe Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Doug Clark, Vice President of Investor Relations. Please go ahead. Douglas Clark: Good afternoon, and thank you for joining us. With me on the call today are Shantanu Narayen, Adobe's Chair and CEO; David Wadhwani, President of Creativity and Productivity; Anil Chakravarthy, President of Customer Experience Orchestration; and Dan Durn, Executive Vice President and CFO. On this call, which is being recorded, we will discuss Adobe's first quarter fiscal year 2026 financial results. You can find our press release as well as PDFs of our prepared remarks and financial results on Adobe's Investor Relations website. The information discussed on this call, including our financial targets and product plans, is as of today, March 12, and contains forward-looking statements that involve risk, uncertainty and assumptions. Actual results may differ materially from those set forth in these statements. For more information on those risks, please review today's earnings release and Adobe's SEC filings. On this call, we will discuss GAAP and non-GAAP financial measures. Our reported results include GAAP growth rates and non-GAAP growth rates, including constant currency rates. During this presentation, Adobe's executives will refer to revenue growth in constant currency rates, unless otherwise stated. Non-GAAP reconciliations are available in our earnings release and on Adobe's Investor Relations website. I will now turn the call over to Shantanu. Shantanu Narayen: Thanks, Doug. Good afternoon, everyone, and thank you for joining us. Earlier today, we announced that I will be transitioning from my role as CEO after over 18 years and 100 earnings calls. Over the coming months, I will be working with Frank Calderoni, Adobe's Lead Director and the Board of Directors to identify my successor and to ensure a smooth transition. Until then, I will continue to lead Adobe as CEO and will stay on as Chair of the Board to support my successor just as John and Chuck did when I took on this role. What attracted me to Adobe 28 years ago remains unchanged: our leadership in creating new market categories, world-class products, a relentless drive to innovate in every functional area of the company and our employees who continue to invent the future. The privilege of leading this company has been the greatest honor of my career, and I'm committed to setting it up for its next decade of growth with the right leader and executive team in partnership with the Board while driving our fiscal '26 strategic priorities. Our mission to empower everyone to create represents an even larger opportunity in the AI era. Let me outline what Adobe is doing to drive our top line growth, while maintaining a high level of profitability. As a company that has prided itself on creating categories, our AI transformation begins with a focus on customer-centric product strategy to anticipate and fulfill the diverse needs of a large and growing customer base. At Adobe, we are targeting business professionals and consumers and creative and marketing professionals through differentiated AI-infused and AI-first product offerings across various routes to market and different monetization models. With creativity at the core, we are expanding innovation in all our flagship applications as well as investing in new offerings. These new products include Adobe Acrobat Studio with Adobe Express, Adobe Firefly and Adobe GenStudio. Our new AI-first offerings ending ARR more than tripled year-over-year, reflecting progress against this opportunity with individuals and enterprises alike. Adobe's continued success in AI will be underpinned by our deep understanding of creativity domains, the vast amount of data to which we have access, delivery of complex workflows driving business outcomes, and a great brand across individuals, small and medium businesses and enterprises. Content is at the heart of all Adobe solutions, which powers educational, social, marketing, brand, entertainment and business content. Our growth has always been fueled by attracting new users, individual consumers, students and business professionals into our products, delighting them and driving adoption. We're ruthlessly focused on monthly active users as an indicator of adoption and success for Acrobat and Express, Creative Cloud applications and Adobe Firefly across different surfaces, including desktop, web, mobile and LLM platforms. In Q1, we surpassed 850 million monthly active users of Acrobat, Creative Cloud, Express and Firefly, achieving 17% year-over-year growth, a clear indication that we have both strong usage and a foundation for monetization. In addition to broad end-user adoption, Adobe has always been a trusted partner for enterprises and we're increasingly being asked to help them drive their AI strategy across customer experience orchestration globally. Enterprises are looking to the combination of employees and automation to deliver on the demands of content and marketing at scale. Agentic AI will further enable outcome-focused enterprise workflows as customers look beyond speed to elevate creative differentiation, brand governance and personalized experiences across channels. Adobe's end-to-end solutions are uniquely designed to meet these needs at scale. Strong momentum across our enterprise offerings underscores our leadership and customer confidence in Adobe's ability to deliver AI-driven value. In Q1, globally, we achieved over 30% year-over-year growth in AEP and apps as well as Adobe GenStudio ending ARR. Our goal has always been to meet customers wherever they work across the broad range of surfaces they use every day and emerging new platforms have always been additive to our market opportunity. In addition to Windows, Mac, iOS, Android, Chrome and Edge, we intend to integrate with leading AI platforms such as Anthropic, Google, Microsoft, NVIDIA and OpenAI, providing customers with access, choice and flexibility. We're jointly driving enterprise transformation at scale in collaboration with global leaders such as Accenture, Cognizant, Deloitte, Dentsu, EY, IBM, Infosys, Omnicom, Publicis, PwC, Stagwell, TCS and WPP. Given the strategy, I'm pleased with how Adobe is transitioning to an AI-driven business. We had a strong start to the year achieving $6.4 billion in revenue in Q1, representing 11% year-over-year growth. GAAP earnings per share for the quarter was $4.60 and non-GAAP earnings per share was $6.06, representing 11% and 19% year-over-year growth, respectively. Driving this momentum were Acrobat and Express, Creative Cloud Pro, overall strength in the CXO enterprise solutions as well as in our AI-first applications. Importantly, we saw tremendous MAU growth in our new initiatives that dampens ARR in the short term but sets us up to deliver in the quarters ahead. As we continue to transform the business to capitalize on the AI opportunity, our customer-focused strategy, rich product road map, innovation momentum and early success across all routes to market position us well to empower everyone to create. I'll now turn it over to David. David Wadhwani: Thanks, Shantanu. Hello, everyone. AI is fundamentally reshaping how people create and work. As experiences become increasingly conversational and outcome-driven, more people than ever will benefit from our creativity and productivity tools. Our approach is to expand access to AI across our existing audiences in products like Creative Cloud and Acrobat, reach new audiences with products like Firefly and Express and help automate content production in enterprises with Firefly Enterprise. As we execute on our strategic initiatives, we're pleased with the progress we're making against 3 growth drivers. First, new user acquisition is gaining momentum and we are reaching more new users than ever before as measured through the growth of monthly active users. Notably, creative freemium MAU crossed 80 million, growing 50% year-over-year and includes web and mobile versions of Firefly, Express, Premiere, Photoshop and Lightroom. Second, AI usage continues to grow quickly, as measured through record levels of generative credit consumption. Third, our content automation solutions continue to see strong enterprise adoption, as measured through record numbers of API calls. These metrics highlight that we're executing against our strategy to empower individuals and businesses to create content in new ways in the era of AI. In the first quarter, subscription revenue for Business Professionals & Consumers was $1.78 billion, growing 15% year-over-year. Our vision for business professionals and consumers is to deliver AI-powered applications that reinvent how users comprehend, create and share content. PDF Spaces transforms collections of files and links into dynamic knowledge hubs that allow you to easily collaborate with others. Acrobat AI Assistant provides users conversational experiences that help them comprehend information faster and more accurately with an individual PDF or across documents in the PDF Space. Our Acrobat and Express integrations empower users to turn content they're consuming into generated presentations, infographics, audio summaries and more. It's clear that these AI-based capabilities are resonating with users as AI Assistant MAU doubled year-over-year and Express MAU tripled year-over-year. Express is now used in 99% of U.S. Fortune 500 companies. In Q3, we introduced Adobe Acrobat Studio, a single offering that brings together all these AI creative capabilities with the PDF tools users know and rely on. Subscription upgrades to offerings that include Acrobat Studio value are off to a strong start across routes to market, including adobe.com and enterprise license renewals. We are embedding Adobe's capabilities directly into new conversational platforms. In Q1, we have launched Acrobat and Express for ChatGPT, significantly expanding the reach of our creativity and productivity workflows. You can expect to see similar integrations into Copilot, Claude and Gemini as those platforms support integrated application experiences. We activated new Express partnerships, including Airtel in India, illustrating how our distribution strategy continues to accelerate new user acquisition at scale. Partnerships like these are helping to drive momentum across our Business Professional & Consumer offerings across individuals and businesses. Subscription revenue in Q1 for Creative & Marketing Professionals was $4.39 billion, growing 11% year-over-year. Our strategy for creators and creative professionals is to empower everyone to create, from first-time creators to seasoned professionals to large enterprises seeking to scale content production. Firefly, an all-in-one creative AI studio, is the right tool for the next generation of creators and creative professionals. Creative Cloud with deeply infused AI capabilities continues to be the destination of choice for power and precision creation and enterprises are increasingly turning to Firefly Enterprise to unlock a new era of content automation. Firefly is quickly becoming the go-to destination for content generation, ideation and assembly. Users can generate with over 30 industry-leading models, including Adobe, Google and OpenAI. They can collaboratively ideate with stakeholders in Adobe Firefly Boards. They can edit and assemble image, video and audio using Firefly's prompt-based editing capabilities with integrated Photoshop and Express web journeys. Firefly momentum is strong with generative credit consumption growing over 45% quarter-over-quarter. While that growth is broad-based, generations are skewing toward higher-value modalities with video generative actions growing more than 8x year-over-year and audio generative actions doubling year-over-year, reflecting customers moving deeper into AI-assisted creation across the full creative process. As a result, Firefly subscription and credit pack ending ARR grew 75% quarter-over-quarter. Creative Cloud applications continue to embed new AI capabilities, making users far more productive. Photoshop added new partner models and support for higher resolution image generation and editing Illustrator expanded its generative design capabilities with models from OpenAI, Ideogram and Google to support frequent vector workflows. Premiere added AI Object Masks, which quickly became one of the most used AI features in the application. As Creative Cloud users increase AI usage, we're seeing purchases of Firefly credit packs ramp nicely. Firefly Enterprise, the combination of Firefly Services and Firefly Foundry is empowering the world's largest brands to scale content production to unprecedented levels. Firefly Services provide enterprise-grade APIs, giving businesses more than 30 content production capabilities, which can be run in automated workflows. These include 3D digital twin workflows showcasing physical products, image and video resizing across every social and digital channel and campaign variant generation and assembly for personalized marketing content. Firefly Foundry enables the world's largest marketing teams and media companies to build private, deeply tuned AI models trained on their own IP. Unlike generic AI models, Firefly Foundry gives enterprises a commercially safe model that understands and is able to accurately generate their branded assets. Together, these products are driving measurable business outcomes by increasing production scale, accelerating velocity and reducing cost. Firefly Enterprise new customer acquisition grew 50% year-over-year. Additional Q1 Creators & Creative Professionals highlights include: Photoshop launched a conversational editing experience in ChatGPT. 85% Of films premiering at the 2026 Sundance Film Festival were made using Adobe Creative Cloud tools. Frame is emerging as the cross-media work-in-progress repository to manage the rapidly increasing volume of content being created, and doubled the number of assets under management year-over-year. And Firefly Foundry continues to build momentum in the media and entertainment vertical, with partnerships, including B5 Studios, Cantina Creative, Creative Artists Agency, United Talent Agency and WME. While Q1 had many highlights, our traditional stock business saw a steeper decline than we expected. This shift is playing out more quickly than we had planned for, and our focus remains on giving customers meaningful choice between stock and generative AI as they build their creative and marketing workflows. Q1 reinforced our confidence in the strategy and opportunity across creativity and productivity. We're thrilled with the new user acquisition and usage growth for creative freemium offerings. We're excited to see the momentum continue with workflow and automation capabilities, driving incredible efficiencies in enterprises. I'll now turn it over to Anil. Anil Chakravarthy: Thanks, David. Hello, everyone. Adobe provides the leading AI-powered solutions for creative and marketing professionals to deliver personalized customer experiences at scale. AI remains a tailwind for our enterprise business, enabling us to deliver Creative & Marketing Professionals subscription revenue of $4.39 billion in Q1, growing 11% year-over-year. Adobe pioneered the category of customer experience management. Enterprises around the world rely on our software to identify prospects, acquire new customers, engage and delight them with personalized experiences and grow customer lifetime value. We are the leading provider of content management systems for websites and mobile apps and the leading customer data platform that serves as the foundation in enterprises for digital customer engagement. We serve 99 of the Fortune 100 and are the digital platform of choice for Chief Marketing Officers and Chief Digital Officers for their ongoing campaigns and for major marketing moments like the Olympics and Super Bowl. During the 2026 Super Bowl, Adobe-enabled experiences peaked with more than 8 billion analytics server hits, 21 million concurrent viewers, 34 million page views, 1.5 million video requests per minute and 216 million e-mails delivered. In the era of AI, every enterprise needs to drive their current business while harnessing AI to address new trends in consumer behavior and expectations. Companies must ensure their brands remain front and center, even as consumers are increasingly discovering new information, engaging with businesses and buying products through LLMs and agents. These trends vary significantly by geography and consumer segment, adding complexity for global companies that need to provide personalized experiences through well-established channels like websites, e-mail and mobile apps, while ramping up new channels like LLMs. Adobe has become the trusted partner for AI-powered customer experience orchestration through our thought leadership, rapid innovation and omnichannel capabilities, while providing the security, reliability, data governance, global scale and partner ecosystem that enterprises require. Adobe's unified CXO platform provides solutions for brand visibility, content supply chain and customer engagement. Adobe Experience Platform is a leading platform for digital customer engagement and brings together new AI-powered apps and agents to transform how businesses build, deliver and optimize marketing campaigns and customer experiences as well as reduce costs. In Q1, we introduced new AEP agents along with expanded agent orchestrator capabilities now available to all AEP customers via a try-and-buy program. The scale of our platform has grown to over 35 trillion segment evaluations and more than 70 billion profile activations per day. Subscription revenue for AEP and native apps grew over 30% year-over-year, demonstrating continued momentum and value realization. As consumers increasingly use LLMs and agents to discover brands and purchase products, brand visibility has become critical to success in the agentic web. According to Adobe Digital Insights, during the 2025 holiday season, traffic to retail sites from LLMs increased nearly 7x, bringing qualified referrals that convert 31% higher and generate 254% more revenue per visit. Adobe's brand visibility solution, which includes Adobe Experience Manager, Adobe LLM Optimizer and Adobe Brand Concierge empowers brands to engage consumers across their own properties, search, social media, LLMs and agentic channels. Adobe LLM Optimizer enables enterprises to enhance the discoverability of their websites by LLMs and significantly increase their organic traffic. Adobe Brand Concierge is an AI-first application, enabling businesses to configure and manage agentic AI experiences on their websites and mobile apps to guide consumers from exploration to purchase decisions using immersive and conversational experiences. We expect our pending acquisition of Semrush will expand our offering to provide marketers with a comprehensive solution to shape how their brands appear across their own websites, LLMs, traditional search and the wider web. Content is at the heart of delivering personalized customer experiences, and the demand for high-quality on-brand content has exploded. GenStudio is our comprehensive content supply chain offering, spanning content ideation, creation, production and activation. GenStudio is highly differentiated by integrating best-in-class capabilities across Adobe's creativity and marketing applications, including Creative Cloud, Firefly Enterprise, Frame, Adobe Experience Manager and Workfront. In Q1, we delivered breakthrough innovations, enabling GenStudio-created assets to flow directly into activation workflows across the Adobe stack and a broad ecosystem of advertising platforms, including Amazon Ads, Google, LinkedIn and Meta. Ending ARR for the Adobe GenStudio family of products grew over 30% year-over-year as the world's leading brands and agencies increasingly turn to Adobe to power their content supply chain. Q1 accomplishments and business highlights include: Strong customer demand for our agentic web offerings with over 650 customer trials underway for Adobe LLM Optimizer, Sites Optimizer and Brand Concierge. Continued adoption and momentum for AEP AI Assistant with 70% of all AEP customers using the agentic capabilities. Partnership in the OpenAI initiative to enable brands to create ads for ChatGPT. Accelerating momentum for Firefly Services and custom models as part of the GenStudio solution with over 2,500 custom models since launch and Q1 industry analyst recognition, including being named the Leader in 2 Forrester Waves for Digital Asset Management Solutions and Revenue Marketing Platforms for B2B as well as the Gartner Magic Quadrant for Personalization Engines. Adobe's unique value is helping enterprises solve their comprehensive customer experience and content supply chain needs, balancing creativity, automation and costs. Global customer wins in the enterprise in Q1 included Centene, Danske Bank, Deutsche Bank, Heineken, HP, MongoDB, Nordstrom, Paramount, Pilot Travel Centers, RACQ, Revlon, Sherwin-Williams, Southwest Airlines, Stagwell, Target, TUI Travel Group and WPP. Customer experience orchestration is a critical imperative for every business to drive both top line and bottom line growth. Our unique vision, comprehensive offerings, rapid pace of innovation, extensive partner ecosystem and laser focus on delivering business value position Adobe as the partner of choice for AI-powered customer experience orchestration. We look forward to unveiling significant innovations and partnerships that will further advance our leadership position at Adobe Summit in April. I'll now pass it to Dan. Daniel Durn: Thanks, Anil. Today, I'll start by summarizing Adobe's performance in Q1 fiscal 2026, highlighting growth drivers across our customer groups and I'll finish with our financial targets. In Q1, Adobe achieved revenue of $6.40 billion, growing 12% year-over-year as reported and 11% in constant currency. GAAP EPS was $4.60 and non-GAAP EPS was $6.06, increasing 11% and 19% year-over-year, respectively. GAAP operating margin was 37.8%, and non-GAAP operating margin was 47.4%. Q1 financial highlights included total Adobe ending ARR of $26.06 billion, growing 10.9% year-over-year. Total customer group subscription revenue of $6.17 billion, growing 13% year-over-year or 12% in constant currency. RPO of $22.22 billion exiting the quarter, growing 13% year-over-year or 12% in constant currency and cRPO growing 12% as reported or 11% in constant currency. Cash flows from operations in the quarter were a Q1 record of $2.96 billion and ending cash and short-term investment positions exiting Q1 was $6.89 billion and repurchasing approximately 8.1 million shares of our stock during the quarter. Exiting Q1, we have $3.89 billion remaining of our $25 billion authorization granted in March 2024. Business Professionals & Consumers subscription revenue was $1.78 billion, increasing 16% year-over-year as reported or 15% in constant currency. Q1 growth drivers for Business Professionals & Consumers included sustained double-digit ending ARR growth across all geographies. Acrobat and Express MAU grew approximately 20% year-over-year. Acrobat AI Assistant ARR grew approximately 3x year-over-year and strong upgrades to Acrobat Studio as part of enterprise license renewals. Creative & Marketing Professionals subscription revenue was $4.39 billion, increasing 12% year-over-year or 11% in constant currency. Q1 growth drivers for Creative & Marketing Professionals included growth in Creative Cloud driven by the CC Pro offering, creative freemium MAU crossed 80 million, growing over 50% year-over-year and includes web and mobile versions of Firefly, Express, Premiere, Photoshop and Lightroom. Generative credit consumption increased more than 45% quarter-over-quarter. Firefly ending ARR across Firefly app, Firefly credit packs and Firefly Enterprise exceeded $250 million. GenStudio and AEP and apps ending ARR each grew over 30% year-over-year. Strong pipeline momentum for new AI offerings across LLM Optimizer, Sites Optimizer and Brand Concierge. Continued strength and retention across the enterprise customer base, and continued success in the enterprise as total customers with ARR over $10 million grew greater than 20% year-over-year. As we transform our business, we continue to deliver double-digit total Adobe ARR growth at scale, driven by innovative technology, the breadth of our solutions and strong go-to-market motions. From a product perspective, Q1 ARR growth was driven by Acrobat and Express, Creative Cloud Pro and AEP and apps and GenStudio in the Enterprise as well as growing momentum in our expanding portfolio of AI-first applications, including Firefly app and Firefly Enterprise. In total, ARR from AI-first applications more than tripled year-over-year. In Q1, we drove significant MAU growth for our new creative web and mobile freemium offerings, including Express, Firefly, Photoshop and Premiere. While this freemium approach is intentionally designed to serve the next generation of creators, build the Adobe brand and set the foundation for accelerated growth over time, these offerings have a near-term impact on ARR. In addition, we continue to monitor and drive utilization of AI functionality across our products. In Q1, this AI functionality drove significantly greater credit consumption quarter-over-quarter. However, in Q1, we experienced a greater-than-anticipated decline in our traditional stand-alone stock book of business. While this is happening faster than expected, our strategy is to provide customers with the choice to use stock or generative AI offerings for creative and marketing workflows. We expect strength for our core Acrobat and CC products and enterprise demand for our CXO solutions, coupled with new MAU growth for Firefly and Express and increasing AI usage and monetization to gain momentum as we move through the year. We continue to expect total Adobe ARR growth of 10.2% for FY '26. Let me now turn to our financial targets, which assume current macroeconomic conditions and do not include the contribution of Semrush, which we continue to expect to close in Q2, subject to regulatory approvals and closing conditions. For Q2 fiscal 2026, we're targeting total Adobe revenue of $6.43 billion to $6.48 billion, Business Professionals & Consumers subscription revenue of $1.80 billion to $1.82 billion, Creative & Marketing Professionals subscription revenue of $4.41 billion to $4.44 billion, GAAP EPS of $4.35 to $4.40 and non-GAAP EPS of $5.80 to $5.85. For Q2, we expect non-GAAP operating margin of approximately 44.5% and non-GAAP tax rate of approximately 18%. In addition, we are reaffirming our FY '26 targets. Adobe remains focused on executing our growth strategy in a period of profound technological change. As customer behavior evolves, the strength of our platforms and the rapid pace of our AI-driven innovation and creativity, productivity and customer experience orchestration workflows, position us to drive profitable growth and seize the opportunities ahead. Shantanu, back to you. Shantanu Narayen: Thanks, Dan. Q1 represented a strong start to the year, both for our existing platforms where we've been innovative with AI as well as the new strategic initiatives that will drive future growth. Adobe remains steadfast in its commitment to innovation and delivering value to our customers, partners and shareholders. We're confident that our customer-centric approach, groundbreaking product innovations, passionate employees and unwavering execution will continue to drive growth and create durable value. Thank you, and we will now take your questions. Operator? Operator: [Operator Instructions] And we will take our first question from Jay Vleeschhouwer with Griffin Securities. Jay Vleeschhouwer: Shantanu, first, for you, I just want to say how much I have appreciated our 3-decade relationship. And I do want to commend you, if that's a strong enough word, for the multiple transformations at the company that we've seen over that long period of time. So I just wanted to make that personal and professional remark before I ask my question, which this evening is actually for Dan, not a product question. One of your most important metrics, I think, is and will be the progression of your current RPO. The constant currency growth rate for cRPO was about 1 point better than Q4 and also, over the last number of years, we've seen that cRPO has fairly consistently been somewhere around 51%, 52% of your estimated next 12-month revenue on a rolling quarterly basis. Is there any reason to believe that your revenue visibility via cRPO coverage might proportionately increase over the next number of years. Maybe just talk about that perhaps structural change that you foresee, if any, in your cRPO? Daniel Durn: Yes. Thanks, Jay. I appreciate the question. We're pleased with the momentum that we exited the year last year 2025, strong progression across all 3 customer audiences, and the business performed well. As we window into this year, you can see the strength in terms of our enterprise business and the way we're combining solutions from creativity to marketing to create those content automation solutions and help brands drive their business in this environment. So we're pleased with the progression and the performance and the strategy and the execution against that strategy. I don't see any reason why the trends we've seen in the business historically would inflect to drive a different dynamic as it relates to RPO, cRPO and translation to revenue. Shantanu Narayen: And Jay, I just wanted to say thank you for those kind thoughts. And I have to -- I'd be remiss if I didn't say that I'm even more excited about what we've been accomplishing as it relates to the AI transformation and the opportunity ahead of us. So we're going to stay really focused on capitalizing on that opportunity. Operator: We will take our next question from Saket Kalia with Barclays. Saket Kalia: Shantanu, I just want to start by echoing Jay's comments. I mean clearly, this has been a very dynamic space, but you've helped build one of the largest SaaS businesses in the world over the years. So let me just start by saying congrats. But maybe on that point, I was wondering just a bit of a broad question. What is the Board looking for in Adobe's next CEO? Shantanu Narayen: Well, thanks again, Saket. I think at our core, we're always going to be a product company. And I think taking advantage and looking around the corner as it relates to the immense opportunity that AI has across creativity and marketing is the real opportunity for not just the CEO, but the company as well. And I think from my perspective, it's a massively scaled business right now. And so just continuing to have a growth agenda. And we're all about our people. And so the values associated with it. And I'm actually really confident that the Board and the Special Committee will do a great job of shepherding that search. Operator: We will take our next question from Brad Zelnick with Deutsche Bank. Brad Zelnick: Firstly, Shantanu congrats on an epic run. Your impact on Adobe and the industry at large, I know will be enduring for decades to come. But my question is for David. David, it's great to hear the generative credit consumption is ramping so meaningfully up 45% sequentially and much of the expansion has been skewing towards video and audio. Would love to understand what use cases you're seeing consume credit so meaningfully in video and audio. Are we still in more of an exploration stage or maybe asked differently, what are the use cases you're seeing from leading-edge customers that are driving this type of consumption? David Wadhwani: Yes. I think that's a really important question and indicator in terms of where we're going. If you take a step back, I think when you look at the evolution of AI, it has gone from a fun thing to play with to something that's evolving and being integrated more and more into existing workflows. And now I think people are very much relying specifically on the need for AI to be part of their creative process. And so you can -- for those who haven't been tracking, you can think about generative credits like tokens for our creative applications. Obviously, we do a lot of generations across the entire business, but that's effectively what that is. The net of what you're seeing here is we have more people generating than ever before. You saw that monthly active users of our freemium creative software, as an example, is up to over 80 million, 50% year-over-year. So we have more people generating. They're generating higher resolution because it's not just a fun thing to play with. It's actually part of their existing workflows. And they're generating higher modalities, things like video, audio, design. And so you see all of that pushing generative credits up. The second thing is they're actually generating in more places, right? We've certainly started the process by having them create and use generative AI in our core flagship applications, and that continues to grow nicely. Firefly is becoming really more of a destination. We talked about how that grew -- that business grew 75% sequentially quarter-over-quarter. Express Boards for broad-based ideation and stakeholder value. So lots of reasons to look at this as the right leading indicator. And the last thing I'll say is we're starting to see a nice ramp in terms of existing creative professionals adding on additional creative packs as a result of this. Operator: We will take our next question from Mark Murphy with JPMorgan. Mark Murphy: Shantanu, congrats on one of the greatest and longest CEO tenures and growing Adobe to $26 billion in revenue. I want to ask you and also the others, it's remarkable to see 13% subscription revenue growth. We haven't seen that in quite some time. It's intriguing that total revenue growth accelerated in constant currency to 11% or maybe I should say, upticked, but can you speak to the revenue acceleration, we were not expecting to see revenue accelerate quite yet. And I'm just trying to understand, should we assume the stock business is pretty small. And therefore, whatever minor setback you saw, it's just being more than offset by tripling in AI revenue and the step-up in credit consumption that Brad asked about. And that maybe -- is it that kind of netting out that drove this top line acceleration during the quarter? Shantanu Narayen: Yes. A couple of things, Mark. I mean if you take a step back and really look at, as we've been going through this transition, what we've been focused on. First and foremost, it's about are we driving the right product innovation with great new customer audiences in sight. And the way I tend to think about that, it's on the user side, as we have been saying, really driving a huge amount of new user adoption and usage is the early indicator for us that we are driving success with the next generation of creators and business professionals and consumers because our strength with the creative professional continues. And so I think we've done a really good job of -- with Firefly and Acrobat and Express continuing to drive innovation in those particular areas. And then on the other side of the spectrum, I mean, we've always said one of our sustainable differentiation is what we do within the enterprise. And so the enterprise pipeline and continuing to make sure that we deliver, you saw both GenStudio as well as AEP and apps growing 30%. I think as it relates to the revenue, we're doing a better job of really making sure that as it relates to translating ARR to revenue that we're really focused on it. That continues to be both a focus on making sure that we drive retention. And just looking at linearity. So the linearity also associated with the business tends to help with that. So we're pleased with revenue as well as EPS. But I think bigger picture, we just look at it and say the fact that we're driving AI across the individual user segment and the enterprise, which was a really strong quarter. I think as it relates to your question around stock or order of magnitude, it's about a $450 million book of business. And maybe just to talk a little bit about that, if you had -- if you take out the stock business like-for-like, instead of the 10.9% growth, it would have been approximately 11.2% growth. So just to give you a flavor. Now we still look at that entire business as an opportunity because people do like to start any creation or marketing workflow with a piece of content. That's increasingly become generative. That's why you saw the scale, I think, in how we are doing generations. But hopefully, that gives you a flavor of how we think of that business. And we want to make sure that we offer a combined royalty-free stock, plus generative AI offering to take advantage of that opportunity. Operator: We will take our next question from Keith Weiss with Morgan Stanley. Keith Weiss: Shantanu, I don't think we can start a question without congratulating you on what was really an amazing career. I think it's pretty safe to say that you've been a North Star of leadership for the entire careers of probably most of the people on this call and your stewardship of Adobe has just been legendary. So you'll be sorely missed. So it's been a pleasure working with you. So thank you for all of that. And best of luck on your future endeavors. Maybe as a little bit of an advertisement for your future successor, you talked a lot about laying foundation for future growth. You talked about some of the initiatives in the near term that -- near term ARR, but sets us up for success in the longer term. Can you talk to us a little bit more about those initiatives and a little bit more about those foundations and how you expect that to evolve? And maybe just the time frame for what today is a foundation-building initiative to when that becomes more of a ARR-driving initiative when that becomes more of the acceleration story within Adobe. Shantanu Narayen: Yes. Sure. Keith, and again, thank you all for the kind remarks. I'm not done yet. I just want to make sure -- make no mistake, I'm going to be laser-focused on continuing to drive the company until we have a new CEO and to make sure they are successful. But the things that we tried to outline as strategic priorities. I mean first, creativity is at the core on the DNA and as it relates to the business professional and consumers, we just believe that the combination of creativity and marketing, creativity and productivity with the Acrobat plus Express is what's going to drive both usage as well as an ARR. And so I think in terms of how we look at that particular business that's driving good mid-teens growth, and we want to, as we continue to drive applicability of Express in that, accelerate that business. And so the good news is the early indicators, which is MAU, is really increasing. Same thing with the freemium. I think in our prepared remarks, we talked about the 80 million that we're seeing as it relates to the creative freemium MAU. And so I think even that's driving the business. The slight difference, Keith, in those businesses tend to be that in the traditional business when somebody came and bought it, you would just immediately translate that into ARR. And here, they have to see a little bit of the paywall and they have to get -- so it's a little face-shifted is how I think about it. But for that particular customer segment, the fact that we're driving MAU, that is the right early indicator for us to focus on, much like we did with Reader for so many years, which is you get the adoption and you get the usage. And Reader ubiquity even in new environments like Chrome as well as Edge are really what's driving the revenue. So that's sort of the early indicator in driving that. The core creative professional, I think the ARR will continue to be driven by adding more value to the products, Creative Pro, which is the offering there. It's good to see the success associated with that. And I think on the enterprise side, hopefully, both from our prepared remarks and from the answers to your question, that's really an area of strength for us because people are looking at it and with AI, everybody wants to know how you transform your business. Every CEO that I talk to wants to ensure that they deal with the next generation of consumers and attract them as well as what they want to do then is say, how do I ensure that from my marketing spend, I'm getting as much breadth as I can as well as how much automation and productivity in terms of revenue. And so I think the fact that we have all these new offerings, specifically, Firefly. Dan, I think, talked about a $250 million book of business for Firefly, that didn't exist a few years ago. As we talk about what's happening with GenStudio, 30% growth, AEP and apps. And I would venture to say, Keith, that we should hopefully see what we had identified as the AI-first sort of book of business. That tripled, but that should be our next billion-dollar business. So that's -- we're ruthlessly focused on all of those. So hopefully, that gives you some color on why we're excited about the performance that we put up. Operator: We will take our next question from Alex Zukin with Wolfe Research. Aleksandr Zukin: And again, echoing everybody's praise, Shantanu on the call, it's truly been a special opportunity to work with you and follow your progress. I guess maybe a quick 2-parter, which is, if I think about the impact of AI MAU growth on ARR growth in the quarter, can you maybe just unpack exactly why it was dampened. And as consumption trends improve, how do we think about that kind of impact as we head through Q2, Q3, Q4, when does net new ARR growth start to maybe go positive? And then maybe just anything on the timeline that we and investors should expect around the CEO search. Is this something that is a quarter, multiple quarters? Any timing there would be helpful. Shantanu Narayen: Maybe I'll cover the second part and start, which is if I take a step back, actually, because this is a question that is on people's minds, I just wanted to actually say that there never would have been a good time given how much Adobe is part of me. So I do want to start off with that. And in many ways, I've always believed that my role is looking around the corner, whether it's positioning the company for the future or about product and leadership. And as we've said many times, on product, I feel really good about how we've transformed our road map based on this AI and customer audiences, the new products are both exciting and groundbreaking. On leadership, we've always invested in developing a really deep bench of outstanding execs. But timing-wise, part of it is it was really important for me to be transparent about my decision and communicate and allow the Board to take ownership for the selection. So I would suspect it will take a few months. This is not because I have just notified them. So hopefully gives you that a little flavor for that. And I'll start on the other question, Alex, a little bit and then ask David and Dan, which is, the way you have to think about it is our traffic patterns in terms of creativity at adobe.com is only going up and to the right. We have 2 options in terms of how we guide that traffic. We can guide that to ARR that comes immediately or we can guide it to a long-term value and what drives greater long-term value in terms of getting the right product. And increasingly, we're ensuring that we transition. So top line traffic is good, and that's why when we say dampen, I like phase shift also a little bit because that sort of moves out. If you think about the fact that we reaffirmed our targets, I mean, that would imply that we would expect double-digit ending book of business growth for the remaining 3 quarters. So hopefully, that gives you some flavor. But David? David Wadhwani: Yes. I'm happy to just add on a little bit there. So as Shantanu indicated, we look at creativity as a whole as bigger than it's ever been. And if we look forward, we couldn't be more excited about the fact that literally everyone in the world is going to be creating. They're going to be creating visually. They're going to be creating images, the videos, designs, and that's really our wheelhouse, right? And if we think about the shape of that broader creative audience, that is evolving, right? So we have creators now representing basically anyone in the world that wants to create visually. We have creative professionals who are under more and more pressure to create more prolifically and more content and we have enterprises that are looking to automate more of that creativity. And so as we think about that creativity infusing itself into everything, we think about it in 2 columns. The first is around the end user, right? And if you think about that, it really is about reaching the end user where they are. And so we have freemium offers like Firefly and Express. We have power and precision by embedding AI in our existing creative products. And we have more and more products for businesses around automation with Firefly Foundry and Firefly Services now part of GenStudio. So as we think about the growth algorithm for growth, we're going to see more traffic to adobe.com. We continue to see record traffic levels, traffic continues to grow very nicely. And how we route that traffic to freemium offers is going to be really the evolution that Shantanu is talking about in terms of the change that we should expect to see. And as that traffic goes to these new offers, it's just going to take a little time for them to use the product, to hit the paywalls and then translate out. So again, as we said on the prepared remarks, this is really on strategy to drive MAU, drive credit consumption, drive enterprise usage. And we should expect to see that start to accelerate in the back half. Operator: We will take our next question from Matt Swanson with RBC Capital Markets. Matthew Swanson: Shantanu, I'd echo my congratulations, I guess, as I work for this, too. I want to talk to you about the partnerships that we've had announced the last 2 quarters. So last quarter, with all the embedded models and then this quarter, building on even more so with a lot of the advertising platforms, Amazon Ads, Google, Meta. It's a lot of different companies that I think over the last year on this GenAI journey, investors have brought up to us as potential competitors or maybe almost a risk to Adobe that are now kind of part of the ecosystem. So can you talk a little bit more about kind of how you're evolving in this role of orchestration to really help monetize all this new creative content for all these stakeholders. Shantanu Narayen: And so maybe I'll touch on the enterprise one first, and then I'll touch on the models. I mean I think as it relates to the enterprise, I mean what's completely clear is as we are helping people with customer experience orchestration, and Anil can certainly add to that. I mean people are looking to us from everything. They're looking to us for brand visibility, acquiring customers, serving them and then ensuring that they create a long-term engagement. So if you think of it that way, there's just no question that from the perspective of a CMO or CIO or the Head of Business, they're looking to Adobe because in this LLM world, it's going to become even more important to them that they actually have a direct engagement with their customers and their own sites actually take way more importance in terms of the value. And so as a multichannel work -- multichannel world emerges in the LLM space, our ability to support it. So those specifically are like the partnerships with Google and Amazon, Meta as well as the other ad places. I think to your point, all of them may have an offering because they have to allow a self-serve offering, those typically tend to be geared towards the small and medium business and maybe even smaller part because it's important, but they value the fact that we can actually help them get campaigns faster and understand the efficacy of those campaigns by closing the loop, and they would like to work with us to jointly go to a customer and say, see, if you advertise on our channel, your return on investment is much better. So that's as it relates to that side. Same thing with the agencies because the agencies are partnering with us to say, we need more automation. We need more technology to help deal with how AI is going to impact marketing spends. Let's partner with you. And so that's why a partnership with Publicis or WPP accomplishes that. I think on the model side, my take on the model side would be as follows, which is there are going to be 2 or 3 really large language models that actually succeed. All of these individual models that exist, small model companies in 1 part of a media ecosystem, I just don't see how long term they survive because people aren't interested in just the model, they're interested in the workflow. And so for us, offering customers with that choice was actually very strategic because we can actually then provide for all of our creative customers the right model for the right case because these all have different brands. And so I think as it relates to the support of all these models, I think it's a win-win. They would like access to customers, which Adobe has, and we would like access to these different models because they have different brand attributes. And I think if you look at the larger companies like Google, we're actually with them and with Nano Banana, it's been a great partnership because we are providing them with a lot of customers and they're providing us with great technology. And so -- and to some degree, I look at that, and I think I may have said that in my prepared remarks. I definitely look at that as I looked at when iOS came along or Android came along or the browser came along, whether that's Edge or Chrome, or Mac and PC, frankly, every single environment in which people want to engage is additive to the opportunity. And if we don't think it's additive to the opportunity, we're just unnecessarily ignoring that. So that's the way I look at it. And frankly, you'll continue to see more partnerships. So stay tuned. I mean that's something that we continue to work on. Operator: We will take our next question from Brent Thill with Jefferies. Brent Thill: The dampening of ARR with new premium offerings, I guess, what gives you confidence on the back side that you can monetize this? Daniel Durn: Yes. So I would say, first of all, we already are monetizing it. You see the momentum we have with Express. You see the momentum we have with Firefly. And we've got a long history. Acrobat, I think, is the first freemium funnel around software, and it's the one of the most performing parts of our business. And so we feel good about the journey we've been on which takes a large surface area of highly engaged users, takes them on journeys where they dive deeper from a feature functionality standpoint, hit pay walls and bring them down the funnel. And once they are paying customers in these freemium models, and frankly, this is where customers' preferences and behaviors are going. They want to try before they buy. And so it's meeting the customers where they are. But we've got an incredible ecosystem that's pervasive. And once they become deeper customers around those freemium entry points, the opportunity to more deeply monetize that over time with a well-worn notion around upsell and cross-sell is one of the historical strengths of the company and will continue to be. So we feel confident that it is on strategy, meet the customers where they are, allow them to engage in the way in which they want to engage and then continue to bring them deeper into the Adobe ecosystem, which becomes an effective monetization lever over time. So we feel good about the strategy and how we're executing against it. Brent Thill: And then Dan, one quick follow-up just on capital allocation. From an M&A perspective, I know you backed off quite a bit, but the environment has changed considerably where other large companies are feeling things are easier to get done. Have you shifted your view at all on the buyback versus M&A? Daniel Durn: Yes. I won't say there's a change in our philosophy. We've always said there's 3 elements to our capital allocation strategy. First pillar is to grow the company, grow it organically by investing in game-changing category-defining innovation, but also complement it from time to time with inorganic activity that maintain a flexible, strong balance sheet and return excess capital to shareholders. That framework is standing the test of time. We've announced Semrush, great asset, great acquisition, complements the business well and allows us to engage from a brand visibility standpoint in an evolving environment where you're layering in LLMs next to search engine optimization, and we'll have the industry's best leadership product -- category defining products. And so we continue to look, but we won't be cavalier about M&A. We've got great innovation in flight. We've got an organic engine that we're pleased with the innovation we're bringing and the strategy that we're executing against. But we continue to look to see how we complement that organic growth engine within organic and the bar is going to be high. But when we see something that's interesting and attractive, we will absolutely go out and action it. And so I would say there's really no change to the approach, Brent. Operator: We will take our next question from Michael Turrin with Wells Fargo Securities. Michael Turrin: This one's for the broader team. The company is still delivering greater than 47% operating margin. It's an impressive number, but the net new ARR number was down a touch this quarter. So I'm just wondering what the team's thoughts are on potentially taking margin down to grow faster. It's the question we're getting from investors across software. So is that something you think you could do with some of the newer revenue streams and engagement levels you're seeing? Or maybe talk to us around how you're evaluating the trade-offs there just given the current environment. Shantanu Narayen: Sure. I'll start. And then, I mean, we are always looking to make sure that we spend money to drive long-term value. And on some of the businesses, namely, I would say, Firefly and Express, you're absolutely right, which is the more marketing we spend on it, the more with our data-driven operating model, we continue to see it. I think you'll see as it relates to the Q2, there's a slight degradation that has as much to do with the Summit and the other events. But maybe what's not well understood is how below the surface, we're actually constantly getting more efficient as it relates to our spend and making sure that we spend that more on marketing as well as on the COGS associated with what's happening. So we now track tokens and token usage within the company, and it's nice to see that token usage increase because that means that our AI products are seeing great value associated with it, and we will continue to do that. We will continue to do that. And given we have the best customer experience orchestration solutions, we know where that ROI is helpful and where that ROI can be wasteful. But it's a good question. And be assured that we're spending on the newer initiatives, and that's why tripling that revenue, and you're right. I mean we will continue to see how we can accelerate that as well. I mean given that is the last question, maybe, again, in summary, what I would say is that, as it relates to our business, a strong start to the fiscal year. And as we think about where the company is focused, namely AI products and ensuring that at the user level, we continue to see accelerated acquisition and usage and, on the enterprise, making sure that we combine the power of our creative tools to enable them to accomplish their business objectives with customer experience orchestration, we feel really good about that. So thank you for joining us, and hope to see all of you at Summit. Doug? Douglas Clark: Thank you, everyone, for joining. Operator: Thank you. And this does conclude today's question-and-answer session. I would now like to turn the call back to Shantanu for any additional or closing remarks. Shantanu Narayen: I think we actually closed. Thank you very much. Operator: And this does conclude today's call. Thank you for your participation, and you may now disconnect.
Randall Giveans: As we conduct today's presentation, we will be making various forward-looking statements. These statements include, but are not limited to, the future expectations, plans, and prospects from both a financial and operational perspective, and are based on management assumptions, forecasts, and expectations as of today's date, March 12, 2026, and are as such subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and financial forecast, and additional information about these factors are included in our annual and quarterly reports filed with the Securities and Exchange Commission. With that, I now pass the floor to our CEO, Mads Peter Zacho. Please go ahead, Mads. Mads Peter Zacho: Good morning and good afternoon. Thanks a lot for joining the Navigator Holdings Ltd. earnings call for Q4 2025. Just to get us started on the right foot, I would like to clarify that Navigator Holdings Ltd. currently has no vessels inside the Hormuz Strait. We will later touch more on the war in the Middle East and what it means for Navigator Holdings Ltd.. We will explain why the impact is limited. As usual, I will review the key data from our Q4 2025 performance and then go over the outlook for the coming quarter. After that, Gary, Øyvind, and Randy will discuss our results in more detail, and then there will be Q&A afterwards. Please turn to page 4. As you can see, in summary, we decided to call Q4 2025 a steady finish to a dynamic year, 2026 looking better. Mads Peter Zacho: In Q4, we generated revenues of $153 million, same as previous quarter and up 6% compared to same period previous year. The main driver of the increase in revenue over same period last year was 8% higher charter time charter equivalent rates and partially offset by lower utilization. Adjusted EBITDA was $73 million, down from $77 million in Q3 and similar to the same period previous year. The balance sheet is strong, with total liquidity position less restricted cash of $246 million at quarter-end, significantly higher than same date the year before. In November, we increased our capital return to 30% of net income from previously 25%, and we increased the fixed dividend from $0.05 per share to $0.07 per share. Mads Peter Zacho: This reflects our strong balance sheet and equally important also our commitment to increasing the return of capital to shareholders. We achieved very attractive financing for two of our six new buildings at margins of 150 basis points, equal to the lowest ever for Navigator Holdings Ltd.. You should watch this space because more will come. On the commercial side, we achieved average TC rates of $30,647 per day during Q4. This is about $300 less than the ten-year high achieved in Q3 and is 8% above same period previous year. We utilized our vessels as guided at 90%, almost the same as last quarter, but below the 92% year prior. Mads Peter Zacho: Throughput at our joint venture ethylene export terminal was about 192,000 tons for the quarter below Q3, but it was 20% higher than same period previous year. It continues to be European demand driving U.S. ethylene exports, and we expect continued strong demand from Europe, but we also now see signs that Asian demand is emerging. Two ethylene offtake contracts have been signed for our terminal, and we will see renewed interest from customers to sign more. We continued the sale of older tonnage with Navigator Saturn and the Happy Falcon that were sold in January. I would like to make two comments on this. First, over the past few years, we have consistently sold older vessels with attractive book gains and on average, well above market value estimates. Mads Peter Zacho: I consider this a recurring income stream and an integral part of our business model. Secondly, the older vessels are typically unencumbered and release significant cash. This cash has been and can be expected to be used for capital return. Looking ahead, it is obvious that the war in the Middle East creates uncertainty but also commercial opportunities for Navigator Holdings Ltd.. Overall, we expect both TC rates and utilization to remain or exceed those achieved in the fourth quarter of 2025. We also expect exports out of Morgan's Point to strengthen towards or above the record export volumes that we saw in Q3 of 2025. Only 3% of global Handysize volumes are loaded in the Gulf. Oil and gas export from the Gulf have stopped, and that opens for alternative trading routes and substitute products. Producing ethylene from U.S. ethane is a substitute to Middle Eastern naphtha-based ethylene production. Mads Peter Zacho: Ammonia also now sees longer ton-mile transportation. On top of this, we see LPG volumes from Venezuela starting to be exported on the regular fleet, and that means not the shadow fleet. Lastly, I want to point out to the aging handysize fleet with almost twice as many vessels being older than 20 years, which compares well to the newbuilding book. This can lead to negative fleet growth in the near to midterm. With that, I will just pass it on to you, Gary, so you can give a little bit more detail on our financial result. Randall Giveans: Thank you very much. Mads Peter Zacho: Before I do so, sorry, maybe I should just not forget to just have a quick look at the slide here. We are quite proud to show the overview here of the Webber's ranking of stock exchange listed shipping companies and how they ranked on governance. You can see Navigator Holdings Ltd. was ranked number 16 back in 2021, and we gradually improved to number 11, 7, 3, and to number 1 in the most recent ranking here. I think it is important for us as a company that the corporate governance work that we are doing is being recognized by Webber Research & Advisory. Mads Peter Zacho: We will of course do everything we can to stay in the top ranking here and continue to deliver very strong results, not only financially but also governance-wise. Not to be forgotten and on to you, Gary. Gary Chapman: Yeah, that is great. Thank you, Mads. Hello everyone. During the final quarter of 2025, we continued wrestling, as Mads has said, with headwinds from geopolitics. Perhaps looking at events in 2026 so far, it perhaps makes the fourth quarter feel quite calm. However, so far, as Mads alluded to, Navigator Holdings Ltd. has not been materially affected financially or operationally, and Øyvind will talk some more about this. Turning back to the fourth quarter last year, we were able to report a very solid set of results. As always, helped by our cargo type diversification, our geographical trading flexibility, our market position, and our strong financial foundations. Gary Chapman: Our fourth quarter 2025 results have even contributed to some annual data points that are record-breaking for Navigator Holdings Ltd., where we have been able to push and keep charter rates up and also maintain utilization, supported by our flexibility, efficiency, and cost management. On slide 7, we report strong fourth quarter TCE of $30,647 per day, leading to total quarterly operating revenue of $152.8 million and quarterly EBITDA of $70.9 million. The positive TCE result this quarter reflected a good performance across all our vessel segments and led to an annual TCE of $30,110 per day, which is the highest level since the previous cycle peak in 2015. Gary Chapman: Utilization was 90% in the fourth quarter, right on our benchmark, which is slightly up by 0.7% compared to the third quarter of 2025, but down 2.2% compared to the fourth quarter of 2024. Fourth quarter adjusted EBITDA was $73.4 million, which is the same level we posted in the fourth quarter of last year. Following the record revenue generated across 2025, we are reporting a record annual EBITDA for Navigator Holdings Ltd. in 2025 of $302.8 million. Vessel operating expenses were up compared to the fourth quarter of 2024 at $47.6 million, with the increase primarily driven by the net increase in our fleet size following the purchase of the three secondhand vessels in the first quarter of 2025, as well as simply the timing of maintenance costs incurred. Gary Chapman: We have closed the year close to budget for our OpEx costs, adjusting for the extra vessels, and there is more guidance for 2026 on slide 10. Depreciation is very slightly down compared to previous quarters, despite our now increased fleet, mainly due to two older vessels, the Navigator Pluto and Navigator Saturn, reaching the end of their 25-year accounting life during the fourth quarter, and hence they are no longer depreciated. Whilst it does not yet impact our income statement, we wanted to mention that we received around NOK 9.7 million in November 2025, being the first tranche of the Norwegian government grant from their agency, Enova, towards construction of our two new ammonia-fueled ammonia gas carrier vessels. This represents just over half of the total grant, which the remainder will be paid based on construction progress. Gary Chapman: Our income tax line reflects movements in current tax and mainly deferred tax in relation to our equity investment in the ethylene export terminal, and also in relation to the natural ending of our Indonesian joint venture business, which happened in 2025, and which is not considered a recurring item and effectively represents the cost of our exiting the joint venture and repatriating our assets and profits. Randy will discuss our ethylene terminal shortly, but throughput volumes in the fourth quarter of 2025, as Mads mentioned, were 191,700 tonnes, down from 270,000 tonnes in the previous quarter, but up compared to the same quarter last year of 159,000 tonnes, resulting in us recording a profit this quarter of $0.9 million. Gary Chapman: Overall, for the fourth quarter of 2025, net income attributable to stockholders was $18.5 million, with basic earnings per share of $0.28 and adjusted basic earnings per share of $0.32. This performance in the quarter contributed to Navigator Holdings Ltd. delivering record annual net income of $100.2 million and our highest annual earnings per share of $1.49 since the previous cycle peak in 2015. Our balance sheet, shown on slide 8, continues to build and be strong. Our cash equivalents, and restricted cash balance was $204.9 million at December 31, 2025, which, if you include our available but undrawn revolving credit facilities, gives total liquidity of $296 million at the same date. Gary Chapman: Taking out restricted cash gives total available liquidity of $246 million. This strong liquidity position is despite paying out $34 million for scheduled loan repayments, $10 million under our return of capital policy in respect of the third quarter of 2025, $10 million as payments for our vessels under construction in the quarter, and paying cash consideration of $16.8 million to increase our ownership interest in our Navigator Greater Bay joint venture by 15.1%. Our Morgan's Point ethylene export terminal investment on our balance sheet sits at an equity value of $245 million but is fully unencumbered now, with the final $4 million of remaining debt having been repaid in December 2025. Gary Chapman: Alongside this, we have paid from our own cash a total of $110 million as at December 31, 2025 towards the six vessels we have under construction. The difference of this figure to our balance sheet figure represents capitalized interest under U.S. GAAP. The unencumbered terminal, a number of unencumbered vessels, and the construction payments made from our cash on hand that we will partially recoup as we fix financings for our newbuild vessels, together with the still growing operational cash flow, are reflective of the financial stability and strength that Navigator Holdings Ltd. is able to demonstrate. Gary Chapman: To bring you up to date, including our available but undrawn facilities, we had around $300 million of available liquidity at the close of business on March 11, 2026. On slide 9, we show a summary of the main capital events across the quarter where, with a very supportive banking group and a strong underlying business, we were able to return capital to shareholders, raise funds for the construction of our new builds, reward our shareholders, and continue working on managing our financing needs. We had a particularly active 2025 from a financing perspective, in which the company successfully entered into a new secured term loan to buy three vessels, refinanced existing loan facilities, issued a $40 million tap of our senior unsecured bonds, and executed several new interest rate swaps to reduce our interest rate risk. Gary Chapman: We continued that activity into the first quarter of 2026, such that on March 2, we signed a 5-year post-delivery secured term loan facility of up to $133.8 million, which will be used to finance up to 65% of the delivery and also pre-delivery installments and the construction of 2 of our new Ethylene Panda new build vessels. This transaction was executed at a very low margin cost of 150 basis points plus SOFR. We would like to thank our banking group for supporting Navigator Holdings Ltd., and we really believe the deal and the very keen pricing not only reflects the banking market today, but also the strong and stable credit story of Navigator Holdings Ltd.. Gary Chapman: In addition to our scheduled repayments, we now have only two relatively small debt balloons due in the next 24 months, with payments due in 2026 of $54 million in total that you can see on the bottom left. We continued to make substantial scheduled loan repayments with $34 million in the fourth quarter, and we have an average of $126 million of annual scheduled pro forma debt amortization per year across 2025 through 2028, with our net debt to 2025 adjusted EBITDA sitting at 2.5x at December 31, 2025. In addition, our net debt to our on-water fleet value results in a loan to value or LTV of 32%, which falls below 30% if you attribute any reasonable value against our Morgan's Point terminal. Gary Chapman: We try to use our balance sheet efficiently to allow us to reward our equity holders while also ensuring we maintain a sensible position for the business and our bond and credit investors. This balance is something we are continually evaluating, especially in today's environment. Our next priority is to close financing in relation to our remaining four new-build vessels, and this work is already started with transactions well progressed. We are currently targeting to complete the finance for the remaining two Ethylene Panda vessels in March or latest April 2026 and our two ammonia vessels within the second quarter of 2026. We look forward to being able to report on a successful outcome when this work is complete. Gary Chapman: Finally, at December 31, 2025, 58% of the company's debt was either hedged or was on a fixed interest rate basis, with 42% open to interest rate variability. This is another key metric that we keep under close review. On slide 10, we show our estimated all-in cash breakeven for the full year 2026, which at $20,970 per day per vessel remains significantly below our average TCE revenue for 2025 of $30,110 per day. The graph bottom left shows how this headroom has developed over the last few years, and you will see in there the consistency of our business, particularly in the last four years, but even going back further. Gary Chapman: You can see on the top left that the all-in breakeven rate includes forecast scheduled debt repayments and our scheduled dry dock commitments. The latest figure here is materially unchanged from the estimate we provided on our last earnings call in November 2025. On the right is our updated OpEx guidance for 2026 across our differing vessel segments, ranging from $7,900 per day for our smaller vessels to $11,400 per day for our larger, more complex Ethylene vessels. This guidance also remains materially unchanged from our last quarterly call in November 2025. Below that is further next quarter and full year guidance across vessel OpEx, general and admin cost, depreciation and net interest expense in total dollar terms. Gary Chapman: The full year guidance for vessel OpEx towards the bottom is now lower in total than previous guidance given in November, given we have reduced our fleet size somewhat through vessel sales. Net interest expense is also a little lower than previous guidance given at the same time. However, both are materially unchanged. Slide 11 outlines our historic quarterly adjusted EBITDA, adding this fourth quarter's result. We now have 12 quarters in a row since 1Q 2023 of reporting at least $60 million of quarterly adjusted EBITDA at an average of $71 million over that period. This comes back to our diversification of cargo types and geography that protects the business. On the right side, we show our adjusted EBITDA for 2025 and our fourth quarter 2025 annualized adjusted EBITDA. Gary Chapman: In addition, the bars then to the right provide some sensitivity and illustrate an increase in adjusted EBITDA of approximately $18 million, all other things being equal, for each $1,000 incremental increase in average TCE rates per day. As in previous quarters, an update on our vessel dry dock schedule, projected costs and time taken can be found in the appendix, slide 28, should that detail be of interest. With that, I will hand you over to Øyvind to provide an update on the commercial picture. Øyvind? Øyvind Lindeman: Thank you, Gary, and good morning, everyone. We will go straight to the topic everyone is focused on, namely the war involving Iran. This morning, oil is trading above $100 per barrel, second time since it started. Natural gas in Europe is up by 70% since the bombs started falling. The Strait of Hormuz remains closed. Roughly 1,000 vessels are currently trapped inside the Gulf, and an estimated 3,000 more are stalled across the broader region. A significant number of oil tankers, gas carriers, and bulkers are caught up in the disruption. 3 handysize vessels are trapped inside, none from Navigator Holdings Ltd.. A major portion of Middle East exports of oil products, LNG and LPG, representing roughly 20%-30% of global supply in some categories is effectively shut in. That leaves producers, consumers, and shipowners in a very difficult position. Øyvind Lindeman: India, for example, relies heavily on Middle Eastern LPG for heating and cooking. Asia, more broadly, it depends on Middle East for energy, and refineries depend on crude oil to produce derivatives such as naphtha, which in turn is a critical feedstock for petrochemicals, including ethylene. Naturally, this has triggered an immediate scramble to source alternative supply. How does this affect our Handysize business? Let us turn to page 13. The map shown here was taken from our operating system this morning. It shows the entire Navigator Holdings Ltd. fleet. It has a very important story, though. First, to repeat, we have zero vessels inside the Middle East Gulf. Second, we have zero vessels positioned nearby in ballast, waiting for the Strait to reopen. Øyvind Lindeman: Third, the vast majority of our fleet is deployed elsewhere, trading from the U.S. to Europe, trading from U.S. to Asia, trading from Europe to Asia via the Cape of Good Hope, and in regional trades within Europe, within the Mediterranean, and within Southeast Asia. Out of our 55 vessels, only 4 had been engaged in Iraq LPG exports. Importantly, those vessels are on time charter. That means whether they are actively sailing or temporarily idle, hire continues to be paid, much like a leased car where payment is due whether the vehicle is being driven or not. Even so, those vessels have already demonstrated the flexibility of the handysize segment by securing alternative supply position, loading LPG from places such as South China and Australia. We are frequently asked a version of the following question. Øyvind Lindeman: If 30% of LPG supply is effectively shut off from the Middle East Gulf, and now that the VLGC Baltic Index has stalled due to the lack of concluded trades, and most VLGCs are ballasting toward the only major alternative export region, U.S. and Canada, is the situation the same for Navigator Holdings Ltd.? The answer often surprises people. Mads mentioned it, but across the entire global handysize segment, only 3% of total transported volume originates from inside the Arabian Gulf, and that again is 3% only. It is a very small number, and it means that there has been far less knee-jerk repositioning, speculative ballasting, or dislocation in the handysize segment than what is apparent in larger vessel classes. In fact, many operators in larger segments would welcome the degree of geographic and cargo diversification that we have. Øyvind Lindeman: I have said it many times before, and it is worth repeating again, we are not a one-trick pony reliant on one loading region for one cargo. That diversification, both geographic and by cargo type, is working to our advantage in the current environment, which is shown on page 14. Demand for C2 cargoes such as ethylene and ethane is firm. Demand for easy petrochemicals such as butadiene is firm. Demand for ammonia is increasing. LPG demand remains steady. We do not yet have final March figures, but utilization, as you see on top left graph, improved over the first couple of months of the first quarter. At this moment in time, we do not expect any material change to our quarterly outlook. If we go a level deeper in the diversification story on page 15, the picture becomes even clearer. Øyvind Lindeman: As mentioned, the Arabian Gulf accounts for only 3% of total global Handysize volumes over the last few years. That is modest, especially compared with crude tankers and larger gas carriers, as we mentioned. By contrast, for Navigator Holdings Ltd. specifically, approximately 60% of our earning days are generated from North America, and those earning days are in turn diversified across three categories, 67% petrochemicals, 21% LPGs, and 12% ammonia. We also see incremental opportunities emerging elsewhere. Venezuela is beginning to come back into the market. Two LPG cargoes have been exported so far this year, one discharged in the U.S., believe it or not, and one in the Dominican Republic. We fully expect to be contracting Handysize vessels for Venezuela LPG exports in the near term. That would represent incremental demand for our fleet. Butadiene continues to be an important source of ton-mile demand. Øyvind Lindeman: To put that into perspective, a single Handysize cargo of 13,000 metric tons shipped from Europe to Asia via the Cape of Good Hope can generate roughly three months of vessel employment, and that is pretty meaningful to us. On ammonia, we are beginning to see some of the same dynamics that we saw 4 years ago following the outbreak of the war in Ukraine. As natural gas prices rise, ammonia production economics become more challenged in certain regions, especially in Europe, with consumers looking for more cost-effective alternatives. Instead of producing, they can import. We are actively engaging on a number of customer inquiries in this particular area. A similar pattern is developing in the U.S. ethane and ethylene exports, as shown on page 16. Ethane prices remain stable. Just as a reminder, ethane is the most efficient feedstock for ethylene production. Øyvind Lindeman: In a world where ethylene producers are paying extremely high prices for naphtha, or in some cases are struggling to source naphtha at all, those producers with access to ethane-based cracking enjoy a significant competitive advantage. Ethane exports should therefore remain resilient, and we have ethane-capable vessels currently employed in this trade and others positioned to serve exactly this demand. U.S. ethylene prices have risen in response to stronger international pull. However, import prices internationally have risen even more, which means the arbitrage has widened. Today, Europe is the highest price destination, and unsurprisingly, that is where the product is moving. From our perspective, we are happy with that dynamic as long as fleet utilization remains high and day rates remain robust, which they are. At our Morgan's Point ethylene export terminal, March is on track to be an all-time record month for volumes. Øyvind Lindeman: In fact, we are receiving indications that throughput may exceed even what you see here, being the Kpler forecast in the graph. This is definitely a space to watch closely. More broadly, we continue to see structurally increasing flow of hydrocarbons from the United States of America to Europe. Europe needs American hydrocarbons, and our Atlantic trade is becoming increasingly structural in nature. By contrast, the Trans-Pacific trade to Asia remains more ad hoc and opportunistic. Turning to fleet supply on page 17, the outlook remains supportive, as Mads mentioned, in his opening remarks. Fleet supply has been unchanged for more than a year. The order book stands at only around 10% of the existing fleet, while 17% of current vessels are already more than 20 years of age. Øyvind Lindeman: That creates a healthy supply-demand balance over the medium term, and importantly, if a new vessel were to be ordered today, they would not be delivered before 2029. Finally, on earnings and chartering condition on page 18, our all-in cash break-even has already been discussed earlier on the call. Current charter rates remain well above that level of $20,970 per day. Time charter discussions are taking place at levels above what you are looking at here, which represents the assessed 12-month charter rates from independent brokers. Certain spot trades, due to all the volatility and the attractiveness of American NGLs that we are involved in, are achieving materially high returns due to this volatility. When we step back and look at the overall picture, what we see is this. Øyvind Lindeman: While the geopolitical situation is clearly severe and highly disruptive for global energy markets, our fleet positioning, cargo flexibility, and geographical diversification leave us comparatively well-placed. In periods like this, resilience matters, and our Handysize platform is demonstrating exactly that. Over to you, Randy. Randall Giveans: Thank you, Øyvind. Now, following up on several announcements we made in recent months, we want to provide some additional details and updates on those developments. On slide 20, as a reminder, our recently improved return of capital policy includes a fixed quarterly cash dividend of $0.07 per share as part of our quarterly payout percentage of 30% of net income. As a result, during the fourth quarter, we paid a $0.07 quarterly cash dividend totaling $4.6 million, and we repurchased over 300,000 common shares of NVGS in the open market, totaling $5.4 million for an average price of $17.68 per share. Now looking ahead, in line with that new return of capital policy, we are returning 30% of net income or a total of more than $5.5 million to shareholders this quarter. Randall Giveans: The board has declared a cash dividend of $0.07 per share payable on March 31, 2026, to all shareholders of record as of March 23, 2026, equating to a quarterly cash dividend payment of $4.6 million. Additionally, with Navigator Holdings Ltd. shares trading well below our estimated NAV of north of $29 a share, we will use the variable portion for the return of capital policy for share buybacks. As such, we expect to repurchase $1 million of our shares between now and quarter end, such that the dividend and share repurchases together equal 30% of net income. As Mads alluded to, we continue to repurchase shares and believe there is upside from here. Randall Giveans: Turning to our ethylene export terminal on slide 21. As guided, ethylene throughput volumes fell slightly to almost 192,000 tons during the fourth quarter as European ethylene demand softened and end users reduced inventories and vessel availability remained relatively tight. Now despite those lower volumes, it was encouraging to see some new customers step in to take cargoes, spot cargoes to both Europe and Asia during the quarter. Now to the really good news. As you will see in the bottom left chart, we expect volumes in March to reach a record high of close to, if not more than, 120,000 tons, which could result in a quarterly high in the first quarter of 2026. Randall Giveans: Now looking at the bottom right chart, despite the near term increase in U.S. ethylene prices, the arb remains wide open as multiple European crackers are undergoing turnarounds and Asian demand for U.S. ethylene is also increasing due to that recent surge in oil-based naphtha prices, as Øyvind was mentioning. Longer term, the forward curve remains stable around $0.21 per pound or $460 per ton. Now as for contracting the expansion volumes, we have been saying that new offtake contracts would be coming soon, and we are pleased to announce that 2 new offtake contracts have been signed in recent months. Now we continue to expect additional offtake contracts will be signed throughout this year as customers continue to request updated terms for both the terminal and for shipping. In the meantime, we will continue to sell volumes on a spot basis. Randall Giveans: Now turning to our fleet on slide 22. Our fleet renewal program continues to progress, most recently through the sale of two of our oldest vessels. On the same day in January, we sold the Navigator Saturn, a 2000 built, 22,000 cubic meter ethylene-capable handysize gas carrier to a third party for almost $16 million, netting a gain of over $10 million. We also sold the Happy Falcon, a 2002 built, 3,700 cubic meter semi-refrigerated small gas carrier to a third party for $4 million, netting a gain of almost $2 million. That roughly $12 million profit will be booked in our first quarter 2026 results. We now have 8 vessels over 15 years of age, all of which are debt-free, and we continue to engage buyers who are showing interest in acquiring these older vessels. Randall Giveans: Now on the other side of the equation, we will continue to pursue accretive second-hand vessel acquisitions as well, and we will also acquire more of our own vessels through share buybacks. Now as a result of our recent sales, our current fleet now consists of 55 vessels with an average age of 12.6 years and an average size of over 21,000 cubic meters. To note, we continue to upgrade our vessels with various energy savings technologies. More details on slide 28. We recently started rolling out new artificial intelligence or AI programs to make our fleet even more efficient. With that, I will now turn it back over to Mads for some closing remarks before we get to Q&A. Mads Peter Zacho: Good. Thanks a lot, Randy. As you can all see, Q4 was a steady quarter with financial and operational performance that was much in line with the previous quarters. Our financial standing remains strong with ample financial reserves, few upcoming maturities and a well-managed interest rate risk. Looking into this first quarter, we already delivered the first 2 new building financings at record low margins, and we are well on track to secure the remaining 4 within the first half of 2026. Cash reserves are expected to be further strengthened through the sale of older tonnage at attractive prices. The war in the Middle East brings uncertainty, but also opportunities for Navigator Holdings Ltd., as just described. We experience increased demand from customers due to new trading patterns emerging, especially for U.S. exports. Venezuela is another emerging opportunity in front of us. Mads Peter Zacho: This all comes on top of what we consider a fundamentally sound demand and supply outlook, where growth in the U.S.-based NGL production is very likely to exceed the global vessel supply growth. Thanks a lot for listening, and back to you, Randy. Randall Giveans: Thank you, Mads. Operator, we will now open the lines for some Q&A. To raise your hand, press star nine, and then you will have to unmute yourself by pressing star six. Or if using Zoom, just use that Raise Hand function. First question, your line should be open. Chris Robertson: Hey, good morning, everybody. This is Chris Robertson at Deutsche Bank. Thank you for taking my questions. Just to recap on the Middle East situation, what might be the impact from the larger segments here? I know that you guys do not necessarily compete in the same trades as VLGCs, but any risk here that the VLECs or ACs can cannibalize some of the trade if they ballast to the U.S.? Can you talk about the potential on that? I guess it depends on the duration of the current situation, of course, but any downside risk from that? Thanks, Øyvind. Just looking at March here in terms of ethylene, a lot going on on price inputs and all these types of things. There is also some unplanned and planned disruptions and turnarounds in the U.S. Gulf Coast. I think 6% of North American ethylene capacity is going to be offline this month by some of your competitors. Can you talk about maybe the landscape here? You mentioned it earlier. Inquiries on both a contract and in spot basis, are you seeing an impact of course from the Middle East situation? Are you seeing an impact from this outage situation making your volumes more competitive here? Øyvind Lindeman: I think how to look at it. VLGCs, they do LPG. Clearly, if I was a VLGC owner and Strait of Hormuz is shut, that delivers up to 30% of my exports, then I would ballast to the U.S. and see if I can get a cargo slot or berth availability, which is scarce because they have been running quite full anyways. That is a VLGC conundrum at the moment. How does it impact Navigator Holdings Ltd.? You need to understand that we, Navigator Holdings Ltd., we do not do LPG from U.S. to Asia. We do ethane and ethylene, and VLGCs cannot do that physically. The impact from that dimension limited. You know, our Atlantic trade for Handysize remains LPG, ammonia. VLGCs never do ammonia and also ethane and ethylene. Yeah, limited impact on the downside should it be a pile up of VLGCs in the U.S. Gulf. Different businesses. March looking very strong as we showed. Sentiment continues the same into April. I think while there might be reduction in production in the U.S. domestically, I think the international demand outweighs that. That is why you see U.S. prices increasing. However, international markets needs it, and therefore bidding even higher than that, encouraging exports. I think what is the direct impact of Middle East taking the driver's seat in this one. Randall Giveans: Thank you, Chris. Next caller, your line should be open as well. Spiro Dounis: Hey, guys, Spiro Dounis from Citi. Glad to hear your crews are staying out of harm's way. Hope that continues. And maybe starting kind of on that topic, just kind of trying to think about your chartering strategy as you think about the rest of the year in the context of some of this Middle East volatility. Sounds like you are constructive on prices and rates moving up from here. At the same time, you probably want to preserve some of that upside optionality. Øyvind, how are you thinking about locking in vessels for term here, maybe leaning into some of the stronger market to do that, once things have settled down a bit? Understood. Second question, maybe going to the fleet renewal. You called out in the slides about 8 more vessels older than 15 years old that could be sales candidates here, I think all of which are unencumbered. Based on my math, I think those are worth collectively over $200 million. I am curious, is that consistent with your view on the valuation there? As you think about reallocating that capital, what would be optimal and best use today if you were able to sell those in the near term here? Øyvind Lindeman: It is very dynamic. We have never been in a position where we want to go 100% term, and conversely, never been, it is not part of our strategy to be a 100% spot either. Generally, we have been operating the last 10 years between 30%-50% cover. If there is an opportunity to lock in an attractive rate historically, then yes, we definitely pursue that. But it is more, you know, with 55 ships, then I think we are pretty well covered today. We are looking at some extensions and so forth at the decent rates, which we will probably do, but no huge change from what we have been doing over the last few years. Mads Peter Zacho: Yeah, I think doing it in the very near term would be difficult. I mean, these vessels are not sold in a very liquid market. As you have seen also over the past 2, 3 years, what we have done is we have sold 2, 3, 4 per year. We might be able to do that a little bit faster, but I think you should assume that this is going to take at least a year or 2. I think that the valuation is quite attractive as you suggest here, and it would free up a lot of additional capital. As Gary was just talking about and me also, we have a robust balance sheet at this point in time. It would constitute, you could say, excess capital that would open up for further capital repatriation. We would not go and plow it into a new building market or buy vessels at high prices for the time being. We would be selective as we always have been. Last year, we bought three vessels that were in a distressed situation, and we bought them at very attractive prices. We always are on the lookout for that. Other than that, the consolidation opportunities are few and far between. I think we would be in a situation where we would probably have more cash coming in than good uses for it in the new building or second-hand market. Capital return would be a big proportion of that. Spiro Dounis: Great. I will leave it there for today. Thank you, gentlemen. Mads Peter Zacho: Thank you. Randall Giveans: Thanks, Spiro. Next caller, your line should be open. Omar Nokta: Thank you. Hey, guys, it is Omar Nokta from Clarksons Securities. Thanks for the update. Obviously, a lot going on. Wanted to maybe just touch base back to the Middle East situation, you know. Just on our ethylene exports from the U.S., you highlighted that in the fourth quarter, about maybe 84% of U.S. exports went to Europe and really just 11% to Asia. How do you see that mix evolving here? You mentioned it a bit in your comments, and you can see from the terminal that you have had a nice move up and throughput for March. I guess, how do you think of that mix shaping up here for, say, the month of March? What would that impact be on freight rates? Øyvind Lindeman: Thank you, Omar. Perhaps, Randy, you can add some additional color. In one of the graphs on, in the presentation, we included up to February. Up to February, January, February, 100% to Europe. Now, Iran happened on the 28th of February, I believe. What is going to happen in March? We are just on the 12th of March, and you would expect that some of that ethylene exported in March will head to Asia because naphtha and these other things we talked about, the dynamics there are completely turned upside down. We expect that to happen. Now, on the ton-mile demand, that obviously is a positive. A voyage to Asia from U.S. Gulf is longer than a voyage to Europe, we welcome those changes. Should the ethylene go continue to 100% go to Europe. I think in a situation today where utilization is quite high and rates are quite good, then we will be happy with that too. Obviously, the more that goes to Asia, the better it is. Omar Nokta: Cool. Thank you, Øyvind. Then just a follow-up. Saw the five-year charter, or perhaps it is an extension, on the Navigator Aurora, taking that vessel's employment up to 2031. Any details you are able to give us on, you know, the terms of the charter? I know obviously you do not necessarily give specifics on rates, but, you know, what it is going to be doing, what it is going to be carrying, for the duration of the charter. Then, you know, given that you have those four ethylene MGCs now fully contracted, how confident are you with the four that you have under construction, about getting long-term contracts as well? Øyvind Lindeman: At least the first part of the question, the Navigator Aurora, since delivery, has been trading with the Borealis, a petrochemical producer, bridging or taking ethane from U.S. East Coast, primarily from Marcus Hook, to Stenungssund cracker that they converted to be able to use ethane, and therefore bring the U.S. advantage to Sweden ethylene production. She will continue to do that. Over the next five years, she will maintain that virtual pipeline between the U.S. East Coast and Sweden. Omar Nokta: Thank you. Just in terms of, you know, expectations on the new buildings, do you have conviction that you will be able to secure them on long-term charter, as well? Øyvind Lindeman: We are- Omar Nokta: Is that increased or? Øyvind Lindeman: We are very- Omar Nokta: Yeah, you probably want to share. Øyvind Lindeman: We are very confident when we ordered it, and today, with everything that happened in Middle East, we are even more confident. Why? Because if you are running a ethylene production plant in, say, Asia, and you are facing these immense disruptions, you think twice about continuing how you have been doing it, and rather, contract ethane from U.S. In any case, we are confident. Omar Nokta: Very good. Thank you, Øyvind. Thanks, guys. I will pass it back. Randall Giveans: Thanks, Omar. Good to have you back. Next caller, your line should be open. Clement? Climent Molins: Hey, guys. This is Clement Mullins. I am from Value Investor's Edge. Thank you for taking my questions. This is kind of a follow-up to Øyvind's latest commentary, and although it may be too early to ask, have you seen increased interest or urgency, let us say, from potential customers for the ethylene export terminal since the war in Iran started? And secondly, have you sold spot cargos in recent weeks from the terminal? To what extent should we expect a contribution from this in Q1? Øyvind Lindeman: The answer is. The first part of the question is yes. We have seen increased interest for U.S. ethylene. You can see that in one of the pricing graphs. While U.S. domestic price, ethylene prices have gone up. Why have they gone up? Because there is obviously demand, international demand, pulling prices up, and then, the commentary also was that international prices are gone up even more than the U.S. increase, therefore encouraging trade. Ethylene are being sold both on contract and spot in March. March is looking very healthy on the terminal side, as Randy and I mentioned. That was also before what happened, because nominations for the terminal happens, sort of in the middle of the month for the previous month. The terminal was pretty full even before this thing happened. Yeah, we remain quite optimistic. Randall Giveans: Yeah. A lot of the flurry of incremental spot cargos, they are asking, "Can you get it as soon as possible?" Right? In March, we are pretty much sold out. A lot of that will bleed into April, so that bodes well for the start of the second quarter as well. Climent Molins: Okay. That is very helpful. Thank you, guys. I will turn it over. Randall Giveans: We have a few other questions. This one for Gary, that was included here. In terms of the new build financing, congrats on that. Do we have any updates for the remaining four new build vessels in terms of financing and the potential timing of those? Should we expect similar terms for those? Gary Chapman: Yeah. Thanks, Randy. As I mentioned in the first half of the call, we have got two more vessels under a financing package that we are hoping to close either this month or the very latest next month. That is for the other two Panda financings. The ammonia vessels, we are hoping and expecting to get that done within the second quarter, certainly by the end of June. I think that is very comfortable. In terms of terms, as I also mentioned, I think Navigator's credit at the moment is very good, and the banking market is also very good. We have got two things there working very much in our favor. We are very much expecting strong terms on all six vessels by the time we close. Obviously, there are some external factors here, but so far we have not really seen any impact on financing or banking activity and behaviors so far. I think that probably will hold because I think this hopefully is a short-term situation compared to, say, a 5 or plus year financing arrangement. Randall Giveans: Thank you. Øyvind, for you, can you please discuss the force majeure clauses in your time charters? Øyvind Lindeman: Time charters are generally like you lease a car, and if that road is blocked, you take a different road. Same for shipping. You lease a ship, you charter a ship, and it is up to you to decide where you are going to sail her. Even if Hormuz Straits are closed, it does not constitute cancellation for those ships. Randall Giveans: Perfect. Question here on the magnitude of the ethylene offtake agreements. Are Asian buyers looking at spot cargos or longer term commitments, and will the export terminal performance be more consistent in 2026 than 2025? I will start there. We, you know, we have not disclosed the terms in terms of the duration or the magnitude of the offtake agreements, but clearly you have seen that already coming through the system, both more offtake in terms of term as well as spot cargos pushing up volumes in the first quarter and beyond. We are still actively negotiating some of the volumes, so we do not want to go into too many details there. In terms of the Asian buyers, it is a combination of spot cargos coming to the market immediately and also longer term commitments. Again, a lot of that is based on the higher naphtha prices. The third part here, will the export terminal performance be more consistent in 2026 than 2025? We certainly hope so. But yes, I think if you saw on the first quarter of 2025, it was a loss, right? We had 85,000 tons for the entire quarter. First quarter of 2026 will certainly be a gain and at least triple that. The first quarter certainly at a much stronger start than the first quarter of 2025. As I mentioned, a lot of that strength is already bleeding into April and beyond, more offtake commitments, all of those things. I think we can confidently say that from today, 2026 should be much better than 2025 from the terminal perspective. I think that completes our Q&A. Mads, any final comments before we end the call? Mads Peter Zacho: I just want to say, thanks a lot for listening here and for the great questions that you brought. You know where to catch us if you have more questions. Other than that, we look forward to reporting next time in early May on the Q1, a quarter that has started with business as usual, but surely brought March, which brought an entirely new dynamics here. As we have discussed in the call so far, that there are a lot of opportunities that are coming our way, and we will of course take advantage of those. Thanks a lot.
Operator: There will be a question and answer session after the speakers' remarks and instructions will be given at that time. Please ensure that your full name is displayed correctly on Zoom. If not, please take a moment to edit your display name. Also, please note that this call is for investors and analysts only. Questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made during this conference call are based on information that is currently available to us. Today, we are joined by BBB Foods Inc.'s Chairman, Chief Executive Officer, Anthony Hatoum, and Chief Financial Officer, Eduardo Pizzuto. I will now turn the call over to Anthony. Please go ahead. Anthony Hatoum: Good morning, and thank you for joining us today. I will begin with a review of our operating results and will be followed by our CFO, Eduardo Pizzuto, who will provide an overview of our financial performance and who will outline our guidance for 2026. We will conclude with a Q&A session to answer the questions you may have. We delivered another quarter of excellent performance and closed the year with strong momentum. Our results in 2025 reflect the continued strength of our business model, rapid and disciplined store expansion, strong same-store sales growth, and solid cash generation. During the fourth quarter, we continued to scale the business while improving our value proposition for customers and strengthening our operating infrastructure. Let me briefly highlight a few key results from the quarter and the full year. During the quarter, we opened 184 net new stores, bringing the full-year total to a record 574 net openings, which exceeded our guidance of 500 to 550 stores. We also opened two new distribution centers in the quarter, for a total of four new ones in 2025. Same-store sales grew 0.6% in the fourth quarter versus the same quarter last year, and increased 18.3% for the full year versus last year. Total revenues in the fourth quarter increased 34% to MXN22 billion. For the full year, revenues grew 36% to MXN78 billion. In the fourth quarter, reported EBITDA was MXN79 million. Excluding non-cash share-based compensation and a one-time asset write-off, EBITDA increased 23% to MXN1.2 billion. Eduardo will provide more detail on the write-off later in the call. For the full year, reported EBITDA was MXN1.2 billion. Excluding non-cash share-based compensation and the asset write-off, EBITDA increased 30% to MXN4.4 billion. Finally, for the twelve months ending December 2025, cash flow generated from operating activity reached MXN4.7 billion, representing an almost 25% increase year over year. Now let's turn to operational performance. We accelerated our store expansion. As mentioned earlier, we opened 184 net new stores in the fourth quarter. For the full year 2025, we opened 574 net new stores. That is a 21% growth compared to last year, when we opened 184 stores. Our expansion strategy remains consistent. We continue to densify existing regions while gradually expanding into new ones. To support this growth, we also opened four new distribution centers in 2025. Revenue growth remains very strong. It is likely that we are one of the fastest growing retailers in LATAM, if not globally. A quick recap here. Total revenue in the fourth quarter reached MXN22 billion, an increase of 34% year over year, very strong same-store sales growth of 16.6%, same-store sales driven in large part by the ongoing improvement in our value proposition to customers. Looking at the full year, total revenue in 2025 reached MXN78 billion, representing 36% growth compared to last year. This growth has been compounding year after year. Our revenue CAGR for the last four years has been 35%, driven by the strength of our expansion strategy, and by our store performance. When we compare our same-store sales performance with On top, the gap remains significant. We are seeing a gap of more than 15 percentage points despite operating with low internal inflation. We just updated our spaghetti chart that many of you have seen before. This chart shows the sales trajectory of our store cohorts from 2005 through 2024. Sales are adjusted for inflation to make this an apples-to-apples comparison. Two points stand out. Newer stores are opening with higher initial sales levels than earlier cohorts. At the same time, all store cohorts continue to grow at a healthy pace. For newer cohorts, their sales curves are steeper, and for older ones, we continue to see their sales growing. This reflects the ongoing improvement in our value proposition, as well as growing brand awareness and growing brand equity. I would like to highlight a few additional operating metrics. For stores with five or more years of operations, the average number of transactions per store per month increased by 2.5%. Average ticket size increased by 11%, driven primarily by more items per ticket and an improved product mix, and to a much lesser extent by price inflation. Finally, in 2025, private label represented 58% of total merchandise sales. This compared with 54% in 2024. I will now pass the mic to Eduardo. Eduardo Pizzuto: Thank you, Anthony. Good morning, everyone. Sales expenses as a percentage of revenue declined from 11.7% to 10.5% year over year in 2025. While 2024 included one-time charges related to depreciation and amortization, which explains part of the change, in 2025 we also saw operating leverage across most expense lines. Admin expenses excluding share-based payments increased by 35 basis points primarily due to investments in new regions and additional talent to support our growth. With respect to share-based payment expense, these charges are non-cash and already reflected in our fully diluted share count. Additional details are available in the appendix of this earnings release where we also provide projections for this non-cash expense. EBITDA for 2025, excluding non-cash share-based payment expense and the asset write-off, increased 23.5% to MXN1.2 billion, driven primarily by strong sales growth. The adjusted EBITDA margin declined 48 basis points year over year. In 2025, we also recorded a one-time charge related to the write-off of an accounts receivable balance of MXN230 million. This was associated with a termination of our relationship with the provider of our payment terminals. The balance represents the receivable outstanding at the time of termination. We decided to record a full write-off. We note that payment processing has since been migrated to terminals operated by one of the top three banks in Mexico, with no disruptions to our operations. We are pursuing all available legal actions in connection with this matter. Adjusted EBITDA for the full year 2025 increased 30% to PHP4.4 billion. Over the last four years, EBITDA has grown at a CAGR of 42%, reflecting the strength of our business model. Even though we do not manage this business to an EBITDA target, you can see in this slide that our EBITDA margin naturally increases over time as a result of our continued store maturation, scale, and operational efficiency. Our business model generates significant negative working capital which in turn supports strong operating cash flow. For example, in December 2025, negative working capital reached MXN8.9 billion compared with MXN6 billion in 2024, excluding IPO proceeds. This represents approximately 11.4% of total revenue, also excluding IPO proceeds. Moving on to guidance for the year. We expect same-store sales growth between 13% and 16%, a range of 590 to 630 net new stores, and revenue growth between 29% and 32%. We have updated our target unit economics, which remains very attractive. As shown on this slide, with average CapEx of approximately MXN5.5 million per store, we are targeting a payback period of about 26 months and a cash-on-cash return of roughly 55% by year three. The higher CapEx per store primarily reflects additional refrigeration equipment, slightly larger store formats, and a higher proportion of stores that we are building from scratch. Importantly, these target unit economics are based on the performance trends we are currently observing in our newer stores. They do not include potential incremental revenue from the initiatives associated with the higher CapEx per store. I will now turn the call back to Anthony for final remarks. Anthony Hatoum: Thank you for joining us today. We operate a high-growth business model that has proven to be robust and resilient across economic cycles. It offers very attractive unit economics, generates cash, and becomes more competitive as it continues to scale. We remain very confident in the long-term opportunity ahead for BBB Foods Inc., and look forward to updating you again next quarter. We will now start the Q&A session. So please go ahead, operator. Thank you. Operator: We will now conduct a Q&A session with Anthony Hatoum and Eduardo Pizzuto. If you would like to ask a question, please press the raise your hand button located at the bottom of the screen. If you are connected via telephone, please dial 9. We remind you that all lines have been placed on mute. When it is your turn to ask a question, you will be given permission to speak. You will then be able to unmute yourself to ask your question. Our first question comes from Alvaro Garcia. Please state your company name and ask your question. Alvaro Garcia: Hi, gentlemen. Thanks for the space. I have two questions. The first one, on stock-based compensation. We noted the increase mainly in options for the new strike price of $35. I was wondering if, you know, relative to last year where we sort of got two waves of announcements, one alongside 2Q results, if that was the award that we will see for all of 2025 or we should expect more awards throughout the rest of the year? And my second question is on the new unit economics. You just mentioned, Eduardo, that the sales per store consider sort of the new initiatives from new CapEx. So the close to MXN30 million per store material increase relative to the previous version for year three, does that not consider the new initiatives? Is it just the return itself? Thank you. Eduardo Pizzuto: Alvaro, hi. So in terms of the options that you are mentioning, what you are seeing in the numbers is what was granted in all of 2025. So you should not expect an additional number for 2025. I am assuming that was your question. Alvaro Garcia: Correct. That was my question. Eduardo Pizzuto: Okay. Perfect. So, no, that is the total number that was granted, and you can see in the appendices the exact numbers that were granted in December 2025. Then on your second, on the unit economics, yes, Alvaro, we are actually very conservative about updating this chart. Because even though we are upgrading the sales curve, and that is purely based on our most recent vintages, the performance of it. Let me tie it back to the spaghetti chart. If you look at 2024, for instance, that little dot that you see in the chart, that is the performance of 2024. So we are taking not only 2024, but also earlier vintages. We constructed that sales curve, and it is exactly what it is doing. So we are not assuming as of now any incremental sales because of the additional equipment that we are installing in the new stores. Alvaro Garcia: Great. Thank you very much. Congrats on results. Operator: Our next question comes from Melissa Bayon. Please state your company name and ask your question. Melissa Bayon: Hi. This is Melissa Bayon from Bank of America. Hi, Anthony and Eduardo. Thanks for taking my question. I would like to better understand the traffic and ticket dynamics. What is the trajectory of transaction counts as stores mature? And are you happy with the 2.5% growth in stores open five years or more? And then Anthony mentioned that the increase in average ticket is primarily coming from more items per basket versus price. But can you maybe quantify the components? I imagine a higher share of private label is deflationary. And then I think related to that, how should we think about product innovation this year and how are some of the newer items performing versus earlier vintages? Anthony Hatoum: Many questions, so I will try to break it down. Let us start with same-store sales. Absolutely right, two-thirds of the growth is explained by volume and one-third by average price. And average price in large driven by a better mix with inflation contributing very little. The 2.5% increase mentioned in ticket for relatively old stores is fantastic. You know, every time we think that one of our older vintages is maturing, we find that we are still attracting new clients. And the increase of ticket size is extremely positive in a sense that every time we manage to get a client to buy one more new product that they were not buying before, that is a huge jump in productivity and in sales. You had other questions, if you do not mind repeating them? Melissa Bayon: Sure. I wanted to understand a little bit more about your innovation and how we should think about that this year. So how are maybe some of the newer launches, new SKUs or items performing versus past introductions? Anthony Hatoum: In general, let me just step back by saying that we remain relatively low SKU business. So across our whole portfolio, you are seeing innovation and you are seeing new products being introduced. And at any point in time, we are testing about 60 different new products and some of them work and some of them do not. So by the time we introduce a new product, there is an extremely high probability that we know that it is going to work and work very well. So what you see in the store is all accretive and very positive. To bring it a little bit more down to earth, you will see innovation in cosmetics, you will see innovation in frozen, we have been the pioneers in, you know, democratizing frozen in Mexico, a lot of innovation in ice creams, a lot of innovation in personal health care, in dairy, in drinks and beverage. So you know, I am very, I would say I am very positive that this trend will continue, and you will continue to see new things being introduced. And at any time you walk into one of our stores, you will see a number of new products being tested. Private label will continue to very naturally increase its participation in our sales. It is something organic and that happens and that has always been happening and continues to happen as you see in the latest numbers. You are absolutely right, it is deflationary because on average our private labels are significantly cheaper than, let us say, the more commercial brands that they replace. But they more than make up for it by volumes. And internally of course we measure units sold and I can say that same-store sales growth when measured by units is extremely healthy. Melissa Bayon: Great. Thanks so much. Operator: Our next question comes from Froylan Mendez. Please state your company name and ask your question. Froylan Mendez: Thank you, Anthony and Eduardo. Fernandez from JPMorgan. Two questions. First, on the stock-based compensation, the new grants that were given. According to our calculations, they make up around 2% of the outstanding shares. This compares to closer to 1% in the previous year package. Could you help us understand where the delta is coming from? Is this just in terms of the growth of the company, more people getting shares or it is just the same amount of people but getting more shares, that would be very important for us to understand. And secondly, we look at EBITDA after leases. And at Kingstar numbers, the results were a little bit lower than expected. Wanted to understand the timing of the openings in the fourth quarter. If most of the openings in the fourth quarter were during the latter part of the quarter, then it means that the ramp-up impacts in a higher extent the margin. And if the stores that you are opening in the last part of this year are already under this new format with more fridges, larger GLA that can lead to higher leasing costs that came above our estimates. Thank you so much. Eduardo Pizzuto: Let me start off with EBITDA, your second question. Actually, our fourth quarter was a fantastic quarter in the sense that, I mean, compared to any other quarter that you have seen in the past, we opened 184 stores and two new distribution centers. So we significantly accelerated the pace in Q4. So what that translates into in the numbers that you are coming up to is a lower than expected EBITDA. It is just because of that. It is just the sheer size of the volume of stores that we opened in the quarter and also the two new distribution centers on top of the two that we opened in Q3. So a total of four. If you are comparing that to Q4 of last year, that makes a significant increase. So that is where, as you have asked the question on the pace of openings, that is what explains the spike in lease payments and leases. You had a second question on EBITDA, and I will take the share-based in a minute. But you had another question on EBITDA. Froylan Mendez: Yep. If part of the increasing leasing cost also relates to the new type of store that you are starting to open, larger with bigger fridges or more doors inside the store. If this is also part of this incremental leasing cost, going forward, probably. Eduardo Pizzuto: So the leasing—let us break that in two for leasing—is building, which is stores and DCs, and then the rest of the leases that we have, which is equipment. So that entire number is leases. I am not sure if you are checking only building or you are also taking the rest. Froylan Mendez: Take both. We take both. Eduardo Pizzuto: Okay. So taking both, yes, you will see that we have the equipment for the distribution centers. So we have a cold room, frozen room, and also some additional cars. So that explains, again, the spike on leases for the fourth quarter. So we are gradually migrating into the topics that I just mentioned in our unit economics. So you will see that our stores this year will have—we will move from a 10-door room, for instance, to a 15-door cold room, and additional freezer. So we are migrating to that. But the vast majority of the change, Froy, comes from just the volume, the number of stores that we opened in Q4, and the distribution centers as well. Froylan Mendez: Thank you, Eduardo. And then I know you had a question on share-based payment. Can you repeat that for me, please? Froylan Mendez: Of course. If we take the incremental number of units granted at the end of last year, and divide that by the outstanding shares, it is around 2% of shares outstanding, let us say. And if I compare that to the last year granting package, it was closer to 1%. Trying to understand where the delta is coming from, if this relates to the growth of the company. So you are including more people getting this package or is it more same people receiving more units of the package? Anthony Hatoum: I will take that one. It is simply growth and increase in the number of people. And, you know, let me step back by saying that we can make all of these numbers disappear by giving out more cash. But we have found that over time, this option plan that we have has been the best investment with the best return on investment that we have seen because it allows us to attract the kind of profile of people with a can-do attitude and an entrepreneurial attitude which you see reflected in our numbers. It allows us to retain talent when everybody is trying to poach your talent. It aligns incentives with shareholders and very simply put, it explains a lot of the attitude and can-do aspect of our business that is simply reflected in the numbers as a consequence. So we are very likely to continue with this plan and even expand it in line with our growth and the number of people that we are bringing onboard. But again, there are options. So somebody else mentioned the strike price of these options. And when our share price is below, they have zero impact. And we all hope that our share price goes above, and I am very happy to take the dilution that comes with that when that happens. Froylan Mendez: Fair. Thank you very much. Just as a follow-up. So that 2%, let us say, implied dilution, that is the level that we should expect going forward? Or that can come down at some point? Anthony Hatoum: I know. I would say, Froy, dilution is 100% tied to where our share price is going to be. So depending on what your projection of our share price is, it could be that number. Currently the last grant is almost with zero dilution to our outstanding base. A little bit of a difficult question to answer, but Eduardo will put in some numbers as to historical perspective here. Eduardo Pizzuto: If you look at the appendices, what I would suggest is if you look at the appendices that we published, on appendix one you see our calculation of fully diluted shares. And this is something that we have been publishing for three quarters. And in this case, we ran an exercise on an illustrative share price of $35. And you will see that if you compare that to what we did in Q3, for instance, you will see that the dilution as we see it is less than 1%. So it is a bit tricky, the 1.9% that you mentioned, because whatever number you are putting in terms of share price will, the dilution will come or not, or less or more dilution come in. But that is the way we look at it. Froylan Mendez: Yeah. No. Fair. I was mentioning numbers based on number of shares, RSUs plus the stock options, divided by the number of shares without taking the strike price, which I understand. Anthony Hatoum: I think it is unfair to not look at the strike price because the strike price is super important in terms of motivating people and aligning incentives. For what it is worth, also mentioning just now that we are on the topic, RSUs, you have to think of them in lieu of cash. You know, I would give all day RSUs instead of cash. They vest and they align incentives. Froylan Mendez: Very fair points. Thank you, thank you for— Operator: Our next question comes from Irma Sgarz. Please state your company name and ask your question. Irma Sgarz: Yes. Hi. Thanks for taking my question. It is Irma Sgarz from Goldman Sachs. Just a quick follow-up on sort of the trajectory for operating leverage into 2026. The G&A line excluding share-based compensation, of course, obviously took a step up in 2025, and I understand that there were some structural investments that you made both in the headquarter team, but also in some of the more down oriented teams or in the stores, although I think most of that should be going through sales. But to support the overall structure, I guess, of the build-out. So I was hoping to just understand, is it fair to think that G&A expenses just after this huge step up that we saw in 2025, the growth should be significantly below the top line growth that you are targeting and thereby releasing, you know, that operating leverage that I think is so important for the longer-term margin trajectory for the business. So that is my first question. And then if you can just perhaps shed some light on what you are seeing in terms of your ability to, or sort of the direction of your geographic build-out in sourcing these new 600 or so stores that you are to open in 2026. And I was intrigued that you mentioned more, sort of a little bit more CapEx incrementally, not just on equipment, but also on the work around building single standing stores, and I was trying to understand that a little bit better. If that is a question of sort of pushing into new areas or availability of real estate. If you can just dig a little bit further into that comment. Thank you. Eduardo Pizzuto: Hi, Irma. Good morning. In terms of the leverage that you are talking about, and I heard on more on the admin side, as you know, we do not provide any specific guidance on either margin or SG&A. But I think what you should expect is that over the long run, and as we have mentioned before, we should expect admin expenses to decline as a percentage of sales. Having said that, we will continue to retain talent and increase our talent pool to support the growth that we are seeing for the next years. We do see tons of opportunities in the next three to five years, and we want to make sure that we have the talent in place for that growth to happen. Specifically, again, on admin expenses, we continue to hire people on the IT front and on many different levels of the company. So specifically for 2026, at this point, I will not give you any specific answer on that one. But over the long term, yes, for sure, that number will come down as a percentage of sales. Anthony Hatoum: Regarding real estate and expansion, our strategy has not changed. Stretch and we identify where we are and the runway is completely open. There is no impediment to our foreseeable growth in terms of store openings. As Eduardo mentioned, our stores are bigger than in the past and therefore cost a little bit more to build. And fundamentally, we are putting new equipment in there, mostly in refrigeration. And very conservatively, are not reflecting any expected sales growth that you would get by putting more refrigeration equipment. And this is likely. The number that we have shared in unit economics is the number you can expect to see with a good degree of confidence for 2026, irrespective of the mix of whether we are opening stores that are built literally from scratch, or taking a space and rehabbing it. Irma Sgarz: Understood. Thank you. Thank you, Irma. Operator: Our next question comes from Andrew Rubin. Please state your company name and ask your question. Andrew Rubin: Hi. Andrew Rubin at Morgan Stanley here. Thanks very much for the question. I think a lot of the items have been answered already. So maybe if we just give a bit of a look back. So 2025, you delivered same-store sales that was a bit above 18%. This was above 2024 and above what you are guiding for in 2026. So I am curious if you could tell us any specifics of what happened in a year like 2025. What is the difference between a year where you are getting kind of a low teens comp versus one that is 18, if it is anything related to the macro or innovation within the stores. I understand the general parts of the model, of course, but anything as we look back just to better understand the differences in comp trends between the years. Anthony Hatoum: Well, that 18% exceeded our expectations. And as you correctly said, the guidance at that time was 11% to 14% and suddenly we do 18%, which is a stratospheric number. So coming back a little bit more to reality, you know, the 15% and 16%, which are amazing numbers still, I would say that I would not see too much into it. If we continue to grow at the guided same-store sales, I think we are going to have another fantastic year. Yeah, but sorry, I cannot tell you exactly why we hit 18% on that one quarter. Andrew Rubin: Okay. Fair enough. Thanks. Eduardo Pizzuto: Thank you, Andrew. Operator: Our next question comes from Héctor Maya. Please state your company name and ask your question. Anthony Hatoum: Hector, you disappeared. Héctor Maya: Yeah. Sorry. Thank you. Can you hear me now? Anthony Hatoum: Yes. Héctor Maya: Perfect. Thank you. Sorry about that. About the space for refrigeration, and the larger sizes, the larger size of the stores from your update on unit economics, to what extent is this related to a potential introduction of fresh categories in the future? Or is this related to something else? And the new stores, how larger would they be now, and what was behind the decision to build some of these stores from scratch? That will be the first one. Anthony Hatoum: So let me talk about store size. It has been fairly consistent for the last two years, but definitely bigger than stores we had ten years ago. So when I say slightly bigger, they are slightly bigger and that affects CapEx. We have adjusted our mix for 2026, assuming conservatively that we would have more stores built from scratch. That has, you know, everything derives from our real estate master plan, so we take a good look and say, where do we think we want to open stores? And then we come up with an estimate of how many stores we believe are going to be built from scratch versus, you know, taking an existing space and refurbishing it. And we come up with this number. There is no magic to it except it is an expectation based on serious planning. And we come up with as good an estimate as we can come up with, and we make it conservative. Now in terms of equipment within the store, yes, you will find more refrigeration equipment because we are expanding in our categories of refrigerated and frozen. And it has nothing to do with fresh, which is a completely different category, which, as you know, we are testing. So there is, as I mentioned earlier, across all categories we are seeing innovation and we are seeing growth. While respecting the core tenets of being a hard discounter. Limited SKUs, very high rotation SKUs, focus on private labels, lots of value for money in everything we offer. That you will see consistently in everything we offer. Great value for money to our customers, that in turn is very likely to support robust same-store sales. Héctor Maya: Thank you. Thank you very much, Anthony. Very clear. And the last one on the impact of the new provider and the payment processing. Now that you switched to one of the top three banks in Mexico, how do the transaction fees and commercial terms with the new bank compare to the previous provider? And should we expect this to impact sales expenses going forward? Anthony Hatoum: No. Not at all. We are even more competitive. Héctor Maya: Understand. Thank you. Thank you very much. Eduardo Pizzuto: Thank you, Hector. Operator: Our next question comes from Antonio Hernandez. Please state your company name and ask your question. Antonio Hernandez: Hi. Good morning. This is Antonio Hernandez from Actinver. Just a quick one regarding the new regions where you are expanding with new distribution centers, new stores, and so on. Which ones excite you the most? Where do you see more opportunities? And maybe on the other hand, which ones may be, which of the new regions are maybe underperforming your previous expectations? Eduardo Pizzuto: Thanks. Anthony Hatoum: At the risk of sounding boring, we see extremely consistent performance across all our regions. And fundamentally, when we ask ourselves why, we are selling basic goods. And customer behavior does not change much when it comes to basic good consumptions. So we are excited across the board with every store we open. We make sure that it is going to be successful. Otherwise, we do not bother opening a store. And what you will see is a consistent performance for 2026 versus 2025 with possibly robust same-store sales growth and very likely across all vintages, you will continue to see growth. Real growth. Antonio Hernandez: Thanks. Congrats on that. Anthony Hatoum: Thank you, Antonio. Operator: That is all the time we have for the Q&A session today. I would like to hand the call back over to Anthony Hatoum for his closing remarks. Anthony Hatoum: Thank you all for participating today, investors, analysts, and even competitors who are listening in. We have a very strong, robust company which has year after year shown that it can grow and grow without hiccups. At the rates we are growing, it is quite an achievement. We expect that to continue. We expect our value proposition to customers to continue offering more, and therefore, again, this virtuous cycle of better value proposition, increased sales, is very likely to continue for the foreseeable future. This is a business that is not, I am not going to say anti-cyclical, but extremely robust through cycles. And fundamentally at the core of it all is an amazing team that executes flawlessly quarter after quarter. Thank you again for participating, and I look forward to talking to you next quarter. Operator: That concludes today’s call. You may now disconnect.
Operator: Good morning, and welcome to Alliance Laundry Holdings Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. With us today are Michael Schoeb, Chief Executive Officer, Dean Nolden, Chief Financial Officer, and Robert Calver, Vice President of Investor Relations. After the speakers' prepared remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. We ask that you please limit yourself to one question and one follow-up, then return to the queue if needed. With that, it is my pleasure to turn the program over to the team. Robert, please go ahead. Robert Calver: Thank you, Operator, and good morning, everyone. Along with today's call, you can find our earnings press release and presentation on our Investor Relations website at ir.alliancelaundry.com. A replay will also be available on our website following the call. As a reminder, today's earnings release, presentation, and statements made during this call include forward-looking statements under federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include factors set forth in the earnings release and in our filings with the SEC, including the Risk Factors section of our IPO prospectus and subsequent 10-K filing. We assume no obligation to update or revise any forward-looking statements except as required by law. Additionally, during today's call, we will discuss certain non-GAAP financial measures outlined in our earnings presentation. We believe these measures are important indicators of our operations as they exclude items that may not be indicative of ongoing business performance. Reconciliations to the most directly comparable GAAP measure can be found in our earnings release and presentation appendix. I will now turn the call over to Michael. Michael Schoeb: Thanks, Robert, and thank you all for joining us this morning for our first full year earnings call as a public company. I'll discuss our strong full year performance, key drivers of our success, and how we're well-positioned for continued growth. Dean will then walk through our financial results in detail and introduce our 2026 guidance. We'll conclude with Q&A. I want to start where I always begin, which is with appreciation for our employees around the world, our customers, distribution partners, and our shareholders and analysts. We value your trust and engagement. 2025 was a landmark year for Alliance Laundry Holdings Inc. Our results demonstrate what we have been talking about since becoming a public company, that a resilient, replacement-driven, essential industry, a market-leading position, and disciplined operational excellence delivers strong outcomes. Now before we get into our results, let me walk you through how I think about the business. First, our industry. Commercial laundry is a vibrant, growing, and essential part of modern life. Laundry is not discretionary. It performs across all economic cycles, providing a level of growth, consistency, and downside protection that is hard to find. Every time there's a macroeconomic event or noise in the world, we're reminded of how fortunate we are to be a part of this incredible industry. After all, as we said on our roadshow, every day is laundry day. Second, our leadership position. We are the number one pure play commercial laundry manufacturer in the world, and we have built striking advantages over any other competitor. Our scale, our global footprint, and demonstrated manufacturing prowess exist to deliver what our customers want most and need to run their businesses efficiently. They are incredibly sophisticated, and they understand that long life, durability, and reliability, combined with world-class aftermarket capabilities, result in a favorable total cost of ownership. Initial price is always important, but what we hear again and again is, "Please do not lower quality." That is what drives us and helps strengthen our leadership position. In my nearly 20 years with Alliance Laundry Holdings Inc., I've never been more confident about the opportunities ahead of us. Turning now to our Q4 and full year highlights on slide four, we finished strong in Q4, with revenue up 10% year-over-year, driven by strong volume growth alongside selective price realization. For the full year, we delivered total revenue of $1.7 billion, up 13% versus the prior year, and Adjusted EBITDA grew 14%, with a record full year Adjusted EBITDA margin of 25.5%. Nearly all of our growth for the quarter and full year was organic in nature. 2025 marks our second consecutive year of double-digit growth on both the top and bottom line, continuing our long track record of compounding above the market from a revenue base that is 25% larger than just two years ago. Full year growth was driven 70/30 by volume versus price, with Q4 normalizing to a more historical even split. This is consistent with the dynamics we've seen in this industry over many cycles, where our diversification in product, geography, and end markets provides multiple avenues for growth. We strengthened our balance sheet, reducing net leverage to 2.8x, a reduction of 2.2 turns, roughly equally from operational de-leveraging and our successful IPO in October. We continue to invest in the business. Capital expenditures of $54 million were invested in capacity expansion, automation, and new product development, with increased investment to further support our digital and engineering capabilities to enhance innovation and Alliance Laundry Holdings Inc.'s competitive differentiation. Before we take you through our 2025 performance in more detail, let me step back and remind you why we are confident. Alliance Laundry Holdings Inc. stands alongside the very best industrial companies, not just in growth, profitability, and free cash flow generation, but across every dimension that defines a great industrial business. On slide five, we believe there are four factors that define why Alliance Laundry Holdings Inc. wins and is able to create sustainable long-term value. First, we operate in a very attractive industry. Commercial laundry is essential to everyday life. It is not cyclical, offering downside protection in economic uncertainty and steady replacement-driven demand. Second, we believe Alliance Laundry Holdings Inc. has a sustainable competitive advantage. Our financial scale is more than twice that of our nearest competitor. We operate a global manufacturing and engineering platform across three continents that few, if any, competitors can replicate. That scale is both a barrier to entry and a growth enabler. Third, we have a proven team that has delivered across economic cycles, and 2025 was no exception. Fourth, we have a compelling growth algorithm supported by systemic tailwinds. Next, I want to spend some time clearly laying out what defines Alliance Laundry Holdings Inc.'s culture, its leadership, and consistent success. Slide six captures this well. First, we are a pure play commercial laundry company. This means every investment dollar, every engineering hour, every strategic decision is focused on one thing: commercial laundry. Even our residential product is a commercial machine sold into the home through independent retailers and has minimal exposure to new construction housing cycles. Our commercial and home customers buy for many reasons, but it is largely because they too are searching for low total cost of ownership. They tend to be more affluent given our price point, or they are processing large volumes of laundry, such as those with large families or blue-collar workers who work in fields such as agriculture, oil and gas, or are mechanical. Let me emphasize again, we are replacement driven. Secondly, everything we do is built around delivering total cost of ownership. Our customers are clear. Don't cheapen the product, don't cut corners, don't sacrifice quality. This doesn't mean our teams are not focused on cost, but it does mean we are very methodical and test extensively to ensure we protect our TCO that customers value. Thirdly, our value proposition is supported by high-quality distributors who provide premier pre- and post-sale support and service that our end customer and operators demand. Over decades, we have intentionally built a global distribution network of over 600 partners. These are businesses whose economics are centered on capital-efficient, demand-driven ordering. They do not hold large inventories or over-purchase ahead of demand. Our delivery capabilities mean there is no incentive to do so. The results we see clearly mirror end market demand with limited order pattern distortions that can affect other industrial businesses. Importantly, commercial laundry is mission critical. Laundromats, hospitals, hotels, and communal laundry facilities need their machines to run regardless of the interest rate cycle, AI CapEx trends, construction activity, or any single macro theme. We believe this genuine non-cyclicality is underappreciated relative to other industrial businesses whose end markets are more driven by volatile or cyclical demand dynamics, and it is a distinction we think will increasingly differentiate Alliance Laundry Holdings Inc. Now, I'll highlight a few initiatives that made 2025 such an excellent year. On the innovation front, we launched multiple industry-leading products. We continue to expand ProCapture, our unique and patented lint filtration system, across more of our product lines. We launched the T55 Stacked Tumbler, the industry's largest stacked dryer. We launched Scan-Pay-Wash, a first of its kind cashless payment solution requiring no app download that has seen faster adoption than we have seen for any previous digital launch, with more than a third of a million transactions. Let me repeat, a third of a million transactions processed to date. We began selling Stax-X, a stacked washer and dryer for laundromats, developed entirely at our Thailand engineering center for Asian markets, and that has seen strong initial demand. Supporting our clear value proposition, our global test lab teams carried out over 5 million hours of physical product testing in 2025. This is the equivalent of more than 570 years of continuous testing conducted in a single year across our testing bays worldwide. Reflecting on our commitment to quality and durability, our testing hours will increase significantly in 2026 as our new facilities in Thailand and the Czech Republic are fully ramped up. We also expanded our direct business in Q4, acquiring one of our New York-based distributors, deepening our direct presence in one of North America's most attractive urban markets. Just last week, we closed on an additional acquisition to further consolidate our position in that same market. We invested $54 million to expand capacity, add automation, and launch new product lines in all of our global facilities, and enhanced our advanced testing capabilities worldwide. Alongside these investments, our cost down initiatives, operational excellence programs, and supply chain optimization delivered approximately 80 basis points of gross margin expansion, supporting our continued margin expansion trajectory and focus on investing in growth. Finally, we successfully established ourselves as a public company, which allowed us to significantly delever, strengthen our balance sheet, and provide capital allocation flexibility to support growth as we move into 2026. We also strengthened our governance, reporting, and Investor Relations functions to support our long-term growth. On slide eight, let me turn to our 2026 strategic priorities. We are fortunate to operate in a very stable market that grows consistently through economic cycles, and we see healthy demand into 2026 and beyond. This demand is broad-based across our key geographic markets with strength across our vended, on-premise, and commercial and home product offerings. Dean will walk you through our detailed guidance for 2026, but as it is every year, our first priority is to deliver profitable growth. At a high level, we expect revenue growth of between 5% and 7%, split roughly evenly between volume and price, and Adjusted EBITDA growth of between 6% and 8%, implying continued margin expansion despite the increased costs of being a public company. As we've shared previously, the global commercial laundry industry grows at approximately 5% per year. Our 2026 guidance of 5%-7% revenue growth means we expect to continue to compound above the market. The demand environment has not changed, and we believe Alliance Laundry Holdings Inc. will continue to outgrow the industry. Secondly, we will continue to invest in innovation and new product development. We have a robust pipeline planned across multiple categories with continued evolution of our physical products and digital platform to meet the growing demand for solutions across our end markets. Third, drive manufacturing and operational excellence. We will continue to invest approximately 3% of revenue in CapEx on top of the 2% of revenue we expect to spend annually on physical and digital product development and innovation. These investments will drive efficiency, they will add capacity, and they will allow us to accelerate profitable growth. Fourth is accelerate digital adoption. Our connected equipment base grew to 245,000 machines at year-end, up 25% year-over-year. This matters because every connected machine provides valuable insights to operators, allowing them to increase revenue and improve efficiency. We believe it makes us the obvious first choice when they buy. If we do it right, we will be the preferred choice when time comes to replace their equipment. Finally, maintain our disciplined approach to capital allocation, continuing to delever organically by thoughtfully investing in long-term growth opportunities and maintaining flexibility to opportunistically return capital to shareholders. With that, I'll turn it over to Dean to walk through the financial details. Dean Nolden: Thanks, Michael. Starting on slide nine, I'll walk through our strong fourth quarter results and balance sheet position, then cover 2026 guidance and capital allocation. Fourth quarter net revenue was up 10% to $435 million versus the prior year. We saw real unit volume increases across our end markets, which contributed roughly half of the growth in the quarter with the balance from price. This reinforces what Michael said earlier. This is a demand-driven growth story supported by both volume and price that is consistent with the durable growth pattern we've seen in this industry over time. Q4 gross profit was up 16% to $161 million or 37% of revenue, with gross margin up 190 basis points versus the prior year. Margin expansion was driven by strong volume and successful cost down initiatives in the quarter and supported by pricing actions that largely offset the approximate $5 million impact of tariffs in the quarter. Q4 operating expenses were $97 million or 22.4% of revenue, including a $16 million non-cash charge for performance-based option vesting related to our IPO. Excluding this one-time item, operating expenses as a percentage of revenue were consistent with our expectations and reflect the full quarter impact of public company costs and our continued investments in commercial, engineering, and digital capabilities. Adjusted EBITDA was up 17% to $107 million or 24.5% of revenue in the quarter, which was a 140 basis point improvement in profitability. We are proud of the quality of our growth with revenue up 10% and Adjusted EBITDA up 17%. Alliance Laundry Holdings Inc.'s ability to consistently drop more to the bottom line than add at the top is a function of our scale advantage in operating discipline, plus strong incremental margins on higher volumes. Q4 adjusted net income was up 18% year-over-year to $49 million, which excludes the previously referenced vesting of stock options at IPO and other non-operating or non-recurring items. The improvement was driven by strong operating performance and significantly lower interest expense following our debt reduction actions. Our Q4 effective tax rate was 35.6%, resulting in a full-year effective tax rate of 26.3%. This is elevated versus the prior year due to approximately $4 million in discrete non-cash charges, primarily related to our transition to public company status and a valuation allowance increase against certain foreign tax credits. Excluding those items, our Q4 and full-year rates would have been 21.4% and 23.5% respectively. We ended the year with total debt of $1.4 billion, down from $2.1 billion at the start of the year, and cash of $123 million. Net debt of $1.2 billion represents a net leverage ratio of 2.8x Adjusted EBITDA, a reduction of 2.2 turns in a single year. Approximately 1 turn of that deleveraging was funded by cash from operations, which increased 46% versus the prior year, and from Adjusted EBITDA expansion, with the balance funded by IPO proceeds. Our strong operational cash generation demonstrates our capability to continue deleveraging going forward. Turning to slide 10 and drilling into the segments for Q4. North America revenue was up 9% to $317 million, with Adjusted EBITDA up 15% to $88 million and margin increasing to 27.9%. This margin level is consistent with our historical performance in the segment and reinforces our ability to expand Adjusted EBITDA margins as we scale on our existing manufacturing footprint. Growth in Q4 was broad-based across all three end markets. Our vended markets, both retail laundromats and communal laundry and multi-housing locations, delivered strong growth driven by new store development and existing operators modernizing their fleets with higher capacity digitally connected equipment. On-premise delivered solid results driven by predictable replacement demand that characterizes their end market, and commercial and home continued to outpace the industry. International Q4 revenue was up 12% to $118 million, with Adjusted EBITDA up 25% to $29 million. Our margin of 24.8% represents 260 basis points of expansion year-over-year. This margin expansion reflects both the mix benefit from a growing European business and improving operating leverage as we scale our international business on our existing manufacturing platform. Europe continued its strong momentum. Our total cost of ownership value proposition resonates strongly in this market as it has an operator base that is actively investing in fleet upgrades and energy efficiency. The margin profile of our European business is accretive to the overall international segment. As Alliance Laundry Holdings Inc. continues to scale in this, it has a meaningful positive impact on segment-level profitability. In Asia-Pacific, the launch of our Stax-X stacked washer-dryer has been well-received. We've been encouraged with the early customer adoption and the meaningful long-term growth platform it represents heading into 2026 and beyond. For full year 2025, North America delivered revenue of $1.3 billion and Adjusted EBITDA of $361 million, both up 14% year-over-year. EBITDA margin remains strong at 28.5%, which speaks to the quality of growth we're generating in this segment. Again, growth was broad-based across all of our end markets, with attractive underlying volume growth complemented by continued price realization. Commercial and home significantly outpaced the industry as consumers continued to choose our brand for durability and reliability. Vended market growth was solid and supported by new store development and fleet modernization. On our on-premise laundry delivered steady growth through structural replacement cycles complemented by new locations. International delivered revenue up 10% to $440 million, with Adjusted EBITDA up 17% to $121 million. Adjusted EBITDA margin of 27.4% was up 160 basis points and reflected strong performance while continuing to make investments in emerging market expansion and sales infrastructure. Europe was a standout performer throughout the year, driven by our Speed Queen licensed store strategy. We saw ongoing growth in our licensed store model, as well as strong results across our direct sales offices in this region, with our licensed store model continuing to gain momentum and establish Speed Queen as the premium choice in European vended laundry. Growth in APAC was solid, with strong performance in our priority emerging markets, where population and urbanization drive laundry demand. We're establishing market leadership positions across the region and are leveraging our first-mover advantage as the vended laundry concept gains adoption and the on-premise laundry end market continues to develop. Our long-standing local-for-local manufacturing strategy with plants in the U.S., Europe, and two in Asia, each primarily serving their home markets, provided significant structural tariff protection relative to foreign competitors who are more exposed to duties on tariffs on imported products. We experienced modest tariff impact from certain imported components, which we largely offset on both a dollar and margin basis through selective pricing actions in 2025. Turning to slide 12 and initiating our 2026 full year guidance. We expect revenue growth of approximately 5%-7%, driven by balanced contributions from volume and price, and expect Adjusted EBITDA growth of approximately 6%-8%, continuing our long track record of profitable growth and strong margins. This above-market revenue growth reflects the strong tailwinds we have discussed and also takes into consideration normalization of benefits from customers who have returned following our 2022-2023 profitability initiatives, the outperformance of commercial and home, and the moderation of tariff-related pricing, each of which supported the double-digit growth over the past couple of years. As we considered our guidance, we anticipate year-over-year revenue growth to be stronger in the first half of 2026, driven by pricing carryover from actions taken in 2025, with volume growth more consistent across the entire year. We expect Adjusted EBITDA growth to be driven by gross margin expansion from pricing, cost down initiatives, and manufacturing leverage, partially offset by strategic investments in international markets, continued digital and engineering investments, and approximately $8 million in incremental public company costs. Public company cost impact is more heavily weighted to the first half of next year due to the second half prior year ramp up, and therefore, we anticipate margin expansion in 2026 to be weighted toward the back half of the year. We remain confident in our ability to generate free cash flow and expect to reduce leverage by approximately three-quarters of a turn in 2026, bringing us to the low 2x net debt leverage range by year-end. In addition, to assist with modeling in 2026, we expect CapEx as a percentage of revenue to be approximately 3% and anticipate an effective tax rate of approximately 23.5%, total interest expense of approximately $85 million, and diluted share count of approximately 205 million shares. Turning to slide 13 before I wrap up, I'll briefly touch on how we are continuing to prioritize capital allocation with the overarching goal of maximizing long-term shareholder value. First and foremost, deleveraging continues to be our top capital allocation priority. As I outlined earlier, we have a strong track record of reducing leverage by three-quarters to a full turn per year through free cash flow generation and EBITDA expansion alone. We are targeting net leverage in the low 2x range by year-end 2026. We also plan to continue investing behind high return growth opportunities, new products, capacity expansion, digital capabilities, and potentially selective tuck-in M&A that enhances our platform. These are the investments that should help sustain our competitive advantage and drive above-market growth, and we will continue to invest in these areas. Finally, we will maintain the flexibility to return capital to shareholders in the future when appropriate, through share repurchases in the nearer term and considering a potential dividend policy over the longer term. With that, let me turn it back to Michael. Michael Schoeb: Hey, thanks, Dean. Before we open it up for Q&A, I want to emphasize a few key points. One, we hold a leading market position as the only scaled pure play operator in a non-cyclical, recession-resistant, and essential industry. Two, we have a proven team and business model that have delivered strong results through every economic cycle, and the strategic clarity to continue doing so. Three, we are committed to creating long-term shareholder value through our disciplined growth, operational excellence, and balanced capital allocation. Over the past two decades, I have seen this business successfully navigate recessions, a global pandemic, and shifts in the competitive landscape. The fundamentals that have carried us through all of it are stronger today than they have ever been, and that is the foundation for our next chapter. I'll close by thanking our employees, distribution partners, customers, and shareholders for your continued support. We look forward to driving Alliance Laundry Holdings Inc.'s story and long-term value forward together. With that, let's open up the line for questions. Operator: Yes, sir. We will now begin the question-and-answer session. As a reminder, we ask that you please limit yourself to one question and one follow-up, then return to the queue if needed. Our first question will come from Tomohiko Sano with JPMorgan. Your line is open. Tomohiko Sano: Good morning, everyone. Congrats on the quarter. Thank you. My first question is, given the trends you saw in Q4, do you expect any notable differences in demand strength between North America and your international business or across your key segments as you target 5%-7% top line growth for 2026? Are there particular areas where you see more robust or softer demand, please? A follow-up on 2026 guidance: How are you factoring in outlook for steel cost, pricing power, and potential changes in tariff policy? Could you elaborate on assumptions you're making for each of these drivers and how sensitive your guidance is to movements in these areas, please? Dean Nolden: Thanks, Tomohiko. Michael Schoeb: Thank you. Michael Schoeb: Yeah. I would say, Tomohiko, this is Michael, that again, we see really strong demand across all parts of the business. I do think given some of the volatility in the Middle East at the moment, you know, that's likely to be a little bit weaker, and that'll take some time to see how that ends. I would say across the board, we really do see strong opportunities, and that is across the business. There's none that I could think of, honestly, that would give me pause or concern. We've talked about, you know, sort of over-indexing a little bit on the laundromat piece in particular, right? Both in emerging markets as well as in more mature markets, such as Europe, and the U.S. and select Asian countries. But, you know, very, very strong across the board. Michael Schoeb: Yeah. So in steel we're locked, right? We have more than offset those cost increases both on steel as well as tariffs with some pricing actions that we took last year. They are both margin and dollar accretive. That is straight up. What was the second part of the question? I don't recall. Tomohiko Sano: Tariff policy. Michael Schoeb: I'm not sure I answered that part. Dean Nolden: Tariff policy. Michael Schoeb: Oh, sorry. Yeah, who knows? You tell me. We expect no change. Again, you guys are reading the news like we are, you know, if something does change, hey, we're ready to react. We expect that the administration will continue to find ways to keep those barriers in place. We do see, Tomohiko, competitors beginning to take action. That is something that we thought would happen, and it's playing out exactly that way. Dean Nolden: Tomohiko, I would add that the steel and aluminum tariff duties that have been put in place were not part of the Supreme Court ruling. Those are still in place, and a competitive advantage for us against foreign competition in manufacturing in international locations, you know, imports into the U.S. We'll keep watching that, to Michael's point, from their pricing actions, and react accordingly, but we still think that's a tailwind for us in 2026. Tomohiko Sano: Thank you, Michael, Dean. Operator: Thank you. Michael Schoeb: Thank you. Operator: Our next question comes from Kyle Menges with Citigroup. Please go ahead. Kyle Menges: Great. Thanks for taking the question, maybe, Michael, following up on your last comment, just what are you seeing from competitors that are facing more tariff impacts versus you guys? Just how do you see that relative tailwind unfolding as we progress throughout 2026? I know we've talked about this through the process, but do you see a different opportunity today than, say, a couple years ago? Was the fact that you had a couple in the same region more a function of what the go-to-market strategy was in that region versus a broader opportunity in other regions? And maybe just what's the funnel look like as far as bringing on more of your own distribution in the U.S.? Michael Schoeb: Yeah. I'll say, Michael, it was really a strategy we mapped out seven or eight years ago as we really embarked on it. We identified, you know, certain specific markets that we wanted to really make sure that we were present in a more meaningful way, and we had people that we could partner with. The last piece of that puzzle, and that's really what it was putting together identifying the markets and then getting in a position when we had the partnership with distribution. That sort of New York metro area in particular was an area where we just felt there was a lot that we could do. We had good partners, and we are incredibly excited about that. Those two recent acquisitions, we think there's more to do, but again, we are being very selective, and, you know, as those opportunities come up, they will be opportunistic. As I think I said to you should think of us as very capable of doing these acquisitions, but it is not something that is needed in order to continue to grow at an above market rate. Kyle Menges: Thanks, everybody. Appreciate it. Michael Schoeb: Yep. Operator: Thank you. Our next question comes from Andrew Obin with Bank of America. Andrew Obin: Yeah, good morning. Can you just break out the reasons why commercial and home has been so strong in 2025? Did you have distributors? Was the pricing impact more significant? Also, what does it mean for the comps in 2026 because first half growth was so strong? Michael Schoeb: Yeah. I'll remind you, Andrew, we have a very unique distribution strategy, and we have a very unique product. Let's talk about distribution, where again we go only through independent retailers. Our value proposition to those retailers is our product will be the most profitable product for them to sell. A big part of that is it is an incredible product that to use their terminology, it stays sold. It doesn't come back under warranty for quality or other problems which, you know, are plaguing a lot of consumers, and, so, you know, one different distribution, curated, defined, careful, allows that distribution network to be profitable. Very different than our competitive set in that part of the world. The second piece is that product quality and the differentiation and being really the only true professional grade washer and dryer available in the marketplace. You have seen some of our testing, you have seen some of our teardowns. When you take it apart, and you look at the guts and the internal, and you understand the drives and the transmission and the suspension and all of the things that go in where we are using steel, where others are using plastic, there is no comparison, right? It is a product that is highly desirable. I think as I said in my opening comments, everybody is looking for quality. That total cost of ownership, despite our price point, it is engineered to last, and I think that is resonating with people who are buying competitive product that is optimized for cost versus what our professional operators need for their business, which is quality, reliability, and durability. Dean Nolden: Andrew, on the comp side, although we're not giving any detailed guidance on individual business units, we're not building in double-digit growth in this business in our guidance for 2026. The key is we do expect to continue to meaningfully outgrow the industry with really this replacement driven product, not tied to new home construction and things like that in other cycles. It's really a replacement driven upgraded product as we talked about in the prepared remarks. We're not forecasting double-digit growth in this market, although there's lots of opportunities as we move forward. Andrew Obin: Okay. Just to make sure, no negative growth in the first half comps will remain. You can achieve growth even with the comps? Maybe what are you seeing out of the Middle East? I know it's like what? I think $60 million revenues for you. How should we think about that? Michael Schoeb: Absolutely. Yeah. Again, I think it's 5%, 6% of revenue, somewhere in that range. I don't think it's 6%, closer to the 5%. I would say, hey, it's something we're watching very closely. If it were to go significantly south, I don't think the impact on the company would be material, you know, we have a global sort of operating review that we do with all of our leaders. Middle East leader is thinking again that the impact I won't give you the exact dollar amount, but it is more than backstop with lots of other initiatives that we have going on. You know, we still think we're gonna have a pretty good year, and I can't comment on where they'll come in, but I think we'll be fine unless something you know really significant happens, in which case everybody's gonna be in a kind of a different boat. Andrew Obin: All right. Terrific. Thank you. Michael Schoeb: Yep. Operator: Thank you. Our next question will come from Amit Mehrotra with UBS. Amit Mehrotra: Thank you. Morning. Dean, I wanted to ask about the guidance and how you guys just simply approached it, you know, there's obviously your first full year guidance as a public company, and many companies approach guidance in many different ways, you know, some companies approach it as a floor that they're highly confident they can deliver, and maybe there's some upside to it. Maybe for companies like you who have recurring revenue streams, it's more a realistic view, because you are forecasting kind of low, you know, 3-ish% volume growth. I would assume maybe there's some opportunity to do a little bit better. Your guidance implies EBITDA incrementals kind of at 30%, which is lower than what you did in fourth quarter, even though the price volume dynamic is similar 4Q to 2026. Maybe just talk about, like, how you approach the guide in the context of maybe what seems to be a little bit of prudent conservatism. Dean Nolden: Well, I would say thanks for the question. First of all, I think that's a great one because as a new public company, this is something we take very, very seriously in the way in which we're guiding. I think, number one, the replacement driven characteristic of our business provides us confidence in what we are guiding from a top line perspective. The opportunities we have in margin expansion, the continued cost down initiatives, the significant leverage we get on incremental margins from our fixed cost base give us confidence in our ability to continue to expand margins, the bottom line more than the top line. Having said that, it's, you know, there's a lot of things going on in the world that we don't control. I think we're being prudent with regard to our guidance. We wanna make sure that we do what we say we're gonna do, which is a characteristic of the company for a long time. I would say we're confident in our ability to hit these numbers, and we have opportunities to beat them that we will hopefully be able to unfold as the year progresses. Hopefully that helps. Amit Mehrotra: Okay. Thank you. Yeah, that does help. Thank you, Dean. Yeah. Can you hear me? Just wanna make sure I'm not on mute. Dean Nolden: Yes. Amit Mehrotra: Yeah. Hey, Michael, I wanted to follow up on maybe a bigger picture question 'cause one thing that resonates with me when you speak, you're very consistent about the mission of the company, the sole focus on laundry, the full focus on quality. It's definitely a hallmark for great companies, this sort of very clear vision and mission of what you're trying to accomplish. I guess as we think about how that translates to growth, there's a couple different, you know, ways to approach that. One is obviously the quality is what sells. What I'm more interested in is are there new product introductions or new incremental revenue streams, whether it's your distribution channel that you're acquiring or just new product introductions that may be accelerating that put more outgrowth in your control as opposed to just, you know, the quality dynamic that's very clear and exists for a long time. Maybe you can just help us think about how much of the outgrowth you can actually have in your control with respect to either changes in how you go to market or enhances how you go to market or new product introductions. Michael Schoeb: Yeah. Again, I think you know you heard us talk about the investments we've made in the laboratories actually testing. If you think about our value proposition to our customers, it is you know those things we talked about, the low total cost of ownership. The worst thing you can do is launch a product before it's ready. That is why we do, and it takes a lot of time to test and then test again and test again. The consequence of that is the rollout of these new innovative product. Certainly we touched on, for example, our lint capture system, right? That is very very significant in terms of the innovation. If you are an operator in a hotel property or an operator in a laundromat or whatever it is, like, that ability to do that drives efficiency, it drives a lot of value. Rolling that out across the rest of our product line, you know, that's certainly top of mind, and you'll see that continue to happen. We do have an innovation team that's working on a series of things, but I would say the ones that, you know, we feel good about and that are faster to roll out are more on the digital side. I've equated that to, you know, the brain is the physical, mechanical, electrical product. But when you complement that with a very, very smart brain and our ability to bring insights to that operator, it's an extraordinary value proposition. It's kind of a one-two punch thinking about it a slow, steady but proven, tried, tested. You buy a product from us, it's not going to be something you will experiment with. It's a little slower on that side, but steady, consistent, and complemented with the digital side, which is faster. Again, we have been at this for a long, long time. We believe we've been at it much, much longer than any competitor. To get the digital right, you need the teams, right? You need a lot of software developers. You need data in really big quantities to be able to get things like predictive analytics and others. But we feel very, very confident about that. There are other avenues that we're talking about. I think we spoke on how we're looking at aftermarket, which is accessories. It includes consumables, right? I think also on the parts side, we see opportunity, really throughout. Hopefully, that answered the question for you. Amit Mehrotra: Yeah. Yeah, it does, Michael. Thank you so much. Appreciate the time. Michael Schoeb: Yeah, absolutely. Operator: Thank you. Our next question will come from Susan Maklari with Goldman Sachs. Susan Maklari: Thank you. Good morning, everyone. My first question is, thinking about the price mix dynamic in North America. I think you mentioned that you're not planning on an additional price increase in the U.S. or in North America this year. As you think about the more recently launched products and digital initiatives, can you talk a bit about how they're gaining momentum, where we are in that process, and how we should think about their contribution to price mix this year? Yeah. Okay. That, that's helpful color. Turning to the balance sheet and the cash flows, as you do approach that 2x leverage by year-end, can you talk about what you're looking for and how we should think about the potential to start with some shareholder returns, you know, maybe buybacks, those kinds of things where you have some flexibility? Michael Schoeb: Morning, Susan. Yeah. I would say it's complementary. Look, on the initial launches of product, let's talk about that and the innovation, for example, on our lint capture system. We're providing more value, so the pricing reflects that value. We feel confident about it, you know, we go through a lot of analysis here in terms of, hey, what does that mean for the operator? If we can save them energy, if we can get them better efficiency. All those things are reflected. Again, it's slow, steady, more incremental in nature. It takes time. I will also say that the industry on the professional side, right, they really wanna make sure that innovation is exactly what I talked about, tested and tried and true. They'll dip a toe in. It takes a bit. That's why I characterize it as incremental in nature. On the digital side, look, I think what we're very focused on is really driving differentiation, driving unit volumes through the factory. We view it as complementary. We think that over time, right, we can add and get that to where it is more meaningful in terms of the revenue and margin that it contributes to the business, right? It's all embedded, and it's sort of a package is the way we think about it. Dean Nolden: Sure. Yeah. Thanks. I, you know, I think, number one, we're very proud of our deleveraging trajectory, and the strength of our free cash flow really allows us that multipronged approach to continue deleveraging, while also investing in the business and considering those other types of capital allocation opportunities that you talked about. We view 2x leverage as a comfort level from the balance sheet perspective. That having said, we don't view 2x as a floor. Given our cash flow generation, we could operate comfortably below 2x in the near term. Deleveraging continues to, you know, be our number one capital allocation priority. To your point, we will consider buybacks in the market as our majority shareholder monetizes their investment and sells down over time. Right? Michael Schoeb: That is still an opportunity for us. As we said in the prepared remarks, you know, given our strong free cash flow and our opportunities to invest in multiple things, to return capital to shareholders, a dividend policy longer term for this company might make sense given that strong free cash flow. There's a lot of opportunities at our fingertips, and we're really excited about, you know, those many different things that we can do to create that shareholder value while continuing to invest in the business at a scale that no one else, the competition can. Susan Maklari: Yeah. Okay. Thank you for all the color, and good luck with the quarter. Michael Schoeb: Thank you. Operator: Thank you. Our last question will come from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Good morning and congrats on a strong quarter and year. Maybe to start with, can you talk a little bit about your M&A pipeline and which areas or geographies you think you've got the most opportunity as you think about growth in the coming 12-24 months? Michael Schoeb: Yeah. Again, I would emphasize that we do not need acquisitions to continue to grow at an above market rate. That's the first thing I would comment. I said we've done 16 or 17, mostly, you know, tuck-ins here in the U.S. I think the opportunity to do more is there, but we will be very, very selective. We will do it when we have partners who we are confident in and partners who, you know, want to do that. It is part of our strategy. It is not something that is core or required. I would say the opportunities are limited on that side, but we will be opportunistic. There are things that you don't anticipate, where, you know, principals in markets that matter, that have the density, that drive profitability, change their mind, and all of a sudden are interested in partnering, so, you know, we're talking to people, we're out there, but it is not core. Again, we believe very, very much in independent distribution. Again, when we can, you know, partner, enroll them into the rest of the Alliance Laundry Holdings Inc. business, hey, it makes sense. On that part, very clear, you know, we talked about the international facilities. We have lots of opportunity to grow, so we do not need anything on that side. The same thing, we are opportunistic. We are always looking. We are talking to folks. I'm not going to disclose, you know, where they are, but again, we feel pretty good about it. There's probably one or two that would be interesting. None of those are, you know, really, really significant. I don't know if I'm being detailed enough for you, but that's how we think about it, right? We've got everything we need, everything we need to continue to grow at an elevated rate. Ketan Mamtora: Got it. No, that's helpful perspective. Then just one more follow-up on the international side, related to the Middle East. You talked about, you know, sort of watching the demand side there. Are there sort of any potential supply chain disruptions that could impact other markets in the region that we should think about? Michael Schoeb: Yeah. I'll say for right now, again, our local-for-local manufacturing strategy, where we are sourcing, building and selling in those markets, we don't see any disruption that we're aware of on the supply chain side. I'm not aware of any, zero, you know, again, transit times, things like that, as you know, you're trying to get product from one part to another, which is de minimis, again, because most of those markets they are manufactured locally. Some of that will impact. It is going to impact the Middle East for sure and Africa. But again, we feel really. It's almost like the tariff thing where we're not immune, but we are highly insulated for any of that noise that you know is happening in that region. Ketan Mamtora: Perfect. No, that's very helpful. Good luck. Thank you. Michael Schoeb: Thank you. Operator: Thank you, ladies and gentlemen. This concludes today's Alliance Laundry Holdings Inc. fourth quarter and full year 2025 earnings conference call. You may now disconnect your lines and have a wonderful day.
Operator: Thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the APEI 4Q 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Shannon Devine, Investor Relations. Please go ahead. Shannon Devine: Thank you, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss fourth quarter and full year 2025 results. Joining me on the call today are Angela Selden, President and Chief Executive Officer; Edward Codispoti, Executive Vice President and Chief Financial Officer; and Gary Janson, Chief Strategy and Growth Officer. Materials for today's call are available in the Events and Presentations section of APEI's website. Statements made during this call and in the accompanying presentation regarding APEI and its subsidiaries that are not historical facts may be forward-looking statements that are based on management's current expectations, assumptions, estimates and projections. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, such as those identified in our Form 10-K under the heading Risk Factors, including those related to potential impacts from government shutdowns or changing federal or state government policies, practices and laws, including impacts on revenues or the timing of receivables. Forward-looking statements may sometimes be identified by words like anticipate, believe, seek, could, estimate, expect, can, may, plan, potentially, project, should, will, would and similar or opposite words. Forward-looking statements include, without limitation, statements regarding expectations for registration and enrollments, revenue, earnings and adjusted EBITDA and other earnings guidance, our foundation for growth, the planned combination of our institutions, government, governmental and regulatory actions, their impacts and our response to those actions, changing market demands and our ability to satisfy such demands and other company initiatives. The call and the presentation contain references to non-GAAP financial information. A reconciliation between each non-GAAP financial measure we use and the most directly comparable GAAP measure is located in the appendix in today's presentation and in the earnings release. Management believes that the presentation of non-GAAP financial information provides useful supplemental information to investors regarding its results of operations and should only be considered in addition to and not a substitute for or superior to any measure of financial performance prepared in accordance with GAAP. I'd now like to turn the call over to APEI's President and CEO, Angela Selden. Angie, please go ahead. Angela Selden: Thank you, Shannon, and good afternoon, and thank you all for joining today's call about American Public Education's Fourth Quarter and Full Year 2025 performance. At the beginning of 2025, we set out to simplify and strengthen APEI. Today, I am very pleased to share the following results and highlight how our 2025 achievements create a strong jumping off point for our 4-year growth strategy, which we introduced at our recent Investor Day. First, APUS delivered full year 2025 revenue growth, even with the fourth quarter registration interruption. APUS' student base, including veterans, extended military families and military service members across all branches demonstrated demand in line with our expectations. The underlying business is strong and the numbers reflect that. Second, our nursing and health care institutions both had outstanding years. Rasmussen's full year 2025 revenue increased 14% and Hondros' full year revenue increased 11%. Third, APEI's full year consolidated revenue grew 4% to $649 million versus 2024. That growth was achieved even with the midyear sale of Graduate School USA, the announced closure of 2 Rasmussen campuses in Wisconsin and a registration interruption at APUS in the fourth quarter that affected TA registrations for 43 days. For context, by excluding Graduate School from both 2024 and 2025, consolidated revenue would have increased about 7% when compared to the prior year. These results reinforce the strength of our diversified portfolio. Fourth, APEI's full year adjusted EBITDA reached $85.7 million, up 19% as compared to 2024, beating not only our revised guidance, but also beating the top end of our initial 2025 guidance. We trimmed costs across the enterprise, specifically at APUS and in APEI Technology, and these savings have reset the cost baseline for 2026 and beyond. Finally, we did what we said we were going to do. At the beginning of 2025, we committed to redeeming our preferred equity, selling some corporate buildings and having the Department of Education lift the $25 million letter of credit and lift the 6 years of growth restrictions that prevented new campuses and new programs at Rasmussen before APEI's acquisition. Achievement of these commitments has simplified and strengthened our business for 2026 and beyond. And we delivered on these commitments while simultaneously growing enrollment, expanding margins and strengthening our balance sheet. Our teams demonstrated resilience, tenacity and confidence in overcoming obstacles and delivering remarkable results. So now let's turn our attention to APEI's fourth quarter 2025 consolidated revenue. We delivered $158.3 million, and we exceeded our most recently stated guidance across all key financial metrics, including revenue, net income available to common stockholders, EPS and adjusted EBITDA. Our nursing and health care institutions demonstrated significant strength during 4Q '25. Rasmussen grew 16% and enrollments increased 9% year-over-year to approximately 15,900 students, representing our sixth consecutive quarter of year-over-year enrollment growth. What's particularly exciting is that our Fill the Back Row strategy of maximizing capacity utilization is working. Our nursing programs continue to show broad-based strength with particularly strong performance in our nursing programs. Our allied health programs, including surgical tech and radiological tech are also performing well. The most are at capacity, which creates opportunities for our planned expansion initiatives. By maximizing capacity utilization at our existing campuses, we are driving significant operating leverage and demonstrating impressive margin expansion. Hondros continues to deliver strong results with fourth quarter 2025 enrollment of 4,000 students, a nearly 10% year-over-year revenue increase and 9% year-over-year enrollment growth. This performance demonstrates the durability of demand for pre-licensure nursing and our ability to effectively reach students in our local markets. In fourth quarter 2025, APUS successfully navigated the 43-day federal government shutdown, which created an active duty military student registration interruption. As we have previously shared, it has been 12 years since the Defense Appropriations Bill, which funds Military Tuition Assistance, or TA, had remained unsigned by October 1, the beginning of the federal government's fiscal year. With the Defense Appropriations bill still unsigned by our November start, all 4 major military branches began utilizing their portion of the $100 million of tuition assistance funds authorized under the One Big Beautiful Bill Act to enable active duty military students to continue their education. Importantly, once the government reopened in December, we saw a 41% increase in TA registrations as compared to December 2024, which demonstrates resiliency in demand for education from our military students even in the face of funding disruptions. Because most APUS students take one course at a time, this simply delayed their progression rather than stopping their progression entirely. Additionally, an important bright spot in APUS' fourth quarter performance was the continued momentum in both our veteran and military families channels, where we continue to see high-teen registration growth. Now let's turn our attention towards 2026. I want to highlight 2 key first half 2026 developments. First, we are making important progress on our institutional combination. In late February, the Higher Learning Commission approved a key step in our institutional combination. And on March 2, we combined the 3 institutions legal entities into one. Now we are working with the Department of Education and HLC to complete the remaining steps to combine our 3 institutions into one system with one OPE ID. We are targeting an expected effective date in the beginning of the third quarter of 2026 to become effective for the 2026 financial aid award year. In addition, today, we are formally announcing that we have 2 reporting segments, APUS Global and RU Health+ for fiscal year 2026 and beyond. Second, we are launching 2 campuses in 2026, Rasmussen campus in Orlando, which is already enrolling students for 2Q '26 and Hondros campus in Detroit, which we anticipate will be prepared to enroll students in Q1 '27. Both represent important expansion into markets that have already demonstrated strong demand for our programs. In our next earnings call, we'll provide more details and progress on these first half '26 developments. As we look to 2026 overall, we believe we have clear visibility into our revenue growth and our margin expansion drivers, including continued enrollment momentum at Rasmussen and Hondros to build on 2025 strong performance and our Fill the Back Row and leverage the ladder initiatives. We anticipate revenue synergies we gain from the Rasmussen and Hondros integration process. We plan for growth acceleration at APUS as government funding normalizes and marketing flexibility increases for military and veteran enrollment post combination. And we believe we will anticipate and experience improved profitability and cash flow due to the new refinancing of our debt and the cost savings associated with that. In view of these and other factors, we are providing full year 2026 guidance as follows: APEI 2026 revenue will be between $685 million and $695 million. Adjusted EBITDA will be between $91.5 million and $100.5 million. And as for Q1 '26 guidance, because of where we are in the quarter this year, the timing of this earnings call gives us full visibility to all university enrollments. As a result, APEI revenue will be between $173 million and $175 million, and please note that the 1Q '25 comparable period includes $3.7 million of Graduate School revenue, which obviously is not included in 2026 due to its sale in July of 2025. And adjusted EBITDA will be $25.5 million to $27.0 million. Ed Codispoti, our CFO, will provide more details in his remarks, including Q1 enrollment and registration results, the refinancing of our debt and authorization of a new $50 million share repurchase program. We are very clear about what the next 4 years require. It is all about execution. The foundation is built, our business is simplified, and we are operating with a strong balance sheet. We've developed a strategy, we are strengthening the team. And now it's about doing what we say we're going to do quarter after quarter. That's what you experienced in 2025, and that's what you should expect going forward. With that, I'll turn the call over to Ed to discuss our financial results and 2026 guidance in detail. Edward Codispoti: Thank you, Angie. I'll begin with our fourth quarter results, then review our full year 2025 performance and conclude with our outlook for the first quarter and full year 2026. Total revenue in the fourth quarter was $158.3 million, down $5.8 million or 3.5% compared to $164.1 million in the prior year period. Despite the federal government shutdown impact at APUS, we exceeded our most recently stated guidance. Now let's break down revenue by segment. At APUS, fourth quarter revenue was $71 million, down 13.8% compared to $82.4 million in the prior year period. The decline reflects the impact of the federal government shutdown during October and November. Net course registrations for the quarter were 82,200, down 15.3% year-over-year. However, the underlying business fundamentals remain strong. At Rasmussen, fourth quarter revenue was $66.6 million, up 15.9% compared to $57.5 million in the fourth quarter of the prior year. This strong performance was driven by 8.9% enrollment growth, bringing total students to 15,900. At Hondros College of Nursing, fourth quarter revenue was $20.7 million, up 9.2% compared to $18.9 million in the prior year period. This reflects continued enrollment momentum with 4,000 students, an increase of 8.1% year-over-year. Now turning to profitability for the quarter. Fourth quarter net income available to common stockholders was $12.6 million or $0.67 per diluted share compared to $11.5 million or $0.63 per diluted share in the prior year period. This represents a 9.6% increase in net income and a 6.3% increase in diluted EPS. Fourth quarter adjusted EBITDA was $28.7 million compared to $31.4 million in the prior year period, representing an adjusted EBITDA margin of 18.1%. While down year-over-year due to the APUS shutdown impact, we exceeded our most recently stated guidance, demonstrating strong operational execution. Turning now to our full year results. For full year 2025, consolidated revenue was $648.9 million, representing 3.9% growth over 2024 despite the federal government shutdown impact and the sale of Graduate School USA. Excluding Graduate School USA, revenue from -- if you exclude that revenue from both periods, revenue growth would have been approximately 7% APUS revenue was $319.8 million, up 0.9% year-over-year. Rasmussen revenue was $246.2 million, up 13.9% year-over-year. This growth was driven by sustained enrollment momentum and our successful Fill the Back Row growth strategy. Importantly, Rasmussen delivered segment income from operations of $4.1 million compared to a loss of $21.8 million in 2024. This represents a swing of nearly $26 million, demonstrating strong enrollment growth and significant margin expansion. Hondros revenue was $75 million, up 11.4% year-over-year, reflecting continued demand for pre-licensure nursing education. Full year adjusted EBITDA reached $85.7 million, an increase of $13.4 million or 18.6% compared to $72.3 million in 2024. This represents a significant accomplishment and demonstrates the strength of our business model as our adjusted EBITDA margin expanded 164 basis points to 13.2% in 2025. Net income available to common stockholders for the full year was $25.3 million or $1.36 per diluted share compared to $10.1 million or $0.55 per diluted share in 2024. This 152% increase in net income reflects our operational execution, the absence of preferred dividends following our second quarter redemption and margin expansion. We also ended 2025 with a very strong balance sheet. As of December 31, 2025, our cash, cash equivalents and restricted cash totaled $176.5 million compared to $158.9 million at December 31, 2024, an increase of $17.6 million or 11%. Total debt was $96.4 million, and our net cash position was $80.1 million. We further strengthened our balance sheet and liquidity position last Monday, March 9, when we refinanced our debt. Through the refinancing, we reduced our borrowing rate by approximately 375 basis points at current leverage levels and lowered our principal balance from $96.4 million to $90 million. The lower borrowing rate, combined with the reduction in principal is expected to generate $3.7 million in annual interest expense savings, excluding the amortization of debt issuance costs. For modeling purposes, you should expect our interest income to be roughly equivalent to our interest expense in 2026, given our strong cash balances and improved borrowing rate. Also, we will recognize a noncash write-off of approximately $1.6 million related to deferred financing costs associated with our previous loan. Our strong balance sheet and cash generation provide us with significant financial flexibility for growth investments. This liquidity position was also a key factor in our ability to navigate the government shutdown without operational disruption. In addition, this week, our Board of Directors authorized a $50 million share repurchase program. We expect the program to be used primarily to offset dilution from share-based compensation while also providing flexibility to opportunistically repurchase shares depending on market conditions and other factors. The authorization reflects the Board's confidence in the company's long-term strategy, our strong cash flow profile and our commitment to disciplined capital allocation. Repurchases may be made from time to time through open market transactions or other permitted methods and the timing and amount of any repurchases will depend on market conditions, share price and alternative uses of capital. I'll now discuss our guidance for first quarter and full year 2026. Our guidance for first quarter 2026 is as follows: revenue between $173 million and $175 million, net income available to common stockholders between $11.1 million and $12.2 million, adjusted EBITDA between $25.5 million and $27 million and diluted earnings per share between $0.58 per share and $0.64 per share. When considering this guidance, keep in mind that our results are subject to seasonality. The first quarter is typically our second strongest quarter of the year. For full year 2026, our guidance is as follows: revenue between $685 million and $695 million, net income available to common stockholders between $41.3 million and $47.6 million, adjusted EBITDA between $91.5 million and $100.5 million, diluted earnings per share between $2.15 per share and $2.47 per share and CapEx between $28 million and $32 million. In summary, 2025 was an excellent year for APEI. We exceeded our guidance despite external challenges, strengthened our balance sheet and positioned the company for accelerated growth in 2026. Our 2026 guidance reflects continued enrollment growth, improving margins and the benefits of our strengthened balance sheet, and we believe we are well positioned to achieve these targets. With that, I'll turn it back to Angie for closing remarks. Angela Selden: Thank you, Ed. In closing, we have spent the past year setting ambitious yet achievable financial and operating goals. Our RU Health+ segment comprised of Rasmussen University and Hondros College of Nursing are delivering consistent positive enrollment growth and improving profitability. Our APUS Global segment, with the exception of temporary enrollment disruptions from the federal government shutdown continues to deliver growth and strong margins. I want to reinforce the multiyear growth framework we outlined at our November 2025 Investor Day. At that event, we introduced our vision through 2029 with 5 key value creation initiatives at APUS Global and 4 at our RU Health+ Healthcare division. Those growth drivers remain fully intact. These value creation initiatives build on each other and create a foundation for sustained growth. Our multiyear growth framework projected organic revenue of $890 million to $925 million by 2029, representing an 8% to 9% revenue CAGR with adjusted EBITDA margins at 20% to 21%. With strategic investments in new campuses and potential tuck-in acquisitions, we see a potential path to $1 billion in revenue by 2029. Our APEI organization is purpose-built to deliver affordable and accessible education opportunities in fields which are in high demand and resilient to disruption. Nursing education prioritizes in-person bedside care, and our military service members continue to be critical to U.S. defense strategies, especially in these heightened times in the Middle East and Latin America. We believe that careers that require judgment are AI resilient and will continue to need humans to operate. Our platform and sector tailwinds position APEI to accelerate growth and bring more educational opportunities to a greater audience. We are as optimistic today as we have ever been about the long-term potential of our company. Before we move to questions, I want to acknowledge the valuable feedback we've received from many of you. In our ongoing effort to continue to be more transparent with our investor community, we are committed to providing you with clear insights into our performance, our strategic initiatives and the long-term value creation opportunities ahead of us. Importantly, I also want to take a moment to honor Sergeant First Class, Nicole M. Amor, a Rasmussen University graduate who is 1 of 6 killed in Kuwait on March 1, while serving her country. Nicole embodies everything we believe in at APEI, and we are deeply grateful for her service and sacrifice. Our thoughts are with her family and fellow military service members. With that, I would now like to hand the call back to the operator to begin our question-and-answer session. Operator: [Operator Instructions] Your first question comes from the line of Griffin Boss with B. Riley Securities. Griffin Boss: Spectacular results amid what was a tough macro with the government shutdown in the fourth quarter. So I just want to start off on the CapEx cadence and step-up given these new campus openings. So is that going to be linear throughout the year? Or is that going to ramp towards the back half of the year as that Hondros campus gets ready to start enrollment? Gary Janson: Griffin, we would -- we expect on the campus openings that most of the CapEx related to the new campuses would be in the fourth quarter, maybe a little bit in the third quarter. But a good question. It will be mostly in the second half of the year. Griffin Boss: Okay. Great. And then just on that note, too, can you just remind us -- I know you spoke about it on your Investor Day, but it would be helpful, I think, here to remind all of us about the economics of these new campuses. What's the expected revenue per new campus once it's ramped, margin expectations and when you expect to be cash flow breakeven? And I apologize. I don't know if there's background noise on my end. I'm hearing a little bit of that, but I could repeat the question if you could. Angela Selden: You're good. Yes. Gary Janson: We don't hear that. So I think as we said, our campuses are relatively CapEx light. We expect them to be -- cost about $3.5 million to open, take about 18 months before we turn cash flow positive. And I think the economics we said at scale, we would expect the campus to do about $12 million in revenue and have about a 35% EBITDA margin. Angela Selden: I was just going to say, and we're still on a pace to open 2 campuses per year. That's the current plan that was baked into the 4-year plan we shared at Investor Day. Griffin Boss: Right. Yes. And so I guess before I get to my last one, just to follow up on that. So we could expect kind of a heightened level of CapEx, at least above the '25 levels going forward beyond '26. I know you're not guiding to that, but is that a reasonable expectation? Gary Janson: Yes. I think what Ed guided to in his comments for the full year this year is kind of our standard number we would use, which includes about $7 million for new campus openings. Is that fair? Edward Codispoti: Fair -- the range between $28 million and $32 million. So $7 million of that would be for campus openings. Griffin Boss: Sure. Okay. Makes sense. And then just last one before I hand it off, hop back in the queue. I understand going forward, there's just going to be 2 operating segments. But is there any chance you could break out kind of the expectation for the first quarter for Rasmussen and Hondros for us before we start to model just kind of 2 divisions going forward? Angela Selden: We are moving towards this 2-segment combination. And as a result, we won't be breaking it out for the investor community going forward, no. Operator: Your next question comes from the line of Luke Horton with Northland Securities. Lucas John Horton: Congratulations on a very nice quarter here. I guess I kind of want to dive into the marketing strategy and how this sort of shifts after the institution combination kind of takes effect. Could you just kind of talk through kind of marketing strategy there? Angela Selden: Yes. Great question, Luke. Let me start by saying Rasmussen's brand and Hondros' brand will continue to be present in their local markets. And so the marketing strategy will continue to attract students to those campuses with those brand names. So -- but what we are doing is we are bringing the better practices from each of the 3 education units to each other. So the best practices from APUS' online to Rasmussen Online, the best practices from Rasmussen campuses to Hondros and vice versa. So we are continuing to optimize our marketing spend. The difference between what we do digitally, primarily for online students and what we do in a more scrappy on-the-ground fashion for our campuses but we will continue to be enrolling students in each of those brands for 2026. Lucas John Horton: Okay. Great. That's helpful. And then lastly, just on the course registrations at APUS. I think you said it was up like 41% in the month of December year-over-year. I guess was there like when the government was shut down and the funding was paused, was there like a wait list where students could like sign up to for course registration once funding was returned? Or I guess what was kind of the leader of the big bump in course registrations for December? Angela Selden: Yes, great question. I'll have Gary answer that question. Go ahead. Gary Janson: Yes, I was going to say, I think we were pleasantly surprised. We didn't know how much we would bounce back or whether it would just be a permanent kind of loss, but we saw that significant bounce back from the military students, I think that indicates that there was good demand and without the ability to have the funding in place, they were just sitting on the sidelines. So it was a combination of new students and continuing students came back, which we didn't have a good indicator there. So that was a nice surprise for us in December. And obviously, that helped to start the year off as well. Angela Selden: So keep in mind that those 20,600 TA registrations in October and November ended up getting dropped. So those were students that were already enrolled in class, and we had to drop them for nonpayment. So when you say, was there a waitlist or what have you, they had already intended to take their courses in October and November. So when funding became available again, they jumped right back in, and we were really pleased. And we were pleased that December, which is of the quarter, the lighter of the enrollment month just because it's the holidays, et cetera, didn't seem to slow them down and wanting to jump back in and take their courses. Operator: Your next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Eric Martinuzzi: Yes. I also wanted to dive in on the enrollments at APUS, but more focused on the non-TA side. seeing Q4 up 11% for the non-TA. I was just curious, could you remind me how did that compare with the first 9 months of the year? Was that an acceleration? Angela Selden: Great question. I'm going to let Eric turn that over to Gary for him to answer. Gary Janson: Yes. I think we are very pleased with the nonmilitary segments. And we saw -- I think Drew mentioned it, that we saw high teens in both the veterans and the extended family markets. Our -- the other category was a little bit lighter, but the combination of the non-military active duty segment was about 11% growth combined. Eric Martinuzzi: Okay. And then for the first quarter, that 4% year-on-year that you saw, was that -- did you see that sustain in the first quarter? Gary Janson: Yes, we'll probably give more color on that in our next call. But yes, we did see that same trend continue, which we're very pleased with. And then we think there's good momentum there, which is what we were hoping to see and certainly very pleased with the outcomes. The team has worked really hard to build the extended families and the veterans as they take more courses on average and have a little bit higher tuition rate. So it's pacing out nicely despite a little bit of a softness in the active duty due to a partial shutdown in Q1. Eric Martinuzzi: Got it. And then my last question has to do with the use of cash, the priorities here. You've obviously come out with the new repurchase plan, the $50 million. You talked about sort of absorbing stock-based comp, the dilution from that. Just what is the priority? Is it anything beyond that, we're going to focus on debt paydown? Or is the current stock price appetizing to you guys? What's the focus? Angela Selden: Yes. Great question, Eric. I'm going to turn it over to Ed for him to answer that. Edward Codispoti: Yes. Look, from a priority standpoint, we're always going to focus initially on organic growth. That's going to be our #1 priority. And we want to do so while we maintain a conservative balance sheet. M&A is something that will continue to look at. It has to be opportunistic in nature. There are reasons why we might want to expand geographically a deal that might make sense in terms of its footprint. And when all of that is said and done, then we turn to the return of capital to shareholders. In the case of this $50 million authorization, as you said, we're very focused on the dilution of stock-based comp and mitigating that. And then in the event that there are market events or changes in stock price that would make sense for us to be opportunistic to repurchase more, then we'd execute from that perspective as well. Operator: Your next question comes from the line of Jasper Bibb with Truist Securities. Jasper Bibb: Maybe following up on an earlier question. I wanted to ask what your '26 guidance envisions as far as on-ground health care growth or maybe any additional detail on what you're seeing in health care student demand this year would be great. Angela Selden: Jasper, thanks very much for the question. I'll start by saying we continue to see strong interest in our campus programs and specifically our nursing -- pre-licensure nursing campus programs. I'll turn it over to Gary, and he'll give you a little bit more detail on that. Gary Janson: Yes. I think we said we would see somewhat linear growth in relation to our longer-term strategic plan. So I think we're targeting, call it, high single-digit growth in our health care platform entirely. And obviously, we intend to grow -- not obviously, but we intend to grow our campuses at a slightly faster rate than the online in the Healthcare division. So that is our target rate. And then obviously, getting APUS to be growing at a similar rate, maybe lower -- slightly lower than the health care platform. Jasper Bibb: And then it's probably too early to say, but could you frame for us on whether the Iran war is having an impact on the behavior of your active duty students at APUS or maybe historically, how that part of your student population behaves when military activity picks up? Angela Selden: Great question, Jasper. -- great question. So Yes. Presently, we don't know what the exact troop count is. But primarily, those being deployed are in the Navy, the Air Force, cyber and some regional base personnel. And so our largest enrollment population is the Army and the boots-on-the-ground deployment hasn't happened yet. With the March start, which was a really important checkpoint for us to see what kind of impact, if any, we would experience, we had really no difference in our start rate for March, even with the Middle East war. And we don't anticipate a significantly positive or a significantly negative registration impact just based on what we've seen over the years with military deployments. So sometimes people suspend their education because they're deployed and aren't sure they will have access to a computer. And we see others ramping up their education because they are deployed but are -- have a free time and connection to the Internet and a computer, and so they decide to take courses. So it all kind of balances out in the end. So right now, we don't think there will be any impact in a meaningful way at APUS on registrations in 2026. But we'll certainly keep you posted as we learn more. Operator: Your next question comes from the line of Rajiv Sharma with Texas Capital. Rajiv Sharma: And great results and solid guidance. This has been a pleasure to -- I had a couple of questions. How do you specifically plan to fill in the back seats? Any -- I know you had talked at the Analyst Day. Can you numerate certain specific tactics? Angela Selden: Yes. Great question, Raj, and thanks for the compliments. So we are really honing in on our marketing strategies that are attracting the students to the programs that have the -- not just the biggest supply-demand gap, but also the biggest employment demands in the local markets. And so we are refining our marketing approaches. And in some markets, we are actually investing more marketing dollars than we had originally planned because we're seeing great yield and great results. So we're looking at being thoughtful, but also being aggressive about how we take EBITDA outperformance at Rasmussen in particular, and investing some of those dollars into the marketing so we can continue to grow and Fill the Back Row growth. So we are just going to continue to do what we did in 2025, which delivered great results. I'll turn it over to Gary for more commentary. Gary Janson: I'd also say that we plan to -- at campuses, cross-pollinate programs. So we have a nice portfolio. Not every campus has the same programs in nursing and allied health. So part of the strategy, by example, in the new campus in Orlando, we're offering an LPN program in that market that we didn't have before. And that becomes another opportunity for us as we look at campuses. So it's a combination of just continuing the marketing, but also creating -- using the campuses and expanding programs that they may not have in their portfolio. And we've got a very detailed plan campus by campus on what programs we plan to roll out over the next 4 years. Rajiv Sharma: Got it. That's very helpful. And then you've guided fiscal '26 to top line revenue of a little over 6%. I think in your remarks, you just said -- is it right to assume that nursing and Hondros are going to be high single digits then through the year growth and... Angela Selden: I'm sorry, I mean to cut you off. Sorry, finish your question, Raj, sorry. Rajiv Sharma: No. Just that you break out the nursing and the APU. Is it that high single digit and low single digit? Angela Selden: Yes. I do want to just first remind all who are looking at comparative year-over-year results that we do have Graduate School revenue in the first half of 2025. So we put on the Q1 guidance page, the fact that the Q1 revenue includes $3.7 million of Graduate School. We did -- I can see now we did not put the total Graduate School revenue to be able to deduct from the 2025 as a year-over-year comparison. So that, if you were to do an apples-to-apples comparison, our growth rate is approaching 8% at the midpoint. And then certainly, when you get to full year, you will also have the opportunity to see that we would likely be able to recover the enrollment that we had to forgo in October and November as a result of the government shutdown. And so we think that there are some puts and takes in those numbers that would signal that the midpoint of our full year is probably closer to 8% with -- yes, with APUS, as you were calling out in the mid-single digits and our health care schools in the high single to low double digits, yes. Rajiv Sharma: That's really helpful. And then just following on that last question. With the increase in the revenues at Rasmussen and Hondros, you've achieved incremental margins, right? I think last year, fiscal '24 and '25 was greater than 50%. And this year, it seems to be implied with fiscal '26 guidance, the incremental profit margins are implied at 25%. Do you expect healthier incremental profit margins than the guidance would indicate? Gary Janson: So obviously -- this is Gary. I think we are obviously tracking to that. We are making some strategic investments to make sure that we can hit those numbers, as Angie mentioned in some marketing. Last year, we saw -- I think it was 75% flow-through margins at Rasmussen is what we ended up doing full year. We'll continue to monitor that, but -- and it will progress throughout the year. I think we're right now making sure that we stay focused on a healthy top line growth to Fill the Back Row, and that may mean some additional S&M spend and some faculty ahead of that. And don't forget the campuses as we go, they will suppress the margins a bit, not as much in 2026, but in out-years. Rajiv Sharma: The new campuses. Gary Janson: New campuses, sorry. Angela Selden: Which we didn't have. Yes, in the Rasmussen numbers in '25. Operator: Your next question comes from the line of Stephen Sheldon with William Blair. Stephen Sheldon: You have Matt Filek on for Stephen Sheldon. Congrats on a strong finish to the year. I wanted to start with a quick follow-up on filling the back row. I think you have previously said that nursing campus utilization is currently around 60%, but your target is closer to 90%. And I was wondering if you can share anything on the rough time line and cadence to getting to that 90% target level across your nursing campuses. Angela Selden: Yes. Matt, great question. It's our favorite topic. So we signaled when we did Investor Day that we would be approaching that 90% when we get to year 4. And we also signaled that we expect a rather smooth progression over the 4 years. So we think that, that's just going to be basically consuming capacity and adding students on a rather smooth trajectory over the next 4 years. Stephen Sheldon: Got it. Yes. That makes a ton of sense. And then just had a quick one on teacher capacity. How do you feel about your current teacher capacity across educational units? And are there any areas where you may be slightly over understaffed? Angela Selden: Great question. I think if you remember at the Investor Day meeting, we talked a little bit about making sure we're not just enrolling students, but we're also making -- managing those constraints, right, and making sure that we have all the necessary resources in place, which includes faculty, availability of clinicals, et cetera, right? So the good news is since we are far past COVID now, the availability of faculty has really not been a constraint in our markets of late, which is really good news because that is certainly one of the things that makes it difficult for you to enroll at the paces that we were enrolling at. So we don't have any campuses right now where we have a faculty shortage. And in fact, we have all of our Dean positions filled at all of our Rasmussen and Hondros campuses. So we really feel like we're in very strong shape from a talent and faculty perspective going into '26. Operator: Your next question comes from the line of Alex Paris with Barrington Research. Alexander Paris: I'll add my congratulations on the strong finish to the year. A couple of dogs and cats here. On the government shutdown impact on revenue in the fourth quarter, I think you had sort of guided that the impact would be between $20 million and $24 million. Can you quantify the actual impact on Q4? Edward Codispoti: We think that after having gone through Q4 and December was better than we expected, we ended up probably $12 million to $15 million short from the government impact. Angela Selden: This is below what you had said, Alex. Alexander Paris: Yes, $20 million to $24 million is what you signaled on the Q3 call, I think. Correct. Angela Selden: That's right. Alexander Paris: But you said a really strong December. Angela Selden: Well, it was -- yes, it's certainly the strong December, both, as we mentioned in the materials that we saw a rebound of our October and November active duty enrolling in TA classes in December. And -- and we also had stronger than we had seen in prior quarters momentum from our veterans and our military families. So that's a segment that's growing and gaining momentum. So December was a very strong quarter -- December was a very strong month in that quarter for us. Alexander Paris: Great. And then I think Gary said in response to a previous question that there was some impact from the partial shutdown here in Q1. Can you expand on that? Angela Selden: Yes, I'll start. So for those of you who follow, and I know, Alex, you do, the Department of Homeland Security is where the Coast Guard gets their TA funding. And the Department of Homeland Security is still not funded. And so consequently, some of the Coast Guard, which is the smallest by far of all of our branches, students are still waiting for their funding. They have been using some of the One Big Beautiful Bill Act funds to allow those students to take courses. So that was one very small blip, but that's factored into the numbers we shared with you because our Q1 for APUS is an actual, which is unusual. It's just because of where the call landed on the calendar that we have all of Q1 for APUS in. And then the second small blip was during that very small period of time when they were not funded, the Army reservists who were not deployed on military activities were also not funded. So these are very, very small populations of students. So we didn't make a big point of calling them out. But it was -- it did have about a 1% to 1.5% impact on APUS' potential registration actuals for Q1, had everyone been able to fully enroll. Alexander Paris: That's very helpful. And then just to be clear on segment reporting going forward, this was the fourth quarter, so you reported APUS, RU and Hondros. The guidance just gives APUS Global and then RU Health+. So that's going to be the way it's going forward. This is the last of the 3 segments being reported specifically. Angela Selden: That's right. And we will -- as we move into that new rhythm, we'll certainly be showing you the comparison by combining Rasmussen and Hondros, right, into the RU Health+ segment. That's really the only thing that's changing other than in the first half of '26, as I mentioned, a few folks before you. The first half of '26 still includes revenue from Graduate School. So we'll do a better job of explaining how to think about what that baseline comparison for 2025 should be in the first half of '25 versus the first half of '26 because obviously, we don't have access to that revenue any longer. Alexander Paris: Got you. And you did say what the Q1 of '25 revenue was for. Angela Selden: We did. Yes. I -- when I was looking at the PowerPoint, I realized we didn't give that equivalent number for the full year. So that was -- yes, it was $3.7 million of Graduate School revenue that one would deduct from the $164.6 million in order to create more of an apples-to-apples comparison. Alexander Paris: Got you. Helpful. And then lastly and related, once you do complete the combination of the institutions in OPE ID number, you'll still be reporting the 2 segments though, because that's the way you look at it. Angela Selden: Yes, we absolutely will. Yes. That concludes our question-and-answer session. Operator: Ladies and gentlemen, this concludes the APEI Fourth Quarter 2025 Earnings Call. Thank you all for joining. You may now disconnect.